Cracker Barrel 2013 Annual Report Download - page 40

accordingly. For those states that do not exempt gi cards
and certicates from their escheat laws, the Company records
breakage in the period that gi cards and certicates are
remied to the state and reduces its liability accordingly. Any
amounts remied to states under escheat or similar laws
reduce the Company’s deferred revenue liability and have no
eect on revenue or expense while any amounts that the
Company is permied to retain are recorded as revenue.
Insurance – e Company self-insures a signicant
portion of its workers’ compensation, general liability and
health insurance programs. e Company purchases
insurance for individual workers’ compensation claims that
exceed $250, $500 or $1,000 depending on the state in
which the claim originates. e Company purchases insur-
ance for individual general liability claims that exceed $500.
e Company records a reserve for workers’ compensa-
tion 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 the Company’s 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, the Company records the losses at the lower end of that
range and discounts them to present value using a risk-free
interest rate based on projected timing of payments. e
Company also monitors actual claims development, includ-
ing incurrence or selement of individual large claims during
the interim periods between actuarial studies as another
means of estimating the adequacy of its reserves. Beginning
in the second quarter of 2011, the Company began perform-
ing limited scope actuarial studies on a quarterly basis to
verify and/or modify the Company’s reserves.
For the Company’s health insurance plans, 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 any 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. Beginning in the rst
quarter of 2012, the fully-insured portion of the Company’s
health insurance program contains a retrospective feature
which could increase or decrease premiums based on actual
claims experience.
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.
e Company also leases its advertising billboards which are
recorded as operating leases. A majority of the Company’s
lease agreements provide renewal options and some of these
options contain rent escalation clauses. Additionally, some of
the leases have rent holiday and contingent rent provisions.
During rent holiday periods, which include the pre-opening
period during construction, the Company has possession
of and access to the property, but is not obligated to, and
normally does not, make rent payments. Contingent
rent 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.
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 rent holiday periods, and generally extends
through certain renewal periods that can be exercised at the
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