Cracker Barrel 2014 Annual Report Download - page 40

reducing its liability and recording revenue 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 and general liability 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 insurance for individual general
liability claims that exceed $500.
e Company records 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 the Company’s third quarter and is adjusted by the
actuarially determined losses and actual claims payments for
the fourth quarter. Additionally, the Company performs
limited scope actuarial studies on a quarterly basis to verify
and/or modify the Company’s reserves. 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, including 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.
e Company’s group health plans combine the use of
self-insured and fully-insured programs. Benets for any
individual (employee or dependents) in the self-insured
program are limited. 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 also records a liability for unpaid prescription
drug claims based on historical experience. e 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
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