SECURITIES
AND EXCHANGE COMMISSION
x Quarterly
Report Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For the
Quarterly Period Ended October 31, 2008
o Transition Report
Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
For the
Transition Period from ________ to _______.
Commission
file number 000-25225
CRACKER BARREL OLD COUNTRY
STORE, 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)
(Registrant’s
Telephone Number, Including Area Code)
(Former
name, if changed since last report)
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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer |
x |
Accelerated
filer o |
|
|
|
|
|
Non-accelerated
filer |
o |
Smaller reporting
company |
o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
Indicate
the number of shares outstanding of each of the registrant’s classes of
common stock, as of the latest practicable
date.
|
22,393,604
Shares of Common Stock
Outstanding
as of November 28, 2008
CRACKER
BARREL OLD COUNTRY STORE,
INC.
|
For
the Quarter Ended October 31,
2008
|
INDEX
PART
I. FINANCIAL INFORMATION
|
|
Page
|
|
|
|
Item
1 |
|
|
|
● |
Condensed
Consolidated Financial Statements (Unaudited) |
|
|
|
|
|
(a) |
Condensed
Consolidated Balance Sheet as of October 31, 2008 and August 1,
2008 |
3 |
|
|
|
|
|
(b) |
Condensed
Consolidated Statement of Income for the Quarters Ended October 31, 2008 and
November 2, 2007 |
4
|
|
|
|
|
|
(c) |
Condensed
Consolidated Statement of Cash Flows for the Quarters Ended October 31,
2008 and November 2, 2007 |
|
|
|
|
|
|
(d) |
Notes to Condensed Consolidated
Financial Statements |
6
|
|
|
|
|
|
Item
2 |
|
|
|
|
● |
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
14
|
|
|
|
|
|
Item
3 |
|
|
|
|
● |
Quantitative
and Qualitative Disclosures About Market Risk |
27
|
|
|
|
|
|
Item
4 |
|
|
|
|
● |
Controls
and Procedures |
27
|
|
|
|
PART
II. OTHER INFORMATION |
|
|
|
|
|
Item
1A |
|
|
● |
Risk
Factors |
28 |
|
|
|
|
Item
4 |
|
|
|
● |
Submission
of Matters to a Vote of Security Holders |
28 |
|
|
|
|
Item
6 |
|
|
|
● |
Exhibits |
30 |
|
|
|
SIGNATURES
|
31
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CRACKER
BARREL OLD COUNTRY STORE, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
thousands, except share data)
(Unaudited)
|
|
October
31,
2008
|
|
|
August
1,
2008*
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,174 |
|
|
$ |
11,978 |
|
Property
held for sale
|
|
|
2,311 |
|
|
|
3,248 |
|
Accounts
receivable
|
|
|
11,518 |
|
|
|
13,484 |
|
Income
taxes receivable
|
|
|
1,739 |
|
|
|
6,919 |
|
Inventories
|
|
|
185,622 |
|
|
|
155,954 |
|
Prepaid
expenses and other current assets
|
|
|
14,763 |
|
|
|
10,981 |
|
Deferred
income taxes
|
|
|
18,290 |
|
|
|
18,075 |
|
Total
current assets
|
|
|
245,417 |
|
|
|
220,639 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,591,739 |
|
|
|
1,571,816 |
|
Less:
Accumulated depreciation and amortization of capital
leases
|
|
|
538,997 |
|
|
|
526,576 |
|
Property
and equipment – net
|
|
|
1,052,742 |
|
|
|
1,045,240 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
43,729 |
|
|
|
47,824 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,341,888 |
|
|
$ |
1,313,703 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
84,977 |
|
|
$ |
93,112 |
|
Current
maturities of long-term debt and other long-term
obligations
|
|
|
8,810 |
|
|
|
8,714 |
|
Accrued
interest expense
|
|
|
12,615 |
|
|
|
12,485 |
|
Other
current liabilities
|
|
|
147,293 |
|
|
|
150,408 |
|
Total
current liabilities
|
|
|
253,695 |
|
|
|
264,719 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
809,298 |
|
|
|
779,061 |
|
Capital
lease obligations
|
|
|
73 |
|
|
|
77 |
|
Interest
rate swap liability
|
|
|
41,438 |
|
|
|
39,618 |
|
Other
long-term obligations
|
|
|
81,708 |
|
|
|
83,147 |
|
Deferred
income taxes
|
|
|
53,536 |
|
|
|
54,330 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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;
at
|
|
|
|
|
|
|
|
|
October
31, 2008, 22,375,604 shares issued and outstanding and at
|
|
|
|
|
|
|
|
|
August
1, 2008, 22,325,341 shares issued and outstanding
|
|
|
224 |
|
|
|
223 |
|
Additional
paid-in capital
|
|
|
3,335 |
|
|
|
731 |
|
Accumulated
other comprehensive loss
|
|
|
(29,214 |
) |
|
|
(27,653 |
) |
Retained
earnings
|
|
|
127,795 |
|
|
|
119,450 |
|
Total
shareholders’ equity
|
|
|
102,140 |
|
|
|
92,751 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
1,341,888 |
|
|
$ |
1,313,703 |
|
See notes to unaudited condensed
consolidated financial
statements.
|
* This
condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of August 1, 2008, as filed in the Company’s
Annual Report on Form 10-K for the fiscal year ended August 1,
2008.
CRACKER
BARREL OLD COUNTRY STORE,
INC.
|
CONDENSED
CONSOLIDATED STATEMENT OF
INCOME
|
(In
thousands, except share and per share
data)
|
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$ |
573,932 |
|
|
$ |
581,165 |
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
181,357 |
|
|
|
180,228 |
|
Gross
profit
|
|
|
392,575 |
|
|
|
400,937 |
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
222,433 |
|
|
|
225,668 |
|
Impairment
and store closing charges
|
|
|
-- |
|
|
|
809 |
|
Other
store operating expenses
|
|
|
105,966 |
|
|
|
105,220 |
|
Store
operating income
|
|
|
64,176 |
|
|
|
69,240 |
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
31,618 |
|
|
|
33,218 |
|
Operating
income
|
|
|
32,558 |
|
|
|
36,022 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
14,033 |
|
|
|
14,909 |
|
Interest
income
|
|
|
-- |
|
|
|
57 |
|
Income
before income taxes
|
|
|
18,525 |
|
|
|
21,170 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
5,693 |
|
|
|
7,187 |
|
Income
from continuing operations
|
|
|
12,832 |
|
|
|
13,983 |
|
Loss
from discontinued operations, net of tax
|
|
|
-- |
|
|
|
(94 |
) |
Net
income
|
|
$ |
12,832 |
|
|
$ |
13,889 |
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.57 |
|
|
$ |
0.59 |
|
Loss
from discontinued operations, net of tax
|
|
$ |
-- |
|
|
$ |
-- |
|
Net
income per share
|
|
$ |
0.57 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.57 |
|
|
$ |
0.57 |
|
Loss
from discontinued operations, net of tax
|
|
$ |
-- |
|
|
$ |
-- |
|
Net
income per share
|
|
$ |
0.57 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,349,967 |
|
|
|
23,705,600 |
|
Diluted
|
|
|
22,666,326 |
|
|
|
24,444,932 |
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.20 |
|
|
$ |
0.18 |
|
See notes
to unaudited condensed consolidated financial statements.
CRACKER
BARREL OLD COUNTRY STORE, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited
and in thousands)
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,832 |
|
|
$ |
13,889 |
|
Loss
from discontinued operations, net of tax
|
|
|
-- |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash used in
|
|
|
|
|
|
|
|
|
operating
activities of continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14,186 |
|
|
|
13,660 |
|
Loss
on disposition of property and equipment
|
|
|
862 |
|
|
|
535 |
|
Impairment
|
|
|
-- |
|
|
|
532 |
|
Share-based
compensation
|
|
|
1,728 |
|
|
|
2,314 |
|
Excess
tax benefit from share-based compensation
|
|
|
(7 |
) |
|
|
(91 |
) |
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,973 |
|
|
|
(247 |
) |
Income
taxes receivable
|
|
|
5,180 |
|
|
|
-- |
|
Inventories
|
|
|
(29,668 |
) |
|
|
(19,278 |
) |
Prepaid
expenses and other current assets
|
|
|
(3,782 |
) |
|
|
(2,794 |
) |
Accounts
payable
|
|
|
(8,135 |
) |
|
|
(11,020 |
) |
Accrued
interest expense
|
|
|
130 |
|
|
|
384 |
|
Other
current liabilities
|
|
|
(3,545 |
) |
|
|
(3,113 |
) |
Deferred
income taxes
|
|
|
(750 |
) |
|
|
(957 |
) |
Other
long-term assets and liabilities
|
|
|
2,290 |
|
|
|
3,098 |
|
Net
cash used in operating activities of continuing operations
|
|
|
(6,706 |
)
|
|
|
(2,994 |
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(22,003 |
) |
|
|
(24,385 |
) |
Proceeds
from insurance recoveries of property and equipment
|
|
|
28 |
|
|
|
60 |
|
Proceeds
from sale of property and equipment
|
|
|
728 |
|
|
|
65 |
|
Net
cash used in investing activities of continuing operations
|
|
|
(21,247 |
) |
|
|
(24,260 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
288,200 |
|
|
|
298,600 |
|
Principal
payments under long-term debt and other long-term
obligations
|
|
|
(257,871 |
) |
|
|
(272,009 |
) |
Proceeds
from exercise of share-based compensation awards
|
|
|
870 |
|
|
|
1,926 |
|
Excess
tax benefit from share-based compensation
|
|
|
7 |
|
|
|
91 |
|
Dividends
on common stock
|
|
|
(4,057 |
) |
|
|
(3,310 |
) |
Net
cash provided by financing activities of continuing
operations
|
|
|
27,149 |
|
|
|
25,298 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities of discontinued
operations
|
|
|
-- |
|
|
|
(145 |
) |
Net
cash used in discontinued operations
|
|
|
-- |
|
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(804 |
) |
|
|
(2,101 |
) |
Cash
and cash equivalents, beginning of period
|
|
|
11,978 |
|
|
|
14,248 |
|
Cash
and cash equivalents, end of period
|
|
$ |
11,174 |
|
|
$ |
12,147 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the three months for:
|
|
|
|
|
|
|
|
|
Interest,
net of amounts capitalized
|
|
$ |
13,231 |
|
|
$ |
13,978 |
|
Income
taxes
|
|
$ |
93 |
|
|
$ |
1,960 |
|
Supplemental
schedule of non-cash financing activity:
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
$ |
(1,820 |
)
|
|
$ |
(15,481 |
)
|
Change
in deferred tax asset for interest rate swap
|
|
$ |
259 |
|
|
$ |
4,989 |
|
See notes
to unaudited condensed consolidated financial statements.
CRACKER BARREL OLD COUNTRY
STORE, 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 October 31, 2008 and August 1, 2008
and the related condensed consolidated statements of income and cash flows for
the quarters ended October 31, 2008 and November 2, 2007, have been prepared by
Cracker Barrel Old Country Store, 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 Store® (“Cracker
Barrel”) restaurant and retail concept. 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 a 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 August 1, 2008 (the
“2008 Form 10-K”). Effective December 8, 2008, the Company changed
its name from “CBRL Group, Inc.” to “Cracker Barrel Old Country Store,
Inc.”
References
in these Notes to Condensed Consolidated Financial Statements to a year are to
the Company’s fiscal year unless otherwise noted.
2. |
Summary of Significant
Accounting
Policies
|
The
significant accounting policies of the Company are included in the 2008 Form
10-K. During the quarter ended October 31, 2008, there were no
significant changes to those accounting policies.
3.
|
Recent Accounting
Pronouncements
|
Fair
Value
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 was effective for fiscal years
beginning after November 15, 2007 for financial assets and liabilities, as
well as any other asset and liabilities that are carried at fair value on a
recurring basis in the financial statements. Effective August 2,
2008, the first day of 2009, the Company adopted SFAS No. 157 on a prospective
basis for financial assets and liabilities and nonfinancial assets and
liabilities that are carried at fair value on a recurring basis in the financial
statements. The adoption of SFAS No. 157 resulted in a $5,809
decrease in the Company’s interest rate swap liability related to
non-performance risk with the offset reflected in accumulated other
comprehensive loss, net of the deferred tax asset, on the Company’s condensed
consolidated balance sheet. See Note 4 for additional information on
the Company’s fair value measurements.
In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157” (“FSP No. 157-2”), which deferred for one year the
effective date of SFAS No. 157 as it applies to certain nonfinancial assets and
liabilities. The deferral provided by FSP No. 157-2 applies to such
items as
nonfinancial long-lived asset groups measured at fair value for an impairment
assessment. The Company elected the deferral for nonfinancial assets
and liabilities under FSP No. 157-2. The Company is currently
evaluating the impact of its adoption and cannot yet determine the impact of its
adoption in the first quarter of 2010.
Income
Tax Benefits of Dividends on Share–Based Payment Awards
The
Emerging Issues Task Force (“EITF”) reached a consensus on EITF 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”
(“EITF 06-11”) in June 2007. The EITF consensus indicates that the
tax benefit received on dividends associated with share-based awards that are
charged to retained earnings should be recorded in additional paid-in capital
and included in the pool of excess tax benefits available to absorb potential
future tax deficiencies on share-based award payments. The consensus was
effective for the tax benefits of dividends declared in fiscal years beginning
after December 15, 2007. The Company adopted EITF 06-11 on
August 2, 2008, the first day of 2009. The adoption of EITF 06-11 did
not have a significant impact on the Company’s consolidated financial
statements.
Derivative
Disclosures
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). SFAS No. 161 requires enhanced disclosures about how and why
an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations, financial performance and
cash flows. SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The Company does not expect that
the adoption of SFAS No. 161 in the third quarter of 2009 will have a
significant impact on its consolidated financial statements.
GAAP
Hierarchy
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP. SFAS No. 162 was
effective on November 15, 2008. The Company does not expect that the
adoption of SFAS No. 162 in the second quarter of 2009 will have a significant
impact on the Company’s consolidated financial statements.
4.
|
Fair Value
Measurements
|
Fair
value is defined under SFAS No. 157 as the price that would be received to
sell an asset or paid to transfer a liability in the principal or most
advantageous market in an orderly transaction between market participants on the
measurement date. SFAS No. 157 also establishes a three-level
hierarchy, which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value.
The
valuation hierarchy is based upon the transparency of inputs to the valuation of
an asset or liability on the measurement date. The three levels of
inputs to the valuation methodology are:
·
|
Level
1 – quoted prices (unadjusted) for an identical asset or liability in an
active market.
|
·
|
Level
2 – quoted prices for a similar asset or liability in an active market or
model-derived valuations in which all significant inputs are observable
for substantially the full term of the asset or
liability.
|
·
|
Level
3 – unobservable and significant to the fair value measurement of the
asset or liability.
|
The
Company’s assets and liabilities measured at fair value on a recurring basis
subject to the disclosure requirements of SFAS No. 157 at October 31, 2008 were
as follows:
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Fair
Value as
of
October 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents*
|
|
$ |
64 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
64 |
|
Deferred
compensation plan assets**
|
|
|
23,103 |
|
|
|
-- |
|
|
|
-- |
|
|
|
23,103 |
|
Total
assets at fair value
|
|
$ |
23,167 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
23,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap liability
|
|
$ |
-- |
|
|
$ |
41,438 |
|
|
$ |
-- |
|
|
$ |
41,438 |
|
Total
liabilities at fair value
|
|
$ |
-- |
|
|
$ |
41,438 |
|
|
$ |
-- |
|
|
$ |
41,438 |
|
**Represents
plan assets established under a Rabbi Trust for the Company’s non-qualified
savings plan and is included in the condensed consolidated balance sheet as
other assets.
5.
|
Property Held for
Sale
|
Property
held for sale consists of real estate properties that the Company expects to
sell within one year. The assets are reported at the lower of
carrying amount or fair value less costs to sell. At October 31, 2008
and August 1, 2008, property held for sale was $2,311 and $3,248, respectively,
and consisted of closed stores.
Inventories
were comprised of the following at:
|
|
October
31,
2008
|
|
|
August
1,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
149,345 |
|
|
$ |
124,572 |
|
Restaurant
|
|
|
21,370 |
|
|
|
17,439 |
|
Supplies
|
|
|
14,907 |
|
|
|
13,943 |
|
Total
|
|
$ |
185,622 |
|
|
$ |
155,954 |
|
7.
Debt
Long-term
debt consisted of the following at: |
|
|
|
|
|
|
|
|
October
31,
2008
|
|
|
August
1,
2008
|
|
|
|
|
|
|
|
|
Term
Loan B
|
|
|
|
|
|
|
payable
$1,792 per quarter with the remainder due
on
April 27, 2013
|
|
$ |
631,664 |
|
|
$ |
633,456 |
|
|
|
|
|
|
|
|
|
|
Delayed-Draw
Term Loan Facility
payable
$383 per quarter with the remainder due
on
April 27, 2013
|
|
|
150,720 |
|
|
|
151,103 |
|
|
|
|
|
|
|
|
|
|
Revolving
Credit Facility
payable
on or before April 27, 2011
|
|
|
35,200 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
Note
payable
|
|
|
507 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
818,091 |
|
|
|
787,759 |
|
|
|
|
|
|
|
|
|
|
Current
maturities
|
|
|
(8,793 |
) |
|
|
(8,698 |
) |
Long-term
debt
|
|
$ |
809,298 |
|
|
$ |
779,061 |
|
The
Company has a credit facility (the “Credit Facility”) that consists of term
loans (aggregate outstanding at October 31, 2008 was $782,384) with a scheduled
maturity date of April 27, 2013 and a $250,000 revolving credit facility
expiring April 27, 2011 (the “Revolving Credit Facility”). At October 31, 2008,
the Company had $185,738 available under the Revolving Credit
Facility.
The
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
October 31, 2008, the Company was in compliance with all debt
covenants.
The
Credit Facility also imposes restrictions on the amount of dividends the Company
is able to pay. If there is no default then existing and there is at
least $100,000 then available under the Revolving Credit Facility, the Company
may both: (1) pay cash dividends on its common stock if the aggregate amount of
dividends paid in any fiscal year is less than 15% of Consolidated EBITDA from
continuing operations (as defined in the Credit Facility) during the immediately
preceding fiscal year; and (2) in any event, increase its regular quarterly cash
dividend in any quarter by an amount not to exceed the greater of $.01 or 10% of
the amount of the dividend paid in the prior fiscal quarter.
The note
payable consists of a $507 five-year note with a vendor and represents the
financing of prepaid maintenance for telecommunications
equipment. The note payable is payable in monthly installments of
principal and interest of $9 through October 16, 2013 and bears interest at
2.88%.
8.
|
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 $41,438 (see Notes
3 and 4) and $39,618 at October 31, 2008 and August 1, 2008,
respectively. 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, which consist of interest payments, are included in operating
activities.
During
the quarter ended October 31, 2008, the Company received proceeds of $870 from
the exercise of share-based compensation awards and the corresponding issuance
of 50,263 shares of its common stock. During the quarter ended
October 31, 2008, the Company did not make any share repurchases.
During
the quarter ended October 31, 2008, the Company paid a dividend of $0.18 per
common share. The Company also declared a dividend of $0.20 per common share on
September 18, 2008 that was paid on November 5, 2008 and is recorded in other
current liabilities in the accompanying condensed consolidated balance
sheet. Additionally, the Company declared a dividend of $0.20 per
common share on November 25, 2008 to be paid on February 5, 2009 to shareholders
of record on January 16, 2009.
During
the quarter ended October 31, 2008, the unrealized loss, net of tax, on the
Company’s interest rate swap increased by $1,561 to $29,214 and is recognized in
accumulated other comprehensive loss (see Notes 3, 4, 8 and 10).
During
the quarter ended October 31, 2008, total share-based compensation expense was
$1,728 and the excess tax benefit from share-based compensation was $7. During
the quarter ended November 2, 2007, total share-based compensation expense was
$2,314 and the excess tax benefit from share-based compensation was
$91.
Comprehensive
income consisted of the following at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,832 |
|
|
$ |
13,889 |
|
Other
comprehensive loss:
Change
in fair value of interest rate swap, net of tax
benefit
of $259 and $4,989, respectively
|
|
|
(1,561 |
) |
|
|
(10,492 |
) |
Total
comprehensive income
|
|
$ |
11,271 |
|
|
$ |
3,397 |
|
Historically,
the net income of the Company has been lower in the first three quarters of each
year 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. 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 expects to open additional new locations
throughout the year. Therefore, the results of operations for the
quarter ended October 31, 2008 cannot be considered indicative of the operating
results for the entire 2009 year.
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. Accordingly, the Company manages
its business on the basis of one reportable operating
segment. All of
the Company’s operations are located within the United States. The
following data is presented in accordance with SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information,” for all periods
presented.
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
Restaurant
|
|
$ |
455,967 |
|
|
$ |
462,753 |
|
Retail
|
|
|
117,965 |
|
|
|
118,412 |
|
Total
revenue
|
|
$ |
573,932 |
|
|
$ |
581,165 |
|
13. |
Impairment of Long-lived Assets |
In
accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets,” 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. Whether impairment exists 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 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 value or fair value less costs to sell (see Note 5).
The
Company recorded no impairment charges in the quarter ended October 31,
2008. During the quarter ended November 2, 2007, the Company closed
two stores, which resulted in impairment charges of $532 and store closing
charges of $277 (see “Impairment of long-lived assets” in Note 2 to the
Consolidated Financial Statements contained in the 2008 Form 10-K for additional
information). These impairments were recorded based upon the lower of
unit carrying amount or fair value less costs to sell.
14. |
Share-Based Compensation |
The
Company accounts for share-based compensation in accordance with SFAS No. 123
(Revised 2004), “Share-Based Payment,” which requires the measurement and
recognition of compensation cost at fair value for all share-based
payments. Share-based compensation is recorded in general and
administrative expenses. Share-based compensation expense totaled
approximately $1,027 and $701 for stock options and nonvested stock,
respectively, for the first quarter of 2009. Share-based compensation
expense totaled approximately $1,165 and $1,149 for stock options and nonvested
stock, respectively, for the first quarter of 2008.
During
the first quarter of 2009, there were no forfeitures of equity awards and,
therefore, no reversals. During the first quarter of 2008, the
Company reversed approximately $295 of share-based compensation expense for
nonvested stock grants that were forfeited.
On
October 30, 2008, the Company entered into an employment agreement (the
“Agreement”), with Michael A. Woodhouse, the Company’s current Chairman,
President and Chief Executive Officer. The Agreement replaced Mr.
Woodhouse’s prior employment agreement dated as of August 1,
2005. Unless extended or earlier terminated, the Agreement will
terminate on October 31, 2011. In the event of a change in control,
the term of the Agreement is extended through October 31, 2012. In
connection with entering into the Agreement, Mr. Woodhouse was awarded 150,000
shares of the Company’s common stock, which vest and
become
distributable at the rate of 25,000 shares per achievement of six strategic
goals; one that must be achieved on or before the end of 2009, a second that
must be achieved on or before the end of 2010 and the remaining four that must
be achieved on or before the end of 2011.
15.
|
Discontinued
Operations
|
The
Company sold Logan’s Roadhouse, Inc. (“Logan’s”) in 2007 (see Note 3 to the
Company’s Consolidated Financial Statements included in the 2008 Form 10-K for
additional information).
In the first quarter of 2008, the
Company has reported in discontinued operations certain expenses related to the
divestiture of Logan’s, which consist of the following:
|
|
Quarter
Ended
|
|
|
|
November 2,
2007
|
|
|
|
|
|
|
|
|
|
Loss
before tax benefit from discontinued operations
|
|
$ |
(145 |
) |
Tax
benefit
|
|
|
51 |
|
Loss from
discontinued operations, net of tax
|
|
$ |
(94 |
) |
No
expenses related to the divestiture of Logan’s were incurred in the first
quarter of 2009.
16. |
Net Income Per Share and Weighted
Average
Shares |
Basic
consolidated net income per share is computed by dividing consolidated net
income available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. Diluted consolidated net
income 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 and is based upon the weighted average number of common and
common equivalent shares outstanding during the reporting
period. Common equivalent shares related to stock options and
nonvested stock and stock awards issued by the Company are calculated using the
treasury stock method. The Company’s outstanding stock options and
nonvested stock and stock awards represent the only dilutive effects on diluted
consolidated net income per share.
The
following table reconciles the components of the diluted earnings per share
computations:
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per share numerator
|
|
$ |
12,832 |
|
|
$ |
13,983 |
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax,
per
share numerator
|
|
$ |
-- |
|
|
$ |
(94 |
) |
|
|
|
|
|
|
|
|
|
Income
from continuing operations, loss from
discontinued
operations, net of tax, and net income
per
share denominator:
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
22,349,967 |
|
|
|
23,705,600 |
|
Add
potential dilution:
|
|
|
|
|
|
|
|
|
Stock
options and nonvested stock and
stock
awards
|
|
|
316,359 |
|
|
|
739,332 |
|
Diluted
weighted average shares
|
|
|
22,666,326 |
|
|
|
24,444,932 |
|
17.
|
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.
The
Company is contingently liable pursuant to standby letters of credit as credit
guarantees related to insurers. At October 31, 2008, the Company had
$29,062 of standby letters of credit related to securing reserved claims under
workers' compensation insurance. All standby letters of credit are
renewable annually and reduce the Company’s availability under its Revolving
Credit Facility (see Note 7 for further information on the Company’s 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. At October 31, 2008,
the lease has a remaining life of approximately 4.9 years with annual lease
payments of approximately $361 for a total guarantee of $1,773. 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 balance sheet for amounts to be
paid in case of non-performance by the assignee.
Upon the
sale of Logan’s, the Company reaffirmed its guarantee of the lease payments for
two Logan’s restaurants. At October 31, 2008, the operating leases
have remaining lives of 3.2 and 11.4 years with annual payments of approximately
$94 and $98, respectively, for a total guarantee of $1,561. The
Company’s performance is required only 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 condensed consolidated financial statements for amounts to be paid as a
result of non-performance by Logan’s.
The
Company enters into certain indemnification requirements in favor of third
parties in the ordinary course of business. The Company believes that
the probability of incurring an actual liability under such indemnification
agreements is sufficiently remote so that no liability has been
recorded. In connection with the divestiture of Logan’s and Logan’s
sale-leaseback transaction (see Note 3 to the Company’s Consolidated Financial
Statements included in the 2008 Form 10-K), the Company entered into 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. With the
exception of certain tax indemnifications, the Company believes that the
probability of being required to make any indemnification payments to Logan’s is
remote. Therefore, at October 31, 2008, the Company has recorded a
liability of $387 in the condensed consolidated balance sheet for these
potential tax indemnifications, but no provision has been recorded for potential
non-tax indemnifications.
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cracker
Barrel Old Country Store, Inc. and its subsidiaries (collectively, the
“Company,” “our” or “we”) are principally engaged in the operation and
development in the United States of the Cracker Barrel Old Country Store® restaurant and
retail concept. Unless otherwise noted, management’s discussion and
analysis of financial condition and results of operations (“MD&A”) relates
only to results from continuing operations. All dollar amounts
reported or discussed in this MD&A are shown in thousands, except per share
amounts and certain statistical information (e.g., number of
stores). References to years in MD&A are to our fiscal year
unless otherwise noted.
MD&A
provides information which management believes is relevant to an assessment and
understanding of our consolidated results of operations and financial
condition. MD&A should be read in conjunction with the (i)
condensed consolidated financial statements and notes thereto in this Quarterly
Report on 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
August 1, 2008 (the “2008 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 we expect will or may
occur in the future, are forward-looking statements that involve risks,
uncertainties and other factors which may cause our actual results and
performance to differ materially from those expressed or implied by those
statements. All forward-looking information is provided pursuant to
the safe harbor established under the Private Securities Litigation Reform Act
of 1995 and should be evaluated in the context of these risks, uncertainties and
other factors. Forward-looking statements generally can be identified
by the use of forward-looking terminology such as “trends,” “assumptions,”
“target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,”
“objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,”
“will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,”
“believe,” “potential,” “regular,” “should,” “projects,” “forecasts” or
“continue” (or the negative or other derivatives of each of these
terms) or similar terminology.
We
believe 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 2008 Form 10-K, which
is incorporated herein by this reference, as well as other factors discussed
throughout this report, including, without limitation, the factors described
under “Critical Accounting Estimates” on pages 22-26 of this Form 10-Q or, from
time to time, in our filings with the Securities and Exchange Commission
(“SEC”), press releases and other communications.
Readers
are cautioned not to place undue reliance on forward-looking statements made in
this report, since the statements speak only as of the report’s date.
Except as may be required by law, we have no obligation, and do not
intend, to publicly update or revise any of these forward-looking statements to
reflect events or circumstances occurring after the date of this report or to
reflect the occurrence of unanticipated events. Readers are advised,
however, to consult any future public disclosures that we may make on related
subjects in our reports filed with or furnished to the SEC or in our other
public disclosures.
This
overview summarizes the MD&A, which includes the following
sections:
·
|
Results
of Operations – an analysis of our condensed consolidated statements of
income for the periods presented.
|
·
|
Liquidity
and Capital Resources – an analysis of our primary sources of liquidity
and capital expenditures.
|
·
|
Critical
Accounting Estimates – a discussion of accounting policies that require
critical judgments and estimates.
|
Total
revenue decreased 1.2% in the first quarter of 2009 as compared to the first
quarter of 2008. Operating income margin was 5.7% of total revenue in the first
quarter of 2009 compared to 6.2% in the first quarter of 2008. Income
from continuing operations for the first quarter of 2009 decreased 8.2% as
compared to the first quarter of 2008 while diluted income from continuing
operations per share was the same as the prior year. The decrease in
income from continuing operations reflected the following:
·
|
lower
restaurant traffic and lower retail
sales,
|
·
|
higher
food costs and retail costs of goods
sold,
|
·
|
higher
utilities expense,
|
·
|
higher
store management wages and
|
·
|
higher
incentive compensation accruals.
|
These
decreases were partially offset by the following:
·
|
non-recurrence
of manager meeting expense,
|
·
|
lower
advertising expense,
|
·
|
lower
group health costs,
|
·
|
lower
store hourly labor costs,
|
·
|
lower
workers’ compensation expense,
|
·
|
the
non-recurrence of impairment and store-closing
costs,
|
·
|
lower
interest expense.
|
Diluted
income from continuing operations per share of $0.57 was the same as the prior
year primarily due to the benefit of share repurchases in the second quarter of
2008, which lowered diluted weighted average shares and offset the decrease in
income from continuing operations.
The
following table highlights operating results by percentage relationships to
total revenue for the quarter ended October 31, 2008 as compared to the same
period in the prior year:
|
|
Quarter
Ended
|
|
|
|
October
31,
2008,
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
31.6 |
|
|
|
31.0 |
|
Gross
profit
|
|
|
68.4 |
|
|
|
69.0 |
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
38.7 |
|
|
|
38.8 |
|
Impairment
and store closing charges
|
|
|
-- |
|
|
|
0.2 |
|
Other
store operating expenses
|
|
|
18.5 |
|
|
|
18.1 |
|
Store
operating income
|
|
|
11.2 |
|
|
|
11.9 |
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
5.5 |
|
|
|
5.7 |
|
Operating
income
|
|
|
5.7 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
2.5 |
|
|
|
2.6 |
|
Interest
income
|
|
|
-- |
|
|
|
-- |
|
Income
before income taxes
|
|
|
3.2 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1.0 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2.2 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations,
net
of taxes
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
2.2 |
% |
|
|
2.4 |
% |
The
following table highlights the components of total revenue by percentage
relationships to total revenue for the quarter ended October 31, 2008 as
compared to the same period in the prior year:
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Restaurant
|
|
|
79.4 |
% |
|
|
79.6 |
% |
Retail
|
|
|
20.6 |
|
|
|
20.4 |
|
Total
revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
The
following table sets forth the number of units in operation at the beginning and
the end of the quarters ended October 31, 2008 and November 2, 2007,
respectively:
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Open
at beginning of period
|
|
|
577 |
|
|
|
562 |
|
Opened
during period
|
|
|
4 |
|
|
|
6 |
|
Closed
during period
|
|
|
-- |
|
|
|
(2 |
) |
Open
at end of period
|
|
|
581 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
During
the quarter ended November 2, 2007, we replaced an existing unit with a new unit
in a nearby community. Replacements are not counted as either units
opened or closed.
Average
unit volumes include sales of all stores. The following table highlights average
unit volumes for the quarter ended October 31, 2008 as compared to the same
period in the prior year:
|
|
Quarter
Ended
|
|
|
|
October
31,
2008
|
|
|
November
2,
2007
|
|
|
|
|
|
|
|
|
Net
revenue:
|
|
|
|
|
|
|
Restaurant
|
|
$ |
788.8 |
|
|
$ |
821.6 |
|
Retail
|
|
|
204.0 |
|
|
|
210.2 |
|
Total
net revenue
|
|
$ |
992.8 |
|
|
$ |
1,031.8 |
|
Total
revenue for the first quarter of 2009 decreased 1.2% compared to last year’s
first quarter. For the quarter, our comparable store restaurant sales
decreased 3.2% and comparable store retail sales decreased 2.3% resulting in a
combined comparable store sales (total revenue) decrease of 3.0%. The comparable
store restaurant sales decrease consisted of a 3.3% average check increase for
the quarter (including a 3.2% average menu price increase) and a 6.5% guest
traffic decrease. The comparable store retail sales decrease was due
to the decline in guest traffic. We continue to experience the
effects of pressures on consumer discretionary income in our guest traffic and
retail sales. Sales from newly opened stores partially offset the
decrease in comparable store restaurant and retail sales.
Cost of
goods sold as a percentage of total revenue for the first quarter of 2009
increased to 31.6% from 31.0% last year. This increase was due to
higher restaurant product costs, primarily reflecting commodity inflation,
higher retail freight costs, which were primarily related to fuel cost
increases, lower initial mark-ons of retail merchandise versus prior year and
product packaging design costs incurred in the first quarter of 2009 partially
offset by higher menu pricing and lower food waste. The increase in
commodity inflation from a year ago was due to increases in oils, produce, eggs
and grain products.
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 decreased to 38.7% in the first quarter this year
from 38.8% last year. The decrease was due to lower group health
costs, store hourly labor costs and workers’ compensation expense and higher
menu pricing partially offset by higher management costs and the
effect of
lower guest traffic. The decrease in group health costs was due to lower medical
claims. The decrease in store hourly labor costs was due to menu pricing being
higher than wage inflation and better productivity partially offset by the
effect of lower guest traffic. The decrease in workers’ compensation expense was
due to the impact of lower interest rates and revised actuarial estimates which
resulted in a decrease in the workers’ compensation reserve as compared to the
prior year. The increase in management costs was due to wage
inflation and higher staffing levels.
Impairment
and Store Closing Charges
We did
not incur any impairment or store closing charges in the first quarter of
2009. During the
first quarter of 2008, we closed two stores, which resulted in impairment
charges of $532 and store closing charges of $277 (see “Impairment of long-lived
assets” in Note 2 to the Consolidated Financial Statements contained in the 2008
Form 10-K for additional information).
Other
Store Operating Expenses
Other
store operating expenses include all unit-level operating costs, the major
components of which are utilities, operating supplies, repairs and maintenance,
depreciation and amortization, advertising, rent, credit card fees and
non-labor-related pre-opening expenses. Other store operating
expenses as a percentage of total revenue increased to 18.5% in the first
quarter of 2009 from 18.1% in the first quarter of last year. The
increase was due to higher utilities expense and lower guest traffic partially
offset by lower advertising expense and higher menu pricing. The
decrease in advertising expense was due to the non-recurrence of costs incurred
in the first quarter of 2008 for our television advertising test.
General
and Administrative Expenses
General
and administrative expenses as a percentage of total revenue decreased to 5.5%
in the first quarter of 2009 as compared to 5.7% in the first quarter of last
year. The decrease was due to the non-recurrence of expenses
associated with the manager meeting which was held in the first quarter of
2008. This decrease was partially offset by higher incentive
compensation accruals. Incentive compensation expense was higher in
the first quarter of 2009 versus the first quarter of 2008 as a result of the
decision of our Compensation Committee to benchmark incentive compensation
performance against the 50th
percentile rather than the 75th
percentile of our peer group of companies. This benchmarking change
was intended to offer better comparisons within our peer group as well as
provide greater confidence (and therefore, greater incentive) to our executives
that the performance targets established are realistic and can be
achieved. As a result, there is greater likelihood that incentive
compensation will be earned in 2009.
Interest
Expense
Interest
expense as a percentage of total revenue decreased to 2.5% in the first quarter
of 2009 as compared to 2.6% in the first quarter of last year. The
decrease was due to lower average interest rates partially offset by higher
average debt outstanding.
Provision
for Income Taxes
The
provision for income taxes as a percent of pre-tax income was 30.7% in the first
quarter of 2009 as compared to 33.9% in the first quarter of 2008 and 30.2% for
the full year of 2008. The decrease in the effective tax rate from
the first quarter of 2008 to the first quarter of 2009 reflected higher employer
tax credits on an absolute dollar basis as well as higher employer tax credits
as a percent of pre-tax income due to the decrease in income from continuing
operations. The increase in the effective tax rate from the full year
of 2008 to the first quarter of 2009 reflected non-recurrence of reserve
adjustments resulting from the expiration of certain statutes
of
limitations, which do not occur in the first two quarters of any year, partially
offset by higher employer tax credits as a percent of pre-tax
income.
Liquidity and Capital
Resources
Our
primary sources of liquidity are cash generated from our operations and our
borrowing capacity under our $250,000 revolving credit facility (the “Revolving
Credit Facility”), which will expire on April 27, 2011. Our
internally generated cash, along with cash on hand at August 1, 2008, proceeds
from exercises of share-based compensation awards and our borrowings under our
Revolving Credit Facility were sufficient to finance all of our growth, dividend
payments, working capital needs and other cash payment obligations in the first
quarter of 2009.
Cash
Generated from (Used in) Operations
Our
operating activities from continuing operations used net cash of $6,706 for the
quarter ended October 31, 2008, which represented an increase from the $2,994
net cash used during the same period a year ago. This increase was
due to higher retail inventories partially offset by the timing of payments for
income taxes and accounts payable.
Borrowing
Capacity
At
October 31, 2008, we had $35,200 of outstanding borrowings under the Revolving
Credit Facility and $29,062 of standby letters of credit related to securing
reserved claims under workers' compensation insurance which reduce our
availability under the Revolving Credit Facility. At October 31,
2008, we had $185,738 in borrowing capacity under our Revolving Credit
Facility.
The
Revolving Credit Facility is part of our $1,250,000 credit facility (the “Credit
Facility”), which also includes a Term Loan B facility and Delayed-Draw Term
Loan facility, each of which has a scheduled maturity date of April 27,
2013. At October 31, 2008, our Term Loan B balance was $631,664 and
our Delayed-Draw Term balance was $150,720. See Note 7 to our
Condensed Consolidated Financial Statements for further information on our
long-term debt.
The
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
October 31, 2008, the Company was in compliance with all debt
covenants.
Share
Repurchases, Dividends and Proceeds from the Exercise of Share-Based
Compensation Awards
On July
31, 2008, our Board of Directors approved share repurchases of up to $65,000 of
our common stock. The principal criteria for share repurchases are
that they be accretive to expected net income per share, are within the limits
imposed by our Credit Facility and that they be made only from free cash flow
(operating cash flow less capital expenditures and dividends) rather than
borrowings. During the quarter ended October 31, 2008, we did not
make any share repurchases. Additionally, in order to conserve cash,
we have suspended our share repurchase plans.
Our
Credit Facility imposes restrictions on the amount of dividends we are able to
pay. If there is no default then existing and there is at least
$100,000 then available under our Revolving Credit Facility, we may both: (1)
pay cash dividends on our common stock if the aggregate amount of such dividends
paid during any fiscal year is less than 15% of Consolidated EBITDA from
continuing operations (as defined in the Credit Facility) during the immediately
preceding fiscal year; and (2) in any event, increase our regular quarterly cash
dividend in any quarter by an amount not to exceed the greater of $.01 or 10% of
the amount of the dividend paid in the prior fiscal quarter.
During
the first quarter of 2009, we paid a dividend of $0.18 per common
share. During the quarter, we also declared a dividend of $0.20 per
common share that was paid on November 5, 2008. Additionally, we
declared a dividend of $0.20 per common share on November 25, 2008 to be paid on
February 5, 2009 to shareholders of record on January 16, 2009.
During
the first quarter of 2009, we received proceeds of $870 from the exercise of
share-based compensation awards and the corresponding issuance of 50,263 shares
of our common stock.
Working
Capital
We had
negative working capital of $8,278 at October 31, 2008 versus negative working
capital of $44,080 at August 1, 2008. The change in working capital
compared with August 1, 2008 reflected higher retail inventory and timing of
payments for accounts payable, both of which were financed by borrowings under
our Revolving Credit Facility. In the restaurant industry,
substantially all sales are either for cash or third-party credit
card. Like many other restaurant companies, we are able to, and often
do, operate with negative working capital. Restaurant inventories
purchased through our 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 certain expenses such as
certain taxes and some benefits are deferred for longer periods of
time.
Capital
Expenditures
Capital
expenditures (purchase of property and equipment) were $22,003 for the quarter
ended October 31, 2008 as compared to $24,385 during the same period a year
ago. Construction of new locations accounted for most of the
expenditures. We estimate that our capital expenditures for 2009 will
be approximately $73,000 to $75,000. This estimate includes costs
related to the acquisition of sites and construction of 11 new stores that have
opened or will open during 2009, as well as for acquisition and construction
costs for locations to be opened in 2010 and capital expenditures for
maintenance programs and key initiatives. Capitalized interest was
$200 for the quarter ended October 31, 2008, as compared to $228 for the quarter
ended November 2, 2007.
We
believe that cash at October 31, 2008, along with cash generated from our
operating activities, and the borrowing capacity under our Revolving Credit
Facility, will be sufficient to finance our continued operations, our continued
expansion plans, our principal payments on our debt and our dividend payments
for at least the next twelve months and thereafter for the foreseeable
future.
Off-Balance
Sheet Arrangements
Other
than various operating leases, we have no material off-balance sheet
arrangements. Refer to our 2008 Form 10-K for additional information
regarding our operating leases.
Material
Commitments
There
have been no material changes in our material commitments other than in the
ordinary course of business since the end of 2008. Refer to our 2008
Form 10-K for additional information regarding our material
commitments.
Recent Accounting
Pronouncements
Fair
Value
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 was effective for fiscal years
beginning after November 15, 2007 for financial assets and liabilities, as
well as any other asset and liabilities that are carried at fair value on a
recurring basis in the financial statements. Effective August 2,
2008, the first day of 2009, we adopted SFAS No. 157 on a prospective basis for
financial assets and liabilities and nonfinancial assets and liabilities that
are carried at fair value on a recurring basis in the financial
statements. The adoption of SFAS No. 157 resulted in a $5,809
decrease in our interest rate swap liability related to non-performance risk
with the offset reflected in accumulated other comprehensive loss, net of the
deferred tax asset, on our condensed consolidated balance sheet. See
Note 4 to our Condensed Consolidated Financial Statements for additional
information on our fair value measurements.
In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157” (“FSP No. 157-2”), which deferred for one year the
effective date of SFAS No. 157 as it applies to certain nonfinancial assets and
liabilities. The deferral provided by FSP No. 157-2 applies to such
items as nonfinancial long-lived asset groups measured at fair value for an
impairment assessment. We elected the deferral for nonfinancial
assets and liabilities under FSP No. 157-2. We are currently
evaluating the impact of its adoption and cannot yet determine the impact of its
adoption in the first quarter of 2010.
Income
Tax Benefits of Dividends on Share–Based Payment Awards
The
Emerging Issues Task Force (“EITF”) reached a consensus on EITF 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”
(“EITF 06-11”) in June 2007. The EITF consensus indicates that the
tax benefit received on dividends associated with share-based awards that are
charged to retained earnings should be recorded in additional paid-in capital
and included in the pool of excess tax benefits available to absorb potential
future tax deficiencies on share-based award payments. The consensus was
effective for the tax benefits of dividends declared in fiscal years beginning
after December 15, 2007. We adopted EITF 06-11 on August 2,
2008, the first day of 2009. The adoption of EITF 06-11 did not have
a significant impact on our consolidated financial statements.
Derivative
Disclosures
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). SFAS No.
161 requires enhanced disclosures about how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under SFAS No. 133 and its related interpretations, and how derivative
instruments and related hedged items affect an entity’s financial position,
results of operations, financial performance and cash flows. SFAS No. 161 is
effective for fiscal years and interim periods beginning after November 15,
2008. We do not expect that the adoption of SFAS No. 161 in the third
quarter of 2009 will have a significant impact on our consolidated
financial statements.
GAAP
Hierarchy
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of
nongovernmental
entities that are presented in conformity with accounting principles generally
accepted in the United States of America (“GAAP”). SFAS No. 162 was
effective on November 15, 2008. We do not expect that the adoption of
SFAS No. 162 in the second quarter of 2009 will have a significant impact on our
consolidated financial statements.
Critical Accounting
Estimates
We
prepare our consolidated financial statements in conformity with
GAAP. The preparation of these financial statements requires us to
make estimates and assumptions about future events and apply judgments that
affect the reported amounts of assets, liabilities, revenue, expenses and
related disclosures. We base our estimates and judgments on
historical experience, current trends, outside advice from parties believed to
be experts in such matters and on various other assumptions that are believed 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. However, because future events
and their effects cannot be determined with certainty, actual results could
differ from those assumptions and estimates, and such differences could be
material.
Our
significant accounting policies are discussed in Note 2 to the Consolidated
Financial Statements contained in the 2008 Form 10-K. Judgments and
uncertainties affecting the application of those policies may result in
materially different amounts being reported under different conditions or using
different assumptions. Critical accounting estimates are those
that:
·
|
management
believes are both most important to the portrayal of our 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.
|
We
consider the following accounting estimates to be most critical in understanding
the judgments that are involved in preparing our consolidated financial
statements.
·
|
Impairment
of Long-Lived Assets and Provision for Asset
Dispositions
|
·
|
Share-Based
Compensation
|
·
|
Unredeemed
Gift Cards and Certificates
|
Management
has reviewed these critical accounting estimates and related disclosures with
the Audit Committee of our Board of Directors.
Impairment
of Long-Lived Assets and Provision for Asset Dispositions
We assess
the impairment of long-lived assets whenever events or changes in circumstances
indicate that the carrying value of assets may not be
recoverable. Recoverability of assets is measured by comparing the
carrying value to the undiscounted future cash flows expected to be generated by
the asset. If the total expected 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 the fair value, net of
estimated costs of disposal, of an asset to be disposed of, and a loss resulting
from impairment is recognized by a charge to income.
In
addition to the recoverability test, we consider the likelihood of possible
outcomes existing at the balance sheet date, including the assessment of the
likelihood of the future sale of the asset. If the asset will be
classified as held and used, then the asset is written down to its estimated
fair value. If the asset will be
classified
as held for sale, then the asset is written down to its estimated fair value,
net of estimated costs of disposal. Judgments and estimates that we make 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 we assess the ongoing expected cash flows and
carrying amounts of our long-lived assets, these factors could cause us to
realize a material impairment charge. From time to time we have
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.
We have
not made any material changes in our methodology for assessing impairments
during the first quarter of 2009 and we do not believe that there will be a
material change in the estimates or assumptions used by us to assess impairment
on long-lived assets. However, if actual results are not consistent
with our estimates and assumptions used in estimating future cash flows and fair
values of long-lived assets, we may be exposed to losses that could be
material.
We
recorded no impairment charges in the quarter ended October 31,
2008. During the quarter ended November 2, 2007, we closed two stores
which resulted in impairment charges of $532 and store closing charges of $277
(see “Impairment of long-lived assets” in Note 2 to the Consolidated Financial
Statements contained in our 2008 Form 10-K for additional
information).
We
self-insure a significant portion of our expected health, workers’ compensation
and general liability insurance programs. We purchase insurance for
individual workers’ compensation claims that exceed either $250, $500 or $1,000
depending on the state in which the claim originates. We purchase
insurance for individual general liability claims that exceed
$500. We do not purchase such insurance for our primary
group health program, but have limited our offered benefits 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. We
record a liability for our group health program for all unpaid claims based upon
a loss development analysis derived from actual group health claims payment
experience provided by our third party administrator.
We record
a liability for workers’ compensation and general liability for all unresolved
claims and for an actuarially determined estimate of incurred but not reported
claims at the anticipated cost to us based upon an actuarially determined
reserve as of the end of our third quarter and adjusting it by the actuarially
determined losses and actual claims payments for the subsequent quarters until
the next annual actuarial study of our 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,” we record the actuarially determined losses at the low end of
that range and discount them to present value using a risk-free interest rate
based on the actuarially projected timing of payments. We also
monitor 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 our reserves. From time
to time, we perform limited scope interim updates of our actuarial studies to
verify and/or modify our reserves.
Our
accounting policies regarding insurance reserves include certain actuarial
assumptions and management judgments regarding economic conditions, the
frequency and severity of claims and claim
development
history and settlement practices. We have not made any material
changes in the accounting methodology used to establish our insurance reserves
during the first quarter of 2009 and do not believe there will be a material
change in the estimates or assumptions used to calculate the insurance
reserves. However, changes in these actuarial assumptions or
management judgments in the future may produce materially different amounts of
expense that would be reported under these insurance programs.
Cost of
goods sold includes the cost of retail merchandise sold at our stores utilizing
the retail inventory accounting method. It includes an estimate of
shortages that are adjusted upon physical inventory counts in subsequent
periods. Consistent with prior year, we will conduct our physical
inventory counts throughout the third and fourth quarters of the fiscal year
based upon a cyclical inventory schedule. During the quarter ended
October 31, 2008, an estimate of shrink was recorded based on the three-year
average of the physical inventories’ results on a store-by-store basis. We
have not made any material changes in the methodology used to estimate shrinkage
during the first quarter of 2009 and do not believe that there will be a
material change in the future estimates or assumptions used to calculate
shrinkage. However, actual shrinkage recorded may produce materially
different amounts of shrinkage than we have estimated.
We must
make estimates of certain items that comprise our income tax
provision. These estimates include effective state and local income
tax rates, employer tax credits for items such as FICA taxes paid on employee
tip income, Work Opportunity and Welfare to Work credits, as well as estimates
related to certain depreciation and capitalization policies.
The
Company follows FASB Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). 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. FIN 48 requires that a position
taken or expected to be taken in a tax return be recognized (or derecognized) in
the financial statements when it is more likely than not (i.e., a likelihood of
more than fifty percent) that the position would be sustained (or not sustained)
upon examination by tax authorities. A recognized tax position is
then measured at the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement.
Our
estimates are made based on current tax laws, the best available information at
the time of the provision and historical experience. We file our
income tax returns many months after our year end. These returns are
subject to audit by the federal and various state governments years after the
returns are filed and could be subject to differing interpretations of the tax
laws. We then must assess the likelihood of successful legal
proceedings or reach a settlement with the relevant taxing
authority. Although we believe that the judgments and estimates used
in establishing our tax provision are reasonable, a successful legal proceeding
or settlement could result in material adjustments to our consolidated financial
statements and our consolidated financial position (see Note 12 to our
Consolidated Financial Statements contained in the 2008 Form 10-K for additional
information).
In
accordance with SFAS No. 123 (Revised 2004), “Share-Based Payment” (“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. Our 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,
our policy is to issue new shares of common stock to satisfy exercises of
share-based compensation awards.
The fair
value of each option award granted was 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 our stock and historical volatility of our stock
over the contractual life of the
options.
|
·
|
We
use 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 our 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 affect 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. We update the historical and implied components of the expected
volatility assumption quarterly. We update 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 awards 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. We update the
estimated forfeiture rate to actual on each of the vesting dates and adjust
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.
Generally,
the fair value of each nonvested stock grant is equal to the market price of our
stock at the date of grant reduced by the present value of expected dividends to
be paid prior to the vesting period, discounted using an appropriate risk-free
interest rate.
All of
our nonvested stock grants are time vested except the nonvested stock grants of
one executive that are based upon the achievement of strategic
goals. Compensation cost for performance-based awards is recognized
when it is probable that the performance criteria will be met. At
each reporting period, we reassess the probability of achieving the performance
targets and the performance period required to meet those targets. Determining
whether the performance targets will be achieved involves judgment and the
estimate of expense may be revised periodically based on the probability of
achieving the performance targets. Revisions are reflected in the
period in which the estimate is changed. If any performance goals are not met,
no compensation cost is ultimately recognized and, to the extent previously
recognized, compensation cost is reversed.
We have
not made any material changes in our estimates or assumptions used to determine
share-based compensation expense during the first quarter of 2009. We
do not believe that there will be a material change in the future estimates or
assumptions used to determine share-based compensation
expense. However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to changes in share-based
compensation expense that could be material.
Unredeemed
Gift Cards and Certificates
Unredeemed
gift cards and certificates represent a liability 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, we make estimates of the ultimate
unredeemed (“breakage”) gift cards and certificates in the period of the
original sale and amortize this breakage over the redemption period that other
gift cards and certificates historically have been redeemed by reducing the
liability and recording revenue accordingly. For those states that do not exempt
gift cards and certificates from their escheat laws, we record breakage in the
period that gift cards and certificates are remitted to the state and reduce our
liability accordingly. Any amounts remitted to states under escheat
laws reduce our deferred revenue liability and have no effect on revenue or
expense while any amounts that we are permitted to retain by state escheat laws
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.
We have
not made any material changes in the methodology used to record the deferred
revenue liability for unredeemed gift cards and certificates during the first
quarter of 2009 and do not believe there will be material changes in the future
estimates or assumptions used to record this liability. However, if
actual results are not consistent with our estimates or assumptions, we may be
exposed to losses or gains that could be material.
We are
parties to various legal and regulatory proceedings and claims incidental to our
business. In the opinion of management, however, based upon
information currently available, the ultimate liability with respect to these
actions will not materially affect our consolidated results of operations or
financial position. We review 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 2008 Form 10-K is incorporated by reference in this item of this
Quarterly Report on Form 10-Q. There have been no material changes in
our quantitative and qualitative market risks since August 1, 2008.
Item
4. Controls and Procedures
Our
management, with the participation of our principal executive and financial
officers, including the Chief Executive Officer and the Interim Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934 (the “Exchange Act”)). Based upon this evaluation, the Chief Executive
Officer and the Interim Chief Financial Officer concluded that as of October 31,
2008, our 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 October 31, 2008
in our 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, our internal controls over financial reporting.
PART
II – OTHER INFORMATION
|
There
have been no material changes in the risk factors previously disclosed in “Item
1A. Risk Factors” of our 2008 Form 10-K.
Item
4.
|
Submission of Matters
to a Vote of Security
Holders
|
|
(a)
|
Although
no items were submitted to a vote of security holders during the quarter
ended October 31, 2008, the annual meeting of shareholders (the “Annual
Meeting”) was held on November 25,
2008.
|
|
(b)
|
Proxies
for the Annual Meeting were solicited in accordance with Regulation 14 of
the Exchange Act; there was no solicitation in opposition to management’s
nominees and all of management’s nominees were elected. Each
director is elected to serve for a 1-year term and until his or her
successor is elected and qualified.
|
|
|
|
|
(c) |
The
following sets forth the results of voting on each matter at the Annual
Meeting: |
|
|
|
|
|
Proposal
1 – Election of Directors. |
|
|
WITHHOLD
|
|
FOR
|
AUTHORITY
|
|
|
|
James
D. Carreker
|
18,923,592
|
990,129
|
Robert
V. Dale
|
18,642,819
|
1,270,902
|
Richard
J. Dobkin
|
18,970,191
|
943,530
|
Robert
C. Hilton
|
18,754,013
|
1,159,707
|
Charles
E. Jones, Jr.
|
18,643,097
|
1,270,623
|
B.
F. “Jack” Lowery
|
18,200,567
|
1,713,154
|
Martha
M. Mitchell
|
18,776,701
|
1,137,019
|
Andrea
M. Weiss
|
18,894,746
|
1,018,975
|
Jimmie
D. White
|
18,771,549
|
1,142,172
|
Michael
A. Woodhouse
|
18,735,067
|
1,178,654
|
|
|
|
Proposal
2 - To approve the selection of Deloitte & Touche LLP as the Company’s
independent
registered public accounting firm for fiscal year
2009. |
|
|
|
Votes
cast for |
|
19,135,775
|
|
|
Votes
cast against |
|
683,681
|
|
|
Votes
cast to abstain |
|
94,263
|
|
|
|
|
|
Proposal
3 - To approve the proposed charter amendment changing the Company’s name
to “Cracker Barrel Old Country Store, Inc.”
|
|
Votes
cast for
|
|
19,735,018 |
|
|
Votes
cast against
|
|
119,787
|
|
|
Votes
cast to abstain |
|
58,914
|
|
|
Proposal
4 - To approve the proposed amendment to the Company’s Amended and
Restated Stock Option Plan. |
|
|
|
Votes
cast for
|
|
13,064,062
|
|
|
Votes
cast against
|
|
1,754,054
|
|
|
Votes
cast to abstain
|
|
356,652
|
|
|
|
|
|
Proposal
5 - To approve the proposed amendments to the Company’s 2002 Omnibus
Incentive Compensation Plan increasing, for tax deductibility purposes,
the categories of performance criteria and the annual cash award
limit. |
|
|
|
Votes
cast for |
|
16,911,518
|
|
|
Votes
cast against |
|
2,607,112
|
|
|
Votes
cast to abstain |
|
395,089
|
|
|
|
|
|
Proposal
6 - To approve the proposed amendment to the Company’s 2002 Omnibus
Incentive Compensation Plan increasing the number of shares that may be
awarded under the plan. |
|
|
|
Votes
cast for |
|
6,748,132
|
|
|
Votes
cast against |
|
8,081,039
|
|
|
Votes
cast to abstain |
|
345,596
|
|
|
|
See
Exhibit Index immediately following the signature page
hereto.
|
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.
CRACKER
BARREL OLD COUNTRY STORE,
INC.
|
Date: 12/09/08
|
By:
/s/N.B. Forrest
Shoaf
|
|
N.B. Forrest Shoaf, Senior Vice President, General |
|
Counsel and Interim Chief Financial
Officer
|
Date: 12/09/08
|
By:
/s/Patrick A.
Scruggs
|
|
Patrick A. Scruggs, Vice President, Accounting and Tax |
|
and Chief Accounting Officer
|
EXHIBIT
INDEX
Exhibit
No. |
|
Description |
|
3(i),
4.1
|
Articles
of Incorporation (as amended to date)
|
|
|
10.1
|
FY
2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K dated September 25, 2008 and
filed with the Commission on October 1, 2008)
|
|
|
10.2
|
Executive
Employment Agreement dated as of October 30, 2008 with Michael A.
Woodhouse
|
31
|
Rule
13a-14(a)/15d-14(a) Certifications
|
|
|
32
|
Section
1350
Certifications
|
32