Cracker Barrel 2005 Annual Report Download - page 40

38
Recent Accounting Pronouncements Not Yet Adopted
In December 2004, the FASB issued SFAS No. 123
(Revised 2004) “Share-Based Payment” (“SFAS No.
123R”). SFAS No. 123R replaces SFAS No. 123,
“Accounting for Stock-Based Compensation” and super-
sedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees.” SFAS No. 123R requires that the
cost of employee services received in exchange for
equity instruments issued or liabilities incurred are
recognized in the financial statements. Compensation
cost will be measured using a fair-value-based method
over the period that the employee provides service in
exchange for the award. As disclosed in Note 2 to the
Company’s Consolidated Financial Statements, based
on the current assumptions and calculations used, had
the Company recognized compensation expense based
on the fair value of awards of equity instruments, net
income would have been reduced by approximately
$8,799 for the year ended July 29, 2005. This
compensation expense is the after-tax net of the
stock-based compensation expense determined under
the fair-value based method for all awards and stock-
based employee compensation included previously in
reported net income under APB No. 25. This statement
will apply to all awards granted after the effective
date and to modifications, repurchases or cancellations
of existing awards. SFAS No. 123R is effective as of
the beginning of the first annual reporting period that
begins after June 15, 2005 and, therefore, the
Company will adopt in its first quarter of 2006. Partly
in anticipation of these new accounting rules, the
Company modified its compensation plans to limit
eligibility to receive share-based compensation and
shifted a portion of share-based compensation
primarily to cash-based incentive compensation. We
expect the 2006 impact of the adoption of SFAS
123R combined with the modifications to the Company’s
compensation plans to be approximately $0.14 to
$0.16 per diluted share. The effect of future awards
will vary depending on timing, amount and valuation
methods used for such awards, the past awards are
not necessarily indicative of future awards. SFAS 123R
also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating
cash flow as required under the current rules. This
requirement will reduce net operating cash flow and
reduce net financing cash outflow by offsetting and
equal amounts.
In November 2004, the FASB issued Statement No.
151, “Inventory Costs, an amendment of ARB No. 43,
Chapter 4” (“SFAS No. 151”). SFAS No. 151 clarifies
that abnormal inventory costs such as costs of idle
facilities, excess freight and handling costs, and
wasted materials (spoilage) are required to be recog-
nized as current period charges and require the
allocation of fixed production overheads to inventory
based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective
for inventory costs incurred during fiscal years begin-
ning after June 15, 2005 and, therefore, the Company
will adopt in its first quarter of 2006. The Company
does not expect the adoption of SFAS No. 151 to have
a material impact on the Company’s consolidated
results of operations or financial position.
In May 2005, the FASB issued Statement No. 154,
“Accounting Changes and Error Corrections–a replace-
ment of APB Opinion No. 20 and FASB Statement No.
3.” This Statement is effective for accounting
changes and corrections of errors made in fiscal years
beginning after December 15, 2005. Early adoption
is permitted for accounting changes and corrections of
errors made in fiscal years beginning after the date
this Statement was issued. This Statement does not
change the transition provisions of any existing
accounting pronouncements, including those that
are in a transition phase as of the effective date
of this Statement.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk. The Company is subject to market
risk exposure related to changes in interest rates.
As of September 26, 2005, the Company has in place
a $300,000 Revolving Credit Facility, which matures
February 21, 2008. The facility bears interest, at the
Company’s election, either at the prime rate or a
percentage point spread from LIBOR based on certain
financial ratios set forth in the loan agreement. At
July 29, 2005, the Company had $21,500 outstanding
borrowings under the Revolving Credit Facility, and
the Company’s percentage point spread from LIBOR