Cracker Barrel 2014 Annual Report Download - page 29

Other nonvested stock awards accrue dividends and their
fair value is equal to the market price of our stock at the date
of grant.
In addition to providing the requisite service, MSU Grants
contain both a market condition, total shareholder return, and
a performance condition. Total shareholder return is dened
as the change in our stock price plus dividends paid during
the performance period. e number of shares awarded at the
end of the performance period will vary in direct proportion
to a target number of shares set at the beginning of the period,
up to a maximum of 150% of target, based on the change in
our cumulative total shareholder return over the period. e
probability of the actual shares expected to be awarded is
considered in the grant date valuation; therefore, the expense
will not be adjusted to reect the actual units awarded.
However, if the performance condition is not met, no shares
will be granted, no compensation will ultimately be recognized
and, to the extent previously recognized, compensation
expense will be reversed.
e fair value of our MSU Grants 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. e Monte-Carlo simulation model
uses the average prices for the 60-consecutive calendar days
beginning 30 days prior to and ending 30 days aer the rst
business day of the performance period. is model also
incorporates the following ranges of assumptions:
• e expected volatility is a blend of implied volatility based
on market-traded options on our stock and historical
volatility of our stock over the period commensurate with
the three-year performance period.
• e risk-free interest rate is based on the U.S. Treasury
rate assumption commensurate with the three-year
performance period.
• e expected dividend yield is based on our current
dividend yield as the best estimate of projected dividend
yield for periods within the three-year performance period.
We update the historical and implied components of the
expected volatility assumption when new grants are made.
27
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to market risk, such as changes in interest
rates and commodity prices. We do not hold or use derivative
nancial instruments for trading purposes.
Interest Rate Risk. We have interest rate risk relative to our
outstanding borrowings under our Credit Facility. At both
August 1, 2014 and August 2, 2013, our outstanding
borrowings under our Credit Facility totaled $400,000 (see
Note 5 to our Consolidated Financial Statements). Loans
under the Credit Facility bear interest, at our election, either
at the prime rate or LIBOR plus a percentage point spread
based on certain specied nancial ratios. Our policy has
been to manage interest cost using a mix of xed and variable
rate debt (see Notes 5, 6 and 9 to our Consolidated Financial
Statements). To manage this risk in a cost ecient manner,
we have entered into interest rate swaps. A summary of our
interest rate swaps at August 1, 2014 is as follows:
Term Notional Fixed
Trade Date Eective Date (in Years) Amount Rate
August 10, 2010 May 3, 2013 2 $200,000 2.73%
July 25, 2011 May 3, 2013 2 50,000 2.00%
July 25, 2011 May 3, 2013 3 50,000 2.45%
September 19, 2011 May 3, 2013 2 25,000 1.05%
September 19, 2011 May 3, 2013 2 25,000 1.05%
December 7, 2011 May 3, 2013 3 50,000 1.40%
March 18, 2013 May 3, 2015 3 50,000 1.51%
April 8, 2013 May 3, 2015 2 50,000 1.05%
April 15, 2013 May 3, 2015 2 50,000 1.03%
April 22, 2013 May 3, 2015 3 25,000 1.30%
April 25, 2013 May 3, 2015 3 25,000 1.29%
June 18, 2014 May 3, 2015 4 40,000 2.51%
June 24, 2014 May 3, 2015 4 30,000 2.51%
July 1, 2014 May 5, 2015 4 30,000 2.43%