SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 1999
Commission file number 0-7536
CBRL GROUP, INC.
A Tennessee Corporation I.R.S. EIN: 62-1749513
Hartmann Drive, P. O. Box 787
Lebanon, Tennessee 37088-0787
615-444-5533
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
58,559,820 Shares of Common Stock
Outstanding as of May 28, 1999
<PAGE>
PART I
Item 1. Financial Statements
CBRL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998*
---- -----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,375 $ 62,593
Receivables 7,345 5,192
Inventories 103,114 91,609
Prepaid expenses 6,588 5,432
---------- --------
Total current assets 133,422 164,826
---------- --------
Property and equipment, net 984,920 812,321
Other assets 121,752 14,961
---------- --------
Total assets $1,240,094 $992,108
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,387 $ 38,212
Accrued expenses 64,329 63,110
Current portion of long-term debt 2,500 2,500
Current portion of other long-term obligations 200 200
---------- --------
Total current liabilities 127,416 104,022
---------- --------
Long-term debt 307,000 59,500
Other long-term obligations 27,088 25,212
Shareholders' equity:
Common stock - $.50 par value, authorized 31,263 31,240
150,000,000 shares, issued 62,526,158 at
April 30, 1999 and 62,480,775 at July 31, 1998
Additional paid-in capital 252,104 251,236
Retained earnings 577,836 520,898
---------- --------
861,203 803,374
Less treasury stock, at cost, 3,917,500 and
0 shares, respectively (82,613) --
---------- --------
Total shareholders' equity 778,590 803,374
---------- --------
Total liabilities and shareholders' equity $1,240,094 $992,108
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
(*)This condensed consolidated balance sheet has been derived from the
audited consolidated balance sheet as of July 31, 1998.
<PAGE>
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------- -----------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
---- ---- ---- ----
Net sales:
<S> <C> <C> <C> <C>
Restaurant $303,447 $248,078 $ 828,934 $722,445
Retail 81,970 69,286 275,906 229,464
-------- -------- ---------- --------
Total net sales 385,417 317,364 1,104,840 951,909
Franchise fees and royalties 120 -- 120 --
-------- -------- ---------- --------
Revenue 385,537 317,364 1,104,960 951,909
Cost of goods sold 129,580 107,422 387,799 330,549
-------- -------- ---------- --------
Gross profit 255,957 209,942 717,161 621,360
Labor & related expenses 136,369 108,015 378,866 320,729
Other store operating expenses 69,157 47,785 181,208 143,927
-------- -------- ---------- --------
Store operating income 50,431 54,142 157,087 156,704
General and administrative 22,362 15,427 59,323 47,975
Amortization of goodwill 878 53 1,190 53
-------- -------- ---------- --------
Operating income 27,191 38,662 96,574 108,676
Interest expense 3,589 262 5,285 2,159
Interest income 104 754 902 2,270
-------- -------- ---------- --------
Pretax income 23,706 39,154 92,191 108,787
Provision for income taxes 9,014 14,409 34,283 40,034
-------- -------- ---------- --------
Net income $ 14,692 $ 24,745 $ 57,908 $ 68,753
======== ======== ========== ========
Earnings per share:
Basic $ .25 $ .40 $ .95 $ 1.12
======== ======== ========== ========
Diluted $ .25 $ .39 $ .95 $ 1.09
======== ======== ========== ========
Weighted average shares:
Basic 59,619 62,037 60,902 61,641
======== ======== ========== ========
Diluted 59,798 63,578 61,240 62,888
======== ======== ========== ========
Dividends per share $ .005 $ .005 $ .015 $ .015
======== ======== ========== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
CBRL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
April 30, May 1,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 57,908 $ 68,753
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 39,911 32,266
Loss on disposition of property and equipment 7 242
Changes in assets and liabilities, net of effects
from acquisition:
Inventories (10,742) (3,550)
Other assets (2,511) (1,060)
Accounts payable 18,363 3,800
Other current assets and liabilities (6,322) 7,033
--------- ---------
Net cash provided by operating activities 96,614 107,484
--------- ---------
Cash flows from investing activities:
Proceeds from maturities of investments -- 1,666
Purchase of property and equipment (115,971) (141,762)
Cash paid for acquisition, net of cash acquired (182,392) (1,886)
Proceeds from sale of property and equipment 2,114 2,968
--------- ----------
Net cash used in investing activities (296,249) (139,014)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 330,000 --
Proceeds from exercise of stock options 891 22,868
Principal payments under long-term debt and other
long-term obligations (93,891) (3,698)
Treasury stock purchases (82,613) --
Dividends on common stock (970) (974)
--------- ---------
Net cash provided by financing activities 153,417 18,196
--------- ---------
Net decrease in cash and cash equivalents (46,218) (13,334)
Cash and cash equivalents, beginning of period 62,593 64,933
--------- ---------
Cash and cash equivalents, end of period $ 16,375 $ 51,599
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest $ 5,415 $ 3,217
Income taxes 32,369 36,595
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
CBRL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Condensed Consolidated Financial Statements
-------------------------------------------
The condensed consolidated balance sheet as of April 30, 1999 and the
related condensed consolidated statements of income and cash flows for the
quarters and nine-month periods ended April 30, 1999 and May 1, 1998, have been
prepared by CBRL Group, Inc. (the "Company"), without audit; in the opinion of
management, all adjustments 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 July
31, 1998.
Deloitte & Touche LLP, the Company's independent accountants, have
performed a limited review of the financial information included herein. Their
report on such review accompanies this filing.
2. Income Taxes
------------
The provisions for income taxes for the quarter and nine-month period ended
April 30, 1999 were 38.0% and 37.2%, respectively. Management's estimate of the
tax rate for the entire fiscal year was 36.9% through the second quarter;
however, the tax rate has now been computed based on management's estimate of
the tax rate for the entire fiscal year of 37.4%. The increase in the estimated
tax rate is the result of the acquisition of Logan's Roadhouse, Inc. and the
non-deductibility of the amortization of the related goodwill. The variation
between the statutory tax rate and the effective tax rate is due primarily to
employer tax credits for FICA taxes paid on tip income. The Company's effective
tax rate for both the quarter and nine-month period ended May 1, 1998 and for
the entire fiscal year of 1998 was 36.8%.
3. Seasonality
-----------
The sales and profits of the Company are affected significantly by seasonal
travel and vacation patterns because of its interstate highway locations.
Historically, the Company's greatest sales and profits have occurred during the
period of June through August. Early December through the last part of February,
excluding the Christmas holidays, has historically been the period of lowest
sales and profits. Therefore, the results of operations for the quarter and
nine-month period ended April 30, 1999 cannot be considered indicative of the
operating results for the full fiscal year.
4. Earnings per Share and Weighted Average Shares
----------------------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which requires presentation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings 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. Outstanding stock options issued
by the Company represent the only dilutive effect reflected in diluted weighted
average shares. Weighted average basic shares for the quarters ended April 30,
1999 and May 1, 1998 were 59,618,515 and 62,036,562, respectively. Weighted
average basic shares for the nine-month periods ended April 30, 1999 and May 1,
1998 were 60,901,559 and 61,640,687, respectively. Weighted average diluted
shares for the quarters ended April 30, 1999 and May 1, 1998 were 59,797,560 and
63,577,952, respectively. Weighted average diluted shares for the nine-month
periods ended April 30, 1999 and May 1, 1998 were 61,239,587 and 62,888,086,
respectively.
<PAGE>
5. Recent Accounting Pronouncements Adopted
----------------------------------------
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 specifies how to report and display comprehensive income and its
components. This statement is effective for fiscal years beginning after
December 15, 1997, with restatement of all prior periods shown. The Company
adopted SFAS No. 130 in the first quarter of fiscal 1999. There is no difference
between comprehensive income and net income as reported by the Company for all
periods shown. In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued. SFAS No. 131 requires the
disclosure of certain information about operating segments in the financial
statements. The statement is effective for fiscal years beginning after December
15, 1997, with restatement of all prior periods shown if not impracticable to do
so. The Company adopted SFAS No. 131 in the first quarter of fiscal 1999. SFAS
No. 131 requires no disclosure in interim periods in fiscal 1999, but will
require interim disclosure in fiscal 2000. SFAS No. 131 will require disclosure
in the Company's financial statements in its fiscal 1999 annual report.
6. Acquisition of wholly-owned subsidiary
--------------------------------------
On February 16, 1999, the Company acquired all of the capital stock of
Logan's Roadhouse, Inc. for cash of $24 per share or approximately $188,039,
excluding transaction costs. The acquisition has been accounted for using the
purchase method of accounting, and accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The excess of the purchase price over
the fair value of the net assets acquired was $103,994 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 30 years. The
amount of goodwill amortization in the third quarter was $721.
The net purchase price was allocated as follows:
Current assets, net of cash acquired $ 3,329
Property and equipment 97,470
Other assets 286
Goodwill 103,994
Liabilities assumed (22,687)
---------
Purchase price, net of cash received $ 182,392
=========
The operating results of this acquired business have been included in the
consolidated statement of income from the date of the acquisition. On the basis
of a proforma consolidation of the results of operations as if the acquisition
had taken place at the beginning of fiscal 1998 rather than at February 16,
1999, consolidated revenue, pretax income, net income and earnings per share
would not have been materially different from the reported amounts for fiscal
1998 and 1999 and are shown in the table below. Such proforma amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at the beginning of fiscal
1998.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------- -----------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consolidated revenue $385,537 $344,073 $1,156,963 $1,011,411
Pretax income 23,706 38,998 91,222 106,385
Net income 14,692 24,384 56,589 66,538
Earnings per share:
Basic $ .25 $ .39 $ .93 $ 1.08
Diluted $ .25 $ .38 $ .92 $ 1.06
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All dollar amounts reported or discussed in Item 2 are shown in
thousands. Except for specific historical information, many of the matters
discussed in this Form 10-Q may express or imply projections of revenues or
expenditures, statements of plans and objectives or future operations or
statements of future economic performance. Those, and similar statements are
forward-looking statements that involve risks, uncertainties and other factors
which may cause the actual performance of CBRL Group, Inc. to differ materially
from those expressed or implied by such statements. Factors which will affect
actual results include, but are not limited to: the availability and costs of
acceptable sites for development; the ability of the Company to retain qualified
employees, and to recruit and train restaurant personnel in its expansion
locations; the acceptance of the Cracker Barrel Old Country Store(R), Logan's
Roadhouse(R) and Carmine Giardini's Gourmet Market(TM) and restaurant concepts
as the Company continues to expand into new geographic regions; continued
successful acquisition of additional concepts to expand; successful development
of new and regional menu items; the continued success of the Company's
frequency-based Cracker Barrel Old Country Store Neighborhood(R) program;
changes in or implementation of additional governmental rules and regulations
affecting wage and hour matters, health and safety and other areas affected by
governmental actions, and other factors described from time to time in the
Company's filings with the Securities and Exchange Commission, press releases
and other communications. In addition, the Company discusses certain Year 2000
issues based on a "reasonably likely worst case." That discussion necessarily
relies on assumptions which are not related to existing facts, and it must be
expected that actual circumstances and their effects on the Company will differ.
Results of Operations
The following table highlights operating results by percentage
relationships to total net sales for the quarter and nine-month period ended
April 30, 1999 as compared to the same periods a year ago:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------- -----------------
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
---- ---- ---- ----
Net sales:
<S> <C> <C> <C> <C>
Restaurant 78.7% 78.2% 75.0% 75.9%
Retail 21.3 21.8 25.0 24.1
----- ----- ----- -----
Total net sales 100.0 100.0 100.0 100.0
Franchise fees and royalties -- -- -- --
----- ----- ----- -----
Revenue 100.0 100.0 100.0 100.0
Cost of goods sold 33.6 33.8 35.1 34.7
----- ----- ----- -----
Gross profit 66.4 66.2 64.9 65.3
Labor & related expenses 35.4 34.0 34.3 33.7
Other store operating expenses 17.9 15.1 16.4 15.1
----- ----- ----- -----
Store operating income 13.1 17.1 14.2 16.5
General and administrative 5.8 4.9 5.4 5.1
Amortization of goodwill 0.2 -- 0.1 --
----- ----- ----- -----
Operating income 7.1 12.2 8.7 11.4
Income expense 0.9 0.1 0.5 0.2
Interest income -- 0.2 0.1 0.2
----- ----- ----- -----
Pretax income 6.2 12.3 8.3 11.4
Provision for income taxes 2.4 4.5 3.1 4.2
----- ----- ----- -----
Net income 3.8% 7.8% 5.2% 7.2%
===== ===== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Average Same Store Sales Analysis
---------------------------------
Quarter Ended Nine Months Ended
April 30, May 1, April 30, May 1,
1999 1998 1999 1998
---- ---- ---- ----
Cracker Barrel
<S> <C> <C> <C> <C>
(Number of same stores) 307 307 283 283
Restaurant $717.9 $736.2 $2,191.9 $2.245.2
Retail 206.5 202.0 727.6 705.6
------ ------ -------- --------
Restaurant & retail $924.4 $938.2 $2,919.5 $2,950.8
====== ====== ======== ========
Logan's Roadhouse
(Number of same stores) 22 N/A N/A N/A
Restaurant $814.8 N/A N/A N/A
======
</TABLE>
Revenue
- -------
Revenue for the third quarter of fiscal 1999 increased 21% compared to last
year's third quarter. At the Cracker Barrel concept, same store restaurant sales
decreased 2.5% and same store retail sales increased 2.2%, for a total net same
store sales (restaurant and retail) decrease of 1.5%. Same store restaurant
sales decreased primarily due to decreases in customer traffic of approximately
4%, partially offset by an effective 1.4% menu price increase for the quarter.
Same store retail sales increased primarily due to an improved assortment of
retail items in the stores versus the prior year, partially offset by the
decrease in restaurant customer traffic of approximately 4%. Revenue at the
recently acquired Logan's Roadhouse concept and sales from new Cracker Barrel
stores accounted for the balance of the third quarter revenue increase.
Revenue for the nine-month period ended April 30, 1999, increased 16%
compared to the nine-month period ended May 1, 1998. At the Cracker Barrel
concept, same store restaurant sales decreased 2.4% and same store retail sales
increased 3.1%, for a total net same store sales (restaurant and retail)
decrease of 1.1%. Same store restaurant sales decreased primarily due to
decreases in customer traffic of approximately 6%, partially offset by an
effective 3.0% menu price increase for the nine-month period. Same store retail
sales increased primarily due to an improved assortment of retail items in the
stores versus the prior year and a significant increase in the sale of
marked-down seasonal merchandise after Christmas versus the prior year,
partially offset by the decrease in restaurant customer traffic of approximately
6%. Revenue at the recently acquired Logan's Roadhouse concept and sales from
new Cracker Barrel stores accounted for the balance of the nine-month period
revenue increase.
<PAGE>
Cost of Goods Sold
- ------------------
Cost of goods sold as a percentage of revenue for the quarter ended April
30, 1999 decreased to 33.6% from 33.8% in the third quarter of last year. This
decrease was primarily due to lower retail shrinkage in the third quarter of
fiscal 1999 versus the same period a year ago, decreases in hog complex prices
and the benefit to cost of goods sold from the inclusion of Logan's Roadhouse,
which has lower cost of goods sold as a percentage of revenue than Cracker
Barrel. These decreases were partially offset by an increasing mix of retail
sales which have a higher cost of goods than restaurant sales and increases in
dairy prices.
Cost of goods sold as a percentage of revenue for the nine-month period
ended April 30, 1999 increased to 35.1% from 34.7% for the nine-month period
ended May 1, 1998. This increase was primarily due to the significant increase
in markdowns of seasonal merchandise after Christmas versus the prior year at
Cracker Barrel, an increasing mix of retail sales, which have a higher cost of
goods than restaurant sales, and increases in dairy prices. These increases were
partially offset due to improved initial mark-ons for retail merchandise and
decreases in hog complex prices.
Labor and Related Expenses
- --------------------------
Labor and related expenses include all direct and indirect labor and
related costs incurred in store operations. Labor and related expenses as a
percentage of revenue increased to 35.4% in the third quarter this year from
34.0% last year. This increase was primarily due to increased Cracker Barrel
restaurant labor hours to improve guest service and hourly wage inflation at the
Cracker Barrel stores of approximately 4%. This increase was partially offset
due to lower bonus payouts under the Cracker Barrel store-level bonus program
and the benefit to labor from adding Logan's Roadhouse, which has lower labor as
a percentage of revenue than Cracker Barrel.
Labor and related expenses as a percentage of revenue increased to 34.3% in
the nine-month period ended April 30, 1999 from 33.7% in the nine-month period
ended May 1, 1998. This increase was primarily due to increased Cracker Barrel
restaurant labor hours to improve guest service and hourly wage inflation at the
Cracker Barrel stores of approximately 4%. This increase was partially offset
due to lower bonus payouts under the Cracker Barrel store-level bonus program
and the benefit to labor from adding Logan's Roadhouse, which has lower labor as
a percentage of revenue than Cracker Barrel.
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 and depreciation. Other store operating expenses
as a percentage of revenue increased to 17.9% in the third quarter of fiscal
1999 from 15.1% in the third quarter of last year. This increase was primarily
due to the incremental Cracker Barrel advertising expense, which resulted from
increased television and radio advertising and other general advertising
programs, higher Cracker Barrel store maintenance costs and the effect of lower
sales volumes on fixed costs as a percentage of revenue at Cracker Barrel.
Other store operating expenses as a percentage of revenue increased to
16.4% for the nine-month period ended April 30, 1999 from 15.1% in the
nine-month period ended May 1, 1998. This increase was primarily due to the
incremental Cracker Barrel advertising expense, which resulted from increased
television and radio advertising and other general advertising programs, higher
Cracker Barrel store maintenance costs and the effect of lower sales volumes on
fixed costs as a percentage of revenue at Cracker Barrel.
<PAGE>
General and Administrative Expenses
- -----------------------------------
General and administrative expenses as a percentage of revenue increased to
5.8% in the third quarter of fiscal 1999 from 4.9% in the third quarter of last
year. The primary reason for the increase was higher Cracker Barrel manager
trainee costs as a result of increased manager turnover in prior quarters. This
increase was partially offset due to the decrease in corporate bonus accruals
versus the prior year.
General and administrative expenses as a percentage of revenue increased to
5.4% for the nine-month period ended April 30, 1999 from 5.1% in the nine-month
period ended May 1, 1998. The primary reasons for the increase were higher
Cracker Barrel manager trainee costs, the increased general and administrative
expenses from the Company's acquisition of Carmine Giardini's Gourmet Market and
La Trattoria Ristorante and the costs related to the holding company formation.
This increase was partially offset due to the decrease in corporate bonus
accruals versus the prior year.
Interest Expense
- ----------------
Interest expense increased to $3,589 in the third quarter of fiscal 1999
from $262 in the third quarter of last year. The increase primarily resulted
from higher average debt outstanding during the third quarter of fiscal 1999
versus the prior year. The increase in average debt outstanding primarily
resulted from the Company's borrowings to acquire Logan's Roadhouse, Inc. and to
repurchase shares under the Company's stock buyback programs.
Interest expense increased to $5,285 for the nine-month period ended April
30, 1999 from $2,159 in the nine-month period ended May 1, 1998. The increase
primarily resulted from higher average debt outstanding during the nine-month
period ended April 30, 1999 as compared to last year. The increase in average
debt outstanding primarily resulted from the Company's borrowings to acquire
Logan's Roadhouse, Inc. and to repurchase shares under the Company's stock
buyback programs.
Interest Income
- ---------------
Interest income decreased to $104 in the third quarter of fiscal 1999 from
$754 in the third quarter of last year. The decrease was primarily due to lower
average funds available for investment.
Interest income decreased to $902 for the nine-month period ended April 30,
1999 from $2,270 in the nine-month period ended May 1, 1998. The decrease was
primarily due to lower average funds available for investment.
Recent Accounting Pronouncements Not Yet Adopted
- ------------------------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 specifies how to report and
display derivative instruments and hedging activities. This statement is
effective for fiscal years beginning after June 15, 2000. The Company will adopt
SFAS No. 133 in the first quarter of fiscal 2001. The Company is currently
evaluating the effect that SFAS No. 133 will have on the Company's consolidated
financial statements upon adoption. In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on when costs incurred for
internal-use computer software are capitalized or expensed and guidance on
whether computer software is for internal use. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998 and applies to internal-use software
costs incurred for all projects, including those in progress upon initial
<PAGE>
application of the SOP. The Company is currently evaluating the effect that SOP
98-1 will have on the Company's consolidated financial statements upon adoption.
In April 1998, SOP 98-5, "Reporting of the Costs of Start-up Activities," was
issued. SOP 98-5 requires that the Company expense start-up costs of new stores
as incurred rather than when the store opens as is the Company's current
practice. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. The Company is currently evaluating the effect that SOP 98-5 will have on
the Company's consolidated financial statements upon adoption. The Company does
not expect the adoption of either SOP 98-1 or SOP 98-5 to have a material effect
on the Company's consolidated financial statements.
Year 2000
- ---------
Many software applications and computer operational programs written in the
past were not designed to recognize calendar dates beginning in the Year 2000.
The failure of such applications or systems used by the Company or by its
material suppliers to properly recognize the dates beginning in the Year 2000
could result in miscalculations or systems failures which potentially could have
an adverse effect on the Company's operations.
The Company's Year 2000 preparations began in fiscal 1998. The preparations
include identification, assessment, and testing of all Company software,
hardware and equipment that could be affected by the Year 2000 issue and
remedial action, where necessary, followed by further testing. Analysis to
identify internal Year 2000 deficiencies is in process and an inventory of
systems designated as critical has been developed. As the Year 2000 remediation
efforts progress, the Company will first focus, wherever possible, on those
systems designated critical. The Company has completed the Year 2000 analysis
and has completed correction of approximately 90% of deficiencies found.
Completion of the remediation efforts is anticipated by September 30, 1999. The
Company's estimated total cost of analysis and remediation of the Year 2000
issues is not anticipated to have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
The Company has also contacted critical suppliers of products and services
to determine the extent to which the Company may be vulnerable to such
suppliers' failures to resolve their own Year 2000 compliance issues. To assess
the Year 2000 risks to the Company's continuity of supply of products and
services, an inventory of significant vendors has been compiled. These vendors
were sent letters and questionnaires requesting information as to the status of
their Year 2000 readiness and certification that their information systems are
Year 2000 compliant. Based on responses received from most of these vendors, it
appears that Year 2000 issues are being addressed. The Company has not verified
the contents, nor is it the source, of Year 2000 statements incorporated, or
relied upon by the Company, in this disclosure from persons or entities other
than the Company. The Company is continuing to pursue responses from significant
vendors that have not responded to date and will discuss with them any material
Year 2000 concerns that are identified.
The Company anticipates timely completion of the internal Year 2000
readiness efforts. However, if new systems cannot be implemented on a timely
basis, modifications to existing systems cannot be accomplished on a timely
basis, information technology resources do not remain available, or other
unanticipated events occur, there could be material adverse effects on the
Company's consolidated financial position, results of operations and cash flows.
As part of the Year 2000 readiness efforts, the Company is developing
contingency plans to identify activities which will need to be performed in the
event of internal systems failures. The contingency plans are expected to be
completed by July 31, 1999. Although the Company has not yet been informed of
material Year 2000 issues by its significant vendors, there is no assurance that
these vendors will be Year 2000 compliant on a timely basis. Similarly, the
Company has no reliable information concerning the expected Year 2000 effects on
the nation's securities markets, banking system, utilities and other
<PAGE>
infrastructure. The Company therefore relies generally on the ability of the
federal government and its agencies, such as the Internal Revenue Service and
Securities and Exchange Commission to effectively address such issues on a
national scale. Unanticipated failures or significant delays in furnishing
products or services by significant vendors or general public infrastructure
service providers could have a material adverse effect on the Company's
consolidated financial position, results of operations and cash flows. Where
practicable, the Company is assessing and attempting to mitigate its risks with
respect to the failure of its significant vendors and public infrastructure to
be Year 2000 ready as part of its contingency planning. In the worst case
reasonably to be expected, assuming that the nation's financial system and
overall public infrastructure continues to operate substantially as they had
prior to the Year 2000, some of the Company's internal systems may fail to
operate properly and some of its significant vendors may fail to perform
effectively or may fail to timely or completely deliver products. In those
circumstances, the Company expects to be able to conduct all of its necessary
business operations manually and to obtain necessary products from alternative
vendors and business operations would generally continue; however, there would
be some disruption which could have a material adverse effect on the Company's
consolidated financial position, results of operations and cash flows. The
Company has no basis upon which to reasonably analyze the psychological or other
direct or indirect effects on its guests, and consumers generally, from Year
2000 issues or experiences unrelated to the Company. The actual effect, if any,
on the Company's consolidated financial position, results of operations or cash
flows from the failure of its internal systems or of its significant vendors to
be Year 2000 ready can not be reasonably predicted.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided net cash of $96,614 for the
nine-month period ended April 30, 1999. All of this cash was provided by net
income adjusted for depreciation and amortization. Such cash provided was
reduced by increases in inventories, increases in other current assets,
increases in other assets and decreases in other current liabilities partially
offset by increases in accounts payable.
Capital expenditures were $115,971 for the nine-month period ended April
30, 1999. Land purchases and the construction of new stores accounted for
substantially all of these expenditures. Capitalized interest was $400 and
$1,261 for the quarter and nine-month period ended April 30, 1999 as compared to
$563 and $1,549 for the quarter and nine-month period ended May 1, 1998,
respectively. This decrease was primarily due to the decrease in the number of
stores under construction in the third quarter of fiscal 1999 versus the prior
year. The decrease in stores under construction resulted from the Company's
decision to slow its expansion to 40 new Cracker Barrel stores opened in fiscal
1999 as compared to 50 new Cracker Barrel stores opened in fiscal 1998. This
decrease in capitalized interest was partially offset due to acquisition of
Logan's Roadhouse, Inc. during the third quarter and the related capitalized
interest on its new stores under construction.
The Company's internally generated cash along with cash at July 31, 1998
and its available revolver were not sufficient to finance all of its stock
buyback programs, the acquisition of Logan's Roadhouse, Inc. and new store
growth of its Cracker Barrel and Logan's Roadhouse concepts in the first nine
months of fiscal 1999. As planned, the Company increased its bank facility from
$125 million to $350 million during the third quarter.
On September 9, 1998, the Company announced that the Board of Directors
authorized the repurchase of up to 3 million shares of the Company's common
stock which allowed the Company to repurchase approximately 5% of the
approximately 62 million shares then outstanding. One effect of the share
repurchase will be to minimize dilution to existing shareholders as shares are
issued under the Company's Stock Option Plan. During March 1999, the Company
completed the purchase of all of the 3 million shares authorized by the Board of
Directors on September 9, 1998.
<PAGE>
On February 26, 1999, the Company announced that the Board of Directors had
authorized the repurchase of up to an additional 3 million shares of the
Company's common stock. This authorization increases the Company's stock buyback
program to a total of approximately 10% of the approximately 60 million shares
then outstanding. The purchases are to be made from time to time in the open
market at prevailing market prices. The Company began repurchases under this
second authorization upon completion of the first 3 million share buyback
program. As of April 30, 1999, the Company has purchased a total of 917,500
shares under the second stock buyback program. The Company expects to complete
the purchase of substantially all of the remaining 2,082,500 shares authorized
by the Board of Directors by the end of the first quarter of fiscal 2000.
The Company estimates that its capital expenditures for fiscal 1999 will be
approximately $165,000, substantially all of which will be land purchases and
the construction of new stores.
On February 16, 1999, the Company completed its merger and acquisition of
Logan's Roadhouse, Inc. for $24 cash per share or approximately $188,039,
excluding transaction costs. (See Note 6.) In order to finance this acquisition
and the Company's additional 3 million share buyback authorization, the Company
refinanced its $50,000 term loan and $75,000 revolving credit facility which
increased the rate on the Company's $50,000 term loan to a fixed interest rate
of 7.11% based on a 75 basis point increase in the Company's credit spread, but
the term loan is still due on its original maturity date of December 1, 2001.
The credit spread increase is primarily due to changes in the credit markets as
compared to the credit spread environment two years ago when the Company entered
into the $125,000 bank credit facility. As part of the February 16, 1999 bank
facility refinancing, the Company increased the total bank credit facility to
$350,000 from $125,000. On February 16, 1999, the Company received net proceeds
of $200,000 from its revolving credit facility at a variable rate of
approximately 6%. During the third quarter, the Company received net proceeds of
an additional $40,000 from its revolving credit facility to fund its expansion
and continue its share buyback program. Management believes that cash at April
30, 1999, along with cash generated from the Company's operating activities and
its available $50,000 revolver, will be sufficient to finance its continued
operations, the completion of its second 3 million share stock buyback program
and its continued expansion plans through fiscal 2000.
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
CBRL Group, Inc.
Lebanon, Tennessee
We have reviewed the accompanying condensed consolidated balance sheet of CBRL
Group, Inc. and subsidiaries as of April 30, 1999, and the related condensed
consolidated statements of income and cash flows for the quarters and nine-month
periods ended April 30, 1999 and May 1, 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of CBRL Group, Inc. and subsidiaries
(formerly Cracker Barrel Old Country Store, Inc.) as of July 31, 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated
September 9, 1998, 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 July 31, 1998 is fairly
stated, in all material respects, in relation to the balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 4, 1999
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed pursuant to Item 601 of
Regulation S-K
(15)Letter regarding unaudited financial information.
(b) The Company filed a Current Report on Form 8-K on
March 5, 1999 pursuant to Item 5 of such form to announce
the completion of the purchase of all of the issued and
outstanding capital stock of Logan's Roadhouse, Inc. as
of February 16, 1999. The Company filed a Current Report
on Form 8-K on April 26, 1999 pursuant to Item 5 of such
form to announce the resignation of the Company's
President, Ronald N. Magruder as of April 12, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: 6/4/99 By /s/Michael A. Woodhouse
------ ---------------------------------------------
Michael A. Woodhouse, Chief Financial Officer
Date: 6/4/99 By /s/Patrick A. Scruggs
------ --------------------------------------------
Patrick A. Scruggs, Assistant Treasurer
<PAGE>
June 4, 1999
CBRL Group, Inc.
Hartmann Drive
Lebanon, Tennessee 37088-0787
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of CBRL Group, Inc. and subsidiaries for the quarters and nine-month
periods ended April 30, 1999 and May 1, 1998, as indicated in our report dated
June 4, 1999; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended April 30, 1999, is
incorporated by reference in Registration Statement Nos. 2-86602, 33-15775,
33-37567, 33-45482 and 333-01465 on Form S-8 and Registration Statement Nos.
33-59582 and 333-74363 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT OF CBRL GROUP, INC. AND SUBSIDIARIES FOR THE
NINE MONTHS ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001067294
<NAME> CBRL GROUP, INC.
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-30-1999
<PERIOD-START> AUG-1-1998
<PERIOD-END> APR-30-1999
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