Cracker Barrel 2010 Annual Report Download - page 44

Notes To Consolidated Financial Statements
(In thousands except share data)
CRACKER BARREL OLD COUNTRY STORE, INC.
1 DESCRIPTION OF THE BUSINESS
Cracker Barrel Old Country Store, Inc. and its aliates
(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.
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
GAAP – e accompanying Consolidated Financial
Statements have been prepared in accordance with generally
accepted accounting principles in the United States
(“GAAP”).
Fiscal year – e Company’s scal 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 scal year or quarter unless
noted otherwise.
Principles of consolidation – e Consolidated
Financial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All
signicant intercompany transactions and balances have
been eliminated.
Fair value measurements – Fair value is dened as the
price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market partici-
pants at the measurement date. In determining fair value, a
three level hierarchy for inputs is used. ese levels are:
• Level1– quoted prices (unadjusted) for an identical asset
or liability in an active market.
• Level2– quoted prices for a similar asset or liability in an
active market or model-derived valuations in which all
signicant inputs are observable for substantially the full
term of the asset or liability.
• Level3–unobservable and signicant to the fair value
measurement of the asset or liability.
e fair values of cash equivalents and deferred compensa-
tion plan assets (included in other assets) are based on
quoted market prices. e fair values of accounts receivable
and accounts payable at July 30, 2010 and July 31, 2009,
approximate their carrying amounts due to their short
duration. e fair value of the Company’s variable-rate term
loans and revolving credit facility, based on quoted market
prices, totaled approximately $566,510 and $619,200 on July
30, 2010 and July 31, 2009, respectively. e estimated fair
value of the Company’s interest rate swap is the present value
of the expected cash ows, which is calculated by using the
replacement xed rate in the then-current market, and
incorporates the Company’s own non-performance risk. See
Note 3 for additional information on the Company’s fair
value measurements.
Cash and cash equivalents – e Company’s policy
is to consider all highly liquid investments purchased
with an original maturity of three months or less to be
cash equivalents.
Accounts receivable – Accounts receivable, net of the
allowance for doubtful accounts, represents their estimated
net realizable value. Provisions for doubtful accounts are
recorded based on historical collection experience and the
age of the receivables. Accounts receivable are wrien o
when they are deemed uncollectible.
Inventories – Inventories are stated at the lower of cost or
market. Cost of restaurant inventory is determined by the
rst-in, rst-out (“FIFO”) method. In 2010, approximately
70% of retail inventories are valued using the retail inventory
method (“RIM”) and the remaining 30% are valued using an
average cost method. In 2009, due to lower inventory levels
at the Company’s retail distribution center as compared to
prior years, approximately 80% of retail inventories were
valued using RIM and the remaining 20% were valued using
an average cost method. Valuation provisions are included
for retail inventory obsolescence, retail inventory shrinkage,
returns and amortization of certain items.
Cost of goods sold includes an estimate of retail inventory
shrinkage that is adjusted upon physical inventory counts.
Annual physical inventory counts are conducted throughout
the third and fourth quarters based upon a cyclical inventory
schedule. An estimate of shrinkage is recorded for the time
period between physical inventory counts by using a
three-year average of the physical inventories’ results on a
store-by-store basis.
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