Cracker Barrel 2008 Annual Report Download - page 60

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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, until December 6, 2006, the Logan’s
Roadhouse® (“Logan’s”) restaurant concept. The Company
sold Logan’s on December 6, 2006 (see Note 3). As a result,
Logan’s is classified as discontinued operations for all
periods presented in the Consolidated Financial Statements.
The Company has changed its prior year presentation of the
cash proceeds from the sale of Logan’s from cash provided
by investing activities of continuing operations to cash
provided by investing activities of discontinued operations
to better reflect the nature of these proceeds in the
Consolidated Statement of Cash Flows.
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. The Company’s fiscal
year ended August 3, 2007 consisted of 53 weeks and the
fourth quarter of fiscal 2007 consisted of fourteen weeks.
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 Financial
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
August 1, 2008, approximate their carrying amounts due to
their short duration. The fair value of the Company’s
variable-rate Term Loan B, Delayed-Draw Term Loan and
revolving credit facilities approximate their carrying values.
The estimated fair value of the Company’s interest rate
swap is the present value of the expected cash flows and is
calculated by using the replacement fixed rate in the
then-current market. See “Derivative instruments and
hedging activities” in this Note.
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.
Cost of goods sold includes the cost of retail merchandise
sold at the Cracker Barrel stores utilizing the retail
inventory accounting method. It includes an estimate of
shortages that are adjusted upon physical inventory counts.
In 2006, the physical inventory counts for all Cracker Barrel
stores and the retail distribution center were conducted as
of the end of 2006 and shrinkage was recorded based
on the physical inventory counts taken. During 2007, the
Company changed the timing of its physical inventory
counts. Beginning in 2007, physical inventory counts are
conducted throughout the third and fourth quarters of
the fiscal year based upon a cyclical inventory schedule.
During 2007, the Company also changed its method for
calculating inventory shrinkage for the time period between
physical inventory counts by using a three-year average of
the results from the current year physical inventory and the
previous two physical inventories on a store-by-store basis.
The impact of this change on the Consolidated Financial
Statements was immaterial.
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 leases” section in
this Note.
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
C B R L G R O U P, I N C .
Notes to Consolidated Financial Statements
(In thousands except share data)