Cracker Barrel 2009 Annual Report Download

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6948Cover.qxd:Layout 1 10/6/09 1:21 PM Page 1
A N N UA L R E P O R T

Table of contents

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    ...everyone pictured in this year's Annual Report. To the guests who were nice enough to take a break from their day-whether they were here for the first time, or enjoying their weekly visit with us. And to the employees who work so hard to make Cracker Barrel Old Country Store ® a truly special place...

  • Page 3
    ... operator on the other side-by putting strategic action plans and tight cost controls in place, while never compromising the hearty portions, fair prices and reliable quality our guests depend on. Though we need to keep working hard, we're making progress despite the headwinds. Same-store sales...

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    ... North Dakota Ohio Oklahoma Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Virginia West Virginia Wisconsin 34 1 31 7 21 1 22 1 50 40 4 29 10 5 Unless specifically noted otherwise, references in this annual report to "CBRL" or "The Company" refer to Cracker Barrel...

  • Page 6
    ..."Best Family Dining Chain" for the 19th consecutive year. In addition, Cracker Barrel was rated by members of the Good Sam Club as the most RV-friendly sit-down restaurant in America for the eighth consecutive year. When you've been in the restaurant business over the span of four decades, you learn...

  • Page 7
    ... THE CRACKER BARREL EXPERIENCE to reduce inventory. While we were more productive with labor hours, our costs did increase from the new health plan that we implemented at mid-year for our restaurant employees. Our "outlier" program, which focuses generally on our 50 bottom stores in order to...

  • Page 8
    ...often like to take a little Cracker Barrel home with them. In 2009, we began to offer many Cracker Barrel-branded products as unique gifts. We also expanded the music offering in the stores to include not just exclusive CDs but related products. For instance, with Dolly Parton's CD, Backwoods Barbie...

  • Page 9
    ...know that a well-trained, experienced workforce equals better service - and our improved guest satisfaction scores prove it. Labor scheduling, however, remains a critical challenge for the store manager. We currently are testing a new system that is better able to match labor hours to traffic levels...

  • Page 10
    ... IN OUR COMMUNITIES Every Cracker Barrel location is a part of the local fabric. We strive to give back to our communities in many ways, particularly in the areas of education and diversity. In 2009, nearly 100 students and teachers visited Cracker Barrel's Home Office to learn about the restaurant...

  • Page 11
    ... guests, every day. We have over 65,000 people who are part of the Cracker Barrel organization and together their efforts make the brand what it is today. Behind them is a network of executives and store managers who, as a team, Michael A. Woodhouse are accountable for making this complex business...

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    ... 1969, you would've been hard-pressed to find a place where you could count on getting a good meal in a clean, comfortable setting. Maybe that's why, when Cracker Barrel Old Country Store® first opened its doors on Highway 109 in Lebanon, Tennessee, this idea of ours seemed almost revolutionary. It...

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    13

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    ... "Rising Star" program to train new employees and help them feel just as at home as our 30-year veterans. And we're happy with our progress: turnover for hourly employees is below 80%, which is remarkable for our industry, and management turnover is the lowest in our history. At the same time, guest...

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    ... our Friday Fish Fry and, of course, Uncle Herschel's Favorite® breakfast. That doesn't stop us from trying new things, though. Some work. And some need a little work. This was a good learning year for us, as lots of ideas we'd been testing helped us to better execute the dishes guests crave, while...

  • Page 22

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  • Page 24
    ... of our returning soldiers. We also released Dolly Parton's Backwoods Barbie - Collector's Edition CD. It was paired with a special Collector's Photo Album, which became one of our best-selling books ever, and an exclusive pink Dolly Parton Rocker. At the same time, our retail team was working hard...

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  • Page 29
    ... our markets to help support our new products as they made their way into stores. We're also refreshing our billboard advertising by rolling out new brand messages across the country, to help us stay on the top of our guests' minds-while making sure that we're always working to find some new friends...

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    28

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  • Page 32
    ...do you say '' Thank You" a few hundred million times? Looking back over the years, it's amazing how many guests we've welcomed here at Cracker Barrel Old Country Store® , along with the thousands of employees who have become a cherished part of our family history. When we consider all the wonderful...

  • Page 33

  • Page 34
    ... under "Critical Accounting Estimates" on pages 46 to 50 of this Annual Report or, from time to time, in the Company's filings with the Securities and Exchange Commission ("SEC"), press releases and other communications. Readers are cautioned not to place undue reliance on forward-looking statements...

  • Page 35
    ... of food, ingredients, merchandise and utilities used by our restaurants or merchandise sold in our retail shop could adversely affect our revenues and results of operations. We are dependent on attracting and retaining qualified employees while also controlling labor costs. Our distribution risks...

  • Page 36
    ...,160 $ 124,624 59,328 Common shares outstanding at end of year Cracker Barrel stores open at end of year AVERAGE UNIT VOLUMES (k): 22,722,685 588 22,325,341 577 23,674,175 562 30,926,906 543 46,619,803 529 Cracker Barrel restaurant Cracker Barrel retail $ 3,209 841 $ 3,282 898 $ 3,339...

  • Page 37
    ...the open market. We redeemed our zero-coupon convertible notes. (g) Includes charges of $5,369 before taxes for impairment and store closing costs from continuing operations. We completed a 16,750,000 common share repurchase by means of a tender offer. We adopted SFAS 123R, "Share-Based Payment," on...

  • Page 38
    ... 22, 2009, the Company operated 591 Cracker Barrel restaurants and gift shops located in 41 states. The restaurants serve breakfast, lunch and dinner. The retail area offers a variety of decorative and functional items specializing in rocking chairs, holiday gifts, toys, apparel and foods. Until...

  • Page 39
    ... Indicators 2009 2008 2007 Management uses a number of key performance measures to evaluate our operational and financial performance, including the following: Comparable store sales and restaurant guest traffic consist of sales and calculated number of guests, respectively, of units open at...

  • Page 40
    ... dividing net sales by operating weeks and include all stores. Gross Profit The decrease in comparable store restaurant sales from 2008 to 2009 was due to a decrease in guest traffic of 4.6% partially offset by an increase in average check of 2.9%, including a 3.3% average menu price increase. The...

  • Page 41
    our planned use of these properties. We did not incur any store closing costs in 2009. During 2008, we closed one leased Cracker Barrel store and one owned Cracker Barrel store, which resulted in impairment charges of $532 and store closing costs of $345. See Note 2 to the accompanying Consolidated ...

  • Page 42
    ... under our Revolving Credit Facility, net proceeds from our sale-leaseback transactions and proceeds from exercises of share-based compensation awards, were sufficient to finance all of our growth, dividend payments, working capital needs and other cash payment obligations in 2009. We believe that...

  • Page 43
    ...-tax net proceeds of $56,260. The stores and the retail distribution center have been leased back for initial terms of 20 and 15 years, respectively. Net proceeds from the sale-leaseback transactions, along with excess cash from operations, were used to reduce outstanding borrowings under the Credit...

  • Page 44
    generally are purchased through wire transfers. These various trade terms are aided by rapid turnover of the restaurant inventory. Employees generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears for hours worked, and certain expenses such as certain taxes and some benefits are...

  • Page 45
    ... caused by market conditions, weather, production problems, delivery difficulties and other factors which are outside our control and which are generally unpredictable. Four food categories (dairy (including eggs), beef, poultry and pork) account for the largest shares of our food purchases at...

  • Page 46
    ... value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It also amends Accounting Principles Board ("APB") Opinion No. 28-1, "Interim Financial Reporting" to require those disclosures in summarized financial information...

  • Page 47
    ... nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. This standard is effective for financial statements for interim and annual reporting periods ending after September 15, 2009. We do not expect that the adoption...

  • Page 48
    ... are those that: • Insurance Reserves Inventory Reserves Tax Provision Share-Based Compensation Unredeemed Gift Cards Legal Proceedings Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Impairment of Long-Lived...

  • Page 49
    ... management judgments in the future may produce materially different amounts of expense that would be reported under these insurance programs. Inventory Reserves We self-insure a significant portion of our expected workers' compensation, general liability and health insurance programs. We purchase...

  • Page 50
    ... must make estimates of certain items that comprise our income tax provision. These estimates include effective state and local income tax rates, employer tax credits for items such as FICA taxes paid on employee tip income, Work Opportunity and Welfare to Work credits, as well as estimates related...

  • Page 51
    ... expense accordingly so that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date. Generally, the fair value of each nonvested stock grant is equal to the market price of our stock at the date of 49

  • Page 52
    ... our business. In the opinion of management, however, based upon information currently available, the ultimate liability with respect to these actions will not materially affect our consolidated results of operations or financial position. We review outstanding claims and proceedings internally and...

  • Page 53
    ... our website. They set the tone for our organization and include factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures, which are reviewed, modified and improved as changes occur in business condition and operations...

  • Page 54
    Report of Independent Registered Public Accounting Firm TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CRACKER BARREL OLD COUNTRY STORE, INC. LEBANON, TENNESSEE In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cracker Barrel ...

  • Page 55
    ... and for the year ended July 31, 2009, and our report dated September 29, 2009, expressed an unqualified opinion on those consolidated financial statements. We have audited the internal control over financial reporting of Cracker Barrel Old Country Store, Inc. and subsidiaries (the "Company") as of...

  • Page 56
    ... share data) July 31, August 1, 2009 2008 ASSETS Current Assets: Cash and cash equivalents Property held for sale Accounts receivable Income taxes receivable Inventories Prepaid expenses and other current assets Deferred income taxes Total current assets Property and Equipment: Land Buildings...

  • Page 57
    ... thousands except share data) Fiscal years ended July 31, August 1, August 3, 2009 2008 2007 Total revenue Cost of goods sold Gross profit Labor and other related expenses Impairment and store closing charges Other store operating expenses Store operating income General and administrative expenses...

  • Page 58
    ... value of interest rate swap, net of tax benefit of $2,001 (See Note 6) Total comprehensive income Cash dividends declared - $.56 per share Share-based compensation Exercise of share-based awards Tax benefit realized upon exercise of share-based compensation awards Issuance of common stock Purchases...

  • Page 59
    ... information: Cash paid during the year for: Interest, excluding interest rate swap payments, net of amounts capitalized Interest rate swap Accretion of original issue discount of zero-coupon contingently convertible senior notes and new notes Income taxes Supplemental schedule of non-cash financing...

  • Page 60
    ... of closed Cracker Barrel stores. Inventories - Inventories are stated at the lower of cost or market. Cost of restaurant inventory is determined by the first-in, first-out ("FIFO") method. In 2009, due to lower inventory levels at the Company's retail distribution center as compared to prior years...

  • Page 61
    ... office space and the Company's management trainee housing facility. The decision to impair these properties was due to changes in the Company's planned use of these properties. During 2008, the Company incurred impairment and store closing costs resulting from the closing of Cracker Barrel stores...

  • Page 62
    ... originates. The Company has purchased insurance for individual general liability claims that exceed $500. Prior to January 1, 2009, the Company did not purchase such insurance for its group health program, but did limit its offered benefits for any individual (employee or dependents) in the program...

  • Page 63
    ... issuance under the Company's plans as of July 31, 2009 totals 1,139,878. Stock options granted under these plans are granted with an exercise price equal to the market price of the Company's stock on the date; those option awards generally vest at a cumulative rate of 33% per year beginning on 61

  • Page 64
    ...vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company's policy is to issue new shares of common stock to satisfy exercises of share-based compensation awards. Income taxes - Employer tax credits for FICA taxes paid on employee tip...

  • Page 65
    ... effective for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS No. 107-1 and APB No. 28-1 in the fourth quarter of 2009 had no impact on the Company's consolidated financial statements. Income Tax Benefits of Dividends on Share-Based Payment Awards The Emerging Issues...

  • Page 66
    ... rules and interpretive releases of the Securities and Exchange Commission ("SEC"), which are sources of authoritative GAAP for SEC registrants. This standard is effective for financial statements for interim and annual reporting periods ending after September 15, 2009. The Company does not expect...

  • Page 67
    The Company's money market fund investments and deferred compensation plan assets are measured at fair value using quoted market prices. The fair value of the Company's interest rate swap liability is determined based on the present value of expected future cash flows. Since the interest rate swap ...

  • Page 68
    ... the Credit Facility bear interest, at the Company's election, either at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios. The Company's policy has been to manage interest cost using a mix of fixed and variable rate debt (see Note 5). To manage this...

  • Page 69
    ...product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel unit are shared and are indistinguishable in many respects. Accordingly, the Company manages its business on the basis of one reportable operating segment. All of the Company's operations are located...

  • Page 70
    ... approved the Cracker Barrel Old Country Store, Inc. 1989 Stock Option Plan for Non-employee Directors ("Directors Plan"). Stock options granted under the Directors Plan had an exercise price equal to the fair market value of the Company's common stock on the date of grant and expire one year from...

  • Page 71
    ... least 100% of the fair market value of the Company's common stock based on the date of grant. Under the Omnibus Plan, nonemployee directors are granted annually on the day of the annual shareholders meeting an option to purchase up to 5,000 shares of the Company's common stock, and awards of up to...

  • Page 72
    ... were paid in September 2009. Other Share-Based Awards In the third quarter of 2009, the Company issued to its Executive Vice President and Chief Financial Officer, options to purchase 25,000 shares of the Company's common stock and 25,000 nonvested stock grants. The stock options and 16,666 of...

  • Page 73
    ... one executive's nonvested stock grants, the Company reversed approximately $3,508 of share-based compensation expense. During 2009, the Company did not have any similar reversals. Generally, the fair value of each nonvested stock grant is equal to the market price of the Company's stock at the date...

  • Page 74
    ... and other related expenses or general and administrative expenses. 14 COMPENSATORY PLANS AND ARRANGEMENTS 13 EMPLOYEE SAVINGS PLANS The Company sponsors a qualified defined contribution retirement plan ("Plan I") covering salaried and hourly employees who have completed one year of service and...

  • Page 75
    ...: 2009 2008 2007 Provision computed at federal statutory income tax rate State and local income taxes, net of federal benefit Employer tax credits for FICA taxes paid on employee tip income Federal reserve adjustments Other employer tax credits Section 162(m) non-deductible compensation Other...

  • Page 76
    ...: Senior and New Notes (see Note 2) - Stock options and nonvested stock and stock awards 328,662 Diluted weighted average shares outstanding 22,787,633 - 3,977 65,553 $ 166,042 22,782,608 27,643,098 Income tax benefit (provision for income taxes) computed at federal statutory income tax rate...

  • Page 77
    ... business judgment in negotiating the terms and conditions of its contracts. See Note 2 for a further discussion of insurance and insurance reserves. As of July 31, 2009, the Company operated 190 Cracker Barrel stores in leased facilities and also leased certain land and advertising billboards...

  • Page 78
    ... 3rd Quarter 4th Quarter The following is a schedule by year of the future minimum rental payments required under operating leases, excluding leases for advertising billboards (see Note 2), as of July 31, 2009. Included in the amounts below are optional renewal periods, for which at the inception...

  • Page 79
    ...R E , I N C . Corporate Officers CRACKER BARREL OLD COUNTRY STORE, INC. CBOCS, INC. (Operating Subsidiary) Charlie E. Austin Regional Vice President, Restaurant Operations Michael A. Woodhouse Chairman, President and Chief Executive Officer P. Doug Couvillion Senior Vice President, Finance Lisa...

  • Page 80
    ...Retired; Senior Vice President- Finance and CFO of Cracker Barrel Old Country Store, Inc.; Member of Audit and Public Responsibility Committees Charles E. Jones, Jr. President, Corporate Communications, Inc., an investor/shareholder communications and public relations firm, Nashville, TN; Member of...

  • Page 81
    ... home office on Hartmann Drive, Lebanon, Tennessee. There were 10,935 shareholders of record on the record date of October 5, 2009. DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN Although our company does not sponsor a dividend reinvestment or direct stock purchase plan, our transfer agent...

  • Page 82
    P.O. Box 787, Lebanon, TN 37088-0787 The TABASCO® marks, bottle and label designs are registered trademarks and servicemarks exclusively of McIlhenny Company, Avery Island, LA 70513. "Cracker Barrel Old Country Store," "Rockin' Reader," "Fireside Country Skillets" and "The Warmest Of Welcomes" are...