Cracker Barrel 2015 Annual Report Download - page 23

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Othernonvestedstock 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 dened
as the change in our stock price plus dividends paid during
the performance period. e number of sharesawarded at the
endof the performance period will vary in directproportion
to a target number of sharesset at the beginning of the period,
up to a maximum of 150% of target, based on the change in
our cumulative total shareholder return overthe 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 reectthe 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,compen-
sation expense will be reversed.
e fair value of our MSU Grantswas determined using the
Monte-Carlo simulation model, which simulatesa rangeof
possible future stock prices andestimates 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 aer therst
business day of the performance period. is model also
incorporatesthe 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 overthe period commensurate with
the three-yearperformance period.
•e risk-free interest rate is based on the U.S. Treasury
rate assumption commensuratewith the three-year
performance period.
•e expected dividend yield is based on our current
dividend yield as the best estimateof projected dividend
yield for periods within the three-yearperformance period.
We updatethe historical and implied components of the
expected volatility assumption when new grantsare made.
21
We have not made any materialchanges 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 materialchangein
the future estimates or assumptions used to determine
share-based compensation expense. However,if actual results
arenot consistent with our estimates or assumptions, we
maybe exposed to changes in share-basedcompensation
expense that could be material.
Legal Proceedings
We areparties to various legal and regulatory proceedingsand
claims incidental to our business from time to time. We
review outstanding claims and proceedingsinternally and with
external counsel, as necessary andappropriate, to assess
probability of loss and for the abilityto estimate loss.ese
assessments are re-evaluated each quarteror as new informa-
tion becomes available to determine whether a reserveshould
be established or if any existing reserve should be adjusted.
e actual cost of resolving a claim or proceeding ultimately
maybe substantially dierent than the amount of the recorded
reserve. Although we believe that the judgmentsand estimates
used in establishing our legalreservesare reasonable, an
unsuccessfullegal proceeding or a selement could result in
material adjustmentsto our Consolidated FinancialStatements
andour consolidated nancial position (seeNote 15 to our
Consolidated FinancialStatements and “Item3. Legal
Proceedings” of Part I of this Annual Report on Form 10-K for
further information).
QUANTITATIVE ANDQUALITATIVE DISCLOSURES
ABOUT MARKETRISK
We areexposed to marketrisk, such as changes in interest rates
andcommodity prices. We do not hold or use derivative
nancial instrumentsfor trading purposes.
Interest Rate Risk. We have interest rate risk relative to
our outstanding borrowings under our credit facility.At
both July 31, 2015 and August 1, 2014, our outstanding
borrowingstotaled $400,000 (seeNote 5 to our Consolidated
FinancialStatements). Loans under our credit facility bear