Cracker Barrel 2005 Annual Report Download - page 54

CBRL GROUP, INC.
52
1DESCRIPTION OF THE BUSINESS
CBRL Group, Inc. and its affiliates (collectively, in
the Notes, the “Company”) are principally engaged
in the operation and development in the United States
of the Cracker Barrel Old Country Store® (“Cracker
Barrel”) restaurant and retail concept and the Logan’s
Roadhouse® (“Logan’s”) restaurant concept.
2SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
GAAP – The accompanying Consolidated Financial
Statements have been prepared in accordance with
generally accepted accounting principles in the
United States (“GAAP”).
Fiscal year – The Company’s fiscal year ends on the
Friday nearest July 31st and each quarter consists of
thirteen weeks unless noted otherwise. References in
these Notes to a year or quarter are to the Company’s
fiscal year or quarter unless noted otherwise.
Principles of consolidation – The Consolidated Finan-
cial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions and balances
have been eliminated.
Financial instruments – The fair values of cash and
cash equivalents, accounts receivable, and accounts
payable as of July 29, 2005, approximate their carry-
ing amounts due to their short duration. The carrying
value and fair value of the Company’s zero-coupon
contingently convertible senior notes (the “Senior
Notes”) in long-term debt at July 29, 2005 were
$190,718 and $202,584, respectively. The fair value of
the Senior Notes in long-term debt is determined
based on market prices using the average of the bid
and ask prices as of July 29, 2005.
The Company adopted Emerging Issues Task Force
(“EITF”) No. 04-8, “The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share” (“EITF
04-8”) issued by the Financial Accounting Standards
Board (“FASB”), in the second quarter of 2005. EITF
04-8 requires the use of “if-converted” accounting for
contingently convertible debt regardless of whether
the contingencies allowing debt holders to convert have
been met. EITF 04-8 was effective for reporting
periods ending after December 15, 2004 and required
retroactive restatement of prior period diluted net
income per share, which restatement is reflected for
historical periods included herein. The adoption of
EITF 04-8 resulted in the Company’s Senior Notes (see
Note 4 for the impact on the net income per share
calculation and Note 5 for a description of these
Senior Notes) representing a dilutive security and
requiring approximately 4.6 million shares to be
included in diluted weighted average shares outstand-
ing for the calculation of diluted net income per
share. Additionally, diluted consolidated net income
per share is calculated excluding the after-tax interest
and financing expenses associated with the Senior
Notes since these Senior Notes are treated as if
converted into common stock. The change in account-
ing affects only the calculation of diluted net income
per share, and has no effect on the financial state-
ments themselves or on the terms of the Senior Notes.
Cash and cash equivalents – The Company’s policy is
to consider all highly liquid investments purchased
with an original maturity of three months or less to be
cash equivalents.
Inventories – Inventories are stated at the
lower of cost or market. Cost of restaurant inventory
is determined by the first-in, first-out (FIFO)
method. Approximately 70% of retail inventories are
valued using the retail inventory method and the
remaining 30% are valued using an average cost
method. Valuation provisions are included for retail
inventory obsolescence, returns and amortization
of certain items.
Store pre-opening costs – Start-up costs of a new
store are expensed when incurred, with the exception
of rent expense under operating leases, in which the
straight-line rent includes the pre-opening period
during construction, as explained further under the
Operating Lease Section of this Note 2 to the
Consolidated Financial Statements.
Property and equipment – Property and equipment
are stated at cost. For financial reporting purposes,
depreciation and amortization on these assets are
computed by use of the straight-line and double-
declining balance methods over the estimated useful
lives of the respective assets, as follows:
Years
Buildings and improvements 30-45
Buildings under capital leases 5-25
Restaurant and other equipment 2-10
Leasehold improvements 1-35
Notes to Consolidated Financial Statements
(In thousands except share data)