Popeye's 2015 Annual Report Download - page 69

Popeyes Louisiana Kitchen, Inc.
Notes to Consolidated Financial Statements
For Fiscal Years 2015, 2014, and 2013 — (Continued)
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Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss, capital loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. The Company provides a valuation allowance against deferred tax assets if, based on the weight of available evidence, it
is more likely than not that some or all of the deferred tax assets will not be realized.
The Company recognizes the benefit of positions taken or expected to be taken in a tax return in the financial statements
when it is more likely than not (i.e. a likelihood of more than fifty percent) that the position would be sustained upon examination
by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent
likely of being realized upon settlement. Changes in judgment that result in subsequent recognition, derecognition or change in
a measurement of a tax position taken in a prior annual period (including any related interest and penalties) is recognized as a
discrete item in the interim period in which the change occurs.
See Note 18 for additional information regarding income taxes.
Stock-Based Compensation Expense. The Company measures and recognizes compensation cost at fair value for all share-
based payments, including stock options, restricted share awards and restricted share units. The fair value of stock options with
service and market conditions is valued utilizing a Monte Carlo simulation model. The fair value of stock options with only
service conditions is estimated using a Black-Scholes option-pricing model. Restricted share awards and restricted share units
are valued at the market price of the Company’s shares on the grant date. The fair value of restricted share awards with service
and market conditions are valued utilizing a Monte Carlo simulation model. The fair value of stock-based compensation is
amortized either on the graded vesting attribution method or on the cliff vesting attribution method depending on the specific
award. The Company issues new shares for common stock upon exercise of stock options.
The Company recorded $6.7 million ($4.2 million net of tax), $5.3 million ($3.3 million net of tax), and $5.4 million ($3.4
million net of tax), in total stock-based compensation expense during 2015, 2014, and 2013, respectively.
Derivative Financial Instruments. The Company uses interest rate swap agreements to reduce its interest rate risk on its
floating rate debt under the terms of its credit facility. The Company recognizes all derivatives on the balance sheet at fair value.
At inception and on an on-going basis, the Company assesses whether each derivative that qualifies for hedge accounting
continues to be highly effective in offsetting changes in the cash flows of the hedged item. If the derivative meets the hedge
criteria as defined by certain accounting standards, changes in the fair value of the derivative are recognized in accumulated
other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s
change in fair value, if any, is immediately recognized in earnings.
Share Repurchases. The company is incorporated in the State of Minnesota and under the laws of that state shares of its
own common stock that are acquired by the Company constitute authorized but unissued shares. The cost of the acquisition by
the Company of shares of its own stock in excess of the aggregate par value of the shares first reduces additional paid-in-capital,
to the extent available, with any residual cost applied against retained earnings.
Subsequent Events. The Company discloses material events that occur after the balance sheet date but before the financial
statements are issued. In general, these events are recognized if the condition existed at the date of the balance sheet, but not
recognized if the condition did not exist at the balance sheet date. The Company discloses non-recognized events if required to
keep the financial statements from being misleading.
On January 22, 2016, the Company entered into a five year $250.0 million secured revolving credit facility that replaced the
2013 revolving credit facility. See Note 22 for additional information regarding this subsequent event.
Note 3 — Recent Accounting Pronouncements That the Company Has Not Yet Adopted
Revenue Recognition. In May 2014, the FASB issued guidance for recognizing revenue in contracts with customers across
all industries. This guidance requires entities to recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The standard allows for either a full retrospective or modified retrospective transition method. This guidance will be effective
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