CRACKER BARREL OLD COUNTRY STORE, INC 10-Q

ITEM 1. Financial Statements (Unaudited) CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited) ASSETS May 1, 2020 August 2, 2019* Current Assets: Cash and cash equivalents $ 363,330 $ 36,884 Accounts receivable 12,476 22,757 Income taxes receivable 8,122 9,449 Inventories 146,279 154,958 Prepaid expenses and other current assets 27,201 18,332 Total current assets 557,408 242,380 Property and equipment 2,361,489 2,312,815 Less: Accumulated depreciation and amortization 1,209,865 1,143,850 Property and equipment – net 1,151,624 1,168,965 Operating lease right-of-use assets, net 455,179 — Investment in unconsolidated subsidiary — 89,100 Goodwill 6,364 — Other assets 65,304 80,780 Total assets $ 2,235,879 $ 1,581,225 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 88,052 $ 132,221 Taxes withheld and accrued 15,743 38,196 Accrued employee compensation 30,238 67,879 Current operating lease liabilities 44,373 — Other current liabilities 175,020 154,178 Total current liabilities 353,426 392,474 Long-term debt 940,000 400,000 Long-term operating lease liabilities 456,273 — Long-term interest rate swap liability 26,716 10,483 Other long-term obligations 66,849 129,439 Deferred income taxes 406 44,119 Commitments and Contingencies (Note 13) Shareholders’ Equity: Preferred stock – 100,000,000 shares of $ 0.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued — — Common stock – 400,000,000 shares of $ 0.01 par value authorized; 23,693,981 shares issued and outstanding at May 1, 2020, and 24,049,240 shares issued and outstanding at August 2, 2019 237 241 Additional paid-in capital — 49,732 Accumulated other comprehensive loss ( 19,454 ) ( 6,913 ) Retained earnings 411,426 561,650 Total shareholders’ equity 392,209 604,710 Total liabilities and shareholders’ equity $ 2,235,879 $ 1,581,225 See Notes to unaudited Condensed Consolidated Financial Statements. * This Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of August 2, 2019, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2019. 3 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands, except share data) (Unaudited) Quarter Ended Nine Months Ended May 1, 2020 May 3, 2019 May 1, 2020 May 3, 2019 Total revenue $ 432,544 $ 739,603 $ 2,027,727 $ 2,284,853 Cost of goods sold (exclusive of depreciation and rent) 137,138 217,073 629,159 704,545 Labor and other related expenses 189,118 267,641 737,209 802,574 Other store operating expenses 138,920 152,679 473,466 461,976 General and administrative expenses 28,008 37,125 106,025 112,284 Impairment 18,336 — 18,336 — Operating income (loss) ( 78,976 ) 65,085 63,532 203,474 Interest expense, net 5,298 4,111 12,383 12,637 Income (loss) before income taxes ( 84,274 ) 60,974 51,149 190,837 Provision for income taxes (income tax benefit) ( 55,220 ) 10,560 ( 33,752 ) 32,461 Loss from unconsolidated subsidiary ( 132,878 ) — ( 142,442 ) — Net income (loss) $ ( 161,932 ) $ 50,414 $ ( 57,541 ) $ 158,376 Net income (loss) per share: Basic $ ( 6.81 ) $ 2.10 $ ( 2.41 ) $ 6.59 Diluted $ ( 6.81 ) $ 2.09 $ ( 2.41 ) $ 6.57 Weighted average shares: Basic 23,777,916 24,041,673 23,922,360 24,034,878 Diluted 23,777,916 24,104,432 23,922,360 24,090,626 See Notes to unaudited Condensed Consolidated Financial Statements. 4 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited and in thousands) Quarter Ended Nine Months Ended May 1, 2020 May 3, 2019 May 1, 2020 May 3, 2019 Net income (loss) $ ( 161,932 ) $ 50,414 $ ( 57,541 ) $ 158,376 Other comprehensive loss before income tax benefit: Change in fair value of interest rate swaps ( 13,356 ) ( 2,957 ) ( 16,591 ) ( 6,629 ) Income tax benefit ( 3,302 ) ( 737 ) ( 4,050 ) ( 1,663 ) Other comprehensive loss, net of tax ( 10,054 ) ( 2,220 ) ( 12,541 ) ( 4,966 ) Comprehensive income (loss) $ ( 171,986 ) $ 48,194 $ ( 70,082 ) $ 153,410 See Notes to unaudited Condensed Consolidated Financial Statements. 5 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited and in thousands, except share data) For the Nine Month Period Ended May 1, 2020 Common Stock Additional Paid-In Accumulated Other Comprehensive Retained Total Shareholders’ Shares Amount Capital Loss Earnings Equity Balances at August 2, 2019 24,049,240 $ 241 $ 49,732 $ ( 6,913 ) $ 561,650 $ 604,710 Comprehensive Income (Loss): Net income — — — — 43,223 43,223 Other comprehensive loss, net of tax — — — ( 438 ) — ( 438 ) Total comprehensive income (loss) — — — ( 438 ) 43,223 42,785 Cash dividends declared - $ 1.30 per share — — — — ( 31,452 ) ( 31,452 ) Share-based compensation — — 1,798 — — 1,798 Issuance of share-based compensation awards, net of shares withheld for employee taxes 18,466 — ( 1,994 ) — — ( 1,994 ) Purchases and retirement of common stock ( 91,748 ) ( 1 ) ( 14,187 ) — — ( 14,188 ) Cumulative-effect of change in accounting principle — — — — 4,125 4,125 Balances at November 1, 2019 23,975,958 $ 240 $ 35,349 $ ( 7,351 ) $ 577,546 $ 605,784 Comprehensive Income (Loss): Net income — — — — 61,168 61,168 Other comprehensive loss, net of tax — — — ( 2,049 ) — ( 2,049 ) Total comprehensive income (loss) — — — ( 2,049 ) 61,168 59,119 Cash dividends declared - $ 1.30 per share — — — — ( 31,283 ) ( 31,283 ) Share-based compensation — — 2,122 — — 2,122 Issuance of share-based compensation awards 4,867 — — — — — Purchases and retirement of common stock ( 37,577 ) — ( 5,812 ) — — ( 5,812 ) Balances at January 31, 2020 23,943,248 $ 240 $ 31,659 $ ( 9,400 ) $ 607,431 $ 629,930 Comprehensive Loss: Net loss — — — — ( 161,932 ) ( 161,932 ) Other comprehensive loss, net of tax — — — ( 10,054 ) — ( 10,054 ) Total comprehensive loss — — — ( 10,054 ) ( 161,932 ) ( 171,986 ) Cash dividends declared - $ 1.30 per share — — — — ( 30,968 ) ( 30,968 ) Share-based compensation — — 251 — — 251 Issuance of share-based compensation awards 382 — ( 11 ) — — ( 11 ) Purchases and retirement of common stock ( 249,649 ) ( 3 ) ( 31,899 ) — ( 3,105 ) ( 35,007 ) Balances at May 1, 2020 23,693,981 $ 237 $ — $ ( 19,454 ) $ 411,426 $ 392,209 See Notes to unaudited Condensed Consolidated Financial Statements. 6 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited and in thousands, except share data) For the Nine Month Period Ended May 3, 2019 Common Stock Additional Paid-In Accumulated Other Comprehensive Retained Total Shareholders’ Shares Amount Capital Income (Loss) Earnings Equity Balances at August 3, 2018 24,011,550 $ 240 $ 44,049 $ 4,685 $ 532,807 $ 581,781 Comprehensive Income: Net income — — — — 47,207 47,207 Other comprehensive income, net of tax — — — 1,293 — 1,293 Total comprehensive income — — — 1,293 47,207 48,500 Cash dividends declared - $ 1.25 per share — — — — ( 30,176 ) ( 30,176 ) Share-based compensation — — 2,089 — — 2,089 Issuance of share-based compensation awards, net of shares withheld for employee taxes 22,825 — ( 2,016 ) — — ( 2,016 ) Balances at November 2, 2018 24,034,375 $ 240 $ 44,122 $ 5,978 $ 549,838 $ 600,178 Comprehensive Income (Loss): Net income — — — — 60,755 60,755 Other comprehensive income (loss), net of tax — — — ( 4,039 ) — ( 4,039 ) Total comprehensive income (loss) — — — ( 4,039 ) 60,755 56,716 Cash dividends declared - $ 1.25 per share — — — — ( 30,279 ) ( 30,279 ) Share-based compensation — — 2,044 — — 2,044 Issuance of share-based compensation awards, net of shares withheld for employee taxes 6,999 — ( 41 ) — — ( 41 ) Balances at February 1, 2019 24,041,374 $ 240 $ 46,125 $ 1,939 $ 580,314 $ 628,618 Comprehensive Income (Loss): Net income — — — — 50,414 50,414 Other comprehensive income (loss), net of tax — — — ( 2,220 ) — ( 2,220 ) Total comprehensive income (loss) — — — ( 2,220 ) 50,414 48,194 Cash dividends declared - $ 1.25 per share — — — — ( 30,165 ) ( 30,165 ) Share-based compensation — — 1,539 — — 1,539 Issuance of share-based compensation awards, net of shares withheld for employee taxes 3,028 1 ( 164 ) — — ( 163 ) Balances at May 3, 2019 24,044,402 $ 241 $ 47,500 $ ( 281 ) $ 600,563 $ 648,023 See Notes to unaudited Condensed Consolidated Financial Statements. 7 Index CRACKER BARREL OLD COUNTRY STORE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited and in thousands) Nine Months Ended May 1, 2020 May 3, 2019 Cash flows from operating activities: Net income (loss) $ ( 57,541 ) $ 158,376 Net loss from unconsolidated subsidiary 142,442 — Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 88,292 78,499 Loss on disposition of property and equipment 5,083 7,522 Impairment 19,000 — Share-based compensation 4,171 5,672 Noncash lease expense 47,045 — Changes in assets and liabilities: Inventories 8,906 3,671 Other current assets 3,075 ( 5,158 ) Accounts payable ( 46,045 ) ( 7,015 ) Accrued employee compensation ( 37,650 ) 1,161 Other current liabilities ( 11,759 ) 5,661 Long-term operating lease liabilities ( 36,350 ) — Deferred income taxes ( 39,544 ) ( 21 ) Other long-term assets and liabilities ( 1,893 ) 4,218 Net cash provided by operating activities 87,232 252,586 Cash flows from investing activities: Purchase of property and equipment ( 83,631 ) ( 103,862 ) Proceeds from insurance recoveries of property and equipment 986 603 Proceeds from sale of property and equipment 1,827 134 Notes receivable from unconsolidated subsidiary ( 35,500 ) — Acquisition of business, net of cash acquired ( 32,971 ) — Net cash used in investing activities ( 149,289 ) ( 103,125 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 762,000 400,000 Taxes withheld from issuance of share-based compensation awards ( 2,005 ) ( 2,220 ) Principal payments under long-term debt ( 222,000 ) ( 400,000 ) Purchases and retirement of common stock ( 55,007 ) — Deferred financing costs — ( 3,022 ) Dividends on common stock ( 94,485 ) ( 91,290 ) Net cash provided by (used in) financing activities 388,503 ( 96,532 ) Net increase in cash and cash equivalents 326,446 52,929 Cash and cash equivalents, beginning of period 36,884 114,656 Cash and cash equivalents, end of period $ 363,330 $ 167,585 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 12,927 $ 11,881 Income taxes $ 5,277 $ 31,129 Supplemental schedule of non-cash investing and financing activities * : Capital expenditures accrued in accounts payable $ 2,159 $ 4,980 Change in fair value of interest rate swaps $ ( 16,591 ) $ ( 6,629 ) Change in deferred tax asset for interest rate swaps $ 4,050 $ 1,663 Dividends declared but not yet paid $ 32,068 $ 31,106 *See Note 11 for additional supplemental disclosures related to leases See Notes to unaudited Condensed Consolidated Financial Statements. 8 Index CRACKER BARREL OLD COUNTRY STORE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except percentages, share and per share data) (Unaudited) 1. Condensed Consolidated Financial Statements Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America 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 a 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 August 2, 2019 (the “2019 Form 10-K”). The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2019 Form 10-K except for the newly adopted accounting guidance for leases discussed in Note 11. References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted. COVID-19 Impact In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, federal, state and local governmental authorities have imposed unprecedented restrictions on travel, group gatherings and non-essential activities, such as “social distancing” guidance, shelter-in-place orders and limitations on or full prohibitions of dine-in services. In response to the business disruption caused by the COVID-19 pandemic, the Company has taken the following actions. Operating Initiatives In response to the COVID-19 pandemic and the orders and guidance from U.S. federal and applicable state and local governmental authorities, in March 2020, the Company temporarily closed the dining rooms in all of its restaurants and operated with pick-up or delivery only. As part of the Company’s efforts to support an off-premise-only business model, the Company implemented various changes to its Cracker Barrel offerings, including a limited menu and multi-serving takeout Family Meal Baskets, the expansion of third-party delivery services and the implementation of various operating model changes, including contactless curbside delivery. As of the end of March 2020, all of the Company’s restaurant operations were limited to pick-up and delivery only with no dine-in service. In late April 2020, certain state and municipal authorities began to remove or modify existing restrictions on dine-in restaurant operations in certain jurisdictions, and the Company has been able to resume dine-in services at a limited number of its restaurants; however, the Company’s dine-in services have been and continue to be limited to occupancy levels well below capacity, and some are yet to open at all for dine-in service. The Company is taking a cautious approach to reopening dining rooms and is instituting operational protocols to comply with applicable regulatory requirements and to monitor developing health authority recommendations in order to protect the health and foster the confidence of employees and guests in these communities. The adverse impacts of the COVID-19 pandemic resulted in the Company testing its restaurant long-lived assets for recoverability. As a result of this analysis, the Company recorded impairment charges of $ 18,336 due to the expected deterioration in operating performance of certain Cracker Barrel stores. 9 Index Expense Reductions The Company has made significant reductions in operating expenses to reflect reduced operations and sales levels as well as eliminating non-essential spending where feasible. The Company furloughed employees and eliminated a significant number of positions at all levels of the Company, both at the corporate headquarters and in the field. Severance expenses of $ 3,122 related to the elimination of 450 positions were recorded in the third quarter of 2020. The Company also implemented pay reductions for the remainder of the fiscal year for corporate officers and reduced cash retainers payable to the Company’s Board of Directors. Additionally, the Company has adapted its labor model, instituted inventory management measures and negotiated revised terms with landlords and vendors. Liquidity Initiatives As a precautionary measure and in order to increase the Company’s cash position and provide financial flexibility given the uncertainty in the market caused by the COVID-19 pandemic, the Company borrowed $ 415,000 under the Company’s 2019 Revolving Credit Facility (as defined herein), leaving approximately $ 3,271 in borrowing availability. To further preserve available cash, the payment of the dividend that was declared on March 3, 2020 was deferred until September 2, 2020 and the Company has suspended all further dividend payments until further notice. The Company has also temporarily suspended all future share repurchases under its previously announced $ 25,000 share repurchase program. In keeping with the Company’s strategy of concentrating its resources on its core business during the COVID-19 pandemic, the Company has decided not to invest further resources or otherwise provide additional funding to PBS HoldCo, LLC (see Note 3, “Equity Investment” for further information regarding the Company’s strategic relationship with PBS HoldCo, LLC). The Company continues to explore additional measures to enhance liquidity as the COVID-19 pandemic and related events develop. Additionally, on March 27, 2020, P.L. 116-136, the Coronavirus Aid, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains several provisions offering liquidity to businesses. The Company has benefited and will continue to benefit from two of these provisions, including recovering a portion of qualifying retention pay and health expenses paid to furloughed employees, and deferring a portion of employment taxes until calendar 2021 and calendar 2022. Recent Accounting Pronouncements Adopted Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The Company adopted this accounting guidance as of August 3, 2019, using the modified retrospective approach. Under this approach, existing leases were recorded at the adoption date rather than the beginning of the earliest comparative period presented. This approach allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods are not restated. The Company elected the transition package of practical expedients permitted under this guidance, which among other things, allows the carryforward of historical lease classifications. The Company elected to not separate lease and non-lease components for all classes of leased assets. Additionally, the Company elected to apply the short-term lease exemption to all asset classes. The Company chose not to elect the hindsight practical expedient. Adoption of the accounting guidance for leases resulted in the recognition of right-of-use operating lease assets of $ 464,394 and total operating lease liabilities of $ 506,406 as of August 3, 2019. At adoption, the lease liabilities were measured based upon the present value of remaining rental payments for existing operating leases primarily related to real estate leases. The right-of-use assets were offset primarily by straight-line lease liabilities that existed at the adoption date. The cumulative-effect of applying the accounting guidance for leases resulted in an adjustment to retained earnings of $ 4,125 at August 3, 2019, related to the elimination of the deferred gains on the Company’s sale-leaseback transactions from 2000 and 2009. See Note 11 for additional information regarding leases. 10 Index Accounting for Hedging Activities In August 2017, the FASB issued accounting guidance which amends the recognition, presentation and disclosure requirements of hedge accounting in order to better portray the economics of entities’ risk management activities, increase transparency and understandability of hedging relationships and simplify the application of hedge accounting. The adoption of this accounting guidance in the first quarter of 2020 did not have a significant impact on the Company’s consolidated financial position or results of operations, and the Company did not record a cumulative-effect adjustment to the opening balance of retained earnings. The amended presentation and disclosure requirements were applied on a prospective basis. Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income On December 22, 2017, the U.S. government enacted P.L. 115-97, the Tax Cuts and Jobs Act (the “Tax Act”). In February 2018, the FASB issued accounting guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. This accounting guidance was effective for the Company in the first quarter of 2020. The Company did not elect this reclassification option. As a result, this accounting guidance had no impact on the Company’s consolidated financial position or results of operations. Share-Based Payment Arrangements With Nonemployees In June 2018, the FASB issued accounting guidance in order to simplify the accounting for share-based payments granted to nonemployees for goods and services. This new guidance aligns most of the accounting requirements for share-based payments granted to nonemployees with the existing guidance for share-based payments granted to employees. The adoption of this accounting guidance in the first quarter of 2020 had no impact on the Company’s consolidated financial position or results of operations. Rate Reform In March 2020, the FASB issued optional accounting guidance in order to ease the potential burden in accounting for contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by this accounting guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 if certain criteria are met. The Company has certain contracts and hedging relationships which reference LIBOR for which the Company has elected to use the optional accounting guidance. The Company elected to apply this accounting guidance for contract modifications prospectively as of February 1, 2020. Additionally, the Company elected to apply this accounting guidance to eligible hedging relationships existing as of February 1, 2020 and to any new hedging relationships entered into during the effective period of the accounting guidance. The adoption of this accounting guidance in the third quarter of 2020 had no impact on the Company’s consolidated financial position or results of operations. Recent Accounting Pronouncements Not Adopted Goodwill Impairment In January 2017, the FASB issued accounting guidance related to the subsequent measurement of goodwill. Under this new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. This guidance should be applied on a prospective basis. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2021. 11 Index Accounting for Income Taxes In December 2019, the FASB issued accounting guidance in order to simplify the accounting for income taxes. This new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This accounting guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. In general, entities will apply the new guidance on a prospective basis, except for certain items such as the guidance on franchise taxes that are partially based on income. The guidance on franchise taxes that are partially based on income will be applied either retrospectively for all periods presented or using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2022. 2. Acquisition The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired and the liabilities assumed are recognized and measured at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as estimated amounts. Adjustments to these estimated amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired and the liabilities assumed has been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. Goodwill and other intangibles will be evaluated for impairment annually during each fourth quarter period and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. Effective October 10, 2019, the Company acquired 100 % ownership of Maple Street Biscuit Company (“MSBC”), a breakfast and lunch fast casual concept, for a purchase price of $ 36,000 , of which $ 32,000 was paid to the sellers in cash with the remaining $ 4,000 being held as security for the satisfaction of indemnification obligations of the sellers. The unused portion held as security, if any, will be paid in two installments with $ 1,500 due to the principal seller on the one-year anniversary of closing and the remaining amount due to the sellers on the two-year anniversary of closing. The Company believes that this investment supports its strategic initiative to extend the brand by becoming a market leader in the breakfast and lunch-focused fast casual dining segment of the restaurant industry and by providing a platform for growth. At May 1, 2020, MSBC had 28 company-owned and six franchised fast casual locations across seven states. The goodwill of $ 6,364 arising from the acquisition consists largely of the Company’s determination of the value of MSBC’s future free cash flows less the value of the identifiable tangible and intangible assets and liabilities. None of the goodwill recognized is expected to be deductible for income tax purposes. Acquisition-related costs of $ 1,269 were recorded in the general and administrative expenses line in the Condensed Consolidated Statement of Income (Loss) in the quarter ended November 1, 2019. 12 Index The following table summarizes the consideration paid for MSBC and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date: Fair value of total consideration transferred $ 36,000 Recognized amounts of identifiable assets acquired and liabilities assumed Financial assets $ 96 Property and equipment 13,580 Operating lease right-of-use assets, net 14,280 Indefinite-lived intangible asset* 19,460 Other current and noncurrent assets 394 Financial liabilities ( 1,876 ) Operating lease liabilities ( 15,973 ) Other noncurrent liabilities ( 325 ) Total identifiable net assets 29,636 Goodwill $ 6,364 * Consists entirely of MSBC’s Tradename All amounts recorded for the assets acquired, liabilities assumed and goodwill are provisional and are subject to revision as additional information about the fair value of assets acquired and liabilities assumed becomes available. We expect the final purchase price allocation to be completed in the first quarter of 2021. 3. Equity Method Investment Effective July 18, 2019, the Company purchased approximately 58.6 % of the economic ownership interest, and approximately 49.7 % of the voting interest, in PBS HoldCo, LLC (“PBS HC”). Prior to suspending all restaurant operations in response to the COVID-19 pandemic as further detailed below, PBS HC and its subsidiaries developed, owned, and operated food, beverage and entertainment establishments under the name of Punch Bowl Social (“PBS”). The Company does not have the power to unilaterally direct any activities of PBS HC, a variable interest entity, that most significantly impact PBS HC’s economic performance. As a result, the Company’s investment in PBS HC, for which it has the ability to exercise significant influence, but not control and is not the primary beneficiary, was accounted for using the equity method. Accordingly, the Company recognized its proportionate share of the reported earnings or losses of PBS HC adjusted for basis differences on its consolidated statements of income (loss) and as an adjustment to the Company’s investment in unconsolidated subsidiary on the consolidated balance sheet. The Company’s investment in PBS HC was valued at $ 89,100 at August 2, 2019, and was recorded on the Company’s Condensed Consolidated Balance Sheet as investment in unconsolidated subsidiary. Additionally, as part of the purchase transaction, the Company purchased promissory notes of PBS HC in principal amount of $ 6,900 along with the related interest on the notes and provided additional funding of $ 8,000 to PBS HC in exchange for a promissory note. As part of the purchase agreement with PBS HC, the Company agreed to fund PBS HC up to $ 51,000 through calendar 2020, of which the Company had funded $ 48,000 and $ 12,500 , respectively, as of May 1, 2020 and August 2, 2019. The related promissory notes were included in the other assets line on the Condensed Consolidated Balance Sheet. The Company’s exposure to risk of loss in PBS HC is generally limited to its investment in the ownership interest and its receivable related to the promissory notes. The Company assesses the impairment of its equity investment whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary. As a result of the COVID-19 pandemic, PBS HC’s wholly-owned subsidiary, in March 2020, PBS BrandCo, LLC (“Brandco”) suspended all operations at each of its 19 locations and laid off substantially all restaurant and corporate employees. On March 20, 2020, the primary lender under Brandco’s secured credit facility provided notice of the lender’s intention to foreclose on its collateral interest in all equity and/or assets of Brandco unless the Company repaid or unconditionally guaranteed the indebtedness. 13 Index In keeping with the Company’s strategy of concentrating its resources on its core business during the COVID-19 pandemic, and in light of the substantial uncertainties surrounding the PBS business coming out of the COVID-19 pandemic, the Company decided not to invest further resources to prevent foreclosure or otherwise provide additional capital to PBS HC. In the third quarter of 2020, the Company recorded a loss of $ 132,878 , which represented its equity investment in PBS HC and its receivable related to the principal and accumulated interest amounts related to the promissory notes. This loss was recorded in the net loss in unconsolidated subsidiary line on the Condensed Consolidated Statement of Income (Loss) in the third quarter of 2020. 4. Fair Value Measurements The Company’s assets and liabilities measured at fair value on a recurring basis at May 1, 2020 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 100,001 $ — $ — $ 100,001 Deferred compensation plan assets** 25,958 Total assets at fair value $ 125,959 Interest rate swap liability (see Note 7) $ — $ 26,716 $ — $ 26,716 Total liabilities at fair value $ — $ 26,716 $ — $ 26,716 The Company’s assets and liabilities measured at fair value on a recurring basis at August 2, 2019 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 46 $ — $ — $ 46 Deferred compensation plan assets** 30,593 Total assets at fair value $ 30,639 Interest rate swap liability (see Note 7) $ — $ 10,483 $ — $ 10,483 Total liabilities at fair value $ — $ 10,483 $ — $ 10,483 * Consists of money market fund investments. ** Represents plan assets invested in mutual funds established under a rabbi trust for the Company’s non-qualified savings plan and is included in the Condensed Consolidated Balance Sheets as other assets. The Company’s money market fund investments are measured at fair value using quoted market prices. The fair values of the Company’s interest rate swap liabilities are determined based on the present value of expected future cash flows. Since the values of the Company’s interest rate swaps are based on the LIBOR forward curve, which is observable at commonly quoted intervals for the full terms of the swaps, it is considered a Level 2 input. Non-performance risk is reflected in determining the fair value of the interest rate swaps by using the Company’s credit spread less the risk-free interest rate, both of which are observable at commonly quoted intervals for the terms of the swaps. Thus, the adjustment for non-performance risk is also considered a Level 2 input. The Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value. The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration. The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at May 1, 2020 and August 2, 2019. 14 Index Assets Measured at Fair Value on a Nonrecurring Basis As part of the Company’s acquisition of MSBC effective October 10, 2019, the Company recorded MSBC’s property and equipment and the MSBC tradename at fair value. The remaining identifiable assets and liabilities acquired were recorded at carrying value, which approximated their fair value at October 10, 2019. Additionally, goodwill was recorded as the excess of fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The fair value of MSBC’s property and equipment, tradename and the related goodwill are considered Level 3 inputs. The valuation method used by the Company depends on the type of asset and the availability of data. The Company’s assets measured at fair value on a nonrecurring basis as of October 10, 2019 were as follows: Level 1 Level 2 Level 3 Total Fair Value Property and equipment $ — $ — $ 13,580 $ 13,580 Tradename* — — 19,460 19,460 Goodwill — — 6,364 6,364 Total $ — $ — $ 39,404 $ 39,404 * Included in the Condensed Consolidated Balance Sheets as other assets. As noted in Note 2 above, the amounts recorded for these assets are estimated. See Note 2 for further information in regard to the determination of goodwill. The fair value of the property and equipment was determined by using the cost approach. Assumptions used in the cost method included estimates of replacement costs for similar property and equipment. Replacement cost was estimated to be approximately $ 500 per MSBC store. The fair value of MSBC’s tradename was determined by using the present value of estimated cash flows from comparable industry royalty rates for MSBC’s estimated future revenue streams. Assumptions used under this approach included an approximate 2.5 % royalty rate and a discount rate of 12.0 %. During the quarter ended May 1, 2020, five leased Cracker Barrel stores were determined to be impaired. Fair value of the leased stores was determined by using a cash flow model. Assumptions used in the cash flow model included projected annual revenue growth rates and projected cash flows, which can be affected by economic conditions and management’s expectations. The Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs, and thus, are considered Level 3 inputs. Based on its analysis, the Company recorded an estimated impairment charge of $ 18,336 , which is included in the impairment line on the Condensed Consolidated Statement of Income (Loss). 5. Inventories Inventories were comprised of the following at: May 1, 2020 August 2, 2019 Retail $ 111,839 $ 116,990 Restaurant 16,371 20,648 Supplies 18,069 17,320 Total $ 146,279 $ 154,958 6. Debt On September 5, 2018, the Company entered into a five-year $ 950,000 revolving credit facility (“2019 Revolving Credit Facility”). The 2019 Revolving Credit Facility also contains an option to increase the revolving credit facility by $ 300,000 . Subsequent to May 1, 2020, we have drawn an additional $ 39,400 under this option. 15 Index At May 1, 2020 and August 2, 2019, the Company had $ 940,000 and $ 400,000 , respectively, of outstanding borrowings under the 2019 Revolving Credit Facility. At May 1, 2020, the Company had $ 6,729 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 13 for more information on the Company’s standby letters of credit). At May 1, 2020, the Company had $ 3,271 in borrowing availability under the 2019 Revolving Credit Facility. In accordance with the 2019 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios under the 2019 Revolving Credit Facility. At May 1, 2020, $ 400,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 3.61 % (see Note 7 for information on the Company’s interest rate swaps). At May 1, 2020, the weighted average interest rate on the remaining $ 540,000 of the Company’s outstanding borrowings was 2.22 %. The 2019 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. At May 1, 2020, the Company was in compliance with all financial covenants. As a result of the uncertainty regarding the impact of the COVID-19 pandemic on the Company’s financial position and results of operations, the Company has obtained a waiver for the financial covenants for the fourth quarter of 2020 and the first and second quarters of 2021. The 2019 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase. Under the 2019 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2019 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $ 100,000 (the “cash availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $ 100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, cash availability is at least $ 100,000 , the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four . 7. Derivative Instruments and Hedging Activities The Company has interest rate risk relative to its outstanding borrowings (see Note 6 for information on the Company’s outstanding borrowings). The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost-efficient manner, the Company uses derivative instruments, specifically interest rate swaps. For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps are fixed at the rates in the table below plus the Company’s credit spread. The Company’s credit spread at May 1, 2020 was 1.25 %. All of the Company’s interest rate swaps are accounted for as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings and is presented in the same statement of income (loss) line item as the earnings effect of the hedged item. Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness, if any, will be recognized currently in earnings in the same statement of income (loss) line item as the earnings effect of the hedged item. The Company does not hold or use derivative instruments for trading purposes. The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments. 16 Index Companies may elect to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists. Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty. When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement. If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero. A summary of the Company’s interest rate swaps at May 1, 2020 is as follows: Trade Date Effective Date Term (in Years) Notional Amount Fixed Rate January 30, 2015 May 3, 2019 2.0 $ 60,000 2.16 % January 30, 2015 May 4, 2021 3.0 120,000 2.41 % January 30, 2015 May 3, 2019 2.0 60,000 2.15 % January 30, 2015 May 4, 2021 3.0 80,000 2.40 % January 16, 2019 May 3, 2019 3.0 115,000 2.63 % January 16, 2019 May 3, 2019 2.0 115,000 2.68 % August 6, 2019 November 4, 2019 2.5 50,000 1.50 % August 7, 2019 May 3, 2021 1.0 35,000 1.32 % August 7, 2019 May 3, 2022 2.0 100,000 1.40 % August 7, 2019 May 3, 2022 2.0 100,000 1.36 % The estimated fair value of the Company’s derivative instruments as of May 1, 2020 and August 2, 2019 were as follows: (See Note 4) Balance Sheet Location May 1, 2020 August 2, 2019 Interest rate swaps Long-term interest rate swap liability $ 26,716 $ 10,483 Total liabilities $ 26,716 $ 10,483 ** These interest rate swap liabilities are recorded gross at both May 1, 2020 and August 2, 2019 since there were no offsetting assets under the Company’s master netting agreements. The estimated fair value of the Company’s interest rate swap liabilities incorporates the Company’s non-performance risk (see Note 4). The adjustment related to the Company’s non-performance risk at May 1, 2020 and August 2, 2019 resulted in reductions of $ 1,547 and $ 399 , respectively, in the fair value of the interest rate swap liabilities. The offset to the interest rate swap liabilities are recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt. As of May 1, 2020, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $ 5,385 . Cash flows related to the interest rate swaps are included in the interest expense line in the Condensed Consolidated Statements of Income (Loss) and in operating activities in the Condensed Consolidated Statements of Cash Flows. The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for the nine months ended May 1, 2020 and the year ended August 2, 2019: Amount of Loss Recognized in AOCL on Derivatives Nine Months Ended May 1, 2020 Year Ended August 2, 2019 Cash flow hedges: Interest rate swaps $ ( 16,591 ) $ ( 15,466 ) 17 Index The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and nine-month periods ended May 1, 2020 and May 3, 2019: Location of Loss Reclassified from AOCL into Income (Effective Portion) Amount of Loss Reclassified from AOCL into Income (Effective Portion) Quarter Ended Nine Months Ended May 1, 2020 May 3, 2019 May 1, 2020 May 3, 2019 Cash flow hedges: Interest rate swaps Interest expense $ 465 $ ( 99 ) $ 559 $ 43 The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the quarter and nine months ended May 1, 2020: Amount Reclassified from AOCL Affected Line Item in the Quarter Ended Nine Months Ended Condensed Consolidated Financial Statements Loss on cash flow hedges: Interest rate swaps $ ( 465 ) $ ( 559 ) Interest expense Tax benefit 116 139 Provision for income taxes (income tax benefit) $ ( 349 ) $ ( 420 ) Net of tax No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the nine months ended May 1, 2020. The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the nine months ended May 1, 2020: Changes in AOCL AOCL balance at August 2, 2019 $ ( 6,913 ) Other comprehensive loss before reclassifications ( 12,121 ) Amounts reclassified from AOCL ( 420 ) Other comprehensive loss, net of tax ( 12,541 ) AOCL balance at May 1, 2020 $ ( 19,454 ) 8. Seasonality Historically, the net income of the Company has been lower in the first and third quarters and higher in the second and fourth quarters. Management attributes these variations to the holiday shopping season and the summer vacation and travel season. The Company’s retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company’s second quarter, which includes the holiday shopping season. Historically, interstate tourist traffic and the propensity to dine out have been higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter. The Company generally opens additional new locations throughout the year. Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year. Currently, the Company is not able to predict the impact that the COVID-19 pandemic may have on these historical consumer demand patterns or, as a result, on the seasonality of its business generally. 9. Segment Information Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects. Accordingly, the Company currently manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States. 18 Index 10. Revenue Recognition Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer. The Company’s policy is to present sales in the Condensed Consolidated Statements of Income (Loss) on a net presentation basis after deducting sales tax. Disaggregation of revenue Total revenue was comprised of the following for the specified periods: Quarter Ended Nine Months Ended May 1, 2020 May 3, 2019 May 1, 2020 May 3, 2019 Revenue: Restaurant $ 360,379 $ 610,120 $ 1,630,501 $ 1,832,273 Retail 72,165 129,483 397,226 452,580 Total revenue $ 432,544 $ 739,603 $ 2,027,727 $ 2,284,853 Restaurant Revenue The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied. Retail Revenue The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied. Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on return history and sales levels. Gift Card Breakage Included in restaurant and retail revenue is gift card breakage. Customer purchases of gift cards, to be utilized at the Company’s stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise. Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company’s Condensed Consolidated Statements of Income (Loss) over the expected redemption period. Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption. For the quarter and nine months ended May 1, 2020, gift card breakage was $ 1,574 and $ 5,234 . For the quarter and nine months ended May 3, 2019, gift card breakage was $ 1,699 and $ 5,355 . Deferred revenue related to the Company’s gift cards was $ 95,829 and $ 80,073 , respectively, at May 1, 2020 and August 2, 2019. Revenue recognized in the Condensed Consolidated Statements of Income (Loss) for the nine months ended May 1, 2020 and May 3 , 2019, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 33,937 and $ 36,815 . 19 Index 11. Leases The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. The Company also leases advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases. Additionally, the Company also completed sale-leaseback transactions in 2000 and 2009. In 2009, the Company completed sale-leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years. In 2000, the Company completed a sale-leaseback transaction involving 65 of its owned stores. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for a term of 21 years. The leases for these stores include specified renewal options for up to 20 additional years and certain financial covenants which include maintenance of a minimum fixed charge coverage for the leased stores. At May 1, 2020 and August 2, 2019, the Company was in compliance with these covenants. To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration. If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability. The Company’s leases all have varying terms and expire at various dates through 2055. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each. The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option. The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options. Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as we have not yet taken possession. These leases are expected to commence in 2021 with undiscounted future payments of $ 15,898 . As further discussed in Note 1 under the lease discussion in the “Recent Accounting Standards Adopted” section, the Company has elected to not separate lease and non-lease components. Additionally, the Company has elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, we used the incremental borrowing rate as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data. The following table summarizes the components of lease cost for operating leases for the quarter and nine months ended May 1, 2020: Quarter Ended May 1, 2020 Nine Months Ended May 1, 2020 Operating lease cost $ 20,977 $ 61,295 Short term lease cost 361 2,637 Variable lease cost 309 1,239 Total lease cost $ 21,647 $ 65,171 20 Index The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarter and nine months ended May 1, 2020: Quarter Ended May 1, 2020 Nine Months Ended May 1, 2020 Operating cash flow information: Cash paid for amounts included in the measurement of lease liabilities $ 20,192 $ 60,024 Noncash information: Right-of-use assets obtained in exchange for new operating lease liabilities 623 5,062 Lease modifications granting additional right-of-use assets 2,455 14,972 Lease modifications removing right-of-use assets ( 196 ) ( 1,125 ) The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of May 1, 2020: Weighted-average remaining lease term 18.14 Years Weighted-average discount rate 3.87 % The following table summarizes the maturities of undiscounted cash flows reconciled to the total lease liability as of May 1, 2020: Year Total Remainder of 2020 $ 20,182 2021 53,806 2022 42,414 2023 38,189 2024 36,760 Thereafter 535,281 Total future minimum lease payments 726,632 Less imputed remaining interest ( 225,986 ) Total present value of operating lease liabilities $ 500,646 The following table summarizes the maturities of lease commitments as of August 2, 2019, prior to the adoption of the new lease guidance, as previously disclosed in our 2019 Form 10-K: Year Total 2020 $ 69,249 2021 40,962 2022 36,280 2023 33,639 2024 34,020 Thereafter 515,169 Total $ 729,319 12. Net Income Per Share and Weighted Average Shares Basic consolidated net income per share is computed by dividing consolidated net income available to common shareholders by the weighted average number of shares of common stock outstanding for the reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue shares of common stock were exercised or converted into shares of common stock and is based upon the weighted average number of shares of common stock and common equivalent shares outstanding during the reporting period. Common equivalent shares related to nonvested stock awards and units issued by the Company are calculated using the treasury stock method. The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects on diluted consolidated net income per share. 21 Index The following table reconciles the components of diluted earnings per share computations: Quarter Ended Nine Months Ended May 1, 2020 May 3, 2019 May 1, 2020 May 3, 2019 Net income (loss) per share numerator $ ( 161,932 ) $ 50,414 $ ( 57,541 ) $ 158,376 Net income (loss) per share denominator: Weighted average shares 23,777,916 24,041,673 23,922,360 24,034,878 Add potential dilution: Nonvested stock awards and units — 62,759 — 55,748 Diluted weighted average shares 23,777,916 24,104,432 23,922,360 24,090,626 13. Commitments and Contingencies The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these contingencies will not materially affect the Company’s financial statements. Related to its workers’ compensation insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers. As of May 1, 2020, the Company had $ 6,729 of standby letters of credit related to securing reserved claims under workers’ compensation insurance. All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2019 Revolving Credit Facility (see Note 6). At May 1, 2020, the Company is secondarily liable for lease payments associated with two properties occupied by a third party. Prior to the third quarter of 2020, the Company was not aware of any non-performance under these lease arrangements that would result in the Company having to perform in accordance with the terms of these guarantees; and therefore, no provision had been recorded in the Condensed Consolidated Balance Sheets for amounts to be paid in case of non-performance by the primary obligor under such lease arrangements. During the third quarter of 2020, the Company received notice regarding non-performance by the primary obligor under these lease arrangements. At May 1, 2020, the Company has recorded a provision of $ 324 in the Condensed Consolidated Balance Sheet for amounts to be paid as of result of non-performance by the primary obligor. The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business. The Company believes that the probability of incurring an actual liability under such indemnification agreements is sufficiently remote that no such liability has been recorded in the Condensed Consolidated Balance Sheet as of May 1, 2020. On July 31, 2000, the Company entered into a sale-leaseback transaction involving 65 of its owned Cracker Barrel stores. In 2020, the Company entered into an agreement to purchase the properties from the landlord for $ 200,835 . In connection with the purchase, the Company made an earnest money deposit of $ 6,000 which is included in the prepaid expenses and other current assets line on the Condensed Consolidated Balance Sheet as of May 1, 2020. The Company’s intent is to enter into an agreement in the fourth quarter of 2020 to assign its right of title and interest as purchaser to another party. The closing on the purchase of the property is subject to customary closing conditions and is currently scheduled to occur on or before July 29, 2020, at which time the existing leaseback will terminate, and new lease agreements will be entered with the assigned party. 22 Index