Cracker Barrel 2005 Annual Report Download - page 41

39
was 1.25%, as it was through all of 2005. The
percentage point spread will remain 1.25% for the
first quarter of 2006. The percentage point spread
from LIBOR for the second, third and fourth quarters
of 2006 remains to be determined. While changes in
the prime rate or LIBOR would affect the cost of
funds borrowed in the future, 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 diffi-
culties and other factors which are outside the control
of the Company and which are generally unpredictable.
Four food categories (beef, dairy, including eggs, pork
and poultry) account for the largest shares of the
Company’s food purchases at approximately 19%, 12%,
10% and 9%, respectively. Other categories affected
by the commodities markets, such as produce, seafood
and coffee, may each account for as much as 6% 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 suffi-
cient 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 unpre-
dictably and over short periods of time. Changes in
commodity prices would affect the Company and its
competitors generally, and depending on the terms
and duration of supply contracts, sometimes simulta-
neously. The Company also enters into supply
contracts for certain of its products in an effort to
minimize volatility of supply and pricing. In many
cases, or over the longer term, the Company believes
it will be able to pass through some or much of the
increased commodity costs by adjusting its menu pric-
ing. From time to time, competitive circumstances, or
judgments about consumer acceptance of price
increases, may limit menu price flexibility, and in
those circumstances increases in commodity prices can
result in lower margins for the Company, as happened
in 2004 and 2005.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the
Company’s cash flows for the last three years:
2005 2004 2003
Net cash provided by
operating activities $279,903 $200,365 $240,586
Net cash used in investing
activities (170,066) (143,666) (118,953)
Net cash used in financing
activities (121,439) (42,313) (122,318)
Net (decrease) increase in
cash and cash equivalents $(11,602) $ 14,386 $ (685)
The Company’s cash generated from operating
activities was $279,903 in 2005. Most of this cash was
provided by net income adjusted by depreciation
and amortization, increases in accounts payable and
deferred income taxes and other adjustments to net
income from the tax benefit realized upon exercise of
stock options, accretion on zero coupon contingently
convertible senior notes and loss on disposition
of property. Increases in other long-term obligations,
accrued employee benefits, income taxes payable,
taxes withheld and accrued and deferred revenues and
decreases in prepaid expenses were partially offset
by increases in other assets, accounts receivable and
inventories and decreases in other accrued expenses
and accrued employee compensation.
The Company had negative working capital of
$104,862 at July 29, 2005 versus negative working
capital of $39,195 at July 30, 2004. In the restaurant
industry, substantially all sales are either for cash
or third-party credit card. Like many other restaurant
companies, the Company is able to, and may from
time to time, operate with negative working capital.
Restaurant inventories purchased through the
Company’s principal food distributor are on terms of
net zero days, while restaurant inventories purchased
locally generally are financed from normal trade credit.
Retail inventories purchased domestically generally
are financed from normal trade credit, while imported
retail inventories generally are purchased through
letters of credit and wire transfers. These various trade
terms are aided by rapid turnover of the restaurant
inventory. Employees generally are paid on weekly,