Cracker Barrel 2010 Annual Report Download - page 45

Property and equipment – Property and equipment are
stated at cost. For nancial 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:
Ye a r s
Buildings and improvements 30-45
Buildings under capital leases 15-25
Restaurant and other equipment 2-10
Leasehold improvements 1-35
Depreciation expense was $59,930, $57,706 and $56,149
for 2010, 2009 and 2008, respectively. Accelerated deprecia-
tion methods are generally used for income tax purposes.
Depreciation expense related to store operations was
$56,402, $53,745 and $51,858 for 2010, 2009 and 2008,
respectively, and is included in other store operating
expenses in the Consolidated Statement of Income.
Capitalized interest was $216, $445 and $682 for 2010,
2009 and 2008, 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 – e 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 undis-
counted future cash ows expected to be generated by the
asset. If the total expected future cash ows are less than the
carrying amount of the asset, the carrying amount is wrien
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 esti-
mates made by the Company related to the expected useful
lives of long-lived assets are aected by factors such as
changes in economic conditions and changes in operating
performance. e accuracy of such provisions can vary
materially from original estimates and management regularly
monitors the adequacy of the provisions until nal disposi-
tion occurs. See Notes 3 and 9 for additional information on
the Company’s impairment of long-lived assets.
Derivative instruments and hedging activities – e
Company is exposed to market risk, such as changes in
interest rates and commodity prices. e Company has
interest rate risk relative to its outstanding borrowings under
its Credit Facility (see Note 5). Loans under the Credit
Facility bear interest, at the Company’s election, either at the
prime rate or LIBOR plus a percentage point spread based
on certain specied nancial ratios. e Company uses
derivative instruments to mitigate its interest rate risk. e
Company’s policy has been to manage interest cost using a
mix of xed and variable rate debt (see Note 5). To manage
this risk in a cost ecient manner, the Company entered into
an interest rate swap on May 4, 2006 in which it agreed to
exchange with a counterparty, at specied intervals eective
August 3, 2006, the dierence between xed and variable
interest amounts calculated by reference to an agreed-upon
notional principal amount.
e swapped portion of the outstanding debt or notional
amount of the interest rate swap is as follows:
From August 3, 2006 to May 2, 2007 $ 525,000
From May 3, 2007 to May 5, 2008 650,000
From May 6, 2008 to May 4, 2009 625,000
From May 5, 2009 to May 3, 2010 600,000
From May 4, 2010 to May 2, 2011 575,000
From May 3, 2011 to May 2, 2012 550,000
From May 3, 2012 to May 3, 2013 525,000
e interest rate swap was accounted for as a cash ow
hedge. e swapped portion of the Company’s outstanding
debt is xed at a rate of 5.57% plus the Company’s credit
spread over the 7-year life of the interest rate swap. e
Company’s weighted average credit spreads at July 30, 2010
and July 31, 2009 were 1.90% and 1.50%, respectively.
Additionally, the Company entered into an interest rate
swap on August 10, 2010 in which it agreed to exchange with
a counterparty, eective May 3, 2013, the dierence between
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