Contact Phone Number
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-Q
(Mark
One)
of
the
Securities Exchange Act of 1934
For
the
Quarterly Period Ended January 26, 2007
or
of
the
Securities Exchange Act of 1934
For
the
Transition Period from ________ to _______.
Commission
file number 000-25225
CBRL
GROUP, INC.
(Exact
Name of Registrant as
Specified
in Its Charter)
Tennessee
|
|
62-1749513
|
(State
or Other Jurisdiction
|
|
(IRS
Employer
|
of
Incorporation or Organization)
|
|
Identification
No.)
|
305
Hartmann Drive, P. O. Box 787
Lebanon,
Tennessee 37088-0787
(Address
of Principal Executive Offices)
(Zip
Code)
615-444-5533
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
X No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes No
X
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
25,186,108
Shares of Common Stock
Outstanding
as of February 23, 2007
CBRL
GROUP, INC.
FORM
10-Q
For
the Quarter Ended January 26, 2007
INDEX
PART
I. FINANCIAL
INFORMATION |
Page |
|
|
|
|
|
|
|
|
|
|
· Condensed
Financial Statements (unaudited)
|
|
|
|
a) Condensed
Consolidated Balance Sheet as of January 26, 2007
|
|
|
|
and July 28, 2006
|
3
|
|
|
|
|
|
|
b) Condensed
Consolidated Statement of Income for the Quarters and Six
|
|
|
|
Months
Ended January 26, 2007 and January 27, 2006
|
4
|
|
|
|
|
|
|
c) Condensed
Consolidated Statement of Cash Flows for the Six Months
|
|
|
|
Ended January 26, 2007 and January 27, 2006
|
5
|
|
|
|
|
|
|
d) Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
|
|
|
Item
2
|
|
|
|
· Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
|
|
|
Item
3
|
|
|
|
· Quantitative
and Qualitative Disclosures About Market Risk
|
28
|
|
|
|
|
|
|
Item
4
|
|
|
|
· Controls
and Procedures
|
28
|
|
|
|
|
PART
II. OTHER
INFORMATION |
|
|
|
|
|
|
Item
1A
|
|
|
|
·
Risk Factors
|
29
|
|
|
|
|
|
|
Item
2
|
|
|
|
· Unregistered
Sales of Equity Securities and Use of Proceeds
|
29
|
|
|
|
|
|
|
Item
4
|
|
|
|
· Submission
of Matters to a Vote of Security Holders
|
30
|
|
|
|
|
|
|
Item
6
|
|
|
|
· Exhibits
|
30
|
|
|
|
|
SIGNATURES |
31
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
thousands, except share data)
(Unaudited)
|
|
January
26,
|
|
July
28,
|
|
|
|
2007
|
|
2006*
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
258,401
|
|
$
|
87,830
|
|
Property
held
for sale
|
|
|
5,915
|
|
|
3,127
|
|
Receivables
|
|
|
11,598
|
|
|
11,434
|
|
Inventories
|
|
|
114,922
|
|
|
128,303
|
|
Prepaid
expenses
|
|
|
9,725
|
|
|
4,395
|
|
Deferred
income
taxes
|
|
|
17,108
|
|
|
17,519
|
|
Current
assets of discontinued operations (Note 18)
|
|
|
--
|
|
|
401,222
|
|
Total
current
assets
|
|
|
417,669
|
|
|
653,830
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,459,277
|
|
|
1,415,374
|
|
Less:
Accumulated depreciation and amortization of capital
leases
|
|
|
457,004
|
|
|
432,870
|
|
Property
and equipment - net
|
|
|
1,002,273
|
|
|
982,504
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
46,312
|
|
|
44,963
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,466,254
|
|
$
|
1,681,297
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
56,351
|
|
$
|
70,944
|
|
Taxes
withheld and accrued
|
|
|
24,799
|
|
|
30,905
|
|
Income
taxes payable
|
|
|
63,498
|
|
|
21,381
|
|
Deferred
revenues
|
|
|
34,034
|
|
|
18,847
|
|
Other
accrued expenses
|
|
|
107,454
|
|
|
108,695
|
|
Current
maturities of long-term debt and other long-term
obligations
|
|
|
7,233
|
|
|
8,116
|
|
Current
liabilities of discontinued operations (Note 18)
|
|
|
--
|
|
|
71,645
|
|
Total
current
liabilities
|
|
|
293,369
|
|
|
330,533
|
|
|
|
|
|
|
|
|
|
Long-term
debt (Note 15)
|
|
|
836,438
|
|
|
911,464
|
|
Other
long-term obligations
|
|
|
143,758
|
|
|
137,018
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock
- 100,000,000 shares of $.01 par
|
|
|
|
|
|
|
|
value
authorized;
no shares issued
|
|
|
--
|
|
|
--
|
|
Common
stock - 400,000,000 shares of $.01 par value authorized;
|
|
|
|
|
|
|
|
26,129,641
shares issued and outstanding at January 26, 2007,
|
|
|
|
|
|
|
|
and
30,926,906 shares issued and outstanding at July 28, 2006
|
|
|
261
|
|
|
309
|
|
Additional
paid-in capital
|
|
|
--
|
|
|
4,257
|
|
Accumulated
other comprehensive loss (Note 12)
|
|
|
(7,200
|
)
|
|
(4,529
|
)
|
Retained
earnings
|
|
|
199,628
|
|
|
302,245
|
|
Total
shareholders’ equity
|
|
|
192,689
|
|
|
302,282
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
1,466,254
|
|
$
|
1,681,297
|
|
See
notes
to unaudited condensed consolidated financial statements.
*
This
condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of July 28, 2006, as filed in the Company’s Annual
Report on Form 10-K for the fiscal year ended July 28, 2006.
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
(In
thousands, except share and per share data)
(Unaudited)
|
|
|
Quarter
Ended
|
|
|
Six
Months Ended
|
|
|
|
|
January
26,
2007
|
|
|
January
27, 2006
|
|
|
January
26, 2007
|
|
|
January
27, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
612,134
|
|
$
|
586,741
|
|
$
|
1,170,397
|
|
$
|
1,122,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
210,352
|
|
|
200,226
|
|
|
383,208
|
|
|
366,838
|
|
Gross
profit
|
|
|
401,782
|
|
|
386,515
|
|
|
787,189
|
|
|
755,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
219,594
|
|
|
208,222
|
|
|
431,768
|
|
|
412,640
|
|
Other
store operating expenses
|
|
|
105,932
|
|
|
99,942
|
|
|
203,654
|
|
|
195,126
|
|
Impairment
charges
|
|
|
--
|
|
|
3,705
|
|
|
--
|
|
|
3,705
|
|
Store
operating income
|
|
|
76,256
|
|
|
74,646
|
|
|
151,767
|
|
|
143,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
34,022
|
|
|
31,921
|
|
|
71,282
|
|
|
64,983
|
|
Operating
income
|
|
|
42,234
|
|
|
42,725
|
|
|
80,485
|
|
|
78,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
14,609
|
|
|
2,319
|
|
|
29,786
|
|
|
4,806
|
|
Interest
income
|
|
|
3,857
|
|
|
93
|
|
|
4,455
|
|
|
93
|
|
Income
before income taxes
|
|
|
31,482
|
|
|
40,499
|
|
|
55,154
|
|
|
74,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
10,981
|
|
|
13,790
|
|
|
19,491
|
|
|
25,458
|
|
Income
from continuing operations
|
|
|
20,501
|
|
|
26,709
|
|
|
35,663
|
|
|
48,763
|
|
Income
from discontinued operations,
net
of
tax (See Note 18)
|
|
|
82,011
|
|
|
4,088
|
|
|
86,276
|
|
|
7,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
102,512
|
|
$
|
30,797
|
|
$
|
121,939
|
|
$
|
56,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations (See Note 6)
|
|
$
|
0.66
|
|
$
|
0.57
|
|
$
|
1.14
|
|
$
|
1.04
|
|
Income
from discontinued operations
|
|
$
|
2.66
|
|
$
|
0.09
|
|
$
|
2.76
|
|
$
|
0.17
|
|
Net
income per share
|
|
$
|
3.32
|
|
$
|
0.66
|
|
$
|
3.90
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations (See Note 6)
|
|
$
|
0.60
|
|
$
|
0.53
|
|
$
|
1.05
|
|
$
|
0.98
|
|
Income
from discontinued operations
|
|
$
|
2.28
|
|
$
|
0.08
|
|
$
|
2.38
|
|
$
|
0.15
|
|
Net
income per share
|
|
$
|
2.88
|
|
$
|
0.61
|
|
$
|
3.43
|
|
$
|
1.13
|
|
Weighted
average shares (See Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,839,209
|
|
|
46,782,140
|
|
|
31,226,657
|
|
|
46,727,171
|
|
Diluted
|
|
|
36,016,304
|
|
|
51,843,383
|
|
|
36,204,862
|
|
|
51,839,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to unaudited condensed consolidated financial statements.
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited
and in thousands)
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
121,939
|
|
$
|
56,519
|
|
Income
from discontinued operations, net of tax
|
|
|
(86,276
|
)
|
|
(7,756
|
)
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
by
operating activities of continuing operations:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
28,017
|
|
|
27,560
|
|
Loss
on
disposition of property and equipment
|
|
|
1,304
|
|
|
1,242
|
|
Impairment
|
|
|
--
|
|
|
3,705
|
|
Accretion
on
zero-coupon contingently convertible
senior
notes
|
|
|
2,934
|
|
|
2,845
|
|
Share-based
compensation
|
|
|
7,285
|
|
|
6,976
|
|
Excess
tax benefit from share-based compensation
|
|
|
(1,947
|
)
|
|
(2,890
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Inventories
|
|
|
13,381
|
|
|
9,071
|
|
Accounts
payable
|
|
|
(14,593
|
)
|
|
(33,119
|
)
|
Taxes
withheld and accrued
|
|
|
(6,106
|
)
|
|
(3,998
|
)
|
Income
taxes payable
|
|
|
32,273
|
|
|
(7,660
|
)
|
Deferred
gift
card revenues
|
|
|
15,187
|
|
|
11,545
|
|
Other
current assets and other current liabilities
|
|
|
(5,667
|
)
|
|
(13,469
|
)
|
Other
long-term assets and liabilities
|
|
|
1,510
|
|
|
1,829
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
109,241
|
|
|
52,400
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(47,000
|
)
|
|
(44,950
|
)
|
Proceeds
from sale of property and equipment
|
|
|
1,636
|
|
|
103
|
|
Proceeds
from insurance recoveries
|
|
|
91
|
|
|
--
|
|
Proceeds
from sale of Logan’s
|
|
|
267,262
|
|
|
--
|
|
Net
cash provided by (used in) investing activities of continuing
operations
|
|
|
221,989
|
|
|
(44,847
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
--
|
|
|
518,000
|
|
Principal
payments under long-term debt and other
|
|
|
|
|
|
|
|
long-term obligations
|
|
|
(78,863
|
)
|
|
(524,605
|
)
|
Proceeds
from exercise of stock options
|
|
|
20,171
|
|
|
13,594
|
|
Excess
tax benefit from share-based compensation
|
|
|
1,947
|
|
|
2,890
|
|
Purchases
and retirement of common stock
|
|
|
(250,142
|
)
|
|
--
|
|
Dividends
on common stock
|
|
|
(8,464
|
)
|
|
(11,746
|
)
|
Net
cash used in financing activities of continuing operations
|
|
|
(315,351
|
)
|
|
(1,867
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities of discontinued
operations
|
|
|
(32,716
|
)
|
|
23,922
|
|
Net
cash provided by (used in) investing activities of discontinued
operations
|
|
|
187,408
|
|
|
(28,105
|
)
|
Net
cash provided by (used in) discontinued operations
|
|
|
154,692
|
|
|
(4,183
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
170,571
|
|
|
1,503
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
87,830
|
|
|
15,577
|
|
Cash
and cash equivalents, end of period
|
|
$
|
258,401
|
|
$
|
17,080
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the six months for:
|
|
|
|
|
|
|
|
Interest,
net
of amounts capitalized
|
|
$
|
26,873
|
|
$
|
1,502
|
|
Income
taxes
|
|
$
|
27,956
|
|
$
|
35,337
|
|
See
notes
to unaudited condensed consolidated financial statements.
CBRL
GROUP,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except percentages, share and per share data)
(Unaudited)
1.
Condensed
Consolidated Financial Statements
The
condensed consolidated balance sheets as of January 26, 2007 and July 28, 2006
and the related condensed consolidated statements of income and cash flows
for
the quarters and/or six-month periods ended January 26, 2007 and January 27,
2006, have been prepared by CBRL Group, Inc. (the “Company”) in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”) and pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) without audit. The Company is principally engaged in
the operation and development of the Cracker Barrel Old Country
StoreÒ
(“Cracker Barrel”) restaurant and retail concept. In October 2006, the Company
entered into an agreement to sell its wholly-owned subsidiary Logan’s
RoadhouseÒ
(“Logan’s”).
On
December 6, 2006, the sale was closed (see Note 18). As a result, Logan’s is
presented as discontinued operations in the accompanying condensed consolidated
financial statements. In the opinion of management, all adjustments (consisting
of normal and recurring items) necessary for a fair presentation of such
condensed consolidated financial statements have been made. The results of
operations for any interim period are not necessarily indicative of results
for
the full year.
These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto contained in
the
Company's Annual Report on Form 10-K for the year ended July 28, 2006 (the
“2006
Form 10-K”). The accounting policies used in preparing these condensed
consolidated financial statements are the same as those described in our 2006
Form 10-K.
References
in
these Notes to the Condensed Consolidated Financial Statements to a year are
to
the Company’s fiscal year unless otherwise noted. Certain reclassifications have
been made in the 2006 condensed consolidated financial statements to present
Logan’s as discontinued operations. These reclassifications have no effect on
the Company’s net income or financial position as previously reported.
2.
Summary
of Significant Accounting Policies
The
significant accounting policies of the Company are included in the 2006 Form
10-K. During the quarter ended January 26, 2007, there were no significant
changes to those accounting policies.
3.
Shared-Based
Compensation
Effective
July 30, 2005, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which
requires the measurement and recognition of compensation cost at fair value
for
all share-based payments. Share-based compensation includes compensation
expense, recognized over the applicable vesting periods, for new share-based
awards and for share-based awards granted prior to, but not yet vested, as
of
July 29, 2005. For
the
quarter and six-month period ended January 26, 2007, share-based
compensation was $1,599 and $3,482, respectively, for stock options and $3,041
and $3,803, respectively, for nonvested stock. Included in these totals are
share-based compensation from continuing operations for the quarter and
six-month period ended January 26, 2007 of $1,596 and $3,416, respectively,
for
stock options and $3,041 and $4,283, respectively, for nonvested stock.
For
the
quarter and six-month period ended January 27, 2006, share-based
compensation was $2,353 and $5,153, respectively, for stock options and $968
and
$1,823, respectively, for nonvested stock. Included in these totals are
share-based compensation from continuing operations for the quarter and
six-month period ended January 27, 2006
of
$2,016
and $4,481, respectively, for stock options and $849 and $1,647, respectively,
for nonvested stock. Share-based compensation is recorded in general and
administrative expenses for continuing operations.
During
the second quarter of 2007, the Company recognized additional compensation
expense of $1,731 for retirement eligible employees under its Mid Term Incentive
and Retention Plans (“MTIRP”). In accordance with SFAS No. 123R, compensation
expense is recognized to the date on which retirement eligibility is achieved,
if shorter than the vesting period.
4.
Seasonality
Historically,
the net income of the Company typically has been lower in the first three
quarters and highest in the fourth quarter, which includes much of the summer
vacation and travel season. Management attributes these variations to the
decrease in interstate tourist traffic and propensity to dine out less during
the regular school year and winter months and the increase in interstate tourist
traffic and propensity to dine out more during the summer months. Additionally,
2007 will include an additional week, which results in 53 weeks for the fiscal
year. The Company's retail sales historically have been highest in the Company's
second quarter, which includes the Christmas holiday shopping season. The
Company also generally opens additional new locations throughout the year.
Therefore,
the results of operations for the quarter or six-month period ended January
26,
2007 are not necessarily indicative of the operating results for the entire
year.
5.
Inventories
Inventories
from continuing operations were comprised of the following at:
|
|
January
26,
2007
|
|
July
28, 2006
|
|
|
|
|
|
|
|
Retail
|
|
$
|
81,893
|
|
$
|
97,799
|
|
Restaurant
|
|
|
17,802
|
|
|
16,463
|
|
Supplies
|
|
|
15,227
|
|
|
14,041
|
|
Total
|
|
$
|
114,922
|
|
$
|
128,303
|
|
6.
Consolidated
Income From Continuing Operations Per Share and Weighted Average Shares
Basic
consolidated income from continuing operations per share is computed by dividing
consolidated income from continuing operations available to common shareholders
by the weighted average number of common shares outstanding for the reporting
period. Diluted consolidated income from continuing operations per share
reflects the potential dilution that could occur if securities, options or
other
contracts to issue common stock were exercised or converted into common stock.
Additionally, diluted consolidated income from continuing operations per share
is calculated excluding the after-tax interest and financing expenses associated
with the Senior Notes since these Senior Notes are treated as if converted
into
common stock (See Notes 4 and 6 to the Company’s Consolidated Financial
Statements included in the 2006 Form 10-K). The
Company’s Senior Notes, outstanding employee and director stock options,
nonvested stock and stock awards issued by the Company represent the only
dilutive effects on income from continuing operations per share. The following
table reconciles the components of the diluted income from continuing operations
per share computations:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per share
numerator:
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
20,501
|
|
$
|
26,709
|
|
$
|
35,663
|
|
$
|
48,763
|
|
Add:
Interest and loan acquisition costs
associated
with
Senior Notes, net of
related
tax
effects
|
|
|
1,376
|
|
|
938
|
|
|
2,316
|
|
|
1,869
|
|
Income
from continuing operations available
to
common
shareholders
|
|
$
|
21,877
|
|
$
|
27,647
|
|
$
|
37,979
|
|
$
|
50,632
|
|
Income
from continuing operations per share
denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding for
basic
income from
continuing operations
per
share
|
|
|
30,839,209
|
|
|
46,782,140
|
|
|
31,226,657
|
|
|
46,727,171
|
|
Add
Potential Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
|
|
|
4,582,788
|
|
|
4,582,788
|
|
|
4,582,788
|
|
|
4,582,788
|
|
Stock
options, nonvested stock and stock awards
|
|
|
594,307
|
|
|
478,455
|
|
|
395,417
|
|
|
530,030
|
|
Weighted
average shares outstanding for diluted
income
from continuing operations per share
|
|
|
36,016,304
|
|
|
51,843,383
|
|
|
36,204,862
|
|
|
51,839,989
|
|
7.
Segment
Reporting
Cracker
Barrel units represent a single, integrated operation with two related and
substantially integrated product lines. The operating expenses of the restaurant
and retail product lines of a Cracker Barrel unit are shared and are
indistinguishable in many respects. The chief operating decision-maker reviews
operating results for both restaurant and retail operations on a combined basis.
Accordingly, the Company manages it business on the basis of one reportable
operating segment. As stated in Note 1, on December 6, 2006, the Company sold
Logan’s. As
a
result, the operations of Logan’s are reported as discontinued operations (see
Note 18) and have been excluded from segment reporting.
All
of the
Company’s operations are located within the United States. The following data
are presented in accordance with SFAS No. 131, “Disclosures About Segments of an
Enterprise and Related Information,” for all periods presented:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
from continuing operations:
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$
|
447,782
|
|
$
|
434,431
|
|
$
|
890,109
|
|
$
|
861,076
|
|
Retail
|
|
|
164,352
|
|
|
152,310
|
|
|
280,288
|
|
|
261,150
|
|
Total
revenue from continuing operations
|
|
$
|
612,134
|
|
$
|
586,741
|
|
$
|
1,170,397
|
|
$
|
1,122,226
|
|
8.
Impairment
of Long-lived Assets
Property
and Equipment
In
accordance
with SFAS No. 144 “Impairment or Disposal of Long-Lived Assets,” (“SFAS No.
144”) the Company evaluates long-lived assets and certain identifiable
intangibles to be held and used in the business for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may
not
be recoverable. An impairment is determined by comparing undiscounted future
operating cash flows that are expected to result from an asset to the carrying
values of an asset on a store by store basis. In addition, the recoverability
test considers the likelihood of possible outcomes that existed at the balance
sheet date, including the assessment of the likelihood of the future sale of
the
asset. If an impairment exists, the amount of impairment is measured as the
sum
of the estimated discounted future operating cash flows of the asset and the
expected proceeds upon sale of the asset less its carrying value. Assets held
for sale, if any, are reported at the lower of carrying amount or fair value
less costs to sell. The Company recorded no impairment losses in the six months
ended January 26, 2007. During the quarter ended January 27, 2006, the Company
decided to close seven Cracker Barrel stores and three Logan’s restaurants,
which resulted in impairment charges of $6,765. Of this total, $3,705 is
included as impairment charges in continuing operations and $3,060 is included
in discontinued operations in the accompanying condensed consolidated statement
of income and statement of cash flow. These impairments were recorded based
upon
the lower of individual unit carrying amount or fair value. At January 27,
2006,
the impaired locations were classified as held and used and the carrying amount
of the assets for the closed stores totaled $10,461. These restaurants were
closed early in the third quarter 2006, at which time they were then classified
as held for sale.
9.
Formation
of Subsidiary
In
November
2006, the Company formed Gun Barrel Road Logan’s Inc. (“GBRL”), a Tennessee
corporation and wholly-owned subsidiary of CBRL, for the purpose of holding
the
assets comprising three Logan’s properties retained by the Company that are
leased back to Logan’s. These properties were excluded from Logan’s
sale-leaseback transaction, which was completed just prior to the divestiture
of
Logan’s, due to certain real estate matters. These three properties were
transferred from Logan’s as a dividend to the Company, which then contributed
the properties in order to capitalize GBRL. GBRL’s operations will consist only
of the collection of the rent on these three properties until such time as
these
properties are sold.
10.
Commitments
and Contingencies
The
Company
and its subsidiaries are parties to various legal and regulatory proceedings
and
claims incidental to and arising out of the ordinary course of its business.
In
the opinion of management, however, based upon information currently available,
the ultimate liability with respect to these proceedings and claims will not
materially affect the Company’s consolidated results of operations or financial
position. However, litigation involves an element of uncertainty. Future
developments could cause these actions or claims to have a material adverse
effect on the Company’s financial statements as a whole.
The
Company
is contingently liable pursuant to standby letters of credit as credit
guarantees primarily related to insurers. As of January 26, 2007, the Company
had $43,952 of standby letters of credit related primarily to securing reserved
claims under workers' compensation and general liability insurance. All standby
letters of credit are renewable annually and reduce the Company’s availability
under its $250,000 revolving credit facility.
The
Company
is secondarily liable for lease payments under the terms of an operating lease
that has been assigned to a third party and a second operating lease that has
been sublet to a third party. The operating leases have remaining lives of
approximately 6.7 and 10.8 years, with annual lease payments of approximately
$361 and $102, respectively. Under the assigned lease the Company’s performance
is required only if the assignee fails to perform its obligations as lessee.
At
this time, the Company has no reason to believe that the assignee will not
perform and, therefore, no provision has been made in the accompanying condensed
consolidated financial statements for amounts to be paid as a result of
non-performance by the assignee. Under the sublease, the Company’s performance
is only required if the sublessee fails to perform its obligations as lessee.
In
the second quarter of 2007, the Company has a remaining liability of $657 in
the
accompanying condensed consolidated balance sheet for estimated amounts to
be
paid in case of non-performance by the sublessee.
As
of
December 2006, the Company has reaffirmed its guarantee of the lease payments
for two Logan’s restaurants. The operating leases have remaining lives of 4.9
and 13.2 years with annual payments of approximately $94 and $98, respectively.
The Company’s performance is only required if Logan’s fails to perform its
obligations as lessee. At this time, the Company has no reason to believe
Logan’s will not perform, and therefore, no provision has been made in the
accompanying condensed consolidated financial statements for amounts to be
paid
as a result of non-performance by Logan’s.
In
connection
with the divestiture of Logan’s and Logan’s sale-leaseback transaction, the
Company is a party to various agreements to indemnify third parties against
certain tax obligations, for any breaches of representations and warranties
in
the applicable transaction documents and for certain costs and expenses that
may
arise out of specified real estate matters, including potential relocation
and
legal costs. The Company believes that the probability of being required to
make
any indemnification payments is remote. Therefore, no provision has been
recorded for any potential indemnification payments in the accompanying
condensed consolidated balance sheet.
11.
Litigation
Settlement
The
Company
was a member of a plaintiff class of a settled lawsuit against Visa U.S.A.
Inc.
(“Visa”) and MasterCard International Incorporated (“MasterCard”). The Visa
Check/Mastermoney Antitrust litigation settlement became final on June 1, 2005.
Because the Company believed this settlement represented an indeterminate mix
of
loss recovery and gain contingency, the Company could not record the expected
settlement proceeds until the settlement amount and timing were reasonably
certain. During the second quarter of 2007, the Company received its share
of
the proceeds, which was $1,318, and recorded the amount of the proceeds as
a
gain that is included in other store operating expenses in the accompanying
condensed consolidated statement of income.
12.
Shareholders’
Equity
During
the
six-month period ended January 26, 2007, the Company received proceeds of
$20,171 from the exercise of stock options on 637,509 shares of its common
stock. During the six-month period ended January 26, 2007, the Company did
not
make any share repurchases, except pursuant to its modified “Dutch Auction”
tender offer as described in Note 14.
During
the
six-month period ended January 26, 2007, the Company paid dividends of $0.13
and
$0.14 per common share on August 8, 2006 and on November 8, 2006, respectively.
The Company also declared a dividend of $0.14 per common share that was paid
on
February 8, 2007 in the aggregate amount of $3,655, which is recorded in other
accrued expenses in the accompanying condensed consolidated balance sheet.
Additionally, the Company
declared
a dividend of $0.14 per common share on February 22, 2007 to be paid on May
8,
2007 to shareholders of record on April 20, 2007.
During
the
six-month period ended January 26, 2007, the unrealized loss, or change in
value, net of tax, on the Company’s interest rate swap increased by $2,671 to
$7,200 and is recognized in accumulated other comprehensive loss.
During
the
six-month period ended January 26, 2007, total share-based compensation was
$7,285 and the excess tax benefit from share-based compensation was $1,947.
During the six-month period ended January 27, 2006, total share-based
compensation was $6,976 and the excess tax benefit from share-based compensation
was $2,890.
13.
Comprehensive
Income
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
102,512
|
|
$
|
30,797
|
|
$
|
121,939
|
|
$
|
56,519
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate
swap, net
|
|
|
4,384
|
|
|
--
|
|
|
(2,671
|
)
|
|
--
|
|
Total comprehensive income
|
|
$
|
106,896
|
|
$
|
30,797
|
|
$
|
119,268
|
|
$
|
56,519
|
|
14.
Share
Repurchases
On
December
13, 2006, the Company commenced a modified “Dutch Auction” tender offer in which
it sought to acquire up to 5,430,000 shares (“the Tender Offer”), subject to 2%
allowable additional shares in the event of an oversubscription. The Tender
Offer expired at midnight on January 11, 2007, at which time 5,434,774 shares
were tendered at a price of $46.00 per share. On January 18, 2007, the Company
accepted for payment 5,434,774 shares of its common stock at a purchase price
of
$46.00 per share for a total purchase price of approximately $250,000. An
oversubscription allowed the Company to purchase an additional 4,774 shares
in
addition to the 5,430,000 sought in the offer and remain within the $250,000
limit, before fees, established by the Company’s Board of Directors. The shares
repurchased represented approximately 17% of the shares outstanding at the
time
of the Tender Offer. In accordance with SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,” the
Company recorded interest expense of $286 associated with the Tender Offer
in
the second quarter of 2007. The Company also incurred related transaction fees,
which were recorded as a reduction to shareholders’ equity. The transaction fees
included the dealer manager, information agent, depositary, legal and other
fees.
On
January
19, 2007, the Company adopted a written trading plan under Rule 10b5-1 of the
Securities and Exchange Commission (the “Company’s 10b5-1 Plan”) to facilitate
repurchases under its previously announced $100,000 share repurchase
authorization. The $100,000 repurchase authorization is in addition to
management’s authority to purchase 821,081 shares that remains from a 2005
repurchase authorization. The Company’s 10b5-1 Plan provides for share
repurchases to commence on January 29, 2007 and continue through March 2, 2007,
subject to certain price, volume and timing constraints specified in the
Company’s 10b5-1 Plan. The Company may terminate the plan at any time. The
Company’s 10b5-1 Plan expires on the earlier of March 2, 2007 or the date on
which $100,000 in repurchases are completed.
15. Debt
Long-term
debt consisted of the following at:
|
|
January
26,
2007
|
|
July
28,
2006
|
|
|
|
|
|
|
|
Term
Loan B
|
|
|
|
|
|
Payable
$1,792 per
quarter with the
Remainder
due on
April 27, 2013
|
|
$
|
644,208
|
|
$
|
723,000
|
|
3.0%
Zero-Coupon Contingently convertible
Senior
Notes
payable on or before April 2,
2032
|
|
|
199,398
|
|
|
196,464
|
|
|
|
|
843,606
|
|
|
919,464
|
|
Current
maturities of Term Loan B
|
|
|
(7,168
|
)
|
|
(8,000
|
)
|
Long-term
debt
|
|
$
|
836,438
|
|
$
|
911,464
|
|
Effective
April 27, 2006, the Company entered into a $1,250,000 credit facility (the
“2006
Credit Facility”) that consisted of up to $1,000,000 in term loans with a
scheduled maturity date of April 27, 2013 and a $250,000 revolving credit
facility expiring April 27, 2011. The 2006 Credit Facility contains customary
financial covenants, which include maintenance of a maximum consolidated total
leverage ratio as specified in the agreement and maintenance of minimum interest
coverage ratios. As of January 26, 2007, the Company is in compliance with
all
debt covenants.
Subject
to there being no events of default, covenants under the 2006 Credit Facility
permit the Company to declare and pay cash dividends to its stockholders as
long
as the Company has at least $100,000 available under its Revolving Credit
Facility and the aggregate amount of such dividends paid during any fiscal
year
would be less than 15% of Consolidated EBITDA from continuing operations, as
defined, for the fiscal year immediately preceding the fiscal year in which
such
dividend is paid. Additionally, the Company may increase its regular quarterly
cash dividend in any fiscal quarter by an amount not to exceed the greater
of
$.01 of 10% of the amount of the regular quarterly cash dividend paid in the
prior fiscal quarter.
The
Company has classified the Senior Notes as long-term obligations due to the
Company’s intent and ability to refinance these Senior Notes on a long-term
basis.
16.
Derivative
Instruments and Hedging Activities
The
Company accounts for its interest rate swap in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” The estimated
fair value of this interest rate swap liability was $11,479 at January 26,
2007,
representing an increase of $4,259 during the first six months of 2007, and
is
included in other long-term obligations. The offset to the interest rate swap
liability is in accumulated other comprehensive loss, net of the deferred tax
asset. Cash flows related to the interest rate swap are included in operating
activities.
17.
Compensatory
Plans and Arrangements
In
connection with the Company’s 2006 strategic initiatives, the Compensation and
Stock Option Committee of the Company’s Board of Directors approved, pursuant to
the Company’s 2002 Omnibus Incentive Compensation Plan, the “2006 Success Plan”
for certain officers of the Company. The maximum amount payable under the 2006
Success Plan is $6,647 by the Company. The amounts payable under the 2006
Success Plan are payable on June 6, 2007. During
the
first
and second quarters of 2007, the Company recorded expense of $585 and $665
for
this plan as general and administrative expenses from continuing operations
and
$586 and $664 related to the success of the Logan’s divestiture as discontinued
operations, respectively. During the third and fourth quarters of 2006, the
Company recorded expense of $511 and $676 for this plan as general and
administrative expenses from continuing operations and $512 and $675 related
to
the Logan’s divestiture as discontinued operations, respectively.
18.
Disposition
of Logan’s
On
December 6, 2006, the Company completed the sale of Logan’s, for total
consideration of approximately $486,000 including the proceeds from the Logan’s
sale-leaseback and the three Logan’s restaurant properties retained by the
Company and leased back to Logan’s.
The
Company has reported the results of operations of Logan’s through December 5,
2006, and for the full period ended January 27, 2006, as discontinued
operations, which consist of the following:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
43,891
|
|
$
|
107,615
|
|
$
|
154,529
|
|
$
|
205,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income
taxes from discontinued operations
|
|
$
|
347
|
|
$
|
6,197
|
|
$
|
8,552
|
|
$
|
11,806
|
|
Income
tax benefit (provision for
income taxes)
|
|
|
1,376
|
|
|
(2,109
|
)
|
|
(2,564
|
)
|
|
(4,050
|
)
|
Net
income from discontinued
operations
|
|
|
1,723
|
|
|
4,088
|
|
|
5,988
|
|
|
7,756
|
|
Gain
on sale, net of taxes of $10,491
|
|
|
80,288
|
|
|
--
|
|
|
80,288
|
|
|
--
|
|
Income
from discontinued operations
|
|
$
|
82,011
|
|
$
|
4,088
|
|
$
|
86,276
|
|
$
|
7,756
|
|
The
gain on
the sale is subject to customary post-closing adjustments, for working capital,
indebtedness and capital expenditures.
In
addition,
the assets and liabilities of Logan’s are aggregated and disclosed as current
assets and current liabilities in the condensed consolidated balance sheet
as of
July 28, 2006 as follows. No assets or liabilities of Logan’s are included in
the condensed consolidated balance sheet as of January 26, 2007.
|
|
July
28,
2006
|
|
Cash
and cash equivalents
|
|
$
|
1,732
|
|
Property
held for sale
|
|
|
1,589
|
|
Receivables
|
|
|
3,194
|
|
Inventories
|
|
|
9,874
|
|
Prepaid
expenses
|
|
|
1,601
|
|
Property
and equipment, net
|
|
|
287,580
|
|
Goodwill
|
|
|
93,725
|
|
Other
assets
|
|
|
1,927
|
|
Current
assets of discontinued operations
|
|
$
|
401,222
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
12,901
|
|
Other
accrued expenses
|
|
|
23,891
|
|
Other
long-term obligations
|
|
|
11,790
|
|
Deferred
income taxes
|
|
|
23,063
|
|
Current
liabilities of discontinued operations
|
|
$
|
71,645
|
|
|
|
|
|
|
19.
Recent
Accounting Pronouncements Not Yet Adopted
In
June 2006, the Financial Accounting Standards Board (“FASB”) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the
accounting for uncertainty in income taxes recognized in financial statements
in
accordance with FASB No. 109, “Accounting for Income Taxes”. FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative effect of the change
in accounting principle recorded as an adjustment to opening retained earnings.
The Company is currently evaluating the impact of adopting FIN 48 and cannot
yet
determine the impact of its adoption in the first quarter of 2008.
In
September
2006, the FASB issued Statement of Financial Accounting Standard No. 157, “Fair
Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating
the
impact of adopting SFAS No. 157 and cannot yet determine the impact of its
adoption in the first quarter of 2009.
In
September
2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements” (“SAB 108”), which provides interpretive guidance on how
the effects of the carryover or reversal of prior year misstatements should
be
considered in quantifying a current year misstatement. SAB 108 is
effective for fiscal years ending after November 15, 2006. The Company
does not expect that the adoption of SAB 108 will be material to its results
of
operations for the 2007 fiscal year end.
In
February
2007, the FASB issued Statement of Financial Accounting Standard No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
amendment of FASB Statement No. 115” (“FASB No. 159”), which permits entities to
choose to measure eligible financial instruments and other items at fair value.
The provisions of FASB No. 159 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of adopting
SFAS No. 159 and cannot yet determine the impact of its adoption in the first
quarter of 2009.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CBRL
Group, Inc. and its subsidiaries (collectively, the “Company”) are principally
engaged in the operation and development in the United States of the Cracker
Barrel Old Country StoreÒ
(“Cracker Barrel”) restaurant and retail concept. Prior to December 6,
2006,
the
Company also operated Logan’s RoadhouseÒ
(“Logan’s”) restaurants. On that date, the Company completed the sale of
Logan’s. As a result, Logan’s is presented as discontinued operations in the
accompanying condensed consolidated financial statements, as are certain
expenses of the Company related to the divestiture of Logan’s. All
dollar amounts reported or discussed in Part I, Item 2 of this Quarterly Report
on Form 10-Q are shown in thousands, except per share amounts. References in
management’s discussion and analysis of financial condition and results of
operations to a year are to the Company’s fiscal year unless otherwise noted.
The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of the Company’s consolidated
results of operations and financial condition. This discussion should be read
in
conjunction with the (i) condensed consolidated financial statements and notes
thereto in this Form 10-Q and (ii) the financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the fiscal year
ended July 28, 2006 (the “2006 Form 10-K”). Except for specific historical
information, many of the matters discussed in this Form 10-Q may express or
imply projections of revenues or expenditures, plans and objectives for future
operations, growth or initiatives, expected future economic performance, or
the
expected outcome or impact of pending or threatened litigation. These and
similar statements regarding events or results which CBRL Group, Inc. (the
“Company”) expects will or may occur in the future, are forward-looking
statements that involve risks, uncertainties and other factors which may cause
actual results and performance of the Company to differ materially from those
expressed or implied by those statements. All forward-looking information is
provided pursuant to the safe harbor established under the Private Securities
Litigation Reform Act of 1995 and should be evaluated in the context of these
risks, uncertainties and other factors. Forward-looking statements generally
can
be identified by the use of forward-looking terminology such as “trends,”
“assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,”
“plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,”
“projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,”
“anticipate,” “believe,” “potential,” “regular,” or “continue” (or the negative
or other derivatives of each of these terms) or similar
terminology.
The
Company
believes the assumptions underlying these forward-looking statements are
reasonable; however, any of the assumptions could be inaccurate, and therefore,
actual results may differ materially from those projected in or implied by
the
forward-looking statements. Factors and risks that may result in actual results
differing from this forward-looking information include, but are not limited
to,
those contained in Part I, Item 1A of the 2006 Form 10-K, which is incorporated
herein by this reference, as well as other factors discussed throughout this
document, including, without limitation, the factors described under “Critical
Accounting Policies and Estimates” on pages 23-27 of this Form 10-Q or, from
time to time, in the Company’s filings with the SEC, press releases and other
communications.
Readers
are cautioned not to place
undue reliance on forward-looking statements made in this document, since the
statements speak only as of the document’s date. The Company has no
obligation, and does not intend, to publicly update or revise any of these
forward-looking statements to reflect events or circumstances occurring after
the date of this document or to reflect the occurrence of unanticipated events.
Readers are advised, however, to consult any further disclosures the Company
may
make on related subjects in its documents filed with or furnished to the SEC
or
in its other public disclosures.
Results
of Operations
The
following
table highlights operating results by percentage relationships to total revenue
for the quarter and six-month period ended January 26, 2007 as compared to
the
same period a year ago:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
34.4
|
|
|
34.1
|
|
|
32.7
|
|
|
32.7
|
|
Gross
profit
|
|
|
65.6
|
|
|
65.9
|
|
|
67.3
|
|
|
67.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
35.8
|
|
|
35.5
|
|
|
36.9
|
|
|
36.8
|
|
Other
store operating expenses
|
|
|
17.3
|
|
|
17.1
|
|
|
17.4
|
|
|
17.4
|
|
Impairment
charges
|
|
|
--
|
|
|
0.6
|
|
|
--
|
|
|
0.3
|
|
Store
operating income
|
|
|
12.5
|
|
|
12.7
|
|
|
13.0
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
5.6
|
|
|
5.4
|
|
|
6.1
|
|
|
5.8
|
|
Operating
income
|
|
|
6.9
|
|
|
7.3
|
|
|
6.9
|
|
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
2.4
|
|
|
0.4
|
|
|
2.6
|
|
|
0.4
|
|
Interest
income
|
|
|
0.6
|
|
|
--
|
|
|
0.4
|
|
|
--
|
|
Income
before income taxes
|
|
|
5.1
|
|
|
6.9
|
|
|
4.7
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1.8
|
|
|
2.3
|
|
|
1.7
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
3.3
|
|
|
4.6
|
|
|
3.0
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations,
net
of
taxes
|
|
|
13.4
|
|
|
0.6
|
|
|
7.4
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
16.7
|
%
|
|
5.2
|
%
|
|
10.4
|
%
|
|
5.0
|
%
|
The
following
table highlights the components of total revenue by percentage relationships
to
total revenue for the quarter and six-month period ended January 26, 2007 as
compared to the same period a year ago:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
Total
revenue:
|
|
|
|
|
|
|
|
|
|
Cracker Barrel restaurant
|
|
|
73.2
|
%
|
|
74.0
|
%
|
|
76.1
|
%
|
|
76.7
|
%
|
Cracker
Barrel retail
|
|
|
26.8
|
|
|
26.0
|
|
|
23.9
|
|
|
23.3
|
|
Total
revenue
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
The
following table highlights the units in operation and units added for the
quarter and six-month period ended January 26, 2007 as compared to the same
period a year ago:
|
|
Quarter
Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January
26,
2007
|
|
January
27,
2006
|
|
Cracker
Barrel:
|
|
|
|
|
|
|
|
|
|
Open
at
beginning of period
|
|
|
548
|
|
|
537
|
|
|
543
|
|
|
529
|
|
Opened
during period
|
|
|
4
|
|
|
3
|
|
|
9
|
|
|
11
|
|
Open
at
end of period
|
|
|
552
|
|
|
540
|
|
|
552
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
unit volumes include sales of all stores and are measured on comparable calendar
weeks in the prior year. The following table highlights average unit volumes
from continuing operations for the quarter and six-month period ended January
26, 2007 as compared to the same period a year ago:
|
|
Quarter Ended
|
|
Six
Months Ended
|
|
|
|
January
26,
2007
|
|
January
27,
2006
|
|
January 26,
2007
|
|
January
27,
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cracker
Barrel
|
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$
|
813.0
|
|
$
|
806.1
|
|
$
|
1,625.7
|
|
$
|
1,605.6
|
|
Retail
|
|
|
298.4
|
|
|
282.6
|
|
|
511.9
|
|
|
486.9
|
|
Total
net revenue
|
|
$
|
1,111.4
|
|
$
|
1,088.7
|
|
$
|
2,137.6
|
|
$
|
2,092.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
Total
revenue for the second quarter of 2007 increased 4.3% compared to the prior
year
second quarter. For the second quarter ended January 26, 2007, Cracker Barrel
comparable store restaurant sales increased 0.5% and comparable store retail
sales increased 5.5% resulting in a combined comparable store sales (total
net
sales) increase of 1.8%. The comparable store restaurant sales increase
consisted of a 1.2% average check increase for the quarter (including a 1.2%
average menu price increase) and a 0.7% guest traffic decrease. We believe
that
the comparable store retail sales increase is due to a
more
appealing retail merchandise selection, particularly for seasonal merchandise,
than in the prior year. Sales from newly opened Cracker Barrel stores accounted
for the balance of the total revenue increase in the second
quarter.
Total
revenue for the six-month period ended January 26, 2007 increased 4.3% compared
to the six-month period ended January 27, 2006. For the six-month period ended
January 26, 2007, Cracker Barrel comparable store restaurant sales increased
0.9% and comparable store retail sales increased 5.1% resulting in a combined
comparable store sales (total net sales) increase of 1.9%. The comparable store
restaurant sales increase consisted of a 1.2% average check increase for the
six
months (including a 1.1% average menu price increase) and a 0.3% guest traffic
decrease. We
believe that the comparable store retail sales increase is due to a
more
appealing retail merchandise selection, particularly for seasonal merchandise,
than in the prior year. Sales from newly opened Cracker Barrel stores accounted
for the balance of the total revenue increase in the six-month period ended
January 26, 2007.
Cost
of Goods Sold
Cost
of
goods sold as a percentage of total revenue for the second quarter of 2007
increased to 34.4% from 34.1% in the second quarter of the prior year. This
increase was due to higher markdowns of retail merchandise and shift in the
mix
of sales versus prior year from restaurant sales toward retail sales, the latter
of which typically have a
higher
cost of sales. These increases were partially offset by higher menu pricing
and
lower commodity prices versus the prior year.
Cost
of
goods sold as a percentage of total revenue for the six-month period ended
January 26, 2007 remained flat compared to the six-month period ended January
27, 2006 at 32.7%. Higher
markdowns of retail merchandise and shift in the mix of sales versus prior
year
from restaurant sales toward retail sales, the latter of which typically have
a
higher cost of sales were partially offset by higher menu pricing and lower
commodity prices versus the prior year.
Labor
and Other Related Expenses
Labor
and
other related expenses include all direct and indirect labor and related costs
incurred in store operations. Labor and other related expenses as a percentage
of total revenue increased to 35.8% in the second quarter this year from 35.5%
in the prior year. This increase was due to higher hourly labor costs and the
effect of higher management staffing levels as a percent of revenues versus
prior year. The increase in hourly labor costs is due to wage inflation
including the effect of certain state minimum wage increases on cash wages
paid
to tipped employees that went into effect January 1, 2007.
Labor
and
other related expenses as a percentage of total revenue increased to 36.9%
in
the six-month period ended January 26, 2007 as compared to 36.8% in the
six-month period ended January 27, 2006. This increase was due to higher hourly
labor costs due to wage inflation and the effect of higher management staffing
levels as a percent of revenues versus the prior year.
Other
Store Operating Expenses
Other
store operating expenses include all unit-level operating costs, the major
components of which are operating supplies, repairs and maintenance, advertising
expenses, utilities, rent, depreciation, general insurance, credit card fees
and
non-labor-related pre-opening expenses. Other store operating expenses increased
as a percentage of total revenue to 17.3% in the second quarter of 2007 from
17.1% in the second quarter of the prior year. This increase was due to higher
general insurance expense as a result of revised actuarial estimates and
property insurance costs and higher advertising expense as a percent of revenue.
These increases were partially offset by the Visa/MasterCard litigation
settlement and lower utilities expense due to the mild weather experienced
during the quarter.
Other
store operating expenses as a percentage of total revenue remained flat compared
to the six-month period ended January 27, 2006 at 17.4%. Higher
general insurance expense as a result of revised actuarial estimates and
property insurance costs
was
offset by the non-recurrence of hurricane-related costs and the recording of
the
gain on the Visa/MasterCard litigation settlement.
Impairment
Charges
The
Company did not incur any impairment losses in the six months ended January
26,
2007. During the quarter ended January 27, 2006, the Company decided to close
seven Cracker Barrel stores and three Logan's restaurants which resulted in
impairment charges of $6,765 of which $3,060 is included as discontinued
operations in the accompanying condensed consolidated statement of
income.
General
and Administrative Expenses
General
and administrative expenses as a percentage of total revenue increased to 5.6%
in the second quarter of 2007 compared to 5.4% in the second quarter of the
prior year. The increase is due to the increases in incentive compensation
accruals including share-based compensation. The increase in incentive
compensation accruals reflects better performance against financial objectives
in the second quarter of 2007 versus prior year and higher share-based
compensation. The
increase in share-based compensation is due to additional expense being accrued
for participants
eligible
for retirement before the vesting date in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based
Payment” (“SFAS No. 123R”) as well as additional awards granted in
2007.
General
and administrative expenses as a percentage of total revenue increased to 6.1%
in the six-month period ended January 26, 2007 as compared to 5.8% in the
six-month period ended January 27, 2006. The increase was due to increases
in
incentive compensation accruals including share-based compensation expense
and
manager meeting expense versus the prior year. The increase in the bonus
accruals reflected better performance against financial objectives in the first
six months of 2007 versus prior year and the declaration and payment of
discretionary bonuses for certain executives in the first quarter of 2007,
as
well as certain bonus plans established in the second half of 2006 related
to
strategic initiatives. The
increase in share-based compensation is due to additional expense being accrued
for participants eligible for retirement before the vesting date in accordance
with SFAS
No.
123R as well as additional awards granted in 2007.
The
increase in the manager meeting expense is due to the prior year’s meeting being
cancelled as a result of the hurricanes during the prior year.
Interest
Expense
Interest
expense as a percentage of total revenue increased to 2.4% in the second quarter
of 2007 as compared to 0.4% in the second quarter of last year. The increase
in
interest expense was due to the Company’s 2006 recapitalization and
corresponding higher debt levels.
Interest
expense as a percentage of total revenue increased to 2.6% in the six-month
period ended January 26, 2007 as compared to 0.4% in the six-month period ended
January 27, 2006. The increase in interest expense was due to the Company’s 2006
recapitalization and corresponding higher debt levels.
Interest
Income
Interest
income increased to $3,857 in the second quarter of 2007 as compared to $93
in
the second quarter of last year. The increase in interest income was due to
the
increase in average funds available for investment as a result of the proceeds
from the divestiture of Logan’s and a higher level of cash-on-hand at the start
of the second quarter of 2007 versus the prior year.
Interest
income increased to $4,455 in the first six months of 2007 as compared to $93
in
the first six months of the prior year. The increase in interest income was
due
to the increase in average funds available for investment as a result of the
proceeds from the divestiture of Logan’s and a higher level of cash-on-hand at
the start of 2007 versus the prior year.
Provision
for Income Taxes
The
provision for income taxes as a percent of pre-tax income was 34.9% in the
second quarter and 35.3% in the first six months of 2007 as compared to 35.9%
in
the first quarter of 2007, 34.1% in the second quarter a year ago and 34.3%
in
the first six months of 2006. The variation between the statutory tax rate
and
the effective tax rate is due to state income taxes offset partially by employer
tax credits. The decrease in the provision for income taxes as a percent of
pre-tax income from the first quarter of 2007 was due to the re-enactment of
certain employer tax credits during the second quarter of 2007 partially offset
by higher effective state taxes.
Liquidity
and Capital Resources
The
Company's operating activities from continuing operations provided net cash
of
$109,241 for the six-month period ended January 26, 2007, which represented
an
increase from the $52,400 provided during the same period a year ago. This
increase was due to a smaller decrease in accounts payable as compared to the
previous year, and increases in income taxes payable and accrued employee
compensation as compared to decreases in the
previous
year. These increases were partially offset by a lower income from continuing
operations as a result of higher interest expense related to the Company’s
recapitalization and higher indebtedness. The change in accounts payable
was
primarily due to the timing of payments this year compared with the timing
of
payments last year.
The
Company
had positive working capital of $124,300 at January 26, 2007 versus negative
working capital of $6,280 at July 28, 2006. The working capital at both July
28,
2006 and January 26, 2007 reflects only current assets and liabilities from
continuing operations. The change in working capital compared with July 28,
2006
reflected higher cash and cash equivalents as a result of the proceeds from
Logan’s sale-leaseback and the sale of Logan’s and prepaid expenses and lower
accounts payable, taxes withheld and accrued, and accrued employee benefits
partially offset by higher income taxes payable, accrued employee compensation,
and deferred revenues and lower inventories. In the restaurant industry,
substantially all sales are either for cash or credit card. Like many other
restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through wire transfers. These various trade terms are aided by rapid
turnover of the restaurant inventory. Employees generally are paid on weekly,
bi-weekly or semi-monthly schedules in arrears of hours worked, and payment
of
certain expenses such as certain taxes and some benefits are deferred for longer
periods of time.
Capital
expenditures for continuing operations were $47,000 for the six-month period
ended January 26, 2007 as compared to $44,950 during the same period a year
ago.
Construction of new locations accounted for most of the expenditures.
Capitalized interest, excluding Logan’s, was $226 and $438 for the quarter and
six-month period ended January 26, 2007, as compared to $91 and $187 for the
quarter and six-month period ended January 27, 2006. This difference was due
to
higher interest rates versus the same period a year ago.
On
December
6, 2006, the Company closed its sale of Logan’s for total consideration of
approximately $486,000, including the proceeds from the Logan’s sale-leaseback
and the three Logan’s restaurant properties retained by the Company and leased
back to Logan’s. The
net
cash proceeds were used to fund its modified $250,000 “Dutch Auction” tender
offer and, along with cash on hand, payment of debt of $75,000. Remaining
proceeds, together with cash on hand or cash generated from operations, will
be
used for open market share repurchases during the remainder of 2007 and to
fund
taxes related to the Logan’s divestiture.
During
the
quarter ended January 26, 2007, the Company repurchased 5,434,774 shares of
its
common stock pursuant to its modified “Dutch Auction” tender offer for a total
purchase price of approximately $250,000 before fees. The Company has also
announced an additional $100,000 share repurchase authorization, which commences
and is expected to be completed during 2007. As of January 26, 2007, the Company
also had 821,081 shares remaining under repurchase authorizations previously
in
effect at the end of 2005. The Company has not determined when it expects to
repurchase the remaining 821,081 shares authorized. The Company’s principal
criteria for share repurchases are that they be accretive to expected net income
per share and are within the limits imposed by the Company’s debt covenants
under the 2006 Credit Facility.
During
the
six-month period ended January 26, 2007, the Company received proceeds of
$20,171 from the exercise of stock options on 637,509 shares of its common
stock. During the six-month period ended January 26, 2007, the Company paid
dividends of $0.13 and $0.14 per common share on August 8, 2006 and November
8,
2006, respectively. The Company also declared a dividend of $0.14 per common
share that was paid on February 8, 2007 in the amount of $3,655. Additionally,
the Company declared a dividend of $0.14 per common share on February 22, 2007
to be paid on May 8, 2007 to shareholders of record on April 20, 2007.
The
Company's
internally generated cash and cash generated by option exercises, along with
cash at July 28, 2006, the Logan’s divestiture proceeds, the Company’s
availability under the 2006 Credit Facility and its real estate
operating
lease arrangements, were sufficient to finance all of its growth, the $250,000
“Dutch Auction” tender offer, dividend payments and working capital needs in the
first six months of 2007.
The
Company estimates that its capital expenditures (purchase of property and
equipment) for 2007 will be up to $95,000, most of which will be related to
the
acquisition of sites and construction of 19 new Cracker Barrel stores and
openings that will occur during 2007, as well as construction costs for
locations to be opened in 2008.
Management
believes that cash at January 26, 2007, including the cash proceeds from the
Logan’s divestiture transaction, cash generated from the Company’s operating
activities, stock option exercises and available borrowings under the 2006
Credit Facility, will be sufficient to finance its continued operations, its
remaining share repurchase authorizations, its continued expansion plans, its
expected refinancing of its senior convertible notes, its principal payments
on
its debt and its dividend payments for at least the next twelve months and
thereafter for the foreseeable future. At January 26, 2007, the Company had
$206,048 available under its revolving credit facility.
Subject
to there being no events of default, covenants under the 2006 Credit Facility
permit the Company to declare and pay cash dividends to its stockholders as
long
as the Company has at least $100,000 available under its Revolving Credit
Facility and the aggregate amount of such dividends paid during any fiscal
year
would be less than 15% of Consolidated EBITDA from continuing operations, as
defined, for the fiscal year immediately preceding the fiscal year in which
such
dividend is paid. Additionally, the Company may increase its regular quarterly
cash dividend in any fiscal quarter by an amount not to exceed the greater
of
$.01 of 10% of the amount of the regular quarterly cash dividend paid in the
prior fiscal quarter.
Material
Commitments
The
Company’s contractual cash obligations and commitments as of January 26, 2007,
as summarized in the tables below, are updated to reflect the sale of
Logan’s.
Payments
due by Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less
than 1 Year
|
|
1
-
3 Years
|
|
4
-
5 Years
|
|
After
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
Loan B
|
|
$
|
644,208
|
|
$
|
7,168
|
|
$
|
14,336
|
|
$
|
14,336
|
|
$
|
608,368
|
|
Convertible
debt
|
|
|
199,398
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
199,398
|
|
Long-term
debt(a)
|
|
|
843,606
|
|
|
7,168
|
|
|
14,336
|
|
|
14,336
|
|
|
807,766
|
|
Operating
lease base term and exercised options - excluding billboards
(b)
|
|
|
327,821
|
|
|
28,184
|
|
|
55,585
|
|
|
52,442
|
|
|
191,610
|
|
Operating
lease renewal periods not yet exercised - excluding billboards
(c)
|
|
|
268,823
|
|
|
75
|
|
|
782
|
|
|
1,533
|
|
|
266,433
|
|
Operating
leases for billboards
|
|
|
39,871
|
|
|
20,772
|
|
|
18,928
|
|
|
169
|
|
|
2
|
|
Capital
leases
|
|
|
65
|
|
|
65
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Purchase
obligations (d)
|
|
|
167,338
|
|
|
123,859
|
|
|
32,066
|
|
|
11,413
|
|
|
--
|
|
Other
long-term obligations(e)
|
|
|
32,715
|
|
|
--
|
|
|
1,269
|
|
|
1,314
|
|
|
30,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual cash obligations
|
|
$
|
1,680,239
|
|
$
|
180,123
|
|
$
|
122,966
|
|
$
|
81,207
|
|
$
|
1,295,943
|
|
|
|
Amount
of Commitment Expirations by Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less
than 1 Year
|
|
1
-3 Years
|
|
4
-
5 Years
|
|
After
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
credit facility
|
|
$
|
250,000
|
|
|
--
|
|
|
--
|
|
$
|
250,000
|
|
|
--
|
|
Delayed-draw
term loan facility (f)
|
|
|
200,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
$
|
200,000
|
|
Standby
letters of credit
|
|
|
43,952
|
|
$
|
43,952
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Guarantees
(g)
|
|
|
5,532
|
|
|
326
|
|
$
|
1,322
|
|
|
1,337
|
|
|
2,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
commitments
|
|
$
|
499,484
|
|
$
|
44,278
|
|
$
|
1,322
|
|
$
|
251,337
|
|
$
|
202,547
|
|
(a) |
The
convertible debt was issued at a discount representing a yield to
maturity
of 3.00% per annum. The $199,398 balance is the accreted carrying
value of
the debt at January 26, 2007. The convertible debt will continue
to
accrete at 3.00% per annum and if held to maturity on April 2, 2032
the
obligation will total $422,050. The balance on the term loan is $644,208
at January 26, 2007. Using the minimum principal payment schedule
on the
Term Loan B and a 7.07% interest rate, which is the same rate as
the
Company’s fixed rate under its interest rate swap of 5.57% plus its
current credit spread of 1.50%, the Company will have interest payments
of
$46,102, $88,946, $86,925 and $53,571 in the period February 2007
through
January 2008, February 2008 through January 2010, February 2010 through
January 2012, and thereafter, respectively. The Company had nothing
outstanding under its variable rate revolving credit facility as
of
January 26, 2007. The Company paid $514 in non-use fees (also known
as
commitment fees) on the revolving credit facility during the six
months
ended January 26, 2007. Based on no outstanding revolver balance
at
January 26, 2007 and the Company’s current unused commitment fee as
defined in the Revolving Credit Agreement, the Company’s unused commitment
fees during the next twelve months would be $2,077; however, the
actual
amount will differ based on actual usage of the revolving credit
facility
during the next twelve months.
|
(b) |
Includes
base lease terms and certain optional renewal periods that have been
exercised and are included in the lease term in accordance with SFAS
No.
13.
|
(c) |
Includes
certain optional renewal periods that have not yet been exercised,
but are
included in the lease term for the straight-line rent calculation,
since
at the inception of the lease, it is reasonably assured that the
Company
will exercise those renewal
options.
|
(d) |
Purchase
obligations consist of purchase orders for food and retail merchandise;
purchase orders for capital expenditures, supplies and other operating
needs and other services; and commitments under contracts for maintenance
needs and other services. We have excluded contracts that do not
contain
minimum purchase obligations. In 2007, the Company has increased
its use
of contracts that do not contain minimum purchase obligations but
do
address product specifications and pricing. We excluded long-term
agreements for services and operating needs that can be cancelled
within
60 days without penalty. We included long-term agreements for services
and
operating needs that can be cancelled with more than 60 days notice
without penalty only through the term of the notice.
We included long-term agreements for services and operating needs
that can
be cancelled with a penalty through the entire term of the contract.
Due
to the uncertainties of seasonal demands and promotional calendar
changes,
our best estimate of usage for food, supplies and other operating
needs
and services is ratably over either the notice period or the remaining
life of the contract, as applicable, unless we had better information
available at the time related to each
contract.
|
(e) |
Other
long-term obligations include the Company’s Non-Qualified Savings Plan
($27,801, with a corresponding long-term asset to fund the liability),
Deferred Compensation Plan ($2,785), FY2006 and FY2007 Mid-Term Incentive
and Retention Plans ($360 cash portion only), and FY2005, FY2006,
and
FY2007 Long-Term Retention Incentive Plans
($1,769).
|
(f) |
The
$200,000 Delayed-Draw Term Loan facility can be used to refinance
the
Company’s Senior Notes or for general corporate purposes and any term
loans under this facility mature April 27,
2013.
|
(g)
Consists of guarantees associated with properties in which the Company is
secondarily liable for lease payments; including one lease that has been
assigned to a third party and one that has been sublet to a third party. The
Company
has recorded a
liability of $657 for estimated amounts to be paid in case of non-performance
by
the sublessee. Other than the sublease, the Company is not aware of any
non-performance under these arrangements that would result in the Company having
to perform in accordance with the terms of those guarantees.
Recent
Accounting Pronouncements Not Yet Adopted
In
June 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with FASB No. 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The provisions
of
FIN 48 are effective for fiscal years beginning after December 15, 2006,
with the cumulative effect of the change in accounting principle recorded as
an
adjustment to opening retained earnings. The Company is currently evaluating
the
impact of adopting FIN 48 and cannot yet determine the impact of its adoption
in
the first quarter of 2008.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The provisions of SFAS 157 are effective for
fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of adopting SFAS 157 and cannot yet determine the impact
of its adoption in the first quarter of 2009.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (“SAB 108”), which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year
misstatement. SAB 108 is effective for fiscal years ending after November
15, 2006. The Company does not expect that the adoption of SAB 108 will be
material to its results of operations for the 2007 fiscal year end.
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No. 115” (“FASB No. 159”), which
permits entities to choose to measure eligible financial instruments and other
items at fair value. The provisions of FASB No. 159 are effective for fiscal
years beginning after November 15, 2007. The Company is currently evaluating
the
impact of adopting SFAS No. 159 and cannot yet determine the impact of its
adoption in the first quarter of 2009.
Critical
Accounting Policies and Estimates
The
Company prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period (see Note 2 to the Company's Consolidated Financial Statements
contained in the 2006 Form 10-K). Actual results could differ from those
estimates. Critical accounting policies are those that management believes
are
both most important to the portrayal of the Company's financial condition and
operating results, and require management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. The Company bases its estimates
on historical experience and on various other assumptions it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are
not
readily apparent from other sources. Judgments and uncertainties affecting
the
application of those policies may result in materially different amounts being
reported under different conditions or using different assumptions. The Company
considers the following policies to be most critical in understanding the
judgments that are involved in preparing its consolidated financial
statements.
Impairment
of Long-Lived Assets
Property
and Equipment
In
accordance with SFAS No. 144 “Impairment or Disposal of Long-Lived Assets,” the
Company assesses the impairment of long-lived assets whenever events or changes
in circumstances indicate that the carrying value 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. In addition, the recoverability test considers the likelihood of possible
outcomes that existed at the balance sheet date, including the assessment of
the
likelihood of the future sale of the asset. If the total future cash flows
are
less than the carrying amount of the asset, the carrying amount is written
down
to the estimated fair value of an asset to be held and used or over the fair
value, net of estimated costs of disposal, of an asset to be disposed of, and
a
loss resulting from value impairment is recognized by a charge to earnings.
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. As the Company assesses the
ongoing expected cash flows and carrying amounts of its long-lived assets,
these
factors could cause the Company to realize a material impairment charge. From
time to time the Company has decided to exit from or dispose of certain
operating units. Typically, such decisions are made based on operating
performance or strategic considerations and must be made before the actual
costs
or proceeds of disposition are known, and management must make estimates of
these outcomes. Such outcomes could include the sale of a property or leasehold,
mitigating costs through a tenant or subtenant, or negotiating a buyout of
a
remaining lease term. In these instances, management evaluates possible
outcomes, frequently using outside real estate and legal advice, and records
in
the financial statements provisions for the effect of such outcomes. The
accuracy of such provisions can vary materially from original estimates, and
management regularly monitors the adequacy of the provisions until final
disposition occurs. The Company recorded no impairment losses in the six months
ended January 26, 2007. During the quarter ended January 27, 2006, the Company
decided to close seven Cracker Barrel stores and three Logan’s restaurants,
which resulted in impairment charges of $6,765. Of this total, $3,705 is
included as impairment charges in continuing operations and $3,060 is included
as discontinued operations in the accompany condensed consolidated statement
of
income and statement of cash flow. These impairments were recorded based upon
the lower of unit carrying amount or fair value. The unit fair value was
determined based upon estimates provided by third-party valuation specialists
using market comparables. At January 27, 2006, the impaired locations were
classified as held and used and the carrying amount of the assets for the closed
stores totaled $10,461. These restaurants were closed early in the third quarter
of 2006, at which time they were then classified as held for sale.
Insurance
Reserves
The
Company self-insures a significant portion of expected workers’ compensation,
general liability and health insurance claims. The Company has purchased
insurance for individual claims that exceed $500 and $1,000 for certain
coverages since 2004. Since 2004, the Company elected not to purchase such
insurance for its primary group health program, but its offered benefits are
limited to not more than $1,000 lifetime for any employee (including dependents)
in the program, and, in certain cases, to not more than $100 in any given plan
year. The Company records a liability for workers’ compensation and general
liability for all unresolved claims and for an estimate of incurred but not
reported claims at the anticipated cost to the Company based upon an actuarially
determined reserve as of the end of the Company’s third quarter and adjusting it
by the actuarially determined losses and actual claims payments for the
subsequent quarters until the next actuarial study of its reserve requirements.
Those reserves and these losses are determined actuarially from a range of
possible outcomes within which no given estimate is more likely than any other
estimate. In accordance with SFAS No. 5, “Accounting for Contingencies,” the
Company records the losses at the low end of that range and discounts them
to
present value using a risk-free interest rate based on the actuarially projected
timing of payments. The Company also monitors actual claims development,
including incurrence or settlement of individual large claims during the interim
period between actuarial studies as another means of estimating the adequacy
of
its reserves. From time to time the Company has performed limited scope interim
updates of its actuarial studies to verify and/or modify its reserves. During
the second quarter, the Company performed such an update, which resulted in
a
reduction in the expected losses for workers' compensation
and
a net
credit of $2,987 was recorded, comprised of a credit for workers’ compensation
of $5,532 and an expense for general liability of $2,545. During the prior
second quarter ended January 27, 2006, a limited scope actuarial review resulted
in a credit to workers’ compensation of $5,201 and a credit to general liability
of $838. The Company believes that the reduced workers’ compensation expected
losses are the result of changes in its claims management and loss control
procedures that are only now beginning to be actuarially determinable. The
Company records a liability for its group health program for all unpaid claims
based upon a loss development analysis derived from actual group health claims
payment experience provided by the Company’s third-party administrator. The
Company's 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
settlement practices. Unanticipated changes in these factors may produce
materially different amounts of expense and liabilities that would be reported
under these insurance programs.
Inventory
Shrinkage
Cost
of
sales includes the cost of retail merchandise sold at the Cracker Barrel stores
utilizing the retail inventory accounting method. During the quarter ended
October 27, 2006, an estimate of shrink was recorded based on the physical
inventory counts observed as the end of fiscal 2006. During the quarter ended
January 26, 2007, Cracker Barrel performed physical inventory counts in
approximately 29% of its stores and in its retail distribution center. Actual
shortages were recorded in the quarter ended January 26, 2007 for those stores
that were counted. An estimate of shortages was recorded for the remaining
stores based on the results of the physical inventory counts. This methodology
is consistent with Cracker Barrel’s practice in all periods presented. The 2007
estimated shortages will be adjusted to actual upon physical inventory counts
in
all stores and the retail distribution center during the third and fourth
quarters of the 2007 and, although the Company believes the sampling approach
to
the mid-year inventory is statistically valid, could produce materially
different amounts than estimated by the Company for the quarters ended October
27, 2006 and January 26, 2007.
Tax
Provision
The
Company must make estimates of certain items that comprise its income tax
provision. These estimates include effective state and local income tax rates,
employer tax credits for items such as FICA taxes paid on tip income, Work
Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. These estimates are made based on
current tax laws, the best available information at the time of the provision
and historical experience. The Company files its income tax returns several
months after its year-end. These returns are subject to audit by various federal
and state governments years after the returns are filed and could be subject
to
differing interpretations of the tax laws. The Company then must assess the
likelihood of successful legal proceedings or reach a settlement with the
relevant taxing authority, either of which could result in material adjustments
to the Company’s consolidated financial statements and its consolidated
financial position (see Note 10 to the Company’s Consolidated Financial
Statements included in the 2006 Form 10-K).
Unredeemed
Gift Cards and Certificates
Unredeemed
gift cards and certificates represent a liability of the Company related to
unearned income and are recorded at their expected redemption value. No revenue
is recognized in connection with the point-of-sale transaction when gift cards
or gift certificates are sold. For those states that exempt gift cards and
certificates from their escheat laws, the Company makes estimates of the
ultimate unredeemed (“breakage”) gift cards and certificates in the period of
the original sale and amortizes this breakage over the redemption period that
other gift cards and certificates historically have been redeemed by reducing
its liability and recording revenue accordingly. For those states that do not
exempt gift cards and certificates from their escheat laws, the Company records
breakage in the period that gift cards and certificates are remitted to the
state and reduces its liability accordingly. Any
amounts remitted to states under escheat laws reduce the Company’s deferred
revenue liability and have no effect on revenue or expense while any amounts
permitted by the state escheat laws to be retained by the Company for
administrative costs are recorded as revenue. Changes in redemption behavior
or
management's judgments regarding redemption
trends
in
the future may produce materially different amounts of deferred revenue to
be
reported. If gift cards and certificates that have been removed from the
liability are later redeemed, the Company recognizes revenue and reduces
the
liability as it would with any redemption. Additionally, the initial reduction
to the liability would be reversed to offset the redemption, and such
redemptions could cause the Company to change its expected breakage assumptions.
Share-Based
Compensation
In
accordance
with SFAS No. 123R, share-based compensation cost is measured at the grant
date
based on the fair value of the award and is recognized as expense over the
requisite service period. The
Company’s policy is to recognize compensation cost for awards with only service
conditions and a graded vesting schedule on a straight-line basis over the
requisite service period for the entire award. Additionally, the Company’s
policy is to issue new shares of common stock to satisfy stock option exercises
or grants of nonvested shares.
The
fair
value of each option award granted subsequent to the adoption of SFAS No. 123R
on July 29, 2005 has been estimated on the date of grant using a binomial
lattice-based option valuation model. This model incorporates the following
ranges of assumptions:
· The
expected volatility is a blend of implied volatility based on market-traded
options on the Company’s stock and historical volatility of the Company’s stock
over the contractual life of the options.
· The
Company uses
historical data to estimate option exercise and employee termination behavior
within the valuation model; separate groups of employees that have similar
historical exercise behavior are considered separately for valuation purposes.
The expected life of options granted is derived from the output of the option
valuation model and represents the period of time the options are expected
to be
outstanding.
· The
risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time
of
grant for periods within the contractual life of the option.
· The
expected
dividend yield is based on the Company’s current dividend yield as the best
estimate of projected dividend yield for periods within the contractual life
of
the option.
The
expected
volatility, option exercise and termination assumptions involve management’s
best estimates at that time, all of which impact the fair value of the option
calculated by the binomial lattice-based option valuation model and, ultimately,
the expense that will be recognized over the life of the option.
Management updates the historical and implied components of the expected
volatility assumption quarterly. Management updates option exercise and
termination assumptions quarterly. The expected life is a by-product of the
lattice model, and is updated when new grants are made.
SFAS
No. 123R
also requires that compensation expense be recognized for only the portion
of
options that are expected to vest. Therefore, an estimated forfeiture rate
derived from historical employee termination behavior, grouped by job
classification, is applied against share-based compensation expense. The
forfeiture rate is applied on a straight-line basis over the service (vesting)
period for each separately vesting portion of the award as if the award was,
in-substance, multiple awards. Management updates the estimated forfeiture
rate
to actual on each of the vesting dates and adjusts compensation expense
accordingly, so that the amount of compensation cost recognized at any date
is
at least equal to the portion of the grant-date value of the award that is
vested at that date.
Legal
Proceedings
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to its business. In the opinion of management,
however, based upon information currently available, the ultimate liability
with
respect to these proceedings and claims will not materially affect the Company’s
consolidated results of operations or financial position. The
Company reviews outstanding claims and proceedings internally and with external
counsel as necessary to assess probability of loss and for the ability to
estimate loss. These assessments are re-evaluated each quarter or as new
information becomes available to determine whether a reserve should be
established
or if any existing reserve should be adjusted. The actual cost of resolving
a
claim or proceeding ultimately may be substantially different than the amount
of
the recorded reserve. In addition, because it is not permissible under
GAAP to establish a litigation reserve until the loss is both probable and
estimable, in some cases there may be insufficient time to establish a reserve
prior to the actual incurrence of the loss (upon verdict and judgment at
trial,
for example, or in the case of a quickly negotiated
settlement).
Item
3. Quantitative and
Qualitative Disclosures About Market Risk
Part
II, Item 7A of
the 2006 Form 10-K is incorporated in this item of this Quarterly Report by
this
reference. There have been no material changes in the quantitative
and qualitative market risks of the Company since July 28, 2006.
Item
4.
Controls and Procedures
The
Company’s management,
with the participation of its principal executive and financial officers,
including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934 (the “Exchange Act”). Based upon this evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that as of January
26, 2007, the Company’s disclosure controls and procedures were effective for
the purposes set forth in the definition thereof in Exchange Act Rule
13a-15(e).
There
have been no
changes (including corrective actions with regard to significant deficiencies
and material weaknesses) during the quarter ended January 26, 2007 in the
Company’s internal controls over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) that have materially affected, or are reasonably likely to
materially affect, the Company’s internal controls over financial
reporting.
PART
II - OTHER INFORMATION
Item
1A. Risk
Factors
There
have been no material changes from our risk factors previously disclosed in
“Item 1A. Risk Factors” of the 2006 Form 10-K other than the divestiture of
Logan’s. As a result of the divestiture of Logan’s, investors should disregard
the risk factors entitled “Risks Particular To Our Logan’s Operations” discussed
in “Item 1A. Risk Factors” of the 2006 Form 10-K.
Item
2. Unregistered Sales of Equity and Use of Proceeds
Unregistered
Sales of Equity Securities
There
were no equity securities sold by the Company during the period covered by
this
Form 10-Q that were not registered under the Securities Act of 1933, as
amended.
Issuer
Purchases of Equity Securities
The
following table sets forth information with respect to purchases of shares
of
the Company’s common stock made during the quarter ended January 26, 2007 by or
on behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:
Period
|
|
Total
Number
of
Shares Purchased (1)
|
|
Average
Price
Paid Per Share (2)
|
|
Total
Number
of
Shares Purchased as Part of
Publicly
Announced Plans or Programs
|
|
Maximum
Number
of
Shares
that
May
Yet Be
Purchased
Under
the
Plans
or
Programs
(3)
|
|
10/28/06
- 11/24/06
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
821,081
|
|
11/25/06
- 12/22/06
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
Not
determinable (3)
|
|
12/23/06
- 1/26/07 (1)
|
|
|
5,434,774
|
|
$
|
46.03
|
|
|
5,434,774
|
|
|
Not
determinable (3)
|
|
Total
for the quarter
|
|
|
5,434,774
|
|
$
|
46.03
|
|
|
5,434,774
|
|
|
Not
determinable (3)
|
|
(1) |
Shares
repurchased during this period were in the Tender Offer disclosed
in Note
14 in the Notes to Condensed Consolidated Financial Statements set
forth
in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarter
ended January 26, 2007.
|
(2) |
Average
price paid per share is calculated on a settlement basis and includes
commissions and fees.
|
(3) |
On
February 25, 2005, the Company announced a 2,000,000 share common
stock
repurchase program with no expiration date, of which 821,081 shares
remain
available to be repurchased. Additionally, on December 6, 2006, the
Company announced an open market stock repurchase program of up to
an
additional $100,000,000 of the Company’s common stock to be commenced
after completion of the tender offer referred to in footnote (1)
above
with no expiration date, of which $100,000,000 remains available
to be
repurchased.
|
Item
4. Submission
of Matters to a Vote of Security Holders
Part
II,
Item 4 of the Company’s Quarterly Report on Form 10-Q for the Quarterly Period
ended October 27, 2006 (filed with the SEC on December 6,
2006)
is
incorporated herein by this reference.
Item
6. Exhibits
See
Exhibit Index
immediately following the signature page hereto.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CBRL
GROUP,
INC.
Date: March
2, 2007 By:
/s/Lawrence
E. White
Lawrence
E. White, Senior
Vice President, Finance
and
Chief Financial Officer
Date: March
2, 2007 By:
/s/Patrick A. Scruggs
Patrick
A. Scruggs, Vice President, Accounting and Tax
and
Chief Accounting
Officer
EXHIBIT
INDEX
Exhibit No. |
Description |
|
|
31 |
Rule 13a-14(a)/15d-14(a) Certifications |
32 |
Section 1350
Certifications |