Cracker Barrel 2006 Annual Report Download - page 36

34
Cost of Goods Sold
Cost of goods sold as a percentage of total revenue
decreased to 32.0% in 2006 from 33.0% in 2005. This
was due to higher average menu prices versus the
prior year, lower commodity costs, higher initial mark-
ons of retail merchandise and a lower percentage of
retail sales, which have a higher cost as a percent of
sales than do restaurant sales, partially offset by
higher markdowns on retail merchandise.
Cost of goods sold as a percentage of total revenue
in 2005 remained flat compared to 2004 at 33.0%.
This was due to higher commodity costs for beef, pork,
poultry and produce and higher markdowns on retail
merchandise offset by higher menu pricing and a lower
percentage of retail sales, which have a higher cost as
a percent of sales than do restaurant sales, and higher
initial mark-ons of retail merchandise
Labor and Related Expenses
Labor and other related expenses include all direct and
indirect labor and related costs incurred in store opera-
tions. Labor expenses as a percentage of total revenue
were 36.5%, 36.6% and 37.0% in 2006, 2005 and
2004, respectively. The year to year decrease from 2005
to 2006 was due to higher average menu prices versus
the prior year and lower workers’ compensation expense
and group health costs partially offset by higher hourly
wages and store management salaries versus the
prior year. The year to year decrease from 2004 to 2005
was due to lower bonuses under unit-level bonus
programs, partially offset by higher hourly wage rates
and manager wages versus the prior year.
Impairment and Store Closing Costs
During 2006 the Company decided to close seven
Cracker Barrel stores and three Logan’s restaurants and
recorded impairment and store closing costs of $8,052.
Additionally, during 2006 the Company recorded an
impairment of $838 for its management trainee housing
facility. The total impairment and store closing costs
recorded in 2006 were $8,890. Impairment costs
recorded in 2005 were $431.
Other Store Operating Expenses
Other store operating expenses include all unit-level
operating costs, the major components of which are
operating utilities, supplies, repairs and maintenance,
advertising, rent, depreciation and amortization. Other
store operating expenses as a percentage of total
revenue were 18.1%, 17.4% and 17.0% in 2006, 2005
and 2004, respectively. The year to year increase from
2005 to 2006 was due to higher utilities and supplies
partially offset by higher average menu prices. The
decrease from 2004 to 2005 was due to higher utilities,
advertising and maintenance expenses offset partially
by higher menu pricing versus the prior year.
General and Administrative Expenses
General and administrative expenses as a percentage of
total revenue were 5.9%, 5.1% and 5.3% in 2006, 2005
and 2004, respectively. The year to year increase from
2005 to 2006 was due to $9,900 of stock option
expense as a result of the adoption of Statement of
Financial Accounting Standard (“SFAS”) No. 123
(Revised 2004) “Share-Based Payment” (“SFAS No.
123R”) in 2006, higher salaries and wages versus the
prior year and the non-recurrence of an insurance
recovery in the prior year relative to litigation settle-
ments and related expenses incurred in earlier years.
The year to year decrease from 2004 to 2005 was due
to lower legal fees compared to prior year, which
included a legal settlement and an insurance recovery
relative to litigation settlements and related expenses
incurred in prior years, offset partially by higher salaries
versus prior year.
Interest Expense
Interest expense increased to $22,298 in 2006 from
$8,693 in 2005 and from $8,444 in 2004. The year to
year increase from 2005 to 2006 was due to higher
average outstanding debt, higher interest rates and
higher amortization of deferred financing costs.
The increase from 2004 to 2005 resulted from higher
average outstanding debt and higher interest rates
offset partially by lower amortization of deferred
financing costs and higher capitalized interest.
Provision for Income Taxes
Provision for income taxes as a percent of income before
income taxes was 30.8% for 2006, 34.6% for 2005
and 35.9% for 2004. The U.S. Internal Revenue Service
(“IRS”) has examined the Company’s consolidated
federal income tax returns through the year ended July
30, 2004. In March 2006, the Company reached a
settlement with the IRS for these tax periods. The