Cracker Barrel 2004 Annual Report Download - page 41

Standard and Poor’s to or below both Ba3 and BB-, respectively; or 4) certain specified corporate events. The
accreted conversion price is equal to the issue price of the Note plus accrued original issue discount divided by
10.8584 shares, and was $40.40 per share at July 30, 2004. The Company’s closing share price, as reported by
Nasdaq, on July 30, 2004 was $33.22. Although the holders of the Notes have the ability to require the Company to
repurchase the Notes on April 3, 2005, the Company has classified this debt as long-term due to its intent and
ability, in the event of a requirement to repurchase any portion of the Notes by the holders, to refinance this
indebtedness on a long-term basis through borrowings under the Revolving Credit Facility. In addition to the many
risks and uncertainties listed above, the Company notes a certain specific risk that would have a material impact on
future results if it occurred. This risk is the potential effect of a change in accounting rules for convertible debt
proposed by the EITF Issue Abstract No. 04-08, that would require the use of “if-converted” accounting for
contingently convertible debt regardless of whether the contingency allowing debt holders to convert is met. Under
current rules (SFAS No. 128, “Earnings Per Share”), contingently issuable shares should be included as diluted
shares outstanding only when the contingency (i.e., when the common stock trades for a specified period of time at
or above the specified contingent conversion price, $48.21 as of July 30, 2004) is met. Should the rule change be
adopted, the Company would be required, among other things, to include approximately 4.6 million shares in its
diluted shares outstanding related to its convertible debt. The likelihood and timing of implementation of the rule
change is uncertain. The Company noted that, if implemented, the change would have no economic effect because
the terms of the Notes would be unchanged. The Company has not yet determined what response or change in
policy, if any, it would make if the new accounting took effect.
On February 21, 2003, the Company entered into a new five-year $300,000 Revolving Credit Facility and
terminated its previous $250,000 Revolving Credit Facility, which was set to expire on December 31, 2003. The new
facility has substantially the same terms as the prior facility; however, there is a slightly more favorable credit spread
grid, as well as certain less restrictive covenants. The new $300,000 revolving credit facility will expire on February
21, 2008. At July 30, 2004, the Company had no outstanding borrowings under the Revolving Credit Facility.
During 2004, the Company’s Board of Directors (the “Board”) authorized the repurchase of up to 4 million
shares of the Company’s common stock under two separate repurchase authorizations. The repurchases are to be
made from time to time in the open market at prevailing market prices. The Company completed repurchases of
1,769,300 shares of its common stock for a net expenditure of $69,206, or approximately $39.11 per share. The
total 2004 share repurchases were made up of the following: 661,300 shares were repurchased under a repurchase
authorization previously in effect at the end of fiscal 2003 and 1,108,000 shares were repurchased under the first
2004 repurchase authorization. The Company presently expects to complete the remaining 892,000 shares of the
first repurchase authorization and the 2 million shares of the second repurchase authorization during 2005, although
there can be no assurance that such repurchases actually will be completed in that period of time. The Company’s
principal criteria for share repurchases are that they be accretive to net income per share and that they do not
unfavorably affect the Company’s investment grade debt rating and target capital structure.
During 2004 the Company received proceeds of $50,210 from the exercise of stock options on 2,634,126
shares of its common stock and tax benefit upon exercise of stock options of $12,641.
During the first quarter of 2004, the Board approved a quarterly dividend policy declaring a quarterly dividend of
$0.11 per common share (an annual equivalent of $0.44 per share), an increase from an annual dividend of $0.02 paid
in 2003. The Company paid such dividends of $0.11 per share during the second, third and fourth quarters of 2004.
Additionally, on July 29, 2004, the Board declared another dividend of $0.11 per share payable on September 1, 2004
to shareholders of record on August 9, 2004. Additionally, on September 23, 2004, the Board declared a dividend of
$0.12 per share payable on November 1, 2004 to shareholders of record on October 8, 2004. This dividend reflects
a 9.1% increase from the previous quarterly dividend.
The Company estimates that its capital expenditures (purchase of property and equipment) for 2005 will be
approximately $160,000 to $165,000, most of which will be related to the acquisition of sites and construction of 25 new
Cracker Barrel stores and 18 new Logan’s restaurants and openings that will occur after 2005.
Management believes that cash at July 30, 2004, along with cash generated from the Company’s operating
activities, stock option exercises and its available Revolving Credit Facility, will be sufficient to finance its continued
operations, its remaining share repurchase authorization, its continued expansion plans and its dividend payments
through 2005. At July 30, 2004, the Company had $300,000 available under its Revolving Credit Facility. The
Company estimates that it will generate excess cash of approximately $100,000 to $110,000, which it defines as net
cash provided by operating activities less cash used for purchase of property and equipment (the most comparable
measure under GAAP). The Company intends to use this excess cash along with proceeds from the exercise of
stock options in 2005 to apply toward completing its remaining 2,892,000 share repurchase authorization, possible
future share repurchase authorizations and dividend payments or other general corporate purposes.
MATERIAL COMMITMENTS
For reporting purposes, the schedule of future minimum rental payments required under operating leases,
excluding leases for advertising billboards, has been restated to conform the lease term to that used in the straight-
line rent calculation as described in Note 2 to the Consolidated Financial Statements, and correct miscellaneous
errors due to keying mistakes and summation errors, omission of certain leases and miscalculation of certain lease
terms. Although the Company is not currently legally obligated for all optional renewal periods, this method was