ITEM 1. BUSINESS
Cracker Barrel Old Country Store, Inc. (the "Company" or "Cracker Barrel") was incorporated in October 1969 under the laws of the State of Tennessee. The Company owns and operates 229 full service "country store" restaurants which are located in the southeast, midwest, mid-atlantic and southwest United States along interstate highways, including 6 stores located at "tourist destinations". These family restaurants serve breakfast, lunch and dinner between the hours of 6:00 a.m. and 10:00 p.m. (11:00 p.m. on Fridays and Saturdays) and feature home style country cooking prepared on the premises from the Company's own recipes using quality ingredients and emphasizing authenticity. Menu items are moderately priced and include country ham, chicken, fish, barbecue pork ribs, roast beef, beans, turnip greens, vegetable plates, salads, sandwiches, pancakes, eggs, bacon, sausage and grits. The restaurants do not serve alcoholic beverages. The stores are constructed in a rustic, country store design and feature a separate gift shop area offering a wide variety of items specializing in hand-blown glassware, cast iron cookware, toys and wood crafts as well as various old fashioned candies, jellies and other foods. The Company considers its store operations to constitute an integrated, single line of business.
The Company owns and operates three Cracker Barrel Old Country Store Corner Markets (the "Corner Market") which are located on major thoroughfares in the Middle Tennessee area. The Corner Markets serve lunch and dinner between the hours of 10:30 a.m. and 9:00 p.m. and feature home style country cooking prepared on the premises from the Company's own recipes using quality ingredients. The menu in these stores is a down-scaled version of the menu offered in the traditional Cracker Barrel Old Country Store and include meatloaf, chicken and dumplings, roast beef, and grilled chicken tenderloin as daily entrees as well as an assortment of freshly prepared vegetables. The Corner Markets do not serve alcoholic beverages. The stores are constructed in an old fashioned market design, are free-standing and incorporate a drive-through/pick-up window. Two of the Corner Market properties are ground leases and the third Corner Market property is owned by the Company. The stores feature a hot food display case, along with refrigerated display cases for desserts and chilled food items such as sandwiches, salads, and drinks and a limited selection of food-related merchandise. The Corner Markets have indoor seating for approximately 50 people and outdoor seating for approximately 20 people. The Company is encouraged by initial volumes and will continue to monitor the progress of this concept before reaching a decision on future expansion plans.
Operations
Store Format: The format of each of Cracker Barrel's traditional stores consists of a rustic, country store style building. All stores are free standing buildings with adequate parking facilities and standard landscaping. Store interiors are subdivided into a dining area consisting of approximately 26% of the total interior store space, a gift shop area consisting of approximately 21% of such space, with the balance primarily consisting of kitchen and storage areas. All stores have wood-burning fireplaces and are decorated with antique-style furnishings and other authentic items of the past similar to those used and sold in original old country stores. The kitchen areas contain modern food preparation and storage equipment allowing for extensive flexibility in menu variation and development.
Products: Cracker Barrel's restaurants offer rural American cooking featuring the Company's own recipes. In keeping with the Company's emphasis on authenticity and quality, Cracker Barrel's traditional restaurants prepare menu selections on the premises. The Company's traditional restaurants offer breakfast, lunch and dinner from a moderately-priced menu. Most items may be ordered at any time throughout the day. Breakfast items include juices, eggs, pancakes, bacon, country ham, sausage, grits, and a variety of biscuit specialties, with prices for a breakfast meal ranging from $2.59 to $7.49. Lunch and dinner items include country ham, chicken, fish, steak, barbecue pork ribs, roast beef, beans, turnip greens, vegetable plates, salads, sandwiches, homemade soups and specialty items such as beef stew with muffins. Lunches and dinners range in price from $2.99 to $13.99. The Company from time to time increases its prices and increased its menu prices approximately 3% in February 1995.
The gift shops, which are decorated with antique signs, primitive tools and other memorabilia in a turn-of-the-century atmosphere, offer a wide variety of items consisting primarily of hand-blown glassware, cast iron cookware, old-fashioned crockery, handcrafted figurines, classic children's toys and various other gift items, as well as various candies, preserves, smoked sausage, syrups and other foodstuffs. Many of the candy items, smoked bacon, jellies and jams along with other high quality products are sold under the Cracker Barrel Old Country Store brand name.
Product Merchandising: Cracker Barrel maintains a quality control department which also develops new and improved menu items in response to shifts in customer preferences and changes in supply of ingredients used in the Company's menu items. Company merchandising specialists are involved on a continuing basis in selecting and positioning of merchandise in the gift shop areas. Management believes that the Company has adequate flexibility to meet future shifts in consumer preference on a timely basis.
Store Management: Store management typically consists of a general manager, four associate managers and a gift shop manager who are responsible for approximately 93 employees on two shifts. The relative complexity of operating a Cracker Barrel Old Country Store requires an effective management team at the individual store level. As a motivation to store managers to improve sales and operational efficiency, Cracker Barrel has a bonus plan designed to provide store management with an opportunity to share in the pre-tax profits of their store. To assure that individual stores are operated at a high level of quality, the Company emphasizes the selection and training of store managers and has a level of District Management to assist individual store managers.
The store management recruiting and training program begins with an evaluation and screening program. In addition to multiple interviews and background and experience verification, the Company conducts testing which it believes is important in selecting those applicants best suited to manage store operations. Those candidates who successfully pass this screening process are then required to complete a 10-week training program conducted at the Company's Lebanon, Tennessee facility. This program allows new managers the opportunity to become familiar with the Company's operations, management objectives, controls and evaluation criteria before assuming management responsibility.
Purchasing and Distribution: Cracker Barrel negotiates directly with food vendors as to price and other material terms of most food purchases. The Company purchases the majority of its food products and restaurant supplies on a cost-plus basis through a distributor headquartered in Nashville, Tennessee with custom distribution centers in Lebanon, Tennessee and Gainesville, Florida. The distributor is responsible for placing food orders and warehousing and delivering food products to the Company's stores. This distributor is not affiliated with the Company. Certain perishable food items are purchased locally by the Company's stores.
The majority of gift shop items are purchased directly by Cracker Barrel, warehoused at its Lebanon warehouse and shipped to the stores.
The single food category accounting for the largest share (approximately 16%) of the Company's food purchasing expense is pork. The single food item within the pork category accounting for the largest share (approximately 4%) of the Company's food purchasing expense is country ham. The Company presently purchases its pork food items through twelve vendors and its country ham through two vendors. Should any pork items from these vendors become unavailable for any reason, management is of the opinion that these food items could be obtained in sufficient quantities from other sources at competitive prices.
Quality, Cost and Inventory Controls: Costs are monitored by management to determine if any material variances in food cost or operating expenses have occurred. The Company's computer system is used to analyze store operating information by providing management reports for continual monitoring of sales mix and detailed operational cost data. This system is also used in the development of budget analyses and planning.
Marketing: New store locations generally are not advertised in the media until several weeks after they have been opened in order to give the staff time to adjust to local customer habits and traffic volume. To effectively reach consumers in the primary trade area for each Cracker Barrel store and also interstate travelers and tourists, outdoor advertising is the primary advertising media utilized, accounting for approximately 54% of advertising expenditures. Advertising costs are approximately 2% of annual sales.
Seasonal Aspects: Historically the profits of the Company have been lower in the second fiscal quarter than in the first and third fiscal quarters and highest in the fourth fiscal quarter. Management attributes these variations primarily to the decrease in interstate tourist traffic during the winter months and the increase in interstate tourist traffic during the summer months.
Working Capital: Since substantially all sales in the restaurant industry are for cash, the Company, like most other restaurant companies, is able and may from time to time operate with a negative working capital. Inventories are generally financed from normal trade credit aided by rapid turnover of the restaurant inventory.
Expansion
The Company's primary customer is the interstate traveler. Therefore, the Company's major emphasis in the opening of new stores will continue to be locating stores at interstate highway locations. In addition, specific major tourist destinations will be targeted as potential locations for new units.
The Company opened thirty-six new stores in fiscal 1995. Three of the stores are located on: Interstate 35 in Lewisville, Texas, Eagan, Minnesota and Fort Worth, Texas; three are located on Interstate 94 in Woodbury, Minnesota, Stevensville, Michigan and Port Huron, Michigan; three are located on Interstate 75 in Monroe, Michigan, Port Charlotte, Florida and Saginaw, Michigan; two are located on Interstate 10 in Pensacola, Florida and West Houston, Texas; two are located on Interstate 20 in Arlington, Texas and Shreveport, Louisiana; two are located on Interstate 25 in Northglenn, Colorado and Colorado Springs, Colorado; two are located on Interstate 65 in Shepherdsville, Kentucky and Madison, Alabama; two are located on Interstate 70 in Troy, Illinois and Independence, Missouri; two are located on Interstate 95 in Mechanicsville, Virginia and West Palm Beach, Florida, and one each on Interstate 4 in Lakeland, Florida, Interstate 24 in Chattanooga, Tennessee , Interstate 34 in San Antonio, Texas, Interstate 40 in Amarillo, Texas, Interstate 45 in League City, Texas, Interstate 64 in Evansville, Indiana, Interstate 71 in Mansfield, Ohio, Interstate 74 in Morton, Illinois, Interstate 77 in North Canton, Ohio, Interstate 80 in Joliet, Illinois, Interstate 83 in York, Pennsylvania, Interstate 85 in Opelika, Alabama, Interstate 88 in Naperville, Illinois, Interstate 90 in Madison, Wisconsin and Interstate 96 in Lansing, Michigan.
The Company plans to open forty-three new stores by the end of fiscal 1996. Eleven of the stores are already open; two are on Interstate 95 in Ashland, Virginia and Stuart, Florida, and there is one each on Highway 360 in Arlington, Texas, Interstate 25 in Albuquerque, New Mexico, Interstate 35 in Olathe, Kansas, Interstate 40 in Clemmons, North Carolina, Interstate 65 in Edinburgh, Indiana, Interstate 66 in Manassas, Virginia, Interstate 72 in Decatur, Illinois, Interstate 85 in Concord, North Carolina and Interstate 90 in Rockford, Illinois.
Prior to committing to a new location, the Company performs extensive reviews of various available sites, gathering approximate cost, demographic and traffic data. The Company utilizes in-house engineers to consult on architectural plans, to develop engineering plans and to oversee new construction. The Company is currently engaged in the process of seeking and selecting new sites, negotiating purchase or lease terms and developing chosen sites.
It is the Company's preference to own its restaurant properties. The Company presently owns 212 of its 229 traditional restaurant properties. The other 17 properties are either ground leases or ground and building leases. Currently, average cost for a new store is approximately $650,000 for land and $1,850,000 for site work, building and equipment. The current store size is approximately 10,000 square feet with 178 seats in the restaurant.
Employees
As of July 28, 1995, Cracker Barrel employed 26,299 people, of whom 133 were in advisory and supervisory capacities, 1,374 were in store management positions and 13 were officers of the Company. Most of the restaurant personnel are employed on a full-time basis. The Company has an incentive plan for its hourly employees which is intended to lower turnover and to increase productivity by providing a defined career path through testing and ranking of employees. The Company's employees are not represented by any union, and management considers its employee relations to be good.
Competition
The restaurant business is highly competitive and is often affected by changes in the taste and eating habits of the public, local and national economic conditions affecting spending habits, and population and traffic patterns. The principal basis of competition in the industry is the quality and price of the food products offered. Site selection, quality and speed of service, advertising and the attractiveness of facilities are also important.
There are a large number of restaurants catering to the public, including several franchised operations in the family segment of the restaurant industry, which are substantially larger and have greater financial and marketing resources than those of the Company and which compete directly and indirectly in all areas in which the Company operates.
Trademarks
The Company owns certain registered copyrights, patents and trademarks relating to the names "Cracker Barrel Old Country Store" and "Cracker Barrel Old Country Store's Corner Market," as well as their logos, menus, designs of buildings, and other aspects of operations. The Company believes that the use of these names have some value in maintaining the atmosphere and public acceptance of its mode of operations.
Research and Development
While research and development are important to the Company, these expenditures have not been material.
Compliance With Environmental Protection Requirements
Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment should have no material effect upon capital expenditures, earnings, or the competitive position of the Company.
ITEM 2.
ITEM 2. PROPERTIES
The Company's present corporate headquarters and warehouse facilities are situated on approximately 120 acres of land owned by the Company in Lebanon, Tennessee.
The Company utilizes approximately 190,000 square feet of office space and 270,000 square feet of warehouse facilities. The management feels that the current amount of office space is sufficient to meet the Company's needs through the end of the fiscal 1997. As the number of stores increases, the need for more warehouse space will also increase. Because of this, the Company plans to expand the gift shop distribution center by approximately 120,000 square feet in fiscal 1996.
In addition to the corporate facilities, the Company owns or leases the following properties:
See "Business-Operations" and "Business-Expansion" for additional information on the Company's stores.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) to Form 10-K, the following information is included in Part I of this Form 10-K.
Executive Officers of the Registrant ____________________________________
The following table sets forth certain information concerning the executive officers of the Company as of October 2, 1995:
The following background material is provided for those executive officers who have been employed by the Registrant for less than five years:
Prior to his employment with the Company in August, 1995, Mr. Magruder was Vice-Chairman of Darden Restaurants, Inc. from December 1994 to August 1995. Mr. Magruder had been employed by General Mills for 23 years, serving in various capacities within their restaurant division. Previously, Mr. Magruder was Executive Vice President of General Mills Restaurants and President of the Olive Garden from 1987 to 1994.
Prior to his employment with the Company in January 1995, Mr. Fisher was Executive Vice President of Marketing with Baker's Square since 1993. Mr. Fisher was Vice President of Marketing with Shakey's Pizza, Inc. from 1989 to 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the initial public offering of the Company's common stock in November 1981, the Company's common stock has been traded on The Nasdaq Stock Market (National Market) with the symbol CBRL. There were 17,158 shareholders of record as of October 2, 1995.
The following table indicates the high and low sales prices of the Company's common stock as reported on The Nasdaq Stock Market (National Market) during the periods indicated.
In September 1983 the Board of Directors of the Company initiated a policy of declaring dividends on a quarterly basis. Prior to such date the Board followed a policy of declaring annual dividends during the first fiscal quarter. Quarterly dividends of $.005 per share were paid during all four quarters of fiscal 1994 and 1995. The Company foresees paying comparable cash dividends per share in the future.
The covenants relating to the 9.53% Senior Notes in the original amount of $30,000,000 restrict the payment of cash dividends and the purchase of treasury stock. Retained earnings not restricted under the covenants were approximately $271,000,000 at July 28, 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The table "Selected Financial Data" on page 17 of the Company's Annual Report to Shareholders for the year ended July 28, 1995 (the "1995 Annual Report") is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following portions of the 1995 Annual Report are incorporated herein by reference:
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 18 and 19.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following portions of the 1995 Annual Report are incorporated herein by reference:
Financial Statements and Independent Auditors' Report on pages 20 through 31.
Quarterly Financial Data (Unaudited) on page 30.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors of the Company is incorporated herein by reference to the section entitled "Election of Directors" in the Company's definitive proxy statement for its 1995 Annual Meeting of Shareholders (the "1995 Proxy Statement"). The information required by this item with respect to executive officers of the Company is set forth in Part I of this Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the section entitled "Executive Compensation" in the Company's 1995 Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the section entitled "Security Ownership of Management" in the Company's 1995 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the section entitled "Transactions with Management" in the Company's 1995 Proxy Statement.
PART IV
ITEM 14.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
A. List of documents filed as part of this report:
1. The following Financial Statements and the Report of Deloitte & Touche LLP on pages 20 through 31 of the 1995 Annual Report are incorporated herein by reference:
Independent Auditors' Report dated September 6, 1995
Balance Sheets as of July 28, 1995 and July 29, 1994
Statements of Income for each of the three fiscal years ended July 28, 1995, July 29, 1994 and July 30, 1993
Statements of Changes in Stockholders' Equity for each of the three fiscal years ended July 28, 1995, July 29, 1994 and July 30, 1993
Statements of Cash Flows for each of the three fiscal years ended July 28, 1995, July 29, 1994 and July 30, 1993
Notes to Financial Statements
2. The exhibits listed in the accompanying Index to Exhibits on pages 14 & 15 are filed as part of this annual report.
B. Reports on Form 8-K:
There were no reports filed on Form 8-K during the fourth quarter of the fiscal year ended July 28, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cracker Barrel Old Country Store, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CRACKER BARREL OLD COUNTRY STORE, INC.
Date: October 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Company and in the capacities and on the dates indicated.
INDEX TO EXHIBITS
Exhibit _______