Cracker Barrel 2008 Annual Report Download - page 65

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The estimated fair value of this interest rate swap
liability was $39,618 and $13,680 at August 1, 2008 and
August 3, 2007, respectively. The offset to the interest rate
swap liability is in accumulated other comprehensive
income (loss), net of the deferred tax asset. Any portion of
the fair value of the swap determined to be ineffective
will be recognized currently in earnings. No ineffectiveness
has been recorded in 2008, 2007 and 2006. Cash flows
related to the interest rate swap, which consist of interest
payments, are included in operating activities.
Many of the food products purchased by the Company
are affected by commodity pricing and are, therefore,
subject to price volatility caused by weather, production
problems, delivery difficulties and other factors that are
outside the control of the Company and generally are
unpredictable. Changes in commodity prices affect the
Company and its competitors generally and, depending
on terms and duration of supply contracts, sometimes
simultaneously. In many cases, the Company believes it
will be able to pass through some or much of increased
commodity costs by adjusting its menu pricing. From
time to time, competitive circumstances or judgments
about consumer acceptance of price increases may limit
menu price flexibility, and in those circumstances,
increases in commodity prices can result in lower margins
for the Company.
Comprehensive income (loss) – Comprehensive income
(loss) includes net income and the effective unrealized
portion of the changes in the fair value of the Company’s
interest rate swap.
Use of estimates – Management of the Company has
made certain estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of
contingent liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues
and expenses during the reporting periods to prepare
these Consolidated Financial Statements in conformity with
GAAP. Management believes that such estimates have
been based on reasonable and supportable assumptions and
that the resulting estimates are reasonable for use in the
preparation of the Consolidated Financial Statements.
Actual results, however, could differ from those estimates.
Recently Adopted Accounting Pronouncement
Effective August 4, 2007, the first day of 2008, the
Company 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. See Note 12 for further information regarding
the adoption of FIN 48.
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. The Company will adopt SFAS No. 157
as it relates to financial assets and liabilities beginning in
the first quarter of 2009 and does not expect the adoption
will have a significant impact on the Company’s
consolidated financial statements. The Company will adopt
SFAS No. 157 as it relates to nonfinancial assets and
liabilities beginning in the first quarter of 2010. The
Company is 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
No. 115” (“SFAS No. 159”), which permits entities to
choose to measure eligible financial instruments and other
items at fair value. The provisions of SFAS No. 159 are
effective for fiscal years beginning after November 15,
2007. The Company adopted SFAS No. 159 on August 2,