Cracker Barrel 2010 Annual Report Download - page 47

split its group health program into two programs. e rst
program is fully insured and as such has no liability for
unpaid claims. e second program is self-insured. For the
Company’s calendar 2009 plan, benets for any individual
(employee or dependents) in the self-insured program were
limited to not more than $1,000 lifetime, $100 in any given
plan year and, in certain cases, to not more than $15 in any
given plan year. For the Company’s calendar 2010 plan,
benets for any individual (employee or dependents) in the
self-insured program are limited to not more than $20 in any
given year, and, in certain cases, to not more than $8 in given
year. e Company records a liability for the self-insured
portion of its group health program for all unpaid claims
based upon a loss development analysis derived from actual
group health claims payment experience.
e Company records a liability for workers’ compensa-
tion 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 based upon an
actuarially determined reserve as of the end of the Com-
pany’s third quarter and adjusts it by the actuarially
determined losses and actual claims payments for the fourth
quarter. e 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. e
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
selement practices. Unanticipated changes in these factors
may produce materially dierent 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 “Leases” section in this Note.
Leases – e Company’s leases are classied as either
capital or operating leases. e Company has ground leases
and oce 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. A majority of
the Company’s lease agreements provide renewal options
and some of these options contain rent escalation clauses.
e Company also leases its advertising billboards which are
recorded as operating leases (see “Advertising” in this Note).
e 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. e 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. e 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
specied levels. e Company records a contingent rent
liability and corresponding rent expense when it is probable
sales have been achieved in amounts in excess of the speci-
ed levels.
Rent expense under operating leases, excluding leases for
advertising billboards, is recognized on a straight-line, or
average, basis and includes any pre-opening periods during
construction for which the Company is legally obligated
under the terms of the lease, and any optional renewal
periods, for which at the inception of the lease, it is reason-
ably assured that the Company will exercise those renewal
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