Cracker Barrel 2006 Annual Report Download - page 54

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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 the Logan’s
Roadhouse® (“Logan’s”) restaurant concept.
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. 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 Finan-
cial 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 July 28, 2006, approximate their carry-
ing amounts due to their short duration. The carrying
value and fair value of the Company’s zero-coupon
contingently convertible senior notes (the “Senior
Notes”) in long-term debt at July 28, 2006 were
$196,464 and $195,726, respectively. The fair value of
the Senior Notes in long-term debt is determined
based on market prices using the average of the bid
and ask prices as of July 28, 2006. The fair value of
the Company’s variable-rate Term Loan B approximates
its carrying value. The estimated fair value of the
Company’s interest rate swap liability on a portion of
its Term Loan B is included in other long-term
obligations (see “Derivative instruments and hedging
activities” in this Note).
The Company adopted Emerging Issues Task Force
(“EITF”) No. 04-8, “The Effect of Contingently
Convertible Instruments on Diluted Earnings per Share”
issued by the Financial Accounting Standards Board
(“FASB”), in the second quarter of 2005. EITF 04-8
requires the use of “if-converted” accounting for
contingently convertible debt regardless of whether
the contingencies allowing debt holders to convert
have been met. The adoption of EITF 04-8 resulted in
the Company’s Senior Notes (see Note 4 for the impact
on the net income per share calculation and Note 6
for a description of these Senior Notes) representing a
dilutive security and requiring approximately 4.6
million shares to be included in diluted weighted
average shares outstanding for the calculation of
diluted net income per share. Additionally, diluted
consolidated net income per share is calculated
excluding the after-tax interest and financing expenses
associated with the Senior Notes since these Senior
Notes are treated as if converted into common stock.
EITF 04-8 affects only the calculation of diluted
net income per share, and has no effect on the finan-
cial statements themselves or on the terms of the
Senior Notes.
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.
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 of this Note 2 to the
Consolidated Financial Statements.
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 over the estimated useful
lives of the respective assets, as follows:
CBRL GROUP, INC.
Notes to Consolidated Financial Statements
(In thousands except share data)