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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended January 30, 2004
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ________ to _______.
Commission file number 000-25225
CBRL GROUP, INC.
(Exact Name of Registrant as
Specified in Its Charter)
Tennessee 62-1749513
- --------------------------------- ------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
Hartmann Drive, P. O. Box 787
Lebanon, Tennessee 37088-0787
(Address of Principal Executive Offices)
615-444-5533
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No_____
-------
49,597,957 Shares of Common Stock
Outstanding as of February 27, 2004
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
January 30, August 1,
2004 2003*
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 40,810 $ 14,389
Receivables 10,288 9,150
Inventories 124,374 136,020
Prepaid expenses 11,177 8,932
Deferred income taxes 7,568 7,568
---------- ----------
Total current assets 194,217 176,059
Property and equipment - net 1,072,357 1,040,315
Goodwill 92,882 92,882
Other assets 19,975 17,067
---------- ----------
Total assets $1,379,431 $1,326,323
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,593 $ 82,172
Accrued expenses 195,027 164,442
Current maturities of long-term debt
and other long-term obligations 108 100
---------- ----------
Total current liabilities 230,728 246,714
---------- ----------
Long-term debt 182,406 186,730
---------- ----------
Other long-term obligations 99,608 97,983
---------- ----------
Commitments and Contingencies (Note 11)
Shareholders' equity:
Preferred stock - 100,000 shares of
$.01 par value authorized; no shares
issued -- --
Common stock - 400,000 shares of
$.01 par value authorized; at
January 30, 2004, 49,767 shares issued
and outstanding and at August 1, 2003,
47,873 shares issued and outstanding 498 479
Additional paid-in capital 25,450 --
Retained earnings 840,741 794,417
---------- ----------
Total shareholders' equity 866,689 794,896
---------- ----------
Total liabilities and shareholders' equity $1,379,431 $1,326,323
========== ==========
See notes to unaudited condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet as of August 1, 2003.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
-------------------------- ----------------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Total revenue $612,801 $563,119 $1,189,166 $1,090,658
Cost of goods sold 213,527 190,112 399,427 356,077
-------- -------- ---------- ----------
Gross profit 399,274 373,007 789,739 734,581
Labor and other related expenses 219,007 204,920 433,310 404,187
Other store operating expenses 102,307 97,405 199,035 187,985
-------- -------- ---------- ----------
Store operating income 77,960 70,682 157,394 142,409
General and administrative 30,516 30,317 63,933 64,221
-------- -------- ---------- ----------
Operating income 47,444 40,365 93,461 78,188
Interest expense 2,068 2,184 4,291 4,445
Interest income 5 -- 5 73
-------- -------- ---------- ----------
Income before income taxes 45,381 38,181 89,175 73,816
Provision for income taxes 16,380 13,555 32,014 26,205
-------- -------- ---------- ----------
Net income $ 29,001 $ 24,626 $ 57,161 $ 47,611
======== ======== ========== ==========
Net earnings per share:
Basic $ 0.59 $ 0.50 $ 1.17 $ 0.95
======== ======== ========== ==========
Diluted $ 0.57 $ 0.48 $ 1.13 $ 0.93
======== ======== ========== ==========
Weighted average shares:
Basic 49,529 49,689 48,825 49,874
======== ======== ========== ==========
Diluted 51,124 51,447 50,580 51,383
======== ======== ========== ==========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
-----------------------------
January 30, January 31,
2004 2003
---- ----
Cash flows from operating activities:
Net income $ 57,161 $ 47,611
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 30,929 32,524
Loss on disposition of property and equipment 972 120
Accretion on zero-coupon contingently convertible
senior notes 2,676 2,603
Changes in assets and liabilities:
Inventories 11,646 18,201
Accounts payable (46,579) (29,639)
Other current assets and other current liabilities 21,738 26,229
Other assets and other long-term liabilities (1,951) (4,349)
-------- --------
Net cash provided by operating activities 76,592 93,300
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (63,899) (58,458)
Proceeds from sale of property and equipment 682 1,433
-------- --------
Net cash used in investing activities (63,217) (57,025)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 130,000 207,100
Principal payments under long-term debt and other
long-term obligations (137,049) (202,138)
Deferred financing costs (1) (24)
Proceeds from exercise of stock options 43,768 20,202
Purchases and retirement of common stock (18,299) (53,868)
Dividends on common stock (5,373) (1,043)
-------- --------
Net cash provided by (used in) financing activities 13,046 (29,771)
-------- --------
Net increase in cash and cash equivalents 26,421 6,504
Cash and cash equivalents, beginning of period 14,389 15,074
-------- --------
Cash and cash equivalents, end of period $ 40,810 $ 21,578
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest $ 633 $ 817
======== ========
Income taxes $ 12,600 $ 14,516
======== ========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
(In thousands, except share and per share data)
(Unaudited)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheets as of January 30, 2004 and August
1, 2003 and the related condensed consolidated statements of income and cash
flows for the quarters and six-month periods ended January 30, 2004 and January
31, 2003, have been prepared by CBRL Group, Inc. (the "Company") in accordance
with accounting principles generally accepted in the United States of America
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") without audit. In the opinion of management, all adjustments
(consisting of normal and recurring items) for a fair presentation of such
condensed consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended August
1, 2003 ("2003 Form 10-K") filed with the SEC on October 15, 2003.
Deloitte & Touche LLP, the Company's independent auditors, have performed a
limited review of the financial information included herein. Their report on
such review accompanies this filing.
2. Summary of Significant Accounting Policies
The significant accounting policies of the Company are included in the 2003
Form 10-K. During the quarter ended January 30, 2004, there were no significant
changes to those accounting policies. References in these Notes to the Condensed
Consolidated Financial Statements ("Notes") to a year are to the Company's
fiscal year unless otherwise noted.
Stock Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure". Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based compensation expense,
net of related tax effects, in the table represents the amortization of
restricted stock grants to two executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's
consolidated net income and net income per share would have been reduced to the
pro-forma amounts illustrated as follows:
Quarter Ended Six Months Ended
----------------------- -----------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Net income - as reported $29,001 $24,626 $57,161 $47,611
Add: Total stock-based employee
compensation included in reported
net income, net of related tax effects 19 212 37 178
Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards, net of
tax effects (2,661) (2,834) (5,367) (5,814)
------- ------- ------- -------
Pro forma, net income $26,359 $22,004 $51,831 $41,975
======= ======= ======= =======
Net income per share:
Basic - as reported $ 0.59 $ 0.50 $ 1.17 $ 0.95
======= ======= ======= =======
Basic - pro forma $ 0.53 $ 0.44 $ 1.06 $ 0.84
======= ======= ======= =======
Diluted - as reported $ 0.57 $ 0.48 $ 1.13 $ 0.93
======= ======= ======= =======
Diluted - pro forma $ 0.52 $ 0.43 $ 1.02 $ 0.82
======= ======= ======= =======
3. Recently Issued Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity". SFAS No. 150 establishes standards for how a
Company classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that a Company
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that freestanding financial instrument
embodies an obligation of the Company. SFAS No. 150 was effective for financial
instruments entered into or modified after May 31, 2003, and otherwise was
effective on August 2, 2003 for the Company. FASB Staff Position 150-3 was
issued in November 2003 which deferred indefinitely the effective date for
certain mandatorily redeemable non-controlling interests. The adoption of SFAS
No. 150 did not have a material impact on the Company's consolidated results of
operations or financial position.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." Interpretation No.
46, which was revised in December 2003, addresses the consolidation by business
enterprises of variable interest entities as defined in the Interpretation.
Interpretation No. 46 is effective for interests in structures that are commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Interpretation No. 46 is also effective for all other types of variable
interest entities for periods ending after March 15, 2004. The Company does not
have any interests that would change our current consolidated reporting entity
or require additional disclosures required by Interpretation No. 46.
4. Income Taxes
The provision for income taxes for the six-month period ended January 30,
2004 has been computed based on management's estimate of the tax rate for 2004
of 35.9%. This estimate is higher than management's previous estimate, resulting
in a 36.1% rate for the second quarter of 2004. The increase in management's
estimate of the tax rate for 2004 is based upon the expiration of certain tax
credits on January 1, 2004. The variation between the statutory tax rate and the
effective tax rate is due primarily to state income taxes offset partially by
employer tax credits for FICA taxes paid on employee tip income. The Company's
effective tax rate for the quarter and six-month period ended January 31, 2003
and for 2003 was 35.5%.
5. Seasonality
Historically the consolidated net income of the Company has been lower in
the first three quarters and highest in the fourth quarter, which includes much
of the summer vacation and travel season. Management attributes these variations
primarily to the decrease in interstate tourist traffic and propensity to dine
out less during the regular school year and winter months and the increase in
interstate tourist traffic and propensity to dine out more during the summer
months. The Company's retail sales historically have been highest in the
Company's second quarter, which includes the Christmas holiday shopping season.
Therefore, the results of operations for the quarter ended January 30, 2004
cannot be considered indicative of the operating results for the entire year.
6. Inventories
Inventories were comprised of the following at:
January 30, August 1,
2004 2003
---- ----
Retail $ 87,795 $101,955
Restaurant 18,451 17,091
Supplies 18,128 16,974
-------- --------
Total $124,374 $136,020
======== ========
7. Consolidated Net Income Per Share and Weighted Average Shares
Basic consolidated net income per share is computed by dividing
consolidated income available to common shareholders by the weighted average
number of common shares outstanding for the reporting period. Diluted
consolidated net income per share reflects the potential dilution that could
occur if securities, options or other contracts to issue common stock were
exercised or converted into common stock. The Company's zero-coupon convertible
senior notes (see Note 4 to the Company's Consolidated Financial Statements
included in the 2003 Form 10-K for a description of these notes) represent
potential dilutive shares at January 30, 2004. The effect of the assumed
conversion of the zero-coupon convertible senior notes has been excluded from
the calculation of diluted net income per share for the quarter and six-month
period ended January 30, 2004 because none of the conditions that permit
conversion were satisfied during the reporting period. Outstanding stock options
issued by the Company represent the only dilutive security reflected in diluted
weighted average shares.
8. 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 consolidated
comprehensive income and consolidated net income as reported by the Company for
all periods shown.
9. Segment Reporting
Cracker Barrel Old Country Store(R) ("Cracker Barrel") units represent a
single, integrated operation with two related and substantially integrated
product lines. The operating expenses of the restaurant and retail product line
of a Cracker Barrel unit are shared and are indistinguishable in many respects.
The chief operating decision-makers review operating results for both restaurant
and retail operations on a combined basis.
The Company manages its business on the basis of one reportable operating
segment. All of the Company's operations are located within the United States.
The following data are presented in accordance with SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," for all periods
presented.
Quarter Ended Six Months Ended
------------------------- -------------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Net sales in Company-owned stores:
Restaurant $457,019 $423,524 $ 913,539 $ 847,266
Retail 155,313 139,315 274,752 242,832
-------- -------- ---------- ----------
Total net sales 612,332 562,839 1,188,291 1,090,098
Franchise fees and royalties 469 280 875 560
-------- -------- ---------- ----------
Total revenue $612,801 $563,119 $1,189,166 $1,090,658
======== ======== ========== ==========
10. Impairment of Long-lived Assets
The Company evaluates long-lived assets and certain identifiable
intangibles to be held and used in the business for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. An impairment is determined by comparing undiscounted future
operating cash flows that are expected to result from an asset to the carrying
values of an asset on a store by store basis. If an impairment exists, the
amount of impairment is measured as the sum of the estimated discounted future
operating cash flows of the asset and the expected proceeds upon sale of the
asset less its carrying value. Assets held for sale, if any, are reported at the
lower of carrying value or fair value less costs to sell. The Company recorded
no impairment losses in the quarters ended January 30, 2004 and January 31,
2003. In addition, at least annually the Company assesses the recoverability of
goodwill and other intangible assets. The impairment tests require the Company
to estimate fair values of its related reporting units by making assumptions
regarding future cash flows and other factors. This valuation may reflect, among
other things, such external factors as capital market valuation for public
companies comparable to the operating unit. If these assumptions change in the
future, the Company may be required to record material impairment charges for
these assets. The Company performed its annual assessment in the second quarter
ending January 30, 2004, and concluded at that time that there was no indication
of impairment. This annual assessment will be performed in the second quarter of
each year. Additionally, an assessment will be performed between annual
assessments if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount.
The Company does not believe any such events or changes in circumstances have
occurred since the annual assessment performed in the second quarter ending
January 30, 2004.
11. Commitments and Contingencies
The Company's Cracker Barrel Old Country Store, Inc. subsidiary ("Cracker
Barrel") is involved in certain lawsuits, four of which are filed by the same
plaintiffs' attorneys, among others, and are not ordinary routine litigation
incidental to its business: Serena McDermott and Jennifer Gentry v. Cracker
Barrel Old Country Store, Inc., 4:99-CV-0001-HLM, a collective action under the
federal Fair Labor Standards Act ("FLSA"), was served on Cracker Barrel on May
3, 1999; Kelvis Rhodes, Maria Stokes et al. v. Cracker Barrel Old Country Store,
Inc., 4:99-CV-217-HLM, an action under Title VII of the Civil Rights Act of 1964
and Section 1981 of the Civil Rights Act of 1866, was served on Cracker Barrel
on September 15, 1999; Flounice Stanley, Calvin Slack et al. v. Cracker Barrel
Old Country Store, Inc., 4:01-CV-326-HLM, a collective action under the FLSA,
was served on Cracker Barrel on April 12, 2002; and the National Association for
the Advancement of Colored People ("NAACP"), Betty Thomas et al. v. Cracker
Barrel Old Country Store, Inc., 4:01-CV-325-HLM, an action under Title II of the
Civil Rights Act of 1964 and Section 1981 of the Civil Rights Act of 1866, was
served on Cracker Barrel on April 12, 2002. These four cases are filed, and are
pending, in the United States District Court for the Northern District of
Georgia, Rome Division.
The McDermott case alleges that certain tipped hourly employees were
required to perform excessive non-serving duties without being paid the minimum
wage or overtime compensation for that work ("server claims") and that certain
hourly employees were required to wait "off the clock," without pay for the wait
("lock-in claims"). The McDermott case seeks recovery of unpaid wages and
overtime wages related to those claims. Following provisional class notice being
sent in 2000, 10,838 persons filed "opt-in" forms. On February 27 and March 2,
2004, respectively, the Court in the McDermott case entered orders adopting a
previously issued report of the Magistrate Judge and: (1) granted Cracker
Barrel's motion to decertify the server claims; and (2) dismissed the server
claims with prejudice. As to the lock-in claims, the Court's February 27, 2004
order also upheld the Magistrate Judge's report denying Cracker Barrel's motion
to decertify those claims. Previously, 8,512 persons filed opt-in forms alleging
lock-in claims. As a result of the Court's ruling, these plaintiffs will be
allowed to present their collective case through 216 representative plaintiffs.
In order to receive statutory liquidated damages or to extend the period of the
statute of limitations from two to three years, the plaintiffs will be required
to show willfulness by Cracker Barrel. A failure on the plaintiffs' part to show
willfulness will limit their claims to actual damages over a two-year time
period. Because the February 27 and March 2 orders were received only recently,
the Company does not know whether the plaintiffs intend to appeal the aspects of
the orders that adversely affect them. The Company continues to believe that
Cracker Barrel has substantial defenses to these claims and intends to
vigorously defend against them unless they can be satisfactorily resolved
through the mediation discussions described below. Recent mediation discussions
have delayed the proceedings in this case, as well as others, but the parties
have submitted a proposed schedule to the Court with respect to any additional
proceedings in the case. In 2001 the Company established a reserve of $3,500
with respect to the McDermott case based on offers of judgment to those
plaintiffs. None of these offers of judgment was accepted.
The Stanley case initially was a purported FLSA collective action, but the
plaintiffs did not timely move the court for class certification. This case was
filed by current and former employees asserting three claims based upon alleged
violations of the FLSA: (1) that Personal Achievement Responsibility (PAR) IV
level employees are routinely required to perform quasi-managerial duties or
duties related to training without receiving minimum wage or overtime
compensation for that work, (2) that employees classified as trainers routinely
work off the clock to prepare for training sessions at home or on store premises
and to conduct pre-training activities, and (3) that store opener employees were
mis-classified as salaried exempt and are due overtime compensation. The
individual plaintiffs in Stanley seek unpaid compensation and back pay,
liquidated damages, prejudgment interest, attorneys' fees and costs, and
unspecified injunctive relief. No express amount of monetary damages is claimed
in the Stanley case and no substantial discovery has taken place in that case.
After rulings and consents dismissing certain plaintiffs, only three individuals
remain in this case. Cracker Barrel had recently begun to prepare for summary
judgment proceedings against the remaining three plaintiffs when mediation
discussions that could resolve this case, as well as others, delayed proceedings
in the case.
The Rhodes case sought certification as a company-wide class action against
Cracker Barrel, a declaratory judgment to redress an alleged systemic pattern
and practice of racial discrimination in employment opportunities, an order to
effect certain hiring and promotion goals and back pay and other related
monetary damages. In May 2002, the Rhodes plaintiffs filed a motion for class
certification proposing a class of all current and former employees and
applicants for employment who might have suffered discrimination in hiring,
promotion, job assignment and cross-training. The court has denied certification
of a class in the Rhodes case. The plaintiffs' appeal of this ruling was denied
by the 11th Circuit Court of Appeals. There are now 13 individual plaintiffs
continuing the claims asserted in the Rhodes case. Cracker Barrel recently moved
for summary judgment against the remaining 13 plaintiffs when mediation
discussions that could resolve this case, as well as others, delayed proceedings
in the case. Plaintiffs' responses to the summary judgment motion are currently
scheduled to be filed in March 2004.
The NAACP/Thomas case is an alleged race discrimination class action filed
by the NAACP and customers of Cracker Barrel that sought certification as a
class action. The plaintiffs allege that Cracker Barrel has a pattern and
practice of race-based discriminatory treatment of African-American customers
and white customers when accompanied by African-American customers. Plaintiffs
and their counsel have denied that they seek to recover compensatory damages,
instead claiming to seek only nominal, actual and punitive damages. Plaintiffs
also seek unspecified declaratory and injunctive relief and demanded an award of
punitive and nominal damages in the amount of $100,000, plus reasonable
attorneys' fees and costs. On October 1, 2002, the United States District Court
granted defendant's Rule 23 (c) motion and denied class certification. The
plaintiffs did not appeal this ruling. There are now 34 individual plaintiffs
continuing the claims they asserted in the Thomas case. Recently, some of the
original named plaintiffs, whose Title II claims were dismissed, have refiled
those same claims, which have been consolidated with the original action.
In addition, three lawsuits have been filed by individual plaintiffs in
Arkansas, North Carolina and Mississippi, each alleging racial discrimination
toward guests. It appears that these lawsuits were derived from the Thomas case,
because they involve a number of individuals who were witnesses in that case and
the lawsuits state claims that are similar to those made in the Thomas case on
behalf of certain individuals in those states. In the Thomas and the three other
cases, there are now approximately 100 individual plaintiffs who claim that they
were subject to discrimination as guests. Cracker Barrel had recently begun to
prepare for summary judgment proceedings against each of the plaintiffs in
Thomas, and had just commenced discovery proceedings in the other three cases,
when mediation discussions that could resolve these cases, as well as others,
delayed the proceedings.
In August 2002, Cracker Barrel received a letter from the Department of
Justice ("DOJ") informing Cracker Barrel that it was the subject of a DOJ
investigation pursuant to Title II of the Civil Rights Act of 1964. On August
20, 2002, the DOJ sent a request for information to Cracker Barrel seeking basic
information about locations of restaurants and broad based data about customer
complaints and company policies. Since the initial notice of the investigation,
Cracker Barrel has provided all requested information to the DOJ. The DOJ is
empowered to investigate matters under Title II of the Civil Rights Act of 1964.
Pursuant to Title II, DOJ remedies are limited to injunctive or preventive
relief. Remedies for public accommodation claims typically relate to
implementation or revision of policies and procedures for responding to, and
methods for monitoring, customer complaints.
In December 2003, Cracker Barrel had indications that the private
plaintiffs in each of the McDermott, Stanley, Rhodes and Thomas (and the three
other matters that appear to be related to Thomas) cases might be agreeable to
reaching a mediated settlement satisfactory to all parties. Mediation
discussions have continued to various degrees, but no resolution has been
reached at the present time, and there can be no assurance that resolution can
be reached in these mediation discussions. Cracker Barrel continues to believe
it has substantial defenses to the claims made in each of these cases and
intends to continue to defend the cases vigorously if a mediated settlement
cannot be achieved. Likewise, during January and February 2004, following DOJ's
indication in December 2003 that it intended to intervene and file a complaint
against Cracker Barrel arising out of alleged Title II (guest discrimination)
violations unless a negotiated settlement could be reached, Cracker Barrel has
engaged in detailed discussions with the DOJ.
The Company's subsidiary, Logan's Roadhouse, Inc. ("Logan's") is subject to
a lawsuit, Joey E. Barlow v. Logan's Roadhouse, Inc., in the United States
District Court for the Middle District of Tennessee (Case No. 3-03-0821), filed
September 8, 2003. The case is a putative collective action under the FLSA,
although it has not yet been certified as such. The complaint alleges that
certain hourly employees (including the plaintiff and 3 opt-ins to date) at one
Logan's restaurant in Macon, Georgia were subjected to various violations of the
FLSA, including being required to work "off the clock," having hours "shaved"
(reduced in the computer), and being required to perform excessive non-server
duties without being paid the minimum wage or overtime compensation for that
work. The case seeks recovery of unpaid compensation, plus an equal amount of
liquidated damages, prejudgment interest, attorneys' fees and costs, and
unspecified injunctive relief. On February 6, 2004, the Court ordered that
notice be sent to all current and former hourly employees at the Macon, GA
Logan's restaurant who were employed between September 8, 2000 to the present.
After notices are sent, employees will have 60 days to file opt-in forms.
Although the case is in a very preliminary stage, the Company denies that
Logan's engaged in any of the alleged unlawful employment practices and intends
to vigorously defend the case.
The Company believes that its Cracker Barrel and Logan's subsidiaries have
substantial defenses to the claims made in each of these cases, and subject to
the mediation discussions and negotiations reported above, each of these cases
is being defended vigorously. Because discovery has not been completed in some
of these cases, none of these cases are yet ready for trial, and the DOJ and
mediation discussions are not completed. As indicated, the Company accrued
$3,500 in 2001 with respect to the McDermott case based on offers of judgment to
those plaintiffs. None of those offers of judgment was accepted. With the
exception of that reserve, no provision for any potential liability has been
made in the consolidated financial statements of the Company with respect to
these lawsuits or the DOJ investigation. Neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with respect
to these cases or the investigation can be determined at this time. Although it
is premature to predict the outcome of these DOJ and the separate private
plaintiffs' mediation discussions and whether they will result in the resolution
of the DOJ's investigation or any or all of the referenced cases, if they were
to be resolved, based upon current status of the various discussions, the
Company would not expect any settlement to have a material adverse effect upon
the financial condition of the Company. Nevertheless, any settlement could
adversely affect short term results of operations if the amount of any
settlement exceeded the amounts already accrued. An unfavorable development in
any of these cases or in the DOJ investigation, however, that resulted in a
judgment in excess of amounts already accrued and beyond amounts covered under
various insurance policies of the Company and its subsidiaries, if applicable,
could cause the Company's consolidated results of operations and financial
condition to be materially and adversely affected.
In addition to the litigation described in the preceding paragraphs, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
The Company makes trade commitments in the course of its normal operations.
As of January 30, 2004 the Company was contingently liable for approximately
$1,303 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 January 30, 2004 the Company had $17,830 of
standby letters of credit related to workers' compensation and general liability
insurance. All standby letters of credit are renewable annually.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party. The operating lease has
a remaining life of approximately 9.7 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. The operating
lease has a remaining life of approximately 12.7 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
remaining liability of approximately $474 in the accompanying condensed
consolidated financial statements for estimated amounts to be paid in case of
non-performance by the sublessee.
12. Additional Paid-In Capital and Retained Earnings
During the six-month period ended January 30, 2004, the Company received
proceeds of $43,768 from the exercise of stock options on 2,313,880 shares of
its common stock. These stock option exercises created the additional paid-in
capital of $25,450 on the Company's January 30, 2004 consolidated balance sheet,
since the Company did not have enough offsetting share repurchases to reduce
this balance to zero as at August 1, 2003. During the six-month period ended
January 30, 2004, the Company declared two dividends of $0.11 per common share
each that were paid on November 10, 2003 and February 9, 2004.
13. Subsequent Event
On February 27, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000,000 shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization before the end of 2004,
although there can be no assurance that such repurchase actually will be
completed in that period of time.
14. Reclassifications
Certain reclassifications have been made in the 2003 condensed consolidated
financial statements to conform to the classifications used in 2004.
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders of
CBRL Group, Inc.
Lebanon, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of CBRL
Group, Inc. and subsidiaries (the "Company") as of January 30, 2004, and the
related condensed consolidated statements of income for the three-month and
six-month periods ended January 30, 2004 and January 31, 2003, and of cash flows
for the six-month periods ended January 30, 2004 and January 31, 2003. These
financial statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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 1, 2003, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated September 10,
2003 (September 25, 2003 as to Note 13), we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of August 1,
2003 is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 5, 2004
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All amounts reported or discussed in Part I, Item 2 of this Quarterly
Report on Form 10-Q are shown in thousands, except dollar amounts per share.
References in management's discussion and analysis of financial condition and
results of operations to a year are to the Company's fiscal year unless
otherwise noted. The following discussion and analysis provides information
which management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto. Except for specific historical
information, many of the matters discussed in this Quarterly Report on Form 10-Q
may express or imply projections of revenues or expenditures, statements of
plans and objectives or future operations or statements of future economic
performance. These, and similar statements are forward-looking statements
concerning matters that involve risks, uncertainties and other factors which may
cause the actual performance of CBRL Group, Inc. and its subsidiaries
(collectively, the "Company") to differ materially from those expressed or
implied by this discussion.
All forward-looking information is provided by the Company pursuant to the
safe harbor established under the Private Securities Litigation Reform Act of
1995 and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "outlook", "plans", "projection",
"may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of each of these
terms) or similar terminology. Factors which could materially affect actual
results include, but are not limited to: commodity, workers' compensation, group
health and utility price changes; competitive marketing and operational
initiatives; the ability of the Company to identify, acquire and sell successful
new lines of retail merchandise; the effects of plans intended to improve
operational execution and performance; changes in or implementation of
additional governmental or regulatory rules, regulations and interpretations
affecting accounting, tax, wage and hour matters, health and safety, pensions,
insurance or other undeterminable areas; the actual results of pending or
threatened litigation or governmental investigations and the costs and effects
of negative publicity associated with these activities; 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 based on concerns
over nutritional or safety aspects of the Company's products or restaurant food
in general; the effects of increased competition at Company locations on sales
and on labor recruiting, cost, and retention; the ability of and cost to the
Company to recruit, train, and retain qualified restaurant hourly and management
employees; potential disruptions to the company's restaurant or retail supply
chain; changes in foreign exchange rates affecting the Company's future retail
inventory purchases; the availability and cost of acceptable sites for
development and the Company's ability to identify such sites; changes in
accounting principles generally accepted in the United States of America or
changes in capital market conditions that could affect valuations of restaurant
companies in general or the Company's goodwill in particular; increases in
construction costs; changes in interest rates affecting the Company's financing
costs; and other factors described from time to time in the Company's filings
with the SEC, press releases, and other communications.
Results of Operations
The following table highlights operating results by percentage
relationships to total revenue for the quarter and six-month period ended
January 30, 2004 as compared to the same periods a year ago:
Quarter Ended Six Months Ended
----------------------- ---------------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 34.8 33.8 33.6 32.6
----- ----- ----- -----
Gross profit 65.2 66.2 66.4 67.4
Labor and other related expenses 35.8 36.4 36.4 37.1
Other store operating expenses 16.7 17.3 16.7 17.2
----- ----- ----- -----
Store operating income 12.7 12.5 13.3 13.1
General and administrative 5.0 5.4 5.4 5.9
----- ----- ----- -----
Operating income 7.7 7.1 7.9 7.2
Interest expense 0.3 0.3 0.4 0.4
Interest income -- -- --
----- ----- ----- -----
Income before income taxes 7.4 6.8 7.5 6.8
Provision for income taxes 2.7 2.4 2.7 2.4
----- ----- ----- -----
Net income 4.7% 4.4% 4.8% 4.4%
===== ===== ===== =====
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter and six-month period
ended January 30, 2004 as compared to the same periods a year ago:
Quarter Ended Six Months Ended
------------------------ --------------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Net sales:
Cracker Barrel restaurant 61.8% 63.1% 64.1% 65.7%
Logan's 12.8 12.1 12.7 12.0
----- ----- ----- -----
Total restaurant 74.6 75.2 76.8 77.7
Cracker Barrel retail 25.3 24.7 23.1 22.2
----- ----- ----- -----
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 Six Months Ended
------------------------ -----------------------
January 30, January 31, January 30, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Cracker Barrel (451 and 437 stores
for the quarter and six
months, respectively)
Net sales:
Restaurant $ 778.9 $ 760.5 $1,575.3 $1,545.0
Retail 316.2 295.5 563.2 519.1
-------- -------- -------- --------
Total net sales $1,095.1 $1,056.0 $2,138.5 $2,064.1
======== ======== ======== ========
Logan's (84 and 83 restaurants for
the quarter and six months,
respectively) $ 756.9 $ 727.1 $1,484.8 $1,442.7
======== ======== ======== ========
Total Revenue
Total revenue for the second quarter of 2004 increased 8.8% compared to
last year's second quarter. For the second quarter ended January 30, 2004,
Cracker Barrel Old Country Store(R) ("Cracker Barrel") comparable store
restaurant sales increased 2.4% and comparable store retail sales increased 7.0%
resulting in a combined comparable store sales (total net sales) increase of
3.7%. The comparable store restaurant sales increase consisted of a 1.4% average
check increase for the quarter (including a 0.5% net price increase effect from
a 1.7% menu increase taken in mid-January) and a 1.0% guest traffic increase. We
believe that the comparable store retail sales increase is primarily related to
improved merchandise selection with broader appeal and greater variety at lower
price points and improved merchandise planning and retail operations, as well as
the non-recurrence of supply disruptions in the early part of the second quarter
of the prior year related to a threatened West Coast dock strike. Logan's
Roadhouse(R) ("Logan's") comparable restaurant sales increased 4.1%, which
consisted of a 3.3% guest traffic increase and a 0.8% average check increase
(substantially all of which reflected higher menu prices). Sales from newly
opened Cracker Barrel stores and Logan's restaurants primarily accounted for the
balance of the total revenue increase in the second quarter.
Total revenue for the six-month period ended January 30, 2004 increased
9.0% compared to the six-month period ended January 31, 2003. For the six-month
period ended January 30, 2004, Cracker Barrel comparable store restaurant sales
increased 2.0% and comparable store retail sales increased 8.5% resulting in a
combined comparable store sales (total net sales) increase of 3.6%. The
comparable store restaurant sales increase consisted of a 1.5% average check
increase for the six months (including a 0.7% net price increase effect) and a
0.5% guest traffic increase. We believe that the comparable store retail sales
increase is primarily related to improved merchandise selection with broader
appeal and greater variety at lower price points and improved merchandise
planning and retail operations, as well as the non-recurrence of supply
disruptions in the six-month period of the prior year related to a threatened
West Coast dock strike. Logan's comparable restaurant sales increased 2.9%,
which consisted of a 2.6% guest traffic increase and a 0.3% average check
increase (substantially all of which reflected higher menu pricing). 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 30, 2004.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the second quarter
of 2004 increased to 34.8% from 33.8% in the second quarter of last year. This
increase was due primarily to higher commodity costs for beef, eggs, bacon and
dairy (some of which are expected to continue in the second half of 2004),
higher unit-level waste at Cracker Barrel, a higher mix of retail sales as a
percent of total revenues (retail has a higher product cost than restaurant),
lower initial mark-ons of retail merchandise and higher retail shrink versus the
prior year. These increases were partially offset by higher menu pricing and
lower markdowns of retail merchandise versus the prior year.
Cost of goods sold as a percentage of total revenue for the six-month
period ended January 30, 2004 increased to 33.6% from 32.6% in the six-month
period ended January 31, 2003. This increase was due primarily to higher
commodity costs for beef, eggs and bacon, a higher mix of retail sales as a
percent of total revenues (retail has a higher product cost than restaurant) and
higher markdowns of retail merchandise versus the prior year. These increases
were partially offset by higher menu pricing at Cracker Barrel and higher
initial mark-ons of retail merchandise versus the prior year.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue decreased to 35.8% in the second quarter this year
from 36.4% last year. This decrease was due primarily to lower workers'
compensation costs, lower group health costs, lower hourly labor expenses as a
percent of revenue and higher menu pricing versus the prior year. These
decreases were offset partially by increases in compensation under unit-level
bonus programs and unemployment insurance rates versus the prior year.
Labor and other related expenses as a percentage of total revenue decreased
to 36.4% in the six-month period ended January 30, 2004 as compared to 37.1% in
the six-month period ended January 31, 2003. This decrease was due primarily to
lower workers' compensation costs, lower group health costs, lower hourly labor
expenses as a percent of revenue and higher menu pricing versus the prior year.
These decreases were offset partially by increases in compensation under
unit-level bonus programs and unemployment insurance rates 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 decreased to 16.7% in the
second quarter of 2004 from 17.3% in the second quarter of last year. This
decrease was due primarily to lower depreciation, advertising, general insurance
and utilities as a percent of revenue and higher menu pricing versus the prior
year. The lower depreciation is the result of the Company's rapid Cracker Barrel
store growth in the late 1990's which has been reduced in recent years and the
Company's rollout of a new store point-of-sale system in the late 1990's in
conjunction with the Company's accelerated depreciation methods for certain
asset categories that are now fully depreciated. These decreases in other store
operating expenses were offset partially by higher repairs and maintenance and
supplies versus the prior year.
Other store operating expenses as a percentage of total revenue decreased
to 16.7% in the six-month period ended January 30, 2004 as compared to 17.2% in
the six-month period ended January 31, 2003. This decrease was due primarily to
lower depreciation, advertising and general insurance as a percent of revenue
and higher menu pricing versus the prior year. These decreases in other store
operating expenses were offset partially by higher repairs and maintenance
versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
decreased to 5.0% in the second quarter of 2004 as compared to 5.4% in the
second quarter of last year. This decrease was due primarily to lower
professional fees and management training versus the prior year.
General and administrative expenses as a percentage of total revenue
decreased to 5.4% in the six-month period ended January 30, 2004 as compared to
5.9% in the six-month period ended January 31, 2003. This decrease was due
primarily to lower professional fees and management training versus the prior
year.
Interest Expense
Interest expense decreased to $2,068 and $4,291 in the second quarter and
the first six months of 2004, respectively, from $2,184 and $4,445 in the same
periods last year, respectively. The decrease in the second quarter resulted
primarily from lower average outstanding debt, lower average interest rates and
higher capitalized interest during the second quarter of 2004 as compared to
prior year. The decrease in the first six months resulted primarily from lower
average interest rates and higher capitalized interest as compared to last year
and was offset partially by higher average outstanding debt during the first six
months of 2004 as compared to prior year.
Interest Income
The Company's interest income was $5 in the second quarter and first six
months of 2004. The Company's interest income was $0 in the second quarter of
2003 and $73 for the first six months of 2003. The increase in the second
quarter was due primarily to higher average funds available for investment
during the second quarter of 2004 as compared to prior year. The decrease in the
first six months was due primarily to lower average funds available for
investment during the first six months of 2004 as compared to prior year.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income was 36.1% in
the second quarter and 35.9% in the first six months of 2004 as compared to
35.5% during the same periods a year ago and which approximated the rate for the
entire year of 2003. The increase in management's estimate of the tax rate for
2004 is based upon the expiration of certain tax credits on January 1, 2004. The
variation between the statutory tax rate and the effective tax rate is due
primarily to state income taxes offset partially by employer tax credits for
FICA taxes paid on employee tip income.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $76,592 for the
six-month period ended January 30, 2004, which represented a decrease from the
$93,300 provided during the same period a year ago. This decrease was due
primarily to a smaller decrease in inventories and a larger decrease in accounts
payable in the first six months of 2004 versus last year offset partially by an
increase in net income. The smaller decrease in inventories was due primarily to
the increased seasonal merchandise buys in the current year and the higher level
of carryover of seasonal merchandise from spring and fall lines than in the
prior year. The decrease in accounts payable was due primarily to timing of
payments versus the previous year. Cash provided by increases in other current
liabilities and other long-term liabilities was offset partially by cash used
for increases in other current assets and other assets.
The Company had negative working capital of $36,511 at January 30, 2004
versus negative working capital of $70,655 at August 1, 2003. In the restaurant
industry, substantially all sales are either for cash or credit card. Like many
other restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant inventory. Employees
generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of
hours worked, and certain expenses such as certain taxes and some benefits are
deferred for longer periods of time. The smaller negative working capital
compared with August 1, 2003, primarily reflected higher cash balances and lower
accounts payable.
Capital expenditures were $63,899 for the six-month period ended January
30, 2004 as compared to $58,458 during the same period a year ago. Construction
of new locations and one replacement location accounted for most of these
expenditures. The increase from the prior year is primarily due to the current
year increase in owned versus leased land for new locations and to the timing of
maintenance and replacement capital expenditures for existing stores versus the
same period a year ago. Capitalized interest was $164 and $288 for the quarter
and six-month period ended January 30, 2004, as compared to $120 and $241 for
the quarter and six-month period ended January 31, 2003. This difference was due
primarily to an increase in the average number of new locations under
construction versus the same period a year ago offset partially by lower
borrowing costs as compared to a year ago.
During the six-month period ended January 30, 2004 the Company repurchased
450,000 shares of its common stock for a net expenditure of $18,299. During the
second quarter the Company temporarily suspended repurchase activity pending
possible developments in certain litigation and legal matters, as discussed more
fully in Note 11, "Commitments and Contingencies". The suspension reflected the
increased possibility of developments that could be deemed to be material and
non-public, and it did not reflect anticipation of a significant financial
settlement. Although it is not possible to predict whether any or all of the
cases or the DOJ's investigation will be resolved, if they were to be resolved,
based upon current status of the various discussions, the Company would not
expect any settlement to have a material adverse effect upon the financial
condition of the Company. Nevertheless, any settlement could adversely affect
short term results of operations if the amount of any settlement exceeded the
amounts already accrued. An unfavorable development in any of these cases or in
the DOJ investigation, however, that resulted in a judgment in excess of amounts
already accrued and beyond amounts covered under various insurance policies of
the Company and its subsidiaries, if applicable, could cause the Company's
consolidated results of operations and financial condition to be materially and
adversely affected. It is premature to predict the outcome of these DOJ and the
separate plaintiffs' mediation discussions and whether they will result in the
resolution of the DOJ's investigation or any or all of the referenced cases.
During February 2004 the Company completed the purchase of the 210,300 shares
remaining under the repurchase authorization previously in effect at January 31,
2004 and announced a new authorization to purchase an additional 2,000,000
shares.
During the six-month period ended January 30, 2004, the Company received
proceeds of $43,768 from the exercise of stock options on 2,313,880 shares of
its common stock. These stock option exercises created the additional paid-in
capital of $25,450 on the Company's January 30, 2004 condensed consolidated
balance sheet, since the Company did not have enough offsetting share
repurchases to reduce this balance to zero as at August 1, 2003. During the
six-month period ended January 30, 2004, the Company declared two dividends of
$0.11 per common share each that were paid on November 10, 2003 and February 9,
2004.
The Company's internally generated cash and cash generated by option
exercises, along with cash at August 1, 2003, the Company's availability under
its revolving credit facility and its real estate operating lease arrangements,
were sufficient to finance all of its growth and working capital needs in the
first six months of 2004.
The Company estimates that its capital expenditures for 2004 will be
approximately $140,000 to $145,000, most of which will be related to the
construction of new Cracker Barrel and Logan's units. The Company, through
internally generated cash and available borrowing capacity, expects to be able
to meet its capital needs for the foreseeable future. The Company expects to
open 24 new Cracker Barrel units, 12 of which already have opened, plus one
replacement unit opened in the first quarter, in 2004. The Company expects to
open 11 new company-operated Logan's units, eight of which have already opened,
in 2004.
On February 27, 2004, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 2,000,000 shares of the
Company's common stock. The purchases are to be made from time to time in the
open market at prevailing market prices. The Company presently expects to
complete this new share repurchase authorization before the end of 2004,
although there can be no assurance that such repurchase actually will be
completed in that period of time.
Management believes that cash at January 30, 2004, along with cash
generated from the Company's operating activities and its available revolving
credit facility, as well as financing obtained through real estate operating
leases, will be sufficient to finance its continued operations, its remaining
share repurchase authorizations, its dividends and its continued expansion plans
through 2005. At January 30, 2004, the Company had $300,000 available under its
then existing revolving credit facility. The Company estimates that its net cash
provided by operating activities in 2004 (most comparable measure under
accounting principles generally accepted in the United States of America) less
capital expenditures will generate excess cash of approximately $55,000 to
$60,000. The Company intends to use this excess cash along with proceeds from
the exercise of stock options in 2004 to apply toward completing its remaining
210,300 share repurchase authorization (completed in February 2004), its recent
2,000,000 share and possible future share repurchase authorizations, dividend
payments or other purposes. The Company's principal criteria for share
repurchases are that they be accretive to net income per share and that they do
not unfavorably affect the Company's investment grade debt rating and target
capital structure.
Critical Accounting Policies
The Company prepares its consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period (see Note 2 to the Company's Consolidated Financial
Statements included in the 2003 Form 10-K). Actual results could differ from
those estimates. Critical accounting policies are those that management believes
are both most important to the portrayal of the Company's financial condition
and operating results, and require management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. The Company bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Judgments and uncertainties affecting the
application of those policies may result in materially different amounts being
reported under different conditions or using different assumptions. The Company
considers the following policies to be most critical in understanding the
judgments that are involved in preparing its consolidated financial statements.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Recoverability of assets is measured by comparing the carrying
value of the asset to the undiscounted future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value of an asset to be held and used or over the fair value, net
of estimated costs of disposal, of an asset to be disposed of, and a loss
resulting from value impairment is recognized by a charge to earnings. Judgments
and estimates made by the Company related to the expected useful lives of
long-lived assets are affected by factors such as changes in economic conditions
and changes in operating performance. As the Company assesses the ongoing
expected cash flows and carrying amounts of its long-lived assets, these factors
could cause the Company to realize a material impairment charge. From time to
time the Company has decided to exit from or dispose of certain operating units.
Typically, such decisions are made based on operating performance or strategic
considerations and must be made before the actual costs or proceeds of
disposition are known, and management must make estimates of these outcomes.
Such outcomes could include the sale of a property or leasehold, mitigating
costs through a tenant or subtenant, or negotiating a buyout of a remaining
lease term. In these instances management evaluates possible outcomes,
frequently using outside real estate and legal advice, and records in the
financial statements provisions for the effect of such outcomes. The accuracy of
such provisions can vary materially from original estimates, and management
regularly monitors the adequacy of the provisions until final disposition
occurs. In addition, at least annually the Company assesses the recoverability
of goodwill and other intangible assets. The impairment tests require the
Company to estimate fair values of its related reporting units by making
assumptions regarding future cash flows and other factors. This valuation may
reflect, among other things, such external factors as capital market valuation
for public companies comparable to the operating unit. If these assumptions
change in the future, the Company may be required to record material impairment
charges for these assets. The Company performed its annual assessment in the
second quarter ending January 30, 2004, and concluded at that time that there
was no indication of impairment. This annual assessment will be performed in the
second quarter of each year. Additionally, an assessment will be performed
between annual assessments if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its
carrying amount.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability and health insurance programs. The
Company has purchased insurance for individual claims that exceed $250 for
workers' compensation and general liability insurance prior to 2003, but has
increased this amount to $500 for 2003 and to $1,000 for certain coverages for
2004 going forward. The Company elected not to purchase such insurance for its
primary group health program, but its offered benefits are limited to not more
than $1,000 lifetime for any employee (including dependents) in the program. The
Company records a liability for workers' compensation and general liability for
all unresolved claims and for an estimate of incurred but not reported claims at
the anticipated cost to the Company based upon an actuarially determined reserve
as of the end of the Company's third quarter and adjusting it by the actuarially
determined losses and actual claims payments for the subsequent quarters until
the next annual, actuarial study of its reserve requirements. Those reserves and
these losses are determined actuarially from a range of possible outcomes within
which no given estimate is more likely than any other estimate. In accordance
with SFAS No. 5, the Company records the losses at the low end of that range and
discounts them to present value using a risk-free interest rate based on the
actuarially projected timing of payments. The Company also monitors actual
claims development, including incurrence or settlement of individual large
claims during the interim period between actuarial studies as another means of
estimating the adequacy of its reserves. From time to time the Company has
performed limited scope interim updates of its actuarial studies to verify
and/or modify its reserves. The Company records a liability for its group health
program for all unpaid claims based primarily upon a loss development analysis
derived from actual group health claims payment experience provided by the
Company's third-party administrator. The Company's accounting policies regarding
insurance reserves include certain actuarial assumptions and management
judgments regarding economic conditions, the frequency and severity of claims
and claim development history and settlement practices. Unanticipated changes in
these factors may produce materially different amounts of expense that would be
reported under these insurance programs.
Tax Provision
The Company must make estimates of certain items that comprise its income
tax provision. These estimates include effective state and local income tax
rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. The Work Opportunity and Welfare to
Work tax credits expired on January 1, 2004. These estimates are made based on
current tax laws, the best available information at the time of the provision
and historical experience. The Company files its income tax returns many months
after its year end. These returns are subject to audit by various federal and
state governments years after the returns are filed and could be subject to
differing interpretations of the tax laws. The Company then must assess the
likelihood of successful legal proceedings or reach a settlement with the
relevant taxing authority, either of which could result in material adjustments
to the Company's consolidated financial statements and its consolidated
financial position. See Note 4 to the Company's Condensed Consolidated Financial
Statements filed herein and Note 7 to the Company's Consolidated Financial
Statements included in its 2003 Form 10-K.
Legal Proceedings
As discussed in Note 11 to the Company's Condensed Consolidated Financial
Statements contained in this Quarterly Report and more fully discussed in Note 9
to the Company's Consolidated Financial Statements included in its 2003 Form
10-K, the Company reported that its principal subsidiaries are subject to
certain lawsuits, one of which has been provisionally certified as a collective
action, and an investigation by the DOJ. As is more fully discussed in the
consolidated financial statement footnotes, the Company believes its
subsidiaries have substantial defenses in these lawsuits and intends to continue
to defend each of them vigorously. Except for a $3,500 accrual in 2001, there
currently is no provision for any potential liability with respect to these
matters in the Company's Condensed Consolidated Financial Statements. As
indicated in the financial statement footnotes, if these cases were resolved
through mediation and settlement, the Company would not expect that to have a
material adverse effect upon the financial condition of the Company although
short term results of operations could be adversely affected. Any future
unfavorable developments in any of these cases or in the DOJ investigation,
however, that resulted in a judgment in excess of amounts already accrued and
beyond amounts covered under various insurance policies of the Company and its
subsidiaries, if applicable, could cause the Company's consolidated results of
operations and financial condition to be materially and adversely affected.
In addition to the litigation described in the preceding paragraph, the
Company and its subsidiaries are parties to other legal proceedings incidental
to their businesses. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these other actions
will not materially affect the Company's consolidated results of operations or
financial position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 7A of the 2003 Form 10-K is incorporated in this item of this report
by this reference. There have been no material changes in the quantitative and
qualitative market risks of the Company since August 1, 2003.
Item 4. Controls and Procedures
The Company's management, with the participation of its principal executive
and financial officers, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 ("the Exchange Act"). Based upon this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that as of January 30, 2004, the Company's disclosure controls and
procedures were effective for the purposes set forth in the definition thereof
in Exchange Act Rule 13a-15(e).
There have been no significant changes (including corrective actions with
regard to significant deficiencies and material weaknesses) during the quarter
ended January 30, 2004 in the Company's internal controls over financial
reporting (as defined in Exchange Act Rule 13a-15(f)) that have materially
affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Part I, Item 3 of the 2003 Form 10-K is incorporated herein by
this reference.
Part II, Item 1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 2003 and filed with the SEC
on December 5, 2003 is incorporated herein by this reference.
See also Note 11 to the Company's Condensed Consolidated
Financial Statements filed in Part I, Item I of this Quarterly
Report on Form 10-Q, which also is incorporated in this item
by this reference.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index immediately following the signature page
hereto.
(b) Current Reports on Form 8-K during the quarter for which
this report is filed:
Form 8-K filed November 4, 2003, reporting under Item
5 the reduction of the size of the Company's Board of
Directors from 11 to 10 following the death of one of
its members.
Form 8-K filed November 20, 2003, reporting under
Items 9 and 12 the issuance of a press release
announcing the Company's 2004 first fiscal quarter
earnings, current sales trends and earnings guidance
for the second fiscal quarter of 2004 and the
remainder of fiscal year 2004.
Form 8-K filed November 28, 2003, reporting under
Item 5 developments in litigation involving one of
the Company's subsidiaries.
Form 8-K filed December 2, 2003, reporting under Item
5 the issuance of a press release announcing the
establishment, by certain of the Company's
executives, of stock trading plans pursuant to Rule
10b5-1 promulgated under the Securities Exchange Act
of 1934.
Form 8-K filed December 18, 2003, reporting under
Item 9 the issuance of a press release announcing the
Company's fiscal 2004 second quarter-to-date sales
trends and updating earnings guidance for the second
quarter and the remainder of fiscal 2004.
Form 8-K filed December 23, 2003, reporting under
Item 9 the issuance of a press release announcing the
Company's $0.11 per share quarterly dividend.
Form 8-K filed January 15, 2004, reporting under Item
9 the issuance of a press release announcing the
Company's fiscal 2004 second quarter-to-date sales
trends and updating earnings guidance for the second
quarter and the remainder of fiscal 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 3/5/04 By /s/Lawrence E. White
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Lawrence E. White, Senior Vice President,
Finance and Chief Financial Officer
Date: 3/5/04 By /s/Patrick A. Scruggs
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Patrick A. Scruggs, Vice President,
Accounting and Tax and Chief Accounting
Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
15 Letter regarding unaudited financial information
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications