UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
[x]
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act |
of
1934
|
For
the
fiscal year ended August 3, 2007
OR
[
] 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
_____________________
CBRL
GROUP, INC.
(Exact
name of registrant as specified in its charter)
Tennessee
|
62-1749513
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
Number)
|
|
|
|
|
305
Hartmann Drive, P.O. Box 787
|
37088-0787
|
Lebanon,
Tennessee
|
(Zip
code)
|
(Address
of principal executive offices)
|
|
Registrant's
telephone number, including area code: (615) 444-5533
______________________
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock
(Par
Value $.01)
Common
Stock Purchase Rights
(No
Par
Value)
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes X_ No
___
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
Yes
____ No X
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this
Form 10-K. X
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 Exchange Act Rule
12b-2. (Check one)
Large
accelerated
filer X Accelerated
filer ____ Non-accelerated
filer _____
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
__ No
X
The
aggregate market value of voting stock held by nonaffiliates of the registrant,
by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business
day
of the registrant’s most recently completed second fiscal quarter which ended
January 26, 2007, was $1,194,552,449. For purposes of this
computation, all directors, executive officers and 10% beneficial owners
of the
registrant are assumed to be affiliates. This assumption is not a
conclusive determination for purposes other than this calculation.
As
of
September 25, 2007, there were 23,726,030 shares of common stock
outstanding.
Documents
Incorporated by Reference
Document
from which Portions |
Part
of Form 10-K |
are
Incorporated by Reference |
into
which incorporated |
|
|
|
1. |
Annual
Report to Shareholders |
Part
II |
|
for
the fiscal year ended |
|
|
August
3, 2007 (the “2007 Annual Report”) |
|
|
|
|
2. |
Proxy
Statement for Annual |
Part
III |
|
Meeting
of Shareholders |
|
|
to
be held November 29, 2007 |
|
|
(the
“2007 Proxy Statement”) |
|
PART
I
|
|
|
|
PAGE
|
|
|
|
|
ITEM
1. BUSINESS
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6
|
|
ITEM
1A. RISK FACTORS
|
12
|
|
ITEM
1B. UNRESOLVED STAFF COMMENTS
|
21
|
|
ITEM
2. PROPERTIES
|
21
|
|
ITEM
3. LEGAL PROCEEDINGS
|
22
|
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
|
22
|
|
|
|
|
|
|
|
PART
II
|
|
|
|
|
|
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED
|
|
|
STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
25
|
|
ITEM
6. SELECTED FINANCIAL DATA
|
26
|
|
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
|
|
|
AND
RESULTS OF OPERATIONS
|
26
|
|
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
26
|
|
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
|
26
|
|
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON
|
|
|
ACCOUNTING
AND FINANCIAL DISCLOSURE
|
26
|
|
ITEM
9A. CONTROLS AND PROCEDURES
|
26
|
|
ITEM
9B. OTHER INFORMATION
|
28
|
|
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|
|
PART
III
|
|
|
|
|
|
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERANCE
|
29
|
|
ITEM
11. EXECUTIVE COMPENSATION
|
29
|
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
|
|
|
AND
MANAGEMENT
|
29
|
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR
|
|
|
INDEPENDENCE
|
29
|
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
29
|
|
|
|
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PART
IV
|
|
|
|
|
|
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
30
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SIGNATURES
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31
|
|
INTRODUCTION
General
This
report contains references to years 2007, 2006, 2005, 2004, and 2003, which
represent fiscal years ending or ended August 3, 2007, July 28, 2006, July
29,
2005, July 30, 2004, and August 1, 2003, respectively. All of the
discussion and analysis in this report should be read with, and is qualified
in
its entirety by, the Consolidated Financial Statements and the notes
thereto. All amounts other than share and certain statistical
information (e.g., number of stores) are in thousands unless the context
clearly
indicates otherwise.
Forward
Looking Statements/Risk Factors
Except
for specific historical information, many of the matters discussed in this
Annual Report on Form 10-K, as well as other documents incorporated herein
by
reference 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 that
CBRL
Group, Inc. (the “Company”) expects will or may occur in the future, are
forward-looking statements that involve risks, uncertainties and other factors
which may cause 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” 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 listed in Part I, Item 1A below, all of which are incorporated herein
by
reference, as well as other factors discussed throughout this document,
including, without limitation, the factors described under “Critical Accounting
Estimates” in that portion of the 2007 Annual Report that is incorporated by
reference into Part II, Item 7 below or, from time to time, in our 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.
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 document or to reflect the occurrence of unanticipated
events. Readers are advised, however, to consult any future public
disclosures that we may make on subjects related to those discussed in this
document.
PART
I
ITEM
1.
BUSINESS
OVERVIEW
CBRL
Group, Inc. (“we,” “us,” “our” or
the "Company") is a holding company that, through subsidiaries, is principally
engaged in the operation and development of the Cracker Barrel Old Country
Store® restaurant and retail concept. Prior to December 6, 2006, we
also operated Logan’s RoadhouseÒ (“Logan’s”)
restaurants. On that date, we completed the sale of
Logan’s. We were organized under the laws of the state of Tennessee
in August 1998 and maintain an Internet website at cbrlgroup.com. We
make available free of charge on or through our Internet website our periodic
and other reports filed or furnished pursuant to Section 13(a) or 15(d) of
the
Securities and Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably
practicable after we file such material with, or furnish it to, the
SEC.
2006
–
2007 Strategic Initiatives
During
2007, we completed the strategic initiatives that we began in 2006, which
included the divestiture of Logan’s, substantial share repurchases financed by
an increase in total debt, and the redemption of our convertible
debt.
Divestiture
of Logan’s
On
December 6, 2006, we completed the
sale of Logan’s, for total consideration of approximately $485,000 after
post-closing adjustments for working capital and capital expenditures as
provided in the sale agreement. The net cash proceeds of the sale of
Logan’s were used to fund $350,000 of share repurchases and, along with cash on
hand, to pay down $75,000 of debt and to pay taxes.
Share
Repurchases
During
2007, we repurchased 8,774,430
shares of our common stock in a series of transactions. These
repurchases required a cash outlay of approximately $405,000. Our
principal criteria for share repurchases are that they be accretive to expected
net income per share and are within the limits imposed by our debt covenants
under our credit facility.
Redemption
of Convertible
Debt
During
2007, we redeemed our then outstanding $422,030 (face value at maturity)
zero
coupon convertible notes. The redemption took place after we
exchanged notes having a net share settlement feature for $375,931 (face
value
at maturity) of the previously existing notes. The net share
settlement feature allowed us, upon conversion of a note, to settle the accreted
principal amount of the debt for cash and issue shares of our common stock
for
the conversion value in excess of the accreted value.
In
connection with our redemption of the convertible notes, holders of
approximately $401,000 principal amount at maturity outstanding elected to
convert their notes into common stock rather than have them
redeemed. Each $1 (face value at maturity) of notes was convertible
into 10.8584 shares (or equivalent value) of our common stock. We
issued 395,775 shares (which subsequently were repurchased and were a part
of
the repurchases described above) of our common stock upon conversion and
paid
approximately $189,000 in cash to redeem the notes. We obtained funds
for the redemption by drawing on our delayed-draw term loan facility and
using
cash on hand.
OPERATIONS
Cracker
Barrel Old Country Store, Inc.
(“Cracker Barrel”), headquartered in Lebanon, Tennessee, through its various
affiliates, as of September 28, 2007, operated 565 full-service "country
store"
restaurants and gift shops in 41 states. Cracker Barrel stores are
intended to appeal to both the traveler and the local customer and consistently
have been a consumer favorite. During 2007, for the 17th
consecutive year, Cracker Barrel was named the “Best Family Dining Restaurant”
in the Restaurants & Institutions magazine “Choice in Chains” annual
consumer survey. For the 14th
consecutive year, Cracker Barrel was ranked as the “Best Restaurant Chain” by
Destinations magazine poll. For the 6th
consecutive year,
Cracker Barrel was named “The Most RV Friendly Sit-Down Restaurant in America”
by The Good Sam Club. In 2007, Cracker Barrel was ranked as the
number one
restaurant
in the casual dining category in the Kanbay Research Institute Competitive
Advantage Report. In addition, Cracker Barrel was the top-ranked
family dining restaurant in the service and facilities categories and ranked
second overall in the Zagat Full Service Survey 2007.
Store
Format: The format of
Cracker Barrel stores consists of a trademarked rustic, old country-store
design
with a separate retail area offering a wide variety of decorative and functional
items featuring rocking chairs, holiday and seasonal gifts and toys, apparel,
cookware and foods, including various old fashioned candies and jellies among
other things. All stores are freestanding
buildings. Store interiors are subdivided into a dining room
consisting of approximately 27% of the total interior store space, and a
retail
shop consisting of approximately 22% of such space, with the balance primarily
consisting of kitchen, storage and training areas. All stores have
stone fireplaces, which burn wood except where not permitted. All are decorated
with antique-style furnishings and other authentic and nostalgic items,
reminiscent of and similar to those found and sold in the past in traditional
old country stores. The front porch of each store features rows of
the signature Cracker Barrel rocking chairs that can be used by guests waiting
for a table and are sold by the retail shop. The kitchens contain
modern food preparation and storage equipment allowing for flexibility in
menu
variety and development.
Products: Cracker
Barrel's restaurant operations, which generated approximately 78% of Cracker
Barrel’s total revenue in 2007, offer home-style country cooking featuring
Cracker Barrel’s own recipes that emphasize authenticity and
quality. Except for Christmas day, when they are closed, and
Christmas Eve when they close at 2:00 p.m., Cracker Barrel restaurants serve
breakfast, lunch and dinner daily between the hours of 6:00 a.m. and 10:00
p.m.
(closing at 11:00 p.m. on Fridays and Saturdays). Menu items are
moderately priced. The restaurants do not serve alcoholic
beverages. Breakfast items can be ordered at any time throughout the
day and include juices, eggs, pancakes, bacon, country ham, sausage, grits,
and
a variety of biscuit specialties, such as gravy and biscuits and country
ham and
biscuits. Prices for a breakfast meal range from $2.29 to $8.49, and
the breakfast day-part (until 11:00 a.m.) accounted for approximately 23%
of
restaurant sales in 2007, while lunch (11:00 a.m. to 4:00 p.m.) and dinner
(4:00
p.m. to close) day-parts reflected approximately 37% and 40% of restaurant
sales, respectively, in 2007. Lunch and dinner items include country
ham, chicken and dumplings, chicken fried chicken, meatloaf, country fried
steak, pork chops, fish, steak, roast beef, vegetable plates, salads,
sandwiches, soups and specialty items such as pinto beans and turnip
greens. Cracker Barrel may from time to time feature new items as
off-menu specials or in test menus at certain locations to evaluate possible
ways to enhance customer interest and identify potential future additions
to the
menu. Lunches and dinners range in price from $3.69 to
$12.99. Cracker Barrel’s menu has daily dinner features that
showcase a popular dinner entrée for each day of the week. There is
some variation in menu pricing and content in different regions of the country
for both breakfast and lunch/dinner. The average check per guest for 2007
was
$8.31, which represents a 1.4% increase over the prior year.
Cracker
Barrel also offers items for sale in the retail store that are also featured
on,
or related to, the restaurant menu, such as pies or cornbread and pancake
mixes. The retail operations, which generated approximately 22% of
Cracker Barrel’s total revenue in 2007, offer a wide variety of decorative and
functional items such as rocking chairs, seasonal gifts, apparel, toys, music
CDs, cookware, old-fashioned-looking ceramics, figurines, a book-on-audio
sale-and-exchange program and various other gift items, as well as various
candies, preserves, syrups and other food items. The typical Cracker
Barrel retail shop features approximately 3,400 SKU’s. Many of the
food items are sold under the “Cracker Barrel Old Country Store” brand
name. We believe that Cracker Barrel achieves high retail sales per
square foot as compared to mall stores (over $429 per square foot of retail
selling space in 2007 on a 53-week basis) both by offering appealing merchandise
and by having a significant source of retail customers from the high volume
of
restaurant customers - an average of approximately 7,600 per week in a typical
store in 2007. The substantial majority of sales in the retail area
are estimated to be to customers who also are guests in the
restaurant.
Product
Development and
Merchandising: Cracker Barrel maintains a product development
department, which develops new and improved menu items in response either
to
shifts in customer preferences or to create customer
interest. Coordinated seasonal promotions are used regularly in the
restaurants and retail shops. The Cracker Barrel merchandising
department attempts to select merchandise for the retail shop that reinforces
the nostalgic theme of the restaurant. In 2007, Cracker Barrel
continued to honor the authentic connection between country music’s past and
present by releasing exclusive music projects with Josh Turner, Merle Haggard
and the Songs Of The Year CD. These recordings feature new
music from Josh Turner, Merle Haggard, Trace Adkins, Trisha Yearwood and
George
Jones among other notable country and western recording
artists. Another Cracker Barrel exclusive, The Grand Ole Opry®
Live Classics CD series, showcases 60 previously unreleased live recordings
by some of the Opry’s biggest stars including Patsy Cline, Loretta Lynn, Johnny
Cash, George Jones, Dolly Parton and Waylon Jennings.
Store
Management and Quality
Controls: Cracker Barrel store management, typically consisting of one
general manager, four associate managers and one retail manager, is responsible
for an average of 105 employees on two shifts. The relative
complexity of operating a Cracker Barrel store requires an effective management
team at the individual store level. As a motivation to store managers
to improve sales and operational performance, Cracker Barrel maintains a
bonus
plan designed to provide store managers with an opportunity to share in the
profits of their store. The bonus plan also rewards managers who
achieve specific operational targets. To assure that individual
stores are operated at a high level of quality, Cracker Barrel emphasizes
the
selection and training of store managers. It also employs district
managers to support individual store managers and regional vice presidents
to
support individual district managers. A district manager’s individual
span of control typically is seven to eight individual restaurants, and regional
vice presidents support seven to nine district managers. Each store
is assigned to both a restaurant and a retail district manager and each district
is assigned to both a restaurant and a retail regional vice
president. The various levels of restaurant and retail management
work closely together.
The
store management recruiting and
training program begins with an evaluation and screening process. In
addition to multiple interviews and verification of background and experience,
Cracker Barrel conducts testing designed to identify those applicants most
likely to be best suited to manage store operations. Those candidates
who successfully pass this screening process are then required to complete
an
11-week training program consisting of seven weeks of in-store training and
four
weeks of training at Cracker Barrel's corporate facilities. This
program allows new managers the opportunity to become familiar with Cracker
Barrel operations, culture, management objectives, controls and evaluation
criteria before assuming management responsibility. Cracker Barrel
provides its managers and hourly employees with ongoing training through
its
various development courses taught through a blended learning approach,
including hands-on, classroom, written and Internet-based
training. Each store is equipped with training computers for the
Internet-based computer-assisted instruction programs. Additionally,
each store typically has an employee training coordinator who oversees training
of the store’s hourly employees.
Purchasing
and Distribution:
Cracker Barrel negotiates directly with food vendors as to specification,
price
and other material terms of most food purchases. Cracker Barrel is a
party to a prime vendor contract with an unaffiliated distributor with custom
distribution centers in Lebanon, Tennessee; McKinney, Texas; Gainesville,
Florida; Elkton, Maryland; Kendalville, Indiana; and Ft. Mill, South Carolina.
This vendor’s contract currently runs through July 2013 with scheduled annual
fee increases. The contract requires Cracker Barrel to pay for market
fuel prices that exceed certain designated prices. Conversely,
Cracker Barrel is required to be reimbursed for market fuel pricing that
is
below a designated price. The contract will remain in effect until
both parties mutually modify it in writing or until terminated by a material
breach of any obligations by either Cracker Barrel or the
distributor. Cracker Barrel purchases the majority of its food
products and restaurant supplies on a cost-plus basis through this unaffiliated
distributor. The distributor is responsible for placing food orders,
warehousing and delivering food products to Cracker Barrel’s
stores. Deliveries generally are made once per week to the individual
stores. Certain perishable food items are purchased locally by
Cracker Barrel stores.
Four
food categories (dairy (including
eggs), beef, pork and poultry) accounted for the largest shares of Cracker
Barrel’s food purchasing expense at approximately 14%, 13%, 11% and 9%,
respectively, in 2007, but each category does include several individual
items. The single food item within these categories, accounting for
the largest share of Cracker Barrel's food purchasing expense, was chicken
tenderloin at approximately 6% of food purchases in 2007. Cracker Barrel
purchases its chicken tenderloin through two vendors. Cracker Barrel
purchases its beef through nine vendors, pork through nine vendors, and poultry
through seven vendors. Eggs are purchased through two vendors. Dairy
is purchased through numerous vendors including local vendors. Should
any food items from a particular vendor become unavailable, management believes
that these food items could be obtained, or alternative products substituted,
in
sufficient quantities from other sources at competitive prices.
The
majority of retail items
(approximately 77% in 2007) are centrally purchased directly by Cracker Barrel
from domestic and international vendors and warehoused at Cracker Barrel’s
Lebanon distribution center. The distribution center is a 367,200 square
foot
warehouse facility with 36 foot ceilings and 170 bays, and includes an
additional 13,800 square feet of office and maintenance space. The
distribution center fulfills retail item orders generated by Cracker Barrel’s
automated replenishment system and generally ships the retail orders once
a week
to the individual stores by a third-party dedicated freight line. The
freight line contract, which currently runs through 2010, requires Cracker
Barrel to pay for market fuel prices that exceed certain designated
prices. Certain retail items, not centrally purchased and warehoused
at the distribution center, are drop-shipped directly from Cracker Barrel’s
vendors to its stores. Approximately 30% of Cracker Barrel’s retail
purchases in 2007 were directly from vendors in the People’s Republic of
China. Cracker Barrel has a relationship with a foreign buying agency
to source purchased product, monitor quality control and supplement product
development.
Cost
and Inventory Controls:
Cracker Barrel’s computer systems and various analytical tools are used to
evaluate store operating information and provide management with reports
to
support detection of unusual variances in food costs, labor costs or operating
expenses. Management also monitors individual store restaurant and
retail sales on a daily basis and closely monitors sales mix, sales trends,
operational costs and inventory levels. The information generated by
the computer systems, analysis tools and monitoring processes are used to
manage
the operations of each store, replenish retail inventory levels and to
facilitate retail purchasing decisions. These systems and processes
also are used in the development of forecasts, budget analyses, and
planning.
Guest
Satisfaction: Cracker
Barrel is committed to providing its guests a home-style, country-cooked
meal,
and a variety of retail merchandise served and sold with genuine hospitality
in
a comfortable environment, in a way that evokes memories of the
past. Cracker Barrel’s commitment to offering guests a quality
experience begins with its employees. Its mission statement,
“Pleasing People,” embraces guests and employees alike, and Cracker Barrel’s
employees are trained on the importance of that mission in a culture of mutual
respect. Cracker Barrel also is committed to staffing each store with
an experienced management team to ensure attentive guest service and consistent
food quality. Through the regular use of guest surveys and store
visits by its district managers and regional vice presidents, management
receives valuable feedback, which it uses in its ongoing efforts to improve
the
stores and to demonstrate Cracker Barrel’s continuing commitment to pleasing its
guests. Cracker Barrel also has for many years had a guest-relations
call center that takes comments and suggestions from guests and forwards
them to
operations or other management for information and follow up. Cracker
Barrel has public notices in its menus, on its website and posted in its
restaurants informing customers and employees about how to contact Cracker
Barrel by Internet or toll-free telephone number with questions, complaints
or
concerns regarding services or products. Cracker Barrel conducts
training in how to gather information and investigate and resolve customer
concerns. This is accompanied by comprehensive training for all store employees
on Cracker Barrel’s public accommodations policy and its commitment to "pleasing
people." In 2005, Cracker Barrel implemented an anonymous,
unannounced, third-party store testing program to ensure compliance with
its
guest satisfaction policies and commitments. In 2006, Cracker Barrel
introduced an improved interactive voice response (“IVR”) system to monitor
operational performance and guest satisfaction at all stores on an ongoing
basis. Cracker Barrel has used an IVR system in the past to monitor
the performance of new restaurants and to provide insight into the performance
of under-performing stores.
Marketing:
Outdoor advertising
(i.e., billboards and state department of transportation signs) is the primary
advertising medium utilized to reach consumers in the primary trade area
for
each Cracker Barrel store and also to reach interstate travelers and
tourists. Outdoor advertising accounted for approximately 64% of
advertising expenditures in 2007, with approximately 1,500 billboards at
year-end. In recent years Cracker Barrel has utilized other types of
media, such as radio and print, in its core markets to maintain customer
awareness, and outside of its core markets to increase brand awareness and
to
build guest loyalty. Cracker Barrel defines its core markets based on
average weekly sales, geographic location, and longevity and brand awareness
in
the market. Cracker Barrel plans to spend approximately 1.8% of
Cracker Barrel’s revenues on advertising in 2008. Outdoor advertising
is expected to represent approximately 60% of advertising expenditures in
2008. Cracker Barrel plans to increase broadcast advertising as a
percentage of the overall budget as it plans to implement a test of TV and
radio
advertising during 2008.
UNIT
DEVELOPMENT
We
opened 19 new Cracker Barrel stores
in 2007. We plan to open 20 new stores during 2008, four of which
already were open as of September 28, 2007.
Stores
are located primarily along interstate highways; however, as of September
28,
2007, 71 of our stores are located near "tourist destinations" or are considered
“off-interstate” stores. In 2008, Cracker Barrel intends to open
approximately 45% of its new stores along interstate highways as compared
to 68%
in 2007. We believe we should pursue development of both
interstate locations and off-interstate locations to capitalize on the strength
of our brand associated with travelers on the interstate highway system and
to
increase sales through TV and/or radio advertising by having more units in
media
markets where satisfactory interstate locations may not be
available. We also seek to develop new markets through both
interstate and off-interstate locations. We have identified
approximately 650 trade areas for potential future development with
characteristics that appear to be consistent with those believed to be necessary
to support successful Cracker Barrel units.
Of
the 565 Cracker Barrel stores open
as of September 28, 2007, 404 are owned, while the other 161 properties are
either ground leases or ground and building leases. The current
Cracker Barrel store prototype is approximately 10,000 square feet including
approximately 2,100 square feet in the retail selling space. The
prototype has approximately 200 seats in the restaurant.
EMPLOYEES
As
of August 3, 2007, we employed
approximately 64,000 people, of whom 531 were in advisory and supervisory
capacities, 3,445 were in store management positions and 41 were
officers. Many restaurant personnel are employed on a part-time
basis. None of our employees are represented by any union, and
management considers its employee relations to be good.
COMPETITION
The
restaurant industry is intensely
competitive with respect to the type and quality of food, price, service,
location, personnel, concept, attractiveness of facilities, and effectiveness
of
advertising and marketing. We compete with a number of national and
regional restaurant chains as well as locally owned restaurants. The
restaurant business is often affected by changes in consumer taste; national,
regional, or local economic conditions; demographic trends; traffic patterns;
the type, number, and location of competing restaurants; and consumers’
discretionary purchasing power. In addition, factors such as
inflation, increased food, labor and benefits costs and the lack of experienced
management and hourly employees may adversely affect the restaurant industry
in
general and our restaurants in particular.
RAW
MATERIALS SOURCES AND AVAILABILITY
Essential
restaurant supplies and raw
materials are generally available from several sources. However, in
the restaurants, certain branded items are single source products or product
lines. Generally, we are not dependent upon single sources of
supplies or raw materials. Our ability to maintain consistent quality
throughout our restaurant system depends in part upon our ability to acquire
food products and related items from reliable sources. When the
supply of certain products is uncertain or prices are expected to rise
significantly, we may enter into purchase contracts or purchase bulk quantities
for future use.
Adequate
alternative sources of supply,
as well as the ability to adjust menus if needed, are believed to exist for
substantially all restaurant products. Our retail supply chain
generally involves longer lead-times and, often, more remote sources of product,
including the People’s Republic of China, and most of our retail product is
distributed to our stores through a single distribution
center. Although disruption of our retail supply chain could be
difficult to overcome, we continuously evaluate the potential for disruptions
and ways to mitigate them should they occur.
ENVIRONMENTAL
MATTERS
Federal,
state and local environmental
laws and regulations have not historically had a significant impact on our
operations; however, we cannot predict the effect of possible future
environmental legislation of regulations on our operations.
TRADEMARKS
We
deem the various Cracker Barrel
trademarks and service marks that we own to be of substantial
value. Our policy is to obtain federal registration of trademarks and
other intellectual property whenever possible and to pursue vigorously any
infringement of trademarks.
RESEARCH
AND DEVELOPMENT
While
research and development are
important to us, these expenditures have not been material due to the nature
of
the restaurant and retail industry.
SEASONAL
ASPECTS
Historically,
our profits have been
lower in the first three fiscal quarters and highest in the fourth fiscal
quarter, which includes much of the summer vacation and travel
season. We attribute these variations primarily to the increase in
interstate tourist traffic and propensity to dine out during the summer months,
whereas after the
school
year begins and as the winter months approach, there is a decrease in interstate
tourist traffic and less of a tendency to dine out due to inclement
weather. Our retail sales historically have been highest in our
second fiscal quarter, which includes the Christmas holiday shopping
season.
WORKING
CAPITAL
In
the restaurant industry,
substantially all sales transactions occur either in cash or by third-party
credit card. Like most other restaurant companies, we are able to,
and may often, operate with a working capital deficit. Restaurant
inventories purchased through our principal food distributor are on terms
of net
zero days, while restaurant inventories purchased locally generally are financed
through normal trade credit. Because of our retail operations, which
have a lower product turnover than the restaurant business, we carry larger
inventories than many other companies in the restaurant
industry. 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 product turnover of the restaurant inventory. Employee
compensation and benefits payable generally may be related to weekly, bi-weekly
or semi-monthly pay cycles, and many other operating expenses have normal
trade
terms.
ITEM
1A.
RISK FACTORS
Investing
in our securities involves a degree of risk. Persons buying our
securities should carefully consider the risks described below and the other
information contained in this Annual Report on Form 10-K and other filings
that
we make from time to time with the Securities and Exchange Commission, including
our consolidated financial statements and accompanying notes. If any
of the following risks actually occurs, our business, financial condition,
results of operation or cash flows could be materially adversely affected.
In
any such case, the trading price of our securities could decline and you
could
lose all or part of your investment. The risks described below are
not the only ones facing our company and is not intended to be a complete
discussion of all potential risks or uncertainties. Additional risks
not presently known to us or that we currently deem immaterial may also impair
our business operations.
We
face intense competition, and if we are unable to continue to compete
effectively, our business, financial condition and results of operations
would
be adversely affected.
The
casual dining sector of the restaurant industry is intensely competitive,
and we
face many well-established competitors. We compete within each market
with national and regional restaurant chains and locally-owned
restaurants. Competition from other regional or national restaurant
chains typically represents the more important competitive influence,
principally because of their significant marketing and financial
resources. However, we also face growing competition as a result of
the trend toward convergence in grocery, deli and restaurant services,
particularly in the supermarket industry. Moreover, our competitors
can harm our business even if they are not successful in their own operations
by
taking away some customers or employees or by aggressive and costly advertising,
promotional or hiring practices. We compete primarily on the quality,
variety and value perception of menu and retail items, the number and location
of restaurants, type of concept, quality and efficiency of service,
attractiveness of facilities and effectiveness of advertising and marketing
programs. We anticipate that intense competition will continue with
respect to all of these factors. We also compete with other
restaurant chains and other retail businesses for quality site locations
and
management and hourly employees, and competitive pressures could affect both
the
availability and cost of those important resources. If we are unable
to continue to compete effectively, our business, financial condition and
results of operations would be adversely affected.
Our
business is affected by changes in consumer preferences and discretionary
spending.
Our
success depends, in part, upon the
popularity of our food and retail products. Shifts in consumer
preferences away from our restaurants or food or retail items would harm
our
business. It is difficult to predict what merchandise consumers will
demand, particularly merchandise that is trend driven. Failure to
accurately predict constantly changing consumer tastes, preferences, spending
patterns and other lifestyle decisions, or to address consumer concerns
effectively, could adversely affect short-term and long-term results because
a
substantial part of our business is dependent on our ability to make trend-right
decisions for a wide variety of food items and merchandise. Also, our
success depends to a significant extent on discretionary consumer spending,
which is influenced by general economic conditions and the availability of
discretionary income. Accordingly, we may experience declines in
sales during economic downturns or during periods of uncertainty like those
that
followed the terrorist attacks on the United States on September 11, 2001
and
Hurricanes Katrina and Rita in September 2005. In addition, recent
increases in fuel and other energy prices as well as consumer uncertainty
that
has accompanied the recent home mortgage and credit “crisis” and general
weakness in housing markets could result in decreases in discretionary consumer
spending. Any material decline in consumer confidence or the amount
of discretionary spending could have a material adverse effect on our sales,
results of operations, business and financial condition.
The
price and availability of food, ingredients and utilities used by our
restaurants or merchandise sold in our retail shop could adversely affect
our
revenues and results of operations.
We
are
subject to the general risks of inflation; however, our results of operations
depend significantly on our ability to anticipate and react to changes in
the
price and availability of food, ingredients, utilities, retail merchandise,
and
other related costs over which we may have little
control. Fluctuations in economic conditions, weather and demand can
adversely affect the availability, quality and cost of the ingredients and
products that we buy. We require fresh produce, dairy products and
meat, and therefore are subject to the risk that shortages or interruptions
in
supply of these food products could develop. Our operating margins
are subject to changes in the price and availability of food
commodities. For example, the recent focus on ethanol as a fuel, as
well as the emergence of China as a major consumer of food products, has
placed
tremendous demands (with attendant supply and price pressures) for corn and
dairy products, which in turn increase feed
costs
for
poultry and livestock. The effect of, introduction of, or changes to
tariffs or exchange rates on imported retail products or food products
could
increase our costs and possibly affect the supply of those
products. Our operating margins are also affected by fluctuations in
the price of utilities such as natural gas, whether as a result of inflation
or
otherwise, on which the locations depend for much of their energy
supply. Our inability to anticipate and respond effectively to an
adverse change in any of these factors could have a significant adverse
effect
on our results of operations. In addition, because we provide a
moderately-priced product, we may not seek to or be able to pass along
price
increases to our guests sufficient to offset cost increases.
We
are dependent on attracting and retaining qualified employees while also
controlling labor costs.
Our
performance is dependant on attracting and retaining a large and growing
number
of qualified restaurant personnel. Availability of staff varies
widely from location to location. Many staff members are in
entry-level or part-time positions typically with high rates of
turnover. If restaurant management and staff turnover trends
increase, we could suffer higher direct costs associated with recruiting,
training and retaining replacement personnel. Management turnover as
well as general shortages in the labor pool can cause our restaurants to
be
operated with reduced staff, which could negatively affect our ability to
provide adequate service levels to our customers. Other indirect
costs that could result include potential delays in new restaurant
openings. Competition for qualified employees exerts upward pressure
on wages paid to attract such personnel, resulting in higher labor costs,
together with greater recruitment and training expense.
Our
ability to meet our labor needs while controlling our costs is subject to
external factors such as unemployment levels, minimum wage legislation, health
care legislation and changing demographics. Many of our employees are
hourly workers whose wages are affected by increases in the federal or state
minimum wage or changes to tip credits. Tip credits are the amounts
an employer is permitted to assume an employee receives in tips when the
employer calculates the employee’s hourly wage for minimum wage compliance
purposes. Increases in minimum wage levels and changes to the tip
credit have been made and/or continue to be proposed at both federal and
state
levels. As minimum wage rates increase, we may need to increase not
only the wages of our minimum wage employees but also the wages paid to
employees at wage rates that are above minimum wage. If competitive
pressures or other factors prevent us from offsetting increased labor costs
by
increases in prices, our profitability may decline.
Certain
economic and business factors specific to the restaurant or retail industries
and certain general economic factors that are largely out of our control
may
adversely affect our results of operations.
Our
business results depend on a number of industry-specific and general economic
factors, many of which are beyond our control. These factors include
interest rates, recession, inflation, exchange rates, consumer credit
availability, consumer debt levels, tax rates and policy, unemployment trends
and other matters that influence consumer confidence and
spending. The full-service dining sector of the restaurant industry
and the retail industry are affected by changes in national, regional and
local
economic conditions, seasonal fluctuation of sales volumes, consumer
preferences, including changes in consumer tastes and dietary habits and
the
level of consumer acceptance of our restaurant concept and retail merchandise,
and consumer spending patterns. The performance of individual
locations may also be adversely affected by factors such as demographic trends,
severe weather (including hurricanes), traffic patterns, the price and
availability of gasoline and the type, number and location of competing
restaurants.
We
also
cannot predict the effects of actual or threatened armed conflicts or terrorist
attacks, efforts to combat terrorism, military action against any foreign
state
or group located in a foreign state or heightened security requirements on
the
economy or consumer confidence in the United States. Any of these
events could also affect consumer spending patterns or result in increased
costs
for us due to security measures.
Unfavorable
changes in the above factors or in other business and economic conditions
affecting our customers could increase our costs, reduce traffic in some
or all
of our locations or impose practical limits on pricing, any of which could
lower
our profit margins and have a material adverse affect on our financial condition
and results of operations.
We
depend on key personnel for our success.
We
believe that our success is largely dependent on the abilities and experience
of
our senior management team. The loss of services of one or more of
these senior executives could adversely affect our ability to effectively
manage
our overall operations or successfully execute current or future business
strategies, either of which could have a material adverse effect on us and
our
results of operations.
Increased
advertising and marketing costs could adversely affect our results of
operations.
Historically,
we have relied upon billboards as our principal method of
advertising. As we begin to build stores away from our traditional
interstate locations, we may be required to increasingly utilize what others
might consider more traditional methods of advertising, such as radio,
television, direct mail and newspaper. While we have used these types
of advertising from time to time, their effects upon our revenues and, in
turn,
our profits, are uncertain. Additionally, if our competitors
increased their spending on advertising and promotions, we could be forced
to
substantially increase our advertising, media or marketing
expenses. If we did so or if our current advertising and promotion
programs become less effective, we could experience a material adverse effect
on
our results of operations.
Our
business is seasonal and also can be affected by extreme weather conditions
and
natural disasters.
Historically,
our highest sales and profits have occurred during the
summer. Winter, excluding the Christmas holidays, has historically
been the period of lowest sales and profits although retail revenues
historically have been seasonally higher between Thanksgiving and
Christmas. Therefore, the results of operations for any quarter or
period of less than one year cannot be considered indicative of the operating
results for a full fiscal year.
Additionally,
extreme weather conditions in the areas where our stores are located can
adversely affect our business. For example, frequent or unusually
heavy snowfall, ice storms, rain storms or other extreme weather conditions
over
a prolonged period could make it difficult for our customers to travel to
our
stores or disrupt deliveries of food and supplies to our stores and thereby
reduce our sales and profitability. Our business is also susceptible
to unseasonable weather conditions. For example, extended periods of
unseasonably warm temperatures during the winter season or cool weather during
the summer season could render a portion of our inventory incompatible with
those unseasonable conditions. Reduced sales from extreme or
prolonged unseasonable weather conditions could adversely affect our
business.
In
addition, natural disasters such as hurricanes, tornadoes and earthquakes,
or a
combination of these or other factors, could severely damage or destroy
one or
more of our stores or warehouses located in the affected areas, thereby
disrupting our business operations.
Our
plans depend significantly on initiatives designed to improve the efficiencies,
costs and effectiveness of our operations, and failure to achieve or sustain
these plans could affect our performance adversely.
We
have
had, and expect to continue to have, initiatives in various stages of testing,
evaluation, and implementation, upon which we expect to rely to improve our
results of operations and financial condition. These initiatives are
inherently risky and uncertain, even when tested successfully, in their
application to our business in general. It is possible that
successful testing can result partially from resources and attention that
can’t
be duplicated in broader implementation. Testing and general
implementation also can be affected by other risk factors described herein
that
reduce the results expected. Successful systemwide implementation
relies on consistency of training, stability of workforce, ease of execution,
and the absence of offsetting factors that can influence results adversely.
Failure to achieve successful implementation of our initiatives could adversely
affect our results of operations.
Health
concerns and government regulation relating to the consumption of beef or
other
food products could affect consumer preferences and could negatively impact
our
results of operations.
Many
of
the food items on our menu contain beef and chicken. The preferences
of our customers toward beef and chicken could be affected by health concerns
about the consumption of beef or chicken or negative publicity concerning
food
quality, illness and injury generally. In recent years there has been
negative publicity concerning E. coli bacteria, hepatitis A, “mad cow” disease,
“foot-and-mouth” disease, the bird/avian flu, peanut and other food allergens,
and other public health concerns affecting the food supply, including beef,
chicken and pork. In addition, if a regional or global health
pandemic occurs, depending upon its location, duration and severity, our
business could be severely affected. A health pandemic is a disease
that spreads rapidly and widely by infection and affects many individuals
in an
area or population at the same time. If that occurs, customers might
avoid public places in the event of a health pandemic, and local, regional
or
national governments might limit or ban public gatherings to halt or delay
the
spread of disease. A regional or global health pandemic might also
adversely affect our business by disrupting or delaying production and delivery
of materials and products in our supply chain and by causing staffing shortages
in our stores. In addition, government regulations or the likelihood of
government regulation could increase the costs of obtaining or
preparing
food products. A decrease in guest traffic to our restaurants, a
change in our mix of products sold, or an increase in costs as a result
of these
health concerns either in general or specific to our operations, could
result in
a decrease in guest traffic or higher costs to our restaurants that would
materially harm our business.
Litigation
may adversely affect our business, financial condition and results of
operations.
Our
business is subject to the risk of litigation by employees, consumers,
suppliers, shareholders or others through private actions, class actions,
administrative proceedings, regulatory actions or other
litigation. The outcome of litigation, particularly class action
lawsuits and regulatory actions, is difficult to assess or
quantify. Plaintiffs in these types of lawsuits may seek recovery of
very large or indeterminate amounts, and the magnitude of the potential loss
relating to such lawsuits may remain unknown for substantial periods of
time. The cost to defend future litigation may be
significant. There may also be adverse publicity (particularly when
there is an allegation with respect to sanitation or product safety) associated
with litigation that could decrease customer acceptance of our services,
regardless of whether the allegations are valid or whether we are ultimately
found liable. As a result, litigation may adversely affect our
business, financial condition and results of operations.
Unfavorable
publicity could harm our business.
Multi-unit
restaurant businesses such as ours can be adversely affected by publicity
resulting from complaints or litigation alleging poor food quality, food-borne
illness, personal injury, adverse health effects (including obesity) or other
concerns stemming from one or a limited number of
restaurants. Regardless of whether the allegations or complaints are
valid, unfavorable publicity relating to a limited number of our restaurants,
or
only to a single restaurant, could adversely affect public perception of
the
entire brand. Adverse publicity and its effect on overall consumer
perceptions of food safety could have a material adverse effect on our business,
financial condition and results of operations.
Our
credit facility places financial and other restrictions on
us.
Our
$1,250,000 credit facility that we entered into in 2006 imposes financial
covenants, including maintaining a minimum defined fixed charge coverage
ratio
and a maximum defined leverage ratio. In addition, the credit
facility limits our ability to make dividend distributions and make certain
payments to reduce outstanding indebtedness. The lender’s ongoing
obligation to extend credit under the revolving credit portion of the facility
will depend upon our compliance with these and other
covenants. Indebtedness may have important additional consequences,
including placing us at a competitive disadvantage compared to our competitors
that may have proportionately less debt, limiting our flexibility in planning
for changes in our business and the industry and making us more vulnerable
to
economic downturns and adverse developments in our business.
We
may need additional capital in the future, and it may not be available on
acceptable terms.
The
development of our business may require significant additional capital in
the
future to fund our operations and growth strategy, or refinance our existing
indebtedness, among other activities. We have historically relied
upon cash generated by our own operations and lease financing to fund our
expansion. We currently maintain a revolving credit facility with a
capacity of $250,000, of which $187,738 was available as of the end of fiscal
2007. We also may need to access the debt and equity capital markets,
especially as our $1,250,000 credit facility matures in 2011 and
2013. There can be no assurance, however, that these sources of
financing will be available on acceptable terms, or at all. Our
ability to obtain additional financing will be subject to a number of factors,
including market conditions, our operating performance, investor sentiment
and
our ability to incur additional debt in compliance with agreements governing
our
then-outstanding debt. These factors may make the timing, amount,
terms and conditions of additional financings unattractive to us. If
we are unable to generate sufficient funds from operations or raise additional
capital, our growth could be impeded.
We
are subject to a number of risks relating to federal, state and local regulation
of our business that may increase our costs and decrease our profit
margins.
The
restaurant industry is subject to extensive federal, state and local laws
and
regulations, including those relating to building and zoning requirements
and
those relating to the preparation and sale of food. The development
and operation of restaurants depend to a significant extent on the selection
and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic and other regulations and requirements. We are
also subject to licensing and regulation by state and local authorities relating
to health, sanitation, safety and fire standards, federal and state laws
governing our relationships with employees
(including
the Fair Labor Standards Act of 1938 and the Immigration Reform and Control
Act
of 1986 and applicable requirements concerning minimum wage, overtime,
family leave, tip credits, working conditions, safety standards and immigration
status), federal and state laws which prohibit discrimination and other
laws
regulating the design and operation of facilities, such as the Americans
With
Disabilities Act of 1990. In addition, we are subject to a variety of
federal, state and local laws and regulations relating to the use, storage,
discharge, emission, and disposal of hazardous materials. The impact
of current laws and regulations, the effect of future changes in laws or
regulations that impose additional requirements and the consequences of
litigation relating to current or future laws and regulations could increase
our
compliance and other costs of doing business and therefore have an adverse
effect on our results of operations. Failure to comply with the laws
and regulatory requirements of federal, state and local authorities could
result
in, among other things, revocation of required licenses, administrative
enforcement actions, fines and civil and criminal liability.
We
also
are subject to rules and regulations, including interpretation thereof, of
federal, state and local tax authorities that could cause our effective income
tax rate and the timing of our payments to be unfavorable and affect our
results
of operations and financial condition adversely.
Additionally,
a number of states restrict highway signage and billboards. Because
many of our restaurants are located on the interstate highway system, our
business is highly related to highway travel. Thus, signage or
billboard restrictions or loss of existing signage or billboards could affect
our visibility and ability to attract customers.
We
may not be able to obtain and maintain licenses and permits necessary to
operate
our restaurants, and failure to comply with laws could adversely affect our
operating results.
The
restaurant industry is subject to various federal, state and local government
regulations, including those relating to the sale of food. Such
regulations are subject to change from time to time. The failure to
obtain and maintain these licenses, permits and approvals could adversely
affect
our operating results. Typically, licenses must be renewed annually
and may be revoked, suspended or denied renewal for cause at any time if
governmental authorities determine that our conduct violates applicable
regulations. Difficulties or failure to obtain the required licenses
and approvals could delay or result in our decision to cancel the opening
of new
restaurants, which could adversely affect our business.
Our
heavy reliance on certain vendors and suppliers could adversely affect our
business.
Our
ability to maintain consistent quality throughout our operations depends
in part
upon our ability to acquire specified food and retail products and supplies
in
sufficient quantities. Finding qualified vendors and accessing food
supplies and products in a timely and efficient manner is a significant
challenge that typically is more difficult with respect to goods sourced
outside
the United States. Political or financial instability, trade
restrictions, tariffs, currency exchange rates, the outbreak of pandemics,
transport capacity and costs, port security or other events can slow port
activities and other distribution of products. In some cases, we may
have only one supplier for a product or supply. Our dependence on
single source suppliers subjects us to the possible risks of shortages,
interruptions and price fluctuations. If any of these vendors are
unable to fulfill their obligations, or if we are unable to find replacement
suppliers in the event of a supply disruption, we could encounter supply
shortages and incur higher costs to secure adequate supplies, either of which
could materially harm our business.
Our
current insurance may expose us to unexpected costs.
Historically,
our insurance coverage has reflected deductibles, self-insured retentions,
limits of liability and similar provisions that we believe prudent based
on the
dispersion of our operations. However, there are types of losses we
may incur against which we cannot be insured or which we believe are not
economically reasonable to insure, such as losses due to acts of terrorism
and
some natural disasters, including floods. If we incur such losses,
our business could suffer. In addition, we self-insure a significant
portion of expected losses under our workers’ compensation, general liability
and group health insurance programs. Unanticipated changes in the
actuarial assumptions and management estimates underlying our reserves for
these
losses, including expected increases in medical and indemnity costs, could
result in materially different amounts of expense than expected under these
programs, which could have a material adverse effect on our financial condition
and results of operations.
If
we fail to execute our growth strategy, which primarily depends on our ability
to find new restaurant locations and open new restaurants that are profitable,
our business could suffer.
Historically,
one of the most significant means of achieving our growth objectives has
been
opening new restaurants and operating those restaurants on a profitable
basis. We expect this to continue to be the case in the
future. One of our biggest challenges in executing our growth
strategy is locating and securing an adequate supply of suitable new restaurant
sites. Competition for suitable restaurant sites and operating
personnel in our target markets is intense, and we cannot assure you that
we
will be able to find sufficient suitable locations, or negotiate suitable
purchase or lease terms, for our planned expansion in any future
period. Delays or failures in opening new restaurants, or achieving
lower than expected sales in new restaurants, or drawing a greater than expected
proportion of sales in new restaurants from existing restaurants, could
materially adversely affect our growth strategy. Our ability to open
new restaurants successfully will also depend on numerous other factors,
some of
which are beyond our control, including, among other items, the
following:
·
|
our
ability to hire, train and retain qualified operating
personnel;
|
·
|
our
ability to mitigate the effects of uncertain consumer confidence,
higher
costs for utilities, consumer debt payments, general or regional
economic
weakness, or weather on our sales and the discretionary income
and
personal expenditure activity of our
customers;
|
·
|
our
ability to control construction and development costs of new
restaurants;
|
·
|
changes
in local, state or federal laws and regulations that adversely
affect our
costs;
|
·
|
consumer
acceptance of our restaurants in new
markets;
|
·
|
road
construction and other factors limiting access to the
restaurant;
|
·
|
the
cost and availability of capital to fund construction costs and
pre-opening expenses;
|
·
|
our
ability to secure required governmental approvals and permits in
a timely
manner, or at all; and
|
Once
opened, we anticipate that our new restaurants will generally take several
months to reach budgeted or expected operating levels owing to start-up
inefficiencies and sales patterns typically associated with new
restaurants. We cannot assure you that any restaurant we open will be
profitable or obtain operating results similar to those of our existing
restaurants.
We
cannot
assure you that we will be able to respond on a timely basis to all of the
changing demands that our planned expansion will impose on management and
on our
existing infrastructure, nor that we will be able to hire or retain the
necessary management and operating personnel. Our existing restaurant
management systems, financial and management controls and information systems
may not be adequate to support our planned expansion. Our ability to manage
our
growth effectively will require us to continue to enhance these systems,
procedures and controls and to locate, hire, train and retain management
and
operating personnel.
Some
of
our new restaurants will be located in areas where we have little or no
meaningful experience. Those markets may have different competitive
conditions, market conditions, consumer tastes and discretionary spending
patterns than our existing markets, which may cause our new restaurants to
be
less successful than restaurants in our existing markets.
Some
of
our new restaurants will be located in areas where we have existing
restaurants. Although we have experience in these markets, increasing
the number of locations in these markets may cause us to over-saturate markets
and temporarily or permanently divert customers and sales from our existing
restaurants, thereby adversely affecting our overall profitability.
Individual
restaurant locations are affected by local conditions that could change and
affect the carrying value of those locations
adversely.
The
success of our business depends on the success of individual locations, and
the
success of individual locations depends on stability of or improvements in
operating condition at and around those locations.
As
demographic and economic patterns (e.g., highway or roadway traffic
patterns, concentrations of general retail or hotel activity, local population
densities, increased competition) change, current locations may not continue
to
be attractive or profitable. Possible declines in neighborhoods where
our restaurants are located or adverse economic conditions in areas surrounding
those neighborhoods could result in reduced revenues in those
locations. In addition, desirable locations for new restaurant
openings or for the relocation of existing restaurants may not be available
at
an acceptable cost when we identify a particular opportunity for a new
restaurant or relocation. The occurrence of one or more of these
events could have a significant adverse effect on our revenues and results
of
operations as well as the carrying value of our individual
locations.
A
material disruption in our computer systems could adversely affect our
business
or results of operations.
We
rely
extensively on our computer systems to process transactions, summarize
results
and manage our business. Our computer systems are subject to damage
or interruption from power outages, computer and telecommunications failures,
computer viruses, security breaches, catastrophic events such as fires,
floods,
earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage
errors
by our employees. If our computer systems are damaged or cease to
function properly, we may have to make a significant investment to fix
or
replace them, and we could suffer loss of critical data and interruptions
or
delays in our operations in the interim. Any material interruption in
our computer systems could adversely affect our business or results of
operations.
A
privacy breach could adversely affect our
business.
The
protection of customer, employee, and company data is critical to
us. The regulatory environment surrounding information security and
privacy is increasingly demanding, with the frequent imposition of new
and
constantly changing requirements. Compliance with these requirements
may result in cost increases due to necessary systems changes and the
development of new administrative processes. In addition, customers
have a high expectation that we will adequately protect their personal
information. If we fail to comply with these laws and regulations or
experience a significant breach of customer, employee, or company data,
our
reputation could be damaged and result in lost sales, fines, or
lawsuits.
Obtaining
some of our retail merchandise exposes us to risks associated with foreign
imports.
Our
future operating results as they relate to the retail operations in our Cracker
Barrel units depend on products that are or may be manufactured in a number
of
foreign countries and require long lead times to source. Because we
depend on foreign sourcing for these products, our results of operations
may be
materially affected by:
-
|
fluctuating
currency exchange rates;
|
-
|
foreign
government regulations;
|
-
|
foreign
exchange control regulations;
|
-
|
import/export
restrictions;
|
-
|
foreign
economic instability;
|
-
|
disruptions
due to labor stoppages, strikes or slowdowns, or other disruptions,
involving our vendors or the transportation and handling
industries;
|
-
|
product
recalls; and
|
-
|
tariffs,
trade barriers and other trade restrictions by the U.S. government
on
products or components shipped from foreign
sources.
|
Our
reported results can be affected adversely and unexpectedly by the
implementation of new, or changes in the interpretation of existing, accounting
principles generally accepted in the United States of America
(“GAAP”).
Our
financial reporting complies with GAAP, and GAAP is subject to change over
time. If new rules or interpretations of existing rules require us to
change our financial reporting, our reported results of operations and financial
condition could be affected substantially, including requirements to restate
historical financial reporting.
Identification
of material weakness in internal control may adversely affect our financial
results.
We
are
subject to the ongoing internal control provisions of Section 404 of the
Sarbanes-Oxley Act of 2002. Those provisions provide for the
identification of material weaknesses in internal control. If such a material
weakness is identified, it could indicate a lack of controls adequate to
generate accurate financial statements. We routinely assess our
internal controls, but we cannot assure you that we will be able to timely
remediate any material weaknesses that may be identified in future periods,
or
maintain all of the controls necessary for continued
compliance. Likewise, we cannot assure you that we will be able to
retain sufficient skilled finance and accounting personnel, especially in
light
of the increased demand for such personnel among publicly traded
companies.
Our
annual and quarterly operating results may fluctuate significantly and could
fall below the expectations of securities analysts and investors due to a
number
of factors, some of which are beyond our control, resulting either in volatility
or a decline in the price of our securities.
Our
annual and quarterly operating results may fluctuate significantly because
of
several factors, including:
·
|
increases
and decreases in average weekly sales, restaurant and retail sales
and
restaurant profitability;
|
·
|
the
rate at which we open new locations, the timing of new unit openings
and
the related high initial operating
costs;
|
·
|
changes
in consumer preferences and competitive conditions, including the
effects
of our and competitors’ operational, promotional or expansion
activities;
|
·
|
fluctuations
in commodity prices, product costs, utilities and energy costs,
prevailing
wage rates, insurance costs and other
costs;
|
·
|
our
ability to recruit, train and retain qualified hourly and management
employees, and the costs associated with those
activities;
|
·
|
the
effects of uncertain consumer confidence, consumer debt payments,
general
or regional economic weakness, or weather on our sales and the
discretionary income or personal expenditure activity of
customers;
|
·
|
general
national economic trends and local economic conditions, which could
be
affected by terrorist activity and government responses thereto,
local
strikes, energy shortages or increases in energy prices, droughts,
earthquakes, fires or other natural
disasters;
|
·
|
changes
in advertising and promotional activities and expansion to new
markets;
|
·
|
negative
publicity relating to the consumption of beef, chicken or other
products
we serve;
|
·
|
unanticipated
increases in infrastructure costs;
|
·
|
impairment
of long-lived assets, and any loss on restaurant closures or
impairments;
|
·
|
changes
in interest rates; and
|
·
|
changes
in accounting, tax, regulatory or other rules applicable to our
business.
|
Our
quarterly operating results and restaurant and retail sales may fluctuate
as a
result of any of these or other factors. Accordingly, results for any
one quarter are not necessarily indicative of results to be
expected
for
any
other quarter or for any year, and restaurant sales for any particular
future
period may decrease. In the future, operating results may fall below
the expectations of securities analysts and investors. In that event,
the price of our securities could decrease.
Our
failure or inability to enforce our trademarks or other proprietary rights
could
adversely affect our competitive position or the value of our
brand.
We
own
certain common law trademark rights and a number of federal trademark and
service mark registrations, including the CRACKER BARREL OLD COUNTRY STORE® name
and logo, and proprietary rights relating to our methods of operation and
certain of our core menu offerings. We believe that our trademarks
and other proprietary rights are important to our success and our competitive
position, and, therefore, we devote resources to the protection of our
trademarks and proprietary rights. The protective actions that we
take, however, may not be enough to prevent unauthorized use or imitation
by
others, which could harm our image, brand or competitive position. If
we commence litigation to enforce our rights, we could incur significant
legal
fees.
We
are
not aware of any assertions that our trademarks or menu offerings infringe
upon
the proprietary rights of any third parties, but we cannot assure you that
third
parties will not claim infringement by us in the future. Any such
claim, whether or not it has merit, could be time-consuming and distracting
for
executive management, result in costly litigation, cause changes to existing
menu items or delays in introducing new menu items, or require us to enter
into
royalty or licensing agreements. As a result, any such claim could
have a material adverse effect on our business, results of operations and
financial condition.
Provisions
in our charter, Tennessee law and our shareholder rights plan may discourage
potential acquirors of our company, which could adversely affect the value
of
our securities.
Our
charter documents contain provisions that may have the effect of making it
more
difficult for a third party to acquire or attempt to acquire control of the
Company. In addition, we are subject to certain provisions of
Tennessee law that limit, in some cases, our ability to engage in certain
business combinations with significant shareholders. Also, our
shareholder rights plan may inhibit accumulations of substantial amounts
of our
common stock without the approval of our board of directors.
These
provisions, either alone, or in combination with each other, give our current
directors and executive officers a substantial ability to influence the outcome
of a proposed acquisition of the Company. These provisions would
apply even if an acquisition or other significant corporate transaction was
considered beneficial by some of our shareholders. If a change in
control or change in management is delayed or prevented by these provisions,
the
market price of our securities could decline.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2.
PROPERTIES
Our
corporate headquarters and
warehouse facilities are located on approximately 128 acres of land owned
by the
Company in Lebanon, Tennessee. We utilize approximately 250,000
square feet of office space for our corporate headquarters and decorative
fixtures warehouse. We also utilize 367,200 square feet of warehouse
facilities and an additional 13,800 square feet of office and maintenance
space
for our retail distribution center.
In
addition to the various corporate facilities, we have four properties (owned
or
leased) for future development, a motel used for housing management trainees
and
for the general public, and six parcels of excess real property and improvements
that we intend to dispose of. In addition, we currently own one
Logan’s restaurant property, which we lease to Logan’s, and intend to sell in
2008.
In
addition to the properties mentioned above, Cracker Barrel owns or leases
the
following store properties as of September 28, 2007:
State |
|
|
|
State |
|
|
|
|
|
Owned
|
Leased
|
|
|
Owned
|
Leased
|
|
|
Tennessee
|
36
|
13
|
|
New
Jersey
|
2
|
4
|
|
|
Florida
|
41
|
15
|
|
Oklahoma
|
4
|
2
|
|
|
Georgia
|
31
|
9
|
|
Wisconsin
|
5
|
-
|
|
|
Texas
|
30
|
6
|
|
Colorado
|
3
|
1
|
|
|
North
Carolina
|
25
|
8
|
|
Kansas
|
3
|
1
|
|
|
Ohio
|
22
|
9
|
|
Maryland
|
3
|
1
|
|
|
Kentucky
|
20
|
9
|
|
Massachusetts
|
-
|
4
|
|
|
Alabama
|
18
|
9
|
|
New
Mexico
|
3
|
1
|
|
|
Indiana
|
21
|
6
|
|
Utah
|
4
|
-
|
|
|
Virginia
|
21
|
5
|
|
Iowa
|
3
|
-
|
|
|
Illinois
|
20
|
2
|
|
Connecticut
|
1
|
1
|
|
|
Pennsylvania
|
9
|
12
|
|
Montana
|
2
|
-
|
|
|
South
Carolina
|
13
|
6
|
|
Nebraska
|
1
|
1
|
|
|
Missouri
|
14
|
3
|
|
Delaware
|
-
|
1
|
|
|
Michigan
|
13
|
3
|
|
Idaho
|
1
|
-
|
|
|
Arizona
|
2
|
10
|
|
Minnesota
|
1
|
-
|
|
|
Mississippi
|
8
|
3
|
|
New
Hampshire
|
1
|
-
|
|
|
Arkansas
|
4
|
6
|
|
North
Dakota
|
1
|
-
|
|
|
Louisiana
|
7
|
2
|
|
Rhode
Island
|
-
|
1
|
|
|
West
Virginia
|
3
|
6
|
|
South
Dakota
|
1
|
-
|
|
|
New
York
|
7
|
1
|
|
Total
|
404
|
161
|
|
|
|
|
|
|
|
|
|
|
|
We
believe that our properties are suitable, adequate, well-maintained and
sufficient for the operations contemplated. See "Business-Operations"
and "Business-Unit Development" in Item I of this Annual Report on Form 10-K
for
additional information on our properties.
ITEM
3. LEGAL PROCEEDINGS
See
Note 15 to our Consolidated
Financial Statements filed or incorporated by reference into in Part II,
Item 8
of this Annual Report on Form 10-K, which also is incorporated herein by
this
reference.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
Pursuant
to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction
G(3)
to Form 10-K, the following information is included in Part I of this Form
10-K.
Executive
Officers of the Registrant
The
following table sets forth certain information concerning our executive
officers, as of September 28, 2007:
|
Name |
Age |
Position
with Registrant |
|
Michael
A. Woodhouse
|
62
|
Chairman,
President & Chief Executive Officer
|
|
Lawrence
E. White
|
57
|
Senior
Vice President, Finance & Chief Financial
Officer
|
|
N.
B. Forrest Shoaf
|
57
|
Senior
Vice President, Secretary and General
Counsel
|
|
Doug
Barber
|
50
|
Senior
Vice President, Restaurant Operations
|
|
Terry
Maxwell
|
48
|
Senior
Vice President, Retail Operations
|
|
Edward
A. Greene |
52 |
Senior
Vice President, Strategic
Initiatives |
|
Robert
Harig |
57 |
Senior
Vice President, Human Resources |
|
Simon
Turner |
52 |
Senior
Vice President, Marketing and Innovation and Chief Marketing
Officer |
|
Diana
S. Wynne |
52 |
Senior
Vice President, Corporate Affairs |
|
Patrick
A. Scruggs |
43 |
Vice
President, Accounting and Tax, & Chief Accounting
Officer |
The
following information summarizes the business experience of each of our
executive officers for at least the past five years:
Mr.
Woodhouse has been employed by us
in various capacities since 1995. Mr. Woodhouse served as our Senior
Vice President of Finance and Chief Financial Officer from January 1999 to
July
1999, as Executive Vice President and Chief Operating Officer (“COO”) from
August 1999 until July 2000, as President and COO from August 2000 until
July
2001, and then as President and Chief Executive Officer from August 2001
until
November 2004 when he assumed his current positions. Mr. Woodhouse has 23
years
of experience in the restaurant industry and 14 years of experience in the
retail industry.
Mr.
White has been employed by us in
his current capacity since September 1999. Prior to that, he was
Executive Vice President and Chief Financial Officer of Boston Chicken, Inc.,
where he was part of a new management team brought in during 1998 for an
operational and financial turnaround. Mr. White has over 20 years of
experience in the restaurant industry and 8 years of experience in the retail
industry. The Company has announced Mr. White's intentions to retire
from his position with the Company effective February 1, 2008, at which time
he
will become a consultant to the Company for a period of 18 months.
Mr.
Shoaf began his employment with us
in his current capacity in April 2005. Prior to that, he was Managing
Director of Investment Banking for Avondale Partners, LLC. From
1996-2000, he was a Managing Director of J.C. Bradford and from 2000-2002,
a
Managing Director in the investment banking group of Morgan Keegan, a Memphis,
Tennessee based investment banking firm and head of its Nashville Corporate
Finance Office.
Mr.
Barber has been employed by us
since 2003. He assumed his current position in 2006. Prior
to that he was with Metromedia Family Steakhouse in various capacities since
1979 and assumed his last position held with Metromedia Family Steakhouse
as
President and Chief Operating Officer in 1995. Mr. Barber has 28
years of experience in the restaurant industry.
Mr.
Maxwell has been employed by us
since 1980. He assumed his current position in 2006. Mr.
Maxwell has 27 years of experience in the restaurant and retail
industries.
Mr.
Greene has been employed by us in
his current capacity since October 2005. From August 1996 to October 2005,
he
worked for Restaurant Services, Inc., the independent purchasing cooperative
which provides supply chain management services for Burger King Corporation
and
its franchisees, serving most recently as its Vice President, Food and Packaging
Purchasing. Mr. Greene began his career with The Pillsbury Company
and has over 29 years of combined experience in the restaurant and food
processing industries.
Mr.
Harig has been employed by us since
2000. He assumed his current position in 2004. Mr. Harig
has over 30 years of experience in the restaurant industry and 7 years in
the
retail industry.
Mr.
Turner has been employed by us in his current capacity since July 2006,
following an eight month consultancy. Prior to that he was Chief Executive
Officer of Blue Chip Management Consultants Limited (renamed Balancing Blooms
Limited in 2004) a United Kingdom registered limited liability
company. Mr. Turner previously had 19 years of consumer goods and
food and beverage marketing experience at Procter & Gamble, The Coca-Cola
Company, Unilever and Kimberly-Clark.
Ms.
Wynne joined us in January 2006 in
her current capacity. Prior to that, she was Vice President, Treasury
for Blockbuster, Inc. Prior to that she served as Senior Vice
President and Treasurer for Metromedia Restaurant Group. Ms. Wynne began
her
career with Price Waterhouse Coopers and has over 28 years of experience
in the
restaurant and retail industries.
Mr.
Scruggs has been employed by us in
various capacities since 1989. He assumed his current position in
2003. Mr. Scruggs has 18 years of experience in the
restaurant and retail industries.
PART
II
ITEM 5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Our
Common Stock is traded on the
NASDAQ Global Market (“Nasdaq”) under the symbol CBRL. There were
11,807 shareholders of record as of September 25, 2007.
The
table “Market Price and Dividend
Information” contained in the 2007 Annual Report is presented on page two of
Exhibit 13 to this document and is incorporated herein by this
reference.
Subject
to there being no events of default, and our having at least $100,000 available
under our revolving credit facility, we may declare and pay cash dividends
on
our common stock so long as the aggregate amount of such dividends paid during
any fiscal year would be less than 15% of Consolidated EBITDA from continuing
operations, as defined in the credit agreement, for the fiscal year immediately
preceding the fiscal year in which such dividend is paid. In any event,
subject to there being no events of default, and our having at least $100,000
available under our revolving credit facility, we may increase our 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.
Part
III, Item 12 of this Annual Report
on Form 10-K is incorporated in this Item of this Report by this
reference.
Unregistered
Sales of Equity Securities
Except
as
described in the following paragraphs, we did not sell any equity securities
during the period covered by this Annual Report on Form 10-K that were not
registered under the Securities Act of 1933, as amended.
On
May 1,
2007, we issued $375,931 in principal amount at maturity of zero coupon senior
convertible notes due 2032 (the “New Notes”) in exchange (the “Exchange Offer”)
for an identical principal amount at maturity of our previously outstanding
liquid yield option notes due 2032 (the “Old Notes”). The New Notes were issued
in reliance on the exemption from the registration requirements of the
Securities Act of 1933, as amended, set forth in Section 3(a)(9) of the
Securities Act. Therefore, no commission or other remuneration was
paid to any broker, dealer, salesperson, or other person for soliciting tenders
of the Old Notes for the New Notes. The purpose of the Exchange Offer
was to issue New Notes with a “net share settlement” feature. Both
the Old Notes and the New Notes were convertible into 10.8584 shares of our
common stock per $1,000 in principal amount at maturity. The net
share settlement feature, however, allowed us, upon conversion of a New Note,
to
satisfy a portion of our obligations due upon conversion in cash rather than
with the issuance of shares of common stock.
The
material terms of the New Notes are described in our exchange circular dated
March 20, 2007 filed as Exhibit (a)(1)(A) to our tender offer statement on
Schedule TO filed with the Commission on March 20, 2007 and the
Supplement to exchange circular dated April 17, 2007 filed as Exhibit (a)(1)(E)
to Amendment No. 1 to our tender offer statement on Schedule TO filed
with the Commission on April 17, 2007.
On
June
4, 2007 both the Old Notes and the New Notes were redeemed and none of those
notes remained outstanding. In addition, any common stock issued in
connection with conversions of either the Old Notes or the New Notes was
repurchased during the quarter ended August 3, 2007.
Issuer
Purchases of Equity Securities
The
following table sets forth
information with respect to purchases of our shares of common stock made
during
the quarter ended August 3, 2007 by or on behalf of us or any “affiliated
purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:
Period
|
Total
Number
of
Shares
Purchased
(1)
|
Average
Price
Paid
Per
Share (2)
|
Total
Number
of
Shares
Purchased
as
Part
of
Publicly
Announced
Plans
or
Programs
|
Maximum
Number
of
Shares
that
May
Yet Be
Purchased
Under
the
Plans
or
Programs
|
4/28/07
– 5/25/07
|
195,300
|
$45.60
|
195,300
|
1,216,856
|
5/26/07
– 6/22/07
|
1,216,856
|
$45.24
|
1,216,856
|
0
|
6/23/07
– 8/3/07
|
--
|
--
|
--
|
0
|
Total
for the quarter
|
1,412,156
|
$45.29
|
1,412,156
|
0
|
(1)
|
All
share repurchases were made in open-market transactions pursuant
to
publicly announced repurchase plans. This table excludes shares
owned and tendered by employees to meet the exercise price of option
exercises and shares withheld from employees to satisfy minimum
tax
withholding requirements on option exercises and other equity-based
transactions. We administer employee cashless exercises through
an
independent, third-party broker and do not repurchase stock in
connection
with cashless exercises.
|
(2)
|
Average
price paid per share is calculated on a settlement basis and includes
commissions and fees.
|
ITEM
6. SELECTED FINANCIAL DATA
The
table "Selected Financial Data"
contained in the 2007 Annual Report is presented on page one of Exhibit 13
to
this document and is incorporated into this Item of this Report by this
reference.
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
“Management's
Discussion and Analysis
of Financial Condition and Results of Operations,” contained in the 2007 Annual
Report, is incorporated into this Item of this Report by this
reference.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
“Quantitative
and Qualitative
Disclosures about Market Risk” set forth within “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contained in the
2007 Annual Report, is incorporated into this Item of this Report by this
reference.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
Consolidated Financial Statements (and related footnotes) and Report of
Independent Registered Public Accounting Firm, contained in the 2007 Annual
Report, are incorporated into this Item of this Report by this
reference.
See
Quarterly Financial Data
(Unaudited) in Note 18 to the Consolidated Financial Statements.
ITEM
9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE
|
None.
ITEM
9A. CONTROLS AND PROCEDURES
Our
management, with the participation
of our principal executive and financial officers, including the Chief Executive
Officer and the Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(f)
promulgated under the Exchange Act). Based upon this evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that as
of
August 3, 2007, 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 August 3, 2007 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.
Management’s
Report on Internal Control over Financial Reporting
We
are responsible for establishing
and maintaining adequate internal controls over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of
1934,
as amended). We maintain a system of internal controls that is
designed to provide reasonable assurance in a cost-effective manner as to
the
fair and reliable preparation and presentation of the consolidated financial
statements, as well as to safeguard assets from unauthorized use or
disposition.
Our
control environment is the
foundation for our system of internal control over financial reporting and
is
embodied in our Corporate Governance Guidelines, our Financial Code of Ethics,
and our Code of Business Conduct and Ethics, all of which may be viewed on
our
website. They set the tone for our organization and include factors
such as integrity and ethical values. Our internal control over
financial reporting is supported by formal policies and procedures, which
are
reviewed, modified and improved as changes occur in business condition and
operations. Our disclosure controls and procedures or our internal
controls cannot and will not prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the
benefits of controls relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
We
conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of
the
operating effectiveness of controls and a conclusion on this
evaluation. We have concluded that our internal control over
financial reporting was effective as of August 3, 2007, based on these
criteria.
In
addition, Deloitte & Touche
LLP, an independent registered public accounting firm, has issued an attestation
report on management’s assessment of internal control over financial reporting,
which is included herein.
/s/ Michael A. Woodhouse |
Michael A. Woodhouse |
Chairman, President and Chief Executive
Officer |
/s/ Lawrence E. White |
Lawrence E. White |
Senior Vice President, Finance and Chief Financial
Officer |
ITEM
9B. OTHER
INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
information required by this Item
with respect to directors of the Company is incorporated into this Item of
this
Report by this reference to the following sections of the 2007 Proxy Statement:
“Board of Directors and Committees,” "Proposal 1: Election of Directors,"
“Section 16(a) Beneficial Ownership Reporting Compliance” and the question “Has
the Board adopted a code of ethics for senior financial officers?” set forth in
“Certain Relationships and Transactions.” The information required by
this Item with respect to executive officers of the Company is set forth
in Part
I of this Annual Report on Form 10-K.
ITEM
11. EXECUTIVE COMPENSATION
The
information required by this Item
is incorporated into this Item of this Report by this reference to the following
sections of the 2007 Proxy Statement: “Executive Compensation” and
the question “How are directors compensated?” set forth in “Board of Directors
and Committees.” The “Compensation Committee Report” set forth
in “Executive Compensation” is deemed to be “furnished” and is not, and shall
not be deemed to be, “filed” for purposes of Section 18 of the Exchange
Act.
ITEM
12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
information required by this Item
is incorporated into this Item of this Report by this reference to the sections
entitled "Stock Ownership of Certain Beneficial Owners and Management" and
“Executive Compensation-Equity Compensation Plan Information” in the 2007 Proxy
Statement.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information required by this Item
is incorporated into this Item of this Report by this reference to the section
entitled "Certain Relationships and Transactions” in the 2007 Proxy
Statement.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this Item
is incorporated into this Item of this Report by this reference to the sections
entitled “Fees Paid to Auditors” and “Audit Committee Report - What is the Audit
Committee’s pre-approval policy and procedure with respect to audit and
non-audit services provided by our auditors?” in the 2007 Proxy
Statement. No other portion of the section of the 2007 Proxy
Statement entitled “Audit Committee Report” is, nor shall it be deemed to be,
incorporated by reference into this Annual Report on Form 10-K.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List
of documents filed as part of this report:
|
1.
|
The
following Consolidated Financial Statements and the Report of Independent
Registered Public Accounting Firm of Deloitte & Touche LLP of the 2007
Annual Report are included within Exhibit 13 to this Annual Report
on Form
10-K and are incorporated into this Item of this Report by this
reference:
|
|
|
Report
of Independent Registered Public Accounting Firm dated October 1,
2007 |
|
|
Consolidated
Balance Sheet as of August 3, 2007 and July 28,
2006 |
|
|
Consolidated
Statement of Income for each of the three fiscal years ended August
3,
2007, July 28, 2006 and July 29, 2005 |
|
|
Consolidated
Statement of Changes in Shareholders' Equity for each of the three
fiscal
years ended August 3, 2007, July 28, 2006 and July 29,
2005 |
|
|
Consolidated
Statement of Cash Flows for each of the three fiscal years ended
August 3,
2007, July 28, 2006 and July 29, 2005 |
|
|
Notes
to Consolidated Financial Statements |
|
2. |
All
schedules have been omitted since they are either not required or
not
applicable, or the required information is included in the consolidated
financial statements or notes thereto. |
|
3. |
The
exhibits listed in the accompanying Index to Exhibits immediately
following the signature page to this
Report |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
By: |
/s/ Michael A. Woodhouse |
|
Michael A. Woodhouse |
|
President and Chief Executive
Officer |
October
1, 2007
Pursuant
to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
Name
|
Title
|
Date
|
/s/
Michael A. Woodhouse |
|
|
Michael
A. Woodhouse
|
Chairman,
President and Chief Executive Officer
|
October
1, 2007 |
|
|
|
/s/
Lawrence E. White |
|
|
Lawrence
E. White
|
Senior
Vice President, Finance and Chief Financial Officer (Principal
Financial
Officer)
|
October
1, 2007
|
|
|
|
/s/
N.B. Forrest Shoaf |
|
|
N.B.
Forrest Shoaf
|
Senior
Vice President, General Counsel and Secretary
|
October
1, 2007 |
|
|
|
/s/
Patrick A. Scruggs |
|
|
Patrick
A. Scruggs
|
Chief
Accounting Officer
(Principal
Accounting Officer)
|
October
1, 2007
|
|
|
|
/s/
James D. Carreker |
|
|
James
D. Carreker
|
Director
|
October
1, 2007 |
|
|
|
/s/
Robert V. Dale |
|
|
Robert
V. Dale
|
Director
|
October
1, 2007 |
|
|
|
/s/
Richard J. Dobkin |
|
|
Richard
J. Dobkin
|
Director
|
October
1, 2007 |
|
|
|
/s/
Robert C. Hilton |
|
|
Robert
C. Hilton
|
Director
|
October
1, 2007 |
|
|
|
/s/
Charles E. Jones, Jr. |
|
|
Charles
E. Jones, Jr.
|
Director
|
October
1, 2007 |
|
|
|
/s/
B.F. Lowery |
|
|
B.F.
Lowery
|
Director
|
October
1, 2007 |
|
|
|
/s/
Martha M. Mitchell |
|
|
Martha
M. Mitchell
|
Director
|
October
1, 2007 |
|
|
|
/s/
Erik Vonk |
|
|
Erik
Vonk
|
Director
|
October
1, 2007 |
|
|
|
/s/
Andrea M. Weiss |
|
|
Andrea
M. Weiss
|
Director
|
October
1, 2007 |
|
|
|
/s/
Jimmie D. White |
|
|
Jimmie
D. White
|
Director
|
October
1, 2007 |
INDEX
TO
EXHIBITS
4(c) |
Shareholder
Rights Agreement dated 9/7/1999 (2) |
4(d),10(a)
|
Credit
Agreement dated as of April 27, 2006 among CBRL Group, Inc., the
Subsidiary Guarantors named therein, the Lenders party thereto
and
Wachovia Bank, National Association, as Administrative Agent and
Collateral Agent (the “Wachovia Credit Agreement”)
(3)
|
4(e),
10(b) |
Amendment
No. 1 to the Wachovia Credit Agreement |
10(c) |
The
Company's Amended and Restated Stock Option Plan, as amended
(4) |
10(d) |
The
Company’s 2000 Non-Executive Stock Option Plan (5)
|
10(e) |
The
Company's 1989 Non-Employee Director's Stock Option Plan, as amended
(6) |
10(f) |
The
Company's Non-Qualified Savings Plan (7) |
10(g) |
The
Company's Deferred Compensation Plan (7) |
10(h) |
The
Company’s 2002 Omnibus Incentive Compensation Plan (“Omnibus Plan”)
(8) |
10(i) |
Amendment No. 1 to Omnibus Plan (7) |
10(j) |
Form
of Restricted Stock Award (7) |
10(k) |
Form
of Stock Option Award under the Amended and Restated Stock Option
Plan
(7) |
10(l) |
Form
of Stock Option Award under the Omnibus Plan
(7) |
10(m) |
Executive
Employment Agreement dated as of August 1, 2005 between Michael A.
Woodhouse and the Company (7) |
10(n) |
Change-in-control
Agreement for Lawrence E. White dated 10/13/1999
(4) |
10(o) |
Change-in-control
Agreement for N.B. Forrest Shoaf dated 5/12/2005
(7) |
10(p) |
Change-in-control
Agreement for Patrick A. Scruggs dated October 13, 1999
(8) |
10(q) |
Change-in-control Agreement for Simon Turner dated 8/14/06
(9) |
10(r) |
Change-in-control
Agreement for Diana Wynne dated 6/22/06
(10) |
10(s) |
Change-in-control
Agreement for Ed Greene dated 6/22/06
(10) |
10(t) |
Change-in-control
Agreement for Doug Barber dated 8/14/06
(9) |
10(u) |
Change-in-control Agreement for Terry Maxwell dated 8/14/06
(9) |
10(v) |
Change-in-control
Agreement for Rob Harig dated
8/23/06
|
10(w) |
Master Lease dated July 31, 2000 between Country Stores Property
I,
LLC (“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for
lease of 21 Cracker Barrel Old Country Store® sites
(11) |
10(x) |
Master
Lease dated July 31, 2000 between Country Stores Property I, LLC
(“Lessor”) and Cracker Barrel Old Country Store, Inc.
(“Lessee”) for lease of 9 Cracker Barrel Old Country Store®
sites* |
10(y) |
Master
Lease dated July 31, 2000 between Country Stores Property II, LLC
(“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for lease
of 23 Cracker Barrel Old Country Store®
sites* |
10(z) |
Master
Lease dated July 31, 2000 between Country Stores Property III, LLC
(“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for lease
of 12 Cracker Barrel Old Country Store®
sites* |
10(aa) |
2005
Mid-Term Incentive and Retention Plan
(12) |
10(bb) |
2005
Annual Bonus Plan (12) |
10(cc) |
2006
Long-Term Incentive Plan (13) |
10(dd) |
2006
Annual Bonus Plan (13) |
10(ee) |
CBRL
Group, Inc. Targeted Retention Plan (13) |
10(ff) |
CBRL
Group, Inc. Stock Ownership Achievement Incentive Plan
(13) |
10(gg) |
Form
of Mid-Term Incentive and Retention Plan Award Notice
(7) |
10(ii) |
Form
of Success Award (14) |
10(jj) |
2007
Annual Bonus Plan (15) |
10(kk) |
2007
Mid-Term Incentive and Retention Plan
(15) |
10(ll) |
CBRL
Group, Inc. Severance Benefits Policy
(15) |
10(mm) |
2008
Annual Bonus Plan |
10(nn) |
2008
Long-Term Performance Plan |
10(oo) |
Retirement
Agreement (16) |
13 |
Pertinent
portions of the Company's 2007 Annual Report to Shareholders that
are
incorporated by reference into this Annual Report on Form
10-K. |
21 |
Subsidiaries
of the
Registrant |
23 |
Consent of Independent Registered Public Accounting Firm - Deloitte
& Touche LLP |
31 |
Rule
13a-14(a)/15d-14(a) Certifications |
32 |
Section
1350 Certifications |
*Document
not filed because essentially identical in terms and conditions to Exhibit
10(w).
(1)
|
Incorporated
by reference to the Company's Registration Statement on Form S-4/A
under
the Securities Act of 1933 (“Securities Act”) (File No. 333-62469), filed
October 9, 1998.
|
(2)
|
Incorporated
by reference to Exhibit 4 to the Company’s Current Report on Form 8-K
under the Securities Exchange Act of 1934 (“Exchange Act”), filed
September 21, 1999.
|
(3)
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q under the Exchange Act for the quarterly period ended April
28,
2006.
|
(4)
|
Incorporated
by reference to Exhibits 10(g) and 10(q) to the Company’s Annual Report on
Form 10-K under the Exchange Act for the fiscal year ended July
30,
1999.
|
(5)
|
Incorporated
by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K
under the Exchange Act for the fiscal year ended August 2,
2002.
|
(6)
|
Incorporated
by reference to the Cracker Barrel Old Country Store, Inc. Annual
Report
on Form 10-K under the Exchange Act for the fiscal year ended August
2,
1991 (File No. 0-7536).
|
(7)
|
Incorporated
by reference to Exhibits 10(f), 10(i), 10(j), 10(k), 10(l), 10(m),
10(u),
and 10(ee) to the Company’s Annual Report on Form 10-K under the Exchange
Act for fiscal year ended July 29,
2005.
|
(8)
|
Incorporated
by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K
under the Exchange Act for the fiscal year ended August 1,
2003.
|
(9)
|
Incorporated
by reference to Exhibits 10.2, 10.3 and 10.4 to the Company’s Current
Report on Form 8-K under the Exchange Act, filed August 15,
2006.
|
(10)
|
Incorporated
by reference to Exhibits 10.1 and 10.2 to the Company’s Annual Report on
Form 10-K under the Exchange Act for fiscal year ended July 28,
2006.
|
(11)
|
Incorporated
by reference to Exhibit 10.R to the Company’s Annual Report on
Form 10-K under the Exchange Act for the fiscal year ended July
28,
2000.
|
(12)
|
Incorporated
by reference to Exhibits 10.2 and 10.3 to the Company’s Quarterly Report
on Form 10-Q under the Exchange Act for the quarterly period ended
October
29, 2004.
|
(13)
|
Incorporated
by reference to Item 1.01 and Exhibits 10.1, 10.2 and 10.3 to the
Company’s Current Report on Form 8-K under the Exchange Act, filed August
1, 2005.
|
(14)
|
Incorporated
by reference to Exhibits 99.D.12 and 99.D.13 to the Company's Schedule
TO-I filed with the Commission on March 31,
2006. |
(15)
|
Incorporated
by reference to Exhibits 10.1, 10.2 and 10.3 to the Company’s Current
Report on Form 8-K under the Exchange Act, filed August 1,
2006.
|
(16)
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
under the Exchange Act, filed September 21,
2007.
|
34