What changed in this filing

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Item 1. Financial Statements

2021-02-23 compared with 2020-12-03 · 95 added, 62 removed, 380 unchanged (29% of the section changed)

17 unchanged sentences

Accounts payable

Current portion of long-term debt

Other current liabilities

11 unchanged sentences

Common stock – 400,000,000 shares of $ 0.01 par value authorized;

23,720,324 shares issued and outstanding at October 30, 2020, and 23,697,396 shares issued and outstanding at July 31, 2020

23,724,412 shares issued and outstanding at January 29, 2021, and 23,697,396 shares issued and outstanding at July 31, 2020

Additional paid-in capital

9 unchanged sentences

Quarter Ended

Six Months Ended

Total revenue

7 unchanged sentences

Income before income taxes

Provision for income taxes

Provision for income taxes (income tax benefit)

Loss from unconsolidated subsidiary

6 unchanged sentences

Quarter Ended

Other comprehensive income (loss) before income tax expense:

Six Months Ended

Other comprehensive income (loss) before income tax expense (benefit):

Change in fair value of interest rate swaps

8 unchanged sentences

Shareholders’

Income (Loss)

Balances at July 31, 2020

Comprehensive Income:

Comprehensive Income (Loss):

Other comprehensive income, net of tax

4 unchanged sentences

Balances at October 30, 2020

Comprehensive Income (Loss):

Other comprehensive income, net of tax

Total comprehensive income

Cash dividends previously declared in prior quarters

Share-based compensation

Issuance of share-based compensation awards

Balances at January 29, 2021

Comprehensive

1 unchanged sentence

Balances at August 2, 2019

Comprehensive Income:

Comprehensive Income (Loss):

Other comprehensive loss, net of tax

Total comprehensive income

Total comprehensive income (loss)

Cash dividends declared - $ 1.30 per share

4 unchanged sentences

Balances at November 1, 2019

Comprehensive Income (Loss):

Other comprehensive loss, net of tax

Total comprehensive income (loss)

Cash dividends declared - $ 1.30 per share

Share-based compensation

Issuance of share-based compensation awards

Purchases and retirement of common stock

Balances at January 31, 2020

See Notes to unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(Unaudited and in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

27 unchanged sentences

Dividends on common stock

Net cash provided by (used in) financing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

25 unchanged sentences

The COVID-19 pandemic continues to negatively impact the Company’s sales and traffic due to changes in consumer behavior as 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.

Dining room service continues to be impacted by the COVID-19 pandemic, and, in the second quarter of 2021, the Company experienced an increased number of dining room closures and capacity restrictions as compared to the first quarter of 2021.

As of February 16, 2021, eight of the Company’s restaurants were not open for dine-in services to some extent .

In response to the COVID-19 pandemic, the Company has instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and the Company has implemented various strategies to support the recovery of its business and navigate through the uncertain environment.

23 unchanged sentences

The Company believes that this acquisition 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 October 30, 2020, MSBC had 35 company-owned and six franchised fast casual locations across seven states.

At January 29, 2021, MSBC had 36 company-owned and seven franchised fast casual locations across eight states.

The goodwill of $ 4,690 arising from the acquisition consisted 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.

3 unchanged sentences

Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at October 30, 2020 were as follows:

The Company’s assets and liabilities measured at fair value on a recurring basis at January 29, 2021 were as follows:

Cash equivalents*

18 unchanged sentences

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 October 30, 2020 and July 31, 2020.

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 January 29, 2021 and July 31, 2020.

Inventories were comprised of the following at:

October 30, 2020

January 29, 2021

July 31, 2020

2 unchanged sentences

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

At both October 30, 2020 and July 31, 2020, the Company had a total of $ 949,395 of outstanding borrowings under the 2019 Revolving Credit Facility.

At October 30, 2020, the Company had $ 31,804 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 12 for more information on the Company’s standby letters of credit).

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

The Company’s outstanding borrowings under the 2019 Revolving Credit Facility were $ 874,395 and $ 949,395 , respectively, at January 29, 2021 and July 31, 2020 .

At January 29, 2021 , the Company had $ 31,626 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 12 for more information on the Company’s standby letters of credit).

At January 29, 2021, the Company had $ 83,374 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 October 30, 2020, $ 400,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 5.36 % (see Note 6 for information on the Company’s interest rate swaps).

At October 30, 2020, the weighted average interest rate on the remaining $ 549,395 of the Company’s outstanding borrowings was 3.31 %.

At January 29, 2021, $ 400,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 5.86 % (see Note 6 for information on the Company’s interest rate swaps).

At January 29, 2021, the weighted average interest rate on the remaining $ 474,395 of the Company’s outstanding borrowings was 3.77 %.

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.

2 unchanged sentences

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

As of January 29, 2021 , the Company’s cash payments with respect to capital expenditures during the Covenant Relief Period were $ 37,030 .

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.

2 unchanged sentences

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 .

In the third quarter of 2021 , the Company entered into an amendment to the 2019 Revolving Credit Facility which reduced the commitment amount of $ 950,000 to $ 800,000 and extended the waiver for the financial covenants for the third and fourth quarters of 2021 (“Extended Covenant Relief Period”).

During this Extended Covenant Relief Period, the Company is required to maintain certain liquidity measures (defined as the availability under the 2019 Revolving Credit Facility plus unrestricted cash and cash equivalents) of at least $ 140,000 .

During this Extended Covenant Relief Period, the Company’s cash payments with respect to capital expenditures are prohibited from exceeding $ 70,000 in the aggregate.

Additionally, during the Extended Covenant Relief Period, the Company is subject to additional restrictions on its ability to pay dividends.

The Company is prohibited from declaring or paying cash dividends during the third quarter of 2021.

The Company may declare but not pay cash dividends during the fourth quarter of 2021 .

Derivative Instruments and Hedging Activities

4 unchanged sentences

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 October 30, 2020 was 3.00 %.

The Company’s credit spread at January 29, 2021 was 3.50 %.

All of the Company’s interest rate swaps are accounted for as cash flow hedges.

7 unchanged sentences

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 October 30, 2020 is as follows:

A summary of the Company’s interest rate swaps at January 29, 2021 is as follows:

Effective Date

11 unchanged sentences

August 7, 2019

The estimated fair value of the Company’s derivative instruments as of October 30, 2020 and July 31, 2020 were as follows:

The estimated fair value of the Company’s derivative instruments as of January 29, 2021 and July 31, 2020 were as follows:

Balance Sheet Location

October 30, 2020

January 29, 2021

July 31, 2020

4 unchanged sentences

Total liabilities**

** These interest rate swap liabilities are recorded gross at both October 30, 2020 and July 31, 2020 since there were no offsetting assets under the Company’s master netting agreements.

** These interest rate swap liabilities are recorded gross at both January 29, 2021 and July 31, 2020 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 3).

The adjustment related to the Company’s non-performance risk at October 30, 2020 and July 31, 2020 resulted in reductions of $ 848 and $ 978 , respectively, in the fair value of the interest rate swap liabilities.

The adjustment related to the Company’s non-performance risk at January 29, 2021 and July 31, 2020 resulted in reductions of $ 593 and $ 978 , 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 October 30, 2020, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $ 6,016 .

As of January 29, 2021, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $ 6,223 .

Cash flows related to the interest rate swaps are included in the interest expense line in the Condensed Consolidated Statements of Income 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 three months ended October 30, 2020 and the year ended July 31, 2020:

Amount of Income (Loss) Recognized in

AOCL on Derivatives

Three Months Ended

October 30, 2020

The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for the six months ended January 29, 2021 and the year ended July 31, 2020:

Amount of Income (Loss) Recognized

in AOCL on Derivatives

Six Months Ended

January 29, 2021

July 31, 2020

1 unchanged sentence

Interest rate swaps

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters ended October 30, 2020 and November 1, 2019:

Location of Gain Reclassified

from AOCL into Income

Amount of Gain Reclassified

from AOCL into Income

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and six months ended January 29, 2021 and January 31, 2020:

Location of Loss

Reclassified from

AOCL into Income

(Effective Portion)

Amount of Loss Reclassified from AOCL into Income

(Effective Portion)

Quarter Ended

Six Months Ended

Cash flow hedges:

1 unchanged sentence

Interest expense

The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the quarter ended October 30, 2020:

Details about AOCL

Amount Reclassified

The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the quarter and six months ended January 29, 2021:

Amount Reclassified from AOCL

Affected Line Item in the

Quarter Ended

Six Months Ended

Condensed Consolidated

Statement of Income

Gain on cash flow hedges:

Financial Statements

Loss on cash flow hedges:

Interest rate swaps

1 unchanged sentence

Provision for income taxes

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the three -months ended October 30, 2020.

The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the three months ended October 30, 2020:

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the six months ended January 29, 2021.

The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the six months ended January 29, 2021:

Changes in AOCL

3 unchanged sentences

Other comprehensive income, net of tax

AOCL balance at October 30, 2020

AOCL balance at January 29, 2021

Historically, the net income of the Company has been lower in the first and third quarters and higher in the second and fourth quarters.

17 unchanged sentences

Quarter Ended

Six Months Ended

Total revenue

15 unchanged sentences

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 ended October 30, 2020, gift card breakage was $ 940 .

For the quarter ended November 1, 2019, gift card breakage was $ 1,238 .

Deferred revenue related to the Company’s gift cards was $ 89,237 and $ 94,754 , respectively, at October 30, 2020 and July 31, 2020.

Revenue recognized in the Condensed Consolidated Statements of Income for the three months ended October 30, 2020 and November 1, 2019, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 16,242 and $ 17,947 .

For the quarter and six months ended January 29, 2021, gift card breakage was $ 1,754 and $ 2,694 .

For the quarter and six months ended January 31, 2020, gift card breakage was $ 2,422 and $ 3,660 .

Deferred revenue related to the Company’s gift cards was $ 112,981 and $ 94,754 , respectively, at January 29, 2021 and July 31, 2020.

Revenue recognized in the Condensed Consolidated Statements of Income for the six months ended January 29, 2021 and January 31, 2020, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 26,944 and $ 29,751 .

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.

18 unchanged sentences

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 quarters ended October 30, 2020 and November 1, 2019 :

Quarter Ended

October 30, 2020

The following table summarizes the components of lease cost for operating leases for the quarter ended and six months ended January 29, 2021 as compared to the same periods in the prior year:

Quarter Ended

November 1, 2019

Six Months Ended

January 29, 2021

January 31, 2020

January 29, 2021

January 31, 2020

Operating lease cost

2 unchanged sentences

Total lease cost

The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarters ended October 30, 2020 and November 1, 2019 :

Quarter Ended

October 30, 2020

The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarter ended and six months ended January 29, 2021 as compared to the same periods in the prior year:

Quarter Ended

November 1, 2019

Six Months Ended

Operating cash flow information:

Gain on sale and leaseback transaction

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

3 unchanged sentences

Lease modifications removing right-of-use assets

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of October 30, 2020 and November 1, 2019 :

October 30, 2020

November 1, 2019

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of January 29, 2021 and January 31, 2020:

January 29, 2021

January 31, 2020

Weighted-average remaining lease term

Weighted-average discount rate

The following table summarizes the maturities of undiscounted cash flows reconciled to the total lease liability as of October 30, 2020:

The following table summarizes the maturities of undiscounted cash flows reconciled to the total lease liability as of January 29, 2021:

Remainder of 2021

30 unchanged sentences

Quarter Ended

Six Months Ended

Net income per share numerator

8 unchanged sentences

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 October 30, 2020, the Company had $ 31,804 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and the July 29, 2020 and August 4, 2020 sale and leaseback transactions .

As of January 29, 2021, the Company had $ 31,626 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and the July 29, 2020 and August 4, 2020 sale and leaseback transactions .

All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its 2019 Revolving Credit Facility (see Note 5).

At October 30, 2020, the Company has recorded a provision of $ 344 in the Condensed Consolidated Balance Sheet for amounts to be paid as of result of non-performance by the primary obligor for lease payments associated with two properties occupied by a third party.

At January 29, 2021, the Company has recorded a provision of $ 344 in the Condensed Consolidated Balance Sheet for amounts to be paid as of result of non-performance by the primary obligor for lease payments associated with two properties occupied by a third party.

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 October 30, 2020.

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 1. Financial Statements