UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x Filed by a party other than the Registrant ¨
Check the appropriate box:
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| ¨ | Soliciting Material Pursuant to §240.14a-12 | |||
Cracker Barrel Old Country Store, Inc. | ||||
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On October 25, 2012, after 5:30 p.m. Eastern Time, representatives of Cracker Barrel Old Country Store, Inc. (the “Company”) delivered the following presentation to Institutional Shareholder Services. This letter was also posted to the “Proxy Contest” section of the Company’s Investor Relations website, investor.crackerbarrel.com.
 Fall
2012 On the Right Track, Generating
Exceptional Performance
WHY WE
BELIEVE SARDAR BIGLARI IS
WRONG
FOR
THIS BOARD |
 1
IMPORTANT ADDITIONAL INFORMATION
Cracker
Barrel
Old
Country
Store,
Inc.
(“the
Company”)
urges
caution
in
considering
current
trends
and
earnings
guidance
disclosed
in
this
presentation.
Except
for
specific
historical
information,
matters
discussed
in
this
presentation
are
forward
looking
statements
that
involve
risks,
uncertainties
and
other
factors
that
may
cause
actual
results
and
performance
of
the
Company
to
differ
materially
from
those
expressed
or
implied
in
this
discussion.
All
forward-looking
information
is
provided
pursuant
to
the
safe
harbor
established
under
the
Private
Securities
Litigation
Reform
Act
of
1995.
More
detailed
information
on
risks,
uncertainties,
and
other
factors
is
provided
in
the
Company’s
filings
with
the
Securities
and
Exchange
Commission,
press
releases
and
other
communications.
Cracker
Barrel,
its
directors
and
certain
of
its
executive
officers
may
be
deemed
to
be
participants
in
the
solicitation
of
proxies
from
Cracker
Barrel
shareholders
in
connection
with
the
matters
to
be
considered
at
Cracker
Barrel’s
2012
Annual
Meeting.
On
October
4,
2012,
Cracker
Barrel
filed
a
definitive
proxy
statement
(as
it
may
be
amended,
the
“Proxy
Statement”)
with
the
U.S.
Securities
and
Exchange
Commission
(the
“SEC”)
in
connection
with
any
such
solicitation
of
proxies
from
Cracker
Barrel
shareholders.
INVESTORS
AND
SHAREHOLDERS
ARE
STRONGLY
ENCOURAGED
TO
READ
THE
PROXY
STATEMENT
AND
ACCOMPANYING
PROXY
CARD
AND
OTHER
DOCUMENTS
FILED
WITH
THE
SEC
CAREFULLY
AND
IN
THEIR
ENTIRETY
WHEN
THEY
BECOME
AVAILABLE
AS
THEY
WILL
CONTAIN
IMPORTANT
INFORMATION.
Detailed
information
regarding
the
identity
of
potential
participants,
and
their
direct
or
indirect
interests,
by
security
holdings
or
otherwise,
is
set
forth
in
the
Proxy
Statement,
including
Annex
A
thereto.
Shareholders
can
obtain
the
Proxy
Statement,
any
amendments
or
supplements
to
the
Proxy
Statement
and
other
documents
filed
by
Cracker
Barrel
with
the
SEC
for
no
charge
at
the
SEC’s
website
at
www.sec.gov.
Copies
will
also
be
available
at
no
charge
at
the
Investor
Relations
section
of
our
corporate
website
at
www.crackerbarrel.com. |
 2
I.
Executive Summary
II.
Delivering on our Six Priorities
III.
Driving Best-in-Class Results
IV.
Why We Believe Sardar Biglari is Wrong for This Board
Appendix
Table of Contents |
 I.
Executive Summary |
 4
Improve same store sales
and traffic trends
Accelerating same store sales
growth in last three quarters with Q4
traffic up 1.4%
Cut costs and leverage fixed
costs to enhance profitability
FY 2012 operating margin growth of
50 bps
Reconfigure the Board with
new members bringing a
fresh perspective
7
new
board
members
1
,
including
a
Fill in key management
positions to enhance
functional capabilities
Revitalized
leadership
–
five
senior
executives new to Cracker Barrel or
serving in new positions since
January 2011
Develop a long-term plan to
maintain operating
momentum
Same store sales outperforming
casual dining peers in Knapp-
Track™
for three consecutive
quarters
WHAT WE HAVE ACCOMPLISHED IN THE PAST YEAR
Delivering on the Company’s Promises
(1)
Changes to board since 20-Jun-2011.
(2)
As announced on 6-Aug-2012, to be effective following Michael A.
Woodhouse’s retirement in early November 2012. new
independent
Chairman
2 |
 5
CBRL STOCK PRICE HAS INCREASED SIGNIFICANTLY
Since Announcement of Our Strategic Priorities We Have Delivered
Outstanding Shareholder Returns
Source: Bloomberg, public filings, Company press releases, and IBES
Note: 12-Sep-2011; is closing price the day prior to announcement of
Strategic Priorities on 13-Sep-2011. Please see Appendix for reconciliation of
GAAP basis operating results to adjusted non-GAAP operating results.
(1) Figure used for comparability to IBES estimates is GAAP basis, earnings
per diluted share of $1.47. When adjusted for the impact of the extra week
in FY’
12 and certain charges in the current and prior year, adjusted earnings per
diluted share were $1.20. 68.4% INCREASE
$30
$40
$50
$60
$70
2011
Nov-
2011
Jan-
2012
Mar-
2012
May-
2012
Jul-
2012
Sep-
2012
CBRL reports 1Q12 EPS
of $1.09 excl. proxy costs,
4.8% higher than analyst
expectations
2011
A majority of
shareholders vote for
CBRL's slate of directors
CBRL reports 3Q12 EPS of
$0.86 excl. proxy costs, 16.2%
higher than analyst
expectations
$39.86
CBRL reports 4Q12 EPS
of $1.47, 13.1% higher
than analyst expectations
26-Apr-
2012
CBRL hosts Analyst and
Investor Day reviewing
strategic initiatives
21-
Feb-
2012
CBRL reports 2Q12 EPS of
$1.20 excl. proxy costs, 5.3%
higher than analyst expectations
13-
Sep-
2011
New CEO Sandy
Cochran announces
strategic priorities
Sep-
Nov-2011
Dec-
-May-
2012
Sep-
2012
1
22-
20-
22
19-
$67.11
Daily from 12-Sep-2011 to 28
-Sep-2012 |
 6
Since December 2011 Proxy Vote²
Since Announcement of Our Strategic Priorities¹
CBRL HAS SIGNIFICANTLY OUTPERFORMED ITS PEERS
No Matter What Benchmark You Use, CBRL Has Outperformed
Cracker Barrel
Peer Set
S&P 500 Restaurant Index
S&P 600 Restaurant Index
S&P 1500 Restaurant Index
S&P 500 Index
90%
100%
110%
120%
130%
140%
Daily from 20-Dec-2011 to 28-Sep-2012
36.4%
25.8%
21.9%
16.1%
3.1%
1.0%
90%
100%
110%
120%
130%
140%
150%
160%
170%
Daily from 12-Sep-2011 to 28-Sep-2012
68.4%
35.1%
34.8%
17.8%
15.4%
24.0%
(1)
12-Sep-2011; is closing price the day prior to announcement of Strategic
Priorities on 13-Sep-2011. (2)
20-Dec-2011; date of CBRL’s 2011 Annual General Meeting, proxies
voted. Source: Bloomberg
Note: Peer set includes BH, BOBE, EAT, CAKE, DRI, DENN, RT, TXRH. S&P Restaurant Index
includes the restaurant companies in the S&P 500 Index: CMG, DRI, MCD, SBUX,
YUM. S&P 600 Restaurant Index includes the restaurant companies in the S&P 600 Index: BJRI, BH, BWLD, CEC, CBRL, DIN, JACK, PZZA, PEET, RRGB,
RT, RUTH, SONC, TXRH. S&P 1,500 Restaurant Index includes the restaurant companies in the
S&P 1,500 Index: BJRI, BH, BOBE, EAT, BWLD, CEC, CAKE, CMG, CBRL, DRI, DIN, JACK,
MCD, PNRA, PZZA, PEET, RRGB, RT, RUTH, SONC, SBUX, TXRH, WEN, YUM.
|
 7
OUR SHAREHOLDERS HAVE BENEFITED FROM OUR
PERFORMANCE AND RETURN OF CAPITAL POLICIES
($ in millions)
Source: Public filings and Bloomberg
Note: 12-Sep-2011; is closing price the day prior to announcement of
Strategic Priorities on 13-Sep-2011. $ 663.5
$22.4
$915.8
$14.9
$1,616.6
CBRL Equity
Market Cap.
Total
Shareholder
Value
12-Sep-2011
Increase in
CBRL Equity
Market Cap.
28-Sep-2012
Increase in
CBRL Equity
Market Cap.
= $700.7
FY 2012
Dividends Paid
FY 2012
Shares Repurchased
28-Sep-2012 |
 8
WE BELIEVE THIS VALUE CREATION RESULTS FROM
SUCCESSFUL EXECUTION OF OUR STRATEGIC PRIORITIES
Source: Public filings
Note: Announcement of Strategic Priorities on 13-Sep-2011.
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Comparable Restaurant
Traffic
(4.2)%
(3.8)%
1.1 %
0.6 %
1.4 %
Average Check
2.8 %
2.2 %
2.4 %
2.5 %
2.4 %
Comparable Restaurant
Sales
(1.4)%
(1.6)%
3.5 %
3.1 %
3.8 %
Comparable Retail Sales
(0.7) %
(1.3)%
3.4 %
0.3 %
3.1%
Our Customers Have Responded to Focus on Menu, Marketing, and Execution
Announcement
of Our Strategic
Priorities |
 9
WHY WE ARE HERE…AGAIN
Despite losing by a significant margin in last year's proxy fight, Sardar Biglari
remains inexplicably insistent in his campaign against Cracker
Barrel. Why do we say “inexplicably?”
Because of all we accomplished over the past year
What would Biglari have done differently?
–
We don’t know –
he hasn’t raised specific new ideas or suggestions to
management
or
the
Board,
despite
having
many
opportunities
to
do
so
We
believe
Sardar
Biglari
has
a
conflict
of
interest,
a
history
of
“creeping
control”
that
is not in the best interest of shareholders, and a questionable track record on
corporate governance
Despite being offered two independent seats (for the second year), he turned the
offer down
–
Biglari refuses to consider any settlement offer unless he is personally appointed
to the Board
–
Our shareholders determined he was not right for the Board last year
•
We agreed and believe he is not right for the Board this year either
This discussion should be about the business and who’s got it on the right
path |
 II.
Delivering on our Six Priorities |
 11
New marketing messaging
Reinforce Authentic Value
Refined menu and pricing
Increase Variety & Everyday Affordability
Enhanced restaurant operating
platform
Sustainably Improve the Guest
Experience
Innovative tactics driving retail
sales growth
Deliver Value & Connection With the
Brand
Focused cost reduction
Offset Commodity Pressures and Other
Costs
Balanced approach to capital
allocation
Enhance Shareholder Value
WHAT WE TOLD YOU WE’D DO 12 MONTHS AGO
Key Priorities
Objectives |
 12
(4.2%)
(3.8%)
1.1%
0.6%
1.4%
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
NEW MARKETING MESSAGE
“Hand Crafted by Cracker Barrel”
Source: Public filings
Launched
national
cable
advertising
for
the
first
time,
focusing
on
brand building during the busiest seasons (Q2 & Q4)
Utilized radio advertising to promote products and value
Leveraged billboards to support travel business
Hired new advertising agency Havas Worldwide (formerly known as
Euro RSCG Worldwide)
Continued Investment in Billboards
First National Television Campaign
Comparable Restaurant Traffic |
 13
REFINE MENU AND PRICING
Guest
Satisfaction
Results
Show
Overall
Value
Scores
at
Historic
Highs
Launched salad refresh as part of the
summer seasonal promotion
–
Feature salad, including dressing
and crackers, under 600 calories
–
Exceeded expectations for mix and
guest satisfaction
2
Better-
For-You
Daily
Lunch
Specials
Highlighted an attractive $5.99 price point
Drove week-day lunch traffic
Reinforced value perception across all day-parts
|
 14
(1)
Source:
Nation's
Restaurant
News
and
WD
Partners,
2012
Consumer
Picks
family
dining
segment
survey.
(2) Weighted by attribute importance.
(3) 100-149 responses.
3
During the year, received all-time company high scores in nine categories on
the guest feedback program
For the second year in a row we have received top honors in the family dining
segment of the Consumer Picks
survey
conducted
for
Nation’s
Restaurant
News
magazine
Past Year’s Focus on Guest Experience Has Driven Significant Improvements to
Guest Satisfaction Overall Satisfaction
Intent to Recommend
Overall Value
ENHANCE RESTAURANT OPERATING PLATFORM
July-2011
July-2012
70.0%
71.0%
July-2011
July-2012
59.1%
61.1%
Rank ¹
Chain
Score ²
1
Cracker Barrel Restaurant and Old Country Store
70.3%
2
Marie Callender's ³
62.1
3
Bob Evans Restaurants
61.2
4
The Original Pancake House ³
59.7
5
IHOP
53.5
6
Steak ‘N Shake
52.1
7
Village Inn
51.9
8
Perkins Restaurant & Bakery
51.5
9
Big Boy
50.2
10
Friendly’s Ice Cream
47.5
11
Shoney’s
45.5
12
Huddle House ³
44.8
13
Denny’s
43.9
14
Waffle House
41.4
July-2011
July-2012
69.7%
70.6% |
 15
INNOVATIVE TACTICS DRIVING RETAIL SALES GROWTH
Game Plan for Growing Retail Sales…
Source: Public filings
Quarterly Retail Same Store Sales
4
Merchandising
Strategy
Support the restaurant
by reinforcing the
emotional connection to
the Brand
Be a destination retailer
for specific occasions
and drive traffic for the
restaurant
+
Unique
Nostalgic
Seasonal
Everyday Needs
April-2012: Appointed new SVP of
Retail, Laura Daily
(0.7)%
(1.3)%
3.4%
0.3%
3.1%
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012 |
 16
FOCUSED COST REDUCTION
Source: Public filings
(1)
Adjusted
for
53
rd
week
in
FY’12,
proxy
contest
expenses,
severance
and
restructuring
charges.
Please
see
Appendix
for
reconciliation
of
GAAP basis operating results to adjusted non-GAAP operating results.
5
Improving Productivity of the Box
Margin and Process Improvement
Eliminating Annual G&A and Labor Expenses
April-2012: Realigned field leadership
July-2011: Restructured home office
Labor Management System
Improves direction of weekly training, productivity,
and execution
Hourly wage expense down 50bps in Q4 2012
Transportation Management System
Improves efficiency in the distribution of retail
merchandise
Improved
Technology
Streamlined
Supply
Chain and
Purchasing
Increasing
Labor
Productivity
Enhanced
Operating
Systems
Leveraging Our Support Cost Base
Adjusted EPS & Operating Inc as % of Sales
FY 2011
FY 2012
$3.81
$4.34
FY 2011 Q4
FY 2012 Q4
$1.01
$1.20
FY 2011
FY 2012
6.9%
7.4%
1 |
 17
BALANCED APPROACH TO CAPITAL ALLOCATION
6
Dividend Yield
Dividend Payout Ratio
2.1 %
3.0 %
3.6 %
2.8 %
2.3 %
2.1 %
1.3 %
0.0 %
0.0 %
0.0 %
CBRL -
One
Year Ago
CBRL
DRI
BOBE
EAT
TXRH
CAKE
BH
DENN
RT
Peer Median: 1.7%
20.5 %
46.1 %
54.6 %
45.6 %
40.8 %
38.3 %
27.6 %
0.0 %
0.0 %
0.0 %
CBRL -
One
Year Ago
CBRL
DRI
BOBE
EAT
TXRH
CAKE
BH
DENN
RT
Peer Median: 32.9%
2
3
Source: Bloomberg and public filings
Note: Market data as of 28-Sep-2012.
(1)
(2)
(3)
Calculated as latest annualized latest dividend per share divided by last twelve
months reported diluted earnings per share. Adjusted diluted earnings
per share and / or diluted earnings per share from continuing operations used as disclosed.
CAKE
not
adjusted
for
impact
of
53
rd
week
in
FY’11
due
to
lack
of
disclosure.
Adjusted
for
53
rd
week
in
FY’12,
proxy
contest
expenses,
severance
and
restructuring
charges.
Please
see
Appendix
for
reconciliation
of
GAAP basis operating results to adjusted non-GAAP operating results.
1 |
 III.
Driving Best-in-Class Results |
 19
Sales Growth
~5%
Operating Income Growth
~8-10%
Earnings Per Share Growth
~12-15%
Total Shareholder Return
~15-18%
Decisive Action Driving
Total Shareholder
Return
BUILDING ON OUR RECENT SUCCESS
Continued focus on six business priorities
Focus on increasing average unit volume in existing stores
Increase retail sales with unique and nostalgic merchandise
Drive increased profitability in existing locations
Continued commitment to profitable new unit growth
Allocate capital in a way to maximize value
Extend the power of the brand beyond the physical store
Long term value creation through e-commerce & development of branded
products platform Focus on Operational Excellence in Existing Units AND
Profitable New Restaurant Growth
2012 –
2015 Strategic Plan
–
New store growth: 2-3% / per year; focus on most profitable growth, best
locations, and flawless execution |
 20
ACCELERATION OF COMPARABLE RESTAURANT SAME STORE
SALES VS. KNAPP-TRACK™
Three
Consecutive
Knapp-Track™
Beats
in
FY
2012
Source: Public filings and Knapp-Track™
Note:
Knapp-Track™
Casual
Dining
Index
Comparable
Sales
figure
is
an
approximation
based
on
respective
weekly
averages.
Cracker Barrel vs.
Knapp-Track™
(2.5)%
1.3%
2.1%
3.5%
(1.6)%
3.5 %
3.1 %
3.8 %
0.9 %
2.2 %
1.0 %
0.3 %
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
-Track
Cracker Barrel Comparable Restaurant Sales
Knapp
TM
Casual
Dining
Index
Comparable
Sales |
 21
A SECTOR LEADER IN TOTAL SHAREHOLDER RETURN
TSR
Since
Announcement
of
our
Strategic
Priorities
Source: Bloomberg and public filings
Note: Total Shareholder Return calculated by share price appreciation and
dividends paid (assumes dividends paid are re-invested into the stock
(purchasing more shares) on the ex-date of the dividend) over the past
year. (1) 12-Sep-2011; is closing price the day prior to
announcement of Strategic Priorities on 13-Sep-2011. 68.4%
74.8%
35.7%
36.8%
28.4%
25.6%
22.4%
3.7%
4.1%
3.9%
0.5%
5.0%
2.7%
72.1%
78.9%
39.6%
39.5%
37.3%
33.4%
28.3%
22.4%
(3.7)%
CBRL
EAT
BOBE
DENN
CAKE
DRI
TXRH
BH
RT
Share Price Appreciation
Dividends Paid
Peer Median: 35.3%
1
Daily from 12-
Sep-
2011 to 28-
Sep-2012 |
 22
Refresh Select Menu Categories
Reinforce value proposition for guests with a
refresh of Country Dinner Plates
Introduce better-for-you programs, including new
sides and Wholesome Fixins’
Grow Retail Sales with Unique
Merchandise
Focus on unique, exclusive, authentic
merchandise
Improve productivity with visual merchandising
and space planning
Build on Successful Handcrafted
Marketing Campaign
Continue national media strategy
Introduce
new
“Hand-crafted”
creative
advertisements for TV, radio, and billboards
Invest in and Leverage Technology to
Support Operations and Reduce Costs
Implement technology to improve efficiencies and
food quality
Streamline processes to increase labor
productivity
Focus on Maximizing
Shareholder Returns
Target 2-3% annual new unit growth over the next
three years
Pay competitive dividends and repurchase shares
Improve E-commerce Business
and Develop Branded Products
Platform
Grow e-commerce awareness and revenues
Lay groundwork to sell Cracker Barrel branded
products in grocery stores
UPDATED BUSINESS PRIORITIES TO CONTINUE DRIVING
PERFORMANCE THROUGH 2013
Key Priorities
Objectives
1
2
3
4
5
6 |
 23
A RENEWED BOARD HELPING TO DRIVE PERFORMANCE
Note: Represents board changes as implemented or announced. Represents
Board members standing for election at Cracker Barrel 2012 Annual
Shareholder Meeting.
(1) As announced on 6-Aug-2012, to be effective following Michael A.
Woodhouse’s retirement in early November 2012. New Within Past 18
Months Tom Barr, Vice President, Global Coffee, at Starbucks Coffee
Company Independent
Sandy
Cochran,
President
and
CEO,
Cracker
Barrel
and
former
CEO,
Books-A-Million
James Bradford, Dean of Vanderbilt’s Owen Graduate School of Management and
former President and CEO
of
AFG
Industries,
Inc.;
Designated
Independent
Chairman
of
the
Board
of
Cracker
Barrel
Glenn Davenport, Retired Chairman and CEO, Morrison Management Specialists
Norman Johnson, Executive Chairman and Former CEO, CLARCOR Inc.
William
McCarten,
Chairman
of
the
Board,
DiamondRock
Hospitality
Company
and
former
President
and
CEO, HMS Host Corporation
Coleman
Peterson,
President
and
CEO,
Hollis
Enterprises,
LLC
and
former
EVP
and
Chief
People
Officer,
Wal-Mart Stores, Inc.
Richard
Dobkin,
retired
Managing
Partner
of
the
Tampa,
FL
office
of
Ernst
&
Young
Martha Mitchell, retired Senior Partner and SVP, Fleishman-Hillard,
International Communications Andrea Weiss, President and CEO, Retail
Consulting and former Chairman, Cortefiel Group 1
|
 ANALYSTS
CONTINUE TO COMMENT FAVORABLY ON THE STRATEGY PUT FORTH BY THE INCUMBENT BOARD
AND NEW MANAGEMENT… 24
Source: Publicly available equity research reports, permission to use
quotations neither sought nor obtained Selected Analyst Commentary
|
 IV. Why We Believe Sardar Biglari is Wrong for This
Board |
 26
WHY WE BELIEVE SARDAR BIGLARI IS STILL WRONG FOR THIS
BOARD
New Cracker Barrel CEO and reconfigured Board laid out a new plan and are
successfully executing that plan –
we believe Biglari would be disruptive to current business momentum
We
believe
Biglari’s
presence
on
our
Board
would
create
a
conflict
of
interest
–
he
is
the
CEO
of
a
family
restaurant chain and CEO of a restaurant acquisition vehicle
We believe Biglari would want to be operationally involved but has failed to
disclose his specific plans or agenda for the business, either to management
or directly to the Board His repeated public pronouncements highlight his
combative approach – was offered two independent
board seats for representation (twice) but turned BOTH offers down
Biglari has a history of “creeping control”
that we believe is not in the best interest of shareholders:
took control of Steak ‘n Shake over time without paying a premium
We believe Biglari has a questionable track record on corporate governance:
still proposing dual class of high vote / low vote stock at Biglari Holdings
and proposed excessive compensation for himself at Biglari Holdings which
received negative shareholder and ISS responses Biglari Holdings just agreed
to pay a $850,000 civil penalty to resolve a Federal Trade Commission
complaint for failing to comply with the Hart-Scott-Rodino Act in amassing
its initial position in Cracker Barrel –
a violation the FTC’s Chairman characterized as trying to abuse the law’s
“passive investor” exemption |
 27
BIGLARI HAS ARGUED THAT HE PURCHASED CBRL STOCK FOR
INVESTMENT PURPOSES ONLY…
(1) Biglari Holdings, press release dated 23-Sep-2011.
However, Biglari’s Rhetoric Changes Over Time and We Believe Cannot Be Relied
Upon “…we told Chairman Michael
Woodhouse that we have
purchased stock for
investment purposes only”
–
Sardar Biglari
“Our intention was that even if
we were to purchase additional
stock, we would keep
ownership well under 20%.”
–
Sardar Biglari
Current ownership of 17.4% exceeds his previously
announced intentions
Biglari has twice attempted to gain board seats to
influence the Company –
not “investment purposes
only”
In September 2012, Biglari Holdings agreed to pay
$850,000 to settle charges that it violated anti-trust
rules when it purchased Cracker Barrel shares
1
1 |
 28
…WHAT SARDAR BIGLARI RECENTLY CONFIRMED ABOUT
BIGLARI HOLDINGS
“We,
however,
are
control
investors”
1
“Biglari Holdings is an unconventional public company because it is in the
business of owning other businesses without regard to any particular
industry along with the stipulation that
all
major
capital
allocation
decisions
are
made
by
Sardar
Biglari,
Chairman
and
CEO.
”
2
“The logic underlying the dual class structure indicates that we could gain
increased flexibility in structuring acquisitions and financing
transactions to augment our growth. As a holding company, we believe that
the greater flexibility resulting from our proposal would transform into an
advantage in our pursuit of other businesses. …We may also use such
stock
to
acquire
other
businesses
or
combinations
thereof.”
2
(1)
Biglari
Holdings,
2011
Letter
from
the
Chairman,
dated
10-Dec-2011.
(2)
Biglari Holdings, Schedule 14A, filed 12-Sep-2012.
Source: Public filings
Note: Emphasis added. |
 29
WHAT DOES BIGLARI REALLY THINK?
“Biglari Holdings is a jockey stock.
You are choosing the jockey; I am choosing the horses.
It
would
be
asinine
to
bet
on
the
jockey
and
then
deny
him
the
saddle
or
whip.”
1
Source: Public filings
Biglari Holdings, 2011 Letter from the Chairman, dated 10-Dec-2011.
(1) |
 30
OUR VIEWS ON BIGLARI ARE SHARED BY WALL STREET
ANALYSTS
Selected Analyst Commentary
Source: Public news sources and publicly available equity research reports,
permission to use quotations neither sought nor obtained “
At
this
point
in
time
[Biglari]
hasn't
revealed
any
plan,
of
which
I'm
aware,
to
the
company.
I
think
the
company
wants
to
make
sure
if
he
has
designs
on
taking
over
this
company
and
its
business,
they'd
like
to
make
sure
the
shareholders,
other than just him, are well taken care of.”
-
Bob Derrington, Northcoast Research, as quoted in the San Antonio Express;
18-Oct-2012 “Mr. Biglari’s argument seems to be less focused
on corporate governance and shareholder performance, which was the basis of
last year’s proxy fight, and more focused on demanding that as the largest
shareholder he deserves two
seats on Cracker Barrel’s board.
We are skeptical that the other 82% of Cracker Barrel’s shareholders would
vote for two executives
of a direct competitor, Steak ‘n Shake,
to join Cracker Barrel’s board. We find it interesting that if you exclude
the investment in Cracker Barrel, Biglari Holdings has not made many
shareholder enhancing decisions the past two years. Assuming the market is
reflecting the CBRL investment gain in BH’s market valuation, we estimate BH’s market value would
be down about 10% since it became an active investor in Cracker Barrel on June 13,
2011 (vs. KBCM Restaurant Index +30%).
We
estimate
the
CBRL
investment
represents
roughly
55%
of
BH’s
enterprise
value.
We
expect
Biglari
Holdings
will lose the proxy fight in November.”
-
Chris O’Cull, KeyBanc Capital Markets; 20-Sep-2012
“Mr. Biglari has not issued an alternative strategic plan for CBRL but
has suggested aggressive goals to drive sales and
traffic
without
supporting
details
as
to
how
such
results
would
be
realized.
Under
Sandy
Cochran,
who
became
CEO
in
September 2011, the company has performed strongly.
Numerous changes have been implemented ranging from board
composition (much higher quality board in our opinion) to marketing, cost
management, and willingness to return cash to shareholders.
…It
is
not
clear
what
Mr.
Biglari’s
plans
might
involve
or
if
they
could
be
as
effective
as
management’s
recent performance.”
-
Joseph T. Buckley, Bank of America Merrill Lynch; 19-Sep-2012
|
 31
OUR VIEWS ON BIGLARI ARE SHARED BY WALL STREET
ANALYSTS (CONT.)
Selected Analyst Commentary
Source: Publicly available equity research reports, permission to use quotations
neither sought nor obtained “Whatever Biglari’s intentions for CBRL still may be,
however, we continue to side with management in this fight,
as the company already has enacted several measures to boost operational performance (as
evidenced by CBRL’s industry-leading comps in family dining), enhance shareholder value
(e.g., increased dividend 14% for FY12, removed operating and corporate-level costs), and
improve managerial oversight (e.g., splitting the roles of CEO and Chairman of the Board).
…We surmise there will be even less incentive for shareholders to side with a
potential Biglari-sponsored slate of Board nominees this November. Although the potential
for a second proxy fight remains, we now think a repeat of last year’s contentious fight
appears less likely.”
-
Stephen Anderson, Miller Tabak; 6-Aug-2012
“Mr. Biglari has a record of “creeping” takeovers. …
Biglari
Holdings is essentially sending excess cash from
Steak n Shake to the Lion Fund. These investments in the Lion Fund do not appear in Biglari
Holdings’ balance sheet due to the requirement to fully consolidate the Lion Fund in
BH’s financial statements. In addition, the Lion Fund’s portfolio has purchased
significant interests in BH common stock, which is classified on BH’s balance sheet as
treasury stock, yet the shares remain outstanding. BH’s pro-rata ownership of its common stock through Lion
Fund as of June 13, 2012 was roughly 100,000 shares, but the Lion Fund, in total, owns roughly
200,000 shares. Essentially, Mr. Biglari has voting control of roughly 15% of
BH’s common stock, but he personally owns roughly 10,000 shares (0.7%).
We wonder how BH decides between allocating excess cash to the Lion Fund and investing more in
Steak n’ Shake (since Mr. Biglari argues it is doing so well) or just returning it to BH
shareholders.” -
Christopher O'Cull, KeyBanc Capital Markets; 12-Jul-2012 |
 32
BIGLARI OFTEN STATES HE IS A "CONTROL INVESTOR’’
BUT WE BELIEVE
YOU SHOULD NOT ALLOW HIM TO TAKE CREEPING CONTROL OF
CRACKER BARREL AS HE DID WITH STEAK 'N SHAKE
Source: Public filings and Bloomberg
Stock price adjusted for reverse split to be comparable to current market
price. As per Biglari's Schedule 13D/A filing on 3-Feb-2010.
As per Biglari's preliminary proxy filing on 12-Sep-2012.
17-Aug-2007
Share Price:
$309.00
Biglari discloses
5.8% ownership in
Steak ‘n Shake
Nominates himself
and Cooley to the
Board
Purchased
through:
-
Lion Fund
-
Western Sizzlin
-
P. Cooley
Call Options:
-
20,000 shares
through Lion
Fund
-
561,000 shares
through Western
Sizzlin
7-Mar-2008
Biglari wins Proxy
Contest
19-Jun-2008
Biglari appointed Chairman
of the Board
Jul-2008
Two executive team
members resign
8-Aug-2008
Biglari appointed
CEO
Biglari originally claimed that
he had acquired shares
“for investment purposes”
Instead he:
Became Chairman and CEO
Merged with Western Sizzlin
22-Oct-2009
Announces Merger with
Western Sizzlin
BIGLARI
HOLDINGS
5.8%
Ownership
Today:
Control of 15.5%
and CEO
Share Price
(28-Sep-2012)
$365.06
8-Apr-2010
Renamed Biglari Holdings
Biglari only controlled 6.8%
Renamed Biglari Holdings
Took control
1
2
3
(1)
(2)
(3)
INC. |
 33
EVEN
WITH
BIGLARI
HOLDINGS’
LARGE
STAKE,
BH
HAS
SIGNIFICANTLY UNDERPERFORMED CBRL
CBRL Represents over 50% of BH’s Market Cap
Source: Bloomberg and public filings
Note: 12-Sep-2011; is closing price the day prior to announcement of
Strategic Priorities on 13-Sep-2011. 90%
100%
110%
120%
130%
140%
150%
160%
170%
Sep-2011
Nov-2011
Jan-2012
Mar-2012
May-2012
Jul-2012
Sep-2012
Daily from 12-Sep-2011 to 28-Sep-2012
Cracker Barrel
Biglari Holdings
What value has Biglari
created for his
shareholders in his own
restaurant business
without CBRL? |
 34
BIGLARI AGAIN TURNED DOWN A GOOD FAITH SETTLEMENT
OFFER
Biglari Rejected The Following Settlement Proposal:
Biglari Holdings was offered two board seats subject only to the reasonable
requirements that nominees: –
Not be affiliated with Biglari Holdings
–
Not be a current executive officer or director of a competing restaurant company
–
Comply with CBRL’s long-standing publicly disclosed qualification
criteria This offer was subject to the minimal conditions that, Biglari
Holdings: –
Support the Board-recommended slate of nominees at the 2012 annual meeting
that would include the two nominees of Biglari Holdings
–
Not nominate other candidates or present shareholder proposals at the 2012 annual
meeting –
Not seek to call or support any special meeting prior to the Company’s 2013
annual meeting Many proxy fights are settled with the appointment of one or
more directors that are not affiliated with the dissident, yet Biglari
refuses even to consider nominating an independent director, insisting that is has to be him
and Cooley
Does
Mr.
Biglari
really
want
representation
or
simply
a
platform
for
himself?
–
In voting Biglari down last year, shareholders determined last year he wasn’t
right for the Board |
 35
ONE THING THAT HAS NOT CHANGED AT BIGLARI HOLDINGS…
….It’s All About Sardar |
 36
OTHER SHAREHOLDER MATTERS
Compensation –
Pay for Performance Culture
Compensation Committee Review and Revisions of Compensation Practices in 2012
Compensation Policies
80% of CEO’s target total direct 2012 compensation, and 69% of other named executive officers,
is contingent upon measurable performance
Incentive programs have one, two and three year performance periods to promote both short and long
term appreciation of shareholder value
2012 Total Shareholder Return significantly outperformed the S&P 500, 600, and 1,500 Restaurant
indices Revenue growth, improved margins, and strong Return On Invested Capital performance
resulted in incentive plan performance in excess of targets
Initiated full review of compensation practices based on say-on-pay vote results and feedback
from shareholders and proxy advisory services in connection with 2011 annual meeting
Instituted a number of revisions to compensation practices as a result of this analysis:
—
Revised overall compensation philosophy to target total compensation paid to our executive officers
at median of peer group
—
Revised stock ownership guidelines to multiple of base salary for executive officers and total cash
retainer for non- employee directors:
–
5x base salary for CEO
–
3x base salary for CFO and Executive Vice Presidents; 2x base salary for all other executive officers
–
For non-employee directors, greater of 5,000 shares or 5x the annual cash retainer
–
No covered persons may sell any shares until threshold is reached
—
Worked to clarify disclosure in CD&A of compensation performance targets and performance relative
to them —
Adopted anti-hedging policy for officers and directors |
 37
OTHER SHAREHOLDER MATTERS
Shareholder-Friendly Rights Plan is Fully Consistent with ISS Guidelines,
Including a 20% Threshold Adopted in April 2012 in response to threat that
Biglari could gain creeping control without paying a control premium
–
In
his
2011
“Letter
From
the
Chairman,”
Biglari
said
“We…are
control
investors
when
we
own
a
sizeable block of stock engendering influence”
–
Tennessee law preventing shareholders from voting shares above 20% without
shareholder approval is not sufficient. By acquiring shares above
20%, Biglari could still prevent other shareholders
from
voting
those
shares
and
gain
greater
influence
by
virtue
of
economic
ownership
Shareholder-friendly provisions include:
–
Rights
plan
would
not
be
triggered
by
“qualifying
offers”
(all-cash,
fully
financed
tender
offers
that remain open for at least 60 business days)
–
Rights plan is focused on creeping acquisitions above 20% and would not deter a
non-coercive cash tender offer for all shares
–
Rights expire if shareholders do not approve rights plan at November 2012 annual
meeting –
If shareholders approve, rights would expire on April 9, 2015
Shareholder-Friendly Rights Plan |
 38
WHY YOU SHOULD VOTE THE WHITE PROXY CARD
We have accomplished a great deal over the last year –
with more to come
Our reconfigured Board is highly engaged and continuously seeks to create
value We believe Biglari’s and Cooley’s presence would create a
conflict of interest and would be detrimental to the functioning of our
Board We again made a good faith offer this year to permit Biglari to appoint
two independent directors to the Board and again he rejected. Is his
fight about having representation or just about him?
We believe Biglari’s historic playbook of creeping control and poor corporate
governance could harm Cracker Barrel and its shareholders
|
 Appendix |
 40
RECONCILIATION OF GAAP BASIS OPERATING RESULTS
TO ADJUSTED NON-GAAP OPERATING RESULTS
(Unaudited and $ in thousands, except per share data)
(1) Severance, other charges and tax effects related to operational
restructuring. (2) (Charges) Gain and tax effects of impairment net of gain
on sale of property. (3) Refinancing costs and tax effects related to the
Company's $750 million credit facility. (4) Charges and tax effects of the
proxy contest concluded at the Company's annual meeting of shareholders.
Fourth Quarter Ended August 3, 2012
Fourth Quarter Ended July 29, 2011
As Reported
Adjust
53rd Week
As Adjusted
As Reported
Adjust
1,2,3,4
As Adjusted
Total Revenue
$ 700,010
(51,059)
$ 648,951
$ 612,942
$ 612,942
Store Operating Income
97,577
–
(11,093)
86,484
74,660
–
74,660
General and Administrative Expenses
37,671
–
(1,370)
36,301
35,323
(2,172)
33,151
Impairment and Store Dispositions, Net
–
–
–
–
1,249
(1,044)
205
Operating Income
59,906
–
(9,723)
50,183
38,088
3,216
41,304
Interest Expense
11,354
–
(811)
10,543
16,327
(5,136)
11,191
Pretax Income
48,552
–
(8,912)
39,640
21,761
8,352
30,113
Provision for Income Tax
13,856
–
(2,632)
11,224
4,218
2,201
6,419
Net Income
$ 34,696
–
$ (6,280)
$ 28,416
$ 17,543
$ 6,151
$ 23,694
Earning
Per
Share
–
Basic
$ 1.49
–
(0.27)
$ 1.22
$ 0.77
$ 0.27
$ 1.04
Earning
Per
Share
–
Diluted
$ 1.47
–
(0.27)
$ 1.20
$ 0.75
$ 0.26
$ 1.01
Twelve Months Ended August 3, 2012
Twelve Months Ended July 29, 2011
As Reported
Adjust
1,4
53rd Week
As Adjusted
As Reported
Adjust
1,2,3,4
As Adjusted
Total Revenue
$ 2,580,195
(51,059)
$ 2,529,136
$ 2,434,435
$ 2,434,435
Store Operating Income
337,146
–
(11,093)
326,053
305,778
–
305,778
General and Administrative Expenses
146,171
(6,863)
(1,370)
137,938
139,222
(2,172)
137,050
Impairment and Store Dispositions, Net
–
–
–
–
(625)
830
205
Operating Income
190,975
6,863
(9,723)
188,115
167,181
1,342
168,523
Interest Expense
44,687
–
(811)
43,876
51,490
(5,136)
46,354
Pretax Income
146,288
6,863
(8,912)
144,239
115,691
6,478
122,169
Provision for Income Tax
43,207
2,027
(2,632)
42,602
30,483
1,707
32,190
Net Income
$ 103,081
$ 4,836
$ (6,280)
$ 101,637
$ 85,208
$4,771
$ 89,979
Earning
Per
Share
–
Basic
$ 4.47
$ 0.21
(0.27)
$ 4.41
$ 3.70
$ 0.21
$ 3.91
Earning
Per
Share
–
Diluted
$ 4.40
$ 0.21
(0.27)
$ 4.34
$ 3.61
$ 0.20
$ 3.81 |
 41
A NOTE REGARDING PEER SET USED FOR BENCHMARKING
Last year our peer set included:
–
Biglari Holdings, Brinker International,
Cheesecake Factory, Darden Restaurants, P.F.
Chang’s China Bistro, Ruby Tuesday, and
Texas Roadhouse
–
During the past year P.F. Chang’s China Bistro
was acquired by Centerbridge Partners and is
no longer publicly traded
–
Based on feedback received we have added
Bob Evans Farms and Denny’s Corporation both
full-service restaurants chains
We believe this subset of casual and family dining
restaurants represents the most comparable set of
companies to benchmark CBRL performance
–
Leading casual / family dining concepts
–
Operational comparability
–
Similar scale
–
Geographical proximity
Rationale for Inclusion
Peer Set
Ticker
Company Name
Logo
BH
Biglari Holdings
BOBE
Bob Evans Farms
EAT
Brinker International
CAKE
The Cheesecake Factory
DRI
Darden Restaurants
DENN
Denny‘s Corporation
RT
Ruby Tuesday
TXRH
Texas Roadhouse |
 42
S&P RESTAURANT INDEX COMPOSITION
Respective S&P Restaurant Index Constituents
Ticker
Company Name
Logo
S&P
500
S&P
600
S&P
1,500
BJRI
BJ’s Restaurants
BH
Biglari Holdings
BOBE
Bob Evans Farms
BWLD
Buffalo Wild Wings
CAKE
The Cheesecake Factory
Cracker
Barrel Old Country Store
CEC
CEC Entertainment
CMG
Chipotle
Mexican Grill
DIN
DineEquity
DRI
Darden Restaurants
EAT
Brinker
International
JACK
Jack in the Box
CBRL
Ticker
Company Name
Logo
S&P
500
S&P
600
S&P
1,500
MCD
McDonald’s
PEET
Peet’s Coffee & Tea
PNRA
Panera Bread Company
PZZA
Papa John’s International
RRGB
Red Robin Gourmet
Burgers
RT
Ruby Tuesday
RUTH
Ruth’s Hospitality Group
SBUX
Starbucks
SONC
Sonic
TXRH
Texas Roadhouse
WEN
The Wendy’s Company
YUM
Yum! Brands |