CBRL Group, Inc. Form 10-Q 05/30/07
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 April 27, 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.
24,459,822
Shares of Common Stock
Outstanding
as of May 25, 2007
CBRL
GROUP, INC.
FORM
10-Q
For
the Quarter Ended April 27, 2007
INDEX
PART
I. FINANCIAL INFORMATION
|
|
Page
|
Item
1
|
|
|
· Condensed
Financial Statements (unaudited)
|
|
|
a)
Condensed
Consolidated Balance Sheet as of April 27, 2007
and
July 28, 2006
|
|
3
|
|
|
|
b) Condensed
Consolidated Statement of Income for the Quarters and Nine
Months
Ended April 27, 2007 and April 28, 2006
|
|
4
|
|
|
|
c) Condensed
Consolidated Statement of Cash Flows for the Nine Months
Ended
April 27, 2007 and April 28, 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
|
|
26
|
|
|
|
Item
4
|
|
|
· Controls
and Procedures
|
|
26
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
Item
1A
|
|
|
· Risk
Factors
|
|
27
|
|
|
|
Item
2
|
|
|
· Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
27
|
|
|
|
Item
6
|
|
|
· Exhibits
|
|
27
|
|
|
|
SIGNATURES
|
|
28
|
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
thousands, except share data)
(Unaudited)
|
|
April
27,
2007
|
|
July
28,
2006*
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
149,875
|
|
$
|
87,830
|
|
Property held for sale
|
|
|
4,596
|
|
|
3,127
|
|
Receivables
|
|
|
11,467
|
|
|
11,434
|
|
Inventories
|
|
|
122,866
|
|
|
128,303
|
|
Prepaid expenses
|
|
|
7,837
|
|
|
4,395
|
|
Deferred income taxes
|
|
|
18,670
|
|
|
17,519
|
|
Current assets of discontinued operations (Note 17)
|
|
|
--
|
|
|
401,222
|
|
Total current assets
|
|
|
315,311
|
|
|
653,830
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,475,663
|
|
|
1,415,374
|
|
Less:
Accumulated depreciation and amortization of capital
leases
|
|
|
469,503
|
|
|
432,870
|
|
Property
and equipment - net
|
|
|
1,006,160
|
|
|
982,504
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
46,006
|
|
|
44,963
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,367,477
|
|
$
|
1,681,297
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
59,615
|
|
$
|
70,944
|
|
Taxes withheld and accrued
|
|
|
28,416
|
|
|
30,905
|
|
Other accrued expenses
|
|
|
161,093
|
|
|
148,923
|
|
Current maturities of long-term debt and other long-term
obligations
|
|
|
7,205
|
|
|
8,116
|
|
Current liabilities of discontinued operations (Note 17)
|
|
|
--
|
|
|
71,645
|
|
Total current liabilities
|
|
|
256,329
|
|
|
330,533
|
|
|
|
|
|
|
|
|
|
Long-term
debt (Note 14)
|
|
|
836,113
|
|
|
911,464
|
|
Other
long-term obligations
|
|
|
151,287
|
|
|
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;
|
|
|
|
|
|
|
|
24,643,346 shares issued and outstanding at April 27,
2007,
|
|
|
|
|
|
|
|
and 30,926,906 shares issued and outstanding at July 28,
2006
|
|
|
246
|
|
|
309
|
|
Additional paid-in capital
|
|
|
--
|
|
|
4,257
|
|
Accumulated other comprehensive loss (Note 11)
|
|
|
(12,033
|
)
|
|
(4,529
|
)
|
Retained earnings
|
|
|
135,535
|
|
|
302,245
|
|
Total shareholders’ equity
|
|
|
123,748
|
|
|
302,282
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
1,367,477
|
|
$
|
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)
|
|
|
|
|
|
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
549,050
|
|
$
|
533,990
|
|
$
|
1,719,447
|
|
$
|
1,656,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
167,928
|
|
|
165,769
|
|
|
551,136
|
|
|
532,607
|
|
Gross
profit
|
|
|
381,122
|
|
|
368,221
|
|
|
1,168,311
|
|
|
1,123,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
219,012
|
|
|
209,415
|
|
|
650,780
|
|
|
622,055
|
|
Other
store operating expenses
|
|
|
100,511
|
|
|
94,282
|
|
|
304,165
|
|
|
289,408
|
|
Impairment
and store closing charges
|
|
|
--
|
|
|
3,156
|
|
|
--
|
|
|
6,861
|
|
Store
operating income
|
|
|
61,599
|
|
|
61,368
|
|
|
213,366
|
|
|
205,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
31,536
|
|
|
31,097
|
|
|
102,818
|
|
|
96,080
|
|
Operating
income
|
|
|
30,063
|
|
|
30,271
|
|
|
110,548
|
|
|
109,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
13,801
|
|
|
2,678
|
|
|
43,587
|
|
|
7,484
|
|
Interest
income
|
|
|
2,199
|
|
|
--
|
|
|
6,654
|
|
|
93
|
|
Income
before income taxes
|
|
|
18,461
|
|
|
27,593
|
|
|
73,615
|
|
|
101,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
6,350
|
|
|
9,261
|
|
|
25,841
|
|
|
34,719
|
|
Income
from continuing operations
|
|
|
12,111
|
|
|
18,332
|
|
|
47,774
|
|
|
67,095
|
|
Income
from discontinued operations,
net of tax (See Note 17)
|
|
|
214
|
|
|
5,640
|
|
|
86,490
|
|
|
13,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,325
|
|
$
|
23,972
|
|
$
|
134,264
|
|
$
|
80,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations (See Note 6)
|
|
$
|
0.48
|
|
$
|
0.39
|
|
$
|
1.65
|
|
$
|
1.43
|
|
Income from discontinued operations
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
2.98
|
|
$
|
0.29
|
|
Net income per share
|
|
$
|
0.49
|
|
$
|
0.51
|
|
$
|
4.63
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations (See Note 6)
|
|
$
|
0.44
|
|
$
|
0.37
|
|
$
|
1.50
|
|
$
|
1.34
|
|
Income from discontinued operations
|
|
$
|
0.01
|
|
$
|
0.10
|
|
$
|
2.54
|
|
$
|
0.26
|
|
Net income per share
|
|
$
|
0.45
|
|
$
|
0.47
|
|
$
|
4.04
|
|
$
|
1.60
|
|
Weighted
average shares (See Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,984,268
|
|
|
47,295,058
|
|
|
28,996,618
|
|
|
46,916,467
|
|
Diluted
|
|
|
30,183,152
|
|
|
52,523,351
|
|
|
34,070,700
|
|
|
52,067,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes
to unaudited condensed consolidated financial statements.
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited
and in thousands)
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
134,264
|
|
$
|
80,491
|
|
Income
from discontinued operations, net of tax
|
|
|
(86,490
|
)
|
|
(13,396
|
)
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
by operating activities of continuing operations:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
42,407
|
|
|
42,449
|
|
Loss on disposition of property and equipment
|
|
|
587
|
|
|
1,025
|
|
Impairment
|
|
|
--
|
|
|
5,395
|
|
Accretion on zero-coupon contingently convertible
senior notes
|
|
|
4,410
|
|
|
4,280
|
|
Share-based compensation
|
|
|
10,105
|
|
|
10,353
|
|
Excess tax benefit from share-based compensation
|
|
|
(4,754
|
)
|
|
(5,737
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Inventories
|
|
|
5,437
|
|
|
14,749
|
|
Accounts payable
|
|
|
(11,329
|
)
|
|
(48,712
|
)
|
Taxes withheld and accrued
|
|
|
(2,489
|
)
|
|
(3,431
|
)
|
Other current assets and other current liabilities
|
|
|
4,428
|
|
|
(10,206
|
)
|
Other long-term assets and liabilities
|
|
|
3,436
|
|
|
585
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
100,012
|
|
|
77,845
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(66,695
|
)
|
|
(64,290
|
)
|
Proceeds
from sale of property and equipment
|
|
|
5,330
|
|
|
163
|
|
Proceeds
from insurance recoveries
|
|
|
91
|
|
|
--
|
|
Proceeds
from sale of Logan’s
|
|
|
265,986
|
|
|
--
|
|
Net
cash provided by (used in) investing activities of continuing
operations
|
|
|
204,712
|
|
|
(64,127
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
--
|
|
|
618,500
|
|
Principal
payments under long-term debt and other
|
|
|
|
|
|
|
|
long-term obligations
|
|
|
(80,692
|
)
|
|
(640,177
|
)
|
Proceeds
from exercise of stock options
|
|
|
33,013
|
|
|
26,978
|
|
Excess
tax benefit from share-based compensation
|
|
|
4,754
|
|
|
5,737
|
|
Purchases
and retirement of common stock
|
|
|
(341,581
|
)
|
|
--
|
|
Other
|
|
|
--
|
|
|
(698
|
)
|
Dividends
on common stock
|
|
|
(12,118
|
)
|
|
(17,829
|
)
|
Net
cash used in financing activities of continuing operations
|
|
|
(396,624
|
)
|
|
(7,489
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities of discontinued
operations
|
|
|
(33,463
|
)
|
|
37,992
|
|
Net
cash provided by (used in) investing activities of discontinued
operations
|
|
|
187,408
|
|
|
(42,554
|
)
|
Net
cash provided by (used in) discontinued operations
|
|
|
153,945
|
|
|
(4,562
|
)
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
62,045
|
|
|
1,667
|
|
Cash
and cash equivalents, beginning of period
|
|
|
87,830
|
|
|
15,577
|
|
Cash
and cash equivalents, end of period
|
|
$
|
149,875
|
|
$
|
17,244
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the nine months for:
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized
|
|
$
|
38,401
|
|
$
|
1,848
|
|
Income taxes
|
|
$
|
69,323
|
|
$
|
41,640
|
|
Non-cash
disclosures: |
|
|
|
|
|
|
|
Shares
purchased in tender
offer |
|
$ |
-- |
|
$ |
704,071
|
|
Accrued
loan acquisition costs
|
|
$ |
-- |
|
$ |
11,568
|
|
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 April 27, 2007 and July 28, 2006
and
the related condensed consolidated statements of income and cash flows for
the
quarters and/or nine-month periods ended April 27, 2007 and April 28, 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 17). 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 April 27, 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 nine-month period ended April 27, 2007, share-based
compensation was $1,452 and $4,933, respectively, for stock options and $1,369
and $5,172, respectively, for nonvested stock. Included in these totals are
share-based compensation from continuing operations for the quarter and
nine-month period ended April 27, 2007 of $1,452 and $4,868, respectively,
for
stock options and $1,369 and $5,652, respectively, for nonvested stock.
For
the
quarter and nine-month period ended April 28, 2006, share-based
compensation was $2,399 and $7,552, respectively, for stock options and $978
and
$2,801, respectively, for nonvested stock. Included in these totals are
share-based compensation from continuing operations for the quarter and
nine-month period ended April 28, 2006 of $2,057 and $6,538, respectively,
for
stock options and $873 and $2,520, respectively, for nonvested stock.
Share-based compensation for continuing operations is recorded in general and
administrative expenses.
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 new locations throughout the year. Therefore,
the results of operations for the quarter or nine-month period ended April
27,
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:
|
|
April
27,
2007
|
|
July
28,
2006
|
|
Retail
|
|
$
|
89,011
|
|
$
|
97,799
|
|
Restaurant
|
|
|
19,068
|
|
|
16,463
|
|
Supplies
|
|
|
14,787
|
|
|
14,041
|
|
Total
|
|
$
|
122,866
|
|
$
|
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
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
Income
from continuing operations per share
numerator:
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
12,111
|
|
$
|
18,332
|
|
|
$
|
47,774
|
|
$
|
67,095
|
|
Add: Interest and loan acquisition costs
associated with Senior Notes, net of
related tax effects
|
|
|
1,148
|
|
|
951
|
|
|
|
3,464
|
|
|
2,820
|
|
Income from continuing operations available
to common shareholders
|
|
$
|
13,259
|
|
$
|
19,283
|
|
|
$
|
51,238
|
|
$
|
69,915
|
|
Income
from continuing operations per share
denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for
basic income from continuing operations
per share
|
|
|
24,984,268
|
|
|
47,295,058
|
|
|
28,996,618
|
|
|
46,916,467
|
|
Add Potential Dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes
|
|
|
4,582,728
|
|
|
4,582,788
|
|
|
4,582,768
|
|
|
4,582,788
|
|
Stock options, nonvested stock and stock awards
|
|
|
616,156
|
|
|
645,505
|
|
|
491,314
|
|
|
568,545
|
|
Weighted average shares outstanding for diluted
income from continuing operations per share
|
|
|
30,183,152
|
|
|
52,523,351
|
|
|
34,070,700
|
|
|
52,067,800
|
|
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 17) 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:
|
|
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
|
|
|
|
|
April
28,
2006
|
|
Revenue
from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$
|
444,923
|
|
$
|
432,052
|
|
|
$
|
1,335,032
|
|
$
|
1,293,128
|
|
Retail
|
|
|
104,127
|
|
|
101,938
|
|
|
|
384,415
|
|
|
363,088
|
|
Total revenue from continuing operations
|
|
$
|
549,050
|
|
$
|
533,990
|
|
|
$
|
1,719,447
|
|
$
|
1,656,216
|
|
8.
Impairment
of Long-lived Assets
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 or store closing charges in the nine
months ended April 27, 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 related to impairment charges from
continuing operations. These
impairments were recorded based upon the lower of unit carrying amount or fair
value. The impaired locations were closed early in the quarter ended April
28,
2006 and were classified at that time as held for sale and
were
remeasured at their fair value less cost to sell. The
locations were closed due to weak financial performance, an unfavorable outlook,
and relatively positive prospects for proceeds from disposition for certain
locations. Additionally, during the quarter ended April 28, 2006, the Company
recorded an impairment loss from continuing operations of $837 for its Cracker
Barrel management trainee housing facility. The Company also incurred store
closing charges during the third quarter of 2006. The store closing charges
included employee termination benefits, lease termination and other costs and
are included in the impairment and store closings charges line on the
accompanying consolidated condensed statement of income for continuing
operations. The total impairment and store closing costs recorded in the quarter
and nine months ended April 28, 2006 were $3,596 and $10,361, respectively.
Included in these amounts for the quarter and nine months ended April 28, 2006
were $3,156 and $6,861, respectively, for impairment and store closing costs
from continuing operations.
9.
Gains
on Property Disposition
During
the third quarter of 2007, the Company sold one of three Logan’s properties the
Company had retained and leased back to Logan’s
(see
Note 17). This property was classified as property held for sale in the second
quarter of 2007 and had a net book value of approximately $2,190. The Company
received proceeds of approximately $2,860, which resulted in a gain of
approximately $670 being recorded in the third quarter of 2007. The gain is
recorded in general and administrative expenses in the accompanying condensed
consolidated statement of income.
During
the third quarter of 2007, the State of New York condemned a portion of the
land
on which a Cracker Barrel store was located to build a road. The Company
received condemnation proceeds of approximately $760 and recorded a gain of
approximately $500 in other store operating expenses in the accompanying
condensed consolidated statement of income.
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 April 27, 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 6.4 and 10.5 years, with annual lease payments of approximately
$361 and $105, 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 third quarter of 2007, the Company has a remaining liability of $662 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 4.7
and 12.9 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 (see Note 17), 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.
Shareholders’
Equity
During
the nine-month period ended April 27, 2007, the Company received proceeds of
$33,013 from the exercise of options to purchase 1,078,714 shares of its common
stock. During the nine-month period ended April 27, 2007, the Company had share
repurchases of 5,434,774 shares of its common stock at a purchase price before
fees of approximately $250,000 pursuant to a modified “Dutch Auction” tender
offer in addition to open market purchases of 1,927,500 shares at an aggregate
cost before fees of approximately $91,100, as discussed in Note 13.
During
the nine-month period ended April 27, 2007, the Company paid dividends of $0.13
per common share on August 8, 2006 and $0.14 per common share on November 8,
2006 and February 8, 2007. The Company also declared a dividend of $0.14 per
common share that was paid on May 8, 2007 in the aggregate amount of $3,450,
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 May 25, 2007 to
be
paid on August 6, 2007 to shareholders of record on July 20, 2007.
During
the nine-month period ended April 27, 2007, the unrealized loss, or change
in
value, net of tax, on the Company’s interest rate swap increased by $7,504 to
$12,033 and is recognized in accumulated other comprehensive loss.
During
the nine-month period ended April 27, 2007, total share-based compensation
was
$10,105 and the excess tax benefit from share-based compensation was $4,754.
During the nine-month period ended April 28, 2006, total share-based
compensation was $10,353 and the excess tax benefit from share-based
compensation was $5,737.
12.
Comprehensive
Income
|
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,325
|
|
$
|
23,972
|
|
$
|
134,264
|
|
$
|
80,491
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate
swap, net of tax
|
|
|
(4,833
|
)
|
|
--
|
|
|
(7,504
|
)
|
|
--
|
|
Total comprehensive income
|
|
$
|
7,492
|
|
$
|
23,972
|
|
$
|
126,760
|
|
$
|
80,491
|
|
13.
Share
Repurchases
During
the second quarter of 2007, the Company’s Board of Directors authorized the
repurchase of up to $350,000 of the Company’s common stock, $250,000 of which
was purchased pursuant to a modified “Dutch Auction” tender offer. In that
transaction, the Company repurchased 5,434,774 shares of its common stock at
a
purchase price of $46.00 per share. The
Company also incurred related transaction fees, which were recorded as a
reduction to shareholders’ equity, and resulted in an average cost of $46.03 per
share for the tender offer shares. The
transaction fees included the dealer manager, information agent, depositary,
legal and other fees.
With
regard to the remaining $100,000 authorization, during the third quarter of
2007, the Company repurchased a total of 1,927,500 shares of its common stock
in
the open market at an aggregate cost of approximately $91,100. The Company
also
incurred related transaction fees, which were recorded as a reduction to
shareholders’ equity, and resulted in an average cost of $47.29 per share. As of
April 27, 2007, approximately $8,900 remained available to be repurchased under
the $100,000 repurchase authorization and was completed during the first week
of
the fourth quarter of 2007. As of April 27, 2007, the Company also had 821,081
shares remaining under repurchase authorizations previously in effect at the
end
of 2005.
14.
Debt
Long-term
debt consisted of the following at:
|
|
April
27,
2007
|
|
July
28,
2006
|
|
Term
Loan B
|
|
|
|
|
|
Payable $1,792 per quarter with the
remainder due on April 27, 2013
|
|
$
|
642,416
|
|
$
|
723,000
|
|
3.0%
Zero-Coupon Contingently Convertible
Senior Notes payable on or before April 2,
2032
|
|
|
200,865
|
|
|
196,464
|
|
|
|
|
843,281
|
|
|
919,464
|
|
Current
maturities of Term Loan B
|
|
|
(7,168
|
)
|
|
(8,000
|
)
|
Long-term
debt
|
|
$
|
836,113
|
|
$
|
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 April 27, 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 or 10% of the amount of the regular quarterly cash dividend paid in the
prior fiscal quarter.
During
the third quarter of 2007, pursuant to a put option, the Company repurchased
$20
in principal amount at maturity of the Senior Notes. As a result, the face
value
of the Senior Notes at maturity is $422,030.
15.
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 $18,344 at April 27, 2007,
representing an increase of $11,124 during the first nine 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.
16.
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 third quarter of 2007,
the
Company recorded expense of $665 for this plan as general and administrative
expenses from continuing operations and an additional $665 related to the
success of the Logan’s divestiture as discontinued operations. 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.
17.
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 three Logan’s restaurant properties retained by the Company
and leased back to Logan’s. During the third quarter of 2007, pursuant to the
purchase price adjustment provisions of the Logan’s sale agreement related to
working capital and capital expenditures as of the closing date, the Company
agreed to and recorded a purchase price adjustment which reduced the proceeds
and the gain on the sale by $1,276.
The
Company has reported the results of operations of Logan’s through December 5,
2006 as well as certain expenses of the Company related to the divestiture
of
Logan’s through April 27, 2007, and for the full period ended April 28, 2006, as
discontinued operations, which consist of the following:
|
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
Revenues
|
|
$
|
--
|
|
$
|
110,210
|
|
$
|
154,529
|
|
$
|
315,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax benefit
(provision for income taxes) from
discontinued operations
|
|
$
|
(747
|
)
|
$
|
8,522
|
|
$
|
7,805
|
|
$
|
20,328
|
|
Income
tax benefit (provision for
income taxes)
|
|
|
249
|
|
|
(2,882
|
)
|
|
(2,315
|
)
|
|
(6,932
|
)
|
Net
income (loss) from discontinued
operations
|
|
|
(498
|
)
|
|
5,640
|
|
|
5,490
|
|
|
13,396
|
|
Gain
on sale, net of tax benefit of $1,989
for the quarter and tax provision of $8,503
for the nine months
|
|
|
712
|
|
|
--
|
|
|
81,000
|
|
|
--
|
|
Income
from discontinued operations
|
|
$
|
214
|
|
$
|
5,640
|
|
$
|
86,490
|
|
$
|
13,396
|
|
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 April 27, 2007.
|
|
July
28,
2006
|
|
Cash
and cash equivalents
|
|
$
|
1,732
|
|
Property
held for sale
|
|
|
1,589
|
|
Receivables
|
|
|
3,195
|
|
Inventories
|
|
|
9,873
|
|
Prepaid
expenses
|
|
|
1,601
|
|
Property
and equipment, net
|
|
|
287,580
|
|
Goodwill
|
|
|
93,724
|
|
Other
assets
|
|
|
1,928
|
|
Current assets of discontinued operations
|
|
$
|
401,222
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
12,902
|
|
Other
accrued expenses
|
|
|
23,891
|
|
Other
long-term obligations
|
|
|
11,790
|
|
Deferred
income taxes
|
|
|
23,062
|
|
Current liabilities of discontinued operations
|
|
$
|
71,645
|
|
|
|
|
|
|
18.
Subsequent
Events
As
stated
in Note 13, during the first week of the fourth quarter, the Company completed
the remaining $8,900 in purchases under the original $100,000 repurchase
authorization.
During
the third quarter of 2007, the Company commenced an exchange offer for all
of
its Senior Notes, whereby the Company offered to exchange $1 principal amount
of
a new issue of zero coupon senior convertible notes (“New Notes”) due 2032 plus
an exchange fee for each $1 principal amount of the Senior Notes. The New Notes
are substantially the same as the existing notes except that the New Notes
have
a net share settlement feature which will allow the Company, upon conversion
of
a New Note, to settle the accreted principal amount of the debt for cash and
issue shares of the Company’s common stock for the conversion value in excess of
the accreted value. The exchange offer expired subsequent to the end of the
third quarter on April 30, 2007 and resulted in $375,931 aggregate principal
amount at maturity of the Senior Notes, representing approximately 89% of the
amount of the Senior
Notes outstanding, being tendered and accepted in exchange for an equal
principal amount of the New Notes. The exchange of the New Notes for the Senior
Notes resulted in outstanding aggregate principal amount at maturity of the
Senior Notes and New Notes of $46,099 and $375,931, respectively. 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.
The
Senior Notes and New Notes will be redeemed on June 4, 2007. The redemption
price of the Senior Notes and the New Notes, collectively, will be approximately
$201,000, assuming no holders of either the Senior Notes or the New Notes
convert their notes into common stock. At any time up to two business days
prior
to June 4, 2007, the holders of the notes can convert the notes. The conversion
rate applicable to both the Senior Notes and the New Notes is 10.8584 shares
of
common stock per $1 principal amount at maturity. For the New Notes, the Company
will settle its conversion obligations with a combination of cash and shares
of
common stock, if any, in lieu of only shares. Common stock will be issued upon
conversion of the New Notes only to the extent that the conversion value exceeds
the accreted principal amount of the New Notes. The Company will obtain funds
for the redemption by drawing on its $200,000 delayed-draw term loan and using
cash on hand.
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 percentages, share and 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 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,” “should,” “expect,” “intend,” “estimate,” “anticipate,” “believe,”
“potential,” “regular,” “projects,” “forecasts,” 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 22-25 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 nine-month period ended April 27, 2007 as
compared to the same period a year ago:
|
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
|
April
28,
2006
|
|
Total
revenue
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
30.6
|
|
|
31.0
|
|
|
32.1
|
|
|
32.2
|
|
Gross
profit
|
|
|
69.4
|
|
|
69.0
|
|
|
67.9
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
39.9
|
|
|
39.2
|
|
|
37.8
|
|
|
37.5
|
|
Other
store operating expenses
|
|
|
18.3
|
|
|
17.7
|
|
|
17.7
|
|
|
17.5
|
|
Impairment
and store closing charges
|
|
|
--
|
|
|
0.6
|
|
|
--
|
|
|
0.4
|
|
Store
operating income
|
|
|
11.2
|
|
|
11.5
|
|
|
12.4
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
5.7
|
|
|
5.8
|
|
|
6.0
|
|
|
5.8
|
|
Operating
income
|
|
|
5.5
|
|
|
5.7
|
|
|
6.4
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
2.5
|
|
|
0.5
|
|
|
2.5
|
|
|
0.5
|
|
Interest
income
|
|
|
0.4
|
|
|
--
|
|
|
0.4
|
|
|
--
|
|
Income
before income taxes
|
|
|
3.4
|
|
|
5.2
|
|
|
4.3
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1.2
|
|
|
1.8
|
|
|
1.5
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2.2
|
|
|
3.4
|
|
|
2.8
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations,
net of tax
|
|
|
--
|
|
|
1.1
|
|
|
5.0
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2.2
|
%
|
|
4.5
|
%
|
|
7.8
|
%
|
|
4.9
|
%
|
The
following table highlights the components of total revenue by percentage
relationships to total revenue for the quarter and nine-month period ended
April
27, 2007 as compared to the same period a year ago:
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
Total
revenue:
|
|
|
|
|
|
|
|
|
|
|
Cracker Barrel restaurant
|
|
|
81.0
|
%
|
|
80.9
|
%
|
|
|
77.6
|
%
|
|
78.1
|
%
|
Cracker Barrel retail
|
|
|
19.0
|
|
|
19.1
|
|
|
|
22.4
|
|
|
21.9
|
|
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 nine-month period ended April 27, 2007 as compared to the same
period a year ago:
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
Cracker
Barrel:
|
|
|
|
|
|
|
|
|
|
|
Open at beginning of period
|
|
552
|
|
540
|
|
|
543
|
|
529
|
|
Opened during period
|
|
|
5
|
|
|
6
|
|
|
|
14
|
|
|
17
|
|
Closed during period
|
|
|
--
|
|
|
(7)
|
|
|
|
--
|
|
|
(7)
|
|
Open at end of period
|
|
|
557
|
|
|
539
|
|
|
|
557
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine-month period ended April
27,
2007 as compared to the same period a year ago:
|
|
Quarter
Ended
|
|
Nine
Months Ended
|
|
|
April
27,
2007
|
|
April
28,
2006
|
|
|
|
|
|
|
Cracker
Barrel
|
|
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$
|
801.5
|
|
$
|
802.9
|
|
|
$
|
2,427.1
|
|
$
|
2,408.4
|
|
Retail
|
|
|
187.6
|
|
|
189.4
|
|
|
|
698.9
|
|
|
676.2
|
|
Total net revenue
|
|
$
|
989.1
|
|
$
|
992.3
|
|
|
$
|
3,126.0
|
|
$
|
3,084.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
Total
revenue for the third quarter of 2007 increased 2.8% compared to the prior
year
third quarter. For the third quarter ended April 27, 2007, Cracker Barrel
comparable store restaurant sales remained flat and comparable store retail
sales decreased 0.9% resulting in a combined comparable store sales (total
net
sales) decrease of 0.2%. The comparable store restaurant sales consisted of
a
1.4% average check increase for the quarter (including a 1.5% average menu
price
increase) and a 1.4% guest traffic decrease. We
believe that the comparable store retail sales decrease is due to smaller
clearance sales during the quarter and restaurant guest traffic decreases
partially offset by improved merchandise selection.
Both
comparable store restaurant and retail sales were unfavorably affected by more
severe winter weather in the quarter this year than last year. Sales from newly
opened Cracker Barrel stores accounted for the balance of the total revenue
increase in the third quarter.
Total
revenue for the nine-month period ended April 27, 2007 increased 3.8% compared
to the nine-month period ended April 28, 2006. For the nine-month period ended
April 27, 2007, Cracker Barrel comparable store restaurant sales increased
0.6%
and comparable store retail sales increased 3.4% resulting in a combined
comparable store sales (total net sales) increase of 1.2%. The comparable store
restaurant sales increase consisted of a 1.2% average check increase for the
nine months (including a 1.2% average menu price increase) and a 0.6% 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 nine-month period ended
April 27, 2007.
Cost
of Goods Sold
Cost
of
goods sold as a percentage of total revenue for the third quarter of 2007
decreased to 30.6% from 31.0% in the third quarter of the prior year. This
decrease was due to lower retail costs of goods due to lower markdowns of retail
merchandise and higher initial mark-ons of retail merchandise versus the prior
year. Higher restaurant product costs, primarily reflecting commodity inflation,
were partially offset by higher restaurant menu pricing.
Cost
of
goods sold as a percentage of total revenue for the nine-month period ended
April 27, 2007 decreased to 32.1% from 32.2% in the nine-month period ended
April 28, 2006. The decrease is due to higher menu pricing partially offset
by
higher markdowns of retail merchandise and a 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.
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 39.9% in the third quarter this year from 39.2%
in
the prior year. This increase was due to higher hourly labor and management
costs and higher group health insurance costs partially offset by a refund
of
prior years’ workers compensation expenses received in the third quarter of
2007. 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 37.8%
in
the nine-month period ended April 27, 2007 as compared to 37.5% in the
nine-month period ended April 28, 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 partially offset by lower
workers compensation expenses.
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 18.3% in the third quarter of 2007 from
17.7% in the third quarter of the prior year. This increase was due to higher
general insurance expense, advertising expense, and maintenance expense as
a
percent of revenue partially offset by a gain on disposition of property and
the
refund of prior years’ sales taxes paid on operating supplies.
Other
store operating expenses as a percentage of total revenue increased to 17.7%
in
the nine-month period ended April 27, 2007 as compared to 17.5% in the
nine-month period ended April 28, 2006. Higher
general insurance expense as a result of revised actuarial estimates and
property insurance costs
were
partially offset by the non-recurrence of hurricane-related costs and the
recording of the gain on the Visa/MasterCard litigation settlement in the second
quarter of 2007.
Impairment
and Store Closing Charges
The
Company did not incur any impairment losses or store closing charges in the
nine
months ended April 27, 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
related to impairment charges from continuing operations. The
impaired locations were closed early in the quarter ended April 28, 2006 and
were classified at that time as held for sale and
were
remeasured at their fair value less cost to sell. Additionally,
during the quarter ended April 28, 2006, the Company recorded an impairment
loss
from continuing operations of $837 for its management trainee housing facility.
The total impairment and store closing costs recorded in the quarter and nine
months ended April 28, 2006 were $3,596 and $10,361, respectively. Included
in
these amounts for the quarter and nine months ended April 28, 2006 were $3,156
and $6,861, respectively, for impairment and store closing costs from continuing
operations. See Note 8 to the accompanying Condensed Consolidated Financial
Statements for more details surrounding the impairment and store closing
charges.
General
and Administrative Expenses
General
and administrative expenses as a percentage of total revenue decreased to 5.7%
in the third quarter of 2007 compared to 5.8% in the third quarter of the prior
year. The decrease is due to the gain on the sale of one of the Logan’s
properties the Company had retained and leased back to Logan’s partially offset
by an increase in bonus accruals. The increase in the bonus accruals reflects
better performance against financial objectives in the third quarter of 2007
versus prior year.
General
and administrative expenses as a percentage of total revenue increased to 6.0%
in the nine-month period ended April 27, 2007 as compared to 5.8% in the
nine-month period ended April 28, 2006. The increase was due to an increase
in
bonus accruals. The increase in the bonus accruals reflected better performance
against financial objectives in the first nine 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
third quarter of 2006 related to strategic initiatives.
Interest
Expense
Interest
expense as a percentage of total revenue increased to 2.5% in the third quarter
of 2007 as compared to 0.5% in the third 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 2.5% in the nine-month
period ended April 27, 2007 as compared to 0.5% in the nine-month period ended
April 28, 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 $2,199 in the third quarter of 2007 as compared to $0 in
the
third 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 third quarter of 2007 versus the prior year.
Interest
income increased to $6,654 in the first nine months of 2007 as compared to
$93
in the first nine 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 34.4% in the
third
quarter and 35.1% in the first nine months of 2007 as compared to 33.6% in
the
third quarter a year ago and 34.1% in the first nine 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 nine
months of 2006 was due to higher effective state taxes.
Liquidity
and Capital Resources
The
Company's operating activities from continuing operations provided net cash
of
$100,012 for the nine-month period ended April 27, 2007, which represented
an
increase from the $77,845 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 an increase in accrued employee compensation as compared
to a
decrease in the previous year. These increases were partially offset by lower
income from continuing operations as a result of higher interest expense related
to the Company’s recapitalization and higher indebtedness and a smaller decrease
in inventories from year end as compared to the previous year. 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 $58,982 at April 27, 2007 versus
negative working capital of $6,280 at July 28, 2006. The working capital at
both
July 28, 2006 and April 27, 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, accrued employee compensation
and
accrued employee benefits partially offset by higher income taxes payable 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 $66,695 for the nine-month period
ended April 27, 2007 as compared to $64,290 during the same period a year ago.
Construction of new locations accounted for most of the expenditures.
Capitalized interest, excluding Logan’s, was $171 and $609 for the quarter and
nine-month period ended April 27, 2007, as compared to $76 and $263 for the
quarter and nine-month period ended April 28, 2006. These differences were
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 three Logan’s restaurant properties retained by the Company
and leased back to Logan’s. During
the third quarter of 2007, pursuant to the purchase price adjustment provisions
of the Logan’s sale agreement related to working capital and capital
expenditures as of the closing date, the Company agreed to and recorded a
purchase price adjustment which reduced the proceeds and the gain on the sale
by
$1,276. The net cash proceeds were used to fund its modified $250,000 “Dutch
Auction” tender offer, open market share repurchases 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. During the third
quarter of 2007, as part of its previously announced $100,000 share repurchase
authorization, the Company repurchased a total of 1,927,500 shares of its common
stock in the open market at an aggregate cost of approximately $91,100. As
of
April 27, 2007, approximately $8,900 remains available to be repurchased under
the $100,000 repurchase authorization and was completed during the first week
of
the fourth quarter of 2007. As of April 27, 2007, the Company also had 821,081
shares remaining under repurchase authorizations previously in effect at the
end
of 2005. The Company also is authorized to repurchase any shares issued in
connection with the redemption of its convertible debt, which has been called
with a redemption date of June 4, 2007. The Company presently expects to
repurchase the remaining 821,081 shares and any shares issued in connection
with
the redemption of its convertible debt during the fourth quarter of 2007. 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 nine-month period ended April 27, 2007, the Company received proceeds of
$33,013 from the exercise of options to purchase 1,078,714 shares of its common
stock. During the nine-month period ended April 27, 2007, the Company paid
dividends of $0.13 per common share on August 8, 2006 and $0.14 per common
share
on November 8, 2006 and February 8, 2007. The Company also declared a dividend
of $0.14 per common share that was paid on May 8, 2007 in the amount of $3,450.
Additionally, the Company declared a dividend of $0.14 per common share on
May
25, 2007 to be paid on August 6, 2007 to shareholders of record on July 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, open market share repurchases, dividend
payments and working capital needs in the first nine months of 2007.
The
Company estimates that its capital expenditures (purchase of property and
equipment) for 2007 will be approximately $90,000, 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 April 27, 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
redemption 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 April 27, 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 or 10% of the amount of the regular quarterly cash dividend paid in the
prior fiscal quarter.
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 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
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 nine months ended
April
27, 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 related to impairment charges from
continuing operations. These impairments were recorded based upon the lower
of
unit carrying amount or fair value. The impaired locations were closed early
in
the quarter ended April 28, 2006 and were classified at that time as held for
sale and were remeasured at their fair value less cost to sell. The locations
were closed due to weak financial performance, an unfavorable outlook, and
relatively positive prospects for proceeds from disposition for certain
locations. Additionally, during the quarter ended April 28, 2006, the Company
recorded an impairment loss for its Cracker Barrel management trainee housing
facility. The total impairment loss from continuing operations related to
property and equipment recorded in the quarter ended April 28, 2006 was
$837.
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. 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 at 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
was consistent with Cracker Barrel’s practice in prior years. During the quarter
ended April 27, 2007, Cracker Barrel performed physical inventory counts in
approximately 18% of its stores in addition to the approximately 29% performed
in the second quarter of 2007. Actual shortages through their third quarter
count date were recorded in the quarter when those stores were counted.
An estimate of shortages was recorded for the remaining stores based on the
results of the physical inventory counts. The remaining stores will be counted
in the fourth quarter of 2007 and the estimated shortages for these stores
will
be adjusted to actual at that time. During the third quarter of 2007, Cracker
Barrel changed its method for calculating inventory shrinkage for the time
period between physical inventory counts by using a three-year average of the
results from the current year physical inventory and the previous two physical
inventories. The impact of this change on the Company’s consolidated financial
statements was immaterial for the quarter ended April 27, 2007. For the 29%
of
stores counted in the second quarter of 2007, their third quarter shrink was
estimated using this new three-year method. For the 18% of stores counted in
the
third quarter of 2007, their shrink after their inventory counts until the
end
of the third quarter was estimated using this same new three-year method. Actual
shrinkage recorded upon physical inventory counts may produce materially
different amounts of shrinkage than estimated by the Company for the quarters
ended October 27, 2006, January 26, 2007 and April 27, 2007 and prior
years.
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 were,
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 April 27, 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 April 27, 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
Part
II,
Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended
January 26, 2007 is incorporated in this item of this Quarterly Report by
reference.
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 April 27, 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
|
|
Average
Price
Paid Per Share (1)
|
|
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
(2)
|
|
1/27/07
- 2/23/07
|
|
|
1,052,500
|
|
$
|
47.39
|
|
|
1,052,500
|
|
|
Not
determinable (2)
|
|
2/24/07
- 3/23/07
|
|
|
875,000
|
|
$
|
47.18
|
|
|
875,000
|
|
|
Not
determinable (2)
|
|
3/24/07
- 4/27/07
|
|
|
--
|
|
$
|
--
|
|
|
--
|
|
|
Not
determinable (2)
|
|
Total
for the quarter
|
|
|
1,927,500
|
|
$
|
47.29
|
|
|
1,927,500
|
|
|
Not
determinable (2)
|
|
(1) |
Average
price paid per share is calculated on a settlement basis and includes
commissions and fees.
|
(2) |
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 of the Company’s common stock to be commenced with no
expiration date, of which approximately $8,900 remained available
to be
repurchased at April 27, 2007. As stated in Notes 13 and 18 to the
condensed consolidated financial statements, this remaining $8,900
authorization was completed during the first week of the fourth
quarter.
|
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:
6/1/07 By
/s/Lawrence
E. White
Lawrence
E. White, Senior Vice President, Finance
and
Chief
Financial Officer
Date:
6/1/07 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