Cracker Barrel 2009 Annual Report Download - page 51

for valuation purposes. The expected life of options
granted is derived from the output of the option
valuation model and represents the period of time the
options are expected to be outstanding.
•
The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods
within the contractual life of the option.
•
The expected dividend yield is based on our current
dividend yield as the best estimate of projected
dividend yield for periods within the contractual life of
the option.
The expected volatility, option exercise and
termination assumptions involve management’s best
estimates at that time, all of which affect the fair value
of the option calculated by the binomial lattice-based
option valuation model and, ultimately, the expense that
will be recognized over the life of the option. We update
the historical and implied components of the expected
volatility assumption quarterly. We update option exercise
and termination assumptions quarterly. The expected life
is a by-product of the lattice model and is updated when
new grants are made.
Compensation expense is recognized for only the
portion of options that are expected to vest. Therefore,
an estimated forfeiture rate derived from historical
employee termination behavior, grouped by job
classification, is applied against share-based compensation
expense. The forfeiture rate is applied on a straight-line
basis over the service (vesting) period for each separately
vesting portion of the award as if the award were, in-
substance, multiple awards. We update the estimated
forfeiture rate to actual on each of the vesting dates and
adjust compensation expense accordingly so that the
amount of compensation cost recognized at any date is
at least equal to the portion of the grant-date value of
the award that is vested at that date.
Generally, the fair value of each nonvested stock grant
is equal to the market price of our stock at the date of
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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.
All of our nonvested stock grants are time vested
except the nonvested stock grants of one executive that
are based upon the achievement of strategic goals.
Compensation cost for performance-based awards is
recognized when it is probable that the performance
criteria will be met. At each reporting period, we reassess
the probability of achieving the performance targets and
the performance period required to meet those targets.
Determining whether the performance targets will be
achieved involves judgment and the estimate of expense
may be revised periodically based on the probability of
achieving the performance targets. Revisions are reflected
in the period in which the estimate is changed. If any
performance goals are not met, no compensation cost is
ultimately recognized and, to the extent previously
recognized, compensation cost is reversed. During 2008,
based on our determination that the performance goals
for one executive’s nonvested stock grants would not be
achieved, we reversed approximately $3,508 of share-
based compensation expense.
Other than the reversal of share-based compensation
in 2008 for nonvested stock grants whose performance
goals would not be met, we have not made any material
changes in our estimates or assumptions used to
determine share-based compensation during the past
three fiscal years. We do not believe there is a reasonable
likelihood that there will be a material change in the
future estimates or assumptions used to determine share-
based compensation expense. However, if actual results
are not consistent with our estimates or assumptions, we
may be exposed to changes in share-based compensation
expense that could be material.
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