Cracker Barrel 2004 Annual Report Download - page 52

year. Additionally, an assessment is performed between annual assessments if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
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. Initial fees received from a
franchisee to establish a new franchise are recognized as income when the Company has performed all of its
obligations required to assist the franchisee in opening a new franchise restaurant, which is generally upon the
opening of that restaurant. Continuing royalties, which are a percentage of net sales of franchised restaurants, are
accrued as income when earned.
Deferred revenue – Unredeemed gift certificates and cards represent the Company’s only liability related to
unearned income and are recorded at their expected redemption value. When gift certificates and cards are
redeemed, the Company recognizes revenue and reduces the liability.
Income taxes – Employer tax credits for FICA taxes paid on employee tip income 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 (see
Note 8).
Net income per share – Basic net income per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted 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. The Notes had no effect on diluted shares in 2004,
2003 or 2002, since none of the contingencies that would allow conversion had occurred (see Note 5). Outstanding
employee and director stock options and restricted stock issued by the Company represent the only dilutive effects
reflected in diluted weighted average shares.
Comprehensive income – Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-owner sources. Comprehensive
income for 2004, 2003 and 2002 is equal to net income as reported.
Stock-based compensation – The Company accounts for its stock based compensation under the recognition
and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations, and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation,” (see Note 7) and below is providing disclosures required by SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure.” Under APB Opinion No. 25, no stock-based
compensation cost is reflected in net income for grants of stock options to employees because the Company grants
stock options with an exercise price equal to the market value of the stock on the date of grant. The reported stock-
based compensation expense, net of related tax effects, in the table represents the amortization of restricted stock
grants to three executive officers of the Company.
Had the Company used the alternative fair value based accounting method for stock compensation expense
prescribed by SFAS Nos. 123 and 148, the Company’s net income and earnings per share for the past three years
would have been reduced to the pro-forma amounts illustrated in the following table:
2004
(As Restated,
see Note 2)
2003
(As Restated,
see Note 2)
2002
(As Restated,
see Note 2)
Net income – as reported $111,885 $105,108 $90,444
Add: Total stock-based employee compensation
included in reported net income, net of related tax
effects 74 298 397
Deduct: Total stock-based compensation expense
determined under fair-value based method for all
awards, net of tax effects (10,900) (11,496) (12,709)
Pro forma, net income $101,059 $ 93,910 $ 78,132
Net income per share:
Basic – as reported $2.29 $2.13 $1.67
Basic – pro forma 2.07 1.91 1.44
Diluted – as reported 2.23 2.06 1.61
Diluted – pro forma 2.01 1.84 1.39
Segment Reporting – The Company accounts for its segment in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” SFAS No. 131 requires that a public company report
annual and interim financial and descriptive information about its reportable operating segments. Operating segments,
as defined, are components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
SFAS No. 131 allows aggregation of similar operating segments into a single operating segment if the businesses are