Cracker Barrel 2015 Annual Report Download - page 22

We have not made any materialchanges in the methodolo-
gies, estimates or assumptions related to our merchandise
inventories during the past three yearsand do not believe there
is a reasonable likelihood that there will be a materialchange
in the estimates or assumptions in the future. However, actual
obsolescence or shrinkage recorded may produce materially
dierent amounts than we haveestimated.
TaxProvision
We must make estimatesof certain itemsthat comprise our
income tax provision. eseestimates include eective state
andlocal income tax rates, employer taxcredits for items such
as FICA taxes paid on employeetip income and the Work
Opportunity credit, as wellas estimates relatedto certain
depreciation and capitalization policies. Our estimates are
made based on current tax laws, the best availableinformation
at the time of the provision and historical experience.
We recognize(or derecognize) a tax position taken or
expected to be taken in a tax return in the nancial statements
when it is more likely than not (i.e., a likelihood of more than
y percent) that the position would be sustained (or not
sustained) upon examination by tax authorities. A recognized
taxposition is thenmeasured at the largest amountof
benet thatis greater than y percent likely of being realized
upon ultimateselement.
We le our income tax returns many months aer our year
end. ese returns are subjectto audit by various federal
andstate governments years aer the returnsareledand
could be subjectto diering interpretations of the tax laws.
We then must assess the likelihood of successful legalproceed-
ings or reach a selement with the relevant taxing authority.
Although we believe that the judgmentsand estimates used in
establishing our tax provision are reasonable, an unsuccessful
legal proceeding or a selement could result in material
adjustmentsto our Consolidated FinancialStatements and
our consolidated nancial position.
Share-Based Compensation
Our share-based compensation primarily consists of nonvested
stock awards and performance-based marketstock units
(“MSU Grants”). Share-basedcompensation expense is recog-
nized based on the grant date fair value and the achievement
of performance conditions for certain awards. We recognize
share-based compensation expense on a straight-line basis over
the requisite service period, which is generally the award’s
vesting period, or the date on which retirement eligibility is
achieved,if shorter.
Compensation expense is recognized for only the portion
of our share-based compensation awards that are expected
to vest. erefore, an estimated forfeiture rate is derived from
historical employee termination behavior and is updated
annually. e forfeiture rate is applied on a straight-line basis
over the service (vesting)period and we updatethe estimated
forfeiture rate to actual at each reporting period.
Beginning in 2014, our share-based compensation awards
accruedividends. Dividends will be forfeited for any share-
based compensation awards that do not vest.
Our nonvestedstock awards are time vested except for
awardsunder our long-termincentive plans which also contain
performance conditions. At each reporting period, we
reassess the probability of achieving the performance conditions
under our long-termincentive plans. Determining whether
the performance conditions will be achieved involves
judgment andthe estimate of expense for nonvestedstock
awardsmay be revised periodically based on changes in our
determination of the probability of achieving the perfor-
mance conditions. Revisions are reected in the period in
which the estimate is changed.If any performance conditions
arenot met, no shareswill be granted, no compensation
will ultimately be recognized and, to the extent previously
recognized, compensation expense will be reversed.
Generally, the fair value of eachnonvestedstock award
which does not accruedividends is equal to the market price
of our stock at the date of grant reduced by the present value
of expected dividends to be paid prior to the vesting period,
discounted using an appropriate risk-free interest rate.
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