Cracker Barrel 2004 Annual Report Download - page 44

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TAX PROVISION
The Company must make estimates of certain items that comprise its income tax provision. These
estimates include employer tax credits for items such as FICA taxes paid on employee tip income, Work
Opportunity and Welfare to Work, as well as estimates related to certain depreciation and capitalization policies.
These estimates are made based on the best available information at the time of the provision and historical
experience. The Company files its income tax returns many months after its year end. These returns are subject to
audit by various federal and state governments years after the returns are filed and could be subject to differing
interpretations of the tax laws. The Company then must assess the likelihood of successful legal proceedings or
reach a settlement, either of which could result in material adjustments to the Company’s Consolidated Financial
Statements and its consolidated financial position. The Internal Revenue Service (“IRS”) completed its examination
of the Company’s federal income tax returns for 1997 through 2001. On August 1, 2002 the Company reached a
settlement with the IRS for these tax periods. Adjustments related primarily to temporary or timing differences.
The settlement had no material effect on the Company’s Consolidated Financial Statements. Additionally, the IRS
has examined the Company’s federal payroll tax filings for the calendar years ended December 31, 1997 through
December 31, 2001. This examination was completed on July 21, 2003 resulting in no adjustment to the payroll
taxes originally reported by the Company (see Note 8 to the Company’s Consolidated Financial Statements).
LEGAL PROCEEDINGS
As more fully discussed in Note 10 to the Consolidated Financial Statements, the Company’s Cracker Barrel
subsidiary, on September 8, 2004, agreed in principle to settle certain litigation alleging violations of the Fair Labor
Standards Act as well as allegations of discrimination in employment and public accommodations. The total
payment agreed to by Cracker Barrel was $8,720 (including $3,500 accrued in the fourth quarter of 2001), in full
satisfaction of all claims, including attorneys’ fees and costs. The effects of this charge upon net income and
earnings per share in both the fourth quarter of and the entire 2004 year are discussed above.
The Company and its subsidiaries are party to other legal proceedings incidental to their business. In the
opinion of management, based upon information currently available, the ultimate liability with respect to these other
actions will not materially affect the Company’s Consolidated Financial Statements.