Cracker Barrel 2009 Annual Report Download - page 52

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50
Unredeemed Gift Cards
Unredeemed gift cards represent liabilities related to
unearned income and are recorded at their expected
redemption value. No revenue is recognized in connection
with the point-of-sale transaction when gift cards are
sold. For those states that exempt gift cards from their
escheat laws, we make estimates of the ultimate
unredeemed (“breakage”) gift cards in the period of the
original sale and amortize this breakage over the
redemption period that other gift cards historically have
been redeemed by reducing the liability and recording
revenue accordingly. For those states that do not exempt
gift cards from their escheat laws, we record breakage in
the period that gift cards are remitted to the state and
reduce our liability accordingly. Any amounts remitted to
states under escheat or similar laws reduce our deferred
revenue liability and have no effect on revenue or
expense while any amounts that we are permitted to
retain are recorded as revenue. Changes in redemption
behavior or management’s judgments regarding
redemption trends in the future may produce materially
different amounts of deferred revenue to be reported.
We have not made any material changes in the
methodology used to record the deferred revenue liability
for unredeemed gift cards during the past three fiscal
years and do not believe there is a reasonable likelihood
that there will be material changes in the future
estimates or assumptions used to record this liability.
However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to losses
or gains that could be material.
Legal Proceedings
We are parties to various legal and regulatory proceedings
and claims incidental to our business. In the opinion of
management, however, based upon information currently
available, the ultimate liability with respect to these
actions will not materially affect our consolidated results
of operations or financial position. We review outstanding
claims and proceedings internally and with external
counsel as necessary to assess probability of loss and for
the ability to estimate loss. These assessments are re-
evaluated each quarter or as new information becomes
available to determine whether a reserve should be
established or if any existing reserve should be adjusted.
The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount
of the recorded reserve. In addition, because it is not
permissible under GAAP to establish a litigation reserve
until the loss is both probable and estimable, in some
cases there may be insufficient time to establish a
reserve prior to the actual incurrence of the loss (upon
verdict and judgment at trial, for example, or in the case
of a quickly negotiated settlement).
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