Cracker Barrel 2011 Annual Report Download - page 37

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three-year average of the physical inventories’ results on a
store-by-store basis.
Property and equipment – Property and equipment are
stated at cost. For financial 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:
Years
Buildings and improvements 30-45
Buildings under capital leases 15-25
Restaurant and other equipment 2-10
Leasehold improvements 1-35
Accelerated depreciation methods are generally used for
income tax purposes.
Total depreciation expense was $61,677, $59,930 and
$57,706 for 2011, 2010 and 2009, respectively. Depreciation
expense related to store operations was $56,985, $56,402
and $53,745 for 2011, 2010 and 2009, respectively, and is
included in other store operating expenses in the Consoli-
dated Statements of Income.
Capitalized interest was $350, $215 and $445 for 2011,
2010 and 2009, respectively.
Gain or loss is recognized upon disposal of property and
equipment. e 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 of
an asset may not be recoverable. Recoverability of assets is
measured by comparing the carrying value of the asset to the
undiscounted future cash flows expected to be generated
by the asset. If the total expected future cash flows are less than
the carrying value of the asset, the carrying value is wrien
down, for an asset to be held and used, to the estimated fair
value or, for an asset to be disposed of, to the fair value,
net of estimated costs of disposal. Any loss resulting from
impairment is recognized by a charge to income. Judgments
and estimates made by the Company related to the expected
useful lives of long-lived assets are affected 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 final 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, which
bear interest at the Company’s election either at the prime
rate or LIBOR plus a percentage point spread based on
certain specified financial ratios under its credit facility (see
Note 5). e Company’s policy has been to manage
interest cost using a mix of fixed and variable rate debt. To
manage this risk in a cost efficient manner, the Company uses
derivative instruments, specifically interest rate swaps.
On May 4, 2006, the Company entered into an interest rate
swap (the “2006 swap”) in which it agreed to exchange with
a counterparty, at specified intervals effective August 3, 2006,
the difference between fixed 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 2006 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 2006 swap was accounted for as a cash flow hedge
and expires in May 2013. e rate on the portion of the
Company’s outstanding debt covered by the 2006 swap is
fixed at a rate of 5.57% plus the Company’s credit spread over
the 7-year life of the 2006 swap. e Company’s weighted
average credit spreads at July 29, 2011 and July 30, 2010 were
2.00% and 1.90%, respectively.
On August 10, 2010, the Company entered into a second
interest rate swap (the “2010 swap”) in which it agreed
to exchange with a counterparty, effective May 3, 2013, the
difference between fixed and variable interest amounts
calculated by reference to the notional principal amount of
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