Cracker Barrel 2008 Annual Report Download - page 76

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workers’ compensation and general liability insurance. All
standby letters of credit are renewable annually and reduce
the Company’s availability under its revolving credit facility.
The Company is secondarily liable for lease payments
under the terms of an operating lease that has been
assigned to a third party. The lease has a remaining life of
approximately 5.2 years with annual lease payments of
approximately $361. The Company’s performance is required
only if the assignee fails to perform its obligations as
lessee. The Company is also liable under a second operating
lease that has been sublet to a third party. The lease has
a remaining life of approximately 9.3 years and annual lease
payments net of sublease rentals of approximately $50. At
this time, the Company has no reason to believe that either
the assignee or subtenant, respectively, of the foregoing
leases will not perform and, therefore, no provision has
been made in the Consolidated Balance Sheet for amounts
to be paid in case of non-performance by the assignee or
subtenant, as applicable.
Upon the sale of Logan’s, the Company has reaffirmed
its guarantee of the lease payments for two Logan’s
restaurants. At August 1, 2008, the operating leases have
remaining lives of 3.4 and 11.7 years with annual payments
of approximately $94 and $98, respectively. The Company’s
performance is required only if Logan’s fails to perform its
obligations as lessee. At this time, the Company has no
reason to believe Logan’s will not perform, and therefore,
no provision has been made in the Consolidated Financial
Statements for amounts to be paid as a result of non-
performance by Logan’s.
The Company enters into certain indemnification
requirements in favor of third parties in the ordinary course
of business. The Company believes that the probability
of incurring an actual liability under such indemnification
agreements is sufficiently remote so that no liability has
been recorded. In connection with the divestiture of
Logan’s and Logan’s sale-leaseback transaction (see Note
3), the Company entered into various agreements to
indemnify third parties against certain tax obligations, for
any breaches of representations and warranties in the
applicable transaction documents and for certain costs and
expenses that may arise out of specified real estate
matters, including potential relocation and legal costs. With
the exception of certain tax indemnifications, the Company
believes that the probability of being required to make any
indemnification payments to Logan’s is remote. Therefore,
no provision has been recorded for any potential non-tax
indemnification payments in the Consolidated Balance
Sheet. At August 1, 2008, the Company has recorded a
liability of $377 in the Consolidated Balance Sheet for
these potential tax indemnifications.
The Company maintains insurance coverage for various
aspects of its business and operations. The Company has
elected, however, to retain all or a portion of losses that
occur through the use of various deductibles, limits and
retentions under its insurance programs. This situation
may subject the Company to some future liability for
which it is only partially insured, or completely uninsured.
The Company intends to mitigate any such future liability
by continuing to exercise prudent business judgment
in negotiating the terms and conditions of its contracts.
See Note 2 for a further discussion of insurance and
insurance reserves.
As of August 1, 2008, the Company operated 168 Cracker
Barrel stores in leased facilities and also leased certain
land and advertising billboards (see Note 16). These leases
have been classified as either capital or operating leases.
The interest rates for capital leases vary from 5% to 10%.
Amortization of capital leases is included with depreciation
expense. A majority of the Company’s lease agreements
provide for renewal options and some of these options
contain escalation clauses. Additionally, certain store leases
provide for percentage lease payments based upon sales
volume in excess of specified minimum levels.
The following is a schedule by year of future minimum
lease payments under capital leases, together with the
present value of the minimum lease payments as of
August 1, 2008:
Year
2009 $ 22
2010 22
2011 22
2012 22
2013 22
Total minimum lease payments 110
Less amount representing interest 17
Present value of minimum lease payments 93
Less current portion 16
Long-term portion of capital lease obligations $ 77