Cracker Barrel 2013 Annual Report Download - page 27

In 2011, we incurred impairment charges related to one
of our stores. In 2011, we also incurred impairment charges
related to a corporate property held for sale. For a more
detailed discussion of these costs see the sub-section entitled
“Impairment and Store Dispositions, Net” under the
section above entitled “Results of Operations” presented
earlier in the MD&A.
Insurance Reserves
We self-insure a signicant portion of our expected workers’
compensation, general liability and health insurance programs.
We purchase insurance for individual workers’ compensa-
tion claims that exceed $250, $500 or $1,000 depending on
the state in which the claim originates. We purchase insurance
for individual general liability claims that exceed $500.
We record a reserve for workers’ compensation and general
liability for all unresolved claims and for an estimate of
incurred but not reported claims (“IBNR”). ese reserves
and estimates of IBNR claims are based upon a full scope
actuarial study which is performed annually at the end of our
third quarter and is adjusted by the actuarially determined
losses and actual claims payments for the fourth quarter. e
reserves and losses in the actuarial study represent a range of
possible outcomes within which no given estimate is more
likely than any other estimate. As such, we record the losses in
the lower end of that range and discount them to present
value using a risk-free interest rate based on projected timing
of payments. We also monitor actual claims development,
including incurrence or selement of individual large claims
during the interim periods between actuarial studies as
another means of estimating the adequacy of our reserves.
Beginning in the second quarter of 2011, we began
performing limited scope actuarial studies on a quarterly basis
to verify and/or modify our reserves.
A signicant portion of our health insurance program is
currently self-insured. Benets for any individual (employee
or dependents) in the self-insured group health program are
limited to not more than $20 in any given plan year, and, in
certain cases, to not more than $8 in any given year. We
record a liability for the self-insured portion of our group
health program for all unpaid claims based upon a loss
development analysis derived from actual group health claims
payment experience. Beginning in the rst quarter of 2012,
the fully-insured portion of our health insurance program
contains a retrospective feature which could increase or
decrease premiums based on actual claims experience.
Our accounting policies regarding insurance reserves
include certain actuarial assumptions and management
judgments regarding economic conditions, the frequency and
severity of claims and claim development history and
selement practices. We have not made any material changes
in the accounting methodology used to establish our
insurance reserves during the past three years and do not
believe there is a reasonable likelihood that there will be a
material change in the estimates or assumptions used to
calculate the insurance reserves. However, changes in these
actuarial assumptions or management judgments in the future
may produce materially dierent amounts of expense that
would be reported under these insurance programs.
Retail Inventory Valuation
Cost of goods sold includes the cost of retail merchandise sold
at our stores utilizing the retail inventory method (“RIM”).
Under RIM, the valuation of our retail inventories is at cost and
the resulting gross margins are calculated by applying a
cost-to-retail ratio to the retail value of our inventories. Inherent
in the RIM calculation are certain signicant management
judgments and estimates, including initial markons, markups,
markdowns and shrinkage, which may signicantly
impact the gross margin calculation as well as the ending
inventory valuation.
Inventory valuation provisions are included for retail
inventory obsolescence and retail inventory shrinkage. Retail
inventory is reviewed on a quarterly basis for obsolescence
and adjusted as appropriate based on assumptions made by
management and judgment regarding inventory aging and
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