Cracker Barrel 2014 Annual Report Download - page 28

We have not made any material changes in the method-
ologies, estimates or assumptions related to our merchandise
inventories during the past three years and do not believe
there is a reasonable likelihood that there will be a material
change in the estimates or assumptions in the future.
However, actual obsolescence or shrinkage recorded may
produce materially dierent amounts than we have estimated.
Tax Provision
We must make estimates of certain items that comprise our
income tax provision. ese estimates include eective state
and local income tax rates, employer tax credits for items
such as FICA taxes paid on employee tip income, Work
Opportunity and Welfare to Work credits, as well as estimates
related to certain depreciation and capitalization policies.
Our estimates are made based on current tax laws, the best
available information at the time of the provision and
historical experience.
We recognize (or derecognize) a tax position taken or
expected to be taken in a tax return in the nancial statements
when it is more likely than not (i.e., a likelihood of more than
y 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
benet that is greater than y percent likely of being realized
upon ultimate selement.
We le our income tax returns many months aer our year
end. ese returns are subject to audit by various federal
and state governments years aer the returns are led and could
be subject to diering interpretations of the tax laws. We
then must assess the likelihood of successful legal proceedings
or reach a selement with the relevant taxing authority.
Although we believe that the judgments and estimates used in
establishing our tax provision are reasonable, an unsuccessful
legal proceeding or a selement could result in material
adjustments to our Consolidated Financial Statements and
our consolidated nancial position.
Share-Based Compensation
Our share-based compensation primarily consists of
nonvested stock awards and performance-based market stock
units (“MSU Grants”). Share-based compensation expense
is recognized based on the grant date fair value and the
achievement of performance conditions for certain awards.
We recognize share-based compensation expense on a
straight-line basis over the requisite service period, which is
generally the award’s vesting period, or the date on which
retirement eligibility is achieved, if shorter.
Compensation expense is recognized for only the portion
of our share-based compensation awards that are expected
to vest. erefore, an estimated forfeiture rate is derived from
historical employee termination behavior and is updated
annually. e forfeiture rate is applied on a straight-line basis
over the service (vesting) period and we update the estimated
forfeiture rate to actual at each reporting period.
Beginning in 2014, our share-based compensation awards
accrue dividends. Dividends will be forfeited for any share-based
compensation awards that do not vest.
Our nonvested stock awards are time vested except for
awards under our long-term incentive plans which also contain
performance conditions. At each reporting period, we reassess
the probability of achieving the performance conditions
under our long-term incentive plans. Determining whether
the performance conditions will be achieved involves
judgment and the estimate of expense for nonvested stock
awards may be revised periodically based on changes in
our determination of the probability of achieving the perfor-
mance conditions. Revisions are reected in the period in
which the estimate is changed. If any performance conditions
are not met, no shares will be granted, no compensation
will ultimately be recognized and, to the extent previously
recognized, compensation expense will be reversed.
Generally, the fair value of each nonvested stock award
which does not accrue dividends is equal to the market price
of our stock at the date of 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.
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