UNITED STATES
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 April 30, 2004
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
------- ----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No_____
-------
48,722,266 Shares of Common Stock
Outstanding as of May 28, 2004
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
April 30, August 1,
2004 2003*
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,035 $ 14,389
Receivables 10,701 9,150
Inventories 128,972 136,020
Prepaid expenses 10,692 8,932
Deferred income taxes 7,568 7,568
---------- ----------
Total current assets 171,968 176,059
Property and equipment - net 1,091,842 1,040,315
Goodwill 92,882 92,882
Other assets 20,338 17,067
---------- ----------
Total assets $1,377,030 $1,326,323
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,534 $ 82,172
Accrued expenses 210,850 164,442
Current maturities of long-term debt
and other long-term obligations 185 100
---------- ----------
Total current liabilities 250,569 246,714
---------- ----------
Long-term debt 183,757 186,730
---------- ----------
Other long-term obligations 100,995 97,983
---------- ----------
Commitments and Contingencies (Note 10)
Shareholders' equity:
Preferred stock - 100,000 shares of
$.01 par value authorized;
no shares issued -- --
Common stock - 400,000 shares of $.01
par value authorized; at April 30, 2004,
48,706 shares issued and outstanding and
at August 1, 2003, 47,873 shares issued
and outstanding 487 479
Retained earnings 841,222 794,417
---------- ----------
Total shareholders' equity 841,709 794,896
---------- ----------
Total liabilities and shareholders' equity $1,377,030 $1,326,323
========== ==========
See notes to unaudited condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet as of August 1, 2003.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
-------------------------------- -----------------------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Total revenue $584,282 $527,189 $1,773,448 $1,617,847
Cost of goods sold 190,718 165,378 590,145 521,455
-------- -------- ---------- ----------
Gross profit 393,564 361,811 1,183,303 1,096,392
Labor and other related expenses 221,230 201,170 654,540 605,357
Other store operating expenses 98,890 92,573 297,925 280,558
-------- -------- ---------- ----------
Store operating income 73,444 68,068 230,838 210,477
General and administrative 30,592 29,577 94,525 93,798
-------- -------- ---------- ----------
Operating income 42,852 38,491 136,313 116,679
Interest expense 2,007 2,214 6,298 6,659
Interest income -- -- 5 73
-------- -------- ---------- ----------
Income before income taxes 40,845 36,277 130,020 110,093
Provision for income taxes 14,663 12,878 46,677 39,083
-------- -------- ---------- ----------
Net income $ 26,182 $ 23,399 $ 83,343 $ 71,010
======== ======== ========== ==========
Net earnings per share:
Basic $ 0.53 $ 0.48 $ 1.70 $ 1.43
======== ======== ========== ==========
Diluted $ 0.52 $ 0.46 $ 1.65 $ 1.39
======== ======== ========== ==========
Weighted average shares:
Basic 49,128 49,077 48,926 49,609
======== ======== ========== ==========
Diluted 50,519 50,767 50,560 51,178
======== ======== ========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
-------------------------------
April 30, May 2,
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 83,343 $ 71,010
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 47,160 48,316
Loss on disposition of property and equipment 1,846 478
Accretion on zero-coupon contingently convertible
senior notes 4,027 3,916
Deferred income taxes -- 21,699
Changes in assets and liabilities:
Inventories 7,048 9,244
Accounts payable (42,638) (15,609)
Other current assets and other current liabilities 37,741
20,133
Other assets and other long-term liabilities (1,419) (5,125)
-------- --------
Net cash provided by operating activities 137,108 154,062
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (99,982) (85,260)
Proceeds from sale of property and equipment 777 1,517
-------- --------
Net cash used in investing activities (99,205) (83,743)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 150,000 276,600
Principal payments under long-term debt and other
long-term obligations (157,082) (276,665)
Deferred financing costs (1) (1,203)
Proceeds from exercise of stock options 48,869 27,626
Purchases and retirement of common stock (69,206) (95,003)
Dividends on common stock (10,837) (1,043)
-------- --------
Net cash used in financing activities (38,257) (69,688)
-------- --------
Net (decrease) increase in cash and cash equivalents (354) 631
Cash and cash equivalents, beginning of period 14,389 15,074
-------- --------
Cash and cash equivalents, end of period $ 14,035 $ 15,705
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 890 $ 1,197
======== ========
Income taxes $ 14,338 $ 15,321
======== ========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except percentages, share and per share data)
Unaudited)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheets as of April 30, 2004 and August
1, 2003 and the related condensed consolidated statements of income and cash
flows for the quarters and nine-month periods ended April 30, 2004 and May 2,
2003, have been prepared by CBRL Group, Inc. (the "Company") in accordance with
accounting principles generally accepted in the United States of America and
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") without audit. In the opinion of management, all adjustments (consisting
of normal and recurring items) for a fair presentation of such condensed
consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended August
1, 2003 ("2003 Form 10-K") filed with the SEC on October 15, 2003.
References in these Notes to the Condensed Consolidated Financial
Statements to a year are to the Company's fiscal year unless otherwise noted.
Deloitte & Touche LLP, the Company's independent auditors, have performed a
limited review of the financial information included herein. Their report on
such review accompanies this filing.
2. Summary of Significant Accounting Policies
The significant accounting policies of the Company are included in the 2003
Form 10-K. During the quarter ended April 30, 2004, there were no significant
changes to those accounting policies.
Stock Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure". Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based compensation expense,
net of related tax effects, in the table represents the amortization of
restricted stock grants to two executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's
consolidated net income and net income per share would have been reduced to the
pro-forma amounts illustrated as follows:
Quarter Ended Nine Months Ended
----------------------------- --------------------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Net income - as reported $26,182 $23,399 $83,343 $71,010
Add: Total stock-based employee
compensation included in reported
net income, net of related tax effects 19 45 56 222
Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards, net of
related tax effects (2,757) (2,829) (8,123) (8,662)
------- ------- ------- -------
Pro forma, net income $23,444 $20,615 $75,276 $62,570
======= ======= ======= =======
Net income per share:
Basic - as reported $0.53 $0.48 $1.70 $1.43
===== ===== ===== =====
Basic - pro forma $0.48 $0.42 $1.54 $1.26
===== ===== ===== =====
Diluted - as reported $0.52 $0.46 $1.65 $1.39
===== ===== ===== =====
Diluted - pro forma $0.46 $0.41 $1.49 $1.22
===== ===== ===== =====
3. Recently Issued Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity". SFAS No. 150 establishes standards for how a
Company classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that a Company
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that freestanding financial instrument
embodies an obligation of the Company. SFAS No. 150 was effective for financial
instruments entered into or modified after May 31, 2003, and otherwise was
effective on August 2, 2003 for the Company. FASB Staff Position 150-3 was
issued in November 2003 which deferred indefinitely the effective date for
certain mandatorily redeemable non-controlling interests. The adoption of SFAS
No. 150 did not have a material impact on the Company's consolidated results of
operations or financial position.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." Interpretation No.
46, which was revised in December 2003, to address the consolidation by business
enterprises of variable interest entities as defined in the Interpretation.
Interpretation No. 46 is effective for interests in structures that are commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Interpretation No. 46 is also effective for all other types of variable
interest entities for periods ending after March 15, 2004. The Company does not
have any interests that would change our current consolidated reporting entity
or require additional disclosures required by Interpretation No. 46.
4. Income Taxes
The provision for income taxes for the quarter and nine-month period ended
April 30, 2004 has been computed based on management's estimate of the tax rate
for 2004 of 35.9%. The increase in management's estimate of the tax rate for
2004 is based upon the expiration of certain federal tax credit legislation on
January 1, 2004. The variation between the statutory tax rate and the effective
tax rate is due primarily to state income taxes offset partially by employer tax
credits for FICA taxes paid on employee tip income. The Company's effective tax
rate for the quarter and nine-month period ended May 2, 2003 and for 2003 was
35.5%.
5. Seasonality
Historically the consolidated net income of the Company has been lower in
the first three quarters and highest in the fourth quarter, which includes much
of the summer vacation and travel season. Management attributes these variations
primarily to the decrease in interstate tourist traffic and propensity to dine
out less during the regular school year and winter months and the increase in
interstate tourist traffic and propensity to dine out more during the summer
months. The Company's retail sales historically have been highest in the
Company's second quarter, which includes the Christmas holiday shopping season.
Therefore, the results of operations for the quarter and nine months ended April
30, 2004 cannot be considered indicative of the operating results for the entire
year.
6. Inventories
Inventories were comprised of the following at:
April 30, August 1,
2004 2003
---- ----
Retail $ 91,954 $101,955
Restaurant 18,741 17,091
Supplies 18,277 16,974
-------- --------
Total $128,972 $136,020
======== ========
7. Consolidated Net Income Per Share and Weighted Average Shares
Basic consolidated net income per share is computed by dividing
consolidated income available to common shareholders by the weighted average
number of common shares outstanding for the reporting period. Diluted
consolidated net income per share reflects the potential dilution that could
occur if securities, options or other contracts to issue common stock were
exercised or converted into common stock. The Company's zero-coupon convertible
senior notes (see Note 4 to the Company's Consolidated Financial Statements
included in the 2003 Form 10-K for a description of these notes) represent
potential dilutive shares at April 30, 2004. The effect of the assumed
conversion of the zero-coupon convertible senior notes has been excluded from
the calculation of diluted net income per share for the quarter and nine-month
period ended April 30, 2004 because none of the conditions that permit
conversion were satisfied during the reporting period. Outstanding stock options
issued by the Company represent the only dilutive security reflected in diluted
weighted average shares.
8. Segment Reporting
Cracker Barrel Old Country Store(R) ("Cracker Barrel") units represent a
single, integrated operation with two related and substantially integrated
product lines. The operating expenses of the restaurant and retail product line
of a Cracker Barrel unit are shared and are indistinguishable in many respects.
The chief operating decision-makers review operating results for both restaurant
and retail operations on a combined basis. Likewise, Logan's Roadhouse(R)
("Logan's") units are restaurant operations and those operations have similar
investment criteria and economic and operating characteristics as the operations
of Cracker Barrel.
Therefore, 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 SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," for all
periods presented.
Quarter Ended Nine Months Ended
------------------- ------------------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Net sales in Company-owned stores:
Restaurant $480,032 $433,140 $1,393,571 $1,280,406
Retail 103,715 93,685 378,467 336,517
-------- -------- ---------- ----------
Total net sales 583,747 526,825 1,772,038 1,616,923
Franchise fees and royalties 535 364 1,410 924
-------- -------- ---------- ----------
Total revenue $584,282 $527,189 $1,773,448 $1,617,847
======== ======== ========== ==========
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 value of an asset may not
be recoverable. An impairment is determined by comparing undiscounted future
operating cash flows that are expected to result from an asset to the carrying
values of an asset on a store by store basis. If an impairment exists, the
amount of impairment is measured as the sum of the estimated discounted future
operating cash flows of the asset and the expected proceeds upon sale of the
asset less its carrying value. Assets held for sale, if any, are reported at the
lower of carrying value or fair value less costs to sell. The Company recorded
no impairment losses in the quarters and nine-month periods ended April 30, 2004
and May 2, 2003. 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 related reporting units by
making assumptions regarding future cash flows and other factors. This valuation
may reflect, among other things, such external factors as capital market
valuation for public companies comparable to the operating unit. If these
assumptions change in the future, the Company may be required to record material
impairment charges for these assets. The Company performed its annual assessment
in the second quarter ended January 30, 2004, and concluded at that time that
there was no indication of impairment. This annual assessment will be performed
in the second quarter of each year. Additionally, an assessment will be
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. The Company does not believe any such events or changes in
circumstances have occurred since the annual assessment performed in the second
quarter ended January 30, 2004.
10. Commitments and Contingencies
The Company's Cracker Barrel Old Country Store, Inc. subsidiary ("Cracker
Barrel") is involved in certain lawsuits, four of which are filed by the same
plaintiffs' attorneys, among others, and are not ordinary routine litigation
incidental to its business: Serena McDermott and Jennifer Gentry v. Cracker
Barrel Old Country Store, Inc. ("McDermott"), 4:99-CV-0001-HLM, a collective
action under the federal Fair Labor Standards Act ("FLSA"), was served on
Cracker Barrel on May 3, 1999; Kelvis Rhodes, Maria Stokes et al. v. Cracker
Barrel Old Country Store, Inc. ("Rhodes"), 4:99-CV-217-HLM, an action under
Title VII of the Civil Rights Act of 1964 and Section 1981 of the Civil Rights
Act of 1866, was served on Cracker Barrel on September 15, 1999; Flounice
Stanley, Calvin Slack et al. v. Cracker Barrel Old Country Store, Inc.
("Stanley"), 4:01-CV-326-HLM, a collective action under the FLSA, was served on
Cracker Barrel on April 12, 2002; and the National Association for the
Advancement of Colored People ("NAACP"), Betty Thomas et al. v. Cracker Barrel
Old Country Store, Inc. ("NAACP/Thomas"), 4:01-CV-325-HLM, an action under Title
II of the Civil Rights Act of 1964 and Section 1981 of the Civil Rights Act of
1866, was served on Cracker Barrel on April 12, 2002. These four cases are
filed, and are pending, in the United States District Court for the Northern
District of Georgia, Rome Division.
The McDermott case alleges that certain tipped hourly employees were
required to perform excessive non-serving duties without being paid the minimum
wage or overtime compensation for that work ("server claims") and that certain
hourly employees were required to wait "off the clock," without pay for the wait
("lock-in claims"). The McDermott case seeks recovery of unpaid wages and
overtime wages related to those claims. Following provisional class notice being
sent in 2000, 10,838 persons filed "opt-in" forms. On February 27 and March 2,
2004, respectively, the Court in the McDermott case entered orders adopting a
previously issued report of the Magistrate Judge and: (1) granted Cracker
Barrel's motion to decertify the server claims; and (2) dismissed the server
claims with prejudice. As to the lock-in claims, the Court's February 27, 2004
order also upheld the Magistrate Judge's report denying Cracker Barrel's motion
to decertify those claims. Previously, 8,512 persons filed opt-in forms alleging
lock-in claims. As a result of the Court's ruling, these plaintiffs will be
allowed to present their collective case through 216 representative plaintiffs.
In order to receive statutory liquidated damages or to extend the period of the
statute of limitations from two to three years, the plaintiffs will be required
to show willfulness by Cracker Barrel. A failure on the plaintiffs' part to show
willfulness will limit their claims to actual damages over a two-year time
period. The Company continues to believe that Cracker Barrel has substantial
defenses to these claims and intends to vigorously defend against them unless
they can be satisfactorily resolved through the mediation discussions described
below. Recent mediation discussions have delayed the proceedings in this case,
as well as others, but the parties have submitted a proposed schedule to the
Court with respect to any additional proceedings in the case. In 2001 the
Company established a reserve of $3,500 with respect to the McDermott case based
on offers of judgment to those plaintiffs. None of these offers of judgment was
accepted.
The Stanley case initially was a purported FLSA collective action, but the
plaintiffs did not timely move the court for class certification. This case was
filed by current and former employees asserting three claims based upon alleged
violations of the FLSA: (1) that Personal Achievement Responsibility (PAR) IV
level employees are routinely required to perform quasi-managerial duties or
duties related to training without receiving minimum wage or overtime
compensation for that work, (2) that employees classified as trainers routinely
work off the clock to prepare for training sessions at home or on store premises
and to conduct pre-training activities, and (3) that store opener employees were
mis-classified as salaried exempt and are due overtime compensation. The
individual plaintiffs in Stanley seek unpaid compensation and back pay,
liquidated damages, prejudgment interest, attorneys' fees and costs, and
unspecified injunctive relief. No express amount of monetary damages is claimed
in the Stanley case and no substantial discovery has taken place in that case.
After rulings and consents dismissing certain plaintiffs, only three individuals
remain in this case. Cracker Barrel had recently begun to prepare for summary
judgment proceedings against the remaining three plaintiffs when mediation
discussions that could resolve this case, as well as others, delayed proceedings
in the case.
The Rhodes case sought certification as a company-wide class action against
Cracker Barrel, a declaratory judgment to redress an alleged systemic pattern
and practice of racial discrimination in employment opportunities, an order to
effect certain hiring and promotion goals and back pay and other related
monetary damages. In May 2002, the Rhodes plaintiffs filed a motion for class
certification proposing a class of all current and former employees and
applicants for employment who might have suffered discrimination in hiring,
promotion, job assignment and cross-training. The court has denied certification
of a class in the Rhodes case. The plaintiffs' appeal of this ruling was denied
by the 11th Circuit Court of Appeals. There are now 13 individual plaintiffs
continuing the claims asserted in the Rhodes case. Cracker Barrel recently moved
for summary judgment against the remaining 13 plaintiffs. Plaintiffs' responses
to the summary judgment motion have recently been filed, but mediation
discussions that could resolve this case, as well as others, have delayed
proceedings in the case.
The NAACP/Thomas case is an alleged race discrimination class action filed
by the NAACP and customers of Cracker Barrel that sought certification as a
class action. The plaintiffs allege that Cracker Barrel has a pattern and
practice of race-based discriminatory treatment of African-American customers
and white customers when accompanied by African-American customers. Plaintiffs
and their counsel have denied that they seek to recover compensatory damages,
instead claiming to seek only nominal, actual and punitive damages. Plaintiffs
also seek unspecified declaratory and injunctive relief and demanded an award of
punitive and nominal damages in the amount of $100,000, plus reasonable
attorneys' fees and costs. On October 1, 2002, the United States District Court
granted defendant's Rule 23 (c) motion and denied class certification. The
plaintiffs did not appeal this ruling. There are now 40 individual plaintiffs
continuing the claims they asserted in the Thomas case. Recently, some of the
original named plaintiffs, whose Title II claims were dismissed, have refiled
those same claims, which have been consolidated with the original action.
In addition, three lawsuits have been filed by individual plaintiffs in
Arkansas, North Carolina and Mississippi, each alleging racial discrimination
toward guests. It appears that these lawsuits were derived from the Thomas case,
because they involve a number of individuals who were witnesses in that case and
the lawsuits state claims that are similar to those made in the Thomas case on
behalf of certain individuals in those states. In the Thomas and the three other
cases, there are now approximately 100 individual plaintiffs who claim that they
were subject to discrimination as guests. Cracker Barrel had recently begun to
prepare for summary judgment proceedings against each of the plaintiffs in
Thomas, and had just commenced discovery proceedings in the other three cases,
when mediation discussions that could resolve these cases, as well as others,
delayed the proceedings.
In August 2002, Cracker Barrel received a letter from the Department of
Justice ("DOJ") informing Cracker Barrel that it was the subject of a DOJ
investigation pursuant to powers granted to DOJ under Title II of the Civil
Rights Act of 1964. Since the initial notice of the investigation, Cracker
Barrel has provided all requested information to the DOJ. On May 3, 2004,
Cracker Barrel announced that it had reached an agreement that culminated
extensive negotiations with DOJ on procedures to address and resolve alleged
claims of discrimination by customers and allowed both Cracker Barrel and the
DOJ to avoid costly and protracted litigation. The agreement was embodied in a
consent order that was approved on that date by the United States District Court
for the Northern District of Georgia simultaneously with the filing of the DOJ
complaint addressed by the consent order. The consent order concluded the DOJ
review of the company's anti-discrimination policies and procedures, and was
furnished as an exhibit to a Current Report on Form 8-K dated May 3, 2004. The
order outlined plans for expanded diversity training programs for managers and
employees, a third-party testing program at restaurants, an independent auditor
to monitor activities implementing the plan, expanded procedures to investigate
guest complaints, and public posting of the company's equal treatment policies.
Cracker Barrel's agreement with DOJ did not include any payment of money by
Cracker Barrel. The agreement also was not an admission of wrongdoing by Cracker
Barrel, which continues to deny any allegations of wrongdoing as a part of the
agreement.
In December 2003, Cracker Barrel had indications that the private
plaintiffs in each of the McDermott, Stanley, Rhodes and Thomas (and the three
other matters that appear to be related to Thomas) cases might be agreeable to
reaching a mediated settlement satisfactory to all parties. Mediation
discussions have continued to various degrees, but no resolution has been
reached at the date of this filing, and there can be no assurance that
resolution can be reached in these mediation discussions. Cracker Barrel
continues to believe it has substantial defenses to the claims made in each of
these cases and intends to continue to defend the cases vigorously if a mediated
settlement cannot be achieved.
The Company's subsidiary, Logan's Roadhouse, Inc. ("Logan's") is subject to
a lawsuit, Joey E. Barlow v. Logan's Roadhouse, Inc., in the United States
District Court for the Middle District of Tennessee (Case No. 3-03-0821), filed
September 8, 2003. The case is a putative collective action under the FLSA,
although it has not yet been certified as such. The complaint alleges that
certain hourly employees (including the plaintiff and 65 opt-ins to date) at one
Logan's restaurant in Macon, Georgia were subjected to various violations of the
FLSA, including being required to work "off the clock," having hours "shaved"
(reduced in the computer), and being required to perform excessive non-server
duties without being paid the minimum wage or overtime compensation for that
work. The case seeks recovery of unpaid compensation, plus an equal amount of
liquidated damages, prejudgment interest, attorneys' fees and costs, and
unspecified injunctive relief. On February 6, 2004, the Court ordered that
notice be sent to all current and former hourly employees at the Macon, GA
Logan's restaurant who were employed between September 8, 2000 to the present.
After notices were sent, employees had 60 days to file opt-in forms. During that
time, 65 persons filed such forms. Although the case is in a very preliminary
stage, the Company denies that Logan's engaged in any of the alleged unlawful
employment practices and intends to vigorously defend the case.
The Company believes that its Cracker Barrel and Logan's subsidiaries have
substantial defenses to the claims made in each of these cases, and subject to
the mediation discussions and negotiations reported above, each of these cases
is being defended vigorously. Because discovery has not been completed in some
of these cases, none of these cases are yet ready for trial, and the mediation
discussions are not completed. As indicated, the Company accrued $3,500 in 2001
with respect to the McDermott case based on offers of judgment to those
plaintiffs. None of those offers of judgment was accepted. With the exception of
that reserve, no provision for any potential liability has been made in the
consolidated financial statements of the Company with respect to these lawsuits.
Neither the likelihood of an unfavorable outcome nor the amount of ultimate
liability, if any, with respect to these cases can be determined at this time.
It is premature to predict the outcome of the mediation discussions with the
private plaintiffs and whether they will result in the resolution of any or all
of the referenced cases. Based upon current status of the various discussions,
however, the Company would not expect any settlement to have a material adverse
effect upon the financial condition of the Company. Nevertheless, any settlement
could adversely affect short term results of operations if the amount of any
settlement exceeded the amounts already accrued. An unfavorable development in
any of these cases, however, that resulted in a judgment in excess of amounts
already accrued and beyond amounts covered under various insurance policies of
the Company and its subsidiaries, if applicable, could cause the Company's
consolidated results of operations and financial condition to be materially and
adversely affected.
In addition to the litigation described in the preceding paragraphs, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
The Company makes trade commitments in the course of its normal operations.
As of April 30, 2004 the Company was contingently liable for approximately
$3,281 under outstanding trade letters of credit issued in connection with
purchase commitments. These letters of credit have terms of 3 months or less and
are used to collateralize obligations to third parties for the purchase of a
portion of the Company's imported retail inventories. Additionally, the Company
was contingently liable pursuant to standby letters of credit as credit
guarantees to insurers. As of April 30, 2004 the Company had $17,830 of standby
letters of credit related to workers' compensation and general liability
insurance. All standby letters of credit are renewable annually.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party and a second operating
lease that has been sublet to a third party. The operating leases have remaining
lives of approximately 9.4 and 12.4 years, respectively, with annual lease
payments of approximately $350 and $100, respectively. Under the assigned lease
the Company's performance is only required if the assignee fails to perform his
obligations as lessee. At this time, the Company has no reason to believe that
the assignee will not perform and, therefore, no provision has been made in the
accompanying condensed consolidated financial statements for amounts to be paid
as a result of non-performance by the assignee. Under the sublease the Company's
performance is only required if the sublessee fails to perform his obligations
as lessee. The Company has a remaining liability of approximately $451 in the
accompanying condensed consolidated financial statements for estimated amounts
to be paid in case of non-performance by the sublessee.
11. Shareholders' Equity
During the nine-month period ended April 30, 2004, the Company received
proceeds of $48,869 from the exercise of stock options on 2,571,149 shares of
its common stock. During the nine-month period ended April 30, 2004 the Company
repurchased 1,769,300 shares of its common stock for a net expenditure of
$69,206. In the third quarter of 2004, the Company reduced Retained Earnings by
$20,345, since Additional Paid-In Capital already was reduced to zero due to
retirement of shares repurchased. These retired shares will remain as
authorized, but unissued, shares. During the nine-month period ended April 30,
2004, the Company declared three dividends of $0.11 per common share each that
were paid on November 10, 2003, February 9, 2004 and May 10, 2004.
12. Subsequent Event
On May 28, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000,000 shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization during calendar 2004, although
there can be no assurance that such repurchase actually will be completed in
that period of time.
13. Reclassifications
Certain reclassifications have been made in the 2003 condensed consolidated
financial statements to conform to the classifications used in 2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
CBRL Group, Inc.
Lebanon, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of CBRL
Group, Inc. and subsidiaries (the "Company") as of April 30, 2004, and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended April 30, 2004 and May 2, 2003, and of cash flows for
the nine-month periods ended April 30, 2004 and May 2, 2003. These interim
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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 standards of the Public Company Accounting Oversight Board (United States),
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 reviews, we are not aware of any material modifications that should
be made to such condensed consolidated interim 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 standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
CBRL Group, Inc. and subsidiaries as of August 1, 2003, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
September 10, 2003 (September 25, 2003 as to Note 13), we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of August 1, 2003 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 2, 2004
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All amounts reported or discussed in Part I, Item 2 of this Quarterly
Report on Form 10-Q are shown in thousands, except percentages and dollar
amounts per share. References in management's discussion and analysis of
financial condition and results of operations to a year are to the Company's
fiscal year unless otherwise noted. The following discussion and analysis
provides information which management believes is relevant to an assessment and
understanding of the Company's consolidated results of operations and financial
condition. 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 Quarterly Report
on Form 10-Q may express or imply projections of revenues or expenditures,
statements of plans and objectives or future operations or statements of future
economic performance. These, and similar statements are forward-looking
statements concerning matters that involve risks, uncertainties and other
factors which may cause the actual performance of CBRL Group, Inc. and its
subsidiaries (collectively, the "Company") to differ materially from those
expressed or implied by this discussion.
All forward-looking information is provided by the Company pursuant to the
safe harbor established under the Private Securities Litigation Reform Act of
1995 and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "outlook", "plans", "projection",
"may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of each of these
terms) or similar terminology. Factors which could materially affect actual
results include, but are not limited to: the actual results of pending or
threatened litigation or governmental investigations and the costs and effects
of negative publicity associated with these activities; commodity, workers'
compensation, group health and utility price changes; the effects of uncertain
consumer confidence or general or regional economic weakness on sales and
customer travel activity; consumer behavior based on concerns over food quality
or nutritional or safety aspects of the Company's products or restaurant food in
general; competitive marketing and operational initiatives; the ability of the
Company to identify, acquire and sell successful new lines of retail
merchandise; the effects of plans intended to improve operational execution and
performance; changes in or implementation of additional governmental or
regulatory rules, regulations and interpretations affecting accounting, tax,
wage and hour matters, health and safety, pensions, insurance or other
undeterminable areas; practical or psychological effects of terrorist acts or
war and military or government responses; the effects of increased competition
at Company locations on sales and on labor recruiting, cost, and retention; the
ability of and cost to the Company to recruit, train, and retain qualified
restaurant hourly and management employees; potential disruptions to the
company's restaurant or retail supply chain; changes in foreign exchange rates
affecting the Company's future retail inventory purchases; the availability and
cost of acceptable sites for development and the Company's ability to identify
such sites; changes in accounting principles generally accepted in the United
States of America or changes in capital market conditions that could affect
valuations of restaurant companies in general or the Company's goodwill in
particular; increases in construction costs; changes in interest rates affecting
the Company's financing costs; and other factors described from time to time in
the Company's filings with the SEC, press releases, and other communications.
Results of Operations
The following table highlights operating results by percentage
relationships to total revenue for the quarter and nine-month period ended April
30, 2004 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
------------------ -------------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 32.6 31.4 33.3 32.2
----- ----- ----- -----
Gross profit 67.4 68.6 66.7 67.8
Labor and other related expenses 37.9 38.1 36.9 37.4
Other store operating expenses 16.9 17.6 16.8 17.4
----- ----- ----- -----
Store operating income 12.6 12.9 13.0 13.0
General and administrative 5.3 5.6 5.3 5.8
----- ----- ----- -----
Operating income 7.3 7.3 7.7 7.2
Interest expense 0.3 0.4 0.4 0.4
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 7.0 6.9 7.3 6.8
Provision for income taxes 2.5 2.5 2.6 2.4
----- ----- ----- -----
Net income 4.5% 4.4% 4.7% 4.4%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and nine-month period
ended April 30, 2004 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
------------------- -----------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Net sales:
Cracker Barrel restaurant 67.6% 68.4% 65.3% 66.5%
Logan's 14.6 13.7 13.3 12.6
----- ----- ----- -----
Total restaurant 82.2 82.1 78.6 79.1
Cracker Barrel retail 17.7 17.8 21.3 20.8
----- ----- ----- -----
Total net sales 99.9 99.9 99.9 99.9
Franchise fees and royalties 0.1 0.1 0.1 0.1
----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
The following table highlights the units in operation and units added for
the quarter and nine-month period ended April 30, 2004 as compared to the same
periods a year ago:
Third Quarter Ended Nine Months Ended
------------------- -----------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Cracker Barrel Old Country Store:
Open at beginning of period 488 466 480 457
Opened during period 8 6 16 15
--- --- --- ---
Open at end of period 496 472 496 472
=== === === ===
Logan's Roadhouse - company-owned:
Open at beginning of period 103 93 96 84
Opened during period 4 3 11 12
--- -- --- --
Open at end of period 107 96 107 96
=== == === ==
Logan's Roadhouse - franchised:
Open at beginning of period 17 12 16 12
Opened during period 2 1 3 1
-- -- -- --
Open at end of period 19 13 19 13
== == == ==
The following table highlights comparable store sales* for the quarter and
nine-month period ended April 30, 2004 as compared to the same periods a year
ago:
Comparable Store Average Sales Analysis
Quarter Ended Nine Months Ended
------------------ ---------------------
April 30, May 2, April 30, May 2,
2004 2003 2004 2003
---- ---- ---- ----
Cracker Barrel (457 and 445 stores
for the quarter and nine months,
respectively)
Net sales:
Restaurant $ 800.5 $763.3 $2,377.1 $2,309.8
Retail 208.3 196.1 772.5 716.1
-------- ------ -------- --------
Total net sales $1,008.8 $959.4 $3,149.6 $3,025.9
======== ====== ======== ========
Logan's (84 and 83 restaurants for
the quarter and nine months,
respectively) $ 796.6 $742.5 $2,281.7 $2,184.8
======== ====== ======== ========
*Comparable store sales consist of sales of stores open at least six full
quarters as of beginning of the quarter or nine-month period ended April 30,
2004; and are measured on comparable calendar weeks.
Total Revenue
Total revenue for the third quarter of 2004 increased 10.8% compared to
last year's third quarter. For the third quarter ended April 30, 2004, Cracker
Barrel Old Country Store(R) ("Cracker Barrel") comparable store restaurant sales
increased 4.9% and comparable store retail sales increased 6.2% resulting in a
combined comparable store sales (total net sales) increase of 5.2%. The
comparable store restaurant sales increase consisted of a 2.1% average check
increase for the quarter (including a 1.7% net price increase effect) and a 2.8%
guest traffic increase. We believe that the comparable store retail sales
increase is primarily related to the restaurant guest traffic increase, improved
merchandise selection with broader appeal and greater variety at lower price
points and improved merchandise planning and retail operations. Logan's
Roadhouse(R) ("Logan's") comparable restaurant sales increased 7.3%, which
consisted of a 5.7% guest traffic increase and a 1.6% average check increase
(including a 0.7% net price increase effect). Sales from newly opened Cracker
Barrel stores and Logan's restaurants primarily accounted for the balance of the
total revenue increase in the third quarter.
Total revenue for the nine-month period ended April 30, 2004 increased 9.6%
compared to the nine-month period ended May 2, 2003. For the nine-month period
ended April 30, 2004, Cracker Barrel comparable store restaurant sales increased
2.9% and comparable store retail sales increased 7.9% resulting in a combined
comparable store sales (total net sales) increase of 4.1%. The comparable store
restaurant sales increase consisted of a 1.7% average check increase for the
nine months (substantially all of which reflected higher menu prices) and a 1.2%
guest traffic increase. We believe that the comparable store retail sales
increase is primarily related to the restaurant guest traffic increase, improved
merchandise selection with broader appeal and greater variety at lower price
points and improved merchandise planning and retail operations. Logan's
comparable restaurant sales increased 4.4%, which consisted of a 3.6% guest
traffic increase and a 0.8% average check increase (substantially all of which
reflected higher menu prices). Sales from newly opened Cracker Barrel stores and
Logan's restaurants primarily accounted for the balance of the total revenue
increase in the nine-month period ended April 30, 2004.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the third quarter
of 2004 increased to 32.6% from 31.4% in the third quarter of last year. This
increase was due primarily to higher commodity costs for beef, butter, eggs,
bacon and dairy (most of which are expected to continue in the fourth quarter of
2004), higher unit-level waste and higher markdowns of retail merchandise versus
the prior year. These increases were partially offset by higher menu pricing and
higher initial mark-ons of retail merchandise versus the prior year.
Cost of goods sold as a percentage of total revenue for the nine-month
period ended April 30, 2004 increased to 33.3% from 32.2% in the nine-month
period ended May 2, 2003. This increase was due primarily to higher commodity
costs for beef, butter, eggs, bacon and dairy, a higher mix of retail sales as a
percent of total revenues (retail has a higher product cost than restaurant) and
higher markdowns of retail merchandise versus the prior year. These increases
were partially offset by higher menu pricing and higher initial mark-ons of
retail merchandise versus the prior year.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue decreased to 37.9% in the third quarter this year
from 38.1% last year. This decrease was due primarily to lower hourly labor
expenses as a percent of revenue, lower workers' compensation costs and higher
menu pricing versus the prior year. These decreases were offset partially by an
increase in store manager compensation under unit-level bonus programs versus
the prior year.
Labor and other related expenses as a percentage of total revenue decreased
to 36.9% in the nine-month period ended April 30, 2004 as compared to 37.4% in
the nine-month period ended May 2, 2003. This decrease was due primarily to
lower workers' compensation costs, lower group health costs, lower hourly labor
expenses as a percent of revenue and higher menu pricing versus the prior year.
These decreases were offset partially by an increase in store manager
compensation under unit-level bonus programs versus the prior year.
Other Store Operating Expenses
Other store operating expenses include all unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent, depreciation, general insurance, credit
card fees and non-labor-related pre-opening expenses. Other store operating
expenses as a percentage of total revenue decreased to 16.9% in the third
quarter of 2004 from 17.6% in the third quarter of last year. This decrease was
due primarily to lower depreciation, advertising and other miscellaneous
expenses as a percent of revenue and higher menu pricing versus the prior year.
The lower depreciation is the result of the Company's rapid Cracker Barrel store
growth in the late 1990's which has been reduced in recent years and the
Company's rollout of a new store point-of-sale system in the late 1990's under
the Company's accelerated depreciation methods. Certain of these asset
categories are now fully depreciated. The decrease in advertising as a percent
of revenue was due primarily to the timing of advertising at Cracker in 2004
versus the prior year and to Logan's reduced advertising spending as new Logan's
management continues to develop their overall marketing strategy.
Other store operating expenses as a percentage of total revenue decreased
to 16.8% in the nine-month period ended April 30, 2004 as compared to 17.4% in
the nine-month period ended May 2, 2003. This decrease was due primarily to
lower depreciation, advertising, general insurance and other miscellaneous
expenses as a percent of revenue and higher menu pricing versus the prior year.
These decreases in other store operating expenses were offset partially by
higher utilities, repairs and maintenance and supplies versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
decreased to 5.3% in the third quarter of 2004 as compared to 5.6% in the third
quarter of last year. This decrease was due primarily to lower professional fees
and bonus accruals versus the prior year. The decrease in professional fees was
due primarily to decreases in litigation defense costs versus the prior year.
The decrease in bonus accruals primarily reflected relatively lower performance
against financial objectives in the third quarter of 2004 versus the same period
a year ago.
General and administrative expenses as a percentage of total revenue
decreased to 5.3% in the nine-month period ended April 30, 2004 as compared to
5.8% in the nine-month period ended May 2, 2003. This decrease was due primarily
to lower professional fees, bonus accruals and management training costs versus
the prior year. The decrease in professional fees was due primarily to decreases
in litigation defense costs versus the prior year. The decrease in bonus
accruals primarily reflected relatively lower performance against financial
objectives in the first nine months of 2004 versus the same period a year ago.
The decrease in management training costs was due primarily to decreases in
manager turnover versus the prior year.
Interest Expense
Interest expense decreased to $2,007 and $6,298 in the third quarter and
the first nine months of 2004, respectively, from $2,214 and $6,659 in the same
periods last year, respectively. The decrease in the third quarter and the first
nine months resulted primarily from lower average outstanding debt, lower
average interest rates and higher capitalized interest as compared to the same
periods a year ago. The increase in capitalized interest was due primarily to an
increase in the average number of new locations under construction versus the
same periods a year ago.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income was 35.9% in
the third quarter and the first nine months of 2004 as compared to 35.5% during
the same periods a year ago and which approximated the rate for the entire year
of 2003. The increase in management's estimate of the tax rate for 2004 is based
upon the expiration of certain federal tax credit legislation on January 1,
2004. The variation between the statutory tax rate and the effective tax rate is
due primarily to state income taxes offset partially by employer tax credits for
FICA taxes paid on employee tip income.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $137,108 for the
nine-month period ended April 30, 2004, which represented a decrease from the
$154,062 provided during the same period a year ago. This decrease was due
primarily to a larger decrease in accounts payable in the first nine months of
2004 versus last year offset partially by the timing of payments of income tax
liabilities reflected by a larger increase in income taxes payable (included in
the cash flow statement as changes in other current assets and other current
liabilities) net of the change in deferred income taxes in the first nine month
of 2004 versus the prior year. The decrease in accounts payable was due
primarily to timing of payments versus the previous year.
The Company had negative working capital of $78,601 at April 30, 2004
versus negative working capital of $70,655 at August 1, 2003. In the restaurant
industry, substantially all sales are either for cash or credit card. Like many
other restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant inventory. Employees
generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of
hours worked, and certain expenses such as certain taxes and some benefits are
deferred for longer periods of time. The larger negative working capital
compared with August 1, 2003, primarily reflected higher income taxes payable
and lower inventories partially offset by lower accounts payable.
Capital expenditures were $99,982 for the nine-month period ended April 30,
2004 as compared to $85,260 during the same period a year ago. Construction of
new locations and one replacement location accounted for most of these
expenditures. The increase from the prior year is primarily due to the current
year increase in owned versus leased land for new locations, the current year
increase in the number of new locations under construction versus the prior year
and to the timing of maintenance and replacement capital expenditures for
existing stores versus the same period a year ago. Capitalized interest was $140
and $428 for the quarter and nine-month period ended April 30, 2004, as compared
to $104 and $345 for the quarter and nine-month period ended May 2, 2003. This
difference was due primarily to an increase in the average number of new
locations under construction versus the same period a year ago offset partially
by lower borrowing costs as compared to a year ago.
During the nine-month period ended April 30, 2004 the Company repurchased
1,769,300 shares of its common stock for a net expenditure of $69,206, or
approximately $39.11 per share. During February 2004 the Company completed the
purchase of the 210,300 shares remaining under the repurchase authorization
previously in effect at January 31, 2004 and announced a new authorization to
purchase an additional 2,000,000 shares of which 892,000 shares remain. 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 before the end of 2004, although there can be no
assurance that such repurchase actually will be completed in that period of
time.
On May 28, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000,000 shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization during calendar 2004, although
there can be no assurance that such repurchase actually will be completed in
that period of time. The Company's principal criteria for share repurchases are
that they be accretive to net income per share and that they do not unfavorably
affect the Company's investment grade debt rating and target capital structure.
During the nine-month period ended April 30, 2004, the Company received
proceeds of $48,869 from the exercise of stock options on 2,571,149 shares of
its common stock. During the nine-month period ended April 30, 2004, the Company
declared three dividends of $0.11 per common share each that were paid on
November 10, 2003, February 9, 2004 and May 10, 2004.
The Company's internally generated cash and cash generated by option
exercises, along with cash at August 1, 2003, the Company's availability under
its revolving credit facility and its real estate operating lease arrangements,
were sufficient to finance all of its growth, share repurchase, dividend payment
and working capital needs in the first nine months of 2004.
The Company estimates that its capital expenditures for 2004 will be
approximately $140,000 to $145,000, most of which will be related to the
construction of new Cracker Barrel and Logan's units. The Company, through
internally generated cash and available borrowing capacity, expects to be able
to meet its capital needs for the foreseeable future. The Company expects to
open 24 new Cracker Barrel units, 20 of which already have opened, plus one
replacement unit opened in the first quarter, in 2004. The Company also has
opened 11 new company-operated Logan's units in 2004.
Management believes that cash at April 30, 2004, along with cash generated
from the Company's operating activities and its available revolving credit
facility, as well as financing obtained through real estate operating leases,
will be sufficient to finance its continued operations, its remaining share
repurchase authorizations, its dividends and its continued expansion plans
through 2005. At April 30, 2004, the Company had $300,000 available under its
revolving credit facility.
Critical Accounting Policies
The Company prepares its consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period (see Note 2 to the Company's Consolidated Financial
Statements included in the 2003 Form 10-K). Actual results could differ from
those estimates. Critical accounting policies are those that management believes
are both most important to the portrayal of the Company's financial condition
and operating results, and require management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. The Company bases its estimates
on historical experience and on various other assumptions 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
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Recoverability of assets is measured by comparing the carrying
value of the asset to the undiscounted future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value of an asset to be held and used or over the fair value, net
of estimated costs of disposal, of an asset to be disposed of, and a loss
resulting from value impairment is recognized by a charge to earnings. Judgments
and estimates made by the Company related to the expected useful lives of
long-lived assets are affected by factors such as changes in economic conditions
and changes in operating performance. As the Company assesses the ongoing
expected cash flows and carrying amounts of its long-lived assets, these factors
could cause the Company to realize a material impairment charge. From time to
time the Company has decided to exit from or dispose of certain operating units.
Typically, such decisions are made based on operating performance or strategic
considerations and must be made before the actual costs or proceeds of
disposition are known, and management must make estimates of these outcomes.
Such outcomes could include the sale of a property or leasehold, mitigating
costs through a tenant or subtenant, or negotiating a buyout of a remaining
lease term. In these instances management evaluates possible outcomes,
frequently using outside real estate and legal advice, and records in the
financial statements provisions for the effect of such outcomes. The accuracy of
such provisions can vary materially from original estimates, and management
regularly monitors the adequacy of the provisions until final disposition
occurs. In addition, at least annually the Company assesses the recoverability
of goodwill and other intangible assets. The impairment tests require the
Company to estimate fair values of its related reporting units by making
assumptions regarding future cash flows and other factors. This valuation may
reflect, among other things, such external factors as capital market valuation
for public companies comparable to the operating unit. If these assumptions
change in the future, the Company may be required to record material impairment
charges for these assets. The Company performed its annual assessment in the
second quarter ending January 30, 2004, and concluded at that time that there
was no indication of impairment. This annual assessment will be performed in the
second quarter of each year. Additionally, an assessment will be performed
between annual assessments if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability and health insurance programs. The
Company has purchased insurance for individual claims that exceed $250 for
workers' compensation and general liability insurance prior to 2003, but has
increased this amount to $500 for 2003 and to $1,000 for certain coverages for
2004 going forward. The Company elected not to purchase such insurance for its
primary group health program, but its offered benefits are limited to not more
than $1,000 lifetime for any employee (including dependents) in the program. The
Company records a liability for workers' compensation and general liability for
all unresolved claims and for an estimate of incurred but not reported claims at
the anticipated cost to the Company based upon an actuarially determined reserve
as of the end of the Company's third quarter and adjusting it by the actuarially
determined losses and actual claims payments for the subsequent quarters until
the next annual, actuarial study of its reserve requirements. Those reserves and
these losses are determined actuarially from a range of possible outcomes within
which no given estimate is more likely than any other estimate. In accordance
with SFAS No. 5, the Company records the losses at the low end of that range and
discounts them to present value using a risk-free interest rate based on the
actuarially projected timing of payments. The Company also monitors actual
claims development, including incurrence or settlement of individual large
claims during the interim period between actuarial studies as another means of
estimating the adequacy of its reserves. From time to time the Company has
performed limited scope interim updates of its actuarial studies to verify
and/or modify its reserves. The Company records a liability for its group health
program for all unpaid claims based 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 and management
judgments regarding economic conditions, the frequency and severity of claims
and claim development history and settlement practices. Unanticipated changes in
these factors may produce materially different amounts of expense that would be
reported under these insurance programs.
Inventory Shrinkage
Cost of sales includes the cost of retail merchandise sold at the Cracker
Barrel stores utilizing the retail inventory accounting method. It includes an
estimate of shortages that are adjusted upon physical inventory counts in
subsequent periods. This estimate is consistent with Cracker Barrel's historical
practice in all periods shown. Actual shrinkage recorded upon physical inventory
counts may produce materially different amounts of shrinkage than estimated by
the Company for the third quarter ended on April 30, 2004.
Tax Provision
The Company must make estimates of certain items that comprise its income
tax provision. These estimates include effective state and local income tax
rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. The Work Opportunity and Welfare to
Work tax credit legislation expired on January 1, 2004. These estimates are made
based on current tax laws, the best available information at the time of the
provision and historical experience. The Company files its income tax returns
many months after its year end. These returns are subject to audit by various
federal and state governments years after the returns are filed and could be
subject to differing interpretations of the tax laws. The Company then must
assess the likelihood of successful legal proceedings or reach a settlement with
the relevant taxing authority, either of which could result in material
adjustments to the Company's consolidated financial statements and its
consolidated financial position. See Note 4 to the Company's Condensed
Consolidated Financial Statements filed herein and Note 7 to the Company's
Consolidated Financial Statements included in its 2003 Form 10-K.
Legal Proceedings
As discussed in Note 10 to the Company's Condensed Consolidated Financial
Statements contained in this Quarterly Report and more fully discussed in Note 9
to the Company's Consolidated Financial Statements included in its 2003 Form
10-K, the Company reported that its principal subsidiaries are subject to
certain lawsuits, one of which has been provisionally certified as a collective
action. As is more fully discussed in Note 10 to the condensed consolidated
financial statement footnotes, the Company believes its subsidiaries have
substantial defenses in these lawsuits and intends to continue to defend each of
them vigorously if mediated settlements cannot be achieved. Except for a $3,500
accrual in 2001, there currently is no provision for any potential liability
with respect to these matters in the Company's Condensed Consolidated Financial
Statements. As indicated in the financial statement footnotes, if these cases
were resolved through mediation and settlement, the Company would not expect
that to have a material adverse effect upon the financial condition of the
Company although short term results of operations could be adversely affected.
Any future unfavorable developments in any of these cases, however, that
resulted in a judgment in excess of amounts already accrued and beyond amounts
covered under various insurance policies of the Company and its subsidiaries, if
applicable, could cause the Company's consolidated results of operations and
financial condition to be materially and adversely affected.
In addition to the litigation described in the preceding paragraph, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the 2003 Form 10-K is incorporated in this item of this report
by this reference. There have been no material changes in the quantitative and
qualitative market risks of the Company since August 1, 2003.
Item 4. Controls and Procedures
The Company's management, with the participation of its principal executive
and financial officers, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 ("the Exchange Act"). Based upon this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that as of April 30, 2004, the Company's disclosure controls and
procedures were effective for the purposes set forth in the definition thereof
in Exchange Act Rule 13a-15(e).
There have been no significant changes (including corrective actions with
regard to significant deficiencies and material weaknesses) during the quarter
ended April 30, 2004 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 3 of the 2003 Form 10-K is incorporated herein by
this reference.
Part II, Item 1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 2003 and filed with the SEC
on December 5, 2003 is incorporated herein by this reference.
Part II, Item 1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended January 30, 2004 and filed with the SEC
on March 5, 2004 is incorporated herein by this reference.
See also Note 10 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
by this reference.
Item 2. Changes in Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Average Announced Under the
of Shares Price Paid Per Plans or Plans or
Period Purchased (1) Share (2) Programs (3) Programs (3)
------ ------------- --------- ------------ ------------
1/31/04 - 2/27/04 210,300 $37.92 210,300 2,000,000
2/28/04 - 3/26/04 1,108,000 $38.75 1,108,000 892,000
3/27/04 - 4/30/04 0 -- 0 892,000
Total for the quarter 1,318,300 $38.62 1,318,300 892,000
(1) All share repurchases were made in open-market
transactions pursuant to publicly announced
repurchase plans. This table excludes shares owned
and tendered by employees to meet the exercise price
of option exercises and shares withheld from
employees to satisfy minimum tax withholding
requirements on option exercises and other
equity-based transactions. The Company administers
employee cashless exercises through an independent,
third-party broker and does not repurchase stock in
connection with cashless exercises.
(2) Average price paid per share is calculated on a
settlement basis and includes commission.
(3) On May 30, 2003, the Company announced a one million
share common stock repurchase program with no
expiration date. This repurchase authorization was
completed on February 25, 2004. On February 27, 2004,
the Company announced a two million share common
stock repurchase program with no expiration date.
Subsequent to quarter end on May 28, 2004, the
Company announced a two million share common stock
repurchase program with no expiration date.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index immediately following the signature
page hereto.
(b) Current Reports on Form 8-K during the quarter for
which this report is filed:
Form 8-K filed February 19, 2004, reporting under
Items 9 and 12 the issuance of a press release
announcing the Company's 2004 second fiscal quarter
earnings, current sales trends and earnings guidance
for the third fiscal quarter of 2004 and the
remainder of fiscal year 2004.
Form 8-K filed February 27, 2004, reporting under
Item 5 the Board of Directors' authorization to
repurchase up to 2 million shares of the Company's
common stock.
Form 8-K filed March 18, 2004, reporting under Item 9
the issuance of a press release announcing the
Company's fiscal 2004 third quarter-to-date sales
trends and updating earnings guidance for the third
quarter and the remainder of fiscal 2004.
Form 8-K filed March 26, 2004, reporting under Item 9
the issuance of a press release announcing the
declaration of the Company's $0.11 per share
quarterly dividend.
Form 8-K filed April 15, 2004, reporting under Item 9
the issuance of a press release announcing the
Company's fiscal 2004 third quarter-to-date sales
trends and updating earnings guidance for the third
quarter and the remainder of fiscal 2004.
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: 6/2/04 By /s/Lawrence E. White
------ -------------------------------------------------
Lawrence E. White, Senior Vice President, Finance
and Chief Financial Officer
Date: 6/2/04 By /s/Patrick A. Scruggs
------ --------------------------------------------------
Patrick A. Scruggs, Vice President, Accounting
and Tax and Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
15 Letter regarding unaudited financial information
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications