Cracker Barrel 2009 Annual Report Download - page 63

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derived from actual group health claims payment
experience provided by its third party administrator.
The Company records a liability for workers’ compensation
and general liability for all unresolved claims and for an
actuarially determined estimate of incurred but not
reported claims at the anticipated cost to the Company as
of the end of the Company’s third quarter and adjusts
it by the actuarially determined losses and actual claims
payments for the fourth quarter. The reserves and losses are
determined actuarially from a range of possible outcomes
within which no given estimate is more likely than any
other estimate. As such, the Company records the losses at
the low end of that range and discounts them to present
value using a risk-free interest rate based on actuarially
projected timing of payments. The Company’s accounting
policies regarding insurance reserves include certain
actuarial assumptions or management judgments regarding
economic conditions, the frequency and severity of
claims and claim development history and settlement
practices. Unanticipated changes in these factors may
produce materially different amounts of expense.
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 in
this Note.
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.
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 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. The same lease life is used for
reporting future minimum lease commitments as is used
for the straight-line rent calculation.
Certain leases provide for rent holidays, which are
included in the lease life used for the straight-line rent
calculation. Rent expense and an accrued rent liability
are recorded during the rent holiday periods, during which
the Company has possession of and access to the property,
but is not required or obligated to, and normally does
not, make rent payments.
Certain leases provide for contingent rent, which is
determined as a percentage of gross sales in excess of
specified levels. The Company records a contingent rent
liability and corresponding rent expense when it is probable
sales have been achieved in amounts in excess of the
specified levels.
Advertising – The Company expenses the costs of
producing advertising the first time the advertising takes
place. Net advertising expense was $42,371, $42,160
and $40,522 for 2009, 2008 and 2007, respectively. Rent
expense from continuing operations under operating
leases for billboards was $25,950, $25,177 and $25,204
for 2009, 2008 and 2007, respectively.
The following is a schedule by year of the future
minimum rental payments required under operating leases
for advertising billboards as of July 31, 2009:
Year
2010 $ 18,339
2011 6,472
2012 1,897
2013 62
2014 10
Total $ 26,780
Share-based compensation – The Company has four
share-based compensation plans for employees and non-
employee directors, which authorize the granting of stock
options, nonvested stock and other types of awards
consistent with the purpose of the plans (see Note 12). The
number of shares authorized for future issuance under the
Company’s plans as of July 31, 2009 totals 1,139,878.
Stock options granted under these plans are granted with
an exercise price equal to the market price of the
Company’s stock on the date; those option awards generally
vest at a cumulative rate of 33% per year beginning on
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