Cracker Barrel 2006 Annual Report Download - page 40

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The Review, to date, has resulted in: 1) the repur-
chase of 16,750,000 shares of the Company’s common
stock at $42.00 per share pursuant to a modified
“Dutch Auction” tender offer (the “Tender Offer”); 2)
the execution by the Company, effective April 27, 2006,
of a $1.25 billion credit facility (the “2006 Credit
Facility”) including an $800 million term loan facility, a
$200 million delayed-draw term loan facility and a
$250 million revolving credit facility; and 3) the draw
of $725 million under the term loan facility to finance
the Tender Offer and the cancellation of the remaining
$75 million under the term loan facility. Simultaneously
with the term loan draw, the Company entered into
an interest rate swap that fixed the interest rate on a
portion of the term loan draw at 5.57% plus the
Company’s then current credit spread, or 7.07% based
on today’s credit spread, over the 7-year life of the
term loan and the interest rate swap. The $200 million
delayed-draw term loan facility can be used any time
prior to October 27, 2007 to refinance the Company’s
3.0% zero-coupon contingently convertible senior notes
(the “Senior Notes”) or for general corporate purposes.
The Company, pursuant to the Review, also announced
its intention to divest itself of its wholly-owned
subsidiary, Logan’s, subject to achieving fair and satis-
factory consideration and approval of the Company’s
Board of Directors. In the event of a divestiture of
Logan’s, the 2006 Credit Facility requires the Company
to maintain a maximum specified consolidated total
leverage ratio from the closing date of the divestiture
and thereafter. This ratio will determine the minimum
excess cash that the Company must use to pay down its
term loan. The remaining proceeds of that divestiture
could be used to repurchase additional CBRL common
stock, to reduce debt further and/or for other general
corporate purposes.
Standard & Poor’s (“S & P”) issued a “credit watch/
negative” notice with respect to the Company’s indebted-
ness when the Review was disclosed. Subsequently in
March 2006, S & P lowered its rating on the Company’s
corporate credit and Senior Notes from BBB- to BB+
upon the announcement of the approval of the plan to
incur indebtedness and repurchase shares pursuant to
the Tender Offer. In May 2006, S & P again lowered the
rating on the Senior Notes to B+ reflecting the rela-
tively large amount of secured debt and lowered the
rating on the new 2006 Credit Facility to BB while
taking the Company off its credit watch. Moody’s
Investor Service (“Moody’s”) changed the Company’s
outlook to “developing” when the Review was
disclosed. Subsequently in March 2006, Moody’s down-
graded the Company’s corporate family rating to Ba1
from Baa3, resulting from the Company’s entering into
the 2006 Credit Facility. At that time, Moody’s also
placed these ratings under review for possible down-
grade. Subsequently in April 2006 as a result of the
Company’s plan to draw on the 2006 Credit Facility to
finance the Tender Offer, Moody’s downgraded the
Company’s Senior Notes to Ba3 from Ba1 and the corpo-
rate family rating to Ba2 from Ba1, assigned a rating
of Ba2 to the 2006 Credit Facility and assigned a stable
rating outlook for the Company.
In the event that either or both of the Company’s
ratings decline further, the Company may incur an
increase in future borrowing costs. Additionally, since
the rating from Moody’s declined to Ba3 and the
Standard & Poor’s rating declined below BB- each $1
(face value at maturity) Senior Note became convertible
into 10.8584 shares of the Company’s common stock
(approximately 4.6 million shares in the aggregate). The
Company has received verification from the Trustee
of the Senior Notes that, as of September 29, 2006, no
holders of the Senior Notes have exercised their option
to convert. Additionally, the Senior Notes are callable
at the Company’s election in the third quarter of the
Company’s 2007 fiscal year or putable at the holder’s
election at the same time and every fifth anniversary
thereafter. The Company has classified the Senior
Notes as long-term obligations due to the Company’s
intent and ability to refinance these Senior Notes on
a long-term basis.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company’s
cash flows for the last three years:
2006 2005 2004
Net cash provided by
operating activities $214,846 $ 281,164 $200,481
Net cash used in investing
activities (137,072) (170,066) (143,666)
Net cash used in financing
activities (5,385) (122,700) (42,429)
Net increase (decrease) in
cash and cash equivalents $ 72,389 $ (11,602) $ 14,386