UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended January 28, 2005
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)
615-443-9869
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
47,517,345 Shares of Common Stock
Outstanding as of February 25, 2005
CBRL GROUP, INC.
FORM 10-Q
For the Quarter Ended January 28, 2005
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1
Financial Statements
a) Condensed Consolidated Balance Sheet as of January 28, 2005
and July 30, 2004 (Unaudited and As Restated) 3
b) Condensed Consolidated Statement of Income for the Quarters
and Six Months Ended January 28, 2005 and January 30, 2004
(Unaudited and As Restated) 5
c) Condensed Consolidated Statement of Cash Flows for the Six
Months Ended January 28, 2005 and January 30, 2004
(Unaudited and As Restated) 6
d) Notes to Condensed Consolidated Financial Statements
(Unaudited and As Restated) 7
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations 15
Item 3
Quantitative and Qualitative Disclosures About Market Risk 27
Item 4
Controls and Procedures 27
PART II. OTHER INFORMATION
Item 1
Legal Proceedings 28
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 4
Submission of Matters to a Vote of Security Holders 29
Item 6
Exhibits 29
SIGNATURES 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
January 28, July 30,
2005 2004
---- ----
(As Restated,
see Note 3)
ASSETS
Current assets:
Cash and cash equivalents $ 20,405 $ 28,775
Receivables 12,698 9,802
Inventories 125,457 141,820
Prepaid expenses 11,639 8,369
Deferred income taxes 14,274 14,274
---------- ----------
Total current assets 184,473 203,040
Property and equipment 1,574,496 1,502,314
Less: Accumulated depreciation and amortization
of capital leases 414,254 383,741
---------- ----------
Property and equipment - net 1,160,242 1,118,573
---------- ----------
Goodwill 93,724 93,724
Other assets 25,591 20,367
---------- ----------
Total assets $1,464,030 $1,435,704
========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
January 28, July 30,
2005 2004
---- ----
(As Restated,
see Note 3)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 78,072 $ 53,295
Income taxes payable 25,975 18,571
Accrued employee compensation 36,177 49,466
Deferred gift card revenues 31,457 19,347
Other accrued expenses 95,700 101,367
Current maturities of long-term debt and other
long-term obligations 200 189
---------- ----------
Total current liabilities 267,581 242,235
---------- ----------
Long-term debt 187,901 185,138
---------- ----------
Other long-term obligations 143,195 134,995
---------- ----------
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; at January 28, 2005,
47,878,834 shares issued and outstanding and
at July 30, 2004, 48,769,368 shares issued
and outstanding 479 488
Additional paid-in capital -- 13,982
Retained earnings 864,874 858,866
---------- ----------
Total shareholders' equity 865,353 873,336
---------- ----------
Total liabilities and shareholders' equity $1,464,030 $1,435,704
========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
(Unaudited)
Quarter Ended Six Months Ended
------------------------- ------ ---------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Total revenue $667,189 $612,801 $1,279,842 $1,189,166
Cost of goods sold 236,389 213,527 436,231 399,427
-------- -------- ---------- ----------
Gross profit 430,800 399,274 843,611 789,739
Labor and other related expenses 232,749 219,007 458,938 433,310
Other store operating expenses 113,580 102,857 218,127 200,063
-------- -------- ---------- ----------
Store operating income 84,471 77,410 166,546 156,366
General and administrative 32,834 30,519 66,766 63,939
-------- -------- ---------- ----------
Operating income 51,637 46,891 99,780 92,427
Interest expense 2,200 2,068 4,295 4,291
Interest income 96 5 96 5
-------- -------- ---------- ----------
Income before income taxes 49,533 44,828 95,581 88,141
Provision for income taxes 16,955 16,180 33,073 31,642
-------- -------- ---------- ----------
Net income $ 32,578 $ 28,648 $ 62,508 $ 56,499
======== ======== ========== ==========
Net income per share (See Notes 2 & 3):
Basic $ 0.68 $ 0.58 $ 1.29 $ 1.16
======== ======== ========== ==========
Diluted $ 0.63 $ 0.53 $ 1.20 $ 1.06
======== ======== ========== ==========
Weighted average shares (See Notes 2 & 3):
Basic 48,138,378 49,528,995 48,425,269 48,825,432
========== ========== ========== ==========
Diluted 53,816,998 55,707,178 54,086,885 55,162,768
========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
Six Months Ended
-------------------------------
January 28, January 30,
2005 2004
---- ----
(As Restated,
see Note 3)
Cash flows from operating activities:
Net income $ 62,508 $ 56,499
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33,627 30,929
Loss on disposition of property and equipment 1,227 972
Accretion on zero-coupon contingently convertible
senior notes 2,763 2,676
Changes in assets and liabilities:
Inventories 16,363 11,646
Accounts payable 24,777 (46,579)
Income taxes payable 7,404 19,200
Accrued employee compensation (13,289) (7,505)
Deferred gift card revenues 12,110 11,516
Other current assets and other current liabilities (12,353) (1,845)
Other assets and other long-term liabilities 2,270 (917)
-------- --------
Net cash provided by operating activities 137,407 76,592
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (76,587) (63,899)
Proceeds from sale of property and equipment 875 682
-------- --------
Net cash used in investing activities (75,712) (63,217)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 226,700 130,000
Principal payments under long-term debt and other
long-term obligations (226,794) (137,049)
Proceeds from exercise of stock options 28,456 43,768
Purchases and retirement of common stock (87,094) (18,299)
Dividends on common stock (11,333) (5,373)
Other -- (1)
-------- --------
Net cash (used in) provided by financing activities (70,065) 13,046
-------- --------
Net (decrease) increase in cash and cash equivalents (8,370) 26,421
Cash and cash equivalents, beginning of period 28,775 14,389
-------- --------
Cash and cash equivalents, end of period $ 20,405 $ 40,810
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest, net of amounts capitalized $ 324 $ 342
======== ========
Income taxes $ 26,742 $ 12,600
======== ========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except percentages and share data)
(Unaudited)
1. Condensed Consolidated Financial Statements
-------------------------------------------
The condensed consolidated balance sheets as of January 28, 2005 and July
30, 2004 and the related condensed consolidated statements of income and cash
flows for the quarters and six-month periods ended January 28, 2005 and January
30, 2004, 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. In the opinion of management, all
adjustments (consisting of normal and recurring items) for a fair presentation
of such condensed consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended July
30, 2004 (the "2004 Form 10-K"). Because of certain financial statement
restatements (see Note 3), the Company will be filing an amended 2004 Form 10-K
after filing this Form 10-Q.
References in these Notes to the Condensed Consolidated Financial
Statements to a year are to the Company's fiscal year unless otherwise noted.
2. Recently Adopted Accounting Pronouncements
------------------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force ("EITF") No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8"). EITF 04-8
requires the use of "if-converted" accounting for contingently convertible debt
regardless of whether the contingencies allowing debt holders to convert have
been met. EITF 04-8 is effective for reporting periods ending after December 15,
2004 and requires retroactive restatement of prior period diluted net income per
share. The adoption of EITF 04-8 resulted in the Company's zero-coupon
contingently convertible senior notes (the "Senior Notes") (see Note 4 to the
Company's Consolidated Financial Statements included in the 2004 Form 10-K for a
description of these Senior Notes) representing a dilutive security and required
approximately 4.6 million shares to be included in diluted weighted average
shares outstanding for the calculation of diluted net income per share.
Additionally, diluted consolidated net income per share, is calculated excluding
the after-tax interest and financing expenses associated with the Senior Notes
since these Senior Notes are treated as if converted into common stock although
at the end of the second quarter, the Senior Notes were not actually able to be
converted into common stock. The change in accounting affects only the
calculation of diluted net income per share, and has no effect on the financial
statements themselves or on the terms of the Senior Notes. See Note 3 for the
impact of the Senior Notes on diluted net income per share for the three and six
month periods ended January 30, 2004.
3. Restatement of Financial Statements
-----------------------------------
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes it made in the way it accounted for
leases. The decision to restate was made following a review of its accounting
policies that was prompted by views expressed on February 7, 2005 by the staff
of the SEC (and similar restatements by numerous other companies in the
restaurant, retail and other industries) that indicated that the manner in which
the Company had been accounting for leases needed to be corrected.
Prior to this review, the Company had believed that its accounting was
consistent with GAAP. For purposes of recognizing rental expense, the Company
had historically averaged its lease payments over the base term of the lease,
excluding the optional renewal periods and initial build-out periods, during
which it typically has not been required to make lease payments. For purposes of
depreciating leasehold improvements, the Company had historically amortized the
amounts over a longer period, including both the base term of the lease and the
optional renewal periods.
The Company has now determined that the period in which rental expense is
recognized on a straight-line, or average, basis should include any pre-opening
periods during construction for which the Company is legally obligated under the
terms of the lease, and any optional renewal periods, for which at the inception
of the lease, it is reasonably assured that the Company will exercise those
renewal options. This lease period will be consistent with the period over which
leasehold improvements are amortized.
As a result, the Company has restated its historical condensed consolidated
financial statements for the three and six months ended January 30, 2004 and the
year ended July 30, 2004. These effects are summarized below, as well as the
effects on diluted net income per share for each of these periods from the
adoption of EITF 04-8, as discussed in Note 2.
CBRL GROUP, INC.
SELECTED INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Income Basic Diluted
before Basic net Diluted weighted weighted
Total Operating income income per net income average average
Revenue income * taxes* Net income* share * per share** shares shares***
------- -------- ------ ----------- ------- ----------- ------ ---------
Three months ended January
30, 2004
As Previously Reported $612,801 $47,444 $45,381 $29,001 $0.59 $0.57 49,528,995 51,124,390
Lease Adjustment -- (553) (553) (353) (0.01) (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.03) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $612,801 $46,891 $44,828 $28,648 $0.58 $0.53 49,528,995 55,707,178
======== ======= ======= ======= ===== ===== ========== ==========
Six months ended
January 30, 2004
As Previously Reported $1,189,166 $93,461 $89,175 $57,161 $1.17 $1.13 48,825,432 50,579,980
Lease Adjustment -- (1,034) (1,034) (662) (0.01) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.05) -- 4,582,788
---------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $1,189,166 $92,427 $88,141 $56,499 $1.16 $1.06 48,825,432 55,162,768
========== ======= ======= ======= ===== ===== ========== ==========
*Reflects restatement effects for operating leases.
**Reflects restatement effects for operating leases and for the adoption of
EITF 04-8.
***Reflects restatement effects for the adoption of EITF 04-8.
CBRL GROUP, INC.
SELECTED BALANCE SHEET DATA
(Unaudited and in thousands)
Period Ended
------------------------------------------
July 30, July 30,
2004 2004
---- ----
(As Previously
Reported) Adjustment* (As Restated)
ASSETS
Total current assets $ 203,040 $ -- $ 203,040
Net property and equipment 1,118,573 -- 1,118,573
Total other assets 113,249 842 114,091
---------- ------- ----------
Total assets $1,434,862 $ 842 $1,435,704
========== ======= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities $ 246,782 $(4,547) $ 242,235
Long-term debt 185,138 -- 185,138
Other long-term obligations 122,695 12,300 134,995
Total shareholders' equity 880,247 (6,911) 873,336
---------- ------- ----------
Total liabilities and
shareholders' equity $1,434,862 $ 842 $1,435,704
========== ======= ==========
*Reflects restatement effects for operating leases
4. Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies of the Company are included in the 2004
Form 10-K. During the quarter ended January 28, 2005, there were no significant
changes to those accounting policies except those discussed in Notes 2 and 3.
Property, Plant and Equipment - Property and equipment are stated at cost.
For financial reporting purposes, depreciation and amortization on these assets
are computed by use of the straight-line and double-declining-balance methods
over the estimated useful lives of the respective assets, as follows: buildings
and improvements, 30-45 years; buildings under capital leases, 15-25 years;
restaurant and other equipment, 3-10 years. Leasehold improvements are
depreciated over 1-35 years, which represents the shorter of the useful lives or
the related lease life. Accelerated depreciation methods generally are used for
income tax purposes. Maintenance and repairs, including the replacement of minor
items, are charged to expense, and major additions to property and equipment are
capitalized. Gain or loss is recognized upon disposal of property and equipment,
at which time the asset and related accumulated depreciation and amortization
amounts are removed from the accounts.
Operating leases - The Company has ground leases and office space leases
that are recorded as operating leases. Most of the leases have rent escalation
clauses and some have rent holiday and contingent rent provisions. In accordance
with FASB Technical Bulletin ("FTB") No. 85-3, "Accounting for Operating Leases
with Scheduled Rent Increases," the liabilities under these leases are
recognized on the straight-line basis over the shorter of the useful life, with
a maximum of 35 years, or the related lease life. The Company now uses a lease
life that generally begins on the date that the Company becomes legally
obligated under the lease, including the pre-opening period during construction,
when in many cases the Company is not making rent payments, and generally
extends through certain of the renewal periods that can be exercised at the
Company's option, for which at the inception of the lease, it is reasonably
asured that the Company will exercise those renewal options. Prior to the second
quarter of 2005, the Company had used a lease life that did not include the
optional renewal periods. In either case, the Company generally records rent
expense over the lease life at a straight-line rent amount (see Note 3).
Certain leases provide for rent holidays, which are included in the lease
life used for the straight-line rent calculation in accordance with FTB No.
88-1, "Issues Relating to Accounting for Leases." Rent expense and an accrued
rent liability are recorded during the rent holiday periods, during which the
Company has possession of and access to the property, but is not required or
obligated to, and normally does not, make rent payments.
Certain leases provide for contingent rent, which is determined as a
percentage of gross sales in excess of specified levels. The Company records a
contingent rent liability and corresponding rent expense when sales have been
achieved in amounts in excess of the specified levels.
Stock-Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based employee compensation
expense, net of related tax effects, in the table represents the amortization of
restricted stock grants to three executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's
consolidated net income and net income per share would have been reduced to the
pro-forma amounts illustrated as follows:
Quarter Ended Six Months Ended
------------------------- -------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Net income - as reported $32,578 $28,648 $62,508 $56,499
Add: Total stock-based employee
compensation included in reported
net income, net of related tax effects 19 19 38 37
Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards, net of
tax effects (2,026) (2,661) (4,524) (5,367)
------- ------- ------- -------
Pro forma, net income $30,571 $26,006 $58,022 $51,169
======= ======= ======= =======
Net income per share:
Basic - as reported $0.68 $0.58 $1.29 $1.16
===== ===== ===== =====
Basic - pro forma $0.64 $0.53 $1.20 $1.05
===== ===== ===== =====
Diluted - as reported $0.63 $0.53 $1.20 $1.06
===== ===== ===== =====
Diluted - pro forma $0.59 $0.49 $1.12 $0.97
===== ===== ===== =====
5. Recent Accounting Pronouncements Not Yet Adopted
------------------------------------------------
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R replaces SFAS No. 123 and supersedes
APB Opinion No. 25. SFAS No. 123R requires that the cost of employee services
received in exchange for equity instruments issued or liabilities incurred are
recognized in the financial statements. Compensation cost will be measured using
a fair-value-based method over the period that the employee provides service in
exchange for the award. This statement will apply to all awards granted after
the effective date and to modifications, repurchases or cancellations of
existing awards. SFAS No. 123R is effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. As disclosed
in Note 4, based on the current assumptions and calculations used, had the
Company recognized compensation expense based on the fair value of awards of
equity instruments, net income would have been reduced by approximately $2,007
and $4,486 for the quarter and six-month periods ended January 28, 2005,
respectively, and $2,642 and $5,330 for the quarter and six-month periods ended
January 30, 2004, respectively.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Company is still
evaluating the effects of the adoption of this standard on the Company's
consolidated results of operations or its financial position.
6. Income Taxes
------------
The provision for income taxes as a percent of pre-tax income was 34.2% in
the second quarter of 2005 and 34.6% in the first six months of 2005 as compared
to 36.1% and 35.9%, respectively, during the same periods a year ago and 35.9%
for the entire year of 2004. The decrease in the tax rate for 2005 is based upon
the estimated effect of the passage of the Work Opportunity and Welfare to Work
federal tax credit legislation signed on October 22, 2004 retroactive to January
1, 2004. The variation between the statutory tax rate and the effective tax rate
is due to state income taxes offset by employer tax credits for FICA taxes paid
on employee tip income and the tax credits above.
7. Seasonality
-----------
Historically the consolidated net income of the Company typically has been
lower in the first three quarters and highest in the fourth quarter, which
includes much of the summer vacation and travel season. Management attributes
these variations to the decrease in interstate tourist traffic and propensity to
dine out less during the regular school year and winter months and the increase
in interstate tourist traffic and propensity to dine out more during the summer
months. The Company's retail sales historically have been highest in the
Company's second quarter, which includes the Christmas holiday shopping season.
Therefore, the results of operations for the quarter or six-month period ended
January 28, 2005 cannot be considered indicative of the operating results for
the entire year.
8. Inventories
-----------
Inventories were comprised of the following at:
January 28, July 30,
2005 2004
---- ----
Retail $ 85,460 $104,148
Restaurant 21,180 19,800
Supplies 18,817 17,872
-------- --------
Total $125,457 $141,820
======== ========
9. Consolidated Net Income Per Share and Weighted Average Shares
--------------------------------------------------------------
Basic consolidated net income per share is computed by dividing
consolidated net income 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.
Additionally, diluted consolidated net income per share is calculated excluding
the after-tax interest and financing expenses associated with the Senior Notes
since these Senior Notes are treated as if converted into common stock (see Note
2). The Company's Senior Notes, outstanding employee and director stock options
and restricted stock issued by the Company represent the only dilutive effects
on diluted net income per share. The following table reconciles the components
of the diluted net income per share computations:
Quarter Ended Six Months Ended
--------------------------- --------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Net income per share numerator:
Net income $32,578 $28,648 $62,508 $56,499
Add: Interest and loan acquisition costs
associated with Senior Notes, net of
related tax effects 1,172 1,109 2,327 2,224
------- ------- ------- -------
Net income available to common shareholders $33,750 $29,757 $64,835 $58,723
======= ======= ======= =======
Net income per share denominator:
Weighted average shares outstanding for
basic net income per share 48,138,378 49,528,995 48,425,269 48,825,432
Add Potential Dilution:
Senior Notes 4,582,788 4,582,788 4,582,788 4,582,788
Stock options and restricted stock 1,095,832 1,595,395 1,078,828 1,754,548
---------- ---------- ---------- ----------
Weighted average shares outstanding for
diluted net income per share 53,816,998 55,707,178 54,086,885 55,162,768
========== ========== ========== ==========
10. Segment Reporting
-----------------
The Company manages its business on the basis of one reportable operating
segment. Cracker Barrel Old Country Store(R) ("Cracker Barrel") units represent
a single, integrated operation with two related and substantially integrated
product lines. The operating expenses of the restaurant and retail product lines
of a Cracker Barrel unit are shared and are indistinguishable in many respects.
The chief operating decision-makers review operating results for both restaurant
and retail operations on a combined basis. Likewise, Logan's Roadhouse(R)
("Logan's") units are restaurant operations and those operations have similar
investment criteria and economic and operating characteristics as the operations
of Cracker Barrel.
All of the Company's operations are located within the United States. The
following data are presented in accordance with SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," for all periods presented:
Quarter Ended Six Months Ended
------------------------- ------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
Net sales in Company-owned stores:
Restaurant $504,256 $457,019 $ 998,469 $ 913,539
Retail 162,341 155,313 280,252 274,752
-------- -------- ---------- ----------
Total net sales 666,597 612,332 1,278,721 1,188,291
Franchise fees and royalties 592 469 1,121 875
-------- -------- ---------- ----------
Total revenue $667,189 $612,801 $1,279,842 $1,189,166
======== ======== ========== ==========
11. Impairment 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. An impairment is determined by comparing undiscounted future
operating cash flows that are expected to result from an asset to the carrying
values of an asset on a store by store basis. If an impairment exists, the
amount of impairment is measured as the sum of the estimated discounted future
operating cash flows of the asset and the expected proceeds upon sale of the
asset less its carrying value. Assets held for sale, if any, are reported at the
lower of carrying amount or fair value less costs to sell. The Company recorded
no impairment losses in the quarters and six-months ended January 28, 2005 and
January 30, 2004. In addition, at least annually the Company assesses the
recoverability of goodwill. The impairment tests require the Company to estimate
fair values of its related reporting units by making assumptions regarding
future cash flows and other factors. This valuation may reflect, among other
things, such external factors as capital market valuation for public companies
comparable to the operating unit. If these assumptions change in the future, the
Company may be required to record material impairment charges for these assets.
The Company performed its annual assessment in the second quarter ended January
28, 2005, and concluded at that time that there was no indication of impairment.
This annual assessment is performed in the second quarter of each year.
Additionally, an assessment is performed between annual assessments if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount.
12. Commitments and Contingencies
-----------------------------
As reported in the Company's Annual Report on Form 10-K for the year ended
July 30, 2004, Cracker Barrel agreed, as of September 8, 2004, to settle certain
litigation alleging violations of the Fair Labor Standards Act as well as
allegations of discrimination in employment and public accommodations. The total
payment agreed to by Cracker Barrel was $8,720, in full satisfaction of all
claims (including attorneys' fees and costs) by the plaintiffs, of which $2,385
is still accrued and expected to be paid by the end of 2005.
Logan's is subject to a lawsuit captioned Joey E. Barlow v. Logan's
Roadhouse, Inc., in the United States District Court for the Middle District of
Tennessee (Case No. 3-03-0821), filed September 8, 2003. The case is a putative
collective action alleging violations of the federal wage and hour laws,
although it has not yet been certified as such. The complaint alleges that the
plaintiff and 66 opt-in hourly employees at one Logan's restaurant in Macon,
Georgia were subjected to various violations, including being required to work
"off the clock," having hours "shaved" (reduced in the computer), and in the
case of tipped employees, being required to perform excessive non-server duties
without being paid the minimum wage or overtime compensation for that work. The
case seeks recovery of unpaid compensation, plus an equal amount of liquidated
damages, prejudgment interest, attorney's fees and costs, and unspecified
injunctive relief. Substantial discovery has not yet been completed, and the
Company denies that Logan's engaged in any of the alleged unlawful employment
practices and intends to vigorously defend the case. Neither the likelihood of
an unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this case can be determined at this time. If, however, this
litigation were to be resolved unfavorably, it could result in a material
adverse effect upon the Company's results of operations.
In addition to the litigation described in the preceding paragraphs, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
The Company makes trade commitments in the course of its normal operations.
As of January 28, 2005 the Company was contingently liable for approximately
$396 under outstanding trade letters of credit issued in connection with
purchase commitments. These letters of credit have terms of 3 months or less and
are used to collateralize obligations to third parties for the purchase of a
portion of the Company's imported retail inventories. Additionally, the Company
was contingently liable pursuant to standby letters of credit as credit
guarantees to insurers. As of January 28, 2005 the Company had $30,186 of
standby letters of credit related to workers' compensation and general liability
insurance. All standby letters of credit are renewable annually.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party and a second operating
lease that has been sublet to a third party. The operating leases have remaining
lives of approximately 8.7 and 11.7 years, respectively, with annual lease
payments of approximately $350 and $100, respectively. Under the assigned lease
the Company's performance is only required if the assignee fails to perform his
obligations as lessee. At this time, the Company has no reason to believe that
the assignee will not perform and, therefore, no provision has been made in the
accompanying condensed consolidated financial statements for amounts to be paid
as a result of non-performance by the assignee. Under the sublease the Company's
performance is only required if the sublessee fails to perform his obligations
as lessee. The Company has a remaining liability of $527 in the accompanying
condensed consolidated financial statements for estimated amounts to be paid in
case of non-performance by the sublessee.
13. Shareholders' Equity
--------------------
During the six-month period ended January 28, 2005, the Company received
proceeds of $28,456 from the exercise of stock options on 1,384,205 shares of
its common stock. During the six-month period ended January 28, 2005 the Company
repurchased 2,287,500 shares of its common stock for an aggregate expenditure of
$87,094. Since the Company's share repurchases exceeded the additional paid-in
capital balance at the previous year end of $13,982 and the exercises of stock
options during the six-month period ended January 28, 2005, the Company reduced
retained earnings by $44,647, and reduced additional paid-in capital to zero at
the end of the second quarter. These retired shares will remain as authorized,
but unissued, shares. During the six-month period ended January 28, 2005, the
Company paid a dividend of $0.11 per common share on September 1, 2004 (declared
on July 29, 2004) and the Company paid a dividend of $0.12 per common share on
November 1, 2004 (declared on September 23, 2004). Additionally, the Company
declared a dividend of $0.12 per common share on November 23, 2004 that was paid
on February 8, 2005 to shareholders of record on January 14, 2005. Finally, the
Company declared a dividend of $0.12 per common share on February 24, 2005 to be
paid on May 9, 2005 to shareholders of record on April 15, 2005.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CBRL Group, Inc. and its subsidiaries (collectively, the "Company") are
principally engaged in the operation and development in the United States of the
Cracker Barrel Old Country Store(R) ("Cracker Barrel") restaurant and retail
concept and the Logan's Roadhouse(R) ("Logan's") restaurant concept. All dollar
amounts reported or discussed in Part I, Item 2 of this Quarterly Report on Form
10-Q are shown in thousands, except per share amounts. References in
management's discussion and analysis of financial condition and results of
operations to a year are to the Company's fiscal year unless otherwise noted.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition.
This discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto. In addition, as discussed
in Note 3 to the condensed consolidated financial statements, on February 17,
2005, the Company announced that it was changing the way in which it accounted
for certain operating leases. The reasons for the restatement are described in
Note 3. When the Company made this announcement, it disclosed that, as a result,
certain previously filed financial statements could no longer be relied upon.
See the Company's Current Report on Form 8-K filed with the SEC on February 17,
2005, which is incorporated herein by this reference. The accompanying
management's discussion and analysis of financial condition and results of
operations gives effect to the restatement of the consolidated financial
statements for the periods and as described in Note 3.
The impacts of the restatement on the consolidated statements of income for
the 2004, 2003, 2002, 2001, and 2000 fiscal years, all quarters of 2004 and
first quarter of 2005 as well as the balance sheets, are summarized below, as
well as the impact to diluted net income per share for each of these periods
from the adoption of EITF 04-8, as discussed in Note 2:
CBRL GROUP, INC.
SELECTED ANNUAL INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Income Basic Diluted
before Basic net Diluted net weighted weighted
Total Operating income income per income per average average
Revenue income * taxes * Net income* share * share** shares shares***
------- -------- ------- ----------- ------- ------- ------ ---------
July 30, 2004
As Previously Reported $2,380,947 $185,136 $176,697 $113,262 $2.32 $2.25 48,877,306 50,369,845
Lease Adjustment -- (2,149) (2,149) (1,377) (0.03) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.11) -- 4,582,788
---------- -------- -------- -------- ----- ----- ---------- ----------
As Restated $2,380,947 $182,987 $174,548 $111,885 $2.29 $2.12 48,877,306 54,952,633
========== ======== ======== ======== ===== ===== ========== ==========
August 1, 2003
As Previously Reported $2,198,182 $174,081 $165,262 $106,529 $2.16 $2.09 49,274,373 50,998,339
Lease Adjustment -- (2,203) (2,203) (1,421) (0.03) (0.03) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.09) -- 4,582,788
---------- -------- -------- -------- ----- ----- ---------- ----------
As Restated $2,198,182 $171,878 $163,059 $105,108 $2.13 $1.97 49,274,373 55,581,127
========== ======== ======== ======== ===== ===== ========== ==========
August 2, 2002
As Previously Reported $2,071,784 $149,300 $142,531 $ 91,789 $1.69 $1.64 54,198,845 56,090,940
Lease Adjustment -- (2,090) (2,090) (1,345) (0.02) (0.03) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.02) -- 1,535,989
---------- -------- -------- -------- ----- ----- ---------- ----------
As Restated $2,071,784 $147,210 $140,441 $ 90,444 $1.67 $1.59 54,198,845 57,626,929
========== ======== ======== ======== ===== ===== ========== ==========
August 3, 2001
As Previously Reported $1,967,998 $ 96,696 $ 84,464 $ 49,181 $0.88 $0.87 56,128,956 56,799,124
Lease Adjustment -- (1,062) (1,062) (631) (0.02) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- -- -- --
---------- -------- -------- -------- ----- ----- ---------- ----------
As Restated $1,967,998 $ 95,634 $ 83,402 $ 48,550 $0.86 $0.85 56,128,956 56,799,124
========== ======== ======== ======== ===== ===== ========== ==========
July 28, 2000
As Previously Reported $1,777,119 $118,969 $ 94,705 $ 58,998 $1.02 $1.02 57,959,646 58,041,290
Lease Adjustment -- (1,145) (1,145) (725) (0.01) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- -- -- --
---------- -------- -------- -------- ----- ----- ----------- ----------
As Restated $1,777,119 $117,824 $ 93,560 $ 58,273 $1.01 $1.00 57,959,646 58,041,290
========== ======== ======== ======== ===== ===== ========== ==========
*Reflects restatement effects for operating leases, see Note 3.
**Reflects restatement effects for operating leases and for the adoption of
EITF 04-8, see Notes 2 and 3.
***Reflects restatement effects for the adoption of EITF 04-8, see Note 2.
CBRL GROUP, INC.
SELECTED QUARTERLY INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Income Basic Diluted
before Basic net Diluted net weighted weighted
Total Operating income income per income per average average
Revenue income * taxes * Net income* share * share** shares shares***
------- -------- ------- ----------- ------- ------- ------ ---------
October 29, 2004
As Previously Reported $612,653 $48,672 $46,577 $30,275 $0.62 $0.61 48,712,161 49,773,983
Lease Adjustment -- (529) (529) (345) (0.01) (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.03) -- 4,582,788
-------- ------- ------- ------- ----- ----- --------- ----------
As Restated $612,653 $48,143 $46,048 $29,930 $0.61 $0.57 48,712,161 54,356,771
======== ======= ======= ======= ===== ===== ========== ==========
July 30, 2004
As Previously Reported $607,499 $48,823 $46,677 $29,919 $0.61 $0.60 48,730,740 49,800,652
Lease Adjustment -- (543) (543) (348) -- (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.03) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $607,499 $48,280 $46,134 $29,571 $0.61 $0.56 48,730,740 54,383,440
======== ======= ======= ======= ===== ===== ========== ==========
April 30, 2004
As Previously Reported $584,282 $42,852 $40,845 $26,182 $0.53 $0.52 49,127,619 50,518,767
Lease Adjustment -- (572) (572) (367) -- (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.02) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $584,282 $42,280 $40,273 $25,815 $0.53 $0.49 49,127,619 55,101,555
======== ======= ======= ======= ===== ===== ========== ==========
January 30, 2004
As Previously Reported $612,801 $47,444 $45,381 $29,001 $0.59 $0.57 49,528,995 51,124,390
Lease Adjustment -- (553) (553) (353) (0.01) (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.03) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $612,801 $46,891 $44,828 $28,648 $0.58 $0.53 49,528,995 55,707,178
======== ======= ======= ======= ===== ===== ========== ==========
October 31, 2003
As Previously Reported $576,365 $46,017 $43,794 $28,160 $0.59 $0.56 48,121,869 50,035,570
Lease Adjustment -- (481) (481) (309) (0.01) (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.02) -- 4,582,788
-------- --------- ------- ------- ----- ----- ---------- ----------
As Restated $576,365 $45,536 $43,313 $27,851 $0.58 $0.53 48,121,869 54,618,358
======== ======= ======= ======= ===== ===== ========== ==========
*Reflects restatement effects for operating leases, see Note 3.
**Reflects restatement effects for operating leases and for the adoption of
EITF 04-8, see Notes 2 and 3.
***Reflects restatement effects for the adoption of EITF 04-8, see Note 2.
CBRL GROUP, INC.
SELECTED BALANCE SHEET DATA
(Unaudited and in thousands)
Quarter Ended Year Ended
------------------------------------------ ---------------------------------------------
October 29, October 29, July 30, July 30,
2004 2004 2004 2004
---- ---- ---- ----
(As Previously (As Previously
Reported) Adjustment* (As Restated) Reported) Adjustment* (As Restated)
ASSETS
Total current assets $ 225,129 $ -- $ 225,129 $ 203,040 $ -- $ 203,040
Net property and equipment 1,139,503 -- 1,139,503 1,118,573 -- 1,118,573
Total other assets 117,496 842 118,338 113,249 842 114,091
---------- ------- ---------- ---------- ------- ----------
Total assets $1,482,128 $ 842 $1,482,970 $1,434,862 $ 842 $1,435,704
========== ======= ========== ========== ======= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Total current liabilities $ 270,355 $(4,731) $ 265,624 $ 246,782 $(4,547) $ 242,235
Long-term debt 206,520 -- 206,520 185,138 -- 185,138
Other long-term obligations 127,711 12,829 140,540 122,695 12,300 134,995
Total shareholders' equity 877,542 (7,256) 870,286 880,247 (6,911) 873,336
---------- ------- ---------- ---------- ------- ----------
Total liabilities and
shareholders' equity $1,482,128 $ 842 $1,482,970 $1,434,862 $ 842 $1,435,704
========== ======= ========== ========== ======= ==========
*Reflects restatement effects for operating leases, see Note 3.
Except for specific historical information, many of the matters discussed
in this Quarterly Report on Form 10-Q may express or imply projections of
revenues or expenditures, statements of plans and objectives or future
operations or statements of future economic performance. These, and similar
statements are forward-looking statements concerning matters that involve risks,
uncertainties and other factors which may cause the actual performance of the
Company to differ materially from those expressed or implied by this discussion.
All forward-looking information is provided by the Company pursuant to the
safe harbor established under the Private Securities Litigation Reform Act of
1995 and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "outlook", "plans", "projection",
"may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of each of these
terms) or similar terminology. Factors which could materially affect actual
results include, but are not limited to: the effects of uncertain consumer
confidence or general or regional economic weakness on sales and customer travel
activity; the ability of the Company to identify, acquire and sell successful
new lines of retail merchandise; the availability and cost of acceptable sites
for development and the Company's ability to identify such sites; commodity,
workers' compensation, group health and utility price changes; consumer behavior
based on concerns over nutritional or safety aspects of the Company's products
or restaurant food in general; competitive marketing and operational
initiatives; the effects of plans intended to improve operational execution and
performance; changes in or implementation of additional governmental or
regulatory rules, regulations and interpretations affecting accounting, tax,
wage and hour matters, health and safety, pensions, insurance or other
undeterminable areas; practical or psychological effects of terrorist acts or
war and military or government responses; the effects of increased competition
at Company locations on sales and on labor recruiting, cost, and retention;
increases in construction costs; the ability of and cost to the Company to
recruit, train, and retain qualified restaurant hourly and management employees;
disruptions to the company's restaurant or retail supply chain; changes in
foreign exchange rates affecting the Company's future retail inventory
purchases; the actual results of pending or threatened litigation or
governmental investigations; the costs and effects of negative publicity
associated with Company operations or political or charitable activities;
changes in accounting principles generally accepted in the United States of
America or changes in capital market conditions that could affect valuations of
restaurant companies in general or the Company's goodwill in particular; changes
in interest rates affecting the Company's financing costs; and other factors
described from time to time in the Company's filings with the SEC, press
releases, and other communications.
Results of Operations
- ---------------------
The following table highlights operating results by percentage
relationships to total revenue for the quarter and six-month period ended
January 28, 2005 as compared to the same period a year ago:
Quarter Ended Six Months Ended
------------------------ ------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 35.4 34.8 34.1 33.6
----- ----- ----- -----
Gross profit 64.6 65.2 65.9 66.4
Labor and other related expenses 34.9 35.8 35.9 36.5
Other store operating expenses 17.0 16.8 17.0 16.8
----- ----- ----- -----
Store operating income 12.7 12.6 13.0 13.1
General and administrative 5.0 5.0 5.2 5.3
----- ----- ----- -----
Operating income 7.7 7.6 7.8 7.8
Interest expense 0.3 0.3 0.3 0.4
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 7.4 7.3 7.5 7.4
Provision for income taxes 2.5 2.6 2.6 2.6
----- ----- ----- -----
Net income 4.9% 4.7% 4.9% 4.8%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and six-month period
ended January 28, 2005 as compared to the same period a year ago:
Quarter Ended Six Months Ended
------------------------- -------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
Net sales:
Cracker Barrel restaurant 61.5% 61.8% 64.0% 64.1%
Logan's 14.1 12.8 14.0 12.7
----- ----- ----- -----
Total restaurant 75.6 74.6 78.0 76.8
Cracker Barrel retail 24.3 25.3 21.9 23.1
----- ----- ----- -----
Total net sales 99.9 99.9 99.9 99.9
Franchise fees and royalties 0.1 0.1 0.1 0.1
----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0%
====== ===== ===== =====
The following table highlights the units in operation and units added for
the quarter and six-month period ended January 28, 2005 as compared to the same
period a year ago:
Quarter Ended Six Months Ended
------------------------- ------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
Cracker Barrel Old Country Store:
Open at beginning of period 509 484 504 480
Opened during period 5 4 10 8
--- --- --- ---
Open at end of period 514 488 514 488
=== === ===
Logan's Roadhouse - company-owned:
Open at beginning of period 114 101 107 96
Opened during period 4 2 11 7
--- --- --- ---
Open at end of period 118 103 118 103
=== === === ===
Logan's Roadhouse - franchised:
Open at beginning of period 20 16 20 16
Opened during period 2 1 2 1
-- -- -- --
Open at end of period 22 17 22 17
== == == ==
Average comparable store sales includes sales of stores open at least six
full quarters at the beginning of the quarter or six-month period ended January
28, 2005 and are measured on comparable calendar weeks in the prior year. The
following table highlights average comparable store sales for the quarter and
six-month period ended January 28, 2005 as compared to the same period a year
ago:
Quarter Ended Six Months Ended
------------------------ --------------------------
January 28, January 30, January 28, January 30,
2005 2004 2005 2004
---- ---- ---- ----
Cracker Barrel (472 and 466 stores
for the quarter and six months,
respectively)
Net sales:
Restaurant $ 804.1 $ 779.0 $1,617.8 $1,574.1
Retail 314.5 315.6 545.8 560.0
-------- -------- -------- --------
Total net sales $1,118.6 $1,094.6 $2,163.6 $2,134.1
======== ======== ======== ========
Logan's (96 and 93 restaurants for
the quarter and six months,
respectively) $793.7 $760.2 $1,561.9 $1,498.8
====== ====== ======== ========
Total Revenue
Total revenue for the second quarter of 2005 increased 8.9% compared to the
prior year second quarter. For the second quarter ended January 28, 2005,
Cracker Barrel comparable store restaurant sales increased 3.2% and comparable
store retail sales decreased 0.3% resulting in a combined comparable store sales
(total net sales) increase of 2.2%. The comparable store restaurant sales
increase consisted of a 4.1% average check increase for the quarter (including a
3.1% average menu price increase) and a 0.9% guest traffic decrease. We believe
that the comparable store retail sales decrease is due to exceptionally strong
retail sales in the prior year quarter (comparable store retail sales were up
7.0% in the prior year second quarter), uncertain consumer sentiment and reduced
discretionary purchases, restaurant guest traffic decreases and weaker than
expected response to the retail merchandise assortment. Logan's comparable
restaurant sales (including alcohol) increased 4.4%, which consisted of a 4.0%
average check increase (including a 3.3% average menu price increase) and a 0.4%
guest traffic increase. Sales from newly opened Cracker Barrel stores and
Logan's restaurants accounted for the balance of the total revenue increase in
the second quarter.
Total revenue for the six-month period ended January 28, 2005 increased
7.6% compared to the six-month period ended January 30, 2004. For the six-month
period ended January 28, 2005, Cracker Barrel comparable store restaurant sales
increased 2.8% and comparable store retail sales decreased 2.5% resulting in a
combined comparable store sales (total net sales) increase of 1.4%. The
comparable store restaurant sales increase consisted of a 3.6% average check
increase for the six months (including a 2.5% net price increase effect) and a
0.8% guest traffic decrease. We believe that the comparable store retail sales
decrease is related to exceptionally strong retail sales in the prior year
six-month period (comparable retail sales were up 8.5% in the prior year six
month period), restaurant guest traffic decrease, uncertain consumer sentiment
and reduced discretionary purchases, weaker than expected response to the retail
merchandise assortment, and the hurricanes in Florida during the first quarter
of 2005. Logan's comparable restaurant sales increased 4.2%, which consisted of
a 4.6% average check increase and a 0.4% guest traffic decrease. Sales from
newly opened Cracker Barrel stores and Logan's restaurants primarily accounted
for the balance of the total revenue increase in the six-month period ended
January 28, 2005.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the second quarter
of 2005 increased to 35.4% from 34.8% in the second quarter of the prior year.
This increase was due to higher commodity costs for beef, tomatoes, dairy,
including eggs, pork and poultry and an obsolescence reserve addition of
approximately $1,000 to reflect expected disposition of certain aged and
slow-moving retail inventory at Cracker Barrel. These increases were partially
offset by higher menu pricing versus the prior year and a lower percentage of
retail sales that have a higher cost as a percent of sales.
Cost of goods sold as a percentage of total revenue for the six-month
period ended January 28, 2005 increased to 34.1% from 33.6% in the six-month
period ended January 30, 2004. This increase was due to higher commodity costs
for beef, dairy, including eggs, pork and poultry and an obsolescence reserve
addition of approximately $1,000 to reflect expected disposition of certain aged
and slow-moving retail inventory at Cracker Barrel. These increases were
partially offset by higher menu pricing versus the prior year and a lower
percentage of retail sales that have a higher cost as a percent of sales.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue decreased to 34.9% in the second quarter this year
from 35.8% in the prior year. This decrease was due to lower restaurant and
retail management compensation under unit-level bonus programs versus prior
year, lower hourly labor expenses as a percent of revenue and higher menu
pricing versus the prior year. The decrease in restaurant and retail management
bonus accruals reflected relatively lower performance against financial
objectives in the second quarter of 2005 versus the same period a year ago.
Labor and other related expenses as a percentage of total revenue decreased
to 35.9% in the six-month period ended January 28, 2005 as compared to 36.5% in
the six-month period ended January 30, 2004. This decrease was due to lower
restaurant and retail management compensation under unit-level bonus programs
versus prior year, lower hourly labor expenses as a percent of revenue and
higher menu pricing versus the prior year.
Two states in which the Company operates, Illinois and New York,
implemented increases in the state minimum wage effective January 1, 2005,
including mandated increases in the minimum cash wage paid to tipped employees.
Additionally, Florida is expected to implement similar increases in May of 2005.
The Company expects these changes primarily to affect the third and fourth
quarters of 2005. The Company is evaluating alternatives to deal with this
increase in labor costs in these states. The estimated cost of the minimum wage
increase on the Company is expected to be approximately $1,200 to $1,300 in the
fourth quarter of 2005 and substantially less in the third quarter of 2005.
Other Store Operating Expenses
Other store operating expenses include all unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent, depreciation, general insurance, credit
card fees and non-labor-related pre-opening expenses. Other store operating
expenses as a percentage of total revenue increased to 17.0% in the second
quarter of 2005 from 16.8% in the second quarter of the prior year. This
increase was due to higher credit card fees, general insurance and advertising
expenses as a percent of revenue. These increases are offset partially by a
decrease in numerous miscellaneous expenses versus the prior year.
Other store operating expenses as a percentage of total revenue increased
to 17.0% in the six-month period ended January 28, 2005 as compared to 16.8% in
the six-month period ended January 30, 2004. This increase was due to higher
credit card fees, utilities, and general insurance as a percent of revenue.
These increases in other store operating expenses were offset partially by
higher menu pricing versus the prior year and a decrease in numerous
miscellaneous expenses versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue were
5.0% in both the second quarter of 2005 and in the second quarter of last year.
General and administrative expenses remained constant as a percentage of total
revenue due to increases in legal and audit fees versus the prior year offset by
a non-recurring insurance recovery for certain insured losses.
General and administrative expenses as a percentage of total revenue
decreased to 5.2% in the six-month period ended January 28, 2005 as compared to
5.3% in the six-month period ended January 30, 2004. This decrease was due to
lower bonus accruals and a non-recurring insurance recovery for certain insured
losses received in the second quarter offset partially by higher payroll
expenses, travel expenses and legal and audit fees versus the prior year.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income was 34.2% in
the second quarter and 34.6% in the first six months of 2005 as compared to
36.1% in the second quarter a year ago and 35.9% in the first six months of
2004. The decrease in the tax rate for 2005 is based upon the estimated effect
of the passage of the Work Opportunity and Welfare to Work federal tax credit
legislation signed on October 22, 2004 retroactive to January 1, 2004. The
variation between the statutory tax rate and the effective tax rate is due to
state income taxes offset by employer tax credits for FICA taxes paid on
employee tip income and the tax credits above.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided net cash of $137,407 for the
six-month period ended January 28, 2005, which represented an increase from the
$76,592 provided during the same period a year ago. This increase was due to a
significant increase in accounts payable in the first six months of 2005 versus
prior year, as well as higher net income and depreciation, offset partially by a
smaller increase in income taxes payable in the first six months of 2005 versus
prior year. The changes in accounts payable and income taxes payable were due to
timing of payments versus the prior year.
The Company had negative working capital of $83,108 at January 28, 2005
versus negative working capital of $39,195 at July 30, 2004. In the restaurant
industry, substantially all sales are either for cash or credit card. Like many
other restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant inventory. Employees
generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of
hours worked, and certain expenses such as certain taxes and some benefits are
deferred for longer periods of time. The larger negative working capital
compared with July 30, 2004, reflected higher accounts payable, deferred gift
card revenues and income taxes payable and lower cash and cash equivalents and
inventories partially offset by lower accrued employee compensation.
Capital expenditures were $76,587 for the six-month period ended January
28, 2005 as compared to $63,899 during the same period a year ago. Construction
of new locations accounted for most of the expenditures. The increase from the
prior year is due to the current year increase in the number of new locations
under construction versus the prior year, the current year increase in owned
versus leased land for new locations and the timing of maintenance and
replacement capital expenditures for existing stores versus the same period a
year ago. Capitalized interest was $180 and $361 for the quarter and six-month
period ended January 28, 2005, as compared to $164 and $288 for the quarter and
six-month period ended January 30, 2004. This difference was due to an increase
in the average number of new locations under construction versus the same period
a year ago.
During the six-month period ended January 28, 2005 the Company repurchased
2,287,500 shares of its common stock for approximately $38.07 per share. As of
January 28, 2005, the Company had 604,500 shares remaining under the current
repurchase authorization. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete the remaining share repurchase authorization before the end of the
third quarter of 2005, although there can be no assurance that such repurchase
actually will be completed in that period of time.
On February 25, 2005, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000,000 shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization during 2005, although there can
be no assurance that such repurchase actually will be completed in that period
of time. The Company's principal criteria for share repurchases are that they be
accretive to net income per share and that they do not unfavorably affect the
Company's investment grade debt rating and target capital structure.
During the six-month period ended January 28, 2005, the Company received
proceeds of $28,456 from the exercise of stock options on 1,384,205 shares of
its common stock. During the six-month period ended January 28, 2005, the
Company paid a dividend of $0.11 per common share on September 1, 2004 (declared
on July 29, 2004) and the Company paid a dividend of $0.12 per common share on
November 1, 2004 (declared on September 23, 2004). Additionally, the Company
declared a dividend of $0.12 per common share on November 23, 2004 that was paid
on February 8, 2005 to shareholders of record on January 14, 2005. Finally, the
Company declared a dividend of $0.12 per common share on February 24, 2005 to be
paid on May 9, 2005 to shareholders of record on April 15, 2005.
The Company's internally generated cash and cash generated by option
exercises, along with cash at July 30, 2004, the Company's availability under
its Revolving Credit Facility and its real estate operating lease arrangements,
were sufficient to finance all of its growth, share repurchase, dividend payment
and working capital needs in the first six months of 2005.
The Company estimates that its capital expenditures for 2005 will be
approximately $165,000, most of which will be related to the construction of new
Cracker Barrel and Logan's units. The Company, through internally generated cash
and available borrowing capacity, expects to be able to meet its capital needs
for the foreseeable future. The Company expects to open 25 new Cracker Barrel
units in 2005, of which 13 have already opened. The Company also expects to open
17 new company-operated Logan's units in 2005, of which 12 have already opened.
Management believes that cash at January 28, 2005, along with cash
generated from the Company's operating activities and its available Revolving
Credit Facility, as well as financing obtained through real estate operating
leases, will be sufficient to finance its continued operations, its remaining
share repurchase authorizations, its dividends and its continued expansion plans
through 2005. At January 28, 2005, the Company had $300,000 available under its
Revolving Credit Facility.
Critical Accounting Policies
- ----------------------------
The Company prepares its consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period (see Note 2 to the Company's Consolidated Financial
Statements contained in its Annual Report on Form 10-K for the year ended July
30, 2004 (the "2004 Form 10-K")). Actual results could differ from those
estimates. Critical accounting policies are those that management believes are
both most important to the portrayal of the Company's financial condition and
operating results, and require management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. The Company bases its estimates
on historical experience and on various other assumptions it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Judgments and uncertainties affecting the
application of those policies may result in materially different amounts being
reported under different conditions or using different assumptions. The Company
considers the following policies to be most critical in understanding the
judgments that are involved in preparing its consolidated financial statements.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Recoverability of assets is measured by comparing the carrying
value of the asset to the undiscounted future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value of an asset to be held and used or over the fair value, net
of estimated costs of disposal, of an asset to be disposed of, and a loss
resulting from value impairment is recognized by a charge to earnings. Judgments
and estimates made by the Company related to the expected useful lives of
long-lived assets are affected by factors such as changes in economic conditions
and changes in operating performance. As the Company assesses the ongoing
expected cash flows and carrying amounts of its long-lived assets, these factors
could cause the Company to realize a material impairment charge. From time to
time the Company has decided to exit from or dispose of certain operating units.
Typically, such decisions are made based on operating performance or strategic
considerations and must be made before the actual costs or proceeds of
disposition are known, and management must make estimates of these outcomes.
Such outcomes could include the sale of a property or leasehold, mitigating
costs through a tenant or subtenant, or negotiating a buyout of a remaining
lease term. In these instances management evaluates possible outcomes,
frequently using outside real estate and legal advice, and records in the
financial statements provisions for the effect of such outcomes. The accuracy of
such provisions can vary materially from original estimates, and management
regularly monitors the adequacy of the provisions until final disposition
occurs. In addition, at least annually the Company assesses the recoverability
of goodwill. The impairment tests require the Company to estimate fair values of
its related reporting units by making assumptions regarding future cash flows
and other factors. This valuation may reflect, among other things, such external
factors as capital market valuation for public companies comparable to the
operating unit. If these assumptions change in the future, the Company may be
required to record material impairment charges for these assets. The Company
performed its annual assessment in the second quarter ending January 28, 2005,
and concluded at that time that there was no indication of impairment. This
annual assessment is performed in the second quarter of each year. Additionally,
an assessment is performed between annual assessments if an event occurs or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability and health insurance programs. The
Company has purchased insurance for individual claims that exceed $250 for
workers' compensation and general liability insurance prior to 2003, but
increased this amount to $500 for 2003 and to $1,000 for certain coverages for
2004 and 2005. The Company elected not to purchase such insurance for its
primary group health program, but its offered benefits are limited to not more
than $1,000 lifetime for any employee (including dependents) in the program. The
Company records a liability for workers' compensation and general liability for
all unresolved claims and for an estimate of incurred but not reported claims at
the anticipated cost to the Company based upon an actuarially determined reserve
as of the end of the Company's third quarter and adjusting it by the actuarially
determined losses and actual claims payments for the subsequent quarters until
the next annual, actuarial study of its reserve requirements. Those reserves and
these losses are determined actuarially from a range of possible outcomes within
which no given estimate is more likely than any other estimate. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies," the Company records the losses at the low end of that range and
discounts them to present value using a risk-free interest rate based on the
actuarially projected timing of payments. The Company also monitors actual
claims development, including incurrence or settlement of individual large
claims during the interim period between actuarial studies as another means of
estimating the adequacy of its reserves. From time to time the Company has
performed limited scope interim updates of its actuarial studies to verify
and/or modify its reserves. The Company records a liability for its group health
program for all unpaid claims based upon a loss development analysis derived
from actual group health claims payment experience provided by the Company's
third-party administrator. The Company's accounting policies regarding insurance
reserves include certain actuarial assumptions and management judgments
regarding economic conditions, the frequency and severity of claims and claim
development history and settlement practices. Unanticipated changes in these
factors may produce materially different amounts of expense and liabilities that
would be reported under these insurance programs.
Inventory Shrinkage
Cost of sales includes the cost of retail merchandise sold at the Cracker
Barrel stores utilizing the retail inventory accounting method. During the first
quarter ended October 29, 2004, an estimate of shortages was recorded based on
the physical inventory counts observed as the end of fiscal 2004. During the
second quarter ended January 28, 2005, Cracker Barrel performed physical
inventory counts in approximately 33% of its stores and in its retail
distribution center. Actual shortages were recorded in the second quarter ended
January 28, 2005 for those stores that were counted. An estimate of shortages
was recorded for the remaining stores based on the results of the physical
inventory counts at approximately 33% of its stores. Historically, physical
inventory counts were observed in all stores and the retail distribution center
during the second quarter, therefore actual inventory shortages were reflected
in the second quarter of 2004 results. The 2005 estimated shortages will be
adjusted to actual upon physical inventory counts in all stores and the retail
distribution center during the fourth quarter of the 2005 and, although the
Company believes the sampling approach to the mid-year inventory is materially
accurate, could produce materially different amounts than estimated by the
Company for the first and second quarters ended October 29, 2004 and January 28,
2005.
Tax Provision
The Company must make estimates of certain items that comprise its income
tax provision. These estimates include effective state and local income tax
rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. These estimates are made based on
current tax laws, the best available information at the time of the provision
and historical experience. The Company files its income tax returns many months
after its year-end. These returns are subject to audit by various federal and
state governments years after the returns are filed and could be subject to
differing interpretations of the tax laws. The Company then must assess the
likelihood of successful legal proceedings or reach a settlement with the
relevant taxing authority, either of which could result in material adjustments
to the Company's consolidated financial statements and its consolidated
financial position (see Note 6 to the Company's Condensed Consolidated Financial
Statements filed herein and Note 7 to the Company's Consolidated Financial
Statements included in its 2004 Form 10-K).
Legal Proceedings
As discussed in Note 12 to the Company's Condensed Consolidated Financial
Statements contained in this Quarterly Report, the Company's principal
subsidiaries have been involved in certain litigation that if resolved
unfavorably could result in a material adverse effect upon the Company's results
of operations. In addition to the litigation described in the preceding
paragraph, the Company and its subsidiaries are parties to other legal
proceedings incidental to their businesses. In the opinion of management, based
upon information currently available, the ultimate liability with respect to
these other actions will not materially affect the Company's consolidated
results of operations or financial position.
Recent Accounting Pronouncements Not Yet Adopted
- ------------------------------------------------
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R replaces SFAS No. 123, "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123R requires that the cost of employee
services received in exchange for equity instruments issued or liabilities
incurred are recognized in the financial statements. Compensation cost will be
measured using a fair-value-based method over the period that the employee
provides service in exchange for the award. This statement will apply to all
awards granted after the effective date and to modifications, repurchases or
cancellations of existing awards. SFAS No. 123R is effective as of the beginning
of the first interim or annual reporting period that begins after June 15, 2005.
As disclosed in Note 5, based on the current assumptions and calculations used,
had the Company recognized compensation expense based on the fair value of
awards of equity instruments, net earnings would have been reduced by
approximately $2,007 and $4,486 for the quarter and six-month period ended
January 28, 2005, respectively, and $2,642 and $5,330 for the quarter and
six-month period ended January 30, 2004, respectively.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Company is still
evaluating the effects of the adoption of this standard on the Company's
consolidated results of operations or its financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the 2004 Form 10-K is incorporated in this item of this
Quarterly Report by this reference. There have been no material changes in the
quantitative and qualitative market risks of the Company since July 30, 2004.
Item 4. Controls and Procedures
The Company's management, with the participation of its principal executive
and financial officers, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that as of January 28, 2005, the Company's disclosure controls and
procedures were effective for the purposes set forth in the definition thereof
in Exchange Act Rule 13a-15(e).
There have been no significant changes during the quarter ended January 28,
2005 in the Company's internal controls over financial reporting (as defined in
Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes it made in the way it accounted for
leases. The decision to restate was made following a review of its accounting
policies that was prompted by views expressed on February 7, 2005 by the staff
of the SEC (and similar restatements by numerous other companies in the
restaurant, retail and other industries) that indicated that the manner in which
the Company had been accounting for leases needed to be corrected (see also Note
3 to the condensed consolidated unaudited financial statements). Prior to the
Company's review, the Company believed that such accounting was consistent with
generally accepted accounting principles. Some companies have indicated that
such a change in accounting and resulting restatement is a material weakness in
disclosure controls and procedures or in internal controls over financial
reporting. The Company does not believe this to be the case in its situation,
and the effects of the restatement were not material to the Company's financial
position or the results of operations for any prior annual or quarterly period.
The Company has discussed its conclusion with its independent registered public
accounting firm. However, the Company is discussing the restatement in question
in this Part I, Item 4 of this Quarterly Report out of an abundance of caution.
No other changes were made in the Company's disclosure controls and procedures
or in the Company's internal controls over financial reporting that address the
issues raised by the change in lease accounting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Part I, Item 3 of the 2004 Form 10-K is incorporated herein by
this reference.
Item 7.01 of the Company's Current Report on Form 8-K filed
with the SEC on September 9, 2004 is incorporated herein by
this reference.
See also Note 12 to the Company's Condensed Consolidated
Financial Statements filed in Part I, Item 1 of this Quarterly
Report on Form 10-Q, which also is incorporated in this item
by this reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
There were no equity securities sold by the Company during the
period covered by this Quarterly Report on Form 10-Q that were
not registered under the Securities Act of 1933, as amended.
The following table sets forth information with respect to
purchases of shares of the Company's common stock made during
the quarter ended January 28, 2005 by or on behalf of the
Company or any "affiliated purchaser," as defined by Rule
10b-18(a)(3) of the Exchange Act:
Issuer Purchases of Equity Securities
Total
Number Maximum
of shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Announced Under the
Total Number Average Plans or Plans or
of Shares Price Paid Per Programs) Programs
Period Purchased (1) Share (2) (3) (4) (3)(4)
------ ------------- --------- ------- ------
10/30/04 - 11/26/04 400,000 $37.89 400,000 1,392,000
11/27/04 - 12/24/04 403,242 $40.86 403,242 988,758
12/25/04 - 1/28/05 384,258 $40.57 384,258 604,500
Total for the quarter 1,187,500 $39.76 1,187,500 604,500
(1) All share repurchases were made in open-market
transactions pursuant to publicly announced
repurchase plans. This table excludes shares owned
and tendered by employees to meet the exercise price
of option exercises and shares withheld from
employees to satisfy minimum tax withholding
requirements on option exercises and other
equity-based transactions. The Company administers
employee cashless exercises through an independent,
third party broker and does not repurchase stock in
connection with cashless exercises.
(2) Average price paid per share is calculated on a
settlement basis and includes commission.
(3) As of January 28, 2005 the Company had 604,500 shares
remaining under its previous 2 million share repurchase
authorization announced in May 2004, with no expiration date.
(4) On February 25, 2005, the Company announced that it
had purchased an additional 483,419 shares under the
previously announced authorizations, and that its
Board of Directors has approved an additional new
authorization of 2 million shares, with no expiration
date.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Part II, Item 4 of the Company's Quarterly Report on Form 10-Q
for the Quarterly Period ended October 29, 2004 (filed with
the SEC on December 3, 2004) is incorporated herein by this
reference.
Item 6. Exhibits
--------
See Exhibit Index immediately following the signature page hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 3/9/05 By /s/Lawrence E. White
------ -----------------------------------------
Lawrence E. White, Senior Vice President,
Finance and Chief Financial Officer
Date: 3/9/05 By /s/Patrick A. Scruggs
------ -----------------------------------------
Patrick A. Scruggs, Vice President,
Accounting and Tax and Chief Accounting
Officer
EXHIBIT INDEX
Exhibit No. Description
4.1 Third amendment, dated as of December 31, 2004, to
the Indenture dated as of April 3, 2002, among the
Company, the Guarantors (as defined therein) and
Wachovia Bank, National Association, as trustee,
relating to the Company's zero-coupon convertible
senior notes (the "LYONs Indenture")
4.2 Fourth amendment, dated as of January 28, 2005, to the LYONs
Indenture (1)
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
on February 2, 2005 (File No. 000-25225).
EXHIBIT 31 A CERTIFICATION
I, Michael A. Woodhouse, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CBRL
Group, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: March 9, 2005
/s/ Michael A. Woodhouse
------------------------
Michael A. Woodhouse, Chairman, President
and Chief Executive Officer
EXHIBIT 31 B CERTIFICATION
I, Lawrence E. White, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CBRL
Group, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this report
is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has
materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: March 9, 2005
/s/ Lawrence E. White
---------------------
Lawrence E. White, Senior Vice President, Finance and
Chief Financial Officer
Exhibit 32 A
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBRL Group, Inc. (the "Issuer") on
Form 10-Q for the fiscal quarter ended January 28, 2005, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
A. Woodhouse, President and Chief Executive Officer of the Issuer, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: March 9, 2005 By: /s/ Michael A. Woodhouse
------------------------
Michael A. Woodhouse,
Chairman, President and Chief
Executive Officer
Exhibit 32 B
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBRL Group, Inc. (the "Issuer") on
Form 10-Q for the fiscal quarter ended January 28, 2005, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Lawrence E. White, Senior Vice President-Finance and Chief Financial Officer of
the Issuer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: March 9, 2005 By: /s/ Lawrence E. White
---------------------
Lawrence E. White,
Senior Vice President, Finance
and Chief Financial Officer
EXHIBIT 4.1
THIRD SUPPLEMENT TO INDENTURE
THIS THIRD SUPPLEMENT TO INDENTURE, is dated as of December 31, 2004 (the
"Supplement"), by and among CBOCS Kentucky, LLC, a Kentucky limited liability
company ("CBOCS Kentucky"), CBOCS Pennsylvania, LLC, a Pennsylvania limited
liability company ("CBOCS Pennsylvania"), and Wachovia Bank, National
Association, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, CBRL Group, Inc., a Tennessee corporation ("CBRL"), the Guarantors
(as defined therein) which are party a thereto, and the Trustee executed that
certain Indenture dated as of April 3, 2002, as supplemented by that certain
First Supplement to Indenture dated as of June 19, 2002 and by that certain
Second Supplement to Indenture dated as of July 30, 2004 (as so supplemented,
the "Indenture"), providing for the issuance of certain Liquid Yield Option(TM)
Notes due 2032 (Zero Coupon-Senior) in the principal amount at maturity of up to
Four Hundred Twenty-Two Million Fifty Thousand and No/100 Dollars ($422,050,000)
(the "Securities"), all of which currently are issued and outstanding; and
WHEREAS, the Securities are fully guaranteed, on an unsecured senior basis,
as to the payment of principal and interest by the Guarantors (as defined in the
Indenture); and
WHEREAS, Cracker Barrel Old Country Store, Inc., a Tennessee corporation
and a Subsidiary (as defined in the Indenture) of CBRL, is a Guarantor (as
defined in the Indenture) under the Indenture; and
WHEREAS, Cracker Barrel Old Country Store, Inc. formed CBOCS Kentucky, a
"domestic Subsidiary" (as defined in the Indenture), effective December 31,
2004; and
WHEREAS, Cracker Barrel Old Country Store, Inc. formed CBOCS Pennsylvania,
a "domestic Subsidiary" (as defined in the Indenture), effective December 31,
2004; and
WHEREAS, Section 13.03 of the Indenture provides that any "domestic
Subsidiary" (as defined in the Indenture) formed by a Subsidiary (as defined in
the Indenture) of CBRL must execute and deliver to the Trustee a supplement to
the Indenture pursuant to which such "domestic Subsidiary" (as defined in the
Indenture) shall guarantee all of the obligations on the Securities; and
WHEREAS, CBOCS Kentucky and CBOCS Pennsylvania must each become a Guarantor
(as defined in the Indenture) of the Securities in compliance with Section 13.03
of the Indenture, this Supplement is required by the terms of the Indenture; and
WHEREAS, all acts and proceedings necessary have been done to make this
Supplement, when executed and delivered by CBOCS Kentucky, CBOCS Pennsylvania
and the Trustee, the legal, valid and binding agreement of CBOCS Kentucky and
CBOCS Pennsylvania in accordance with its terms.
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties, intending to be legally
bound, agree as follows:
Section 1. Confirmation of the Indenture; Definitions. Except as amended
and supplemented hereby, the Indenture is hereby confirmed and reaffirmed in all
respects. Capitalized defined terms not otherwise defined herein shall have the
meanings ascribed to them in the Indenture.
Section 2. Guarantee. CBOCS Kentucky and CBOCS Pennsylvania do each hereby
guarantee all of the obligations on the Securities, whether for principal,
interest (including contingent interest, and interest accruing after the filing
of, or which would have accrued but for the filing of, a petition by or against
CBRL under Bankruptcy Law, whether or not such interest is allowed as a claim
after such filing in any proceeding under such law), if any and other amounts
due in connection therewith (including any fees, expenses and indemnities), on a
senior unsecured basis on the terms and subject to the limitations set forth in
the Indenture as if it were an original party thereto. On and after the date
hereof, the obligations of CBOCS Kentucky and CBOCS Pennsylvania and the other
Guarantors under the Indenture under their respective Guarantees shall be joint
and several, and each reference in the Indenture to "Guarantor" shall be deemed
to refer to all Guarantors, including, without limitation, CBOCS Kentucky and
CBOCS Pennsylvania.
Section 3. Effectiveness of Supplement. This Supplement shall become
effective immediately upon the execution hereof by CBOCS Kentucky, CBOCS
Pennsylvania and the Trustee.
Section 4. Counterparts. This Supplement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
Section 5. Governing Law. This Supplement shall be governed by and
construed in accordance with the internal laws of the State of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed, all as of the date first above written.
CBOCS KENTUCKY, LLC
ATTEST: By: CRACKER BARREL OLD COUNTRY STORE,
INC.
/s/Michael J. Zylstra By: /s/Cyril J. Taylor
- ---------------------------------- -------------------------------------
Name: Michael J. Zylstra Name:Cyril J. Taylor
---------------------------- -----------------------------------
Title: Secretary Title: Executive Vice President
--------------------------- ----------------------------------
CBOCS PENNSYLVANIA, LLC
ATTEST: By: CRACKER BARREL OLD COUNTRY STORE,
INC.
/s/Michael J. Zylstra By:/s/Cyril J. Taylor
- ---------------------------------- -------------------------------------
Name: Michael J. Zylstra Name:Cyril J. Taylor
---------------------------- -----------------------------------
Title: Secretary Title:Executive Vice President
--------------------------- ----------------------------------
WACHOVIA BANK, NATIONAL ASSOCIATION,
AS TRUSTEE
ATTEST:
/s/Laura Bass By: Wachovia Bank, N.A.
- ---------------------------------- -------------------------------------
Name: Laura Bass Name: Myra B. Stagge
---------------------------- -----------------------------------
Title: Assistant Vice President Title: Assistant VP
--------------------------- ----------------------------------