Cracker Barrel 2006 Annual Report Download - page 55

53
Years
Buildings and improvements 30-45
Buildings under capital leases 15-25
Restaurant and other equipment 2-10
Leasehold improvements 1-35
Depreciation expense was $71,049, $66,687 and
$62,304 for 2006, 2005 and 2004, respectively.
Accelerated depreciation methods are generally used
for income tax purposes.
Capitalized interest was $756, $870 and $615 for
2006, 2005 and 2004, respectively.
Gain or loss is recognized upon disposal of property
and equipment, and the asset and related accumulated
depreciation and amortization amounts are removed
from the accounts.
Maintenance and repairs, including the replacement
of minor items, are charged to expense, and major
additions to property and equipment are capitalized.
Impairment of long-lived assets – The Company
assesses the impairment of long-lived assets whenever
events or changes in circumstances indicate that the
carrying value may not be recoverable. Recoverability
of assets is measured by comparing the carrying value
of the asset to the undiscounted future cash flows
expected to be generated by the asset. If the total
expected future cash flows are less than the carrying
amount of the asset, the carrying amount is written
down to the estimated fair value of an asset to be
held and used or the fair value, net of estimated costs
of disposal, of an asset to be disposed of, and a loss
resulting from impairment is recognized by a charge to
income. Judgments and estimates made by the
Company related to the expected useful lives of long-
lived assets are affected by factors such as changes in
economic conditions and changes in operating
performance. The accuracy of such provisions can vary
materially from original estimates, and management
regularly monitors the adequacy of the provisions until
final disposition occurs.
During 2006, the Company decided to close seven
Cracker Barrel stores and three Logan’s restaurants,
which resulted in impairment charges and store closing
costs of $8,052. Initially these impairments were
recorded based upon the lower of unit carrying amount
or fair value. The units’ fair values largely were
determined based upon estimates provided by third-
party appraisers using market comparables. The
impaired locations were closed in February 2006 and
were classified at that time as held for sale and were
remeasured at their fair value less cost to sell. The
locations were closed due to weak financial perform-
ance, an unfavorable outlook, and relatively positive
prospects for proceeds from disposition for certain
locations. Additionally, during 2006, the Company
recorded an impairment of $838 on its Cracker Barrel
management trainee housing facility. As of July 28,
2006, the Company had sold three Cracker Barrel
stores and one Logan’s restaurant and expects the sale
of the remaining four owned properties to be
completed within one year. The store closing charges
included employee termination benefits, lease
termination and other costs and are included in the
impairment and store closing charges line on the
accompanying Consolidated Statement of Income. The
remaining accrual for store closing costs at July 28,
2006 was $494. The Company also recorded an impair-
ment loss of $431 in 2005 with respect to a Cracker
Barrel store that was approved to relocate to a stronger
site in the same market. The results of operations for
all restaurants closed in fiscal 2006 and 2005 are not
material to our consolidated financial position,
results of operations or cash flows, and, therefore, have
not been presented as discontinued operations.
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
of the 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.