Cracker Barrel Old Country Store, Inc. · NASDAQ:CBRL
Cracker Barrel Old Country Store — Proxy Contest (October 2013)
28 slides from Cracker Barrel Old Country Store's proxy contest presentation, Oct 24, 2013
Slide 1: Cracker Barrel Old Country Store, Inc. (CBRL) Presentation to ISS
Cracker Barrel Old Country Store, Inc. (CBRL) Presentation to ISS October 23, 2013
Slide 2: Overview
Overview Q Owner of 19.8% of Cracker Barrel O Long-term holder with a long-term perspective Q Restaurant specialists — significant experience analyzing, investing, owning, and running businesses Q Added value from the outside — improved financial transparency, provided ideas implemented by the Board
Slide 3: Our Proposal
Our Proposal New stores — not an optimal use of capital + Poor store level performance + Low ROI for new stores De-lever the Balance Sheet + Low interest rate environment + Significant debt capacity
Slide 4: New Store Investments
a a New Store Investments
Slide 5: Why build when existing stores are underperforming?
Why build when existing stores are underperforming? - In terms of core operational performance, much of CBRL’s comparable store sales has come from price increases (reflected in average check) rather than increases in customer traffic. - In fact, the trend in customer traffic growth is disappointing
Slide 6: So why is CBRL investing in new stores?
So why is CBRL investing in new stores? - We believe CBRL's Retum on Invested Capital (ROIC) is based on incorrect assumptions. CRACKER BARREL ROIC vs. ACTUAL ROIC EXCLUDES: INCLUDES: Q General & Administrative Expenses Q General & Administrative Expenses Q Depreciation Q Depreciation O Taxes Q Taxe
Slide 7: Conceptually, ISS agrees
Conceptually, ISS agrees “The real calculation from a shareholder perspective should be whether the incremental investment, including all incremental costs such as taxes, returned incremental net income at greater than the cost of capital. Depreciation and G&A expense, therefore, should be included
Slide 8: CBRL return on investment for 2004-2009 stores excludes depreciation and taxes
- In 2011, CBRL reported financial data for 116 stores opened between 2004 and 2009. - Interestingly, CBRL’s Return on Investment estimate of 16.2% for the 116 stores DID NOT account for related depreciation expense and income taxes. Even assuming no related G&A expenses, our calculation of ROIC for
Slide 9: Zero G&A is incorrect assumption
Zero G&A is incorrect assumption a The 8.7% ROIC estimate for stores opened during 2004-2009 does not account for incremental G&A expense. We believe the assumption of zero G&A is incorrect because: New store openings represented an increase in the store base of >20% — Approx. 12,500 new employees h
Slide 10: De-levering the balance sheet
a a De-levering the balance sheet
Slide 11: CBRL's Rapid Deleveraging
CBRL's Rapid Deleveraging - CBRL has rapidly de-levered its balance sheet over the past several years. CBRL Net Debt s00 00 776) 700 ea 600 533 238 = 5500 o¢@ 2 Y 200 373 300 28 200 100 ° Fvo8 Fy09 Frio rat Fva2 m3 Source: FactSet database, SEC flings.
Slide 12: Deleveraging in a low interest rate environment is not prudent
Deleveraging in a low interest rate environment is not prudent - CBRL's decision to reduce leverage in such a favorable interest rate environment does not appear prudent. - Contrary to CBRL, corporate credit has expanded since the financial crisis, indicates that other companies are taking advantage
Slide 13: Suboptimal capital allocation
Suboptimal capital allocation - In FY13, CBRL spent approx. 95% of its operating cash flow on new store development and debt repayment. - We believe this is a flawed strategy because: a) CBRL is generating poor retums on new store investments, and b) balance sheet deleveraging in a historically low
Slide 14: Plan to Create Shareholder Value
a a Plan to Create Shareholder Value
Slide 15: Our Proposals
Our Proposals - Pay a one time special dividend of $20/share - Focus on improving restaurant level operating performance - Undertake rigorous retum analysis - Establish moratorium on new stores - Expand through international franchising and licensing agreements 15
Slide 16: Discrepancy between Board Rhetoric and Actions
Discrepancy between Board Rhetoric and Actions Board Rhetoric Board Actions “Special Dividend. Q Twice in past year Cracker Barrel offered to purchase all shares owned would require a by Biglan 4 . Q Attime offer was made equivalent to su bs tantial merease purchase price of $305 million in...the Co
Slide 17: Comparison of CBRL offer to purchase Biglari Capital shares vs. Special Dividend Proposal
Comparison of CBRL’ offer to purchase Bilt Capital shares ws, Special Dividend Proposal Cracker Barrel offerto repurchase Biglar Capital Special Biglari Capital shares Dividend Proposal Eligible shares (mn) 47 B93) /Approx. CBRL Offer price (Feb 13, 2013} /Special Dividend & a [Total exoected outlay
Slide 18: Pro forma leverage remains within historical average
- Even if our proposed $20 special dividend is debt financed, the resulting debt ratio would remain within acceptable levels of historical average. PRO FORMA FISCAL YEAR 2014 Cracker Barrel LEVERAGE RATIO PROFORMA 2014 ‘06-13 AVERAGE Net Debt?/EBITDA* 2.1K 2.6X 4 Eamings before interest and taxes: m
Slide 19: Enhanced debt servicing capacity
Enhanced debt servicing capacity - Over the past five years, CBRL has significantly reduced its leverage and increased interest coverage ratios. - At current levels, we believe the Company can easily take on additional debt with limited incremental balance sheet risk’. Coverage Raton i a i Brom | fe
Slide 20: Post-dividend — Pro Forma Net Debt/LTM EBITDA
Post-dividend — Pro Forma Net Debt’/LTM EBITDA? - The proposed special dividend would push Net Debt/LTM EBITDA to 2.7x, which would still be less than the Company's leverage ratio in the past Net Debt/LTM EBITDA ase : | | | | | ( o.0x Source: FactSet, Company filings ‘Net Debt = longeterm debt - cas
Slide 21: Post-dividend — Leverage will be in-line with that of peers
Post-dividend — Leverage will be in-line with that of peers - Presently, CBRLis substantially under-levered compared to the majority of its peer group. A debt financed special dividend would put its leverage ratio more in-line with that of peers. NET DEBT‘/LTM EBITDA? Net Debe/eTM EBITOR, ‘Source: S
Slide 22: Biglari Willing to Address Unfounded Fears of the Board
Biglari Willing to Address Unfounded Fears of the Board ISSUE RAISED BY BOARD PROPOSED RESOLUTION GO Proposed agreement that contractually obligates Biglari not to seek board control if granted two board seats OO Proposed to halt pursuit of board seats if Board would pay a significant dividend Conce
Slide 23: Our Nominees: Mr. Biglari
Mr. Biglari has served as a director since March 2008, Chairman since June 2008, and Chief Executive Officer since August 2008 of Biglari Holdings Inc. (“Biglari Holdings’), a New York Stock Exchange-isted diversified holding company engaged in a number of business activities. Its most important ope
Slide 24: Our Nominees (contd.)
Our Nominees (contd.) Philip L. Cooley Dr. Cooley has served as a director since March 2008 and Vice Chairman since April 2009 of Biglari Holdings. Dr. Cooley was the Prassel Distinguished Professor of Business at Trinity University, San Antonio, Texas, from 1985 until his retirement in May 2012. Dr
Slide 25: Materials posted to enhancecrackerbarrel.com
Item 2: The following materials were posted by Biglari Capital Corp. to http://www.enhancecrackerbarrel.com :
Slide 26: Letters to Shareholders webpage
HOME |ucrrersrosurevoiners Letters to Shareholders LETTERS TO MANAGEMENT SEC FILINGS NOMINEES October 23, 2013 CONTACT US i October 25, 2012 April 19, 2012 Vote Gold » ae Submit proxy ballot here eae _fshares not hel by broker bank, click ere Wi November 14, 2011 8% september 12, 2011
Slide 27: Letters to Management webpage
ARREL CRACKER B HOME Lerrerstosuarenousers LEtters to Management LETTERS TO MANAGEMENT SEC FILINGS. NOMINEES 1&4 September 16, 2013 bey, Wi February 14, 2013 Vate(Gold > Wi October 8, 2012 Sone bas —— ‘If shares not held by broker/bank, cick here August 23, 2011
Slide 28: SEC Filings webpage
HOME LETTERS TO SHAREHOLDERS LETTERS TO MANAGEMENT SEC FILINGS 1 NOMINEES CONTACT US. Vote Gold » ‘Submit proxy ballot here ‘shares not held by broker/bank, lick here SEC Filings Please click on links below to obtain SEC Filings. FILING FILING DATE DEFINITIVE PROXY STATEMENT AND PROXY CARD Definitiv
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