Cracker Barrel 2008 Annual Report Download - page 50

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to be paid prior to the vesting period, discounted using
an appropriate risk-free interest rate.
All of our nonvested stock grants are time vested
except the nonvested stock grants of one executive that
also were based upon Company performance against a
specified annual increase in earnings before interest,
taxes, depreciation, amortization and rent. Compensation
cost for performance-based awards is recognized when it
is probable that the performance criteria will be met.
At each reporting period, we reassess the probability of
achieving the performance targets and the performance
period required to meet those targets. Determining
whether the performance targets will be achieved involves
judgment and the estimate of expense may be revised
periodically based on the probability of achieving the
performance targets. Revisions are reflected in the period
in which the estimate is changed. If any performance
goals are not met, no compensation cost is ultimately
recognized and, to the extent previously recognized,
compensation cost is reversed. During 2008, based on our
determination that the performance goals for one
executive’s nonvested stock grants would not be achieved,
we reversed approximately $3,508 of share-based
compensation expense.
Other than the reversal of share-based compensation
for nonvested stock grants whose performance goals
would not be met, we have not made any material
changes in our estimates or assumptions used to determine
share-based compensation during the past three fiscal
years. We do not believe there is a reasonable likelihood
that there will be a material change in the future
estimates or assumptions used to determine share-based
compensation expense. However, if actual results are
not consistent with our estimates or assumptions, we
may be exposed to changes in share-based compensation
expense that could be material.
Unredeemed Gift Cards and Certificates
Unredeemed gift cards and certificates represent a
liability related to unearned income and are recorded at
their expected redemption value. No revenue is recognized
in connection with the point-of-sale transaction when
gift cards or gift certificates are sold. For those states
that exempt gift cards and certificates from their escheat
laws, we make estimates of the ultimate unredeemed
(“breakage”) gift cards and certificates in the period of
the original sale and amortize this breakage over the
redemption period that other gift cards and certificates
historically have been redeemed by reducing the liability
and recording revenue accordingly. For those states
that do not exempt gift cards and certificates from their
escheat laws, we record breakage in the period that
gift cards and certificates are remitted to the state and
reduce our liability accordingly. Any amounts remitted to
states under escheat or similar laws reduce our deferred
revenue liability and have no effect on revenue or
expense while any amounts that we are permitted to
retain are recorded as revenue. Changes in redemption
behavior or management’s judgments regarding
redemption trends in the future may produce materially
different amounts of deferred revenue to be reported.
We have not made any material changes in the
methodology used to record the deferred revenue liability
for unredeemed gift cards and certificates during the
past three fiscal years and do not believe there is a
reasonable likelihood that there will be material changes
in the future estimates or assumptions used to record
this liability. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed
to losses or gains that could be material.
Legal Proceedings
We are parties to various legal and regulatory proceedings
and claims incidental to our business. In the opinion of
management, however, based upon information currently
available, the ultimate liability with respect to these
actions will not materially affect our consolidated results
of operations or financial position. We review outstanding
claims and proceedings internally and with external
counsel as necessary to assess probability of loss and for
the ability to estimate loss. These assessments are
re-evaluated each quarter or as new information becomes
available to determine whether a reserve should be
established or if any existing reserve should be adjusted.