Cracker Barrel 2009 Annual Report Download - page 64

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the first anniversary of the grant date and expire ten years
from the date of grant.
Share-based compensation cost is measured at the grant
date based on the fair value of the award and is recognized
as expense over the requisite service period. The Company’s
policy is to recognize compensation cost for awards
with only service conditions and a graded vesting schedule
on a straight-line basis over the requisite service period
for the entire award. Additionally, the Company’s policy is
to issue new shares of common stock to satisfy exercises
of share-based compensation awards.
Income taxes – Employer tax credits for FICA taxes
paid on employee tip income and other employer tax
credits 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. Effective
August 4, 2007, the Company adopted the provisions
of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No.
109” (“FIN 48”). FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 requires that
a position taken or expected to be taken in a tax return be
recognized (or derecognized) in the financial statements
when it is more likely than not (i.e., a likelihood of more
than fifty percent) that the position would be sustained
(or not sustained) upon examination by tax authorities. A
recognized tax position is then measured at the largest
amount of benefit that is greater than fifty percent likely
of being realized upon ultimate settlement. The cumulative
effect of adopting FIN 48 resulted in a net increase of
$2,898 to the Company’s beginning 2008 retained
earnings. See Note 15 for additional information regarding
income taxes.
Net income per share – Basic consolidated net income
per share is computed by dividing consolidated net income
to common shareholders 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 and is based upon the
weighted average number of common and common
equivalent shares outstanding during the year. Common
equivalent shares related to stock options and nonvested
stock and stock awards issued by the Company are
calculated using the treasury stock method.
In 2002, the Company issued zero-coupon contingently
convertible notes (“Senior Notes”). During 2007, a portion
of the Senior Notes was exchanged for a new issue of zero-
coupon contingently convertible notes (“New Notes”). The
New Notes were substantially the same as the Senior Notes
except the New Notes had a net share settlement feature
which allowed the Company, upon conversion of a New
Note, to settle the accreted principal amount of the debt
for cash and issue shares of the Company’s common stock
for the conversion value in excess of the accreted value.
The Senior Notes required the issuance of the Company’s
common stock upon conversion. The Company’s Senior
Notes and New Notes were redeemed during 2007. Prior to
redemption, the New Notes were included in the calculation
of diluted consolidated net income per share if their
inclusion was dilutive under the treasury stock method and
the Senior Notes were included in the calculation of diluted
consolidated net income per share if their inclusion was
dilutive under the “if-converted” method. Additionally,
diluted consolidated net income per share was calculated
excluding the after-tax interest and financing expenses
associated with the Senior Notes since these Senior Notes
were treated as if converted into common stock. Following
the redemption of the Senior Notes and New Notes,
outstanding employee and director stock options and
nonvested stock and stock awards issued by the Company
represent the only dilutive effects on diluted consolidated
net income per share. See Note 17.
Subsequent events – Management has evaluated
subsequent events through September 29, 2009, which is
the date the financial statements were issued.
Use of estimates – Management of the Company has
made certain estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of
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