CBRL Group, Inc. 10-Q 05/30/06

PART I. FINANCIAL INFORMATION	Page

Item 1

Condensed Consolidated Financial Statements (Unaudited)

a) Condensed Consolidated Balance Sheet as of April 28, 2006 and July 29, 2005	3

b) Condensed Consolidated Statement of Income for the Quarter and Nine Months Ended April 28, 2006 and April 29, 2005	4

c) Condensed Consolidated Statement of Cash Flows for the Nine Months Ended April 28, 2006 and April 29, 2005	5

d) Notes to Condensed Consolidated Financial Statements	6

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3

Quantitative and Qualitative Disclosures About market Risk	28

Item 4

Controls and Procedures	28

PART II. OTHER INFORMATION

Item 6

Exhibits	29

SIGNATURES	30

		April 28,		July 29,
		2006		2005*
ASSETS
Current assets:
Cash and cash equivalents	$	20,148	$	17,173
Property held for sale		10,495		--
Receivables		15,448		13,736
Inventories		128,087		142,804
Prepaid expenses		8,455		7,238
Deferred income taxes		9,532		9,532
Total current assets		192,165		190,483

Property and equipment		1,740,906		1,664,048
Less: Accumulated depreciation and amortization of capital leases		488,705		445,750
Property and equipment - net		1,252,201		1,218,298

Goodwill (see Note 7)		93,724		93,724
Other assets		48,217		30,767

Total assets	$	1,586,307	$	1,533,272

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	62,984	$	97,710
Other accrued expenses		189,682		197,425
Current maturities of long-term debt and other long-term obligations		153		210
Total current liabilities		252,819		295,345

Long-term debt		194,998		212,218
Tender offer obligation (see Note 11)		704,071		--
Other long-term obligations		58,737		48,411
Deferred income taxes		104,734		107,310

Commitments and contingencies (see Note 9)

Shareholders’ equity:
Preferred stock - 100,000,000 shares of $.01 par
value authorized; no shares issued		--		--
Common stock - 400,000,000 shares of $.01 par
value authorized; at April 28, 2006, 47,661,958
shares issued and outstanding and at July 29, 2005,
46,619,803 shares issued and outstanding		477		466

Retained earnings (see Notes 10 and 11)		270,471		869,522
Total shareholders’ equity		270,948		869,988

Total liabilities and shareholders’ equity	$	1,586,307	$	1,533,272

	Quarter Ended				Nine Months Ended
		April 28, 2006		April 29, 2005		April 28, 2006		April 29, 2005

Total revenue	$	644,200	$	627,999	$	1,971,913	$	1,907,841

Cost of goods sold		201,817		203,702		637,008		639,933
Gross profit		442,383		424,297		1,334,905		1,267,908

Labor and other related expenses		243,397		237,574		719,992		696,512
Other store operating expenses		117,773		112,204		359,827		329,508
Impairment and store closing charges (see Notes 7 and 8)		3,596		431		10,361		431
Store operating income		77,617		74,088		244,725		241,457

General and administrative expenses		38,808		31,242		115,185		98,831
Operating income		38,809		42,846		129,540		142,626

Interest expense		2,700		2,221		7,516		6,516
Interest income		6		--		118		96
Income before income taxes		36,115		40,625		122,142		136,206

Provision for income taxes		12,143		14,054		41,651		47,127
Net income	$	23,972	$	26,571	$	80,491	$	89,079

Net income per share (see Note 5):
Basic	$	0.51	$	0.56	$	1.72	$	1.85
Diluted	$	0.47	$	0.52	$	1.60	$	1.72

Weighted average shares (see Note 5):
Basic		47,295,058		47,555,889		46,916,467		48,135,476
Diluted		52,523,351		53,149,295		52,067,800		53,774,355

	Nine Months Ended
	April 28, 2006			April 29, 2005
Cash flows from operating activities:
Net income	$	80,491		$	89,079
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		53,512			50,311
Loss on disposition of property and equipment		1,185			2,278
Impairment charges		8,430			431
Accretion on zero-coupon contingently convertible senior notes		4,280			4,156
Share-based compensation		10,353			1,204
Excess tax benefit from share-based compensation		(5,737	)		--
Changes in assets and liabilities:
Inventories		14,717			16,864
Accounts payable		(46,294	)		46,273
Other current assets and other current liabilities		(5,551	)		10,165
Other assets and other long-term liabilities		1,759			3,416
Net cash provided by operating activities		117,145			224,177

Cash flows from investing activities:
Purchase of property and equipment		(106,862	)		(125,034	)
Proceeds from sale of property and equipment		181			1,067
Net cash used in investing activities		(106,681	)		(123,967	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		618,500			396,600
Principal payments under long-term debt and other
long-term obligations		(640,177	)		(390,741	)
Proceeds from exercise of stock options		26,978			35,547
Purchases and retirement of common stock		--			(131,916	)
Dividends on common stock		(17,829	)		(17,060	)
Excess tax benefit from share-based compensation		5,737			--
Other		(698	)		--
Net cash used in financing activities		(7,489	)		(107,570	)

Net increase (decrease) in cash and cash equivalents		2,975			(7,360	)

Cash and cash equivalents, beginning of period		17,173			28,775

Cash and cash equivalents, end of period	$	20,148		$	21,415

Supplemental disclosures of cash flow information:
Cash paid during the nine months for:
Interest, net of amounts capitalized	$	1,848		$	687
Income taxes	$	41,640		$	27,786
Non-cash disclosures:
Shares purchased in tender offer (see Note 11)	$	704,071		$	--
Accrued loan acquisition costs (see Note 12)	$	11,568		$	--

The condensed consolidated balance sheets as of April 28, 2006 and July 29, 2005 and the related condensed consolidated statements of income and cash flows for the quarters and/or nine-month periods ended April 28, 2006 and April 29, 2005, have been prepared by CBRL Group, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit. In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made. The results of operations for any interim period are not necessarily indicative of results for the full year.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended July 29, 2005 (the “2005 Form 10-K”). Except as described below and in Note 3 to the Condensed Consolidated Financial Statements contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2005 (filed with the SEC on November 30, 2005) (the “First Quarter 10-Q”), the accounting policies used in preparing these condensed consolidated financial statements are the same as those described in our 2005 Form 10-K.

Prior to July 30, 2005, the Company accounted for its share-based compensation under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and the disclosures required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS No. 148”). In accordance with APB Opinion No. 25, no share-based compensation cost was reflected in the Company’s prior year net income for grants of stock options because the Company grants stock options with an exercise price equal to the market value of the stock on the date of grant.

	Quarter Ended			Nine Months Ended
	April 29, 2005			April 29, 2005
Net income - as reported	$	26,571		$	89,079
Add: Total share-based employee compensation included in reported net income, net of related tax effects ^(a)		168			793
Deduct: Total share-based compensation expense determined under fair-value based method for all awards, net of related tax effects		(2,202	)		(7,313	)
Net income - pro forma	$	24,537		$	82,559

Net income per share:
Basic - as reported	$	0.56		$	1.85
Basic - pro forma	$	0.52		$	1.72

Diluted - as reported	$	0.52		$	1.72
Diluted - pro forma	$	0.49		$	1.60

Effective July 30, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123 (Revised 2004), “Share Based Payment” (“SFAS No. 123R”) using the modified prospective method. Under this method, share-based compensation cost in 2006 is recorded in general and administrative expenses and includes amortization over the respective vesting periods for (1) all share-based payments granted prior to, but not vested as of, July 29, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (2) all share-based payments granted subsequent to July 29, 2005, based on the grant date fair value estimated using a binomial lattice-based option valuation model. See Note 3 to the Company’s Condensed Consolidated Financial Statements in the First Quarter 10-Q for more details on the Company’s adoption of SFAS No. 123R.

Compensation cost for share-based payment arrangements recognized in general and administrative expenses for the quarter and nine-month period ended April 28, 2006 was $2,399 and $7,552, respectively, for stock options and $978 and $2,801, respectively, for restricted stock grants. The adoption of SFAS No. 123R, for the quarter and nine-month period ended April 28, 2006, decreased both the Company’s reported operating income and income before income taxes by $2,399 and $7,552, respectively, and decreased reported net income by $1,593 and $4,977, respectively. The adoption of SFAS No. 123R decreased both reported basic and diluted net income per share by $0.03 for the quarter ended April 28, 2006. The adoption of SFAS No. 123R for the nine-month period ended April 28, 2006 decreased both reported basic and diluted net income per share by $0.10. The adoption of SFAS No. 123R for the nine-month period ended April 28, 2006 also resulted in a decrease in reported cash flow from operating activities of $5,737 offset by an increase in reported cash flow from financing activities of $5,737. Because the Company did not adopt SFAS No. 123R until July 30, 2005, operating income, income before income taxes, net income, cash flow from operations, cash flow from financing activities, and basic and diluted net income per share during the quarter or nine-month period ended April 29, 2005 were not affected by its adoption.

In October 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period” (“FSP No. 13-1”). FSP No. 13-1 states that rental costs associated with ground or building operating leases that are incurred during a construction period shall be recognized as rental expense in income from continuing operations as opposed to capitalizing such rental costs. Although the provisions of FSP No. 13-1 are effective for the first reporting period beginning after December 15, 2005, the Company early adopted this guidance in its first quarter of 2006. The early adoption of FSP No. 13-1 did not affect the Company’s consolidated results of operations or financial position since this treatment did not differ from the Company’s then-existing accounting policy.

In September 2005, the FASB issued Emerging Issues Task Force (“EITF”) No. 05-6, “Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination” (“EITF 05-6”). EITF 05-6 states that leasehold improvements acquired in a business combination should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. EITF 05-6 further states that leasehold improvements placed in service significantly after and not contemplated at or near the beginning of a lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. This consensus does not apply to preexisting leasehold improvements. The provisions of EITF 05-6 are effective for leasehold improvements that are purchased or acquired in reporting periods beginning after September 28, 2005, with early adoption permitted. The Company adopted this guidance in the first quarter of 2006. The early adoption of EITF 05-6 did not affect the Company’s results of operations or financial position since this treatment did not differ from the Company’s then-existing accounting policy.

Historically, the net income of the Company has been lower in the first three quarters of each year and highest in the fourth quarter, which includes much of the summer vacation and travel season. Management attributes these variations primarily to the decrease in interstate tourist traffic and propensity to dine out less during the regular school year and winter months and the increase in interstate tourist traffic and propensity to dine out more during the summer months. The Company's retail sales historically have been highest in the Company's second quarter, which includes the Christmas holiday shopping season. The Company also generally opens additional new locations throughout the year. Therefore, the results of operations for the quarter and nine months ended April 28, 2006 cannot be considered indicative of the operating results for the entire year.

Basic net income per share is computed by dividing net income by the weighted average shares outstanding. Diluted net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue common stock were exercised or converted into common stock. Additionally, diluted net income per share is calculated excluding the after-tax interest and financing expenses associated with the Company’s senior notes (as described in Notes 2 and 5 to the Company’s Consolidated Financial Statements included in the 2005 Form 10-K) since, for diluted net income per share calculations, these senior notes are treated as if converted into common stock. The Company’s senior notes, outstanding employee and director stock options, restricted stock and stock awards issued by the Company represent the only securities having a dilutive effect on diluted net income per share. The following table reconciles the components of the diluted net income per share computations:

	Quarter Ended				Nine Months Ended
	April 28, 2006		April 29, 2005		April 28, 2006		April 29, 2005
Net income per share numerator:
Net income	$	23,972	$	26,571	$	80,491	$	89,079
Add: Interest and loan acquisition costs associated with senior notes, net of related tax effects		951		1,071		2,820		3,398
Net income available to common shareholders	$	24,923	$	27,642	$	83,311	$	92,477
Net income per share denominator:
Weighted average shares outstanding for basic net income per share		47,295,058		47,555,889		46,916,467		48,135,476
Add potential dilution:
Senior notes		4,582,788		4,582,788		4,582,788		4,582,788
Stock options, restricted stock and stock awards		645,505		1,010,618		568,545		1,056,091
Weighted average shares outstanding for diluted net income per share		52,523,351		53,149,295		52,067,800		53,774,355

The Company manages its business on the basis of one reportable operating segment. Cracker Barrel Old Country Store® (“Cracker Barrel”) units represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product line of a Cracker Barrel unit are shared and are indistinguishable in many respects. The chief operating decision-makers review operating results for both restaurant and retail operations on a combined basis. Likewise, Logan’s RoadhouseÒ (“Logan’s”) units are restaurant operations and those operations have similar investment criteria and economic and operating characteristics as the operations of Cracker Barrel.

In accordance with SFAS No. 144 “Impairment or Disposal of Long-Lived Assets,” the Company evaluates long-lived assets and certain identifiable intangibles to be held and used in the business for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment is determined by comparing undiscounted future operating cash flows that are expected to result from an asset to the carrying values of an asset on a store by store basis. In addition the recoverability test considers the likelihood of possible outcomes that existed at the balance sheet date, including the assessment of the likelihood of the future sale of the asset. If an impairment exists, the amount of impairment is measured as the sum of the estimated discounted future operating cash flows of the asset and the expected proceeds upon sale of the asset less its carrying value. Assets held for sale, if any, are reported at the lower of carrying amount or fair value less costs to sell.

The Company recorded an impairment loss of $431 in the nine-months ended April 29, 2005. During the quarter ended January 27, 2006, the Company decided to close seven Cracker Barrel stores and three Logan’s restaurants, which resulted in impairment charges of $6,765. These impairments were recorded based upon the lower of unit carrying amount or fair value. Each unit’s fair value was determined based upon estimates provided by third-party appraisers using market comparables. The impaired locations were closed early in the quarter ended April 28, 2006 and were classified at that time as held for sale. The locations were closed due to weak financial performance, an unfavorable outlook, and relatively positive prospects for proceeds from disposition for certain locations. Due to the closed stores now being classified as held for sale, during the quarter ended April 28, 2006, the Company re-measured the closed store assets at the lower of their fair values less the costs to sell. Additionally, during the quarter ended April 28, 2006, the Company recorded an impairment for its Cracker Barrel management trainee housing facility. The total impairment loss related to property and equipment recorded in the quarter ended April 28, 2006 was $837.

At least annually the Company assesses the recoverability of goodwill. The impairment tests require the Company to estimate fair values of its related reporting units by making assumptions regarding future cash flows and other factors. This valuation may reflect, among other things, such external factors as capital market valuation for public companies comparable to the operating unit. If these assumptions change in the future, the Company may be required to record material impairment charges for these assets. The Company performed its annual assessment in the quarter ended January 27, 2006, and concluded at that time that there was no indication of impairment. This annual assessment is performed in the second quarter of each year. Additionally, an assessment is performed between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In connection with the closing of seven Cracker Barrel stores and three Logan’s restaurants (as described in Note 7 above), and in accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company incurred exit and disposal costs in the quarter ended April 28, 2006 totaling $2,759. The locations were closed due to weak financial performance, an unfavorable outlook, and relatively positive prospects for proceeds from disposition for certain locations. The Company expects the sale of the properties to be completed within one year. The store closing charges included employee termination benefits, lease termination and other costs and are included in the impairment and store closing charges line on the accompanying condensed consolidated statement of income.

The Company and its subsidiaries are parties to various legal and regulatory proceedings and claims incidental to and arising out of the ordinary course of its business. In the opinion of management, however, based upon information currently available, the ultimate liability with respect to these other proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material adverse effect on the Company’s financial statements as a whole.

The Company is secondarily liable for lease payments under the terms of an operating lease that has been assigned to a third party. The operating lease has a remaining life of approximately 7.4 years, with annual lease payments of approximately $361. Under the assigned lease the Company’s performance is only required if the assignee fails to perform his obligations as lessee. At this time, the Company has no reason to believe that the assignee will not perform and, therefore, no provision has been made in the accompanying condensed consolidated financial statements for amounts to be paid as a result of non-performance by the assignee.

During the nine-month period ended April 28, 2006, the Company paid a dividend of $0.12 per common share on August 8, 2005 (declared May 27, 2005) and the Company declared three dividends of $0.13 per common share each that were paid on November 8, 2005, February 8, 2006 and May 8, 2006. The dividend paid on May 8, 2006 in the amount of $6,190 is recorded in other accrued expenses in the accompanying condensed consolidated balance sheet. Additionally, the Company declared a dividend of $0.13 per common share on May 25, 2006 to be paid on August 8, 2006 to shareholders of record on July 14, 2006.

On March 31, 2006, the Company commenced a tender offer in which it sought to acquire up to 16,750,000 shares of its common stock at a price between $42.00 and $46.00 per share (“the Tender Offer”). The Tender Offer expired at midnight on April 27, 2006, at which time approximately 23,500,000 shares were tendered at a price of $42.00 per share. The Tender Offer met the definition of a forward contract under SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” As of April 28, 2006, the obligation to settle the Tender Offer of $702,852 and the related transaction fees of $1,219 were recorded as a liability and a reduction to shareholders’ equity. The transaction fees include the dealer manager, information agent, depository, legal and other fees. On May 4, 2006, the Company accepted for payment 16,750,000 shares of its common stock at a purchase price of $42.00 per share for a total purchase price of $703,500. In accordance with SFAS No. 150, the difference of $648 between the fair market value of the obligation at April 28, 2006 of $702,852 and the total purchase price of $703,500 will be included in interest expense in the Company’s fourth quarter. The Company contemporaneously drew approximately $725,000 under its new credit facility, described in Note 12, to pay for the shares accepted in the Tender Offer and related transaction fees and expenses.

Effective April 27, 2006, the Company entered into a $1,250,000 credit facility (the “2006 Credit Facility”) that consisted of up to $1,000,000 in term loans (an $800,000 term B facility and a $200,000 delayed draw facility) with a scheduled maturity date of April 27, 2013 and a $250,000 revolving credit facility expiring April 27, 2011. As described in Note 11, contemporaneously with the acceptance of shares in the Tender Offer, on May 3, 2006, the Company drew $725,000 under the $800,000 available under the term B facility, which was used to pay for the shares accepted in the Tender Offer, fees associated with the 2006 Credit Facility and the related transaction costs. The $200,000 delayed draw facility can be used any time prior to October 27, 2007 to refinance the Company’s senior notes or for general corporate purposes.

The term loan interest rate is based on LIBOR initially and on LIBOR or prime following the initial locked rate period and the revolving credit facility and delayed draw facility interest rates are based on either LIBOR or prime. A spread is added to the interest rates according to a defined schedule based on the Company’s consolidated total leverage ratio as defined in the 2006 Credit Facility. The Company’s policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost efficient manner, the Company entered into an interest rate swap on May 4, 2006 in which it agreed to exchange with a counterparty, at specified intervals effective August 3, 2006, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. Interest rate swaps that meet specific conditions under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” are accounted for as cash flow hedges. The swapped portion of our $725,000 term loan will be fixed at a rate of 5.57% plus our then current credit spread or 7.07% based on today’s credit spread over the 7-year life of the term loan and the interest rate swap. The swapped portion is $525,000 to May 2, 2007, $650,000 from May 3, 2007 to May 4, 2008, $625,000 from May 5, 2008 to May 3, 2009, $600,000 from May 4, 2009 to May 2, 2010, $575,000 from May 3, 2010 to May 2, 2011, $550,000 from May 3, 2011 to May 2, 2012, and $525,000 for May 3, 2012 to May 2, 2013.

Loan acquisition costs associated with the term B loan, revolving credit facility and delayed draw facility were capitalized in the amount of $7,112 (net of $656 in commitment fees that were written off in the quarter ended April 28, 2006 related to the $75,000 availability that was not drawn on the term B loan), $2,453, and $1,962, respectively, and will be amortized over the respective terms of the facilities. Financial covenants related to the 2006 Credit Facility require that the Company maintain a maximum consolidated total leverage ratio of 4.5 to 1.0 through April 27, 2007, 4.25 to 1.0 from April 28, 2007 through May 2, 2008, 4.0 to 1.0 from May 3, 2008 through May 1, 2009 and 3.75 to 1.0 from May 2, 2009 and thereafter. Financial covenants also require that the Company maintain a minimum consolidated interest coverage ratio of 3.0 to 1.0 through April 27, 2007, 3.25 to 1.0 from April 28, 2007 through May 2, 2008, 3.5 to 1.0 from May 3, 2008 through May 1, 2009, 3.75 to 1.0 from May 2, 2009 through April 30, 2010 and 4.0 to 1.0 from April 31, 2010 and thereafter. The Company’s subsidiaries have fully and unconditionally guaranteed on a joint and several basis the obligations under the 2006 Credit Facility and pledged their outstanding stock. Contemporaneously with entering into the 2006 Credit Facility, the Company terminated its then-existing $300,000 revolving credit agreement; at the time of termination, no amounts were outstanding.

Each of the Company’s $1 (face value at maturity) senior notes, (as more fully described in the Company’s 2005 Form 10-K), became convertible into 10.8584 shares of the Company’s common stock (approximately 4.6 million shares in the aggregate) during the quarter ended April 28, 2006. The Company has received verification from the Trustee of the senior notes that as of the filing of this Quarterly Report, no holders of the senior notes have exercised their option to convert. The Company has classified the senior notes as long-term obligations due to the Company’s intent and ability to refinance these senior notes on a long-term basis.

In connection with the Company’s announced strategic review, the Company’s Compensation and Stock Option Committee of the Board approved, pursuant to the Omnibus Plan, the “2006 Success Plan” for certain officers of the Company. This plan was disclosed in the Current Report on Form 8-K, filed with the SEC on March 17, 2006. During the quarter ended April 28, 2006, the Company recorded expense of $1,192 for this plan as general and administrative expenses on the accompanying condensed consolidated statement of income. The maximum amount payable under the 2006 Success Plan is $7,906. Any amounts payable under the 2006 Success Plan will become earned and payable six months after the completion of the Logan’s divestiture or the date that the Company’s Board decides not to divest Logan’s.

CBRL Group, Inc. and its subsidiaries (collectively, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country StoreÒ (“Cracker Barrel”) restaurant and retail concept and the Logan’s RoadhouseÒ (“Logan’s”) restaurant concept. All dollar amounts reported or discussed in Part I, Item 2 of this Quarterly Report on Form 10-Q are shown in thousands, except share and per share amounts. References in management’s discussion and analysis of financial condition and results of operations to a year are to the Company’s fiscal year unless otherwise noted. The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. This discussion should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto in this Form 10-Q and (ii) the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 29, 2005 (the “2005 Form 10-K”).

Except for specific historical information, many of the matters discussed in this Quarterly Report on Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives or future operations or statements of future economic performance. These and similar statements are forward-looking statements concerning matters that involve risks, uncertainties and other factors which may cause the actual performance of the Company and its subsidiaries and the plans it has proposed to differ materially from those expressed or implied by this discussion.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continues,” “estimates,” “expects,” “goals,” “intends,” “opportunity,” “trends,” “assumptions,” “target,” “guidance,” “forecast,” “outlook,” “plans,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” or “potential” (or the negative or other derivatives of each of these terms) or similar terminology. Factors which could materially affect actual results include, but are not limited to:

	Quarter Ended						Nine Months Ended
	April 28, 2006			April 29, 2005			April 28, 2006			April 29, 2005
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

Cost of goods sold		31.3			32.4			32.3			33.5
Gross profit		68.7			67.6			67.7			66.5

Labor and other related expenses		37.8			37.8			36.5			36.5
Other store operating expenses		18.3			17.9			18.3			17.3
Impairment and store closing charges		0.6			0.1			0.5			--
Store operating income		12.0			11.8			12.4			12.7

General and administrative expenses		6.0			5.0			5.8			5.2
Operating income		6.0			6.8			6.6			7.5

Interest expense		0.4			0.3			0.4			0.4
Interest income		--			--			--			--
Income before income taxes		5.6			6.5			6.2			7.1

Provision for income taxes		1.9			2.3			2.1			2.4

Net income		3.7	%		4.2	%		4.1	%		4.7	%

	Quarter Ended					Nine Months Ended
	April 28, 2006			April 29, 2005		April 28, 2006			April 29, 2005
Cracker Barrel:
Open at beginning of period		540			514		529			504
Opened during period		6			6		17			16
Closed during period		(7	)		--		(7	)		--
Open at end of period		539			520		539			520

Logan’s - company-owned:
Open at beginning of period		134			118		124			107
Opened during period		3			5		13			16
Closed during period		(3	)		--		(3	)		--
Open at end of period		134			123		134			123

Total company-owned units		673			643		673			643

Logan’s - franchised:
Open at beginning of period		24			22		23			20
Opened during period		1			--		2			2
Closed during period		--			--		--			--
Open at end of period		25			22		25			22

Total systemwide units		698			665		698			665

Total revenue for the third quarter of 2006 increased 2.6% compared to the prior year’s third quarter. For the third quarter ended April 28, 2006, Cracker Barrel comparable store restaurant sales decreased 2.1% and comparable store retail sales decreased 5.4% resulting in a combined comparable store sales (total net sales) decrease of 2.8%. The comparable store restaurant sales decrease consisted of a 1.2% average check increase for the quarter (including a 1.8% increase in average menu prices) and a 3.3% guest traffic decrease. The comparable store retail sales decrease is believed to be related to restaurant guest traffic decreases, lower average price-points on items sold, uncertain consumer sentiment and reduced discretionary spending. Logan’s comparable restaurant sales increased 0.5%, which consisted of a 2.5% average check increase (including a 2.6% increase in average menu prices), and a 2.0% guest traffic decrease. Sales from newly opened Cracker Barrel stores and Logan’s restaurants accounted for the balance of the total revenue increase in the third quarter.

Total revenue for the nine-month period ended April 28, 2006 increased 3.4% compared to the nine-month period ended April 29, 2005. For the nine-month period ended April 28, 2006, Cracker Barrel comparable store restaurant sales decreased 0.5% and comparable store retail sales decreased 8.9% resulting in a combined comparable store sales (total net sales) decrease of 2.4%. The comparable store restaurant sales decrease consisted of a 2.5% average check increase for the nine months (which reflected higher average menu prices), and a 3.0% guest traffic decrease. The comparable store retail sales decrease is believed to be related to restaurant guest traffic decreases, uncertain consumer sentiment and reduced discretionary spending, weaker than expected response to the retail assortments and lower average spending per retail purchase as a result of lower product price-points and greater markdowns. Logan’s comparable restaurant sales increased 1.1%, which consisted of a 2.6% average check increase (which reflected higher average menu prices), and a 1.5% guest traffic decrease. Sales from newly opened Cracker Barrel stores and Logan’s restaurants accounted for the balance of the total revenue increase in the nine-month period ended April 28, 2006.

Other store operating expenses include all unit-level operating costs, the major components of which are operating supplies, repairs and maintenance, advertising expenses, utilities, rent, depreciation, general insurance, credit card fees and non-labor-related pre-opening expenses. Other store operating expenses as a percentage of total revenue increased to 18.3% in the third quarter of 2006 from 17.9% in the third quarter of the prior year. This increase was due to higher utilities, supplies and other miscellaneous expenses. These increases were partially offset by higher average menu prices versus the prior year and lower advertising expense.

During the quarter ended January 27, 2006, the Company decided to close seven Cracker Barrel stores and three Logan's restaurants, which resulted in impairment charges of $6,765. The actual closings all took place early in the third quarter. Upon closing, the locations became classified as held for sale, therefore the Company re-measured the closed store assets at the lower of their fair values less the costs to sell. Additionally, during the quarter ended April 28, 2006, the Company recorded an impairment for its management trainee housing facility. The total impairment and store closing costs recorded in the quarter and nine months ended April 28, 2006 were $3,596 and $10,361, respectively. The total impairment and store closing costs recorded in the quarter and nine months ended April 29, 2005 were $431. See Notes 7 and 8 to the accompanying Condensed Consolidated Financial Statements for more details surrounding the impairment and store closing charges.

The provision for income taxes as a percent of pre-tax income was 33.6% in the third quarter and 34.1% for the first nine months of 2006 as compared to 34.6% for both the quarter and nine months a year ago. The U.S. Internal Revenue Service (“IRS”) has examined the Company’s consolidated federal income tax returns through the year ended July 30, 2004. In March 2006, the Company reached a settlement with the IRS for these tax periods. The settlement had no material effect on the Company’s Condensed Consolidated Financial Statements for the quarter or nine-month period ended April 28, 2006. In estimating our full year 2006 tax rate, which is used to determine our rate for the first nine months of 2006, we reversed certain reserves previously accrued, which lowered our tax rate from 2005. The variation between the statutory tax rate and the effective tax rate is due to state income taxes offset by employer tax credits for FICA taxes paid on employee tip income and various other federal tax credits.

The Company's operating activities provided net cash of $117,145 for the nine-month period ended April 28, 2006, which represented a decrease from the $224,177 provided during the same period a year ago. This decrease was due to a significant increase in accounts payable in the first nine months of 2005 as compared to a significant decrease in the first nine months of 2006, as well as an increase in income taxes payable in the first nine months of 2005 as compared to a decrease in the first nine months of 2006. The changes in accounts payable and income taxes payable were due to timing of payments this year compared with the timing of payments last year.

The Company had negative working capital of $60,654 at April 28, 2006 versus negative working capital of $104,862 at July 29, 2005. In the restaurant industry, substantially all sales are either for cash or credit card. Like many other restaurant companies, the Company is able to, and generally does operate with negative working capital. Restaurant inventories purchased through the Company's principal food distributor are on terms of net zero days, while restaurant inventories purchased locally generally are financed from normal trade credit. Retail inventories purchased domestically generally are financed from normal trade credit, while imported retail inventories generally are purchased through wire transfers. These various trade terms are aided by rapid turnover of the restaurant inventory. Employees generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of hours worked, and certain expenses such as certain taxes and some benefits are deferred for longer periods of time. The smaller negative working capital compared with July 29, 2005 reflected lower accounts payable and income taxes payable and higher cash and cash equivalents and properties held for sale, partially offset by lower inventories.

Capital expenditures were $106,862 for the nine-month period ended April 28, 2006 as compared to $125,034 during the same period a year ago. Construction and acquisition of new locations accounted for most of these expenditures. The decrease from the prior year is due to the decrease in the number of new locations under construction and the decrease in owned versus leased land for new locations. Capitalized interest was $160 and $527 for the quarter and nine-month period ended April 28, 2006, respectively, as compared to $232 and $592 for the quarter and nine-month period ended April 29, 2005, respectively. These differences were due primarily to decreases in the average number of new locations under construction versus the same periods a year ago.

During the nine-month period ended April 28, 2006, the Company received proceeds of $26,978 from the exercise of stock options on 1,042,155 shares of its common stock. During the nine-month period ended April 28, 2006, the Company paid a dividend of $0.12 per common share on August 8, 2005 (declared May 27, 2005) and the Company declared three dividends of $0.13 per common share each that were paid on November 8, 2005, February 8, 2006 and May 8, 2006. The dividend paid on May 8, 2006 was in the amount of $6,190. Additionally, the Company declared a dividend of $0.13 per common share on May 25, 2006 to be paid on August 8, 2006 to shareholders of record on July 14, 2006.

As previously announced in the Current Report on Form 8-K filed with the SEC on March 17, 2006, the Company, with the assistance of a financial advisor, reviewed its capital structure and other potential initiatives intended to enhance shareholder value (the “Review”). At the time that the Review was announced, the Company also disclosed that implementing some or all of the initiatives under consideration in the Review could affect the Company’s previously issued earnings guidance, as well as its financial position. Accordingly, the Company formally withdrew that guidance and announced that no further earnings or related guidance (including updates to the Company’s expectations for net cash provided by operating activities or cash used for the purchase of property and equipment) is expected to be given until completion of the Review and the implementation of the initiatives being considered.

The Company’s Review, to date, has resulted in : 1) the repurchase of 16,750,000 shares of the Company’s common stock at $42.00 per share pursuant to a modified “Dutch Auction” tender offer (the “Tender Offer”) and 2) the execution by the Company, effective April 27, 2006, of a $1,250,000 credit facility (the “2006 Credit Facility”). The Company, pursuant to the Review, still plans to divest its wholly-owned subsidiary, Logan’s, subject to achieving fair and satisfactory consideration and approval of the Company’s Board of Directors. The proceeds of that divesture could be used to repurchase additional CBRL common stock, to reduce debt and/or for other general corporate purposes.

The Tender Offer met the definition of a forward contract under SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). As of April 28, 2006, the obligation to settle the tender offer was recorded as a liability at its fair value of $702,852 plus related transaction fees of $1,219. On May 4, 2006, the Company accepted for payment 16,750,000 shares of its common stock at a purchase price of $42.00 per share for a total purchase price of $703,500. Per SFAS No. 150 the difference of $648 between the liability at April 28, 2006 of $702,852 and the total purchase price of $703,500 will be included in interest expense in the Company’s fourth quarter. Contemporaneously with accepting the shares pursuant to the Tender Offer the Company drew approximately $725,000 under the 2006 Credit Facility to pay for the shares accepted in the Tender Offer, fees associated with the execution of the 2006 Credit Facility and related transaction costs.

During the nine-month period ended April 28, 2006 the Company did not make any share repurchases with the exception of those made in the Tender Offer. As of April 28, 2006, the Company had 821,081 shares remaining under a previously announced repurchase authorization. The Company presently cannot determine when it will complete the remaining share repurchase authorization because it has suspended repurchase activity pending implementation of the initiatives considered in the Review.

Standard & Poor’s (“S & P”) issued a “credit watch/negative” notice with respect to the Company’s indebtedness when the Review was disclosed. Subsequently in March 2006, S & P lowered its rating on the Company’s corporate credit and senior notes from BBB- to BB+ upon the announcement of the approval of the plan to incur indebtedness and repurchase shares pursuant to the Tender Offer. In May 2006, S & P again lowered the rating on the senior notes to B+ reflecting the relatively large amount of secured debt and lowered the rating on the new $1,175,000 credit facility to BB while taking the Company off its credit watch. Moody’s Investor Service (“Moody’s”) changed the Company’s outlook to “developing” when the Review was disclosed. Subsequently in March 2006, Moody’s downgraded the Company’s corporate family rating to Baa3 from Ba1, resulting from the company’s approval of the above mentioned Review and placed these ratings under review for possible downgrade. Subsequently in April 2006, Moody’s downgraded the Company’s senior notes to Ba3 from Ba1 and the corporate family rating to Ba2 from Ba1, assigned a rating of Ba2 to the new $1,175,000 credit facility and assigned a stable rating outlook for the Company upon completion of their rating review for possible downgrade of the Company announced in March 2006. Additionally, Moody’s has warned that should the divestiture of Logan’s not materialize or significantly change from the expected scenario, Moody’s would need to reassess the impact on all ratings at that time.

In the event that either or both of the Company’s ratings decline further, the Company may incur an increase in future borrowing costs. Additionally, since the rating from Moody’s declined to Ba3 and the Standard & Poor’s rating declined below BB- each $1 (face value at maturity) senior note became convertible into 10.8584 shares of the Company’s common stock (approximately 4.6 million shares in the aggregate). The Company has received verification from the Trustee of the senior notes that, as of the filing of this Quarterly Report, no holders of the senior notes have exercised their option to convert. The Company has classified the senior notes as long-term obligations due to the Company’s intent and ability to refinance these senior notes on a long-term basis.

Prior to July 30, 2005, the Company accounted for its share-based compensation under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“SFAS No. 123”), and related interpretations, the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and the disclosures required by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” In accordance with APB Opinion No. 25, no share-based compensation cost was reflected in the Company’s prior year net income for grants of stock options because the Company grants stock options with an exercise price equal to the market value of the stock on the date of grant.

Effective July 30, 2005, the Company, with the assistance of an outside consulting service, adopted the fair value recognition provisions of SFAS No. 123R, as discussed in Note 2 to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. The Company elected to adopt using the modified prospective method, under which share-based compensation cost in 2006 is recorded in general and administrative expenses and includes amortization over the respective vesting periods for (1) all share-based payments granted prior to, but not vested as of July 29, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (2) all share-based payments granted subsequent to July 29, 2005, based on the grant date fair value estimated using a binomial lattice-based option valuation model.

Before adoption of SFAS No. 123R, pro forma disclosure reflected the fair value of each option grant estimated on the date of grant using the Black-Scholes option-pricing model (see Note 3 to the Condensed Consolidated Financial Statements contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended October 28, 2005 (filed with the SEC on November 30, 2005) (the “Second Quarter 10-Q”) for the weighted-average assumptions used in 2005). Under the Black-Scholes option-pricing model the Company estimated volatility using only its historical share price performance over the expected life of the option. However, under SFAS No. 123R the expected volatility is estimated using a blend of implied volatility based on market-traded options on the Company’s common stock and historical volatility of the Company’s common stock over the contractual life of the options. Results of prior periods do not reflect any restated amounts and the Company had no cumulative effect adjustment upon adoption of SFAS No. 123R under the modified prospective method. The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, the Company issues new shares of common stock to satisfy stock option exercises or grants of restricted shares.

Compensation cost for share-based payment arrangements recognized in general and administrative expenses for the quarter and nine-month period ended April 28, 2006 was $2,399 and $7,552, respectively, for stock options and $978 and $2,801, respectively, for restricted stock grants. For the quarter and nine-month period ended April 28, 2006, the adoption of SFAS No. 123R, decreased both the Company’s reported operating income and income before income taxes by $2,399 and $7,552, respectively, and decreased reported net income by $1,593 and $4,977, respectively. The adoption of SFAS No. 123R decreased both reported basic and diluted net income per share by $0.03 for the quarter ended April 28, 2006. For the nine-month period ended April 28, 2006, the adoption of SFAS No. 123R, decreased both reported basic and diluted net income per share by $0.10. The adoption of SFAS No. 123R for the nine-month period ended April 28, 2006 also resulted in a decrease in reported cash flow from operating activities of $5,737 offset by an increase in reported cash flow from financing activities of $5,737. Because the Company did not adopt SFAS No. 123R until July 30, 2005, operating income, income before income taxes, net income, cash flow from operations, cash flow from financing activities, and basic and diluted net income per share during the quarter or nine-month period ended April 29, 2005 were not affected by its adoption.

In October 2005, the FASB issued Staff Position No. FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period” (“FSP No. 13-1”). FSP No. 13-1 states that rental costs associated with ground or building operating leases that are incurred during a construction period shall be recognized as rental expense in income from continuing operations as opposed to capitalizing such rental costs. Although the provisions of FSP No. 13-1 are effective for the first reporting period beginning after December 15, 2005, the Company has chosen to early adopt this guidance in its first quarter of 2006. The early adoption of FSP No. 13-1 did not affect the Company’s consolidated results of operations or financial position since this treatment did not differ from the Company’s then-existing accounting policy.

The Company prepares its consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires the Company 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 (see Note 2 to the 2005 Form 10-K). Actual results could differ from those estimates. Critical accounting policies are those that management believes are both most important to the portrayal of the Company's financial condition and operating results, and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. The Company considers the following policies to be most critical in understanding the judgments that are involved in preparing its consolidated financial statements.

In accordance with SFAS No. 144 “Impairment or Disposal of Long-Lived Assets,” the Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of assets is measured by comparing the carrying value to the undiscounted future cash flows expected to be generated by the asset. In addition to the recoverability test, the Company considers the likelihood of possible outcomes existing at the balance sheet date, including the assessment of the likelihood of the future sale of the asset. If the asset will be classified as held and used, then the asset is written down to its estimated fair value. If the asset will be classified as held for sale, then the asset is written down to its estimated fair value, net of estimated costs of disposal. Judgments and estimates made by the Company related to the expected useful lives of long-lived assets are affected by factors such as changes in economic conditions and changes in operating performance. As the Company assesses the ongoing expected cash flows and carrying amounts of its long-lived assets, these factors could cause the Company to realize a material impairment charge. From time to time the Company has decided to exit from or dispose of certain operating units. Typically, such decisions are made based on operating performance or strategic considerations and must be made before the actual costs or proceeds of disposition are known, and management must make estimates of these outcomes. Such outcomes could include the sale of a property or leasehold, mitigating costs through a tenant or subtenant, or negotiating a buyout of a remaining lease term. In these instances management evaluates possible outcomes, frequently using outside real estate and legal advice, and records in the financial statements provisions for the effect of such outcomes. The accuracy of such provisions can vary materially from original estimates, and management regularly monitors the adequacy of the provisions until final disposition occurs.

The Company recorded an impairment loss of $431 in the nine-months ended April 29, 2005. During the quarter ended January 27, 2006, the Company decided to close seven Cracker Barrel stores and three Logan’s restaurants, which resulted in impairment charges of $6,765. These impairments were recorded based upon the lower of unit carrying amount or fair value. Each unit’s fair value was determined based upon estimates provided by third-party appraisers using market comparables. The impaired locations were closed early in the quarter ended April 28, 2006 and were classified at that time as held for sale. The locations were closed due to weak financial performance, an unfavorable outlook, and relatively positive prospects for proceeds from disposition for certain locations. Due to the closed stores now being classified as held for sale, during the quarter ended April 28, 2006, the Company re-measured the closed store assets at the lower of their fair values less the costs to sell. Additionally, during the quarter ended April 28, 2006, the Company recorded an impairment on its Cracker Barrel management trainee housing facility. The total impairment loss related to property and equipment recorded in the quarter ended April 28, 2006 was $837.

In addition, at least annually the Company assesses the recoverability of goodwill. The impairment tests require the Company to estimate fair values of its related reporting units by making assumptions regarding future cash flows and other factors. This valuation may reflect, among other things, such external factors as capital market valuation for public companies comparable to the operating unit. If these assumptions change in the future, the Company may be required to record material impairment charges for these assets. The Company performed its annual assessment in the quarter ending January 27, 2006, and concluded at that time that there was no indication of impairment. This annual assessment is performed in the second quarter of each year. Additionally, an assessment is performed between annual assessments if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The Company self-insures a significant portion of expected workers’ compensation, general liability and health insurance claims. The Company has purchased insurance for individual claims that exceed $500 for 2003 and $1,000 for certain coverages for 2004, 2005 and going forward. The Company elected not to purchase such insurance for its primary group health program, but its offered benefits are limited to not more than $1,000 lifetime for any employee (including dependents) in the program. The Company records a liability for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost to the Company based upon an actuarially determined reserve as of the end of the Company’s third quarter and adjusting it by the actuarially determined losses and actual claims payments for the subsequent quarters until the next annual, actuarial study of its reserve requirements. Those reserves and these losses are determined actuarially from a range of possible outcomes within which no given estimate is more likely than any other estimate. In accordance with SFAS No. 5, “Accounting for Contingencies,” the Company records the losses at the low end of that range and discounts them to present value using a risk-free interest rate based on the actuarially projected timing of payments. The Company also monitors actual claims development, including incurrence or settlement of individual large claims during the interim period between actuarial studies as another means of estimating the adequacy of its reserves. From time to time the Company has performed limited scope interim updates of its actuarial studies to verify and/or modify its reserves. The Company records a liability for its group health program for all unpaid claims based primarily upon a loss development analysis derived from actual group health claims payment experience provided by the Company’s third-party administrator. The Company's accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. Unanticipated changes in these factors may produce materially different amounts of expense than would be reported under these insurance programs.

Cost of sales includes the cost of retail merchandise sold at the Cracker Barrel stores utilizing the retail inventory accounting method. During the quarter ended October 28, 2005, an estimate of shortages was recorded based on the physical inventory counts observed at the end of fiscal 2005. During the quarter ended January 27, 2006, Cracker Barrel performed physical inventory counts in approximately 26% of its stores and in its retail distribution center. Actual shortages were recorded in the quarter ended January 27, 2006 for those stores that were counted. An estimate of shortages was recorded for the remaining stores based on the results of the physical inventory counts at approximately 26% of its stores. During the quarter ended April 28, 2006, an estimate of shortages was recorded based on the physical inventory counts observed in approximately 26% of its stores and in its retail distribution center in the quarter ended January 27, 2006. This methodology is consistent with Cracker Barrel’s practice in all periods presented. The 2006 estimated shortages will be adjusted to actual upon physical inventory counts in all stores and the retail distribution center during the quarter ended July 28, 2006 and, although the Company believes the sampling approach to the mid-year inventory is statically valid, could produce materially different amounts than estimated by the Company for the quarters ended October 28, 2005, January 27, 2006 and April 28, 2006.

The Company must make estimates of certain items that comprise its income tax provision. These estimates include effective state and local income tax rates, employer tax credits for items such as FICA taxes paid on tip income, Work Opportunity and Welfare to Work, as well as estimates related to certain depreciation and capitalization policies. These estimates are made based on current tax laws, the best available information at the time of the provision and historical experience. The Company files its income tax returns many months after its year end. These returns are subject to audit by various federal and state governments years after the returns are filed and could be subject to differing interpretations of the tax laws. The Company then must assess the likelihood of successful legal proceedings or reach a settlement with the relevant taxing authority, either of which could result in material adjustments to the Company’s consolidated financial statements and its consolidated financial position (see Note 8 to the Company’s Consolidated Financial Statements included in its 2005 Form 10-K).

Unredeemed gift cards and certificates represent a liability of the Company related to unearned income and are recorded at their expected redemption value. The Company makes estimates of the ultimate unredeemed gift cards and certificates in the period of the original sale for those states that exempt gift cards and certificates from their escheat laws and in the period that gift cards and certificates are remitted to the state for the other states and reduces its liability and records revenue accordingly. These estimates are determined based on redemption history and trends and are amortized over the Company’s historical redemption period based upon the Company’s monthly redemption rates. Changes in redemption behavior or management's judgments regarding redemption trends in the future may produce materially different amounts of deferred revenue to be reported. If gift cards and certificates that have been removed from the liability are later redeemed, the Company recognizes revenue and reduces the liability as it would with any redemption. Additionally, the initial reduction to the liability would be reversed to offset the redemption. If gift cards and certificates that have been remitted to a state are later redeemed, the Company will request the previously remitted cash back from the state. At that time the Company will increase its liability for gift cards and certificates to offset the reduction to this same liability when the card was redeemed.

The expected volatility, option exercise and termination assumptions involve management’s best estimates at that time, all of which impact the fair value of the option calculated by the binomial lattice-based option valuation model and, ultimately, the expense that will be recognized over the life of the option. Management updates the historical and implied components of the expected volatility assumption quarterly. Management updates option exercise and termination assumptions quarterly. The expected life is a by-product of the lattice model, and is updated when new grants are made.

SFAS No. 123R also requires that compensation expense be recognized for only the portion of options that are expected to vest. Therefore, an estimated forfeiture rate derived from historical employee termination behavior, grouped by job classification, is applied against share-based compensation expense. The forfeiture rate is applied on a straight-line basis over the service (vesting) period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Management updates the estimated forfeiture rate to actual on each of the vesting dates and adjusts compensation expense accordingly, so that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date.

The Company and its subsidiaries are parties to various legal and regulatory proceedings and claims incidental to its business. In the opinion of management, however, based upon information currently available, the ultimate liability with respect to these actions will not materially affect the Company’s consolidated results of operations or financial position. The Company reviews outstanding claims and proceedings internally and with external counsel as necessary to assess probability of loss and for the ability to estimate loss. These assessments are re-evaluated each quarter or as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).

The Company’s management, with the participation of its principal executive and financial officers, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 (“the Exchange Act”)). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of April 28, 2006, the Company’s disclosure controls and procedures were effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e).

Exhibit No.		Description

10.1		Success Plan (incorporated herein by this reference to Exhibit 99.D.12 to Form SC TO-I filed with the SEC on March 31, 2006)

10.2		Form of Success Award (incorporated herein by this reference to Exhibit 99.D.13 to Form SC TO-I filed with the SEC on March 31, 2006)

10.3		Credit Agreement dated as of April 27, 2006 among CBRL Group, Inc., the Subsidiary Guarantors named therein, the Lenders party thereto and Wachovia Bank, National Association, as Administrative Agent and Collateral Agent

31		Rule 13a-14(a)/15d-14(a) Certifications

32		Section 1350 Certifications

Tennessee		62-1749513
(State or Other Jurisdiction		(IRS Employer
Of Incorporation or Organization)		Identification No.)

	Quarter Ended				Nine Months Ended
	April 28, 2006		April 29, 2005		April 28, 2006		April 29, 2005

Net sales in company-owned stores:
Restaurant	$	541,582	$	523,423	$	1,606,978	$	1,521,892
Retail		101,938		103,973		363,088		384,225
Total net sales		643,520		627,396		1,970,066		1,906,117
Franchise fees and royalties		680		603		1,847		1,724
Total revenue	$	644,200	$	627,999	$	1,971,913	$	1,907,841

	Employee Termination benefits			Lease termination costs			Other			Total
Beginning liability balance at January 27, 2006		--			--			--			--
Expense	$	700		$	484		$	1,575		$	2,759
Costs paid		(700	)		(31	)		(744	)		(1,475	)
Adjustments*		--			310			(306	)		4
Ending liability balance at April 28, 2006	$	--		$	763		$	525		$	1,288

	Quarter Ended						Nine Months Ended
	April 28, 2006			April 29, 2005			April 28, 2006			April 29, 2005
Net sales:
Cracker Barrel restaurant		67.1	%		67.5	%		65.6	%		65.1	%
Logan’s		17.0			15.8			15.9			14.7
Total restaurant		84.1			83.3			81.5			79.8
Cracker Barrel retail		15.8			16.6			18.4			20.1
Total net sales		99.9			99.9			99.9			99.9
Franchise fees and royalties		0.1			0.1			0.1			0.1
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

	Quarter Ended				Nine Months Ended
	April 28, 2006		April 29, 2005		April 28, 2006		April 29, 2005
Cracker Barrel
Net sales:
Restaurant	$	802.9	$	819.2	$	2,408.4	$	2,428.0
Retail		189.4		200.8		676.2		750.6
Total net sales	$	992.3	$	1,020.0	$	3,084.6	$	3,178.6

Logan’s	$	821.2	$	821.5	$	2,407.1	$	2,403.6

	April 28, 2006		July 29, 2005

Retail	$	85,981	$	101,604
Restaurant		21,661		21,588
Supplies		20,445		19,612
Total	$	128,087	$	142,804