cbrl10qmay22008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-Q
(Mark
One)
of the
Securities Exchange Act of 1934
For the
Quarterly Period Ended May 2, 2008
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 |
(IRS
Employer |
of Incorporation or
Organization) |
Identification
No.) |
305
Hartmann Drive, P. O. Box 787
Lebanon, Tennessee
37088-0787
(Address
of Principal Executive Offices)
(Zip
Code)
615-444-5533
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated
filer þ
|
Accelerated
filer ¨ |
Non-accelerated
filer ¨ |
Smaller reporting
company ¨ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
22,149,266
Shares of Common Stock
Outstanding
as of May 30, 2008
CBRL
GROUP, INC.
|
|
|
|
FORM
10-Q
|
|
|
|
For
the Quarter Ended May 2, 2008
|
|
|
|
INDEX
|
|
|
|
PART
I. FINANCIAL INFORMATION
|
Page
|
|
|
Item
1
|
|
· Condensed
Consolidated Financial Statements (Unaudited)
|
|
|
|
a) Condensed Consolidated Balance Sheet
as of May 2, 2008
|
|
and
August 3, 2007
|
3
|
|
|
b) Condensed Consolidated Statement of
Income for the Quarters and Nine
|
|
Months Ended May 2, 2008 and April 27, 2007
|
4
|
|
|
c) Condensed Consolidated Statement of
Cash Flows for the Nine Months
|
|
Ended
May 2, 2008 and April 27, 2007
|
5
|
|
|
d) Notes to Condensed Consolidated
Financial Statements
|
6
|
|
|
Item
2
|
|
· Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
|
Item
3
|
|
· Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
|
|
Item
4
|
|
· Controls
and Procedures
|
30
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1A
|
|
· Risk
Factors
|
31
|
|
|
Item
6
|
|
· Exhibits
|
31
|
|
|
SIGNATURES
|
32
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
(In
thousands, except share data)
(Unaudited)
|
|
May
2, |
|
|
August
3, |
|
|
|
2008 |
|
|
|
2007* |
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,901 |
|
|
$ |
14,248 |
|
Property
held for sale
|
|
|
2,550 |
|
|
|
4,676 |
|
Accounts
receivable
|
|
|
12,136 |
|
|
|
11,759 |
|
Income
taxes receivable
|
|
|
8,771 |
|
|
|
-- |
|
Inventories
|
|
|
133,320 |
|
|
|
144,416 |
|
Prepaid
expenses and other current assets
|
|
|
11,672 |
|
|
|
12,629 |
|
Deferred
income taxes
|
|
|
20,992 |
|
|
|
12,553 |
|
Total
current assets
|
|
|
201,342 |
|
|
|
200,281 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
1,549,813 |
|
|
|
1,500,229 |
|
Less:
Accumulated depreciation and amortization of capital
leases
|
|
|
515,028 |
|
|
|
481,247 |
|
Property
and equipment – net
|
|
|
1,034,785 |
|
|
|
1,018,982 |
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
45,090 |
|
|
|
45,767 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
1,281,217 |
|
|
$ |
1,265,030 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
69,457 |
|
|
$ |
93,060 |
|
Income
taxes payable
|
|
|
-- |
|
|
|
18,066 |
|
Accrued
interest expense
|
|
|
12,940 |
|
|
|
164 |
|
Other
accrued expenses
|
|
|
146,213 |
|
|
|
155,191 |
|
Current
maturities of long-term debt and other long-term
obligations
|
|
|
8,698 |
|
|
|
8,188 |
|
Total
current liabilities
|
|
|
237,308 |
|
|
|
274,669 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
787,535 |
|
|
|
756,306 |
|
Interest
rate swap liability
|
|
|
47,314 |
|
|
|
13,680 |
|
Other
long-term obligations
|
|
|
84,765 |
|
|
|
53,819 |
|
Deferred
income taxes
|
|
|
52,280 |
|
|
|
62,433 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock – 100,000,000 shares of $.01 par
|
|
|
|
|
|
|
|
|
value
authorized; no shares issued
|
|
|
-- |
|
|
|
-- |
|
Common
stock – 400,000,000 shares of $.01 par value authorized;
|
|
|
|
|
|
|
|
|
22,147,968
shares issued and outstanding at May 2, 2008,
|
|
|
|
|
|
|
|
|
and
23,674,175 shares issued and outstanding at August 3, 2007
|
|
|
222 |
|
|
|
237 |
|
Additional
paid-in capital
|
|
|
1,891 |
|
|
|
-- |
|
Accumulated
other comprehensive loss
|
|
|
(32,552 |
) |
|
|
(8,988 |
) |
Retained
earnings
|
|
|
102,454 |
|
|
|
112,874 |
|
Total
shareholders’ equity
|
|
|
72,015 |
|
|
|
104,123 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
1,281,217 |
|
|
$ |
1,265,030 |
|
See notes
to unaudited condensed consolidated financial statements.
* This
condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of August 3, 2007, as filed in the Company’s
Annual Report on Form 10-K for the fiscal year ended August 3,
2007.
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
|
(In
thousands, except share and per share
data)
|
|
|
|
Quarter
Ended |
|
|
|
Nine
Months Ended |
|
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
|
2008 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$ |
567,138 |
|
|
$ |
549,050 |
|
|
$ |
1,782,756 |
|
|
$ |
1,719,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
180,588 |
|
|
|
167,928 |
|
|
|
584,551 |
|
|
|
551,136 |
|
Gross
profit
|
|
|
386,550 |
|
|
|
381,122 |
|
|
|
1,198,205 |
|
|
|
1,168,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
226,851 |
|
|
|
219,012 |
|
|
|
681,652 |
|
|
|
650,780 |
|
Impairment
and store closing charges
|
|
|
-- |
|
|
|
-- |
|
|
|
877 |
|
|
|
-- |
|
Other
store operating expenses
|
|
|
103,157 |
|
|
|
100,511 |
|
|
|
314,850 |
|
|
|
304,165 |
|
Store
operating income
|
|
|
56,542 |
|
|
|
61,599 |
|
|
|
200,826 |
|
|
|
213,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
28,800 |
|
|
|
31,536 |
|
|
|
91,641 |
|
|
|
102,818 |
|
Operating
income
|
|
|
27,742 |
|
|
|
30,063 |
|
|
|
109,185 |
|
|
|
110,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
14,215 |
|
|
|
13,801 |
|
|
|
43,578 |
|
|
|
43,587 |
|
Interest
income
|
|
|
-- |
|
|
|
2,199 |
|
|
|
185 |
|
|
|
6,654 |
|
Income
before income taxes
|
|
|
13,527 |
|
|
|
18,461 |
|
|
|
65,792 |
|
|
|
73,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
3,048 |
|
|
|
6,350 |
|
|
|
21,096 |
|
|
|
25,841 |
|
Income
from continuing operations
|
|
|
10,479 |
|
|
|
12,111 |
|
|
|
44,696 |
|
|
|
47,774 |
|
(Loss)
income from discontinued operations,
net
of tax
|
|
|
(35 |
) |
|
|
214 |
|
|
|
(146 |
) |
|
|
86,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
10,444 |
|
|
$ |
12,325 |
|
|
$ |
44,550 |
|
|
$ |
134,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.47 |
|
|
$ |
0.48 |
|
|
$ |
1.94 |
|
|
$ |
1.65 |
|
(Loss)
income from discontinued operations
|
|
$ |
-- |
|
|
$ |
0.01 |
|
|
$ |
-- |
|
|
$ |
2.98 |
|
Net
income per share
|
|
$ |
0.47 |
|
|
$ |
0.49 |
|
|
$ |
1.94 |
|
|
$ |
4.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.46 |
|
|
$ |
0.44 |
|
|
$ |
1.88 |
|
|
$ |
1.50 |
|
(Loss)
income from discontinued operations
|
|
$ |
-- |
|
|
$ |
0.01 |
|
|
$ |
-- |
|
|
$ |
2.54 |
|
Net
income per share
|
|
$ |
0.46 |
|
|
$ |
0.45 |
|
|
$ |
1.88 |
|
|
$ |
4.04 |
|
Weighted
average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,140,557 |
|
|
|
24,984,268 |
|
|
|
22,993,121 |
|
|
|
28,996,618 |
|
Diluted
|
|
|
22,812,380 |
|
|
|
30,183,152 |
|
|
|
23,671,903 |
|
|
|
34,070,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share
|
|
$ |
0.18 |
|
|
$ |
0.14 |
|
|
$ |
0.54 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes
to unaudited condensed consolidated financial statements.
CBRL
GROUP, INC.
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited
and in thousands)
|
|
Nine
Months Ended |
|
|
|
May
2, |
|
|
April
27, |
|
|
|
2008 |
|
|
2007 |
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
44,550 |
|
|
$ |
134,264 |
|
Loss
(income) from discontinued operations, net of tax
|
|
|
146 |
|
|
|
(86,490 |
) |
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
|
by
operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
42,666 |
|
|
|
42,407 |
|
Loss
on disposition of property and equipment
|
|
|
101 |
|
|
|
587 |
|
Impairment
|
|
|
532 |
|
|
|
-- |
|
Accretion
on zero-coupon contingently convertible senior notes
|
|
|
-- |
|
|
|
4,410 |
|
Share-based
compensation
|
|
|
6,626 |
|
|
|
10,105 |
|
Excess
tax benefit from share-based compensation
|
|
|
(41 |
) |
|
|
(4,754 |
) |
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(377 |
) |
|
|
(33 |
) |
Income
taxes receivable
|
|
|
(8,771 |
) |
|
|
-- |
|
Inventories
|
|
|
11,096 |
|
|
|
5,437 |
|
Prepaid
expenses and other current assets
|
|
|
957 |
|
|
|
(3,442 |
) |
Accounts
payable
|
|
|
(23,603 |
) |
|
|
(11,329 |
) |
Income
taxes payable
|
|
|
2,316 |
|
|
|
(2,638 |
) |
Accrued
interest expense
|
|
|
12,776 |
|
|
|
(1,334 |
) |
Other
current liabilities
|
|
|
(9,719 |
) |
|
|
9,386 |
|
Other
long-term assets and liabilities
|
|
|
4,582 |
|
|
|
3,436 |
|
Net
cash provided by operating activities of continuing
operations
|
|
|
83,837 |
|
|
|
100,012 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(60,834 |
) |
|
|
(66,695 |
) |
Proceeds
from sale of property and equipment
|
|
|
4,878 |
|
|
|
5,330 |
|
Proceeds
from insurance recoveries of property and equipment
|
|
|
135 |
|
|
|
91 |
|
Net
cash used in investing activities of continuing operations
|
|
|
(55,821 |
)
|
|
|
(61,274 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
577,400 |
|
|
|
-- |
|
Principal
payments under long-term debt and other long-term
obligations
|
|
|
(545,661 |
) |
|
|
(80,692 |
) |
Proceeds
from exercise of stock options
|
|
|
2,218 |
|
|
|
33,013 |
|
Excess
tax benefit from share-based compensation
|
|
|
41 |
|
|
|
4,754 |
|
Purchases
and retirement of common stock
|
|
|
(52,380 |
) |
|
|
(341,581 |
) |
Dividends
on common stock
|
|
|
(11,756 |
) |
|
|
(12,118 |
) |
Net
cash used in financing activities of continuing operations
|
|
|
(30,138 |
) |
|
|
(396,624 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities of discontinued
operations
|
|
|
(225 |
) |
|
|
(33,463 |
) |
Net
cash provided by investing activities of discontinued
operations
|
|
|
-- |
|
|
|
453,394 |
|
Net
cash (used in) provided by discontinued operations
|
|
|
(225 |
) |
|
|
419,931 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(2,347 |
) |
|
|
62,045 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
14,248 |
|
|
|
87,830 |
|
Cash
and cash equivalents, end of period
|
|
$ |
11,901 |
|
|
$ |
149,875 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the nine months for:
|
|
|
|
|
|
|
|
|
Interest,
net of amounts capitalized
|
|
$ |
29,093 |
|
|
$ |
38,401 |
|
Income
taxes
|
|
$ |
26,331 |
|
|
$ |
69,323 |
|
Supplemental
schedule of non-cash financing activity:
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
$ |
(33,634 |
) |
|
$ |
(11,124 |
) |
Change
in deferred tax asset for interest rate swap
|
|
$ |
10,070 |
|
|
$ |
3,620 |
|
See notes
to unaudited condensed consolidated financial statements.
CBRL GROUP,
INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands, except percentages, share and per share data)
(Unaudited)
1. Condensed Consolidated
Financial Statements
The
condensed consolidated balance sheets as of May 2, 2008 and August 3, 2007 and
the related condensed consolidated statements of income and cash flows for the
quarters and/or nine-month periods ended May 2, 2008 and April 27, 2007, have
been prepared by CBRL Group, Inc. (the “Company”) in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) and
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”) without audit. The Company is principally engaged in the operation and
development of the Cracker Barrel Old Country Store® (“Cracker
Barrel”) restaurant and retail concept and, until December 6, 2006, the Logan’s
Roadhouse®
(“Logan’s”) restaurant concept. The Company sold Logan’s on December
6, 2006 (see Note 18). As a result, Logan’s is classified as
discontinued operations in the accompanying condensed consolidated financial
statements. The Company has changed its prior year presentation of
the cash proceeds from the sale of Logan’s from cash provided by investing
activities of continuing operations to cash provided by investing activities of
discontinued operations to better reflect the nature of these proceeds in the
condensed consolidated statement of cash flows. In the opinion of
management, all adjustments (consisting of normal and recurring items) necessary
for a fair presentation of such condensed consolidated financial statements have
been made. The results of operations for any interim period are not necessarily
indicative of results for a full year.
These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended August 3, 2007 (the “2007 Form 10-K”).
References
in these Notes to Condensed Consolidated Financial Statements to a year are to
the Company’s fiscal year unless otherwise noted.
Unless
otherwise noted, amounts and disclosures throughout the Notes to Condensed
Consolidated Financial Statements relate to the Company’s continuing
operations.
2. Summary of Significant
Accounting Policies
The
significant accounting policies of the Company are included in the 2007 Form
10-K. During the nine-month period ended May 2, 2008, there have been
no significant changes to those accounting policies except for income
taxes. Effective August 4, 2007, the Company adopted the provisions
of Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes — an interpretation of FASB
Statement No. 109” (“FIN 48”). See Note 3 regarding the adoption of
FIN 48.
3. Recently
Adopted Accounting Pronouncement
Income
Taxes
Effective
August 4, 2007, the first day of fiscal 2008, the Company adopted FIN 48, which
clarifies the accounting for uncertainty in income taxes recognized in financial
statements in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
As a
result of the adoption of FIN 48 on August 4, 2007, the Company recognized a
liability for uncertain tax positions of $23,866 and related federal tax
benefits of $7,895, which resulted in a net liability for uncertain tax
positions of $15,971. As required by FIN 48, the liability for
uncertain tax positions has been included in other long-term obligations and the
related federal tax benefits have reduced long-term deferred income
taxes. In the prior year, the liability for uncertain tax positions
(net of the related federal tax benefits) was included in income taxes
payable. The cumulative effect of this change in accounting principle
upon adoption resulted in a net increase of $2,898 to the Company’s August 4,
2007 retained earnings.
The
Company recognizes, net of tax, interest and estimated penalties related to
uncertain tax positions in its provision for income taxes. As of the
date of adoption on August 4, 2007, the Company’s liability for uncertain tax
positions included $2,010 net of tax for potential interest and
penalties. The amount of uncertain tax positions that, if recognized,
would affect the effective tax rate is $15,971.
As of May
2, 2008, the Company’s liability for uncertain tax positions was $27,767
($18,711, net of related federal tax benefits of $9,056), which included $2,930
net of tax for potential interest and penalties. The total amount of
uncertain tax positions that, if recognized, would affect the effective tax rate
is $18,711.
In many
cases, the Company’s uncertain tax positions are related to tax years that
remain subject to examination by the relevant taxing
authorities. Based on the outcome of these examinations or as a
result of the expiration of the statutes of limitations for specific taxing
jurisdictions, the related uncertain tax positions taken regarding previously
filed tax returns could decrease from those recorded as liabilities for
uncertain tax positions in the Company’s financial statements upon adoption at
August 4, 2007 by approximately $2,500 within the next twelve
months.
As of the
date of adoption on August 4, 2007, the Company was subject to income tax
examinations for its U.S. federal income taxes after 2004 and for state and
local income taxes generally after 2003.
4. Recent Accounting
Pronouncements Not Yet Adopted
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 for financial assets and liabilities, as well as any
other assets and liabilities that are carried at fair value on a recurring basis
in the financial statements, are effective for fiscal years beginning after
November 15, 2007. The provisions for nonfinancial assets and
liabilities are effective for fiscal years beginning after November 15,
2008. The Company is currently evaluating the impact of adopting the
separate provisions of SFAS No. 157 and cannot yet determine the impact of its
adoption in the first quarters of 2009 and 2010.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure
eligible financial instruments and other items at fair value. The
provisions of SFAS No. 159 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of
adopting SFAS No. 159 and cannot yet determine the impact of its adoption in the
first quarter of 2009.
The
Emerging Issues Task Force (“EITF”) reached a consensus on EITF 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”
(“EITF 06-11”) in June 2007. The EITF consensus indicates that
the tax benefit received on dividends associated with share-based awards that
are charged to retained earnings should be recorded in additional paid-in
capital and included in the pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payment awards. The consensus
is effective for the tax benefits of dividends declared in fiscal years
beginning after December 15, 2007. The Company is currently
evaluating the impact of adopting EITF 06-11 and cannot yet determine the impact
of its adoption in the first quarter of 2009.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). SFAS No. 161 requires enhanced disclosures about how and why
an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations, financial performance and
cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. The Company does not expect that the adoption
of SFAS No. 161 in the third quarter of 2009 will have a significant impact on
its consolidated financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP. SFAS No. 162 is
effective sixty days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles.” The Company does not expect that the adoption of SFAS
No. 162 will have a significant impact on its consolidated financial
statements.
5. Shared-Based
Compensation
The Company accounts for
share-based compensation in accordance with SFAS No. 123 (Revised 2004),
“Share-Based Payment” (“SFAS No. 123R”), which requires the measurement and
recognition of compensation cost at fair value for all share-based
payments. For the quarter and nine-month period ended May 2, 2008,
share-based compensation from continuing operations was $1,116 and $3,542,
respectively, for stock options and $530 and $3,084, respectively, for nonvested
stock. For the quarter and nine-month period ended April 27, 2007, share-based
compensation was $1,452 and $4,933, respectively, for stock options and $1,369
and $5,172, respectively, for nonvested stock. Included in these
totals are share-based compensation from continuing operations for the quarter
and nine-month period ended April 27, 2007 of $1,452 and $4,868, respectively,
for stock options and $1,369 and $5,652, respectively, for nonvested
stock. Share-based compensation from continuing operations is
recorded in general and administrative expenses for continuing
operations.
During
the third quarter of 2008 and the first nine months of 2008, the Company
reversed approximately $172 and $467, respectively, of share-based compensation
for nonvested stock grants that were forfeited. During the third
quarter of 2007, there were no forfeitures of equity awards and, therefore, no
reversals. During the first nine months of 2007, the Company reversed
approximately $101 for stock options and $559 for nonvested stock awards that
were forfeited.
6. Seasonality
Historically,
the net income of the Company has been lower in the first three quarters and
highest in the fourth quarter, which includes much of the summer vacation and
travel season. Management attributes these variations to the decrease in
interstate tourist traffic and propensity to dine out less during the regular
school year and winter months and the increase in interstate tourist traffic and
propensity to dine out more during the summer months. The Company's retail sales
historically have been highest in the Company's second quarter, which includes
the Christmas holiday shopping season. The Company also expects to
open additional new locations throughout the year. Therefore, the
results of operations for the quarter or nine-month period ended May 2, 2008 are
not necessarily indicative of the operating results for the entire 2008
year.
7. Inventories
Inventories
were comprised of the following at:
|
|
|
May
2, |
|
|
|
August
3, |
|
|
|
|
2008 |
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Retail
|
|
$ |
96,142 |
|
|
$ |
109,891 |
|
Restaurant
|
|
|
18,514 |
|
|
|
16,593 |
|
Supplies
|
|
|
18,664 |
|
|
|
17,932 |
|
Total
|
|
$ |
133,320 |
|
|
$ |
144,416 |
|
8. Net Income Per Share and
Weighted Average Shares
Basic
consolidated net income per share is computed by dividing consolidated net
income available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. Diluted consolidated net income per
share reflects the potential dilution that could occur if securities, options or
other contracts to issue common stock were exercised or converted into common
stock and is based upon the weighted average number of common and common
equivalent shares outstanding during the year. Common equivalent
shares related to stock options and nonvested stock and stock awards issued by
the Company are calculated using the treasury stock
method. Additionally, for 2007, diluted consolidated net income per
share was calculated excluding the after-tax interest and financing expenses
associated with the Company’s zero-coupon contingently convertible senior notes
(“Senior Notes”), since these Senior Notes were treated as if-converted into
common stock (see Note 6 to the Company’s Consolidated Financial Statements
included in the 2007 Form 10-K). The Senior Notes were redeemed in
the fourth quarter of 2007 (see Note 8 to the Company’s Consolidated Financial
Statements included in the 2007 Form 10-K). Following the redemption
of the Senior Notes, outstanding employee and director stock options and
nonvested stock and stock awards issued by the Company represent the only
dilutive effects on diluted consolidated net income per share.
The
following table reconciles the components of the diluted earnings per share
computations:
|
|
Quarter
Ended |
|
|
Nine
Months Ended |
|
|
|
May
2, |
|
|
April
27, |
|
|
May
2, |
|
|
April
27, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations per share
numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
10,479 |
|
|
$ |
12,111 |
|
|
$ |
44,696 |
|
|
$ |
47,774 |
|
Add: Interest
and loan acquisition costs
associated
with Senior Notes, net of
related
tax effects
|
|
|
-- |
|
|
|
1,148 |
|
|
|
-- |
|
|
|
3,464 |
|
Income
from continuing operations available
to
common shareholders
|
|
$ |
10,479 |
|
|
$ |
13,259 |
|
|
$ |
44,696 |
|
|
$ |
51,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from discontinued operations per share
numerator
|
|
$ |
(35 |
) |
|
$ |
214 |
|
|
$ |
(146 |
) |
|
$ |
86,490 |
|
Income
from continuing operations, (loss) income from
discontinued
operations and net income per share
denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
22,140,557 |
|
|
|
24,984,268 |
|
|
|
22,993,121 |
|
|
|
28,996,618 |
|
Add
potential dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes
|
|
|
-- |
|
|
|
4,582,728 |
|
|
|
-- |
|
|
|
4,582,768 |
|
Stock
options and nonvested stock and stock
awards
|
|
|
671,823 |
|
|
|
616,156 |
|
|
|
678,782 |
|
|
|
491,314 |
|
Diluted
weighted average shares
|
|
|
22,812,380 |
|
|
|
30,183,152 |
|
|
|
23,671,903 |
|
|
|
34,070,700 |
|
9. Segment
Reporting
Cracker
Barrel units represent a single, integrated operation with two related and
substantially integrated product lines. The operating expenses of the
restaurant and retail product line of a Cracker Barrel unit are shared and are
indistinguishable in many respects. The chief operating
decision-maker reviews operating results for both restaurant and retail
operations on a combined basis. Accordingly, the Company manages its
business on the basis of one reportable operating segment. The
results of operations of Logan’s are reported as discontinued operations (see
Note 18) and have been excluded from segment reporting.
All of
the Company’s operations are located within the United States. The
following data are presented in accordance with SFAS No. 131, “Disclosures About
Segments of an Enterprise and Related Information,” for all periods
presented.
|
|
Quarter
Ended |
|
|
Nine
Months Ended |
|
|
|
May
2, |
|
|
April
27, |
|
|
May
2, |
|
|
April
27, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$ |
460,406 |
|
|
$ |
444,923 |
|
|
$ |
1,388,264 |
|
|
$ |
1,335,032 |
|
Retail
|
|
|
106,732 |
|
|
|
104,127 |
|
|
|
394,492 |
|
|
|
384,415 |
|
Total
revenue
|
|
$ |
567,138 |
|
|
$ |
549,050 |
|
|
$ |
1,782,756 |
|
|
$ |
1,719,447 |
|
10. Impairment of Long-lived
Assets
In
accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company evaluates long-lived assets and certain
identifiable intangibles to be held and used in the business for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. Whether impairment exists is
determined by comparing undiscounted future operating cash flows that are
expected to result from an asset to the carrying values of an asset on a
store-by-store basis. In addition, the recoverability test considers
the likelihood of possible outcomes that existed at the balance sheet date,
including the assessment of the likelihood of the future sale of the
asset. If impairment exists, the amount of impairment is measured as
the sum of the estimated discounted future operating cash flows of the asset and
the expected proceeds upon sale of the asset less its carrying
value. Assets held for sale, if any, are reported at the lower of
carrying amount or fair value less costs to sell.
During
the nine-month period ended May 2, 2008, the Company closed two Cracker Barrel
stores, which resulted in impairment charges of $532 and store closing charges
of $345. These impairments were recorded based upon the lower of unit
carrying amount or fair value less costs to sell. The decision to
close the leased store was due to its age, the expiration of the lease and
another Cracker Barrel store being located within five miles of this
location. The decision to close the owned location was due to its
age, expected future capital expenditure needs and changes in traffic patterns
around the store over the years. The Company expects to sell the
property relative to the owned store within one year. The store
closing charges, which include employee termination benefits and other costs,
represent the total amount expected to be incurred. At May 2, 2008,
there was no liability recorded for store closing charges in the accompanying
condensed consolidated balance sheet. Store closing charges are
included in the impairment and store closing charges line on the accompanying
condensed consolidated statement of income. The Company recorded no impairment
losses or store closing charges in the nine months ended April 27,
2007.
11. Gain on Property
Disposition
On
November 28, 2007, the Company sold the one remaining Logan’s property that the
Company had retained and leased back to Logan’s (see Note 3 to the Company’s
Consolidated Financial Statements included in the 2007 Form 10-K for additional
information). This property was classified as property held for sale
and had a net book value of approximately $1,960. The Company
received proceeds of approximately $3,770, which resulted in a pre-tax gain of
approximately $1,810 being recorded in general and administrative expenses in
the second quarter of 2008.
12.
Commitments and
Contingencies
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to and arising out of the ordinary course of
its business. In the opinion of management, however, based upon
information currently available, the ultimate liability with respect to these
proceedings and claims will not materially affect the Company’s consolidated
results of operations or financial position. Litigation involves an
element of uncertainty, however, and future developments could cause these
actions or claims to have a material adverse effect on the Company’s financial
statements as a whole.
The
Company is contingently liable pursuant to standby letters of credit as credit
guarantees related to insurers. As of May 2, 2008, the Company had
$29,062 of standby letters of credit related to securing reserved claims under
workers' compensation and general liability insurance. All standby
letters of credit are renewable annually and reduce the Company’s availability
under its $250,000 revolving credit facility.
The
Company is secondarily liable for lease payments under the terms of an operating
lease that has been assigned to a third party. The lease has a
remaining life of approximately 5.4 years with annual lease payments of
approximately $361. The Company’s performance is required only if the
assignee fails to perform its obligations as lessee. The Company is
also liable under a second operating lease that has been sublet to a third
party. The lease has a remaining life of approximately 9.5 years and
annual lease payments net of sublease rentals of approximately
$50. At this time, the Company has no reason to believe that either
the assignee or subtenant, respectively, of the foregoing
leases
will not perform and, therefore, no provision has been made in the accompanying
condensed consolidated balance sheet for amounts to be paid in case of
non-performance by the assignee or subtenant, as applicable.
As of
December 2006, the Company reaffirmed its guarantee of the lease payments for
two Logan’s restaurants. The operating leases have remaining lives of
3.7 and 11.9 years with annual payments of approximately $94 and $98,
respectively. The Company’s performance is required only if Logan’s
fails to perform its obligations as lessee. At this time, the Company
has no reason to believe Logan’s will not perform, and therefore, no provision
has been made in the condensed consolidated financial statements for amounts to
be paid as a result of non-performance by Logan’s.
The
Company enters into certain indemnification agreements in favor of third parties
in the ordinary course of business. The Company believes that the probability of
incurring an actual liability under such indemnifications is sufficiently remote
so that no liability has been recorded. In connection with the
divestiture of Logan’s and Logan’s sale-leaseback transaction (see Note 3 to the
Company’s Consolidated Financial Statements included in the 2007 Form 10-K), the
Company entered into various agreements to indemnify third parties against
certain tax obligations, for any breaches of representations and warranties in
the applicable transaction documents and for certain costs and expenses that may
arise out of specified real estate matters, including potential relocation and
legal costs. With the exception of certain tax indemnifications, the
Company believes that the probability of being required to make any
indemnification payments to Logan’s is remote. Therefore, no
provision has been recorded for any potential non-tax indemnification payments
in the condensed consolidated balance sheet. At May 2, 2008, the
Company has recorded a liability of $793 in the condensed consolidated balance
sheet for these potential tax indemnifications.
13.
Shareholders’
Equity
During
the nine-month period ended May 2, 2008, the Company received proceeds of $2,218
from the exercise of stock options on 98,813 shares of its common
stock. During the nine-month period ended May 2, 2008, the Company
repurchased 1,625,000 shares of its common stock in the open market at an
aggregate cost of $52,380 (see Note 15).
During
the nine-month period ended May 2, 2008, the Company paid dividends of $0.14 per
common share on August 6, 2007 and $0.18 per common share on November 5, 2007
and February 5, 2008, respectively. The Company also declared a
dividend of $0.18 per common share that was paid on May 5, 2008 in the aggregate
amount of $3,986, which is recorded in other accrued expenses in the
accompanying condensed consolidated balance sheet. Additionally, the
Company declared a dividend of $0.18 per common share on May 29, 2008 to be paid
on August 5, 2008 to shareholders of record on July 18, 2008.
During
the nine-month period ended May 2, 2008, the unrealized loss, or change in
value, net of tax, on the Company’s interest rate swap increased by $23,564 to
$32,552 and is recognized in accumulated other comprehensive loss (see Notes 14
and 17).
During
the nine-month period ended May 2, 2008, total share-based compensation was
$6,626 and the excess tax benefit from share-based compensation was
$41. During the nine-month period ended April 27, 2007, total
share-based compensation was $10,105 and the excess tax benefit from share-based
compensation was $4,754.
During
the nine-month period ended May 2, 2008, the Company recorded an increase of
$2,898 to retained earnings as the result of adopting FIN 48 (see Note
3).
14. Comprehensive
Income
|
|
|
Quarter
Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
|
May
2,
|
|
|
|
April
27,
|
|
|
|
May
2,
|
|
|
|
April
27,
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
10,444 |
|
|
$ |
12,325 |
|
|
$ |
44,550 |
|
|
$ |
134,264 |
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap,
net
of tax
|
|
|
7,613 |
|
|
|
(4,833 |
) |
|
|
(23,564 |
) |
|
|
(7,504 |
) |
Total
comprehensive income
|
|
$ |
18,057 |
|
|
$ |
7,492 |
|
|
$ |
20,986 |
|
|
$ |
126,760 |
|
For the
quarters ended May 2, 2008 and April 27, 2007, the change in fair value of the
interest rate swap is net of a tax provision of $5,654 and a tax benefit of
$2,032, respectively. For the nine-month periods ended May 2, 2008
and April 27, 2007, the change in fair value of the interest rate swap is net of
a tax benefit of $10,070 and $3,620, respectively.
15. Share
Repurchases
During
the second quarter ended February 1, 2008, the Company repurchased 1,625,000
shares of its common stock in the open market at an aggregate cost of
$52,380. Related transaction costs and fees that were recorded as a
reduction to shareholders’ equity resulted in the shares being repurchased at an
average cost of $32.23 per share. At May 2, 2008, the Company did not
have any share repurchase authorizations outstanding. The Company’s principal
criteria for share repurchases are that they be accretive to expected net income
per share and are within the limits imposed by the Company’s debt covenants
under its $1,250,000 credit facility (the “2006 Credit Facility”).
During
the second quarter ended January 26, 2007, the Company repurchased 5,434,774
shares of its common stock pursuant to a modified “Dutch Auction” tender offer
(“the Tender Offer”) for a total purchase price of approximately $250,000 before
fees. Related transaction costs and fees that were recorded as a
reduction to shareholders’ equity resulted in the shares being repurchased in
the Tender Offer at an average cost of $46.03 per share. During the
third quarter of 2007, the Company repurchased a total of 1,927,500 shares of
its common stock in the open market at an aggregate cost of approximately
$91,100. Related transaction costs and fees that were recorded as a
reduction to shareholders’ equity resulted in the shares being repurchased at an
average cost of $47.29 per share.
16. Debt
Long-term
debt consisted of the following at:
|
|
|
|
|
|
|
|
|
May
2, |
|
|
August
3, |
|
|
|
2008 |
|
|
2007 |
|
Term
Loan B
|
|
|
|
|
|
|
payable
$1,792 per quarter with the
remainder
due on April 27, 2013
|
|
$ |
635,248 |
|
|
$ |
640,624 |
|
|
|
|
|
|
|
|
|
|
Delayed-Draw
Term Loan Facility
payable
$383 per quarter with the remainder
due
on April 27, 2013
|
|
|
151,485 |
|
|
|
99,750 |
|
Revolving
Credit Facility
payable
on or before April 27, 2011
|
|
|
9,500 |
|
|
|
24,100 |
|
|
|
|
796,233 |
|
|
|
764,474 |
|
Current
maturities
|
|
|
(8,698 |
) |
|
|
(8,168 |
) |
Long-term
debt
|
|
$ |
787,535 |
|
|
$ |
756,306 |
|
Effective
April 27, 2006, the Company entered into the 2006 Credit Facility, which
consisted of up to $1,000,000 in term loans with a scheduled maturity date of
April 27, 2013 and a $250,000 revolving credit facility expiring April 27, 2011.
The 2006 Credit Facility contains customary financial covenants, which include
maintenance of a maximum consolidated total leverage ratio as specified in the
agreement and maintenance of minimum interest coverage ratios. As of
May 2, 2008, the Company is in compliance with all debt covenants.
If there
is no default then existing and there is at least $100,000 then available under
the revolving credit facility, the Company may both: (1) pay cash dividends on
its common stock if the aggregate amount of dividends paid in any fiscal year is
less than 15% of Consolidated EBITDA from continuing operations (as defined in
the 2006 Credit Facility) during the immediately preceding fiscal year; and (2)
in any event, increase its regular quarterly cash dividend in any quarter by an
amount not to exceed the greater of $.01 or 10% of the amount of the dividend
paid in the prior fiscal quarter.
17. Derivative
Instruments and Hedging Activities
The
Company accounts for its interest rate swap in accordance with SFAS No.
133. The estimated fair value of this interest rate swap liability
was $47,314 and $13,680 at May 2, 2008 and August 3, 2007, respectively,
representing an increase of $33,634 during the first nine months of
2008. The offset to the interest rate swap liability is in
accumulated other comprehensive loss, net of the deferred tax
asset. Cash flows related to the interest rate swap which consist of
interest payments are included in operating activities.
18. Disposition of
Logan’s
On
December 6, 2006, the Company sold Logan’s (see Note 3 to the Company’s
Consolidated Financial Statements included in the 2007 Form 10-K for additional
information).
The
Company has reported in discontinued operations certain expenses related to the
divestiture of Logan’s in the nine-month period ended May 2, 2008, and the
results of operations of Logan’s as well as certain expenses of
the
Company related to the divestiture of Logan’s for the nine-month period ended
April 27, 2007, which consist of the following:
|
|
|
Quarter
Ended |
|
|
|
Nine
Months Ended |
|
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
|
2008 |
|
|
|
2007 |
|
|
|
2008 |
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
154,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before (provision for income
taxes)
income tax benefit from discontinued
operations
|
|
$ |
(55 |
) |
|
$ |
(747 |
) |
|
$ |
(225 |
) |
|
$ |
7,805 |
|
Income
tax benefit (provision for income taxes)
|
|
|
20 |
|
|
|
249 |
|
|
|
79 |
|
|
|
(2,315 |
) |
Net
(loss) income from discontinued operations
|
|
|
(35 |
) |
|
|
(498 |
) |
|
|
(146 |
) |
|
|
5,490 |
|
Gain
on sale, net of tax benefit of $1,989 for the
quarter
and tax provision of $8,503 for the
nine
months
|
|
|
-- |
|
|
|
712 |
|
|
|
-- |
|
|
|
81,000 |
|
(Loss)
income from discontinued operations
|
|
$ |
(35 |
) |
|
$ |
214 |
|
|
$ |
(146 |
) |
|
$ |
86,490 |
|
In the
third quarter of 2007, the Company agreed to and recorded a purchase price
adjustment required by the Logan’s sale agreement, resulting in a reduction of
the proceeds from and the gain on the sale by $1,276.
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
CBRL
Group, Inc. and its subsidiaries (collectively, the “Company,” “our” or “we”)
are principally engaged in the operation and development in the United States of
the Cracker Barrel Old Country Store® (“Cracker
Barrel”) restaurant and retail concept. Until December 6, 2006, we
also owned the Logan’s Roadhouse® (“Logan’s”)
restaurant concept, but we divested Logan’s at that time. As a
result, Logan’s is presented as discontinued operations in the accompanying
condensed consolidated financial statements for all periods presented. Unless
otherwise noted, management’s discussion and analysis of financial condition and
results of operations (“MD&A”) relates only to results from continuing
operations. All dollar amounts reported or discussed in Part I, Item
2 of this Quarterly Report on Form 10-Q are shown in thousands, except per share
amounts and certain statistical information (e.g., number of
stores). References to years in MD&A are to our fiscal year
unless otherwise noted.
MD&A
provides information which management believes is relevant to an assessment and
understanding of our consolidated results of operations and financial
condition. The MD&A should be read in conjunction with the (i)
condensed consolidated financial statements and notes thereto in this Form 10-Q
and (ii) the financial statements and the notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2007
(the “2007 Form 10-K”). Except for specific historical information,
many of the matters discussed in this Form 10-Q may express or imply projections
of revenues or expenditures, plans and objectives for future operations, growth
or initiatives, expected future economic performance, or the expected outcome or
impact of pending or threatened litigation. These and similar
statements regarding events or results which we expect will or may occur in the
future, are forward-looking statements that involve risks, uncertainties and
other factors which may cause our actual results and performance to differ
materially from those expressed or implied by those statements. All
forward-looking information is provided pursuant to the safe harbor established
under the Private Securities Litigation Reform Act of 1995 and should be
evaluated in the context of these risks, uncertainties and other
factors. Forward-looking statements generally can be identified by
the use of forward-looking terminology such as “trends,” “assumptions,”
“target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,”
“objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,”
“will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,”
“believe,” “potential,” “regular,” “should,” “projects,” “forecasts” or
“continue” (or the negative or other derivatives of each of these
terms) or similar terminology.
We
believe the assumptions underlying these forward-looking statements are
reasonable; however, any of the assumptions could be inaccurate, and therefore,
actual results may differ materially from those projected in or implied by the
forward-looking statements. Factors and risks that may result in
actual results differing from this forward-looking information include, but are
not limited to, those contained in Part I, Item 1A of the 2007 Form 10-K, which
is incorporated herein by this reference, as well as other factors discussed
throughout this document, including, without limitation, the factors described
under “Critical Accounting Estimates” on pages 25-29 of this Form 10-Q or, from
time to time, in our filings with the Securities and Exchange Commission
(“SEC”), press releases and other communications.
Readers
are cautioned not to place undue reliance on forward-looking statements made in
this 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 further
disclosures we may make on related subjects in our documents filed with or
furnished to the SEC or in our other public disclosures.
Results of
Operations
Overview
Total
revenue increased 3.3% in the third quarter of 2008 as compared to the third
quarter of 2007. Operating income margin was 4.9% of total revenue in
the third quarter of 2008 as compared to 5.5% in the third quarter of
2007. The decrease in operating income reflected the
following:
·
|
|
higher
retail product and food costs,
|
·
|
|
the
non-recurrence of gains on asset dispositions, |
· |
|
higher
management wages and |
· |
|
the
non-recurrence of refunds for workers’ compensation and sales
taxes. |
These
decreases were partially offset by the following:
·
|
|
lower
incentive compensation accruals,
|
·
|
|
lower
store hourly labor costs,
|
·
|
|
lower
general insurance,
|
Income
from continuing operations for the third quarter of 2008 decreased 13.5% as
compared to the prior year due to lower operating income and lower interest
income partially offset by a lower provision for income tax. Diluted
income from continuing operations per share increased 4.5% for the quarter as
compared to prior year due to the reduction in shares outstanding.
Total
revenue increased 3.7% during the nine-month period ended May 2, 2008 as
compared to the nine-month period ended April 27, 2007. Operating
income margin was 6.1% of total revenue for the nine-month period ended May 2,
2008 as compared to 6.4% for the nine-month period ended April 27,
2007. The decrease in operating income reflected the
following:
·
|
|
higher
retail product and food costs,
|
·
|
|
higher
group health costs,
|
·
|
|
higher
management wages,
|
|
|
the non-recurrence of litigation
settlement proceeds received in the prior year and
|
·
|
|
higher
workers’ compensation expense.
|
These
decreases were partially offset by the following:
·
|
|
lower
incentive compensation accruals,
|
·
|
|
lower
general insurance,
|
·
|
|
a
larger gain on asset dispositions
and
|
Income
from continuing operations for the nine-month period ended May 2, 2008 as
compared to the prior year decreased 6.4% due to lower operating income and
lower interest income partially offset by a lower provision for income
tax. Diluted income from continuing operations per share increased
25.3% for the nine-month period as compared to prior year due to the reduction
in shares outstanding. During 2008, we have repurchased 1,625,000
shares of our common stock at an aggregate cost of $52,380.
The
following table highlights operating results by percentage relationships to
total revenue for the quarter and nine-month period ended May 2, 2008 as
compared to the same periods in the prior year:
|
|
|
Quarter
Ended
|
|
|
|
Nine
Months Ended
|
|
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
May
2, |
|
|
|
April
27, |
|
|
|
|
2008 |
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
31.8 |
|
|
|
30.6 |
|
|
|
32.8 |
|
|
|
32.1 |
|
Gross
profit
|
|
|
68.2 |
|
|
|
69.4 |
|
|
|
67.2 |
|
|
|
67.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and other related expenses
|
|
|
40.0 |
|
|
|
39.9 |
|
|
|
38.2 |
|
|
|
37.8 |
|
Impairment
and store closing charges
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Other
store operating expenses
|
|
|
18.2 |
|
|
|
18.3 |
|
|
|
17.7 |
|
|
|
17.7 |
|
Store
operating income
|
|
|
10.0 |
|
|
|
11.2 |
|
|
|
11.3 |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
5.1 |
|
|
|
5.7 |
|
|
|
5.2 |
|
|
|
6.0 |
|
Operating
income
|
|
|
4.9 |
|
|
|
5.5 |
|
|
|
6.1 |
|
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
2.4 |
|
|
|
2.5 |
|
Interest
income
|
|
|
-- |
|
|
|
0.4 |
|
|
|
-- |
|
|
|
0.4 |
|
Income
before income taxes
|
|
|
2.4 |
|
|
|
3.4 |
|
|
|
3.7 |
|
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
0.6 |
|
|
|
1.2 |
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
1.8 |
|
|
|
2.2 |
|
|
|
2.5 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from discontinued
operations,
net of taxes
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
1.8 |
% |
|
|
2.2 |
% |
|
|
2.5 |
% |
|
|
7.8 |
% |
The
following table highlights the components of total revenue by percentage
relationships to total revenue for the quarter and nine-month period ended May
2, 2008 as compared to the same periods in the prior year:
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
May
2, |
|
|
April
27, |
|
|
May
2, |
|
|
April
27, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cracker
Barrel restaurant
|
|
|
81.2 |
% |
|
|
81.0 |
% |
|
|
77.9 |
% |
|
|
77.6 |
% |
Cracker
Barrel retail
|
|
|
18.8 |
|
|
|
19.0 |
|
|
|
22.1 |
|
|
|
22.4 |
|
Total
revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
The
following table sets forth the number of units in operation at the beginning and
end of the quarters and nine month-periods ended May 2, 2008 and April 27, 2007,
respectively:
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
May
2,
|
|
|
April
27, |
|
|
May
2,
|
|
|
April
27,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cracker
Barrel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Open
at beginning of period
|
|
|
570 |
|
|
|
552 |
|
|
|
562 |
|
|
|
543 |
|
Opened
during period
|
|
|
6 |
|
|
|
5 |
|
|
|
16 |
|
|
|
14 |
|
Closed
during period
|
|
|
-- |
|
|
|
-- |
|
|
|
(2 |
) |
|
|
-- |
|
Open
at end of period
|
|
|
576 |
|
|
|
557 |
|
|
|
576 |
|
|
|
557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
2008, we also have replaced an existing unit with a new unit in a nearby
community. Replacements are not counted as either units opened or
closed.
Average
unit volumes include sales of all stores. The following table
highlights average unit volumes for the quarter and nine-month period ended May
2, 2008 as compared to the same periods in the prior year:
|
|
Quarter
Ended
|
|
|
Nine
Months Ended
|
|
|
|
May
2,
|
|
|
April
27,
|
|
|
May
2,
|
|
|
April
27,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cracker
Barrel
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
|
|
$ |
803.9 |
|
|
$ |
801.5 |
|
|
$ |
2,442.6 |
|
|
$ |
2,427.1 |
|
Retail
|
|
|
186.4 |
|
|
|
187.6 |
|
|
|
694.1 |
|
|
|
698.9 |
|
Total
net revenue
|
|
$ |
990.3 |
|
|
$ |
989.1 |
|
|
$ |
3,136.7 |
|
|
$ |
3,126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
Total
revenue for the third quarter of 2008 increased 3.3% compared to the prior year
third quarter. For the third quarter ended May 2, 2008, Cracker
Barrel comparable store restaurant sales increased 0.2% and comparable store
retail sales decreased 2.1% resulting in a combined comparable store sales
(total net revenue) decrease of 0.2%. The comparable store restaurant
sales increase resulted from a 3.5% average check increase for the quarter
(including a 3.7% average menu price increase) and a 3.3% guest traffic
decrease.
Total
revenue for the nine-month period ended May 2, 2008 increased 3.7% compared to
the nine-month period ended April 27, 2007. For the nine-month period
ended May 2, 2008, Cracker Barrel comparable store restaurant sales increased
1.0% and comparable store retail sales decreased 0.6% resulting in a combined
comparable store sales (total net revenue) increase of 0.6%. The
comparable store restaurant sales increase resulted from a 3.3% average check
increase for the nine months (including a 3.6% average menu price increase) and
a 2.3% guest traffic decrease.
We
believe that the comparable store retail sales decreases primarily are due to
the declines in guest traffic. We believe we continue to experience
the effects of pressures on consumer discretionary income in our guest traffic
and retail sales. We believe that these decreases partially were
offset by a more appealing retail merchandise selection than in the prior
year. Sales from newly opened Cracker Barrel stores accounted for the
balance of the total revenue increases in the quarter and nine-month period
ended May 2, 2008.
Cost
of Goods Sold
Cost of
goods sold as a percentage of total revenue for the third quarter of 2008
increased to 31.8% from 30.6% in the third quarter of the prior
year. This increase was due to higher markdowns of retail
merchandise, lower initial mark-ons of retail merchandise, higher retail freight
costs, which were primarily related to fuel cost increases, and higher
restaurant product costs versus prior year, primarily reflecting commodity
inflation, partially offset by higher menu pricing. The increase in
commodity inflation from a year ago was primarily due to increases in eggs,
dairy, oil and grain products.
Cost of
goods sold as a percentage of total revenue for the nine-month period ended May
2, 2008 increased to 32.8% from 32.1% in the nine-month period ended April 27,
2007. This increase was due to higher retail freight costs, which
were primarily related to fuel cost increases, higher markdowns of retail
merchandise and higher restaurant product costs versus prior year, primarily
reflecting commodity inflation, partially offset by higher menu
pricing. The increase in commodity inflation from a year ago was
primarily due to increases in dairy, eggs, oil, grain products and
produce.
Labor
and Other Related Expenses
Labor and
other related expenses include all direct and indirect labor and related costs
incurred in store operations. Labor and other related expenses as a
percentage of total revenue increased to 40.0% in the third quarter this year
from 39.9% in the prior year. This increase was due to higher
management wages and the non-recurrence of a workers’ compensation refund
received in the prior year partially offset by higher revenues driven by higher
menu pricing and lower store hourly labor costs. The decrease in
store hourly labor costs was primarily due to better productivity and less
overtime.
Labor and
other related expenses as a percentage of total revenue increased to 38.2% in
the nine-month period ended May 2, 2008 as compared to 37.8% in the nine-month
period ended April 27, 2007. This increase was due to higher group
health costs, management wages and workers’ compensation expense partially
offset by lower bonus accruals and higher revenues driven by menu
pricing. The increase in group health costs was due to higher medical
and pharmacy claims and lower employee contributions. The increase in workers’
compensation expense was due to a smaller reduction in our workers’ compensation
expense as compared to the prior year resulting from limited scope actuarial
reviews of our workers’ compensation claims experience during the second
quarters of 2008 and 2007. The decrease in restaurant and retail
management bonus accruals reflected lower performance against financial
objectives in the first nine months of 2008 versus the same period a year
ago.
Impairment
and Store Closing Charges
During
the first nine months of 2008, we closed one leased Cracker Barrel store and one
owned Cracker Barrel store, which resulted in impairment charges of $532 and
store closing charges of $345. The decision to close the leased store
was due to its age, the expiration of the lease and another Cracker Barrel store
being located within five miles of this location. The decision to
close the owned location was due to its age, expected future capital expenditure
requirements and changes in traffic patterns around the store over the
years. We expect to sell the property relative to the owned store
within one year. The store closing charges represent the total amount
expected to be incurred and no liability has been recorded for store closing
charges at May 2, 2008. See Note 10 to the accompanying Condensed
Consolidated Financial Statements for more details surrounding the impairment
and store closing charges. We did not incur any impairment losses or
store closing charges in the nine months ended April 27, 2007.
Other
Store Operating Expenses
Other
store operating expenses include all unit-level operating costs, the major
components of which are utilities, operating supplies, repairs and maintenance,
depreciation, advertising, credit card fees, rent, property taxes, general
insurance and non-labor-related pre-opening expenses. Other store
operating expenses decreased as a percentage of total revenue to 18.2% in the
third quarter of 2008 from 18.3% in the third quarter of the prior
year. This decrease was due to lower general insurance expense, lower
advertising and higher revenues driven by higher menu pricing partially offset
by the non-recurrence of a gain on the disposition of property recorded in the
prior year and the non-recurrence of a refund of sales taxes paid on operating
supplies received in the prior year. The decrease in the general
insurance expense was due to an adjustment to the actuarial rollforward relating
to claims payments. The decrease in advertising expense was due to a
shift from radio advertising in a larger number of markets in the prior year to
television advertising in a smaller number of markets in 2008.
Other
store operating expenses as a percentage of total revenue in the nine-month
period ended May 2, 2008 remained flat as compared to the nine-month period
ended April 27, 2007 at 17.7%. Lower general insurance expense as a
result of revised actuarial estimates and higher menu pricing were partially
offset by the non-recurrence of the Visa/MasterCard litigation settlement
proceeds received in the prior year.
General
and Administrative Expenses
General
and administrative expenses as a percentage of total revenue decreased to 5.1%
in the third quarter of 2008 compared to 5.7% in the third quarter of the prior
year. The decrease was due to lower incentive compensation accruals, including
share-based compensation, and higher revenues driven by menu pricing and new
unit openings partially offset by the non-recurrence of the gain on the sale of
property in the prior year. The decrease in incentive compensation
accruals reflected lower performance against financial objectives in the third
quarter of 2008 versus the same period a year ago and the non-recurrence of
bonuses related to strategic initiatives. In the third quarter of
2007, we sold one of the three Logan’s properties we had retained and leased
back to Logan’s.
General
and administrative expenses as a percentage of total revenue decreased to 5.2%
in the nine-month period ended May 2, 2008 as compared to 6.0% in the nine-month
period ended April 27, 2007. The decrease was due to lower incentive
compensation accruals, including share-based compensation, a larger gain on the
sale of property and higher revenues driven by menu pricing. The
decrease in incentive compensation accruals reflected lower performance against
financial objectives in the first nine months of 2008 versus the same period a
year ago and the non-recurrence of discretionary bonuses for certain executives,
bonuses related to strategic initiatives and the additional share-based
compensation recorded in the second quarter of 2007 for participants eligible
for retirement prior to the vesting date of the award. In the second
quarter of 2008, we sold the one remaining Logan’s property we had retained and
leased back to Logan’s and recorded a larger gain on the sale of this property
than the Logan’s property we sold in the third quarter of 2007.
Interest
Expense
Interest
expense as a percentage of total revenue in the third quarter of 2008 remained
flat as compared to the third quarter of 2007 at 2.5%. The absolute dollar
increase primarily is due to higher interest rates in the third quarter of 2008
as compared to the third quarter of the prior year partially offset by lower
non-use fees incurred under our credit facility and lower average debt
outstanding. The decrease in the non-use fees is due to our borrowing $100,000
available under the delayed-draw term loan facility during the fourth quarter of
2007 and the remaining $100,000 during the first quarter of
2008. During the third quarter of 2007, we incurred non-use fees on
the entire $200,000 available under the delayed-draw term loan
facility.
Interest
expense as a percentage of total revenue decreased to 2.4% in the nine-month
period ended May 2, 2008 as compared to 2.5% in the nine-month period ended
April 27, 2007. The decrease is primarily due to higher revenues driven by
higher menu pricing. The absolute dollar decrease primarily is due to
lower non-use fees incurred
under our
credit facility and lower average debt outstanding partially offset by higher
average interest rates during the first nine months of 2008 as compared to the
first nine months of the prior year. The decrease in the non-use fees
is due to our borrowing $100,000 available under the delayed-draw term loan
facility during the fourth quarter of 2007 and the remaining $100,000 during the
first quarter of 2008. During the first nine months of 2007, we
incurred non-use fees on the entire $200,000 available under the delayed-draw
term loan facility.
Interest
Income
In both
the third quarter and first nine months of 2008, interest income as a percentage
of total revenue decreased to zero as compared to 0.4% in the third quarter and
first nine months of the prior year. Both decreases are due to a
lower level of cash-on-hand in 2008 versus the same periods in the prior year
when we received the proceeds from the divestiture of Logan’s.
Provision
for Income Taxes
The
provision for income taxes as a percent of pre-tax income was as
follows:
Third
quarter of 2008
|
22.5%
|
Third
quarter of 2007
|
34.4%
|
First
nine months of 2008
|
32.1%
|
First
nine months of 2007
|
35.1%
|
Full
year of 2007
|
34.8%
|
The
decrease in the effective tax rate in the third quarter and first nine months of
2008 from the third quarter and first nine months of 2007 and the full year of
2007 reflected the non-recurrence of certain non-deductible compensation
expense, reserve adjustments resulting from the expiration of certain statutes
of limitation and lower effective state income tax rates. See Note 3
to the accompanying Condensed Consolidated Financial Statements for further
information with respect to the adoption of Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes —
an interpretation of FASB Statement No. 109” (“FIN 48”).
Liquidity and Capital
Resources
Our
operating activities from continuing operations provided net cash of $83,837 for
the nine-month period ended May 2, 2008, which represented a decrease from the
$100,012 provided during the same period a year ago. This decrease
reflected the timing of payments this year compared with last year for accounts
payable and lower incentive compensation accruals based upon lower performance
against financial objectives. These decreases were partially offset
by the timing of payments this year compared with the timing of payments last
year for interest.
We had
negative working capital of $35,966 at May 2, 2008 versus negative working
capital of $74,388 at August 3, 2007. In the restaurant industry,
substantially all sales are either for cash or credit card. Like many
other restaurant companies, we are able to, and may more often than not, operate
with negative working capital. Restaurant inventories purchased
through our principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through wire transfers. These various trade terms are aided by rapid
turnover of the restaurant inventory. Employees generally are paid on
weekly, bi-weekly or semi-monthly schedules in arrears of hours worked, and
payment of certain expenses such as certain taxes and some benefits are deferred
for longer periods of time. The change in working capital compared
with August 3, 2007 reflected timing of payments for income taxes, interest and
accounts payable, lower incentive compensation accruals based upon lower
performance against financial objectives, and lower retail inventories based
upon timing of retail inventory purchases. The decrease in income
taxes payable also was due to the reclassification of our liability for
uncertain tax positions from income taxes payable to other
long-term
obligations upon adoption of FIN 48 (see Note 3 to the accompanying Condensed
Consolidated Financial Statements).
Capital
expenditures were $60,834 for the nine-month period ended May 2, 2008 as
compared to $66,695 during the same period a year ago. Construction
of new locations accounted for most of the expenditures. Capitalized
interest was $113 and $526 for the quarter and nine-month period ended May 2,
2008, respectively, as compared to $171 and $609 for the quarter and nine-month
period ended April 27, 2007. We estimate that our capital
expenditures (purchase of property and equipment) for 2008 will be approximately
$85,000, most of which will be related to the acquisition of sites and
construction of 17 new Cracker Barrel stores and openings that will occur during
2008, as well as construction costs for locations to be opened in
2009.
On
September 20, 2007, our Board of Directors approved the repurchase of up to
1,000,000 shares of our common stock. On January 22, 2008, our Board
of Directors approved the repurchase of up to 625,000 additional shares of our
common stock. During the second quarter ended February 1, 2008, we
repurchased 1,625,000 shares of our common stock in the open market at an
aggregate cost of approximately $52,380. As of May 2, 2008, we had no
share repurchase authorizations outstanding. Our principal criteria
for share repurchases are that they be accretive to expected net income per
share and are within the limits imposed by the debt covenants under our
$1,250,000 credit facility (the “2006 Credit Facility”).
During
the nine-month period ended May 2, 2008, we received proceeds of $2,218 from the
exercise of stock options to purchase 98,813 shares of our common
stock. During the nine-month period ended May 2, 2008, we paid
dividends of $0.14 per common share on August 6, 2007 and $0.18 per common share
on November 5, 2007 and February 5, 2008, respectively. During the
quarter ended May 2, 2008, we also declared a dividend of $0.18 per common share
that was paid on May 5, 2008 in the aggregate amount of
$3,986. Additionally, we declared a dividend of $0.18 per common
share on May 29, 2008 to be paid on August 5, 2008 to shareholders of record on
July 18, 2008.
If there
is no default then existing and there is at least $100,000 then available under
our revolving credit facility, we may both: (1) pay cash dividends on our common
stock if the aggregate amount of such dividends paid during any fiscal year is
less than 15% of Consolidated EBITDA from continuing operations (as defined in
the 2006 Credit Facility) during the immediately preceding fiscal year; and (2)
in any event, increase our regular quarterly cash dividend in any quarter by an
amount not to exceed the greater of $.01 or 10% of the amount of the dividend
paid in the prior fiscal quarter.
Our
internally generated cash and cash generated by option exercises, along with
cash on hand at August 3, 2007, and our borrowing capability under the 2006
Credit Facility, were sufficient to finance all of our growth, dividend payments
and working capital needs in the first nine months of 2008.
We
believe that cash on hand at May 2, 2008, along with cash generated from our
operating activities, stock option exercises and borrowing capability under the
2006 Credit Facility, will be sufficient to finance our continued operations,
our continued expansion plans, our principal payments on our debt and our
dividend payments for at least the next twelve months and thereafter for the
foreseeable future. At May 2, 2008, we had $211,438 available under
the revolving credit portion of the 2006 Credit Facility.
Off-Balance
Sheet Arrangements
Other
than various operating leases, we have no other material off-balance sheet
arrangements. Refer to our 2007 Form 10-K for additional information
regarding our operating leases.
Material
Commitments
We
adopted FIN 48 effective August 4, 2007, the first day of fiscal
2008. As of the date of adoption on August 4, 2007, our gross
liability for uncertain tax positions (including penalties and interest) was
approximately $23,866 ($15,971, net of related federal tax
benefits). In the nine months ended May 2, 2008, the aggregate
liability for uncertain tax positions (including penalties and interest)
increased to $27,767 ($18,711, net of related federal tax
benefits). At May 2, 2008, the entire liability for uncertain tax
positions (including penalties and interest) is classified as a long-term
liability. At this time, we are unable to make a reasonably reliable
estimate of the timing of payments in individual years because of uncertainties
in the timing of the effective settlement of tax positions.
There
have been no other material changes in our material commitments other than in
the ordinary course of business since the end of 2007. Refer to our
2007 Form 10-K for additional information regarding our material
commitments.
Recently Adopted Accounting
Pronouncement
Income
Taxes
Effective
August 4, 2007, the first day of fiscal 2008, we adopted FIN 48, which clarifies
the accounting for uncertainty in income taxes recognized in financial
statements in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 109, “Accounting for Income Taxes.” FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
As a
result of the adoption of FIN 48 on August 4, 2007, we recognized a liability
for uncertain tax positions of $23,866 and related federal tax benefits of
$7,895, which resulted in a net liability for uncertain tax positions of
$15,971. As required by FIN 48, the liability for uncertain tax positions has
been included in other long-term obligations and the related federal tax
benefits have reduced long-term deferred income taxes. In the prior
year, the liability for uncertain tax positions (net of the related federal tax
benefits) was included in income taxes payable. The cumulative effect
of this change in accounting principle upon adoption resulted in a net increase
of $2,898 to our August 4, 2007 retained earnings.
We
recognize, net of tax, interest and estimated penalties related to uncertain tax
positions in our provision for income taxes. As of the date of
adoption on August 4, 2007, our liability for uncertain tax positions included
$2,010 net of tax for potential interest and penalties. The amount of
uncertain tax positions that, if recognized, would affect the effective tax rate
is $15,971.
As of May
2, 2008, our liability for uncertain tax positions was $27,767 ($18,711, net of
related federal tax benefits of $9,056), which included $2,930 net of tax for
potential interest and penalties. The total amount of uncertain tax
positions that, if recognized, would affect the effective tax rate is
$18,711.
In many
cases, our uncertain tax positions are related to tax years that remain subject
to examination by the relevant taxing authorities. Based on the
outcome of these examinations or as a result of the expiration of the statutes
of limitations for specific taxing jurisdictions, the related uncertain tax
positions taken regarding previously filed tax returns could decrease from those
recorded as liabilities for uncertain tax positions in our financial statements
upon adoption at August 4, 2007 by approximately $2,500 within the next twelve
months.
As of the
date of adoption on August 4, 2007, we were subject to income tax examinations
for our U.S. federal income taxes after 2004 and for state and local income
taxes generally after 2003.
Recent Accounting
Pronouncements Not Yet Adopted
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The
provisions of SFAS No. 157 for financial assets and liabilities, as well as any
other assets and liabilities that are carried at fair value on a recurring basis
in the financial statements, are effective for fiscal years beginning after
November 15, 2007. The provisions for nonfinancial assets and
liabilities are effective for fiscal years beginning after November 15,
2008. We are currently evaluating the impact of adopting the separate
provisions of SFAS No. 157 and cannot yet determine the impact of its adoption
in the first quarters of 2009 and 2010.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure
eligible financial instruments and other items at fair value. The
provisions of SFAS No. 159 are effective for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact of adopting
SFAS No. 159 and cannot yet determine the impact of its adoption in the first
quarter of 2009.
The
Emerging Issues Task Force (“EITF”) reached a consensus on EITF 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”
(“EITF 06-11”) in June 2007. The EITF consensus indicates that
the tax benefit received on dividends associated with share-based awards that
are charged to retained earnings should be recorded in additional paid-in
capital and included in the pool of excess tax benefits available to absorb
potential future tax deficiencies on share-based payment awards. The consensus
is effective for the tax benefits of dividends declared in fiscal years
beginning after December 15, 2007. We are currently evaluating
the impact of adopting EITF 06-11 and cannot yet determine the impact of its
adoption in the first quarter of 2009.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No.
133”). SFAS No. 161 requires enhanced disclosures about how and why
an entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, results of operations, financial performance and
cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early
application encouraged. We do not expect that the adoption of SFAS
No. 161 in the third quarter of 2009 will have a significant impact on our
financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States (“GAAP”). SFAS No. 162 is effective
sixty days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” We do not
expect that the adoption of SFAS No. 162 will have a significant impact on our
financial statements.
Critical Accounting
Estimates
We
prepare our consolidated financial statements in conformity with GAAP. The
preparation of these financial statements requires us to make estimates and
assumptions about future events and apply judgments that affect the reported
amounts of assets, liabilities, revenue, expenses and related
disclosures. We base our estimates and judgments on historical
experience, outside advice from parties believed to be experts in such matters
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other
sources. However,
because future events and their effects cannot be determined with certainty,
actual results could differ from those assumptions and estimates and such
differences could be material.
Our
significant accounting policies are discussed in Note 2 to the Consolidated
Financial Statements contained in the 2007 Form 10-K. Judgments and
uncertainties affecting the application of those policies may result in
materially different amounts being reported under different conditions or using
different assumptions. Critical accounting estimates are those
that:
·
|
management
believes are most important to the portrayal of the Company's financial
condition and operating results,
and
|
·
|
require
management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.
|
We
consider the following accounting estimates to be most critical in understanding
the judgments that are involved in preparing our consolidated financial
statements.
·
|
Impairment
of Long-Lived Assets and Provision for Asset
Dispositions
|
·
|
Unredeemed
Gift Cards and Certificates
|
·
|
Share-Based
Compensation
|
Impairment
of Long-Lived Assets and Provision for Asset Dispositions
In
accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets,” we assess the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Recoverability of assets is measured by comparing the
carrying value to the undiscounted future cash flows expected to be generated by
the asset. In addition to the recoverability test, we consider the
likelihood of possible outcomes existing at the balance sheet date, including
the assessment of the likelihood of the future sale of the asset. If
the asset will be classified as held and used, then the asset is written down to
its estimated fair value. If the asset will be classified as held for
sale, then the asset is written down to its estimated fair value, net of
estimated costs of disposal. Judgments and estimates that we make
related to the expected useful lives of long-lived assets are affected by
factors such as changes in economic conditions and changes in operating
performance. As we assess the ongoing expected cash flows and carrying amounts
of our long-lived assets, changes in these factors could cause us to realize a
material impairment charge.
From time
to time we have decided to exit from or dispose of certain operating
units. Typically, such decisions are made based on operating
performance or strategic considerations and must be made before the actual costs
or proceeds of disposition are known and management must make estimates of these
outcomes. Such outcomes could include the sale of a property or
leasehold, mitigating costs through a tenant or subtenant or negotiating a
buyout of a remaining lease term. In these instances management
evaluates possible outcomes, frequently using outside real estate and legal
advice and records in the financial statements provisions for the effect of such
outcomes. The accuracy of such provisions can vary materially from
original estimates and we regularly monitor the adequacy of the provisions until
final disposition occurs. We have not made any material changes in
our methodology for assessing impairments during the first nine months of 2008
and we do not believe that there is a reasonable likelihood that there will be a
material change in the estimates or assumptions used by us to assess impairment
on long-lived assets.
As
discussed above, during the nine months ended May 2, 2008, we closed two Cracker
Barrel stores, which resulted in impairment charges of $532 and store closing
charges of $345. We recorded no impairment losses or store closing
charges for the nine-month period ended April 27, 2007.
Insurance
Reserves
We
self-insure a significant portion of our expected workers’ compensation, general
liability and health insurance claims. We have purchased insurance for
individual claims that exceed $500 and $1,000 for certain coverages since
2004. Since 2004, we have elected not to purchase such insurance for
our primary group health program, but our offered benefits are limited to not
more than $1,000 lifetime for any employee (including dependents) in the
program. We record a liability for workers’ compensation and general
liability for all unresolved claims and for an estimate of incurred but not
reported claims at the anticipated cost to us based upon an actuarially
determined reserve as of the end of our third quarter and adjusting it by the
actuarially determined losses and actual claims payments for the subsequent
quarters until the next annual, actuarial study of our reserve
requirements. Those reserves and these losses are determined
actuarially from a range of possible outcomes within which no given estimate is
more likely than any other estimate. In accordance with SFAS No. 5,
“Accounting for Contingencies,” we record the actuarially determined losses at
the low end of that range and discount them to present value using a risk-free
interest rate based on the actuarially projected timing of
payments. We also monitor actual claims development, including
incurrence or settlement of individual large claims during the interim period
between actuarial studies as another means of estimating the adequacy of its
reserves. From time to time, we perform limited scope interim updates
of our actuarial studies to verify and/or modify our reserves. We record a
liability for our group health program for all unpaid claims based upon a loss
development analysis derived from actual group health claims payment experience
provided by our third-party administrator.
We have
not made any material changes in the accounting methodology used to establish
our insurance reserves during the first nine months of 2008 and do not believe
there is a reasonable likelihood that there will be a material change in the
estimates or assumptions used to calculate the insurance
reserves. Our accounting policies regarding insurance reserves
include certain actuarial assumptions and management judgments regarding
economic conditions, the frequency and severity of claims and claim development
history and settlement practices. Unanticipated changes in these factors could
produce materially different amounts of expense and liabilities that would be
reported in the future under these insurance programs.
Inventory
Shrinkage
Cost of
goods sold includes the cost of retail merchandise sold at the Cracker Barrel
stores utilizing the retail inventory accounting method. It includes
an estimate of shortages that are adjusted upon physical inventory counts in
subsequent periods. Consistent with prior year, physical inventory
counts are conducted throughout the third and fourth quarters of the fiscal year
based upon a cyclical inventory schedule. During the nine months
ended May 2, 2008 and April 27, 2007, Cracker Barrel performed physical
inventory counts in approximately 39% and 47%, respectively, of its
stores. Actual shrinkage was recorded for those stores that were
counted. An estimate of shrinkage was recorded for the time period
between physical inventory counts by using a three-year average of the results
of the physical inventories on a store-by-store basis. Actual
shrinkage recorded may produce materially different amounts of shrinkage than we
have estimated for the quarters ended on November 2, 2007, February 1, 2008 and
May 2, 2008.
We have
not made any material changes in the accounting methodology used to establish
our inventory shrink reserve during the first nine months of 2008 and do not
believe there is a reasonable likelihood that there will be a material change in
the estimates and assumptions used to calculate the inventory shrink
reserve.
Tax
Provision
We must
make estimates of certain items that comprise our income tax
provision. These estimates include effective state and local income
tax rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. Also, effective August 4,
2007, we adopted FIN 48. FIN 48 prescribes a recognition threshold
and measurement
attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. FIN 48 requires that a
position taken or expected to be taken in a tax return be recognized (or
derecognized) in the financial statements when it is more likely than not (i.e.,
a likelihood of more than fifty percent) that the position would be sustained
upon examination by tax authorities. A recognized tax position is
then measured at the largest amount of benefit that is greater than fifty
percent likely of being realized upon ultimate settlement. FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
Our
estimates are made based on current tax laws, the best available information at
the time of the provision and historical experience. We file our
income tax returns many months after our year-end. These returns are
subject to audit by various federal and state governments years after the
returns are filed and could be subject to differing interpretations of the tax
laws. We then must assess the likelihood of successful legal proceedings or
reach a settlement with the relevant taxing authority, either of which could
result in material adjustments to our consolidated financial statements and our
consolidated financial position (see Note 13 to the Consolidated Financial
Statements contained in the 2007 Form 10-K).
Unredeemed
Gift Cards and Certificates
Unredeemed
gift cards and certificates represent a liability related to unearned income and
are recorded at their expected redemption value. No revenue is
recognized in connection with the point-of-sale transaction when gift cards or
gift certificates are sold. For those states that exempt gift cards
and certificates from their escheat laws, we make estimates of the ultimate
unredeemed (“breakage”) gift cards and certificates in the period of the
original sale and amortize this breakage over the redemption period that other
gift cards and certificates historically have been redeemed by reducing the
liability and recording revenue accordingly. For those states that do
not exempt gift cards and certificates from their escheat laws, we record
breakage in the period that gift cards and certificates are remitted to the
state and reduce our liability accordingly. Any amounts remitted to
states under escheat laws reduce our deferred revenue liability and have no
effect on revenue or expense while any amounts that we are permitted to retain
by state escheat laws for administrative costs are recorded as revenue. Changes
in redemption behavior or management's judgments regarding redemption trends in
the future may produce materially different amounts of deferred revenue to be
reported. If gift cards and certificates that have been removed from
the liability are later redeemed, we recognize revenue and reduce the liability
as we would with any redemption. Additionally, the initial reduction
to the liability would be reversed to offset the redemption.
We have
not made any material changes in the methodology used to record the deferred
revenue liability for unredeemed gift cards and certificates during the first
nine months of 2008 and do not believe there is a reasonable likelihood that
there will be material changes in the future estimates or assumptions used to
record this liability. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed to losses or gains that
could be material.
Share-Based
Compensation
In
accordance with SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No.
123R”), share-based compensation cost is measured at the grant date based on the
fair value of the award and is recognized as expense over the requisite service
period. Our policy is to recognize compensation cost for awards with
only service conditions and a graded vesting schedule on a straight-line basis
over the requisite service period for the entire award. Additionally,
our policy is to issue new shares of common stock to satisfy stock option
exercises or grants of nonvested shares.
The fair
value of each option award granted subsequent to the adoption of SFAS No. 123R
on July 29, 2005 has been estimated on the date of grant using a binomial
lattice-based option valuation model. This model incorporates the following
ranges of assumptions:
·
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The
expected volatility is a blend of implied volatility based on
market-traded options on our stock and historical volatility of our stock
over the contractual life of the
options.
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·
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We
use historical data to estimate option exercise and employee termination
behavior within the valuation model; separate groups of employees that
have similar historical exercise behavior are considered separately for
valuation purposes. The expected life of options granted is derived from
the output of the option valuation model and represents the period of time
the options are expected to be
outstanding.
|
·
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The
risk-free interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for periods within the contractual life of the
option.
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·
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The
expected dividend yield is based on our current dividend yield as the best
estimate of projected dividend yield for periods within the contractual
life of the option.
|
The
expected volatility, option exercise and termination assumptions involve
management’s best estimates at that time, all of which impact the fair value of
the option calculated by the binomial lattice-based option valuation model and,
ultimately, the expense that will be recognized over the life of the
option. We update the historical and implied components of the expected
volatility assumption quarterly. We update option exercise and termination
assumptions quarterly. The expected life is a by-product of the
lattice model and is updated when new grants are made.
SFAS No.
123R also requires that compensation expense be recognized for only the portion
of options that are expected to vest. Therefore, an estimated
forfeiture rate derived from historical employee termination behavior, grouped
by job classification, is applied against share-based compensation
expense. The forfeiture rate is applied on a straight-line basis over
the service (vesting) period for each separately vesting portion of the award as
if the award was, in-substance, multiple awards. We update the
estimated forfeiture rate to actual on each of the vesting dates and adjust
compensation expense accordingly, so that the amount of compensation cost
recognized at any date is at least equal to the portion of the grant-date value
of the award that is vested at that date.
We do not
believe there is a reasonable likelihood that there will be a material change in
the future estimates or assumptions used to determine share-based compensation
expense. However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to changes in share-based
compensation expense that could be material.
Legal
Proceedings
We are
parties to various legal and regulatory proceedings and claims incidental to our
business. In the opinion of management, however, based upon
information currently available, the ultimate liability with respect to these
actions will not materially affect our consolidated results of operations or
financial position. We review outstanding claims and proceedings
internally and with external counsel as necessary to assess probability of loss
and for the ability to estimate loss. These assessments are re-evaluated
each quarter or as new information becomes available to determine whether a
reserve should be established or if any existing reserve should be
adjusted. The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded
reserve. In addition, because it is not permissible under GAAP to
establish a litigation reserve until the loss is both probable and estimable, in
some cases there may be insufficient time to establish a reserve prior to the
actual incurrence of the loss (upon verdict and judgment at trial, for example,
or in the case of a quickly negotiated settlement).
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Part II,
Item 7A of the 2007 Form 10-K is incorporated in this item of this Quarterly
Report on Form 10-Q by this reference. There have been no material
changes in our quantitative and qualitative market risks since August 3,
2007.
Item
4. Controls and Procedures
Our
management, with the participation of our principal executive and financial
officers, including the Chief Executive Officer and the Interim Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934 (the “Exchange Act”)). Based upon this
evaluation, the Chief Executive Officer and the Interim Chief Financial Officer
concluded that as of May 2, 2008, our disclosure controls and procedures were
effective for the purposes set forth in the definition thereof in Exchange Act
Rule 13a-15(e).
There
have been no changes (including corrective actions with regard to significant
deficiencies and material weaknesses) during the quarter ended May 2, 2008 in
our internal controls over financial reporting (as defined in Exchange Act Rule
13a-15(f)) that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART
II – OTHER INFORMATION
Item
1A. |
Risk
Factors |
|
|
|
There
have been no material changes in the risk factors previously disclosed in
“Item 1A. Risk Factors” of our 2007 Form 10-K for the year ended August 3,
2007. |
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Item 6. |
Exhibits |
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|
|
See
Exhibit Index immediately following the signature page
hereto.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
CBRL GROUP,
INC. |
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Date: 6/11/08
|
By:
|
/s/ N.B.
Forrest Shoaf |
|
|
|
N.B.
Forrest Shoaf, Senior Vice President, Secretary and General |
|
|
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Counsel
and Interim Chief Financial Officer
|
|
|
|
|
|
|
|
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Date:
6/11/08
|
By:
|
/s/ Patrick
A. Scruggs |
|
|
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Patrick
A. Scruggs, Vice President, Accounting and Tax |
|
|
|
and
Chief Accounting Officer
|
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EXHIBIT
INDEX |
|
|
|
|
|
Exhibit
No. |
Description |
|
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|
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10 |
Change in Control
Agreement with Douglas E. Barber (not filed because substantially
identical to
Exhibit 10(s) to the Company’s Annual Report on Form 10-K for the fiscal
year ended August
1, 2003 filed with the Commission on October 15,
2003)
|
|
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31 |
Rule
13a-14(a)/15d-14(a) Certifications |
|
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|
|
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32 |
Section
1350 Certifications |
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|
|
|
|
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33