Cracker Barrel 2011 Annual Report Download - page 36

Notes To Consolidated Financial Statements
(In thousands except share data)
CR A CKER BAR REL OLD COUNTRY STORE, INC.
1DESCRIPTION OF THE BUSINESS
Cracker Barrel Old Country Store, Inc. and its affiliates
(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.
2SUMMARY 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 fiscal 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 fiscal 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
significant intercompany transactions and balances have been
eliminated.
Fair value measurements – Fair value is defined 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:
r -FWFM  – quoted prices (unadjusted) for an identical asset
or liability in an active market.
r -FWFM  – quoted prices for a similar asset or liability in an
active market or model-derived valuations in which all
significant inputs are observable for substantially the full
term of the asset or liability.
r -FWFM  – unobservable and significant 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 29, 2011 and July 30, 2010, approxi-
mate their carrying amounts because of their short duration.
e fair value of the Company’s variable rate debt, based on
quoted market prices, totaled approximately $550,000 and
$566,510 on July 29, 2011 and July 30, 2010, respectively.
e estimated fair value of the Company’s interest rate swaps
is the present value of the expected cash flows, which is
calculated by using the replacement fixed rate in the then-
current market, and incorporates the Company’s
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.
Property held for sale – Property held for sale consists of
real estate properties that the Company expects to sell within
one year and is reported at the lower of carrying amount
or fair value less costs to sell. At July 29, 2011, property held
for sale consisted of office space.
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 off
when they are deemed uncollectible.
Inventories – Inventories are stated at the lower of cost or
market. Cost of restaurant inventory is determined by
thefirst-in, first-out (“FIFO”) method. Retail inventories are
valued using the retail inventory method (“RIM”) except at
the retail distribution center which uses average cost. In 2011,
due to lower inventory levels at the Company’s retail
distribution center as compared to prior years, approximately
80% of retail inventories are valued using RIM and the
remaining 20% are valued using an average cost method. In
2010, approximately 70% of retail inventories are valued using
RIM and the remaining 30% are valued using an average
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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
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