Cracker Barrel 2008 Annual Report Download - page 63

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Revenue recognition – The Company records revenue
from the sale of products as they are sold. The Company
provides for estimated returns based on return history and
sales levels. As permitted by the provisions of Emerging
Issues Task Force (“EITF”) 06-3, “How Taxes Collected from
Customers and Remitted to Governmental Authorities
Should be Presented in the Income Statement (That Is,
Gross versus Net Presentation),” the Company’s policy is to
present sales in the Consolidated Statement of Income on a
net presentation basis after deducting sales tax.
Unredeemed gift cards and certificates – Unredeemed
gift cards and certificates represent a liability of the
Company 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,
the Company makes estimates of the ultimate unredeemed
(“breakage”) gift cards and certificates in the period
of the original sale and amortizes this breakage over the
redemption period that other gift cards and certificates
historically have been redeemed by reducing its liability
and recording revenue accordingly. For those states that do
not exempt gift cards and certificates from their escheat
laws, the Company records breakage in the period that gift
cards and certificates are remitted to the state and reduces
its liability accordingly. Any amounts remitted to states
under escheat or similar laws reduce the Company’s deferred
revenue liability and have no effect on revenue or expense
while any amounts that the Company is 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.
Income taxes – Employer tax credits for FICA taxes paid
on employee tip income and other employer tax credits are
accounted for by the flow-through method. Deferred income
taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for
income tax purposes. Effective August 4, 2007, the
Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109” (“FIN 48”).
See Note 12 regarding income taxes and the adoption
of FIN 48.
Net income per share – Basic consolidated net income
per share is computed by dividing consolidated net income
to common shareholders by the weighted average number
of common shares outstanding for the reporting period.
Diluted consolidated net income per share reflects the
potential dilution that could occur if securities, options or
other contracts to issue common stock were exercised
or converted into common stock and is based upon the
weighted average number of common and common
equivalent shares outstanding during the year. Common
equivalent shares related to stock options, nonvested stock
and stock awards issued by the Company are calculated
using the treasury stock method.
During 2007, a portion of the Company’s zero-coupon
contingently convertible notes (“Senior Notes”) were
exchanged for a new issue of zero-coupon contingently
convertible notes (“New Notes”). The New Notes were
substantially the same as the Senior Notes except the New
Notes had a net share settlement feature which allowed the
Company, upon conversion of a New Note, to settle the
accreted principal amount of the debt for cash and issue
shares of the Company’s common stock for the conversion
value in excess of the accreted value. The Senior Notes
required the issuance of the Company’s common stock upon
conversion. The Company’s Senior Notes and New Notes
were redeemed during 2007 (see Note 8). Prior to
redemption, the New Notes were included in the calculation
of diluted consolidated net income per share if their
inclusion was dilutive under the treasury stock method and
the Senior Notes were included in the calculation of diluted
consolidated net income per share if their inclusion was
dilutive under the “if-converted” method pursuant to EITF
No. 04-8, “The Effect of Contingently Convertible
Instruments on Diluted Earnings per Share” issued by the
FASB. Additionally, diluted consolidated net income per
share was calculated excluding the after-tax interest and
financing expenses associated with the Senior Notes
since these Senior Notes were treated as if converted into