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BAKER
DONELSON
BEARMAN, CALDWELL
& BERKOWITZ, PC
|
COMMERCE
CENTER
SUITE
1000
211
COMMERCE STREET
NASHVILLE,
TENNESSEE 37201
PHONE: 615.726.5600
FAX: 615.726.0464
MAILING
ADDRESS:
P.O.
BOX 190613
NASHVILLE,
TENNESSEE 37219
|
| www.bakerdonelson.com |
Gary
M. Brown
Direct Dial: (615)
726-5763
Direct Fax: (615)
744-5763
E-Mail Address:
gbrown@bakerdonelson.com
March 23,
2009
Mr. Max
A. Webb
Assistant
Director
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E.
Washington,
D.C. 20549
| Re: | CBRL Group, Inc. (now known as Cracker Barrel Old Country Store, Inc.) | |
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Form
10-K
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Filed: September
30, 2008
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File
No. 000-25225
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Dear Mr.
Webb:
We are
counsel for Cracker Barrel Old Country Store, Inc. (“Cracker Barrel” or the
“Company”).
Set forth
below are the Company’s responses to the comments of the staff (the “Staff”) of
the Division of Corporation Finance of the Securities and Exchange Commission
(the “Commission”) contained in the letter addressed to Michael A. Woodhouse,
Chief Executive Officer of the Company, dated February 23, 2009 (the “Comment
Letter”), relating to the Company’s Annual Report on Form 10-K for the year
ended August 1, 2008 (the “2008 Form 10-K”) and Definitive Proxy Statement filed
on Schedule 14A on October 16, 2008 (the “2008 Proxy Statement”). On
behalf of the Company, we contacted the Staff, who provided an extension to
respond to the Comment Letter to March 23, 2009.
For
convenience of reference, each of the Staff’s comments has been reproduced in
its entirety in italicized type followed immediately by the Company’s
response.
Form
10-K:
Risk Factors, page
11
Comment
#1:
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Mr. Max
A. Webb
United States Securities and Exchange
Commission
March 23, 2009
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In
future filings, please remove the last two sentences in the opening
paragraph. All known material risks should be
disclosed. If risks are not deemed material, you should not reference
them.
Response to Comment
#1:
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|
In
future filings, the Company will remove the last two sentences that were
contained in the introductory language to Part I, Item 1A in the 2008 Form
10-K.
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Exhibit
13
MD&A, page
3
Comment
#2:
To
the extent possible, please confirm that in future filings when a change in a
line item is attributed to more than one cause you will quantify
each. See, for a few examples of many, the last sentence of the
second paragraph under 2008 Summary, the first sentence of the third paragraph
under 2008 Summary, both on page 4, the third sentence of the first paragraph
and the first sentence of the second paragraph under General and Administrative
Expenses.
Response to Comment
#2:
In future
filings, the Company will disclose that it has listed the factors that
contribute to a change in a line item in descending order of their
magnitude. In fact, the Company added this disclosure in its most
recent Quarterly Report on Form 10-Q filed with the Commission on March 10,
2009. Additionally, the Company will consider separately quantifying
the impact of each of these factors in future filings when significant unusual
business events occur that are not part of the Company’s ordinary course of
business or if the Company determines that quantification of these factors is
necessary for a reader’s understanding of the Company’s results (e.g., in the case of an extra
week in the Company’s 52/53 week fiscal year).
Schedule
14A:
Compensation Discussion and
Analysis, page 13
Comment
#3:
It
is unclear whether you use two separate groups to benchmark
against: i) the peer group of 19 companies listed on page 13, and ii)
the group of “general industry companies” compiled by Frederick W. Cook &
Co., Inc. In future filings, please revise to clarify. If
you do benchmark against both groups, please provide a list of companies in the
general industry group against which you benchmark for executive
compensation.
-2-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
Response to Comment
#3:
Please be
advised that the Company benchmarks against (and focuses primarily on) those 19
companies listed on page 13 of the 2008 Proxy Statement.
Nevertheless,
in its attempt to ensure that its compensation benchmarks are appropriate and as
an additional reference point, the Company’s Compensation Committee (the
“Committee”) was presented information by its compensation consultant, Frederick
W. Cook & Co. (“Cook”), from two published compensation surveys of indirect
comparators rather than a peer group of specific companies. Summary
statistics at the 50th and
75th
percentile levels of the survey group were presented to the
Committee. The Company is advised by Cook that the information
presented to the Committee was a compilation of data from published compensation
surveys produced by Watson Wyatt and the Hay Group. The Watson Wyatt 2007/2008 Survey
Report on Top Management included data from 2,309 companies in a variety
of industries. The
2007 Chain Restaurant Compensation Association Survey included data from
101 organizations (all restaurants). “Listing” all companies that
participate in these surveys is neither practical nor meaningful. For
example, there is no way to determine which companies within a survey reported
data for each of the specific size ranges that were used by Cook for any
particular position. For each reviewed position, Cook utilized one or
more position matches from one or both surveys and averaged the
results. To account for the variation in size of the companies in the
survey, Cook used regression analysis when possible to ensure the survey data
reflected compensation for companies with similar size (gross revenue) to the
Company. These survey sources were used to benchmark base salaries,
annual incentive and long-term incentive opportunities and total
compensation.
Furthermore,
the Committee did not select and was not aware of the identities of the specific
companies that participated in the surveys. Therefore, the list of
participating companies was not relevant to the Committee’s decision-making
process. The Committee simply discussed with Cook the general
composition of the companies in the surveys and reviewed the results of the
surveys that were presented.
In its
future filings, the Company will clarify the manner in which it uses survey data
and state whether the Committee is aware of the identities of the companies
underlying each survey, as appropriate.
Annual Bonus Plan, page
19
Comment
#4:
We
note your use of targets when determining annual cash awards as part of
executive compensation. For future filings, please confirm that you
will disclose performance metrics used by you and their corresponding cash
awards. Please refer to Item 402(b) of Regulation S-K.
Response to Comment
#4:
-3-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
In the
opinion of our firm, the Company’s disclosures in the Compensation Discussion
and Analysis (“CD&A”) contained in the 2008 Proxy Statement with respect to
these performance targets are sufficient and comply with both the letter and the
spirit of Item 402(b) of Regulation S-K, particularly since the Company,
pursuant to Instruction 4 to Item 402(b) of Regulation S-K, reported detailed
information that indicates the level of difficulty in achieving those
targets. We initially would note that the following items are
disclosed in the 2008 Proxy Statement:
| · |
the
individual target, threshold and maximum bonuses for each of the named
executive officers;
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|
| · |
the
fact that, for any executive to receive a bonus, the Company’s operating
income must exceed 85% of plan (“threshold income”);
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|
| · |
the
fact that, once threshold income is achieved, each executive can achieve
from 30% to 200% of target bonus depending upon the level of operating
income achieved;
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|
| · |
the
fact that operating income would have to increase 6.4% in order for
executives to earn bonuses at the target level; and
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|
| · |
the
fact that, if the Company meets the midpoint of its published guidance,
the executives would earn bonuses at approximately 92% of
target.
|
The only
thing not disclosed was the Company’s internal plan income target.
The
Company’s internal plan income target is based on the Company’s internal
operating plan and is highly confidential and competitively
sensitive. Insofar as Cracker Barrel is viewed by some as a leader in
a highly competitive market, any such public disclosure could materially harm
the Company’s competitive position within its industry.
The
Committee (as members of the Company’s Board of Directors) participates in the
creation of challenging financial and operating plans to be achieved by the
Company’s management. The Compensation Committee sets annual bonus
plan targets each year based on these plans. Because the internal
plan targets are confidential, the Company believes that one of the best
indicators of the difficulty of achieving such targets is its track
record. Over the last five years, annual bonus payouts for the five
most senior executives averaged 67% of target, exceeded target in only one year
(by 3.6%) and in one year was zero. These performance targets have
been set based on a challenging operating plan created to ensure Cracker
Barrel’s success. Therefore, the incentive awards will pay out at
100% (if at all) only if the Company achieves the critical financial
targets.
The
Company believes that disclosure of the specific performance internal target
income measure used to determine precise bonus payments for the years reported
in the 2008 Proxy Statement is not required. Disclosure of that
performance metric would provide a
-4-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
competitive
disadvantage to the Company because it would help its competitors determine its
costs, pricing, strategies, cash flow and possibly other metrics to the
Company’s competitive disadvantage. We do not believe that any of the
Company’s competitors have publicly disclosed similar specific performance
measures.
Furthermore,
the Company does not believe that quantitative disclosure of the Company plan
operating income target for the 2008 annual cash bonus was required in the
context of the disclosure in the 2008 Proxy Statement. Instruction 2
to Item 402(b) indicates that compensation actions or decisions after the fiscal
year end should be disclosed if such actions or decisions could affect a fair
understanding of a named executive officer’s compensation for the fiscal
year. Because it was disclosed that the targets were not met,
disclosure of the targets themselves would not aid an investor in understanding
the Committee’s actions or decisions with respect to the compensation for the
Company’s named executive officers for fiscal year 2008.
Similarly,
disclosure of the internal plan income target for the prospective 2009 annual
bonus awards also would result in competitive harm to the Company because it
would provide the opportunity for the Company’s competitors to unfairly and
adversely affect its relationships with key vendors and/or suppliers and use
such information to their advantage (and consequently the Company’s
disadvantage) in recruiting and retaining key employees. Furthermore,
the disclosure of this information would also provide the Company’s vendors and
other third parties with insight into the Company’s internal financial
projections and plans that could be exploited by them in the course of
contractual negotiations and other business arrangements.
Note
that, as described above, in accordance with Instruction 4 to Item 402(b) of
Regulation S-K, the Company did refer to its publicly disclosed 2009 guidance on
anticipated revenues and operating income. The Company indicated the
level of operating income increase that would be required to achieve threshold
bonus and that the executives would achieve approximately 92% of target if the
company achieved the midpoint of that guidance. That clearly
indicates the level of difficulty in achieving the underlying
targets.
Accordingly,
the Company respectfully submits that its internal operating plan income target
constitutes confidential commercial or financial information of significant
competitive value. The Company believes that disclosure of the target
would cause substantial competitive harm to the Company and, for this reason,
that such target is not required to be disclosed.
Relevant
Legal Standard
Instruction
4 to Item 402(b) of Regulation S-K states that registrants are not required to
disclose target levels with respect to specific quantitative performance-related
factors considered by the compensation committee, the disclosure of which would
result in competitive harm for the registrant. Instruction 4 goes on
to state that the standard to use
-5-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
when
determining whether disclosure would cause competitive harm for the registrant
is the same standard that would apply when a registrant requests confidential
treatment of confidential trade secrets or confidential commercial or financial
information pursuant to Securities Act Rule 406 and Exchange Act Rule 24b-2,
each of which incorporates the criteria for non-disclosure when relying upon
Exemption 4 of the Freedom of Information Act (“FOIA”) and Rule 80(b)(4)
thereunder.
Exemption
4 of the FOIA exempts from the class of material which public agencies must
disclose “[t]rade secrets and commercial or financial information obtained from
a person and privileged or confidential.” The standards for
determining what constitutes confidential commercial or financial information,
the disclosure of which would cause competitive harm, have largely been
addressed in case law, including Nat’l Parks and Conservation Ass’n
v. Morton, 498 F.2d 765 (D.C. Cir. 1974) (“Morton”); Nat’l Parks and Conservation Ass’n
v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976); and Critical Mass Energy Project v.
Nat’l Regulatory Comm’n, 931 F.2d 939 (D.C. Cir. 1991), vacated & reh'g en banc
granted, 942 F.2d 799 (D.C. Cir. 1991), grant of summary judgment to agency
aff'd en banc, 975 F.2d 871 (D.C. Cir. 1992).
Under the
case law’s established criteria, commercial or financial information will be
deemed “confidential” if disclosure thereof would be likely “to cause
substantial harm to the competitive position of the person from whom the
information was obtained.” See, e.g.,
Morton. Another test of whether information is confidential is
whether the information is of the type that would not customarily be released to
the public by the person from whom it was obtained. Sterling Drug, Inc. v. Fed. Trade
Comm’n, 450 F.2d 698, 709 (D.C. Cir. 1971). Over the years,
courts have frequently characterized information relating to business, commerce
or trade as confidential.
For the
reasons set forth below, we do not believe the Company’s plan operating income
is required to be disclosed.
Analysis
As a
threshold matter, the Company’s plan operating income target clearly constitutes
“commercial or financial information” within the meaning of Exemption 4 of the
FOIA, as the metric is determined using Company financial inputs to measure the
overall rate of return of the Company. Further, we believe the plan
operating income target constitutes “confidential” information within the
meaning of Exemption 4 of the FOIA, because disclosure of the target would cause
substantial harm to the Company’s competitive position. Our reasons
supporting this position are set forth above.
As
indicated, in the opinion of our firm, the information disclosed in the CD&A
portion of the 2008 Proxy Statement is sufficient to enable shareholders and
potential investors to reasonably evaluate the annual incentive program and
overall compensation, as well as the Company’s overall executive compensation
programs and decisions. The Company provides information in the 2008
Proxy Statement as to how it performed relative to the 2008 target—it reported
that no bonuses were earned as the targets were not
achieved.
-6-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
The
Company then reports, as to potential 2009 bonuses, the approximate bonus payout
that would be achieved (expressed as a percentage of target) if the midpoint of
the Company’s published guidance is achieved.
The
Company does not believe investors’ understanding would be appreciably improved
by disclosing the specific target level and actual results. Further,
the Company believes that linking the disclosure of the potential bonus payout
to the Company’s published guidance, coupled with its exclusion of the specific
target income level, strikes the appropriate balance between the interests of
the Company and the public, and that disclosure of the actual target is not
necessary to ensure adequate public information about the Company’s compensation
programs, philosophies or decisions. As described above, such
disclosure may in fact be detrimental to the interests of the shareholders and
prospective investors since the disclosure of this information could cause the
Company competitive harm.
For the
reasons stated above, the Company believes that its annual bonus plan target is
confidential and should not be disclosed in its CD&A. The Company
nevertheless confirms that in future filings the Company will disclose the
specific performance targets used to determine incentive amounts, to the extent
that such information does not constitute commercial or financial information
that is privileged or confidential within the meaning of Exemption 4 to FOIA, as
discussed above. The Company further confirms that to the extent it
is appropriate to omit specific performance targets in future filings, the
Company will continue to discuss the degree of difficulty of achieving the
target levels.
Long-Term Incentives, page
20
Comment
#5:
For
future filings, please confirm that you will provide the performance metrics
established to determine the amounts awarded to executives under your LTI and
LTPP plans. Please refer to Item 402(b) of Regulation
S-K.
Response to Comment
#5:
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|
Please
refer to the Response to Comment #4, which is incorporated herein by this
reference. The performance goals under the non-option (the
LTPP) portion of the LTI were described generally in the Company’s Current
Report on Form 8-K filed with the Commission on October 1,
2008. They are revenue and average EBIT
margin. Those internal targets, just as internal plan income
targets relating to the annual bonus plan (Response to Comment #4), also
are confidential and should not be disclosed in its
CD&A. The Company nevertheless confirms that in
future filings the Company will disclose the specific performance targets
used to determine LTI and LTPP awards, to the extent that such information
does not constitute commercial or financial information that is privileged
or confidential within the meaning of Exemption 4 to FOIA, as discussed
above. The Company further confirms that to the extent it is
appropriate to omit specific
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-7-
Mr. Max A.
Webb
United States Securities and Exchange Commission
March 23, 2009
| performance targets in future filings, the Company will continue to discuss the degree of difficulty of achieving the target levels. |
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* *
* * *
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| On behalf of the Company, the Company acknowledges that (i) it is responsible for the adequacy and accuracy of the disclosure in the filing; (ii) staff comments or changes to |
| disclosure
in response to staff comments in the filing reviewed by the staff do not
foreclose the Commission from taking any action with respect to the
filing; and (iii) the Company may
not
assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.
|
Please feel free to contact me with
respect to this response to the Comment Letter.
| Sincerely, | |
| BAKER, DONELSON, BEARMAN, | |
| CALDWELL & BERKOWITZ, PC | |
| /s/ Gary M. Brown | |
| Gary M. Brown |
| cc: | Michael A. Woodhouse |
| N. B. Forrest Shoaf |
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