Cracker Barrel 2008 Annual Report Download - page 47

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determined with certainty, actual results could differ from
those assumptions and estimates, and such differences
could be material.
Our significant accounting policies are discussed in
Note 2 to the Consolidated Financial Statements.
Judgments and uncertainties affecting the application of
those policies may result in materially different amounts
being reported under different conditions or using
different assumptions. Critical accounting estimates are
those that:
•
management believes are both most important to the
portrayal of our financial condition and operating results
and
•
require management’s most difficult, subjective or
complex judgments, often as a result of the need to
make estimates about the effect of matters that are
inherently uncertain.
We consider the following accounting estimates to
be most critical in understanding the judgments that
are involved in preparing our Consolidated Financial
Statements.
•
Impairment of Long-Lived Assets and Provision for
Asset Dispositions
•
Insurance Reserves
•
Inventory Shrinkage
•
Tax Provision
•
Share-Based Compensation
•
Unredeemed Gift Cards and Certificates
•
Legal Proceedings
Management has reviewed these critical accounting
estimates and related disclosures with the Audit Committee
of our Board of Directors.
Impairment of Long-Lived Assets and Provision
for Asset Dispositions
We assess the impairment of long-lived assets whenever
events or changes in circumstances indicate that the
carrying value may not be recoverable. Recoverability of
assets is measured by comparing the carrying value of the
asset to the undiscounted future cash flows expected to
be generated by the asset. If the total expected future
cash flows are less than the carrying amount of the asset,
the carrying amount is written down to the estimated
fair value of an asset to be held and used or the fair
value, net of estimated costs of disposal, of an asset to
be disposed of, and a loss resulting from impairment is
recognized by a charge to income. Judgments and
estimates that we make related to the expected useful
lives of long-lived assets are affected by factors such as
changes in economic conditions and changes in operating
performance. The accuracy of such provisions can vary
materially from original estimates and management
regularly monitors the adequacy of the provisions until
final disposition occurs. We have not made any material
changes in our methodology for assessing impairments
during the past three fiscal years and we do not believe
that there is a reasonable likelihood that there will be
a material change in the estimates or assumptions used
by us to assess impairment on long-lived assets. However,
if actual results are not consistent with our estimates and
assumptions used in estimating future cash flows and
fair values of long-lived assets, we may be exposed to
losses that could be material.
In 2008 and 2006, we incurred impairment and store
closing charges resulting from the closing of Cracker Barrel
stores. For a more detailed discussion of these costs see
the sub-section entitled “Impairment and Store Closing
Costs” under the section entitled “Results of Operations”
presented earlier in the MD&A. We recorded no impairment
losses or store closing charges during 2007.
Insurance Reserves
We self-insure a significant portion of expected losses
under our workers’ compensation, general liability and
health insurance programs. We have purchased insurance
for individual claims that exceed $500 and $1,000 for
certain coverages since 2004. Since 2004, we have
elected not to purchase such insurance for our primary
group health program, but our offered benefits are
limited to not more than $1,000 during the lifetime of
any employee (including dependents) in the program,
and, in certain cases, to not more than $100 in any given
plan year. We record a liability for workers’ compensation
and general liability for all unresolved claims and for
an actuarially determined estimate of incurred but not