Cracker Barrel 2008 Annual Report Download - page 62

60
Company also replaced two existing Cracker Barrel units
with units in nearby communities in 2008; the replaced
units are also classified as property held for sale as of
August 1, 2008. At August 3, 2007, property held for sale
was $4,676 and consisted of Cracker Barrel stores closed in
2006 and two properties that were later sold in 2008.
These properties consisted of a vacant real estate property
and the one remaining Logan’s property that the Company
had retained and leased back to Logan’s (see Note 4).
Operating leases – The Company has ground leases and
office space leases that are recorded as operating leases.
Most of the leases have rent escalation clauses and some
have rent holiday and contingent rent provisions. In
accordance with FASB Technical Bulletin (“FTB”) No. 85-3,
“Accounting for Operating Leases with Scheduled Rent
Increases,” the liabilities under these leases are recognized
on the straight-line basis over the shorter of the useful life,
with a maximum of 35 years, or the related lease life. The
Company uses a lease life that generally begins on the date
that the Company becomes legally obligated under the
lease, including the pre-opening period during construction,
when in many cases the Company is not making rent
payments, and generally extends through certain renewal
periods that can be exercised at the Company’s option, for
which at the inception of the lease, it is reasonably assured
that the Company will exercise those renewal options.
Certain leases provide for rent holidays, which are
included in the lease life used for the straight-line rent
calculation in accordance with FTB No. 88-1, “Issues
Relating to Accounting for Leases.” Rent expense and an
accrued rent liability are recorded during the rent holiday
periods, during which the Company has possession of
and access to the property, but is not required or obligated
to, and normally does not, make rent payments.
Certain leases provide for contingent rent, which
is determined as a percentage of gross sales in excess of
specified levels. The Company records a contingent rent
liability and corresponding rent expense when it is probable
sales have been achieved in amounts in excess of the
specified levels.
The same lease life is used for reporting future minimum
lease commitments as is used for the straight-line rent
calculation. The Company uses a lease life that extends
through certain of the renewal periods that can be
exercised at the Company’s option.
Advertising – The Company expenses the costs of
producing advertising the first time the advertising takes
place. Net advertising expense was $42,160, $40,522 and
$38,274 for 2008, 2007 and 2006, respectively.
Insurance – The Company self-insures a significant
portion of expected losses under its workers’ compensation,
general liability and health insurance programs. The
Company has purchased insurance for individual claims
that exceed $500 and $1,000 for certain coverages since
2004. Since 2004 the Company has elected not to
purchase such insurance for its primary group health
program, but its offered benefits are limited to not more
than $1,000 lifetime for any employee (including
dependents) in the program, and, in certain cases, to not
more than $100 in any given plan year. The Company
records a liability for workers’ compensation and general
liability for all unresolved claims and for an actuarially
determined estimate of incurred but not reported claims
at the anticipated cost to the Company as of the end of
the Company’s third quarter and adjusting it by the
actuarially determined losses and actual claims payments
for the fourth quarter. The reserves and losses are
determined actuarially from a range of possible outcomes
within which no given estimate is more likely than any
other estimate. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 5, “Accounting for
Contingencies,” the Company records the losses at the low
end of that range and discounts them to present value
using a risk-free interest rate based on actuarially
projected timing of payments. The Company records a
liability for its group health program for all unpaid claims
based primarily upon a loss development analysis derived
from actual group health claims payment experience
provided by the Company’s third party administrator.
The Company’s accounting policies regarding insurance
reserves include certain actuarial assumptions or
management judgments regarding economic conditions, the
frequency and severity of claims and claim development
history and settlement practices. Unanticipated changes in
these factors may produce materially different amounts
of expense.