UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 29, 2005
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ________ to _______.
Commission file number 000-25225
CBRL GROUP, INC.
(Exact Name of Registrant as
Specified in Its Charter)
Tennessee 62-1749513
- --------------------------------- -------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
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
------- -------
46,806,687 Shares of Common Stock
Outstanding as of May 27, 2005
CBRL GROUP, INC.
FORM 10-Q
For the Quarter Ended April 29, 2005
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1
o Financial Statements (Unaudited)
a) Condensed Consolidated Balance Sheet as of April 29, 2005 and July 30, 2004 3
b) Condensed Consolidated Statement of Income for the Quarters and Nine
Months Ended April 29, 2005 and April 30, 2004 5
c) Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended April 29, 2005 and April 30, 2004 6
d) Notes to Condensed Consolidated Financial Statements 7
Item 2
o Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 3
o Quantitative and Qualitative Disclosures About Market Risk 24
Item 4
o Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1
o Legal Proceedings 25
Item 2
o Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 6
o Exhibits 26
SIGNATURES 27
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
April 29, July 30,
2005 2004*
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 21,415 $ 28,775
Receivables 15,166 9,802
Inventories 124,956 141,820
Prepaid expenses 10,369 8,369
Deferred income taxes 14,274 14,274
---------- ----------
Total current assets 186,180 203,040
Property and equipment 1,620,392 1,502,314
Less: Accumulated depreciation and
amortization of capital leases 429,808 383,741
---------- ----------
Property and equipment - net 1,190,584 1,118,573
Goodwill 93,724 93,724
Other assets 25,768 20,367
---------- ----------
Total assets $1,496,256 $1,435,704
========== ==========
See notes to unaudited condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of July 30, 2004.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
April 29, July 30,
2005 2004*
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 99,568 $ 53,295
Income taxes payable 39,331 18,571
Other accrued expenses 167,287 170,180
Current maturities of long-term debt
and other long-term obligations 205 189
---------- ----------
Total current liabilities 306,391 242,235
---------- ----------
Long-term debt 195,295 185,138
---------- ----------
Other long-term obligations 45,948 36,225
---------- ----------
Deferred income taxes 98,770 98,770
---------- ----------
Commitments and contingencies (Note 11)
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 29, 2005,
47,168,383 shares issued and outstanding
and at July 30, 2004, 48,769,368 shares
issued and outstanding 472 488
Additional paid-in capital -- 13,982
Retained earnings 849,380 858,866
---------- ----------
Total shareholders' equity 849,852 873,336
---------- ----------
Total liabilities and shareholders' equity $1,496,256 $1,435,704
========== ==========
See notes to unaudited condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of July 30, 2004.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share data)
(Unaudited)
Quarter Ended Nine Months Ended
------------------------- --------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Total revenue $627,999 $584,282 $1,907,841 $1,773,448
Cost of goods sold 203,702 190,718 639,933 590,145
-------- -------- ---------- ----------
Gross profit 424,297 393,564 1,267,908 1,183,303
Labor and other related expenses 237,574 221,230 696,512 654,540
Other store operating expenses 113,017 99,459 331,144 299,522
-------- -------- ---------- ----------
Store operating income 73,706 72,875 240,252 229,241
General and administrative expenses 30,860 30,595 97,626 94,534
-------- -------- ---------- ----------
Operating income 42,846 42,280 142,626 134,707
Interest expense 2,221 2,007 6,516 6,298
Interest income -- -- 96 5
-------- -------- ---------- ----------
Income before income taxes 40,625 40,273 136,206 128,414
Provision for income taxes 14,054 14,458 47,127 46,100
-------- -------- ---------- ----------
Net income $ 26,571 $ 25,815 $ 89,079 $ 82,314
======== ======== ========== ==========
Net income per share:
Basic $ 0.56 $ 0.53 $ 1.85 $ 1.68
======== ======== ========== ==========
Diluted $ 0.52 $ 0.49 $ 1.72 $ 1.55
======== ======== ========== ==========
Weighted average shares:
Basic 47,555,889 49,127,619 48,135,476 48,926,161
========== ========== ========== ==========
Diluted 53,149,295 55,101,555 53,774,355 55,142,364
========== ========== ========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited and in thousands)
Nine Months Ended
---------------------------
April 29, April 30,
2005 2004
---- ----
(As Restated,
see Note 3)
Cash flows from operating activities:
Net income $ 89,079 $ 82,314
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 50,311 47,160
Loss on disposition of property and equipment 2,278 1,846
Impairment 431 --
Accretion on zero-coupon contingently convertible
senior notes 4,156 4,027
Changes in assets and liabilities:
Inventories 16,864 7,048
Accounts payable 46,273 (42,638)
Income taxes payable 20,760 31,936
Other current assets and other current liabilities (10,595) 5,228
Other assets and other long-term liabilities 3,416 187
-------- --------
Net cash provided by operating activities 222,973 137,108
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (125,034) (99,982)
Proceeds from sale of property and equipment 1,067 777
-------- --------
Net cash used in investing activities (123,967) (99,205)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 396,600 150,000
Principal payments under long-term debt and other
long-term obligations (390,741) (157,082)
Proceeds from exercise of stock options 36,751 48,869
Purchases and retirement of common stock (131,916) (69,206)
Dividends on common stock (17,060) (10,837)
Other -- (1)
-------- ---------
Net cash used in financing activities (106,366) (38,257)
-------- ---------
Net decrease in cash and cash equivalents (7,360) (354)
Cash and cash equivalents, beginning of period 28,775 14,389
-------- ---------
Cash and cash equivalents, end of period $ 21,415 $ 14,035
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest, net of amounts capitalized $ 687 $ 458
======== =========
Income taxes $ 27,786 $ 14,338
======== =========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
- ----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
(In thousands, except percentages and share data) (Unaudited)
1. Condensed Consolidated Financial Statements
-------------------------------------------
The condensed consolidated balance sheets as of April 29, 2005 and July 30,
2004 and the related condensed consolidated statements of income and cash flows
for the quarters and nine-month periods ended April 29, 2005 and April 30, 2004,
have been prepared by CBRL Group, Inc. (the "Company") in accordance with
accounting principles generally accepted in the United States of America
("GAAP") and pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") without audit. In the opinion of management, all
adjustments (consisting of normal and recurring items) for a fair presentation
of such condensed consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K/A for the year ended July
30, 2004 (the "2004 Form 10-K/A") filed with the SEC on March 30, 2005.
References in these Notes to the Condensed Consolidated Financial
Statements to a year are to the Company's fiscal year unless otherwise noted.
2. Recently Adopted Accounting Pronouncements
------------------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Emerging Issues Task Force ("EITF") No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8"). EITF 04-8
requires the use of "if-converted" accounting for contingently convertible debt
regardless of whether the contingencies allowing debt holders to convert have
been met. EITF 04-8 is effective for reporting periods ending after December 15,
2004 and requires retroactive restatement of prior period diluted net income per
share, which restatement is reflected for historical periods included herein.
The adoption of EITF 04-8 resulted in the Company's zero-coupon contingently
convertible senior notes (the "Senior Notes") (see Note 5 to the Company's
Consolidated Financial Statements included in the 2004 Form 10-K/A for a
description of these Senior Notes) representing a dilutive security and
requiring approximately 4.6 million shares to be included in diluted weighted
average shares outstanding for the calculation of diluted net income per share.
Additionally, diluted consolidated net income per share is calculated excluding
the after-tax interest and financing expenses associated with the Senior Notes
since these Senior Notes are treated as if converted into common stock, although
at the end of the third quarter the Senior Notes were not actually able to be
converted into common stock. The change in accounting affects only the
calculation of diluted net income per share, and has no effect on the financial
statements themselves or on the terms of the Senior Notes. See Note 3 for the
impact of the Senior Notes on diluted net income per share for the three and
nine-month periods ended April 30, 2004. Also see Note 8 for the impact of the
Senior Notes on the calculation of diluted net income per share for the three
and nine-month periods ended April 29, 2005 and April 30, 2004.
3. Restatement of Financial Statements
-----------------------------------
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes in the way it accounted for leases.
The decision to restate was made following a review of its accounting policies
that was prompted by views expressed on February 7, 2005 by the staff of the SEC
(and similar restatements by numerous other companies in the restaurant, retail
and other industries) that indicated that the manner in which the Company had
been accounting for leases needed to be corrected.
Prior to this review, the Company had believed that its accounting was
consistent with GAAP. For purposes of recognizing rental expense, the Company
historically had averaged its lease payments over the base term of the lease,
excluding the optional renewal periods and initial build-out periods, during
which it typically has not been required to make lease payments. For purposes of
depreciating leasehold improvements, the Company historically had amortized the
amounts over a longer period, including both the base term of the lease and the
optional renewal periods.
The Company determined that the period in which rental expense is
recognized on a straight-line, or average, basis should include any pre-opening
periods during construction for which the Company is legally obligated under the
terms of the lease, and any optional renewal periods, for which at the inception
of the lease, it is reasonably assured that the Company will exercise those
renewal options. This lease period is consistent with the period over which
leasehold improvements are amortized.
As a result, the accompanying condensed consolidated financial statements
have been restated from the amounts originally reported. The effects of the
restatement are summarized below for the three and nine months ended April 30,
2004, as well as the effects on diluted net income per share for each of these
periods from the adoption of EITF 04-8, as discussed in Note 2.
CBRL GROUP, INC.
SELECTED INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Income Basic Diluted
before Basic net Diluted net weighted weighted
Total Operating income income per income per average average
Revenue income * taxes * Net income* share * share** shares shares***
------- -------- ------- ----------- ------- ------- ------ ---------
Three months ended
April 30, 2004
As Previously Reported $584,282 $42,852 $40,845 $26,182 $0.53 $0.52 49,127,619 50,518,767
Lease Adjustment -- (572) (572) (367) -- (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.02) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $584,282 $42,280 $40,273 $25,815 $0.53 $0.49 49,127,619 55,101,555
======== ======= ======= ======= ===== ===== ========== ==========
Nine months ended
April 30, 2004
As Previously Reported $1,773,448 $136,313 $130,020 $83,343 $1.70 $1.65 48,926,161 50,559,576
Lease Adjustment -- (1,606) (1,606) (1,029) (0.02) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.08) -- 4,582,788
---------- -------- -------- ------- ----- ----- ---------- ----------
As Restated $1,773,448 $134,707 $128,414 $82,314 $1.68 $1.55 48,926,161 55,142,364
========== ======== ======== ======= ===== ===== ========== ==========
* Reflects restatement effects for operating leases.
** Reflects restatement effects for operating leases and for the adoption of
EITF 04-8.
***Reflects restatement effects for the adoption of EITF 04-8.
4. Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies of the Company are included in the 2004
Form 10-K/A. During the quarter ended April 29, 2005, there were no significant
changes to those accounting policies, except those discussed in Notes 2 and 3.
Property, Plant and Equipment - Property and equipment are stated at cost.
For financial reporting purposes, depreciation and amortization on these assets
are computed by use of the straight-line and double-declining-balance methods
over the estimated useful lives of the respective assets, as follows: buildings
and improvements, 30-45 years; buildings under capital leases, 15-25 years;
restaurant and other equipment, 3-10 years. Leasehold improvements are
depreciated over 1-35 years, which represents the shorter of the useful lives or
the related lease life. Accelerated depreciation methods generally are used for
income tax purposes. Maintenance and repairs, including the replacement of minor
items, are charged to expense, and major additions to property and equipment are
capitalized. Gain or loss is recognized upon disposal of property and equipment,
at which time the asset and related accumulated depreciation and amortization
amounts are removed from the accounts.
Operating leases - The Company records ground leases and office space
leases as operating leases. Most of the leases have rent escalation clauses and
some have rent holiday and contingent rent provisions. In accordance with FASB
Technical Bulletin ("FTB") No. 85-3, "Accounting for Operating Leases with
Scheduled Rent Increases," the liabilities under these leases are recognized on
the straight-line basis over the shorter of the useful life, with a maximum of
35 years, or the related lease life. The Company uses a lease life that
generally begins on the date the Company becomes legally obligated under the
lease, including the pre-opening period during construction, when in many cases
the Company is not making rent payments, and generally extends through certain
of the renewal periods that can be exercised at the Company's option, for which
at the inception of the lease, it is reasonably assured that the Company will
exercise those renewal options.
Certain leases provide for periods during which no rent is payable
(so-called "rent holidays") which are included in the lease life used for the
straight-line rent calculation in accordance with FTB No. 88-1, "Issues Relating
to Accounting for Leases." Rent expense and an accrued rent liability are
recorded during the rent holiday periods, during which the Company has
possession of and access to the property, but is not required or obligated to,
and normally does not, make rent payments.
Certain leases provide for contingent rent, which is determined as a
percentage of gross sales in excess of specified levels. The Company records a
contingent rent liability and corresponding rent expense when it is probable
that sales will be achieved in amounts in excess of the specified levels.
Stock Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based compensation expense,
net of related tax effects, in the table represents the amortization of
restricted stock grants to three executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's
consolidated net income and net income per share would have been reduced to the
pro-forma amounts illustrated as follows:
Quarter Ended Nine Months Ended
---------------------- -------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Net income - as reported $26,571 $25,815 $89,079 $82,314
Add: Total stock-based employee
compensation included in reported
net income, net of related tax effects 19 19 57 56
Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards, net of
related tax effects (2,053) (2,757) (6,577) (8,123)
------- ------- ------- -------
Pro forma, net income $24,537 $23,077 $82,559 $74,247
======= ======= ======= =======
Net income per share:
Basic - as reported $0.56 $0.53 $1.85 $1.68
===== ===== ===== =====
Basic - pro forma $0.52 $0.47 $1.72 $1.52
===== ===== ===== =====
Diluted - as reported $0.52 $0.49 $1.72 $1.55
===== ===== ===== =====
Diluted - pro forma $0.48 $0.44 $1.60 $1.41
===== ===== ===== =====
5. Recently Issued Accounting Pronouncements Not Yet Adopted
---------------------------------------------------------
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R replaces SFAS No. 123 and supersedes
APB Opinion No. 25. SFAS No. 123R requires that the cost of employee services
received in exchange for equity instruments issued or liabilities incurred are
recognized in the financial statements. Compensation cost will be measured using
a fair-value-based method over the period that the employee provides service in
exchange for the award. This statement will apply to all awards granted after
the effective date and to modifications, repurchases or cancellations of
existing awards. Additionally, under the transition method, the Company will
recognize compensation cost on the required effective date for the portion of
outstanding awards for which the requisite service has not yet been rendered,
based on the grant-date fair value of those awards calculated under SFAS Nos.
123 and 148 for pro forma disclosures. SFAS No. 123R is effective as of the
beginning of the first annual reporting period that begins after June 15, 2005.
As disclosed in Note 4, based on the current assumptions and calculations used,
had the Company recognized compensation expense based on the fair value of
awards of equity instruments, net income would have been reduced by
approximately $2,034 and $6,520 for the quarter and nine-month periods ended
April 29, 2005, respectively, and $2,738 and $8,067 for the quarter and
nine-month periods ended April 30, 2004, respectively. This compensation expense
is the after-tax net of the stock-based compensation expense determined under
the fair-value based method for all awards and stock-based employee compensation
included previously in reported net income under APB No. 25.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 151 to have a material impact on the Company's
consolidated results of operations or financial position.
6. 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
29, 2005 cannot be considered indicative of the operating results for the entire
year.
7. Inventories
-----------
Inventories were comprised of the following at:
April 29, July 30,
2005 2004
---- ----
Retail $ 84,289 $104,148
Restaurant 21,494 19,800
Supplies 19,173 17,872
-------- --------
Total $124,956 $141,820
======== ========
8. Consolidated Net Income Per Share and Weighted Average Shares
-------------------------------------------------------------
Basic consolidated net income per share is computed by dividing
consolidated net income by the weighted average number of common shares
outstanding for the reporting period. Diluted consolidated net income per share
reflects the potential dilution that could occur if securities, options or other
contracts to issue common stock were exercised or converted into common stock.
Additionally, diluted consolidated net income per share is calculated excluding
the after-tax interest and financing expenses associated with the Senior Notes
since these Senior Notes are treated as if converted into common stock (see Note
2). The Company's Senior Notes, outstanding employee and director stock options
and restricted stock issued by the Company represent the only dilutive effects
on diluted net income per share. The following table reconciles the components
of the diluted net income per share computations:
Quarter Ended Nine Months Ended
------------------------ ---------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Net income per share numerator:
Net income $26,571 $25,815 $89,079 $82,314
Add: Interest and loan acquisition costs
associated with Senior Notes, net of
related tax effects 1,071 1,120 3,398 3,345
------- ------- ------- -------
Net income available to common
shareholders $27,642 $26,935 $92,477 $85,659
======= ======= ======= =======
Net income per share denominator:
Weighted average shares outstanding for
basic net income per share 47,555,889 49,127,619 48,135,476 48,926,161
Add Potential Dilution:
Senior Notes 4,582,788 4,582,788 4,582,788 4,582,788
Stock options and restricted stock 1,010,618 1,391,148 1,056,091 1,633,415
---------- ---------- ---------- ----------
Weighted average shares outstanding for
diluted net income per share 53,149,295 55,101,555 53,774,355 55,142,364
========== ========== ========== ==========
9. 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 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Net sales in Company-owned stores:
Restaurant $523,423 $480,032 $1,521,892 $1,393,571
Retail 103,973 103,715 384,225 378,467
-------- -------- ---------- ----------
Total net sales 627,396 583,747 1,906,117 1,772,038
Franchise fees and royalties 603 535 1,724 1,410
-------- -------- ---------- ----------
Total revenue $627,999 $584,282 $1,907,841 $1,773,448
======== ======== ========== ==========
10. 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 quarter and nine-months ended April 30, 2004. In
connection with the preparation of these financial statements for the third
quarter ended April 29, 2005, the Company determined that an impairment existed
with respect to a Cracker Barrel store that the Company has approved to relocate
to a stronger site in the same market and recorded a charge of $431. In
addition, at least annually the Company assesses the recoverability of goodwill.
The impairment tests require the Company to estimate fair values of its related
reporting units by making assumptions regarding future cash flows and other
factors. This valuation may reflect, among other things, such external factors
as capital market valuation for public companies comparable to the operating
unit. If these assumptions change in the future, the Company may be required to
record material impairment charges for these assets. The Company performed its
annual assessment in the second quarter ended January 28, 2005, and concluded at
that time that there was no indication of impairment. This annual assessment is
performed in the second quarter of each year. Additionally, an assessment is
performed between annual assessments if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount. 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 28, 2005.
11. Commitments and Contingencies
-----------------------------
As reported in the 2004 Form 10-K/A, Cracker Barrel agreed in principle, as
of September 8, 2004, to settle certain litigation (five separate cases)
alleging violations of the Fair Labor Standards Act ("FLSA"), as well as
allegations of discrimination in employment and public accommodations. Four of
those cases have been settled and dismissed. In the fifth case (a FLSA
collective action with approximately 10,000 plaintiffs), settlement reflecting
the agreement in principle reached in August 2004 is still awaiting court
approval. On May 27, 2005, a joint motion by the Company and the plaintiffs
seeking approval of the settlement was filed with the court overseeing the case.
This filing sets in motion the final approval process, which the Company expects
will be concluded (with final approval granted) on or before September 30, 2005.
Of the total payment agreed to by Cracker Barrel to settle the five cases,
approximately $2,250 related to the fifth case is still accrued and expected to
be paid by December 31, 2005.
As previously reported, Logan's was subject to a lawsuit captioned Joey E.
Barlow v. Logan's Roadhouse, Inc., in the United States District Court for the
Middle District of Tennessee (Case No. 3-03-0821), filed September 8, 2003. The
case was a putative collective action alleging violations of the federal wage
and hour laws, although it was not certified as such. The complaint alleged that
the plaintiff and 66 opt-in hourly employees at one Logan's restaurant in Macon,
Georgia were subjected to various federal wage and hour law violations. The case
sought recovery of unpaid compensation, plus an equal amount of liquidated
damages, prejudgment interest, attorney's fees and costs, and unspecified
injunctive relief. On May 12, 2005, Logan's reached an agreement with the
plaintiffs to settle all claims for an amount not material to the Company's
operations. The Court issued its approval of the settlement on May 13, 2005.
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 29, 2005 the Company was contingently liable for approximately $540
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 29, 2005 the Company had $30,186 of standby letters of
credit related to workers' compensation and general liability insurance. All
standby letters of credit are renewable annually.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party and a second operating
lease that has been sublet to a third party. The operating leases have remaining
lives of approximately 8.4 and 11.4 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 $453 in the
accompanying condensed consolidated financial statements for estimated amounts
to be paid in case of non-performance by the sublessee.
12. Shareholders' Equity
--------------------
During the nine-month period ended April 29, 2005, the Company received
proceeds of $36,751 from the exercise of stock options on 1,772,173 shares of
its common stock. During the nine-month period ended April 29, 2005 the Company
repurchased 3,385,919 shares of its common stock for an aggregate expenditure of
$131,916. Since the Company's share repurchases exceeded the additional paid-in
capital balance at the previous year end of $13,982 and the exercises of stock
options during the nine-month period ended April 29, 2005, the Company reduced
retained earnings by $81,167 and reduced additional paid-in capital to zero at
the end of the third quarter. These retired shares will remain as authorized,
but unissued, shares. During the nine-month period ended April 29, 2005, the
Company paid a dividend of $0.11 per common share on September 1, 2004 (declared
July 29, 2004) and the Company declared three dividends of $0.12 per common
share each that were paid on November 1, 2004, February 8, 2005 and May 9, 2005.
Additionally, the Company declared a dividend of $0.12 per common share on May
26, 2005 to be paid on August 8, 2005 to shareholders of record on July 15,
2005.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CBRL Group, Inc. and its subsidiaries (collectively, the "Company") are
principally engaged in the operation and development in the United States of the
Cracker Barrel Old Country Store(R) ("Cracker Barrel") restaurant and retail
concept and the Logan's Roadhouse(R) ("Logan's") restaurant concept. All dollar
amounts reported or discussed in Part I, Item 2 of this Quarterly Report on Form
10-Q are shown in thousands, except per share amounts. References in
management's discussion and analysis of financial condition and results of
operations to a year are to the Company's fiscal year unless otherwise noted.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition.
This discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto. In addition, as discussed
in Note 3 to the condensed consolidated financial statements, on February 17,
2005, the Company announced that it was changing the way in which it accounted
for certain operating leases. The reasons for the restatement are described in
Note 3. When the Company made this announcement, it disclosed that, as a result,
certain previously filed financial statements could no longer be relied upon.
See the Company's Current Report on Form 8-K filed with the SEC on February 17,
2005, which is incorporated herein by this reference. The accompanying
management's discussion and analysis of financial condition and results of
operations gives effect to the restatement of the consolidated financial
statements for the periods and as described in Note 3.
The impacts of the restatement on the consolidated statements of income for
the three and nine months ended April 30, 2004, are summarized below, as well as
the impact to diluted net income per share for each of these periods from the
adoption of EITF 04-8 (see Note 2).
CBRL GROUP, INC.
SELECTED INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Income Basic Diluted
before Basic net Diluted net weighted weighted
Total Operating income income per income per average average
Revenue income * taxes * Net income* share * share** shares shares***
------- -------- ------- ----------- ------- ------- ------ ---------
Three months ended
April 30, 2004
As Previously Reported $584,282 $42,852 $40,845 $26,182 $0.53 $0.52 49,127,619 50,518,767
Lease Adjustment -- (572) (572) (367) -- (0.01) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.02) -- 4,582,788
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $584,282 $42,280 $40,273 $25,815 $0.53 $0.49 49,127,619 55,101,555
======== ======= ======= ======= ===== ===== ========== ==========
Nine months ended
April 30, 2004
As Previously Reported $1,773,448 $136,313 $130,020 $83,343 $1.70 $1.65 48,926,161 50,559,576
Lease Adjustment -- (1,606) (1,606) (1,029) (0.02) (0.02) -- --
EITF 04-8 Adjustment -- -- -- -- -- (0.08) -- 4,582,788
---------- -------- -------- ------- ----- ----- ---------- ----------
As Restated $1,773,448 $134,707 $128,414 $82,314 $1.68 $1.55 48,926,161 55,142,364
========== ======== ======== ======= ===== ===== ========== ==========
* Reflects restatement effects for operating leases, see Note 3.
** Reflects restatement effects for operating leases and for the adoption of
EITF 04-8, see Notes 2 and 3.
***Reflects restatement effects for the adoption of EITF 04-8, see Note 2.
Except for specific historical information, many of the matters discussed
in this Quarterly Report on Form 10-Q may express or imply projections of
revenues or expenditures, statements of plans and objectives or future
operations or statements of future economic performance. These, and similar
statements are forward-looking statements concerning matters that involve risks,
uncertainties and other factors which may cause the actual performance of the
Company to differ materially from those expressed or implied by this discussion.
All forward-looking information is provided by the Company pursuant to the
safe harbor established under the Private Securities Litigation Reform Act of
1995 and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "outlook", "plans", "projection",
"may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of each of these
terms) or similar terminology. Factors which could materially affect actual
results include, but are not limited to: the effects of uncertain consumer
confidence or general or regional economic weakness on sales and customer travel
activity; the ability of the Company to identify, acquire and sell successful
new lines of retail merchandise; competitive marketing and operational
initiatives; 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 availability and cost of
acceptable sites for development and the Company's ability to identify such
sites; commodity, workers' compensation, group health and utility price changes;
changes in foreign exchange rates affecting the Company's future retail
inventory purchases; increases in construction costs; consumer behavior based on
concerns over nutritional or safety aspects of the Company's products or
restaurant food in general; 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 ability of and cost to the
Company to recruit, train, and retain qualified restaurant hourly and management
employees; disruptions to the company's restaurant or retail supply chain; the
actual results of pending or threatened litigation or governmental
investigations and the costs and effects of negative publicity associated with
these activities; changes in accounting principles generally accepted in the
United States of America or changes in capital market conditions that could
affect valuations of restaurant companies in general or the Company's goodwill
in particular; changes in interest rates affecting the Company's financing
costs; and other factors described from time to time in the Company's filings
with the SEC, press releases, and other communications.
Results of Operations
- ---------------------
The following table highlights operating results by percentage
relationships to total revenue for the quarter and nine-month period ended April
29, 2005 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
------------------------ ----------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
(As Restated, (As Restated,
see Note 3) see Note 3)
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 32.4 32.6 33.5 33.3
----- ----- ----- -----
Gross profit 67.6 67.4 66.5 66.7
Labor and other related expenses 37.9 37.9 36.5 36.9
Other store operating expenses 18.0 17.0 17.4 16.9
----- ----- ----- -----
Store operating income 11.7 12.5 12.6 12.9
General and administrative expenses 4.9 5.3 5.1 5.3
----- ----- ----- -----
Operating income 6.8 7.2 7.5 7.6
Interest expense 0.3 0.3 0.3 0.4
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 6.5 6.9 7.2 7.2
Provision for income taxes 2.3 2.5 2.5 2.6
----- ----- ----- -----
Net income 4.2% 4.4% 4.7% 4.6%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and nine-month period
ended April 29, 2005 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
------------------------ ------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Net sales:
Cracker Barrel restaurant 67.5% 67.6% 65.1% 65.3%
Logan's 15.8 14.6 14.7 13.3
----- ----- ----- -----
Total restaurant 83.3 82.2 79.8 78.6
Cracker Barrel retail 16.6 17.7 20.1 21.3
----- ----- ----- -----
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 29, 2005 as compared to the same
periods a year ago:
Quarter Ended Nine Months Ended
------------------------- -------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Cracker Barrel:
Open at beginning of period 514 488 504 480
Opened during period 6 8 16 16
--- --- --- ---
Open at end of period 520 496 520 496
=== === === ===
Logan's - company-owned:
Open at beginning of period 118 103 107 96
Opened during period 5 4 16 11
--- --- --- ---
Open at end of period 123 107 123 107
=== === === ===
Logan's - franchised:
Open at beginning of period 22 17 20 16
Opened during period - 2 2 3
-- -- -- --
Open at end of period 22 19 22 19
== == == ==
Average comparable store sales includes sales of stores open at least six
full quarters at the beginning of the quarter or nine-month period ended April
29, 2005 and are measured on comparable calendar weeks in the prior year. The
following table highlights average comparable store sales for the quarter and
nine-month period ended April 29, 2005 as compared to the same periods a year
ago:
Comparable Store Average Sales Analysis
Quarter Ended Nine Months Ended
-------------------------- --------------------------
April 29, April 30, April 29, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Cracker Barrel (480 and 466 stores
for the quarter and nine
months, respectively)
Net sales:
Restaurant $ 822.2 $ 798.9 $2,441.4 $2,374.3
Retail 199.4 207.3 745.7 767.8
-------- -------- -------- --------
Total net sales $1,021.6 $1,006.2 $3,187.1 $3,142.1
======== ======== ======== ========
Logan's (96 and 93 restaurants for
the quarter and nine months,
respectively) $819.7 $795.5 $2,385.5 $2,297.3
====== ====== ======== ========
Total Revenue
Total revenue for the third quarter of 2005 increased 7.5% compared to the
prior year's third quarter. For the third quarter ended April 29, 2005, Cracker
Barrel comparable store restaurant sales increased 2.9% and comparable store
retail sales decreased 3.8% resulting in a combined comparable store sales
(total net sales) increase of 1.5%. The comparable store restaurant sales
increase consisted of a 4.3% average check increase for the quarter (including a
2.6% average price increase effect) and a 1.4% guest traffic decrease. The
comparable store retail sales decrease is believed to be related to
exceptionally strong retail sales in the prior year quarter ended April 30, 2004
(comparable store retail sales were up 6.2% in the prior year third quarter),
the restaurant guest traffic decrease, uncertain consumer sentiment and reduced
discretionary spending, and a weaker than expected response to the retail
assortment, which included less new product than presently is expected to be
featured in the future. Logan's comparable restaurant sales increased 3.0%,
which consisted of a 4.0% average check increase (including a 3.8% average price
increase effect), and a 1.0% guest traffic decrease. Sales from newly opened
Cracker Barrel stores and Logan's restaurants accounted for the balance of the
total revenue increase in the third quarter.
Total revenue for the nine-month period ended April 29, 2005 increased 7.6%
compared to the nine-month period ended April 30, 2004. For the nine-month
period ended April 29, 2005, Cracker Barrel comparable store restaurant sales
increased 2.8% and comparable store retail sales decreased 2.9% resulting in a
combined comparable store sales (total net sales) increase of 1.4%. The
comparable store restaurant sales increase consisted of a 3.9% average check
increase for the nine months (including a 2.5% average price increase effect),
and a 1.1% guest traffic decrease. The comparable store retail sales decrease is
believed to be related to exceptionally strong retail sales in the prior year
nine-month period ended April 30, 2004 (comparable store retail sales were up
7.9% in the prior year nine-month period), the restaurant guest traffic
decrease, uncertain consumer sentiment and reduced discretionary spending,
weaker than expected response to the retail assortment, which included less new
product than presently is expected to be featured in the future, and the
hurricanes in Florida during the first quarter of 2005. Logan's comparable
restaurant sales increased 3.8%, which consisted of a 4.4% average check
increase (substantially all of which reflected higher menu prices), and a 0.6%
guest traffic decrease. Sales from newly opened Cracker Barrel stores and
Logan's restaurants accounted for the balance of the total revenue increase in
the nine-month period ended April 29, 2005.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the third quarter
of 2005 decreased to 32.4% from 32.6% in the third quarter of the prior year.
This decrease was due to lower percentage of retail sales, which have a higher
cost as a percent of sales, higher retail mark-ons and higher menu pricing.
These decreases were partially offset by higher retail markdowns, menu mix and
waste related to the seasonal menu at Cracker Barrel and higher commodity costs
for beef, pork, milk, cheese, poultry, and produce partially offset by lower
commodity costs for butter and eggs.
Cost of goods sold as a percentage of total revenue for the nine-month
period ended April 29, 2005 increased to 33.5% from 33.3% in the nine-month
period ended April 30, 2004. This increase was due to higher commodity costs for
beef, pork, dairy and poultry and an obsolescence reserve of approximately
$1,000 recorded in the second quarter to reflect expected disposition of certain
aged and slow moving retail inventory at Cracker Barrel. These increases were
partially offset by higher menu pricing and a lower percentage of retail sales
that have a higher cost as a percent of sales.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue remained flat at 37.9% in both the third quarter
this year and in the prior year due to lower hourly labor as a percentage of
total revenue, lower restaurant and retail management compensation under
unit-level bonus programs versus the prior year and higher menu pricing versus
the prior year offset by higher manager salaries and group health insurance.
Labor and other related expenses as a percentage of total revenue decreased
to 36.5% in the nine-month period ended April 29, 2005 as compared to 36.9% in
the nine-month period ended April 30, 2004. This decrease was due to lower
restaurant and retail management compensation under unit-level bonus programs
versus the prior year, lower hourly labor as a percent of revenue and higher
menu pricing versus the prior year.
Three states in which the Company operates, Florida, Illinois and New York,
have implemented increases in the state minimum wage including mandated
increases in the minimum cash wage paid to tipped employees. The Company has
implemented general menu price increases as well as specific menu price
increases in Florida, due to its large concentration of stores in this state,
partly in response to these wage rate increases. The estimated cost of the
minimum wage increase on the Company was approximately $200 in the third quarter
of 2005 and is expected to be approximately $1,100 in the fourth quarter of
2005, substantially expected to be offset by menu price increases. Certain other
states could implement increases in minimum wage during the Company's fourth
quarter of 2005 and in fiscal year 2006, and the Company will continue to
evaluate alternatives to deal with the increase in labor costs in such
circumstances.
Other Store Operating Expenses
Other store operating expenses include all unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent, depreciation, general insurance, credit
card fees and non-labor-related pre-opening expenses. Other store operating
expenses as a percentage of total revenue increased to 18.0% in the third
quarter of 2005 from 17.0% in the third quarter of the prior year. This increase
was due to higher advertising, utilities, repairs and maintenance, and an
impairment charge for a store approved to relocate to a stronger site. These
increases were partially offset by higher menu pricing.
Other store operating expenses as a percentage of total revenue increased
to 17.4% in the nine-month period ended April 29, 2005 as compared to 16.9% in
the nine-month period ended April 30, 2004. This increase was due to higher
utilities, repairs and maintenance and advertising as a percentage of total
revenue partially offset by higher menu pricing.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
decreased to 4.9% in the third quarter of 2005 as compared to 5.3% in the third
quarter of the prior year. This decrease was due to lower bonus accruals and an
insurance recovery relative to litigation settlements and related expenses
incurred in prior years. These decreases were partially offset by settlements in
other litigation and higher professional fees related to lease accounting
changes and Sarbanes Oxley 404 compliance.
General and administrative expenses as a percentage of total revenue
decreased to 5.1% in the nine-month period ended April 29, 2005 as compared to
5.3% in the nine-month period ended April 30, 2004. This decrease was due to
lower bonus accruals and insurance recoveries relative to litigation settlements
and related expenses incurred in prior years. These decreases were partially
offset by higher payroll and travel expenses versus the prior year and higher
professional fees related to lease accounting changes and Sarbanes Oxley 404
compliance.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income was 34.6% in
the third quarter and the first nine months of 2005 as compared to 35.9% during
the same periods a year ago. The decrease in the tax rate for 2005 is based upon
the estimated effect of the passage of the Work Opportunity and Welfare to Work
federal tax credit legislation signed on October 22, 2004 retroactive to January
1, 2004. The variation between the statutory tax rate and the effective tax rate
is due to state income taxes offset by employer tax credits for FICA taxes paid
on employee tip income and the aforementioned other tax credits.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided net cash of $222,973 for the
nine-month period ended April 29, 2005, which represented a increase from the
$137,108 provided during the same period a year ago. This increase was due to a
significant increase in accounts payable in the first nine months of 2005 versus
prior year, as well as higher net income and depreciation, partially offset by a
smaller increase in income taxes payable in the first nine months of 2005 versus
prior year. The changes in accounts payable and income taxes payable were due to
timing of payments versus the prior year.
The Company had negative working capital of $120,211 at April 29, 2005
versus negative working capital of $39,195 at July 30, 2004. In the restaurant
industry, substantially all sales are either for cash or credit card. Like many
other restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant inventory. Employees
generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of
hours worked, and certain expenses such as certain taxes and some benefits are
deferred for longer periods of time. The larger negative working capital
compared with July 30, 2004, reflected higher accounts payable and income taxes
payable and lower inventories and cash and cash equivalents partially offset by
higher receivables.
Capital expenditures were $125,034 for the nine-month period ended April
29, 2005 as compared to $99,982 during the same period a year ago. Construction
and acquisition of new locations accounted for most of these expenditures. The
increase from the prior year is due to the current year increase in the number
of new locations under construction versus the prior year, the current year
increase in owned versus leased land for new locations and the timing of
maintenance and replacement capital expenditures for existing stores versus the
same period a year ago. Capitalized interest was $232 and $592 for the quarter
and nine-month period ended April 29, 2005, as compared to $140 and $428 for the
quarter and nine-month period ended April 30, 2004. These differences were due
to increases in the average number of new locations under construction versus
the same periods a year ago.
During the nine-month period ended April 29, 2005 the Company repurchased
3,385,919 shares of its common stock for a net expenditure of $131,916, or
approximately $38.96 per share. During February and March 2005 the Company
completed the purchase of the 604,500 shares remaining under the repurchase
authorization previously in effect at January 28, 2005 and announced a new
authorization to purchase an additional 2,000,000 shares of which 1,506,081
shares remained as of April 29, 2005. 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
2005, although there can be no assurance that such repurchase actually will be
completed in that period of time. The Company's principal criteria for share
repurchases are that they be accretive to net income per share and that they do
not unfavorably affect the Company's investment grade debt rating and target
capital structure.
During the nine-month period ended April 29, 2005, the Company received
proceeds of $36,751 from the exercise of stock options on 1,772,173 shares of
its common stock. During the nine-month period ended April 29, 2005, the Company
paid a dividend of $0.11 per common share on September 1, 2004 (declared July
29, 2004) and the Company declared three dividends of $0.12 per common share
each that were paid on November 1, 2004, February 8, 2005 and May 9, 2005.
Additionally, the Company declared a dividend of $0.12 per common share on May
26, 2005 to be paid on August 8, 2005 to shareholders of record on July 15,
2005.
The Company's internally generated cash and cash generated by option
exercises, along with cash at July 30, 2004, the Company's availability under
its revolving credit facility and its real estate operating lease arrangements,
were sufficient to finance all of its growth, share repurchase, dividend payment
and working capital needs in the first nine months of 2005.
The Company estimates that its capital expenditures for 2005 will be
approximately $165,000 most of which will be related to the construction of new
Cracker Barrel and Logan's units. The Company, through internally generated cash
and available borrowing capacity, expects to be able to meet its capital needs
for the foreseeable future. The Company expects to open 25 new Cracker Barrel
units, 21 of which already have opened. The Company also expected to open 17 new
company-operated Logan's units in 2005, all of which have already opened.
Management believes that cash at April 29, 2005, along with cash generated
from the Company's operating activities and its available revolving credit
facility, as well as financing obtained through real estate operating leases,
will be sufficient to finance its continued operations, its remaining share
repurchase authorizations, its dividends and its continued expansion plans
through 2005. At April 29, 2005, the Company had $294,000 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 3 to the Company's Consolidated Financial
Statements included in the 2004 Form 10-K/A). 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 income. Judgments
and estimates made by the Company related to the expected useful lives of
long-lived assets are affected by factors such as changes in economic conditions
and changes in operating performance. 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 ended January 28, 2005, and concluded at that time that there was
no indication of impairment. This annual assessment is performed in the second
quarter of each year. Additionally, an assessment is performed between annual
assessments if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
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 Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies," the Company records the losses at the low end of that range and
discounts them to present value using a risk-free interest rate based on the
actuarially projected timing of payments. The Company also monitors actual
claims development, including incurrence or settlement of individual large
claims during the interim period between actuarial studies as another means of
estimating the adequacy of its reserves. From time to time the Company has
performed limited scope interim updates of its actuarial studies to verify
and/or modify its reserves. The Company records a liability for its group health
program for all unpaid claims based 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. During the first
quarter ended October 29, 2004, an estimate of shortages was recorded based on
the physical inventory counts observed at the end of fiscal 2004. During the
second quarter ended January 28, 2005, Cracker Barrel performed physical
inventory counts in approximately 33% of its stores and in its retail
distribution center. Actual shortages were recorded in the second quarter ended
January 28, 2005 for those stores that were counted. An estimate of shortages
was recorded for the remaining stores based on the results of the physical
inventory counts at approximately 33% of its stores. During the third quarter
ended April 29, 2005, an estimate of shortages was recorded based on the
physical inventory counts observed in approximately 33% of its stores and in its
retail distribution center in the second quarter ended January 28, 2005.
Historically, physical inventory counts were conducted in all stores and the
retail distribution center during the second quarter, therefore actual inventory
shortages were reflected in the second quarter of 2004 results. The 2005
estimated shortages will be adjusted to actual upon physical inventory counts in
all stores and the retail distribution center during the fourth quarter of the
2005. Although the Company believes the sampling approach used with respect to
the mid-year inventory is accurate, the final physical inventory could produce
materially different amounts than estimated by the Company for the first, second
and third quarters ended October 29, 2004, January 28, 2005 and April 29, 2005.
Tax Provision
The Company must make estimates of certain items that comprise its income
tax provision. These estimates include effective state and local income tax
rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. These estimates are made based on
current tax laws, the best available information at the time of the provision
and historical experience. The Company files its income tax returns many months
after its year end. These returns are subject to audit by various federal and
state governments years after the returns are filed and could be subject to
differing interpretations of the tax laws. The Company then must assess the
likelihood of successful legal proceedings or reach a settlement with the
relevant taxing authority, either of which could result in material adjustments
to the Company's consolidated financial statements and its consolidated
financial position (see Note 8 to the Company's Consolidated Financial
Statements included in its 2004 Form 10-K/A).
Legal Proceedings
In addition to the litigation discussed in Note 11 to the Company's
Condensed Consolidated Financial Statements in this Quarterly Report, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
Recent Accounting Pronouncements Not Yet Adopted
- ------------------------------------------------
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R replaces SFAS No. 123, "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS No. 123R requires that the cost of employee
services received in exchange for equity instruments issued or liabilities
incurred are recognized in the financial statements. Compensation cost will be
measured using a fair-value-based method over the period that the employee
provides service in exchange for the award. This statement will apply to all
awards granted after the effective date and to modifications, repurchases or
cancellations of existing awards. SFAS No. 123R is effective as of the beginning
of the first interim or annual reporting period that begins after June 15, 2005.
As disclosed in Note 4, based on the current assumptions and calculations used,
had the Company recognized compensation expense based on the fair value of
awards of equity instruments, net earnings would have been reduced by
approximately $2,034 and $6,520 for the quarter and nine-month period ended
April 29, 2005, respectively, and $2,738 and $8,067 for the quarter and
nine-month period ended April 30, 2004, respectively. This compensation expense
is the after-tax net of the stock-based compensation expense determined under
the fair-value based method for all awards and stock-based employee compensation
included previously in reported net income under APB No. 25.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 clarifies
that abnormal inventory costs such as costs of idle facilities, excess freight
and handling costs, and wasted materials (spoilage) are required to be
recognized as current period charges and require the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. The provisions of SFAS No. 151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 151 to have a material impact on the Company's
consolidated results of operations or financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the 2004 Form 10-K/A 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 July 30, 2004.
Item 4. Controls and Procedures
The Company's management, with the participation of its principal executive
and financial officers, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 ("the Exchange Act")). Based upon this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that as of April 29, 2005, the Company's disclosure controls and
procedures were effective for the purposes set forth in the definition thereof
in Exchange Act Rule 13a-15(e).
There have been no significant changes during the quarter ended April 29,
2005 in the Company's internal controls over financial reporting (as defined in
Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Part I, Item 3 of the 2004 Form 10-K/A is incorporated herein
by this reference.
Item 7.01 of the Company's Current Report on Form 8-K filed
with the SEC on September 9, 2004 is incorporated herein by
this reference.
See also Note 11 to the Company's Condensed Consolidated
Financial Statements filed in Part I, Item 1 of this Quarterly
Report on Form 10-Q, which also is incorporated in this item
by this reference.
Item 2. Unregistered Sales of Equity Securities
---------------------------------------
There were no equity securities sold by the Company during the
period covered by this Quarterly Report on Form 10-Q that were
not registered under the Securities Act of 1933, as amended.
The following table sets forth information with respect to
purchases of shares of the Company's common stock made during
the quarter ended April 29, 2005 by or on behalf of the
Company or any "affiliated purchaser," as defined by Rule
10b-18(a)(3) of the Exchange Act:
Issuer Purchases of Equity Securities
Total Number of Maximum
Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Average Announced Plans Under the
of Shares Price Paid Per Plans or Plans or
Period Purchased (1) Share (2) or Programs (3) or Programs (3)
------ ------------- --------- -------------- --------------
1/29/05 - 2/25/05 483,419 $41.36 483,419 2,121,081
2/26/05 - 3/25/05 200,000 $43.15 200,000 1,921,081
3/26/05 - 4/29/05 415,000 $39.03 415,000 1,506,081
Total for the quarter 1,098,419 $40.81 1,098,419 1,506,081
(1) All share repurchases were made in open-market
transactions pursuant to publicly announced
repurchase plans. This table excludes shares owned
and tendered by employees to meet the exercise price
of option exercises and shares withheld from
employees to satisfy minimum tax withholding
requirements on option exercises and other
equity-based transactions. The Company administers
employee cashless exercises through an independent,
third-party broker and does not repurchase stock in
connection with cashless exercises.
(2) Average price paid per share is calculated on a
settlement basis and includes commission.
(3) On May 28, 2004, the Company announced a two million
share common stock repurchase program with no
expiration date. This repurchase authorization was
completed on March 9, 2005. On February 25, 2005, the
Company announced a two million share common stock
repurchase program with no expiration date.
Item 6. Exhibits
--------
See Exhibit Index immediately following the signature page
hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 6/3/05 By /s/Lawrence E. White
------ --------------------
Lawrence E. White, Senior Vice President, Finance
and Chief Financial Officer
Date: 6/3/05 By /s/Patrick A. Scruggs
------ ---------------------
Patrick A. Scruggs, Vice President, Accounting and Tax
and Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications