UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
[Amendment No. 1]
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended October 29, 2004
or
X 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.)
305 Hartmann Drive, P. O. Box 787
Lebanon, Tennessee 37088-0787
-----------------------------
(Address of Principal Executive Offices)
(Zip Code)
615-443-9869
------------
(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_____
-------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
48,164,365 Shares of Common Stock
Outstanding as of November 26, 2004
Explanatory Note
In accordance with our Current Report on Form 8-K, filed with the
Securities and Exchange Commission ("SEC") on February 17, 2005, regarding our
intent to restate our previously filed financial statements related to
accounting for leases, we are filing this Amendment No. 1 on Form 10-Q/A ("Form
10-Q/A") to our Quarterly Report on Form 10-Q for the quarter ended October 29,
2004, as filed with the SEC on December 3, 2004 ("Original Filing"). This Form
10-Q/A is being filed to reflect certain restatements in accounting for leases,
in our i) Condensed Consolidated Statements of Income for the quarters ended
October 29, 2004 and October 31, 2003, ii) Condensed Consolidated Balance Sheets
as of October 29, 2004 and July 30, 2004, iii) Condensed Consolidated Statements
of Cash Flows for the quarters ended October 29, 2004 and October 31, 2003 and
iv) related footnote disclosures.
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes it made in the way it accounted for
leases. The decision to restate was made following a review of its accounting
policies that was prompted by views expressed on February 7, 2005 by the staff
of the SEC (and similar restatements by numerous other companies in the
restaurant, retail and other industries) that indicated that the manner in which
the Company had been accounting for leases needed to be corrected.
Prior to this review, the Company had believed that its accounting was
consistent with generally accepted accounting principles in the United States
("GAAP"). For purposes of recognizing rental expense, the Company had
historically averaged its lease payments over the base term of the lease,
excluding the optional renewal periods and initial build-out periods, during
which it typically has not been required to make lease payments. For purposes of
depreciating leasehold improvements, the Company had historically amortized the
amounts over a longer period, including both the base term of the lease and the
optional renewal periods.
The Company has now determined that the period in which rental expense is
recognized on a straight-line, or average, basis should include any pre-opening
periods during construction for which the Company is legally obligated under the
terms of the lease, and any optional renewal periods, for which at the inception
of the lease, it is reasonably assured that the Company will exercise those
renewal options. This lease period will be consistent with the period over which
leasehold improvements are amortized. See Note 2 to the accompanying condensed
consolidated financial statements for additional information on the restatement
in accounting for leases.
Except as required to reflect the effects of the restatement in accounting
for leases, no additional modifications or updates in this Form 10-Q/A have been
made to the Original Filing on Form 10-Q. Information not affected by the
restatement remains unchanged and reflects the disclosures made at the time of
the Original Filing of the Form 10-Q on December 3, 2004. This Form 10-Q/A does
not describe other events occurring after the Original Filing, including the
exhibits, or modify or update those disclosures affected by subsequent events.
This Form 10-Q/A should be read in conjunction with our filings made with the
SEC subsequent to the filing of the Original Filing. Accordingly, this Form
10-Q/A only amends and restates Items 1, 2 and 4 of Part I of the Original
Filing, in each case, solely as a result of, and to reflect, the restatement,
and no other information in the Original Filing is amended hereby. Additionally,
pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has
been amended to contain currently-dated certifications from our Chief Executive
Officer and Chief Financial Officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of our Chief Executive Officer
and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31(a)
and (b) and 32 (a) and (b), respectively.
Prior to filing this Form 10-Q/A, we filed an amendment on Form 10-K/A to
our Annual Report on Form 10-K for the fiscal year ended July 30, 2004 (the
"2004 10-K"), filed with the SEC on September 28, 2004, to reflect the
restatement of the financial statements or financial data as of and for the
periods included in the 2004 10-K. We have not amended and do not intend to
amend our previously-filed Annual Reports on Form 10-K (other than the 2004
10-K) or our Quarterly Reports on Form 10-Q for the periods prior to October 29,
2004. For this reason, the consolidated financial statements, independent
registered public accounting firm reports and related financial information for
the affected periods contained in such reports should no longer be relied upon.
CBRL GROUP, INC.
FORM 10-Q/A
For the Quarter Ended October 29, 2004
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1
Financial Statements (As Restated)
a) Condensed Consolidated Balance Sheet as of
October 29, 2004 and July 30, 2004 (Unaudited) 4
b) Condensed Consolidated Statement of Income for the
Quarters Ended October 29, 2004 and October 31, 2003
(Unaudited) 6
c) Condensed Consolidated Statement of Cash Flows for the
Quarters Ended October 29, 2004 and October 31, 2003
(Unaudited) 7
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3
Quantitative and Qualitative Disclosures About Market Risk 23
Item 4
Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1
Legal Proceedings 24
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 4
Submission of Matters to a Vote of Security Holders 25
Item 6
Exhibits 25
SIGNATURES 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
October 29, July 30,
2004 2004*
---- -----
(As Restated,
see Note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 16, 957 $ 28,775
Receivables 11,637 9,802
Inventories 169,355 141,820
Prepaid expenses 12,906 8,369
Deferred income taxes 14,274 14,274
---------- ---------
Total current assets 225,129 203,040
Property and equipment 1,538,235 1,502,314
Less: Accumulated depreciation and
amortization of capital leases 398,732 383,741
---------- ----------
Property and equipment - net 1,139,503 1,118,573
---------- ----------
Goodwill 93,724 93,724
Other assets 24,614 20,367
---------- ----------
Total assets $1,482,970 $1,435,704
========== ==========
*This condensed consolidated balance sheet has been derived from the audited
condolidated balance sheet as of July 30, 2004, as filed in the Company's July
30, 2004 Form 10-K/A.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
(Unaudited)
October 29, July 30,
2004 2004*
---- -----
(As Restated,
see Note 2))
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 85,389 $ 53,295
Income taxes payable 24,717 18,571
Accrued employee compensation 36,622 49,466
Other accrued expenses 118,702 120,714
Current maturities of long-term
debt and other long-term obligations 194 189
---------- ---------
Total current liabilities 265,624 242,235
---------- ---------
Long-term debt 206,520 185,138
---------- ---------
Other long-term obligations 140,540 134,995
---------- ---------
Commitments and Contingencies (Note 10)
Shareholders' equity:
Preferred stock - 100,000 shares
of $.01 par value authorized;
no shares issued -- --
Common stock - 400,000 shares of
$.01 par value authorized; at
October 29, 2004, 48,323 shares issued
and outstanding and at July 30, 2004,
48,769 shares issued and outstanding 483 488
Additional paid-in capital -- 13,982
Retained earnings 869,803 858,866
---------- ---------
Total shareholders' equity 870,286 873,336
---------- ---------
Total liabilities and shareholders' equity $1,482,970 $1,435,704
========== ==========
See notes to unaudited condensed consolidated financial statements.
* This condensed consolidated balance sheet has been derived from the audited
consolidated balance sheet as of July 30, 2004, as filed in the Company's July
30, 2004 Form 10-K/A.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
Quarter Ended
--------------------------------
October 29, October 31,
2004 2003
---- ----
(As Restated, (As Restated,
see Note 2) see Note 2)
Total revenue $612,653 $576,365
Cost of goods sold 199,842 185,900
-------- --------
Gross profit 412,811 390,465
Labor and other related expenses 226,189 214,303
Other store operating expenses 104,547 97,206
-------- --------
Store operating income 82,075 78,956
General and administrative 33,932 33,420
-------- --------
Operating income 48,143 45,536
Interest expense 2,095 2,223
-------- --------
Income before income taxes 46,048 43,313
Provision for income taxes 16,118 15,462
-------- --------
Net income $ 29,930 $ 27,851
======== ========
Net earnings per share:
Basic $ 0.61 $ 0.58
====== =======
Diluted $ 0.60 $ 0.55
====== =======
Weighted average shares:
Basic 48,712 48,122
====== ======
Diluted 49,774 50,036
======= ======
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Quarter Ended
-----------------------------------
October 29, October 31,
2004 2003
---- ----
(As Restated, (As Restated,
see Note 2) see Note 2)
Cash flows from operating activities:
Net income $ 29,930 $ 27,851
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 16,179 15,191
Loss on disposition of property and equipment 527 238
Accretion on zero-coupon contingently convertible
senior notes 1,382 1,338
Changes in assets and liabilities:
Inventories (27,535) (27,720)
Accounts payable 32,094 (18,758)
Income taxes payable 6,146 15,367
Accrued employee compensation (12,844) (6,600)
Other current assets and other current liabilities (8,937) 606
Other assets and other long-term liabilities 900 (2,255)
-------- --------
Net cash provided by operating activities 37,842 5,258
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (37,369) (29,683)
Proceeds from sale of property and equipment 184 100
-------- --------
Net cash used in investing activities (37,185) (29,583)
-- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 108,200 130,000
Principal payments under long-term debt and other
long-term obligations (88,248) (122,025)
Proceeds from exercise of stock options 12,811 18,616
Purchases and retirement of common stock (39,873) --
Dividends on common stock (5,365) --
Other -- (533)
-------- --------
Net cash (used in) provided by financing activities (12,475) 26,058
-------- --------
Net (decrease) increase in cash and cash equivalents (11,818) 1,733
Cash and cash equivalents, beginning of period 28,775 14,389
-------- --------
Cash and cash equivalents, end of period $ 16,957 $ 16,122
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the three months for:
Interest $ 182 $ 344
======== ========
Income taxes $ 10,843 $ 250
======== ========
See notes to unaudited condensed consolidated financial statements.
CBRL GROUP, INC.
----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(In thousands, except percentages, share and per share data)
(Unaudited)
1. Condensed Consolidated Financial Statements
-------------------------------------------
The condensed consolidated balance sheets as of October 29, 2004 and July
30, 2004 and the related condensed consolidated statements of income and cash
flows for the quarters ended October 29, 2004 and October 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) necessary for a fair presentation of such condensed
consolidated financial statements have been made.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K/A for the year ended July
30, 2004 (the "2004 Form 10-K/A"). The accounting policies used in preparing
these condensed consolidated financial statements are the same as those
described in our 2004 Form 10-K/A.
References in these Notes to the Condensed Consolidated Financial
Statements to a year are to the Company's fiscal year unless otherwise noted.
2. Restatement of Financial Statements
-----------------------------------
This note should be read in conjunction with Note 2 to the Company's
Consolidated Financial Statements contained in its 2004 Form 10-K/A.
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes it made in the way it accounted for
leases. The decision to restate was made following a review of its accounting
policies that was prompted by views expressed on February 7, 2005 by the staff
of the SEC (and similar restatements by numerous other companies in the
restaurant, retail and other industries) that indicated that the manner in which
the Company had been accounting for leases needed to be corrected.
Prior to this review, the Company had believed that its accounting was
consistent with generally accepted accounting principles in the United States
("GAAP"). For purposes of recognizing rental expense, the Company had
historically averaged its lease payments over the base term of the lease,
excluding the optional renewal periods and initial build-out periods, during
which it typically has not been required to make lease payments. For purposes of
depreciating leasehold improvements, the Company had historically amortized the
amounts over a longer period, including both the base term of the lease and the
optional renewal periods.
The Company has now determined that the period in which rental expense is
recognized on a straight-line, or average, basis should include any pre-opening
periods during construction for which the Company is legally obligated under the
terms of the lease, and any optional renewal periods, for which at the inception
of the lease, it is reasonably assured that the Company will exercise those
renewal options. This lease period will be consistent with the period over which
leasehold improvements are amortized.
As a result, the Company has restated its historical condensed consolidated
financial statements for the quarters ended October 29, 2004 and October 31,
2003 and the year ended July 30, 2004. These effects are summarized below:
CBRL GROUP, INC.
SELECTED INCOME STATEMENT DATA
(In thousands, except share data)
(Unaudited)
Basic Diluted
Income Basic net Diluted net weighted weighted
Total Operating before income per income per average average
Revenue income income taxes Net income share share shares shares
------- ------- ----- ---------- ----- ----- ------ ------
Three months ended
October 29, 2004
As Previously Reported $612,653 $48,672 $46,577 $30,275 $0.62 $0.61 48,712,161 49,773,983
Lease Adjustment -- (529) (529) (345) (0.01) (0.01) -- --
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $612,653 $48,143 $46,048 $29,930 $0.61 $0.60 48,712,161 49,773,983
======== ======= ======= ======= ===== ===== ========== ==========
Three months ended
October 31, 2003
As Previously Reported $576,365 $46,017 $43,794 $28,160 $0.59 $0.56 48,121,869 50,035,570
Lease Adjustment -- (481) (481) (309) (0.01) (0.01) -- --
-------- ------- ------- ------- ----- ----- ---------- ----------
As Restated $576,365 $45,536 $43,313 $27,851 $0.58 $0.55 48,121,869 50,035,570
======== ======= ======= ======= ===== ===== ========== ==========
CBRL GROUP, INC.
SELECTED BALANCE SHEET DATA
(Unaudited and in thousands)
Period Ended
--------------------------------------
October 29, October 29,
2004 2004
---- ----
(As Previously
Reported) Adjustment (As Restated)
ASSETS
Total current assets $ 225,129 $ -- $ 225,129
Net property and equipment 1,139,503 -- 1,139,503
Total other assets 117,496 842 118,338
---------- ------- ----------
Total assets $1,482,128 $ 842 $1,482,970
========== ======= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities $ 270,355 $(4,731) $ 265,624
Long-term debt 206,520 -- 206,520
Other long-term obligations 127,711 12,829 140,540
Total shareholders' equity 877,542 (7,256) 870,286
---------- ------- ----------
Total liabilities and
shareholders' equity $1,482,128 $ 842 $1,482,970
========== ======= ==========
Certain amounts in Notes 3 and 7 have been restated to reflect the
restatement adjustments described above. The restatement adjustments did not
affect net cash flows provided by or used in operating, investing or financing
activities.
3. Summary of Significant Accounting Policies
------------------------------------------
The significant accounting policies of the Company are included in the 2004
Form 10-K/A. During the quarter ended October 29, 2004, there were no
significant changes to those accounting policies.
Stock Based Compensation - The Company accounts for its stock based
compensation under the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations, and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" and below is providing disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." Under APB Opinion No. 25, no stock-based compensation cost is
reflected in net income for grants of stock options to employees because the
Company grants stock options with an exercise price equal to the market value of
the stock on the date of grant. The reported stock-based compensation expense,
net of related tax effects, in the table represents the amortization of
restricted stock grants to three executive officers of the Company.
Had the Company used the fair value based accounting method for stock
compensation expense prescribed by SFAS Nos. 123 and 148, the Company's
consolidated net income and net income per share would have been reduced to the
pro-forma amounts illustrated as follows:
Quarter Ended
-------------------------------
October 29, October 31,
2004 2003
---- ----
(as restated, (as restated,
see Note 2) see Note 2)
Net income - as reported $29,930 $27,851
Add: Total stock-based employee
compensation included in reported
net income, net of related tax effects 19 19
Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards, net of
related tax effects (2,498) (2,715)
------- -------
Pro forma, net income $27,451 $25,155
======= =======
Net income per share:
Basic - as reported $0.61 $0.58
===== =====
Basic - pro forma $0.56 $0.52
===== =====
Diluted - as reported $0.60 $0.55
===== =====
Diluted - pro forma $0.55 $0.50
===== =====
4. Income Taxes
------------
The provision for income taxes as a percent of pre-tax income was 35.0% in
the first quarter of 2005 as compared to 35.7% during the same period a year ago
and 35.9% for the entire year of 2004. The decrease in the tax rate for 2005 is
based upon the estimated effect of the passage of the Work Opportunity and
Welfare to Work federal tax credit legislation signed on October 22, 2004
retroactive to January 1, 2004. The variation between the statutory tax rate and
the effective tax rate is due to state income taxes offset by employer tax
credits for FICA taxes paid on employee tip income and the tax credits above.
5. Seasonality
-----------
Historically the consolidated net income of the Company typically 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 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 October 29, 2004
cannot be considered indicative of the operating results for the entire year.
6. Inventories
-----------
Inventories were comprised of the following at:
October 29, July 30,
2004 2004
---- ----
Retail $130,059 $104,148
Restaurant 20,415 19,800
Supplies 18,881 17,872
-------- --------
Total $169,355 $141,820
======== ========
7. Consolidated Net Income Per Share and Weighted Average Shares
-------------------------------------------------------------
Basic consolidated net income per share is computed by dividing
consolidated net 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 (the "Senior Notes") (see Note 4 to the Company's Consolidated
Financial Statements included in the 2004 Form 10-K/A for a description of these
Senior Notes) represent 4.6 million potential dilutive shares at October 29,
2004. The effect of the assumed conversion of the Senior Notes has been excluded
from the calculation of diluted net income per share for the quarter ended
October 29, 2004 because none of the conditions that permit conversion were
satisfied during the reporting period. Outstanding employee and director stock
options and restricted stock issued by the Company represent the only dilutive
security reflected in diluted weighted average shares.
The Financial Accounting Standards Board ("FASB") recently ratified
Emerging Issues Task Force ("EITF") Issue No. 04-8, which requires
"if-converted" accounting for contingently convertible debt regardless of
whether the contingencies allowing debt holders to convert have been met. EITF
04-8 is effective for reporting periods ending after December 15, 2004 and
requires retroactive restatement of prior period diluted earnings per share for
comparative purposes. The rule change will require the Company to include
approximately 4.6 million shares in diluted shares outstanding related to its
Senior Notes and deduct from net income the interest and financing costs
associated with this debt in calculating diluted net income per share. The
change in accounting will have no effect on the terms of the Senior Notes, nor
the Company's operations or consolidated financial statements, other than the
calculation of diluted net income per share. The table below shows the
restatement effect of EITF 04-8 on diluted net income per share as restated for
leases for the first quarter of 2004 and 2005.
Quarter Ended
-------------------------------
October 29, October 31,
2004 2003
---- ----
Diluted net income per share
- as restated $0.60 $0.55
Diluted net income per share
- pro-forma $0.57 $0.53
8. Segment Reporting
-----------------
The Company manages its business on the basis of one reportable operating
segment. Cracker Barrel Old Country Store(R) ("Cracker Barrel") units represent
a single, integrated operation with two related and substantially integrated
product lines. The operating expenses of the restaurant and retail product line
of a Cracker Barrel unit are shared and are indistinguishable in many respects.
The chief operating decision-makers review operating results for both restaurant
and retail operations on a combined basis. Likewise, Logan's Roadhouse(R)
("Logan's") units are restaurant operations and those operations have similar
investment criteria and economic and operating characteristics as the operations
of Cracker Barrel.
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
-----------------------------
October 29, October 31,
2004 2003
---- ----
Net sales in Company-owned stores:
Restaurant $494,213 $456,520
Retail 117,911 119,439
-------- --------
Total net sales 612,124 575,959
Franchise fees and royalties 529 406
-------- --------
Total revenue $612,653 $576,365
======== ========
9. Impairment of Long-lived Assets
-------------------------------
The Company evaluates long-lived assets and certain identifiable
intangibles to be held and used in the business for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. An impairment is determined by comparing undiscounted future
operating cash flows that are expected to result from an asset to the carrying
values of an asset on a store by store basis. If an impairment exists, the
amount of impairment is measured as the sum of the estimated discounted future
operating cash flows of the asset and the expected proceeds upon sale of the
asset less its carrying value. Assets held for sale, if any, are reported at the
lower of carrying value or fair value less costs to sell. The Company recorded
no impairment losses in the quarters ended October 29, 2004 and October 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
ended January 30, 2004, and concluded at that time that there was no indication
of impairment. This annual assessment is performed in the second quarter of each
year. Additionally, an assessment is performed between annual assessments if an
event occurs or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The Company does not
believe that any such events or changes in circumstances have occurred since the
annual assessment performed in the second quarter ended January 30, 2004.
10. Commitments and Contingencies
-----------------------------
As reported in the 2004 Form 10-K/A, Cracker Barrel agreed, as of September
8, 2004, to settle certain litigation alleging violations of the Fair Labor
Standards Act as well as allegations of discrimination in employment and public
accommodations. The total payment agreed to by Cracker Barrel was $8,720
(including $3,500 accrued in 2001), in full satisfaction of all claims
(including attorneys' fees and costs) by the plaintiffs.
Logan's is subject to a lawsuit captioned Joey E. Barlow v. Logan's
Roadhouse, Inc., in the United States District Court for the Middle District of
Tennessee (Case No. 3-03-0821), filed September 8, 2003. The case is a putative
collective action alleging violations of the federal wage and hour laws,
although it has not yet been certified as such. The complaint alleges that the
plaintiff and 66 opt-in hourly employees at one Logan's restaurant in Macon,
Georgia were subjected to various violations, including being required to work
"off the clock," having hours "shaved" (reduced in the computer), and in the
case of tipped employees, 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, attorney's fees and costs, and unspecified
injunctive relief. Substantial discovery has not yet been completed, and the
Company denies that Logan's engaged in any of the alleged unlawful employment
practices and intends to vigorously defend the case. Neither the likelihood of
an unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this case can be determined at this time. If, however, this
litigation were to be resolved unfavorably, it could result in a material
adverse effect upon the Company's results of operations and financial position.
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 October 29, 2004 the Company was contingently liable for approximately
$1,458 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 October 29, 2004 the Company had $30,225 of
standby letters of credit related to workers' compensation and general liability
insurance. All standby letters of credit are renewable annually.
The Company is secondarily liable for lease payments under the terms of an
operating lease that has been assigned to a third party and a second operating
lease that has been sublet to a third party. The operating leases have remaining
lives of approximately 8.9 and 11.9 years, respectively, with annual lease
payments of approximately $350 and $100, respectively. Under the assigned lease
the Company's performance is only required if the assignee fails to perform his
obligations as lessee. At this time, the Company has no reason to believe that
the assignee will not perform and, therefore, no provision has been made in the
accompanying condensed consolidated financial statements for amounts to be paid
as a result of non-performance by the assignee. Under the sublease the Company's
performance is only required if the sublessee fails to perform his obligations
as lessee. The Company has a remaining liability of $540 in the accompanying
condensed consolidated financial statements for estimated amounts to be paid in
case of non-performance by the sublessee.
11. Shareholders' Equity
--------------------
During the quarter ended October 29, 2004, the Company received proceeds of
$12,811 from the exercise of stock options on 640,622 shares of its common
stock. During the quarter ended October 29, 2004 the Company repurchased
1,100,000 shares of its common stock for an aggregate expenditure of $39,873.
Since the Company's share repurchases exceeded the additional paid-in capital
balance at the previous year end of $13,982 and the exercises of stock options
in the first quarter, the Company reduced retained earnings by $13,075, and
reduced additional paid-in capital to zero at the end of the first quarter.
These retired shares will remain as authorized, but unissued, shares. During the
quarter ended October 29, 2004, the Company paid a dividend of $0.11 per common
share on September 1, 2004 (declared on July 29, 2004) and the Company declared
a dividend of $0.12 per common share that was paid on November 1, 2004.
Additionally, the Company declared a dividend of $0.12 per common share on
November 23, 2004 to be paid on February 8, 2005 to shareholders of record on
January 14, 2005.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CBRL Group, Inc. and its subsidiaries (collectively, the "Company") are
principally engaged in the operation and development in the United States of the
Cracker Barrel Old Country Store(R) ("Cracker Barrel") restaurant and retail
concept and the Logan's Roadhouse(R) ("Logan's") restaurant concept. All amounts
reported or discussed in Part I, Item 2 of this Quarterly Report on Form 10-Q/A
are shown in thousands, except percentages and dollar amounts per share.
References in management's discussion and analysis of financial condition and
results of operations to a year are to the Company's fiscal year unless
otherwise noted. The following discussion and analysis provides information
which management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the (i) condensed consolidated
financial statements and notes thereto in this Form 10-Q/A and (ii) the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K/A for the fiscal year ended July 30, 2004 (the "2004 Form
10-K/A"). All applicable disclosures in the following discussion have been
modified to reflect the restatement described in Note 2. Except for specific
historical information, many of the matters discussed in this Quarterly Report
on Form 10-Q/A may express or imply projections of revenues or expenditures,
statements of plans and objectives or future operations or statements of future
economic performance. These, and similar statements are forward-looking
statements concerning matters that involve risks, uncertainties and other
factors which may cause the actual performance of the Company to differ
materially from those expressed or implied by this discussion.
All forward-looking information is provided by the Company pursuant to the
safe harbor established under the Private Securities Litigation Reform Act of
1995 and should be evaluated in the context of these factors. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "assumptions", "target", "guidance", "outlook", "plans", "projection",
"may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe",
"potential" or "continue" (or the negative or other derivatives of each of these
terms) or similar terminology. Factors which could materially affect actual
results include, but are not limited to: changes in or implementation of
additional governmental or regulatory rules, regulations and interpretations
affecting accounting (including but not limited to, accounting for convertible
debt under Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") Issue No. 04-8, "The Effect of Contingently Convertible
Debt on Diluted Earning Per Share" which will be effective for reporting periods
ending after December 15, 2004 and will require restatement of prior period
reported diluted net income per share), tax, wage and hour matters, health and
safety, pensions, insurance or other undeterminable areas; the effects of
uncertain consumer confidence or general or regional economic weakness on sales
and customer travel activity; the ability of the Company to identify, acquire
and sell successful new lines of retail merchandise; commodity, workers'
compensation, group health and utility price changes; consumer behavior based on
concerns over nutritional or safety aspects of the Company's products or
restaurant food in general; competitive marketing and operational initiatives;
the effects of plans intended to improve operational execution and performance;
practical or psychological effects of terrorist acts or war and military or
government responses; the effects of increased competition at Company locations
on sales and on labor recruiting, cost, and retention; the ability of and cost
to the Company to recruit, train, and retain qualified restaurant hourly and
management employees; 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; the actual results
of pending or threatened litigation or governmental investigations and the costs
and effects of negative publicity associated with these activities; changes in
accounting principles generally accepted in the United States of America or
changes in capital market conditions that could affect valuations of restaurant
companies in general or the Company's goodwill in particular; 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 Securities and Exchange Commission ("SEC"), press releases, and other
communications.
Results of Operations
---------------------
The following table highlights operating results by percentage
relationships to total revenue for the quarter ended October 29, 2004 as
compared to the same period a year ago:
Quarter Ended
---------------------------
October 29, October 31,
2004 2003
---- ----
(As Restated, (As Restated,
see Note 2) see Note 2)
Total revenue 100.0% 100.0%
Cost of goods sold 32.6 32.2
----- -----
Gross profit 67.4 67.8
Labor and other related expenses 36.9 37.2
Other store operating expenses 17.1 16.9
----- -----
Store operating income 13.4 13.7
General and administrative 5.6 5.8
----- -----
Operating income 7.8 7.9
Interest expense 0.3 0.4
----- -----
Income before income taxes 7.5 7.5
Provision for income taxes 2.6 2.7
----- -----
Net income 4.9% 4.8%
===== ======
The following table highlights the components of total revenue by
percentage relationships to total revenue for the quarter ended October 29, 2004
as compared to the same period a year ago:
Quarter Ended
---------------------------
October 29, October 31,
2004 2003
---- ----
Net sales:
Cracker Barrel restaurant 66.7% 66.5%
Logan's 14.0 12.7
----- -----
Total restaurant 80.7 79.2
Cracker Barrel retail 19.2 20.7
----- -----
Total net sales 99.9 99.9
Franchise fees and royalties 0.1 0.1
----- -----
Total revenue 100.0% 100.0%
===== =====
The following table highlights the units in operation and units added for
the quarter ended October 29, 2004 as compared to the same period a year ago:
Quarter Ended
--------------------------
October 29, October 31,
2004 2003
---- ----
Cracker Barrel Old Country Store:
Open at beginning of period 504 480
Opened during period 5 4
--- ---
Open at end of period 509 484
=== ===
Logan's Roadhouse - company-owned:
Open at beginning of period 107 96
Opened during period 7 5
--- ---
Open at end of period 114 101
=== ===
Logan's Roadhouse - franchised:
Open at beginning of period 20 16
Opened during period 0 0
-- --
Open at end of period 20 16
== ==
Average comparable store sales includes sales of stores open at least six
full quarters at the beginning of the quarter ended October 29, 2004 and are
measured on comparable calendar weeks in the prior year. The following table
highlights average comparable store sales for the quarter ended October 29, 2004
as compared to the same period a year ago:
Average Comparable Store Sales Analysis
Quarter Ended
---------------------------
October 29, October 31,
2004 2003
---- ----
Cracker Barrel (466 stores)
Net sales:
Restaurant $ 812.9 $ 794.7
Retail 231.3 244.4
-------- --------
Total net sales $1,044.2 $1,039.1
======== ========
Logan's (93 restaurants) $ 764.4 $ 735.3
======== ========
Total Revenue
Total revenue for the first quarter of 2005 increased 6.3% compared to last
year's first quarter. For the quarter, Cracker Barrel comparable store
restaurant sales increased 2.3% and comparable store retail sales decreased 5.4%
resulting in a combined comparable store sales (total net sales) increase of
0.5%. The comparable store restaurant sales increase consisted of a 3.2% average
check increase for the quarter (including a 2.1% average menu increase) and a
0.9% guest traffic decrease. We believe that the comparable store retail sales
decrease is due to exceptionally strong retail sales in the prior year quarter
(comparable store retail sales were up 10.3% in the prior year first quarter),
uncertain consumer sentiment and reduced discretionary purchases, restaurant
guest traffic decreases, weaker than expected response to the retail merchandise
assortment, and the hurricanes in Florida. Logan's comparable restaurant sales
(including alcohol) increased 3.9%, which consisted of a 5.0% average check
increase (including a 3.2% average menu increase) and a 1.1% guest traffic
decrease. Sales from newly opened Cracker Barrel stores and Logan's restaurants
accounted for the balance of the total revenue increase in the first quarter.
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue for the first quarter
of 2005 increased to 32.6% from 32.2% in the first quarter of last year. This
increase was due to higher commodity costs for dairy, pork, beef and poultry
(most of which are expected to continue in the second quarter of 2005), higher
unit-level waste and higher markdowns of retail merchandise versus the prior
year. These increases were partially offset by higher menu pricing and higher
initial mark-ons of retail merchandise versus the prior year.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and other related expenses as
a percentage of total revenue decreased to 36.9% in the first quarter this year
from 37.2% last year. This decrease was due to lower restaurant and retail
management compensation under unit-level bonus programs versus prior year, lower
hourly labor expenses as a percent of revenue and higher menu pricing versus the
prior year. These decreases were offset partially by an increase in store
manager salaries, and higher group health costs versus the prior year. The
decrease in restaurant and retail management bonus accruals reflected relatively
lower performance against financial objectives in the first quarter of 2005
versus the same period a year ago.
Three states in which the Company operates, Florida, Illinois, and New
York, are expected to implement increases in the state minimum wage, including
mandated increases in the minimum cash wage paid to tipped employees. The
Company expects these changes primarily to affect the fourth quarter of 2005
after beginning to phase-in starting in the second quarter of 2005. The Florida
change will occur in May 2005, the Illinois change will occur in January 2005,
and if approved in its current form, as currently expected, the first step of
the New York increase will occur in January 2005 as well. The Company is
evaluating alternatives to deal with this increase in labor costs in these
states. The estimated cost of the minimum wage increase on the Company is
expected to be approximately $1,200 to $1,300 in the fourth quarter of 2005 and
substantially less in the third quarter of 2005.
Other Store Operating Expenses
Other store operating expenses include all unit-level operating costs, the
major components of which are operating supplies, repairs and maintenance,
advertising expenses, utilities, rent, depreciation, general insurance, credit
card fees and non-labor-related pre-opening expenses. Other store operating
expenses as a percentage of total revenue increased to 17.1% in the first
quarter of 2005 from 16.9% in the first quarter of last year. This increase was
due to higher utilities, credit card fees and pre-opening expenses as a percent
of revenue and included approximately $500 related to hurricane damage and
cleanup (with approximately $100 additional related expense in cost of goods
sold and labor and related expenses). These increases are offset partially by a
decrease in advertising as a percent of revenue, which was due to the timing of
advertising at Cracker Barrel in 2005 versus the prior year, and higher menu
pricing versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of total revenue
decreased to 5.6% in the first quarter of 2005 as compared to 5.8% in the first
quarter of last year. This decrease was due to lower bonus accruals and lower
contributions to the Company's charitable foundation versus the prior year.
These decreases were offset partially by increases in salaries and legal and
audit fees versus the prior year. The decrease in bonus accruals reflected
relatively lower performance against financial objectives in the first quarter
of 2005 versus the same period a year ago.
Provision for Income Taxes
The provision for income taxes as a percent of pre-tax income was 35.0% in
the first quarter of 2005 as compared to 35.7% during the same period a year ago
and 35.9% for the entire year of 2004. The decrease in the tax rate for 2005 is
based upon the estimated effect of the passage of the Work Opportunity and
Welfare to Work federal tax credit legislation signed on October 22, 2004
retroactive to January 1, 2004. The variation between the statutory tax rate and
the effective tax rate is due to state income taxes offset by employer tax
credits for FICA taxes paid on employee tip income and the tax credits above.
Liquidity and Capital Resources
The Company's operating activities provided net cash of $37,842 for the
quarter ended October 29, 2004, which represented an increase from the $5,258
provided during the same period a year ago. This increase was due to a
significant increase in accounts payable and other long-term obligations in the
first quarter of 2005 versus last year offset partially by larger decreases in
accrued employee compensation and other accrued expenses as well as higher net
income and depreciation. The increase in accounts payable was due to timing of
payments versus the previous year.
The Company had negative working capital of $40,495 at October 29, 2004
versus negative working capital of $39,195 at July 30, 2004. In the restaurant
industry, substantially all sales are either for cash or credit card. Like many
other restaurant companies, the Company is able to, and may more often than not,
operate with negative working capital. Restaurant inventories purchased through
the Company's principal food distributor are on terms of net zero days, while
restaurant inventories purchased locally generally are financed from normal
trade credit. Retail inventories purchased domestically generally are financed
from normal trade credit, while imported retail inventories generally are
purchased through letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant inventory. Employees
generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of
hours worked, and certain expenses such as certain taxes and some benefits are
deferred for longer periods of time. The larger negative working capital
compared with July 30, 2004, reflected higher accounts payable and income taxes
payable and lower cash and cash equivalents partially offset by higher
inventories and prepaid expenses and lower accrued employee compensation.
Capital expenditures were $37,369 for the quarter ended October 29, 2004 as
compared to $29,683 during the same period a year ago. Construction of new
locations accounted for most of the expenditures. The increase from the prior
year is due to the current year increase in the number of new locations under
construction versus the prior year, the current year increase in owned versus
leased land for new locations and the timing of maintenance and replacement
capital expenditures for existing stores versus the same period a year ago.
Capitalized interest was $181 for the quarter ended October 29, 2004, as
compared to $124 for the quarter ended October 31, 2003. This difference was due
to an increase in the average number of new locations under construction versus
the same period a year ago.
During the quarter ended October 29, 2004 the Company repurchased 1,100,000
shares of its common stock for approximately $36.25 per share. As of October 29,
2004, the Company had 1,792,000 shares remaining under the current repurchase
authorization. The purchases are to be made from time to time in the open market
at prevailing market prices. The Company presently expects to complete the
remaining share repurchase authorization before the end of 2005, although there
can be no assurance that such repurchase actually will be completed in that
period of time.
During the first quarter of 2005, the Company received proceeds of $12,811
from the exercise of stock options on 640,622 shares of its common stock. During
the quarter, the Company paid a dividend of $0.11 per common share on September
1, 2004 (declared on July 29, 2004) and the Company declared a dividend of $0.12
per common share that was paid on November 1, 2004. Additionally, the Company
declared a dividend of $0.12 per common share on November 23, 2004 to be paid on
February 8, 2005 to shareholders of record on January 14, 2005.
The Company's internally generated cash and cash generated by option
exercises, along with cash at July 30, 2004, the Company's availability under
its Revolving Credit Facility and its real estate operating lease arrangements,
were sufficient to finance all of its growth, share repurchase, dividend payment
and working capital needs in the first quarter of 2005.
The Company estimates that its capital expenditures for 2005 will be
approximately $165,000, most of which will be related to the construction of new
Cracker Barrel and Logan's units. The Company, through internally generated cash
and available borrowing capacity, expects to be able to meet its capital needs
for the foreseeable future. The Company expects to open 25 new Cracker Barrel
units in 2005, of which 8 already have opened. The Company also expects to open
18 new company-operated Logan's units in 2005, of which 8 have already opened.
Management believes that cash at October 29, 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 October 29, 2004, the Company had $280,000 available under its
Revolving Credit Facility.
Recent Accounting Pronouncements Not Yet Adopted
------------------------------------------------
The FASB recently ratified EITF Issue No. 04-8, which requires
"if-converted" accounting for contingently convertible debt regardless of
whether the contingencies allowing debt holders to convert have been met. EITF
04-8 is effective for reporting periods ending after December 15, 2004 and
requires retroactive restatement of prior period diluted earnings per share for
comparative purposes. The rule change will require the Company to include
approximately 4.6 million shares in diluted shares outstanding related to its
convertible debt and deduct from net income the interest and financing costs
associated with this debt in calculating diluted net income per share. The
change in accounting will have no effect on the terms of the convertible debt,
nor the Company's operations or consolidated financial statements, other than
the calculation of diluted net income per share. The table below shows the
proforma effect of adopting EITF 04-8 on diluted net income per share, as
restated for changes made in the way the Company accounts for leases, for the
full years of 2002, 2003, and 2004, and each quarter of 2004 as well as the
first quarter of 2005.
Year Ended Quarter Ended
----------------------- ----------------------------------------------------------------------
October 29, July 30, April 30, January 30, October 31,
2004 2003 2002 2004 2004 2004 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
Diluted net income per
share - as restated $2.23 $2.06 $1.61 $0.60 $0.59 $0.51 $0.56 $0.55
Diluted net income per
share - pro-forma $2.12 $1.97 $1.59 $0.57 $0.56 $0.49 $0.53 $0.53
The Company estimates the effect of the "if-converted" accounting treatment
for contingently convertible debt to have an estimated impact on diluted net
income per share of approximately $0.03 in the second and third quarters of 2005
and approximately $0.05 in the fourth quarter of 2005.
Critical Accounting Policies
----------------------------
The Company prepares its consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period (see Note 3 to the 2004 Form 10-K/A). Actual results
could differ from those estimates. Critical accounting policies are those that
management believes are both most important to the portrayal of the Company's
financial condition and operating results, and require management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources.
Judgments and uncertainties affecting the application of those policies may
result in materially different amounts being reported under different conditions
or using different assumptions. The Company considers the following policies to
be most critical in understanding the judgments that are involved in preparing
its consolidated financial statements.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Recoverability of assets is measured by comparing the carrying
value of the asset to the undiscounted future cash flows expected to be
generated by the asset. If the total future cash flows are less than the
carrying amount of the asset, the carrying amount is written down to the
estimated fair value of an asset to be held and used or over the fair value, net
of estimated costs of disposal, of an asset to be disposed of, and a loss
resulting from value impairment is recognized by a charge to 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 is performed in the
second quarter of each year. Additionally, an assessment is performed between
annual assessments if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying
amount. The Company does not believe such events or changes in circumstances
have occurred since the annual assessment performed in the quarter ended January
30, 2004.
Insurance Reserves
The Company self-insures a significant portion of expected losses under its
workers' compensation, general liability and health insurance programs. The
Company has purchased insurance for individual claims that exceed $250 for
workers' compensation and general liability insurance prior to 2003, but has
increased this amount to $500 for 2003 and to $1,000 for certain coverages for
2004 going forward. The Company elected not to purchase such insurance for its
primary group health program, but its offered benefits are limited to not more
than $1,000 lifetime for any employee (including dependents) in the program. The
Company records a liability for workers' compensation and general liability for
all unresolved claims and for an estimate of incurred but not reported claims at
the anticipated cost to the Company based upon an actuarially determined reserve
as of the end of the Company's third quarter and adjusting it by the actuarially
determined losses and actual claims payments for the subsequent quarters until
the next annual, actuarial study of its reserve requirements. Those reserves and
these losses are determined actuarially from a range of possible outcomes within
which no given estimate is more likely than any other estimate. In accordance
with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for
Contingencies," the Company records the losses at the low end of that range and
discounts them to present value using a risk-free interest rate based on the
actuarially projected timing of payments. The Company also monitors actual
claims development, including incurrence or settlement of individual large
claims during the interim period between actuarial studies as another means of
estimating the adequacy of its reserves. From time to time the Company has
performed limited scope interim updates of its actuarial studies to verify
and/or modify its reserves. The Company records a liability for its group health
program for all unpaid claims based 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 and liabilities that
would be reported under these insurance programs.
Inventory Shrinkage
Cost of sales includes the cost of retail merchandise sold at the Cracker
Barrel stores utilizing the retail inventory accounting method. It includes an
estimate of shortages that are adjusted upon physical inventory counts in
subsequent periods. This estimate is consistent with Cracker Barrel's historical
practice in all periods shown. Actual shrinkage recorded upon physical inventory
counts may produce materially different amounts of shrinkage than estimated by
the Company for the first quarter ended on October 29, 2004.
Tax Provision
The Company must make estimates of certain items that comprise its income
tax provision. These estimates include effective state and local income tax
rates, employer tax credits for items such as FICA taxes paid on tip income,
Work Opportunity and Welfare to Work, as well as estimates related to certain
depreciation and capitalization policies. 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 8 to the 2004 Form 10-K/A).
Legal Proceedings
As discussed in Note 10 to the Company's Condensed Consolidated Financial
Statements contained in this Quarterly Report, the Company reported that its
principal subsidiaries have been involved in certain litigation that if resolved
unfavorably could result in a material adverse effect upon the Company's results
of operations.
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 2004 Form 10-K/A is incorporated in this item of this
Quarterly Report by this reference. There have been no material changes in the
quantitative and qualitative market risks of the Company since July 30, 2004.
Item 4. Controls and Procedures
The Company's management, with the participation of its principal executive
and financial officers, including the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon this
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that as of October 29, 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 during the quarter ended October 29,
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.
On February 17, 2005, the Company announced that it was restating certain
prior financial results because of changes it made in the way it accounted for
leases. The decision to restate was made following a review of its accounting
policies that was prompted by views expressed on February 7, 2005 by the staff
of the SEC (and similar restatements by numerous other companies in the
restaurant, retail and other industries) that indicated that the manner in which
the Company had been accounting for leases needed to be corrected (see also Note
2 to the condensed consolidated unaudited financial statements). Prior to the
Company's review, the Company believed that such accounting was consistent with
generally accepted accounting principles. Some companies have indicated that
such a change in accounting and resulting restatement is a material weakness in
disclosure controls and procedures or in internal controls over financial
reporting. The Company does not believe this to be the case in its situation as
of October 29, 2004, and the effects of the restatement were not material to the
Company's financial position or the results of operations for any prior annual
or quarterly period. The Company has discussed its conclusion with its
independent registered public accounting firm. However, the Company is
discussing the restatement in question in this Part I, Item 4 of this Quarterly
Report out of an abundance of caution.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Part I, Item 3 of the 2004 Form 10-K/A is incorporated herein
by this reference.
Item 7.01 of the Company's Current Report on Form 8-K filed
with the SEC on September 9, 2004 is incorporated herein by
this reference.
See also Note 10 to the Company's Condensed Consolidated
Financial Statements filed in Part I, Item 1 of this Quarterly
Report on Form 10-Q/A, which also is incorporated in this item
by this reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
There were no equity securities sold by the Company during the
period covered by this Quarterly Report on Form 10-Q that were
not registered under the Securities Act of 1933, as amended.
The following table sets forth information with respect to
purchases of shares of the Company's common stock made during
the quarter ended October 29, 2004 by or on behalf of the
Company or any "affiliated purchaser," as defined by Rule
10b-18(a)(3) of the Exchange Act:
Issuer Purchases of Equity Securities
Total
Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Average Announced Under the
of Shares Price Paid Plans or Plans or
Period Purchased(1) Per Share(2) Programs(3) Programs(3)
------ ------------ ----------- ---------- ----------
7/31/04 - 8/27/04 0 -- 0 2,892,000
8/28/04 - 9/24/04 0 -- 0 2,892,000
9/25/04 - 10/29/04 1,100,000 $36.25 1,100,000 1,792,000
Total for the quarter 1,100,000 $36.25 1,100,000 1,792,000
(1) All share repurchases were made in open-market transactions
pursuant to publicly announced repurchase plans. This table
excludes shares owned and tendered by employees to meet the
exercise price of option exercises and shares withheld from
employees to satisfy minimum tax withholding requirements on
option exercises and other equity-based transactions. The
Company administers employee cash-less exercises through an
independent, third party broker and does not repurchase stock
in connection with cash-less exercises.
(2) Average price paid per share is calculated on a
settlement basis and includes commission.
(3) The Company had 1,792,000 shares remaining under its previous 2
million share repurchase authorization announced in May 2004, with
no expiration date.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Although no items were submitted to a vote of
security holders during the quarter ended October 29,
2004, the annual meeting of shareholders (the "Annual
Meeting") was held on November 23, 2004.
(b) Proxies for the Annual Meeting were solicited in
accordance with Regulation 14 of the Exchange Act;
there was no solicitation in opposition to
management's nominees and all of management's
nominees were elected. Each director is elected to
serve for a 1-year term.
(c) The following sets forth the results of voting on
each matter at the Annual Meeting:
Proposal 1 - Election of Directors.
WITHHOLD
FOR AUTHORITY
James D. Carreker 40,720,557 2,671,783
Robert V. Dale 39,417,262 3,975,078
Robert C. Hilton 40,363,747 3,028,593
Charles E. Jones, Jr. 39,457,912 3,934,428
B. F. "Jack" Lowery 41,280,775 2,111,565
Martha M. Mitchell 28,788,849 14,603,491
Andrea M. Weiss 42,399,924 992,416
Jimmie D. White 30,319,946 13,072,394
Michael A. Woodhouse 41,638,861 1,753,479
Proposal 2 - To approve certain changes to the CBRL
2002 Incentive Compensation Plan.
Votes cast for 27,253,636
Votes cast against 6,057,598
Votes cast to abstain 543,208
Broker non-votes 9,537,898
Proposal 3 - To approve the selection of Deloitte &
Touche LLP as the Company's independent registered
public accounting firm for the 2005 fiscal year.
Votes cast for 39,289,889
Votes cast against 3,839,281
Votes cast to abstain 263,170
Item 6. Exhibits
--------
See Exhibit Index immediately following the signature page hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 3/30/05 By /s/Lawrence E. White
------- --------------------
Lawrence E. White, Senior Vice President,
Financeand Chief Financial Officer
Date: 3/30/05 By /s/Patrick A. Scruggs
------- ---------------------
Patrick A. Scruggs, Vice President,
Accounting and Tax and Chief
Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
10.1 Letter agreement with Dan W. Evins (1)
10.2 FY 05 Mid-Term Incentive and Retention Plan (1)
10.3 CBRL 2005 Annual Bonus Plan (1)
31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
(1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
under the Securities Exchange Act of 1934 for the quarterly period ended October
29, 2004 (File No. 000-25225) as filed on December 3, 2004.