Cracker Barrel 2015 Annual Report Download - page 21

However, if actual results are not consistent with our estimates
andassumptions used in estimatingfuturecash owsand fair
values of long-lived assets, we may be exposed to losses that
could be material.
InsuranceReserves
We self-insure a signicant portion of our expected workers’
compensation and general liability programs.We purchase
insurance for individual workers’compensation claims that
exceed $250, $500 or $1,000 depending on the state in which
the claim originates.We purchase insurance for individual
general liability claims that exceed $500. We record a reserve
for workers’ compensation and general liability for all
unresolved claims and for an estimate of incurredbut not
reported (“IBNR”) claims. esereservesand estimates of
IBNR claims are based upon a full scope actuarial study which
is performed annually at the end of our third quarterand is
adjusted by the actuarially determined lossesand actual claims
payments for the fourth quarter. Additionally, we perform
limited scope actuarial studies on a quarterly basis to verify
and/or modify our reserves. e reservesand lossesin the
actuarialstudy represent a rangeof possible outcomes within
which no given estimate is more likely than any other estimate.
As such, we record the losses in the lower endof that range
anddiscount them to present value using a risk-free interest rate
based on projected timing of payments. We also monitor
actual claims development, including incurrence or selement
of individual large claims during the interim periods between
actuarialstudies as another meansof estimating the adequacy of
our reserves.
Our group health planscombine the use of self-insured and
fully-insured programs.Benets for any individual (employee
or dependents) in the self-insured group health program are
limited. We record a liability for the self-insured portion of our
group health program for allunpaid claims based upon a loss
development analysis derived from actual group health claims
payment experience. We also record a liability for unpaid
prescription drug claims based on historical experience. e
majority of our fully-insuredhealth insurance plansfor calendar
2013 and 2014 contained a retrospective feature which could
increaseor decreasepremiums based on actual claimsexperience.
Our accounting policies regarding insurance reserves
include certain actuarialassumptions and management
judgmentsregarding economic conditions, the frequency and
severity of claims and claim development history and
selement practices.We havenot made any materialchanges
in the accounting methodology used to establish our
insurance reserves during the past three yearsand do not
believe there is a reasonable likelihood that there will be a
material changein the estimates or assumptions used to
calculate the insurance reserves. However, changes in these
actuarialassumptions or management judgmentsin the future
mayproduce materially dierent amounts of expense that
would be reported under these insurance programs.
RetailInventory Valuation
Cost of goods soldincludes the cost of retail merchandise sold
at our stores utilizing the retail inventory method (“RIM”).
Under RIM, the valuation of our retail inventories is at cost and
the resulting gross margins arecalculatedby applying a
cost-to-retail ratio to the retail value of our inventories. Inherent
in the RIM calculation are certain signicant management
judgmentsand estimates,including initial markons, markups,
markdownsand shrinkage,which may signicantly impact the
gross margin calculation as well as the ending inventory valuation.
Inventory valuation provisions are included for retail
inventory obsolescence and retail inventory shrinkage.Retail
inventory is reviewed on a quarterly basis for obsolescence
andadjusted as appropriate based on assumptions madeby
management andjudgment regarding inventory aging and
future promotional activities. Cost of goods soldincludes an
estimate of shrinkage that is adjusted upon physical inventory
counts. Annual physical inventory countsare conducted
throughout the third and fourth quarters based upon a cyclical
inventory schedule. An estimateof shrinkage is recorded
for the time period between physical inventory countsby using
a three-yearaverage of the physical inventories’ results on a
store-by-store basis.
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