What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-03 compared with 2020-06-02 · 138 added, 254 removed, 204 unchanged (66% of the section changed)

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and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store ® (“Cracker Barrel”) concept.

At May 1, 2020, we operated 664 Cracker Barrel stores in 45 states.

Additionally, effective October 10, 2019, we acquired Maple Street Biscuit Company (“MSBC”).

As of May 1, 2020, MSBC had 28 company-owned and six franchised fast casual locations across seven states.

As of May 1, 2020, we are in the process of converting our six former Holler & Dash Biscuit House TM locations (“Holler & Dash”) into MSBC locations.

Our Holler & Dash locations operate in the same states as MSBC.

At October 30, 2020, we operated 663 Cracker Barrel stores in 45 states and 35 Maple Street Biscuit Company (“MSBC”) company-owned locations in seven states.

At October 30, 2020, MSBC had six franchised locations.

All dollar amounts reported or discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are shown in thousands, except per share amounts and certain statistical information (e.g., number of stores).

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MD&A provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition.

MD&A should be read in conjunction with the (i) condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and (ii) audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 2, 2019 (the “2019 Form 10-K”).

Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation.

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however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements.

In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to, those contained in Part I, Item 1A of the 2019 Form 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as the factors described under “Critical Accounting Estimates” on pages 36-39 of this report or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with the novel coronavirus (“COVID-19”) pandemic, including the duration of the COVID-19 pandemic and its ultimate impact on our business, levels of consumer confidence in the safety of dine-in restaurants, restrictions (including occupancy restrictions) imposed by governmental authorities, the effectiveness of cost saving measures undertaken throughout our operations, disruptions to our operations as a result of the spread of COVID-19 in our workforce, and our increased level of indebtedness brought on by additional borrowing necessitated by the COVID-19 pandemic;

general or regional economic weakness, and weather on sales and customer travel;

discretionary income or personal expenditure activity of our customers;

information technology-related incidents, including data privacy and information security breaches, whether as a result of infrastructure failures, employee or vendor errors, or actions of third parties;

our ability to identify, acquire and sell successful new lines of retail merchandise and new menu items at our restaurants;

our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance;

uncertain performance of acquired businesses, strategic investments and other initiatives that we may pursue now or in the future;

changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, pensions, insurance or other undeterminable areas;

the effects of plans intended to promote or protect our brands and products;

commodity price increases;

the ability of and cost to us to recruit, train, and retain qualified hourly and management employees;

the effects of increased competition at our locations on sales and on labor recruiting, cost, and retention;

workers’ compensation, group health and utility price changes;

consumer behavior based on negative publicity, changes in consumer health or dietary trends or safety aspects of our food or products or those of the restaurant industry in general, including concerns about outbreaks of infectious disease as well as the possible effects of such events on the price or availability of ingredients used in our restaurants;

the effects of our indebtedness and associated restrictions on our financial and operating flexibility and ability to execute or pursue our operating plans and objectives;

changes in interest rates, increases in borrowed capital or capital market conditions affecting our financing costs and ability to refinance all or portions of our indebtedness;

the effects of business trends on the outlook for individual restaurant locations and the effect on the carrying value of those locations;

our ability to retain key personnel;

the availability and cost of suitable sites for restaurant development and our ability to identify those sites;

our ability to enter successfully into new geographic markets that may be less familiar to us;

changes in land, building materials and construction costs;

the actual results of pending, future or threatened litigation or governmental investigations and the costs and effects of negative publicity associated with these activities;

economic or psychological effects of natural disasters or other unforeseen events such as terrorist acts, social unrest or war and the military or government responses to such events;

disruptions to our restaurant or retail supply chain, including as a result of COVID-19;

changes in foreign exchange rates affecting our future retail inventory purchases;

implementation of new or changes in interpretation of existing accounting principles generally accepted in the United States of America (“GAAP”) and those factors contained in Part I, Item 1A of the 2020 Form 10-K, as well as the factors described under “Critical Accounting Estimates” on pages 29-31 of this report or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.

Readers are cautioned not to place undue reliance on forward-looking statements made in this report because the statements speak only as of the report’s date.

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Readers are advised, however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic.

In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, have imposed unprecedented restrictions on travel, group gatherings and non-essential activities, including orders and guidance issued by U.S.

federal, state and local governmental authorities, such as “social distancing” guidance and shelter-in-place orders and limitations on or full prohibitions of dine-in services.

There have also been significant business closures and substantial reduction in economic activity in the United States as a result of the COVID-19 pandemic.

The impacts of the COVID-19 pandemic have had a significant negative impact on our results of operations and cash flows for the third quarter of 2020.

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, we temporarily closed the dining rooms in all our restaurants and operated with pick-up or delivery only.

As part of our efforts to support an off-premise-only business model, we implemented various changes to our 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.

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 we have been able to resume dine-in services at a limited number of our restaurants;

however, our dine-in services have been and will continue to be limited to occupancy levels well below capacity, and some are yet to open at all.

In addition, both our off-premise and resumed dine-in operations are being conducted under additional health and safety procedures and practices that are intended to ensure the safety and comfort of our employees and guests, and these additional measures have had and will continue to have adverse effects on our operating costs.

As of May 20, 2020, 356 of our restaurants (including two Holler & Dash locations that have reopened as MSBC locations as of May 20, 2020,) have re-opened on a restricted basis with the remaining 338 open for pick-up or delivery only.

We have taken a number of actions to preserve liquidity during the COVID-19 pandemic.

In mid-March 2020, we borrowed the remaining available amount under our 2019 Revolving Credit Facility so that as of May 1, 2020 a total of approximately $946,729 (including $6,729 of standby letters of credit) was outstanding under our 2019 Revolving Credit Facility.

In May 2020, we borrowed an additional $39,400 under an accordion feature of our 2019 Revolving Credit Facility.

In addition, we deferred payment of the dividend that was declared on March 3, 2020, which was scheduled for May 5, 2020 to shareholders of record on April 17, 2020, until a later payment date of September 2, 2020 to shareholders of record on August 14, 2020, and we suspended all further dividend payments under our historical dividend program until further notice.

We also temporarily suspended all future share repurchases under our previously announced $25,000 share repurchase program.

Depending on the duration of the COVID-19 pandemic and the associated business interruptions, we may continue to seek other sources of liquidity and other ways of preserving liquidity.

No assurance can be made that sources of additional liquidity will be readily available or that we will be successful in obtaining additional liquidity or preserving liquidity.

Further, no assurance can be made that sources of additional liquidity will be available on terms that are favorable to us.

To further preserve available cash during the COVID-19 pandemic, we have modified work hours, furloughed employees, eliminated positions at all levels of the Company, and reduced compensation payable to our corporate officers and cash retainers payable to our Board of Directors.

As of May 1, 2020, we have incurred severance expenses of $3,122 related to the elimination of 450 positions.

We have also instituted inventory management measures, negotiated and continue to negotiate revised payment terms with our landlords and vendors, and undertaken other cost saving measures throughout our operations, which have resulted in certain cost savings and benefits and deferral of various payables.

We may continue to initiate additional cost saving measures if the COVID-19 pandemic continues.

The COVID-19 pandemic has also adversely affected our ability to open new restaurants and remodel existing restaurants.

Due to the uncertainty in the economy and to preserve liquidity, we have paused substantially all construction of new restaurants and certain capital expenditures at existing restaurants.

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.

We have 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.

Operations Strategy

Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage that strength.

We remain focused on our 2020 priorities, such as accelerating our off-premise business, introducing craveable signature food, and improving the employee and guest experience.

Due to the impacts of the COVID-19 pandemic, we have added additional 2020 priorities including the following:

Instituting operational protocols to comply with applicable regulatory requirements to protect the health and safety of our employees and guests:

Implementing various strategies to support the recovery of our business as dining rooms reopen and as traffic recovers;

Ensuring we maintain sufficient liquidity to manage through this uncertain environment.

The COVID-19 pandemic continues to negatively impact the Company’s sales and traffic as a result of changes in consumer behavior as well as unprecedented restrictions by federal, state and local governmental authorities and recommendations by public health experts limiting 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.

Future consumer behavior and governmental regulations continue to be undeterminable while the COVID-19 pandemic continues to impact local, state, and national health conditions.

Despite the impact of the COVID-19 pandemic, management continues to believe that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry.

Our priorities for 2021 consist of the following:

Enhancing the Core business to drive sustainable sales growth and continued business model improvements.

During 2021, we are focused on driving topline sales by further growing our off-premise business, introducing menu innovation and evolving our digital infrastructure and digital strategy to improve the guest experience across all channels.

Additionally, in response to the COVID-19 pandemic, we have instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of our employees and guests while maintaining the service levels that guests associate with our brand, and we have implemented, and continue to adapt, various strategies to support the recovery of our business and navigate through the uncertain environment.

Expanding the Footprint by building profitable new Cracker Barrel stores in core and developing markets.

We currently anticipate adding three stores during 2021, one of which opened during the first three months of 2021.

Extending the Brand to drive further shareholder value creation by developing new platforms to drive growth, such as MSBC, a recently acquired growth-stage fast casual concept that we believe provides us with a vehicle to drive growth in a complementary segment of the restaurant industry.

Key Performance Indicators

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This measure excludes the impact of new store openings.

This measure also excludes sales related to MSBC since MSBC was acquired by the Company in the first quarter of 2020.

This measure also excludes sales related to MSBC and Holler & Dash Biscuit House TM (“Holler & Dash”) since MSBC was acquired by the Company in the first quarter of 2020 and our Holler & Dash locations have been converted into MSBC locations.

Comparable store restaurant sales are expressed as a percentage of an increase or decrease in restaurant sales versus the same period in the prior year.

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This amount, expressed as a percentage, is the comparable store restaurant sales discussed in MD&A.

See the section below entitled “Total Revenue” for the comparable store restaurant sales percentages for the third quarter and first nine months of 2020 as well as the same periods in the prior year.

See the section below entitled “Total Revenue” for the comparable store restaurant sales percentages for the first quarter of 2021 as well as the same period in the prior year.

Management uses comparable store restaurant sales as a measure of sales growth to evaluate how established stores have performed over time.

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This amount, expressed as a percentage, is the comparable store retail sales discussed in MD&A.

See the section below entitled “Total Revenue” for the comparable store retail sales percentages for the third quarter and first nine months of 2020 as well as the same periods in the prior year.

See the section below entitled “Total Revenue” for the comparable store retail sales percentages for the first quarter of 2021 as well as the same period in the prior year.

Management uses comparable store retail sales as a measure of sales growth to evaluate how established stores have performed over time.

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Comparable restaurant guest traffic consists of entrees sold in stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks.

This measure excludes guest traffic related to MSBC since MSBC was acquired by the Company in the first quarter of 2020.

This measure excludes guest traffic related to MSBC and Holler & Dash since MSBC was acquired by the Company in the first quarter of 2020 and our Holler & Dash locations have been converted into MSBC locations.

Comparable restaurant guest traffic is expressed as a percentage of an increase or decrease in restaurant guest traffic versus the same period in the prior year.

This amount, expressed as a percentage, is the guest traffic discussed in MD&A.

See section below entitled “Total Revenue” for the restaurant guest traffic percentages for the third quarter and first nine months of 2020 as well as the same periods in the prior year.

See section below entitled “Total Revenue” for the restaurant guest traffic percentages for the first quarter of 2021 as well as the same period in the prior year.

Management uses this measure to evaluate how established stores have performed over time excluding growth achieved through menu price and sales mix change.

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We believe this measure is useful for investors to evaluate per guest expenditures as well as our pricing and menu strategies.

See the section below entitled “Total Revenue” for the average check percentages for the third quarter and first nine months of 2020 as well as the same periods in the prior year.

See the section below entitled “Total Revenue” for the average check percentages for the first quarter of 2021 as well as the same period in the prior year.

Results of Operations

The following table highlights our operating results by percentage relationships to total revenue for the quarter and nine months ended May 1, 2020 as compared to the same periods in the prior year:

The following table highlights our operating results by percentage relationships to total revenue for the quarter ended October 30, 2020 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

Total revenue

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General and administrative expenses

Operating income (loss)

Gain on sale and leaseback transaction

Operating income

Interest expense

Income (loss) before income taxes

Provision for income taxes (income tax benefit)

Income before income taxes

Provision for income taxes

Net loss from unconsolidated subsidiary

Net income (loss)

The following table sets forth the change in the number of Company-owned and franchised units in operation during the quarters and nine months ended May 1, 2020 and May 3, 2019 as well as the number of Company-owned and franchised units at the end of the quarters and nine months ended May 1, 2020 and May 3, 2019:

Quarter Ended

Nine Months Ended

The following table sets forth the change in the number of Company-owned and franchised units in operation during the quarters ended October 30, 2020 and November 1, 2019 as well as the number of Company-owned and franchised units at the end of the quarters ended October 30, 2020 and November 1, 2019:

Net change in units:

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Company-owned – MSBC

Company-owned - Holler & Dash

Franchise – MSBC

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Franchise – MSBC

Effective October 10, 2019, we acquired MSBC.

We are currently in the process of converting our former Holler & Dash locations into MSBC locations and expect to complete this conversion in the fourth quarter of 2020.

These six locations were temporarily closed during the third quarter of 2020.

Total Revenue

Total revenue for the third quarter and first nine months of 2020 decreased 41.5% and 11.3%, respectively, compared to the same periods in the prior year.

The total revenue decreases for the third quarter and first nine months of 2020 were primarily the result of a significant decline in restaurant guest traffic as a result of restrictions mandated by federal, state and local governments in the United States to mitigate the spread of COVID-19 and the related changes in consumer behavior.

The following table highlights the key components of revenue for the quarter and nine months ended May 1, 2020 as compared to the quarter and nine months ended May 3, 2019:

Total revenue for the first quarter of 2021 decreased 13.7% as compared to the same period in the prior year.

The total revenue decrease for the first quarter of 2021 was driven by the decline in restaurant guest traffic as a result of restrictions mandated by federal, state and local governments in the United States to mitigate the spread of COVID-19 and the related changes in consumer behavior.

The following table highlights the key components of revenue for the quarter ended October 30, 2020 as compared to the quarter ended November 1, 2019:

Quarter Ended

Nine Months Ended

Revenue in dollars:

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Average check increase

Comparable restaurant guest traffic decrease (2) :

(1) Average unit volumes include sales of all stores except for MSBC and Holler & Dash.

(2) Comparable store sales exclude MSBC.

Comparable store restaurant sales, comparable retail sales and comparable restaurant guest traffic were negatively affected by the COVID-19 pandemic as all dining rooms were closed beginning the week of March 27, 2020 with five restaurants resuming dine-in operations with limited capacity on April 28, 2020 and ten restaurants resuming dine-in operations with limited capacity on April 30, 2020.

For the third quarter of 2020, our comparable store restaurant sales decrease resulted from a 43.6% guest traffic decrease partially offset by a 1.9% average check increase (which consisted entirely of the average menu price increase) compared to the prior year third quarter.

For the first nine months of 2020, our comparable store restaurant sales decrease resulted from a 14.9% guest traffic decrease partially offset by a 3.1% average check increase (including a 2.1% average menu price increase) as compared to the prior year period.

(2) Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the period and are measured on comparable calendar weeks.

Comparable store sales and traffic exclude MSBC and Holler & Dash.

For the first quarter of 2021, our comparable store restaurant sales decreased as a result of an 18.3% decrease in guest traffic decrease partially offset by a 1.9% increase in average check increase (including a 1.0% average menu price increase) as compared to the prior year first quarter.

Our retail sales are made substantially to our restaurant guests.

For the third quarter of 2020 and first nine months of 2020, our comparable store retail sales decreases resulted from the guest traffic decline and the impact of the COVID-19 pandemic as compared to the same periods in the prior year.

For the first quarter of 2021 our comparable store retail sales decrease resulted from the guest traffic decline and the impact of the COVID-19 pandemic as compared to the same period in the prior year.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the third quarter and first nine months of 2020 as compared to the same periods in the prior year:

The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the first quarter of 2021 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

Cost of Goods Sold in dollars:

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Cost of Goods Sold by percentage of revenue:

The increase in restaurant cost of goods sold as a percentage of restaurant revenue in the third quarter of 2020 as compared to the same period in the prior year primarily resulted from an increase in employee discounts, commodity inflation of 1.0% and higher food waste partially offset by our menu price increase referenced above.

Higher employee discounts accounted for an increase of 0.9% as a percentage of restaurant revenue for the third quarter of 2020 as compared to the same period in the prior year and were a direct result of our response to the COVID-19 pandemic.

Higher food waste accounted for an increase of 0.7% in restaurant cost of goods sold as a percentage of restaurant revenue for the third quarter of 2020 as compared to the same period in the prior year.

Higher food waste resulted from dining room closures due to the COVID-19 pandemic.

Restaurant cost of goods sold as a percentage of restaurant revenue in the first nine months of 2020 as compared to the same period in the prior year decreased slightly.

We presently expect the rate of commodity inflation to be approximately 1.0% in 2020 as compared to 2019.

The increase in retail cost of goods sold as a percentage of retail revenue in the third quarter of 2020 as compared to the third quarter of 2019 resulted primarily from lower initial margin, higher employee discounts as a result of our response to the COVID-19 pandemic, higher markdowns and the change in the provision for obsolete inventory.

Third Quarter Increase as a

Percentage of Total Revenue

Lower initial margin

Employee discounts

Provision for obsolete inventory

The increase in retail cost of goods sold as a percentage of retail revenue in the first nine months of 2020 as compared to the first nine months of 2019 resulted primarily from higher markdowns, higher employee discounts as a result of our response to the COVID-19 pandemic and higher freight expense.

First Nine Months

Increase as a Percentage

of Total Revenue

Employee discounts

Freight expense

The increase in restaurant cost of goods sold as a percentage of restaurant revenue in the first quarter of 2020 as compared to the same period in the prior year primarily resulted from a shift in purchases to menu items that have a higher cost relative to other menu items, commodity inflation of 1.9% and higher food waste partially offset by our menu price increase referenced above.

Higher cost menu items and higher food waste accounted for increases of 1.2% and 0.1%, respectively, in restaurant cost of goods sold as a percentage of restaurant revenue for the first quarter of 2021 as compared to the same period in the prior year.

We presently expect the rate of commodity inflation to be approximately 2.0% to 2.5% in 2021 as compared to 2020.

The increase in retail cost of goods sold as a percentage of retail revenue in the first quarter of 2021 as compared to the first quarter of 2020 resulted from lower initial margin.

Labor and Related Expenses

Labor and related expenses include all direct and indirect labor and related costs incurred in store operations.

The following table highlights labor and related expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year:

The following table highlights labor and related expenses as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

Labor and related expenses

This percentage change resulted from the following:

Third Quarter

Increase (Decrease) as a

First Quarter

(Decrease) Increase as a

Percentage of Total Revenue

Store management compensation

Miscellaneous wages

Employee health care expenses

Payroll taxes

Workers’ compensation expense

Store bonus expense

Store hourly labor

This percentage change resulted primarily from the following:

First Nine Months

Increase (Decrease) as a

Percentage of Total Revenue

Store management compensation

Miscellaneous wages

Employee health care expenses

Store bonus expense

Store hourly labor

In general, for the third quarter and first nine months of 2020, labor and other related expenses as percentage of total revenue were materially increased by the significant reduction in total revenue and reduced operations caused by the impact of the COVID-19 pandemic.

In particular, the increases in store management compensation, payroll taxes and workers’ compensation expense as a percentage of total revenue for the third quarter of 2020 as well as store management compensation as a percentage of total revenue for the first nine months of 2020 were all primarily driven by this decrease in revenue.

The increases in miscellaneous wages as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted primarily from retention pay for our field employees due to reduced operations as a result of the COVID-19 pandemic.

Higher employee health care expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted primarily from higher claims activity, higher enrollment in calendar 2020 plans as compared to the calendar 2019 plans and the reduction in revenue in 2020 as discussed above.

The decreases in store bonus expense as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted from lower performance against financial objectives in the third quarter and first nine months of 2020 as compared to the same periods in the prior year due to the impact of the COVID-19 pandemic.

The decreases in store hourly labor costs as a percentage of total revenue for the third quarter of 2020 and first nine months of 2020 as compared to the same periods in the prior year resulted primarily from lower usage of hourly employees due to reduced operations caused by the COVID-19 pandemic.

Store management compensation

The decrease in store bonus expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted from lower performance against financial objectives for certain components of the incentive plan in the first quarter of 2021 as compared to the same period in the prior year.

The decrease in miscellaneous wages as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from a reduction in the use of indirect labor hours.

The increase in store hourly labor costs as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from wage inflation exceeding menu price increases.

The increase in store management compensation as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year was primarily due to the decrease in revenue in the first quarter of 2021 as compared to the same period in the prior year.

Other Store Operating Expenses

Other store operating expenses include all store-level operating costs, the major components of which are utilities, preopening expenses excluding labor, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit and gift card fees, real and personal property taxes, general insurance and costs associated with our bi-annual manager conference and training event.

The following table highlights other store operating expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year:

The following table highlights other store operating expenses as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

Other store operating expenses

This percentage change resulted from the following:

Third Quarter

This percentage change resulted primarily from the following:

First Quarter

Increase as a Percentage

of Total Revenue

Depreciation expense

Supplies expense

Other store expenses

Utilities expense

Maintenance expense

Advertising expense

Supplies expense

Real and personal property taxes

This percentage change resulted from the following:

First Nine Months

Increase as a Percentage

of Total Revenue

Depreciation expense

Other store expenses

Advertising expense

Utilities expense

Supplies expense

Maintenance expense

Real and personal property taxes

In general, for the third quarter and first nine months of 2020, other store operating expenses as percentage of total revenue were materially increased by the significant reduction in total revenue and reduced operations caused by the impact of the COVID-19 pandemic.

In particular, the increases in rent expense, utilities expense, maintenance expense, supplies expense, advertising expense and real and personal property taxes as a percentage of total revenue for the third quarter and first nine months of 2020 were all primarily driven by this decrease in revenue.

The increases in depreciation expense as a percentage of total revenue for the third quarter and first nine months 2020 as compared to the same periods in the prior year resulted primarily from capital expenditures with accelerated depreciation methods.

The increases in other store expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted from costs associated with the growth in our off-premise business and the nonrecurrence of proceeds received in the third quarter of 2019 for the sale of certain technology assets and a hurricane-related insurance settlement.

The increase in rent expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from the sale and leaseback transaction involving 62 of our owned Cracker Barrel stores completed on August 4, 2020.

The aggregate initial annual rent payment for these properties is approximately $10,393.

Additionally, the related rent expense includes $3,184 recorded in the first quarter of 2021 for the non-cash amortization of the asset recognized from the gain on the Company’s sale and leaseback transactions.

See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding the Company’s sale and leaseback transactions.

The increase in supplies expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from costs associated with the growth in our off-premise business.

The increase in other store expenses as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from costs associated with the growth in our off-premise business.

The increase in maintenance expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from costs associated with the implementation of technology initiatives to improve the guest experience and the decrease in revenue in the first quarter of 2021 as compared to the prior year period.

The increase in depreciation expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from the decrease in revenue in the first quarter of 2021 as compared to the prior year period partially offset by the decrease in depreciation expense resulting from the August 4, 2020 sale and leaseback transaction and lower spending on capital expenditures..

The increase in advertising expense as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from higher online media spending and a decrease in revenue in the first quarter of 2021 as compared to the prior year period.

General and Administrative Expenses

The following table highlights general and administrative expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year:

The following table highlights general and administrative expenses as a percentage of total revenue for the first quarter of 2021 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

General and administrative expenses

This percentage change resulted from the following:

Third Quarter

Increase (Decrease) as a Percentage of Total Revenue

Payroll and related expenses

Other expenses

Depreciation expense

Incentive compensation expense

This percentage change resulted from the following:

First Nine Months

Increase (Decrease) as a Percentage of Total Revenue

Payroll and related expenses

Other expenses

Incentive compensation expense

The increases in payroll and related expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted primarily from the decreases in revenue in the third quarter and first nine months of 2020 as compared to the same periods in the prior year and severance expenses recorded in the third quarter of 2020 as part of the elimination of positions in the corporate headquarters and in the field.

The increase in depreciation expense as a percentage of total revenue for the third quarter of 2020 as compared to the same period in the prior year resulted primarily from the decrease in revenue in the third quarter as compared to the same period in the prior year.

The increases in other expenses as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted primarily from the decreases in revenue in the third quarter and first nine months of 2020 as compared to the same periods in the prior year.

The decreases in incentive compensation as a percentage of total revenue for the third quarter and first nine months of 2020 as compared to the same periods in the prior year resulted from lower performance against financial objectives in the third quarter and first nine months of 2020 as compared to the same periods in the prior year due to the impact of the COVID-19 pandemic.

During the third quarter of 2020, we determined that five leased Cracker Barrel stores were impaired, resulting in impairment charges of $18,336.

Each of these leased stores was impaired because of declining operating performance and resulting negative cash flow projections as a result of the impact of the COVID-19 pandemic.

It is possible that we may recognize additional impairment as a result of the unknown impacts of the COVID-19 pandemic and our response.

The increase in general and administrative expenses as a percentage of total revenue in the first quarter of 2021 as compared to the same period in the prior year resulted primarily from expenses related to the proxy contest initiated by affiliates of Sardar Biglari in connection with the Company’s 2020 annual shareholders meeting held on November 19, 2020.

Gain on Sale and Leaseback Transaction

On August 4, 2020, the Company completed a sale and leaseback transaction involving 62 of its owned Cracker Barrel stores and recorded a gain of $217,722 which is recorded in the gain on sale and leaseback transaction line in the Condensed Consolidated Statement of Income in the first quarter of 2021.

See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding this sale and leaseback transaction.

Interest Expense, net

The following table highlights interest expense, net in dollars for the third quarter and first nine months of 2020 as compared to the same periods in the prior year:

The following table highlights interest expense, net in dollars for the first quarter of 2021 as compared to the same period in the prior year:

Quarter Ended

Nine Months Ended

Interest expense, net

The increase in interest expense for the third quarter of 2020 as compared to the same period in the prior year resulted primarily from materially higher debt levels caused by our borrowing the remaining available amount under our 2019 Revolving Credit Facility in March 2020 in response to the COVID-19 pandemic.

The decrease in interest expense for the first nine months of 2020 as compared to the same period in the prior year resulted primarily from the interest income on the PBS promissory notes and lower weighted average interest rates partially offset by higher debt levels.

Additionally, as part of our debt refinancing in the first quarter of 2019, we incurred additional interest expense of $166 related to the write-off of deferred financing costs.

We expect higher interest expense for the fourth quarter of 2020 as result of the additional borrowings discussed above and the additional $39,400 borrowed in May 2020.

Provision for Income Taxes (Income Tax Benefit)

Provision for income taxes (income tax benefit) as a percentage of income before income taxes (the “effective tax rate”) was 65.5% and 17.3% in the third quarters of 2020 and 2019, respectively.

The effective tax rate was (66.0%) and 17.0% in the first nine months of 2020 and 2019, respectively.

The increase in the effective rate in the quarter and the decrease in the first nine months of 2020 as compared to the prior year periods are primarily due to the recognition of loss on investment in Punch Bowl Social (“PBS”), which is excluded from income when calculating the effective tax rate partially offset by the tax benefits recorded for the FICA Tip and Work Opportunity federal tax credits.

The Company’s quarterly tax provision (benefit) for income taxes has historically been calculated using the annual effective tax rate method (“AETR method”), which applies an estimated annual effective tax rate to pre-tax income or loss.

However, the Company recorded its interim income tax provision (benefit) using the discrete method as of May 1, 2020, as allowed under Accounting Standards Codification (“ASC”) 740-270, Accounting for Income Taxes - Interim Reporting.

The Company used the discrete method, rather than the AETR method, due to significant variations in income tax expense, relative to projected annual pre-tax income (loss).

Use of the AETR method would have resulted in a disproportionate and unreliable tax rate.

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, permits NOL carrybacks to offset 100% of taxable income of prior years.

We are currently evaluating the impact of the CARES Act, and presently expect that the NOL carryback provisions may result in a modest cash benefit to us.

Presently, we are unable to determine an effective tax rate for 2020.

Significant fluctuations in income tax expense relative to annual projected pre-tax income (loss) produce an unreliable tax rate.

The increase in interest expense for the first quarter of 2021 as compared to the same period in the prior year resulted primarily from higher debt levels caused by our borrowing under our 2019 Revolving Credit Facility in response to the COVID-19 pandemic, higher weighted average interest rates and the nonrecurrence of interest income on Punch Bowl Social (“PBS”) promissory notes written off in the third quarter of 2020.

Provision for Income Taxes

Provision for income taxes as a percentage of income before income taxes (the “effective tax rate”) was 24.6% and 17.7% in the first quarters of 2021 and 2020, respectively.

The increase in the effective rate is primarily the result of a reduction in tax credits and taxes on the sale and leaseback transaction completed in the first quarter of 2021.

We currently anticipate our effective tax rate for 2021 to be approximately 19% to 20%.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our 2019 Revolving Credit Facility.

Our internally generated cash, along with cash on hand at August 2, 2019 and borrowings under our 2019 Revolving Credit Facility, was sufficient to finance all of our growth, dividend payments, share repurchases, working capital needs and other cash payment obligations in the first nine months of 2020.

The impacts of the COVID-19 pandemic have adversely affected our results of operations and cash flows.

In response to the business disruption caused by the COVID-19 pandemic, we have taken the following actions, which management expects will enable it to meet its obligations over the next twelve months.

In March 2020, we temporarily closed the dining rooms in all of our restaurants and operated with pick-up or delivery only.

Beginning in late April, we have been able to resume dine-in operations in certain jurisdictions.

As of May 20, 2020, 356 of our restaurants (including two Holler & Dash locations that have reopened as MSBC locations as of May 20, 2020,) have re-opened dine-in service on a limited capacity basis, with the remaining 338 open for pick-up or delivery only.

We have made significant reductions in operating expenses to reflect reduced operations and sales levels as well as eliminating non-essential spending.

We furloughed employees, eliminated a significant number of positions at all levels of the Company, both at the corporate headquarters and in the field and reduced compensation payable to our corporate officers and cash retainers payable to our Board of Directors.

We have negotiated revised terms with landlords and vendors to reduce and/or defer these expenses.

We borrowed the remaining available amount under our 2019 Revolving Credit Facility and drew down additional amounts from the accordion feature under our 2019 Revolving Credit Facility.

We deferred payment of the dividend that was declared on March 3, 2020 until September 2, 2020 and have suspended all further dividend payments until further notice.

We have temporarily suspended all future share repurchases.

We continue to explore additional measures to enhance liquidity as the COVID-19 pandemic and related events develop.

Our internally generated cash, along with cash on hand at July 31, 2020 was sufficient to finance all of our growth, deferred payment of our dividend declared in March 2020 that was originally scheduled to be paid in May 2020 and was subsequently paid in September 2020, working capital needs and other cash payment obligations in the first three months of 2021.

Based on the continued actions taken by management, such as the reduction in operating expenses to reflect reduced operations and sales levels, elimination of non-essential spending, the suspension of current and future dividend payments and share repurchases and the recent completion of sale and leaseback transactions, management expects to meet its obligations over the next twelve months.

Cash Generated From Operations

Our operating activities provided net cash of $87,232 for the first nine months of 2020, representing a decrease from the $252,586 net cash provided during the first nine months of 2019.

This decrease primarily reflected the negative impact on our operations caused by the COVID-19 pandemic and the timing of payments for accounts payable.

Our operating activities provided net cash of $56,991 for the first three months of 2021, representing an increase from the $44,835 net cash provided during the first three months of 2020.

This increase primarily reflected the timing of payments for accounts payable.

Borrowing Capacity and Debt Covenants

On September 5, 2018, we entered into a five-year $950,000 revolving credit facility (“2019 Revolving Credit Facility”) which replaced our $750,000 revolving credit facility of which $400,000 in borrowings was outstanding.

On September 5, 2018, we 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.

In the first quarter of 2019, we paid $3,022 in deferred financing costs related to the debt refinancing.

During the nine months ended May 1, 2020, we borrowed $762,000 under the 2019 Revolving Credit Facility to fund our dividend payments, acquisition of MSBC, other working capital needs and to provide flexibility as a result of the uncertain times caused by the COVID-19 pandemic.

During the nine months ended May 1, 2020, we repaid $222,000 of the borrowings.

At May 1, 2020, we had $940,000 of outstanding borrowings under the 2019 Revolving Credit Facility and we had $6,729 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance which reduce our borrowing availability under the 2019 Revolving Credit Facility.

At May 1, 2020, we had $3,271 in borrowing availability under our 2019 Revolving Credit Facility.

In the fourth quarter of 2020, we borrowed an additional $39,395 under this option for a one-year period.

At October 30, 2020, we had $949,395 of outstanding borrowings under the 2019 Revolving Credit Facility and we had $31,804 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance and our July 29, 2020 and August 4, 2020 sale and leaseback transactions which reduce our borrowing availability under the 2019 Revolving Credit Facility.

At October 30, 2020, we had $8,196 in borrowing availability under our 2019 Revolving Credit Facility.

See Note 5 to our Condensed Consolidated Financial Statements for further information on our long-term debt.

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, we were in compliance with all financial covenants.

As a result of the negative impact of the COVID-19 pandemic on our financial position and results of operations, we have obtained a waiver for the financial covenants for the fourth quarter of 2020 and the first and second quarters of 2021.

Capital Expenditures

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $82,645 for the first nine months of 2020 as compared to $103,259 for the same period in the prior year.

During this covenant relief period, we are required to maintain liquidity (defined as the availability under the 2019 Revolving Credit Facility plus unrestricted cash and cash equivalents) of at least $140,000.

Additionally, during this Covenant Relief Period, our cash payments with respect to capital expenditures may not exceed $60,000 in the aggregate.

Capital Expenditures and Proceeds from Sale of Property and Equipment

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $11,214 for the first three months of 2021 as compared to $27,828 for the same period in the prior year.

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and capital expenditures for strategic initiatives.

The decrease in capital expenditures during the first nine months of 2020 as compared to the first nine months of 2019 resulted primarily from lower capital expenditures for strategic initiatives as well as our decreases in new store construction, store remodels and other similar expenditures in response to the COVID-19 pandemic.

We estimate that our capital expenditures during 2020 will be approximately $100,000, which represents a decrease from our previously disclosed estimate of $125,000, primarily as a result of our conservative cash management in response to the COVID-19 pandemic.

The decrease in capital expenditures during the first three months of 2021 as compared to the first three months of 2020 resulted primarily from lower capital expenditures for existing stores as well as our decreases in new store construction, store remodels and other similar expenditures in response to the COVID-19 pandemic.

We estimate that our capital expenditures during 2021 will be approximately $100,000.

This estimate includes the acquisition of sites and construction costs of new Cracker Barrel stores and new MSBC locations that have opened or that we continue to expect to open during 2021, as well as for acquisition and construction costs for store locations that we continue to plan to be opened in 2022.

We intend to fund our capital expenditures with cash on our balance sheet (including the proceeds from our borrowing the remaining availability under our 2019 Revolving Credit Facility, cash flows from operations and any additional measures taken to obtain cash, as necessary.

We intend to fund our capital expenditures with cash generated by operations and cash on hand as the result of borrowings under our 2019 Revolving Credit Facility, as necessary.

See the discussion above under “Borrowing Capacity and Debt Covenants” regarding a debt covenant restriction on our cash payment for capital expenditures.

The proceeds from sale of property and equipment were $149,829 for the first three months of 2021 as compared to $1,534 for the same period in the prior year.

This increase primarily relates to the sale and leaseback transaction entered into on August 4, 2020.

See Note 10 to the Condensed Consolidated Financial Statements for additional information regarding this sale and leaseback transaction.

Maple Street Biscuit Company

Effective October 10, 2019, we acquired 100% ownership of 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.

The unused portion of the amounts held for 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.

We also incurred acquisition-related costs of $1,269.

We are currently converting our existing six Holler & Dash locations into MSBC locations and expect this conversion to be completed during the fourth quarter of 2020.

The first installment of $1,500, to be held as security, was paid to the principal seller in the first quarter of 2021, and the remaining amount, if any, will be paid in a final installment to the sellers on the two-year anniversary of closing.

We believe that the investment in MSBC supports our 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.

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Effective July 18, 2019, we entered into a strategic relationship with PBS, a food, beverage and entertainment concept, by purchasing a non-controlling interest in the concept.

As part of the transaction, we agreed to fund PBS up to $51,000 through calendar 2020 of which we funded $35,500 during the first nine months of 2020, for a total of $48,000.

As part of the transaction, we agreed to fund PBS up to $51,000 through calendar 2020 of which we funded $16,000 during the first quarter of 2020.

During the first quarter of 2020, we recorded a loss related to our equity investment in PBS of $5,980 which was recorded in the net loss from unconsolidated subsidiary line on our Condensed Consolidated Statement of Income.

We believed the investment in PBS provided us with a growth vehicle to deliver additional shareholder value.

However, as a result of the COVID-19 pandemic, PBS Holdco’s wholly-owned subsidiary, 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 Brandco unless we repaid or unconditionally guaranteed the indebtedness.

In keeping with our strategy of concentrating our resources on our core business during the COVID-19 pandemic, and in light of the substantial uncertainties surrounding PBS business coming out of the COVID-19 pandemic, we decided not to invest further resources to prevent foreclosure or otherwise provide additional capital to PBS.

In keeping with our strategy of concentrating our resources on our core business during the COVID-19 pandemic, and in light of the substantial uncertainties surrounding PBS business coming out of the COVID-19 pandemic, we determined not to invest further resources to prevent foreclosure or otherwise provide additional capital to PBS.

In the third quarter of 2020, we recorded a loss of $132,878, which represented our equity investment in PBS and the principal and accumulated interest under the outstanding unsecured indebtedness of PBS held by the Company.

This loss was recorded in the net loss in unconsolidated subsidiary line on our Condensed Consolidated Statement of Income (Loss) in the third quarter of 2020.

Dividends, Share Repurchases and Share-Based Compensation Awards

The 2019 Revolving Credit Facility imposes restrictions on the amount of dividends we are permitted to pay and the amount of shares we are permitted to repurchase.

Under the 2019 Revolving Credit Facility, provided there is no default existing and the total of our availability under the 2019 Revolving Credit Facility plus our cash and cash equivalents on hand is at least $100,000 (the “cash availability”), we may declare and pay cash dividends on shares of our common stock and repurchase shares of our common stock (1) in an unlimited amount if, at the time the dividend or the repurchase is made, our 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 our consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made;

During the Covenant Relief Period described above, we are subject to restrictions on our ability to pay dividends (other than the deferred dividend payment that we paid on September 2, 2020).

Following the Covenant Relief Period, under the 2019 Revolving Credit Facility, provided there is no default existing and the total of our availability under the 2019 Revolving Credit Facility plus our cash and cash equivalents on hand is at least $100,000 (the “Cash Availability”), we may declare and pay cash dividends on shares of our common stock and repurchase shares of our common stock (1) in an unlimited amount if, at the time the dividend or the repurchase is made, our 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 our 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, we may declare and pay cash dividends on shares of our 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.

During the first nine months of 2020, we paid a regular dividend of $3.90 per share and declared a dividend of $1.30 per share that was originally scheduled to be paid on May 5, 2020 to shareholders of record on April 17, 2020.

To preserve available cash during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, we previously announced a deferred payment of such dividend until September 2, 2020 to shareholders of record on August 14, 2020.

Additionally, we have suspended all further dividend payments under the Company’s historical dividend program until further notice.

Previously, our Board of Directors authorized the repurchase of up to $50,000 of our common stock during 2020.

In the third quarter of 2020, upon the completion of this repurchase authorization, our Board of Directors approved the repurchase of up to an additional $25,000 of our common stock.

During the first nine months of 2020, we repurchased 378,974 shares of our common stock in the open market at an aggregate cost of $55,007.

To preserve available cash during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, we deferred payment of the dividend of $1.30 per share declared in the third quarter of 2020 until September 2, 2020 to shareholders of record on August 14, 2020.

Additionally, we have suspended all further dividend payments under the Company’s dividend program until further notice.

In response to the COVID-19 pandemic, we have temporarily suspended all future share repurchases.

During the first nine months of 2020, we issued 23,715 shares of our common stock resulting from the vesting of share-based compensation awards.

During the first three months of 2021, we issued 22,928 shares of our common stock resulting from the vesting of share-based compensation awards.

Related tax withholding payments on these share-based compensation awards resulted in a net use of cash of $1,992.

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Many other operating expenses have normal trade terms and certain expenses, such as certain taxes and some benefits, are deferred for longer periods of time.

We had positive working capital of $203,982 at May 1, 2020 versus negative working capital of $150,094 at August 2, 2019.

The change in working capital from August 2, 2019 to May 1, 2020 primarily resulted from the increase in cash and the timing of accounts payable partially offset by the recognition of lease liabilities due to the adoption at August 3, 2019 of accounting guidance for leases.

We had positive working capital of $380,247 at October 30, 2020 versus positive working capital of $191,956 at July 31, 2020.

The change in working capital from July 31, 2020 to October 30, 2020 primarily resulted from the increase in cash, the decrease in the dividend payable due to the temporary suspension of future dividend payments, lower incentive accruals resulting from the payment of annual and long-term incentive bonuses and the change in retail inventory levels partially offset by the timing of payments for accounts payable.

The increase in cash resulted primarily due to the proceeds received from the sale and leaseback transaction completed on August 4, 2020 and lower payments for annual and long-term incentive bonuses as compared to the prior year.

Off-Balance Sheet Arrangements

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See Note 1 to the accompanying Condensed Consolidated Financial Statements for a discussion of recent accounting guidance adopted.

With the exception of the accounting guidance for leases, the adopted accounting guidance discussed in Note 1 did not have a significant impact on our consolidated financial position or results of operations.

Regarding the accounting guidance for leases, the adoption of the accounting guidance had a material impact on our consolidated balance sheet.

See Notes 1 and 11 for additional information regarding leases.

The adopted accounting guidance discussed in Note 1 did not have a significant impact on our consolidated financial position or results of operations.

Regarding the accounting guidance not yet adopted, we are still evaluating the impact of adopting the accounting guidance.

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However, because future events and their effects cannot be determined with certainty, actual results could differ from those assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements contained in the 2019 Form 10-K with the exception of the newly adopted lease accounting guidance and the valuation of goodwill and other intangibles.

See Notes 1 and 11 above for further information regarding the accounting policies for leases under the newly adopted accounting guidance.

Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements contained in the 2020 Form 10-K.

Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.

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management believes are most important to the accurate portrayal of both our financial condition and operating results, and

require managemet’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.

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.

We consider the following accounting estimates to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements:

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Lease Accounting

Goodwill and Other Intangibles

Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

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The accuracy of such provisions can vary materially from original estimates and management regularly monitors the adequacy of the provisions until final disposition occurs.

We have not made any material changes in our methodology for assessing impairments during the first nine months of 2020, and we do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions used by us in the future to assess impairment of long-lived assets.

We have not made any material changes in our methodology for assessing impairments during the first three months of 2021, and we do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions used by us in the future to assess impairment of long-lived assets.

However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of long-lived assets, we may be exposed to losses that could be material.

During the first quarter of 2020, we recorded an impairment charge of $664 related to the transition from Holler & Dash locations to MSBC locations.

During the third quarter of 2020, we recorded impairment charges of $18,336 related to five leased Cracker Barrel stores.

It is possible that we may recognize additional impairment as a result of the unknown impacts of the COVID-19 pandemic and our response.

It is possible that we may recognize impairment as a result of the unknown impacts of the COVID-19 pandemic and our response.

Insurance Reserves

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We record a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims.

These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter.

These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our first quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter.

Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves.

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Our 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.

We have not made any material changes in the methodology used to establish our insurance reserves during the first nine months of 2020 and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate the insurance reserves.

We have not made any material changes in the methodology used to establish our insurance reserves during the first three months of 2021 and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate the insurance reserves.

However, changes in these actuarial assumptions, management judgments or claims experience in the future may produce materially different amounts of expense that would be reported under these insurance programs.

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An estimate of shrinkage is recorded for the time period between physical inventory counts by using a two-year average of the physical inventories’ results on a store-by-store basis.

We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the first nine months of 2020 and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions in the future.

We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the first three months of 2021 and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions in the future.

However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.

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Additionally, we lease our retail distribution center, advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating lea ses.

Effective August 3, 2019, we adopted lease accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet.

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.

We evaluate our leases at contract inception to determine whether we have the right to control use of the identified asset for a period of time in exchange for consideration.

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Additionally, any loss resulting from an impairment of the right-of-use assets is recognized by a charge to income, which could be material.

Goodwill and Other Intangibles

Effective October 10, 2019, the Company acquired 100% ownership of MSBC and recorded estimated amounts for goodwill and other intangibles.

Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of 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.

See Notes 2 and 4 to the Condensed Consolidated Financial Statements for further information related to goodwill and other intangibles.

The qualitative and quantitative assessments related to the valuation and any potential impairment of goodwill and other intangible assets are subject to judgements and assumptions regarding the determination of the fair value of the net assets acquired.

Such judgments and assumptions may include projecting future cash flows, determining appropriate discount rates, applying the appropriate valuation techniques and the computation of the implied fair value of goodwill.

Future cash flow projections are based on management’s projections and represent best estimates taking into account recent financial performance, market trends, strategic plans and other available information.

Changes in these estimates and assumptions could materially affect the determination of fair value or impairment.

Future indicators of impairment could result in an asset impairment charge.

If actual results are not consistent with our judgements and assumptions or if these judgement and assumptions are revised based on new information, we may be exposed to losses that could be material.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis