SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended May 3, 2002
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ________ to _______.
Commission file number 000-25225
CBRL GROUP, INC.
(Exact Name of Registrant as
Specified in Its Charter)
Tennessee 62-1749513
- ------------------------------- ----------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
Hartmann Drive, P. O. Box 787
Lebanon, Tennessee 37088-0787
-----------------------------
(Address of Principal Executive Offices)
615-444-5533
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ----------
52,486,912 Shares of Common Stock
Outstanding as of May 31, 2002
PART I
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
May 3, August 3,
2002 2001*
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 31,981 $ 11,807
Receivables 8,180 10,201
Inventories 115,136 116,590
Prepaid expenses 12,282 10,019
Deferred income taxes 6,573 6,573
---------- ----------
Total current assets 174,152 155,190
Property and equipment - net 976,607 955,028
Goodwill - net 92,882 92,882
Other assets 15,622 9,772
---------- ----------
Total assets $1,259,263 $1,212,872
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,199 $ 64,939
Accrued expenses 142,541 132,110
Current maturities of long-term debt and other long-term
obligations 96 200
---------- ----------
Total current liabilities 206,836 197,249
---------- ----------
Long-term debt 195,174 125,000
---------- ----------
Other long-term obligations 46,074 44,515
---------- ----------
Shareholders' equity:
Preferred stock - 100,000,000 shares of $.01 par
value authorized, no shares issued -- --
Common stock - 400,000,000 shares of $.01 par
value authorized, at May 3, 2002, 52,504,414
shares issued and outstanding and at August 3, 2001,
55,026,846 shares issued and outstanding 525 550
Additional paid-in capital 53,996 149,073
Retained earnings 756,658 696,485
---------- ----------
Total shareholders' equity 811,179 846,108
---------- ----------
Total liabilities and shareholders' equity $1,259,263 $1,212,872
========== ==========
See notes to condensed consolidated financial statements.
(*) This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet as of August 3, 2001.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
--------------------- -----------------------
May 3, April 27, May 3, April 27,
2002 2001 2002 2001
---- ---- ---- ----
Net sales $504,730 $467,911 $1,521,963 $1,419,068
Franchise fees and royalties 320 190 802 555
-------- -------- ---------- ----------
Total revenue 505,050 468,101 1,522,765 1,419,623
Cost of goods sold 161,262 155,668 506,194 486,279
-------- -------- ---------- ----------
Gross profit 343,788 312,433 1,016,571 933,344
Labor & other related expenses 195,696 178,542 573,899 525,560
Other store operating expenses 86,486 81,970 255,718 245,524
-------- -------- ---------- ----------
Store operating income 61,606 51,921 186,954 162,260
General and administrative 28,347 24,657 87,095 75,256
Amortization of goodwill -- 999 -- 2,996
-------- -------- ---------- ----------
Operating income 33,259 26,265 99,859 84,008
Interest expense 1,535 3,014 4,616 9,790
Interest income -- 30 -- 84
-------- -------- ---------- ----------
Income before income taxes 31,724 23,281 95,243 74,302
Provision for income taxes 11,167 8,684 33,907 27,715
-------- -------- ---------- ----------
Net income $ 20,557 $ 14,597 $ 61,336 $ 46,587
======== ======== ========== ==========
Net earnings per share:
Basic $ .38 $ .26 $ 1.12 $ .83
======== ======== ========== ==========
Diluted $ .36 $ .26 $ 1.08 $ .82
======== ======== ========== ==========
Weighted average shares:
Basic 54,548 56,016 54,994 56,450
======== ======== ========== ==========
Diluted 56,693 56,911 56,823 57,113
======== ======== ========== ==========
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
----------------------
May 3, April 27,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 61,336 $ 46,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46,012 48,031
(Gain) loss on disposition of property and equipment (413) 80
Changes in assets and liabilities:
Inventories 1,454 (4,184)
Accounts payable (740) (2,556)
Other current assets and other current liabilities 10,189 (716)
Other assets and other long-term liabilities (4,277) 5,319
--------- ---------
Net cash provided by operating activities 113,561 92,561
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (69,997) (74,624)
Proceeds from sale of property and equipment 3,228 141,502
--------- ---------
Net cash (used in) provided by investing activities (66,769) 66,878
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 492,556 253,700
Principal payments under long-term debt and other
long-term obligations (422,909) (395,876)
Proceeds from exercise of stock options 45,215 4,007
Purchases and retirement of common stock (140,317) (23,823)
Dividends on common stock (1,163) (1,185)
--------- ---------
Net cash used in financing activities (26,618) (163,177)
--------- ---------
Net increase (decrease) in cash and cash equivalents 20,174 (3,738)
Cash and cash equivalents, beginning of period 11,807 13,865
--------- ---------
Cash and cash equivalents, end of period $ 31,981 $ 10,127
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 4,603 $ 9,780
Income taxes 32,817 30,162
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
(In thousands except per share amounts)
1. Condensed Consolidated Financial Statements
-------------------------------------------
The condensed consolidated balance sheet as of May 3, 2002 and the related
condensed consolidated statements of income and cash flows for the quarters and
nine-month periods ended May 3, 2002 and April 27, 2001, have been prepared by
CBRL Group, Inc. and subsidiaries (the "Company") without audit; in the opinion
of management, all adjustments for a fair presentation of such condensed
consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended August
3, 2001.
Deloitte & Touche LLP, the Company's independent accountants, have
performed a limited review of the financial information included herein. Their
report on such review accompanies this filing.
2. Income Taxes
------------
The provision for income taxes for the nine-month period ended May 3, 2002
has been computed based on management's estimate of the tax rate for the entire
fiscal year of 35.6%. This estimate is lower than management's previous
estimates, resulting in a 35.2% rate for the third quarter of fiscal 2002. The
variation between the statutory tax rate and the effective tax rate is due
primarily to employer tax credits for FICA taxes paid on employee tip income.
The Company's effective tax rates for the nine-month period ended April 27, 2001
and for the entire fiscal year of 2001 were 37.3% and 41.8%, respectively.
3. Seasonality
-----------
The sales and profits of the Company are affected significantly by seasonal
travel and vacation patterns because of its interstate highway locations.
Historically, the Company's greatest sales and profits have occurred during the
period of June through August. Early December through the end of February,
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 the quarter and nine-month period ended May 3, 2002 cannot be considered
indicative of the operating results for the full fiscal year.
4. Inventories
-----------
Inventories were comprised of the following at:
May 3, August 3,
2002 2001
---- ----
Retail $ 81,846 $ 87,445
Restaurant 17,784 15,853
Supplies 15,506 13,292
-------- --------
Total $115,136 $116,590
======== ========
5. Earnings Per Share and Weighted Average Shares
----------------------------------------------
Basic earnings per share are computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted earnings per share reflect the potential
dilution that could occur if securities, options or other contracts to issue
common stock were exercised or converted into common stock. The Company's
zero-coupon convertible senior notes (see Note 10) represent potential dilutive
shares at the balance sheet date. The effect of the assumed conversion of the
zero-coupon convertible senior notes has been excluded from the calculation of
diluted earnings per share for the quarter and nine-month period ended May 3,
2002, because none of the conditions that permit conversion had been satisfied
during the respective reporting periods. Outstanding stock options issued by the
Company represent the only dilutive effect reflected in diluted weighted average
shares.
6. Comprehensive Income
--------------------
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. There is no difference between comprehensive income and
net income as reported by the Company for all periods shown.
7. Segment Reporting
-----------------
The Company manages its business on the basis of one reportable operating
segment. All of the Company's operations are located within the United States.
The following data are presented in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 131 for all periods presented:
Quarter Ended Nine Months Ended
------------------- -----------------------
May 3, April 27, May 3, April 27,
2002 2001 2002 2001
---- ---- ---- ----
Net sales:
Restaurant $413,866 $379,365 $1,200,779 $1,103,810
Retail 90,864 88,546 321,184 315,258
-------- -------- ---------- ----------
Total net sales $504,730 $467,911 $1,521,963 $1,419,068
======== ======== ========== ==========
8. Recent Accounting Pronouncements Adopted
----------------------------------------
SFAS No. 141, "Business Combinations" requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and that the use of the pooling-of-interest method is no longer allowed.
Adoption of SFAS No. 141 had no effect on the financial statements presented
herein.
Effective August 4, 2001, the Company elected early adoption of SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 142 eliminates the
amortization for goodwill and other intangible assets with indefinite lives.
Intangible assets with lives restricted by contractual, legal, or other means
will continue to be amortized over their useful lives. Goodwill and other
intangible assets not subject to amortization 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. 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 conducted the initial test of the
carrying value of its goodwill, as required by SFAS No. 142, during the second
quarter of fiscal 2002, which ended February 1, 2002, and concluded that there
was no current indication of impairment to goodwill. In subsequent fiscal years,
the Company will also conduct its annual assessment of the carrying value of its
goodwill, as required by SFAS No. 142, during its second quarter.
In accordance with SFAS No. 142, the Company discontinued amortization of
goodwill effective August 4, 2001. The pro forma effects of the adoption of SFAS
No. 142 on net income and basic and diluted earnings per share is as follows:
Third Quarter Ended Third Quarter Ended Nine Months Ended Nine Months Ended
May 3, 2002 April 27, 2001 May 3, 2002 April 27, 2001
----------- -------------- ----------- --------------
Net income, as reported $20,557 $14,597 $61,336 $46,587
Intangible amortization,
net of $0 tax -- 999 -- 2,996
------- ------- ------- -------
Net income, pro forma $20,557 $15,596 $61,336 $49,583
======= ======= ======= =======
Basic earnings per share:
Net income, as reported $.38 $.26 $1.12 $.83
Intangible amortization,
net of $0 tax -- .02 -- .05
---- ---- ----- ----
Net income, pro forma $.38 $.28 $1.12 $.88
==== ==== ===== ====
Diluted earnings per share:
Net income, as reported $.36 $.26 $1.08 $.82
Intangible amortization,
net of $0 tax -- .01 -- .05
---- ---- ----- ----
Net income, pro forma $.36 $.27 $1.08 $.87
==== ==== ===== ====
9. Impairment of Long-lived Assets
-------------------------------
The Company evaluates long-lived assets and certain identifiable
intangibles to be held and used in the business for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment is determined by comparing estimated
undiscounted future operating cash flows to the carrying amounts of assets on a
store by store basis. If an impairment exists, the amount of impairment is
measured as the sum of the estimated discounted future operating cash flows of
such asset and the expected proceeds upon sale of the asset less its carrying
amount. Assets held for sale are reported at the lower of carrying amount or
fair value less costs to sell. The Company had no impairment loss recorded for
the quarters or nine-month periods ended May 3, 2002 and April 27, 2001.
10. Debt
----
In April 2002, the Company issued $422,050 face value at maturity of
zero-coupon convertible senior notes ("Notes"), maturing on April 3, 2032, and
received proceeds totaling $172,756 prior to debt issuance costs of $4,639. The
Company used $60,000 of the proceeds to repurchase 2,132,954 shares of its
common stock at $28.13 per share and used the remaining proceeds of $112,756 to
repay existing borrowings under its revolving bank credit facility, to fund its
debt issuance costs and for general corporate purposes. The debt costs are being
amortized over three years to the first put date. The Notes are callable at the
Company's option on or after April 3, 2007. Holders of the Notes may require the
Company to purchase all or a portion of their Notes on April 3, 2005, April 3,
2007 and every 5 years thereafter until April 3, 2027, at a purchase price equal
to the accreted value of the Notes, which includes accrued and unpaid cash
interest. Each $1,000 Note (face value at maturity) will be convertible into
10.8584 shares of the Company's common stock at an initial conversion price of
$37.69 per share, if the closing price of the Company's common stock exceeds a
specified price (initially, 120% of the accreted conversion price, and declining
...08474% per quarter thereafter to approximately 110% of the accreted conversion
price on the last day of the quarter ending January 30, 2032) for a specified
period of time (20 of the last 30 trading days) in any quarter beginning after
August 2, 2002, or otherwise upon the occurrence of certain events. The Notes
have an initial yield to maturity of 3.0%, which is being accreted over the life
of the Notes using the effective interest method. The Company may pay cash
contingent interest for the six-month period commencing April 4, 2007, and for
any six-month period thereafter if the average market price of the Notes for a
five-trading day measurement period preceding the applicable six-month period
equals 120% or more of the sum of the issue price and accrued original issue
discount for the Notes. All subsidiaries of the Company have fully and
unconditionally guaranteed on a joint and several basis the obligations under
the Notes. Each guarantor directly or indirectly is a wholly-owned subsidiary of
the parent company, CBRL Group, Inc., which has no independent assets or
operations. The Notes and the underlying common stock will be registered in the
Company's fourth fiscal quarter of this fiscal year with the Securities and
Exchange Commission to enable holders of the Notes to resell their Notes and the
shares of common stock issuable upon conversion of their Notes.
11. Litigation
----------
In Note 10 to the Consolidated Financial Statements for the fiscal year
ended August 3, 2001 contained in the Company's Annual Report on Form 10-K filed
on October 12, 2001 (which is incorporated herein by this reference for a more
complete description of such litigation), the Company reported that its Cracker
Barrel Old Country Store, Inc. subsidiary is a defendant in two pending
lawsuits, one of which has been provisionally certified as a class action. The
Company believes it has substantial defenses in each of these actions and is
defending each of them vigorously. The Company recorded a provision of $3,500 in
the consolidated financial statements in the fourth quarter of fiscal 2001 with
respect to one of these lawsuits. There has been no material development in
these two lawsuits during the quarter ended May 3, 2002.
In addition, on December 11, 2001 the Company was informed that the
attorneys representing the plaintiffs in the two cases described in the
preceding paragraph intended to file two new lawsuits against the Company's
Cracker Barrel Old Country Store, Inc. subsidiary. One of the threatened
lawsuits alleged additional wage and hour claims; the second alleged racial
discrimination in public accommodations. These two lawsuits were not served on
the Company's subsidiary until April 12, 2002. The Company believes that the
claims made in these two lawsuits are unfounded and that is has substantial
defenses to the claims made. Accordingly, it intends to defend these new claims
vigorously. Answers in both lawsuits, and in the public accommodations case a
motion to deny class certification, were filed on May 1, 2002. At this time,
however, neither the likelihood of an unfavorable outcome nor the amount of
ultimate liability, if any, with respect to these claims can be determined.
Accordingly, no provision for any potential liability has been made in the
consolidated financial statements of the Company. In the event of an unfavorable
outcome in any of these cases (including the two discussed in the preceding
paragraph), the Company's results of operations, financial position and
liquidity could be materially and adversely affected.
In addition to the litigation described in the preceding paragraphs, the
Company is a party to other legal proceedings incidental to its business. In the
opinion of management, based upon information currently available, the ultimate
liability with respect to these other actions will not materially affect the
Company's consolidated financial statements.
12. Derivative Financial Instruments and Hedging Activities
-------------------------------------------------------
The Company is exposed to market risk, such as changes in interest rates
and commodity prices. To manage the volatility relating to these exposures, the
Company nets the exposures on a consolidated basis to take advantage of natural
offsets. For the residual portion, the Company may enter into various derivative
financial instruments pursuant to the Company's policies in areas such as
counterparty exposure and hedging practices. The Company would review these
derivative financial instruments on a specific exposure basis to support hedge
accounting. The changes in fair value of these hedging instruments would be
offset in part or in whole by the corresponding changes in the fair value or
cash flows of the underlying exposures being hedged. The Company does not hold
or use derivative financial instruments for trading purposes. The Company's
historical practice has been not to enter into derivative financial instruments.
The Company's policy has been to manage interest cost using a mix of fixed
and variable rate debt. The Company has accomplished this objective through the
use of interest rate swaps, sale-leaseback transactions and/or zero-coupon
convertible debt. In an interest rate swap, the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed-upon notional amount. In a sale-leaseback
transaction, the Company finances its operating facilities by selling them to a
third party and then leasing them back under a long-term operating lease at
fixed terms. The Company's zero-coupon convertible debt is fixed-rate, long-term
debt. See Note 10 for a further description of this zero-coupon convertible
debt. See Note 12 to the Consolidated Financial Statements for the fiscal year
ended August 3, 2001 contained in the Company's Annual Report on Form 10-K filed
on October 12, 2001.
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.
Changes in commodity prices would affect the Company and its competitors
generally and often simultaneously. In many cases, the Company believes it will
be able to pass through any increased commodity costs by adjusting its menu
pricing. From time to time, competitive circumstances may limit menu price
flexibility, and in those circumstances increases in commodity prices can result
in lower margins for the Company. Some of the Company's purchase contracts are
used to hedge commodity prices and may contain features that could be classified
as derivative financial instruments under SFAS Nos. 133, 137 and 138. However,
these features that could be classified as derivative financial instruments are
exempt from hedge accounting based on the normal purchases exemption. The
Company presently believes that any changes in commodity pricing which cannot be
adjusted for by changes in menu pricing or other product delivery strategies
would not be material.
Upon adoption of SFAS Nos. 133, 137 and 138 on July 29, 2000 and through
May 3, 2002, the Company had no derivative financial instruments that required
hedge accounting.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All dollar amounts reported or discussed in Part I, Item 2 of this
Quarterly Report on Form 10-Q are shown in thousands, except dollar amounts per
share. 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 condensed consolidated
financial statements and notes thereto. Except for specific historical
information, many of the matters discussed in this Form 10-Q may express or
imply projections of revenues or expenditures, statements of plans and
objectives or future operations or statements of future economic performance.
These, and similar statements are forward-looking statements concerning matters
that involve risks, uncertainties and other factors which may cause the actual
performance of the Company to differ materially from those expressed or implied
by these statements. All forward-looking information is provided by the Company
pursuant to the safe harbor established under the Private Securities Litigation
Reform Act of 1995 and should be evaluated in the context of these factors.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "assumptions", "target", "guidance",
"plans", "may", "will", "would", "expect", "intend", "estimate", "anticipate",
"believe", "potential" or "continue" (or the negative of each of these terms) or
similar terminology. Factors which will affect actual results include, but are
not limited to: adverse general economic conditions including uncertain consumer
confidence effects on sales; the actual results of pending or threatened
litigation; the effects of negative publicity; commodity, workers' compensation,
group health and utility price increases; weather conditions and customer travel
activity; the effects of plans intended to improve operational execution and
performance; the effects of increased competition at Company locations on sales
and on labor recruiting, cost, and retention; the ability of and cost to the
Company to recruit, train, and retain qualified restaurant hourly and management
employees; the ability of the Company to identify successful new lines of retail
merchandise; the availability and costs of acceptable sites for development; the
acceptance of the Company's concepts as the Company continues to expand into new
markets and geographic regions; changes in interest rates affecting the
Company's financing costs; changes in or implementation of additional
governmental or regulatory rules and regulations affecting accounting, wage and
hour matters, health and safety, pensions and insurance; practical or
psychological effects of terrorist acts, or military or government responses;
other undeterminable areas of government or regulatory actions or regulations;
and other factors described from time to time in the Company's filings with the
Securities and Exchange Commission and press releases, and other communications.
Results of Operations
The following table highlights operating results by percentage
relationships to total revenue for the quarter and nine-month period ended May
3, 2002 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
----------------- -----------------
May 3, April 27, May 3, April 27,
2002 2001 2002 2001
---- ---- ---- ----
Net sales 99.9% 100.0% 100.0% 100.0%
Franchise fees and royalties 0.1 -- -- --
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of goods sold 31.9 33.3 33.3 34.3
----- ----- ----- -----
Gross profit 68.1 66.7 66.7 65.7
Labor & other related expenses 38.8 38.1 37.7 37.0
Other store operating expenses 17.1 17.5 16.8 17.3
----- ----- ----- -----
Store operating income 12.2 11.1 12.2 11.4
General and administrative 5.6 5.3 5.7 5.3
Amortization of goodwill -- 0.2 -- 0.2
----- ----- ----- -----
Operating income 6.6 5.6 6.5 5.9
Interest expense 0.3 0.6 0.3 0.7
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 6.3 5.0 6.2 5.2
Provision for income taxes 2.2 1.9 2.2 1.9
----- ----- ----- -----
Net income 4.1% 3.1% 4.0% 3.3%
===== ===== ===== =====
Average Comparable Store Sales Analysis
Quarter Ended Nine Months Ended
----------------- ------------------
May 3, April 27, May 3, April 27,
2002 2001 2002 2001
---- ---- ---- ----
Cracker Barrel (422 and 414 stores
for the quarter and nine
months, respectively)
Net sales:
Restaurant $778.6 $743.8 $2,303.5 $2,178.4
Retail 202.5 200.3 724.2 706.9
------ ------ -------- --------
Total net sales $981.1 $944.1 $3,027.7 $2,885.3
====== ====== ======== ========
Logan's (62 and 59 restaurants for $758.0 $733.3 $2,232.3 $2,171.2
the quarter and nine months,
respectively)
Total Revenue
- -------------
Total revenue for the third quarter of fiscal 2002 increased 7.9% compared
to last year's third quarter. At the Cracker Barrel Old Country Store ("Cracker
Barrel") concept, comparable store restaurant sales increased 4.7% and
comparable retail sales increased 1.1%, for a combined comparable store sales
(total net sales) increase of 3.9%. The comparable store restaurant sales
increase consisted of a 3.0% average check increase for the quarter and a 1.7%
guest traffic increase. Comparable store retail sales increased primarily due to
the increase in restaurant guest traffic. At the Logan's Roadhouse ("Logan's")
concept, comparable store sales increased 3.4%, which consisted of a 0.4%
average check increase and a 3.0% guest traffic increase. Sales from new Cracker
Barrel and Logan's stores primarily accounted for the balance of the total
revenue increase in the third quarter, partly offset by loss of revenues
associated with the closing of four Cracker Barrel units and three Logan's units
and exiting the Carmine Giardini's restaurant and gourmet market business at the
end of fiscal 2001.
Total revenue for the nine-month period ended May 3, 2002, increased 7.3%
compared to the nine-month period ended April 27, 2001. At the Cracker Barrel
concept, comparable store restaurant sales increased 5.7% and comparable retail
sales increased 2.4%, for a combined comparable store sales (total net sales)
increase of 4.9%. The comparable store restaurant sales increase consisted of a
3.0% average check increase for the nine months and a 2.7% guest traffic
increase. Comparable store retail sales increased primarily due to the increase
in restaurant guest traffic. At the Logan's concept, comparable store sales
increased 2.8%, which consisted of a 0.2% average check increase and a 2.6%
guest traffic increase. Sales from new Cracker Barrel and Logan's stores
primarily accounted for the balance of the total revenue increase in the
nine-month period ended May 3, 2002, partly offset by loss of revenues
associated with the closing of four Cracker Barrel units and three Logan's units
and exiting the Carmine Giardini's restaurant and gourmet market business at the
end of fiscal 2001.
Cost of Goods Sold
- ------------------
Cost of goods sold as a percentage of total revenue for the third quarter
of fiscal 2002 decreased to 31.9% from 33.3% in the third quarter of last year.
This decrease was primarily due to a lower mix of retail sales as a percent of
total revenues (retail has a higher cost of goods sold than restaurant), higher
average check, improvements in Cracker Barrel store-level execution, lower
markdowns of retail merchandise and lower beef, shrimp, chicken, butter and egg
prices. These decreases were partially offset by higher potato prices and lower
initial mark-ons versus the prior year.
Cost of goods sold as a percentage of total revenue for the nine-month
period ended May 3, 2002, decreased to 33.3% from 34.3% in the nine-month period
ended April 27, 2001. This decrease was primarily due to a lower mix of retail
sales as a percent of total revenues (retail has a higher cost of goods sold
than restaurant), higher average check, improvements in Cracker Barrel
store-level execution and higher initial mark-ons. These decreases were
partially offset by higher potato prices.
Labor and Other Related Expenses
- --------------------------------
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue increased to 38.8% in the third quarter this year
from 38.1% last year. This increase was primarily due to increases under the
store-level bonus programs, increases in wages and increases in workers'
compensation costs. These increased workers' compensation costs reflect
continued higher than expected claims cost development from claims incurred in
prior fiscal years. In the Company's fourth fiscal quarter the Company has an
independent actuary perform an annual actuarial evaluation of its expected
claims cost development to determine the appropriate workers' compensation
reserve as of its third fiscal quarter. The Company then uses this actuary
report and management's judgment based on actual claims development since the
last actuarial evaluation to update the workers' compensation reserve. In the
third quarter, the Company retained the independent actuary to prepare an
update, although not a full actuarial analysis, of its earlier evaluation
because certain historical claims experience appeared to be developing to a
greater degree than had been expected from the earlier actuarially determined
levels. Part of this higher development became apparent as a study by an outside
consultant revealed that a number of claims were reserved insufficiently by the
Company's outside claims administrator based on developments in those claims
during the current fiscal year. The Company does not expect this increased
workers' compensation claims development trend to continue to the same degree.
These increases were partially offset by higher average check, improved volume
and lower group health costs.
Labor and other related expenses as a percentage of total revenue increased
to 37.7% in the nine-month period ended May 3, 2002 from 37.0% in the nine-month
period ended April 27, 2001. This increase was primarily due to increases in
wages, increases under the store-level bonus programs and increases in workers'
compensation costs. These increased workers' compensation costs reflect
continued higher than expected claims cost development (as determined annually
by an independent actuarial evaluation) from claims incurred in prior fiscal
years. The Company does not expect this increased workers' compensation claims
development to continue to the same degree. These increases were partially
offset by higher average check and improved volume.
Other Store Operating Expenses
- ------------------------------
Other store operating expenses include all unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent and depreciation. Other store operating
expenses as a percentage of total revenue decreased to 17.1% in the third
quarter of fiscal 2002 from 17.5% in the third quarter of last year. This
decrease was primarily due to lower utility costs and operating supplies versus
the prior year, lower advertising spending at Cracker Barrel compared to a year
ago, higher average check and improved volume partially offset by higher general
liability insurance costs versus the prior year.
Other store operating expenses as a percentage of total revenue decreased
to 16.8% in the nine-month period ended May 3, 2002 from 17.3% in the nine-month
period ended April 27, 2001. This decrease was primarily due to lower utility
costs versus the prior year, lower advertising spending at Cracker Barrel
compared to a year ago, higher average check and improved volume partially
offset by higher general liability insurance costs versus the prior year.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses as a percentage of total revenue
increased to 5.6% in the third quarter of fiscal 2002 from 5.3% in the third
quarter of last year. This increase was primarily due to bonus accruals
reflective of performance improvements, higher professional fees, and various
staffing and infrastructure changes not in place a year ago partially offset by
higher average check and improved volume.
General and administrative expenses as a percentage of total revenue
increased to 5.7% in the nine-month period ended May 3, 2002 from 5.3% in the
nine-month period ended April 27, 2001. This increase was primarily due to bonus
accruals reflective of performance improvements, higher professional fees, and
various staffing and infrastructure changes not in place a year ago partially
offset by higher average check and improved volume.
Interest Expense
- ----------------
Interest expense decreased to $1,535 in the third quarter of fiscal 2002
from $3,014 in the third quarter of last year. The decrease primarily resulted
from lower average interest rates and lower average outstanding debt during the
third quarter as compared to last year. During the third quarter the Company
issued $422,050 face value at maturity, 3.0% yield-to-maturity, zero-coupon,
convertible senior notes for proceeds of $172,756 prior to debt issuance costs
of $4,639, which are being amortized over three years (see footnote 10, "Debt",
to the consolidated interim financial statements for the period ending May 3,
2002, contained herein).
Interest expense decreased to $4,616 in the nine-month period ended May 3,
2002 from $9,790 in the nine-month period ended April 27, 2001. The decrease
primarily resulted from lower average interest rates and lower average
outstanding debt during the nine-month period ended May 3, 2002 as compared to
the same period last year.
Interest Income
- ---------------
Interest income decreased to $0 in the third quarter of fiscal 2002 from
$30 in the third quarter of last year. The decrease was primarily due to no
funds available for investment during the third quarter as compared to last
year.
Interest income decreased to $0 in the nine-month period ended May 3, 2002
from $84 in the nine-month period ended April 27, 2001. The decrease was
primarily due to no funds available for investment during the nine-month period
ended May 3, 2002 as compared to the same period last year.
Provision for Income Taxes
- --------------------------
The provision for income taxes as a percent of pre-tax income decreased to
35.6% in the first nine months of fiscal 2002 from 37.3% during the same period
a year ago reflective of management's estimate of the tax rate for the entire
fiscal year. This rate for fiscal 2002 is lower than management's previous
estimate, resulting in a 35.2% rate for the third quarter of fiscal 2002. The
decrease in tax rate was primarily due to the Company no longer amortizing
goodwill upon its adoption of SFAS No. 142 on August 4, 2001, in the first
quarter of fiscal 2002. See Note 8 to the Condensed Consolidated Financial
Statements.
Critical Accounting Policies
- ----------------------------
See Note 2 to the Consolidated Financial Statements for the fiscal year
ended August 3, 2001 contained in the Company's Annual Report on Form 10-K filed
on October 12, 2001. The only change since the fiscal year ended August 3, 2001,
has been the adoption of SFAS No. 142.
Impact of Recent Accounting Pronouncements Not Yet Adopted
- ----------------------------------------------------------
In July 2001, The Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires
entities to record obligations associated with the retirement of a tangible
long-lived asset as a liability upon incurring those obligations, with the
amount of the liability initially measured at fair value. Upon initially
recognizing a liability for an asset retirement obligation ("ARO"), an entity
must capitalize the cost by recognizing an increase in the carrying amount of
the related long-lived asset. Over time, the entity amortizes the liability to
its present value each period, and the entity depreciates the capitalized cost
over the useful life of the related asset. Upon settlement of the liability, an
entity either settles the obligation for its recorded amount or incurs a gain or
loss upon settlement. Upon adoption, an entity will use a cumulative-effect
approach to recognize transition amounts for existing ARO liabilities, asset
retirement costs, and accumulated depreciation. All transition amounts are to be
measured using current information known as of the adoption date, including
current assumptions and current interest rates. SFAS No. 143 will be effective
for financial statements for fiscal years beginning after June 15, 2002 and
earlier application is encouraged. The Company is evaluating the impact of the
adoption of this standard and has not yet determined the effect.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30 "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions". SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 but eliminates the requirement to
allocate goodwill to long-lived assets to be tested for impairment. This
statement also requires discontinued operations to be carried at the lower of
cost or fair value less costs to sell and broadens the presentation of
discontinued operations to include a component of an entity rather than a
segment of a business. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years, with
early application encouraged. The Company does not expect the adoption of this
statement to have a material impact on its results of operations or financial
position.
In May 2002, FASB issued SFAS No. 145, "Recission of FASB Statements No. 4,
44, 64, Amendment of FASB Statement No. 13, and Technical Corrections". This
Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from
Extinguishment of Debt", and an amendment of that Statement, FASB Statement No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers". This Statement amends FASB Statement No. 13,"Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
Statement related to the rescission of Statement 4 shall be applied in fiscal
years beginning after May 15, 2002. The provisions of this Statement related to
Statement 13 shall be effective for transactions occurring after May 15, 2002.
All other provisions of this Statement shall be effective for financial
statements issued on or after May 15, 2002. The Company is evaluating the impact
of the adoption of this standard and has not yet determined the effect.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided net cash of $113,561 for the
nine-month period ended May 3, 2002. Most of this cash was provided by net
income adjusted for depreciation and amortization. Increases in other assets and
decreases in accounts payable were partially offset by decreases in inventories
and other current assets and increases in other current liabilities and other
long-term obligations.
Capital expenditures were $69,997 for the nine-month period ended May 3,
2002. Construction of new stores and land purchases accounted for substantially
all of these expenditures. Capitalized interest was $79 and $276 for the quarter
and nine-month period ended May 3, 2002 as compared to $148 and $731 for the
quarter and nine-month period ended April 27, 2001, respectively. This
difference was primarily due to lower borrowing costs as compared to a year ago.
In the first quarter of fiscal 2001, the Company completed a sale-leaseback
transaction involving 65 of its owned Cracker Barrel units. Under the
transaction, the land, buildings and building improvements at the locations were
sold for net consideration of $138,325 and have been leased back for an initial
term of 21 years. Equipment was not included. The leases include specific
renewal options for up to 20 additional years and have certain financial
covenants related to fixed charge coverage for the leased units. Net rent
expense during the initial lease term will be $14,963 annually, and the assets
sold and leased back previously had depreciation expense of $2,707 annually. The
gain on the sale is being amortized over the initial lease term of 21 years. The
net proceeds from the sale were used to reduce the Company's long-term debt by
$138,300 by reducing the Company's outstanding borrowing under the revolving
bank credit facility.
The Company's internally generated cash, along with cash at August 3, 2001,
the Company's new operating leases, proceeds from stock option exercises, and
the Company's available revolver, were sufficient to finance all of its growth,
share repurchases and other cash payment obligations in the first nine months of
fiscal 2002.
The Company estimates that its capital expenditures for fiscal 2002 will be
approximately $100,000, substantially all of which will be related to the
construction of 20 new Cracker Barrel stores and nine new Logan's restaurants.
On September 12, 2001, the Company reduced its entire bank credit facility to
$250,000 from $350,000 and converted its $50,000 term loan into a revolving
loan.
Long-term debt outstanding at May 3, 2002, consisted of $173,174 of
zero-coupon convertible senior notes ("Notes"), ($422,050 face value at maturity
less $248,876 representing an unamortized debt discount) and $22,000 under the
Company's revolving bank credit facility.
In April 2002, the Company issued $422,050 face value at maturity of Notes
and received proceeds totaling $172,756 prior to debt issuance costs of $4,639.
The Company used $60,000 of the proceeds to repurchase 2,132,954 shares of its
common stock at $28.13 per share and used the remaining proceeds of $112,756 to
repay existing borrowings under its revolving bank credit facility, to fund its
debt issuance costs and for general corporate purposes. See Note 10 to the
Company's Condensed Consolidated Financial Statements for a further description
of the Notes.
On September 17, 2001, the Company announced that the Board of Directors
had authorized the repurchase of up to 3 million shares of the Company's common
stock. The purchases are to be made from time to time in the open market at
prevailing market prices. As of May 3, 2002, the Company had repurchased
2,902,242 shares of its common stock for total consideration of $80,318 or
$27.67 per share under this authorization. The Company presently expects to
complete this share repurchase authorization during the fourth quarter of fiscal
2002.
On May 23, 2002, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 1.5 million shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization during the fourth quarter of
fiscal 2002, although there can be no assurance that such repurchase actually
will be completed in that period of time.
For the nine-month period ended May 3, 2002, the Company received proceeds
of $45,215 from the exercise of stock options on 2,512,764 shares of its common
stock.
Management believes that cash at May 3, 2002, along with cash generated
from the Company's operating activities, stock option exercises and its
available revolving credit facility, will be sufficient to finance its continued
operations, its remaining share repurchase authorization and its continued
expansion plans through fiscal 2003. At May 3, 2002, the Company had $228,000
available under its revolving credit facility. The Company estimates that its
operations, stock option exercises and other sources will generate excess cash
of approximately $120,000 after capital expenditures in fiscal 2002 which it
intends to apply toward completing its current share repurchase authorization
with the remaining excess cash to be used for future share repurchase
authorizations or debt reduction.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the Company's Annual Report on Form 10-K for the fiscal year
ended August 3, 2001, and filed with the Commission on October 12, 2001, is
incorporated in this item of this report by this reference.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
CBRL Group, Inc.
Lebanon, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of CBRL
Group, Inc. and subsidiaries (collectively, the "Company") as of May 3, 2002,
and the related condensed consolidated statements of income and cash flows for
the quarters and nine-month periods ended May 3, 2002 and April 27, 2001. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of CBRL
Group, Inc. and subsidiaries as of August 3, 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated September 13, 2001, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of August 3, 2001 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 6, 2002
PART II
Item 1. Legal Proceedings
-----------------
Part I, Item 3 of the Company's Annual Report on Form
10-K filed October 12, 2001, is incorporated in this
Form 10-Q by this reference. See also Note 11 to the
Company's Condensed Consolidated Financial Statements
filed in Part I, Item I of this Quarterly Report on
Form 10-Q, which also is incorporated in this item of
this report by this reference.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On April 3, 2002 and April 9, 2002, the Company sold
an aggregate of $422,050 of zero-coupon convertible
senior notes ("Notes") maturing on April 3, 2032, for
which the Company received gross cash proceeds of
$172,756 prior to debt issuance costs of $4,639 in
private offerings to Merrill Lynch & Co., as the
initial purchaser. These Notes were resold by the
initial purchaser in transactions exempt from
registration requirements of the Securities Act of
1933, as amended ("Securities Act"), to persons
reasonably believed by the initial purchaser to be
"qualified institutional buyers" (as defined in Rule
144A under the Securities Act). The aggregate gross
underwriting discounts for these transactions was
approximately $3,887. The Company used $60,000 of the
proceeds to repurchase 2,132,954 shares of its common
stock at $28.13 per share and used the remaining
proceeds of $112,756 to repay existing borrowings
under its revolving bank credit facility, to fund its
debt issuance costs and for general corporate
purposes. See Note 10 to the Company's Condensed
Consolidated Financial Statements for a further
description of the Notes, including a discussion of
the conversion feature.
The above-described sales were made without general
solicitation or advertising. We intend to file a
registration statement on Form S-3 covering the
resale of the Notes and the common stock into which
the Notes are convertible in the fourth quarter of
fiscal 2002. All net proceeds from the sale of such
securities will go to the selling shareholders who
offer and sell their securities and we will receive
none of such proceeds.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index on page 20 hereof for a listing of
the exhibits that are filed pursuant to Item 601 of
Regulation S-K.
(b) On February 25, 2002, the Company furnished a Current
Report on Form 8-K, Item 9 to report the Company's
quarter-end financial and other information. The
Company also disclosed information on current sales
trends and reaffirmed its earnings guidance for the
third fiscal quarter and full fiscal year, all as had
been announced by a press release on February 21,
2002.
On March 25, 2002, the Company furnished a Current
Report on Form 8-K, Item 9 to report the Company's
quarter-to-date information on current sales trends
and reaffirm its earnings guidance for the third
fiscal quarter and full fiscal year, all as had been
announced by a press release on March 21, 2002.
On March 29, 2002, the Company furnished a Current
Report on Form 8-K, Item 9 to report the Company's
proposed sale of its 30-year zero-coupon senior notes
that are convertible into shares of the Company's
common stock, all as had been announced by press
releases on March 27, 2002 and March 28, 2002.
On April 12, 2002, the Company furnished a Current
Report on Form 8-K, Item 9 to report the Company's
April 9, 2002 closing of the over-allotment option
granted in connection with its previously announced
30-year 3.0% zero-coupon convertible senior notes,
all as had been announced by a press release on April
10, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 6/6/02 By /s/Lawrence E. White
-------- ------------------------------------------------
Lawrence E. White, Senior Vice President/Finance
and Chief Financial Officer
Date: 6/6/02 By /s/Patrick A. Scruggs
-------- -------------------------------------------------
Patrick A. Scruggs, Assistant Treasurer
EXHIBIT INDEX
Exhibit No. Description
4.1 Registration Rights Agreement, dated as of April 3, 2002, by
and among the Company, the Guarantors (as defined therein), and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4.2 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.
4.3 Form of Certificate for the Company's zero-coupon convertible
senior notes (included in the Indenture filed as Exhibit 4.2
hereof).
4.4 Form of Guarantee of the Company's zero-coupon convertible
senior notes (included in the Indenture filed as Exhibit 4.2
hereof).
10.1 Executive Employment Agreement signed January 15, 2002 between
Dan W. Evins and the Company
10.2 Executive Employment Agreement signed February 21, 2002 among
Peter W. Kehayes, the Company and Logan's Roadhouse, Inc.
10.3 CBRL Group, Inc. Long-Term Incentive Plan Cover Letter
10.4 CBRL Group, Inc. Long-Term Incentive Plan
10.5 CBRL Group, Inc. Long-Term Incentive Summary Plan Description
15 Letter regarding unaudited financial information.