Cracker Barrel 2008 Annual Report Download - page 51

The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount
of the recorded reserve. In addition, because it is not
permissible under GAAP to establish a litigation reserve
until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a
reserve prior to the actual incurrence of the loss (upon
verdict and judgment at trial, for example, or in the case
of a quickly negotiated settlement).
Recently Adopted Accounting Pronouncement
Effective August 4, 2007, the first day of 2008, we adopted
FIN 48, which clarifies the accounting for uncertainty
in income taxes recognized in financial statements in
accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 109, “Accounting for Income Taxes.”
FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and
measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
As a result of the adoption of FIN 48, we recognized
a liability for uncertain tax positions of $23,866 and
related federal tax benefits of $7,895, which resulted
in a net liability for uncertain tax positions of $15,971.
As required by FIN 48, the liability for uncertain tax
positions has been included in other long-term obligations
and the related federal tax benefits have reduced
long-term deferred income taxes. In 2007, the liability
for uncertain tax positions (net of the related federal
tax benefits) was included in income taxes payable. The
cumulative effect of this change in accounting principle
upon adoption resulted in a net increase of $2,898 to our
beginning 2008 retained earnings.
We recognize, net of tax, interest and estimated
penalties related to uncertain tax positions in our
provision for income taxes. As of the date of adoption,
our liability for uncertain tax positions included $2,010
net of tax for potential interest and penalties. The
amount of uncertain tax positions that, if recognized,
would affect the effective tax rate is $15,971.
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As of August 1, 2008, our liability for uncertain tax
positions was $26,602 ($17,753, net of related federal
tax benefits of $8,849), which included $2,790 net of tax
for potential interest and penalties. The total amount
of uncertain tax positions that, if recognized, would affect
the effective tax rate is $17,753.
In many cases, our uncertain tax positions are related
to tax years that remain subject to examination by the
relevant taxing authorities. Based on the outcome of
these examinations or as a result of the expiration of the
statutes of limitations for specific taxing jurisdictions,
the related uncertain tax positions taken regarding
previously filed tax returns could decrease from those
recorded as liabilities for uncertain tax positions in our
financial statements at August 1, 2008 by approximately
$3,400 to $4,000 within the next twelve months.
As of August 1, 2008, we were subject to income tax
examinations for our U.S. federal income taxes after 2004
and for state and local income taxes generally after 2004.
Recent Accounting Pronouncements Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements” (“SFAS No. 157”), which defines
fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements.
The provisions of SFAS No. 157 for financial assets and
liabilities, as well as any other assets and liabilities that
are carried at fair value on a recurring basis in the
financial statements, are effective for fiscal years
beginning after November 15, 2007. The provisions for
nonfinancial assets and liabilities are effective for fiscal
years beginning after November 15, 2008. We will adopt
SFAS No. 157 as it relates to financial assets and
liabilities beginning in the first quarter of 2009. We do
not expect the adoption will have a significant impact on
our consolidated financial statements. We will adopt SFAS
No. 157 as it relates to nonfinancial assets and liabilities
beginning in the first quarter of 2010. We are currently
evaluating the impact of the adoption and cannot yet
determine the impact of its adoption.
In February 2007, the FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial
Liabilities – Including an amendment of FASB Statement