UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 2021

OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from___________ to ___________

Commission file number: 001-25225


Cracker Barrel Old Country Store, Inc.
(Exact name of registrant as specified in its charter)

Tennessee
(State or other jurisdiction of incorporation or organization)
 
62-0812904
(I.R.S. Employer Identification Number)
     
305 Hartmann Drive, Lebanon, Tennessee
(Address of principal executive offices)
 
37087-4779
(Zip code)

Registrant’s telephone number, including area code: (615) 444-5533

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock (Par Value $0.01)
Rights to Purchase Series A Junior Participating
Preferred Stock (Par Value $0.01)
CBRL
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

23,726,372 Shares of Common Stock
Outstanding as of May 18, 2021






CRACKER BARREL OLD COUNTRY STORE, INC.
INDEX

PART I. FINANCIAL INFORMATION
Page
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
8
 
 
9
 
 
22
 
 
39
 
 
39
 
 
PART II. OTHER INFORMATION
 
 
 
39
 
 
40
 
 
41


2

PART I – FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

ASSETS
 
April 30,
2021
   
July 31,
2020*
 
Current Assets:
           
Cash and cash equivalents
 
$
384,587
   
$
436,996
 
Accounts receivable
   
27,070
     
20,157
 
Income taxes receivable
   
27,498
     
28,852
 
Inventories
   
132,382
     
139,091
 
Prepaid expenses and other current assets
   
22,328
     
17,916
 
Total current assets
   
593,865
     
643,012
 
Property and equipment
   
2,218,406
     
2,363,518
 
Less: Accumulated depreciation and amortization
   
1,235,214
     
1,233,457
 
Property and equipment – net
   
983,192
     
1,130,061
 
Operating lease right-of-use assets, net
   
984,317
     
691,949
 
Goodwill
   
4,690
     
4,690
 
Intangible assets
   
21,391
     
20,960
 
Other assets
   
55,469
     
53,586
 
Total assets
 
$
2,642,924
   
$
2,544,258
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
 
$
113,665
   
$
103,504
 
Other current liabilities
   
335,285
     
347,552
 
Total current liabilities
   
448,950
     
451,056
 
                 
Long-term debt
   
575,349
     
910,000
 
Long-term operating lease liabilities
   
753,792
     
632,630
 
Long-term interest rate swap liability
   
18,388
     
23,860
 
Other long-term obligations
   
97,831
     
80,605
 
Deferred income taxes
   
100,501
     
27,718
 
                 
Commitments and Contingencies (Note 13)
   
     
 
                 
Shareholders’ Equity:
               
Preferred stock – 100,000,000 shares of $0.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued
   
     
 
Common stock – 400,000,000 shares of $0.01 par value authorized; 23,726,372 shares issued and outstanding at April 30, 2021, and 23,697,396 shares issued and outstanding at July 31, 2020
   
237
     
237
 
Additional paid-in capital
   
5,061
     
 
Accumulated other comprehensive loss
   
(13,721
)
   
(20,346
)
Retained earnings
   
656,536
     
438,498
 
Total shareholders’ equity
   
648,113
     
418,389
 
Total liabilities and shareholders’ equity
 
$
2,642,924
   
$
2,544,258
 

See Notes to unaudited Condensed Consolidated Financial Statements.

* This Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheet as of July 31, 2020, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2020.

3

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except share data)
(Unaudited)

 
Quarter Ended
   
Nine Months Ended
 
   
April 30,
2021
   
May 1,
2020
   
April 30,
2021
   
May 1,
2020
 
                         
Total revenue
 
$
713,416
   
$
432,544
   
$
2,037,039
   
$
2,027,727
 
                                 
Cost of goods sold (exclusive of depreciation and rent)
   
205,379
     
137,138
     
629,507
     
629,159
 
Labor and other related expenses
   
250,368
     
189,118
     
714,418
     
737,209
 
Other store operating expenses
   
167,823
     
138,920
     
495,968
     
473,466
 
General and administrative expenses
   
37,356
     
28,008
     
110,877
     
106,025
 
Gain on sale and leaseback transaction
   
     
     
(217,722
)
   
 
Impairment
   
     
18,336
     
     
18,336
 
Operating income (loss)
   
52,490
     
(78,976
)
   
303,991
     
63,532
 
Interest expense, net
   
9,614
     
5,298
     
31,144
     
12,383
 
Income (loss) before income taxes
   
42,876
     
(84,274
)
   
272,847
     
51,149
 
Provision for income taxes (income tax benefit)
   
9,406
     
(55,220
)
   
54,697
     
(33,752
)
Loss from unconsolidated subsidiary
   
     
(132,878
)
   
     
(142,442
)
Net income (loss)
 
$
33,470
   
$
(161,932
)
 
$
218,150
   
$
(57,541
)
                                 
Net income (loss) per share:
                               
Basic
 
$
1.41
   
$
(6.81
)
 
$
9.20
   
$
(2.41
)
Diluted
 
$
1.41
   
$
(6.81
)
 
$
9.17
   
$
(2.41
)
                                 
Weighted average shares:
                               
Basic
   
23,725,185
     
23,777,916
     
23,718,777
     
23,922,360
 
Diluted
   
23,807,410
     
23,777,916
     
23,788,005
     
23,922,360
 

See Notes to unaudited Condensed Consolidated Financial Statements.

4


CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)

 
Quarter Ended
   
Nine Months Ended
 
   
April 30,
2021
   
May 1,
2020
   
April 30,
2021
   
May 1,
2020
 
                         
Net income (loss)
 
$
33,470
   
$
(161,932
)
 
$
218,150
   
$
(57,541
)
                                 
Other comprehensive income (loss) before income tax expense (benefit):
                               
Change in fair value of interest rate swaps
   
3,941
     
(13,356
)
   
8,827
     
(16,591
)
Income tax expense (benefit)
   
983
     
(3,302
)
   
2,202
     
(4,050
)
Other comprehensive income (loss), net of tax
   
2,958
     
(10,054
)
   
6,625
     
(12,541
)
Comprehensive income (loss)
 
$
36,428
   
$
(171,986
)
 
$
224,775
   
$
(70,082
)

See Notes to unaudited Condensed Consolidated Financial Statements.

5


CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited and in thousands, except share data)

For the Nine Month Period Ended April 30, 2021
 
 
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at July 31, 2020
   
23,697,396
   
$
237
   
$
-
   
$
(20,346
)
 
$
438,498
   
$
418,389
 
Comprehensive Income (Loss):
                                               
Net income
   
     
     
     
     
170,680
     
170,680
 
Other comprehensive income, net of tax
   
     
     
     
2,601
     
     
2,601
 
Total comprehensive income
   
     
     
     
2,601
     
170,680
     
173,281
 
Cash dividends previously declared in prior quarters
   
     
     
     
     
(40
)
   
(40
)
Share-based compensation
   
     
     
1,974
     
     
     
1,974
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
22,928
     
     
(1,974
)
   
     
(18
)
   
(1,992
)
Balances at October 30, 2020
   
23,720,324
   
$
237
   
$
-
   
$
(17,745
)
 
$
609,120
   
$
591,612
 
Comprehensive Income (Loss):
                                               
Net income
   
     
     
     
     
14,000
     
14,000
 
Other comprehensive income, net of tax
   
     
     
     
1,066
     
     
1,066
 
Total comprehensive income
   
     
     
     
1,066
     
14,000
     
15,066
 
Cash dividends previously declared in prior quarters
   
     
     
     
     
(52
)
   
(52
)
Share-based compensation
   
     
     
1,992
     
     
     
1,992
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
4,088
     
     
(25
)
   
     
18
     
(7
)
Balances at January 29, 2021
   
23,724,412
   
$
237
   
$
1,967
   
$
(16,679
)
 
$
623,086
   
$
608,611
 
Comprehensive Income (Loss):
                                               
Net income
   
     
     
     
     
33,470
     
33,470
 
Other comprehensive income, net of tax
   
     
     
     
2,958
     
     
2,958
 
Total comprehensive income
   
     
     
     
2,958
     
33,470
     
36,428
 
Cash dividends previously declared in prior quarters
   
     
     
     
     
(20
)
   
(20
)
Share-based compensation
   
     
     
3,222
     
     
     
3,222
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
1,960
     
     
(128
)
   
     
     
(128
)
Balances at April 30, 2021
   
23,726,372
   
$
237
   
$
5,061
   
$
(13,721
)
 
$
656,536
   
$
648,113
 

See Notes to unaudited Condensed Consolidated Financial Statements.

6

CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited and in thousands, except share data)

For the Nine Month Period Ended May 1, 2020
 
 
Common Stock
   
Additional
Paid-In
   
Accumulated
Other
Comprehensive
   
Retained
   
Total
Shareholders’
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balances at August 2, 2019
   
24,049,240
   
$
241
   
$
49,732
   
$
(6,913
)
 
$
561,650
   
$
604,710
 
Comprehensive Income (Loss):
                                               
Net income
   
     
     
     
     
43,223
     
43,223
 
Other comprehensive loss, net of tax
   
     
     
     
(438
)
   
     
(438
)
Total comprehensive income (loss)
   
     
     
     
(438
)
   
43,223
     
42,785
 
Cash dividends declared - $1.30 per share
   
     
     
     
     
(31,452
)
   
(31,452
)
Share-based compensation
   
     
     
1,798
     
     
     
1,798
 
Issuance of share-based compensation awards, net of shares withheld for employee taxes
   
18,466
     
     
(1,994
)
   
     
     
(1,994
)
Purchases and retirement of common stock
   
(91,748
)
   
(1
)
   
(14,187
)
   
     
     
(14,188
)
Cumulative-effect of change in accounting principle
   
     
     
     
     
4,125
     
4,125
 
Balances at November 1, 2019
   
23,975,958
   
$
240
   
$
35,349
   
$
(7,351
)
 
$
577,546
   
$
605,784
 
Comprehensive Income (Loss):
                                               
Net income
   
     
     
     
     
61,168
     
61,168
 
Other comprehensive loss, net of tax
   
     
     
     
(2,049
)
   
     
(2,049
)
Total comprehensive income (loss)
   
     
     
     
(2,049
)
   
61,168
     
59,119
 
Cash dividends declared - $1.30 per share
   
     
     
     
     
(31,283
)
   
(31,283
)
Share-based compensation
   
     
     
2,122
     
     
     
2,122
 
Issuance of share-based compensation awards
   
4,867
     
     
     
     
     
 
Purchases and retirement of common stock
   
(37,577
)
   
     
(5,812
)
   
     
     
(5,812
)
Balances at January 31, 2020
   
23,943,248
   
$
240
   
$
31,659
   
$
(9,400
)
 
$
607,431
   
$
629,930
 
Comprehensive Loss:
                                               
Net loss
   
     
     
     
     
(161,932
)
   
(161,932
)
Other comprehensive loss, net   of tax
   
     
     
     
(10,054
)
   
     
(10,054
)
Total comprehensive loss
   
     
     
     
(10,054
)
   
(161,932
)
   
(171,986
)
Cash dividends declared - $1.30 per share
   
     
     
     
     
(30,968
)
   
(30,968
)
Share-based compensation
   
     
     
251
     
     
     
251
 
Issuance of share-based compensation awards
   
382
     
     
(11
)
   
     
     
(11
)
Purchases and retirement of common stock
   
(249,649
)
   
(3
)
   
(31,899
)
   
     
(3,105
)
   
(35,007
)
Balances at May 1, 2020
   
23,693,981
   
$
237
   
$
   
$
(19,454
)
 
$
411,426
   
$
392,209
 

See Notes to unaudited Condensed Consolidated Financial Statements.

7


CRACKER BARREL OLD COUNTRY STORE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

 
Nine Months Ended
 
   
April 30,
2021
   
May 1,
2020
 
Cash flows from operating activities:
           
Net income (loss)
 
$
218,150
   
$
(57,541
)
Net loss from unconsolidated subsidiary
   
     
142,442
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization
   
80,932
     
88,292
 
Loss on disposition of property and equipment
   
2,669
     
5,083
 
Gain on sale and leaseback transaction
   
(217,722
)
   
 
Impairment
   
     
19,000
 
Share-based compensation
   
7,188
     
4,171
 
Noncash lease expense
   
41,601
     
47,045
 
Amortization of asset recognized from gain on sale and leaseback transactions
   
9,551
     
 
Changes in assets and liabilities:
               
Inventories
   
6,709
     
8,906
 
Other current assets
   
(9,896
)
   
3,075
 
Accounts payable
   
10,161
     
(46,045
)
Other current liabilities
   
24,164
     
(49,409
)
Long-term operating lease liabilities
   
(46,202
)
   
(36,350
)
Deferred income taxes
   
70,581
     
(39,544
)
Other long-term assets and liabilities
   
14,651
     
(1,893
)
Net cash provided by operating activities
   
212,537
     
87,232
 
Cash flows from investing activities:
               
Purchase of property and equipment
   
(45,135
)
   
(83,631
)
Proceeds from insurance recoveries of property and equipment
   
1,020
     
986
 
Proceeds from sale of property and equipment
   
149,910
     
1,827
 
Notes receivable from unconsolidated subsidiary
   
     
(35,500
)
Acquisition of business, net of cash acquired
   
(1,500
)
   
(32,971
)
Net cash provided by (used in) investing activities
   
104,295
     
(149,289
)
Cash flows from financing activities:
               
Proceeds from issuance of long-term debt
   
60,000
     
762,000
 
Taxes withheld from issuance of share-based compensation awards
   
(2,127
)
   
(2,005
)
Principal payments under long-term debt
   
(395,049
)
   
(222,000
)
Purchases and retirement of common stock
   
     
(55,007
)
Deferred financing costs
   
(420
)
   
 
Dividends on common stock
   
(31,645
)
   
(94,485
)
Net cash provided by (used in) financing activities
   
(369,241
)
   
388,503
 
                 
Net increase (decrease) in cash and cash equivalents
   
(52,409
)
   
326,446
 
Cash and cash equivalents, beginning of period
   
436,996
     
36,884
 
Cash and cash equivalents, end of period
 
$
384,587
   
$
363,330
 
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest, net of amounts capitalized
 
$
30,522
   
$
12,927
 
Income taxes
 
$
1,435
   
$
5,277
 
                 
Supplemental schedule of non-cash investing and financing activities*:
               
Capital expenditures accrued in accounts payable
 
$
3,497
   
$
2,159
 
Change in fair value of interest rate swaps
 
$
8,827
   
$
(16,591
)
Change in deferred tax asset for interest rate swaps
 
$
(2,202
)
 
$
4,050
 
Dividends declared but not yet paid
 
$
525
   
$
32,068
 

*See Note 10 for additional supplemental disclosures related to leases.

See Notes to unaudited Condensed Consolidated Financial Statements.

8


CRACKER BARREL OLD COUNTRY STORE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except percentages, share and per share data)
(Unaudited)

1.
Condensed Consolidated Financial Statements


Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.


The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit.  In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made.  The results of operations for any interim period are not necessarily indicative of results for a full year.


These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended July 31, 2020 (the “2020 Form 10-K”).  The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2020 Form 10-K.  References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted.

COVID-19 Impact


While recovery is progressing and all dining rooms were open to some extent during the third fiscal quarter, the COVID-19 pandemic continues to negatively impact the Company’s sales and traffic as a result of both changes in consumer behavior and federal, state and local governmental authorities’ continuation of various restrictions on travel, group gatherings and limitations on dine-in services. Dining room service was operational to varying degrees, yet in most locations continued to be impacted by capacity restrictions, social distancing guidelines and decreased consumer demand for in-person dining.


In response to the COVID-19 pandemic, the Company has instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and the Company has implemented various strategies to support the recovery of its business and navigate through the uncertain environment.  The Company continues to focus on growing its off-premise business and investing in its digital infrastructure to improve the guest experience.  Furthermore, the Company continued to maintain and bolster its cash reserves by completing a sale and leaseback transaction in August 2020 in which the Company sold a total of 62 Cracker Barrel owned properties and received net proceeds, after fees and expenses, of $146,357.  See Note 10 for additional information regarding this sale and leaseback transaction.

Recent Accounting Pronouncements Adopted


Goodwill Impairment


In January 2017, the Financial Accounting Standards Board (“FASB”) issued accounting guidance related to the subsequent measurement of goodwill. Under this new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  This guidance should be applied on a prospective basis.  The adoption of this accounting guidance in the first quarter of 2021 did not have a significant impact on the Company’s consolidated financial position or results of operations.

9

Recent Accounting Pronouncements Not Adopted


Accounting for Income Taxes


In December 2019, the FASB issued accounting guidance in order to simplify the accounting for income taxes.  This new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.  This guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  This accounting guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.  Early adoption is permitted.  In general, entities will apply the new guidance on a prospective basis, except for certain items such as the guidance on franchise taxes that are partially based on income.  The guidance on franchise taxes that are partially based on income will be applied either retrospectively for all periods presented or using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.  The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2022.

2.
Maple Street Biscuit Company
 

Effective October 10, 2019, the Company acquired 100% ownership of Maple Street Biscuit Company (“MSBC”), a breakfast and lunch fast casual concept, for a purchase price of $36,000, of which $32,000 was paid to the sellers in cash at closing with the remaining $4,000 being held as security for the satisfaction of indemnification obligations of the sellers, if any. The first installment of $1,500, to be held as security, was paid to the principal seller in the first quarter of 2021, and the remaining amount, if any, will be paid in a final installment to the sellers on the two-year anniversary of closing.


The Company believes that this acquisition supports its strategic initiative to extend the brand by becoming a market leader in the breakfast and lunch-focused fast casual dining segment of the restaurant industry and by providing a platform for growth. At April 30, 2021, MSBC had 37 company-owned and seven franchised fast casual locations across eight states.


The goodwill of $4,690 arising from the acquisition consisted largely of the Company’s determination of the value of MSBC’s future free cash flows less the value of the identifiable tangible and intangible assets and liabilities. All amounts recorded for the assets acquired, liabilities assumed and goodwill are final. None of the goodwill recognized is expected to be deductible for income tax purposes. Acquisition-related costs of $1,269 were recorded in the general and administrative expenses line in the Condensed Consolidated Statement of Income in the quarter ended November 1, 2019.

3.
Fair Value Measurements


The Company’s assets and liabilities measured at fair value on a recurring basis at April 30, 2021 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
127,001
   
$
   
$
   
$
127,001
 
Deferred compensation plan assets**
         
31,519
 
Total assets at fair value
       
$
158,520
 
                                 
Interest rate swap liability (see Note 6)
 
$
   
$
18,442
   
$
   
$
18,442
 
Total liabilities at fair value
 
$
   
$
18,442
   
$
   
$
18,442
 

10


The Company’s assets and liabilities measured at fair value on a recurring basis at July 31, 2020 were as follows:

 
Level 1
   
Level 2
   
Level 3
   
Total Fair
Value
 
Cash equivalents*
 
$
132,001
   
$
   
$
   
$
132,001
 
Deferred compensation plan assets**
         
28,530
 
Total assets at fair value
       
$
160,531
 
                                 
Interest rate swap liability (see Note 6)
 
$
   
$
27,746
   
$
   
$
27,746
 
Total liabilities at fair value
 
$
   
$
27,746
   
$
   
$
27,746
 

*Consists of money market fund investments.
**Represents plan assets invested in mutual funds established under a rabbi trust for the Company’s non-qualified savings plan and is included in the Condensed Consolidated Balance Sheets as other assets.


The Company’s money market fund investments are measured at fair value using quoted market prices.  The fair values of the Company’s interest rate swap liabilities are determined based on the present value of expected future cash flows.  Since the values of the Company’s interest rate swaps are based on the LIBOR forward curve, which is observable at commonly quoted intervals for the full terms of the swaps, it is considered a Level 2 input.  Non-performance risk is reflected in determining the fair value of the interest rate swaps by using the Company’s credit spread less the risk-free interest rate, both of which are observable at commonly quoted intervals for the terms of the swaps.  Thus, the adjustment for non-performance risk is also considered a Level 2 input.  The Company’s deferred compensation plan assets are measured based on net asset value per share as a practical expedient to estimate fair value.


The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration.  The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at April 30, 2021 and July 31, 2020.

4.
Inventories


Inventories were comprised of the following at:

 
April 30, 2021
   
July 31, 2020
 
Retail
 
$
96,975
   
$
105,502
 
Restaurant
   
21,932
     
19,636
 
Supplies
   
13,475
     
13,953
 
Total
 
$
132,382
   
$
139,091
 

5.
Debt


On September 5, 2018, the Company entered into a five-year $950,000 revolving credit facility (“2019 Revolving Credit Facility”).  The 2019 Revolving Credit Facility also contains an option to increase the revolving credit facility by $300,000. In the fourth quarter of 2020, the Company drew an additional $39,395 under this option for a one-year period. In the third quarter of 2021, the Company entered into an amendment to the 2019 Revolving Credit Facility which reduced the commitment amount from $950,000 to $800,000.


The Company’s outstanding borrowings under the 2019 Revolving Credit Facility were $614,395 and $949,395, respectively, at April 30, 2021 and July 31, 2020.  At April 30, 2021, the Company had $31,626 of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 13 for more information on the Company’s standby letters of credit).  At April 30, 2021, the Company had $193,374 in borrowing availability under the 2019 Revolving Credit Facility.


In accordance with the 2019 Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios under the 2019 Revolving Credit Facility.  At April 30, 2021, $400,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 5.86% (see Note 6 for information on the Company’s interest rate swaps).  At April 30, 2021, the weighted average interest rate on the remaining $214,395 of the Company’s outstanding borrowings was 3.69%.

11


The 2019 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.  As a result of the uncertainty regarding the impact of the COVID-19 pandemic on the Company’s financial position and results of operations, the Company has obtained waivers for the financial covenants for the fourth quarter of 2020 and the first and second quarters of 2021 (“Covenant Relief Period”) as well as the third and fourth quarters of 2021 (“Extended Covenant Relief Period”). During these relief periods, the Company is required to maintain certain liquidity measures (defined as the availability under the 2019 Revolving Credit Facility plus unrestricted cash and cash equivalents) of at least $140,000.  Additionally, during the Extended Covenant Relief Period, the Company’s cash payments with respect to capital expenditures may not exceed $70,000 in the aggregate. As of April 30, 2021, the Company’s cash payments with respect to capital expenditures during the Extended Covenant Relief Period were $12,704.


The 2019 Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase.  During the Covenant Relief Period described above, the Company is subject to restrictions on its ability to pay dividends (other than the deferred dividend payment that the Company paid on September 2, 2020).  Following the Covenant Relief Period described above, under the 2019 Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the 2019 Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $100,000 (the “Cash Availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if, at the time such dividend or repurchase is made, the Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, Cash Availability is at least $100,000, the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four. Additionally, during the Extended Covenant Relief Period, the Company is subject to additional restrictions on its ability to pay dividends. The Company was prohibited from declaring or paying cash dividends during the third quarter of 2021. The Company may declare but not pay cash dividends during the fourth quarter of 2021.

6.
Derivative Instruments and Hedging Activities


The Company has interest rate risk relative to its outstanding borrowings (see Note 5 for information on the Company’s outstanding borrowings).  The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt.  To manage this risk in a cost-efficient manner, the Company uses derivative instruments, specifically interest rate swaps.


For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.  The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps are fixed at the rates in the table below plus the Company’s credit spread.  The Company’s credit spread at April 30, 2021 was 3.50%.


All of the Company’s interest rate swaps are accounted for as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings and is presented in the same statement of income 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 line item as the earnings effect of the hedged item.


The Company does not hold or use derivative instruments for trading purposes.  The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments.

12



Companies may elect to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists.  Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty.  When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement.  If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero.


A summary of the Company’s interest rate swaps at April 30, 2021 is as follows:

Trade Date
 
Effective Date
 
Term
(in Years)
   
Notional Amount
   
Fixed
Rate
 
January 30, 2015
May 3, 2019
   
2.0
   
$
60,000
     
2.16
%
January 30, 2015
May 4, 2021
   
3.0
     
120,000
     
2.41
%
January 30, 2015
May 3, 2019
   
2.0
     
60,000
     
2.15
%
January 30, 2015
May 4, 2021
   
3.0
     
80,000
     
2.40
%
January 16, 2019
May 3, 2019
   
3.0
     
115,000
     
2.63
%
January 16, 2019
May 3, 2019
   
2.0
     
115,000
     
2.68
%
August 6, 2019
November 4, 2019
   
2.5
     
50,000
     
1.50
%
August 7, 2019
May 3, 2021
   
1.0
     
35,000
     
1.32
%
August 7, 2019
May 3, 2022
   
2.0
     
100,000
     
1.40
%
August 7, 2019
May 3, 2022
   
2.0
     
100,000
     
1.36
%


The estimated fair value of the Company’s derivative instruments as of April 30, 2021 and July 31, 2020 were as follows:

(See Note 3)
Balance Sheet Location
 
April 30, 2021
   
July 31, 2020
 
Interest rate swaps
Other current liabilities
 
$
54
   
$
3,886
 
Interest rate swaps
Long-term interest rate swap liability
   
18,388
     
23,860
 
Total liabilities**
   
$
18,442
   
$
27,746
 

**These interest rate swap liabilities are recorded gross at both April 30, 2021 and July 31, 2020 since there were no offsetting assets under the Company’s master netting agreements.


The estimated fair value of the Company’s interest rate swap liabilities incorporates the Company’s non-performance risk (see Note 3).  The adjustment related to the Company’s non-performance risk at April 30, 2021 and July 31, 2020 resulted in reductions of $431 and $978, respectively, in the fair value of the interest rate swap liabilities.  The offset to the interest rate swap liabilities are recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt.  As of April 30, 2021, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $6,230.  Cash flows related to the interest rate swaps are included in the interest expense line in the Condensed Consolidated Statements of Income and in operating activities in the Condensed Consolidated Statements of Cash Flows.


The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for the nine months ended April 30, 2021 and the year ended July 31, 2020:

 
Amount of Income (Loss) Recognized
in AOCL on Derivatives
 
   
Nine Months Ended
April 30, 2021
   
Year Ended
July 31, 2020
 
Cash flow hedges:
           
Interest rate swaps
 
$
8,827
   
$
(17,740
)

13


The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and nine months ended April 30, 2021 and May 1, 2020:

Location of Loss
Reclassified from
AOCL into Income
(Effective Portion)
 
Amount of Loss Reclassified from AOCL into Income
(Effective Portion)
 
 
 
Quarter Ended
 
Nine Months Ended
     
April 30,
2021
 
May 1,
2020
 
April 30,
2021
 
May 1,
2020
Cash flow hedges:
 
 
 
 
 
 
 
 
 
Interest rate swaps
Interest expense
 
$
2,194
 
$
465
 
$
6,179
 
$
559


The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the quarter and nine months ended April 30, 2021:

 
Amount Reclassified from AOCL
 
Affected Line Item in the
 
 
Quarter Ended
 
 
Nine Months Ended
 
Condensed Consolidated
Financial Statements
Loss on cash flow hedges:
 
 
 
 
 
 
   
Interest rate swaps
 
$
(2,194)
 
 
$
(6,179)
 
Interest expense
Tax benefit
 
 
547
 
 
 
1,542
 
Provision for income taxes
 
 
$
(1,647)
 
 
$
(4,637)
 
Net of tax



No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the nine months ended April 30, 2021.


The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the nine months ended April 30, 2021:

 
Changes in AOCL
 
AOCL balance at July 31, 2020
 
$
(20,346
)
Other comprehensive income before reclassifications
   
11,262
 
Amounts reclassified from AOCL
   
(4,637
)
Other comprehensive income, net of tax
   
6,625
 
AOCL balance at April 30, 2021
 
$
(13,721
)

7.
Seasonality


Historically, the net income of the Company has been lower in the first and third quarters and higher in the second and fourth quarters.  Management attributes these variations to the holiday shopping season and the summer vacation and travel season.  The Company’s retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company’s second quarter, which includes the holiday shopping season.  Historically, interstate tourist traffic and the propensity to dine out have been higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter.  The Company generally opens additional new locations throughout the year.  Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year. Currently, the Company is not able to predict the impact that the COVID-19 pandemic may have on these historical consumer demand patterns or, as a result, on the seasonality of its business generally.

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 currently manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States.

14


9.
Revenue Recognition


Revenue consists primarily of sales from restaurant and retail operations. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant guest, retail customer or other customer.  The Company’s policy is to present sales in the Condensed Consolidated Statements of Income on a net presentation basis after deducting sales tax.

Disaggregation of revenue


Total revenue was comprised of the following for the specified periods:

 
Quarter Ended
   
Nine Months Ended
 
   
April 30,
2021
   
May 1,
2020
   
April 30,
2021
   
May 1,
2020
 
Revenue:
                       
Restaurant
 
$
569,402
   
$
360,379
   
$
1,605,869
   
$
1,630,501
 
Retail
   
144,014
     
72,165
     
431,170
     
397,226
 
Total revenue
 
$
713,416
   
$
432,544
   
$
2,037,039
   
$
2,027,727
 

Restaurant Revenue


The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverages is satisfied.

Retail Revenue


The Company recognizes revenues from retail sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide merchandise is satisfied.  Ecommerce sales, including shipping revenue, are recorded upon delivery to the customer. Additionally, estimated sales returns are calculated based on return history and sales levels.

Gift Card Breakage


Included in restaurant and retail revenue is gift card breakage.  Customer purchases of gift cards, to be utilized at the Company’s stores, are not recognized as sales until the card is redeemed and the customer purchases food and/or merchandise.   Gift cards do not carry an expiration date; therefore, customers can redeem their gift cards indefinitely. A certain number of gift cards will not be fully redeemed. Management estimates unredeemed balances and recognizes gift card breakage revenue for these amounts in the Company’s Condensed Consolidated Statements of Income over the expected redemption period.  Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines that there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction.


The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage over the period of estimated redemption.  For the quarter and nine months ended April 30, 2021, respectively, gift card breakage was $1,247 and $3,940.  For the quarter and nine months ended May 1, 2020, respectively, gift card breakage was $1,574 and $5,234.


Deferred revenue related to the Company’s gift cards was $98,510 and $94,754, respectively, at April 30, 2021 and July 31, 2020.  Revenue recognized in the Condensed Consolidated Statements of Income for the nine months ended April 30, 2021 and May 1, 2020, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $35,157 and $33,937.

15


10.
Leases


The Company has ground leases for its leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. The Company also leases advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases. Additionally, the Company completed sale-leaseback transactions in 2009, 2020 and 2021 (see section below entitled “Sale and Leaseback Transactions”). To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration. If the contract has the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, the Company recognizes a right-of-use asset and lease liability.


The Company’s leases all have varying terms and expire at various dates through 2055. Restaurant leases typically have base terms of ten years with four to five optional renewal periods of five years each. The Company uses a lease life that generally begins on the commencement date, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option. The Company has included lease renewal options in the lease term for calculations of the right-of-use asset and liability for which at the commencement of the lease it is reasonably certain that the Company will exercise those renewal options. Additionally, some of the leases have contingent rent provisions and others require adjustments for inflation or index. 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.


The Company has entered into agreements for real estate leases that are not recorded as right-of-use assets or lease liabilities as we have not yet taken possession. These leases are expected to commence in 2021 with undiscounted future payments of $6,404.


The Company has elected to not separate lease and non-lease components. Additionally, the Company has elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, 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.


The following table summarizes the components of lease cost for operating leases for the quarter ended and nine months ended April 30, 2021 as compared to the same periods in the prior year:

   
Quarter Ended
   
Nine Months Ended
 
 
April 30, 2021
   
May 1, 2020
   
April 30, 2021
   
May 1, 2020
 
Operating lease cost
 
$
26,560
   
$
20,977
   
$
79,445
   
$
61,295
 
Short term lease cost
   
116
     
361
     
2,180
     
2,637
 
Variable lease cost
   
477
     
309
     
1,671
     
1,239
 
Total lease cost
 
$
27,153
   
$
21,647
   
$
83,296
   
$
65,171
 

16


The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the quarter ended and nine months ended April 30, 2021 as compared to the same periods in the prior year:

   
Quarter Ended
   
Nine Months Ended
 
 
April 30,
2021
   
May 1,
2020
   
April 30,
2021
   
May 1,
2020
 
Operating cash flow information:
                       
Gain on sale and leaseback transaction
 
$
   
$
   
$
(217,722
)
 
$
 
Operating cash flow information:
                               
Cash paid for amounts included in the measurement of lease liabilities
   
22,279
     
20,192
     
66,960
     
60,024
 
Noncash information:
                               
Right-of-use assets obtained in exchange for new operating lease liabilities
   
267
     
623
     
315,456
     
5,062
 
Lease modifications or reassessments increasing or decreasing right-of-use assets
   
3,471
     
2,455
     
28,515
     
14,972
 
Lease modifications removing right-of-use assets
   
(104
)
   
(196
)
   
(452
)
   
(1,125
)


The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of April 30, 2021 and May 1, 2020:

 
April 30, 2021
   
May 1, 2020
 
Weighted-average remaining lease term
 
18.24 Years
   
18.14 Years
 
Weighted-average discount rate
   
4.83
%
   
3.87
%


The following table summarizes the maturities of undiscounted cash flows reconciled to the total lease liability as of April 30, 2021:

Year
 
Total
 
Remainder of 2021
 
$
22,274
 
2022
   
84,631
 
2023
   
77,527
 
2024
   
63,015
 
2025