CRACKER BARREL OLD COUNTRY STORE, INC 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, such as changes in interest rates and commodity prices. We do not hold or use derivative financial instruments for trading purposes. Interest Rate Risk. We have interest rate risk relative to our outstanding borrowings under our revolving credit facility. At July 29, 2022 and July 30, 2021, our outstanding borrowings totaled $130,000 and $85,000, respectively (see Note 5 to our Consolidated Financial Statements). Loans under the 2022 Revolving Credit Facility bear interest, at our election, either at the prime rate or a rate 0.5% in excess of the Federal Funds Rate or a rate 1.0% in excess of one-month Term Secured Overnight Financing Rate (SOFR), in each case plus an applicable margin, or the one-, three-, or six-month per annum Term SOFR plus an applicable margin. Under the 2019 Revolving Credit Facility, loans bore interest, at our election, either at the prime rate or London Inter-Bank Offer Rate (LIBOR) plus a percentage point spread based on certain specified financial ratios. Our policy has been to manage interest cost using a mix of fixed and variable rate debt (see Notes 5, 6 and 9 to our Consolidated Financial Statements). To manage this risk in a cost-efficient manner, historically, we have entered into interest rate swaps. During the fourth quarter of 2021, we terminated all of our interest rate swaps. See Note 6 to our Consolidated Financial Statements for further discussion of our interest rate swaps. Additionally, in the fourth quarter of 2021, we issued and sold the Notes, which bear cash interest at a fixed rate of 0.625% per annum. At July 29, 2022, the weighted average interest rate of our outstanding $130,000 borrowings was 3.49%. At July 30, 2021, the weighted average interest rate of our outstanding $85,000 borrowings was 3.18%. The impact of a one-percentage point increase in the $130,000 of our outstanding borrowings at July 29, 2022 is approximately $1,300. Credit Risk. In June 2021, the Company issued the Notes and entered into the Convertible Note Hedge Transactions and the Warrant Transactions with the Hedge Counterparties. Subject to the movement in the Company’s common stock price, the Company could be exposed to credit risk arising out of the net settlement of the Convertible Note Hedge Transactions and the Warrant Transactions in its favor. Based on the Company’s review of the possible net settlements and the creditworthiness of the Hedge Counterparties and their affiliates, the Company believes it does not have a material exposure to credit risk as a result of these transactions at this time. Commodity Price Risk. Many of the food products that we purchase are affected by commodity pricing and are, therefore, subject to price volatility caused by market conditions, weather, production problems, delivery difficulties and other factors which are outside our control and which are generally unpredictable. The following table highlights the five food categories which accounted for the largest shares of our food purchases in 2022 and 2021: Percentage of Food Purchases 2022 2021 Beef 15% 15% Fruits and vegetables 12% 13% Poultry 12% 12% Pork 12% 11% Dairy (including eggs) 11% 12% Other categories affected by the commodities markets, such as grains and seafood, may each account for as much as 7% of our food purchases. While some of our food items are produced to our proprietary specifications, our food items are based on generally available products, and if any existing suppliers fail, or are unable to deliver in quantities required by us, we believe that there are sufficient other quality suppliers in the marketplace that our sources of supply can be replaced as necessary to allow us to avoid any material adverse effects that could be caused by such unavailability. We also recognize, however, that commodity pricing is extremely volatile and can change unpredictably even over short periods of time. Changes in commodity prices would affect us and our competitors generally and depending on the terms and duration of supply contracts, sometimes simultaneously. We enter into contracts for certain of our products in an effort to minimize volatility of supply and pricing. In many cases, or over the longer term, we believe we will be able to pass through some or much of the increased commodity costs by adjusting our menu pricing. From time to time, competitive circumstances, or judgments about consumer acceptance of price increases, may limit menu price flexibility, and in those circumstances, increases in commodity prices can result in lower margins. In 2022, we continued to partially offset commodity pressures through menu price increases and operational improvements. 47 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Cracker Barrel Old Country Store, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cracker Barrel Old Country Store, Inc. and subsidiaries (the “Company”) as of July 29, 2022, and July 30, 2021, the related consolidated statements of income (loss), consolidated statements of comprehensive income (loss), consolidated statements of changes in shareholders’ equity, and consolidated statements of cash flows, for each of the three years in the period ended July 29, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 29, 2022, and July 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 29, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 27, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for debt with conversion options as of July 31, 2021, due to adoption of Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 48 Table of Contents Commitments and Contingencies – Insurance Reserves – Refer to Notes 2 and 15 to the financial statements Critical Audit Matter Description The Company self‐insures a significant portion of its workers’ compensation and general liability program and records a reserve for all unresolved claims and an estimate of incurred but not reported (IBNR) claims. These reserves and estimates of IBNR claims are based upon a full‐scope actuarial study performed annually by management’s specialist at the end of the third quarter and are adjusted by the actuarially determined losses and actual claims payments for the fourth quarter. 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. Using this information, the Company records the expected losses in the lower half of the range, which is discounted to present value using a risk‐free interest rate. The Company also monitors actual claims development as another means of estimating the adequacy of the historical reserves. We identified insurance reserves as a critical audit matter because estimating the reserve for all unresolved claims and IBNR claims involves significant estimation by management. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate whether insurance reserves were appropriately recorded as of July 29, 2022. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the insurance reserves included the following, among others: • We tested the effectiveness of controls related to insurance reserves, including management’s controls over the claims data provided to the actuary and those over the estimation of unresolved claims and IBNR claims. • We evaluated the methods and assumptions used by management to estimate the insurance reserves by: - Reconciling the claims data to the actuarial analysis. - Comparing management’s selected insurance reserve estimates within the range provided by their third‐party actuary to historical trends. - Performing a retrospective review by comparing the prior‐year recorded amounts to the subsequent claim emergence. - Developing, with the assistance of our actuarial specialists, an independent range of estimates of the insurance reserves, utilizing paid and reported loss development factors from the Company’s historical data and industry loss development factors as deemed necessary, and comparing our estimated range to management’s estimates. /s/ Deloitte & Touche LLP Nashville, Tennessee September 27, 2022 We have served as the Company’s auditor since 1974. 49 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. CONSOLIDATED BALANCE SHEETS (In thousands except share data) ASSETS July 29, 2022 July 30, 2021 Current Assets: Cash and cash equivalents $ 45,105 $ 144,593 Accounts receivable 32,246 27,372 Income taxes receivable 2,451 21,123 Inventories 213,249 138,320 Prepaid expenses and other current assets 24,225 22,188 Total current assets 317,276 353,596 Property and Equipment: Land 255,238 255,238 Buildings and improvements 792,211 776,441 Restaurant and other equipment 817,240 783,264 Leasehold improvements 422,485 405,785 Construction in progress 22,404 13,761 Total 2,309,578 2,234,489 Less: Accumulated depreciation and amortization 1,339,969 1,254,639 Property and equipment – net 969,609 979,850 Operating lease right-of-use assets, net 933,524 974,477 Goodwill 4,690 4,690 Intangible assets 21,210 21,285 Other assets 48,602 57,796 Total $ 2,294,911 $ 2,391,694 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 169,871 $ 135,176 Current portion of long-term debt 124 124 Current operating lease liabilities 54,571 50,451 Taxes withheld and accrued 60,212 48,031 Accrued employee compensation 51,670 64,792 Accrued employee benefits 25,002 23,724 Deferred revenues 93,615 93,157 Dividend payable 29,960 23,970 Other current liabilities 17,299 25,837 Total current liabilities 502,324 465,262 Long-term debt 423,249 327,253 Long-term operating lease liabilities 722,159 748,305 Other long-term obligations 55,507 88,615 Deferred income taxes 80,193 98,626 Commitments and Contingencies (Notes 9 and 15) Shareholders’ Equity: Preferred stock – 100,000,000 shares of $ 0.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued — — Common stock – 400,000,000 shares of $ 0.01 par value authorized; 2022 – 22,281,443 shares issued and outstanding; 2021 – 23,497,166 shares issued and outstanding 223 235 Retained earnings 511,256 663,398 Total shareholders’ equity 511,479 663,633 Total $ 2,294,911 $ 2,391,694 See Notes to Consolidated Financial Statements. 50 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands except share data) Fiscal years ended July 29, 2022 July 30, 2021 July 31, 2020 Total revenue $ 3,267,786 $ 2,821,444 $ 2,522,792 Cost of goods sold (exclusive of depreciation and rent) 1,049,884 865,261 779,937 Labor and other related expenses 1,149,077 983,120 924,994 Other store operating expenses 758,389 676,301 614,733 General and administrative expenses 157,433 147,825 146,975 Gain on sale and leaseback transactions — ( 217,722 ) ( 69,954 ) Impairment — — 22,496 Operating income 153,003 366,659 103,611 Interest expense 9,620 56,108 22,327 Income before income taxes 143,383 310,551 81,284 Provision for income taxes (income tax benefit) 11,503 56,038 ( 28,683 ) Loss from unconsolidated subsidiary — — ( 142,442 ) Net income (loss) $ 131,880 $ 254,513 $ ( 32,475 ) Net income (loss) per share – basic $ 5.69 $ 10.74 $ ( 1.36 ) Net income (loss) per share – diluted $ 5.67 $ 10.71 $ ( 1.36 ) Basic weighted average shares outstanding 23,164,180 23,692,063 23,865,367 Diluted weighted average shares outstanding 23,246,010 23,767,390 23,865,367 See Notes to Consolidated Financial Statements. 51 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Fiscal years ended July 29, 2022 July 30, 2021 July 31, 2020 Net income (loss) $ 131,880 $ 254,513 $ ( 32,475 ) Other comprehensive income (loss) before income tax expense (benefit): Change in fair value of interest rate swaps — 27,110 ( 17,740 ) Income tax expense (benefit) — 6,764 ( 4,307 ) Other comprehensive income (loss), net of tax — 20,346 ( 13,433 ) Comprehensive income (loss) $ 131,880 $ 274,859 $ ( 45,908 ) See Notes to Consolidated Financial Statements. 52 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands except share data) Common Stock Additional Paid-In Accumulated Other Comprehensive Retained Total Shareholders’ Shares Amount Capital Income (Loss) Earnings Equity Balances at August 2 , 2019 24,049,240 241 49,732 ( 6,913 ) 561,650 604,710 Comprehensive Income: Net loss — — — — ( 32,475 ) ( 32,475 ) Other comprehensive loss, net of tax — — — ( 13,433 ) — ( 13,433 ) Total comprehensive loss — — — ( 13,433 ) ( 32,475 ) ( 45,908 ) Cash dividends declared - $ 3.90 per share — — — — ( 93,757 ) ( 93,757 ) Share-based compensation — — 6,386 — — 6,386 Issuance of share-based compensation awards, net of shares withheld for employee taxes 27,130 — ( 2,160 ) — — ( 2,160 ) Purchases and retirement of common stock ( 378,974 ) ( 4 ) ( 53,958 ) — ( 1,045 ) ( 55,007 ) Cumulative-effect of change in accounting principle — — — — 4,125 4,125 Balances at July 31 , 2020 23,697,396 $ 237 $ — $ ( 20,346 ) $ 438,498 $ 418,389 Net income — — — — 254,513 254,513 Other comprehensive income, net of tax — — — 20,346 — 20,346 Total comprehensive income — — — 20,346 254,513 274,859 Cash dividends declared - $ 1.00 per share — — — — ( 23,766 ) ( 23,766 ) Share-based compensation — — 8,729 — — 8,729 Issuance of share-based compensation awards, net of shares withheld for employee taxes 32,313 — ( 2,282 ) — — ( 2,282 ) Purchases and retirement of common stock ( 232,543 ) ( 2 ) ( 29,151 ) — ( 5,847 ) ( 35,000 ) Equity component value of convertible note issuance, net of tax — — 53,004 — — 53,004 Sale of common stock warrant — — 31,710 — — 31,710 Purchase of convertible note hedge — — ( 62,010 ) — — ( 62,010 ) Balances at July 30 , 2021 23,497,166 $ 235 $ — $ — $ 663,398 $ 663,633 Net income — — — — 131,880 131,880 Other comprehensive income, net of tax — — — — — — Total comprehensive income — — — — 131,880 131,880 Cash dividends declared - $ 5.20 per share — — — — ( 121,135 ) ( 121,135 ) Share-based compensation — — 8,198 — — 8,198 Issuance of share-based compensation awards, net of shares withheld for employee taxes 32,461 — ( 2,599 ) — — ( 2,599 ) Purchases and retirement of common stock ( 1,248,184 ) ( 12 ) ( 5,599 ) — ( 125,931 ) ( 131,542 ) Cumulative-effect of change in accounting principle, net of taxes (Note 2) — — — — ( 36,956 ) ( 36,956 ) Balances at July 29 , 2022 22,281,443 $ 223 $ — $ — $ 511,256 $ 511,479 See Notes to Consolidated Financial Statements. 53 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal years ended July 29, 2022 July 30, 2021 July 31, 2020 Cash flows from operating activities: Net income (loss) $ 131,880 $ 254,513 $ ( 32,475 ) Net loss from unconsolidated subsidiary — — 142,442 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 103,568 108,604 118,178 Amortization of debt discount and issuance costs 1,755 864 — Loss on disposition of property and equipment 5,637 4,064 6,469 Gain on sale and leaseback transactions — ( 217,722 ) ( 69,954 ) Impairment — — 23,160 Share-based compensation 8,198 8,729 6,386 Noncash lease expense 58,498 55,817 63,442 Amortization of asset recognized from gain on sale and leaseback transactions 12,735 12,735 — Changes in assets and liabilities: Accounts receivable ( 2,039 ) ( 7,016 ) 3,124 Income taxes receivable 18,672 7,729 ( 19,403 ) Inventories ( 74,929 ) 771 16,094 Prepaid expenses and other current assets ( 2,771 ) ( 3,538 ) 401 Other assets 8,459 ( 3,997 ) ( 5,638 ) Accounts payable 34,695 31,672 ( 30,593 ) Current operating lease liabilities 4,120 8,150 ( 11,269 ) Taxes withheld and accrued 12,181 16,854 ( 7,019 ) Accrued employee compensation ( 13,129 ) 8,472 ( 11,573 ) Accrued employee benefits 1,278 ( 653 ) ( 550 ) Deferred revenues 458 ( 1,605 ) 13,028 Other current liabilities ( 6,591 ) 2,791 6,868 Long-term operating lease liabilities ( 59,227 ) ( 59,388 ) ( 48,854 ) Other long-term obligations ( 32,048 ) 6,919 10,673 Deferred income taxes ( 6,147 ) 67,138 ( 11,935 ) Net cash provided by operating activities 205,253 301,903 161,002 Cash flows from investing activities: Purchase of property and equipment ( 98,341 ) ( 71,409 ) ( 297,328 ) Proceeds from insurance recoveries of property and equipment 1,237 1,279 1,320 Proceeds from sale of property and equipment 105 149,960 207,253 Notes receivable from unconsolidated subsidiary — — ( 35,500 ) Acquisition of business, net of cash acquired ( 1,500 ) ( 1,500 ) ( 32,971 ) Net cash provided by (used in) investing activities ( 98,499 ) 78,330 ( 157,226 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 230,000 60,000 801,395 Proceeds from issuance of convertible senior notes — 291,605 — Taxes withheld from issuance of share-based compensation awards ( 2,599 ) ( 2,282 ) ( 2,160 ) Principal payments under long-term debt ( 185,124 ) ( 924,572 ) ( 252,000 ) Proceeds from issuance of warrants — 31,710 — Purchase of convertible note hedge — ( 62,010 ) — Purchases and retirement of common stock ( 131,542 ) ( 35,000 ) ( 55,007 ) Deferred financing costs ( 2,148 ) ( 420 ) ( 1,348 ) Dividends on common stock ( 114,829 ) ( 31,667 ) ( 94,544 ) Net cash provided by (used in) financing activities ( 206,242 ) ( 672,636 ) 396,336 Net increase (decrease) in cash and cash equivalents ( 99,488 ) ( 292,403 ) 400,112 Cash and cash equivalents, beginning of year 144,593 436,996 36,884 Cash and cash equivalents, end of year $ 45,105 $ 144,593 $ 436,996 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 7,698 $ 40,802 $ 20,268 Income taxes 25,948 2,907 5,666 Supplemental schedule of non-cash investing and financing activities: Capital expenditures accrued in accounts payable $ 7,421 $ 5,806 $ 1,691 Change in fair value of interest rate swaps — 27,110 ( 17,740 ) Change in deferred tax asset for interest rate swaps — ( 6,764 ) 4,307 Dividends declared but not yet paid 30,456 24,157 32,063 See Notes to Consolidated Financial Statements. 54 Table of Contents CRACKER BARREL OLD COUNTRY STORE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share data) 1. Description of the Business Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in the Notes, the “Company”) are principally engaged in the operation and development in the United States (“U.S.”) of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. COVID-19 Impact and Company Response During 2022, the Company continued to recover from the COVID-19 pandemic, and all dining rooms were open to some extent during 2022. While all of the Company’s dining rooms are currently operating without COVID-19-related restrictions, it is possible that renewed outbreaks or 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, the Company instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and the Company implemented and continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain environment. The Company continues to focus on growing its off-premise business and investing in its digital infrastructure to improve the guest experience in the face of these ongoing challenges. 2. Summary of Significant Accounting Policies GAAP – The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). Fiscal year – The Company’s fiscal year ends on the Friday nearest July 31st and each quarter consists of thirteen weeks unless noted otherwise. References in these Notes to a year or quarter are to the Company’s fiscal year or quarter unless noted otherwise . Principles of consolidation – The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated. Investment in unconsolidated subsidiary – Effective July 18, 2019, the Company purchased approximately 58.6 % of the economic ownership interest, and approximately 49.7 % of the voting interest, in PBS HoldCo, LLC (“PBS HC”). PBS HC and its subsidiaries developed, owned, and operated food, beverage and entertainment establishments under the name of Punch Bowl Social (“PBS”). Since the Company had the ability to exercise significant influence, but not control, over PBS HC, the Company accounted for its investment in PBS HC under the equity method. Accordingly, the Company recognized its proportionate share of the reported losses of PBS HC adjusted for basis differences on its consolidated statement of income (loss) and as an adjustment to the Company’s investment in unconsolidated subsidiary on the consolidated balance sheet. During the course of the COVID-19 pandemic, PBS Holdco’s wholly-owned subsidiary and principal operating company, PBS BrandCo, LLC (“Brandco”) suffered unsustainable disruption to its business across the chain and suspended all operations. As a result, the Company recorded a loss of $ 132,878 , which represented the Company’s equity investment in PBS HC and the principal and accumulated interest under the outstanding unsecured indebtedness of PBS HC held by the Company. This loss is recorded in the net loss in unconsolidated subsidiary line on the Company’s Consolidated Statement of Income (Loss) in 2020. Cash and cash equivalents – The Company’s policy is to consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts receivable – Accounts receivable represent their estimated net realizable value. Accounts receivable are written off when they are deemed uncollectible. 55 Table of Contents Inventories – Cost of restaurant inventory is determined by the first-in, first-out (“FIFO”) method. Retail inventories are valued using the retail inventory method (“RIM”) except at the retail distribution center which are valued using moving average cost. Approximately 60 % to 70 % of retail inventories are valued using RIM. Retail inventories valued using RIM are stated at the lower of cost or market. Cost of restaurant inventory and retail inventory valued using moving average cost are stated at the lower of cost and net realizable value. See Note 4 for additional information regarding the components of inventory. Valuation provisions are included for retail inventory obsolescence, retail inventory shrinkage, returns and amortization of certain items. The estimate of retail inventory shrinkage is adjusted upon physical inventory counts. Annual 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. Property and equipment – Property and equipment are stated at cost. For financial reporting purposes, depreciation and amortization on these assets are computed by use of the straight-line and double-declining balance methods over the estimated useful lives of the respective assets, as follows: Years Buildings and improvements 30 - 45 Restaurant and other equipment 2 - 10 Leasehold improvements 1 - 35 Accelerated depreciation methods are generally used for income tax purposes. Total depreciation expense and depreciation expense related to store operations for each of the three years are as follows: 2022 2021 2020 Total depreciation expense $ 102,297 $ 107,090 $ 117,259 Depreciation expense related to store operations* 96,243 100,054 109,362 * Depreciation expense related to store operations is included in other store operating expenses in the Consolidated Statements of Income. Gain or loss is recognized upon disposal of property and equipment. The asset and related accumulated depreciation and amortization amounts are removed from the accounts. Maintenance and repairs, including the replacement of minor items, are charged to expense and major additions to property and equipment are capitalized. Impairment of long-lived assets – The Company assesses 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 value 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. During 2020, certain Cracker Barrel and MSBC locations were determined to be impaired and the Company recorded an impairment charge of $ 22,496 , which is included in the impairment line on the Consolidated Statement of Income (Loss) . Goodwill and other intangible assets – The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired and the liabilities assumed are recognized and measured at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as estimated amounts. Adjustments to these estimated amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired and the liabilities assumed has been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. Goodwill and other intangibles will be evaluated for impairment annually on June 1 and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. At July 29, 2022 and July 30, 2021, the Company does not have any reporting units that are at risk of failing step one of the impairment test . At both July 29, 2022 and July 30, 2021, goodwill of $ 4,690 consisted of the Company’s acquisition of its 100 % ownership of Maple Street Biscuit Company (“MSBC”), a breakfast and lunch fast casual concept. Convertible Senior Notes – In June 2021, the Company completed a $ 300,000 principal aggregate amount private offering of 0.625 % convertible Senior Notes due in 2026 (the “Notes”). In accordance with accounting guidance on embedded conversion features indexed to and settled in equity, the Company valued and bifurcated the conversion option associated with the Notes from the respective host debt instrument. The carrying amount of the equity is recorded as a debt discount and represents the difference between the proceeds from the issuance of the Notes and the fair value of the liability component of the Notes. The significant assumptions used in the fair value of the liability component of the Notes were risk-free rate, discount rate based on the Company’s implied credit spread and term of the Notes, expected volatility of the Company’s stock price and dividend yield. The resulting debt discount on the Notes is amortized to interest expense using the effective interest method over the contractual term of the Notes. In addition, the debt issuance costs related to the issuance of the Notes were allocated between the liability and equity components based on their relative values. Debt issuance costs attributable to the liability component were recorded as a contra-liability and are presented net against the Notes balance on the Company’s consolidated balance sheets. These costs are amortized to interest expense using the effective interest method over the term of the Notes. Due to the Company’s adoption of new accounting guidance for convertible instruments on July 31, 2021, the Company no longer bifurcates the Notes into a liability and an equity component in the Company’s Condensed Consolidated Balance Sheets (see Accounting for Convertible Instruments under Recent Accounting Pronouncements Adopted section below for additional information regarding the adoption of this new accounting guidance). Upon adoption of this new accounting guidance, the Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs. The equity conversion feature that was recorded to equity, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized. D erivative instruments and hedging activities – The Company is exposed to market risk, such as changes in interest rates and commodity prices. The Company has interest rate risk relative to its outstanding borrowings under the revolving credit facility (see Note 5). The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost-efficient manner, prior to 2022, the Company used derivative instruments, specifically interest rate swaps. In the fourth quarter of 2021, the Company terminated all of its interest rate swaps and issued the Notes (see discussion above under “Convertible Senior Notes” and Note 5 for further information). Prior to the termination of the interest rate swaps in the fourth quarter of 2021, all of the Company’s interest rate swaps were accounted for as cash flow hedges. For derivative instruments that were designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument was reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings and was presented in the same statement of income (loss) line item as the earnings effect of the hedged item. Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness, if any, will be recognized currently in earnings in the same statement of income (loss) line item as the earnings effect of the hedged item. The Company did not elect to reclassify income tax effects resulting from the Tax Cuts and Jobs Act to retained earnings; income tax effects are released on an individual basis to income tax expense (benefit). Companies may elect whether or not to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists. Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty. When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement. If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero . 56 Table of Contents The Company does not hold or use derivative instruments for trading purposes. The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments. See Note 6 for additional information on the Company’s derivative and hedging activities. Segment reporting – Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Using these criteria, the Company manages its business on the basis of one reportable operating segment (see Note 8 for additional information regarding segment reporting). Unredeemed gift cards and certificates – Unredeemed gift cards and certificates represent a liability of the Company related to unearned income and are recorded at their expected redemption value. No revenue is recognized in connection with the point-of-sale transaction when gift cards or gift certificates are sold. For those states that exempt gift cards and certificates from their escheat laws, the Company makes estimates of the ultimate unredeemed (“breakage”) gift cards and certificates in the period of the original sale and amortizes this breakage over the redemption period that other gift cards and certificates historically have been redeemed by reducing its liability and recording revenue accordingly. For those states that do not exempt gift cards and certificates from their escheat laws, the Company records breakage in the period that gift cards and certificates are remitted to the state and reduces its liability accordingly. Any amounts remitted to states under escheat or similar laws reduce the Company’s deferred revenue liability and have no effect on revenue or expense while any amounts that the Company is permitted to retain are recorded as revenue. See “Revenue recognition” section in this Note for further information regarding breakage. Revenue recognition – Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer. The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied. The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied. Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, the Company provides for estimated returns based on return history and sales levels. The Company’s policy is to present sales in the Consolidated Statements of Income on a net presentation basis after deducting sales tax. Included in restaurant and retail revenue is gift card breakage. Customer purchases of gift cards, to be utilized at the Company’s stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise. Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company’s Consolidated Statements of Income over the expected redemption period. Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption. For 2022, 2021 and 2020, gift card breakage was $ 9,572 , $ 6,349 , and $ 6,288 , respectively. Revenue recognized in the Consolidated Statements of Income (Loss) for 2022, 2021 and 2020, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $ 42,169 , $ 42,266 , and $ 36,756 , respectively. Deferred revenue related to the Company’s gift cards was $ 93,569 and $ 93,098 , respectively, at July 29, 2022 and July 30, 2021. Insurance – The Company self-insures a significant portion of its workers’ compensation and general liability programs. The Company purchases insurance for individual workers’ compensation claims that exceed $ 300 , $ 750 or $ 1,000 depending on the state in which the claim originates. The Company purchases insurance for individual general liability claims that exceed $ 500 . 57 Table of Contents The Company records a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported claims (“IBNR”). These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of the Company’s third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter. Additionally, the Company performs limited scope actuarial studies on a quarterly basis to verify and/or modify the Company’s 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, the Company records the losses at the lower half of that range and discounts them to present value using a risk-free interest rate based on projected timing of payments. The Company also monitors 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 its reserves. The Company’s group health plans combine the use of self-insured and fully-insured programs. Benefits for any individual (employee or dependents) in the self-insured program are limited. The Company records a liability for the self-insured portion of its group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience. The Company also records a liability for unpaid prescription drug claims based on historical experience. Store pre-opening costs – Start-up costs of a new store are expensed when incurred. Leases – In 2020, the Company adopted new accounting guidance for leases which requires the recognition of lease assets and lease liabilities on the balance sheet and certain disclosures (see Note 9). Under this accounting guidance, leases are classified as either finance or operating leases. Upon adoption of this accounting guidance, the Company elected to apply the short-term lease exemption to all asset classes which exempts the Company from recognizing lease assets and liabilities for these short-term leases. Additionally, the Company elected to not separate lease and non-lease components for all classes of leased assets. The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. The Company also leases its advertising billboards, vehicle fleets and certain equipment under various non-cancellable operating leases. To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration. If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability. The Company’s leases all have varying terms and expire at various dates through 2055. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each. The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option. During rent holiday periods, which include the pre-opening period during construction, the Company has possession of and access to the property, but is not obligated to, and normally does not, make rent payments. The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options. Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index. Contingent rent is determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability and corresponding rent expense when it is probable sales have been achieved in amounts in excess of the specified levels. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants . Advertising – The Company expenses the costs of producing advertising the first time the advertising takes place. Other advertising costs are expensed as incurred. Advertising expense for each of the three years was as follows: 2022 2021 2020 Advertising expense $ 89,850 $ 83,630 $ 79,155 Share-based compensation – The Company’s share-based compensation consists of nonvested stock awards and units. Share-based compensation is recorded in general and administrative expenses in the Consolidated Statements of Income (Loss). Share-based compensation expense is recognized based on the grant date fair value and the achievement of performance conditions for certain awards. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period, which is generally the award’s vesting period, or to the date on which retirement eligibility is achieved, if shorter. 58 Table of Contents Certain nonvested stock awards and units contain performance conditions. Compensation expense for performance-based awards is recognized when it is probable that the performance criteria will be met. If any performance goals are not met, no compensation expense is ultimately recognized and, to the extent previously recognized, compensation expense is reversed. If a share-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period. Additionally, the Company’s policy is to issue shares of common stock to satisfy exercises of share-based compensation awards. Income taxes – The Company’s provision for income taxes includes employer tax credits for FICA taxes paid on employee tip income and other employer tax credits are accounted for by the flow-through method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recognizes (or derecognizes) a tax position taken or expected to be taken in a tax return in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained (or not sustained) upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company recognizes, net of tax, interest and estimated penalties related to uncertain tax positions in its provision for income taxes. See Note 13 for additional information regarding income taxes. Comprehensive income (loss) – Comprehensive income (loss) includes net income (loss) and the effective unrealized portion of the changes in the fair value of the Company’s interest rate swa ps . The Company terminated all of its interest rate swaps in 2021 . N et income (loss) per share – Basic consolidated net income per share is computed by dividing consolidated net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue common stock were exercised or converted into common stock and is based upon the weighted average number of common and common equivalent shares outstanding during the reporting period. Common equivalent shares related to nonvested stock awards and units issued by the Company are calculated using the treasury stock method. The outstanding nonvested stock awards and units issued by the Company represent the only dilutive effects on diluted consolidated net income per share. Prior to the adoption of new accounting guidance for convertible instruments in 2022, the Company’s convertible senior notes and related warrants were calculated using the treasury stock method. Beginning in 2022, the convertible senior notes and related warrants are calculated using the net share settlement option under the if-converted method. 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 $ 178.51 as of July 29, 2022. Warrants were excluded from the computation of diluted earnings per share since the warrants’ strike price of $ 249.91 was greater than the average market price of the Company’s common stock during the period. See Note 14 for additional information regarding net income (loss) per share and Note 5 for additional information regarding the Company’s convertible senior notes . Use of estimates – Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods to prepare these Consolidated Financial Statements in conformity with GAAP. Management believes that such estimates have been based on reasonable and supportable assumptions and that the resulting estimates are reasonable for use in the preparation of the Consolidated Financial Statements. Actual results, however, could differ from those estimates. 59 Table of Contents Recent Accounting Pronouncements Adopted Accounting for Income Taxes I n December 2019, the Financial Accounting Standards Board (“FASB”) issued accounting guidance in order to simplify the accounting for income taxes. This new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This accounting guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The new guidance was applied on a prospective basis, except for the guidance on franchise taxes that are partially based on income which was applied using a modified retrospective approach. The adoption of this accounting guidance in the first quarter of 2022 did not have a significant impact on the Company’s consolidated financial position or results of operations. Accounting for Convertible Instruments I n August 2020, the FASB issued accounting guidance to simplify the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity. For convertible instruments, the Board decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. By removing the separation model, a convertible debt instrument will be reported as a single liability instrument with no separate accounting for embedded conversion features. This new standard also removes certain settlement conditions that are required for contracts to qualify for equity classification and simplifies the diluted earnings per share calculations by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. This guidance is effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. This guidance should be applied through either a modified retrospective method of transition or a fully retrospective method of transition. The Company elected to early adopt this guidance in the first quarter of 2022 using the modified retrospective method. The impact of this adoption in the first quarter of 2022 resulted in the increase in long-term debt of $ 49,242 , a reduction in deferred income taxes of $ 12,286 and a decrease in equity of $ 36,956 on the Consolidated Balance Sheet. The decrease in equity is comprised of a decrease in Retained Earnings of $ 36,956 , which is due to the depletion of Additional Paid-In Capital as a result of this adoption. There was no impact to earnings per share in the first quarter of 2022 as a result of the adoption. 3. Fair Value Measurements Fair value for certain of the Company’s assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, a three-level hierarchy for inputs is used. These levels are: ● Quoted Prices in Active Markets for Identical Assets (“Level 1”) – quoted prices (unadjusted) for an identical asset or liability in an active market. ● Significant Other Observable Inputs (“Level 2”) – quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability. ● Significant Unobservable Inputs (“Level 3”) – unobservable and significant to the fair value measurement of the asset or liability. 60 Table of Contents The Company’s assets and liabilities measured at fair value on a recurring basis at July 29, 2022 were as follows: Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 18,001 $ — $ — $ 18,001 Total $ 18,001 $ — $ — $ 18,001 Deferred compensation plan assets** measured at net asset value 27,843 Total assets at fair value aa aa aa $ 45,844 The Company’s assets and liabilities measured at fair value on a recurring basis at July 30, 2021 were as follows : Level 1 Level 2 Level 3 Total Fair Value Cash equivalents* $ 35,001 $ — $ — $ 35,001 Total $ 35,001 $ — $ — $ 35,001 Deferred compensation plan assets** measured at net asset value 32,527 Total assets at fair value aa aa aaa $ 67,528 * Consists of money market fund investments. ** Represents plan assets invested in mutual funds established under a Rabbi Trust for the Company’s non-qualified savings plan and is included in the Consolidated Balance Sheets as other assets (see Note 12). The Company did no t have any liabilities measured at fair value on a recurring basis at July 29, 2022 and July 30, 2021. The Company’s money market fund investments are measured at fair value using quoted market prices. T he Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value. The fair values of accounts receivable and accounts payable at July 29, 2022 and July 30, 2021, 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 amounts at July 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 5). The Company estimates the fair value of the Notes through consideration of quoted market prices of similar instruments, classified as Level 2 as described above. The estimated fair value of the Notes was $ 255,894 and $ 249,233 as of July 29, 2022 and July 30, 2021, respectively. 4. Inventories Inventories were comprised of the following at: July 29, 2022 July 30, 2021 Retail $ 170,846 $ 104,143 Restaurant 25,284 21,583 Supplies 17,119 12,594 Total $ 213,249 $ 138,320 5. Debt On June 17, 2022, the Company entered into a five-year $ 700,000 revolving credit facility (the “2022 Revolving Credit Facility”) with substantially the same terms and financial covenants as our previous amended $ 800,000 revolving credit facility (the “2019 Revolving Credit Facility”) , which it replaced. The 2022 Revolving Credit Facility also contains an option to increase the revolving credit facility by $ 200,000 . At July 29, 2022 and July 31, 2021, the Company had $ 130,000 and $ 85,000 , respectively, in outstanding borrowings under the 2022 Revolving Credit Facility and 2019 Revolving Credit Facility . 61 Table of Contents At July 29, 2022, the Company had $ 31,896 of standby letters of credit, which reduce the Company’s borrowing availability under the 2022 Revolving Credit Facility (see Note 15) . At July 29, 2022, the Company had $ 538,104 in borrowing availability under the 2022 Revolving Credit Facility. In accordance with the 2022 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at Term SOFR or prime plus or a rate of 0.5 % in excess of the Federal Funds Rate plus an applicable margin based on certain specified financial ratios. In accordance with the 2019 Revolving Credit Facility, outstanding borrowings bore interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios. At July 29, 2022, the weighted average interest rate on $ 130,000 of the Company’s outstanding borrowings was 3.49 %. At July 30, 2021, the weighted average interest rate on $ 85,000 of the Company’s outstanding borrowings was 3.18 %. The 2022 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total senior secured leverage ratio and a minimum consolidated interest coverage ratio. At July 29, 2022, the Company was in compliance with all debt covenants under the 2022 Revolving Credit Facility. The 2022 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase. Under the 2022 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2022 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $ 100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total senior secured leverage ratio is 2.75 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 2.75 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. The Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association as the Trustee. 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 are unsecured obligations and do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. In an event of default, the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding will immediately become due and payable. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will consist exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 calendar days during which such event of default has occurred and is continuing, at a specified rate for the first 90 days of 0.25 % per 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 for the payment of dividends to holders of the Company’s common stock. On July 29, 2022, the conversion rate, as adjusted, was 5.6020 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. 62 Table of Contents Net proceeds from the 2026 Notes offering were $ 291,125 , after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses. In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component before the allocation of any issuance costs was calculated by measuring the fair value of a similar liability that does not have an associated exchangeable feature. The carrying amount of the equity component (before the allocation of any issuance costs), representing the conversion option, which does not require separate accounting as a derivative as it meets a scope exception for certain contracts involving an entity’s own equity, was determined by deducting the fair value of the liability component from the par value of the Notes. Due to the Company’s adoption of new accounting guidance for convertible instruments on July 31, 2021, the Company no longer bifurcates the Notes into a liability and an equity component in the Company’s Consolidated Balance Sheets (see Note 2 under Recent Accounting Pronouncements Adopted for additional information regarding the adoption of this new accounting guidance). Upon adoption of this new accounting guidance, the Notes are accounted for entirely as a liability, and the issuance costs of the Notes are accounted for wholly as debt issuance costs. The equity conversion feature that was recorded to equity, as well as the unamortized debt discount and amortization expense attributable to equity, have been derecognized. At July 29, 2022, the Notes are included in long-term debt on the Company’s Consolidated Balance Sheet. The following table includes the outstanding principal amount and carrying value of the Notes as of the period indicated: July 29, 2022 July 30, 2021 Liability component Principal $ 300,000 $ 300,000 Less: Debt discount (1) — 50,767 Less: Debt issuance costs 6,901 7,254 Net carrying amount $ 293,099 $ 241,979 (1) Prior to the adoption of the new accounting guidance for convertible instruments, debt discount and issuance costs are amortized to interest expense using the effective interest method over the expected life of the Notes. 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 year ended July 29, 2022 : Year Ended July 29, 2022 Coupon interest $ 1,896 Amortization of issuance costs 1,755 Total interest expense $ 3,651 During any calendar quarter preceding 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 immediate quarter following, convert all of a portion of their Notes. The holders of the Notes were not eligible to convert their Notes during 2022 or 2021. 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 July 29, 2022, the Company could not be required to settle the Notes in cash and, therefore, the Notes are classified as long-term debt . Convertible Note Hedge and Warrant Transactions In connection with the offering of the Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the initial purchasers of the Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, which initially is approximately 1,600,000 shares, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”). 63 Table of Contents The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Notes, and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Notes. By default, the Warrant Transactions are net share settled and the Company has the option to settle in cash or shares. The Warrant Transactions could have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price was initially $ 263.39 per share and is subject to certain adjustments under the terms of the Warrant Transactions. On July 29, 2022, the strike price, as adjusted, of the Warrant Transactions was adjusted to $ 249.91 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 Convertible Note Hedge Transactions, net of the proceeds to the Company from the Warrant Transactions, was approximately $ 30,310 . The net costs incurred in connection with the Convertible Note Hedge Transactions and Warrant Transactions were recorded as a reduction to additional paid-in capital on the Company’s Consolidated Balance Sheet during 2021. As these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions were recorded in stockholders’ equity, not accounted for as derivatives and are not remeasured each reporting period. 6. Derivative Instruments and Hedging Activities During the fourth quarter of 2021, in conjunction with paying down debt under the revolving credit facility, the Company terminated all of its interest rate swap agreements which resulted in the reclassification of the remaining losses from accumulated other comprehensive loss (“AOCL”) to the Consolidated Statements of Income (Loss) as part of interest expense. The determination of the amounts reclassified from AOCL to interest expense was based on the Company’s assessment that the forecasted transactions under the hedging relationships were no longer probable. Prior to the termination of the interest rate swaps, for each of the Company’s interest rate swaps, the Company had agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps were fixed at the rates specified in the interest rate swap agreements plus the Company’s credit spread. All of the Company’s interest rate swaps were accounted for as cash flow hedges. The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for 2021 and 2020: Amount of Income (Loss) Recognized in AOCL on Derivatives (Effective Portion) 2021 2020 Cash flow hedges: Interest rate swaps $ 27,110 $ ( 17,740 ) The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the years ended July 30, 2021 and July 31, 2020: July 30, 2021 July 31, 2020 Beginning AOCL balance $ ( 20,346 ) $ ( 6,913 ) Other comprehensive income (loss) before reclassifications 39,424 ( 12,559 ) Amounts reclassified from AOCL into earnings ( 19,078 ) ( 874 ) Other comprehensive income (loss), net of tax 20,346 ( 13,433 ) Ending AOCL balance $ — $ ( 20,346 ) 64 Table of Contents The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for 2021 and 2020: Location of Loss Reclassified from AOCL into Income (Effective Portion) Amount of Loss Reclassified from AOCL into Income (Effective Portion) 2021 2020 Cash flow hedges: Interest rate swaps Interest expense $ 25,420 $ 1,165 The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the years ended July 30, 2021 and July 31, 2020: Affected Line Item in the Consolidated Details about AOCL July 30, 2021 July 31, 2020 Statement of Income Loss on cash flow hedges: Interest rate swaps $ ( 25,420 ) $ ( 1,165 ) Interest expense Tax benefit 6,342 291 Provision for income taxes $ ( 19,078 ) $ ( 874 ) Net of tax No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in 2021 and 2020. 7. Share Repurchases Subject to the limits imposed by the Company’s revolving credit facility, in September 2021, the Company was authorized by its Board of Directors to repurchase shares at the discretion of management up to $ 100,000 . In the fourth quarter of 2022, the Company was authorized by its Board of Directors to repurchase shares of the Company’s outstanding common stock at management’s discretion up to a total value of $ 200,000 ; this authorization replaced the previous unused portion of the previous $ 100,000 authorization. In 2022, the Company repurchased 1,248,184 shares of its common stock in the open market at an aggregate cost of $ 131,542 . In 2020, in response to the COVID-19 pandemic, the Company temporarily suspended all share repurchases until the fourth quarter of 2021 when 232,543 shares of the Company’s common stock were repurchased at an aggregate cost of $ 35,000 in conjunction with the Company’s offering and sale of the Notes (see Note 5 for further information regarding the Notes). In 2020, the Company repurchased 378,974 shares of its common stock in the open market at an aggregate cost of $ 55,007 . 8. Segment Information Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects. Accordingly, the Company manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States. Disaggregation of revenue Total revenue was comprised of the following at: 2022 2021 2020 Restaurant $ 2,565,628 $ 2,227,246 $ 2,032,030 Retail 702,158 594,198 490,762 Total revenue $ 3,267,786 $ 2,821,444 $ 2,522,792 9. Leases In 2020 , the Company adopted new accounting guidance for leases. As part of the adoption of this accounting guidance for leases, the Company elected to not separate lease and non-lease components. Additionally, the Company elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data. 65 Table of Contents The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as it has not yet taken possession. These leases are expected to commence in 2023 with undiscounted future payments of $ 35,433 . The following table summarizes the components of lease cost for operating leases for the years ended July 29, 2022, July 30, 2021 and July 31, 2020: 2022 2021 2020 Operating lease cost $ 108,903 $ 106,266 $ 82,963 Short term lease cost 2,409 2,363 2,896 Variable lease cost 2,673 2,248 1,719 Total lease cost $ 113,985 $ 110,877 $ 87,578 The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the year ended July 29, 2022, July 30, 2021 and July 31, 2020 : 2022 2021 2020 Operating cash flow information: Gain on sale and leaseback transactions $ — $ 217,722 $ 69,954 Cash paid for amounts included in the measurement of lease liabilities 92,600 89,264 80,265 Noncash information: Right-of-use assets obtained in exchange for new operating lease liabilities 19,143 316,563 267,266 Lease modifications or reassessments increasing or decreasing right-of-use assets 11,978 35,059 29,793 Lease modifications removing right-of-use assets ( 670 ) ( 544 ) ( 19,939 ) The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of July 29, 2022, July 30, 2021 and July 31, 2020: 2022 2021 2020 Weighted-average remaining lease term 17.38 Years 18.17 Years 19.05 Years Weighted-average discount rate 4.90 % 4.84 % 4.50 % The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of July 29, 2022: Year Total 2023 $ 90,446 2024 69,633 2025 65,841 2026 64,635 2027 64,350 Thereafter 832,487 Total future minimum lease payments 1,187,392 Less imputed remaining interest ( 410,662 ) Total present value of operating lease liabilities $ 776,730 66 Table of Contents Sale and Leaseback Transactions In 2009, the Company completed sale and leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years. In 2000, the Company completed a sale and leaseback transaction involving 65 of its owned Cracker Barrel stores. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for a term of 21 years. The leases for these stores included specified renewal options for up to 20 additional years. On July 29, 2020, the Company entered into an agreement with the original lessor and a third-party financier to obtain ownership of 64 of the 65 Cracker Barrel properties and simultaneously entered into a sale and leaseback transaction with the financier for an aggregate purchase price, net of closing costs, of $ 198,083 . The Company purchased the remaining property for approximately $ 3,200 . In connection with the 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. 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 which is recorded in the gain on sale and leaseback transactions line in the Consolidated Statements of Income (Loss). The Company also recorded operating lease right-of-use assets 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 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 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 . 10. Share-Based Compensation Stock Compensation Plans The Company’s employee compensation plans are administered by the Compensation Committee of the Company’s Board of Directors (the “Committee”). The Committee is authorized to determine, at time periods within its discretion and subject to the direction of the Board of Directors, which employees will be granted awards, the number of shares covered by any awards granted, and within applicable limits, the terms and provisions relating to the exercise and vesting of any awards. On November 19, 2020, the Company’s shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Omnibus Plan”) which became effective on that date. The 2020 Omnibus Plan authorizes the following types of awards for employees and non-employee directors: stock options, stock appreciation rights, nonvested stock, restricted stock units, other share-based awards and performance awards. After the effective date of the 2020 Omnibus Plan, no additional awards could be granted under the Company’s 2010 Omnibus Incentive Stock and Incentive Plan (the “Prior Plan”). The 2020 Omnibus Plan allows the Committee to grant awards for an aggregate of 1,033,441 shares, the number of shares that were available for issuance as of September 24, 2020 (the “Cutoff Date”) pursuant to the Prior Plan, plus the number of shares that became available for issuance pursuant to the terms of the Prior Plan following the Cutoff Date and prior to the effective date. However, this share reserve is increased by shares awarded under this and the Prior Plan which are forfeited, expired, settled for cash and shares withheld by the Company in payment of a tax withholding obligation after the effective date of the 2020 Omnibus Plan. Additionally, this share reserve was decreased by shares granted from the 2020 Omnibus Plan after the effective date. At July 29, 2022, the number of shares authorized for future issuance under the Company’s active plan is 1,052,602 . At July 29, 2022, the number of outstanding awards under the 2020 Omnibus Plan and the Prior Plan was 80,356 and 89,176 , respectively. 67 Table of Contents Types of Share-Based Awards Nonvested Stock Awards Nonvested stock awards consist of the Company’s common stock, generally accrue dividend equivalents and vest over one to five years . The fair value of the Company’s nonvested stock awards which accrue dividends is equal to the market price of the Company’s stock at the date of the grant. Dividends are forfeited for any nonvested stock awards that do not vest. The Company’s nonvested stock awards include its long-term performance plans which were established by the Committee for the purpose of rewarding certain officers with shares of the Company’s common stock if the Company achieved certain performance targets. The stock awards under the long-term performance plans are calculated or estimated based on achievement of financial performance measures. The following table summarizes the performance periods and vesting periods for the Company’s nonvested stock awards under its long-term performance plans at July 29, 2022: Long-Term Performance Plan (“LTPP”) Performance Period Vesting Period (in Years) 2022 LTPP 2022 – 2024 3 2021 LTPP 2021 – 2022 2 or 3 The following table summarizes the shares that have been accrued under the 2022 LTPP and 2021 LTPP at July 29, 2022: 2022 LTPP 8,813 2021 LTPP 30,747 A summary of the Company’s nonvested stock activity as of July 29, 2022, and changes during 2022 are presented in the following table: Nonvested Stock Shares Weighted-Average Grant Date Fair Value Unvested at July 30, 2021 89,323 $ 135.81 Granted 84,670 133.41 Vested ( 42,870 ) 143.84 Forfeited ( 7,181 ) 138.94 Unvested at July 29, 2022 123,942 $ 131.21 The following table summarizes the total fair value of nonvested stock that vested for each of the three years: 2022 2021 2020 Total fair value of nonvested stock $ 6,166 $ 3,200 $ 3,084 Nonvested Stock Units Beginning in 2017 through 2020, the Company adopted long-term incentive plans that award nonvested stock units based upon relative total shareholder return (“rTSR RSUs”). The number of nonvested stock units that will ultimately be awarded and will vest at the end of the applicable three-year performance period is based on relative total shareholder return, which is defined as increases in the Company’s stock price plus dividends paid during the performance period as compared to the total shareholder return of a group of peer companies determined by the Committee. The number of shares awarded at the end of the performance period for each nonvested stock unit may range from 75 % to 125 % of the target award. The probability of the actual shares expected to be earned is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units earned. 68 Table of Contents The fair value of the nonvested stock units is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions: ● The expected volatilities are the historical volatilities of the Company’s stock and the members of the peer group over the period commensurate with the three-year performance period. ● T he risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. The risk-free rate for the nonvested stock units granted in 2020 was 1.6 % . ● The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period. Dividends accrue on the nonvested stock units. Dividends will be forfeited for nonvested stock units that do not vest. Shares accrued for rTSR awards under the 2020 long-term incentive plan at July 29, 2022 were 6,030 . Compensation Expense The following table highlights the components of share-based compensation expense for each of the three years: 2022 2021 2020 Total compensation expense $ 8,198 $ 8,729 $ 6,386 69 Table of Contents The following table highlights the total unrecognized compensation expense related to the outstanding nonvested stock awards and nonvested stock units and the weighted-average periods over which the expense is expected to be recognized as of July 29, 2022: Nonvested Stock Awards Total unrecognized compensation $ 6,859 Weighted-average period in years 1.76 During 2022, the Company issued 32,461 shares of its 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 reduction to shareholders’ equity of $ 2,599 . 11. Shareholder Rights Plan On April 9, 2021, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $ 0.01 per share, and adopted a shareholder rights plan, as set forth in the Rights Agreement dated as of April 9, 2021 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was payable on April 19, 2021 to the shareholders of record on April 19, 2021 . The Rights Agreement replaced the Company’s previous shareholder rights plan adopted in 2018 (the “2018 Plan”), and it became effective immediately following the expiration of the 2018 Plan at the close of business on April 9, 2021 . The 2018 Plan and the preferred share purchase rights issued thereunder expired by their own terms and shareholders of the Company were not entitled to any payment as a result of the expiration of the 2018 Plan. The Rights The Rights initially trade with, and are inseparable from, the Company’s common stock. The Rights are evidenced only by certificates or book entries that represent shares of common stock. New Rights will accompany any new shares of common stock the Company issues after April 19, 2021 until the Distribution Date described below . 70 Table of Contents Exercise Price Each Right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Preferred Share”) for $ 600.00 (the “Exercise Price”), once the Rights become exercisable. This portion of a Preferred Share will give the shareholder approximately the same dividend and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. Exercisability The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 20 % or more of the Company’s outstanding common stock. Certain synthetic interests in securities created by derivative positions – whether or not such interests are considered to be ownership of the underlying common stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) – are treated as beneficial ownership of the number of shares of the Company’s common stock equivalent to the economic exposure created by the derivative . The date when the Rights become exercisable is the “Distribution Date.” Until the Distribution Date, the common stock certificates will also evidence the Rights, and any transfer of shares of common stock will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and will be evidenced by book-entry credits or by Rights certificates that the Company will mail to all eligible holders of common stock. Any Rights held by an Acquiring Person will be void and may not be exercised. At July 29, 2022, none of the Rights were exercisable. Consequences of a Person or Group Becoming an Acquiring Person ● Flip in. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for $ 600.00 , purchase shares of the Company’s common stock with a market value of $ 1,200.00 , based on the market price of the common stock prior to such acquisition. ● Flip Over . If the Company is later acquired in a merger or similar transaction after the Distribution Date, all holders of Rights except the Acquiring Person may, for $ 600.00 , purchase shares of the acquiring corporation with a market value of $ 1,200.00 , based on the market price of the acquiring corporation’s stock prior to such transaction. ● Notional Shares . Shares held by affiliates and associates of an Acquiring Person, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person. Preferred Share Provisions Each one one-hundredth of a Preferred Share, if issued: ● will not be redeemable; ● will entitle holders to quarterly dividend payments of $ 0.01 per share, or an amount equal to the dividend paid on one share of common stock, whichever is greater; ● will entitle holders upon liquidation either to receive $ 1.00 per share or an amount equal to the payment made on one share of common stock, whichever is greater; ● will have the same voting power as one share of common stock; and ● if shares of the Company’s common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock. The value of one one-hundredth of a Preferred Share will generally approximate the value of one share of common stock. 71 Table of Contents Redemption The Board of Directors may redeem the Rights for $ 0.01 per Right at any time before any person or group becomes an Acquiring Person. If the Board of Directors redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $ 0.01 per Right. The redemption price will be adjusted if the Company has a stock split or stock dividends of its common stock. Qualifying Offer Provision The Rights would also not interfere with any all-cash, fully financed tender offer, exchange offer of common stock of the offeror meeting certain terms and conditions further described below, or a combination thereof, in each case for all shares of common stock that remain open for a minimum of 60 business days and subject to a minimum condition of a majority of the outstanding shares and provide for a 20 -business day “subsequent offering period” after consummation (such offers are referred to as “qualifying offers”). If an offer includes shares of common stock of the offeror, the Rights would not interfere with such offer if such consideration consists solely of freely-tradeable common stock of a publicly-owned United States corporation; such common stock is listed or admitted to trading on the New York Stock Exchange, Nasdaq Global Select Market or Nasdaq Global Market; the offeror has already received stockholder approval to issue such common stock prior to the commencement of such offer or no such approval is or will be required; the offeror has no other class of voting stock outstanding; no person (including such person’s affiliated and associated persons) beneficially owns twenty percent ( 20 %) or more of the shares of common stock of the offeror then outstanding at the time of commencement of the offer or at any time during the term of the offer; and the offeror meets the registrant eligibility requirements for use of a registration statement on Form S-3 for registering securities under the Securities Act of 1933, as amended, including the filing of all reports required to be filed pursuant to the Exchange Act in a timely manner during the twelve (12) calendar months prior to the date of commencement, and throughout the term, of such offer. In the event the Company receives a qualifying offer and the Board of Directors has not redeemed the Rights prior to the consummation of such offer, the consummation of the qualifying offer will not cause the offeror or its affiliates to become an Acquiring Person, and the Rights will immediately expire upon consummation of the qualifying offer . Exchange After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50 % or more of the Company’s outstanding common stock, the Board of Directors may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by the Acquiring Person. Anti-Dilution Provisions The Board of Directors may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Preferred Shares or common stock. No adjustments to the Exercise Price of less than 1 % will be made. Amendments The terms of the Rights Agreement may be amended by the Board of Directors without the consent of the holders of the Rights. After a person or group becomes an Acquiring Person, the Board of Directors may not amend the agreement in a way that adversely affects holders of the Rights. Expiration The Rights will expire on April 9, 2024 . 12. Employee Savings Plans The Company sponsors a qualified defined contribution retirement plan (“401(k) Savings Plan”) covering salaried and hourly employees who have completed ninety days of service and have attained the age of twenty-one . This plan allows eligible employees to defer receipt of up to 50 % of their compensation, as defined in the plan. The Company also sponsors a non-qualified defined contribution retirement plan (“Non-Qualified Savings Plan”) covering highly compensated employees, as defined in the plan. This plan allows eligible employees to defer receipt of up to 50 % of their base compensation and 100 % of their eligible bonuses, as defined in the plan. 72 Table of Contents Contributions under both plans may be invested in various investment funds at the employee’s discretion. Such contributions, including the Company’s matching contributions described below, may not be invested in the Company’s common stock. In 2022, 2021 and 2020 (prior to the COVID-19 pandemic), the Company matched 50 % of employee contributions for each participant in the 401(k) Savings Plan up to a total of 5 % of the employee’s compensation and matched 25 % of employee contributions in the Non-Qualified Savings Plan up to a total of 6 % of the employee’s compensation. In response to the COVID-19 pandemic, the Company temporarily suspended matches to the 401(k) Savings Plan and the Non-Qualified Savings Plan through the end of 2020 and resumed matches at the beginning of 2021. Employee contributions vest immediately while Company contributions vest 20 % annually beginning on the first anniversary of a contribution date and are vested 100 % on the fifth anniversary of such contribution date. At the inception of the Non-Qualified Savings Plan, the Company established a Rabbi Trust to fund the plan’s obligations. The market value of the trust assets for the Non-Qualified Savings Plan of $ 27,843 is included in other assets and the related liability to the participants of $ 27,843 is included in other long-term obligations in the Consolidated Balance Sheets. Company contributions under both plans are recorded as either labor and other related expenses or general and administrative expenses in the Consolidated Statements of Income. The following table summarizes the Company’s contributions for each plan for each of the three years: 2022 2021 2020 401(k) Savings Plan $ 4,713 $ 4,071 $ 3,271 Non-Qualified Savings Plan 285 259 239 13. Income Taxes The components of the provision for income taxes (income tax benefit) for each of the three years were as follows: 2022 2021 2020 Current: Federal $ 16,462 $ ( 13,505 ) $ ( 15,375 ) State 1,188 2,405 ( 2,115 ) Deferred: Federal ( 4,543 ) 57,580 ( 13,467 ) State ( 1,604 ) 9,558 2,274 Total provision for income taxes (income tax benefit) $ 11,503 $ 56,038 $ ( 28,683 ) A reconciliation of the Company’s provision for income taxes (income tax benefit) and income taxes based on the statutory U.S. federal rate of 21.0 % in 2022, 2021 and 2020 was as follows: 2022 2021 2020 Provision computed at federal statutory income tax rate $ 30,110 $ 65,216 $ 17,070 State and local income taxes, net of federal benefit 1,452 10,589 ( 263 ) Loss on unconsolidated subsidiary — — ( 29,913 ) Federal net operating loss benefit — ( 5,402 ) ( 1,573 ) Employer tax credits for FICA taxes paid on employee tip income ( 15,395 ) ( 12,323 ) ( 11,489 ) Other employer tax credits ( 4,929 ) ( 3,234 ) ( 3,606 ) Tax audit settlement ( 1,939 ) — — Other-net 2,204 1,192 1,091 Total provision for income taxes (income tax benefit) $ 11,503 $ 56,038 $ ( 28,683 ) The decrease in the Company’s provision for income taxes in 2022 as compared to 2021 is primarily due to the decrease in income before income taxes and the benefit of higher income tax credits. The increase in the Company’s provision for income taxes in 2021 as compared to 2020 is primarily due to the increase in income before income taxes. 73 Table of Contents Significant components of the Company’s net deferred tax liability consisted of the following at: July 29, 2022 July 30, 2021 Deferred tax assets: Compensation and employee benefits $ 7,329 $ 12,089 Accrued liabilities 15,770 14,145 Operating lease liabilities 193,794 199,029 Insurance reserves 7,115 7,141 Inventory 3,002 2,968 Deferred tax credits and carryforwards 24,896 16,978 Other 13,875 4,507 Deferred tax assets $ 265,781 $ 256,857 Deferred tax liabilities: Property and equipment $ 101,268 $ 99,075 Inventory 5,517 7,161 Operating lease right-of-use asset 232,914 243,553 Other 6,275 5,694 Deferred tax liabilities 345,974 355,483 Net deferred tax liability $ 80,193 $ 98,626 The Company has a deferred tax asset of $ 15,248 reflecting federal income tax credit carryforwards that expire in 2043. The Company has state income tax net operating loss carryforwards (“NOL”) of $ 67,418 and has recorded a deferred tax asset of $ 3,811 reflecting this benefit. These state NOLs generally expire in years beginning 2037 and after. The Company believes that adequate amounts of tax, interest and penalties have been provided for potential tax uncertainties; these amounts are included in other long-term liabilities in the Consolidated Balance Sheets. As of July 29, 2022 and July 30, 2021, the Company’s gross liability for uncertain tax positions, exclusive of interest and penalties, was $ 10,858 and $ 14,477 , respectively. Summarized below is a tabular reconciliation of the beginning and ending balance of the Company’s total gross liability for uncertain tax positions exclusive of interest and penalties: July 29, 2022 July 30, 2021 July 31, 2020 Balance at beginning of year $ 14,477 $ 17,835 $ 18,006 Tax positions related to the current year: Additions 1,152 1,596 1,407 Reductions — — — Tax positions related to the prior year: Additions 17 — 202 Reductions ( 1,241 ) ( 1,045 ) ( 256 ) Settlements ( 1,942 ) ( 1,786 ) ( 138 ) Expiration of statute of limitations ( 1,605 ) ( 2,123 ) ( 1,386 ) Balance at end of year $ 10,858 $ 14,477 $ 17,835 If the Company were to prevail on all uncertain tax positions, the reversal of this accrual would be a tax benefit to the Company and impact the effective tax rate. The following table highlights the amount of uncertain tax positions, exclusive of interest and penalties, which, if recognized, would affect the effective tax rate for each of the three years : 2022 2021 2020 Uncertain tax positions $ 8,578 $ 11,437 $ 14,090 The Company had $ 7,133 , $ 7,755 , and $ 7,210 in interest and penalties accrued as of July 29, 2022, July 30, 2021, and July 31, 2020, respectively . The Company recognized accrued interest and penalties related to unrecognized tax benefits of $ ( 622 ) , $ 545 and $ 913 in its provision for income taxes on July 29, 2022, July 30, 2021 and July 31, 2020, respectively . 74 Table of Contents In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. Based on the outcome of these examinations or as a result of the expiration of the statutes of limitations for specific taxing jurisdictions, it is reasonably possible that the related uncertain tax positions taken regarding previously filed tax returns could decrease from those recorded as liabilities for uncertain tax positions in the Company’s financial statements at July 29, 2022 by approximately $ 4,000 to $ 6,000 within the next twelve months. At July 29, 2022, the Company was subject to income tax examinations for its U.S. federal income taxes after 2018 and for state and local income taxes generally after 2018 . 14. Net Income (Loss) Per Share and Weighted Average Shares The following table reconciles the components of diluted earnings per share computations: 2022 2021 2020 Net income (loss) per share numerator $ 131,880 $ 254,513 $ ( 32,475 ) Net income (loss) per share denominator: Basic weighted average shares outstanding 23,164,180 23,692,063 23,865,367 Add potential dilution: Nonvested stock awards and units 81,830 75,327 — Diluted weighted average shares outstanding 23,246,010 23,767,390 23,865,367 15. Commitments and Contingencies The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position. The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain all or a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured. The Company intends to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of its contracts. See Note 2 for a further discussion of insurance and insurance reserves. Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers. As of July 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, 2021 sale and leaseback transactions. All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its Revolving Credit facility (see Note 5). 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 other indemnification agreements is sufficiently remote so that no liability has been recorded in the Consolidated Balance Sheet. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 75 Table of Contents