SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 16, 1999
CBRL GROUP, INC.
(Exact name of Registrant as specified in its Charter)
Tennessee 0-25225 62-1749513
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification Number)
incorporation)
305 Hartmann Drive, Lebanon, Tennessee 37087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(615) 444-5533
N/A
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits
(a), (b) No financial statements are required by this item with
respect to the acquisition described in Item 2 of this form under
Rule 3-05 of Regulation S-X. However, the following audited
consolidated financial statements of Logan's Roadhouse, Inc. for
fiscals year ended December 27, 1998 and December 28, 1997 are
included by the registrant at its option because the registrant
believes they may be of importance to security holders.
LOGAN'S ROADHOUSE, INC.
Financial Statements
December 27, 1998 and December 28, 1997
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
Logan's Roadhouse, Inc.:
We have audited the accompanying balance sheets of Logan's
Roadhouse, Inc. as of December 27, 1998 and December 28, 1997, and
the related statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended
December 27, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Logan's Roadhouse, Inc. as of December 27, 1998 and December
28, 1997, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 27,
1998, in conformity with generally accepted accounting principles.
/s/KPMG LLP
- ---------------------
January 27, 1999, except as to Note 12
which is as of February 16, 1999
LOGAN'S ROADHOUSE, INC.
Balance Sheets
December 27, 1998 and December 28, 1997
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 3,320,546 6,466,775
Investments, at amortized cost (note 2) 0 17,900,052
Interest receivable 0 115,304
Accounts receivable 1,065,954 697,319
Inventories 830,400 471,150
Preopening costs 3,222,949 923,225
Prepaid expenses and other current assets 1,452,221 762,185
----------- ----------
Total current assets 9,892,070 27,336,010
Investments, at amortized cost (note 2) 1,036,095 0
Property and equipment, net (note 3) 88,770,115 51,075,003
Other assets 401,968 112,198
----------- ----------
Total assets $100,100,248 78,523,211
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 4,012,402 2,402,763
Accrued payroll and related expenses 3,828,294 1,466,149
Deferred revenue 859,977 492,804
Income taxes payable (note 7) 3,344 280,458
Accrued state and local taxes 1,099,210 732,338
Deferred income taxes (note 7) 1,225,605 332,178
----------- ----------
Total current liabilities 11,028,832 5,706,690
Long-term debt 6,176,000 0
Deferred income taxes (note 7) 2,091,232 1,191,299
----------- ----------
Total liabilities 19,296,064 6,897,989
Shareholders' equity (note 6):
Common stock, $0.01 par value;
15,000,000 shares
authorized; 7,199,150 and
7,142,418 shares issued and
outstanding in 1998 and 1997,
respectively 71,992 71,424
Additional paid-in capital 60,845,755 60,048,611
Retained earnings 19,886,437 11,505,187
----------- ----------
Total shareholders' equity 80,804,184 71,625,222
----------- ----------
Commitments and contingencies (notes 5,
10 and 12)
Total liabilities and shareholders' equity $100,100,248 78,523,211
=========== ==========
See accompanying notes to financial statements.
LOGAN'S ROADHOUSE, INC.
Statements of Earnings
Years ended December 27, 1998, December 28, 1997, and December 29, 1996
1998 1997 1996
Net restaurant sales $101,025,075 66,530,400 41,044,121
Costs and expenses:
Cost of restaurant sales:
Food and beverage 33,118,074 21,884,389 13,661,800
Labor and benefits 28,954,487 18,583,426 11,211,976
Occupancy and other 15,258,963 9,548,697 5,974,489
Depreciation and amortization 5,189,522 3,597,666 1,869,502
General and administrative expenses 5,318,455 3,567,647 2,449,029
---------- ---------- -----------
87,839,501 57,181,825 35,166,796
---------- ---------- -----------
Income from operations 13,185,574 9,348,575 5,877,325
Other income (expense):
Interest income 331,736 600,614 378,097
Franchise income (note 8) 305,902 204,079 124,742
Interest expense 0 0 (69,606)
Merger transaction costs (note 12) (615,389) 0 0
---------- ---------- -----------
22,249 804,693 433,233
---------- ---------- -----------
Earnings before income taxes 13,207,823 10,153,268 6,310,558
Income tax expense (note 7) 4,826,573 3,517,750 2,161,997
---------- ---------- -----------
Net earnings $ 8,381,250 6,635,518 4,148,561
========== ========== ===========
Net earnings per share:
Basic $ 1.17 1.02 0.73
========== ========== ===========
Diluted $ 1.14 0.99 0.71
========== ========== ===========
See accompanying notes to financial statements.
LOGAN'S ROADHOUSE, INC.
Statements of Shareholders' Equity
Years ended December 27, 1998, December 28, 1997, and December 29, 1996
Additional
Common Paid-in Retained
Stock Capital Earnings Total
Balance at December 31, 1995 $ 47,175 14,286,310 721,108 15,054,593
Net earnings 0 0 4,148,561 4,148,561
Net proceeds from issuance of
1,293,750 shares of common stock 12,937 20,760,086 0 20,773,023
Net proceeds from exercise of
2,555 stock options and related
tax benefits 26 25,630 0 25,656
------- ---------- --------- -----------
Balance at December 29, 1996 60,138 35,072,026 4,869,669 40,001,833
Net earnings 0 0 6,635,518 6,635,518
Net proceeds from issuance of
1,100,000 shares of common
stock 11,000 24,555,019 0 24,566,019
Net proceeds from exercise of
28,634 stock options and
related tax benefits 286 421,566 0 421,852
------- ---------- --------- -----------
Balance at December 28, 1997 71,424 60,048,611 11,505,187 71,625,222
Net earnings 0 0 8,381,250 8,381,250
Net proceeds from exercise of
56,732 stock options
and related tax benefits 568 797,144 0 797,712
------- ---------- --------- -----------
Balance at December 27, 1998 $ 71,992 60,845,755 19,886,437 80,804,184
======= ========== =========== ============
See accompanying notes to financial statements.
LOGAN'S ROADHOUSE, INC.
Statements of Cash Flows
Years Ended December 27, 1998, December 28, 1997, and December 29, 1996
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 8,381,250 6,635,518 4,148,561
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization of
property and equipment 3,011,444 1,912,588 1,054,031
Amortization of preopening costs 2,178,079 1,685,078 815,471
Net amortization and (accretion) of
premiums and discounts on
investment securities 0 81,043 (232,352)
Deferred income tax provision 1,793,360 575,649 626,628
Change in assets and liabilities:
Interest receivable 115,304 33,357 (137,597)
Accounts receivable (368,635) (344,069) (168,375)
Inventories (359,250) (220,568) (92,644)
Preopening costs deferred (4,477,803) (1,776,740) (1,271,020)
Prepaid expenses and other current
assets (690,036) (491,829) (37,568)
Other assets (139,770) (40,325) (15,856)
Accounts payable and accrued payroll
and related expenses 3,971,784 329,085 2,366,303
Deferred revenue 319,078 100,428 152,417
Income taxes payable (277,114) 191,295 56,117
Accrued state and local taxes 366,872 244,266 37,597
---------- --------- ---------
Net cash provided by operating
activities 13,824,563 8,914,776 7,301,713
---------- --------- ---------
Cash used by investing activities:
Additions to property and equipment (42,155,074) (19,295,817) (18,145,511)
Proceeds from sale of property 1,346,613 0 0
Purchases of investments (5,804,129) (29,435,362) (19,000,000)
Proceeds from maturities of investments 22,668,086 20,515,000 10,171,619
---------- --------- ---------
Net cash used by investing
activities (23,944,504) (28,216,179) (26,973,892)
---------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 0 24,566,019 20,773,023
Net proceeds from exercise of stock options 797,712 421,852 9,002
Net proceeds from long-term debt obligations 6,176,000 0 0
Payments on long-term obligations 0 0 (2,579,251)
---------- --------- ---------
Net cash provided by financing
activities 6,973,712 24,987,871 18,202,774
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (3,146,229) 5,686,468 (1,469,405)
Cash and cash equivalents at beginning of year 6,466,775 780,307 2,249,712
---------- --------- ---------
Cash and cash equivalents at end of year $ 3,320,546 6,466,775 780,307
---------- --------- ---------
---------- --------- ---------
Supplemental disclosures:
Cash paid for interest $ 36 500 0 69,606
Cash paid for income taxes 3,221,742 2,696,551 1,416,000
Note received as consideration on asset sale 150,000 0 0
---------- --------- ---------
---------- --------- ---------
See accompanying notes to financial statements.
(1) Summary of Significant Accounting Policies
(a) Organization
At December 27, 1998, Logan's Roadhouse, Inc. (the
Company), operated forty-one Company-owned restaurants
and had four restaurants under franchise agreements.
The Company's concept is intended to offer casual dining
customers a relaxed environment that is both lively and
entertaining. The Company's restaurants are located in
mid-sized metropolitan markets and smaller markets in
the Southeastern and Midwestern areas of the United
States. See note 12.
The Company was formed on March 30, 1995 for the purpose
of acquiring the partnership interests of Logan's
Partnership (the Predecessor) pursuant to an exchange
agreement between the Company and the partners of the
Predecessor. Such exchange took place immediately prior
to the initial public offering of the Company's common
stock on July 26, 1995. The Predecessor commenced
operations on August 10, 1992 to own, develop and manage
an existing Logan's Roadhouse restaurant and to acquire
and develop additional restaurant locations.
The Company's fiscal year ends on the last Sunday in
December. Fiscal years 1998, 1997 and 1996 were
comprised of 52 weeks.
(b) Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
with original maturities of three months or less to be
cash equivalents.
(d) Investments
Investment securities consist of municipal and corporate
debt securities. The Company classifies its debt and
equity securities in one of three categories: trading,
available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the
purpose of selling them in the near term. Held-to-
maturity securities are those securities in which the
Company has the ability and intent to hold the security
until maturity. All other securities not included in
trading or held-to-maturity are classified as available-
for-sale.
Trading and available-for-sale securities are recorded
at fair value. Held-to-maturity securities are recorded
at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities
are excluded from earnings and are reported as a
separate component of shareholders' equity until
realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a
specific identification basis.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is
established. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity
security as an adjustment to yield using the effective
interest method. Dividend and interest income are
recognized when earned.
(e) Inventories
Inventories are valued at the lower of cost (first-in,
first-out method) or market and consist primarily of
food, beverages and supplies. The Company maintains its
inventory at a level which management believes is
sufficient to meet customer sales volume.
(f) Preopening Costs
Preopening costs represent costs incurred prior to a
restaurant opening. These costs are capitalized and
amortized over a 12-month period commencing the date the
restaurant opens.
On April 13, 1998, the AICPA Accounting Standards
Executive Committee (AcSEC) issued Statement of Position
98-5, Reporting on the Costs of Start-Up Activity. SOP
98-5 is effective for financial statements issued for
fiscal years beginning after December 15, 1998. The SOP
requires that costs incurred during a start-up activity
(including organization costs) be expensed as incurred.
The Company will adopt SOP 98-5 effective December 28,
1998. As a result, the Company will recognize, as a
cumulative effect of a change in accounting principle, a
charge equal to the after tax effect of the unamortized
preopening costs recorded on the accompanying balance
sheet at December 27, 1998, and expense such costs as
incurred thereafter.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation
on property and equipment is calculated on a straight-
line method over the following estimated useful lives:
building and building improvements - 30 years, and
furniture, fixtures and equipment - five to ten years.
Leasehold improvements are amortized over the shorter of
the asset's estimated useful life or the lease term.
Gains or losses are recognized upon the disposal of
property and equipment and the asset and related
accumulated depreciation and amortization are removed
from the accounts. Maintenance and repairs are charged
to costs and expenses as incurred.
(h) Deferred Revenue
Deferred revenue consists of gift certificates sold, but
unredeemed and unearned franchise fees.
(i) Advertising Costs
The Company expenses advertising costs as incurred.
(j) Franchise Income
Franchise fees are recognized when the Company's
obligated services are substantially performed and the
franchisee's restaurant has opened for business.
Monthly franchise royalties are recognized on an accrual
basis and related costs are expensed when incurred.
Franchise expenses are included in general and
administrative expenses on the accompanying statements
of earnings.
(k) Income Taxes
The Company provides for income taxes in accordance with
the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable
to differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in
which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment
date.
(l) Earnings Per Share Data
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128 Earnings Per Share, during the
fourth quarter of 1997. Accordingly, all prior period
earnings per share data has been restated in accordance
with SFAS No. 128. Basic earnings per share data has
been computed on the basis of the weighted average
number of shares outstanding and diluted earnings per
share data has been computed on the basis of the
weighted average number of shares outstanding, including
stock equivalents, which consist of stock options.
(m) Fair Value of Financial Instruments
The fair values of the financial instruments are
estimates based upon current market conditions and
quoted market prices for the same or similar instruments
as of December 27, 1998 and December 28, 1997. Book
value approximates fair value for substantially all of
the Company's assets and liabilities which fall under
the definition of financial instruments.
(n) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise
price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
(o) Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of
The Company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of
the assets exceed the fair value. Assets to be disposed
of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this
statement had no impact on the Company's financial
position, results of operations, or liquidity.
(p) Comprehensive Income
The Company had no items of other comprehensive income
during the three-year period ended December 27, 1998.
Thus, comprehensive income was comprised solely of net
earnings.
(2) Investment Securities
The Company classifies investment securities at December 27,
1998 and December 28, 1997 as held-to-maturity. The
amortized cost, gross unrealized holding gains, gross
unrealized holding losses, and approximate fair values for
investment securities by major security type and class at
such dates were as follows:
December 27, 1998
-------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
Held-to-maturity:
Corporate securities $ 1,036,095 - - (15,525) 1,020,570
---------- ---------- ------ ---------
---------- ---------- ------ ---------
December 28, 1997
-------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
Held-to-maturity:
Municipal securities 9,164,691 3,090 - - 9,167,781
Corporate securities 8,735,361 - - (302) 8,735,059
---------- --------- ------ ---------
17,900,052 3,090 (302) 17,902,840
---------- --------- ------ ---------
---------- --------- ------ ---------
Maturities of debt securities are as follows:
December 27, 1998 December 28, 1997
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ---------- ----------
Due within one
year $ - - - - 17,900,052 17,902,840
Due after one
year 1,036,095 1,020,570 - - - -
--------- --------- ---------- ----------
$1,036,095 1,020,570 17,900,052 17,902,840
--------- --------- ---------- ----------
--------- --------- ---------- ----------
(3) Property and Equipment
Property and equipment at December 27, 1998 and December 28,
1997, consist of the following:
1998 1997
------------ -------------
Land $26,473,933 14,636,730
Building and building improvements 29,180,503 15,750,182
Furniture, fixtures and equipment 18,705,470 11,126,312
Leasehold improvements 16,538,828 9,779,559
Construction in progress 4,582,097 3,556,435
---------- ----------
95,480,831 54,849,218
Less accumulated depreciation (6,710,716) (3,774,215)
---------- ----------
$88,770,115 $51,075,003
---------- ----------
---------- ----------
(4) Long-term Obligations
The Company is party to a loan agreement dated February 16,
1996, as amended through December 24, 1998, whereby the
Company has available a secured $17,000,000 revolving line
of credit. Interest accrues at an annual rate equal to the
bank's index rate or a rate equal to LIBOR plus 150 basis
points. In addition, the Company pays an annual commitment
fee equal to 20 basis points on the unfunded portion of the
line. The loan agreement is subject to certain financial
and non-financial covenants. Amounts outstanding under the
line of credit at December 27, 1998 totaled $6,176,000. The
line of credit matures on December 31, 1999. Interest costs
incurred during fiscal year 1998 totaling $36,500 were
capitalized to property and equipment as such advances were
used to finance the construction of restaurant facilities.
(5) Lease Commitments
The Company has various leases for its corporate offices and
certain restaurant land and buildings under operating lease
agreements. Under these leases, the Company pays taxes,
insurance and maintenance costs in addition to the lease
payments. Certain of these leases provide for additional
contingent rentals based on a percentage of sales in excess
of a minimum rent.
Future minimum lease payments at December 27, 1998, are as
follows:
Operating
Leases
---------
1999 $1,814,267
2000 1,628,400
2001 1,628,919
2002 1,607,897
2003 1,571,840
Thereafter 19,596,138
----------
Total minimum rentals $27,847,461
----------
----------
Rent expense for operating leases for each of the years in
the three-year period ending December 27, 1998 is as
follows:
1998 1997 1996
--------- --------- ---------
Minimum rentals $ 1,343,559 889,787 561,469
Contingent rentals 141,949 119,743 102,846
--------- --------- -------
$ 1,485,508 1,009,530 664,315
--------- --------- -------
--------- --------- -------
(6) Shareholders' Equity
(a) Public Offerings
In July 1997, the Company completed an equity offering
of 1,100,000 shares of its common stock and received
net proceeds of $24,566,019.
In June 1996, the Company distributed a three-for-two
stock split effected in the form of a 50% stock
dividend on outstanding shares. All common shares and
per share data included in the financial statements and
footnotes thereto have been restated to reflect the
stock split.
In April 1996, the Company completed a secondary public
offering of its common stock in which 1,293,750 shares
were sold by the Company for net proceeds of
$20,773,023. In addition, 207,000 shares were sold by
certain shareholders of the Company.
(b) Stock Options
In May 1995, the Company adopted the Logan's Roadhouse,
Inc. 1995 Incentive Stock Plan and the 1995 Non-
Employee Director Stock Option Plan. During March
1998, the Company amended the 1995 Incentive Stock Plan
to increase the number of authorized shares available
to 922,500 shares of common stock for issuance pursuant
to options to be granted under the Incentive Stock
Plan. A number of shares equal to 2% of the
outstanding shares of common stock currently
outstanding have been reserved for the Non-Employee
Director Stock Option Plan. As of December 27, 1998, a
total of 1,066,483 shares of common stock have been
reserved for both plans. Options are granted at a
price not less than fair market value at the date of
grant. Non-employee director stock options vest one
year from the date of grant, and employee options vest
twenty-five percent per year commencing one year from
the date of grant.
At December 27, 1998, there were 280,202 shares
available for grant under the Plans. The per share
weighted-average fair value of stock options granted
during 1998, 1997 and 1996 was $8.99, $13.98 and $8.24,
respectively, on the date of grant using the Black
Scholes option-pricing model. The following weighted-
average assumptions were used for 1998, 1997 and 1996:
expected dividend yield 0%, risk-free interest rate of
6.0% and an expected life of five years. An expected
volatility used for 1998, 1997 and 1996 was 60.3%,
60.2% and 52.3%, respectively.
The Company applies APB Opinion No. 25 in accounting
for its Plans and, accordingly, no compensation cost
has been recognized for its stock options in the
financial statements. Had the Company determined
compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro
forma amounts indicated below:
1998 1997 1996
--------- --------- ---------
As reported:
Net earnings $8,381,250 6,635,518 4,148,561
--------- --------- ---------
--------- --------- ---------
Earnings per share -
basic $1.17 1.02 0.73
--------- --------- ---------
--------- --------- ---------
Earnings per share -
diluted $1.14 0.99 0.71
--------- --------- ---------
--------- --------- ---------
Pro forma SFAS No. 123:
Net earnings $7,345,511 6,005,411 3,816,704
--------- --------- ---------
--------- --------- ---------
Earnings per share -
basic $1.02 0.92 0.68
--------- --------- ---------
--------- --------- ---------
Earnings per share -
diluted $1.00 0.89 0.66
--------- --------- ---------
--------- --------- ---------
The following table summarizes the transactions
pursuant to the Plans for each of the years in the
three-year period ended December 27, 1998:
Weighted
Average
Number Exercise
of Shares Price
---------- ----------
Outstanding at
December 31, 1995 327,450 $9.05
Granted 182,350 15.76
Exercised 3,748 9.00
Canceled 17,663 9.00
------- -----
Outstanding at
December 29, 1996 488,389 11.50
Granted 102,400 24.49
Exercised 28,634 9.62
Canceled 10,064 11.53
------- -----
Outstanding at
December 28, 1997 552,091 14.04
Granted 280,850 17.12
Exercised 56,732 9.71
Canceled 79,042 14.69
------- -----
Outstanding at
December 27, 1998 697,167 $15.58
------- -----
------- -----
The following table summarizes information about stock
options outstanding at December 27, 1998:
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Weighted
Average Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Price at 12/27/98 Life Price at 12/27/98 Price
- ---------------------------------------------------------------------------------------------
$9.00 to $11.33 211,953 7.10 years $ 9.42 160,839 $ 9.45
$15.50 to $19.50 133,014 8 16.70 66,507 16.70
$22.75 to $26.50 86,900 9 24.13 46,100 23.49
$16.25 to $24.50 265,300 10 17.14 - - - -
------- ---- ------- ------- -------
697,167 8.61 years $ 15.58 273,446 $ 13.58
------- ---- ------- ------- -------
------- ---- ------- ------- -------
Options exercisable and the weighted average exercise
price for such options were 180,752 and $10.70 at
December 28, 1997, respectively, and 112,163 and $9.04
at December 29, 1996, respectively.
(c) Preferred Stock
The Company's charter authorizes 5,000,000 shares of
preferred stock. At December 27, 1998, no preferred
shares have been issued.
(7) Income Taxes
Income tax expense from earnings for each of the years in the
three-year period ended December 27, 1998 consists of the
following:
State and
Federal Local Total
------- --------- --------
1998:
Current $2,697,773 335,440 3,033,213
Deferred 1,566,358 227,002 1,793,360
--------- ------- ---------
Income tax expense $4,264,131 562,442 4,826,573
--------- ------- ---------
--------- ------- ---------
State and
Federal Local Total
------- --------- --------
1997:
Current $2,366,445 575,656 2,942,101
Deferred 480,678 94,971 575,649
--------- ------- ---------
Income tax expense $2,847,123 670,627 3,517,750
--------- ------- ---------
--------- ------- ---------
1996:
Current $1,231,168 304,201 1,535,369
Deferred 468,355 158,273 626,628
--------- ------- ---------
Income tax expense $1,699,523 462,474 2,161,997
--------- ------- ---------
--------- ------- ---------
Total income taxes for each of the years in the three-year
period ended December 27, 1998, are allocated as follows:
1998 1997 1996
--------- --------- ---------
Income tax expense
from earnings $4,826,573 3,517,750 2,161,997
Shareholders equity
tax benefit
derived from stock
options exercised (246,698) (146,457) (16,654)
--------- --------- ---------
Total income taxes $4,579,875 3,371,293 2,145,343
--------- --------- ---------
--------- --------- ---------
The effective rate of income tax expense is 36.5% in 1998,
34.6% in 1997, and 34.3% in 1996. The actual income tax
expense differs from the "expected" tax expense (computed by
applying U.S. Federal corporate income tax rate of 34% to
earnings before taxes) as follows:
1998 1997 1996
--------- --------- ---------
Computed "expected" tax
expense $4,490,660 3,452,111 2,145,590
Increase (deduction) in
income tax resulting from:
State and local income
taxes, net of federal
income tax benefit 371,212 442,614 305,233
Tax exempt interest
income (59,803) (145,920) (105,591)
Utilization of tax
credits (217,642) (160,719) (103,031)
Dividends received (37,449) (43,812) - -
Non-deductible merger
expenses 209,232 - - - -
Other 70,363 (26,524) (80,204)
--------- --------- ---------
Income tax expense $4,826,573 3,517,750 2,161,997
--------- --------- ---------
--------- --------- ---------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax asset and deferred
tax liability at December 27, 1998 and December 28, 1997, are
as follows:
1998 1997
-------- ----------
Deferred tax assets:
Insurance reserve, not yet
deductible for tax purposes $16,382 30,521
State tax credit carryforwards 41,530 - -
------ ------
Total gross deferred tax asset 57,912 30,521
------ ------
Deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation and capitalized
lease amortization 2,091,232 1,191,299
Preopening costs, due to costs
in excess of amortization 1,283,517 362,699
--------- -------
Total gross deferred tax
liability 3,374,749 1,553,998
--------- ---------
Net deferred tax liability $3,316,837 1,523,477
--------- ---------
--------- ---------
The net deferred tax liability is presented in the December
27, 1998 and December 28, 1997 balance sheets as follows:
1998 1997
---------- ---------
Current deferred tax liability $ 1,225,605 $ 332,178
Noncurrent deferred tax liability 2,091,232 1,191,299
---------- ---------
Net deferred tax liability $ 3,316,837 $1,523,477
---------- ---------
---------- ---------
(8) Franchising
In January 1996 and March 1997, respectively, the Company
entered into franchise agreements with two separate entities
controlled by significant shareholders. The agreements
provide for the franchising of Logan's Roadhouse restaurants
in select market areas which are not in the Company's
immediate expansion plans. Pursuant to the terms of such
agreements, one franchisee obtained the exclusive right to
develop within certain counties of Arkansas, Oklahoma and
Texas until December 31, 2000, and the other franchisee
obtained the exclusive right to develop within the states of
North Carolina and South Carolina and Augusta, Georgia until
March 31, 2002. Each agreement is subject to automatic
renewal for an additional five-year term upon the
satisfaction of certain conditions. The agreements require
the franchisee to pay an initial $30,000 franchise fee and a
monthly royalty fee of 3% of gross sales. In addition, the
Company may require the franchisees to contribute up to 1% of
gross sales to the Company's general advertising account and
expend on an annual basis up to 3% of gross sales for local
promotional activities, subject to the approval of the
Company. The Company is obligated to provide a three week
training program for a fee ranging from $45,000 to $55,000
per restaurant. The franchisees are responsible for all
expenses incurred by its personnel while training, including
travel and living expenses. Income relating to the franchise
agreements for the three fiscal years ended December 27,
1998, was $305,902, $204,079 and $124,742, respectively.
Management is also considering other franchising
opportunities on a limited basis in areas which are not in
the Company's immediate expansion plans, and has had
preliminary discussions with third parties.
(9) Commitments and Contingencies
At December 27, 1998, the Company has ten restaurants under
construction. Management estimates that the remaining costs
to complete the construction, including furniture, fixtures,
and equipment, are $16.8 million.
The Company is subject to various legal proceedings and
claims which arise in the ordinary course of its business.
Except as to the litigation discussed in note 12, in the
opinion of management, the ultimate liability with respect to
those claims will not materially affect the financial
position or results of the Company's operations.
(10) Earnings Per Share
The following is a reconciliation of basic and diluted
earnings per share:
Income Shares Per Share
(Numerator) (Denominator) Amount
_________ ___________ __________
For the Year Ended December 27, 1998
____________________________________
Basic EPS
Income available to common
shareholders $ 8,381,250 7,170,831 $ 1.17
______
______
Effect of Dilutive Securities
Stock options - - 201,443
________ ________
Diluted EPS
Income available to common
shareholders $8,381,250 7,372,274 $ 1.14
________ ________ ______
________ ________ ______
For the Year Ended December 28, 1997
____________________________________
Basic EPS
Income available to common
shareholders $6,635,518 6,505,194 $ 1.02
______
______
Effect of Dilutive Securities
Stock options - - 220,345
________ ________
Diluted EPS
Income available to common
shareholders $6,635,518 6,725,539 $ 0.99
________ ________ ______
________ ________ ______
For the Year Ended December 29, 1996
____________________________________
Basic EPS
Income available to common
shareholders $4,148,561 5,652,354 $ 0.73
______
______
Effect of Dilutive Securities
Stock options - - 173,414
________ ________
Diluted EPS
Income available to common
shareholders $4,148,561 5,825,768 $ 0.71
________ ________ ______
________ ________ ______
For the years ending December 27, 1998 and December 28, 1997,
options to purchase a weighted average of 114,100 and 55,039
shares, respectively, of the Company's common stock were
excluded from the computation of diluted earnings per share
as these options were anti-dilutive for such period.
(11) Year 2000
As the year 2000 approaches, a critical business issue has
emerged regarding how existing application software programs
and operating systems can accommodate this date value. Many
existing application software products in the marketplace
were designed to accommodate only two-digit date entries.
Beginning in the year 2000, these systems and products will
need to be able to accept four-digit entries to distinguish
years beginning with 2000 from prior years. As a result,
computer systems and software used by many companies may need
to be upgraded to comply with such Year 2000 requirements.
The Company has developed a plan to minimize the risk that
its operations will be adversely affected by Year 2000
software failures and is in the process of preparing for Year
2000. Management believes that the Company's critical
information technology software applications are Year 2000
compliant. As of December 27, 1998, the Company has a known
issue regarding an operating system requiring an update from
the manufacturer which it expects will be installed no later
than April 30, 1999. During the first quarter 1999, the
Company will be performing Year 2000 checks on all PC's to
ensure that all hardware is compliant. Management believes
that less than 20% of the Company's PC's may be affected,
requiring an immaterial amount of funds to be expended.
Through December 27, 1998, the Company has not incurred any
significant costs in connection with Year 2000 compliance and
expects to incur costs of approximately $5,000 on normal
system software and equipment upgrades separate from the Year
2000 issue which the Company anticipated incurring and
budgeted in the normal course of business.
The Company has been informed by its principal supplier that
as of December 31, 1998, it is Year 2000 compliant. The
Company's other food product suppliers are primarily
comprised of small, local vendors, some of whom do not use
computer-based systems for distribution and billing. In any
event, management of the Company believes that any unresolved
Year 2000 issues facing such vendors would not materially
affect the Company. Finally, management of the Company plans
to contact the utility companies providing services to its
restaurants during 1999 to ensure that such service providers
are or expect to be Year 2000 compliant so that no restaurant
will experience an interruption of service as a result of any
Year 2000 compliance problem.
The malfunction or complete failure of the Company's systems
would likely have a material adverse effect on the results of
operations and financial condition of the Company. The
Company currently does have a contingency plan to address the
failure of the Company's systems or the systems of its
principal food supplier to be Year 2000 compliant. Should the
remaining review of the Company's Year 2000 risks reveal
potentially non-compliant systems or material third party
risks, contingency plans will be developed to address the
deficiencies revealed at that time. The Company's statements
regarding Year 2000 issues are dependent on many factors,
some of which are beyond the Company's control. Due to the
general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company
is unable to determine at this time whether the consequences
of Year 2000 failures will have a material impact on the
Company's operations, liquidity or financial condition.
(12) Merger Agreement and Subsequent Events
On December 10, 1998, the Company entered into a definitive
merger agreement whereby the Company agreed to merge with
CBRL Group, Inc. (CBRL). The transaction is expected to be
accounted for as a purchase. Under the terms of the merger
agreement, CBRL purchased all of the outstanding shares of
common stock of the Company for $24.00 per share in cash, an
aggregate purchase price of approximately $179 million.
Among other things, the merger agreement provides that all
outstanding options to acquire common stock of the Company
become exercisable at the exercise price set forth in such
options and convert into the right to receive $24 per share
in cash. The accompanying statement of earnings for the year
ended December 27, 1998 reflects $615,389 of costs incurred
by the Company through the end of fiscal year 1998 associated
with the proposed merger. Additional merger related
transaction costs will be incurred by the Company, including
fees to the Company's investment advisor payable at the
closing date.
On January 13, 1999, an action was filed naming as defendants
the Company, its directors and its investment advisor in
connection with the merger. The plaintiff sought to enjoin
the merger, or alternatively, recover damages in the event
the merger was consummated. The plaintiffs claimed, among
other things, that the merger consideration was unfair and
inadequate. On February 2, 1999, the court denied
plaintiff's motion to enjoin the meeting of the Company's
shareholder to vote on the merger.
On February 5, 1999, a majority of the Company's shareholders
voted to approve the merger at a special meeting of
shareholders.
On February 8, 1999, the merger agreement was amended to,
among other things, set February 16, 1999 as the closing date
for the merger. On such date the Company entered into a
Memorandum of Understanding pursuant to which the parties
agreed in principle to settle the aforementioned litigation.
The proposed settlement is subject to, among other things,
court approval. Management estimates that the agreement in
principle to settle the litigation will result in the Company
incurring costs of approximately $1,200,000. The Company is
in discussions with its insurance providers to determine what
portion of these costs, if any, may be recovered by the
Company. The accompanying financial statements do not
reflect a provision for loss related to this proposed
settlement.
On February 16, 1999, the merger was consummated.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
CBRL GROUP, INC.
Date: June ___, 1999 By: /s/ James F. Blackstock
James F. Blackstock
Vice President, General
Counsel and Secretary