UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
[x]
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of
1934
For
the
fiscal year ended July 28, 2006
OR
[
]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of
1934
For
the
transition period from _________ to
__________
Commission
file number
000-25225
_____________________
CBRL
GROUP, INC.
(Exact
name of registrant as specified in its charter)
Tennessee 62-1749513
(State
or
other jurisdiction of (I.R.S.
Employer
incorporation
or organization) Identification
Number)
305
Hartmann Drive, P.O. Box 787 37088-0787
Lebanon,
Tennessee
(Zip code)
(Address
of principal executive offices)
Registrant's
telephone number, including area code: (615) 443-9869
______________________
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock
(Par
Value $.01)
Common
Stock Purchase Rights
(No
Par
Value)
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issue, as defined
in
Rule 405 of the Securities Act.
Yes
X_
No
___
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
____
No X
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
X
No
_
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. X
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Exchange Act Rule 12b-2. (Check
one)
Large
accelerated filer X
Accelerated
filer
____
Non-accelerated filer _____
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
__ No
X
The
aggregate market value of voting stock held by nonaffiliates of the registrant,
by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business
day
of the registrant’s most recently completed second fiscal quarter which ended
January 27, 2006, was $2,040,470,036. For purposes of this computation, all
directors, executive officers and 10% beneficial owners of the registrant are
assumed to be affiliates. This assumption is not a conclusive determination
for
purposes other than this calculation.
As
of
September 29, 2006, there were 30,976,505
shares of common stock outstanding.
2
Documents
Incorporated by Reference
Document
from which Portions Part
of Form
10-K
are
Incorporated by Reference into
which incorporated
1. Annual
Report to Shareholders or
the
fiscal year ended July
28,
2006 (the “2006 Annual
Report”) Part
II
2. Proxy
Statement for Annual Meeting
of Shareholders to
be
held November 28, 2006 (the
“2006 Proxy
Statement”) Part
III
3
|
PART
I
|
PAGE | |
| ITEM 1. | BUSINESS |
6
|
| ITEM 1A. | RISK FACTORS | 15 |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS | 24 |
| ITEM 2. | PROPERTIES |
24
|
| ITEM 3. | LEGAL PROCEEDINGS |
26
|
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
26
|
|
PART
II
|
||
| ITEM 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES |
|
| OF EQUITY SECURITIES |
29
|
|
| ITEM 6. | SELECTED FINANCIAL DATA |
29
|
| ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 30 |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
30
|
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
30
|
| ITEM 9. | CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 30 |
| ITEM 9A. | CONTROLS AND PROCEDURES |
30
|
| ITEM 9B. | OTHER INFORMATION |
31
|
|
PART
III
|
||
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
32
|
| ITEM 11. | EXECUTIVE COMPENSATION |
32
|
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERS | 32 |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
32
|
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
32
|
|
|
||
|
PART
IV
|
||
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
33
|
| SIGNATURES |
34
|
4
INTRODUCTION
General
This
report contains references to years 2006, 2005, 2004, 2003 and 2002, which
represent fiscal years ending or ended July 28, 2006, July 29, 2005, July 30,
2004, August 1, 2003, and August 2, 2002, respectively. All of the
discussion and analysis in this report should be read with, and is qualified
in
its entirety by, the Consolidated Financial Statements and the notes
thereto.
Forward
Looking Statements/Risk Factors
Except
for specific historical information, many of the matters discussed in this
Annual Report on Form 10-K, as well as other documents incorporated herein
by
reference may express or imply projections of revenues or expenditures, plans
and objectives for future operations, growth or initiatives, expected future
economic performance, or the expected outcome or impact of pending or threatened
litigation. These and similar statements regarding events or results which
CBRL
Group, Inc. (the “Company”) expects will or may occur in the future, are
forward-looking statements that involve risks, uncertainties and other factors
which may cause actual results and performance of the Company to differ
materially from those expressed or implied by those statements. All
forward-looking information is provided pursuant to the safe harbor established
under the Private Securities Litigation Reform Act of 1995 and should be
evaluated in the context of these risks, uncertainties and other factors.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as “trends,” “assumptions,” “target,”
“guidance,” “outlook,” “plans,” “goals,” “objectives,” “expectations,”
“near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,”
“expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “regular,”
or “continue” (or the negative or other derivatives of each of these terms) or
similar terminology. The Company believes the assumptions underlying these
forward-looking statements are reasonable; however, any of the assumptions
could
be inaccurate, and therefore, actual results may differ materially from those
projected in or implied by the forward-looking statements. Factors and risks
that may result in actual results differing from this forward-looking
information include, but are not limited to, those listed in Part I, Item 1A
below, all of which are incorporated herein by reference, as well as other
factors discussed throughout this document, including, without limitation,
the
factors described under “Critical Accounting Policies and Estimates” in that
portion of the 2006 Annual Report that is incorporated by reference into Part
II, Item 7 below or, from time to time, in the Company’s filings with the SEC,
press releases and other communications.
Readers
are cautioned not to place undue reliance on forward-looking statements made
in
this document, since the statements speak only as of the document’s date.
The Company has no obligation, and does not intend, to publicly update or
revise any of these forward-looking statements to reflect events or
circumstances occurring after the date of this document or to reflect the
occurrence of unanticipated events. Readers are advised, however, to
consult any further disclosures the Company may make on related subjects in
its
documents filed with or furnished to the SEC or in its other public
disclosures.
5
PART
I
ITEM
1.
BUSINESS
OVERVIEW
CBRL
Group, Inc. (the "Company") is a holding company that, through subsidiaries,
is
engaged in the operation and development of the Cracker Barrel Old Country
Store® and Logan’s Roadhouse® restaurant and retail concepts. The Company was
organized under the laws of the state of Tennessee in August 1998 and maintains
an Internet website at cbrlgroup.com. We make available free of charge on or
through our Internet website our periodic and other reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934
(the “Exchange Act”) as soon as reasonably practicable after we file such
material with, or furnish it to, the SEC.
CONCEPTS
Cracker
Barrel Old Country Store
Cracker
Barrel Old Country Store, Inc. (“Cracker Barrel”), headquartered in Lebanon,
Tennessee, through its various affiliates, as of September 29, 2006, operated
544 full-service "country store" restaurants and gift shops in 41 states.
Cracker Barrel stores are intended to appeal to both the traveler and the local
customer and consistently have been a consumer favorite. During 2006, for the
16th
consecutive year, Cracker Barrel was named the “Best Family Dining Restaurant”
in the Restaurants
& Institutions
magazine
“Choice in Chains” annual consumer survey. For the 13th
consecutive year, Cracker Barrel was ranked as the “Best Restaurant Chain” by
Destinations
magazine
poll. For the 5th
consecutive year, Cracker Barrel was named “The Most RV Friendly Sit-Down
Restaurant in America” by The Good Sam Club.
Except
for Christmas day, when they are closed, and Christmas Eve when they close
at
2:00 p.m., Cracker Barrel restaurants serve breakfast, lunch and dinner daily
between the hours of 6:00 a.m. and 10:00 p.m. (closing at 11:00 p.m. on Fridays
and Saturdays) and feature home style country cooking from Cracker Barrel’s own
recipes using quality ingredients and emphasizing authenticity. Menu items
are
moderately priced and include country ham, chicken, fish, roast beef, beans,
turnip greens, vegetable plates, salads, sandwiches, pancakes, eggs, bacon,
sausage and grits among other items. The restaurants do not serve alcoholic
beverages. The stores are constructed in a trademarked rustic, old country
store
design with a separate retail area offering a wide variety of decorative and
functional items featuring rocking chairs, holiday and seasonal gifts and toys,
apparel, cookware and foods, including various old fashioned candies and jellies
among other things. Cracker Barrel offers items for sale in the retail store
that are also featured on, or related to, the restaurant menu, such as pies
or
cornbread and pancake mixes. A typical store will offer approximately 3,000
stock-keeping units (SKU’s) for sale at any one time. The Company believes that
Cracker Barrel achieves high retail sales per square foot as compared to mall
stores (over $410 per square foot of retail selling space in 2006) both by
offering interesting merchandise and by having a significant source of retail
customers from its high volume of restaurant customers, an average of over
7,600
per week in an average store in 2006.
Stores
are located primarily along interstate highways; however, as of September 29,
2006, 67 stores are located near "tourist destinations" or are considered
“off-interstate” stores. In 2007, Cracker Barrel intends to open approximately
75% of its new stores along interstate highways as compared to 100% in 2006.
The
Company believes it should focus primarily in the near term on available
interstate locations where Cracker Barrel both generates and benefits from
the
greatest brand awareness. Off-interstate locations are expected to complement
Cracker Barrel’s efforts to expand the brand in future years. The Company has
identified over 500 trade areas for potential future development with
characteristics that appear to be consistent with those believed to be necessary
to support a successful Cracker Barrel unit.
Logan’s
Roadhouse
Logan’s
Roadhouse, Inc. (“Logan’s”), headquartered in Nashville, Tennessee, as of
September 29, 2006, operated 143 Logan’s restaurants in 17 states. Independent
franchisees operated an additional 25 Logan’s restaurants in four states,
including three states where there presently are no Company-operated Logan’s
restaurants. The Logan’s concept is designed to appeal to a broad range of
customers by offering generous portions of moderately-priced, high quality
food
in a very casual, relaxed dining environment that is lively and entertaining.
Logan’s restaurants feature steaks, seafood, ribs and chicken dishes among other
items served in a distinctive atmosphere reminiscent of an American roadhouse
of
the 1930s and 1940s. In addition to local awards received in communities in
which Logan’s restaurants operate, in May 2005, Logan’s received the
Nation’s
Restaurant News
Menu
Masters Award for “Best Menu Revamp” for its successful introduction of new and
improved appetizers and other menu items including several new seafood
items.
6
Logan’s
restaurants are open seven days a week, except for Thanksgiving and Christmas
Days. Logan’s serves lunch and dinner between the hours of 11:00 a.m. and 10:00
p.m. (closing at 11:00 p.m. on Fridays and Saturdays) and offers full bar
service. The Logan’s menu is designed to appeal to a wide variety of tastes, and
emphasizes an assortment of specially seasoned steaks, primarily USDA Choice
that are aged and hand-cut on-premises and signature dishes such as baked sweet
potatoes and made-from-scratch yeast rolls. The fun atmosphere is enhanced
by
display cooking of grilled items and buckets of complimentary roasted in-shell
peanuts on every table, which guests are encouraged to enjoy and let the shells
fall on the floor. Alcoholic beverages represented approximately 9% of Logan’s
net sales in 2006.
Strategic
Initiatives
As
previously announced in the Current Report on Form 8-K filed with the SEC on
March 17, 2006, the Company, with the assistance of a financial advisor,
undertook a review of its capital structure and other potential initiatives
intended to enhance shareholder value (the “Review”).
The
Review, to date, has resulted in: 1) the repurchase of 16,750,000 shares of
the
Company’s common stock at $42.00 per share pursuant to a modified “Dutch
Auction” tender offer (the “Tender Offer”); 2) the execution by the Company,
effective April 27, 2006, of a $1.25 billion credit facility (the “2006 Credit
Facility”) including an $800 million term loan facility, a $200 million
delayed-draw term loan facility and a $250 million revolving credit facility;
and 3) the draw of $725 million under the term loan facility to finance the
Tender Offer and the cancellation of the remaining $75 million under the term
loan facility. Simultaneously with the term loan draw, the Company entered
into
an interest rate swap that fixed the interest rate on a portion of the term
loan
draw at 5.57% plus the Company’s then current credit spread, or 7.07% based on
today’s credit spread, over the 7-year life of the term loan and the interest
rate swap. The $200 million delayed-draw term loan facility can be used any
time
prior to October 27, 2007 to refinance the Company’s 3.0% zero-coupon
contingently convertible senior notes (the “Senior Notes”) or for general
corporate purposes. The Company, pursuant to the Review, also announced its
intention to divest itself of its wholly-owned subsidiary, Logan’s, subject to
achieving fair and satisfactory consideration and approval of the Company’s
Board of Directors. In the event of a divestiture of Logan’s, the 2006 Credit
Facility requires the Company to maintain a maximum specified consolidated
total
leverage ratio from the closing date of the divestiture and thereafter. This
ratio will determine the minimum excess cash that the Company must use to pay
down its term loan. The remaining proceeds of that divestiture could be used
to
repurchase additional CBRL common stock, to reduce debt further and/or for
other
general corporate purposes.
Standard
& Poor’s (“S & P”) issued a “credit watch/negative” notice with respect
to the Company’s indebtedness when the Review was disclosed. Subsequently in
March 2006, S & P lowered its rating on the Company’s corporate credit and
Senior Notes from BBB- to BB+ upon the announcement of the approval of the
plan
to incur indebtedness and repurchase shares pursuant to the Tender Offer. In
May
2006, S & P again lowered the rating on the Senior Notes to B+ reflecting
the relatively large amount of secured debt and lowered the rating on the new
2006 Credit Facility to BB while taking the Company off its credit watch.
Moody’s Investor Service (“Moody’s”) changed the Company’s outlook to
“developing” when the Review was disclosed. Subsequently in March 2006, Moody’s
downgraded the Company’s corporate family rating to Ba1 from Baa3, resulting
from the Company’s entering into the 2006 Credit Facility. At that time, Moody’s
also placed these ratings under review for possible downgrade. Subsequently
in
April 2006 as a result of the Company’s plan to draw on the 2006 Credit Facility
to finance the Tender Offer, Moody’s downgraded the Company’s Senior Notes to
Ba3 from Ba1 and the corporate family rating to Ba2 from Ba1, assigned a rating
of Ba2 to the 2006 Credit Facility and assigned a stable rating outlook for
the
Company.
In
the
event that either or both of the Company’s ratings decline further, the Company
may incur an increase in future borrowing costs. Additionally, since the rating
from Moody’s declined to Ba3 and the Standard & Poor’s rating declined below
BB- each $1 (face value at maturity) Senior Note became convertible into 10.8584
shares of the Company’s common stock (approximately 4.6 million shares in the
aggregate). The Company has received verification from the Trustee of the Senior
Notes that, as of September 29, 2006, no holders of the Senior Notes have
exercised their option to convert. Additionally, the Senior Notes are callable
at the Company’s election in the third quarter of the Company’s 2007 fiscal year
or putable at the holder’s election at the same time and every fifth anniversary
thereafter. The Company has classified the Senior Notes as long-term obligations
due to the Company’s intent and ability to refinance these Senior Notes on a
long-term basis.
7
OPERATIONS
Cracker
Barrel Old Country Store
Store
Format:
The
format of Cracker Barrel stores consists of a trademarked rustic, old
country-store style building. All stores are freestanding buildings. Store
interiors are subdivided into a dining room consisting of approximately 26%
of
the total interior store space, and a retail shop consisting of approximately
21% of such space, with the balance primarily consisting of kitchen, storage
and
training areas. All stores have stone fireplaces, which burn wood except where
not permitted. All are decorated with antique-style furnishings and other
authentic and nostalgic items, reminiscent of and similar to those found and
sold in the past in traditional old country stores. The front porch of each
store features rows of the signature Cracker Barrel rocking chairs that can
be
used by guests waiting for a table and are sold by the retail shop. The kitchens
contain modern food preparation and storage equipment allowing for flexibility
in menu variety and development.
Products:
Cracker
Barrel's restaurant operations, which generated approximately 79% of Cracker
Barrel’s total revenue in 2006, offer home-style country cooking featuring
Cracker Barrel’s own recipes that emphasize authenticity and quality. The
restaurants offer breakfast, lunch and dinner from a moderately priced menu.
Breakfast items can be ordered at any time throughout the day and include
juices, eggs, pancakes, bacon, country ham, sausage, grits, and a variety of
biscuit specialties, such as gravy and biscuits and country ham and biscuits.
Prices for a breakfast meal range from $2.29 to $8.49, and the breakfast
day-part (until 11:00 a.m.) accounted for approximately 22% of restaurant sales
in 2006, while lunch (11:00 a.m. to 4:00 p.m.) and dinner (4:00 p.m. to close)
day-parts reflected approximately 37% and 41% of restaurant sales, respectively,
in 2006. Lunch and dinner items include country ham, chicken and dumplings,
chicken fried chicken, meatloaf, country fried steak, pork chops, fish, steak,
roast beef, vegetable plates, salads, sandwiches, soups and specialty items
such
as pinto beans and turnip greens. The Company may from time to time feature
new
items as off-menu specials or in test menus at certain locations to evaluate
possible ways to enhance customer interest and identify potential future
additions to the menu. Lunches and dinners range in price from $3.59 to $12.99.
Cracker Barrel’s menu has daily dinner features that showcase a popular dinner
entrée for each day of the week. There is some variation in menu pricing and
content in different regions of the country for both breakfast and lunch/dinner.
The average check per guest for 2006 was $8.17, which represents a 2.1% increase
over prior year.
The
retail operations, which generated approximately 21% of Cracker Barrel’s total
revenue in 2006, offer a wide variety of decorative and functional items such
as
rocking chairs, seasonal gifts, apparel, toys, music CDs, cookware,
old-fashioned-looking ceramics, figurines, a book-on-audio sale-and-exchange
program and various other gift items, as well as various candies, preserves,
syrups and other food items. The typical Cracker Barrel retail shop features
approximately 3,000 SKU’s. Many of the food items are sold under the “Cracker
Barrel Old Country Store” brand name. Cracker Barrel offers items for sale in
the retail store that also are featured on, or related to, the restaurant menu,
such as pies, cornbread and pancake mixes. The Company believes that Cracker
Barrel achieves high retail sales per square foot as compared to mall stores
(over $410 per square foot of retail selling space in 2006) both by offering
appealing merchandise and by having a significant source of retail customers
from the high volume of restaurant customers - an average of over 7,600 per
week
in a typical store in 2006. The substantial majority of sales in the retail
area
are estimated to be to customers who also are guests in the restaurant.
Product
Development and Merchandising:
Cracker
Barrel maintains a product development department, which develops new and
improved menu items in response either to shifts in customer preferences or
to
create customer interest. Coordinated seasonal promotions are used regularly
in
the restaurants and retail shops. The Cracker Barrel merchandising department
attempts to select merchandise for the retail shop that reinforces the nostalgic
theme of the restaurant. In 2006, Cracker Barrel strengthened its exclusive
music collection by releasing CDs featuring well-known recording artists Charlie
Daniels, Sara Evans and Amy Grant. The “American
Music Legends’”
series
continues to expand with offerings from Johnny Cash, Hank Williams and John
Denver. In 2006, Cracker Barrel entered into the second year of a sponsorship
agreement with the Grand Ole OpryÔ,
the
showcase of country music and, with nearly 80 years on the air, America’s
longest running radio program.
Store
Management and Quality Controls:
Cracker
Barrel store management, typically consisting of one general manager, four
associate managers and one retail manager, is responsible for an average of
100-120 employees on two shifts. The relative complexity of operating a Cracker
Barrel store requires an effective management team at the individual store
level. As a motivation to store managers to improve sales and operational
performance, Cracker Barrel maintains a bonus plan designed to provide store
managers with an opportunity to share in the profits of their store. The bonus
plan also rewards managers who achieve specific operational targets. To assure
that individual stores are operated at a high level of quality, Cracker Barrel
emphasizes the selection and training of store managers. It also employs
district managers to support individual store managers and regional vice
presidents to support individual district managers. A district manager’s
individual span of control typically is seven to
8
eight
individual restaurants, and regional vice presidents support seven to nine
district managers. Each store is assigned to both a restaurant and a retail
district manager and each district is assigned to both a restaurant and a retail
regional vice president. The various levels of restaurant and retail management
work closely together.
The
store
management recruiting and training program begins with an evaluation and
screening process. In addition to multiple interviews and verification of
background and experience, Cracker Barrel conducts testing designed to identify
those applicants most likely to be best suited to manage store operations.
Those
candidates who successfully pass this screening process are then required to
complete an 11-week training program consisting of seven weeks of in-store
training and four weeks of training at Cracker Barrel's corporate facilities.
This program allows new managers the opportunity to become familiar with Cracker
Barrel operations, culture, management objectives, controls and evaluation
criteria before assuming management responsibility. Cracker Barrel provides
its
managers and hourly employees with ongoing training through its various
development courses taught through a blended learning approach, including
hands-on, classroom, written and Internet-based training. Each store is equipped
with training computers for the Internet-based computer-assisted instruction
programs. Additionally, each store typically has an employee training
coordinator who oversees training of the store’s hourly employees.
Purchasing
and Distribution:
Cracker
Barrel negotiates directly with food vendors as to specification, price and
other material terms of most food purchases. Cracker Barrel is a party to a
prime vendor contract with an unaffiliated distributor with custom distribution
centers in Lebanon, Tennessee; McKinney, Texas; Gainesville, Florida; Elkton,
Maryland; Kendalville, Indiana; and Ft. Mill, South Carolina. This vendor’s
contract currently runs through 2007 with a minimal price increase scheduled
in
2007. The contract requires the Company to pay for market fuel prices that
exceed certain designated prices. The contract will remain in effect until
both
parties mutually modify it in writing or until terminated by either Cracker
Barrel or the distributor upon 180 days written notice to the other party.
Cracker Barrel purchases the majority of its food products and restaurant
supplies on a cost-plus basis through this unaffiliated distributor. The
distributor is responsible for placing food orders, warehousing and delivering
food products to Cracker Barrel’s stores. Deliveries generally are made once per
week to the individual stores. Certain perishable food items are purchased
locally by Cracker Barrel stores.
Four
food
categories (beef, dairy (including eggs), pork and poultry) account for the
largest shares of Cracker Barrel’s food purchasing expense at approximately 14%,
13%, 12% and 10%, respectively, but each category does include several
individual items. The single food item within these categories, accounting
for
the largest share of Cracker Barrel's food purchasing expense, was chicken
tenderloin at approximately 5% of food purchases in 2006. Cracker Barrel
purchases its chicken tenderloin through two vendors. Cracker Barrel purchases
its beef through nine vendors, pork through ten vendors, and poultry through
nine vendors. Dairy and eggs are purchased through numerous vendors including
local vendors. Should any food items from these vendors become unavailable,
management believes that these food items could be obtained in sufficient
quantities from other sources at competitive prices.
The
majority of retail items (approximately 72% in 2006) are centrally purchased
directly by Cracker Barrel from domestic and international vendors and
warehoused at the Company’s owned Lebanon distribution center. The distribution
center is a 367,200 square foot warehouse facility with 36 foot ceilings and
170
bays, and includes an additional 13,800 square feet of office and maintenance
space. The distribution center fulfills retail item orders generated by Cracker
Barrel’s automated replenishment system and generally ships the retail orders
once a week to the individual stores by a third-party dedicated freight line.
The contract which currently runs through 2007 with this freight line requires
the Company to pay for market fuel prices that exceed certain designated prices.
Certain retail items, not centrally purchased and warehoused at the distribution
center, are drop-shipped directly from Cracker Barrel’s vendors to its stores.
Approximately 30-33% of Cracker Barrel’s retail purchases in 2006 were directly
from vendors in the People’s Republic of China. Cracker Barrel has a
relationship with a foreign buying agency to source purchased product, monitor
quality control and supplement product development.
Cost
and Inventory Controls:
Cracker
Barrel’s computer systems and various analytical tools are used to evaluate
store operating information and provide management with reports to support
detection of unusual variances in food costs, labor costs or operating expenses.
Management also monitors individual store restaurant and retail sales on a
daily
basis and closely monitors sales mix, sales trends, operational costs and
inventory levels. The information generated by the computer systems, analysis
tools and monitoring processes are used to manage the operations of each store,
replenish retail inventory levels and to facilitate retail purchasing decisions.
These systems and processes also are used in the development of forecasts,
budget analyses, and planning.
Guest
Satisfaction:
Cracker
Barrel is committed to providing its guests a home-style, country-cooked meal,
and a variety of retail merchandise served and sold with genuine hospitality
in
a comfortable environment, in a way that evokes memories of the past. Cracker
Barrel’s commitment to offering guests a quality experience begins with its
employees. Its mission statement, “Pleasing People,” embraces guests and
employees alike, and the Company’s
9
employees
are trained on the importance of that mission in a culture of mutual respect.
Cracker Barrel also is committed to staffing each store with an experienced
management team to ensure attentive guest service and consistent food quality.
Through the regular use of guest surveys and store visits by its district
managers and regional vice presidents, management receives valuable feedback,
which it uses in its ongoing efforts to improve the stores and to demonstrate
Cracker Barrel’s continuing commitment to pleasing its guests. Cracker Barrel
also has for many years had a guest-relations call center that takes comments
and suggestions from guests and forwards them to operations or other management
for information and follow up. Cracker Barrel
has
public notices in its menus, on its website and posted in its restaurants
informing customers and employees about how to contact Cracker Barrel by
Internet or toll-free telephone number with questions, complaints or concerns
regarding services or products. Cracker Barrel conducts training in how to
gather information and investigate and resolve customer concerns. This is
accompanied by comprehensive training for all store employees on Cracker
Barrel’s public accommodations policy and its commitment to "pleasing people."
In 2005, the Company implemented an anonymous, unannounced, third-party store
testing program, to ensure compliance with its guest satisfaction policies
and
commitments. In
2006,
Cracker Barrel introduced an improved interactive voice response (“IVR”) system
to monitor operational performance and guest satisfaction at all stores on
an
ongoing basis. Cracker Barrel has used an IVR system in the past to monitor
the
performance of new restaurants and to provide insight into the performance
of
under-performing stores.
Marketing:
Outdoor
advertising (i.e., billboards and state department of transportation signs)
is
the primary advertising medium utilized to reach consumers in the primary trade
area for each Cracker Barrel store and also to reach interstate travelers and
tourists. Outdoor advertising accounted for approximately 67% of advertising
expenditures in 2006, with approximately 1,450 billboards at year-end. In recent
years Cracker Barrel has utilized other types of media, such as radio and print,
in its core markets to maintain customer awareness, and outside of its core
markets to increase brand awareness and to build guest loyalty. Cracker Barrel
defines its core markets based on average weekly sales, geographic location,
and
longevity and brand awareness in the market. Cracker Barrel plans to maintain
its overall advertising spending at approximately 2% of Cracker Barrel’s
revenues in 2007, as it generally has since 2000. Outdoor advertising is
expected to represent approximately half of advertising expenditures in 2007.
Cracker Barrel plans to increase radio and media advertising as a percentage
of
the overall budget as it plans to implement a test of TV advertising. New store
locations generally are not advertised in the media until several weeks after
they have been opened in order to give the staff time to adjust to local
customer habits and traffic volume.
Logan’s
Roadhouse
Store
Format:
Logan’s
restaurants generally are constructed of rough-hewn cedar siding in combination
with bands of corrugated metal outlined in red neon. Interiors are decorated
with murals and other artifacts depicting scenes or billboard advertisements
reminiscent of American roadhouses of the 1930s and 1940s, with concrete and
wooden planked floors and neon signs. The lively, upbeat, friendly, relaxed
atmosphere seeks to appeal to families, couples, single adults and business
people. The restaurants feature display cooking and an old-fashioned meat
counter displaying ribs and hand-cut USDA Choice steaks, and also include a
spacious, comfortable bar area. While dining or waiting for a table, guests
may
eat complimentary roasted in-shell peanuts and toss the shells on the floor.
In
the waiting area they also may watch as cooks prepare steaks and other entrees
on gas-fired mesquite grills. During 2006, Logan’s plans to begin installation
of new complimentary jukeboxes in the waiting or bar area of all its restaurants
to allow guests to select some of their favorite music. These features are
intended to emphasize a welcoming, lively, roadhouse-type environment in order
to enhance the differentiation of the concept with consumers. Logan’s has
developed, designed and opened one new prototype restaurant that it is testing
and expects to open regularly, beginning in 2007.
Products:
Beginning in 2004, Logan’s began revamping its menu and expanding its offerings
of appetizers and entrees to broaden the appeal of the Logan’s concept, while
still offering affordable high-quality steaks. In 2005, Logan’s introduced
specialty appetizers, including Smokin’ Hot Grilled Wings, Lightnin’ Hot Shrimp
Bucket, and San Antonio Chicken Wraps and new “craveable” entrees and salads
including the Onion Brewski’
sirloin
(a new signature steak), Santa Fe Tilapia, Southern Fried Catfish, Filet and
Grilled Shrimp Combos and Logan’s Kickin’ Chickin’ Salad. The Logan’s dinner
menu features an assortment of specially seasoned steaks, primarily USDA Choice
that are aged and hand-cut on premises and cooked to order on gas-fired mesquite
grills. Guests also may choose from slow-cooked baby back ribs, mesquite-grilled
chicken, seafood items and an assortment of hamburgers, salads and sandwiches.
All dinner entrees include made-from-scratch yeast rolls and a choice of two
side items which include dinner salad, brown sugar and cinnamon sweet potato,
baked potato, mashed potatoes, grilled vegetables, fries or other side items
at
no additional cost. Logan’s express lunch menu provides specially priced items
to be served in less than 15 minutes. All lunch salads are served with
made-from-scratch yeast rolls, and all lunch sandwiches are served with
home-style potato chips. In 2006, lunch and dinner accounted for approximately
35% and 65% of Logan’s sales, respectively. Prices range from $4.99 to $8.99 for
lunch items and from $5.59 to $19.99 for dinner entrees. The average check
per
customer for 2006 was $12.61, including alcoholic beverages, a 2.4% increase
from the prior year.
10
Approximately
9% of Logan’s net sales in 2006 were from alcoholic beverages. In most of its
restaurants Logan’s offers a happy hour intended to increase responsible alcohol
sales. The happy hour emphasizes responsible alcohol service through training
and operational standards. Various price increases were instituted during 2006
and averaged 2.5% for the year.
Product
Development:
Logan’s
employs a full-time Vice President of Menu and Culinary Innovation who is
dedicated to enhancing and developing the brand through improved and appealing
product offerings. Logan’s tests various new products in an effort to select
items with high guest appeal in response to changing customer tastes. In order
to maximize operating efficiencies and cost effectively provide fresh
ingredients for its food products, purchasing decisions are made by Logan’s
corporate management. Management believes that Logan’s has adequate flexibility
to meet future shifts in consumer preference on a timely basis.
Restaurant
Management and Quality Controls:
Logan’s
restaurant management typically consists of a general manager, one kitchen
manager and two to four assistant managers who are responsible for approximately
80 hourly employees. Each restaurant management team typically is comprised
of
one to two persons who were promoted into management positions from
non-management positions and three to four managers with previous management
experience. Each restaurant employs a skilled meat-cutter to cut steaks from
USDA choice beef. The general manager of each restaurant is responsible for
the
day-to-day operations of the restaurant, including maintaining high standards
of
quality and performance established by Logan’s corporate management. The
complexity of operating a Logan’s restaurant requires an effective management
team at the individual restaurant level. As a motivation to restaurant managers
to increase revenues and operational performance, Logan’s maintains an incentive
bonus plan that rewards managers for achieving sales and profit targets as
well
as key operating cost measures. To assure that individual restaurants are
operated at high standards of quality, Logan’s has regional managers to support
individual restaurant managers along with one director and two regional vice
presidents of operations to support individual regional managers. Each regional
manager typically supports five to six individual restaurants. The director
of
operations supports four regional managers and the regional vice presidents
of
operations support ten regional managers each. Through regular visits to the
restaurants, the regional vice presidents, the director of operations, the
regional managers and other senior management ensure that the Logan’s concept,
strategy and standards of quality are being adhered to.
Logan’s
requires that its restaurant managers have significant experience in the
full-service restaurant industry. All new managers are required to complete
up
to eight weeks of training at a Logan’s restaurant and one week of classroom
training conducted at the Logan’s training facility in Nashville. The course
emphasizes the Logan’s operating strategy, procedures and standards. Logan’s
also has a specialized training program required for managers and hourly service
employees on responsible alcohol service.
Purchasing
and Distribution:
Logan’s
strives to obtain consistent high quality ingredients at competitive prices
from
reliable sources. Logan’s negotiates directly with food vendors as to
specifications, price and other material terms of most food purchases. When
practical, Logan’s coordinates with the purchasing department at Cracker Barrel
to seek possible volume purchases from combined activities. Logan’s purchases
the majority of its food products and restaurant supplies on a cost-plus basis
through the same unaffiliated distributor that is used by Cracker Barrel. The
distributor is responsible for placing food orders and warehousing and
delivering food products for Logan’s restaurants. Certain perishable food items
are purchased locally by the restaurants.
The
single food item accounting for the largest share (approximately 36%) of Logan’s
food cost is beef. Steaks are hand-cut on the premises, in contrast to many
in
the restaurant industry that purchase pre-portioned steaks. Logan’s presently
purchases its beef through two supply contracts. Should any beef items from
either supplier become unavailable for any reason, management believes that
such
items could be obtained in sufficient quantities from the other supplier or
other sources at competitive prices.
Cost
and Inventory Controls:
Management closely monitors sales, product costs and labor at each of its
restaurants. Daily sales and weekly restaurant operating results are analyzed
by
management to detect trends at each location, and negative trends are addressed
promptly. Financial controls are maintained through management of an accounting
and information management system that is implemented at the restaurant level.
Administrative and management staff prepares daily reports of sales, labor
and
customer counts. On a weekly basis, condensed operating statements are compiled
by the accounting department and provide management a detailed analysis of
sales, product and labor costs, with a comparison to budget and prior year
performance. These systems also are used in the development of budget analyses
and planning.
Guest
Satisfaction:
Logan’s
is committed to providing its guests prompt, friendly, efficient service,
keeping table-to-server ratios low and staffing each restaurant with an
experienced management team to ensure attentive guest
11
service
and consistent food quality. Through the regular use of marketing research,
guest feedback to the managers while in the restaurant and an outsourced guest
satisfaction survey program, management receives valuable feedback, which it
uses to improve restaurant operations and monitor guest satisfaction. The
satisfaction survey program delivers 50-150 guest survey responses per
restaurant each month. Each selected guest is invited to take the survey via
a
random invitation on the guest receipt and receives a discount of $3.00 off
their next food purchase. The program allows Logan’s to identify and focus on
key drivers of guest satisfaction and monitor long-term trends in guest
satisfaction and perception.
Marketing:
Logan’s
employs an advertising and marketing strategy designed to establish and maintain
a high level of name recognition and to attract new customers. Management’s goal
is to develop a greater number of restaurants in certain markets to support
and
enhance the use of television, radio and outdoor advertising. In 2006 Logan’s
spent approximately 1.2% of revenues on advertising. In 2004, with changes
in
Logan's management and the resulting refocus of management priorities on
improving the brand and clarifying its media message, Logan’s spent less on
advertising. In 2005 and 2006 Logan’s developed and tested a new advertising and
marketing program, including new television and radio advertising. Logan’s also
engages in a variety of promotional activities, such as contributing personnel,
money and complimentary meals to charitable, civic and cultural programs, in
order to increase public awareness of Logan’s restaurants. Logan’s also has
certain relationships with the National Football League’s Tennessee Titans,
including two concession facilities (named “Logan’s Landing”) inside LP Field,
the Titans’ Nashville, Tennessee home field and various promotions during and
around the games as well as other events, such as home football games for
Tennessee State University.
Franchising:
Prior
to the Company acquiring Logan’s Roadhouse, Inc., Logan’s
had
entered into certain area development agreements and accompanying franchise
agreements. As of September 29, 2006, two franchisees operate 25 Logan’s
restaurants in four states, and have rights under the existing agreements,
subject to development terms, conditions and timing requirements, to open up
to
16 additional locations in those same states plus parts of Nevada. Certain
of
the agreements have provided for the possible acquisition of the franchise
locations in the territory by Logan’s. Management is not currently planning any
other franchising initiatives in the near future beyond the current agreements,
although Logan’s believes additional franchising could become an opportunity in
the future. Logan’s offers no financing, financial guarantees or other financial
assistance to its franchisees and has no ownership interest in any franchisee
properties or assets.
UNIT
DEVELOPMENT
Cracker
Barrel opened 21 new stores and closed seven stores in 2006. Cracker Barrel
plans to open 19-20 new stores during 2007, one of which already was open as
of
September 29, 2006.
Logan’s
opened 20 new company-operated restaurants and two new franchised restaurants
in
2006 and closed three company-operated restaurants in 2006. Due to the uncertain
timing of a possible Logan’s divestiture, the Company is not providing Logan’s
plans for new restaurant openings in 2007.
Of
the
544 Cracker Barrel stores open as of September 29, 2006, the Company owns 391,
while the other 153 properties are either ground leases or ground and building
leases. The current Cracker Barrel store prototype is approximately 10,000
square feet including approximately 2,100 square feet in the retail selling
space. The prototype has 194 seats in the restaurant. Cracker Barrel plans
to
modify the prototype in 2007 to provide additional seating and operational
flexibility.
Of
the
168 Logan’s restaurants open as of September 29, 2006, 25 are
franchised restaurants. Of the remaining 143 Logan’s restaurants, 69 are owned
and 74 are ground leases. The current Logan’s restaurant prototype is
approximately 8,200 square feet with 284 seats, including 22 seats at the bar.
Logan’s has recently developed and designed a new prototype restaurant, the
first of which opened in early 2006. The Company has evaluated the effectiveness
and cost of the new prototype and is incorporating changes into a revised design
expected to begin to be used in 2007 openings.
EMPLOYEES
As
of
July 28, 2006, CBRL Group, Inc. employed 31 people, of whom 16 were in advisory
and supervisory capacities and 8 were officers of the Company. Cracker Barrel
employed approximately 62,000 people, of whom 380 were in advisory and
supervisory capacities, 3,266 were in store management positions and 33 were
officers. Logan’s employed approximately 12,000 people, of whom 93 were in
advisory and supervisory capacities, 686 were in restaurant management positions
and 12 were officers. Many restaurant personnel are employed on a part-time
basis.
12
None
of
the employees of the Company or its subsidiaries are represented by any union,
and management considers its employee relations to be good.
COMPETITION
The
restaurant industry is intensely competitive with respect to price, service,
location, and food quality. The Company competes with a number of national
and
regional restaurant chains as well as locally owned restaurants. The restaurant
business is often affected by changes in consumer taste, national, regional,
or
local economic conditions, traffic patterns, and the type, number, and location
of competing restaurants. In addition, factors such as inflation, increased
food, labor and benefits costs and the lack of experienced management and hourly
employees may adversely affect the restaurant industry in general and the
Company’s restaurants in particular.
RAW
MATERIALS SOURCES AND AVAILABILITY
Essential
restaurant supplies and raw materials are generally available from several
sources. However, in the restaurants, certain branded items are single source
products or product lines. Generally, the Company is not dependent upon single
sources of supplies or raw materials. The Company’s ability to maintain
consistent quality throughout its restaurant system depends in part upon its
ability to acquire food products and related items from reliable sources. When
the supply of certain products is uncertain or prices are expected to rise
significantly, the Company may enter into purchase contracts or purchase bulk
quantities for future use.
Adequate
alternative sources of supply, as well as the ability to adjust menus if needed,
are believed to exist for substantially all restaurant products. The Company’s
retail supply chain generally involves longer lead-times and, often, more remote
sources of product, including the People’s Republic of China, and most of the
Company’s retail product is distributed to its stores through a single
distribution center. Disruption of the Company’s retail supply chain could be
more difficult to overcome, but the Company is evaluating ways to mitigate
such
disruptions.
ENVIRONMENTAL
MATTERS
Federal,
state and local environmental laws and regulations have not historically had
a
significant impact on the operations of the Company; however, the Company cannot
predict the effect of possible future environmental legislation of regulations
on its operations.
TRADEMARKS
Cracker
Barrel and Logan’s deem the trademarks and service marks owned by them or their
affiliates to be of substantial value. Their policy is to obtain federal
registration of their trademarks and other intellectual property whenever
possible and to pursue vigorously any infringement of trademarks.
RESEARCH
AND DEVELOPMENT
While
research and development are important to the Company, these expenditures have
not been material due to the nature of the restaurant and retail
industry.
SEASONAL
ASPECTS
Historically,
the profits of the Company have been lower in the first three fiscal quarters
and highest in the fourth fiscal quarter, which includes much of the summer
vacation and travel season. Management attributes these variations primarily
to
the increase in interstate tourist traffic and propensity to dine out during
the
summer months, whereas after the school year begins and as the winter months
approach, there is a decrease in interstate tourist traffic and less of a
tendency to dine out due to inclement weather. The Company’s retail sales
historically have been highest in the Company’s second fiscal quarter, which
includes the Christmas holiday shopping season.
WORKING
CAPITAL
In
the
restaurant industry, substantially all sales transactions occur either in cash
or by third-party credit card. Like most other restaurant companies, the Company
is able to, and may often, operate with a working capital deficit. 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 through normal trade credit. Because of its retail operations,
which have a lower product turnover than the restaurant business, the Company
carries larger inventories than many other companies in the restaurant industry.
Retail inventories purchased domestically generally are financed
13
from
normal trade credit, while imported retail inventories generally are purchased
through wire transfers. These various trade terms are aided by rapid product
turnover of the restaurant inventory. Employee compensation and benefits payable
generally may be related to weekly, bi-weekly or semi-monthly pay cycles, and
many other operating expenses have normal trade terms.
14
ITEM
1A.
RISK FACTORS
Investing
in our securities involves a degree of risk. Persons buying our securities
should carefully consider the risks described below and the other information
contained in this Annual Report on Form 10-K and other filings that we make
from
time to time with the Securities and Exchange Commission, including our
consolidated financial statements and accompanying notes. If any of the
following risks actually occurs, our business, financial condition, results
of
operation or cash flows could be materially adversely affected. In any such
case, the trading price of our securities could decline and you could lose
all
or part of your investment. The risks described below are not the only ones
facing our company and is not intended to be a complete discussion of all
potential risks or uncertainties. Additional risks not presently known to us
or
that we currently deem immaterial may also impair our business
operations.
Risks
Related to Our Business
Successful
divestitures and other strategic transactions are important to our future
growth
and profitability.
We
evaluate potential divestitures, including the possible divestiture of our
Logan’s Roadhouse, Inc. subsidiary, and capital structure initiatives as part of
our strategic planning process. These transactions involve various inherent
risks, including accurately assessing:
| · |
the
value, future growth potential, strengths, weaknesses, contingent
and
other liabilities and potential profitability of the business units
of our
Company;
|
| · |
our
ability to achieve projected economic and operating plans; unanticipated
changes in business, capital markets and economic conditions affecting
the
business and divestiture initiative; and
|
| · |
our
ability to complete divestitures on acceptable terms and at or near
the
prices estimated as attainable by us.
|
Our
credit facility places financial and other restrictions on
us.
Our
$1.25
billion credit facility that we entered into in connection with our 2006
strategic initiatives imposes financial covenants, including maintaining
a
minimum defined fixed charge coverage ratio and a maximum defined leverage
ratio. In addition, the credit facility limits our ability to make dividend
distributions and make certain payments to reduce outstanding indebtedness.
The
lender’s ongoing obligation to extend credit under the revolving credit portion
of the facility will depend upon our compliance with these and other covenants.
Indebtedness may have important additional consequences, including placing
us at
a competitive disadvantage compared to our competitors that may have
proportionately less debt, limiting our flexibility in planning for changes
in
our business and the industry and making us more vulnerable to economic
downturns and adverse developments in our business.
Certain
economic and business factors specific to the restaurant or retail industries
and certain general economic factors that are largely out of our control
may
adversely affect our results of operations.
Our
business results depend on a number of industry-specific and general economic
factors, many of which are beyond our control. The full-service dining sector
of
the restaurant industry and the retail industry are affected by changes in
national, regional and local economic conditions, seasonal fluctuation of
sales
volumes, consumer preferences, including changes in consumer tastes and dietary
habits and the level of consumer acceptance of our restaurant concepts and
retail merchandise, and consumer spending patterns. The performance of
individual locations may also be adversely affected by factors such as
demographic trends, severe weather including hurricanes, traffic patterns,
the
price and availability of gasoline and the type, number and location of
competing restaurants.
In
addition, general or regional economic conditions, such as recessionary economic
cycles, a protracted economic slowdown, a worsening economy or industry-wide
cost pressures, could affect consumer behavior and spending for restaurant
dining occasions or retail merchandise and lead to a decline in sales and
earnings. Furthermore, we cannot predict the effects of actual or threatened
armed conflicts or terrorist attacks, efforts to combat terrorism, military
action against any foreign state or group located in a foreign state or
heightened security requirements on the economy or consumer confidence in
the
United States. Any of these events could also affect consumer spending patterns
or result in increased costs for us due to security measures.
Unfavorable
changes in the above factors or in other business and economic conditions
affecting our customers could increase our costs, reduce traffic in some
or all
of our locations or impose practical limits on
15
Our
business is affected by changes in consumer preferences and discretionary
spending.
Our
success depends, in part, upon the popularity of our food and retail products.
Shifts in consumer preferences away from our restaurants or food or retail
items
would harm our business. Also, our success depends to a significant extent
on
discretionary consumer spending, which is influenced by general economic
conditions and the availability of discretionary income. Accordingly, we
may
experience declines in sales during economic downturns or during periods
of
uncertainty like those that followed the terrorist attacks on the United
States
on September 11, 2001 and Hurricanes Katrina and Rita in September 2005.
In
addition, recent increases in fuel and other energy prices could decrease
discretionary consumer spending. Any material decline in consumer confidence
or
the amount of discretionary spending could have a material adverse effect
on our
sales, results of operations, business and financial condition.
Our
business is seasonal.
Historically,
our highest sales and profits have occurred during the summer. Winter, excluding
the Christmas holidays, has historically been the period of lowest sales
and
profits although retail revenues historically have been seasonally higher
between Thanksgiving and Christmas. Therefore, the results of operations
for any
quarter or period of less than one year cannot be considered indicative of
the
operating results for a full fiscal year. Additionally, severe weather, storms
and similar conditions may affect sales volumes seasonally in some operating
regions.
We
face intense competition, and if we are unable to continue to compete
effectively, our business, financial condition and results of operations
would
be adversely affected.
The
casual dining sector of the restaurant industry is intensely competitive
with
respect to pricing, service, location, personnel and type and quality of
food,
and there are many well-established competitors. We compete within each market
with national and regional restaurant chains and locally-owned restaurants.
Competition from other restaurant chains typically represents the more important
competitive influence, principally because of their significant marketing
and
financial resources. However, we also face growing competition as a result
of
the trend toward convergence in grocery, deli and restaurant services,
particularly in the supermarket industry. We compete primarily on the quality,
variety and value perception of menu and retail items, the number and location
of restaurants, type of concept, quality and efficiency of service,
attractiveness of facilities and effectiveness of advertising and marketing
programs. We anticipate that intense competition will continue with respect
to
all of these factors. Moreover, our competitors can harm our business even
if
they are not successful in their own operations by taking away some customers
or
employees or by aggressive and costly advertising, promotional or hiring
practices. We also compete with other restaurant chains and other retail
businesses for quality site locations and management and hourly employees,
and
competitive pressures could affect both the availability and cost of those
important resources. If we are unable to continue to compete effectively,
our
business, financial condition and results of operations would be adversely
affected.
Our
plans depend significantly on initiatives designed to improve the efficiencies,
costs and effectiveness of our operations, and failure to achieve or sustain
these plans could affect our performance adversely.
We
have
had, and expect to continue to have, initiatives in various stages of testing,
evaluation, and implementation, upon which we expect to relay to improve
our
results of operations and financial condition. These initiatives are inherently
risky and uncertain, even when tested successfully, in their application
to our
business in general. It is possible that successful testing can result partially
from resources and attention that can’t be duplicated in broader implementation.
Testing and general implementation also can be affected by other risk factors
described herein that reduce the results expected. Successful systemwide
implementation relies on consistency of training, stability of workforce,
ease
of execution, and the absence of offsetting factors that can influence results
adversely. Failure to achieve successful implementation of our initiatives
could
adversely affect our results of operations and financial condition.
We
are dependent on attracting and retaining qualified employees while also
controlling labor costs.
We
are
dependent upon the availability of qualified restaurant personnel. Availability
of staff varies widely from location to location. If restaurant management
and
staff turnover trends increase, we could suffer higher direct costs associated
with recruiting, training and retaining replacement personnel. Moreover,
we
could suffer from significant indirect costs, including restaurant disruptions
due to management changeover and potential delays in
16
Many
of
our employees are hourly workers whose wages are likely to be affected by
an
increase in the federal or state minimum wage or changes to the tip credit
amount. The tip credit amount is the amount an employer is permitted to assume
an employee receives in tips when the employer calculates the employee’s hourly
wage for minimum wage compliance purposes. Proposals have been made, and
continue to be made, at federal and state levels to increase minimum wage
levels, including changes to the tip credit amount. An increase in the minimum
wage may require an increase or create pressure to increase the pay scale
for
our employees. A shortage in the labor pool or other general inflationary
pressures or changes could also increase our labor costs. A shortage in the
labor pool could also cause our restaurants to be required to operate with
reduced staff, which could negatively impact our ability to provide adequate
service levels to our customers.
We
may not be able to obtain and maintain licenses and permits necessary to
operate
our restaurants, and failure to comply with laws could adversely affect our
operating results.
The
restaurant industry is subject to various federal, state and local government
regulations, including those relating to the sale of food and alcoholic
beverages. Such regulations are subject to change from time to time. The
failure
to obtain and maintain these licenses, permits and approvals could adversely
affect our operating results. Typically, licenses must be renewed annually
and
may be revoked, suspended or denied renewal for cause at any time if
governmental authorities determine that our conduct violates applicable
regulations. Difficulties or failure to obtain the required licenses and
approvals could delay or result in our decision to cancel the opening of
new
restaurants, which would adversely affect our business.
We
are subject to a number of risks relating to federal, state and local regulation
of our business that may increase our costs and decrease our profit
margins.
The
restaurant industry is subject to extensive federal, state and local laws
and
regulations, including those relating to building and zoning requirements
and
those relating to the preparation and sale of food. The development and
operation of restaurants depend to a significant extent on the selection
and
acquisition of suitable sites, which are subject to zoning, land use,
environmental, traffic and other regulations and requirements. We are also
subject to licensing and regulation by state and local authorities relating
to
health, sanitation, safety and fire standards and liquor licenses, federal
and
state laws governing our relationships with employees (including the Fair
Labor
Standards Act of 1938 and the Immigration Reform and Control Act of 1986
and
applicable requirements concerning the minimum wage, overtime, family leave,
tip
credits, working conditions, safety standards and immigration status), federal
and state laws which prohibit discrimination and other laws regulating the
design and operation of facilities, such as the Americans With Disabilities
Act
of 1990. In addition, we are subject to a variety of federal, state and local
laws and regulations relating to the use, storage, discharge, emission, and
disposal of hazardous materials. The impact of current laws and regulations,
the
effect of future changes in laws or regulations that impose additional
requirements and the consequences of litigation relating to current or future
laws and regulations could increase our compliance and other costs of doing
business and therefore have an adverse effect on our results of operations.
Failure to comply with the laws and regulatory requirements of federal, state
and local authorities could result in, among other things, revocation of
required licenses, administrative enforcement actions, fines and civil and
criminal liability.
We
also
are subject to rules and regulations, including interpretation thereof, of
the
IRS and state and local tax authorities that could cause our effective income
tax rate and the timing of our payments to be unfavorable and affect our
results
of operations and financial condition adversely.
Additionally,
a number of states restrict highway signage. Since many of our restaurants
are
located on the interstate highway system, our business is highly related
to
highway travel. Thus, signage restrictions or loss of existing signage could
affect our visibility and ability to attract customers.
We
depend on key personnel for our success.
We
believe that our success is largely dependent on the abilities and experience
of
our senior management team. The loss of services of one or more of these
senior
executives could adversely affect our ability to effectively manage our overall
operations or successfully execute current or future business strategies,
either
of which could have a material adverse effect on us and our results of
operations.
17
The
price and availability of food, ingredients and utilities used by our
restaurants or merchandise sold in our retail shop could adversely affect
our
revenues and results of operations.
Our
heavy reliance on certain vendors and suppliers could adversely affect our
business.
Our
ability to maintain consistent quality throughout our operations depends
in part
upon our ability to acquire specified food and retail products and supplies
in
sufficient quantities. In some cases, we may have only one supplier for a
product or supply. A large part of our retail product is distributed from
a
single location. Our dependence on single source suppliers subjects us to
the
possible risks of shortages, interruptions and price fluctuations. If any
of
these vendors are unable to fulfill their obligations, or if we are unable
to
find replacement suppliers in the event of a supply disruption, we could
encounter supply shortages and incur higher costs to secure adequate supplies,
either of which would materially harm our business.
Our
current insurance may expose us to unexpected costs.
Historically,
our insurance coverage has reflected deductibles, self-insured retentions,
limits of liability and similar provisions that we believe prudent based
on the
dispersion of our operations. However, there are types of losses we may incur
against which we cannot be insured or which we believe are not economically
reasonable to insure, such as losses due to acts of terrorism and some natural
disasters, including floods. If we incur such losses, our business could
suffer.
In addition, we self-insure a significant portion of expected losses under
our
workers’ compensation, general liability and group health insurance programs.
Unanticipated changes in the actuarial assumptions and management estimates
underlying our reserves for these losses, including expected increases in
medical and indemnity costs, could result in materially different amounts
of
expense than expected under these programs, which could have a material adverse
effect on our financial condition and results of operations.
Health
concerns and government regulation relating to the consumption of beef or
other
food products could affect consumer preferences and could negatively impact
our
results of operations.
Many
of
the food items on our menu contain beef and chicken. The preferences of our
customers toward beef and chicken could be affected by health concerns about
the
consumption of beef or chicken or negative publicity concerning food quality,
illness and injury generally. In recent years there has been negative publicity
concerning E. coli bacteria, hepatitis A, “mad cow” disease, “foot-and-mouth”
disease, the bird flu, peanut and other food allergens, and other public
health
concerns affecting the food supply, including beef, chicken and pork. This
negative publicity, as well as any other negative publicity concerning food
products we serve, may adversely affect demand for our food and could result
in
a decrease in guest traffic to our restaurants. A decrease in guest traffic
to
our restaurants or change in our mix of products sold as a result of these
health concerns either in general or specific to our operations, could
materially harm our business.
Unfavorable
publicity could harm our business.
Multi-unit
restaurant businesses such as ours can be adversely affected by publicity
resulting from complaints or litigation alleging poor food quality, food-borne
illness, personal injury, adverse health effects (including obesity) or other
concerns stemming from one or a limited number of restaurants. Regardless
of
whether the allegations or complaints are valid, unfavorable publicity relating
to a limited number of our restaurants, or only to a single restaurant, could
adversely affect public perception of the entire brand. Adverse publicity
and
its effect on overall consumer perceptions of food safety could have a material
adverse effect on our business, financial condition and results of
operations.
18
If
we fail to execute our growth strategy, which primarily depends on our ability
to open new restaurants that are profitable, our business could
suffer.
Historically,
one of the most significant means of achieving our growth objectives have
been
through opening new restaurants and operating those restaurants on a profitable
basis. We expect this to continue to be the case in the future. One of our
biggest challenges in executing our growth strategy is locating and securing
an
adequate supply of suitable new restaurant sites. Competition for suitable
restaurant sites and operating personnel in our target markets is intense,
and
we cannot assure you that we will be able to find sufficient suitable locations,
or negotiate suitable purchase or lease terms, for our planned expansion
in any
future period. Delays or failures in opening new restaurants, or achieving
lower
than expected sales in new restaurants, or drawing a greater than expected
proportion of sales in new restaurants from existing restaurants, could
materially adversely affect our growth strategy. Our ability to open new
restaurants successfully will also depend on numerous other factors, some
of
which are beyond our control, including, among other items, the
following:
• our
ability to hire, train and retain qualified operating personnel;
•
our
ability to mitigate the effects of uncertain consumer confidence, higher
costs
for utilities, consumer debt payments, general or regional economic weakness,
or
weather on our sales and the discretionary income and personal expenditure
activity of our customers;
• our
ability to control construction and development costs of new
restaurants;
• changes
in local, state or federal laws and regulations that adversely affect our
costs;
• consumer
acceptance of our restaurants in new markets;
• road
construction and other factors limiting access to the restaurant;
• the
cost
and availability of capital to fund construction costs and pre-opening
expenses;
• our
ability to secure required governmental approvals and permits in a timely
manner, or at all; and
• acts
of
God.
Once
opened, we anticipate that our new restaurants will generally take several
months to reach budgeted or expected operating levels owing to start-up
inefficiencies and sales patterns typically associated with new restaurants.
We
cannot assure you that any restaurant we open will be profitable or obtain
operating results similar to those of our existing restaurants.
We
cannot
assure you that we will be able to respond on a timely basis to all of the
changing demands that our planned expansion will impose on management and
on our
existing infrastructure, nor that we will be able to hire or retain the
necessary management and operating personnel. Our existing restaurant management
systems, financial and management controls and information systems may not
be
adequate to support our planned expansion. Our ability to manage our growth
effectively will require us to continue to enhance these systems, procedures
and
controls and to locate, hire, train and retain management and operating
personnel.
Some
of
our new restaurants will be located in areas where we have little or no
meaningful experience. Those markets may have different competitive conditions,
market conditions, consumer tastes and discretionary spending patterns than
our
existing markets, which may cause our new restaurants to be less successful
than
restaurants in our existing markets.
Some
of
our new restaurants will be located in areas where we have existing restaurants.
Although we have experience in these markets, increasing the number of locations
in these markets may cause us to over-saturate markets and temporarily or
permanently divert customers and sales from our existing restaurants, thereby
adversely affecting our overall profitability.
Litigation
may adversely affect our business, financial condition and results of
operations.
Our
business is subject to the risk of litigation by employees, consumers,
suppliers, shareholders or others through private actions, class actions,
administrative proceedings, regulatory actions or other litigation. The outcome
of litigation, particularly class action lawsuits and regulatory actions,
is
difficult to assess or quantify. Plaintiffs in these types of lawsuits may
seek
recovery of very large or indeterminate amounts, and the magnitude of
19
Our
annual and quarterly operating results may fluctuate significantly and could
fall below the expectations of securities analysts and investors due to a
number
of factors, some of which are beyond our control, resulting in a decline
in the
price of our securities.
Our
annual and quarterly operating results may fluctuate significantly because
of
several factors, including:
• increases
and decreases in average weekly sales, restaurant and retail sales and
restaurant profitability;
• the
rate
at which we open new locations, the timing of new unit openings and the related
high initial operating costs;
• changes
in consumer preferences and competitive conditions, including the effects
of
competitors’ operational, promotional or expansion activities;
• fluctuations
in commodity prices, product costs, utilities and energy costs, prevailing
wage
rates, insurance costs and other costs;
• our
ability to recruit, train and retain qualified hourly and management employees,
and the costs associated with those activities;
• the
effects of uncertain consumer confidence, consumer debt payments, general
or
regional economic weakness, or weather on our sales and the discretionary
income
or personal expenditure activity of customers;
• general
national economic trends and local economic conditions, which could be affected
by terrorist activity and government responses thereto, local strikes, energy
shortages or increases in energy prices, droughts, earthquakes, fires or
other
natural disasters;
• changes
in advertising and promotional activities and expansion to new
markets;
• negative
publicity relating to the consumption of beef, chicken or other products
we
serve;
• unanticipated
increases in infrastructure costs;
• impairment
of long-lived assets, and any loss on restaurant closures or
impairments;
• changes
in interest rates; and
• changes
in accounting, tax, regulatory or other rules applicable to our
business.
Our
quarterly operating results and restaurant and retail sales may fluctuate
as a
result of any of these or other factors. Accordingly, results for any one
quarter are not necessarily indicative of results to be expected for any
other
quarter or for any year, and restaurant sales for any particular future period
may decrease. In the future, operating results may fall below the expectations
of securities analysts and investors. In that event, the price of our securities
could decrease
Obtaining
some of our retail merchandise exposes us to risks associated with foreign
imports.
Our
future operating results as they relate to the retail operations in our Cracker
Barrel units depend on products that are or may be manufactured in a number
of
foreign countries. Because we depend on foreign sourcing for these products,
our
results of operations may be materially affected by:
| - |
fluctuating
currency exchange rates;
|
| - |
foreign
government regulations;
|
20
| - |
foreign
exchange control regulations;
|
| - |
import/export
restrictions;
|
| - |
foreign
economic instability;
|
| - |
political
instability;
|
| - |
disruptions
due to labor stoppages, strikes or slowdowns, or other disruptions,
involving our vendors or the transportation and handling
industries;
|
| - |
adverse
exchange movement of the U.S. dollar versus foreign currency; and
tariffs,
trade barriers and other trade restrictions by the U.S. government
on
products or components shipped from foreign
sources
|
Individual
restaurant locations are affected by local conditions that could change and
affect the carrying value of those locations
adversely.
The
success of our business depends on the success of individual locations, and
the
success of individual locations depends on stability of or improvements in
operating condition at and around those locations. Changes in highway or
roadway
traffic patterns, concentrations of general retail or hotel activity, local
population densities, increased competition, and local economic conditions
are
not within our control and can affect local operations adversely, including
the
carrying value of those locations.
We
can be affected adversely and unexpectedly by the implementation of new,
or
changes in the interpretation of existing, accounting principles generally
accepted in the United States of America (“GAAP”).
Our
financial reporting complies with GAAP, and GAAP is subject to change over
time.
If new rules or interpretations of existing rules require us to change our
financial reporting, our results of operations and financial condition could
be
affected adversely, including requirements to restate historical financial
reporting.
Identification
of material weakness in internal control may adversely affect our financial
results.
We
are
subject to the ongoing internal control provisions of Section 404 of the
Sarbanes-Oxley Act of 2002. Those provisions provide for the identification
of
material weaknesses in internal control. If such a material weakness is
identified, it could indicate a lack of controls adequate to generate accurate
financial statements. We routinely assess our internal controls, but we cannot
assure you that we will be able to timely remediate any material weaknesses
that
may be identified in future periods, or maintain all of the controls necessary
for continued compliance. Likewise, we cannot assure you that we will be
able to
retain sufficient skilled finance and accounting personnel, especially in
light
of the increased demand for such personnel among publicly traded
companies.
We
may need additional capital in the future, and it may not be available on
acceptable terms.
The
development of our business may require significant additional capital in
the
future to fund our operations and growth strategy, among other activities.
We
have historically relied upon cash generated by our own operations and lease
financing to fund our expansion. We currently maintain a revolving credit
facility with a capacity of $250 million, none of which was drawn as of the
end
of fiscal 2006. We may also need to access the debt and equity capital markets.
There can be no assurance, however, that these sources of financing will
be
available on acceptable terms, or at all. Our ability to obtain additional
financing will be subject to a number of factors, including market conditions,
our operating performance, investor sentiment and our ability to incur
additional debt in compliance with agreements governing our then-outstanding
debt. These factors may make the timing, amount, terms and conditions of
additional financings unattractive to us. If we are unable to generate
sufficient funds from operations or raise additional capital, our growth
could
be impeded.
21
Our
failure or inability to enforce our trademarks or other proprietary rights
could
adversely affect our competitive position or the value of our
brand.
We
own
certain common law trademark rights and a number of federal trademark and
service mark registrations, including the CRACKER BARREL OLD COUNTRY STORE® and
LOGAN’S ROADHOUSE®
name and
logo, and proprietary rights relating to our methods of operation and certain
of
our core menu offerings. We believe that our trademarks and other proprietary
rights are important to our success and our competitive position, and,
therefore, we devote resources to the protection of our trademarks and
proprietary rights. The protective actions that we take, however, may not
be
enough to prevent unauthorized use or imitation by others, which could harm
our
image, brand or competitive position. If we commence litigation to enforce
our
rights, we will incur significant legal fees.
We
are
not aware of any assertions that our trademarks or menu offerings infringe
upon
the proprietary rights of any third parties, but we cannot assure you that
third
parties will not claim infringement by us in the future. Any such claim,
whether
or not it has merit, could be time-consuming and distracting for executive
management, result in costly litigation, cause changes to existing menu items
or
delays in introducing new menu items, or require us to enter into royalty
or
licensing agreements. As a result, any such claim could have a material adverse
effect on our business, results of operations and financial
condition.
Provisions
in our charter, Tennessee law and our shareholder rights plan may discourage
potential acquirors of our company, which could adversely affect the value
of
our securities.
Our
charter documents contain provisions that may have the effect of making it
more
difficult for a third party to acquire or attempt to acquire control of the
Company. In addition, we are subject to certain provisions of Tennessee law
that
limit, in some cases, our ability to engage in certain business combinations
with significant shareholders. Also, our shareholder rights plan may inhibit
accumulations of substantial amounts of our common stock without the approval
of
our board of directors.
These
provisions, either alone, or in combination with each other, give our current
directors and executive officers a substantial ability to influence the outcome
of a proposed acquisition of the Company. These provisions would apply even
if
an acquisition or other significant corporate transaction was considered
beneficial by some of our shareholders. If a change in control or change
in
management is delayed or prevented by these provisions, the market price
of our
securities could decline.
Risks
Particular to our Logan’s Operations
So
long as we own Logan’s, that business will be subject to the following
additional risks and uncertainties:
We
have developed and tested and are now implementing an enhanced restaurant
prototype for future expansion, but the prototype has yet to be proven from
either an investment or operating standpoint.
We
have
developed and tested and are now implementing an enhanced restaurant prototype
for future expansion of Logan’s. This prototype incorporates changes in size,
materials, layout, operational design and aesthetic design elements from
our
previous restaurant design, and there is no guarantee that this or any future
prototypes will be successful. We may need to reduce our rate of development
of
this prototype or modify our plans by continuing to build our previous
restaurant design. An initial version of the enhanced prototype was launched
in
August 2005. We have made numerous design changes and have identified additional
further changes to this prototype as a result of what we have learned from
the
initial launch and are currently building a second restaurant under this
prototype, but we have not yet operated a restaurant under the revised version
of the enhanced prototype. The introduction of any new prototypes could result
in different average weekly sales and returns on invested capital than we
have
experienced with our previous restaurant design. Additionally, any changes
to
our restaurant design and layout could negatively affect the Logan’s brand
image.
Failure
to comply with alcoholic beverage or food control regulations could lead
to the
loss of our liquor and food service licenses and, thereby, harm our
business.
In
2006,
approximately 9% of our total sales from Logan’s company-owned restaurants were
attributable to the sale of alcoholic beverages. Alcoholic beverage control
regulations require each of our restaurants to apply to a state authority
and,
in certain locations, county or municipal authorities for a license or permit
to
sell alcoholic beverages on the premises and to provide service for extended
hours and on Sundays. Alcoholic beverage control regulations relate to numerous
aspects of daily operations of our restaurants, including minimum age of
patrons
and employees, hours of operation, advertising, trade practices, wholesale
purchasing, other relationships with alcohol manufacturers, wholesalers and
distributors, inventory control, and handling, storage and dispensing of
alcoholic
22
“Dram
shop” litigation may hurt us.
In
addition to the general risk of litigation described above, Logan’s also is
subject to state and local “dram shop” statutes. These statutes generally allow
a person injured by an intoxicated person to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. In the past, after allegedly consuming alcoholic beverages at our
restaurants, individuals have been killed or injured or have killed or injured
third parties. Because a plaintiff may seek punitive damages, which may not
be
covered by insurance, this type of action could have an adverse impact on
our or
our franchisee’s financial condition and results of operations. A judgment in
such an action significantly in excess of our insurance coverage, or the
insurance coverage of one of our franchisees, for any claims could materially
adversely affect our financial condition or results of operations. Further,
adverse publicity resulting from any such allegations may materially adversely
affect us, our franchisees and our restaurants taken as a whole.
If
we fail to comply with federal and state statutes, regulations and rules
governing our offer and sale of franchises and our relationship with our
franchisees, we may be subject to franchisee-initiated litigation and
governmental or judicial fines or sanctions.
We
are
subject to the Federal Trade Commission and to various state laws that govern
the offer and sale of franchises. Additionally, many state laws regulate
various
aspects of the franchise relationship, including the following:
•
the
nature, timing and sufficiency of disclosures to franchisees upon the initiation
of the franchisor-potential franchisee relationship;
•
our
conduct during the franchisor-franchisee relationship; and
•
renewals
and terminations of franchises.
Any
past
or future failures by us to comply with these laws and regulations in any
jurisdiction or to obtain required government approvals could result in
franchisee-initiated lawsuits, a ban or temporary suspension on future franchise
sales, civil and administrative penalties or other fines, or require us to
make
offers of rescission, disgorgement or restitution, any of which could adversely
affect our business and operating results. We could also face lawsuits by
our
franchisees based upon alleged violations of these laws. In the case of willful
violations, criminal sanctions could be brought against us.
Our
franchisees could take actions that could be harmful to our
business.
Our
franchisees are contractually obligated to operate their restaurants in
accordance with Logan’s Roadhouse standards and all applicable laws. Although we
attempt to properly train and support franchisees, franchisees are independent
third parties that we do not control, and the franchisees own, operate and
oversee the daily operations of their restaurants. As a result, the ultimate
success and quality of any franchised restaurant rests with the franchisee.
If
franchisees do not successfully operate restaurants in a manner consistent
with
our standards, the Logan’s Roadhouse image and reputation could be harmed, which
in turn could adversely affect our business and operating results. Further,
a
franchisee’s inability to remain financially viable could result in its failure
to pay various franchise-related fees owed to us. Finally, regardless of
the
actual validity of such a claim, we may be named as a party in an action
relating to, and/or be held liable for, the conduct of our franchisees if
it is
shown that we exercise a sufficient level of control over a particular
franchisee’s operation.
Our
development agreements with our franchisees limit our ability to expand in
certain markets.
During
the term of our current area development agreement with our largest franchisee,
CMAC, Inc. (“CMAC”), which expires on March 31, 2007, we are prohibited from
operating any company-owned restaurant, or granting a license to any person
to
operate a restaurant, in North Carolina, South Carolina and Augusta, Georgia.
We
are also prohibited from operating any company-owned restaurant, or granting
a
license to any person to operate a restaurant in Northern California and
Reno,
Nevada pursuant to our area development agreement with L.G. Enterprises,
LLC
(“L.G. Enterprises”), until December 31, 2008. If these markets experience
faster than expected
growth in the restaurant industry, and if our franchisees are unable to expand
to keep pace with such market growth, our competitive position in these markets
could be temporarily or permanently harmed.
23
ITEM
1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM
2.
PROPERTIES
The
Company’s corporate headquarters are located on approximately eight acres of
land owned by the Company in Lebanon, Tennessee. The Company uses 10,000 square
feet of office space for its corporate headquarters.
The
Cracker Barrel corporate headquarters and warehouse facilities are located
on
approximately 120 acres of land owned by Cracker Barrel in Lebanon, Tennessee.
Cracker Barrel utilizes approximately 110,000 square feet of office space for
its corporate headquarters and decorative fixtures warehouse. Cracker Barrel
also utilizes 367,200 square feet of warehouse facilities and an additional
13,800 square feet of office and maintenance space for its retail distribution
center.
The
Logan's
corporate headquarters and training facility are located in approximately 38,500
and 6,000 square feet, respectively, in Nashville, Tennessee, under two leases,
both of which expire on February 28, 2015.
In
addition to the various corporate facilities, the Company has 29 properties
(owned or leased) for future development, a motel used for housing management
trainees and for the general public, and ten parcels of excess real property
and
improvements including four leased property, which the Company intends to
dispose of.
24
In
addition to the properties mentioned above, Cracker Barrel and Logan’s own or
lease the following store properties as of September 29, 2006:
State
Cracker
Barrel
Logan’s
Combined
|
Owned
|
Leased
|
Owned
|
Leased
|
Owned
|
Leased
|
|||
|
Tennessee
|
35
|
13
|
12
|
5
|
47
|
18
|
||
|
Florida
|
40
|
14
|
4
|
5
|
44
|
19
|
||
|
Texas
|
28
|
4
|
13
|
12
|
41
|
16
|
||
|
Georgia
|
30
|
8
|
6
|
4
|
36
|
12
|
||
|
Alabama
|
17
|
9
|
8
|
5
|
25
|
14
|
||
|
Indiana
|
21
|
6
|
6
|
5
|
27
|
11
|
||
|
Ohio
|
22
|
9
|
2
|
2
|
24
|
11
|
||
|
Kentucky
|
19
|
9
|
1
|
7
|
20
|
16
|
||
|
Michigan
|
13
|
3
|
2
|
13
|
15
|
16
|
||
|
Virginia
|
19
|
4
|
6
|
2
|
25
|
6
|
||
|
North
Carolina
|
22
|
8
|
-
|
-
|
22
|
8
|
||
|
Illinois
|
20
|
2
|
-
|
-
|
20
|
2
|
||
|
Pennsylvania
|
9
|
12
|
-
|
1
|
9
|
13
|
||
|
South
Carolina
|
13
|
6
|
-
|
-
|
13
|
6
|
||
|
Mississippi
|
8
|
3
|
3
|
3
|
11
|
6
|
||
|
Missouri
|
14
|
3
|
-
|
3
|
14
|
6
|
||
|
Louisiana
|
7
|
2
|
3
|
2
|
10
|
4
|
||
|
Arkansas
|
4
|
6
|
1
|
1
|
5
|
7
|
||
|
West
Virginia
|
3
|
6
|
1
|
3
|
4
|
9
|
||
|
Arizona
|
2
|
7
|
-
|
-
|
2
|
7
|
||
|
New
York
|
7
|
1
|
-
|
-
|
7
|
1
|
||
|
Oklahoma
|
4
|
2
|
1
|
1
|
5
|
3
|
||
|
New
Jersey
|
2
|
4
|
-
|
-
|
2
|
4
|
||
|
Kansas
|
3
|
1
|
-
|
-
|
3
|
1
|
||
|
Wisconsin
|
5
|
-
|
-
|
-
|
5
|
-
|
||
|
Colorado
|
3
|
1
|
-
|
-
|
3
|
1
|
||
|
Maryland
|
3
|
1
|
-
|
-
|
3
|
1
|
||
|
Massachusetts
|
-
|
4
|
-
|
-
|
-
|
4
|
||
|
Iowa
|
3
|
-
|
-
|
-
|
3
|
-
|
||
|
New
Mexico
|
2
|
1
|
-
|
-
|
2
|
1
|
||
|
Utah
|
4
|
-
|
-
|
-
|
4
|
-
|
||
|
Connecticut
|
1
|
1
|
-
|
-
|
1
|
1
|
||
|
Minnesota
|
1
|
-
|
-
|
-
|
1
|
-
|
||
|
Montana
|
2
|
-
|
-
|
-
|
2
|
-
|
||
|
Nebraska
|
1
|
1
|
-
|
-
|
1
|
1
|
||
|
Delaware
|
-
|
1
|
-
|
-
|
-
|
1
|
||
|
Idaho
|
1
|
-
|
-
|
-
|
1
|
-
|
||
|
New
Hampshire
|
1
|
-
|
-
|
-
|
1
|
-
|
||
|
North
Dakota
|
1
|
-
|
-
|
-
|
1
|
-
|
||
|
Rhode
Island
|
-
|
1
|
-
|
-
|
-
|
1
|
||
|
South
Dakota
|
1
|
-
|
-
|
-
|
1
|
-
|
||
|
|
|
|||||||
|
Total
|
391
|
153
|
69
|
74
|
460
|
227
|
See
"Business-Operations" and "Business-Unit Development" in Item I of this Annual
Report on Form 10-K for additional information on the Company's and its
subsidiaries’ properties.
25
ITEM
3.
LEGAL PROCEEDINGS
See
Note
12 to the Company's Consolidated Financial Statements filed or incorporated
by
reference in Part II, Item 8 of this Annual Report on Form 10-K, which also
is
incorporated herein by this reference.
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
26
Pursuant
to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3)
to Form 10-K, the following information is included in Part I of this Form
10-K.
Executive
Officers of the Registrant
The
following table sets forth certain information concerning the executive officers
of the Company, as of September 29, 2006:
| Name |
Age
|
Position with Registrant |
| Michael A. Woodhouse |
61
|
Chairman, President & Chief Executive Officer |
| Lawrence E. White |
56
|
Senior Vice President, Finance & Chief Financial Officer |
| N. B. Forrest Shoaf |
56
|
Senior Vice President, Secretary and General Counsel |
| Edward A. Greene |
51
|
Senior Vice President, Strategic Initiatives |
| Simon Turner |
51
|
Senior Vice President, Marketing and Innovation and Chief Marketing Officer |
| Diana S. Wynne |
51
|
Senior Vice President, Corporate Affairs |
| Patrick A. Scruggs |
42
|
Vice President, Accounting and Tax, & Chief Accounting Officer |
| G. Thomas Vogel |
42
|
President and Chief Executive Officer of Logan’s Roadhouse, Inc. |
The
following
information summarizes the business experience of each executive officer of
the
Company for at least the past five years:
Mr.
Woodhouse has been employed by the Company or its subsidiaries in various
capacities since 1995. Mr. Woodhouse served the Company as Senior Vice President
of Finance and CFO from January 1999 to July 1999, as Executive Vice President
and Chief Operating Officer (“COO”) from August 1999 until July 2000, as
President and COO from August 2000 until July 2001, and then as President and
Chief Executive Officer from August 2001 until November 2004 when he assumed
his
current positions. Mr. Woodhouse has 22 years of experience in the restaurant
industry and 14 years of experience in the retail industry.
Mr.
White
has been employed by the Company in his current capacity since September 1999.
Prior to that, he was Executive Vice President and Chief Financial Officer
of
Boston Chicken, Inc., where he was part of a new management team brought in
during 1998 for an operational and financial turnaround. Mr. White has 19 years
of experience in the restaurant industry and 7 years of experience in the retail
industry.
Mr.
Shoaf
began his employment with the Company in April 2005. Prior to that, he was
Managing Director of Investment Banking for Avondale Partners, LLC. From
1996-2000, he was a Managing Director of J.C. Bradford and from 2000-2002,
a
Managing Director in the investment banking group of Morgan Keegan, a Memphis,
Tennessee based investment banking firm and head of its Nashville Corporate
Finance Office.
Mr.
Greene has been employed by the Company in his current capacity since October
2005. From August 1996 to October 2005, he worked for Restaurant Services,
Inc.,
the independent purchasing cooperative which provides supply chain management
services for Burger King Corporation and its franchisees, serving most recently
as its Vice President, Food and Packaging Purchasing. Mr. Greene began his
career with The Pillsbury Company and has over 28 years of combined experience
in the restaurant and food processing industries.
Mr.
Turner has been employed by the Company in his current capacity since July
2006,
following an eight month consultancy. Prior to that he was Chief Executive
Officer of Blue Chip Management Consultants Limited (renamed Balancing Blooms
Limited in 2004) a United Kingdom registered limited liability company. Mr
Turner
27
previously
had 19 years of consumer goods and food and beverage marketing experience at
Procter & Gamble, The Coca-Cola Company, Unilever and
Kimberly-Clark.
Ms.
Wynne
joined CBRL in January 2006. Prior to that, she was Vice President, Treasury
for
Blockbuster, Inc. Prior to that she served as Senior Vice President and
Treasurer for Metromedia Restaurant Group. Ms. Wynne began her career with
Price
Waterhouse Coopers and has over 27 years of experience in the restaurant and
retail industries.
Mr.
Scruggs has been employed by the Company or its subsidiaries in various
capacities since 1989. He assumed his current position in 2003. Mr. Scruggs
has
17 years of experience in the restaurant and retail industries.
Mr.
Vogel
joined Logan’s in August 2003. Prior to that, he was employed by Darden
Restaurants Inc. since August 1991 serving in various capacities for its Red
Lobster concept, including Senior Vice President of Operations, West/Southeast
Divisions from June 1999 to August 2003, Vice President of Food and Beverage
from November 1997 to June 1999, and Concept Development Director from March
1995 to November 1997. Mr. Vogel has 20 years of experience in the restaurant
industry.
28
PART
II
ITEM
5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The
Company's Common Stock is traded on the NASDAQ Global Market (“Nasdaq”) under
the symbol CBRL. There were 12,503 shareholders of record as of September 29,
2006.
The
table
“Market Price and Dividend Information” contained in the 2006 Annual Report is
incorporated herein by this reference. Part III, Item 12 of this Annual Report
on Form 10-K is incorporated in this Item of this Report by this
reference.
Unregistered
Sales of Equity Securities
There
were no equity securities sold by the Company during the period covered by
this
Annual Report on Form 10-K that were not registered under the Securities Act
of
1933, as amended.
Issuer
Purchases of Equity Securities
The
following table sets forth information with respect to purchases of shares
of
the Company’s common stock made during the quarter ended July 28, 2006 by or on
behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:
|
Period
|
Total
Number
of
Shares
Purchased (1)
|
Average
Price
Paid Per
Share (2)
|
Total
Number
of
Shares Purchased as Part of
Publicly
Announced Plans or
Programs
|
Maximum
Number
of
Shares
that
May
Yet Be Purchased
Under
the
Plans
or
Programs
(3)
|
|||||||||
|
4/29/06
- 5/26/06 (4)
|
16,750,000
|
$
|
42.04
|
16,750,000
|
821,081
|
||||||||
|
5/27/06
- 6/23/06
|
--
|
--
|
--
|
821,081
|
|||||||||
|
6/24/06
- 7/28/06
|
--
|
--
|
--
|
821,081
|
|||||||||
|
Total
for the quarter
|
16,750,000
|
$
|
42.04
|
16,750,000
|
821,081
|
||||||||
| (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
commissions and fees.
|
| (3) |
On
February 25, 2005, the Company announced a 2,000,000 share common
stock
repurchase program with no expiration
date.
|
| (4) |
Shares
repurchased during this period were in the Tender Offer disclosed
in the
Company’s Quarterly Report on Form 10-Q for the quarter ended April 28,
2006 (filed with the SEC on June 2, 2006) as well as being disclosed
in
this Annual Report on Form 10-K.
|
ITEM
6.
SELECTED FINANCIAL DATA
The
table
"Selected Financial Data" contained in the 2006 Annual Report is incorporated
into this Item of this Report by this reference.
29
ITEM
7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
“Management's
Discussion and Analysis of Financial Condition and Results of Operations,”
contained in the 2006 Annual Report, is incorporated into this Item of this
Report by this reference.
ITEM
7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
“Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
contained in the 2006 Annual Report, is incorporated into this Item of this
Report by this reference.
ITEM
8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
Consolidated Financial Statements (and related footnotes) and Report of
Independent Registered Public Accounting Firm, contained in the 2006 Annual
Report, are incorporated into this Item of this Report by this
reference.
See
Quarterly Financial Data (Unaudited) in Note 15 to the Consolidated Financial
Statements.
ITEM
9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A.
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 Rules 13a-15(e) and 15d-15(f) promulgated
under the Exchange Act). Based upon this evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that as of July 28, 2006, 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 changes (including corrective actions with regard to significant
deficiencies and material weaknesses) during the quarter ended July 28, 2006
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.
30
Management’s
Report on Internal Control over Financial Reporting
We
are
responsible for establishing and maintaining adequate internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities and Exchange Act of 1934, as amended). We maintain a system of
internal controls that is designed to provide reasonable assurance in a
cost-effective manner as to the fair and reliable preparation and presentation
of the consolidated financial statements, as well as to safeguard assets from
unauthorized use or disposition.
Our
control environment is the foundation for our system of internal control over
financial reporting and is embodied in our Corporate Governance Guidelines,
our
Financial Code of Ethics, and our Code of Business Conduct and Ethics, all
of
which may be viewed on our website. They set the tone for our organization
and
include factors such as integrity and ethical values. Our internal control
over
financial reporting is supported by formal policies and procedures, which are
reviewed, modified and improved as changes occur in business condition and
operations.
Our
disclosure controls and procedures or our internal controls cannot and will
not
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the benefits of controls relative to their costs. Because
of
the inherent limitations in all control systems, no evaluation of controls
can
provide absolute assurance that all control issues and instances of fraud,
if
any, within the Company have been detected.
We
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of
the
design effectiveness of controls, testing of the operating effectiveness of
controls and a conclusion on this evaluation. We have concluded that our
internal control over financial reporting was effective as of July 28, 2006,
based on these criteria.
In
addition, Deloitte & Touche LLP, an independent registered public accounting
firm, has issued an attestation report on management’s assessment of internal
control over financial reporting, which is included herein.
/s/Michael
A.
Woodhouse
Michael
A. Woodhouse
Chairman,
President and Chief
Executive Officer
/s/Lawrence
E.
White
Lawrence
E. White
Senior
Vice President, Finance
and Chief Financial Officer
ITEM
9B. OTHER
INFORMATION
None.
31
PART
III
ITEM
10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The
information required by this Item with respect to directors of the Company
is
incorporated into this Item of this Report by this reference to the section
entitled "Proposal 1: Election of Directors" in the 2006 Proxy Statement. The
information required by this Item with respect to executive officers of the
Company is set forth in Part I of this Annual Report on Form 10-K.
ITEM
11.
EXECUTIVE COMPENSATION
The
information required by this Item is incorporated into this Item of this Report
by this reference to the sections entitled “Board of Directors and Committees”
and "Executive Compensation" in the 2006 Proxy Statement. The matters labeled
“Compensation and Stock Option Committee Report” and “Shareholder Return
Performance Graph” are not, and shall not be deemed to be, incorporated by
reference into this Annual Report on Form 10-K.
ITEM
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
information required by this Item is incorporated into this Item of this Report
by this reference to the sections entitled "Stock Ownership of Certain
Beneficial Owners and Management" and “Executive Compensation-Equity
Compensation Plan Information” in the 2006 Proxy Statement.
ITEM
13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The
information required by this Item is incorporated into this Item of this Report
by this reference to the section entitled "Certain Transactions” in the 2006
Proxy Statement.
ITEM
14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required by this Item is incorporated into this Item of this Report
by this reference to the sections entitled “Fees Paid to Auditors” and “Audit
Committee Report-What is the Audit Committee’s pre-approval policy and procedure
with respect to audit and non-audit services provided by our auditors?” in the
2006 Proxy Statement. No other portion of the section of the 2006 Proxy
Statement entitled “Audit Committee Report” is, nor shall it be deemed to be,
incorporated by reference into this Annual Report on Form 10-K.
32
PART
IV
ITEM
15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List
of
documents filed as part of this report:
|
1.
|
The
following Consolidated Financial Statements and the Report of Independent
Registered Public Accounting Firm of Deloitte & Touche LLP of the 2006
Annual Report are included within Exhibit 13 to this Annual Report
on Form
10-K and are incorporated into this Item of this Report by this
reference:
|
| Report of Independent Registered Public Accounting Firm dated October 3, 2006 |
| Consolidated Balance Sheet as of July 28, 2006 and July 29, 2005 |
| Consolidated Statement of Income for each of the three fiscal years ended July 28, 2006, July 29, 2005 and July 30, 2004 |
| Consolidated Statement of Changes in Shareholders' Equity for each of the three fiscal years ended July 28, 2006, July 29, 2005 and July 30, 2004 |
| Consolidated Statement of Cash Flows for each of the three fiscal years ended July 28, 2006, July 29, 2005 and July 30, 2004 |
| Notes to Consolidated Financial Statements |
| 2. | All schedules have been omitted since they are either not required
or
not applicable, or the required information is included in the
cnsolidated
financial statements or notes thereto.
|
| 3. |
The
exhibits listed in the accompanying Index to Exhibits immediately
following the signature page to this
Report.
|
33
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
CBRL GROUP, INC.
By: /s/
Michael A. Woodhouse
Michael
A.
Woodhouse
President and Chief Executive Officer
October 2, 2006
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Name
|
Title
|
Date
|
|
/s/ Michael
A. Woodhouse
Michael
A. Woodhouse
|
Chairman,
President and Chief Executive Officer
|
October
2, 2006
|
|
/s/
Lawrence E. White
Lawrence
E. White
|
Senior
Vice President, Finance and Chief Financial Officer (Principal Financial
Officer)
|
October
2, 2006
|
|
/s/
Patrick A. Scruggs
Patrick
A. Scruggs
|
Chief
Accounting Officer
(Principal
Accounting Officer)
|
October
2, 2006
|
|
/s/
James D. Carreker
James
D. Carreker
|
Director
|
October
2, 2006
|
|
Robert
V. Dale
|
Director
|
October
2, 2006
|
|
/s/
Richard J. Dobkin
Richard
J. Dobkin
|
Director
|
October
2, 2006
|
|
/s/
Robert C. Hilton
Robert
C. Hilton
|
Director
|
October
2, 2006
|
|
/s/
Charles E. Jones, Jr.
Charles
E. Jones, Jr.
|
Director
|
October
2, 2006
|
|
/s/
B.F. Lowery
B.F.
Lowery
|
Director
|
October
2, 2006
|
|
/s/
Martha M. Mitchell
Martha
M. Mitchell
|
Director
|
October
2, 2006
|
|
/s/Erik
Vonk
Erik
Vonk
|
Director
|
October
2, 2006
|
|
/s/
Andrea M. Weiss
Andrea
M. Weiss
|
Director
|
October
2, 2006
|
|
/s/
Jimmie D. White
Jimmie
D. White
|
Director
|
October
2, 2006
|
34
INDEX
TO
EXHIBITS
Exhibit
| 3(a), 4(a) | Charter (1) |
| 3(b), 4(b) | Bylaws (1) |
| 4(c) | Shareholder Rights Agreement dated 9/7/1999 (2) |
| 4(d) | 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 “Notes”) (3) |
| 4(e) | Form of Certificate for the Notes (included in the LYONS Indenture incorporated by reference as Exhibit 4(d) hereof) (3) |
| 4(f) | Form of Guarantee of the Notes (included in the LYONS Indenture filed as Exhibit 4(d) hereof) (3) |
| 4(g) | First amendment, dated as of June 19, 2002, to the LYONS Indenture (4) |
| 4(h) |
Second
amendment, dated as of July 30, 2004, to the LYONS Indenture
(4) |
| 4(i) | Third amendment, dated as of December 31, 2004, to the LYONS Indenture (5) |
| 4(j) | Fourth amendment, dated as of January 28, 2005, to the LYONS Indenture (6) |
| 4(k),10(a) | Credit Agreement dated as of April 27, 2006 among CBRL Group, Inc., the Subsidiary Guarantors named therein, the Lenders party thereto and Wachovia Bank, National Association, as Administrative Agent and Collateral Agent (7) |
| 10(b) |
Lease
dated 8/27/1981 for lease of Macon, Georgia store between Cracker
Barrel
Old Country Store, Inc. and B. F. Lowery, a director of the Company
(8)
|
| 10(c) | The Company's Amended and Restated Stock Option Plan, as amended (9) |
| 10(d) | The Company’s 2000 Non-Executive Stock Option Plan (10) |
| 10(e) | The Company's 1989 Non-Employee Director's Stock Option Plan, as amended (11) |
| 10(f) | The Company's Non-Qualified Savings Plan (12) |
| 10(g) | The Company's Deferred Compensation Plan (8) |
| 10(h) | The Company’s 2002 Omnibus Incentive Compensation Plan (“Omnibus Plan”) (13) |
| 10(i) | Amendment No. 1 to Omnibus Plan (12) |
| 10(j) | Form of Restricted Stock Award (12) |
| 10(k) | Form of Stock Option Award under the Amended and Restated Stock Option Plan (12) |
| 10(l) | Form of Stock Option Award under the Omnibus Plan (12) |
| 10(m) | Executive Employment Agreement dated as of August 1, 2005 between Michael A. Woodhouse and the Company (12) |
| 10(n) | Change-in-control Agreement for Lawrence E. White dated 10/13/1999 (9) |
35
| 10(o) | Change-in-control Agreement for N.B. Forrest Shoaf dated 5/12/2005 (12) |
| 10(p) | Change-in-control Agreement for Norman J. Hill dated 10/13/1999 (10) |
| 10(q) | Change-in-control Agreement for Tom Vogel dated October 3, 2003 (13) |
| 10(r) | Change-in-control Agreement for Patrick A. Scruggs dated October 13, 1999 (13) |
| 10(s) | Master Lease dated July 31, 2000 between Country Stores Property I, LLC (“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for lease of 21 Cracker Barrel Old Country Store® sites (14) |
| 10(t) |
Master
Lease dated July 31, 2000 between Country Stores Property I, LLC
(“Lessor”) and Cracker Barrel Old Country Store, Inc
(“Lessee”)
for lease of 9 Cracker Barrel Old Country Store®
sites*
|
| 10(u) | Master Lease dated July 31, 2000 between Country Stores Property II, LLC (“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for lease of 23 Cracker Barrel Old Country Store® sites* |
| 10(v) | Master Lease dated July 31, 2000 between Country Stores Property III, LLC (“Lessor”) and Cracker Barrel Old Country Store, Inc. (“Lessee”) for lease of 12 Cracker Barrel Old Country Store® sites* |
| 10(w) | 2005 Long-Term Incentive Plan (15) |
| 10(x) | 2005 Annual Bonus Plan (15) |
| 10(y) | 2006 LTI Plan (16) |
| 10(z) | CBRL Group, Inc. Targeted Retention Plan (16) |
| 10(aa) | CBRL Group, Inc. Stock Ownership Achievement Incentive Plan (16) |
| 10(bb) | 2006 Annual Bonus Plan (16) |
| 10(cc) | Summary of Executive Officer and Director Compensation (16) |
| 10(dd) | Form of Mid-Term Incentive and Retention Plan Award Notice (12) |
| 10(ee) | Success Plan (incorporated herein by this reference to Exhibit 99.D.12 to Schedule TO-I filed with the SEC on March 31, 2006) (7) |
| 10(ff) | Form of Success Award (incorporated herein by this reference to Exhibit 99.D.13 to Schedule TO-I filed with the SEC on March 31, 2006) (7) |
| 10 (gg) | 2007 Annual Bonus Plan (17) |
| 10(hh) | 2007 Mid-term Incentive and Retention Plan (17) |
| 10(ii) | Severance Benefits Policy (17) |
| 10(jj) | Change-in-control Agreement for Simon Turner dated 8/14/06 (18) |
| 10(kk) | Change-in-control Agreement for Diana Wynne dated 6/22/06 |
| 10(ll) | Change-in-control Agreement for Ed Greene dated 6/22/06 |
| 10(mm) | CBRL Group, Inc. Severance Benefits Policy (17) |
| 13 | Pertinent portions of the Company's 2006 Annual Report to Shareholders that are incorporated by reference into this Annual Report on Form 10-K. |
|
21
|
Subsidiaries of the Registrant |
36
| 23 | Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP |
| 31 | Rule 13a-14(a)/15d-14(a) Certifications |
| 32 | Section 1350 Certifications |
*Document
not filed because essentially identical in terms and conditions to Exhibit
10(t).
|
(1)
|
Incorporated
by reference to the Company's Registration Statement on Form S_4/A
under
the Securities Act of 1933 (“Securities Act”) (File No.
333_62469).
|
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K under the Securities Exchange Act of 1934 (“Exchange Act”), filed September 21, 1999. |
| (3) |
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q under the
Exchange Act for the quarterly period ended May 3,
2002.
|
| (4) |
Incorporated
by reference to Amendment No. 1 to the Company’s Annual Report on Form
10-K/A under the Exchange Act for the fiscal year ended July 30,
2004.
|
| (5) |
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q under the
Exchange Act for the quarterly period ended January 28,
2005.
|
| (6) |
Incorporated
by reference to the Company’s Current Report on Form 8-K under the
Exchange Act filed on February 2, 2005.
|
| (7) |
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q under the
Exchange Act for the quarterly period ended April 28,
2006.
|
| (8) |
Incorporated
by reference to the Company's Registration Statement on Form S_7
under the
Securities Act (File No. 2_74266).
|
| (9) |
Incorporated
by reference to the Company’s Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended July 30, 1999.
|
| (10) |
Incorporated
by reference to the Company’s Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended August 2, 2002.
|
| (11) |
Incorporated
by reference to the Cracker Barrel Old Country Store, Inc. Annual
Report
on Form 10_K under the Exchange Act for the fiscal year ended August
2,
1991 (File No. 0_7536).
|
| (12) |
Incorporated
by reference to the Company’s Annual Report on Form 10-K under the
Exchange Act for fiscal year ended July 29, 2005.
|
| (13) |
Incorporated
by reference to the Company’s Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended August 1,
2003.
|
| (14) |
Incorporated
by reference to the Company’s Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended July 28, 2000.
|
| (15) |
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q under the
Exchange Act for the quarterly period ended October 29,
2004.
|
| (16) |
Incorporated
by reference to the Company’s Current Report on Form 8-K under the
Exchange Act, filed August 1, 2005.
|
| (17) |
Incorporated
by reference to the Company’s Current Report on Form 8-K under the
Exchange Act, filed August 1, 2006.
|
| (18) |
Incorporated
by reference to the Company’s Current Report on Form 8-K under the
Exchange Act, filed August 15,
2006.
|
37
Exhibit
10.1
June
22,
2006
Ms.
Diana
S. Wynne
413
Ridgecrest Lane
Lebanon,
TN 37087
Re: Employee
Retention Agreement
Dear
Diana:
The
Board
of Directors of the CBRL Group, Inc. recognizes the contribution that you have
made to CBRL Group, Inc. or one of its direct or indirect subsidiaries
(collectively, the "Company") and wishes to ensure your continuing commitment
to
the Company and its business operations. Accordingly, in exchange for your
continuing commitment to the Company, and your energetic focus on continually
improving operations, the Company promises you the following benefits if your
employment with the Company is terminated in certain circumstances:
1. DEFINITIONS.
As used
in this Agreement, the following terms have the following meanings which are
equally applicable to both the singular and plural forms of the terms
defined:
1.1 "Cause"
means
any one of the following:
(a) personal
dishonesty;
(b) willful
misconduct;
(c) breach
of
fiduciary duty; or
(d) conviction
of any felony or crime involving moral turpitude.
1.2 "Change
in Control"
means:
(a) that after the date of this Agreement, a person becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 20%
or
more of the combined voting power of the Company's then outstanding voting
securities, unless that acquisition was approved by a vote of at least 2/3
of
the directors in office immediately prior to the acquisition; (b) that during
any period of 2 consecutive years following the date of this Agreement,
individuals who at the beginning of the period constitute members of the Board
of Directors of the Company cease for any reason to constitute a majority of
the
Board unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least 2/3 of
the
directors then still in office who were directors at the beginning of the 2-year
period; (c) a merger, consolidation or reorganization of the Company (but this
provision does not apply to a recapitalization or similar financial
restructuring which does not involve
a
material change in ownership of equity of the Company and which does not result
in a change in membership of the Board of Directors); or (d) a sale of all
or
substantially all of the Company’s assets.
1.3 "Change
in Control Period"
means a
2-year year period beginning the day after a Change in Control
occurs.
1.4 "Change
in Duties or Compensation"
means
any one of: (a) a material change in your duties and responsibilities for the
Company (without your consent) from those duties and responsibilities for the
Company in effect at the time a Change in Control occurs, which change results
in the assignment of duties and responsibilities inferior to your duties and
responsibilities at the time such Change in Control occurs (it being understood
and acknowledged by you that a Change in Control that results in two persons
of
which you are one having similar or sharing duties and responsibilities shall
not be a material change in your duties and responsibilities); (b) a reduction
in your salary or a material change in benefits (excluding discretionary
bonuses), from the salary and benefits in effect at the time a Change in Control
occurs; or (c) a change in the location of your work assignment from your
location at the time a Change in Control occurs to any other city or
geographical location that is located further than 50 miles from that
location.
2. TERMINATION
OF EMPLOYMENT; SEVERANCE.
Your
immediate supervisor or the Company's Board of Directors may terminate your
employment, with or without cause, at any time by giving you written notice
of
your termination, such termination of employment to be effective on the date
specified in the notice. You also may terminate your employment with the Company
at any time. The effective date of termination (the "Effective Date") shall
be
the last day of your employment with the Company, as specified in a notice
by
you, or if you are terminated by the Company, the date that is specified by
the
Company in its notice to you. The following subsections set forth your rights
to
severance in the event of the termination of your employment in certain
circumstances by either the Company or you. Section 5 also sets forth certain
restrictions on your activities if your employment with the Company is
terminated, whether by the Company or you. That section shall survive any
termination of this Agreement or your employment with the Company.
2.1 Termination
by the Company for Cause.
If you
are terminated for Cause, the Company shall have no further obligation to you,
and your participation in all of the Company's benefit plans and programs shall
cease as of the Effective Date. In the event of a termination for Cause, you
shall not be entitled to receive severance benefits described in Section
3.
2.2 Termination
by the Company Without Cause Other Than During a Change in Control
Period.
If your
employment with the Company is terminated by the Company without Cause at a
time
other than during a Change in Control Period, you shall be entitled to only
those severance benefits provided by the Company's severance policy or
-2-
policies
then in effect. You shall not be entitled to receive benefits pursuant to
Section 3 of this Agreement.
2.3 Termination
by the Company Without Cause During a Change in Control
Period.
If your
employment with the Company is terminated by the Company without Cause during
a
Change in Control Period, you shall be entitled to receive Benefits pursuant
to
Section 3. A termination within 90 days prior to a Change in Control which
occurs solely in order to make you ineligible for the benefits of this Agreement
shall be considered a termination without Cause during a Change in Control
Period.
2.4 Termination
By You For Change in Duties or Compensation During a Change in Control
Period.
If
during a Change in Control Period there occurs a Change in Duties or
Compensation you may terminate your employment with the Company at any time
within 30 days after the occurrence of the Change in Duties or Compensation,
by
giving to the Company not less than 120 nor more than 180 days notice of
termination. During the notice period that you continue to work, any reduction
in your Compensation will be restored. At the option of the Company, following
receipt of this notice, it may: (a) change or cure, within 15 days, the
condition that you claim has caused the Change in Duties or Compensation, in
which case, your rights to terminate your employment with the Company pursuant
to this Section 2.4 shall cease (unless there occurs thereafter another Change
in Duties or Compensation) and you shall continue in the employment of the
Company notwithstanding the notice that you have given; (b) allow you to
continue your employment through the date that you have specified in your
notice; or (c) immediately terminate your employment pursuant to Section 2.3.
If
you terminate your employment with the Company pursuant to this Section 2.4,
you
shall be entitled to receive Benefits pursuant to Section 3. Your failure to
provide the notice required by this Section 2.4 shall result in you having
no
right to receive any further compensation from the Company except for any base
salary or vacation earned but not paid, plus any bonus earned and accrued by
the
Company through the Effective Date.
3. SEVERANCE
BENEFITS.
If your
employment with the Company is terminated as described in Section 2.3 or 2.4,
you shall be entitled to the benefits specified in subsections 3.1 and 3.2
(the
"Benefits") for the period of time set forth in the applicable section.
3.1 Salary
Payment or Continuance.
You will
be paid a single lump sum payment in an amount equal to 2.00 times the average
of your annual base salary and any bonus payments for the 3 years immediately
preceding the Effective Date. The determination of the amount of this payment
shall be made by the Company's actuaries and benefit consultants and, absent
manifest error, shall be final, binding and conclusive upon you and the
Company.
3.2 Continuation
of Benefits.
During
the 2 years following the Effective Date (the “Severance Period”) that results
in benefits under this Article 3, you shall continue to receive the medical,
prescription, dental, employee life and group life insurance benefits at
-3-
the
levels to which you were entitled on the day preceding the Effective Date,
or
reasonably equivalent benefits, to the extent continuation is not prohibited
or
limited by applicable law. In no event shall substitute plans, practices,
policies and programs provide you with benefits which are less favorable, in
the
aggregate, than the most favorable of those plans, practices, policies and
programs in effect for other active employees who are similarly situated to
the
position / responsibilities you held immediately preceding the Effective Date.
However, if you become re-employed with another employer and are eligible to
receive medical or other welfare benefits under another employer-provided plan,
Company payments for these medical and other welfare benefits shall
cease.
4. EFFECT
OF TERMINATION ON STOCK OPTIONS AND RESTRICTED STOCK.
In the
event of any termination of your employment, all stock options and restricted
stock held by you that are vested prior to the Effective Date shall be owned or
exercisable in accordance with their terms; all stock options held by you that
are not vested prior to the Effective Date shall lapse and be void; however,
if
your employment with the Company is terminated as described in Sections 2.3
or
2.4, then, if your option or restricted stock grants provide for immediate
vesting in the event of a Change in Control, the terms of your option or
restricted stock agreement shall control. If your option or restricted stock
agreement does not provide for immediate vesting, you shall receive, within
30
days after the Effective Date, a lump sum cash distribution equal to: (a) the
number of shares of the Company's ordinary shares that are subject to options
or
restricted stock grants held by you that are not vested as of the Effective
Date
multiplied by (b) the difference between: (i) the closing price of a share
of
the Company's ordinary shares on the NASDAQ National Market System as reported
by The Wall Street Journal as of the day prior to the Effective Date (or, if
the
market is closed on that date, on the last preceding date on which the market
was open for trading), and (ii) the applicable exercise prices or stock grant
values of those non-vested shares.
5. DISCLOSURE
OF INFORMATION.
You
recognize and acknowledge that, as a result of your employment by the Company,
you have or will become familiar with and acquire knowledge of confidential
information and certain trade secrets that are valuable, special, and unique
assets of the Company. You agree that all that confidential information and
trade secrets are the property of the Company. Therefore, you agree that, for
and during your employment with the Company and continuing following the
termination of your employment for any reason, all confidential information
and
trade secrets shall be considered to be proprietary to the Company and kept
as
the private records of the Company and will not be divulged to any firm,
individual, or institution, or used to the detriment of the Company. The parties
agree that nothing in this Section 6 shall be construed as prohibiting the
Company from pursuing any remedies available to it for any breach or threatened
breach of this Section 6, including, without limitation, the recovery of damages
from you or any person or entity acting in concert with you.
6. GENERAL
PROVISIONS.
6.1 Other
Plans.
Nothing
in this Agreement shall affect your rights during your
-4-
employment
to receive increases in compensation, responsibilities or duties or to
participate in and receive benefits from any pension plan, benefit plan or
profit sharing plans except plans which specifically address benefits of the
type addressed in Sections 3 and 4 of this Agreement.
6.2 Death
During Severance Period.
If you
die during the Severance Period, any Benefits remaining to be paid to you shall
be paid to the beneficiary designated by you to receive those Benefits (or
in
the absence of designation, to your surviving spouse or next of
kin).
6.3 Notices.
Any
notices to be given under this Agreement may be effected by personal delivery
in
writing or by mail, registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the parties at the addresses
appearing on the first page of this Agreement (to the attention of the Secretary
in the case of notices to the Company), but each party may change the delivery
address by written notice in accordance with this Section 7.3. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of the second day following deposit in the
United States Mail.
6.4 Entire
Agreement.
This
Agreement supersedes all previous oral or written agreements, understandings
or
arrangements between the Company and you regarding a termination of your
employment with the Company or a change in your status, scope or authority
and
the salary, benefits or other compensation that you receive from the Company
as
a result of the termination of your employment with the Company (the "Subject
Matter"), all of which are wholly terminated and canceled. This Agreement
contains all of the covenants and agreements between the parties with respect
to
the Subject Matter. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise,
have
been made with respect to the Subject Matter by any party, or anyone acting
on
behalf of any party, which are not embodied in this Agreement. Any subsequent
agreement relating to the Subject Matter or any modification of this Agreement
will be effective only if it is in writing signed by the party against whom
enforcement of the modification is sought.
6.5 Partial
Invalidity.
If any
provision in this Agreement is held by a court of competent jurisdiction to
be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force without being impaired or invalidated in any
way.
6.6 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Tennessee, and it shall be enforced or challenged only in the courts
of
the State of Tennessee.
6.7 Waiver
of Jury Trial.
The
Company and you expressly waive any right to a trial by jury in any action
or
proceeding to enforce or defend any rights under this Agreement, and agree
that
any such action or proceeding shall be tried before a court and not a jury.
You
irrevocably waive, to the fullest extent permitted by law, any objection
that
-5-
you
may
have now or hereafter to the specified venue of any such action or proceeding
and any claim that any such action or proceeding has been brought in an
inconvenient forum.
6.8 Miscellaneous.
Failure
or delay of either party to insist upon compliance with any provision of this
Agreement will not operate as and is not to be construed to be a waiver or
amendment of the provision or the right of the aggrieved party to insist upon
compliance with the provision or to take remedial steps to recover damages
or
other relief for noncompliance. Any express waiver of any provision of this
Agreement will not operate, and is not to be construed, as a waiver of any
subsequent breach, irrespective of whether occurring under similar or dissimilar
circumstances. You may not assign any of your rights under this Agreement.
The
rights and obligations of the Company under this Agreement shall benefit and
bind the successors and assigns of the Company. The Company agrees that if
it
assigns this Agreement to any successor company, it will ensure that its terms
are continued.
6.9 Certain
Additional Payments by the Company.
a. The
Company will pay you an amount (the “Additional Amount”) equal to the excise tax
under the United States Internal Revenue Code of 1986, as amended (the “Code”),
if any, incurred by you by reason of the payments under this Agreement and
any
other plan, agreement or understanding between you and the Company or its
parent, subsidiaries or affiliates (collectively, “Separation Payments”)
constituting excess parachute payments under Section 280G of the Code (or any
successor provision). In addition, the Company will pay an amount equal to
all
excise taxes and federal, state and local income taxes incurred by you with
respect to receipt of the Additional Amount. All determinations required to
be
made under this Section 6.9 including whether an Additional Amount is required
and the amount of any Additional Amount, will be made by the independent
auditors engaged by the Company immediately prior to the Change in Control
(the
“Accounting Firm”), which will provide detailed supporting calculations to the
Company and you. In computing taxes, the Accounting Firm will use the highest
marginal federal, state and local income tax rates applicable to you and will
assume the full deductibility of state and local income taxes for purposes
of
computing federal income tax liability, unless you demonstrate that you will
not
in fact be entitled to such a deduction for the year of payment.
b. The
Additional Amount, computed assuming that all of the Separation Payments
constitute excess parachute payments as defined in Section 280G of the Code
(or
any successor provision), will be paid to you at the time that the payments
made
pursuant to Section 3.1 is made unless the Company, prior to the Severance
Period, provides you with an opinion of the Accounting Firm that you will not
incur an excise tax on part or all of the Separation Payments. That opinion
will
be based upon the applicable regulations under Sections 280G and 4999 of the
Code (or any successor provisions) or substantial authority within the meaning
of Section 6662 of the Code. If that opinion applies only to part of the
Separation Payments, the Company will pay you the Additional Amount with respect
to the part of the Separation Payments not covered by the opinion.
-6-
c. The
amount of the Additional Amount and the assumptions to be utilized in arriving
at the determination, shall be made by the Company’s Accounting Firm, whose
decision shall be final and binding upon both you and the Company. You must
notify the Company in writing no later than 30 days after you are informed
of
any claim by the Internal Revenue Service that, if successful, would require
the
payment by the Company of the Additional Amount. You must also cooperate fully
with the Company and give the Company any information reasonably requested
relating to the claim, and take all action in connection with contesting the
claim as the Company reasonably requests in writing from time to
time.
If
all of
the terms and conditions in this Agreement are agreed to by you, please signify
your agreement by executing the enclosed duplicate of this letter and returning
it to us. At the date of your return, this letter shall constitute a fully
enforceable Agreement between us.
CBRL
GROUP,
INC.
By:
/s/ Michael A.
Woodhouse_________
&
#160;
Michael A. Woodhouse
Chairman,
President and CEO
The
foregoing is fully agreed to and accepted by:
Employee's
Signature: /s/ Diana S. Wynne______
Please
Print or Type Name: Diana S. Wynne
Please
Print or Type Title: Senior Vice President, Corporate Affairs
-7-
Exhibit
10.2
June
22,
2006
Mr.
Edward A. Greene
1245
Chloe Drive
Gallatin,
TN 37066
Re: Employee
Retention Agreement
Dear
Ed:
The
Board
of Directors of the CBRL Group, Inc. recognizes the contribution that you have
made to CBRL Group, Inc. or one of its direct or indirect subsidiaries
(collectively, the "Company") and wishes to ensure your continuing commitment
to
the Company and its business operations. Accordingly, in exchange for your
continuing commitment to the Company, and your energetic focus on continually
improving operations, the Company promises you the following benefits if your
employment with the Company is terminated in certain circumstances:
1. DEFINITIONS.
As used
in this Agreement, the following terms have the following meanings which are
equally applicable to both the singular and plural forms of the terms
defined:
1.1 "Cause"
means
any one of the following:
(a) personal
dishonesty;
(b) willful
misconduct;
(c) breach
of
fiduciary duty; or
(d) conviction
of any felony or crime involving moral turpitude.
1.2 "Change
in Control"
means:
(a) that after the date of this Agreement, a person becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 20%
or
more of the combined voting power of the Company's then outstanding voting
securities, unless that acquisition was approved by a vote of at least 2/3
of
the directors in office immediately prior to the acquisition; (b) that during
any period of 2 consecutive years following the date of this Agreement,
individuals who at the beginning of the period constitute members of the Board
of Directors of the Company cease for any reason to constitute a majority of
the
Board unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least 2/3 of
the
directors then still in office who were directors at the beginning of the 2-year
period; (c) a merger, consolidation or reorganization of the Company (but this
provision does not apply to a recapitalization or similar financial
restructuring which does not involve a material change in ownership of equity
of
the Company and which does not result in
a
change
in membership of the Board of Directors); or (d) a sale of all or substantially
all of the Company’s assets.
1.3 "Change
in Control Period"
means a
2-year year period beginning the day after a Change in Control
occurs.
1.4
"Change
in Duties or Compensation"
means
any one of: (a) a material change in your duties and responsibilities for the
Company (without your consent) from those duties and responsibilities for the
Company in effect at the time a Change in Control occurs, which change results
in the assignment of duties and responsibilities inferior to your duties and
responsibilities at the time such Change in Control occurs (it being understood
and acknowledged by you that a Change in Control that results in two persons
of
which you are one having similar or sharing duties and responsibilities shall
not be a material change in your duties and responsibilities); (b) a reduction
in your salary or a material change in benefits (excluding discretionary
bonuses), from the salary and benefits in effect at the time a Change in Control
occurs; or (c) a change in the location of your work assignment from your
location at the time a Change in Control occurs to any other city or
geographical location that is located further than 50 miles from that
location.
2. TERMINATION
OF EMPLOYMENT; SEVERANCE.
Your
immediate supervisor or the Company's Board of Directors may terminate your
employment, with or without cause, at any time by giving you written notice
of
your termination, such termination of employment to be effective on the date
specified in the notice. You also may terminate your employment with the Company
at any time. The effective date of termination (the "Effective Date") shall
be
the last day of your employment with the Company, as specified in a notice
by
you, or if you are terminated by the Company, the date that is specified by
the
Company in its notice to you. The following subsections set forth your rights
to
severance in the event of the termination of your employment in certain
circumstances by either the Company or you. Section 5 also sets forth certain
restrictions on your activities if your employment with the Company is
terminated, whether by the Company or you. That section shall survive any
termination of this Agreement or your employment with the Company.
2.1
Termination
by the Company for Cause.
If you
are terminated for Cause, the Company shall have no further obligation to you,
and your participation in all of the Company's benefit plans and programs shall
cease as of the Effective Date. In the event of a termination for Cause, you
shall not be entitled to receive severance benefits described in Section
3.
2.2
Termination
by the Company Without Cause Other Than During a Change in Control
Period.
If your
employment with the Company is terminated by the Company without Cause at a
time
other than during a Change in Control Period, you shall be entitled to only
those severance benefits provided by the Company's severance policy or policies
then in effect. You shall not be entitled to receive benefits pursuant to
Section 3 of this Agreement.
-2-
2.3
Termination
by the Company Without Cause During a Change in Control
Period.
If your
employment with the Company is terminated by the Company without Cause during
a
Change in Control Period, you shall be entitled to receive Benefits pursuant
to
Section 3. A termination within 90 days prior to a Change in Control which
occurs solely in order to make you ineligible for the benefits of this Agreement
shall be considered a termination without Cause during a Change in Control
Period.
2.4 Termination
By You For Change in Duties or Compensation During a Change in Control
Period.
If
during a Change in Control Period there occurs a Change in Duties or
Compensation you may terminate your employment with the Company at any time
within 30 days after the occurrence of the Change in Duties or Compensation,
by
giving to the Company not less than 120 nor more than 180 days notice of
termination. During the notice period that you continue to work, any reduction
in your Compensation will be restored. At the option of the Company, following
receipt of this notice, it may: (a) change or cure, within 15 days, the
condition that you claim has caused the Change in Duties or Compensation, in
which case, your rights to terminate your employment with the Company pursuant
to this Section 2.4 shall cease (unless there occurs thereafter another Change
in Duties or Compensation) and you shall continue in the employment of the
Company notwithstanding the notice that you have given; (b) allow you to
continue your employment through the date that you have specified in your
notice; or (c) immediately terminate your employment pursuant to Section 2.3.
If
you terminate your employment with the Company pursuant to this Section 2.4,
you
shall be entitled to receive Benefits pursuant to Section 3. Your failure to
provide the notice required by this Section 2.4 shall result in you having
no
right to receive any further compensation from the Company except for any base
salary or vacation earned but not paid, plus any bonus earned and accrued by
the
Company through the Effective Date.
3. SEVERANCE
BENEFITS.
If your
employment with the Company is terminated as described in Section 2.3 or 2.4,
you shall be entitled to the benefits specified in subsections 3.1 and 3.2
(the
"Benefits") for the period of time set forth in the applicable section.
3.1
Salary
Payment or Continuance.
You will
be paid a single lump sum payment in an amount equal to 2.00 times the average
of your annual base salary and any bonus payments for the 3 years immediately
preceding the Effective Date. The determination of the amount of this payment
shall be made by the Company's actuaries and benefit consultants and, absent
manifest error, shall be final, binding and conclusive upon you and the
Company.
3.2
Continuation
of Benefits.
During
the 2 years following the Effective Date (the “Severance Period”) that results
in benefits under this Article 3, you shall continue to receive the medical,
prescription, dental, employee life and group life insurance benefits at the
levels to which you were entitled on the day preceding the Effective Date,
or
reasonably equivalent benefits, to the extent continuation is not prohibited
or
limited by applicable law. In no event shall substitute plans, practices,
policies and programs provide you with
-3-
benefits
which are less favorable, in the aggregate, than the most favorable of those
plans, practices, policies and programs in effect for other active employees
who
are similarly situated to the position / responsibilities you held immediately
preceding the Effective Date. However, if you become re-employed with another
employer and are eligible to receive medical or other welfare benefits under
another employer-provided plan, Company payments for these medical and other
welfare benefits shall cease.
4. EFFECT
OF TERMINATION ON STOCK OPTIONS AND RESTRICTED STOCK.
In the
event of any termination of your employment, all stock options and restricted
stock held by you that are vested prior to the Effective Date shall be owned
or
exercisable in accordance with their terms; all stock options held by you that
are not vested prior to the Effective Date shall lapse and be void; however,
if
your employment with the Company is terminated as described in Sections 2.3
or
2.4, then, if your option or restricted stock grants provide for immediate
vesting in the event of a Change in Control, the terms of your option or
restricted stock agreement shall control. If your option or restricted stock
agreement does not provide for immediate vesting, you shall receive, within
30
days after the Effective Date, a lump sum cash distribution equal to: (a) the
number of shares of the Company's ordinary shares that are subject to options
or
restricted stock grants held by you that are not vested as of the Effective
Date
multiplied by (b) the difference between: (i) the closing price of a share
of
the Company's ordinary shares on the NASDAQ National Market System as reported
by The Wall Street Journal as of the day prior to the Effective Date (or, if
the
market is closed on that date, on the last preceding date on which the market
was open for trading), and (ii) the applicable exercise prices or stock grant
values of those non-vested shares.
5. DISCLOSURE
OF INFORMATION.
You
recognize and acknowledge that, as a result of your employment by the Company,
you have or will become familiar with and acquire knowledge of confidential
information and certain trade secrets that are valuable, special, and unique
assets of the Company. You agree that all that confidential information and
trade secrets are the property of the Company. Therefore, you agree that, for
and during your employment with the Company and continuing following the
termination of your employment for any reason, all confidential information
and
trade secrets shall be considered to be proprietary to the Company and kept
as
the private records of the Company and will not be divulged to any firm,
individual, or institution, or used to the detriment of the Company. The parties
agree that nothing in this Section 6 shall be construed as prohibiting the
Company from pursuing any remedies available to it for any breach or threatened
breach of this Section 6, including, without limitation, the recovery of damages
from you or any person or entity acting in concert with you.
6. GENERAL
PROVISIONS.
6.1 Other
Plans.
Nothing
in this Agreement shall affect your rights during your employment to receive
increases in compensation, responsibilities or duties or to participate in
and
receive benefits from any pension plan, benefit plan or profit sharing plans
except plans which specifically address benefits of the type addressed in
Sections 3 and 4 of this
-4-
Agreement.
6.2 Death
During Severance Period.
If you
die during the Severance Period, any Benefits remaining to be paid to you shall
be paid to the beneficiary designated by you to receive those Benefits (or
in
the absence of designation, to your surviving spouse or next of
kin).
6.3 Notices.
Any
notices to be given under this Agreement may be effected by personal delivery
in
writing or by mail, registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the parties at the addresses
appearing on the first page of this Agreement (to the attention of the Secretary
in the case of notices to the Company), but each party may change the delivery
address by written notice in accordance with this Section 7.3. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of the second day following deposit in the
United States Mail.
6.4 Entire
Agreement.
This
Agreement supersedes all previous oral or written agreements, understandings
or
arrangements between the Company and you regarding a termination of your
employment with the Company or a change in your status, scope or authority
and
the salary, benefits or other compensation that you receive from the Company
as
a result of the termination of your employment with the Company (the "Subject
Matter"), all of which are wholly terminated and canceled. This Agreement
contains all of the covenants and agreements between the parties with respect
to
the Subject Matter. Each party to this Agreement acknowledges that no
representations, inducements, promises, or agreements, orally or otherwise,
have
been made with respect to the Subject Matter by any party, or anyone acting
on
behalf of any party, which are not embodied in this Agreement. Any subsequent
agreement relating to the Subject Matter or any modification of this Agreement
will be effective only if it is in writing signed by the party against whom
enforcement of the modification is sought.
6.5 Partial
Invalidity.
If any
provision in this Agreement is held by a court of competent jurisdiction to
be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force without being impaired or invalidated in any
way.
6.6 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Tennessee, and it shall be enforced or challenged only in the courts
of
the State of Tennessee.
6.7 Waiver
of Jury Trial.
The
Company and you expressly waive any right to a trial by jury in any action
or
proceeding to enforce or defend any rights under this Agreement, and agree
that
any such action or proceeding shall be tried before a court and not a jury.
You
irrevocably waive, to the fullest extent permitted by law, any objection that
you may have now or hereafter to the specified venue of any such action or
proceeding and any claim that any such action or proceeding has been brought
in
an inconvenient forum.
-5-
6.8 Miscellaneous.
Failure
or delay of either party to insist upon compliance with any provision of this
Agreement will not operate as and is not to be construed to be a waiver or
amendment of the provision or the right of the aggrieved party to insist upon
compliance with the provision or to take remedial steps to recover damages
or
other relief for noncompliance. Any express waiver of any provision of this
Agreement will not operate, and is not to be construed, as a waiver of any
subsequent breach, irrespective of whether occurring under similar or dissimilar
circumstances. You may not assign any of your rights under this Agreement.
The
rights and obligations of the Company under this Agreement shall benefit and
bind the successors and assigns of the Company. The Company agrees that if
it
assigns this Agreement to any successor company, it will ensure that its terms
are continued.
6.9 Certain
Additional Payments by the Company.
a. The
Company will pay you an amount (the “Additional Amount”) equal to the excise tax
under the United States Internal Revenue Code of 1986, as amended (the “Code”),
if any, incurred by you by reason of the payments under this Agreement and
any
other plan, agreement or understanding between you and the Company or its
parent, subsidiaries or affiliates (collectively, “Separation Payments”)
constituting excess parachute payments under Section 280G of the Code (or any
successor provision). In addition, the Company will pay an amount equal to
all
excise taxes and federal, state and local income taxes incurred by you with
respect to receipt of the Additional Amount. All determinations required to
be
made under this Section 6.9 including whether an Additional Amount is required
and the amount of any Additional Amount, will be made by the independent
auditors engaged by the Company immediately prior to the Change in Control
(the
“Accounting Firm”), which will provide detailed supporting calculations to the
Company and you. In computing taxes, the Accounting Firm will use the highest
marginal federal, state and local income tax rates applicable to you and will
assume the full deductibility of state and local income taxes for purposes
of
computing federal income tax liability, unless you demonstrate that you will
not
in fact be entitled to such a deduction for the year of payment.
b. The
Additional Amount, computed assuming that all of the Separation Payments
constitute excess parachute payments as defined in Section 280G of the Code
(or
any successor provision), will be paid to you at the time that the payments
made
pursuant to Section 3.1 is made unless the Company, prior to the Severance
Period, provides you with an opinion of the Accounting Firm that you will not
incur an excise tax on part or all of the Separation Payments. That opinion
will
be based upon the applicable regulations under Sections 280G and 4999 of the
Code (or any successor provisions) or substantial authority within the meaning
of Section 6662 of the Code. If that opinion applies only to part of the
Separation Payments, the Company will pay you the Additional Amount with respect
to the part of the Separation Payments not covered by the opinion.
c. The
amount of the Additional Amount and the assumptions to be utilized in arriving
at the determination, shall be made by the Company’s
-6-
If
all of
the terms and conditions in this Agreement are agreed to by you, please signify
your agreement by executing the enclosed duplicate of this letter and returning
it to us. At the date of your return, this letter shall constitute a fully
enforceable Agreement between us.
CBRL
GROUP,
INC.
By:
/s/ Micheal
A. Woodhouse_________
Michael
A.
Woodhouse
Chairman,
President and
CEO
The
foregoing is fully agreed to and accepted by:
Employee's
Signature: /s/ Edward A. Greene_______
Please
Print or Type Name: Edward A. Greene
Please
Print or Type Title: Senior Vice President, Strategic Initiatives
-7-
Exhibit 13
CBRL
Group, Inc.
Selected
Financial Data
|
(Dollars
in thousands except share data)
|
|||||||||||||||||||
|
For
each of the fiscal years ended
|
|||||||||||||||||||
|
July
28,
2006(d)
|
July
29,
2005(e)
|
July
30,
2004(f)
|
August
1,
2003
|
August
2,
2002
|
|||||||||||||||
|
Selected
Income Statement Data:
|
|||||||||||||||||||
|
Total
revenue
|
$
|
2,642,997
|
$
|
2,567,548
|
$
|
2,380,947
|
$
|
2,198,182
|
$
|
2,071,784
|
|||||||||
|
Net
income
|
116,291
|
126,640
|
111,885
|
105,108
|
90,444
|
||||||||||||||
|
Net
income per share:
|
|||||||||||||||||||
|
Basic
|
2.71
|
2.65
|
2.29
|
2.13
|
1.67
|
||||||||||||||
|
Diluted
|
2.50
|
2.45
|
2.12
|
1.97
|
1.59
|
||||||||||||||
|
Dividends
paid per share(a)
|
$
|
0.51
|
$
|
0.47
|
$
|
0.33
|
$
|
0.02
|
$
|
0.02
|
|||||||||
|
As
Percent of Revenues:
|
|||||||||||||||||||
|
Cost
of goods sold
|
32.0
|
%
|
33.0
|
%
|
33.0
|
%
|
32.0
|
%
|
32.7
|
%
|
|||||||||
|
Labor
and related expenses
|
36.5
|
36.6
|
37.0
|
37.3
|
37.5
|
||||||||||||||
|
Impairment
and store closing charges
|
0.3
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Other
store operating expenses
|
18.1
|
17.4
|
17.0
|
17.3
|
17.1
|
||||||||||||||
|
Store
operating income
|
13.1
|
13.0
|
13.0
|
13.4
|
12.7
|
||||||||||||||
|
General
and administrative expenses
|
5.9
|
5.1
|
5.3
|
5.6
|
5.6
|
||||||||||||||
|
Operating
Income
|
7.2
|
7.9
|
7.7
|
7.8
|
7.1
|
||||||||||||||
|
Income
before income taxes
|
6.4
|
7.5
|
7.3
|
7.4
|
6.8
|
||||||||||||||
|
Memo:
Depreciation and amortization
|
2.7
|
2.6
|
2.7
|
2.9
|
3.0
|
||||||||||||||
|
Share-based
compensation
|
0.5
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Selected
Balance Sheet Data:
|
|||||||||||||||||||
|
Working
capital (deficit)
|
$
|
(25,585
|
)
|
$
|
(104,862
|
)
|
$
|
(39,195
|
)
|
$
|
(66,880
|
)
|
$
|
(51,252
|
)
|
||||
|
Total
assets
|
1,681,297
|
1,533,272
|
1,435,704
|
1,327,165
|
1,264,673
|
||||||||||||||
|
Long-term
debt
|
911,464
|
212,218
|
185,138
|
186,730
|
194,476
|
||||||||||||||
|
Other
long-term obligations
|
66,918
|
48,411
|
36,225
|
30,454
|
25,992
|
||||||||||||||
|
Shareholders'
equity
|
302,282
|
869,988
|
873,336
|
789,362
|
778,881
|
||||||||||||||
|
Selected
Cash Flow Data:
|
|||||||||||||||||||
|
Cash
provided by operating activities
|
$
|
214,846
|
$
|
281,164
|
$
|
200,481
|
$
|
240,586
|
$
|
196,277
|
|||||||||
|
Purchase
of property and equipment, net of insurance recoveries
|
144,926
|
171,447
|
144,611
|
120,921
|
96,692
|
||||||||||||||
|
Share
repurchases
|
704,160
|
159,328
|
69,206
|
166,632
|
216,834
|
||||||||||||||
|
Selected
Other Data:
|
|||||||||||||||||||
|
Common
shares outstanding at
end
of year
|
30,926,906
|
46,619,803
|
48,769,368
|
47,872,542
|
50,272,459
|
||||||||||||||
|
Stores
open at end of year:
|
|||||||||||||||||||
|
Cracker
Barrel
|
543
|
529
|
504
|
480
|
457
|
||||||||||||||
|
Logan's
company-operated
|
141
|
124
|
107
|
96
|
84
|
||||||||||||||
|
Logan's
franchised
|
25
|
23
|
20
|
16
|
12
|
||||||||||||||
|
Average
Unit Volumes (b):
|
|||||||||||||||||||
|
Cracker
Barrel restaurant
|
$
|
3,248
|
$
|
3,291
|
$
|
3,217
|
$
|
3,157
|
$
|
3,150
|
|||||||||
|
Cracker
Barrel retail
|
876
|
959
|
988
|
939
|
945
|
||||||||||||||
|
Logan's
company-operated
|
$
|
3,183
|
$
|
3,172
|
$
|
3,040
|
$
|
2,915
|
$
|
2,959
|
|||||||||
|
Comparable
Store Sales(c):
|
|||||
|
Period
to period (decrease) increase in comparable store sales:
|
|||||
|
Cracker
Barrel restaurant
|
(1.1)%
|
3.1
%
|
2.0%
|
0.5
%
|
5.3%
|
|
Cracker
Barrel retail
|
(8.1)
|
(2.7)
|
5.3
|
(0.4)
|
2.3
|
|
Logan's
company-operated
|
0.8
|
3.4
|
4.8
|
0.0
|
2.4
|
|
Memo:
Cracker Barrel number of stores in comparable base
|
482
|
466
|
445
|
430
|
414
|
|
Memo:
Logan’s number of restaurants in comparable base
|
100
|
93
|
83
|
71
|
59
|
| (a) |
On
September 22, 2005, the Company’s Board of Directors (the “Board”)
increased the quarterly dividend to $0.13 per share per quarter (an
annual
equivalent of $0.52 per share) from $0.12 per share per quarter.
During
2006, the Company paid dividends of $0.13 per share during the second,
third and fourth quarters of 2006. Additionally, on September 21,
2006,
the Board declared a dividend of $0.14 per share payable on November
8,
2006 to shareholders of record on October 20, 2006. This dividend
reflects
a 7.7% increase from the previous quarterly
dividend.
|
| (b) |
Average
unit volumes include sales of all stores and are measured on comparable
calendar weeks in the prior year.
|
| (c) |
Comparable
store sales and traffic consist of sales and calculated number of
guests,
respectively, of units open six full quarters at the beginning of
the
year; and are measured on comparable calendar weeks.
|
| (d) |
Includes
charges of $8,890 before taxes for impairment and store closing costs.
The
Company completed a 16,750,000 common share Tender Offer (see Note
5 to
the Consolidated Financial Statements). The Company adopted SFAS
123R,
“Share-Based Payment,” on July 30, 2005 (see Note 8 to the Consolidated
Financial Statements).
|
| (e) |
Includes
charges of $431 before taxes for impairment
costs.
|
| (f) |
Includes
charges of $5,210 before taxes, as a result of settlement of certain
lawsuits against the Company’s Cracker Barrel Old Country Store, Inc.
(“Cracker Barrel”) subsidiary.
|
MARKET
PRICE AND DIVIDEND INFORMATION
The
following table indicates the high and low sales prices of the Company’s common
stock, as reported by The Nasdaq Stock Market (National Market), and dividends
paid.
|
Fiscal
Year 2006
|
Fiscal
Year 2005
|
||||||
|
Prices
|
Dividends
Paid
|
Prices
|
Dividends
Paid
|
||||
|
High
|
Low
|
High
|
Low
|
||||
|
First
|
$41.45
|
$33.11
|
$0.12
|
$37.09
|
$30.00
|
$0.11
|
|
|
Second
|
45.00
|
33.95
|
0.13
|
43.14
|
36.08
|
0.12
|
|
|
Third
|
47.95
|
39.75
|
0.13
|
44.60
|
38.38
|
0.12
|
|
|
Fourth
|
41.12
|
32.27
|
0.13
|
42.12
|
37.75
|
0.12
|
|
2
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. The discussion should be read
in
conjunction with the Consolidated Financial Statements and notes thereto.
All
dollar amounts reported or discussed in Management’s Discussion and Analysis of
Financial Condition and Results of Operations are shown in thousands. References
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations to a year or quarter are to the Company’s fiscal year or quarter
unless otherwise noted.
EXECUTIVE
OVERVIEW
CBRL
Group, Inc. (the “Company,” “our” or “we”) is a publicly traded (Nasdaq: CBRL)
holding company that, through certain subsidiaries, is engaged in the operation
and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) and
Logan’s Roadhouse® (“Logan’s”) restaurant and retail concepts. The
Company was organized under the laws of the state of Tennessee in August 1998
and maintains an Internet website at cbrlgroup.com.
We
are in
the business of delivering excellent guest dining experiences, and we strive
to
do that in 41 states at more than 684 company-owned and 25 franchised units.
While each restaurant concept offers its own unique atmosphere and an array
of
distinct menu items, both are committed to executing outstanding guest service
while focusing on delivery of high quality products at affordable
prices.
3
Restaurant
Industry
Our
businesses operate in the full-service segment of the restaurant industry in
the
United States. The restaurant business is highly competitive with respect to
quality, variety and price of the food products offered. The industry is often
affected by changes in the taste and eating habits of the public, local and
national economic conditions affecting spending habits, population and traffic
patterns. There are many segments within the restaurant industry, which overlap
and often provide competition for widely diverse restaurant concepts.
Competition also exists in securing prime real estate locations for new
restaurants, in hiring qualified employees, in advertising, in the
attractiveness of facilities and among competitors with similar menu offerings
or convenience.
Additionally,
seasonal, economic and weather conditions also affect the restaurant business.
Historically, interstate tourist traffic and the propensity to dine out have
been much higher during the summer months, thereby attributing to higher profits
in our fourth quarter. While retail sales in Cracker Barrel are made
substantially to restaurant customers, such sales are strongest in the second
quarter, which includes the Christmas holiday shopping season. Increases in
gasoline and energy prices that began in 2004, continued in 2005 and 2006,
among
other things, appear to have affected consumer discretionary income and dining
out habits. Severe weather can and has affected sales adversely from time to
time.
Key
Performance Indicators
Management
uses a number of key performance measures to evaluate the Company’s operational
and financial performance, including the following:
Comparable
store sales and traffic consist of sales and calculated number of guests,
respectively, of units open six full quarters at the beginning of the year;
and
are measured on comparable calendar weeks. This measure highlights performance
of existing stores as the impact of new store openings is excluded.
Percentage
of retail sales to total sales indicates the relative proportion of spending
by
guests on retail product at Cracker Barrel stores and helps identify overall
effectiveness of our retail operations and initiatives. Management uses this
measure to analyze a store’s ability to convert restaurant traffic into retail
sales since the substantial majority of our retail guests are also restaurant
guests.
Average
check per person is an indicator which management uses to analyze the dollars
spent in our stores per guest. This measure aids management in identifying
trends in guest preferences as well as the effectiveness of menu price increases
and other menu changes.
Store
operating margins are
defined as total revenue less cost of goods sold, labor and other related
expenses and other store operating expenses, all as a percent of restaurant
sales. Management uses this indicator as a primary measure of operating
profitability.
4
Results
of Operations
The
following table highlights operating results over the past three
years:
|
Period
to Period
|
|||||
|
Relationship
to Total Revenue
|
Increase
(Decrease)
|
||||
|
2006
|
2005
|
2004
|
2006
vs.
2005
|
2005
vs.
2004
|
|
|
Total
revenue
|
100.0%
|
100.0%
|
100.0%
|
3%
|
8%
|
|
Cost
of goods sold
|
32.0
|
33.0
|
33.0
|
--
|
8
|
|
Gross
profit
|
68.0
|
67.0
|
67.0
|
4
|
8
|
|
Labor
and other related expenses
|
36.5
|
36.6
|
37.0
|
3
|
7
|
|
Impairment
and store closing charges
|
0.3
|
--
|
--
|
--
|
--
|
|
Other
store operating expenses
|
18.1
|
17.4
|
17.0
|
8
|
10
|
|
Store
operating income
|
13.1
|
13.0
|
13.0
|
3
|
8
|
|
General
and administrative
|
5.9
|
5.1
|
5.3
|
18
|
5
|
|
Operating
income
|
7.2
|
7.9
|
7.7
|
(6)
|
10
|
|
Interest
expense
|
0.8
|
0.4
|
0.4
|
157
|
3
|
|
Interest
income
|
--
|
--
|
--
|
--
|
--
|
|
Income
before income taxes
|
6.4
|
7.5
|
7.3
|
(13)
|
11
|
|
Provision
for income taxes
|
2.0
|
2.6
|
2.6
|
(23)
|
7
|
|
Net
income
|
4.4
|
4.9
|
4.7
|
(8)
|
13
|
|
Memo:
Share-based compensation included in general and
administrative
|
0.5
|
--
|
--
|
--
|
--
|
Total
Revenue
The
following table highlights the components of total revenue by percentage
relationships to total revenue for the past three years:
|
2006
|
2005
|
2004
|
|
|
Net
Sales:
|
|||
|
Cracker
Barrel restaurant
|
66.2%
|
66.1%
|
66.1%
|
|
Logan’s
company-operated
|
15.9
|
14.6
|
13.4
|
|
Total
restaurant
|
82.1
|
80.7
|
79.5
|
|
Cracker
Barrel retail
|
17.8
|
19.2
|
20.4
|
|
Total
net sales
|
99.9
|
99.9
|
99.9
|
|
Franchise
fees and royalties
|
0.1
|
0.1
|
0.1
|
|
Total
revenue
|
100.0%
|
100.0%
|
100.0%
|
The
following table highlights comparable store sales* results over the past two
years:
|
Cracker
Barrel
Period
to Period
Increase
(Decrease)
|
Logan’s
Period
to Period
Increase
|
|||
|
2006
vs. 2005
|
2005
vs. 2004
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
(482
Stores)
|
(466
Stores)
|
(100
Stores)
|
(93
Stores)
|
|
|
Restaurant
|
(1.1)%
|
3.1%
|
0.8%
|
3.4%
|
|
Retail
|
(8.1)
|
(2.7)
|
--
|
--
|
|
Restaurant
& Retail
|
(2.7)
|
1.8
|
0.8
|
3.4
|
*Comparable
store sales consist of sales of units open six full quarters at the beginning
of
the year; and are measured on comparable calendar weeks.
Cracker
Barrel comparable store restaurant sales averaged $3,279 per store in 2006
representing a decrease of 1.1% versus 2005. Comparable store restaurant sales
increased 3.1% in 2005 versus 2004. The decrease in comparable store restaurant
sales from 2005 to 2006 was due to a decrease in guest traffic of 3.2% and
an
increase in average check of 2.1%, including a 2.2% average menu price
increase.
Cracker
Barrel comparable store retail sales averaged $878 per store in 2006
representing a decrease of 8.1% versus 2005. Comparable store retail sales
decreased 2.7% in 2005 versus 2004. The comparable store retail
sales
5
decrease
from 2005 to 2006 resulted from restaurant guest traffic decreases, uncertain
consumer sentiment and reduced discretionary spending, and weaker than expected
response to the retail assortments and lower average spending per retail
purchase as a result of lower product price points and greater
markdowns.
In
2006 total
net sales (restaurant and retail) in the 482 Cracker Barrel comparable stores
averaged $4,157. Retail sales were 21.1% of total net sales in the comparable
482 stores in 2006 and 22.4% in 2005.
Logan’s
comparable store sales increased 0.8% for 2006 versus 2005 at an average of
$3,214 per restaurant. Comparable store sales increased 3.4% for 2005 versus
2004. The increase in comparable store sales from 2005 to 2006 resulted from
an
increase in average check of 2.4% and a decrease in guest traffic of 1.6%,
including a 2.5% average menu price increase.
Total
revenue, which increased 2.9% and 7.8% in 2006 and 2005, respectively, benefited
from the opening of 21, 25 and 24 Cracker Barrel stores in 2006, 2005 and 2004,
respectively, and the opening of 20, 17 and 11 company-operated and 2, 3 and
4
franchised Logan’s restaurants in 2006, 2005 and 2004, respectively, partially
offset by the closing of 7 Cracker Barrel stores and 3 company-owned Logan’s
restaurants in February 2006. Average weekly sales (net sales divided by
operating weeks in company-owned units) were approximately $62.5 per week for
Cracker Barrel restaurants in 2006 (compared with $63.3 in 2005 and $61.7 in
2004), $16.8 for Cracker Barrel retail (compared with $18.4 for 2005 and $19.1
for 2004), and $61.2 for Logan’s (compared with $61.0 for 2005 and $59.5 for
2004).
Cost
of
Goods Sold
Cost
of
goods sold as a percentage of total revenue decreased to 32.0% in 2006 from
33.0% in 2005. This was due to higher average menu prices versus the prior
year,
lower commodity costs, higher initial mark-ons of retail merchandise and a
lower
percentage of retail sales, which have a higher cost as a percent of sales
than
do restaurant sales, partially offset by higher markdowns on retail
merchandise.
Cost
of
goods sold as a percentage of total revenue in 2005 remained flat compared
to
2004 at 33.0%. This was due to higher commodity costs for beef, pork, poultry
and produce and higher markdowns on retail merchandise offset by higher menu
pricing and a lower percentage of retail sales, which have a higher cost as
a
percent of sales than do restaurant sales, and higher initial mark-ons of retail
merchandise
Labor
and
Related Expenses
Labor
and
other related expenses include all direct and indirect labor and related costs
incurred in store operations. Labor expenses as a percentage of total revenue
were 36.5%, 36.6% and 37.0% in 2006, 2005 and 2004, respectively. The year
to
year decrease from 2005 to 2006 was due to higher average menu prices versus
the
prior year and lower workers’ compensation expense and group health costs
partially offset by higher hourly wages and store management salaries versus
the
prior year. The year to year decrease from 2004 to 2005 was due to lower bonuses
under unit-level bonus programs, partially offset by higher hourly wage rates
and manager wages versus the prior year.
Impairment
and Store Closing Costs
During
2006 the Company decided to close seven Cracker Barrel stores and three Logan's
restaurants and recorded impairment and store closing costs of $8,052.
Additionally, during 2006 the Company recorded an impairment of $838 for its
management trainee housing facility. The total impairment and store closing
costs recorded in 2006 were $8,890. Impairment costs recorded in 2005 were
$431.
Other
Store Operating Expenses
Other
store operating expenses include all unit-level operating costs, the major
components of which are operating utilities, supplies, repairs and maintenance,
advertising, rent, depreciation and amortization. Other store operating expenses
as a percentage of total revenue were 18.1%, 17.4% and 17.0% in 2006, 2005
and
2004, respectively. The year to year increase from 2005 to 2006 was due to
higher utilities and supplies partially offset by higher average menu prices.
The decrease
from 2004 to 2005 was due to higher utilities, advertising and maintenance
expenses offset partially by higher menu pricing versus the prior
year.
General
and Administrative Expenses
General
and
administrative expenses as a percentage of total revenue were 5.9%, 5.1% and
5.3% in 2006, 2005 and 2004, respectively. The year to year increase from 2005
to 2006 was due to $9,900 of stock option expense as a result of the adoption
of
Statement of Financial Accounting Standard (“SFAS”) No. 123 (Revised 2004)
“Share-Based
6
Payment”
(“SFAS No. 123R”) in 2006, higher salaries and wages versus the prior year
and
the
non-recurrence of an insurance recovery in the prior year relative to litigation
settlements and related expenses incurred in earlier years.
The
year to year decrease from 2004 to 2005 was due to lower legal fees compared
to
prior year, which included a legal settlement and an insurance recovery relative
to litigation settlements and related expenses incurred in prior years, offset
partially by higher salaries versus prior year.
Interest
Expense
Interest
expense increased to $22,298 in 2006 from $8,693 in 2005 and from $8,444 in
2004. The year to year increase from 2005 to 2006 was due to higher average
outstanding debt, higher interest rates and higher amortization of deferred
financing costs. The
increase from 2004 to 2005 resulted from higher average outstanding debt and
higher interest rates offset partially by lower amortization of deferred
financing costs and higher capitalized interest.
Provision
for Income Taxes
Provision
for
income taxes as a percent of income before income taxes was 30.8% for 2006,
34.6% for 2005 and 35.9% for 2004. The U.S. Internal Revenue Service (“IRS”) has
examined the Company’s consolidated federal income tax returns through the year
ended July 30, 2004. In March 2006, the Company reached a settlement with the
IRS for these tax periods. The settlement had no material effect on the
Company’s Consolidated Financial Statements for the year ended July 28, 2006.
The decrease in the effective tax rate from 2005 to 2006 reflected lower state
and local income taxes, the reversal of previously accrued reserves and higher
employer tax credits as a percent of income before income taxes due to the
decrease in income before income taxes from 2005 to 2006. The
reason
for the decrease in the tax rate from 2004 to 2005 was the enactment of
legislation
signed on October 22, 2004 making the expired Work Opportunity and Welfare
to
Work federal tax credit retroactive to January 1, 2004.
Recently
Adopted Accounting Pronouncements
Share-Based
Compensation
Prior
to
July 30, 2005, the Company accounted for its share-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, the disclosure-only provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation” and the disclosures required by SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure.” In
accordance with APB Opinion No. 25, no share-based compensation cost was
reflected in the Company’s prior year net income for grants of stock options
because the Company grants stock options with an exercise price equal to the
market value of the stock on the date of grant.
Effective
July 30, 2005, the Company, adopted the fair value recognition provisions of
SFAS No. 123R. The Company elected to adopt using the modified prospective
method, under which share-based compensation cost includes amortization over
the
respective vesting periods for (1) all share-based payments granted prior to,
but not vested as of July 29, 2005, based on the grant date fair value estimated
in accordance with the original provisions of SFAS No. 123 and (2) all
share-based payments granted subsequent to July 29, 2005, based on the grant
date fair value estimated using a binomial lattice-based option valuation model.
Share-based compensation under SFAS No. 123R is recorded in general and
administrative expenses in the Consolidated Statement of Income in
2006.
Before
adoption of SFAS No. 123R, pro forma disclosure reflected the fair value of
each
option grant estimated on the date of grant using the Black-Scholes
option-pricing model. Under the Black-Scholes option-pricing model the Company
estimated volatility using only its historical share price performance over
the
expected life of the option. However, under SFAS No. 123R the expected
volatility is estimated using a blend of implied volatility based on
market-traded options on the Company’s common stock and historical volatility of
the Company’s common stock over the contractual life of the options. Results of
prior periods do not reflect any restated amounts and the Company had no
cumulative effect adjustment upon adoption of SFAS No. 123R under the modified
prospective method. The Company’s policy is to recognize compensation cost for
awards with only service conditions and a graded vesting schedule on a
straight-line basis over the requisite service period for the entire award.
Additionally, the Company issues new shares of common stock to satisfy stock
option exercises or grants of restricted shares.
Compensation
cost for share-based payment arrangements recognized in general and
administrative expenses for 2006 was $9,900 for stock options and $3,539 for
restricted stock grants as compared to no expense for stock options and $1,261
for restricted stock in 2005. For 2006, the adoption of SFAS No. 123R decreased
both the Company’s reported operating income and income before income taxes by
$9,900 and decreased reported net income by $6,851. The adoption of SFAS No.
123R decreased both reported basic and diluted net income per
7
As
of
July 28, 2006, there was $17,162 of total unrecognized compensation cost related
to unvested share-based compensation arrangements that is expected to be
recognized over a weighted-average period of 2.10 years. No restricted stock
grants vested during 2006.
Rental
Costs
In
October 2005, the Financial Accounting Standards Board (the “FASB”) issued Staff
Position No. FAS 13-1, “Accounting for Rental Costs Incurred during a
Construction Period” (“FSP No. 13-1”). FSP No. 13-1 states that rental costs
associated with ground or building operating leases that are incurred during
a
construction period shall be recognized as rental expense in income from
continuing operations as opposed to capitalizing such rental costs. Although
the
provisions of FSP No. 13-1 are effective for the first reporting period
beginning after December 15, 2005, the Company has chosen to early adopt this
guidance in its first quarter of 2006. The early adoption of FSP No. 13-1 did
not affect the Company’s consolidated results of operations or financial
position since this treatment did not differ from the Company’s then-existing
accounting policy.
Amortization
Period of Leasehold Improvements
In
September 2005, the FASB issued Emerging Issues Task Force (“EITF”) No. 05-6,
“Determining the Amortization Period for Leasehold Improvements Purchased after
Lease Inception or Acquired in a Business Combination” (“EITF 05-6”). EITF 05-6
states that leasehold improvements acquired in a business combination should
be
amortized over the shorter of the useful life of the assets or a term that
includes required lease periods and renewals that are deemed to be reasonably
assured at the date of acquisition. EITF 05-6 further states that leasehold
improvements placed in service significantly after and not contemplated at
or
near the beginning of a lease term should be amortized over the shorter of
the
useful life of the assets or a term that includes required lease periods and
renewals that are deemed to be reasonably assured at the date the leasehold
improvements are purchased. This consensus does not apply to preexisting
leasehold improvements. The provisions of EITF 05-6 are effective for leasehold
improvements that are purchased or acquired in reporting periods beginning
after
September 28, 2005, with early adoption permitted. The Company adopted this
guidance in the first quarter of 2006. The early adoption of EITF 05-6 did
not
affect the Company’s results of operations or financial position since this
treatment did not differ from the Company’s then-existing accounting
policy.
Taxes
Collected from Customers
In
June
2006, a consensus was reached by the FASB on EITF Issue No. 06-3, “How Taxes
Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net
Presentation)”
(“EITF
06-3”). As permitted by the provisions of EITF 06-3, the Company’s policy is to
present sales in the income statement on a net presentation basis after
deducting sales tax.
Recent
Accounting Pronouncements Not Yet Adopted
In
June 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with FASB No. 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The provisions
of
FIN 48 are effective for fiscal years beginning after December 15, 2006,
with the cumulative effect of the change in accounting principle recorded as
an
adjustment to opening retained earnings. The Company is currently evaluating
the
impact of adopting FIN 48 and cannot yet determine the impact of its adoption
in
the first quarter of 2008.
Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk. The Company is subject to market risk exposure related to changes
in
interest rates. As of October 2, 2006, the Company has a $723,000 Term Loan
B
and has in place a $200,000 Delayed-Draw Term Loan facility, which mature on
April 27, 2013 and a $250,000 Revolving Credit Facility, which matures April
27,
2011. The
8
The
Company is exposed to market risk, such as changes in interest rates and
commodity prices. The Company does not hold or use derivative financial
instruments for trading purposes. Prior to 2006, the Company had no derivative
financial instruments that required fair value accounting
treatment.
The
Company’s policy has been to manage interest cost using a mix of fixed and
variable rate debt (see Notes 6, 12 and 14). To
manage
this risk in a cost efficient manner, the Company entered into an interest
rate
swap on May 4, 2006 in which it agreed to exchange with a counterparty, at
specified intervals effective August 3, 2006, the difference between fixed
and
variable interest amounts calculated by reference to an agreed-upon notional
principal amount. Interest rate swaps that meet specific conditions under SFAS
No. 133 are accounted for as cash flow hedges. The swapped portion of our Term
Loan B will be fixed at a rate of 5.57% plus our then current credit spread,
or
7.07% based on today’s credit spread, over the 7-year life of the term loan and
the interest rate swap. The swapped portion is $525,000 to May 2, 2007, $650,000
from May 3, 2007 to May 4, 2008, $625,000 from May 5, 2008 to May 3, 2009,
$600,000 from May 4, 2009 to May 2, 2010, $575,000 from May 3, 2010 to May
2,
2011, $550,000 from May 3, 2011 to May 2, 2012, and $525,000 for May 3, 2012
to
May 2, 2013. The estimated fair value of this interest rate swap liability
was
$7,220 at July 28, 2006 and is included in other long-term obligations. The
offset to the interest rate swap liability is in other comprehensive loss,
net
of the deferred tax asset. Any portion of the fair value of the swap determined
to be ineffective will be recognized currently in earnings.
While
changes in the prime rate or LIBOR would affect the cost of funds borrowed
in
the future, the Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company’s consolidated financial
position, results of operations or cash flows would not be
material.
Commodity
Price Risk. Many of the food products purchased by the Company are affected
by
commodity pricing and are, therefore, subject to price volatility caused by
weather, production problems, delivery difficulties and other factors which
are
outside the control of the Company and which are generally unpredictable. Four
food categories (beef, dairy (including eggs), pork and poultry) account for
the
largest shares of the Company’s food purchases at approximately 19%, 11%, 10%
and 9%, respectively. Other categories affected by the commodities markets,
such
as produce and seafood, may each account for as much as 6% of the Company’s food
purchases. While the Company has some of its food items prepared to its
specifications, the Company’s food items are based on generally available
products, and if any existing suppliers fail, or are unable to deliver in
quantities required by the Company, the Company believes that there are
sufficient other quality suppliers in the marketplace that its sources of supply
can be replaced as necessary. The Company also recognizes, however, that
commodity pricing is extremely volatile and can change unpredictably and over
short periods of time. Changes in commodity prices would affect the Company
and
its competitors generally, and depending on the terms and duration of supply
contracts, sometimes simultaneously. The Company also enters into supply
contracts for certain of its products in an effort to minimize volatility of
supply and pricing. In many cases, or over the longer term, the Company believes
it will be able to pass through some or much of the increased commodity costs
by
adjusting its menu pricing. From time to time, competitive circumstances, or
judgments about consumer acceptance of price increases, may limit menu price
flexibility, and in those circumstances increases in commodity prices can result
in lower margins for the Company, as happened in 2005.
Strategic
Initiatives
As
previously announced in the Current Report on Form 8-K filed with the Securities
and Exchange Commission (“SEC”) on March 17, 2006, the Company, with the
assistance of a financial advisor, undertook a review of its capital structure
and other potential initiatives intended to enhance shareholder value (the
“Review”).
The
Review, to date, has resulted in: 1) the repurchase of 16,750,000 shares of
the
Company’s common stock at $42.00 per share pursuant to a modified “Dutch
Auction” tender offer (the “Tender Offer”); 2) the execution by the Company,
effective April 27, 2006, of a $1.25 billion credit facility (the “2006 Credit
Facility”) including an $800 million term loan facility, a $200 million
delayed-draw term loan facility and a $250 million revolving credit facility;
and 3) the draw of $725 million under the term loan facility to finance the
Tender Offer and the cancellation of the remaining $75 million under the term
loan facility. Simultaneously with the term loan draw, the Company entered
into
an interest rate swap that fixed the interest rate on a portion of the term
loan
draw at 5.57% plus the Company’s then current credit spread, or 7.07% based on
today’s credit spread, over the 7-year life of the term loan and the interest
rate swap. The $200 million delayed-draw term loan facility can be used any
time
prior to October 27, 2007 to refinance the Company’s 3.0% zero-coupon
contingently
9
Standard
& Poor’s (“S & P”) issued a “credit watch/negative” notice with respect
to the Company’s indebtedness when the Review was disclosed. Subsequently in
March 2006, S & P lowered its rating on the Company’s corporate credit and
Senior Notes from BBB- to BB+ upon the announcement of the approval of the
plan
to incur indebtedness and repurchase shares pursuant to the Tender Offer. In
May
2006, S & P again lowered the rating on the Senior Notes to B+ reflecting
the relatively large amount of secured debt and lowered the rating on the new
2006 Credit Facility to BB while taking the Company off its credit watch.
Moody’s Investor Service (“Moody’s”) changed the Company’s outlook to
“developing” when the Review was disclosed. Subsequently in March 2006, Moody’s
downgraded the Company’s corporate family rating to Ba1 from Baa3, resulting
from the Company’s entering into the 2006 Credit Facility. At that time, Moody’s
also placed these ratings under review for possible downgrade. Subsequently
in
April 2006 as a result of the Company’s plan to draw on the 2006 Credit Facility
to finance the Tender Offer, Moody’s downgraded the Company’s Senior Notes to
Ba3 from Ba1 and the corporate family rating to Ba2 from Ba1, assigned a rating
of Ba2 to the 2006 Credit Facility and assigned a stable rating outlook for
the
Company.
In
the
event that either or both of the Company’s ratings decline further, the Company
may incur an increase in future borrowing costs. Additionally, since the rating
from Moody’s declined to Ba3 and the Standard & Poor’s rating declined below
BB- each $1 (face value at maturity) Senior Note became convertible into 10.8584
shares of the Company’s common stock (approximately 4.6 million shares in the
aggregate). The Company has received verification from the Trustee of the Senior
Notes that, as of September 29, 2006, no holders of the Senior Notes have
exercised their option to convert. Additionally, the Senior Notes are callable
at the Company’s election in the third quarter of the Company’s 2007 fiscal year
or putable at the holder’s election at the same time and every fifth anniversary
thereafter. The Company has classified the Senior Notes as long-term obligations
due to the Company’s intent and ability to refinance these Senior Notes on a
long-term basis.
Liquidity
and Capital Resources
The
following table presents a summary of the Company’s cash flows for the last
three years:
|
2006
|
2005
|
2004
|
|
|
Net
cash provided by operating activities
|
$214,846
|
$281,164
|
$200,481
|
|
Net
cash used in investing activities
|
(137,072)
|
(170,066)
|
(143,666)
|
|
Net
cash used in financing activities
|
(5,385)
|
(122,700)
|
(42,429)
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
$
72,389
|
$(11,602)
|
$
14,386
|
The
Company’s cash generated from operating activities was $214,846 in 2006. Most of
this cash was provided by net income adjusted by depreciation and amortization,
increases in other long-term obligations, other accrued expenses and income
taxes payable, decreases in inventories and other adjustments to net income
from
the tax benefit realized upon exercise of stock options, accretion on zero
coupon contingently convertible senior notes, impairment charges and loss on
disposition of property partially offset by decreases in deferred income taxes
and accrued employee benefits and increases in other assets.
The
Company had negative working capital of $25,585 at July 28, 2006 versus negative
working capital of $104,862 at July 29, 2005. In the restaurant industry,
substantially all sales are either for cash or third-party credit card. Like
many other restaurant companies, the Company is able to, and may from time
to
time, 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 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
10
Capital
expenditures (purchase of property and equipment) were $144,926, $171,447 and
$144,611 in 2006, 2005 and 2004, respectively. Costs of new locations accounted
for the majority of these expenditures. Capital expenditures in 2006 are net
of
proceeds from insurance recoveries of $1,365.
The
Company's new Term Loan B and internally generated cash, along with cash at
July
29, 2005, proceeds from stock option exercises, the Company’s available revolver
and the Company’s ability to enter into real estate operating lease
arrangements, were sufficient to finance all of its growth, share repurchase,
dividend and other cash payment obligations in 2006.
In
2002,
the Company issued $422,050 (face value at maturity) of Senior Notes, maturing
on April 2, 2032, and received proceeds totaling approximately $172,756 prior
to
debt issuance costs. The Senior Notes require no cash interest payments and
were
issued at a discount representing a yield to maturity of 3.00% per annum. The
Notes are redeemable at the Company's option on or after April 3, 2007, and
the
holders of the Notes may require the Company to redeem the Notes on April 3,
2007, 2012, 2017, 2022 or 2027, and in certain other circumstances. In addition,
each $1 (face value at maturity) Note is convertible into 10.8584 shares of
the
Company's common stock (approximately 4.6 million shares in the aggregate)
. The
Company’s closing share price, as reported by Nasdaq, on July 28, 2006 was
$32.41. During the third quarter of 2006, since the rating from Moody’s declined
to Ba3 and the Standard & Poor’s rating declined below BB-, each Note became
convertible into 10.8584 shares of the Company’s common stock. As of September
29, 2006, the Company has received verification from the Trustee that no holders
have exercised their option to convert. After the adoption of EITF No. 04-08,
“The Effect of Contingently Convertible Instruments on Diluted Earnings per
Share,” in the second quarter of 2005, the Company was required to include
approximately 4.6 million shares in its diluted shares outstanding related
to
its convertible debt. 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 2005 and 2006 the Senior Notes were not
actually converted into stock, nor did the requirements exist that would have
allowed them to be converted. Obligations under the Company's Senior Notes,
which may require short-term repayments in 2007, have been classified as
long-term debt, reflecting the Company's intent and ability to refinance these
borrowings through its existing $200,000 delayed-draw term loan and its existing
credit facilities.
At
the
beginning of 2006, the Company had 821,081 shares remaining under repurchase
authorizations previously in effect at the end of 2005. During 2006, the Company
did not make any share repurchases with the exception of those made in the
Tender Offer. The Company has not determined when it expects to repurchase
the
remaining 821,081 shares authorized; this matter will be reviewed in connection
with the timing and amount of proceeds from the potential divestiture of
Logan’s. The Company’s principal criteria for share repurchases are that they be
accretive to net income per share and are within the limits imposed by the
Company’s debt covenants under the 2006 Credit Facility.
During
2006 the Company received proceeds of $27,283 from the exercise of stock options
to acquire 1,057,103 shares of its common stock and tax benefit upon exercise
of
stock options of $6,441.
During
the first quarter of 2006, the Board approved a quarterly dividend of $0.13
per
common share (an annual equivalent of $0.52 per share), an increase from a
quarterly dividend of $0.12 approved in 2005. The Company paid such dividends
of
$0.13 per share during the second, third and fourth quarters of 2006 and the
first quarter of 2007. Additionally,
on September 21, 2006, the Board declared a dividend of $0.14 per share payable
on November 8, 2006 to shareholders of record on October 20, 2006. This dividend
reflects a 7.7% increase from the previous quarterly dividend.
The
Company estimates that its capital expenditures (purchase of property and
equipment) for 2007 will be up to $115,000, excluding capital expenditures
for
Logan’s, most of which will be related to the acquisition of sites and
construction of 19-20 new Cracker Barrel stores and openings that will occur
during 2007, as well as for acquisition and construction costs for locations
to
be opened in 2008. Due to the uncertain timing of a possible Logan’s
divestiture, the Company is not providing an estimate for Logan’s capital
expenditures.
Management
believes that cash at July 28, 2006, along with cash generated from the
Company’s operating activities, stock option exercises and available borrowings
under the term loan and revolving credit facility, will be sufficient to finance
its continued operations, its remaining share repurchase authorization, its
continued expansion plans, its expected refinancing of its senior convertible
notes, its principal payments on its debt and its dividend payments through
2007. At July 28, 2006, the Company had $209,492 available under its revolving
credit facility.
11
Off-Balance
Sheet Arrangements
Other
than various operating leases, as disclosed more fully in the Material
Commitments section below and Note 12 to the Company’s Consolidated Financial
Statements, the Company has no other material off-balance sheet
arrangements.
Material
Commitments
For
reporting purposes, the schedule of future minimum rental payments required
under operating leases, excluding billboard leases, uses the same lease term
as
used in the straight-line rent calculation. This term includes certain future
renewal options although the Company is not currently legally obligated for
all
optional renewal periods. This method was deemed appropriate under SFAS No.
13,
“Accounting for Leases,” to be consistent with the lease term used in the
straight-line rent calculation, as described in Note 2 to the Consolidated
Financial Statements.
The
Company’s contractual cash obligations and commitments as of July 28, 2006, are
summarized in the tables below:
|
Payments
due by Year
|
||||||||||||||||
|
Total
|
2007
|
2008-2009
|
2010-2011
|
After
2011
|
||||||||||||
|
Term
Loan B
|
$
|
723,000
|
$
|
8,000
|
$
|
16,000
|
$
|
16,000
|
$
|
683,000
|
||||||
|
Convertible
Debt
|
196,464
|
--
|
--
|
--
|
196,464
|
|||||||||||
|
Long-term
debt(a)
|
919,464
|
8,000
|
16,000
|
16,000
|
879,464
|
|||||||||||
|
Operating
lease base term and exercised options - excluding billboards
(b)
|
443,471
|
35,602
|
71,290
|
68,060
|
268,519
|
|||||||||||
|
Operating
lease renewal periods not yet exercised - excluding billboards
(c)
|
390,243
|
32
|
861
|
2,030
|
387,320
|
|||||||||||
|
Operating
leases for billboards
|
36,769
|
19,866
|
16,789
|
107
|
7
|
|||||||||||
|
Capital
leases
|
143
|
123
|
20
|
--
|
--
|
|||||||||||
|
Purchase
obligations (d)
|
290,870
|
235,652
|
35,931
|
18,856
|
431
|
|||||||||||
|
Other
long-term obligations(e)
|
30,202
|
--
|
2,513
|
683
|
27,006
|
|||||||||||
|
Total
contractual cash obligations
|
$
|
2,111,162
|
$
|
299,275
|
$
|
143,404
|
$
|
105,736
|
$
|
1,562,747
|
||||||
|
Amount
of Commitment Expirations by Year
|
||||||||||||||||
|
Total
|
2007
|
2008-2009
|
2010-2011
|
After
2011
|
||||||||||||
|
Revolving
Credit facility
|
$
|
250,000
|
--
|
--
|
$
|
250,000
|
--
|
|||||||||
|
Delayed-Draw
Term Loan facility (f)
|
$
|
200,000
|
--
|
--
|
--
|
$
|
200,000
|
|||||||||
|
Standby
letters of credit
|
40,508
|
$
|
24,936
|
$
|
15,572
|
--
|
--
|
|||||||||
|
Guarantees
(g)
|
2,584
|
361
|
721
|
721
|
$
|
781
|
||||||||||
|
Total
commitments
|
$
|
493,092
|
$
|
25,297
|
$
|
16,293
|
$
|
250,721
|
$
|
200,781
|
||||||
| (a) |
The
Convertible Debt was issued at a discount representing a yield to
maturity
of 3.00% per annum. The $196,464 balance is the accreted carrying
value of
the debt at July 28, 2006. The Convertible Debt will continue to
accrete
at 3.00% per annum and if held to maturity on April 2, 2032 the obligation
will total $422,050. The balance on the Term Loan B is $723,000 at
July
28, 2006. Using the minimum principal payment schedule on the Term
Loan B
and a 7.07% interest rate, which is the same rate as the Company’s fixed
rate under its interest rate swap plus its current credit spread
of 1.50%,
the Company will have interest payments of $52,310, $100,938, $98,650
and
$84,582 in 2007, 2008-2009, 2010-2011 and after 2011, respectively.
The
Company had no amounts outstanding under its variable rate
Revolving Credit facility as of July 28, 2006. The Company paid $1,001
in
non-use fees (also known as commitment fees) on the Revolving Credit
facility during 2006. Based on no outstanding revolver balance at
July 28,
2006 and the Company’s current unused commitment fee as defined in the
Revolving Credit Agreement, the Company’s unused commitment fees in 2007
would be $2,086; however, the actual amount will differ based on
actual
usage of the Revolving Credit facility in 2007.
|
12
| (b) | Includes base lease terms and certain optional renewal periods that have been exercised and are included in the lease term in accordance with SFAS No. 13. |
|
(c)
|
Includes
certain optional renewal periods that have not yet been exercised,
but are
included in the lease term for the straight-line rent calculation,
since
at the inception of the lease, it is reasonably assured that the
Company
will exercise those renewal
options.
|
| (d) |
Purchase
obligations consist of purchase orders for food and retail merchandise;
purchase orders for capital expenditures, supplies and other operating
needs and other services; and commitments under contracts for maintenance
needs and other services. We excluded long-term agreements for services
and operating needs that can be cancelled within 60 days without
penalty.
We included long-term agreements for services and operating needs
that can
be cancelled with more than 60 days notice without penalty only through
the term of the notice. We included long-term agreements for services
and
operating needs that can be cancelled with a penalty through the
entire
term of the contract. Due to the uncertainties of seasonal demands
and
promotional calendar changes, our best estimate of usage for food,
supplies and other operating needs and services is ratably over either
the
notice period or the remaining life of the contract, as applicable,
unless
we had better information available at the time related to each
contract.
|
| (e) |
Other
long-term obligations include the Company’s Non-Qualified Savings Plan
($24,860, with a corresponding long-term asset to fund the liability;
see
Note 13 to the Consolidated Financial Statements), Deferred Compensation
Plan ($2,573), FY2005 and FY2006 Mid-Term Incentive and Retention
Plans
($422, cash portion only; see Note 9 to the Consolidated Financial
Statements), FY2004, FY2005 and FY2006 Long-Term Retention Incentive
Plans
($2,192) and FY2006 SOX Retention Plan
($155).
|
| (f) |
The
$200,000 Delayed-Draw Term Loan facility can be used any time prior
to
October 27, 2007 to refinance the Company’s Senior Notes or for general
corporate purposes and any term loans under this facility mature
April 27,
2013.
|
(g)
Consists solely of guarantees associated with properties that have been
subleased or assigned. The Company is not aware of any non-performance under
these arrangements that would result in the Company having to perform in
accordance with the terms of those guarantees.
Critical
Accounting Policies and Estimates
The
Company prepares its Consolidated Financial Statements in conformity with GAAP.
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). 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,
outside advice from parties believed to be experts in such matters, and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent
from
other sources. 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 and Provision for Asset Dispositions
Property
and Equipment
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 expected future cash flows are less than the carrying amount
of the asset, the carrying amount is written down to the estimated fair value
of
an asset to be held and used or the fair value, net of estimated costs of
disposal, of an asset to be disposed of, and a loss resulting from impairment
is
recognized by a charge to income. 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. The accuracy of such provisions can vary materially from original
estimates, and management regularly monitors the adequacy of the provisions
until final disposition occurs.
During
2006, the Company decided to close seven Cracker Barrel stores and three Logan’s
restaurants, which resulted in impairment charges and store closing costs of
$8,052. Initially these impairments were recorded based
13
Goodwill
In
addition, at least annually, the Company assesses the recoverability of goodwill
and other intangible assets. The impairment tests require the Company to
estimate fair values of its restaurant concepts 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,
or
if operating performance declines, the Company may be required to record
impairment charges for these assets and such charges could be
material.
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 $500 and $1,000 for
certain coverages since 2004. Since 2004, the Company has elected not to
purchase such insurance for its primary group health program, but its offered
benefits are limited to not more than $1,000 during the lifetime of 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
actuarially determined estimate of incurred but not reported claims at the
anticipated cost to the Company as of the end of the Company’s third quarter and
adjusting it by the actuarially determined losses and actual claims payments
for
the fourth quarter. The reserves and losses are determined actuarially from
a
range of possible outcomes within which no given estimate is more likely than
any other estimate. In accordance with SFAS No. 5, “Accounting for
Contingencies,” 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
actuarially projected timing of payments. The Company records a liability for
its group health program for all unpaid claims based primarily 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
or
management judgments regarding economic conditions,
the frequency and severity of claims and claim development history and
settlement practices. Changes in these factors in the future may produce
materially different amounts of expense than would be reported under these
insurance programs.
Tax
Provision
The
Company must make estimates of certain items that comprise its income tax
provision. These estimates include employer tax credits for items such as FICA
taxes paid on employee tip income, Work Opportunity and Welfare to Work credits,
as well as estimates related to certain depreciation and capitalization
policies. These estimates are made based on 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, either of which could result in material adjustments to the
Company’s Consolidated Financial Statements and its consolidated financial
position.
Share-Based
Compensation
In
accordance with the adoption of SFAS No. 123R, the Company recognized
share-based compensation expense in 2006. This included expensing stock options
as share-based compensation in 2006, which had not been required or done in
previous years. The fair value of each option award granted subsequent to July
29, 2005 was estimated on the date of grant using a binomial lattice-based
option valuation model. This model incorporates the following ranges of
assumptions:
14
· The
expected volatility is a blend of implied volatility based on market-traded
options on the Company’s stock and historical volatility of the Company’s stock
over the contractual life of the options.
· The
Company uses historical data to estimate option exercise and employee
termination behavior within the valuation model; separate groups of employees
that have similar historical exercise behavior are considered separately for
valuation purposes. The expected life of options granted is derived from the
output of the option valuation model and represents the period of time the
options are expected to be outstanding.
· The
risk-free interest rate is based on the U.S. Treasury yield curve in effect
at
the time of grant for periods within the contractual life of the
option.
· The
expected dividend yield is based on the Company’s current dividend yield as the
best estimate of projected dividend yield for periods within the contractual
life of the option.
The
expected volatility, option exercise and termination assumptions involve
management’s best estimates at that time, all of which impact the fair value of
the option calculated by the binomial lattice-based option valuation model
and,
ultimately, the expense that will be recognized over the life of the
option. Management updates the historical and implied components of the
expected volatility assumption quarterly. Management updates option
exercise and termination assumptions quarterly. The expected life is a
by-product of the lattice model, and is updated when new grants are
made.
SFAS
No.
123R also requires that compensation expense be recognized for only the portion
of options that are expected to vest. Therefore, an estimated forfeiture rate
derived from historical employee termination behavior, grouped by job
classification, is applied against share-based compensation expense. The
forfeiture rate is applied on a straight-line basis over the service (vesting)
period for each separately vesting portion of the award as if the award was,
in-substance, multiple awards. Management updates the estimated forfeiture
rate
to actual on each of the vesting dates and adjusts compensation expense
accordingly, so that the amount of compensation cost recognized at any date
is
at least equal to the portion of the grant-date value of the award that is
vested at that date.
Unredeemed
Gift Cards and Certificates
Unredeemed
gift cards and certificates represent a liability of the Company related to
deferred revenue and are recorded at their expected redemption value. For those
states that exempt gift cards and certificates from their escheat laws, the
Company makes estimates of the ultimate unredeemed (“breakage”) gift cards and
certificates in the period of the original sale for those states that exempt
gift cards and certificates from their escheat laws and amortizes this breakage
over the redemption period that other gift cards and certificates historically
have been redeemed by reducing its liability and recording revenue accordingly.
For those states that do not exempt gift cards and certificates from their
escheat laws, the Company records breakage in the period that gift cards and
certificates are remitted to the state for those states that do not exempt
gift
cards and certificates from their escheat laws and reduces its liability and
records revenue accordingly. Changes in redemption behavior or management's
judgments regarding redemption trends in the future may produce materially
different amounts of deferred revenue to be reported.
Legal
Proceedings
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to its business. In the opinion of management,
however, based upon information currently available, the ultimate liability
with
respect to these actions will not materially affect the Company’s consolidated
results of operations or financial position. The
Company reviews outstanding claims and proceedings internally and with external
counsel as necessary to assess probability of loss and for the ability to
estimate loss. These assessments are re-evaluated each quarter or as new
information becomes available to determine whether a reserve should be
established or if any existing reserve should be adjusted. The actual cost
of
resolving a claim or proceeding ultimately may be substantially different than
the amount of the recorded reserve. In addition, because it is not
permissible under GAAP to establish a litigation reserve until the loss is
both
probable and estimable, in some cases there may be insufficient time to
establish a reserve prior to the actual incurrence of the loss (upon verdict
and
judgment at trial, for example, or in the case of a quickly negotiated
settlement).
The
Company is a member of a class of a settled lawsuit against Visa U.S.A. Inc.
(“Visa”) and MasterCard International Incorporated (“MasterCard”). The Visa
Check/Mastermoney Antitrust litigation settlement became final on June 1, 2005.
The settlement provides $3,050,000 in compensatory relief by Visa and MasterCard
to be funded over a fixed period of time to respective Settlement Funds. The
Company expects to receive approximately $1,700 ($900 after taxes and third
party collection fees) as its share of the proceeds from the settlement. The
Company believes this settlement represents an indeterminate mix of loss
recovery and gain contingency and therefore
15
16
Management’s
Report on Internal Control over Financial Reporting
We
are
responsible for establishing and maintaining adequate internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities and Exchange Act of 1934, as amended). We maintain a system of
internal controls that is designed to provide reasonable assurance in a
cost-effective manner as to the fair and reliable preparation and presentation
of the consolidated financial statements, as well as to safeguard assets from
unauthorized use or disposition.
Our
control environment is the foundation for our system of internal control over
financial reporting and is embodied in our Corporate Governance Guidelines,
our
Financial Code of Ethics, and our Code of Business Conduct and Ethics, all
of
which may be viewed on our website. They set the tone for our organization
and
include factors such as integrity and ethical values. Our internal control
over
financial reporting is supported by formal policies and procedures, which are
reviewed, modified and improved as changes occur in business condition and
operations. Our disclosure controls and procedures and our internal controls,
however, will not and can not prevent all error and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the benefits of controls relative
to
their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected.
We
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of
the
design effectiveness of controls, testing of the operating effectiveness of
controls and a conclusion on this evaluation. We have concluded that our
internal control over financial reporting was effective as of July 28, 2006,
based on these criteria.
In
addition, Deloitte & Touche LLP, an independent registered public accounting
firm, has issued an attestation report on management’s assessment of internal
control over financial reporting, which is included herein.
/s/
Michael A.
Woodhouse
Michael
A.
Woodhouse
Chairman,
President
and Chief Executive Officer
/s/
Lawrence E.
White
Lawrence
E.
White
Senior
Vice
President, Finance and Chief Financial Officer
17
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of CBRL Group,
Inc.:
We
have
audited the accompanying consolidated balance sheets of CBRL Group, Inc. and
subsidiaries (the “Company”) as of July 28, 2006 and July 29, 2005, and the
related consolidated statements of income, changes in shareholders’ equity, and
cash flows for each of the three fiscal years in the period ended July 28,
2006.
These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of CBRL Group, Inc. and subsidiaries as of
July
28, 2006 and July 29, 2005, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended July 28, 2006,
in
conformity with accounting principles generally accepted in the United States
of
America.
As
discussed in Note 8 to the consolidated financial statements, the Company
adopted the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share
Based Payment
effective July 30, 2005, which resulted in the Company changing the method
in
which it accounts for share-based compensation.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company's internal
control over financial reporting as of July 28, 2006, based on the criteria
established in Internal
Control—Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission and
our
report dated October 3, 2006 expressed an unqualified opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting and an unqualified opinion on the effectiveness of the Company's
internal control over financial reporting.
/s/
Deloitte & Touche LLP
Nashville,
Tennessee
October
3, 2006
18
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of CBRL Group,
Inc.:
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control over Financial Reporting, that CBRL Group, Inc.
and
subsidiaries (the “Company”) maintained effective internal control over
financial reporting as of July 28, 2006, based on criteria established in
Internal
Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing
and evaluating the design and operating effectiveness of internal control,
and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by
the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented
or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of July 28, 2006, is fairly stated, in
all material respects, based on the criteria established in Internal
Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Also
in
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of July 28, 2006, based on the
criteria established in Internal
Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway
Commission.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States of America), the consolidated financial
statements as of and for the year ended July 28, 2006, of the Company and
our report dated October 3, 2006, expressed an unqualified opinion on those
consolidated financial statements and included an explanatory paragraph
referring to the Company adopting the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share
Based Payment effective
July 30, 2005.
/s/
Deloitte & Touche LLP
Nashville,
Tennessee
October
3, 2006
19
|
CBRL
GROUP, INC.
|
|||||||
|
CONSOLIDATED
BALANCE SHEET
|
|||||||
|
(In
thousands except share data)
|
|||||||
|
ASSETS
|
July
28,
2006
|
July
29,
2005
|
|||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
89,562
|
$
|
17,173
|
|||
|
Property
held for sale
|
4,716
|
--
|
|||||
|
Receivables
|
14,629
|
13,736
|
|||||
|
Inventories
|
138,176
|
142,804
|
|||||
|
Prepaid
expenses
|
5,996
|
7,238
|
|||||
|
Deferred
income taxes
|
17,017
|
9,532
|
|||||
|
Total
current assets
|
270,096
|
190,483
|
|||||
|
Property
and Equipment:
|
|||||||
|
Land
|
339,865
|
328,362
|
|||||
|
Buildings
and improvements
|
745,416
|
709,730
|
|||||
|
Buildings
under capital leases
|
3,289
|
3,289
|
|||||
|
Restaurant
and other equipment
|
396,550
|
359,533
|
|||||
|
Leasehold
improvements
|
262,525
|
228,859
|
|||||
|
Construction
in progress
|
25,004
|
34,275
|
|||||
|
Total
|
1,772,649
|
1,664,048
|
|||||
|
Less:
Accumulated depreciation and
amortization
of capital leases
|
502,565
|
445,750
|
|||||
|
Property
and equipment - net
|
1,270,084
|
1,218,298
|
|||||
|
Goodwill
|
93,724
|
93,724
|
|||||
|
Other
assets
|
47,393
|
30,767
|
|||||
|
Total
|
$
|
1,681,297
|
$
|
1,533,272
|
|||
See
Notes
to Consolidated Financial Statements.
20
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable
|
$
|
83,846
|
$
|
97,710
|
|||
|
Current
maturities of long-term debt
and
other long-term obligations
|
8,116
|
210
|
|||||
|
Taxes
withheld and accrued
|
38,126
|
36,396
|
|||||
|
Income
taxes payable
|
22,444
|
22,211
|
|||||
|
Accrued
employee compensation
|
48,718
|
49,283
|
|||||
|
Accrued
employee benefits
|
40,570
|
43,631
|
|||||
|
Deferred
revenues
|
21,413
|
20,818
|
|||||
|
Other
accrued expenses
|
32,448
|
25,086
|
|||||
|
Total
current liabilities
|
295,681
|
295,345
|
|||||
|
Long-term
debt
|
911,464
|
212,218
|
|||||
|
Other
long-term obligations
|
66,918
|
48,411
|
|||||
|
Deferred
income taxes
|
104,952
|
107,310
|
|||||
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; 2006 - 30,926,906
shares
issued and outstanding; 2005 -
46,619,803
shares issued and outstanding
|
309
|
466
|
|||||
|
Additional
paid-in capital
|
4,257
|
--
|
|||||
|
Accumulated
other comprehensive (loss)
|
(4,529)
|
--
|
|||||
|
Retained
earnings
|
302,245
|
869,522
|
|||||
|
Total
shareholders' equity
|
302,282
|
869,988
|
|||||
|
Total
|
$
|
1,681,297
|
$
|
1,533,272
|
|||
See
Notes
to Consolidated Financial Statements.
21
|
CBRL
GROUP, INC.
|
||||||||||
|
CONSOLIDATED
STATEMENT OF INCOME
|
||||||||||
|
(In
thousands except share data)
Fiscal
years ended
|
||||||||||
|
July
28,
2006
|
July
29,
2005
|
July
30,
2004
|
||||||||
|
Total
revenue
|
$
|
2,642,997
|
$
|
2,567,548
|
$
|
2,380,947
|
||||
|
Cost
of goods sold
|
845,644
|
847,045
|
785,703
|
|||||||
|
Gross
profit
|
1,797,353
|
1,720,503
|
1,595,244
|
|||||||
|
Labor
and other related expenses
|
963,922
|
939,849
|
880,617
|
|||||||
|
Impairment
and store closing charges
(see
Note 2)
|
8,890
|
431
|
--
|
|||||||
|
Other
store operating expenses
|
479,165
|
445,455
|
405,139
|
|||||||
|
Store
operating income
|
345,376
|
334,768
|
309,488
|
|||||||
|
General
and administrative
|
155,847
|
132,606
|
126,501
|
|||||||
|
Operating
income
|
189,529
|
202,162
|
182,987
|
|||||||
|
Interest
expense
|
22,298
|
8,693
|
8,444
|
|||||||
|
Interest
income
|
818
|
96
|
5
|
|||||||
|
Income
before income taxes
|
168,049
|
193,565
|
174,548
|
|||||||
|
Provision
for income taxes
|
51,758
|
66,925
|
62,663
|
|||||||
|
Net
income
|
$
|
116,291
|
$
|
126,640
|
$
|
111,885
|
||||
|
Net
income per share - basic
|
$
|
2.71
|
$
|
2.65
|
$
|
2.29
|
||||
|
Net
income per share - diluted
|
$
|
2.50
|
$
|
2.45
|
$
|
2.12
|
||||
|
Basic
weighted average shares outstanding
|
42,917,319
|
47,791,317
|
48,877,306
|
|||||||
|
Diluted
weighted average shares outstanding
|
48,044,440
|
53,382,007
|
54,952,633
|
|||||||
See
Notes
to Consolidated Financial Statements.
22
CBRL
GROUP, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
|
Common
Stock
|
Additional
|
Accumulated
Other
|
Total
|
||||||||||||||||
|
Shares
|
Amount
|
Paid-In
Capital
|
Comprehensive
(Loss)
|
Retained
Earnings
|
Shareholders’
Equity
|
||||||||||||||
|
Balances
at August 1, 2003
|
47,872,542
|
$
|
479
|
--
|
--
|
$
|
788,883
|
$
|
789,362
|
||||||||||
|
Cash
dividends declared - $.44 per share
|
--
|
--
|
--
|
--
|
(21,556
|
)
|
(21,556
|
)
|
|||||||||||
|
Share-based
compensation
|
--
|
--
|
$
|
116
|
--
|
--
|
116
|
||||||||||||
|
Exercise
of
stock awards
|
2,666,126
|
27
|
50,067
|
--
|
--
|
50,094
|
|||||||||||||
|
Tax
benefit realized upon exercise of stock
options
|
--
|
--
|
12,641
|
--
|
--
|
12,641
|
|||||||||||||
|
Purchases
and
retirement of common stock
|
(1,769,300
|
)
|
(18
|
)
|
(48,842
|
)
|
--
|
(20,346
|
)
|
(69,206
|
)
|
||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
111,885
|
111,885
|
|||||||||||||
|
Balances
at July 30, 2004
|
48,769,368
|
488
|
13,982
|
--
|
858,866
|
873,336
|
|||||||||||||
|
Cash
dividends declared - $.48 per share
|
--
|
--
|
--
|
--
|
(22,991
|
)
|
(22,991
|
)
|
|||||||||||
|
Share-based
compensation
|
--
|
--
|
1,261
|
--
|
--
|
1,261
|
|||||||||||||
|
Exercise
of
stock awards
|
1,921,354
|
19
|
38,061
|
--
|
--
|
38,080
|
|||||||||||||
|
Tax
benefit realized upon exercise of stock
options
|
--
|
--
|
12,990
|
--
|
--
|
12,990
|
|||||||||||||
|
Purchases
and
retirement of common stock
|
(4,070,919
|
)
|
(41
|
)
|
(66,294
|
)
|
--
|
(92,993
|
)
|
(159,328
|
)
|
||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
126,640
|
126,640
|
|||||||||||||
|
Balances
at July 29, 2005
|
46,619,803
|
466
|
--
|
--
|
869,522
|
869,988
|
|||||||||||||
|
Comprehensive
Income:
|
|||||||||||||||||||
|
Net income
|
--
|
--
|
--
|
--
|
116,291
|
116,291
|
|||||||||||||
|
Change
in fair value of interest rate swap, net of tax benefit of $2,691
(See
Notes 2 and 6.)
|
--
|
--
|
--
|
$
|
(4,529
|
)
|
--
|
(4,529
|
)
|
||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
(4,529
|
)
|
116,291
|
111,762
|
||||||||||||
|
Cash
dividends declared - $.52 per share
|
--
|
--
|
--
|
--
|
(22,471
|
)
|
(22,471
|
)
|
|||||||||||
|
Share-based
compensation
|
---
|
--
|
13,439
|
--
|
--
|
13,439
|
|||||||||||||
|
Exercise
of stock awards
|
1,057,103
|
11
|
27,272
|
--
|
--
|
27,283
|
|||||||||||||
|
Tax
benefit realized upon exercise of stock options
|
--
|
--
|
6,441
|
--
|
--
|
6,441
|
|||||||||||||
|
Purchases
and retirement of common stock
|
(16,750,000
|
)
|
(168
|
)
|
(42,895
|
)
|
--
|
(661,097
|
)
|
(704,160
|
)
|
||||||||
|
Balances
at July 28, 2006
|
30,926,906
|
309
|
4,257
|
$
|
(4,529
|
)
|
302,245
|
302,282
|
|||||||||||
See
Notes
to Consolidated Financial Statements.
23
|
CBRL
GROUP, INC.
|
||||||||||
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
||||||||||
|
(In
thousands)
|
||||||||||
|
Fiscal
years ended
|
||||||||||
|
July
28,
2006
|
July
29,
2005
|
July
30,
2004
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
income
|
$
|
116,291
|
$
|
126,640
|
$
|
111,885
|
||||
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
72,278
|
67,321
|
63,868
|
|||||||
|
Loss on disposition of property and equipment
|
1,859
|
3,654
|
3,334
|
|||||||
|
Impairment
|
7,662
|
431
|
--
|
|||||||
|
Accretion
on zero-coupon contingently convertible senior notes
|
5,747
|
5,579
|
5,408
|
|||||||
|
Share-based compensation
|
13,439
|
1,261
|
116
|
|||||||
|
Excess tax benefit from share-based compensation
|
(6,441
|
)
|
12,990
|
12,641
|
||||||
|
Changes
in assets and liabilities:
|
||||||||||
|
Receivables
|
(893
|
)
|
(3,934
|
)
|
(652
|
)
|
||||
|
Inventories
|
4,628
|
(984
|
)
|
(5,800
|
)
|
|||||
|
Prepaid
expenses
|
1,242
|
1,131
|
563
|
|||||||
|
Other
assets
|
(5,657
|
)
|
(11,465
|
)
|
(4,863
|
)
|
||||
|
Accounts
payable
|
(13,864
|
)
|
44,415
|
(28,877
|
)
|
|||||
|
Taxes
withheld and accrued
|
1,730
|
1,857
|
2,436
|
|||||||
|
Income
taxes payable
|
6,674
|
3,640
|
10,394
|
|||||||
|
Accrued
employee compensation
|
(565
|
)
|
(183
|
)
|
(687
|
)
|
||||
|
Accrued
employee benefits
|
(3,061
|
)
|
4,341
|
508
|
||||||
|
Deferred
revenues
|
595
|
1,471
|
3,712
|
|||||||
|
Other
accrued expenses
|
8,910
|
(2,679
|
)
|
6,356
|
||||||
|
Other
long-term obligations
|
11,424
|
12,396
|
5,755
|
|||||||
|
Deferred
income taxes
|
(7,152
|
)
|
13,282
|
14,384
|
||||||
|
Net
cash provided by operating activities
|
214,846
|
281,164
|
200,481
|
|||||||
|
Cash
flows from investing activities:
|
||||||||||
|
Purchase
of property and equipment
|
(146,291
|
)
|
(171,447
|
)
|
(144,611
|
)
|
||||
|
Proceeds from insurance recoveries of property and
equipment
|
1,365
|
--
|
--
|
|||||||
|
Proceeds from sale of property and equipment
|
7,854
|
1,381
|
945
|
|||||||
|
Net cash used in investing activities
|
(137,072
|
)
|
(170,066
|
)
|
(143,666
|
)
|
||||
|
Cash
flows from financing activities:
|
||||||||||
|
Proceeds
from issuance of long-term debt
|
1,343,500
|
609,700
|
150,000
|
|||||||
|
Proceeds
from exercise of stock options
|
27,283
|
38,080
|
50,094
|
|||||||
|
Principal
payments under long-term debt
|
||||||||||
|
and
other long-term obligations
|
(642,232
|
)
|
(588,388
|
)
|
(157,125
|
)
|
||||
|
Purchases
and retirement of common stock
|
(704,160
|
)
|
(159,328
|
)
|
(69,206
|
)
|
||||
|
Dividends
on common stock
|
(24,019
|
)
|
(22,764
|
)
|
(16,191
|
)
|
||||
|
Excess
tax benefit from share-based compensation
|
6,441
|
--
|
--
|
|||||||
|
Deferred
financing costs
|
(12,198
|
)
|
--
|
(1
|
)
|
|||||
|
Net
cash used in financing activities
|
(5,385
|
)
|
(122,700
|
)
|
(42,429
|
)
|
||||
|
Net increase (decrease) in cash and cash equivalents
|
72,389
|
(11,602
|
)
|
14,386
|
||||||
|
Cash
and cash equivalents, beginning of year
|
17,173
|
28,775
|
14,389
|
|||||||
|
Cash
and cash equivalents, end of year
|
$
|
89,562
|
$
|
17,173
|
$
|
28,775
|
||||
24
|
Supplemental
disclosure of cash flow information:
|
|||||||||||||
|
Cash
paid during the year for:
|
|||||||||||||
|
Interest,
net of amounts capitalized
|
$
|
1,755
|
$
|
1,178
|
$
|
1,108
|
|||||||
|
Income
taxes
|
52,703
|
37,848
|
26,501
|
||||||||||
See
Notes
to Consolidated Financial Statements.
25
CBRL
GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(In
thousands except share data)
1. Description
of the Business
CBRL
Group,
Inc. and its affiliates (collectively, in the Notes, the “Company”) are
principally engaged in the operation and development in the United States of
the
Cracker Barrel Old Country Store® (“Cracker Barrel”) restaurant and retail
concept and the Logan’s Roadhouse® (“Logan’s”) restaurant concept.
2. Summary
Of
Significant Accounting Policies
GAAP
-
The
accompanying Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles in the United
States
(“GAAP”).
Fiscal
year
-
The
Company's fiscal year ends on the Friday nearest July 31st and each quarter
consists of thirteen weeks unless noted otherwise. References in these Notes
to
a year or quarter are to the Company’s fiscal year or quarter unless noted
otherwise.
Principles
of consolidation - The
Consolidated Financial Statements include the accounts of the Company and its
subsidiaries, all of which are wholly owned. All significant intercompany
transactions and balances have been eliminated.
Financial
instruments -
The
fair
values of cash and cash equivalents, accounts receivable, and accounts payable
as of July 28, 2006, approximate their carrying amounts due to their short
duration. The carrying value and fair value of the Company’s zero-coupon
contingently convertible senior notes (the “Senior Notes”) in long-term debt at
July 28, 2006 were $196,464 and $195,726, respectively. The fair value of the
Senior Notes in long-term debt is determined based on market prices using the
average of the bid and ask prices as of July 28, 2006. The
fair
value of the Company’s variable-rate Term Loan B approximates its carrying
value. The
estimated fair value of the Company’s interest rate swap liability on a portion
of its Term Loan B is included in other long-term obligations (see “Derivative
instruments and hedging activities” in this Note).
The Company adopted Emerging Issues Task Force (“EITF”) No. 04-8, “The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share” issued by
the Financial Accounting Standards Board (“FASB”), in the second quarter of
2005. 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. The adoption of EITF 04-8 resulted in the Company’s
Senior Notes (see Note 4 for the impact on the net income per share calculation
and Note 6 for a description of these Senior Notes) representing a dilutive
security and requiring 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. EITF 04-8 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.
Cash
and cash
equivalents -
The
Company's policy is to consider all highly liquid investments purchased with
an
original maturity of three months or less to be cash equivalents.
Inventories -
Inventories are stated at the lower of cost or market. Cost of restaurant
inventory is determined by the first-in, first-out (FIFO) method. Approximately
70% of retail inventories are valued using the retail inventory method and
the
remaining 30% are valued using an average cost method. Valuation provisions
are
included for retail inventory obsolescence, returns and amortization of certain
items.
Store
pre-opening costs -
Start-up
costs of a new store are expensed when incurred, with the exception of rent
expense under operating leases, in which the straight-line rent includes the
pre-opening period during construction, as explained further under the Operating
Leases section of this Note 2 to the Consolidated Financial
Statements.
Property
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:
26
|
Years
|
|
|
Buildings
and improvements
|
30-45
|
|
Buildings
under capital leases
|
15-25
|
|
Restaurant
and other equipment
|
2-10
|
|
Leasehold
improvements
|
1-35
|
Depreciation
expense was
$71,049, $66,687 and $62,304 for 2006, 2005 and 2004, respectively. Accelerated
depreciation methods are generally used for income tax purposes.
Capitalized
interest was
$756, $870 and $615 for 2006, 2005 and 2004, respectively.
Gain
or loss is recognized upon
disposal of property and equipment, and the asset and related accumulated
depreciation and amortization amounts are removed from the
accounts.
Maintenance
and repairs,
including the replacement of minor items, are charged to expense, and major
additions to property and equipment are capitalized.
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 expected future cash flows are less than the carrying amount
of the asset, the carrying amount is written down to the estimated fair value
of
an asset to be held and used or the fair value, net of estimated costs of
disposal, of an asset to be disposed of, and a loss resulting from impairment
is
recognized by a charge to income. 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. The accuracy of such provisions can vary materially from original
estimates, and management regularly monitors the adequacy of the provisions
until final disposition occurs.
During
2006,
the Company decided to close seven Cracker Barrel stores and three Logan’s
restaurants, which resulted in impairment charges and store closing costs of
$8,052. Initially these impairments were recorded based upon the lower of unit
carrying amount or fair value. The units’ fair values largely were determined
based upon estimates provided by third-party appraisers using market
comparables. The impaired locations were closed in February 2006 and were
classified at that time as held for sale and were remeasured at their fair
value
less cost to sell. The locations were closed due to weak financial performance,
an unfavorable outlook, and relatively positive prospects for proceeds from
disposition for certain locations. Additionally, during 2006, the Company
recorded an impairment of $838 on its Cracker Barrel management trainee housing
facility. As of July 28, 2006, the Company had sold three Cracker Barrel stores
and one Logan’s restaurant and expects the sale of the remaining four owned
properties to be completed within one year. The store closing charges included
employee termination benefits, lease termination and other costs and are
included in the impairment and store closing charges line on the accompanying
Consolidated Statement of Income. The remaining accrual for store closing costs
at July 28, 2006 was $494. The Company also recorded an impairment loss of
$431
in 2005 with respect to a Cracker Barrel store that was approved to relocate
to
a stronger site in the same market. The results of operations for all
restaurants closed in fiscal 2006 and 2005 are not material to our consolidated
financial position, results of operations or cash flows, and, therefore, have
not been presented as discontinued operations.
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 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 assured that the Company will
exercise those renewal options.
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.
27
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 it is probable sales have been
achieved in amounts in excess of the specified levels.
The
same
lease life is used for reporting future minimum lease commitments as is used
for
the straight-line rent calculation. The Company uses a lease life that extends
through certain of the renewal periods that can be exercised at the Company’s
option.
Advertising
-
The
Company expenses the costs of producing advertising the first time the
advertising takes place. Net advertising expense was $43,336, $44,409 and
$38,442 for 2006, 2005 and 2004, respectively.
Insurance
- 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 $500 and $1,000 for
certain coverages since 2004. Since 2004 the Company has 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
actuarially determined estimate of incurred but not reported claims at the
anticipated cost to the Company as of the end of the Company’s third quarter and
adjusting it by the actuarially determined losses and actual claims payments
for
the fourth quarter. The reserves and 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 actuarially projected timing of
payments. The Company records a liability for its group health program for
all
unpaid claims based primarily 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 or 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.
Goodwill
--
Goodwill represents the excess of the cost over the net tangible and
identifiable intangible assets from the acquisition of Logan’s in 1999. The
Company accounts for goodwill and other intangibles under SFAS No. 142,
“Goodwill and Other Intangible Assets.” Goodwill and other intangible assets are
tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. SFAS No. 142 requires
a
two-step process for testing impairment. First, the fair value of each reporting
unit is compared to its carrying value to determine whether an indication of
impairment exists. This
valuation may reflect, among other things, such external factors as capital
market valuation for public companies comparable to the operating unit.
If
an
impairment is indicated, then the implied fair value of the reporting unit’s
goodwill is determined by allocating the unit’s fair value to its assets and
liabilities (including any unrecognized intangible assets) as if the reporting
unit had been acquired in a business combination. The amount of impairment
for
goodwill and other intangible assets is measured as the excess of its carrying
value over its implied fair value. The
Company performs its annual assessment during its second quarter. There were
no
indications of impairment for 2004, 2005 or 2006. 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.
Revenue
recognition -
The
Company records revenue from the sale of
products as they are sold. The Company provides for estimated returns based
on
return history and sales levels. Initial fees received from a franchisee to
establish a new franchise are recognized as income when the Company has
performed all of its obligations required to assist the franchisee in opening
a
new franchise restaurant, which is generally upon the opening of that
restaurant. Continuing royalties, which are a percentage of net sales of
franchised restaurants, are accrued as income when earned. As permitted by
the
provisions of EITF 06-3, “How Taxes Collected from Customers and Remitted to
Governmental Authorities Should be Presented in the Income Statement (That
Is,
Gross versus Net Presentation)”, the Company’s policy is to present sales in the
Consolidated Statement of Income on a net presentation basis after deducting
sales tax.
Unredeemed gift cards and certificates - Unredeemed
gift cards and certificates represent a liability of the Company related to
deferred revenue and are recorded at their expected redemption value. For those
states that exempt gift cards and certificates from their escheat laws, the
Company makes estimates of the ultimate unredeemed gift cards and certificates
in the period of the original sale and amortizes this breakage over the
redemption period that other gift cards and certificates historically have
been
redeemed by reducing its liability and recording revenue accordingly. For those
states that do not exempt gift cards and certificates from their escheat laws
the Company records breakage in the period that gift cards and certificates
are
remitted to the state and
28
Income
taxes
-
Employer
tax credits for FICA taxes paid on employee tip income and other employer tax
credits are accounted for by the flow-through method. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes (see Note 10).
Net
income
per share -
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 Notes 4 and
6).
The Company’s Senior Notes, outstanding employee and director stock options and
restricted stock (also known as unvested shares) issued by the Company represent
the only dilutive effects on diluted net income per share.
Share-based
compensation -
The
Company has four share-based compensation plans for employees and non-employee
directors, which authorize the granting of stock options, restricted stock,
and
other types of awards consistent with the purpose of the plans (see Note 8).
The
number of shares authorized for issuance under the Company’s plans as of July
28, 2006 totals 26,294,452, of which 2,241,128 shares were available for future
issuance. Stock options granted under these plans are granted with an exercise
price equal to the market price of the Company’s stock on the date immediately
preceding the date of the grant (except grants made to employees under the
Company’s 2002 Omnibus Incentive Compensation Plan, whose exercise price is
equal to the closing price on the day of the grant); those option awards
generally vest at a cumulative rate of 33% per year beginning on the first
anniversary of the grant date and expire ten years from the date of grant.
Prior
to July 30,
2005, the Company accounted for its share-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, the disclosure-only provisions of SFAS No. 123, “Accounting for
Stock-Based Compensation” and the disclosures required by SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure.” In
accordance with APB Opinion No. 25, no share-based compensation cost was
reflected in the Company’s prior year net income for grants of stock options to
employees because the Company granted stock options with an exercise price
equal
to the market value of the stock on the date of grant. The reported share-based
compensation expense, net of related tax effects, in the table below represents
the amortization of restricted stock grants.
Had
the
Company used the fair value based accounting method for stock compensation
expense prescribed by SFAS Nos. 123 and 148 for 2005 and 2004, the Company's
consolidated net income and net income per share would have been reduced to
the
pro-forma amounts illustrated as follows:
|
2005
|
2004
|
||||||
|
Net
income - as reported
|
$
|
126,640
|
$
|
111,885
|
|||
|
Add:
Total share-based employee compensation included in reported net
income,
net of related tax effects
|
825
|
74
|
|||||
|
Deduct:
Total share-based compensation expense determined under fair-value
based
method for all awards, net of tax effects
|
(9,624
|
)
|
(10,900
|
)
|
|||
|
Net
income - pro forma
|
$
|
117,841
|
$
|
101,059
|
|||
|
Net
income per share:
|
|||||||
|
Basic
- as reported
|
$
|
2.65
|
$
|
2.29
|
|||
|
Basic
- pro forma
|
$
|
2.47
|
$
|
2.07
|
|||
|
Diluted
- as reported
|
$
|
2.45
|
$
|
2.12
|
|||
|
Diluted
- pro forma
|
$
|
2.29
|
$
|
1.92
|
|||
The
Company adopted SFAS 123R “Share-Based Payment” on July 30, 2005 (see Note
8).
29
Segment
reporting -
The
Company accounts for its segment in accordance with SFAS No. 131, “Disclosure
About Segments of an Enterprise and Related Information.” SFAS No. 131 requires
that a public company report annual and interim financial and descriptive
information about its reportable operating segments. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 allows aggregation of similar operating segments
into
a single operating segment if the businesses are considered similar under the
criteria established by SFAS No. 131. Utilizing these criteria, the Company
manages its business on the basis of one reportable operating segment (see
Note
11).
Derivative
instruments and hedging activities
- The
Company accounts for derivative instruments and hedging activities in accordance
with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” and its subsequent amendments. These statements specify how to
report and display derivative instruments and hedging activities.
The
Company
is exposed to market risk, such as changes in interest rates and commodity
prices. The Company does not hold or use derivative financial instruments for
trading purposes. Prior to 2006 the Company had no derivative financial
instruments that required fair value accounting treatment.
The
Company’s
policy has been to manage interest cost using a mix of fixed and variable rate
debt (see Notes 6, 12 and 14). To
manage
this risk in a cost efficient manner, the Company entered into an interest
rate
swap on May 4, 2006 in which it agreed to exchange with a counterparty, at
specified intervals effective August 3, 2006, the difference between fixed
and
variable interest amounts calculated by reference to an agreed-upon notional
principal amount. Interest rate swaps that meet specific conditions under SFAS
No. 133 are accounted for as cash flow hedges. The swapped portion of the Term
Loan B will be fixed at a rate of 5.57% plus the Company’s then current credit
spread, or 7.07% based on today’s credit spread, over the 7-year life of the
term loan and the interest rate swap. The swapped portion is $525,000 to May
2,
2007, $650,000 from May 3, 2007 to May 4, 2008, $625,000 from May 5, 2008 to
May
3, 2009, $600,000 from May 4, 2009 to May 2, 2010, $575,000 from May 3, 2010
to
May 2, 2011, $550,000 from May 3, 2011 to May 2, 2012, and $525,000 for May
3,
2012 to May 2, 2013. The estimated fair value of this interest rate swap
liability was $7,220 at July 28, 2006 and is included in other long-term
obligations. The offset to the interest rate swap liability is in other
comprehensive income (loss), net of the deferred tax asset. Any portion of
the
fair value of the swap determined to be ineffective will be recognized currently
in earnings.
Many
of the
food products purchased by the Company are affected by commodity pricing and
are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside the control
of the Company and generally are unpredictable. Changes in commodity prices
would affect the Company and its competitors generally and, depending on terms
and duration of supply contracts, sometimes simultaneously. In many cases,
the
Company believes it will be able to pass through some or much of increased
commodity costs by adjusting its menu pricing. From time to time, competitive
circumstances or judgments about consumer acceptance of price increases may
limit menu price flexibility, and in those circumstances, increases in commodity
prices can result in lower margins for the Company.
Use
of
estimates
-
Management of the Company has made certain estimates and assumptions relating
to
the reporting of assets and liabilities and the disclosure of contingent
liabilities at the date of the Consolidated Financial Statements and the
reported amounts of revenues and expenses during the reporting periods to
prepare these Consolidated Financial Statements in conformity with GAAP.
Management believes that such estimates have been based on reasonable and
supportable assumptions and that the resulting estimates are reasonable for
use
in the preparation of the Consolidated Financial Statements. Actual results,
however, could differ from those estimates.
Recent
Accounting Pronouncements Not Yet Adopted - In
June 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with FASB No. 109,
“Accounting for Income Taxes”. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The provisions
of
FIN 48 are effective for fiscal years beginning after December 15, 2006,
with the cumulative effect of the change in accounting principle recorded as
an
adjustment to opening retained earnings. The Company is currently evaluating
the
impact of adopting FIN 48 and cannot yet determine the impact of its adoption
in
the first quarter of 2008.
30
3. Inventories
Inventories
were comprised of the following at:
|
July
28,
2006
|
July
29,
2005
|
||||||
|
Retail
|
$
|
97,799
|
$
|
101,604
|
|||
|
Restaurant
|
19,930
|
21,588
|
|||||
|
Supplies
|
20,447
|
19,612
|
|||||
|
Total
|
$
|
138,176
|
$
|
142,804
|
|||
4.
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 (as described in Notes 2 and 6) since
these Senior Notes are treated as if converted into common stock. The
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:
|
July
28,
2006
|
July
29,
2005
|
July
30,
2004
|
||||||||
|
Net
income per share numerator:
|
||||||||||
|
Net income
|
$
|
116,291
|
$
|
126,640
|
$
|
111,885
|
||||
|
Add: Interest and loan acquisition costs
associated
with
Senior Notes, net of
related
tax effects
|
3,977
|
4,330
|
4,485
|
|||||||
|
Net income available to common
shareholders
|
$
|
120,268
|
$
|
130,970
|
$
|
116,370
|
||||
|
Net
income per share denominator:
|
||||||||||
|
Weighted average shares outstanding for
basic net income per share
|
42,917,319
|
47,791,317
|
48,877,306
|
|||||||
|
Add
potential dilution:
|
||||||||||
|
Senior
Notes
|
4,582,788
|
4,582,788
|
4,582,788
|
|||||||
|
Stock
options and restricted stock
|
544,333
|
1,007,902
|
1,492,539
|
|||||||
|
Weighted
average shares outstanding for
diluted
net income per share
|
48,044,440
|
53,382,007
|
54,952,633
|
|||||||
5.
Tender Offer
On
March 31, 2006, the
Company commenced a tender offer in which it sought to acquire up to 16,750,000
shares of its common stock at a price between $42.00 and $46.00 per share (“the
Tender Offer”). The Tender Offer expired on April 27, 2006, at which time
approximately 23,500,000 shares were tendered at a price of $42.00 per share.
The Tender Offer met the definition of a forward contract under SFAS No. 150,
“Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” As of April 28, 2006, the obligation to settle the
Tender Offer of $702,852 and the related transaction fees of $1,219 were
recorded as a liability and a reduction to shareholders’ equity. On May 4, 2006,
the Company accepted for payment 16,750,000 shares of its common stock at a
purchase price of $42.00 per share for a total purchase price of $703,500.
In
accordance with SFAS No. 150, the difference of $648 between the fair market
value of the obligation at April 28, 2006 of $702,852 and the total purchase
price of $703,500 was included in interest expense in the Company’s fourth
quarter. The Company contemporaneously drew $725,000 under its new credit
facility, described in Note 6, to pay for the shares accepted in the Tender
Offer and related transaction fees and expenses.
31
6. Debt
Long-term
debt consisted
of the following at:
|
July
28,
2006
|
July
29,
2005
|
||||||
|
Term
Loan B
payable $2,000 per quarter with the remainder due on
April 27, 2013
|
$
|
723,000
|
--
|
||||
|
$300,000
Revolving Credit Facility
payable on or before February 21, 2008 terminated on
April 27, 2006
|
--
|
$
|
21,500
|
||||
|
3.0%
Zero-Coupon Contingently
convertible Senior Notes payable on
or before April 2, 2032
|
196,464
|
190,718
|
|||||
|
919,464
|
212,218
|
||||||
|
Current
maturities of Term Loan B
|
(8,000
|
)
|
--
|
||||
|
Long-term
debt
|
$
|
911,464
|
$
|
212,218
|
|||
Effective
April 27, 2006, the Company entered into a $1,250,000 credit facility (the
“2006
Credit Facility”) that consisted of up to $1,000,000 in term loans (an $800,000
Term Loan B facility and a $200,000 Delayed-Draw Term Loan facility) with a
scheduled maturity date of April 27, 2013 and a $250,000 Revolving Credit
facility expiring April 27, 2011. As described in Note 5, contemporaneously
with
the acceptance of shares in the Tender Offer, on May 3, 2006, the Company drew
$725,000 under the $800,000 available under the Term Loan B facility, which
was
used to pay for the shares accepted in the Tender Offer, fees associated with
the 2006 Credit Facility and the related transaction costs. The $200,000
Delayed-Draw Term Loan facility can be used any time prior to October 27, 2007
to refinance the Company’s Senior Notes or for general corporate
purposes.
The
Term
Loan B, Delayed-Draw Term Loan facility and the Revolving Credit facility
interest rates are based on either LIBOR or prime. A spread is added to the
interest rates according to a defined schedule based on the Company’s
consolidated total leverage ratio as defined in the 2006 Credit Facility, 1.50%
as of July 28, 2006. The Company’s policy is to manage interest cost using a
mixture of fixed-rate and variable-rate debt. To manage this risk in a cost
efficient manner, the Company entered into an interest rate swap on May 4,
2006
in which it agreed to exchange with a counterparty, at specified intervals
effective August 3, 2006, the difference between fixed and variable interest
amounts calculated by reference to an agreed-upon notional principal amount.
See
Note 2 for a further discussion of the Company’s interest rate swap. As of
July 28, 2006, the interest rate on the Term Loan B was 6.63%.
Loan
acquisition costs associated with the Term Loan B, Revolving Credit facility
and
Delayed-Draw Term Loan facility were capitalized in the amount of $7,122 (net
of
$656 in commitment fees that were written off in 2006 related to the $75,000
availability that was not drawn on the Term Loan B), $2,456, and $1,964,
respectively, and will be amortized over the respective terms of the facilities.
Financial covenants related to the 2006 Credit Facility require that the Company
maintain a maximum consolidated total leverage ratio (ratio of total
indebtedness to EBITDA, which is defined as earnings before interest, taxes,
depreciation and amortization) of 4.5 to 1.0 through April 27, 2007, 4.25 to
1.0
from April 28, 2007 through May 2, 2008, 4.0 to 1.0 from May 3, 2008 through
May
1, 2009 and 3.75 to 1.0 from May 2, 2009 and thereafter. In the event of a
divestiture of Logan’s, the Company must maintain a maximum consolidated total
leverage ratio of 3.75 to 1.0 from the closing date of the divestiture and
thereafter, as this ratio will determine the minimum amount of any excess cash
that the Company would be required to pay down its Term Loan B. Financial
covenants also require that the Company maintain a minimum consolidated interest
coverage ratio (ratio of earnings before interest, taxes, depreciation and
amortization to cash interest payable, as defined) of 3.0 to 1.0 through April
27, 2007, 3.25 to 1.0 from April 28, 2007 through May 2, 2008, 3.5 to 1.0 from
May 3, 2008 through May 1, 2009, 3.75 to 1.0 from May 2, 2009 through April
30,
2010 and 4.0 to 1.0 from April 31, 2010 and thereafter. Subject to there being
no events of default, covenants under the 2006 Credit Facility permit the
Company to declare and pay cash dividends to its stockholders as long as the
Company has at least $100,000 available under its Revolving Credit Facility
and
the aggregate amount
of
such dividends paid during any fiscal year would be less than 15% of
Consolidated EBITDA from continuing operations, as defined, for the fiscal
year
immediately preceding the fiscal year in which such dividend is paid.
Additionally, the Company may increase its regular quarterly cash dividend
in
any fiscal quarter by an amount not to exceed the greater of $.01 or 10% of
the
amount of the regular quarterly cash dividend paid in the prior fiscal quarter.
The Company’s subsidiaries have fully and unconditionally guaranteed on a joint
and several basis the obligations under the 2006 Credit Facility and pledged
their outstanding stock. Contemporaneously with entering into the 2006 Credit
Facility, the Company
32
In
2002,
the Company issued $422,050 (face value at maturity) of Senior Notes, maturing
on April 2, 2032, and received proceeds totaling approximately $172,756 prior
to
debt issuance costs. The Senior Notes require no cash interest payments and
were
issued at a discount representing a yield to maturity of 3.00% per annum. The
Senior Notes are redeemable at the Company's option on or after April 3, 2007,
and the holders of the Senior Notes may require the Company to redeem the Senior
Notes on April 3, 2007, 2012, 2017, 2022 or 2027, and in certain other
circumstances. In addition, each $1 (face value at maturity) Senior Note is
convertible into 10.8584 shares of the Company's common stock (approximately
4.6
million shares in the aggregate). During the quarter ended April 28, 2006,
the
Company’s credit ratings decreased below the thresholds defined in the indenture
and the Senior Notes became convertible. As of September 29, 2006, the Company
has received verification from the Trustee that no holders have exercised their
option to convert. The Company has classified the Senior Notes as long-term
obligations due to the Company’s intent and ability to refinance these Senior
Notes on a long-term basis. The Company’s closing share price, as reported by
Nasdaq, on July 28, 2006 was $32.41.
All
subsidiaries of the Company have fully and unconditionally guaranteed on a
joint
and several basis the obligations under the Senior Notes. Each guarantor is,
directly or indirectly, a wholly-owned affiliate of the parent company, CBRL
Group, Inc., which has no independent assets or operations.
The
aggregate maturities of long-term debt subsequent to July 28, 2006 are as
follows:
|
Year
|
||||
|
2007
|
$
|
8,000
|
||
|
2008
|
8,000
|
|||
|
2009
|
8,000
|
|||
|
2010
|
8,000
|
|||
|
2011
|
8,000
|
|||
|
2012
and thereafter
|
879,464
|
|||
|
Total
|
$
|
919,464
|
||
7.
Compensatory Plans and Arrangements
In
connection with the Company’s announced strategic review, the Company’s
Compensation and Stock Option Committee (the “Committee”) of the Board approved,
pursuant to the Omnibus Plan (described below), the “2006 Success Plan” for
certain officers of the Company. During 2006, the Company recorded expense
of
$2,791 for this plan as general and administrative expenses on the accompanying
Consolidated Statement of Income. The maximum amount payable under the 2006
Success Plan is $7,815. The amounts payable under the 2006 Success Plan will
become earned and payable six months after the completion or cessation of
certain of the Company’s strategic initiatives.
8.
Stock
Compensation Plans
The
Company’s employee compensation plans are administered by the Compensation and
Stock Option Committee of the Board of Directors (the “Committee”). The
Committee is authorized to determine, at time periods within its discretion
and
subject to the direction of the Board, which employees will be granted options
and other awards, the number of shares covered by any awards granted, and within
applicable limits, the terms and provisions relating to the exercise of any
awards.
The
CBRL
Group, Inc. 2002 Omnibus Incentive Compensation Plan (the “Omnibus Plan”) allows
the Committee to grant awards for an aggregate of 2,500,000 shares of the
Company's common stock. The Omnibus Plan authorizes the following types of
awards to all eligible participants other than non-employee directors: stock
options, stock appreciation rights, stock awards, restricted stock, performance
shares, cash bonuses, qualified performance-based awards or any other type
of
award consistent with the Omnibus Plan’s purpose. Except as described below for
certain options granted to non-employee directors the option price per share
of
all options granted under the Omnibus Plan are required to be at least 100%
of
the fair market value of a share of the Company’s common stock based on the
closing price on the day the option is granted. Under the Omnibus Plan,
non-employee directors are granted annually on the day of the annual
shareholders meeting an option to purchase up to 5,000 shares of the Company’s
common stock, and awards of up to 2,000 shares of restricted stock or restricted
stock units. The option price per share will be at least 100% of the
33
fair
market value of a share of the Company's common stock based on the closing
price
on the day preceding the day the option is granted. Additionally, non-employee
directors newly elected or appointed between an annual shareholders meeting
(typically in November) and the following July 31 receive an option on the
day
of election or appointment to acquire up to 5,000 shares of the Company’s common
stock or awards of up to 2,000 shares of restricted stock or restricted stock
units. Options granted to date under the Omnibus Plan become exercisable
each
year at a cumulative rate of 33% per year and expire ten years from the date
of
grant. At July 28, 2006, there were 1,331,530 shares of the Company’s common
stock reserved for future issuance under the Omnibus Plan.
The
CBRL Group,
Inc. 2000 Non-Executive Stock Option Plan (“Employee Plan”) covered employees
who are not officers or directors of the Company. The stock options were
granted
with an exercise price of at least 100% of the fair market value of a share
of
the Company’s common stock based on the closing price on the day the option was
granted and become exercisable each year at a cumulative rate of 33% per
year
and expire ten years from the date of grant. An aggregate of 4,750,000 shares
of
the Company’s common stock originally were authorized under this plan which
expired on July 29, 2005.
The
Company also
has an Amended and Restated Stock Option Plan (the “Plan”) that allowed the
Committee to grant options to purchase an aggregate of 17,525,702 shares
of the
Company’s common stock. At July 28, 2006, there were 909,598 shares of the
Company’s common stock reserved for future issuance under the Plan. The option
price per share under the Plan must be at least 100% of the fair market value
of
a share of the Company’s common stock based on the closing price on the day
preceding the day the option is granted. Options granted to date under the
Plan
generally have been exercisable each year at a cumulative rate of 33% per
year
and expire ten years from the date of grant.
In
1989, the Board
adopted the Cracker Barrel Old Country Store, Inc. 1989 Stock Option Plan for
Non-employee Directors (“Directors Plan”). The stock options were granted with
an exercise price equal to the fair market value of the Company’s common stock
as of the date of grant and expire one year from the retirement of the director
from the Board. An aggregate of 1,518,750 shares of the Company’s common stock
was authorized by the Company’s shareholders under this plan. Due to the overall
plan limit, no shares have been granted under this plan since 1994.
Effective
July 30, 2005,
the Company adopted the fair value recognition provisions of SFAS No. 123R
using
the modified prospective method. Under this method, share-based compensation
cost for 2006 includes the portion vesting in the period for (1) all share-based
payments granted prior to, but not vested as of July 29, 2005, based on the
grant date fair value estimated in accordance with the original provisions
of
SFAS No. 123 and (2) all share-based payments granted subsequent to July 29,
2005, based on the grant date fair value estimated using a binomial
lattice-based option valuation model. Before adoption of SFAS No. 123R, pro
forma disclosures reflected the fair value of each option grant estimated on
the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
|
Year
Ended
|
||||
|
July 29,
|
||||
|
2005
|
||||
|
Dividend
yield range
|
1.1%-1.3%
|
|
||
|
Expected
volatility range
|
33%
- 38%
|
|
||
|
Risk-free
interest rate range
|
3.3%
- 4.1%
|
|
||
|
Expected
lives (in years)
|
5
|
|||
Under
the Black-Scholes
option-pricing model, the Company estimated volatility using only its historical
share price performance over the expected life of the option. Under SFAS
No.
123R, however, the Company estimates expected volatility using a blend of
implied volatility based on market-traded options on the Company’s common stock
and historical volatility of the Company’s common stock over the contractual
life of the options. Results of prior periods do not reflect any restated
amounts and the Company had no cumulative effect adjustment upon adoption
of
SFAS No. 123R under the modified prospective method. The Company’s policy is to
recognize compensation cost for awards with only service conditions and a
graded
vesting schedule on a straight-line basis over the requisite service period
for
the entire award. Additionally, the Company’s policy is to issue new shares of
common stock to satisfy stock option exercises or grants of restricted
shares.
The
adoption of SFAS No.
123R decreased 2006 reported operating income and income before income taxes
by
$9,900, reported net income by $6,851 and reported basic and diluted net
income
per share by $0.16 and $0.15 per share, respectively for 2006. The pre-tax
expense is included in general and administrative expense. The adoption of
SFAS
No. 123R resulted in a decrease in reported cash flow from operating activities
of $6,441 offset by an increase in reported cash flow from financing activities
of $6,441 in 2006. The Company’s adoption of SFAS No.
34
In
recent
years, partly in anticipation of the adoption of SFAS No.123R, the Company
has
adjusted the mix of employee long-term incentive compensation by reducing stock
options awarded and increasing certain cash-based compensation and other
equity-based awards. Compensation cost for share-based payment arrangements
recognized in general and administrative expenses for 2006 was $9,900 for stock
options and $3,539 for restricted stock. The total income tax benefit recognized
in the Consolidated Statement Income for 2006 for share-based compensation
arrangements was $4,139.
The
fair
value of each option award is estimated on the date of grant using a binomial
lattice-based option valuation model, which incorporates ranges of assumptions
for inputs as shown in the following table. The assumptions are as
follows:
· The
expected volatility is a blend of implied volatility based on market-traded
options on the Company’s common stock and historical volatility of the Company’s
stock over the contractual life of the options.
· The
Company uses historical data to estimate option exercise and employee
termination behavior within the valuation model; separate groups of employees
that have similar historical exercise behavior are considered separately for
valuation purposes. The expected life of options granted is derived from the
output of the option valuation model and represents the period of time the
options are expected to be outstanding.
· The
risk-free interest rate is based on the U.S. Treasury yield curve in effect
at
the time of grant for periods within the contractual life of the option.
· The
expected dividend yield is based on the Company’s current dividend yield as the
best estimate of projected dividend yield for periods within the contractual
life of the option.
|
Year
Ended
|
||||
|
July 28,
|
||||
|
2006
|
||||
|
Dividend
yield range
|
1.18%-1.59%
|
|
||
|
Expected
volatility
|
28%-31%
|
|
||
|
Risk-free
interest rate range
|
3.8%-5.5%
|
|
||
|
Expected
term (in years)
|
2.12-6.22
|
|||
A
summary
of the Company’s stock option activity as of July 28, 2006, and changes during
2006 is presented in the following table:
|
(Shares
in thousands)
|
|||||||||||||
|
Fixed
Options
|
Shares
|
Weighted-
Average
Price
|
Weighted-Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||
|
Outstanding
at July 29, 2005
|
4,388
|
$
|
27.91
|
||||||||||
|
Granted
|
810
|
35.17
|
|||||||||||
|
Exercised
|
(1,055
|
)
|
26.22
|
||||||||||
|
Forfeited/Expired
|
(259
|
)
|
32.60
|
||||||||||
|
Outstanding
at July 28, 2006
|
3,884
|
$
|
29.57
|
6.11
|
$
|
20,136
|
|||||||
|
Exercisable
|
2,463
|
$
|
25.61
|
4.70
|
$
|
20,134
|
|||||||
The
weighted-average grant-date fair value of options granted during 2006 was
$10.93. The intrinsic value for stock options is defined as the difference
between the current market value and the grant price. The total intrinsic value
of options exercised during 2006 was $17,055.
Restricted
stock grants consist of the Company’s common stock and generally vest over 2-5
years. All restricted stock grants are time vested except the restricted stock
grants of one executive that also are based upon Company performance against
a
specified annual increase in earnings before interest, taxes, depreciation,
amortization and rent. Generally, the fair value of each restricted stock grant
is equal to the market price of the Company’s stock at the date of grant reduced
by the present value of expected dividends to be paid prior to the vesting
period, discounted using an appropriate risk-free interest rate. Certain
restricted stock grants accrue dividends and their fair value is equal to the
market price of the Company’s stock at the date of the grant.
35
A
summary
of the Company’s restricted stock activity as of July 28, 2006, and changes
during 2006 is presented in the following table:
|
(Shares
in thousands)
|
|||||||
|
Restricted
Stock
|
Shares
|
Weighted-Average
Grant Date Fair Value
|
|||||
|
Unvested
at July 29, 2005
|
173
|
$
|
38.42
|
||||
|
Granted
|
129
|
36.16
|
|||||
|
Vested
|
--
|
--
|
|||||
|
Forfeited
|
33
|
35.55
|
|||||
|
Unvested
at July 28, 2006
|
269
|
$
|
36.74
|
||||
As
of
July 28, 2006, there was $17,162 of total unrecognized compensation cost related
to unvested share-based compensation arrangements that is expected to be
recognized over a weighted-average period of 2.10 years. No restricted stock
grants vested during 2006.
During
2006, cash received from options exercised was $27,283 and the actual tax
benefit realized for the tax deductions from stock options exercised totaled
$6,441.
9.
Common
Stock
Pursuant
to the Omnibus
Plan, the Company granted 81,525, 165,000 and 7,500 shares of restricted stock
during 2006, 2005 and 2004, respectively, to certain individuals as targeted
retention or new hire grants as well as the annual grant to non-employee members
of the Company’s Board of Directors. 28,125 shares of restricted stock granted
during 2006 were forfeited during 2006. The Company's compensation expense,
net
of forfeitures, for these restricted shares was $2,098, $494 and $116 in 2006,
2005 and 2004, respectively.
The
Committee established the FY04 Revenue Growth and Return on Capital Transitional
Incentive Plan (“Transitional LTI”) pursuant to the Omnibus Plan, for the
purpose of rewarding certain executive officers for company financial
performance during 2004. The Transitional LTI plan was earned during 2004 based
on the Company’s achievement of qualified financial performance measures.
The
Company's compensation expense during
2004 for this award was $424. The Company issued 12,761 unrestricted shares
of
common stock for this award in 2005.
The
Committee
established the FY2005 and FY2006 Mid-Term Incentive and Retention Plans (“2005
MTIRP” and “2006 MTIRP”, respectively) pursuant to the Omnibus Plan, for the
purpose of rewarding certain officers. The 2005 MTIRP award was calculated
during 2005 based on achievement of qualified financial performance measures,
but restricted until vesting occurs on the last day of 2007. The 2006 MTIRP
award was calculated during 2006 based on achievement of qualified financial
performance measures, but restricted until vesting occurs on the last day of
2008. The awards will be paid in the form of either 50% restricted stock and
50%
cash or 100% restricted stock, based upon the election of each officer. At
July
28, 2006, the restricted stock and cash earned under the 2005 MTIRP was 42,505
shares and $400, respectively, and the restricted stock and cash earned under
the 2006 MTIRP was 64,039 and $309, respectively. Additionally, cash dividends
on the 2005 MTIRP restricted stock earned shall accrue from July 29, 2005 and
be
payable, along with the remainder of the award, to participants on the payout
date in 2008.
The
Committee established the Stock Ownership Achievement Plan (“Stock Ownership
Plan”) pursuant to the Omnibus Plan, for the purpose of rewarding certain
executive officers of the Company for early achievement of target stock
ownership levels in 2005 and in the future. Upon
meeting the stock ownership levels at an earlier date than required and upon
approval by the Committee, the Company will award unrestricted shares to those
certain officers on the first Monday of the next fiscal year. The Stock
Ownership Plan reward is expensed over the year during which those certain
officers achieve the stock ownership target, beginning when the target is met.
The Company's compensation expense during 2006 and 2005 for this award was
$78
and $98, respectively.
On July
31, 2006 and August 1, 2005, the Company issued 2,400 and 2,500 unrestricted
shares of common stock to the certain executive officers that earned the award
in 2006 and 2005, respectively.
36
10.
Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
Significant
components of the Company's net deferred tax liability consisted of the
following at:
|
July
28,
2006
|
July
29,
2005
|
||||||
|
Deferred
tax assets:
|
|||||||
|
Financial
accruals without economic performance
|
$
|
40,914
|
$
|
27,816
|
|||
|
Other
|
7,062
|
4,359
|
|||||
|
Deferred
tax assets
|
$
|
47,976
|
$
|
32,175
|
|||
|
Deferred
tax liabilities
|
|||||||
|
Excess
tax depreciation over book
|
$
|
96,458
|
$
|
96,713
|
|||
|
Excess
tax interest over book on Senior Notes
|
14,646
|
10,615
|
|||||
|
Other
|
24,807
|
22,625
|
|||||
|
Deferred
tax liabilities
|
135,911
|
129,953
|
|||||
|
Net
deferred tax liability
|
$
|
87,935
|
$
|
97,778
|
|||
The
Company provided no valuation allowance against deferred tax assets recorded
as
of July 28, 2006 and July 29, 2005, as the "more-likely-than-not" valuation
method determined all deferred assets to be fully realizable in future taxable
periods.
The
components of the provision for income taxes for each of the three years were
as
follows:
|
2006
|
2005
|
2004
|
||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
55,435
|
$
|
49,768
|
$
|
44,006
|
||||
|
State
|
3,475
|
3,875
|
4,273
|
|||||||
|
Deferred:
|
|
|||||||||
|
Federal
|
(5,438
|
)
|
11,069
|
13,172
|
||||||
|
State
|
(1,714
|
)
|
2,213
|
1,212
|
||||||
|
Total
income tax provision
|
$
|
51,758
|
$
|
66,925
|
$
|
62,663
|
||||
A
reconciliation of the provision for income taxes and the amount computed by
multiplying the income before the provision for income taxes by the U.S. federal
statutory rate of 35% was as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Provision
computed at federal statutory income tax rate
|
$
|
58,817
|
$
|
67,748
|
$
|
61,092
|
||||
|
State
and local income taxes, net
of federal benefit
|
2,489
|
5,896
|
5,578
|
|||||||
|
Employer
tax credits for FICA taxes paid on employee tip income
|
(5,919
|
)
|
(5,334
|
)
|
(4,781
|
)
|
||||
|
Federal
reserve adjustments
|
(2,310
|
)
|
493
|
808
|
||||||
|
Other
employer tax credits
|
(2,219
|
)
|
(2,141
|
)
|
(1,245
|
)
|
||||
|
Other-net
|
900
|
(1,385
|
)
|
774
|
||||||
|
Total
income tax provision
|
$
|
51,758
|
$
|
66,925
|
$
|
62,663
|
||||
The
Internal Revenue Service has examined the Company’s federal income tax returns
for 2003 and 2004. The Company has reached a settlement with the Internal
Revenue Service for these tax periods. The settlement had no material effect
on
the Company’s Consolidated Financial Statements.
11.
Segment Information
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. Likewise, Logan’s units are restaurant
operations with investment criteria and economic and operating characteristics
similar to those of Cracker Barrel. The chief operating decision maker regularly
evaluates the Cracker Barrel and Logan’s restaurant and retail components in
determining how to allocate resources and in assessing performance. Accordingly,
the Company manages its business on the basis of one reportable
37
operating
segment. All of the Company’s operations are located within the United States.
The following data are presented in accordance with SFAS No. 131 for all periods
presented.
|
2006
|
2005
|
2004
|
||||||||
|
Net
sales in company-owned stores:
|
||||||||||
|
Restaurant
|
$
|
2,169,248
|
$
|
2,071,011
|
$
|
1,892,487
|
||||
|
Retail
|
471,282
|
494,160
|
486,433
|
|||||||
|
Total
net sales
|
2,640,530
|
2,565,171
|
2,378,920
|
|||||||
|
Franchise
fees and royalties
|
2,467
|
2,377
|
2,027
|
|||||||
|
Total
revenue
|
$
|
2,642,997
|
$
|
2,567,548
|
$
|
2,380,947
|
||||
12.
Commitments and Contingencies
The
Company and its subsidiaries are parties to various legal and regulatory
proceedings and claims incidental to and arising out of the ordinary course
of
its business. In the opinion of management, however, based upon information
currently available, the ultimate liability with respect to these other
proceedings and claims will not materially affect the Company’s consolidated
results of operations or financial position. However, litigation involves an
element of uncertainty. Future developments could cause these actions or claims
to have a material adverse effect on the Company’s financial statements as a
whole.
The
Company is a member of a class of a settled lawsuit against Visa U.S.A. Inc.
(“Visa”) and MasterCard International Incorporated (“MasterCard”). The Visa
Check/Mastermoney Antitrust litigation settlement became final on June 1, 2005.
The settlement provides $3,050,000 in compensatory relief by Visa and MasterCard
to be funded over a fixed period of time to respective Settlement Funds. The
Company expects to receive approximately $1,700 ($900 after taxes and third
party collection fees) as its share of the proceeds from the settlement. The
Company believes this settlement represents an indeterminate mix of loss
recovery and gain contingency and therefore believes the application of a gain
contingency model is the appropriate model to use for the entire amount of
expected proceeds. Therefore, the Company decided to exclude the expected
settlement proceeds from recognition in the consolidated financial statements
for the year ended July 28, 2006. At the time the settlement is known beyond
a
reasonable doubt, the Company will record such gain contingency.
The
Company was contingently liable pursuant to standby letters of credit as credit
guarantees primarily related to insurers. As of July 28, 2006 the Company had
$40,508 of standby letters of credit related primarily to securing reserved
claims under workers' compensation and general liability insurance. All standby
letters of credit are renewable annually and reduce the Company’s availability
under its $250,000 revolving credit facility.
The
Company is secondarily liable for lease payments under the terms of an operating
lease that has been assigned to a third party. The operating lease has a
remaining life of approximately 7.2 years, with annual lease payments of
approximately $361. 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.
The
Company maintains insurance coverage for various aspects of its business and
operations. The Company has elected, however, to retain all or a portion of
losses that occur through the use of various deductibles, limits and retentions
under its insurance programs. This situation may subject the Company to some
future liability for which it is only partially insured, or completely
uninsured. The Company intends to mitigate any such future liability by
continuing to exercise prudent business judgment in negotiating the terms and
conditions of its contracts. See Note 2 for a further discussion of insurance
and insurance reserves.
The
Company is party to certain indemnifications to third parties in the ordinary
course of business. The probability of incurring an actual liability under
such
indemnifications is sufficiently remote so that no liability has been
recorded.
As
of
July 28, 2006, the Company operated 153 Cracker Barrel stores and 73 Logan’s
Roadhouse restaurants in leased facilities and also leased certain land and
advertising billboards (see Note 14). These leases have been classified as
either capital or operating leases. The interest rates for capital leases vary
from 5% to 10%. Amortization of capital leases is included with depreciation
expense. A majority of the Company's lease agreements provide for renewal
options and some of these options contain escalation clauses. Additionally,
certain store leases provide for percentage lease payments based upon sales
volume in excess of specified minimum levels.
38
The
following is a schedule by year of future minimum lease payments under capital
leases, together with the present value of the minimum lease payments as of
July
28, 2006:
|
Year
|
||||
|
2007
|
$
|
123
|
||
|
2008
|
20
|
|||
|
Total
minimum lease payments
|
143
|
|||
|
Less
amount representing interest
|
7
|
|||
|
Present
value of minimum lease payments
|
136
|
|||
|
Less
current portion
|
116
|
|||
|
Long-term
portion of capital lease obligations
|
$
|
20
|
||
The
following is a schedule by year of the future minimum rental payments required
under operating leases, excluding leases for advertising billboards, as of
July
28, 2006. Included in the amounts below are optional renewal periods associated
with such leases that the Company is currently not legally obligated to
exercise; however, it is reasonably assured that the Company will exercise
these
options.
|
Year
|
Base
term and
exercised
options*
|
Renewal
periods not
Yet
exercised**
|
Total
|
|||||||
|
2007
|
$
|
35,602
|
$
|
32
|
$
|
35,634
|
||||
|
2008
|
35,724
|
297
|
36,021
|
|||||||
|
2009
|
35,566
|
564
|
36,130
|
|||||||
|
2010
|
34,157
|
919
|
35,076
|
|||||||
|
2011
|
33,903
|
1,111
|
35,014
|
|||||||
|
Later
years
|
268,519
|
387,320
|
655,839
|
|||||||
|
Total
|
$
|
443,471
|
$
|
390,243
|
$
|
833,714
|
||||
*Includes
base terms and certain optional renewal periods that have been exercised and
are
included in the lease term in accordance with SFAS No. 13 (see Note
2).
**Includes
certain optional renewal periods that have not yet been exercised, but are
included in the lease term for the straight-line rent calculation. Such optional
renewal periods are included because it is reasonably assured by the Company
that it will exercise such renewal options (see Note 2).
The
following
is a schedule by year of the future minimum rental payments required under
operating leases for advertising billboards as of July 28, 2006:
|
Year
|
||||
|
2007
|
$
|
19,866
|
||
|
2008
|
11,717
|
|||
|
2009
|
5,072
|
|||
|
2010
|
97
|
|||
|
2011
|
10
|
|||
|
Later
years
|
7
|
|||
|
Total
|
$
|
36,769
|
||
Rent
expense under operating leases, excluding leases for advertising billboards
are
recognized on a straight-line, or average, basis and 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 is consistent with the period over which
leasehold improvements are amortized. Rent expense for each of the three years
was:
|
Minimum
|
Contingent
|
Total
|
||||||||
|
2006
|
$
|
38,084
|
$
|
840
|
$
|
38,924
|
||||
|
2005
|
35,531
|
913
|
36,444
|
|||||||
|
2004
|
33,111
|
852
|
33,963
|
|||||||
Rent
expense under operating leases for billboards for each of the three years
was:
|
Minimum
|
Contingent
|
Total
|
||||||||
|
2006
|
$
|
24,938
|
--
|
$
|
24,938
|
|||||
|
2005
|
23,374
|
--
|
23,374
|
|||||||
|
2004
|
23,042
|
--
|
23,042
|
|||||||
39
13. Employee
Savings
Plans
The
Company sponsors a qualified defined contribution retirement plan ("Plan I")
covering salaried and hourly employees who have completed one year of service
and have attained the age of twenty-one. Plan I allows eligible employees to
defer receipt of up to 16% of their compensation, as defined in the
plan.
The
Company also sponsors a non-qualified defined contribution retirement plan
("Plan II") covering highly compensated employees, as defined in the plan.
Plan
II allows eligible employees to defer receipt of up to 50% of their base
compensation and 100% of their eligible bonuses, as defined in the plan.
Contributions under both Plan I and Plan II may be invested in various
investment funds at the employee’s discretion. Such contributions, including the
Company matching contribution described
below, may not be invested in the Company’s common stock. In 2006, 2005 and
2004, the Company matched 25% of employee contributions for each participant
in
either Plan I or Plan II up to a total of 6% of the employee’s compensation.
Employee contributions vest immediately while Company contributions vest 20%
annually beginning on the participant's first anniversary of employment and
are
vested 100% on the participant’s fifth anniversary of employment. In 2006, 2005,
and 2004,
the
Company contributed approximately $1,371, $1,250 and $1,321, respectively,
under
Plan I and approximately $399, $473 and $345, respectively, under Plan II.
At
the inception of Plan II, the Company established a Rabbi Trust to fund Plan
II
obligations. The market value of the trust assets of $24,860 is included in
other assets and the liability to Plan II participants of $24,860 is included
in
other long-term obligations. Company contributions under Plan I and Plan II
are
recorded as either labor and other related expenses or general and
administrative expenses.
14. Sale-Leaseback
On
July
31, 2000, Cracker Barrel
completed a sale-leaseback transaction involving 65 of its owned units. Under
the transaction, the land, buildings and building improvements at the locations
were sold for net consideration of $138,325 and were leased back for an initial
term of 21 years. Equipment was not included. The leases include specified
renewal options for up to 20 additional years and have certain financial
covenants related to fixed charge coverage for the leased units. At July 28,
2006 and July 29, 2005, the Company was in compliance with all those covenants.
Net rent expense during the initial term is $14,963 annually, and the assets
sold and leased back previously had depreciation expense of approximately $2,707
annually. The gain on the sale is being amortized over the initial lease term
of
21 years.
15. Quarterly
Financial Data
(Unaudited)
Quarterly
financial data for 2006 and 2005 are summarized as follows:
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
||||||||||
|
2006
|
|||||||||||||
|
Total
revenue
|
$
|
633,357
|
$
|
694,356
|
$
|
644,200
|
$
|
671,084
|
|||||
|
Gross
profit
|
434,036
|
458,486
|
442,383
|
462,448
|
|||||||||
|
Income
before income taxes
|
39,331
|
46,696
|
36,115
|
45,907
|
|||||||||
|
Net
income
|
25,722
|
30,797
|
23,972
|
35,800
|
|||||||||
|
Net
income per share - basic
|
$
|
0.55
|
$
|
0.66
|
$
|
0.51
|
$
|
1.16
|
|||||
|
Net
income per share - diluted (a)
|
$
|
0.51
|
$
|
0.61
|
$
|
0.47
|
$
|
1.03
|
|||||
|
2005
|
|||||||||||||
|
Total
revenue
|
$
|
612,653
|
$
|
667,189
|
$
|
627,999
|
$
|
659,707
|
|||||
|
Gross
profit
|
412,811
|
430,800
|
424,297
|
452,595
|
|||||||||
|
Income
before income taxes
|
46,048
|
49,533
|
40,625
|
57,359
|
|||||||||
|
Net
income
|
29,930
|
32,578
|
26,571
|
37,561
|
|||||||||
|
Net
income per share - basic
|
$
|
0.61
|
$
|
0.68
|
$
|
0.56
|
$
|
0.80
|
|||||
|
Net
income per share - diluted (a)
|
$
|
0.57
|
$
|
0.63
|
$
|
0.52
|
$
|
0.74
|
|||||
| (a) |
Diluted
net income per share reflects the potential dilution effects of the
Company’s Senior Notes (as discussed in Notes 2, 4 and 6) for all quarters
presented for 2006 and 2005.
|
40
EXHIBIT
21
Subsidiaries
of the Registrant
The
following is a list of the significant subsidiaries of the Registrant as of
July
28,
2006,
all of which are wholly-owned:
State
of
Parent Incorporation
CBRL
Group, Inc. &#
160;Tennessee
Subsidiaries
Cracker
Barrel Old Country Store, Inc. Tennessee
Logan’s
Roadhouse, Inc.
Tennessee
CBOCS
Distribution, Inc.
(dba
Cracker Barrel Old Country Store)
Tennessee
CBOCS
Properties, Inc.
(dba
Cracker Barrel Old Country
Store)
Michigan
CBOCS
West, Inc.
(dba
Cracker Barrel Old Country
Store)
Nevada
Rocking
Chair,
Inc.
Nevada
EXHIBIT
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement Nos.
2-86602, 33-15775, 33-37567, 33-45482, 333-01465, 333-63442, 333-71384,
333-81063 and 333-111364 of CBRL Group, Inc. on Form S-8 and Registration
Statement Nos. 33-59582, 333-90996-02 and 333-90996-13 on Form S-3 of our
reports dated October 3, 2006 (which reports express an unqualified opinion
and
include an explanatory paragraph referring to the Company adopting the fair
value recognition provisions of Statement of Financial Accounting Standards
No.
123 (Revised 2004), Share Based Payment effective July 30, 2005), relating
to
the consolidated financial statements of CBRL Group, Inc. and management’s
report on the effectiveness of internal control over financial reporting,
appearing in and incorporated by reference in the Annual Report on Form 10-K
of
CBRL Group, Inc. for the year ended July 28, 2006.
/s/
DELOITTE & TOUCHE LLP
Nashville,
Tennessee
October
3, 2006
EXHIBIT
31.1 CERTIFICATION
I,
Michael A. Woodhouse, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-K 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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)
|
Designed
such internal controls over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
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
|
|
(d)
|
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:
October
2, 2006
/s/
Michael A. Woodhouse
Michael
A. Woodhouse, Chairman, President
and
Chief
Executive Officer
EXHIBIT
31.2 CERTIFICATION
I,
Lawrence E. White, certify that:
| 1. |
I
have reviewed this Annual Report on Form 10-K 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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)
|
Designed
such internal controls over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
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
|
|
(d)
|
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:
October
2, 2006
/s/ Lawrence E. White
Lawrence
E. White, Senior Vice President, Finance and
Chief
Financial Officer
Exhibit
32.1
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 Annual Report of CBRL Group, Inc. (the “Issuer”) on Form
10-K for the fiscal year ended July 28, 2006, as filed with the Securities
and
Exchange Commission on the date hereof (the “Report”), I, Michael A. Woodhouse,
Chairman, 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: October 2, 2006 | By: /s/ Michael A. Woodhouse |
| Michael A. Woodhouse, | |
| Chairman, President and Chief Executive Officer |
Exhibit
32.2
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 Annual Report of CBRL Group, Inc. (the “Issuer”) on Form
10-K for the fiscal year ended July 28, 2006, 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: October 2, 2006 | By: /s/ Lawrence E. White |
| Lawrence E. White, | |
| Senior Vice President, Finance and | |
| Chief Financial Officer |
&#
160;