SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (No Fee Required)
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to
For fiscal year ended Commission file number
July 31, 1998 0-7536
____________________________
CRACKER BARREL OLD COUNTRY STORE, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0812904
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Hartmann Drive, P.O. Box 787 37088-0787
Lebanon, Tennessee (Zip code)
(Address of principal executive offices)
__________________
Registrant's telephone number, including area code:
(615)444-5533
_________________
Securities registered pursuant to Section 12(b) of the Act:
None
__________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Par Value $.50)
___________________
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 if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of
the registrant is $1,458,485,072 as of September 25, 1998.
62,432,731
(Number of shares of common stock outstanding as of September 25,
1998.)
Documents Incorporated by Reference
Document from which Portions Part of Form 10-K
are Incorporated by Reference to which incorporated
1. Annual Report to Shareholders Items 6, 7 and 8
for the fiscal year ended
July 31, 1998
2. Proxy Statement for Annual Part III
Meeting of Shareholders
to be held November 24, 1998
Except for specific historical information, the matters discussed in
this Form 10-K, as well as the Company's Annual Report to
Shareholders for the year ended July 31, 1998 incorporated herein by
reference, are forward-looking statements that involve risks,
uncertainties and other factors which may cause actual results and
performance of Cracker Barrel Old Country Store, 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 recruit and train
restaurant personnel in its expansion locations; the acceptance of
the Cracker Barrel concept as the Company continues to expand into
new geographic regions; continued successful development of new and
regional menu items; continued successful acquisition of new
businesses; changes in or implementation of additional governmental
rules and regulations; and other factors described from time to time
in the Company's filings with the Securities and Exchange
Commission, press releases and other communications.
PART I
ITEM 1. BUSINESS
Overview
Cracker Barrel Old Country Store, Inc. and subsidiaries (the
"Company" or "Cracker Barrel") own and operate 369 full service
"country store" restaurants which are primarily located in the
southeast, midwest, mid-atlantic and southwest United States as of
October 30, 1998. The majority of stores are located along
interstate highways, however, ten stores are located at "tourist
destinations" and one is located at a location which is neither a
tourist destination nor an interstate location. The restaurants
serve breakfast, lunch and dinner between the hours of 6:00 a.m. and
10:00 p.m. (11:00 p.m. on Fridays and Saturdays) and feature home
style country cooking prepared on the premises from the Company's
own recipes using quality ingredients and emphasizing authenticity.
Menu items are moderately priced and include country ham, chicken,
fish, roast beef, beans, turnip greens, vegetable plates, salads,
sandwiches, pancakes, eggs, bacon, sausage and grits. The
restaurants do not serve alcoholic beverages. The stores are
constructed in a rustic, country store design and feature a separate
retail area offering a wide variety of decorative and functional
items specializing in hand-blown glassware, cast iron cookware, toys
and wood crafts as well as various old fashioned candies, jellies
and other foods. The Company considers its store operations to
constitute an integrated, single line of business.
As announced on August 21, 1996, the Company took a one-time charge
related to store closures and certain other write-offs. The details
related to this charge are included in Note 1 under "Store closing
costs" on page 33 of the Company's 1998 Annual Report.
Acquisitions
On April 1, 1998, the Company through a new subsidiary CPM Merger
Corporation ("CPM"), acquired Carmine's Prime Meats, Inc.
("Carmine's") through a merger of Carmine's into CPM. The purchase
consisted of cash of $2.5 million and $10.5 million of the Company's
Common Stock and was accounted for as a purchase. CPM will do
business under the name of Carmine Giardini's Gourmet Market and La
Trattoria Ristorante.
Carmine's started 26 years ago as a prime meat market and expanded
15 years ago to a full-service gourmet market. A restaurant (also
referred to as the "La Trattoria Ristorante") was added to the Palm
Beach Gardens, Florida store five years ago. The Ft. Lauderdale,
Florida store has the full-service gourmet market only. The markets
consist of separate departments with a strong Italian flavor
featuring such items as seafood, meat, prepared foods, deli, bakery,
produce, cheese, pizza and wine. The prepared foods department
features various meat, seafood and pasta entrees, vegetables, salads
and appetizers. The markets also feature off-premise catering, gift
baskets and, in the case of the Palm Beach Gardens location, a
casual cafe. La Trattoria Ristorante is an upper scale Italian
restaurant including a full-service bar and fine dining table
service delivered in a casual dining atmosphere.
The Palm Beach Gardens, Florida gourmet market and restaurant
comprise approximately 15,000 square feet with 230 seats. The Ft.
Lauderdale gourmet market is approximately 6,000 square feet and has
no restaurant. The Palm Beach Gardens store will be the model for
the prototype that will be developed in two new locations in fiscal
1999 in south Florida.
Operations
Store Format: The format of Cracker Barrel stores consists of a
rustic, country store style building. All stores are free standing
buildings with adequate parking facilities and standard landscaping.
Store interiors are subdivided into a dining room consisting of
approximately 23% of the total interior store space, a retail shop
consisting of approximately 21% of such space, with the balance
primarily consisting of kitchen and storage areas. All stores have
functioning stone fireplaces which burn wood wherever permitted and
are decorated with antique-style furnishings and other authentic
items of the past similar to those used and sold in original old
country stores. The kitchens contain modern food preparation and
storage equipment allowing for extensive flexibility in menu
variation and development.
Products: Cracker Barrel's restaurants offer rural American cooking
featuring the Company's own recipes. In keeping with the Company's
emphasis on authenticity and quality, Cracker Barrel restaurants
prepare menu selections on the premises. The Company's restaurants
offer breakfast, lunch and dinner from a moderately-priced menu.
Breakfast items can be ordered at any time throughout the day and
include juices, eggs, pancakes, bacon, country ham, sausage, grits,
and a variety of biscuit specialties, with prices for a breakfast
meal ranging from $2.69 to $7.99. Lunch and dinner items include
country ham, chicken, fish, steak, roast beef, beans, turnip greens,
vegetable plates, salads, sandwiches, homemade soups and specialty
items such as beef stew with cornbread. Lunches and dinners range
in price from $2.99 to $15.99. The Company from time to time
adjusts its prices. The Company increased its menu prices
approximately 4% in May 1998.
The retail area of the stores, which are decorated with antique
signs, primitive tools and other memorabilia in a
turn-of-the-century atmosphere, offer a wide variety of decorative
and functional items consisting primarily of hand-blown glassware,
cast iron cookware, old-fashioned crockery, handcrafted figurines,
classic children's toys and various other gift items, as well as
various candies, preserves, smoked sausage, syrups and other
foodstuffs. Many of the candy items, smoked bacon, jellies and jams
along with other high quality products are sold under the "Cracker
Barrel Old Country Store" brand name.
Product Merchandising: Cracker Barrel maintains a product
development department which develops new and improved menu items in
response to shifts in customer preferences. Company merchandising
specialists are involved on a continuing basis in selecting and
positioning of merchandise in the retail shop. Management believes
that the Company has adequate flexibility to meet future shifts in
consumer preference on a timely basis.
Store Management: Store management typically consists of a general
manager, four associate managers and a retail manager who are
responsible for approximately 100 employees on two shifts. The
relative complexity of operating a Cracker Barrel Old Country Store
requires an effective management team at the individual store level.
As a motivation to store managers to improve sales and operational
efficiency, Cracker Barrel has a bonus plan designed to provide
store management with an opportunity to share in the pre-tax profits
of their store. To assure that individual stores are operated at a
high level of quality, the Company emphasizes the selection and
training of store managers and has a level of District Management to
support individual store managers and a level of Regional Management
to support individual District Managers.
The store management recruiting and training program begins with an
evaluation and screening process. In addition to multiple
interviews and background and experience verification, the Company
conducts testing which it believes is important in selecting those
applicants best suited to manage store operations. Those candidates
who successfully pass this screening process are then required to
complete an 11-week training program consisting of eight weeks of
in-store training and three weeks of training at the Company's
corporate facilities. This program allows new managers the
opportunity to become familiar with the Company's operations,
management objectives, controls and evaluation criteria before
assuming management responsibility.
Purchasing and Distribution: Cracker Barrel negotiates directly
with food vendors as to price and other material terms of most food
purchases. The Company purchases the majority of its food products
and restaurant supplies on a cost-plus basis through a distributor
headquartered in Nashville, Tennessee with custom distribution
centers in Lebanon, Tennessee; Dallas, Texas; Gainesville, Florida;
and Belcamp, Maryland. The distributor is responsible for placing
food orders and warehousing and delivering food products to the
Company's stores. This distributor is not affiliated with the
Company. Certain perishable food items are purchased locally by the
Company's stores.
On January 10, 1997, the Company signed a new agreement with the
food distributor which became effective February 1, 1997. This
agreement, characterized as a "Prime Vendor Contract", outlined the
relationship between the Company and the distributor and is
considered a mutual agreement between both parties that will permit
a profitable relationship. The contract will remain in effect until
it is mutually modified in writing by both parties or until
terminated by either the Company or the distributor upon one hundred
eighty days written notice to the other party.
The single food category accounting for the largest share
(approximately 14%) of the Company's food purchasing expense is
pork. The single food item within the pork category accounting for
the largest share of the Company's food purchasing expense is bacon.
The Company presently purchases its pork food items through eight
vendors and its bacon through one vendor. Should any pork items
from these vendors become unavailable for any reason, management is
of the opinion that these food items could be obtained in sufficient
quantities from other sources at competitive prices.
The majority of retail items are purchased directly by Cracker
Barrel, warehoused at its Lebanon distribution center and shipped to
the stores. On December 20, 1996, the Company signed a dedicated
carriage agreement with an unaffiliated transportation company for
the transportation of retail merchandise from the Company's
distribution center throughout the contiguous forty-eight states.
This agreement, which is for a period of forty eight (48) months,
sets forth the relationship between the respective companies and is
structured to facilitate the growth of the Company's retail business
over the next four years. The transportation company or the Company
may terminate the agreement on any annual anniversary date by giving
the other party sixty (60) days prior written notice. Certain
retail items are drop-shipped directly from the Company's vendors to
its stores.
Quality, Cost and Inventory Controls: Costs are monitored by
management to determine if any material variances in food cost or
operating expenses have occurred. The Company's computer systems are
used to analyze store operating information by providing management
reports for continual monitoring of sales mix and detailed
operational cost data as well as information on sales trends and
inventory levels to facilitate retail purchasing decisions. These
systems are also used in the development of budget analyses and
planning.
Marketing: New store locations generally are not advertised in the
media until several weeks after they have been opened in order to
give the staff time to adjust to local customer habits and traffic
volume. To effectively reach consumers in the primary trade area
for each Cracker Barrel store and also interstate travelers and
tourists, outdoor advertising is the primary advertising media
utilized, accounting for approximately 50% of advertising
expenditures. The Company utilizes various types of media, such as
television and radio, in its core markets to maintain customer
awareness. Outside of its core markets, television, radio and print
are used in an effort to increase name awareness and to build brand
loyalty. The Company defines its core market based on geographic
location, longevity in the market and name awareness in the market.
The Company completed the rollout of its frequency-based Cracker
Barrel Old Country Store Neighborhood program to all stores the
first week of November 1997. The program is designed to enable the
Company to communicate more personally and directly with both local
and traveling guests in order to tailor its services to better meet
their needs.
Seasonal Aspects: Historically the profits of the Company have been
lower in the second fiscal quarter than in the first and third
fiscal quarters and highest in the fourth fiscal quarter.
Management attributes these variations primarily to the decrease in
interstate tourist traffic during the winter months and the increase
in interstate tourist traffic during the summer months.
Working Capital: In the restaurant industry substantially all sales
are either for cash or credit card. Like most other restaurant
companies, the Company is able to, and may from time to time,
operate with negative working capital. Restaurant inventories
purchased through the food distributor are now on terms of net zero
days, while restaurant inventories purchased locally are generally
financed from normal trade credit. Retail inventories purchased
domestically are generally financed from normal trade credit, while
retail imported inventories are generally purchased through letters
of credit. These various trade terms are aided by rapid turnover of
the restaurant inventory.
Expansion
The Company opened fifty new stores in fiscal 1998. The openings
were as follows:
Interstate 85 - Commerce, Georgia; Durham, North Carolina; Gaffney,
South Carolina; Henderson, North Carolina and Newnan, Georgia
Interstate 10 - Casa Grande, Arizona; Gonzales, Louisiana; Marana,
Arizona and Phoenix, Arizona
Interstate 40 - Gallup, New Mexico; Garner, North Carolina;
Russellville, Arkansas and West Memphis, Arkansas
Interstate 95 - Deerfield Beach, Florida; Kingsland, Georgia; Ormond
Beach, Florida and Pooler, Georgia
Interstate 90 - Blasdell, New York; Dunkirk, New York and Billings,
Montana
Interstate 30 - Greeneville, Texas and Texarkana, Texas
Interstate 35 - Edmond, Oklahoma and Emporia, Kansas
Interstate 44 - Lawton, Oklahoma and Saint Robert, Missouri
Interstate 64 - Cross Lanes, West Virginia and Mount Sterling,
Kentucky
Interstate 79 - Fairmont, West Virginia and Meadville, Pennsylvania
Interstate 80 - Hammond, Indiana and Lincoln, Nebraska
Interstate 15 - Springville, Utah
Interstate 29 - Kansas City, Missouri
Interstate 45 - Houston, Texas
Interstate 55 - Hammond, Louisiana
Interstate 59 - Trussville, Alabama
Interstate 65 - Phoenix, Arizona
Interstate 70 - Zanesville, Ohio
Interstate 74 - Harrison, Ohio
Interstate 75 - Brooksville, Florida
Interstate 77 - Beckley, West Virginia
Interstate 81 - Harrisburg, Pennsylvania
Interstate 84 - Boise, Idaho
Interstate 94 - Roseville, Michigan
Interstate 295 - Pennsville, New Jersey
Interstate 480 - Twinsburg, Ohio
US Highway 231 - Dothan, Alabama
US Highway 441 - Pigeon Forge, Tennessee
Loop 101 - Peoria, Arizona.
The Company plans to open fifty new stores during fiscal 1999.
Twelve of the stores are already open or will be open as of October
30, 1998, and are as follows:
Interstate 24 - Cadiz, Kentucky
Interstate 55 - Brookhaven, Mississippi
Interstate 59 - Bessemer, Alabama
Interstate 65 - Sellersburg, Indiana
Interstate 69 - Marion, Indiana
Interstate 75 - Piqua, Ohio
Interstate 80 - West Omaha, Nebraska
Interstate 81 - Frackville, Pennsylvania
Interstate 87 - Clifton Park, New York
Interstate 90 - Sheffield, Ohio
Interstate 91 - Holyoke, Massachusetts
Prior to committing to a new location, the Company performs
extensive reviews of various available sites, gathering approximate
cost, demographic and traffic data. This information is entered into
a model to help with the decision on building a store. The Company
utilizes in-house engineers to consult on architectural plans, to
develop engineering plans and to oversee new construction. The
Company is currently engaged in the process of seeking and selecting
new sites, negotiating purchase or lease terms and developing chosen
sites.
It is the Company's preference to own its store properties. Of the
369 Cracker Barrel stores open as of October 30, 1998, the Company
owns 347, while the other 22 properties are either ground leases or
ground and building leases. Currently, average cost for a new store
is approximately $1,250,000 for land and sitework, $800,000 for
building, and $550,000 for equipment. The current store size is
approximately 10,000 square feet with 184 seats in the restaurant.
Employees
As of July 31, 1998, Cracker Barrel employed 38,815 people, of whom
362 were in advisory and supervisory capacities, 2,100 were in store
management positions and 31 were officers of the Company. Many of
the restaurant personnel are employed on a part-time basis. The
Company has an incentive plan for its hourly employees which is
intended to lower turnover and to increase productivity by providing
a defined career path through testing and ranking of employees. The
Company's employees are not represented by any union, and management
considers its employee relations to be good.
Competition
The restaurant business is highly competitive and is often affected
by changes in the taste and eating habits of the public, local and
national economic conditions affecting spending habits, and
population and traffic patterns. Restaurant industry segments
overlap and often provide competition for widely diverse restaurant
concepts. The principal basis of competition in the industry is the
quality and price of the food products offered. Site selection,
quality and speed of service, advertising and the attractiveness of
facilities are also important.
There are a large number of restaurants catering to the public,
including several franchised operations in the restaurant industry,
which are substantially larger and have greater financial and
marketing resources than those of the Company and which compete
directly and indirectly in all areas in which the Company operates.
Trademarks
The Company owns certain registered copyrights, patents and
trademarks relating to the name "Cracker Barrel Old Country Store",
as well as its logo, menus, designs of buildings, general trade
dress and other aspects of operations. The Company also has pending
trademark registration relating to the name "Carmine Giardini" and
"Carmine Giardini's Gourmet Market and La Trattoria Ristorante".
The Company believes that the use of these names have some value in
maintaining the atmosphere and public acceptance of its mode of
operations.
Research and Development
While research and development are important to the Company, these
expenditures have not been material.
Compliance With Environmental Protection Requirements
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the
environment should have no material effect upon capital
expenditures, earnings, or the competitive position of the Company.
ITEM 2. PROPERTIES
The Company's present corporate headquarters and warehouse
facilities are situated on approximately 130 acres of land owned by
the Company in Lebanon, Tennessee. The Company utilizes
approximately 120,000 square feet of office space and 400,000 square
feet of warehouse facilities. Management feels that the current
amount of office space is sufficient to meet the Company's needs
through the end of fiscal 2000.
The Company opened a retail outlet store, named the "Back Porch", in
Lebanon, Tennessee in September, 1998 to sell out-of-season, slow-moving and
discontinued merchandise.
As noted on page 3 in the "Acquisitions" section, the Company
leases two properties in Florida that operate under the name of
Carmine Giardini's Gourmet Market and La Trattoria Ristorante.
In addition to the corporate facilities, the Company's outlet
store and the Company's two gourmet markets and restaurant in
Florida, the Company owns or leases the following Cracker Barrel
store properties as of October 30, 1998:
State Owned Leased
Land Buildings Land Buildings
Tennessee 31 30 10 4
Florida 33 32 - -
Georgia 22 21 2 2
Texas 23 23 1 -
Ohio 19 22 3 -
North Carolina 20 21 1 -
Illinois 20 19 1 -
Indiana 19 18 - -
Alabama 15 15 1 1
Kentucky 15 14 2 1
Michigan 14 14 - -
Virginia 14 14 - -
Missouri 13 13 - -
South Carolina 10 11 2 1
Mississippi 9 9 - -
Pennsylvania 10 9 - -
Arizona 9 8 - -
Louisiana 8 8 - -
New York 8 7 2 -
West Virginia 7 7 - -
Oklahoma 6 6 - -
Arkansas 6 5 - -
Kansas 6 5 - -
Colorado 4 4 - -
Wisconsin 5 4 - -
Iowa 3 3 - -
Minnesota 3 3 - -
New Mexico 2 3 1 -
Utah 3 3 - -
Maryland 2 2 - -
Nebraska 2 2 - -
Connecticut 1 1 - -
Idaho 1 1 - -
Massachusetts 2 1 - -
Montana 2 1 - -
New Jersey 1 1 1 -
See "Business-Operations" and "Business-Expansion" for additional
information on the Company's stores.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and
General Instruction G(3) to Form 10-K, the following information is
included in Part I of this Form 10-K.
Executive Officers of the Registrant
The following table sets forth certain information concerning the
executive officers of the Company as of September 25, 1998:
<TABLE>
Name Age Position with Registrant
<S> <C> <C>
Dan W. Evins 63 Chairman of the Board
& Chief Executive Officer
Ronald N. Magruder 50 President & Chief Operating Officer
Michael A. Woodhouse 53 Senior Vice President,
Finance & Chief Financial Officer
Michael D. Adkins 43 Senior Vice President, Restaurant
Operations
Norman J. Hill 56 Senior Vice President, Human
Resources
Richard G. Parsons 46 Senior Vice President, Retail
Jonathan C. Sleik 47 Senior Vice President, Purchasing
and Distribution
James F. Blackstock 51 Vice President, General Counsel
and Secretary
Bruce C. Cotton 67 Vice President, Government &
Community Relations
Ellen C. Cozart 40 Vice President, Human Resources
Judith K. Donovan 43 Vice President, Marketing
Mattie H. Hankins 58 Vice President & Controller
Debra K. Kidwell 39 Vice President, Retail Purchasing
Donald G. Kravitz 62 Vice President, Property Development
Michael J. Matheny 51 Vice President, Information Services
Thomas R. Pate 39 Vice President, Training and
Management Development
Mark W. Tanzer 41 Vice President, Product Development
Scott C. Diffenderfer 44 Regional Vice President, Restaurants
Russell K. Doyle 34 Regional Vice President, Retail
Cecilia S. Gibson 43 Regional Vice President, Retail
Douglas R. Goolsby 37 Regional Vice President, Restaurants
Anthony P. Guadagno 42 Regional Vice President, Restaurants
Carolyn M. Hall 41 Regional Vice President, Retail
Tracy L. Hanchey 37 Regional Vice President, Retail
Dan L. Markley 41 Regional Vice President, Retail
Terry A. Maxwell 39 Regional Vice President, Restaurants
Cyril J. Taylor 44 Regional Vice President, Restaurants
Stanley L. Warner 44 Regional Vice President, Restaurants
Gary L. Wooddell 34 Regional Vice President, Retail
</TABLE>
The following background material is provided for those executive
officers who have been employed by the Registrant for less than five
years:
Prior to his employment with the Company in August, 1995, Mr.
Magruder was Vice-Chairman of Darden Restaurants, Inc. from 1994 to
1995. Mr. Magruder had been employed by General Mills for 23 years,
serving in various capacities within their restaurant division.
Previously, Mr. Magruder was Executive Vice President of General
Mills Restaurants and President of the Olive Garden from 1987 to
1994.
Prior to his employment with the Company in November 1995, Mr. Sleik
was with Darden Restaurants, Inc. most recently as Vice President of
Remodeling and Facilities. He was Executive Vice President of
Operations for the Olive Garden from 1985 to 1994 and Vice President
of Purchasing and Distribution for Red Lobster from 1980 to 1985.
Prior to his employment with the Company in December 1995, Mr.
Woodhouse was Senior Vice President and Chief Financial Officer of
Daka International, Inc. from 1993 to 1995. Mr. Woodhouse was Vice
President and Chief Financial Officer of Tia's Inc. from 1992 to
1993. Prior to 1992 he was Executive Vice President and Chief
Financial Officer of Metromedia Steakhouses, Inc.
Prior to his employment with the Company in February 1996, Mr.
Matheny was with Boston Chicken as Director of Systems. He was
Director of Management Information Systems with El Chico Restaurants
from 1992 through 1995. Prior to 1992, he served in various
divisional roles with Metromedia working with their Steak and Ale
and Ponderosa concepts.
Prior to her employment with the Company in September 1996, Ms.
Donovan was with Darden Restaurants, Inc. from 1989 to 1996 serving
most recently as Senior Vice President of New Business Development.
Prior to her most recent role, she was Senior Vice President and
Division General Manager of The Olive Garden.
Prior to his employment with the Company in June 1997, Mr.
Blackstock was with TravelCenters of America, Inc. from 1993 to 1997
serving as Vice President, General Counsel and Secretary. Prior to
1993, Mr. Blackstock practiced law in Los Angeles, California as a
principal in the firm of James F. Blackstock, Professional Law
Corporation.
Prior to his employment with the Company in October 1997, Mr. Cotton
was with Long John Silver's Restaurants, Inc. from 1976 to 1997
serving as Senior Vice President, Public Affairs.
Prior to her employment with the Company in May 1998, Ms. Hanchey
was with Brookstone Inc. from 1996 to 1998 serving as a district
manager. She was district manager with Ann Taylor, Inc. from 1994
to 1996. Ms. Hanchey was with Circuit City Stores, Inc. from 1988
to 1994 serving most recently as a management recruiter and
previously as a personnel manager.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Since the initial public offering of the Company's common stock in
November 1981, the Company's common stock has been traded on The
Nasdaq Stock Market (National Market System) with the symbol CBRL.
There were 19,010 shareholders of record as of September 25, 1998.
The following table indicates the high and low sales prices of the
Company's common stock as reported on The Nasdaq Stock Market
(National Market System) during the periods indicated.
Fiscal Year 1998 Prices Fiscal Year 1997 Prices
Quarter High Low High Low
First $33.13 $27.50 $25.63 $19.63
Second 35.63 29.19 28.38 19.88
Third 43.00 34.19 29.25 24.88
Fourth 36.38 26.00 29.88 23.75
In September 1983 the Board of Directors of the Company initiated a
policy of declaring dividends on a quarterly basis. Prior to such
date the Board followed a policy of declaring annual dividends
during the first fiscal quarter. Quarterly dividends of $.005 per
share were paid during all four quarters of fiscal 1997 and 1998.
The Company foresees paying comparable cash dividends per share in
the future.
The covenants relating to the 9.53% Senior Notes in the original
amount of $30,000,000 impose certain restrictions on the payment of
cash dividends and the purchase of treasury stock. Retained
earnings not restricted under the covenants were approximately
$462,000,000 at July 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The table "Selected Financial Data" on page 23 of the Company's
Annual Report to Shareholders for the year ended July 31, 1998 (the
"1998 Annual Report") is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following portions of the 1998 Annual Report are incorporated
herein by reference:
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 24 through 27.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Interest Rate Risk. With certain instruments entered into for
other than trading purposes, the Company is subject to market risk
exposure related to changes in interest rates. The Company has in
place a $125 million bank credit facility. A portion of that
facility, a $75 million revolver, bears interest at a pre-agreed
percentage point spread from LIBOR. The Company had no amounts
outstanding under the revolver during fiscal 1998. The other part
of the bank credit facility is a $50 million 5-year term loan
bearing interest at a pre-agreed percentage point spread from LIBOR.
On December 2, 1996, the Company received the proceeds from the $50
million 5-year term loan, and concurrently, entered into a swap
agreement with a bank to fix the interest rate at 6.36% for the life
of the term loan. The Company's senior notes payable bear a fixed
interest rate of 9.53%, mature January 15, 2003, and had an
outstanding balance of $12 million at July 31, 1998. While changes
in LIBOR would affect the cost of funds borrowed in the future,
existing loans are at fixed rates, therefore, the Company believes
that the effect, if any, of reasonably possible near-term changes in
interest rates on the Company's consolidated financial position,
results of operations or cash flows would not be material.
Commodity Price Risk. Many of the food products purchased by the
Company are affected by commodity pricing and are, therefore,
subject to price volatility caused by weather, production problems,
delivery difficulties and other factors which are outside the
control of the Company and which are generally unpredictable. The
single food category accounting for the largest share (approximately
14% of the Company's food purchases) is pork. Other items affected
by the commodities markets, such as coffee, country fried beef steak
and chicken, may each account for as much as 1% to 2% of the
Company's food purchases. While the Company has some of its food
items prepared to its specifications, the Company's food items are
based on generally available products, and if any existing suppliers
fail, or are unable to deliver in quantities required by the
Company, the Company believes that there are sufficient other
quality suppliers in the marketplace that its sources of supply can
be replaced as necessary. The Company also recognizes, however,
that commodity pricing is extremely volatile and can change
unpredictably and over short periods of time. Changes in commodity
prices would affect the Company and its competitors generally and
often simultaneously. In many cases, the Company believes it will
be able to pass through any increased commodity costs by adjusting
its menu pricing. From time to time, competitive circumstances may
limit menu price flexibility, and in those circumstances increases
in commodity prices can result in lower margins for the Company.
However, the Company believes that any changes in commodity pricing
which cannot be adjusted for by changes in menu pricing or other
product delivery strategies, would not be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following portions of the 1998 Annual Report are incorporated
herein by reference:
Consolidated Financial Statements and Independent Auditors' Report
on pages 28 through 41.
Quarterly Financial Data (Unaudited) on page 40.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors of
the Company is incorporated herein by reference to the section
entitled "Election of Directors" in the Company's definitive proxy
statement for its 1998 Annual Meeting of Shareholders (the "1998
Proxy Statement"). The information required by this item with
respect to executive officers of the Company is set forth in Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the section entitled "Executive Compensation" in the
Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by
reference to the section entitled "Security Ownership of Management"
in the Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the section entitled "Certain Relationships and Related
Transactions" in the Company's 1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
A. List of documents filed as part of this report:
1. The following Financial Statements and the Report of Deloitte &
Touche LLP on pages 28 through 41 of the 1998 Annual Report are
incorporated herein by reference:
Independent Auditors' Report dated September 9, 1998
Consolidated Balance Sheet as of July 31, 1998 and August 1, 1997
Consolidated Statement of Income for each of the three fiscal years
ended July 31, 1998, August 1, 1997 and August 2, 1996
Consolidated Statement of Changes in Shareholders' Equity for each
of the three fiscal years ended July 31, 1998, August 1, 1997 and
August 2, 1996
Consolidated Statement of Cash Flows for each of the three fiscal
years ended July 31, 1998, August 1, 1997 and August 2, 1996
Notes to Consolidated Financial Statements
2. The exhibits listed in the accompanying Index to Exhibits on
pages 15 & 16 are filed as part of this annual report.
B. Reports on Form 8-K:
There were no reports filed on Form 8-K during the fourth quarter of
the fiscal year ended July 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Cracker Barrel Old Country Store,
Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CRACKER BARREL OLD COUNTRY STORE, INC.
By: /s/Dan W. Evins By:/s/Mattie H. Hankins
Dan W. Evins Mattie H. Hankins
CEO and Chairman of the Board Vice President & Controller
(Principal Executive Officer)
By: /s/Michael A. Woodhouse
Michael A. Woodhouse
Senior Vice President, Finance
(Principal Financial Officer)
Date: October 21, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
/s/James C. Bradshaw, M.D. ______________________
James C. Bradshaw, M.D., Director Charles T. Lowe, Jr., Director
______________________________ /s/B.F. Lowery
Robert V. Dale, Director B. F. Lowery, Director
/s/Dan W. Evins /s/Ronald N. Magruder
Dan W. Evins, Director Ronald N. Magruder, Director
/s/Edgar W. Evins /s/ Gordon L. Miller
Edgar W. Evins, Director Gordon L. Miller, Director
/s/William D. Heydel ______________________________
William D. Heydel, Director Martha M. Mitchell, Director
____________________________ ______________________________
Robert C. Hilton, Director Jimmie D. White, Director
_____________________________ _____________________________
Charles E. Jones, Jr., Director
INDEX TO EXHIBITS
Exhibit
3(a) Charter (1)
3(b) Bylaws (2)
4(a) Note Agreement dated as of January 1, 1991, relating to
$30,000,000 of 9.53% Senior Notes (3)
10(a) Credit Agreement dated February 18, 1997, relating to the
$50,000,000 Term Loan and the $75,000,000 Revolving Credit and
Letter of Credit Facility (4)
10(b) Lease dated August 27, 1981 for lease of Clarksville,
Tennessee, and Macon, Georgia, stores between B. F. Lowery, general
counsel and a director, and the Company (5)
10(c) The Company's Incentive Stock Option Plan of 1982, as amended
(6)
10(d) The Company's 1987 Stock Option Plan, as amended (1)
10(e) The Company's Amended and Restated Stock Option Plan (7)
10(f) The Company's Non-Employee Director's Stock Option Plan, as
amended (8)
10(g) The Company's Executive Employment Agreement for Dan W.
Evins(6)
10(h) The Company's Non-Qualified Savings Plan, effective 1/1/96, as
amended (7)
10(i) The Company's Deferred Compensation Plan, effective 1/1/94 (7)
10(j) Executive Employment Agreement for Ronald N. Magruder dated
7/5/95 (9)
10(k) Executive Employment Agreement for Michael A. Woodhouse dated
11/15/95 (9)
13 Pertinent portions, incorporated by reference herein, of the
Company's 1998 Annual Report to Shareholders
21 Subsidiaries of the Registrant
22 Definitive Proxy Materials (10)
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration
Statement on Form S-8 under the Securities Act of 1933 (File No.
33-45482).
(2) Incorporated by reference to the Company's Annual Report on Form
10-K under the Securities Exchange Act of 1934 for the fiscal year
ended July 28, 1995. (File No. 0-7536).
(3) Incorporated by reference to the Company's Registration
Statement on Form S-3 under the Securities Act of 1933 (File No.
33-38989).
(4) Incorporated by reference to the Company's Annual Report on Form
10-K under the Securities Exchange Act of 1934 for the fiscal year
ended August 1, 1997 (File No. 0-7536).
(5) Incorporated by reference to the Company's Registration
Statement on Form S-7 under the Securities Act of 1933 (File No.
2-74266).
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K under the Securities Exchange Act of 1934 for the fiscal
year ended July 28, 1989 (File No. 0-7536).
(7) Incorporated by reference to the Company's Annual Report on Form
10-K under the Securities Exchange Act of 1934 for the fiscal year
ended August 2, 1996 (File No. 0-7536).
(8) Incorporated by reference to the Company's Annual Report on
Form 10-K under the Securities Exchange Act of 1934 for the fiscal
year ended August 2, 1991 (File No. 0-7536).
(9) Incorporated by reference to Exhibits 10.2 and 10.3 to the
Executive Employment Agreement section, page 39 of the Company's
Registration Statement on Form S-4, Amendment No. 1, filed with the
Commission on October 5, 1998 (File No. 333-62469)1998 Definitive
Proxy materials.
(10) Incorporated by reference to the Company's Registration
Statement on Form S-4, Amendment No. 1 containing the 1998
Definitive Proxy materials, filed with the Commission on October 5,
1998 (File No. 333-62469).
<PAGE>
Exhibit 13.
SELECTED FINANCIAL DATA
<TABLE>
For each of the fiscal years ended
(In thousands except per share data)
<CAPTION>
July 31, August 1, August 2, July 28, July 29,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $1,317,104 $1,123,851 $943,287 $783,093 $640,899
Cost of goods sold 450,120 387,703 324,905 264,809 215,071
Expenses:
Store operations:
Labor & other
related expenses 441,121 378,117 314,157 256,253 207,227
Other store
operating expenses 197,098 162,675 138,701 114,564 92,694
Store closing costs* -- -- 14,199 -- --
General and
administrative 63,856 57,798 50,627 44,746 36,807
Total expenses 702,075 598,590 517,684 415,563 336,728
Operating income 164,909 137,558 100,698 102,721 89,100
Interest expense 3,026 2,089 369 723 2,136
Interest income 2,847 1,988 2,051 3,335 3,604
Income before income
taxes and change in
accounting principle 164,730 137,457 102,380 105,333 90,568
Provision for income
taxes 60,594 50,859 38,865 39,290 33,609
Income before change in
accounting principle 104,136 86,598 63,515 66,043 56,959
Cumulative effect of
change in accounting
principle** -- -- -- -- 988
Net income $ 104,136 $ 86,598 $ 63,515 $ 66,043 $ 57,947
SHARE DATA***
Earnings before change
in accounting principle
per share:
Basic $ 1.68 $ 1.42 $ 1.05 $ 1.10 $ .95
Diluted 1.65 1.41 1.04 1.09 .94
Cumulative effect of
change in accounting
principle per share**:
Basic -- -- -- -- .02
Diluted -- -- -- -- .02
Net earnings per share:
Basic 1.68 1.42 1.05 1.10 .97
Diluted 1.65 1.41 1.04 1.09 .96
Dividends per share $ .02 $ .02 $ .02 $ .02 $ .02
Weighted average
shares outstanding:
Basic 61,832 60,824 60,352 59,986 59,749
Diluted 63,028 61,456 60,811 60,554 60,601
FINANCIAL POSITION
Working capital $ 60,804 $ 60,654 $ 23,289 $ 43,600 $ 60,721
Total assets 992,108 828,705 676,379 604,515 530,064
Property and equipment
-net 812,321 678,167 568,573 479,518 385,960
Long-term debt 59,500 62,000 15,500 19,500 23,500
Capital lease
obligations 1,102 1,302 1,468 1,598 1,709
Shareholders' equity 803,374 660,432 566,221 496,083 429,846
<FN>
*Represents one-time charge to close certain stores and other
write-offs. (See Note 1 to the Company's Consolidated
Financial Statements.)
**The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes ",
effective July 31, 1993.
***Historical amounts have been restated to reflect the
adoption of SFAS No. 128, "Earnings per Share" in fiscal 1998.
</TABLE>
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The following table indicates the high and low sales prices of the
Company's common stock, as reported by The Nasdaq Stock Market
(National Market), and dividends paid.
Fiscal Year 1998 Fiscal Year 1997
Prices Dividends Prices Dividends
Quarter High Low Paid High Low Paid
First $33.13 $27.50 $.005 $25.63 $19.63 $.005
Second 35.63 29.19 .005 28.38 19.88 .005
Third 43.00 34.19 .005 29.25 24.88 .005
Fourth 36.38 26.00 .005 29.88 23.75 .005
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
RESULTS OF OPERATIONS
The following table highlights operating results
over the past three fiscal years:
<CAPTION>
Period to Period
Relationship to Net Sales Increase(Decrease)
1998 1997 1996 1998 vs 1997 1997 vs 1996
<S> <C> <C> <C> <C> <C>
Net Sales
Restaurant 76.3% 76.8% 77.8% 16% 18%
Retail 23.7 23.2 22.2 20 25
----- ----- ------
100.0% 100.0% 100.0% 17 19
Cost of goods sold 34.2 34.5 34.4 16 19
Expenses:
Store operations:
Labor & other
related expenses 33.5 33.7 33.3 17 20
Other store
operating expenses 15.0 14.5 14.7 21 17
Store closing costs* -- -- 1.5 -- --
General & administrative 4.8 5.1 5.4 10 14
Operating income 12.5 12.2 10.7 20 37
Interest expense .2 .2 .1 45 466
Interest income .2 .2 .2 43 (3)
Income before
income taxes 12.5 12.2 10.8 20 34
Provision for
income taxes 4.6 4.5 4.1 19 31
Net income 7.9 7.7 6.7 20 36
===== ===== ==== ===== ====
<FN>
*Represents one-time charge to close
certain stores and other write-offs.
(See Note 1 to the Company's Consolidated Financial Statements.)
</FN>
/TABLE
<PAGE>
SAME STORE SALES ANALYSIS
Period to Period Increase
1998 vs 1997 1997 vs 1996
(257 Stores) (214 Stores)
Restaurant 2% 3%
Retail 2 8
Restaurant & retail 2 4
==== ======
Same store restaurant sales (which consist of sales of stores
open throughout both of the fiscal years under comparison) increased
2% in fiscal 1998 versus the comparable 52 weeks of fiscal 1997.
Same store restaurant sales increased 3% for the comparable 52 weeks
of fiscal 1997 versus fiscal 1996. The increase in same store
restaurant sales growth from fiscal 1997 to fiscal 1998 was
primarily due to the approximately 2% menu increase instituted in
May 1997 and the approximately 4% menu increase in May 1998,
partially offset by decreases in customer traffic.
Same store retail sales increased 2% in fiscal 1998 versus the
comparable 52 weeks of fiscal 1997 while same store retail sales
increased 8% for the comparable 52-week period in fiscal 1997 versus
fiscal 1996. The increase in same store retail sales growth from
fiscal 1997 to fiscal 1998 was primarily due to an improved
assortment of retail items in the stores.
In fiscal 1998 total sales (restaurant and retail) in the 257
same stores averaged $4.04 million. Restaurant sales were 76.7% of
total sales in the same 257 stores in fiscal 1998 and 76.9% in
fiscal 1997.
Total net sales, which increased 17% and 19% in fiscal 1998 and
1997, respectively, benefited from comparable store sales growth and
the opening of 50, 50 and 43 new stores in fiscal 1998, 1997 and
1996, respectively. The total net sales increase in fiscal 1997 was
negatively affected by the extra week in fiscal 1996. (See Note 1
to the Company's Consolidated Financial Statements.)
Cost of goods sold as a percentage of net sales decreased in
fiscal 1998 to 34.2% from 34.5% in 1997. This decrease was
primarily due to improved initial mark-ons for retail merchandise,
partially offset by an increased mix of retail sales which have a
higher cost of goods than restaurant sales. Food cost as a
percentage of net restaurant sales in fiscal 1998 was unchanged from
fiscal 1997 primarily due to increases in coffee, produce and dairy
prices offset by the approximately 2% and 4% menu increases in May
1997 and May 1998, respectively. Cost of goods sold as a percentage
of net sales increased in fiscal 1997 to 34.5% from 34.4% in fiscal
1996. This increase was primarily due to an increased mix of retail
sales which have a higher cost of goods than restaurant sales. Food
cost as a percentage of net restaurant sales in fiscal 1997 was
unchanged from fiscal 1996 primarily due to menu increases of
approximately .6% and 2.3% taken in October 1996 and July 1997,
respectively, and the operational efficiencies resulting from the
normal winter weather conditions in fiscal 1997 as compared to the
extreme conditions in fiscal 1996, which together were offset by
increases in coffee, dairy and hog complex prices.
Labor and other related expenses include all direct and
indirect labor and related costs incurred in store operations.
Labor expenses as a percentage of net sales were 33.5%, 33.7% and
33.3% in fiscal 1998, 1997 and 1996, respectively. The year to year
decrease in fiscal 1998 versus fiscal 1997 was primarily due to
lower bonus payouts under the store-level bonus program instituted
in fiscal 1997 and enhanced operational productivity in the stores,
partially offset by store-level hourly wage inflation of
approximately 3%. The year to year increase in fiscal 1997 versus
fiscal 1996 was primarily due to the introduction of a new store-level bonus
program at the beginning of fiscal 1997 and store-level,
hourly-employee wage inflation of approximately 3%. These increases
were partially offset by the enhanced productivity achieved through
operational changes implemented in the fourth quarter of fiscal 1996
and throughout fiscal 1997.
Other store operating expenses include all unit-level operating
costs, the major components of which are operating supplies, repairs
and maintenance, advertising expenses, utilities, depreciation and
amortization. Other store operating expenses as a percentage of net
sales were 15.0%, 14.5% and 14.7% in fiscal 1998, 1997 and 1996,
respectively. The year to year increase in fiscal 1998 versus
fiscal 1997 was primarily due to the incremental advertising
expense, resulting from increased general advertising and the
rollout of the Cracker Barrel Old Country Store Neighborhood
Program, and higher general liability insurance costs versus the
prior year. The year to year decrease in fiscal 1997 versus fiscal
1996 was primarily due to a decrease in operating supplies expense
resulting from the return to paper napkins from linen napkins in the
stores during the fourth quarter of fiscal 1996.
General and administrative expenses as a percentage of net
sales were 4.8%, 5.1% and 5.4% in fiscal 1998, 1997 and 1996,
respectively. The reductions from year to year were accomplished
largely through improved volume. The largest areas of increased
spending in absolute dollars in fiscal 1998 were in manager trainee
costs to support the continued growth of the business.
Interest expense increased in fiscal 1998 to $3.0 million from
$2.1 million in fiscal 1997 and $.4 million in fiscal 1996. The
increase was primarily due to the Company's drawing on a $50.0
million term loan on December 2, 1996.
Interest income increased to $2.8 million in fiscal 1998 from
$2.0 million in fiscal 1997. The primary reason for the increase in
interest income was higher average funds available for investment.
Interest income decreased in fiscal 1997 to $2.0 million from $2.1
million in fiscal 1996. The primary reason for the decrease in
interest income was lower average funds available for investment.
Provision for income taxes as a percent of pretax income was
36.8% for fiscal 1998, 37.0% for fiscal 1997 and 38.0% for fiscal
1996. The primary reasons for the decreases in the tax rates in
fiscal 1998 and 1997 were decreases in the effective state tax
rates.
Impact of Recent Accounting Pronouncements not yet Adopted
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," become effective for the Company in fiscal 1999. The
Company is still evaluating the effects of adopting SFAS No. 130 and
SFAS No. 131, but does not expect the adoption of either
pronouncement to have a material effect on the Company's
consolidated financial statements. The Company will adopt SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
in the first quarter of fiscal 2000. The Company is still
evaluating the effect of adopting SFAS No. 133, but does not expect
the adoption to have a material effect on the Company's consolidated
financial statements. The American Institute of Certified Public
Accountants' Statement of Position ("SOP") 98-1 , "Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use," and SOP 98-5, "Reporting of the Costs of Start-up
Activities," become effective for the Company in the first quarter
of fiscal 2000. The Company is currently evaluating the effects
that SOP 98-1 and SOP 98-5 will have on the Company's consolidated
financial statements upon adoption, but does not expect the adoption
of either SOP to have a material effect on the Company's
consolidated financial statements. (See Note 1 to 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 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 and assessment of all 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 our Year 2000 remediation efforts progress, the
Company will first focus, wherever possible, on those systems
designated critical. The Company has begun correction of
deficiencies found and anticipates completion of the Year 2000
analyses by January 31, 1999 with completion of our remediation
efforts by July 31, 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.
As part of the Year 2000 readiness efforts, the Company will develop
contingency plans to identify activities which will need to be
performed in the event of systems failures. The contingency plans
are expected to be completed by July 31, 1999.
The Company is also contacting 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 Company's continuity of
supply of products and services, an inventory of significant vendors
has been compiled. These vendors were sent questionnaires
requesting information as to the status of their Year 2000 readiness
and certification that their information systems are Year 2000
compliant. Where practicable, the Company will assess and attempt
to mitigate its risks with respect to the failure of its significant
vendors to be Year 2000 ready as part of its contingency planning.
The effect, if any, on the Company's consolidated financial
position, results of operations or cash flows from the failure of
its significant vendors to be Year 2000 ready cannot be reasonably
estimated.
Liquidity and Capital Resources
The Company's cash generated from operating activities was $151
million in fiscal 1998. Most of this cash was provided by net
income adjusted by depreciation and amortization. Increases in
accounts payable, taxes withheld and accrued, deferred income taxes
and accrued employee compensation and benefits were partially offset
by increases in inventories and other assets and decreases in income
taxes payable.
Capital expenditures were $181 million in fiscal 1998. Land
purchases and costs of new stores accounted for substantially all of
these expenditures.
The Company's internally generated cash and short-term
investments were sufficient to finance all of its growth in fiscal
1998.
On September 9, 1998, the Company announced that the Board of
Directors had authorized the repurchase of up to 3 million shares of
the Company's common stock. This will allow the Company to
repurchase approximately 5% of the 62.5 million shares outstanding.
The purchases are to be made from time to time in the open market at
prevailing market prices. 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.
The Company estimates that its capital expenditures for fiscal
1999 will be approximately $180 million, substantially all of which
will be land purchases and construction of new stores. On December
2, 1996 the Company received the proceeds from a $50 million 5-year
term loan bearing interest at a three-month LIBOR-based rate
("London Interbank Offered Rate"). Concurrently, the Company
entered into a swap agreement with a bank to fix the interest rate
at 6.36% for the life of the term loan. This $50 million term loan
is part of a $125 million bank credit facility that also includes a
$75 million revolver. Management believes that cash at July 31,
1998, along with cash generated from the Company's operating
activities and its available $75 million revolver, will be
sufficient to finance its stock buyback program and its continued
expansion plans through fiscal 2000.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
(In thousands except share data)
July 31, August 1,
1998 1997
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 62,593 $ 64,933
Short-term investments -- 1,666
Receivables 5,192 4,836
Inventories 91,609 73,269
Prepaid expenses 5,432 4,707
------- --------
Total current assets 164,826 149,411
------- -------
Property and Equipment:
Land 227,000 192,258
Buildings and improvements 498,148 423,260
Buildings under capital leases 3,289 3,289
Restaurant and other equipment 223,905 176,959
Leasehold improvements 19,686 12,646
Construction in progress 22,332 22,985
-------- --------
Total 994,360 831,397
Less: Accumulated depreciation and
amortization of capital leases 182,039 153,230
-------- --------
Property and equipment-net 812,321 678,167
------- --------
Other Assets 14,961 1,127
-------- --------
Total $992,108 $828,705
======== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 38,212 $ 27,422
Current maturities of
long-term debt 2,500 3,500
Current portion of capital lease
obligations 200 166
Taxes withheld and accrued 17,650 13,969
Income taxes payable 649 2,429
Deferred income taxes 879 2,362
Accrued employee compensation 24,192 22,374
Accrued employee benefits 11,821 9,961
Other accrued expenses 7,919 6,574
------- -------
Total current liabilities 104,022 88,757
------- -------
Long-term Debt 59,500 62,000
------- ------
Capital Lease Obligations 1,102 1,302
------- ------
Non-compete Agreement 400 --
------- ------
Deferred Income Taxes 23,710 16,214
------- ------
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock -150,000,000 shares of $.50
par value authorized; shares issued and
outstanding: 1998, 62,480,775; 1997
61,065,306 31,240 30,533
Additional paid-in capital 251,236 211,850
Retained earnings 520,898 418,049
-------- -------
Total shareholders' equity 803,374 660,432
-------- -------
Total $992,108 $828,705
======== =======
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
(In thousands except per share data)
Fiscal years ended
July 31, August 1, August 2,
1998 1997 1996
<S> <C> <C> <C>
Net sales $1,317,104 $1,123,851 $943,287
Cost of goods sold 450,120 387,703 324,905
--------- ---------- --------
Gross profit on sales 866,984 736,148 618,382
--------- ---------- --------
Expenses:
Store operations:
Labor & other related
expenses 441,121 378,117 314,157
Other store operating
expenses 197,098 162,675 138,701
Store closing costs -- -- 14,199
General and administrative 63,856 57,798 50,627
-------- ------- --------
Total expenses 702,075 598,590 517,684
-------- ------- --------
Operating income 164,909 137,558 100,698
Interest expense 3,026 2,089 369
Interest income 2,847 1,988 2,051
-------- ------- --------
Income before income taxes 164,730 137,457 102,380
Provision for income taxes 60,594 50,859 38,865
-------- ------- --------
Net income $ 104,136 $ 86,598 $ 63,515
======== ======= ========
Net earnings per share-basic $ 1.68 $ 1.42 $ 1.05
======== ======= ========
Net earnings per share-diluted $ 1.65 $ 1.41 $ 1.04
======== ======= ========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
(In thousands except per share data)
Additional Total
Common Paid-In Retained Shareholders'
Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
Balances at July 28, 1995 $29,996 $195,421 $270,666 $496,083
Cash dividends - $.02 per
share -- -- (1,208) (1,208)
Exercise of stock options 301 4,865 -- 5,166
Tax benefit realized upon
exercise of stock options -- 2,665 -- 2,665
Net income -- -- 63,515 63,515
------ ------- ------- -------
Balances at August 2, 1996 30,297 202,951 332,973 566,221
Cash dividends - $.02 per
share -- -- (1,522) (1,522)
Exercise of stock options 236 7,288 -- 7,524
Tax benefit realized upon
exercise of stock options -- 1,611 -- 1,611
Net income -- -- 86,598 86,598
------ ------- ------- --------
Balances at August 1, 1997 30,533 211,850 418,049 660,432
Cash dividends - $.02 per
share -- -- (1,287) (1,287)
Exercise of stock options 576 24,677 -- 25,253
Tax benefit realized upon
exercise of stock options -- 4,340 4,340
Issuance of stock for
acquisition 131 10,369 -- 10,500
Net income -- -- 104,136 104,136
------ ------ ------- -------
Balances at July 31, 1998 $31,240 $251,236 $520,898 $803,374
====== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(In thousands)
Fiscal years ended
July 31, August 1, August 2,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $104,136 $ 86,598 $ 63,515
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 43,434 35,735 31,433
Loss on disposition of property
and equipment 227 135 14,689
Changes in assets and liabilities,
net of effects from acquisition:
Receivables (356) (2,033) 390
Inventories (17,901) (11,799) (9,955)
Prepaid expenses (725) (3,222) (573)
Other assets (1,109) (436) (212)
Accounts payable 10,196 (3,143) 814
Taxes withheld and accrued 3,640 1,494 1,651
Income taxes payable (1,780) (1,694) (1,465)
Accrued employee compensation 1,818 6,727 1,965
Accrued employee benefits 1,860 269 2,590
Other accrued expenses 1,345 59 806
Deferred income taxes 6,013 15,505 (1,978)
-------- ------- -------
Net cash provided by
operating activities 150,798 124,195 103,670
-------- ------- --------
Cash flows from investing activities:
Purchase of short-term investments -- (603) (4,011)
Proceeds from maturities of
short-term investments 1,666 4,237 13,852
Purchase of property and
equipment (180,599) (148,649) (137,633)
Cash paid for acquisition, net
of cash acquired (1,886) -- --
Proceeds from sale of property and
equipment 3,141 3,299 2,456
-------- -------- -------
Net cash used in investing
activities (177,678) (141,716) (125,336)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt -- 50,000 --
Proceeds from exercise of
stock options 25,253 7,524 5,166
Tax benefit realized upon
exercise of stock options 4,340 1,611 2,665
Principal payments under
long-term debt, capital lease
obligations and non-compete agreement (3,766) (4,130) (4,110)
Dividends on common stock (1,287) (1,522) (1,208)
------- -------- --------
Net cash provided by
financing activities 24,540 53,483 2,513
------- -------- --------
Net (decrease) increase in cash
and cash equivalents (2,340) 35,962 (19,153)
Cash and cash equivalents,
beginning of year 64,933 28,971 48,124
------- -------- --------
Cash and cash equivalents,
end of year $ 62,593 $ 64,933 $ 28,971
======= ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 4,748 $ 3,349 $ 2,084
Income taxes 52,690 35,664 39,642
</TABLE>
Supplemental schedule of noncash investing and financing activities:
On April 1, 1998, the Company acquired all of the capital stock
of Carmine's Prime Meats, Inc. for cash of $2,500 and common stock
of $10,500. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $ 1,185
Goodwill 12,450
Cash paid for the capital stock (2,500)
Common stock issued for the capital stock (10,500)
-------
Liabilities assumed $ 635
=======
See notes to consolidated financial statements.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal year - The Company's fiscal year ends on the Friday
nearest July 31st and each quarter consists of thirteen weeks. The
Company's fiscal year ended August 2, 1996 consisted of 53 weeks and
the fourth quarter of fiscal 1996 consisted of 14 weeks.
Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its subsidiaries,
all of which are wholly owned. All significant intercompany
transactions and balances have been eliminated.
Cash and cash equivalents -The Company's policy is to consider
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents
consist primarily of auction preferred stocks and commercial paper.
The carrying value of these instruments approximates market value
due to their very short maturities.
Short-term investments -Short-term investments, primarily
consisting of federal government agency securities and commercial
paper which the Company intends to hold to maturity, are stated at
amortized cost in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." (See Note 3.)
Inventories -Inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO)
method.
Property and equipment -Property and equipment are stated at
cost. For financial reporting purposes depreciation and
amortization on these assets are computed by use of the
straight-line and double-declining balance methods over the
estimated useful lives of the respective assets, as follows:
Years
Buildings and improvements 20-45
Buildings under capital leases 20-25
Restaurant and other equipment 3-10
Leasehold improvements 3-35
Accelerated depreciation methods are generally used for income
tax purposes.
Interest is capitalized in accordance with SFAS No. 34,
"Capitalization of Interest Costs." Capitalized interest was
$1,955, $2,093 and $2,010 for fiscal years 1998, 1997 and 1996,
respectively.
Gain or loss is recognized upon disposal of property and
equipment, and the asset and related accumulated depreciation and
amortization amounts are removed from the accounts.
Maintenance and repairs, including the replacement of minor
items, are charged to expense, and major additions to property and
equipment are capitalized.
Advertising - The Company generally expenses the costs of
producing and communicating advertising the first time the
advertising takes place. Net advertising expense was
$30,484,$25,178 and $20,404 for the fiscal years 1998, 1997 and
1996, respectively.
Insurance - The Company retains a significant portion of the
risk for its workers' compensation, employee health insurance,
general liability, and property coverages. Accordingly, provisions
are made for the Company's estimates of discounted future claim
costs for such risks. To the extent that subsequent claim costs
vary from those estimates, current earnings are charged or credited.
Goodwill - Goodwill represents the excess of the cost over the
net tangible and identifiable intangible assets of acquired
businesses, is stated at cost and is amortized, on a straight-line
basis, over the estimated future periods to be benefited (20 years).
On an annual basis the Company reviews the recoverability of
goodwill based primarily upon an analysis of undiscounted cash flows
from the acquired businesses. Accumulated amortization was $208 at
July 31, 1998.
Income taxes -The Company accounts for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."
Targeted jobs tax credits and employer tax credits for FICA taxes
paid on tip income are accounted for by the flow-through method.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. (See Note 8.)
Earnings per share - In February 1997, the Financial Accounting
Standards Board issued 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. As required, the Company adopted the
provisions of SFAS No. 128 in the quarter ended January 30, 1998.
All prior year weighted average and per share information has been
restated in accordance with SFAS No. 128. Outstanding stock options
issued by the Company represent the only dilutive effect reflected
in diluted weighted average shares.
Stock-based compensation - SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require, companies to
adopt the fair value method of accounting for stock-based employee
compensation. The Company has chosen to continue to account for
stock-based employee compensation in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations.(See Note 6.)
Start-up costs -Start-up costs of a new store are expensed in
the month in which the store opens.
Store closing costs - Upon the decision to close a store,
estimated unrecoverable costs are charged to expenses. Such costs
include buildings and improvements, leasehold improvements and
restaurant and other equipment, net of salvage value, and a
provision for the present value of future lease obligations, less
estimated sub-rental income. The Company recognized $14,199 in
pretax costs for the closings of the Appleton, WI, the Fond du Lac,
WI and the Eagan, MN stores, the closings of the three Corner Market
stores in the middle Tennessee area and replacing the Company's
point-of-sale system in the fourth quarter of fiscal 1996. These
costs represent a one-time charge of $8,806 net of taxes, or $.15
per share.
Use of estimates - Management of the Company has made a number
of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent liabilities to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
Recent accounting pronouncements not yet 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 will adopt SFAS No. 130 in the first
quarter of fiscal 1999. The Company is currently evaluating the
effect that SFAS No. 130 will have on the Company's consolidated
financial statements upon adoption. 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. This 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 will adopt SFAS No. 131
in fiscal 1999. The Company is currently evaluating the effect that
SFAS No. 131 will have on the Company's consolidated financial
statements upon adoption. 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, 1999. The Company will adopt
SFAS No. 133 in the first quarter of fiscal 2000. The Company is
currently evaluating the effect that SFAS No. 133 will have on the
Company's consolidated financial statements upon adoption. The
Company does not expect the adoption of SFAS Nos. 130, 131 or 133 to
have a material effect on the Company's consolidated financial
statements. 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
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.
2. Inventories
Inventories were composed of the following at:
July 31, August 1,
1998 1997
Retail $72,682 $58,199
Restaurant 13,997 11,214
Supplies 4,930 3,856
------- -------
Total $91,609 $73,269
======= =======
3. Short-term Investments
The Company had no held-to-maturity securities at July 31,
1998.
The amortized costs and fair values of held-to-maturity
securities at August 1, 1997 were as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury and U.S.
Government Agencies $ 501 -- -- $ 501
Corporate debt
securities 603 $ 5 -- 608
Other securities 562 128 -- 690
----- ----- ----- -----
Short-term investments $1,666 $133 -- $1,799
====== ===== ===== =====
4. Debt
Long-term debt consisted of the following at:
July 31, August 1,
1998 1997
6.36% Term Loan payable on or before
December 1, 2001 $50,000 $50,000
9.53% Senior Notes Payable in annual
installments of varying amounts from
January 15, 1994 to January 15, 2002,
with a final installment of $2,000
due January 15, 2003 12,000 $15,500
Less current maturities 2,500 3,500
------ -------
Long-term debt $59,500 $62,000
====== =======
The financial covenants related to the 6.36% Term Loan require
that the Company maintain an interest coverage ratio of 3.0 to 1.0
and a lease adjusted funded debt to total capitalization ratio not
to exceed 0.4 to 1.0.
The note agreements relating to the 9.53% Senior Notes placed
in January 1991 in the original amount of $30,000 include, among
other provisions, requirements that the Company maintain minimum
tangible net worth of $70,000. The agreements also contain certain
other restrictions related to the payment of cash dividends and the
purchase of treasury stock. Retained earnings not restricted under
the provisions of the agreements were approximately $462,400 at July
31, 1998.
Based on discounted cash flows of future payment streams,
assuming rates equivalent to the Company's incremental borrowing
rate on similar liabilities, the fair value of the 6.36% Term Loan
and the 9.53% Senior Notes approximates carrying value as of July
31, 1998.
The Company has a revolving credit facility with a maximum
principal amount of $75,000. No amounts were outstanding under the
revolving credit facility at July 31, 1998.
At July 31, 1998 and August 1, 1997, the Company was in
compliance with all covenants.
The aggregate maturities of long-term debt subsequent to July
31, 1998 are as follows:
Fiscal year
1999 $ 2,500
2000 2,500
2001 3,000
2002 52,000
2003 2,000
------
Total $62,000
======
5. Common Stock
The Board of Directors granted certain executive officers
hired in fiscal 1996 a total of 37,000 restricted shares which vest
over five years. The Company's compensation expense for these
restricted shares was $150, $150 and $144 in fiscal 1998, 1997 and
1996, respectively. The weighted average fair value of the
restricted shares granted during fiscal 1996 was $20.27 per share.
6. Stock Option Plans
The Company's employee stock option plans are administered by the
Stock Option Committee (the " Committee"). Members of the Committee
are appointed by the Board of Directors and consist of members of
the Board of Directors. The Committee is authorized to determine,
at time periods within its discretion and subject to the direction
of the Board, which key employees shall be granted options, the
number of shares covered by the options granted to each, and within
applicable limits, the terms and provisions relating to the exercise
of such options.
The Committee is currently authorized to grant options to
purchase an aggregate of 17,525,702 shares of the Company's common
stock under all employee stock option plans. The option price per
share under the employee stock option plans must be at least 100% of
the fair market value of a share of the Company's common stock based
on the closing price on the day preceding the day the option is
granted. Options are generally exercisable each year on a
cumulative basis at a rate of 33% of the total number of shares
covered by the option beginning one year from the date of grant,
expire ten years from the date of grant and are non-transferable.
At July 31, 1998, there were 5,567,173 shares of unissued common
stock reserved for issuance under the employee stock option plans.
In fiscal 1989, the Board of Directors adopted the 1989 Non-employee Plan
("Directors Plan") for non-employee directors. The
stock options were granted with an exercise price equal to the fair
market value of the Company's common stock as of the date of grant
and expire one year from the retirement of the director from the
board. An aggregate of 1,518,750 shares of the Company's common
stock is authorized to be issued under this plan. Due to the
overall plan limit, no shares have been granted under this plan
since fiscal 1994.
Stock Options: A summary of the status of the Company's stock
option plans for fiscal 1998, 1997 and 1996, and changes during
those years is presented below:
<TABLE>
<CAPTION>
(Shares in thousands) 1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Fixed Options Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 5,647 $21.90 5,342 $21.34 4,831 $20.63
Granted 1,601 31.00 1,297 22.80 1,449 19.35
Exercised (1,146) 22.40 (464) 16.14 (602) 8.49
Forfeited or canceled (286) 24.40 (528) 23.51 (336) 25.61
------- ----- ----- ------ ------ -----
Outstanding at
end of year 5,816 24.18 5,647 21.90 5,342 21.34
====== ====== ====== ====== ======= ======
Options exercisable
at year-end 3,453 21.76 3,751 22.13 3,749 21.81
Weighted-average fair
value per share of
options granted
during the year $12.89 $13.52 $11.18
</TABLE>
<TABLE>
The following table summarizes information about fixed
stock options outstanding at July 31, 1998:
<CAPTION>
(Shares in thousands)
Options Outstanding Options Exercisable
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 7/31/98 Contractual Life Exercise Price at 7/31/98 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 5.38 - 10.00 321 1.59 $ 6.33 321 $ 6.33
10.01 - 20.00 1,060 5.86 18.14 839 17.89
20.01 - 30.00 2,915 6.24 24.79 2,293 25.33
30.01 - 32.00 1,520 9.16 31.01 -- --
- --------------- ----- ---- ----- ----- ------
$ 5.38 - 32.00 5,816 6.67 24.18 3,453 21.76
============== ===== ==== ===== ===== =====
/TABLE
<PAGE>
Had the fair value of options granted under these plans beginning in
fiscal 1996 been recognized as compensation expense on a straight-line basis
over the vesting period of the grant, the Company's net
earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
1998 1997 1996
Net income:
As reported $104,136 $86,598 $63,515
Pro forma 95,442 76,767 61,001
Net earnings per share:
As reported - diluted 1.65 1.41 1.04
Pro forma - diluted 1.51 1.25 1.00
The pro forma effect on net income for 1998, 1997 and 1996 is not
representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation
expense related to grants made prior to 1996.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in fiscal
1998, 1997 and 1996: dividend yield of .1% for all years, expected
volatility of 36, 35 and 36 percent, respectively; risk-free
interest rate ranges of 5.8% to 6.0%, 6.3% to 6.7% and 5.3% to 6.3%
and expected lives of five, six and six years, respectively.
The Company recognizes a tax deduction upon exercise of non-qualified stock
options in an amount equal to the difference between
the option price and the fair market value of the common stock.
These tax benefits are credited to Additional Paid-In Capital.
7. Acquisition of wholly-owned subsidiary
On April 1, 1998, the Company acquired all of the capital stock
of Carmine's Prime Meats, Inc. for cash of $2,500 and common stock
of $10,500. 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 fair values at the date of acquisition. The
excess of the purchase price over the fair value of the net assets
acquired was $12,450 and has been recorded as goodwill, which is
being amortized on a straight-line basis over its estimated useful
life, 20 years. The amount of goodwill amortization in fiscal 1998
was $208.
The net purchase price was allocated as follows:
Current assets, other than cash acquired $ 439
Property and equipment 117
Other assets 15
Goodwill 12,450
Liabilities assumed 635
------
Purchase price, net of cash received $12,386
======
The operating results of this acquired business have been
included in the consolidated statement of income from the date of
the acquisition and proforma consolidation of the results of
operations would not have been materially different from the
reported amounts for fiscal 1996, 1997 and 1998. 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 1996.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company's net deferred tax
liability consisted of the following at:
July 31, August 1,
1998 1997
Deferred tax assets:
Financial accruals without
economic performance $ 7,606 $ 6,328
Other 2,487 2,727
------ -----
Deferred tax assets 10,093 9,055
------ -----
Deferred tax liabilities:
Excess tax depreciation over book 24,575 17,068
Other 10,107 10,563
------ ------
Deferred tax liabilities 34,682 27,631
------ ------
Net deferred tax liability $24,589 $18,576
====== ======
The Company provided no valuation allowance against deferred
tax assets recorded as of July 31, 1998 and August 1, 1997, as the
"more-likely-than-not" valuation method determined all deferred
assets to be fully realizable in future taxable periods.
The components of the provision for income taxes for each of
the three fiscal years were as follows:
1998 1997 1996
Current:
Federal $48,224 $30,398 $34,965
State 6,357 4,956 5,878
Deferred 6,013 15,505 (1,978)
-------- ------ -------
Total income tax provision $60,594 $50,859 $38,865
======= ======= ======
A reconciliation of the provision for income taxes as reported
and the amount computed by multiplying the income before the
provision for income taxes by the U.S. federal statutory rate of 35%
was as follows:
1998 1997 1996
Provision computed at federal
statutory income tax rate $57,655 $48,110 $35,833
State and local income taxes,
net of federal benefit 3,212 3,753 4,126
Jobs credit (172) (195) (33)
Employer tax credits for
FICA taxes
paid on tip income (1,711) (1,403) (1,328)
Other-net 1,610 594 267
------ ------ ------
Total income tax provision $60,594 $50,859 $38,865
====== ====== ======
9. Segment Information
The Company operates stores which provide a combination of
restaurant and retail services to the public. The Company considers
this combination of services to be one industry segment.
10. Commitments and Contingencies
The Company has been involved in various legal matters during
fiscal 1998 which arose in the ordinary course of business and are
being defended and handled in the ordinary course of business.
While the ultimate results of such matters cannot be determined or
predicted, management does not believe that they will have a
material adverse effect on the Company's consolidated financial
statements.
The Company maintains insurance coverage for various aspects of
its business and operations. The Company has elected, however, to
retain a portion of losses that occur through the use of various
deductibles, limits and retentions under its insurance programs.
This situation may subject the Company to some future liability for
which it is only partially insured, or completely uninsured. The
Company intends to mitigate any such future liability by continuing
to exercise prudent business judgment in negotiating the terms and
conditions of its contracts.
The Company operates seventeen stores from leased facilities
and also leases certain land and advertising billboards. These
leases have been classified as either capital or operating leases in
accordance with the criteria contained in SFAS No. 13, "Accounting
for Leases." The interest rates for capital leases vary from 10% to
17%. Amortization of capital leases is included with depreciation
expense. A majority of the Company's lease agreements provide for
renewal options and some of these options contain escalation
clauses. Certain store leases provide for contingent lease payments
based upon sales volume in excess of specified minimum levels.
The following is a schedule by years of future minimum lease
payments under capital leases together with the present value of
the minimum lease payments as of July 31, 1998:
<PAGE>
Fiscal year
1999 $ 371
2000 371
2001 303
2002 197
2003 147
Later years 547
------
Total minimum lease payments 1,936
Less amount representing interest 634
-----
Present value of minimum lease payments 1,302
Less current portion 200
-----
Long-term portion of capital lease obligations $1,102
=====
The following is a schedule by years of the future minimum
rental payments required under noncancelable operating leases as of
July 31, 1998:
Fiscal year
1999 $15,766
2000 4,715
2001 2,424
2002 1,880
2003 1,268
Later years 8,754
-------
Total $34,807
=======
Rent expense under operating leases for each of the three fiscal
years was:
Minimum Contingent Total
1998 $16,299 $779 $17,078
1997 14,163 787 14,950
1996 12,134 764 12,898
11. Employee Savings Plan
The Company has an employee savings plan, which provides for
retirement benefits for eligible employees. The plan is funded by
elective employee contributions up to 16% of their compensation and
the Company matches 25% of employee contributions for each
participant up to 6% of the employee's compensation. The Company
contributed $1,250, $1,188 and $864 for fiscal 1998, 1997 and 1996,
respectively.
<PAGE>
12. Quarterly Financial Data (Unaudited)
Quarterly financial data for fiscal 1998 and 1997 are
summarized as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1998
Net sales $312,755 $321,790 $317,364 $365,195
Gross profit on
sales 206,264 205,154 209,942 245,624
Income before
income taxes 37,553 32,080 39,154 55,943
Net income 23,733 20,274 24,745 35,384
Net earnings per
share - diluted .38 .32 .39 .56
------- ------- ------- -------
1997
Net sales $258,902 $267,854 $275,062 $322,033
Gross profit on
sales 169,587 170,282 182,615 213,664
Income before
income taxes 30,403 25,459 32,672 48,923
Net income 18,850 15,988 20,518 31,242
Net earnings per
share - diluted .31 .26 .33 .51
-------- -------- ------- -------
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Cracker Barrel Old Country Store, Inc.:
We have audited the accompanying consolidated balance sheet of
Cracker Barrel Old Country Store, Inc. and subsidiaries (the
"Company") as of July 31, 1998 and August 1, 1997, and the related
consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three fiscal years in the period
ended July 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
accounting standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of the Company at July 31, 1998 and August 1, 1997, and the
results of its operations and its cash flows for each of the three
fiscal years in the period ended July 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
September 9, 1998
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
The following is a list of the significant subsidiaries of the
Registrant as of July 31, 1998, all of which are wholly-owned:
State of
Parent Incorporation
Cracker Barrel Old Country Store, Inc. Tennessee
Subsidiaries
CBOCS Distribution, Inc. Tennessee
CBOCS Limited Partnership Michigan
CBOCS Michigan, Inc. Michigan
CBOCS West, Inc. Nevada
Rocking Chair, Inc. Nevada
Exhibit 23.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 2-86602, 33-15775, 33-37567, 33-45482 and 333-01465
of Cracker Barrel Old Country Store, Inc. on Form S-8 and
Registration Statement No. 33-59582 on Form S-3 of our report dated
September 9, 1998, incorporated by reference in the Annual Report on
Form 10-K of Cracker Barrel Old Country Store, Inc. for the year
ended July 31, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Nashville, Tennessee
October 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statement of Cracker Barrel Old Country Store, Inc. and
subsidiaries for the year ended July 31, 1998 and is qualified in its entirety
by reference to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-2-1997
<PERIOD-END> JUL-31-1998
<CASH> 62,593
<SECURITIES> 0
<RECEIVABLES> 5,192
<ALLOWANCES> 0
<INVENTORY> 91,609
<CURRENT-ASSETS> 164,826
<PP&E> 994,360
<DEPRECIATION> 182,039
<TOTAL-ASSETS> 992,108
<CURRENT-LIABILITIES> 104,022
<BONDS> 59,500
0
0
<COMMON> 31,240
<OTHER-SE> 772,134
<TOTAL-LIABILITY-AND-EQUITY> 992,108
<SALES> 1,317,104
<TOTAL-REVENUES> 1,317,104
<CGS> 450,120
<TOTAL-COSTS> 638,219
<OTHER-EXPENSES> 63,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,026
<INCOME-PRETAX> 164,730
<INCOME-TAX> 60,594
<INCOME-CONTINUING> 104,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,136
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.65
</TABLE>
