Cracker Barrel 2005 Annual Report Download - page 57

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state, and the amount of the ultimate unredeemed gift
cards and certificates, which are recorded as revenue.
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 consolidated net
income per share is computed by dividing consolidated
net income by the weighted average number of
common shares outstanding for the reporting period.
Diluted consolidated 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.
Additionally, diluted consolidated net income per
share is calculated excluding the after-tax interest and
financing expenses associated with the Senior Notes
since these Senior Notes are treated as if converted
into common stock (see Note 5). The Company’s
Senior Notes, outstanding employee and director stock
options and restricted stock issued by the Company
represent the only dilutive effects on diluted net income
per share.
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 2005, 2004 and 2003 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, a
nd has adopted the disclosure-only provisions of SFAS
No. 123, “Accounting for Stock-Based Compensation,”
(see Note 6) 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:
2005 2004 2003
Net income – as reported $126,640 $111,885 $105,108
Add: Total stock-based
employee compensation
included in reported net
income, net of related
tax effects 76 74 298
Deduct: Total stock-based
compensation expense
determined under
fair-value based method
for all awards, net of tax
effects (8,875) (10,900) (11,496)
Pro forma, net income $117,841 $101,059 $ 93,910
Net income per share:
Basic – as reported $ 2.65 $ 2.29 $ 2.13
Basic – pro forma $ 2.47 $ 2.07 $ 1.91
Diluted – as reported $ 2.45 $ 2.12 $ 1.97
Diluted – pro forma $ 2.29 $ 1.92 $ 1.77
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 decid-
ing 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 considered similar
under the criteria established by SFAS No. 131.
Utilizing these criteria, the Company manages its busi-
ness on the basis of one reportable operating segment
(see Note 9).
Derivative instruments and hedging activities – The
Company adopted SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” in
2000 and its subsequent amendments, SFAS Nos. 137,
“Accounting for Derivative Instruments and Hedging