Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
__Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended May 2, 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
------- ----------
48,681,576 Shares of Common Stock
Outstanding as of May 30, 2003
PART I
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
May 2, August 2,
2003 2002*
---- -----
ASSETS
Current assets:
Cash and cash equivalents $ 15,705 $ 15,074
Receivables 9,037 8,161
Inventories 115,449 124,693
Prepaid expenses 10,453 12,022
Deferred income taxes 9,097 11,632
---------- ----------
Total current assets 159,741 171,582
Property and equipment - net 1,021,221 984,817
Goodwill - net 92,882 92,882
Other assets 17,107 14,550
---------- ----------
Total assets $1,290,951 $1,263,831
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 58,197 $ 73,806
Accrued expenses 178,716 159,276
Current maturities of long-term debt and other long-term
obligations 97 87
---------- ----------
Total current liabilities 237,010 233,169
---------- ----------
Long-term debt 198,392 194,476
---------- ----------
Other long-term obligations 69,965 53,192
---------- ----------
Commitments and Contingencies (Note 12)
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 May 2, 2003, 48,351
shares issued and outstanding and at August 2, 2002,
50,272 shares issued and outstanding 484 503
Retained earnings 785,100 782,491
---------- ----------
Total shareholders' equity 785,584 782,994
---------- ----------
Total liabilities and shareholders' equity $1,290,951 $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 Nine Months Ended
---------------------- ------------------------
May 2, May 3, May 2, May 3,
2003 2002 2003 2002
---- ---- ---- ----
Total revenue $527,189 $506,127 $1,617,847 $1,526,082
Cost of goods sold 165,378 161,262 521,455 506,194
-------- -------- ---------- ----------
Gross profit 361,811 344,865 1,096,392 1,019,888
Labor & other related expenses 201,170 195,696 605,357 573,899
Other store operating expenses 92,573 87,563 280,558 259,035
-------- -------- ---------- ----------
Store operating income 68,068 61,606 210,477 186,954
General and administrative 29,577 28,347 93,798 87,095
-------- -------- ---------- ----------
Operating income 38,491 33,259 116,679 99,859
Interest expense 2,214 1,535 6,659 4,616
Interest income -- -- 73 --
-------- -------- ---------- ----------
Income before income taxes 36,277 31,724 110,093 95,243
Provision for income taxes 12,878 11,167 39,083 33,907
-------- -------- ---------- ----------
Net income $ 23,399 $ 20,557 $ 71,010 $ 61,336
======== ======== ========== ==========
Net earnings per share:
Basic $ .48 $ .38 $ 1.43 $ 1.12
======== ======== ========== ==========
Diluted $ .46 $ .36 $ 1.39 $ 1.08
======== ======== ========== ==========
Weighted average shares:
Basic 49,077 54,548 49,609 54,994
======== ======== ========== ==========
Diluted 50,767 56,693 51,178 56,823
======== ======== ========== ==========
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
----------------------
May 2, May 3,
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 71,010 $ 61,336
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 48,316 46,012
Loss (gain) on disposition of property and equipment 478 (413)
Accretion on zero-coupon notes 3,916 418
Deferred income taxes 21,699 --
Changes in assets and liabilities:
Inventories 9,244 1,454
Accounts payable (15,609) (740)
Other current assets and other current liabilities 20,133 10,189
Other assets and other long-term liabilities (5,125) 72
--------- ---------
Net cash provided by operating activities 154,062 118,328
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (85,260) (69,997)
Proceeds from sale of property and equipment 1,517 3,228
--------- ---------
Net cash used in investing activities (83,743) (66,769)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 276,600 492,556
Principal payments under long-term debt and other
long-term obligations (276,665) (422,909)
Deferred financing costs (1,203) (4,767)
Proceeds from exercise of stock options 27,626 45,215
Purchases and retirement of common stock (95,003) (140,317)
Dividends on common stock (1,043) (1,163)
--------- ---------
Net cash used in financing activities (69,688) (31,385)
--------- ---------
Net increase in cash and cash equivalents 631 20,174
Cash and cash equivalents, beginning of period 15,074 11,807
--------- ---------
Cash and cash equivalents, end of period $ 15,705 $ 31,981
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 1,197 $ 4,603
========= =========
Income taxes $ 15,321 $ 32,817
========= =========
See notes to condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
(Unaudited)(In thousands, except per share data)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of May 2, 2003 and the
related condensed consolidated statements of income and cash flows for the
quarters and nine-month periods ended May 2, 2003 and May 3, 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 ("2002 10-K") 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. Summary of Significant Accounting Policies
The significant accounting policies of the Company are included in the
2002 10-K. During the quarter and nine-month period ended May 2, 2003, there
were no significant changes to those accounting policies.
Revenue Recognition - The Company records revenue from the sale of
products as they are sold. Initial fees received from a franchisee to establish
a new franchise are recognized as income when the Company has performed all of
its obligations required to assist the franchisee in opening a new franchise
restaurant, which is generally upon the opening of such restaurant. Continuing
royalties, which are a percentage of net sales of franchised restaurants, are
accrued as income when earned.
Stock Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure". Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based compensation expense,
net of related tax effects, in the table represents the amortization of
restricted stock grants to two executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's net
income and earnings per share would have been reduced to the pro- forma amounts
illustrated as follows (in thousands, except per share data):
Third Quarter Ended Nine Months Ended
May 2, 2003 May 3, 2002 May 2, 2003 May 3, 2002
----------- ----------- ----------- -----------
Net Income - as reported $23,399 $20,557 $71,010 $61,336
Add: Total stock-based employee
Compensation included in reported
Net income, net of related tax effects 45 74 222 218
Deduct: Total stock-based compensation
Expense determined under fair-value
Based method for all awards, net of
Tax effects (2,829) (3,211) (8,662) (9,727)
------- ------- ------- -------
Pro forma, net income $20,615 $17,420 $62,570 $51,827
======= ======= ======= =======
Earnings per share:
Basic - as reported $ 0.48 $ 0.38 $ 1.43 $ 1.12
======= ======= ======= =======
Basic - pro forma $ 0.42 $ 0.32 $ 1.26 $ 0.94
====== ======= ======= =======
Diluted - as reported $ 0.46 $ 0.36 $ 1.39 $ 1.08
======= ======= ======= =======
Diluted - pro forma $ 0.41 $ 0.31 $ 1.22 $ 0.91
======= ======= ======= =======
3. 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. 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 APB 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.
Effective February 1, 2003, the Company adopted the disclosure
provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." This statement 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 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, accordingly, the adoption of SFAS No. 148 did not have a
material impact on the Company's consolidated results of operations or financial
position. The Company has included the disclosures in accordance with SFAS No.
148 in Note 2. However, the Company has not yet determined the effect of the
adoption of measurement provisions 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 May 2, 2003, other than those disclosed in Note 12 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 there
are no such entities in which the Company holds a variable interest, and,
therefore, 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 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. The adoption of the consensus reached
related to Issue No. 02-16 did not have a material impact on the Company's
consolidated results of operations or financial position.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS
No. 133 for decisions made (1) as part of the Derivatives Implementation Group
process that effectively required amendments to SFAS No. 133, (2) in connection
with other Board projects dealing with financial instruments, and (3) in
connection with implementation issues raised in relation to the application of
the definition of a derivative, in particular, the meaning of an initial net
investment that is smaller than would be required for other types of contracts
that would be expected to have a similar response to changes in market factors,
the meaning of underlying, and the characteristics of a derivative that contains
financing components. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The Company does not expect the adoption of this standard to have
a material effect on the Company's consolidated results of operations or
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how a Company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that a Company classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances) because that freestanding
financial instrument embodies an obligation of the Company. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not expect the adoption of this
standard to have a material effect on the Company's consolidated results of
operations or financial position.
4. Income Taxes
The provision for income taxes for the quarter and nine-month period
ended May 2, 2003 has been computed based on management's estimate of the tax
rate for the entire 2003 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 ended May 3, 2002 was 35.2% and for the nine-month period
ended May 3, 2002 and for the entire fiscal year of 2002 was 35.6%. The Company
recorded a reduction in the third quarter of fiscal 2003 to current taxes
payable of $21,699, a decrease in current deferred income tax asset of $2,535
and an increase in long-term deferred income tax liability of $19,164 as a
result of additional information available from the preparation and filing of
the Company's tax returns filed in the third quarter of fiscal 2003.
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 Earnings 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.
5. 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) ("Cracker Barrel") 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 nine-month period ended May 2, 2003 cannot be considered indicative
of the operating results for the full fiscal year.
6. Inventories
Inventories were comprised of the following at:
May 2, August 2,
2003 2002
---- ----
Retail $ 79,898 $ 93,066
Restaurant 17,615 16,799
Supplies 17,936 14,828
-------- --------
Total $115,449 $124,693
======== ========
7. Long-term Debt
The Company has in place a $300,000 revolving credit facility that
expires on February 21, 2008. The financial covenants related to the $300,000
Revolving Credit Facility require that the Company maintain a fixed charge
coverage ratio (as defined in the Revolving Credit Facility) of 2.5 to 1.0, a
lease adjusted funded debt to total capitalization ratio (as defined in the
Revolving Credit Facility) not to exceed 0.5 to 1.0 and a lease adjusted funded
debt to EBITDAR (earnings before interest expense, income taxes, depreciation
and amortization and rent expense) ratio (as defined in the Revolving Credit
Facility) not to exceed 3.0 to 1.0. At May 2, 2003, the Company was in
compliance with all covenants. All subsidiaries of the Company have fully and
unconditionally guaranteed on a joint and several basis the obligations under
the facility.
8. 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 2002 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
nine-month period ended May 2, 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.
9. 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.
10. 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 Nine Months Ended
-------------------- -----------------------
May 2, May 3, May 2, May 3,
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Restaurant $433,140 $413,866 $1,280,406 $1,200,779
Retail 93,685 91,941 336,517 324,501
-------- -------- ---------- ----------
Total net sales 526,825 505,807 1,616,923 1,525,280
Franchise fees and royalties 364 320 924 802
-------- -------- ---------- ----------
Total revenue $527,189 $506,127 $1,617,847 $1,526,082
======== ======== ========== ==========
11. 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
nine-month periods ended May 2, 2003 and May 3, 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 fiscal second 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. The Company does not believe any such events or changes in circumstances
have occurred since the annual assessment performed in the fiscal second quarter
ending January 31, 2003.
12. Commitments and Contingencies
In Note 9 to the Consolidated Financial Statements for the fiscal year
ended August 2, 2002 contained in the 2002 10-K (which is incorporated in this
note by this reference), the Company reported that its Cracker Barrel subsidiary
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 2002 10-K), in the
NAACP/Thomas public accommodations case, on October 1, 2002, the United States
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 March 7, 2003, the United
States District Court issued an order in the Rhodes case adopting the
Magistrate's recommendations and denying class certification. Furthermore, on
May 2, 2003, the 11th Circuit Court of Appeals denied plaintiff's application
for permission to appeal the District Court's ruling in that case. Therefore,
there are now 13 individual plaintiffs in that case, against whom the Company
believes that Cracker Barrel has substantial defenses.
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 consolidated 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 above 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 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 May 2, 2003 the Company was contingently liable for
approximately $2,418 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 May 2, 2003 the Company had
$10,635 of standby letters of credit related to workers' compensation and
general liabilities accrued in its consolidated financial statements. 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. The operating lease
has a remaining life of approximately 10.4 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 condensed consolidated 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 13.4
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
condensed consolidated 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.
13. Subsequent Event
On May 30, 2003, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 1,000 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. As of May 30, 2003, the Company also was authorized to purchase
approximately 500 shares under a previously announced repurchase authorization.
14. 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 nine-month period ended May 3, 2002, reflect
reclassifications of $1,077 and $3,317, 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 amount of this
reclassification for the fourth quarter of fiscal 2002 is $1,575. Additionally,
the balance sheet at August 2, 2002 and the cash flow statement for the
nine-month period ended May 3, 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 nine-month period ended May 3, 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 May 2, 2003, and the related
condensed consolidated statements of income and cash flows for the three-month
and nine-month periods ended May 2, 2003 and May 3, 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
June 12, 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 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; practical or psychological effects of terrorist acts or war and
military or government responses; consumer behavior affected by concerns over
severe acute respiratory syndrome (SARS); consumer behavior based on concerns
over nutritional aspects of the Company's products or restaurant food in
general; competitive marketing and operational initiatives; 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 and acquire successful new lines of retail merchandise;
the availability and cost of acceptable sites for development and the Company's
ability to identify such sites; 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 nine-month period ended May
2, 2003 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
--------------- -----------------
May 2, May 3, May 2, May 3,
2003 2002 2003 2002
---- ---- ---- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 31.4 31.9 32.2 33.2
----- ----- ----- -----
Gross profit 68.6 68.1 67.8 66.8
Labor & other related expenses 38.1 38.6 37.4 37.6
Other store operating expenses 17.6 17.3 17.4 17.0
----- ----- ----- -----
Store operating income 12.9 12.2 13.0 12.2
General and administrative 5.6 5.6 5.8 5.7
----- ----- ----- -----
Operating income 7.3 6.6 7.2 6.5
Interest expense 0.4 0.3 0.4 0.3
Interest income -- -- -- --
----- ----- ----- -----
Income before income taxes 6.9 6.3 6.8 6.2
Provision for income taxes 2.5 2.2 2.4 2.2
----- ----- ----- -----
Net income 4.4% 4.1% 4.4% 4.0%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and nine-month period
ended May 2, 2003 as compared to the same periods a year ago:
Quarter Ended Nine Months Ended
-------------- ------------------
May 2, May 3, May 2, May 3,
2003 2002 2003 2002
---- ---- ---- ----
Net sales:
Restaurant 82.1% 81.8% 79.1% 78.7%
Retail 17.8 18.1 20.8 21.2
----- ----- ----- -----
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%
===== ===== ===== =====
Comparable Store Average Sales Analysis
Quarter Ended Nine Months Ended
-------------- ---------------------
May 2, May 3, May 2, May 3,
2003 2002 2003 2002
---- ---- ---- ----
Cracker Barrel (437 and 430 stores
for the quarter and nine months,
respectively)
Net sales:
Restaurant $762.8 $776.0 $2,311.6 $2,298.0
Retail 196.9 201.6 716.0 722.6
------ ------ -------- --------
Total net sales $959.7 $977.6 $3,027.6 $3,020.6
====== ====== ======== ========
Logan's (75 and 71 restaurants for
the quarter and nine months,
respectively) $744.9 $753.0 $2,194.6 $2,201.5
====== ====== ======== ========
Total Revenue
Total revenue for the third quarter of fiscal 2003 increased 4.2%
compared to last year's third quarter. Prior year comparable store sales
increased 4.7%, 1.1% and 3.4% for Cracker Barrel restaurants and retail and
Logan's Roadhouse(R) ("Logan's") restaurants, respectively, causing this year's
comparisons to be against strong prior year performance. For the third quarter
ended May 2, 2003, Cracker Barrel comparable store restaurant sales decreased
1.7%, and comparable store retail sales decreased 2.3% resulting in a combined
comparable store sales (total net sales) decrease of 1.8%. The comparable store
restaurant sales decrease consisted of a 1.8% average check increase for the
quarter (including a 1.1% menu price increase) offset by a 3.5% guest traffic
decrease. We believe that the comparable store retail sales decrease is
primarily related to the restaurant traffic decrease versus a year ago and the
effect of the weak economic environment on consumer sentiment. Logan's
comparable restaurant sales decreased 1.1% which consisted of a 2.0% average
check increase (including a 1.1% menu price increase) offset by a 3.1% guest
traffic decrease. Comparable store restaurant sales at both concepts were
affected by severe winter weather, especially early in February, with an
estimated reduction in revenue of slightly less than 1% for the full quarter.
Comparable store sales also were affected by continued unsettled consumer
sentiment, a weak economic recovery and customer focus on the war in Iraq. Sales
from newly opened Cracker Barrel stores and Logan's restaurants primarily
accounted for the balance of the total revenue increase in the third quarter.
Total revenue for the nine-month period ended May 2, 2003, increased
6.0% compared to the nine-month period ended May 3, 2002. Prior year comparable
store sales increased 5.7%, 2.4% and 2.8% for Cracker Barrel restaurants and
retail and Logan's restaurants, respectively, including the favorable impact of
unusually mild winter weather in fiscal 2002 causing this year's comparisons to
be against strong prior year performance. For the nine-month period ended May 2,
2003, Cracker Barrel comparable store restaurant sales increased 0.6%, and
comparable store retail sales decreased 0.9%, resulting in a combined comparable
store sales (total net sales) increase of 0.2%. The comparable store restaurant
sales increase consisted of a 2.0% average check increase for the nine months
(including a 1.2% menu price increase) partially offset by a 1.4% guest traffic
decrease. The comparable store retail sales decrease is believed primarily to
reflect the effect of the weak economic environment on consumer sentiment.
Logan's comparable restaurant sales decreased 0.3%, which consisted of a 1.7%
average check increase (including a 1.1% menu price increase) offset by a 2.0%
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 nine-month period ended May 2, 2003.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the third
quarter of fiscal 2003 decreased to 31.4% from 31.9% in the third quarter of
last year. Cracker Barrel has had various focused initiatives aimed at improving
cost of product from vendors. This decrease was due primarily to lower commodity
costs for orange juice, potatoes and certain pork and dairy products, higher
menu pricing, higher initial mark-ons of retail merchandise, lower retail shrink
and in-store damages and a lower mix of retail sales as a percent of total
revenues (retail has a higher product cost than restaurant). These decreases
were partially offset by higher commodity costs for beef, eggs and butter and
higher markdowns of retail merchandise versus the prior year.
Cost of goods sold as a percentage of total revenue for the nine-month
period ended May 2, 2003, decreased to 32.2% from 33.2% in the nine-month period
ended May 3, 2002. Cracker Barrel has had various focused initiatives aimed at
improving cost of product from vendors. 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 and higher commodity costs
for beef, poultry, eggs and butter versus the prior year.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor
and related costs incurred in store operations. Labor and other related expenses
as a percentage of total revenue decreased to 38.1% in the third quarter this
year from 38.6% last year. This decrease was due primarily to higher menu
pricing, lower workers' compensation costs and lower hourly labor expenses as a
percent of revenue. The lower workers' compensation costs were due primarily to
the non-recurrence of higher than expected claims cost development in the third
quarter of fiscal 2002 from claims incurred prior to fiscal 2002. 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 and increased group health costs
versus the prior year.
Labor and other related expenses as a percentage of total revenue
decreased to 37.4% in the nine-month period ended May 2, 2003 from 37.6% in the
nine-month period ended May 3, 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 versus the prior year.
Other Store Operating Expenses
Other store operating expenses include all unit-level operating costs,
the major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent, depreciation, general insurance, credit
card fees and pre-opening expenses other than labor-related. Other store
operating expenses as a percentage of total revenue increased to 17.6% in the
third quarter of fiscal 2003 from 17.3% in the third 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 versus the prior year.
Other store operating expenses as a percentage of total revenue
increased to 17.4% in the nine-month period ended May 2, 2003, from 17.0% in the
nine-month period ended May 3, 2002. This increase was due primarily to higher
maintenance and advertising versus the prior year. These increases were offset
partially by higher menu pricing versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
remained unchanged at 5.6% in the third quarter of fiscal 2003 as compared to
the third quarter of last year. Higher professional fees versus the prior year
were offset by higher revenues from menu pricing and new stores versus the prior
year.
General and administrative expenses as a percentage of total revenue
increased to 5.8% in the nine-month period ended May 2, 2003, from 5.7% in the
nine-month period ended May 3, 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 revenues from menu
pricing and new stores versus the prior year.
Interest Expense
Interest expense increased to $2,214 and $6,659 in the third quarter
and the first nine months of fiscal 2003, respectively, from $1,535 and $4,616
in the same periods last year. The increases resulted primarily from higher
average outstanding debt during the third quarter and first nine 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 income in the third
quarters of fiscal 2003 and 2002, as well as the first nine months of fiscal
2002. The Company's interest income was $73 in the first nine months of fiscal
2003. The increase for the first nine 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 was
35.5% in the third quarter and the first nine months of fiscal 2003 as compared
to 35.2% during the third quarter a year ago and 35.6% for the first nine months
and 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 increase in the tax rate
from the third quarter a year ago was that the rate for the first nine months a
year ago was lower than management's previous estimates in the first two
quarters of fiscal 2002. The primary reason for the decrease in the tax rate for
the first nine months and the entire fiscal year of 2002 was decreases in
effective state tax rates.
As previously discussed in the 2002 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 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.
The Company recorded a reduction in the third quarter of fiscal 2003
to current taxes payable of $21,699, a decrease in current deferred income tax
asset of $2,535 and an increase in long-term deferred income tax liability of
$19,164 as a result of additional information available from the preparation and
filing of the Company's tax returns filed in the third quarter of fiscal 2003.
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 2002 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
fiscal second 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 fiscal third
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.
Inventory Shrinkage
Cost of sales includes the cost of retail merchandise sold at the
Cracker Barrel stores utilizing the retail inventory accounting method. It
includes an estimate of shortages that are adjusted upon physical inventory
counts in subsequent periods. This estimate is consistent with Cracker Barrel's
historical practice in all fiscal periods shown. Actual shrinkage recorded upon
physical inventory counts may produce materially different amounts of shrinkage
than estimated by the Company for the fiscal third quarter ended on May 2, 2003.
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
2002 10-K.
Legal Proceedings
As discussed in Note 12 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
2002 10-K, 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 adverse effect on the Company's financial
condition or results of operations.
In addition to the litigation described in the preceeding paragraph,
the Company and its subsidiaries are parties to other legal proceedings
incidental to their businesses. In the opinion of management, based upon
information currently available, the ultimate liability with respect to these
other actions will not materially affect the Company's consolidated results of
operations or financial position.
Impact of Recent Accounting Pronouncements Not Yet Adopted
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends SFAS
No. 133 for decisions made (1) as part of the Derivatives Implementation Group
process that effectively required amendments to SFAS No. 133, (2) in connection
with other Board projects dealing with financial instruments, and (3) in
connection with implementation issues raised in relation to the application of
the definition of a derivative, in particular, the meaning of an initial net
investment that is smaller than would be required for other types of contracts
that would be expected to have a similar response to changes in market factors,
the meaning of underlying, and the characteristics of a derivative that contains
financing components. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The Company does not expect the adoption of this standard to have
a material effect on the Company's consolidated financial statements or its
financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 establishes standards for how a Company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that a company classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances) because that freestanding
financial instrument embodies an obligation of the Company. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not expect the adoption of this
standard to have a material effect on the Company's consolidated financial
statements or its financial position.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $154,062 for
the nine-month period ended May 2, 2003 increased from the $118,328 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
$154,062 in net cash from operating activities was provided by net income
adjusted for depreciation and amortization. Cash provided by decreases in
inventories and other current assets and increases in deferred income taxes and
other current liabilities was offset partially by cash used for increases in
other assets and decreases in accounts payable and other long-term liabilities.
The Company had negative working capital of $77,269 at May 2, 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 $85,260 for the nine-month period ended May
2, 2003 as compared to $69,997 during 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 $104 and $345 for the quarter and nine-month
period ended May 2, 2003, as compared to $79 and $276 for the quarter and
nine-month period ended May 3, 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 nine
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, 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 23 new Cracker Barrel stores, 20 of which already have
opened, in fiscal 2003. The Company also has opened 12 new company-operated
Logan's restaurants in fiscal 2003.
The Company's contractual obligations and commitments as of May 2, 2003
are as follows:
Amount of Contractual Oblistions Due by Period
Less than 1 2-3 4-5 After 5
Total Year Years Years Years
----- ---- ----- ----- -----
Convertible debt (a) $178,392 -- -- -- $178,392
Revolving credit facility 20,000 -- -- $ 20,000 --
-------- -------- -------- -------- --------
Long-term debt 198,392 -- -- 20,000 178,392
Capital leases 473 $ 97 $ 239 137 --
Operating leases - excluding billboards 457,018 27,707 55,509 54,955 318,847
Operating leases for billboards 32,885 18,353 14,280 252 --
-------- -------- -------- -------- --------
Total contractual cash obligations $688,768 $ 46,157 $ 70,028 $ 75,344 $497,239
======== ======== ======== ======== ========
Amount of Commitment Expirations by Period
Total Less than 1 2-3 4-5 Over 5
Commitment Year Years Years Years
---------- ---- ----- ----- -----
Revolving credit facility $300,000 - - $300,000 -
Standby letters of credit 10,635 $10,635 - - -
Trade letters of credit 2,418 2,418 - - -
Guarantees (b) 5,030 443 $913 913 $2,761
-------- ------- ---- -------- ------
Total commitments $318,083 $13,496 $913 $300,913 $2,761
======== ======= ==== ======== ======
(a) The convertible debt was issued at a discount representing a yield to
maturity of 3.00% per annum. The $178,392 balance is the accreted carrying value
of the debt at May 2, 2003. The convertible debt will continue to accrete at
3.00% per annum and if held to maturity on April 2, 2032 the obligation will
total $422,050.
(b) Consists solely of guarantees associated with properties that have been
subleased or assigned. The Company is not aware of any non-performance under
these arrangements that would result in the Company having to perform in
accordance with the terms of those guarantees.
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. This 2,000 share repurchase authorization was
completed during the second quarter 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. During the third quarter, the Company
repurchased 1,420 shares of its common stock for total consideration of $41,135
or $28.97 per share. The Company presently expects to complete this 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.
On May 30, 2003, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 1,000 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. The principal factors in determining whether the repurchase will be
completed include the funds needed for such repurchases relative to availability
of funds generated from the business and drawn from the Company's revolving
credit facility while maintaining the Company's capitalization targets discussed
below.
During the first nine months of fiscal 2003, the Company received
proceeds of $27,626 from the exercise of stock options on 1,498 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 May 2, 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 May 2,
2003, the Company had $280,000 available under its then existing revolving
credit facility. The Company estimates that it will generate excess cash of more
than $100,000 before proceeds from the exercise of stock options and after
capital expenditures in fiscal 2003 which it has applied and 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. There have been no
material changes in the quantitative and qualitative market risks of the Company
since August 2, 2002.
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 the Company's
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 2002 10-K is incorporated in this Form
10-Q by this reference.
Part II, Item 1 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended January 31, 2003 (filed with the
Commission on March 17, 2003) is incorporated in this Form
10-Q by this reference.
See also Note 12 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 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are submitted pursuant to Item 601
of Regulation S-K
(15) Letter regarding unaudited financial information.
(99) Sarbanes-Oxley Section 906 Certifications
Pursuant to Securities and Exchange Commission
Release No. 33-8212 (34-47551), the certifications
required by Section 906 of the Sarbanes-Oxley Act of
2002 are being furnished as Exhibit 99 to this
Quarterly Report on Form 10-Q and will not be deemed
"filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 (the "Exchange Act"), or
otherwise subject to the liability of that section.
Such certification will not be deemed to be
incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act, except to
the extent that the Company specifically incorporates
it by reference.
(b) The following Current Reports on Form 8-K were filed
during the quarter for which this report is filed:
Form 8-K dated February 20, 2003, reporting under
Item 9 the issuance of a press release announcing the
Company's fiscal 2003 second quarter earnings,
current sales trends and earnings guidance for the
third and fourth fiscal quarters of fiscal 2003.
Form 8-K dated February 21, 2003, reporting under
Item 5 the closing of the Company's new $300 million
5-year revolving credit facility.
Form 8-K dated February 28, 2003, reporting under
Item 5 the Board of Directors' authorization to
repurchase up to 2 million additional shares of the
Company's common stock.
Form 8-K dated March 10, 2003, reporting under Item 9
the issuance of a press release announcing
developments in certain litigation
Form 8-K dated March 17, 2003, reporting under Item 9
in connection with the filing of the Company's Form
10-Q for the quarterly period ending on January
31,2003, that the Company's Chief Executive Officer
and Chief Financial Officer had provided the
certifications required by Section 906 of the
Sarbanes-Oxley Act of 2002.
Form 8-K dated March 20, 2003, reporting under Item 9
the issuance of a press release announcing the
Company's fiscal 2003 third quarter-to-date sales and
operating trends discussing the outlook for the
remainder of the quarter.
Form 8-K dated April 22, 2003, reporting under Item 9
the issuance of a press release announcing the
Company's fiscal 2003 third quarter-to-date sales
trends and increased earnings guidance for the third
and fourth fiscal quarters 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: 6/12/03 By /s/Lawrence E. White
------- -------------------------------------------------
Lawrence E. White, Senior Vice President, Finance
and Chief Financial Officer
Date: 6/12/03 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 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: June 12, 2003 /s/ Michael A. Woodhouse
------------- --------------------------
Michael A. Woodhouse,
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to CBRL Group, Inc. and will be retained by CBRL Group, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
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 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: June 12, 2003 /s/ Lawrence E. White
------------- ------------------------
Lawrence E. White,
Senior Vice President, Finance and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to CBRL Group, Inc. and will be retained by CBRL Group, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT INDEX
Exhibit No. Description
15 Letter regarding unaudited financial information
99 Sarbanes-Oxley Section 906 Certifications
Pursuant to Securities and Exchange Commission
Release No. 33-8212 (34-47551), the certifications
required by Section 906 of the Sarbanes-Oxley Act of
2002 are being furnished as Exhibit 99 to this
Quarterly Report on Form 10-Q and will not be deemed
"filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 (the "Exchange Act"), or
otherwise subject to the liability of that section.
Such certification will not be deemed to be
incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act, except to
the extent that the Company specifically incorporates
it by reference.