What changed in this filing

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Item 1. Financial Statements

2022-06-07 compared with 2022-02-24 · 140 added, 629 removed, 409 unchanged (65% of the section changed)

19 unchanged sentences

Dividends payable

Deferred revenues

Other current liabilities

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300,000 shares designated as Series A Junior Participating Preferred Stock;

shares issued

Common stock – 400,000,000

shares of $ 0.01 par value authorized;

23,248,532 shares issued and outstanding at January 28, 2022 , and 23,497,166 shares issued and outstanding at July 30, 2021

22,912,320 shares issued and outstanding at April 29, 2022 , and 23,497,166 shares issued and outstanding at July 30, 2021

Retained earnings

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Quarter Ended

Six Months Ended

Nine Months Ended

Total revenue

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Income before income taxes

Provision for income taxes (income tax benefit)

Provision for income taxes

Net income per share:

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Quarter Ended

Six Months Ended

Nine Months Ended

Other comprehensive income before income tax expense:

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’

(Unaudited and in thousands, except share data)

For the Nine Month Period Ended April 29, 2022

Comprehensive

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Balances at January 28, 2022

Comprehensive Income:

Other comprehensive income, net of tax

Total comprehensive income

Cash dividends declared - $ 1.30

Share-based compensation

Issuance of share-based compensation awards, net of shares withheld for employee taxes

Purchases and retirement of common stock

Balances at April 29 ,

See Notes to unaudited Condensed Consolidated Financial Statements.

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited and in thousands, except share data)

For the Nine Month Period Ended April 30, 2021

Comprehensive

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Share-based compensation

Issuance of share-based compensation awards

Issuance of share-based compensation awards, net of shares withheld for employee taxes

Balances at January 29, 2021

Comprehensive Income:

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, net of shares withheld for employee taxes

Balances at April 30 ,

See Notes to unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(Unaudited and in thousands)

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

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Long-term operating lease liabilities

Other long-term obligations

Other long-term assets

Other long-term assets and liabilities

Net cash provided by operating activities

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Cash flows from financing activities:

Proceeds from issuance of long-term debt

Taxes withheld from issuance of share-based compensation awards

1 unchanged sentence

Purchases and retirement of common stock

Deferred financing costs

Dividends on common stock

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

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COVID-19 Impact

The Company continues to recover from the COVID-19 pandemic as all dining rooms were open to some extent during the first six months of 2022.

Dining room service was

operational to varying degrees, yet certain locations were adversely impacted by the Omicron variant of COVID-19 resulting in a decline in guests’ comfort level for dining indoors and capacity reductions driven by staffing shortages.

increases in the number of cases of COVID-19 throughout the United States during the second quarter of 2022, some of our restaurants were subject to other COVID-19-related restrictions, including mask and vaccination requirements for employees and

It is possible that renewed outbreaks, increases in cases and/or new variants of the disease, either as part of a national trend or on a more localized basis, could result in additional COVID-19-related restrictions including capacity

restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.

The Company continues to recover from the COVID-19 pandemic, and all dining rooms were open to some extent during the first nine months of 2022.

While most of our dining rooms are

currently operating with few, if any, restrictions, it is possible that renewed outbreaks, increases in cases and/or new variants of the disease, either as part of a national trend or on a more localized basis, could result in COVID-19-related

restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.

In response to the COVID-19 pandemic, we instituted operational protocols to comply

with applicable regulatory requirements to protect the health and safety of employees and guests, and we implemented and have continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain

with applicable regulatory requirements to protect the health and safety of employees and guests, and we implemented and continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain

We continue to focus on growing our off-premise business and investing in our digital infrastructure to improve the guest experience in the face of these ongoing challenges.

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Fair Value Measurements

The Company’s assets measured at fair value on a recurring basis at January 28, 2022

The Company’s assets measured at fair value on a recurring basis at April 29, 2022

were as follows:

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The Company did no t have any

liabilities measured at fair value on a recurring basis at January 28, 2022 and July 30, 2021.

liabilities measured at fair value on a recurring basis at April 29, 2022 and July 30, 2021.

The Company’s money market fund investments are measured at fair value using quoted market prices.

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

January 28, 2022 and July 30, 2021.

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 April 29,

2022 and July 30, 2021.

The Company’s financial instruments that are not remeasured at fair value include the 0.625 % convertible Senior Notes (see Note 4).

The Company estimates the fair value of the Notes through consideration of quoted market prices of similar instruments, classified

The estimated fair value of the Notes was $ 284,586 and $ 249,233 , respectively, as of January 28, 2022 and July 30, 2021 .

The Company estimates the fair value of the Notes through consideration of quoted market prices of similar instruments, classified as Level 2.

estimated fair value of the Notes was $ 275,133 and $ 249,233 , respectively, as of April 29, 2022 and July 30, 2021 .

Inventories were comprised of the following at:

January 28, 2022

April 29, 2022

July 30, 2021

On September 5, 2018, the Company entered into a five-year $ 950,000 revolving credit facility (“2019 Revolving Credit

The 2019 Revolving Credit Facility contains an option to increase the revolving credit facility by $ 300,000 , of which $ 260,605 remains.

In the third quarter of 2021, the Company entered into an amendment to the 2019 Revolving Credit Facility which reduced the commitment

amount from $ 950,000 to $ 800,000 .

The Company’s outstanding borrowings under the 2019 Revolving Credit Facility were $ 35,000 and $ 85,000 on January 28, 2022 and July 30, 2021,

On September 5, 2018, the Company entered into a five-year $ 950,000 revolving credit facility (“2019 Revolving

Credit Facility”).

The 2019 Revolving Credit Facility contains an option to increase the revolving credit facility by $ 300,000 , of which

$ 260,605 remains.

In the third quarter of 2021, the Company entered into an amendment to the 2019 Revolving Credit Facility which reduced

the commitment amount from $ 950,000 to $ 800,000 .

The Company’s outstanding borrowings under the 2019 Revolving Credit Facility were $ 80,000 and $ 85,000 on April 29, 2022 and July 30, 2021,

respectively.

At January 28, 2022, the Company had $ 31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 10 for more information on the Company’s standby

letters of credit).

At January 28, 2022, the Company had $ 733,104 in borrowing availability under the 2019 Revolving Credit Facility.

During the second quarter of 2022, we repaid $ 50,000 of borrowings under the 2019 Revolving Credit Facility.

At April 29, 2022, the Company had $ 31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 10 for more information on the Company’s standby letters of credit).

April 29, 2022, the Company had $ 688,104 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 the London Inter-Bank Offered Rate (“LIBOR”) or prime plus a percentage point spread based on certain specified financial ratios under the 2019 Revolving Credit Facility.

At January 28, 2022, the weighted average interest rate on $ 35,000 of the Company’s outstanding borrowings was 2.35 %.

At April 29, 2022, the weighted average interest rate on the Company’s

outstanding borrowings under the 2019 Revolving Credit Facility was 2.91 %.

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 January 28, 2022, the Company was in compliance with all debt covenants under the 2019 Revolving Credit Facility.

At April 29, 2022, the Company was in compliance with all debt covenants under the 2019 Revolving Credit Facility.

The 2019 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the

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and cash equivalents on hand is at least $ 100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of

its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $ 100,000 in

any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase

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 any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or

repurchase is made;

notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, Cash Availability is at least $ 100,000 , the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth

quarter of the immediately preceding fiscal year multiplied by four .

Convertible Senior Notes

On June 18, 2021, the Company completed a $ 300,000 principal aggregate amount private offering of 0.625 % convertible

Senior Notes due in 2026 (the “Notes”), which included the exercise in full of the initial purchasers’ option to purchase up to an additional $ 25,000

principal amount of the Notes.

On June 18, 2021, the Company completed a $ 300,000 principal aggregate amount private offering of 0.625 % convertible Senior Notes due in 2026

(the “Notes”), which included the exercise in full of the initial purchasers’ option to purchase up to an additional $ 25,000 principal

amount of the Notes.

The Notes are governed by the terms of an indenture between the Company and U.S.

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The Notes will mature on June 15, 2026 , unless earlier converted, repurchased or redeemed.

The Notes bear cash interest at an annual rate of 0.625 %, payable semi-annually in arrears on June 15 and December 15 of each

year, beginning on December 15, 2021.

The Notes bear cash interest at an annual rate of 0.625 %,

payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021.

The Notes are unsecured obligations and do not contain any financial or operating covenants or restrictions on the payments of

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annum, and thereafter at a rate of 0.50 % per annum, on the principal amount of the Notes.

The initial conversion rate applicable to the Notes was 5.3153 shares of the Company’s common stock per $ 1,000 principal amount of

Notes, which represented an initial conversion price of approximately $ 188.14 per share of the Company’s common stock, a premium of 25.0 % over the last reported sale price of $ 150.51

per share on June 15, 2021, the date on which the Notes were priced.

The conversion rate is subject to customary adjustments upon the occurrence of certain events, including the payment of dividends to holders of the Company’s common stock.

January 28, 2022, the conversion rate, as adjusted, was 5.4587 shares of the Company’s common stock per $ 1,000 principal amount of Notes.

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” occur, then the conversion

rate will, in certain circumstances, be increased for a specified period of time.

The initial conversion rate applicable to the Notes was 5.3153 shares of the Company’s common stock per $ 1,000 principal

amount of Notes, which represented an initial conversion price of approximately $ 188.14 per share of the Company’s common stock, a

premium of 25.0 % over the last reported sale price of $ 150.51 per share on June 15, 2021, the date on which the Notes were priced.

The conversion rate is subject to customary adjustments upon the occurrence of certain events, including the payment of dividends to

holders of the Company’s common stock.

As of April 29, 2022, the conversion rate, as adjusted, was 5.5197 shares of the Company’s common

stock per $ 1,000 principal amount of Notes.

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change”

occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

Net proceeds from the Notes offering were $ 291,125 , after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.

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direct deduction from the related debt liability in the Condensed Consolidated Balance Sheet and accreted over the period from the date of issuance to the contractual maturity date, resulting in the recognition of non-cash interest expense.

equity component of the Notes of $ 53,004 was included in additional paid-in capital in the consolidated balance sheet as of July 30, 2021

and was not remeasured since it continued to meet the conditions for equity classification.

equity component of the Notes of $ 53,004 was included in additional paid-in capital in the Condensed Consolidated Balance Sheet as of

July 30, 2021 and was not remeasured since it continued to meet the conditions for equity classification.

Issuance costs were allocated to the liability and equity components in the same proportion as the allocation of the proceeds.

Issuance costs attributable

to the liability component were recorded as debt issuance costs in the Condensed Consolidated Balance Sheet and are amortized to interest expense using the effective interest method over the term of the Notes, and issuance costs attributable to the

equity component were netted with the equity component in stockholders’ equity.

Issuance costs

attributable to the liability component were recorded as debt issuance costs in the Condensed Consolidated Balance Sheet and are amortized to interest expense using the effective interest method over the term of the Notes, and issuance costs

attributable to the equity component were netted with the equity component in stockholders’ equity.

Due to our adoption of new accounting guidance for convertible instruments on July 31, 2021, the Company no longer bifurcates

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The following table includes the outstanding principal amount and carrying value of the Notes as of the period indicated:

January 28, 2022

April 29, 2022

Liability component

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The effective rate of the Notes over their expected life is 1.23 %.

The following is a summary of interest expense for the Notes for the quarter ended and six months ended January 28, 2022:

The following is a summary of interest expense for the Notes for the quarter ended and nine months ended April 29, 2022:

Quarter Ended

January 28, 2022

Six Months Ended

January 28, 2022

April 29, 2022

Nine Months Ended

April 29, 2022

Coupon interest

1 unchanged sentence

Total interest expense

During any calendar quarter after September 30, 2021, in which the closing price of the Company’s common stock exceeds 130 % of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may in the

quarter immediately following, convert all or a portion of their Notes.

The holders of the Notes were not eligible to convert their Notes during the first quarter of 2022.

When a conversion notice is received, the Company has the option to pay or

deliver the conversion amount entirely in cash or a combination of cash and shares of the Company’s common stock.

Accordingly, as of January 28, 2022, the Company could not be required to settle the Notes and, therefore, the Notes are classified as

long-term debt.

following, convert all or a portion of their Notes.

The holders of the Notes were not eligible to convert their Notes during the first nine months of 2022.

When a conversion notice is received, the Company has the option to pay or deliver the

conversion amount entirely in cash or a combination of cash and shares of the Company’s common stock.

Accordingly, as of April 29, 2022, the Company could not be required to settle the Notes and, therefore, the Notes are classified as long-term

Convertible Note Hedge and Warrant Transactions

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The strike price was initially $ 263.39 per share and is subject to certain adjustments under the terms of the Warrant Transactions.

As of January 28, 2022, the strike price, as

adjusted, of the Warrant Transactions was $ 256.47 per share as a result of dividends declared since the Notes were issued.

As of April 29, 2022, the strike price, as adjusted,

of the Warrant Transactions was $ 253.64 per share as a result of dividends declared since the Notes were issued.

The portion of the net proceeds to the Company from the offering of the Notes that was used to pay the premium on the

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Quarter Ended

Six Months Ended

Nine Months Ended

Total revenue

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breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption.

For the quarter and six months ended January 28, 2022, gift card breakage was $ 2,164 and $ 3,269 , respectively.

For the quarter and six months

ended January 29, 2021, gift card breakage was $ 1,754 and $ 2,694 , respectively.

Deferred revenue related to the Company’s gift cards was $ 119,996 and $ 93,098 , respectively, at January 28, 2022

and July 30, 2021.

Revenue recognized in the Condensed Consolidated Statements of Income for the six months ended January 28, 2022 and January 29, 2021, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of

the fiscal year was $ 28,809 and $ 26,944 .

For the quarter and nine months ended April 29, 2022, gift card breakage was $ 1,514 and $ 4,783 , respectively.

For the quarter and nine months

ended April 30, 2021, gift card breakage was $ 1,247 and $ 3,940 , respectively.

Deferred revenue related to the Company’s gift cards was $ 102,390 and $ 93,098 , respectively, at April 29 , 2022 and

July 30, 2021.

Revenue recognized in the Condensed Consolidated Statements of Income for the nine months ended April 29 , 2022 and April 30 , 2021, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year

was $ 36,420 and $ 35,157 .

The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable

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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

The following table summarizes the components of lease cost for operating leases for the quarter ended and six months ended January 28, 2022 as compared to the same periods in the prior year:

The following table summarizes the components of lease cost for operating leases for the quarter ended and nine months ended April 29, 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Nine Months Ended

Operating lease cost

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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 28, 2022 as compared to the same periods in the prior year:

ended and nine months ended April 29, 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Nine Months Ended

Operating cash flow information:

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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 January 28, 2022 and January 29, 2021:

January 28 , 2022

January 29 , 2021

The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of April 29, 2022 and April 30, 2021:

April 29 , 2022

April 30 , 2021

Weighted-average remaining lease term

Weighted-average discount rate

The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of January 28, 2022:

The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of April 29, 2022:

Remainder of 2022

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The Company purchased the remaining property for approximately $ 3,200 .

In connection with this sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50 years.

In connection with this sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50

The aggregate initial annual rent payment for the properties is approximately $ 14,379 and includes 1 % annual rent increases over the initial lease terms.

All the properties qualified for sale and leaseback and operating lease accounting classification

and the Company recorded a gain on the sale and leaseback transaction of $ 69,954 in the fourth quarter of 2020.

The Company recorded

operating lease right-of-use assets, including a non-cash asset recognized as a part of accounting for the transaction of $ 79,049 , and

corresponding operating lease liabilities of $ 261,698 and $ 182,649 , respectively.

On August 4, 2020, the Company completed a subsequent sale and leaseback transaction involving 62 of its owned Cracker Barrel stores for an aggregate purchase price, net of closing costs, of $ 146,357 .

Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50 years.

The aggregate

initial annual rent payment for the properties is approximately $ 10,393 and includes 1 % annual rent increases over the initial lease terms.

All the properties qualified for sale and leaseback and operating lease accounting classification and the Company

recorded a gain on the sale and leaseback transaction of $ 69,954 in the fourth quarter of 2020.

The Company recorded operating lease

right-of-use assets, including a non-cash asset recognized as a part of accounting for the transaction of $ 79,049 , and corresponding

operating lease liabilities of $ 261,698 and $ 182,649 ,

respectively.

Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50

The aggregate initial annual rent payment for the properties is approximately $ 10,393 and includes 1 % annual rent increases over the initial lease terms.

All of the properties qualified for sale and leaseback and operating lease accounting

classification, and the Company 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.

The Company also recorded operating lease right-of-use assets, including a non-cash asset recognized as part of accounting for the transaction of $ 175,960 , and corresponding operating lease liabilities of $ 309,624 and $ 133,663 , respectively.

All of the properties qualified for sale and leaseback and operating lease accounting classification, and the Company

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.

and $ 133,663 , respectively.

Net Income Per Share and Weighted Average Shares

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Common equivalent shares related to nonvested stock awards and units issued by the Company are calculated using the treasury stock method.

The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects

on diluted consolidated net income per shar e.

The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects on

diluted consolidated net income per shar e.

The Company’s convertible senior notes and related warrants are calculated using the net share settlement option under the if converted method.

The convertible senior notes have been excluded from the computation of

diluted earnings per share since the conversion price of the convertible senior notes exceeded the average market price of the Company’s common stock.

Warrants were excluded from the computation of diluted earnings per share since the warrants’

strike price was greater than the average market price of the Company’s common stock during the period.

Because the principal amount of the convertible senior notes will be settled in cash with any

excess conversion value settled in cash or shares of common stock, the convertible senior notes have been excluded from the computation of diluted earnings per share because the average market price of the Company’s common stock during the

reporting period did not exceed the conversion price of $ 181.17 as of April 29, 2022.

Warrants were excluded from the computation of

diluted earnings per share since the warrants’ strike price of $ 253.64 was greater than the average market price of the Company’s common

stock during the period.

See Note 4 for additional information regarding the Company’s convertible senior notes.

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Quarter Ended

Six Months Ended

Nine Months Ended

Net income per share numerator

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Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers.

As of January 28, 2022, the Company had $ 31,896 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 4).

During 2020, the Company received notice regarding non-performance by the primary

obligor under lease arrangements for two properties occupied by a third party.

At January 28 , 2022, the Company has recorded an

accrual of $ 344 in the Condensed Consolidated Balance Sheet for amounts to be paid as of result of non-performance by the primary obligor .

As of April 29, 2022, the Company had $ 31,896 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 4).

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 January 28 , 2022 .

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

Cracker Barrel Old Country Store, Inc.

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 January 28, 2022, we operated 664 Cracker Barrel stores in 45 states and 38 Maple Street Biscuit Company (“MSBC”) company-owned locations in eight states.

At January 28, 2022,

MSBC had seven 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).

References to years in MD&A are to our fiscal year unless otherwise noted.

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 July 30, 2021 (the “2021 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.

These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which

may cause our actual results and performance to differ materially from those expressed or implied by such statements.

All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation

Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,”

“guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,”

“should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology.

We believe the assumptions underlying any forward-looking statements are reasonable;

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 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, general or regional economic

weakness, business and societal conditions, and the weather impact 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

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 from

time to time;

changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, 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 or 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 or our ability to manage the impact of social media

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;

the impact of activist shareholders;

our reliance on limited distribution facilities and

certain significant vendors;

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 2021 Form 10-K,

as well as the factors described under “Critical Accounting Estimates” on pages 27-29 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.

Except as may be required by law,

we have no obligation or intention to update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

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.

Management believes that the Cracker Barrel’s core competitive advantages include our authentic experiential brand, our culture of hospitality, and our homestyle food and retail assortments.

remain focused on these core strengths, and we believe they will continue to drive the long-term success and outperformance of our brand.

We plan to leverage these core strengths in 2022 to drive additional frequency from our core guests, attract

new customers, and strengthen our operating and business model.

During the second quarter, we focused our efforts on operational execution during the seasonally higher volumes associated with the holiday season.

We also continued the rollout of beer and wine

to our stores and continued to invest in our digital and off-premise capabilities.

For the full fiscal year, we currently anticipate adding two new Cracker Barrel locations and 10 to 12 new Maple Street Biscuit Company locations, one of which opened in the first six months of

Key Performance Indicators

Management uses a number of key performance measures to evaluate our operational and financial performance, including the following:

Comparable store restaurant sales increase/(decrease) :

To calculate comparable store restaurant sales increase/(decrease), we determine total restaurant sales of stores open at least six full

quarters before the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total comparable store restaurant sales for the current year period from total comparable store restaurant sales for the

applicable historical period to calculate the absolute dollar change.

To calculate comparable store restaurant sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store

restaurant sales for the historical period.

Comparable store average restaurant sales :

To calculate comparable store average restaurant sales, we determine total restaurant sales of stores open at least six full quarters before the beginning

of the applicable period, measured on comparable calendar weeks, and divide by the number of comparable stores for the applicable period.

Comparable store retail sales increase/(decrease) :

To calculate comparable store retail sales increase/(decrease), we determine total retail sales of stores open at least six full quarters before

the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total comparable store retail sales for the current year period from total comparable store retail sales for the applicable historical

period to calculate the absolute dollar change.

To calculate comparable store retail sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store retail sales for the

historical period.

Comparable store retail average weekly sales :

To calculate comparable store average retail sales, we determine total retail sales of stores open at least six full quarters before the beginning of

the applicable period, measured on comparable calendar weeks, and divide by the number of comparable stores for the applicable period.

Comparable restaurant guest traffic increase/(decrease) :

To calculate comparable restaurant guest traffic increase/(decrease), we determine the number of entrees sold in our dine-in and off-premise

business from stores open at least six full quarters at the beginning of the applicable period, measured on comparable calendar weeks.

We then subtract total entrees sold for the current year period from total entrees sold for the

applicable historical period to calculate the absolute numerical change.

To calculate comparable restaurant guest traffic increase/(decrease), which we express as a percentage, we divide the absolute numerical change by the total

entrees sold for the historical period.

Average check increase per guest :

To calculate average check per guest, we determine comparable store restaurant sales, as described above, and divide by comparable guest traffic (as described

We then subtract average check per guest for the current year period from average check per guest for the applicable historical period to calculate the absolute dollar change.

The absolute dollar change is divided by the prior

year average check number to calculate average check increase per guest, which we express as a percentage.

These performance indicators exclude the impact of new store openings and sales related to MSBC.

We use comparable store sales metrics as indicators of sales growth to evaluate how our established stores have performed over time.

We use comparable restaurant guest traffic

increase/(decrease) to evaluate how established stores have performed over time, excluding growth achieved through menu price and sales mix change.

Finally, we use average check per guest to identify trends in guest preferences, as well as the

effectiveness of menu changes.

We believe these performance indicators are useful for investors by providing a consistent comparison of sales results and trends across comparable periods within our core, established store base, unaffected by

results of store openings, closings, and other transitional changes.

Results of Operations

The following table highlights our operating results by percentage relationships to total revenue for the quarter ended and first six months ended January 28, 2022 as compared to the same

periods in the prior year:

Quarter Ended

Six Months Ended

Total revenue

Cost of goods sold (exclusive of depreciation and rent)

Labor and other related expenses

Other store operating expenses

General and administrative expenses

Gain on sale and leaseback transaction

Operating income

Interest expense, net

Income before income taxes

Provision for income taxes (income tax benefit)

The following table sets forth the change in the number of Company-owned and franchised units in operation during the quarters and first six months ended January 28, 2022 and January 29, 2021

as well as the number of Company-owned and franchised units at the end of the quarters and first six months ended January 28, 2022 and January 29, 2021:

Quarter Ended

Six Months Ended

Net change in units:

Company-owned – Cracker Barrel

Company-owned – MSBC

Franchise - MSBC

Units in operation at end of the period:

Company-owned – Cracker Barrel

Company-owned – MSBC

Total Company-owned units at end of the period

Franchise – MSBC

Total Revenue

Total revenue for the second quarter and first six months of 2022 increased 27.3% and 24.4%, respectively, as compared to the same periods in the prior year.

The Company continues to recover

from the COVID-19 pandemic as all dining rooms were open to some extent during the first six months of 2022.

Dining room service was operational to varying degrees, yet certain locations were adversely impacted by the Omicron variant of COVID-19

resulting in a decline in guests' comfort level for dining indoors and capacity reductions driven by staffing shortages.

Following increases in the numbers of cases of COVID-19 throughout the United States during the second quarter of 2022, some

of our restaurants were subject to other COVID-19-related restrictions, including mask and vaccination requirements for employees and guests.

It is possible that renewed outbreaks, increases in cases and/or new variants of the disease, either as

part of a national trend or on a more localized basis, could result in additional COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.

Off-premise sales for

the second quarter of 2022 represented approximately 24% of restaurant sales volumes compared to approximately 30% in the second quarter of 2021 when a large number of our restaurants were operating with limitations on or full prohibitions of

dine-in services.

The following table highlights the key components of revenue for the quarter and six months ended January 28, 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Revenue in dollars:

Total revenue

Total revenue by percentage relationships:

Average unit volumes (1):

Total revenue

Comparable store sales increase (decrease) (2) :

Restaurant and retail

Average check increase

Comparable restaurant guest traffic increase (decrease) (2) :

(1) Average unit volumes include sales of all stores except for MSBC.

(2) Comparable store sales and traffic 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.

For the second quarter of 2022, our comparable store restaurant sales increased as a result of a 18.8% guest traffic increase and a 7.1% average check increase (including a 5.3% average menu

price increase) as compared to the prior year period.

For the first six months of 2022, our comparable store restaurant sales increased as a result of a 15.5% guest traffic increase and a 7.0% average check increase (including a 5.4% average menu

price increase) as compared to the prior year period.

Our retail sales are made substantially to our restaurant guests.

For the second quarter of 2022, our comparable store retail sales increase resulted primarily from the guest traffic increase

and strong performance in the toys, décor merchandise, food and convenience, apparel and accessories, licensed, and bed and bath merchandise categories.

For the first six months of 2022, our comparable retail sales increase resulted primarily

from the guest traffic increase and strong performance in the toys, food and convenience, décor merchandise, apparel and accessories, licensed, media and bed and bath merchandise categories.

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 second quarter and first six

months of 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Cost of Goods Sold in dollars:

Total Cost of Goods Sold

Cost of Goods Sold by percentage of revenue:

The increases in restaurant cost of goods sold as a percentage of restaurant revenue in the second quarter and the first six months of 2022 as compared to the same periods in the prior year were

primarily the result of commodity inflation and higher food waste partially offset by our menu price increases referenced above and a shift to lower cost menu items.

Commodity inflation was 8.5% and 7.9%, respectively, for the second quarter and

the first six months of 2022.

Higher food waste accounted for increases of 0.2% and 0.3%, respectively, as a percentage of restaurant revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year.

Lower cost menu items accounted for decreases of 0.6% and 0.5%, respectively, as a percentage of restaurant revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year.

We continue to partially offset inflationary pressures through menu price increases and operational improvements, and we presently expect the rate of commodity inflation to be approximately

10.0% in 2022.

The decrease in retail cost of goods sold as a percentage of retail revenue in the second quarter of 2022 as compared to the same period in the prior year resulted from lower markdowns and lower

freight expense.

Second Quarter

Decrease as a Percentage of

Total Revenue

Freight expense

The decrease in retail cost of goods sold as a percentage of retail revenue in the first six months of 2022 as compared to the same period in the prior year resulted from lower markdowns and a

decrease in discounts and allowances.

First Six Months

Decrease as a Percentage of

Total Revenue

Discounts and allowances

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 second quarter and first six months of 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Labor and related expenses

These percentage changes resulted from the following:

Second Quarter

(Decrease) Increase as a

Percentage of Total

First Six Months

(Decrease) Increase as a

Percentage of Total

Store management compensation

Store bonus expense

Store hourly labor

The decreases in store management compensation as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year were

primarily driven by the increase in total revenue in 2022 partially offset by wage inflation.

The decreases in store bonus expense as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year resulted from lower

performance against financial objectives for certain components of the incentive plan in the second quarter and first six months of 2022 as compared to the same periods in the prior year.

The increases in store hourly labor expense as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year resulted

primarily from wage inflation exceeding menu price increases.

In addition to menu price increases, we continue to partially offset inflationary pressures through labor productivity initiatives, and we presently expect the rate of wage inflation

to be approximately 10% in 2022.

Other Store Operating Expenses

Other store operating expenses include all store-level operating costs, the major components of which are operating supplies, repairs and maintenance, utilities, depreciation and amortization,

advertising, rent, third party delivery fees, credit and gift card fees, real and personal property taxes and general insurance.

The following table highlights other store operating expenses as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior

Quarter Ended

Six Months Ended

Other store operating expenses

This percentage change for the second quarter of 2022 resulted from the following:

Second Quarter

(Decrease) Increase as a

Percentage of Total Revenue

Depreciation expense

Advertising expense

Utilities expense

Real and personal property taxes expense

Maintenance expense

Loss on disposition of property and equipment

Other store expenses

This percentage change for the first six months of 2022 resulted primarily from the following:

First Six Months

(Decrease) Increase as a

Percentage of Total Revenue

Depreciation expense

Advertising expense

Real and personal property taxes expense

Utilities expense

Supplies expense

Other store expenses

The decreases in depreciation expense, rent expense, advertising expense, real and personal property taxes expense, maintenance expense, utilities expense and loss on asset disposition as a

percentage of total revenue in the second quarter and first six months of 2022 as compared to the same periods in the prior year were primarily driven by the increase in total revenue in 2022.

The decrease in supplies expense as a percentage of total revenue for the first six months of 2022 as compared to the same period in the prior year resulted primarily from a decline in

off-premise restaurant sales as compared to the first six months of the prior year when a large number of restaurants were operating with limitations on or full prohibitions of dine-in services.

The increase in other store expenses as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the prior year resulted primarily from

costs associated with the growth in our off-premise business.

General and Administrative Expenses

The following table highlights general and administrative expenses as a percentage of total revenue for the second quarter and first six months of 2022 as compared to the same periods in the

Quarter Ended

Six Months Ended

General and administrative expenses

General and administrative expenses as a percentage of total revenue in the second quarter of 2022 as compared to the same period in the prior year remained flat as a result of the following

offsetting variances.

Second Quarter

Increase (Decrease) as a

Percentage of Total Revenue

Professional fees expense

Payroll and related expense

General and administrative expenses as a percentage of total revenue decreased to 5.1% in the first six months of 2022 as compared to 5.6% in the same period in the prior year.

This percentage

change resulted primarily from the following:

First Six Months

Decrease as a Percentage

of Total Revenue

Proxy expenses

Payroll and related expense

The increase in professional fees as a percentage of total revenue in the second quarter of 2022 as compared to the same period in the prior year resulted primarily from recruitment efforts and

hiring of managers.

The decreases in payroll and related expense for the second quarter and first six months of 2022 as a percentage of total revenue as compared to the same periods in the prior year were primarily

driven by the increase in revenues in 2022 as compared to the same periods in the prior year partially offset by an increase in headcount due to strategic initiatives and an increase in managers-in-training.

In the first six months of 2021, the Company incurred expenses related to a 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 8 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 second quarter and first six months of 2022 as compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Interest expense, net

The decreases in interest expense for the second quarter and first six months of 2022 as compared to the same periods in the prior year resulted primarily from lower debt levels and lower average

weighted interest rates.

Provision for Income Taxes

The following table highlights the provision for income taxes as a percentage of income before income taxes (“effective tax rate”) for the second quarter and first six months of 2022 as

compared to the same periods in the prior year:

Quarter Ended

Six Months Ended

Effective tax rate

The significant increase in the effective tax rate from the second quarter of 2021 to the second quarter of 2022 is the result of tax benefits recorded for carryback of 2020 federal net operating

losses and resolution of state audits during the second quarter of 2021 which have a disproportionate impact due to lower earnings.

The decrease in the effective tax rate from the first six months of 2021 to the first six months of 2022 resulted

primarily from an increase in tax credits partially offset by the carryback of 2020 federal net operating losses in 2021.

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 January 29, 2021, 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.

We presently expect our effective tax rate for 2022 to be approximately 15%.

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 July 30, 2021, were sufficient to finance all of our growth, dividend payments, share repurchases, working capital needs, interest payments under our revolving credit facility and other cash payment obligations in the first six months of

We believe that cash on hand at January 28, 2022, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing

operations, our continuing expansion plans, share repurchases and working capital needs over the next twelve months.

Cash Generated From Operations

Our operating activities provided net cash of $107,793 for the first six months of 2022, representing a decrease from the $121,316 net cash provided during the first six months of 2021.

decrease primarily reflected the timing of payments for accounts payable and the change in retail inventory partially offset by the timing of payments for income taxes.

Borrowing Capacity, Debt Covenants and Notes

On September 5, 2018, we entered into the 2019 Revolving Credit Facility, a five-year $950,000 revolving credit facility, which also contains an option to increase the revolving credit facility

by $300,000, of which $260,605 remains.

In the third quarter of 2021, we entered into an amendment to the 2019 Revolving Credit Facility which reduced the commitment amount from $950,000 to $800,000.

At January 28, 2022, we had $35,000 of outstanding borrowings under the 2019 Revolving Credit Facility and $31,896 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 January 28, 2022, we had $733,104 in borrowing

availability under our 2019 Revolving Credit Facility.

During the second quarter of 2022, we repaid $50,000 of borrowings under the 2019 Revolving Credit Facility.

See Note 4 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

We were in compliance with the 2019 Revolving Credit Facility’s financial covenants at January 28, 2022, and we expect to be in compliance with the 2019 Revolving Credit Facility’s financial covenants for the remaining term.

On June 18, 2021, the Company entered into an issuance and sale of $300,000 aggregate principal amount of 0.625% Convertible Senior Notes due 2026.

The Notes are senior, unsecured obligations of

the Company and bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021.

The Notes mature on June 15, 2026, unless earlier converted, repurchased

Capital Expenditures and Proceeds from Sale of Property and Equipment

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $29,763 for the first six months of 2022 as compared to $29,224 for the same period in the

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

We estimate that our capital expenditures during 2022 will be

approximately $90,000.

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 expect to open during 2022, as well as for acquisition and construction

costs for store locations that we plan to be opened in 2023.

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

The proceeds from sale of property and equipment were $33 for the first six months of 2022 as compared to $149,877 for the same period in the prior year.

This decrease primarily relates to the

sale and leaseback transaction entered into during the first quarter of 2021.

See Note 8 to the Condensed Consolidated Financial Statements for additional information regarding this sale and leaseback transaction.

Dividends, Share Repurchases and Share-Based Compensation Awards

Our 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;

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 six months of 2022, we paid a regular dividend of $2.30 per share and declared a dividend of $1.30 per share that was subsequently paid on February 1, 2022, to shareholders of

record on January 14, 2022.

In addition, in the third quarter of 2022, our Board of Directors approved a regular dividend payable on May 3, 2022 to shareholders on record on April 18, 2022 of $1.30 per share.

We have been authorized by our Board of Directors to repurchase shares of the Company’s outstanding common stock at management’s discretion up to a total value of $100,000.

During the first six

months of 2022, we repurchased 279,664 shares of our common stock in the open market at an aggregate cost of $34,230.

During the first six months of 2022, we issued 31,030 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 $2,546.

Working Capital

In the restaurant industry, virtually all sales are either for third-party credit or debit card or cash.

Restaurant inventories purchased through our principal food distributor are on terms of

net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit.

Because of our retail gift shops, which have a lower product turnover than the restaurant business, we carry larger inventories than

many other companies in the restaurant industry.

Retail inventories purchased domestically are generally financed from normal trade credit, while imported retail inventories are generally purchased through wire transfers.

These various trade

terms are aided by the rapid turnover of the restaurant inventory.

Employees generally are paid on weekly or semi-monthly schedules in arrears for hours worked except for bonuses that are paid either quarterly or annually in arrears.

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 negative working capital of $172,249 at January 28, 2022 versus negative working capital of $111,666 at July 30, 2021.

The change in working capital from July 30, 2021 to January 28, 2022

primarily resulted from a decrease in cash and an increase in deferred revenue related to the sale of our gift cards partially offset by higher inventory levels and timing of accounts payable.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Material Commitments

There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2021.

Refer to the sub-section entitled “Material Commitments”

under the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2021 Form 10-K for additional information regarding our material commitments.

Recent Accounting Pronouncements Adopted

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

The adoption of the accounting guidance on income taxes

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

See Note 1 regarding the impact of the adoption of the convertible instruments guidance.

Critical Accounting Estimates

We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America.

The preparation of these financial statements

requires us to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

We base our estimates and judgments on historical

experience, current trends, outside advice from parties believed to be experts in such matters, and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments

about the carrying value of assets and liabilities that are not readily apparent from other sources.

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 2021 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.

Critical accounting estimates are those that:

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

require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

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

Impairment of Long-Lived Assets

Insurance Reserves

Retail Inventory Valuation

Lease Accounting

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

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability of assets is

measured by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset.

If the total expected future cash flows are less than the carrying amount of the asset, the carrying value is

written down, for an asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal.

Any loss resulting from impairment is recognized by a charge to income.

Judgments and estimates that we make related to the expected useful lives of long-lived assets and future cash flows are affected by factors such as changes in economic conditions and changes in operating performance.

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 six months of 2022, 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.

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

We self-insure a significant portion of our expected workers’ compensation and general liability insurance programs.

We purchase insurance for individual workers’ compensation claims that exceed

$250, $750 or $1,000 depending on the state in which the claim originated.

We purchase insurance for individual general liability claims that exceed $500.

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 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.

The reserves and losses in the actuarial study

represent a range of possible outcomes within which no given estimate is more likely than any other estimate.

As such, we record the losses in the lower half of that range and discount them to present value using a risk-free interest rate based

on projected timing of payments.

We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of our

Our group health plans combine the use of self-insured and fully-insured programs.

Benefits for any individual (employee or dependents) in the self-insured group health program are limited.

record a liability for the self-insured portion of our group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience.

Additionally, we record a liability for unpaid

prescription drug claims based on historical experience.

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 six months of 2022 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.

Retail Inventory Valuation

Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory method (“RIM”).

Under RIM, the valuation of our retail inventories is determined by

applying a cost-to-retail ratio to the retail value of our inventories.

Inherent in the RIM calculation are certain inputs, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation

as well as the ending inventory valuation.

Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage.

Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as

appropriate based on assumptions made by management and judgment regarding inventory aging and future promotional activities.

Retail inventory also includes an estimate of shrinkage that is adjusted upon physical inventory counts.

physical inventory counts are conducted based upon a cyclical inventory schedule.

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 six months of 2022 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.

Lease Accounting

We have ground leases for our leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases.

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

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.

If we determine

that we have the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, we recognize a right-of-use asset and lease liability.

Also, at contract

inception, we evaluate our leases to estimate their expected term which includes renewal options that we are reasonably assured that we will exercise, and the classification of the lease as either an operating lease or a finance lease.

Additionally, as our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of

lease payments.

Assumptions used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based on comparable market data.

We assess the impairment of the right-of-use

asset whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Changes in these assumptions and management judgments may produce materially different amounts in the recognition of the right-of-use assets and lease liabilities.

Additionally, any loss

resulting from an impairment of the right-of-use assets is recognized by a charge to income, which 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 1. Financial Statements