Cracker Barrel 2011 Annual Report Download - page 28

the PBSUs will vest at the end of the performance period,
which consists of our 2011, 2012 and 2013 years. e number
of PBSUs that will ultimately be earned and will, therefore,
vest is based on a market condition, total shareholder return,
which is defined as increases in our stock price plus dividends
paid during the performance period. e target number of
shares will be earned if there is no change in shareholder value
during the performance period and the maximum number of
shares that may be earned is 150% of target, or 93,450 shares.
e probability of the actual shares expected to be earned is
considered in the grant date valuation; therefore, the expense
will not be adjusted to reflect the actual units earned. e
vesting of the PBSUs is also subject to the achievement of a
specified level of operating income during the performance
period. If this performance goal is not met, no PBSUs will be
awarded and to the extent previously recognized, compen-
sation expense will be reversed.
e fair value of the PBSUs was determined using the
Monte-Carlo simulation model, which simulates a range of
possible future stock prices and estimates the probabilities
of the potential payouts. is model incorporates several key
assumptions that are similar to those used to value stock
options, as discussed above; those inputs include expected
volatility, risk-free rate of return and expected dividend yield.
Additionally, the Monte-Carlo simulation model used
the average prices for the 60-consecutive calendar days from
July 1, 2010 to August 31, 2010.
We have not made any material changes in our estimates
or assumptions used to determine share-based compensation
during the past three 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.
Unredeemed Gi Cards
Unredeemed gi cards represent liabilities related to unearned
income and are recorded at their expected redemption value.
No revenue is recognized in connection with the point-of-sale
transaction when gi cards are sold. For those states that
exempt gi cards from their escheat laws, we make estimates of
the ultimate unredeemed (“breakage”) gicards in the period
of the original sale and amortize this breakage over the
redemption period that other gicards historically have been
redeemed by reducing the liability and recording revenue
accordingly. For those states that do not exempt gicards from
their escheat laws, we record breakage in the period that gi
cards are remied to the state and reduce our liability accord-
ingly. Any amounts remied to states under escheat or
similar laws reduce our deferred revenue liability and have no
effect on revenue or expense while any amounts that we
are permied to retain are recorded as revenue. Changes in
redemption behavior or management’s judgments regarding
redemption trends in the future may produce materially
different amounts of deferred revenue to be reported.
We have not made any material changes in the methodology
used to record the deferred revenue liability for unredeemed
gicards during the past three years and do not believe there
is a reasonable likelihood that there will be material changes
in the future estimates or assumptions used to record this
liability. However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to losses or
gains that could be material.
Legal Proceedings
We are parties to various legal and regulatory proceedings
and claims incidental to our business. In the opinion of
management, however, based upon information currently
available, the ultimate liability with respect to these actions
will not materially affect our consolidated results of operations
or financial position. We review outstanding claims and
proceedings internally and with external counsel as necessary
to assess probability of loss and for the ability to estimate
loss. ese assessments are re-evaluated each quarter or as
new information becomes available to determine whether
a reserve should be established or if any existing reserve should
be adjusted. e actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of
the recorded reserve. In addition, because it is not permissible
under GAAP to establish a litigation reserve until the loss
is both probable and estimable, in some cases there may be
insufficient time to establish a reserve prior to the actual
incurrence of the loss (upon verdict and judgment at trial, for
example, or in the case of a quickly negotiated selement).
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