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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 January 31, 2003
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
------- ----------
49,417,573 Shares of Common Stock
Outstanding as of February 28, 2003
PART I
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
January 31, August 2,
2003 2002*
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 21,578 $ 15,074
Receivables 8,378 8,161
Inventories 106,492 124,693
Prepaid expenses 12,966 12,022
Deferred income taxes 11,632 11,632
---------- ----------
Total current assets 161,046 171,582
Property and equipment - net 1,010,216 984,817
Goodwill - net 92,882 92,882
Other assets 15,918 14,550
---------- ----------
Total assets $1,280,062 $1,263,831
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,167 $ 73,806
Accrued expenses 186,666 159,276
Current maturities of long-term debt
and other long-term obligations 87 87
---------- ----------
Total current liabilities 230,920 233,169
---------- ----------
Long-term debt 202,079 194,476
---------- ----------
Other long-term obligations 51,167 53,192
---------- ----------
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 January 31, 2003, 49,360
shares issued and outstanding and at August 2, 2002,
50,272 shares issued and outstanding 494 503
Retained earnings 795,402 782,491
---------- ----------
Total shareholders' equity 795,896 782,994
---------- ----------
Total liabilities and shareholders' equity $1,280,062 $1,263,831
========== ==========
See notes to condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of August 2, 2002.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
----------------------- ------------------------
January 31, February 1, January 31, February 1,
2003 2002 2003 2002
---- ---- ---- ----
Total revenue $ 563,119 $ 523,599 $1,090,658 $1,019,955
Cost of goods sold 190,112 181,732 356,077 344,932
---------- ---------- ---------- ----------
Gross profit 373,007 341,867 734,581 675,023
Labor & other related expenses 204,920 191,308 404,187 378,203
Other store operating expenses 97,405 88,301 187,985 171,472
---------- ---------- ---------- ----------
Store operating income 70,682 62,258 142,409 125,348
General and administrative 30,317 28,014 64,221 58,748
---------- ---------- ---------- ----------
Operating income 40,365 34,244 78,188 66,600
Interest expense 2,184 1,328 4,445 3,081
Interest income -- -- 73 --
---------- ---------- ---------- ----------
Income before income taxes 38,181 32,916 73,816 63,519
Provision for income taxes 13,555 11,784 26,205 22,740
---------- ---------- ---------- ----------
Net income $ 24,626 $ 21,132 $ 47,611 $ 40,779
========== ========== ========== ==========
Net earnings per share:
Basic $ .50 $ .38 $ .95 $ .74
========== ========== ========== ==========
Diluted $ .48 $ .37 $ .93 $ .72
========== ========== ========== ==========
Weighted average shares:
Basic 49,689 55,498 49,874 55,217
========== ========== ========== ==========
Diluted 51,447 57,595 51,383 56,888
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
------------------------
January 31, February 1,
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 47,611 $ 40,779
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 32,524 30,019
Loss (gain) on disposition of property and equipment 120 (84)
Accretion on zero-coupon notes 2,603 --
Changes in assets and liabilities:
Inventories 18,201 7,596
Accounts payable (29,639) (17,267)
Other current assets and other current liabilities 26,229 (11,396)
Other assets and other long-term liabilities (4,373) 566
--------- ---------
Net cash provided by operating activities 93,276 50,213
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (58,458) (45,781)
Proceeds from sale of property and equipment 1,433 1,336
--------- ---------
Net cash used in investing activities (57,025) (44,445)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 207,100 273,600
Principal payments under long-term debt and other
long-term obligations (202,138) (263,650)
Proceeds from exercise of stock options 20,202 35,950
Purchases and retirement of common stock (53,868) (44,139)
Dividends on common stock (1,043) (1,163)
--------- ---------
Net cash (used in) provided by financing activities (29,747) 598
--------- ---------
Net increase in cash and cash equivalents 6,504 6,366
Cash and cash equivalents, beginning of period 15,074 11,807
--------- ---------
Cash and cash equivalents, end of period $ 21,578 $ 18,173
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest $ 817 $ 3,625
========= =========
Income taxes $ 14,516 $ 32,146
========= =========
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
(Unaudited)(In thousands)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of January 31, 2003 and the
related condensed consolidated statements of income and cash flows for the
quarters and six-month periods ended January 31, 2003 and February 1, 2002, 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 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
2, 2002 filed with the Securities and Exchange Commission on October 25, 2002.
Deloitte & Touche LLP, the Company's independent accountants, have
performed a limited review of the financial information included herein. Their
report on such review accompanies this filing.
2. Income Taxes
The provision for income taxes for the quarter and six-month period ended
January 31, 2003 has been computed based on management's estimate of the tax
rate for the entire fiscal year of 35.5%. The variation between the statutory
tax rate and the effective tax rate is due primarily to employer tax credits for
FICA taxes paid on employee tip income. The Company's effective tax rate for the
quarter and six-month period ended February 1, 2002 was 35.8% and for the entire
fiscal year of 2002 was 35.6%.
As previously discussed in the Company's 2002 Annual Report on Form 10-K,
the Internal Revenue Service has been examining the Company's federal payroll
tax filings for the calendar years ended December 31, 1997 through December 31,
2001. The examination is now limited to the area of FICA taxes paid on
employee-reported tip income. Any assessment of such taxes would result in the
Company reporting the corresponding payment on its Income Statement as an
unusual item below General and Administrative and above Operating Income. During
the same fiscal quarter, the Company would also record a benefit for the same
amount to Provision for Income Taxes. The benefit results from an employer
credit for the FICA taxes paid on tip income; therefore, the Company expects
that a payment, if any, would have no effect on Net Income or Net Income Per
Share as reported by the Company, nor would the Company expect such a payment to
have a material impact on its liquidity and capital resources since the impact
would be expected to be only a timing difference between such payment and its
recovery through reduced future federal income tax payments.
3. Seasonality
The sales and profits of the Company are affected significantly by seasonal
travel and vacation patterns because of the interstate highway locations of its
Cracker Barrel Old Country Store(R) units. Historically, the Company's greatest
sales and profits have occurred during the period of June through August. Early
December through the last part of February, excluding the Christmas holidays,
has historically been a period of low sales and profits although retail revenues
historically have been seasonally highest between Thanksgiving and Christmas.
Therefore, the results of operations for the quarter and six-month period ended
January 31, 2003 cannot be considered indicative of the operating results for
the full fiscal year.
4. Inventories
Inventories were comprised of the following at:
January 31, August 2,
2003 2002
---- ----
Retail $ 73,563 $ 93,066
Restaurant 16,976 16,799
Supplies 15,953 14,828
-------- --------
Total $106,492 $124,693
======== ========
5. Net Income Per Share and Weighted Average Shares
Basic net income per share is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted 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 Company's 2002 Annual Report on Form 10-K
for a description of these notes) represent potential dilutive shares at the
balance sheet date. The effect of the assumed conversion of the zero-coupon
convertible senior notes has been excluded from the calculation of diluted net
income per share for the quarter and six-month period ended January 31, 2003,
because none of the conditions that permit conversion had been satisfied during
the reporting period. Outstanding stock options issued by the Company represent
the only dilutive security reflected in diluted weighted average shares.
6. Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. There is no difference between comprehensive income and
net income as reported by the Company for all periods shown.
7. Segment Reporting
The Company manages its business on the basis of one reportable operating
segment. All of the Company's operations are located within the United States.
The following data are presented in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information," for all periods presented.
Quarter Ended Six Months Ended
---------------------- ------------------------
January 31, February 1, January 31, February 1,
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Restaurant $423,524 $391,176 $ 847,266 $ 786,913
Retail 139,315 132,161 242,832 232,560
-------- -------- ---------- ---------
Total net sales 562,839 523,337 1,090,098 1,019,473
Franchise fees and royalties 280 262 560 482
-------- -------- ---------- ----------
Total revenue $563,119 $523,599 $1,090,658 $1,019,955
======== ======== ========== ==========
8. Recently Issued Accounting Pronouncements
Effective August 3, 2002, the Company adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143 requires entities to record
obligations associated with the retirement of a tangible long-lived asset as a
liability upon incurring those obligations, with the amount of the liability
initially measured at fair value. Upon initially recognizing a liability for an
asset retirement obligation ("ARO"), an entity must capitalize the cost by
recognizing an increase in the carrying amount of the related long-lived asset.
Each period, the liability is amortized to its present value and the entity
depreciates the capitalized cost over the remaining useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss. Upon adoption of SFAS No. 143,
an entity will use a cumulative-effect approach to recognize transition amounts
for existing ARO liabilities, asset retirement costs, and accumulated
depreciation. All transition amounts are to be measured using current
information known as of the adoption date, including current assumptions and
current interest rates. The adoption of SFAS No. 143 did not have a material
impact on the Company's consolidated results of operations or financial
position.
Effective August 3, 2002, the Company adopted SFAS No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets". This statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30 "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 144 retains the fundamental provisions of SFAS No. 121 but eliminates the
requirement to allocate goodwill to long-lived assets to be tested for
impairment. This statement also requires discontinued operations to be carried
at the lower of cost or fair value less costs to sell and broadens the
presentation of discontinued operations to include a component of an entity
rather than a segment of a business. The adoption of SFAS No. 144 did not have a
material impact on the Company's consolidated results of operations or financial
position.
Effective August 3, 2002, the Company adopted SFAS No. 145, "Rescission of
Financial Accounting Standards Board ("FASB") Statements No. 4, 44, 64,
Amendment of FASB Statement No. 13, and Technical Corrections". This statement
rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment
of Debt", and an amendment of that Statement, FASB Statement No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers". This statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The adoption of SFAS No.
145 did not have a material impact on the Company's consolidated results of
operations or financial position.
Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities". This statement nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS No. 146 addresses
significant issues regarding the recognition, measurement, and reporting of
costs that are associated with exit and disposal activities, including
restructuring activities that are currently accounted for pursuant to the
guidance in EITF No. 94-3. The scope of SFAS No. 146 also includes (1) costs
related to terminating a contract that is not a capital lease and (2)
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002 and
did not have a material impact on the Company's consolidated results of
operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require more prominent and frequent disclosures
in financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No.148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company currently plans to continue accounting for stock-based
employee compensation in accordance with Accounting Principles Board ("APB")
opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Therefore, the disclosure provisions of SFAS No. 148 will be
effective for the Company in its third fiscal quarter and the Company currently
does not expect the adoption of this standard to have a material impact on the
Company's consolidated results of operations or financial position. However, the
Company has not yet determined the effect of the adoption of this standard on
the Company's consolidated results of operations or financial position, if the
Company were to elect to make a voluntary change to the fair value based method
of accounting for stock-based employee compensation based upon the alternative
methods of transition under SFAS No. 148.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 supersedes
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others," and provides guidance on the recognition and disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations
under certain guarantees. The initial recognition and measurement provisions of
Interpretation No. 45 are effective for guarantees issued or modified after
December 31, 2002, and are to be applied prospectively. The disclosure
requirements are effective for financial statements for interim or annual
periods ending after December 15, 2002. The Company had no instruments or
guarantees that required additional or enhanced disclosure under this
Interpretation at January 31, 2003, other than those disclosed in Note 10
herein, and no guarantees issued or modified after December 31, 2002 that
required recognition and measurement in accordance with the provisions of this
Interpretation; therefore, the adoption of this Interpretation 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 clarifies the application of Accounting Research Bulletin ("ARB") No. 51,
"Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FASB
deemed this necessary because application of the majority voting interest
requirement in ARB No. 51 to certain types of entities did not identify the
party with a controlling financial interest because the controlling financial
interest could be achieved through arrangements that did not involve voting
interests. This Interpretation addresses consolidation by business enterprises
of variable interest entities. The initial recognition and measurement
provisions of Interpretation No. 46 are effective for variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The disclosure requirements are effective for financial statements
initially issued after January 31, 2003. The Company has determined that it will
not be required to consolidate or disclose information about a variable interest
entity upon the effective date of this Interpretation.
In November 2002, the FASB's Emerging Issues Task Force ("EITF") discussed
Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from
a Vendor." Issue No. 02-16 provides guidance on the recognition of cash
consideration received by a customer from a vendor. The consensus reached by the
EITF in November 2002 is effective for fiscal periods beginning after December
15, 2002. Income statements for prior periods are required under certain
circumstances to be reclassified to comply with the consensus. Adoption of the
consensus reached in November 2002 related to Issue No. 02-16 is not expected to
have a material impact on the Company's consolidated results of operations or
financial position.
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 estimated undiscounted
future operating cash flows to the carrying values of assets on a store by store
basis. If an impairment exists, the amount of impairment is measured as the sum
of the estimated discounted future operating cash flows of such asset and the
expected proceeds upon sale of the asset less its carrying 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
six-month periods ended January 31, 2003 and February 1, 2002. 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 fiscal quarter ending
January 31, 2003, and concluded that there was no current indication of
impairment. This annual assessment will be performed in the fiscal 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.
10. Commitments and Contingencies
In Note 9 to the Consolidated Financial Statements for the fiscal year
ended August 2, 2002 contained in the Company's 2002 Annual Report on Form 10-K
(which is incorporated in this note by this reference), the Company reported
that its Cracker Barrel Old Country Store, Inc. subsidiary ("Cracker Barrel") is
a defendant in four pending lawsuits, one of which has been provisionally
certified as a collective action. The Company believes it has substantial
defenses in each of these actions and is defending each of them vigorously.
Nevertheless, the Company established a reserve of $3,500 in the consolidated
financial statements in the fourth quarter of fiscal 2001 with respect to one of
these lawsuits based on the Company's best estimate of its probable liability in
this matter and offers of judgment to those plaintiffs. None of those offers of
judgment was accepted.
As previously announced (see Note 9 to the Company's 2002 Annual Report on
Form 10-K for the fiscal year ended August 2, 2002 filed on October 25, 2002),
in the NAACP/Thomas public accommodations case, on October 1, 2002, a Federal
District Court issued a ruling granting Cracker Barrel's motion for denial of
class certification. Since no class was certified, there are now 38 individual
public accommodation plaintiffs, against whom the Company believes that Cracker
Barrel has substantial defenses. In addition on December 31, 2002, the
Magistrate in the Rhodes case issued a 180-page proposed ruling, recommending a
denial of class certification in that case. On March 7, 2003, the United States
District Court issued an order adopting the Magistrate's recommendations and
denying class certification.
The Company announced previously that the Housing and Civil Enforcement
Section of the Civil Rights Division of the Department of Justice (the
"Section") has begun an investigation with respect to public accommodation
allegations. The Company continues a dialogue with the Section that, if
unsuccessful, could lead to the Section filing suit under Title II of the Civil
Rights Act of 1964 seeking injunctive relief against Cracker Barrel regarding
its public accommodation compliance. The Section may not seek or obtain monetary
relief for alleged public accommodations non-compliance.
With respect to the non-ordinary course litigation disclosed above, with
the exception of the $3,500 reserve described in the first paragraph, although
any litigation carries with it risk of possible liability, the Company does not
view any such liability in this litigation as probable, nor can it reasonably
estimate the amount of such liability, if any. Accordingly, no provision has
been made in the Company's financial statements for any liability associated
with these matters. In the opinion of management, based upon information
currently available, the ultimate liability with respect to the four lawsuits or
the Section investigation discussed in this Note will not materially affect the
Company's consolidated results or financial position. However, future
developments in any of these proceedings, if adverse, could result in a material
effect on the Company.
In addition to the litigation described in the preceding paragraphs, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their business. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party. The operating lease has
a remaining life of approximately 10.5 years with annual lease payments of
approximately $350. 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 financial statements for amounts to
be paid as a result of non-performance by the assignee.
The Company also is secondarily liable for lease payments under the terms
of another operating lease that has been sublet to a third party less than one
year ago. The operating lease has a remaining life of approximately 13.7 years
with annual lease payments of approximately $100. The Company's performance is
only required if the sublessee fails to perform his obligations as lessee. The
Company has a liability of approximately $500 in the accompanying financial
statements, which is comparable with the initial liability recorded at the time
the Company ceased operations at the leased location, for estimated amounts to
be paid in case of non-performance by the sublessee.
11. Subsequent Event
On February 21, 2003, the Company entered into a new five-year $300,000
revolving credit facility and terminated its existing $250,000 revolving credit
facility, which was set to expire on December 31, 2003.
On February 28, 2003, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000 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 before the end of fiscal 2003, although there can
be no assurance that such repurchase actually will be completed in that period
of time.
12. Reclassifications
Certain reclassifications have been made in the fiscal 2002 financial
statements to conform to the classifications used in fiscal 2003. Total revenues
in the quarter and the six-month period ended February 1, 2002, reflect
reclassifications of $1,097 and $2,240, respectively, of net return fees for the
Cracker Barrel Book-on-Audio program to net sales from other store operating
expenses, where the Company historically had reported the fees as a
miscellaneous income credit to other store operating expenses. This
reclassification had no effect on net income. The amounts of this
reclassification for the third and fourth quarters of fiscal 2002, are $1,077
and $1,575, respectively. Additionally, the balance sheet at August 2, 2002 and
the cash flow statement for the six- month period ended February 1, 2002 reflect
certain other reclassifications. These certain other reclassifications caused a
net increase of $94 to total current assets, total assets, total current
liabilities and total liabilities at August 2, 2002. These certain other
reclassifications had no net effect on net cash provided by operating activities
or the net increase in cash and cash equivalents for the six-month period ended
February 1, 2002.
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
CBRL Group, Inc.
Lebanon, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of CBRL
Group, Inc. and subsidiaries ("the Company") as of January 31, 2003, and the
related condensed consolidated statements of income and cash flows for the
quarters and six-month periods ended January 31, 2003 and February 1, 2002.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of CBRL
Group, Inc. and subsidiaries as of August 2, 2002, 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 12,
2002, 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 2, 2002 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
March 13, 2003
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 dollar amounts per share. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the condensed consolidated financial statements and notes
thereto. Except for specific historical information, many of the matters
discussed in this Form 10-Q may express or imply projections of revenues or
expenditures, statements of plans and objectives or future operations or
statements of future economic performance. These, and similar statements are
forward-looking statements concerning matters that involve risks, uncertainties
and other factors which may cause the actual performance of the Company to
differ materially from those expressed or implied by these statements. All
forward-looking information is provided by the Company pursuant to the safe
harbor established under the Private Securities Litigation Reform Act of 1995
and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "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 will affect actual results include,
but are not limited to: adverse general economic conditions including uncertain
consumer confidence effects on sales; weather conditions and customer travel
activity; practical or psychological effects of terrorist acts and war or
military or government responses; commodity, workers' compensation, group health
and utility price changes; the effects of plans intended to improve operational
execution and performance; the effects of increased competition at Company
locations on sales and on labor recruiting, cost, and retention; the ability of
and cost to the Company to recruit, train, and retain qualified restaurant
hourly and management employees; the ability of the Company to identify
successful new lines of retail merchandise; the availability and cost of
acceptable sites for development; the acceptance of the Company's concepts as
the Company continues to expand into new markets and geographic regions; changes
in interest rates affecting the Company's financing costs; increases in
construction costs; changes in or implementation of additional governmental or
regulatory rules, regulations and interpretations affecting accounting, tax,
wage and hour matters, health and safety, pensions and insurance; 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 generally accepted accounting principles or changes in capital market
conditions that could affect valuations of restaurant companies in general or
the Company's goodwill in particular; other undeterminable areas of government
or regulatory actions or regulations; and other factors described from time to
time in the Company's filings with the Securities and Exchange Commission, press
releases, and other communications.
Results of Operations
The following table highlights operating results by percentage
relationships to total revenue for the quarter and six-month period ended
January 31, 2003 as compared to the same periods a year ago:
Quarter Ended Six Months Ended
----------------------- -----------------------
January 31, February 1, January 31, February 1,
2003 2002 2003 2002
---- ---- ---- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 33.8 34.7 32.6 33.8
----- ----- ----- -----
Gross profit 66.2 65.3 67.4 66.2
Labor & other related expenses 36.4 36.5 37.1 37.1
Other store operating expenses 17.3 16.9 17.2 16.8
----- ----- ----- -----
Store operating income 12.5 11.9 13.1 12.3
General and administrative 5.4 5.4 5.9 5.8
----- ----- ----- -----
Operating income 7.1 6.5 7.2 6.5
Interest expense 0.3 0.2 0.4 0.3
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 6.8 6.3 6.8 6.2
Provision for income taxes 2.4 2.3 2.4 2.2
----- ----- ----- -----
Net income 4.4% 4.0% 4.4% 4.0%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and six-month period
ended January 31, 2003 as compared to the same periods a year ago:
Quarter Ended Six Months Ended
------------------------ ------------------------
January 31, February 1, January 31, February 1,
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Restaurant 75.2% 74.7% 77.7% 77.2%
Retail 24.7 25.2 22.2 22.8
----- ----- ----- -----
Total net sales 99.9 99.9 99.9 100.0
Franchise fees and royalties 0.1 0.1 0.1 0.0
----- ----- ----- -----
Total revenue 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Comparable Store Average Sales Analysis
Quarter Ended Six Months Ended
----------------------- -----------------------
January 31, February 1, January 31, February 1,
2003 2002 2003 2002
---- ---- ---- ----
Cracker Barrel (436 and 430 stores
for the quarter and six
months, respectively)
Net sales:
Restaurant $ 760.5 $ 745.7 $1,547.5 $1,520.9
Retail 295.9 295.3 519.2 520.9
-------- -------- -------- --------
Total net sales $1,056.4 $1,041.0 $2,066.7 $2,041.8
======== ======== ======== ========
Logan's (75 and 71 restaurants for $ 726.5 $ 723.2 $1,447.8 $1,445.7
======== ======== ======== ========
the quarter and six months,
respectively)
Total Revenue
Total revenue for the second quarter of fiscal 2003 increased 7.5% compared
to last year's second quarter. Comparable store sales results reflected
difficult comparisons to the second quarter of fiscal 2002, which benefited from
unusually mild winter weather. At the Cracker Barrel Old Country Store(R)
("Cracker Barrel") concept, comparable store restaurant sales increased 2.0%,
and comparable store retail sales increased 0.2%(compared with increases of 7.8%
and 4.3%, respectively, in the year ago quarter), resulting in a combined
comparable store sales (total net sales) increase of 1.5%. The comparable store
restaurant sales increase consisted of a 2.8% average check increase for the
quarter (on a 1.6% menu price increase) partially offset by a 0.8% guest traffic
decrease. The comparable store retail sales increase is believed primarily to
reflect the effect of Cracker Barrel taking markdowns on holiday merchandise
prior to the holiday versus a year ago partially offset by the effect of the
weak economic environment on consumer sentiment. At the Logan's Roadhouse(R)
("Logan's") concept, comparable restaurant sales increased 0.5% (compared with a
3.6% increase in the second quarter last year), which consisted of a 2.1%
average check increase (on a 1.1% menu price increase) partially offset by a
1.6% guest traffic decrease. Comparable store restaurant sales were also
affected by severe winter weather, especially late in January, with an estimated
reduction in revenue of as much as 1% for the full quarter. Sales from newly
opened Cracker Barrel stores and Logan's restaurants primarily accounted for the
balance of the total revenue increase in the second quarter.
Total revenue for the six-month period ended January 31, 2003, increased
6.9% compared to the six-month period ended February 1, 2002. At Cracker Barrel,
comparable store restaurant sales increased 1.8%, and comparable store retail
sales decreased 0.4%, resulting in a combined comparable store sales (total net
sales) increase of 1.2%. The comparable store restaurant sales increase
consisted of a 2.1% average check increase for the quarter (on a 1.2% menu price
increase) partially offset by a 0.3% guest traffic decrease. The comparable
store retail sales decrease is believed primarily to reflect the effect of the
weak economic environment on consumer sentiment. At Logan's, comparable
restaurant sales increased 0.1%, which consisted of a 1.5% average check
increase (on a 1.1% menu price increase) partially offset by a 1.4% guest
traffic decrease. Sales from newly opened Cracker Barrel stores and Logan's
restaurants primarily accounted for the balance of the total revenue increase in
the six-month period ended January 31, 2003.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the second quarter
of fiscal 2003 decreased to 33.8% from 34.7% in the second quarter of last year.
This decrease was due primarily to lower commodity costs for orange juice and
certain pork and dairy products versus the prior year, higher menu pricing,
higher initial mark-ons of retail merchandise, lower retail shrink and in-store
damages, a lower mix of retail sales as a percent of total revenues (retail has
a higher product cost than restaurant) and improvements in restaurant-level
execution. These decreases were partially offset by higher commodity costs for
beef, poultry and butter and higher markdowns of retail merchandise versus the
prior year, including the retail markdown effect of a pre-holiday markdown
strategy on seasonal and certain other retail goods.
Cost of goods sold as a percentage of total revenue for the six-month
period ended January 31, 2003, decreased to 32.6% from 33.8% in the six-month
period ended February 1, 2002. This decrease was due primarily to lower
commodity costs for orange juice and certain pork and dairy products versus the
prior year, higher menu pricing, higher initial mark-ons of retail merchandise,
lower retail shrink and in-store damages, a lower mix of retail sales as a
percent of total revenues (retail has a higher product cost than restaurant) and
improvements in restaurant-level execution. These decreases were offset
partially by higher markdowns of retail merchandise versus the prior year,
including the retail markdown effect of a pre-holiday markdown strategy on
seasonal and certain other retail goods.
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 36.4% in the second quarter this year
from 36.5% last year. This decrease was due primarily to higher menu pricing,
lower hourly labor expenses as a percent of revenue and decreased compensation
under unit-level bonus programs. The lower hourly labor was due to improved
labor productivity and slight hourly wage deflation versus the prior year at
Cracker Barrel. These improvements resulted from management efforts to control
wage increases, new hire wages, and overtime, as well as generally lower
competitive wage increase pressure, offset partially by hourly wage inflation at
Logan's of approximately 2%. These decreases were offset partially by increases
in manager wages, increased workers' compensation costs and increased group
health costs from last year.
Labor and other related expenses as a percentage of total revenue remained
unchanged at 37.1% in the six-month period ended January 31, 2003, as compared
to the six-month period ended February 1, 2002. Decreases from higher menu
pricing, lower hourly labor and decreased compensation under unit-level bonus
programs were offset by increases in manager wages, increased workers'
compensation costs and increased group health costs.
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 pre-opening expenses other than labor-related. Other store
operating expenses as a percentage of total revenue increased to 17.3% in the
second quarter of fiscal 2003 from 16.9% in the second quarter of last year.
This increase was due primarily to higher utility costs, advertising and
maintenance versus the prior year. These increases were offset partially by
higher menu pricing and lower general liability insurance costs versus the prior
year.
Other store operating expenses as a percentage of total revenue increased
to 17.2% in the six-month period ended January 31, 2003, from 16.8% in the
six-month period ended February 1, 2002. This increase was due primarily to
higher maintenance and advertising versus the prior year. These increases were
offset partially by higher menu pricing and lower general liability insurance
costs versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
remained unchanged at 5.4% in the second quarter of fiscal 2003 as compared to
the second quarter of last year. Higher professional fees versus the prior year
were offset by higher menu pricing and lower costs related to corporate level
incentive plans versus the prior year.
General and administrative expenses as a percentage of total revenue
increased to 5.9% in the six-month period ended January 31, 2003, from 5.8% in
the six-month period ended February 1, 2002. This increase was due primarily to
higher professional fees versus the prior year and higher costs for store
manager conferences versus a year ago offset partially by higher menu pricing.
Interest Expense
Interest expense increased to $2,184 and $4,445 in the second quarter and
the first six months of fiscal 2003, respectively, from $1,328 and $3,081 in the
same periods last year. The increases resulted primarily from higher average
outstanding debt during the second quarter and first six months of fiscal 2003
as compared to last year and was offset partially by lower average interest
rates as compared to last year.
Interest Income
The Company did not recognize any interest in the second quarters of fiscal
2003 and 2002, as well as the first six months of fiscal 2002. The Company's
interest income was $73 in the first six months of fiscal 2003. The increase for
the first six months of fiscal 2003 was due primarily to higher average funds
available for investment during the first quarter of fiscal 2003 as compared to
last year.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income decreased to
35.5% in the second quarter and the first six months of fiscal 2003 from 35.8%
during the same periods a year ago and from 35.6% for the entire fiscal year of
2002. The variation between the statutory tax rate and the effective tax rate is
due primarily to employer tax credits for FICA taxes paid on employee tip
income. The primary reason for the decreases in the tax rate from the prior year
was decreases in effective state tax rates.
As previously discussed in the Company's 2002 Annual Report on Form 10-K,
the Internal Revenue Service has been examining the Company's federal payroll
tax filings for the calendar years ended December 31, 1997 through December 31,
2001 primarily relating to FICA taxes paid on employee-reported tip income. The
examination is now limited to FICA taxes paid on employee-reported tip income.
Any assessment of such taxes would result in the Company reporting the
corresponding payment on its Income Statement as an unusual item below General
and Administrative and above Operating Income. The Company would be entitled to
receive an employer credit for the FICA taxes paid on tip income. The Company
would record this corresponding benefit in the same amount as the payment to
Provision for Income Taxes, during the same fiscal quarter. Therefore, the
Company would expect that a payment, if any, would have no effect on Net Income
or Net Income Per Share as reported by the Company, nor would the Company expect
such a payment to have a material impact on its liquidity and capital resources
since the impact would be expected to be only a timing difference between such
payment and its recovery through reduced future federal income tax payments.
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 Company's 2002 Annual Report on 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 fiscal quarter ending January 31, 2003, and concluded that there was no
current indication of impairment.. This annual assessment will be performed in
the fiscal 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 fiscal 2003, but
has now increased this amount to $500. 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 fiscal
quarter and adjusting it by the actuarially determined losses and actual claims
payments for the subsequent fiscal 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.
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 the
best available information at the time of the provision and historical
experience. The Company files its income tax returns many months after its
fiscal 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 2 to the Company's Condensed Consolidated Financial Statements filed herein
and Note 7 to the Company's Consolidated Financial Statements included in the
Company's 2002 Annual Report on Form 10-K filed on October 25, 2002.
Legal Proceedings
As discussed in Note 10 to the Company's Condensed Consolidated Financial
Statements filed with this Quarterly Report and more fully discussed in Note 9
to the Company's Consolidated Financial Statements included in the Company's
2002 Annual Report on Form 10-K filed on October 25, 2002, the Company reported
that its Cracker Barrel Old Country Store, Inc. subsidiary is subject to an
investigation and certain lawsuits, one of which has been provisionally
certified as a collective action. As is more fully discussed in these footnotes,
the Company believes it has substantial defenses in these lawsuits and intends
to continue to defend each of them vigorously. Except for a $3,500 reserve
accrual, there currently is no provision for any potential liability with
respect to these matters in the Company's Condensed Consolidated Financial
Statements. However, future developments in any of these proceedings, if
adverse, could result in a material effect on the Company.
In addition to the litigation described in the proceeding paragraph, the
Company and its subsidiaries are party to other legal proceedings incidental to
their business. In the opinion of management, based upon information currently
available, the ultimate liability with respect to these other actions will not
materially affect the Company's consolidated results of operations or financial
position.
Impact of Recent Accounting Pronouncements Not Yet Adopted
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require more prominent and frequent disclosures
in financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No.148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company currently plans to continue accounting for stock-based
employee compensation in accordance with APB opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Therefore, the
disclosure provisions of SFAS No. 148 will be effective for the Company in its
third fiscal quarter and the Company currently does not expect the adoption of
this standard to have a material impact on the Company's consolidated results of
operations or financial position. However, the Company has not yet determined
the effect of the adoption of this standard on the Company's consolidated
results of operations or financial position, if the Company were to elect to
make a voluntary change to the fair value based method of accounting for
stock-based employee compensation based upon the alternative methods of
transition under SFAS No. 148.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others." Interpretation No. 45 supersedes
Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others," and provides guidance on the recognition and disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations
under certain guarantees. The initial recognition and measurement provisions of
Interpretation No. 45 are effective for guarantees issued or modified after
December 31, 2002, and are to be applied prospectively. The disclosure
requirements are effective for financial statements for interim or annual
periods ending after December 15, 2002. The Company had no instruments or
guarantees that required additional or enhanced disclosure under this
Interpretation at January 31, 2003, other than those disclosed in Note 10 to the
Company's Condensed Consolidated Financial Statements filed in Part I, Item I of
this Quarterly Report on Form 10-Q, and no guarantees issued or modified after
December 31, 2002 that required recognition in accordance with the provisions of
this Interpretation; therefore, the adoption of this Interpretation 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 clarifies the application of Accounting Research Bulletin ("ARB") No. 51,
"Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties, since the
application of the majority voting interest requirement in ARB No. 51 to certain
types of entities may not identify the party with a controlling financial
interest because the controlling financial interest may be achieved through
arrangements that do not involve voting interests. This Interpretation addresses
consolidation by business enterprises of variable interest entities. The initial
recognition and measurement provisions of Interpretation No. 46 are effective
for variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest that
it acquired before February 1, 2003. The disclosure requirements are effective
for financial statements initially issued after January 31, 2003. The Company
has determined that it will not be required to consolidate or disclose
information about a variable interest entity upon the effective date of this
Interpretation.
In November 2002, the FASB's Emerging Issues Task Force ("EITF") discussed
Issue No. 02-16, "Accounting by a Reseller for Cash Consideration Received from
a Vendor." Issue No. 02-16 provides guidance on the recognition of cash
consideration received by a customer from a vendor. The consensus reached by the
EITF in November 2002 is effective for fiscal periods beginning after December
15, 2002. Income statements for prior periods are required to be reclassified to
comply with the consensus. Adoption of the consensus reached in November 2002
related to Issue No. 02-16 is not expected to have a material impact on the
Company's consolidated results of operations or financial position.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $93,276 for the
six-month period ended January 31, 2003 increased from the $50,213 provided
during the same period a year ago. This increase was due primarily to increases
in net income and depreciation and amortization, decreases in inventories and
income tax payments and increases in deferred revenues related to higher gift
card sales, partially offset by decreases in accounts payable. Most of the
$93,276 in net cash from operating activities was provided by net income
adjusted for depreciation and amortization. Cash used for increases in other
current assets and other assets and decreases in accounts payable and other
long-term liabilities was offset partially by cash provided by decreases in
inventories and increases in other current liabilities.
The Company had negative working capital of $69,874 at January 31, 2003
versus negative working capital of $61,587 at August 2, 2002. 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 from time to time,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through 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.
Capital expenditures were $58,458 for the six-month period ended January
31, 2003 as compared to $45,781 during the same period a year ago. This increase
was due primarily to an increase in the average number of new locations under
construction versus the same period a year ago. Construction of new locations
accounted for most of these expenditures and for most of the increase.
Capitalized interest was $120 and $241 for the quarter and six-month period
ended January 31, 2003, as compared to $87 and $197 for the quarter and
six-month period ended February 1, 2002, respectively. 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.
The Company's internally generated cash, along with cash at August 2, 2002,
the Company's available revolver and real estate operating lease arrangements,
were sufficient to finance all of its growth in the first six months of fiscal
2003.
The Company estimates that its capital expenditures for fiscal 2003 will be
approximately $120,000 to $125,000, most of which will be related to the
construction of new Cracker Barrel stores and new Logan's restaurants. The
Company expects to open 23 new Cracker Barrel stores and 12 new company-operated
Logan's restaurants in fiscal 2003.
Long-term debt outstanding consisted of the following at:
January 31, August 2,
2003 2002
- --------------------------------------------------------------------------------
Revolving Credit Facility payable on or before
December 31, 2003 (4.25% at January 1, 2003
and rates ranging from 3.06% to 4.75% at
August 2, 2002) $ 25,000 $ 20,000
3.0% Zero-Coupon Contingently Convertible Senior
Notes payable on or before April 2, 2032 177,079 174,476
-------- --------
Long-term debt $202,079 $194,476
======== ========
On February 21, 2003, the Company entered into a new five-year $300,000
revolving credit facility and terminated its existing $250,000 revolving credit
facility, which was set to expire on December 31, 2003. The new facility has
substantially the same terms as the prior facility; however, there is a slightly
more favorable credit spread grid, as well as certain less restrictive
covenants.
On September 12, 2002, the Company announced that the Board of Directors
had authorized the repurchase of up to 2,000 shares of the Company's common
stock. The purchases were to be made from time to time in the open market at
prevailing market prices. During the second quarter, the Company completed that
share repurchase authorization by repurchasing the remaining 1,228 shares of its
common stock not repurchased during the first quarter. This 2,000 share
repurchase authorization was completed for total consideration of $53,868 or
$26.93 per share.
On February 28, 2003, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000 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 before the end of fiscal 2003, although there can
be no assurance that these expected repurchases actually will be completed in
that period of time.
During the first six months of fiscal 2003, the Company received proceeds
of $20,202 from the exercise of stock options on 1,088 shares of its common
stock. During the second quarter of fiscal 2003, the Company declared and paid
its annual dividend of $.02 per share.
Management believes that cash at January 31, 2003, 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 new share
repurchase authorization and its continued expansion plans through fiscal 2004.
At January 31, 2003, the Company had $225,000 available under its then existing
revolving credit facility. The Company estimates that it will generate excess
cash of more than $60,000 before proceeds from the exercise of stock options and
after capital expenditures in fiscal 2003 which it presently intends to apply
toward its current and recently completed share repurchase authorizations, debt
reduction or other purposes. The Company's principal criteria for share
repurchases are that they be accretive to earnings per share and that they do
not unfavorably affect the Company's investment grade debt rating and target
capital structure. The Company's target capital structure includes the estimated
effect of off-balance sheet real estate operating leases on its long-term debt
and its total capitalization. The Company's target capital structure is
approximately 35% for the ratio of lease-adjusted debt to lease-adjusted total
capitalization.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the Company's Annual Report on Form 10-K for the fiscal year
ended August 2, 2002, and filed with the Commission on October 25, 2002, is
incorporated in this item of this report by this reference.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation
was made under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of its disclosure controls and
procedures, as defined in Rule 13a-14(c) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures are effective for the
purposes set forth in the definition of "disclosure controls and procedures" in
Exchange Act Rule 13a-14(c). There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
PART II
Item 1. Legal Proceedings
-----------------
Part I, Item 3 of the Company's Annual Report on Form 10-K
(the "Annual Report") for the fiscal year ended August 2, 2002
(filed with the Commission on October 25, 2002) is
incorporated in this Form 10-Q by this reference. Since the
filing of the Annual Report, the following has occurred with
respect to the legal proceedings described therein:
Rhodes - On December 31, 2002, the Magistrate issued a
180-page proposed ruling recommending a denial of class
certification in this case. On March 7, 2003, the United
States District Court issued an order adopting the
Magistrate's recommendations and denying class certification.
NAACP/Thomas - On October 1, 2002, the United State District
Court granted Cracker Barrel's Rule 23 (c) Motion for Denial
of Class Certification. Since no class was certified, there
are now 38 individual public accommodation plaintiffs. The
Company believes that its subsidiary has substantial defenses
against each of these claims.
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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Part II, Item 4 of the Company's Quarterly Report on Form 10-Q
for the Quarterly Period ended November 1, 2002 (filed with
the Commission on December 6, 2002) is incorporated herein by
this reference.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed pursuant to Item 601 of
Regulation S-K
(10) $300,000,000 Revolving Credit Loan Agreement dated
February 21, 2003.
(15) Letter regarding unaudited financial information.
(b) The following Current Reports on Form 8-K were furnished
during the quarter for which this report is filed:
Form 8-K dated November 21, 2002, reporting under
Item 9 the issuance of a press release announcing the
Company's fiscal 2003 first quarter earnings, current
sales trends and earnings guidance for the second
quarter of fiscal 2003.
Form 8-K dated November 27, 2002, reporting under,
Item 9 the issuance of a press release announcing an
annual cash dividend.
Form 8-K dated January 16, 2003, reporting under Item
9 the issuance of a press release announcing the
Company's fiscal 2003 second quarter-to-date sales
trends and an update to its earnings guidance for the
second quarter of fiscal 2003.
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: 3/13/03 By /s/Lawrence E. White
------- --------------------------------------------------
Lawrence E. White, Senior Vice President, Finance
and Chief Financial Officer
Date: 3/13/03 By /s/Patrick A. Scruggs
------- --------------------------------------------------
Patrick A. Scruggs, Assistant Treasurer
and Chief Accounting Officer
CERTIFICATIONS
I, Michael A. Woodhouse, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CBRL Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003 /s/Michael A. Woodhouse
-------------- ---------------------------
Michael A. Woodhouse,
President and Chief Executive
Officer
I, Lawrence E. White, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CBRL Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003 /s/Lawrence E. White
-------------- ------------------------
Lawrence E. White,
Senior Vice President, Finance and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 $300,000,000 Revolving Credit Loan Agreement dated 2/21/2003
15 Letter regarding unaudited financial information