CBRL US Equity☆

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. MD&A should be read in conjunction with the Consolidated Financial Statements and notes thereto. Readers should also carefully review the information presented under the section entitled “Risk Factors” and other cautionary statements in this report. All dollar amounts (other than per share amounts) reported or discussed in this MD&A are shown in thousands. References in MD&A to a year or quarter are to our fiscal year or quarter unless expressly noted or the context clearly indicates otherwise.

This overview summarizes the MD&A, which includes the following sections:

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EXECUTIVE OVERVIEW

Cracker Barrel Old Country Store, Inc. (the “Company,” “our” or “we”) is a publicly traded (Nasdaq: CBRL) company that, through its operations and those of certain subsidiaries, is principally engaged in the operation and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. Each Cracker Barrel store consists of a restaurant with a gift shop. The restaurants serve breakfast, lunch and dinner. The gift shop offers a variety of decorative and functional items specializing in rocking chairs, holiday gifts, toys, apparel and foods. As of September 16, 2020, the Company operated 663 Cracker Barrel stores located in 45 states. Effective October 19, 2019, the Company acquired 100% ownership of MSBC, a breakfast and lunch fast casual concept. As of September 16, 2020, the Company operated 35 owned MSBC locations, and there were an additional six franchised locations open, located in seven states.

COVID-19 Impact and Company Response

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, federal, state and local governmental authorities have imposed unprecedented restrictions on travel, group gatherings and non-essential activities, such as “social distancing” guidance, shelter-in-place orders and limitations on or full prohibitions of dine-in services.

In response to the business disruption caused by the COVID-19 pandemic, we have taken the following actions.

Operating Initiatives

In response to the COVID-19 pandemic and the orders and guidance from U.S. federal and applicable state and local governmental authorities, in March 2020, we temporarily closed the dining rooms in all of our restaurants and operated with pick-up and delivery only. In order to support our off-premise business model, we implemented various changes to our Cracker Barrel offerings, including, among other actions, offering a limited menu and multi-serving takeout family meal baskets, expanding third-party delivery services and implementing various operating model changes, including contactless curbside delivery. For a portion of the third quarter of 2020, all of our restaurant operations were limited to pick-up and delivery orders with no dine-in service. Thereafter, we were able to resume dine-in services at a limited number of restaurants. Our dine-in services have been and continue to be limited to occupancy levels well below capacity, and some locations are not currently open at all for dine-in service. As of September 16, 2020, thirteen of our restaurants had not opened dine-in services to some extent. We have taken a cautious approach to reopening dining rooms and have instituted operational protocols to comply with applicable regulatory requirements and to monitor developing health authority recommendations in order to protect the health and foster the confidence of employees and guests. The adverse impacts of the COVID-19 pandemic resulted in us testing our restaurant long-lived assets for recoverability. As a result of this analysis, we recorded impairment charges of $22,496 due to the deterioration in operating performance of certain Cracker Barrel and MSBC locations.

Expense Reductions

We have made significant reductions in operating expenses to reflect reduced operations and sales levels as well as eliminated non-essential spending where feasible. We furloughed employees and eliminated a significant number of positions at all levels both at the corporate headquarters and in the field. We recorded severance expenses of $3,956 related to the elimination of 469 Company positions in 2020. We also implemented pay reductions in the third quarter for the remainder of the fiscal year for corporate officers, reduced cash retainers payable to the Company’s Board of Directors and temporarily suspended matches to our defined contribution plans through the end of fiscal 2020. Additionally, we adapted our labor model, instituted inventory management measures and negotiated revised terms with landlords and vendors.

Liquidity Initiatives

As a precautionary measure and in order to increase our cash position and provide financial flexibility given the uncertainty in the market caused by the COVID-19 pandemic, in March 2020, we borrowed the remaining availability under our revolving credit facility (approximately $471,700, including $6,700 of standby letters of credit) and, in May 2020, we exercised the accordion feature under the revolving credit facility in order to borrow an additional amount of $39,395.

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To further preserve available cash, the payment of the dividend that was declared on March 3, 2020 was deferred until September 2, 2020. On that date, we paid an aggregate amount of $30,807 in respect of the deferred dividend. Other than the payment of the deferred dividend, we have suspended all further dividend payments until further notice. We also temporarily suspended all share repurchases under our previously announced $25,000 share repurchase program. In keeping with our strategy of concentrating our resources on our core business during the COVID-19 pandemic, we decided not to invest further resources or otherwise provide additional funding to PBS HoldCo, LLC (see Note 3, “Equity Method Investment” for further information regarding the Company’s strategic relationship with PBS HoldCo, LLC).

On March 27, 2020, P.L. 116-136, the Coronavirus Aid, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains several provisions offering liquidity to businesses. We have benefited and will continue to benefit from two of these provisions that allowed us to recover a portion of qualifying retention pay and health expenses paid to furloughed employees and to defer a portion of employment taxes until calendar 2021 and calendar 2022.

As a result of the foregoing actions, the Company had $436,996 in cash and cash equivalents at July 31, 2020. In order to maintain and bolster our cash reserves and further strengthen our balance sheet in response to the COVID-19 pandemic, in July 2020, the Company entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 Cracker Barrel properties and simultaneously entered into a sale and leaseback transaction with the financier, and, in August 2020, the Company completed a sale and leaseback transaction pursuant to which we sold a total of 62 Cracker Barrel owned properties and received net proceeds, after fees and expenses, of $146,357. See Note 11 to the Consolidated Financial Statements for additional information regarding these sale and leaseback transactions.

Restaurant and Retail Industries

Our stores operate in both the restaurant and retail industries in the United States. The restaurant and retail industries are highly competitive with respect to quality, variety and price of the food products, availability of carryout and home delivery, internet and mobile ordering capabilities and retail merchandise offered. We compete with a significant number of national and regional restaurant and retail chains. Additionally, there are many segments within the restaurant industry, such as family dining, casual dining, full-service, fast casual and quick service, which often overlap and provide competition for widely diverse restaurant concepts. Cracker Barrel primarily operates in the full-service segment of the restaurant industry, and our growing MSBC concept operates in the fast casual segment. Competition also exists in securing prime real estate locations for new stores, in hiring qualified employees, in advertising, in the attractiveness of facilities and with competitors having similar menu offerings or convenience. The restaurant and retail industries are often affected by changes in consumer taste and preference; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants and retailers; and consumers’ discretionary purchasing power.

Additionally, economic, seasonal and weather conditions affect the restaurant and retail industries. Adverse economic conditions and unemployment rates affect consumer discretionary income and dining and shopping habits. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby contributing to higher profits in our fourth quarter. Retail sales, which are made substantially to our restaurant guests, are historically strongest in the second quarter, which includes the holiday shopping season. Severe weather also affects restaurant and retail sales adversely from time to time. Furthermore, we are not able to predict the impact that the COVID-19 pandemic may have on the seasonality of our business.

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Key Performance Indicators

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

●Comparable store restaurant sales consist of restaurant sales of stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks. This measure excludes the impact of new store openings. This measure also excludes sales related to MSBC since MSBC was acquired by the Company in the first quarter of 2020. Comparable store restaurant sales are expressed as a percentage of an increase or decrease in restaurant sales versus the same period in the prior year as well as an average per store. Total comparable store restaurant sales for the current year period are subtracted from total comparable store restaurant sales for the prior year period to calculate the absolute dollar change. The absolute dollar change is divided by the prior year comparable store restaurant sales. This amount, expressed as a percentage, is the comparable store restaurant sales discussed in MD&A. See the section below entitled “Total Revenue” for the comparable store restaurant sales percentages for 2020 as well as the same periods in the prior year. Additionally, the average dollar amount per store is provided for each year presented. Management uses comparable store restaurant sales as a measure of sales growth to evaluate how established stores have performed over time. We believe this measure is useful for investors to provide a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of store openings, closings, and other transitional changes.

●Comparable store retail sales consist of retail sales of stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks. This measure excludes the impact of new store openings. Comparable store retail sales are expressed as a percentage of an increase or decrease in retail sales versus the same period in the prior year. Total comparable store retail sales for the current year period are subtracted from total comparable store retail sales for the prior year period to calculate the absolute dollar change. The absolute dollar change is divided by the prior year comparable store retail sales. This amount, expressed as a percentage, is the comparable store retail sales discussed in MD&A. See the section below entitled “Total Revenue” for the comparable store retail sales percentages for 2020 as well as the same periods in the prior year. Management uses comparable store retail sales as a measure of sales growth to evaluate how established stores have performed over time. We believe this measure is also useful for investors to provide a consistent comparison of retail sales results and trends across periods within our core, established store base, unaffected by results of store openings, closings and other transitional changes.

●Comparable restaurant guest traffic reflects both dine-in and off-premise occasions. Traffic growth is measured as the change in entrees sold, which includes entrees sold in our dine-in and off-premise business. Comparable restaurant guest traffic consists of entrees sold from stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks. This measure excludes guest traffic related to MSBC since MSBC was acquired by the Company in the first quarter of 2020. Comparable restaurant guest traffic is expressed as a percentage of an increase or decrease in restaurant guest traffic versus the same period in the prior year. This amount, expressed as a percentage, is the guest traffic discussed in MD&A. See section below entitled “Total Revenue” for the restaurant guest traffic percentages for 2020 as well as the same periods in the prior year. Management uses this measure to evaluate how established stores have performed over time excluding growth achieved through menu price and sales mix change. We believe this measure is useful for investors because an increase in comparable restaurant guest traffic represents an increase in guests purchasing from our established restaurants as well as an increase in the likelihood of a retail sales conversion for guests intending to dine, while also providing an indicator as to the development of our brand and the effectiveness of our marketing strategy.

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●Average check per guest is an indicator which management uses to analyze the dollars spent per guest in our stores on restaurant purchases. Average check is calculated using the comparable store restaurant sales (as defined above) divided by comparable restaurant guest traffic (as defined above). Average check is expressed as a percentage of an increase or decrease in average check versus the same period in the prior year. Average check for the current year period is subtracted from average check for the prior year period to calculate the absolute dollar change. The absolute dollar change is divided by the prior year average check number. This amount, expressed as a percentage, is the average check number discussed in MD&A. This measure aids management in identifying trends in guest preferences as well as the effectiveness of menu price increases and other menu changes. We believe this measure is useful for investors to evaluate per guest expenditures as well as our pricing and menu strategies. See the section below entitled “Total Revenue” for the average check percentages for 2020 as well as the same periods in the prior year.

Company Performance in 2020

Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry.

Our long-term strategy includes the following:

RESULTS OF OPERATIONS

The following table highlights operating results over the past three years:

Relationship to Total Revenue

Cost of goods sold (exclusive of depreciation and rent) 30.9 30.3 30.9

Labor and other related expenses 36.7 35.1 34.8

General and administrative 5.8 5.0 4.7

Gain on sale and leaseback transaction (2.8 ) — —

Impairment 0.9 — —

Income before income taxes 3.2 8.7 9.2

Provision for income taxes (income tax benefit) (1.1 ) 1.4 1.0

Net loss from unconsolidated subsidiary (5.6 ) — —

Net income (loss) (1.3 ) 7.3 8.2

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Total Revenue

The following table highlights the key components of revenue for the past three years:

Revenue in dollars(1):

Total revenue percentage increase (decrease) (1) (17.9 %) 1.4 % 3.6 %

Total revenue by percentage relationships:

Comparable store averages per store: (2)

Restaurant average weekly sales (3) $ 58.4 $ 72.4 $ 70.8

Average check increase 2.7 % 3.3 % 2.5 %

(1) 2018 consists of 53 weeks while the other periods presented consist of 52 weeks.

(2) 2018 is calculated on a 53-week basis while the other periods are calculated on a 52-week basis. Comparable store averages exclude MSBC.

(3) Average weekly sales are calculated by dividing net sales by operating weeks and include all stores except for MSBC and Holler & Dash.

Total revenue benefited from the opening of five new units in 2020, eight new units in 2019 and eleven new units in 2018, partially offset by the closing of two units in 2020 and one unit in 2019. In 2018, total revenue also benefited by the additional week in 2018, which resulted in an increase in revenues of $58,353. The total revenue decrease for 2020 as compared to 2019 was primarily the result of all of our restaurant operations being limited to pick-up and delivery orders with no dine-in service for a portion of the third quarter of 2020, the related significant decline in restaurant guest traffic, restrictions mandated by federal, state and local governments in the United States to mitigate the spread of COVID-19 and the related changes in consumer behavior. The total revenue decrease was partially offset by our subsequent resumption of dine-in services at a number of our Cracker Barrel stores and the acceleration of our off-premise business.

The following table highlights comparable store sales* results over the past two years:

Period to PeriodIncrease (Decrease)

Restaurant & Retail (18.6)% 2.1%

*Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year, are measured on comparable calendar weeks and exclude MSBC and Holler & Dash.

Our comparable store restaurant sales, comparable retail sales and comparable restaurant guest traffic were negatively affected by the COVID-19 pandemic as all dining rooms were closed beginning the week of March 27, 2020 and only certain restaurants resumed dine-in operations with limited capacity beginning at the end of April 2020. Our comparable store restaurant sales decrease from 2019 to 2020 resulted from a decrease in guest traffic of 21.6% partially offset by higher average check of 2.7% (including a 1.8% average menu price increase). Our comparable store restaurant sales increase from 2018 to 2019 resulted from a higher average check of 3.3%, primarily attributable to a 2.1% average menu price increase and 1.2% of favorable check impact from changes in mix, partially offset by a decrease in guest traffic of 0.7%.

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Our retail sales are made substantially to our restaurant guests. The decrease in our comparable store retail sales from 2019 to 2020 resulted from the impact of the COVID-19 pandemic which caused a decline in guest traffic. The slight increase in our comparable store retail sales from 2018 to 2019 resulting primarily from strong performance in the apparel and accessories merchandise category was partially offset by the decrease in guest traffic and lower performance in the décor merchandise category.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold in dollar amounts for the past three years:

Cost of Goods Sold:

The following table highlights restaurant cost of goods sold as a percentage of restaurant revenue for the past three years:

Restaurant Cost of Goods Sold 25.4% 25.3% 25.7%

Restaurant cost of goods sold as a percentage of restaurant revenue increased slightly from 2019 to 2020. The decrease from 2018 to 2019 was primarily the result of our menu price increase referenced above, lower food waste and a shift to lower cost menu items partially offset by food commodity inflation of 1.6%. Lower food waste and lower cost menu items both accounted for a decrease of 0.1% in restaurant cost of goods sold as a percentage of restaurant revenue.

We presently expect the rate of commodity inflation to be approximately 1.5 to 2.0% in 2021 as compared to 0.8% in 2020.

The following table highlights retail cost of goods sold as a percentage of retail revenue for the past three years:

The increase in retail cost of goods sold as a percentage of retail revenue in 2020 as compared to 2019 resulted primarily from higher markdowns, higher employee discounts, higher freight expense and lower retail credits.

2019 to 2020Increase as a Percentage ofTotal Revenue

Markdowns 1.2%

Employee discounts 0.6%

Freight expense 0.4%

Retail credits 0.2%

The decrease in retail cost of goods sold as a percentage of retail revenue in 2019 as compared to 2018 resulted primarily from lower markdowns and a decrease in the provision for obsolete inventory partially offset by lower initial margin.

2018 to 2019(Decrease) Increase as aPercentage of Total Revenue

Markdowns (0.8%)

Provision for obsolete inventory (0.6%)

Lower initial margin 0.3%

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Labor and Other Related Expenses

Labor and other related expenses include all direct and indirect labor and related costs incurred in store operations. The following table highlights labor and other related expenses as a percentage of total revenue for the past three years:

Labor and other related expenses 36.7% 35.1% 34.8%

The year-to-year percentage change from 2019 to 2020 resulted from the following:

2019 to 2020Increase (Decrease) as aPercentage of Total Revenue

Store management compensation 1.4%

Miscellaneous wages 0.4%

Employee health care expenses 0.3%

Store hourly labor (0.3%)

Store bonus expense (0.2%)

In general, in 2020, labor and other related expenses as a percentage of total revenue were materially increased by the impact of the COVID-19 pandemic. In particular, the increases in store management compensation and miscellaneous wages as a percentage of total revenue in 2020 were all primarily driven by this decrease in revenue.

Higher employee health care expenses in 2020 as compared to 2019 resulted primarily from higher claims activity.

The decrease in store hourly labor in 2020 as compared to 2019 resulted primarily from lower usage of hourly employees due to reduced operations caused by the COVID-19 pandemic.

The decrease in store bonus expense in 2020 as compared to 2019 resulted from lower performance against financial objectives in 2020 as compared to 2019 due to the impact of the COVID-19 pandemic.

The year-to-year percentage change from 2018 to 2019 resulted primarily from the following:

2018 to 2019Increase (Decrease) as aPercentage of Total Revenue

Store hourly labor 0.2%

Store bonus expense 0.2%

Employee health care expenses (0.2%)

The increase in store hourly labor in 2019 as compared to 2018 resulted primarily from wage inflation exceeding menu price increases.

The increase in store bonus expense in 2019 as compared to 2018 resulted from better performance against financial objectives in 2019 as compared to 2018.

The decrease in employee health care expenses in 2019 as compared to 2018 resulted primarily from lower claims activity.

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Other Store Operating Expenses

Other store operating expenses include all store-level operating costs, the major components of which are utilities, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit card and gift card fees, real and personal property taxes, general insurance and costs associated with our bi-annual manager conference and training event. The following table highlights other store operating expenses as a percentage of total revenue for the past three years:

Other store operating expenses 24.4 % 20.4 % 19.9 %

The year-to-year percentage change from 2019 to 2020 resulted primarily from the following:

2019 to 2020Increase as a Percentageof Total Revenue

Depreciation 1.0%

Other store expenses 0.6%

Supplies 0.5%

Advertising 0.4%

Utilities 0.3%

Real and personal property taxes 0.3%

Maintenance 0.2%

In general, for 2020, other store operating expenses as a percentage of total revenue were materially increased by the significant reduction in total revenue and reduced operations caused by the impact of the COVID-19 pandemic. In particular, the increases in rent expense, supplies expense, advertising expense, utilities expense, real and personal property taxes and maintenance expense as a percentage of total revenue for 2020 were all primarily driven by this decrease in revenue.

The increase in depreciation expense as a percentage of total revenue for 2020 as compared to 2019 resulted primarily from higher capital expenditures with accelerated depreciation methods.

The increase in other store expenses as a percentage of total revenue for 2020 as compared to 2019 resulted primarily from costs associated with the expansion of our off-premise business.

The year-to-year percentage change from 2018 to 2019 resulted primarily from the following:

2018 to 2019Increase (Decrease) as aPercentage of Total Revenue

Depreciation 0.4%

Loss on disposition of property and equipment 0.1%

Maintenance (0.1%)

The increase in depreciation expense as a percentage of total revenue for 2019 as compared to 2018 resulted primarily from higher capital expenditures with accelerated depreciation methods.

The increase in loss on disposition of property and equipment as a percentage of total revenue for 2019 as compared to 2018 resulted primarily from costs associated with a store closure, higher disposal of assets related primarily to discontinued projects and a reduction in the carrying value for a previously closed store.

The decrease in maintenance expense as a percentage of total revenue for 2019 as compared to 2018 resulted primarily from improved management of expenses in 2019.

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General and Administrative Expenses

The following table highlights general and administrative expenses as a percentage of total revenue for the past three years:

General and administrative expenses 5.8% 5.0% 4.7%

The year-to-year percentage change from 2019 to 2020 resulted primarily from the following:

2019 to 2020Increase (Decrease) as aPercentage of Total Revenue

Payroll and related expenses 0.7%

Professional fees 0.4%

Incentive compensation expense (0.2%)

In general, for 2020, general and administrative expenses as a percentage of total revenue were materially increased by the significant reduction in total revenue and reduced operations caused by the impact of the COVID-19 pandemic. In particular, the increases in payroll and related expense and professional fees were all primarily driven by this decrease in revenue. The increase in payroll and related expenses also resulted from severance expenses recorded in 2020 as part of the elimination of positions in the corporate headquarters and in the field. The decrease in incentive compensation in 2020 as compared to 2019 resulted from lower performance against financial objectives in 2020 as compared to 2019 due to the impact of the COVID-19 pandemic.

The year-to-year percentage change from 2018 to 2019 resulted primarily from higher incentive compensation. Higher incentive compensation in 2019 as compared to 2018 resulted from better performance against financial objectives as compared to the prior year period.

Gain on Sale and Leaseback Transaction

On July 29, 2020, we entered into a sale and leaseback transaction involving 64 Cracker Barrel properties and recorded a gain of $69,954. See Note 11 to the Consolidated Financial Statements for additional information regarding this sale and leaseback transaction.

Impairment

During the third and fourth quarters of 2020, we determined that certain Cracker Barrel and MSBC locations were impaired, resulting in impairment charges of $22,496. These locations were impaired because of declining operating performance and resulting negative cash flow projections as a result of the impact of the COVID-19 pandemic. It is possible that we may recognize additional impairment as a result of the unknown impacts of the COVID-19 pandemic and our response.

Interest Expense

The following table highlights interest expense for the past three years:

The year-to-year increase from 2019 to 2020 resulted primarily from materially higher debt levels caused by our borrowing of the remaining available amount under our 2019 Revolving Credit Facility in March 2020 and exercising the accordion feature under the 2019 Revolving Credit Facility to borrow an additional amount in response to the COVID-19 pandemic and higher weighted average interest rates. The year-to-year increase from 2018 to 2019 resulted primarily from higher weighted average interest rates. Additionally, as part of our debt refinancing in 2019, we incurred additional interest expense of $166 related to the write-off of deferred financing costs. We presently expect our net interest expense for 2021 to be approximately $40,000.

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Provision for Income Taxes (Income Tax Benefit)

The following table highlights the provision for income taxes (income tax benefit) as a percentage of income before income taxes (“effective tax rate”) for the past three years:

The decrease in our effective tax rate from 2019 to 2020 is primarily due to the tax benefits from the net loss recorded for PBS and a large reduction in income before income taxes relative to a modest reduction in the tax credits.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating losses (“NOL”) carryovers and carrybacks to offset 100% of taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes. The CARES Act also contains modifications on the limitations of business interest for tax years beginning in 2019 and 2020. We are currently evaluating the impact of the CARES Act, but we currently do not expect that the NOL carryback provision or the interest limitations will result in a material cash impact to us.

The increase in our effective tax rate from 2018 to 2019 reflected the significant impact of P.L. 115-97, the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017 by the U.S. government. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21%. This rate reduction lowered deferred tax liabilities, the tax benefit of which was recognized in 2018.

We presently expect our effective tax rate for 2021 to be approximately 19%.

LIQUIDITY AND CAPITAL RESOURCES

The following table presents a summary of our cash flows for the last three years:

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our revolving credit facility. Our internally generated cash, along with cash on hand at August 2, 2019 and borrowings under our 2019 Revolving Credit Facility, was sufficient to finance all of our growth, share repurchases, dividend payments, working capital needs and other cash payment obligations in 2020.

The impacts of the COVID-19 pandemic have adversely affected our results of operations and cash flows. In response to the business disruption caused by the COVID-19 pandemic, we took the following actions, which management anticipates will allow the Company to meet our obligations over the next twelve months.

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● We have temporarily suspended all share repurchases.

Cash Generated from Operations

The decrease in net cash flow provided by operating activities from 2019 to 2020 primarily reflected the negative impact on our operations caused by the COVID-19 pandemic and the timing of payments for accounts payable.

The increase in net cash flow provided by operating activities from 2018 to 2019 primarily reflected the timing of payments for accounts payable, interest, payroll and advertising.

Capital Expenditures and Proceeds from Sale of Property and Equipment

The following table presents our capital expenditures (purchase of property and equipment), net of proceeds from insurance recoveries, for the last three years:

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and strategic initiatives. On July 29, 2020, we entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 Cracker Barrel properties and simultaneously entered into a sale and leaseback transaction with the financier. The increase in capital expenditures from 2019 to 2020 resulted primarily from this transaction partially offset by lower capital expenditures for strategic initiatives. The increase in proceeds from sale of property and equipment from 2019 to 2020 also relates to the sale and leaseback transaction entered into on July 29, 2020.

The decrease in capital expenditures from 2018 to 2019 resulted primarily from the timing of new unit construction partially offset by higher capital expenditures for strategic initiatives.

We estimate that our capital expenditures during 2021 will be approximately $100,000. This estimate includes the acquisition of sites and construction costs of new Cracker Barrel stores and MSBC locations that we plan to open during 2021, as well as acquisition and construction costs for store locations to be opened in 2022. We intend to fund our capital expenditures with cash generated by operations and cash on hand as the result of borrowings under our revolving credit facility, as necessary. See the discussion below under “Borrowing Capacity and Debt Covenants” regarding a debt covenant restriction on our cash payment for capital expenditures.

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Maple Street Biscuit Company

Effective October 10, 2019, we acquired 100% ownership of MSBC, a breakfast and lunch fast casual concept, for a purchase price of $36,000, of which $32,000 was paid to the sellers in cash with the remaining $4,000 being held as security for the satisfaction of indemnification obligations. The unused portion of the amounts held for security, if any, will be paid in two installments with $1,500 due to the principal seller on the one-year anniversary of closing and the remaining amount due to the sellers on the two-year anniversary of closing. We also incurred acquisition-related costs of $1,269. During 2020, we converted our six Holler & Dash locations into MSBC locations. We believe that the investment in MSBC supports our strategic initiative to extend the brand by becoming a market leader in the breakfast and lunch-focused fast casual dining segment of the restaurant industry and by providing a platform for growth.

Punch Bowl Social

Effective July 18, 2019, we entered into a strategic relationship with PBS, a food, beverage and entertainment concept, by purchasing a non-controlling equity interest in the concept for $89,100. At closing, we also purchased promissory notes of $6,900 along with the related interest on the notes and provided additional funding of $8,000 to PBS in exchange for a promissory note. As part of the transaction, we agreed to fund PBS up to $51,000 through calendar 2020 of which we funded $35,500 during 2020. We believed the investment in PBS provided us with a growth vehicle to deliver additional shareholder value and extend our footprint into a complementary market segment. However, during the onset of the COVID-19 pandemic, PBS Holdco’s wholly-owned subsidiary, PBS BrandCo, LLC (“Brandco”) suffered unsustainable disruption to its business across the chain and suspended all operations at each of its 19 locations and laid off substantially all restaurant and corporate employees. On March 20, 2020, the primary lender under Brandco’s secured credit facility provided notice of the lender’s intention to foreclose on its collateral interest in Brandco unless Cracker Barrel repaid or unconditionally guaranteed the indebtedness. In keeping with our strategy of concentrating our resources on our core business during the COVID-19 pandemic, and in light of the substantial uncertainties surrounding PBS business coming out of the COVID-19 pandemic, we decided not to invest further resources to prevent foreclosure or otherwise provide additional capital to PBS. In the third quarter of 2020, we recorded a loss of $132,878, which represented our equity investment in PBS and the principal and accumulated interest under the outstanding unsecured indebtedness of PBS held by the Company. This loss is recorded in the net loss in unconsolidated subsidiary line on our Consolidated Statement of Income (Loss) in 2020.

Borrowing Capacity and Debt Covenants

On September 5, 2018, we entered into a five-year $950,000 revolving credit facility (the “2019 Revolving Credit Facility”) with substantially the same terms and financial covenants as our previous $750,000 revolving credit facility, which it replaced. The 2019 Revolving Credit Facility also contains an option to increase the revolving credit facility by $300,000. In the fourth quarter of 2020, we drew an additional $39,395 under this option for a one-year period.

The following table highlights our borrowing capacity and outstanding borrowings under the 2019 Revolving Credit Facility, our standby letters of credit and our borrowing availability under the 2019 Revolving Credit Facility as of July 31, 2020:

Borrowing capacity under the 2019 Revolving Credit Facility $ 989,395

Less: Outstanding borrowings under the 2019 Revolving Credit Facility 949,395

Less: Standby letters of credit* 21,528

Borrowing availability under the 2019 Revolving Credit Facility $ 18,472

*Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and securing our sale and leaseback transaction entered into on July 29, 2020. Our standby letters of credit reduce our borrowing availability under the 2019 Revolving Credit Facility.

During 2020, we borrowed $801,395 under the 2019 Revolving Credit Facility to fund our dividend payments, acquisition of MSBC, other working capital needs and to provide flexibility as a result of the uncertainty caused by the COVID-19 pandemic. During 2020, we repaid $252,000 of the borrowings. We did not borrow or make any debt payments in 2018. In 2019, we refinanced our debt as discussed above.

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See “Material Commitments” below and Note 7 to our Consolidated Financial Statements for further information on our long-term debt.

Our 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. We were in compliance with the 2019 Revolving Credit Facility’s financial covenants at the first, second and third quarters of 2020. As a result of the negative impact of the COVID-19 pandemic on our financial position and results of operations, we obtained a waiver for the financial covenants for the fourth quarter of 2020 and the first and second quarters of 2021 (“Covenant Relief Period”). During this covenant relief period, we are required to maintain liquidity (defined as the availability under the 2019 Revolving Credit Facility plus unrestricted cash and cash equivalents) of at least $140,000. Additionally, during this Covenant Relief Period, our cash payments with respect to capital expenditures may not exceed $60,000 in the aggregate.

Dividends, Share Repurchases and Share-Based Compensation Awards

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

During each of the first three quarters of 2020, we declared a regular quarterly dividend of $1.30 per share of our common stock. The dividends declared in the first and second quarters of 2020 were paid in the immediately following quarter. To preserve available cash during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, we deferred the payment of the dividend scheduled for May 5, 2020 to shareholders of record on April 17, 2020 until September 2, 2020, to shareholders of record on August 14, 2020 and have suspended all future dividend payments until further notice. On September 2, 2020, we paid $30,807 for the deferred dividend payment.

In 2019 and 2018, we paid special dividends of $3.00 per share and $3.75 per share, respectively.

The following table highlights the dividends per share we paid for the last three years:

Our criteria for share repurchases are that they be accretive to expected net income per share and are within the limits imposed by our debt commitments. Subject to the limits imposed by our revolving credit facility, in 2019 and 2018, we were authorized by our Board of Directors to repurchase shares at the discretion of management up to $25,000. Additionally, in the fourth quarter of 2019, our Board of Directors increased the share repurchase authorization to $50,000. In the third quarter of 2020, our Board of Directors approved the repurchase of up to an additional $25,000. This authorization was effective immediately and replaced the $50,000 share repurchase authorization which had been expended. In response to the COVID-19 pandemic, however, we have temporarily suspended all share repurchases. In 2020, we repurchased 378,974 shares of our common stock in the open market at an aggregate cost of $55,007. In 2019, we did not repurchase any shares of our common stock. In 2018, we repurchased 100,000 shares of our common stock in the open market at an aggregate cost of $14,772.

In 2020, 2019 and 2018, related tax withholding payments on the vesting of certain share-based compensation awards resulted in a net use of cash of $2,160, $2,497, and $3,816, respectively.

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Working Capital

In the restaurant industry, substantially all sales are either for cash or third-party credit card. Like many other restaurant companies, we are able to, and often do, operate with negative working capital. Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while other restaurant inventories purchased locally are generally financed through trade credit at terms of 30 days or less. Because of our gift shop, which has a lower product turnover than the restaurant, we carry larger inventories than many other companies in the restaurant industry. Retail inventories are generally financed through trade credit at terms of 60 days or less. These various trade terms are aided by rapid turnover of the restaurant inventory. Employees generally are paid on weekly or semi-monthly schedules in arrears for hours worked except for bonuses that are paid either quarterly or annually in arrears. Many other operating expenses have normal trade terms and certain expenses such as certain taxes and some benefits are deferred for longer periods of time.

The following table highlights our working capital deficit:

The change in working capital at July 31, 2020 compared to August 2, 2019 primarily reflected the increase in cash and timing of accounts payable partially offset by the current portion of our long-term debt and the recognition of lease liabilities due to the adoption at August 3, 2019 of accounting guidance for leases. The increase in cash resulted from the actions taken by management to increase and preserve liquidity during the COVID-19 pandemic such as borrowing under our revolving credit facility and the deferral of our dividend payment from the fourth quarter of 2020 until the first quarter of 2021.

The change in working capital at August 2, 2019 compared to August 3, 2018 primarily reflected the decrease in cash, higher accounts payable, higher incentive compensation accruals and an increase in the sales of our gift cards partially offset by the timing of payments for income taxes. The decrease in cash resulted primarily from the purchase of our investment in PBS partially offset by lower spending for capital expenditures. Higher incentive compensation accruals resulted from better performance against financial objectives in 2019 as compared to 2018.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Material Commitments

Our contractual cash obligations and commitments as of July 31, 2020, are summarized in the tables below:

Payments due by Years

Amount of Commitment Expirations by Years

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Recent Accounting Pronouncements Adopted and Not Yet Adopted

See Note 2 to the accompanying Consolidated Financial Statements for a discussion of recent accounting guidance adopted and not yet adopted. With the exception of the accounting guidance for leases, the adopted accounting guidance discussed in Note 2 did not have a significant impact on our consolidated financial position or results of operations. Regarding the accounting guidance for leases, the adoption of the accounting guidance had a material impact on our consolidated balance sheet. See Notes 2 and 11 to the Consolidated Financial Statements for additional information regarding leases. Regarding the accounting guidance not yet adopted, we do not expect the accounting guidance will have a significant impact on the Company’s financial position or results of operations.

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CRITICAL ACCOUNTING ESTIMATES

We prepare our Consolidated Financial Statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates and judgments on historical experience, current trends, outside advice from parties believed to be experts in such matters and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined with certainty, actual results could differ from those assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. Critical accounting estimates are those that:

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

● Impairment of Long-Lived Assets

● Insurance Reserves

● Retail Inventory Valuation

● Lease Accounting

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

Impairment of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset. If the total expected future cash flows are less than the carrying amount of the asset, the carrying value is written down, for an asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal. Any loss resulting from impairment is recognized by a charge to income. Judgments and estimates that we make related to the expected useful lives of long-lived assets and future cash flows are affected by factors such as changes in economic conditions and changes in operating performance. The accuracy of such provisions can vary materially from original estimates and management regularly monitors the adequacy of the provisions until final disposition occurs.

We have not made any material changes in our methodology for assessing impairments during the past three years and we do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions used by us to assess impairment of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of long-lived assets, we may be exposed to losses that could be material. During 2020, we recorded impairment charges of approximately $23,000 due to the deterioration in operating performance of certain Cracker Barrel and MSBC locations as a result of the impact of the COVID-19 pandemic. It is possible that we may recognize additional impairment as a result of the impacts of the COVID-19 pandemic and our response.

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Insurance Reserves

We self-insure a significant portion of our expected workers’ compensation and general liability programs. We purchase insurance for individual workers’ compensation claims that exceed $250, $750 or $1,000 depending on the state in which the claim originated. We purchase insurance for individual general liability claims that exceed $500. We record a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims. These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter. Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves. The reserves and losses in the actuarial study represent a range of possible outcomes within which no given estimate is more likely than any other estimate. As such, we record the losses in the lower half of that range and discount them to present value using a risk-free interest rate based on projected timing of payments. We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of our reserves.

Our group health plans combine the use of self-insured and fully-insured programs. Benefits for any individual (employee or dependents) in the self-insured group health program are limited. We record a liability for the self-insured portion of our group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience. We also record a liability for unpaid prescription drug claims based on historical experience.

Our accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. We have not made any material changes in the methodology used to establish our insurance reserves during the past three years and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate the insurance reserves. However, changes in these actuarial assumptions or management judgments in the future may produce materially different amounts of expense that would be reported under these insurance programs.

Retail Inventory Valuation

Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory method (“RIM”). Under RIM, the valuation of our retail inventories is determined by applying a cost-to-retail ratio to the retail value of our inventories. Inherent in the RIM calculation are certain inputs, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation as well as the ending inventory valuation.

Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage. Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as appropriate based on assumptions made by management and judgment regarding inventory aging and future promotional activities. Retail inventory also includes an estimate of shrinkage that is adjusted upon physical inventory counts. 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.

We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the past three years and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions in the future. However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.

Lease Accounting

We have ground leases for our leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. Additionally, we lease our retail distribution center, advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases. Effective August 3, 2019, we adopted lease accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet. Adoption of the accounting guidance for leases resulted in the recognition of right-of-use operating lease assets of $464,394 and total operating lease liabilities of $506,406 as of August 3, 2019.

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We evaluate our leases at contract inception to determine whether we have the right to control use of the identified asset for a period of time in exchange for consideration. If we determine that we have the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, we recognize a right-of-use asset and lease liability. Also, at contract inception, we evaluate our leases to estimate their expected term which includes renewal options that we are reasonably assured that we will exercise, and the classification of the lease as either an operating lease or a finance lease. Additionally, as our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. Assumptions used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based on comparable market data. We assess the impairment of the right-of-use asset at the asset group level whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Changes in these assumptions and management judgments may produce materially different amounts in the recognition of the right-of-use assets and lease liabilities. Additionally, any loss resulting from an impairment of the right-of-use assets is recognized by a charge to income, which could be material.

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 31, 2020 and August 2, 2019, our outstanding borrowings totaled $949,395 and $400,000, respectively (see Note 7 to our Consolidated Financial Statements). Loans under the 2019 Revolving Credit Facility bear interest, at our election, either at the prime rate or 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 7, 8 and 11 to our Consolidated Financial Statements). To manage this risk in a cost-efficient manner, we have entered into interest rate swaps.

A summary of our interest rate swaps at July 31, 2020 is as follows:

Trade Date Effective Date Term(in Years) Notional Amount Fixed Rate

At July 31, 2020, $400,000 of our outstanding borrowings were swapped at a weighted average interest rate of 5.36%; the weighted average interest rate on the remaining $549,395 of our outstanding borrowings was 3.79%. At August 2, 2019, $350,000 of our outstanding borrowings were swapped at a weighted average interest rate of 3.49%; the weighted average interest rate on the remaining $50,000 of our outstanding borrowings was 3.58%. The impact of a one-percentage point increase in the remaining $549,395 of our outstanding borrowings is approximately $5,550. See Note 8 to our Consolidated Financial Statements for further discussion of our interest rate swaps.

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.

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The following table highlights the five food categories which accounted for the largest shares of our food purchases in 2020 and 2019:

Percentage of Food Purchases

Dairy (including eggs) 12% 13%

Fruits and vegetables 12% 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.

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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 31, 2020 and August 2, 2019, 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 31, 2020, 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 31, 2020 and August 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2020, 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 31, 2020, 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 25, 2020, 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 adopted Accounting Standards Codification Topic 842, “Leases”, using the modified retrospective adoption method on August 3, 2019.

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 US 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.

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Commitments and Contingencies — Insurance Reserves — Refer to Notes 2 and 17 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 31, 2020.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the insurance reserves included the following, among others:

/s/ Deloitte & Touche LLP

Nashville, Tennessee

September 25, 2020

We have served as the Company’s auditor since 1974.

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

Current Assets:

Prepaid expenses and other current assets 17,916 18,332

Property and Equipment:

Buildings under capital leases — 3,289

Operating lease right-of-use assets, net 691,949 —

Investment in unconsolidated subsidiary — 89,100

Intangible assets 20,960 —

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current portion of long-term debt 39,395 —

Current operating lease liabilities 42,301 —

Long-term operating lease liabilities 632,630 —

Long-term interest rate swap liability 23,860 10,483

Commitments and Contingencies (Notes 11 and 17)

Shareholders’ Equity:

Additional paid-in capital — 49,732

Accumulated other comprehensive loss (20,346 ) (6,913 )

See Notes to Consolidated Financial Statements.

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands except share data)Fiscal years ended

Gain on sale and leaseback transaction (69,954 ) — —

Loss from unconsolidated subsidiary (142,442 ) — —

Net income (loss) per share - basic $ (1.36 ) $ 9.29 $ 10.31

Net income (loss) per share - diluted $ (1.36 ) $ 9.27 $ 10.29

See Notes to Consolidated Financial Statements.

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)Fiscal years ended

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

Other comprehensive income (loss), net of tax (13,433 ) (11,598 ) 8,914

See Notes to Consolidated Financial Statements.

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands except share data)

Shares Amount Capital Income (Loss) Earnings Equity

Comprehensive Income:

Other comprehensive income, net of tax — — — 8,914 — 8,914

Share-based compensation — — 6,977 — — 6,977

Comprehensive Income:

Other comprehensive loss, net of tax — — — (11,598 ) — (11,598 )

Share-based compensation — — 8,181 — — 8,181

Purchases and retirement of common stock — — — — — —

Comprehensive Income:

Other comprehensive loss, net of tax — — — (13,433 ) — (13,433 )

Cash dividends declared - $3.90 per share — — — — (93,757 ) (93,757 )

Share-based compensation — — 6,386 — — 6,386

Cumulative-effect of change in accounting principle — — — — 4,125 4,125

See Notes to Consolidated Financial Statements.

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CRACKER BARREL OLD COUNTRY STORE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)Fiscal years ended

Cash flows from operating activities:

Net loss from unconsolidated subsidiary 142,442 — —

Gain on sale and leaseback transaction (69,954 ) — —

Noncash lease expense 63,442 — —

Changes in assets and liabilities:

Prepaid expenses and other current assets 401 (1,985 ) (500 )

Current operating lease liabilities (11,269 ) — —

Long-term operating lease liabilities (48,854 ) — —

Cash flows from investing activities:

Proceeds from insurance recoveries of property and equipment 1,320 753 616

Purchase of investment in unconsolidated subsidiary — (89,100 ) —

Notes receivable from unconsolidated subsidiary (35,500 ) (15,085 ) —

Acquisition of business, net of cash acquired (32,971 ) — —

Cash flows from financing activities:

Principal payments under long-term debt (252,000 ) (400,000 ) —

Purchases and retirement of common stock (55,007 ) — (14,772 )

Deferred financing costs (1,348 ) (3,022 ) —

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Supplemental schedule of non-cash investing and financing activities:

Capital expenditures accrued in accounts payable $ 1,691 $ 9,508 $ 8,183

Change in deferred tax asset for interest rate swaps 4,307 3,868 (4,189 )

See Notes to Consolidated Financial Statements.

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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

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, federal, state and local governmental authorities have imposed unprecedented restrictions on travel, group gatherings and non-essential activities, such as “social distancing” guidance, shelter-in-place orders and limitations on or full prohibitions of dine-in services.

In response to the business disruption caused by the COVID-19 pandemic, the Company has taken the following actions.

Operating Initiatives

In response to the COVID-19 pandemic and the orders and guidance from U.S. federal and applicable state and local governmental authorities, in March 2020, the Company temporarily closed the dining rooms in all of its restaurants and operated with pick-up and delivery only. In order to support its off-premise business model, the Company implemented various changes to its Cracker Barrel offerings, including a limited menu and multi-serving takeout family meal baskets, the expansion of third-party delivery services and the implementation of various operating model changes, including contactless curbside delivery. For a portion of the third quarter of 2020, all of the Company’s restaurant operations were limited to pick-up and delivery orders with no dine-in service. Thereafter, the Company was able to resume dine-in services at a limited number of restaurants, but with continuing limitations on capacity. The Company’s dine-in services have been and continue to be limited to occupancy levels well below capacity, and some locations are not currently open at all for dine-in service. As of September 16, 2020, thirteen of the Company’s restaurants had not opened dine-in services to some extent. The Company has taken a cautious approach to reopening dining rooms and has instituted operational protocols to comply with applicable regulatory requirements and to monitor developing health authority recommendations in order to protect the health and foster the confidence of employees and guests. The adverse impacts of the COVID-19 pandemic resulted in the Company testing its restaurant long-lived assets for recoverability. As a result of this analysis, the Company recorded impairment charges of $22,496 due to the deterioration in operating performance of certain Cracker Barrel and Maple Street Biscuit Company (“MSBC”) locations.

Expense Reductions

The Company made significant reductions in operating expenses to reflect reduced operations and sales levels as well as eliminating non-essential spending where feasible. The Company furloughed employees and eliminated a significant number of positions at all levels both at the corporate headquarters and in the field. The Company recorded severance expenses of $3,956 related to the elimination of 469 positions in 2020. The Company also implemented pay reductions for the remainder of the fiscal year for corporate officers, reduced cash retainers payable to the Company’s Board of Directors and temporarily suspended matches to its defined contribution plans through the end of fiscal 2020. Additionally, the Company adapted its labor model, instituted inventory management measures and negotiated revised terms with landlords and vendors.

Liquidity Initiatives

As a precautionary measure and in order to increase its cash position and provide financial flexibility given the uncertainty in the market caused by the COVID-19 pandemic, in March 2020, the Company borrowed the remaining availability under its revolving credit facility (approximately $471,700, including $6,700 of standby letters of credit) and, in May 2020, the Company exercised the accordion feature under the revolving credit facility in order to borrow an additional amount of $39,395.

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To further preserve available cash, the payment of the dividend that was declared on March 3, 2020 was deferred until September 2, 2020. On that date, the Company paid an aggregate amount of $30,807 in respect of the deferred dividend. Other than the payment of the deferred dividend, the Company suspended all further dividend payments until further notice. The Company also temporarily suspended all share repurchases under its previously announced $25,000 share repurchase program. In keeping with the Company’s strategy of concentrating its resources on its core business during the COVID-19 pandemic, the Company decided not to invest further resources or otherwise provide additional funding to PBS HoldCo, LLC (see Note 3, “Equity Investment” for further information regarding the Company’s strategic relationship with PBS HoldCo, LLC).

On March 27, 2020, P.L. 116-136, the Coronavirus Aid, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, contains several provisions offering liquidity to businesses. The Company has benefited and will continue to benefit from two of these provisions that allowed the Company to recover a portion of qualifying retention pay and health expenses paid to furloughed employees and to defer a portion of employment taxes until calendar 2021 and calendar 2022.

As a result of the actions taken by management, the Company had $436,996 in cash and cash equivalents at July 31, 2020. In order to maintain and bolster its cash reserves and further strengthen its balance sheet in response to the COVID-19 pandemic, in July 2020, the Company entered into an agreement with the original lessor and a third party financier to obtain ownership of 64 Cracker Barrel properties and simultaneously entered into a sale and leaseback transaction with the financier and, in August 2020, the Company completed a sale and leaseback transaction pursuant to 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 11, “Leases” for additional information regarding these sale and leaseback transactions.

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. The Company’s fiscal year ended August 3, 2018 consisted of 53 weeks and the fourth quarter of 2018 consisted of fourteen weeks. 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 develop, own, and operate food, beverage and entertainment establishments under the name of Punch Bowl Social (“PBS”). Since the Company has the ability to exercise significant influence, but not control, over PBS HC, the Company accounts for its investment in PBS HC under the equity method. Accordingly, beginning in the first quarter of 2020, the Company recognized its proportionate share of the reported losses of PBS HC adjusted for basis differences on its consolidated statement of income and as an adjustment to the Company’s investment in unconsolidated subsidiary on the consolidated balance sheet. The Company assesses the impairment of its equity investment whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary. See Note 3 for additional information regarding PBS HC and the related impairment the Company recorded 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.

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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 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 6 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:

*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. See Note 5 for information related to the impairment charges recorded in 2020 for certain Cracker Barrel and MSBC locations.

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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 31, 2020, the Company does not have any reporting units that are at risk of failing step one of the impairment test.

Derivative 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, which bear interest at the Company’s election either at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios under its revolving credit facility (see Note 7). 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 plus the Company’s credit spread.

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 (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.

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 8 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 10 for additional information regarding segment reporting).

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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 2020, 2019 and 2018, gift card breakage was $6,288, $6,814, and $6,535, respectively. Revenue recognized in the Consolidated Statements of Income for 2020, 2019 and 2018, respectively, for the redemption of gift cards which were included in the deferred revenue balance at the beginning of the fiscal year was $36,756, $42,292, and $40,221, respectively. Deferred revenue related to the Company’s gift cards was $94,754 and $80,073, respectively, at July 31, 2020 and August 2, 2019.

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 $250, $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.

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.

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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 11). 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. See “Leases” section under “Recent Accounting Pronouncements Adopted” in this Note for further information regarding the Company’s adoption of this lease accounting guidance.

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:

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.

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.

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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 15 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 swaps.

Net income (loss) per share – Basic consolidated net income per share is computed by dividing consolidated net income (loss) 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 year. 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. See Note 16 for additional information regarding net income (loss) per share.

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.

Recent Accounting Pronouncements Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The Company adopted this accounting guidance as of August 3, 2019, using the modified retrospective approach. Under this approach, existing leases were recorded at the adoption date rather than the beginning of the earliest comparative period presented. This approach allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and prior periods are not restated. The Company elected the transition package of practical expedients permitted under this guidance, which among other things, allows the carryforward of historical lease classifications. The Company elected to not separate lease and non-lease components for all classes of leased assets. Additionally, the Company elected to apply the short-term lease exemption to all asset classes. The Company chose not to elect the hindsight practical expedient.

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Adoption of the accounting guidance for leases resulted in the recognition of right-of-use operating lease assets of $464,394 and total operating lease liabilities of $506,406 as of August 3, 2019. At adoption, the lease liabilities were measured based upon the present value of remaining rental payments for existing operating leases primarily related to real estate leases. The right-of-use assets were offset primarily by straight-line lease liabilities that existed at the adoption date. The cumulative-effect of applying the accounting guidance for leases resulted in an adjustment to retained earnings of $4,125 at August 3, 2019, related to the elimination of the deferred gains on the Company’s sale-leaseback transactions from 2000 and 2009. See Note 11 for additional information regarding leases.

Accounting for Hedging Activities

In August 2017, the FASB issued accounting guidance which amends the recognition, presentation and disclosure requirements of hedge accounting in order to better portray the economics of entities’ risk management activities, increase transparency and understandability of hedging relationships and simplify the application of hedge accounting. The adoption of this accounting guidance in the first quarter of 2020 did not have a significant impact on the Company’s consolidated financial position or results of operations, and the Company did not record a cumulative-effect adjustment to the opening balance of retained earnings. The amended presentation and disclosure requirements were applied on a prospective basis.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On December 22, 2017, the U.S. government enacted P.L. 115-97, the Tax Cuts and Jobs Act (the “Tax Act”). In February 2018, the FASB issued accounting guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. This accounting guidance was effective for the Company in the first quarter of 2020. The Company did not elect this reclassification option. As a result, this accounting guidance had no impact on the Company’s consolidated financial position or results of operations.

Share-Based Payment Arrangements with Nonemployees

In June 2018, the FASB issued accounting guidance in order to simplify the accounting for share-based payments granted to nonemployees for goods and services. This new guidance aligns most of the accounting requirements for share-based payments granted to nonemployees with the existing guidance for share-based payments granted to employees. The adoption of this accounting guidance in the first quarter of 2020 had no impact on the Company’s consolidated financial position or results of operations.

Rate Reform

In March 2020, the FASB issued optional accounting guidance in order to ease the potential burden in accounting for contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by this accounting guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 if certain criteria are met. The Company has certain contracts and hedging relationships which reference LIBOR for which the Company has elected to use the optional accounting guidance. The Company elected to apply this accounting guidance for contract modifications prospectively as of February 1, 2020. Additionally, the Company elected to apply this accounting guidance to eligible hedging relationships existing as of February 1, 2020 and to any new hedging relationships entered into during the effective period of the accounting guidance. The adoption of this accounting guidance in the third quarter of 2020 had no impact on the Company’s consolidated financial position or results of operations.

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Recent Accounting Pronouncements Not Yet Adopted

Goodwill Impairment

In January 2017, the 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. Early adoption is permitted. This guidance should be applied on a prospective basis. The Company currently does not expect that the adoption of this accounting guidance in the first quarter of 2021 will have a significant impact on the Company’s consolidated financial position or results of operations.

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.

3. Equity Method Investment

Effective July 18, 2019, the Company purchased approximately 58.6% of the economic ownership interest, and approximately 49.7% of the voting ownership interest, in PBS HC for $89,100, which was included on the Company’s consolidated balance sheet as an investment in unconsolidated subsidiary at August 2, 2019. The Company does not have the power to unilaterally direct any activities of PBS HC, a variable interest entity, that most significantly impact PBS HC’s economic performance. As a result, the Company’s investment in PBS HC, for which it has the ability to exercise significant influence, but not control and is not the primary beneficiary, is accounted for using the equity method. See section entitled “Investment in unconsolidated subsidiary” in Note 2 for further information regarding the accounting for equity method investments.

Additionally, as part of the transaction, the Company purchased promissory notes of $6,900 along with the related interest on the notes and provided additional funding of $8,000 to PBS HC in exchange for a promissory note. These promissory notes and related interest are included in other assets on the consolidated balance sheet. As part of the purchase agreement with PBS HC, the Company agreed to fund PBS HC up to $51,000 through calendar 2020, of which the Company funded $48,000 and $12,500, respectively, as of July 31, 2020 and August 2, 2019. The Company’s exposure to risk of loss in PBS HC is generally limited to its investment in the ownership interest and its receivable related to the promissory notes.

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The Company assesses the impairment of its equity investment whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary. During the onset of the COVID-19 pandemic, PBS HC’s wholly-owned subsidiary, PBS BrandCo, LLC (“Brandco”) suffered unsustainable disruption to its business across the chain and suspended all operations at each of its 19 locations and laid off substantially all restaurant and corporate employees. On March 20, 2020, the primary lender under Brandco’s secured credit facility provided notice of the lender’s intention to foreclose on its collateral interest in Brandco unless the Company repaid or unconditionally guaranteed the indebtedness. In keeping with the Company’s strategy of concentrating its resources on its core business during the COVID-19 pandemic, and in light of the substantial uncertainties surrounding PBS business coming out of the COVID-19 pandemic, the Company decided not to invest further resources to prevent foreclosure or otherwise provide additional capital to PBS HC. 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.

4. Acquisition of Business

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 with the remaining $4,000 being held as security for the satisfaction of indemnification obligations of the sellers. The unused portion held as security, if any, will be paid in two installments with $1,500 due to the principal seller on the one-year anniversary of closing and the remaining amount due to the sellers on the two-year anniversary of closing.

The Company believes that this investment 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. In 2020, the Company converted its six Holler & Dash locations into MSBC locations. At July 31, 2020, MSBC had 35 company-owned and six franchised fast casual locations across seven states.

The goodwill of $4,690 arising from the acquisition consists 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. 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 Consolidated Statement of Income (Loss) in 2020.

The following table summarizes the consideration paid for MSBC and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

Fair value of total consideration transferred $ 36,000

Recognized amounts of identifiable assets acquired and liabilities assumed

Financial assets $ 96

Property and equipment 13,580

Operating lease right-of-use assets, net 14,454

Indefinite-lived intangible asset* 20,960

Other current and noncurrent assets 394

Financial liabilities (1,876 )

Operating lease liabilities (15,973 )

Other noncurrent liabilities (325 )

Total identifiable net assets 31,310

*Consists entirely of MSBC’s Tradename

All amounts recorded for the assets acquired, liabilities assumed and goodwill are provisional and are subject to revision as additional information about the fair value of assets acquired and liabilities assumed becomes available. The Company expects the final purchase price allocation to be completed in the first quarter of 2021.

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5. 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:

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 FairValue

Deferred compensation plan assets** measured at net asset value aa aa aa 28,530

Total assets at fair value aa aa aa $ 160,531

aa aa aa

Interest rate swap liability (see Note 8) $ — $ 27,746 $ — $ 27,746

Total liabilities at fair value $ — $ 27,746 $ — $ 27,746

The Company’s assets and liabilities measured at fair value on a recurring basis at August 2, 2019 were as follows:

Level 1 Level 2 Level 3 Total FairValue

Cash equivalents* $ 46 $ — $ — $ 46

Total $ 46 $ — $ — $ 46

Total assets at fair value aa aa aaa $ 30,639

aa aa aaa

Interest rate swap liability (see Note 8) $ — $ 10,483 $ — $ 10,483

Total liabilities at fair value $ — $ 10,483 $ — $ 10,483

*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 14).

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 Company’s interest rate swap values 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. Nonperformance 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 nonperformance 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.

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The fair values of accounts receivable and accounts payable at July 31, 2020 and August 2, 2019, 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 31, 2020 and August 2, 2019.

Assets Measured at Fair Value on a Nonrecurring Basis

As part of the Company’s acquisition of MSBC effective October 10, 2019, the Company recorded MSBC’s property and equipment and the MSBC tradename at fair value. The remaining identifiable assets and liabilities acquired were recorded at carrying value, which approximated their fair value at October 10, 2019. Additionally, goodwill was recorded as the excess of fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The fair value of MSBC’s property and equipment, tradename and the related goodwill are considered Level 3 inputs. The valuation method used by the Company depends on the type of asset and the availability of data.

The Company’s assets measured at fair value on a nonrecurring basis as of October 10, 2019 were as follows:

Level 1 Level 2 Level 3 Total FairValue

*Included in the Consolidated Balance Sheets as intangible assets.

As noted in Note 4 above, the amounts recorded for these assets are estimated. See Notes 2 and 4 for further information in regard to the determination of goodwill.

The fair value of the property and equipment was determined by using the cost approach. Assumptions used in the cost method included estimates of replacement costs for similar property and equipment. Replacement cost was estimated to be approximately $500 per MSBC store.

The fair value of MSBC’s tradename was determined by using the present value of estimated cash flows from comparable industry royalty rates for MSBC’s estimated future revenue streams. Assumptions used under this approach included an approximate 2.5% royalty rate and a discount rate of 12.0%.

During 2020, certain Cracker Barrel and MSBC locations were determined to be impaired. Fair value of these locations was determined by sales prices of comparable assets or estimates of discounted future cash flows considering their highest and best use. Assumptions used in the cash flow model included projected annual revenue growth rates and projected cash flows, which can be affected by economic conditions and management’s expectations. Additionally, changes in the local economies and overall market can impact the sales prices of the assets. The Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs, and thus, are considered Level 3 inputs. Based on its analysis, the Company recorded an estimated impairment charge of $22,496, which is included in the impairment line on the Consolidated Statement of Income (Loss).

6. Inventories

Inventories were comprised of the following at:

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7. Debt

On September 5, 2018, the Company entered into a five-year $950,000 revolving credit facility (“2019 Revolving Credit Facility”) with substantially the same terms and financial covenants as the Company’s $750,000 revolving credit facility, which it replaced. 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.

Loan acquisition costs associated with the 2019 Revolving Credit Facility and subsequent amendment to the revolving credit facility were capitalized in the amount of $1,348 and $3,022, respectively, in 2020 and 2019, and will be amortized over the five-year term of the 2019 Revolving Credit Facility. Loan acquisition costs of $166 associated with the Prior Credit Facility were written off in the first quarter of 2019 and are recorded in interest expense in the Consolidated Statement of Income. At July 31, 2020 and August 2, 2019, the Company had $949,395 and $400,000respectively, in outstanding borrowings under the 2019 Revolving Credit Facility.

At July 31, 2020, the Company had $21,528of standby letters of credit, which reduce the Company’s borrowing availability under the 2019 Revolving Credit Facility (see Note 17). At July 31, 2020, the Company had $18,472 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. At July 31, 2020, $400,000 of the Company’s outstanding borrowings were swapped at a weighted average interest rate of 5.36%; the weighted average interest rate on the remaining $549,395 of the Company’s outstanding borrowings was 3.79%. At August 2, 2019, $350,000 of our outstanding borrowings under the 2019 Revolving Credit Facility were swapped at a weighted average interest rate of 3.49%; the weighted average interest rate on the remaining $50,000 of our outstanding borrowings was 3.58%. See Note 8 for information on the Company’s interest rate swaps.

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. The Company was in compliance with all debt covenants under the 2019 Revolving Credit Facility in the first, second and third quarters of 2020 and at August 2, 2019. As a result of the negative impact of the COVID-19 pandemic on the Company’s financial position and results of operations, the Company obtained a waiver for the financial covenants for the fourth quarter of 2020 and the first and second quarters of 2021 (“Covenant Relief Period”). During this Covenant Relief period, the Company is required to maintain liquidity (defined as the availability under the 2019 Revolving Credit Facility plus unrestricted cash and cash equivalents) of at least $140,000. Additionally, during this Covenant Relief Period, the Company’s cash payments with respect to capital expenditures may not exceed $60,000 in the aggregate.

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, 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.

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8. Derivative Instruments and Hedging Activities

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 was 3.00% and 1.00%, respectively, at July 31, 2020 and August 2, 2019. All of the Company’s interest rate swaps are accounted for as cash flow hedges.

A summary of the Company’s interest rate swaps at July 31, 2020 is as follows:

Trade Date Effective Date Term(in Years) Notional Amount FixedRate

The estimated fair values of the Company’s derivative instruments were as follows:

(See Note 5) Balance Sheet Location July 31, 2020 August 2, 2019

Interest rate swaps Other current liabilities $ 3,886 $ —

Interest rate swaps Long-term interest rate swap liability 23,860 10,483

**These interest rate swap liabilities are recorded gross at both July 31, 2020 and August 2, 2019 since there were no offsetting assets under the Company’s master netting agreements.

The estimated fair values of the Company’s interest rate swap liabilities incorporate the Company’s non-performance risk (see Note 5). The adjustment related to the Company’s non-performance risk at July 31, 2020 and August 2, 2019 resulted in reductions of $978 and $399, respectively, in the total fair value of the interest rate swap assets and liabilities. The offset to the interest rate swap assets and liabilities is recorded in accumulated other comprehensive income (loss) (“AOCIL”), net of the deferred tax assets, and will be reclassified into earnings over the term of the underlying debt. As of July 31, 2020, the estimated pre-tax portion of AOCIL that is expected to be reclassified into earnings over the next twelve months is $5,886. Cash flows related to the interest rate swaps are included in the interest expense line in the Consolidated Statements of Income (Loss) and in operating activities in the Consolidated Statements of Cash Flows.

The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCIL for each of the three years:

Amount of Income (Loss) Recognized in AOCILon Derivatives (Effective Portion)

Cash flow hedges:

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The following table summarizes the changes in AOCIL, net of tax, related to the Company’s interest rate swaps for the years ended July 31, 2020, August 2, 2019 and August 3, 2018:

Amounts reclassified from AOCIL into earnings (874 ) 154 (2,360 )

Other comprehensive income (loss), net of tax (13,433 ) (11,598 ) 8,914

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for each of the three years:

Cash flow hedges:

Interest rate swaps Interest expense $ (1,165 ) $ (206 ) $ 3,398

The following table summarizes the amounts reclassified out of AOCIL related to the Company’s interest rate swaps for the years ended July 31, 2020, August 2, 2019 and August 3, 2018:

Loss on cash flow hedges:

Interest rate swaps $ (1,165 ) $ 206 $ (3,398 ) Interest expense

Tax benefit 291 (52 ) 1,038 Provision for income taxes

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in 2020. No ineffectiveness has been recorded in 2019 and 2018.

9. Share Repurchases

Subject to a maximum amount approved by the Company’s Board of Directors and the limits imposed by its credit facility, the Company was authorized to repurchase shares at management’s discretion in 2020, 2019 and 2018. In 2019 and 2018, the Company’s Board of Directors approved share repurchase authorizations up to a maximum of $25,000. Additionally, in the fourth quarter of 2019, the Company’s Board of Directors increased the share repurchase authorization to $50,000. In the third quarter of 2020, the Company’s Board of Directors approved the repurchase of up to an additional $25,000. This authorization was effective immediately and replaced the $50,000 share repurchase authorization which had been expended. In response to the COVID-19 pandemic, however, the Company temporarily suspended all share repurchases. In 2020, the Company repurchased 378,974 shares of its common stock in the open market at an aggregate cost of $55,007. The Company did not repurchase any shares of its common stock in 2019. In 2018, the Company repurchased 100,000 shares of its common stock in the open market at an aggregate cost of $14,772.

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10. 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:

11. Leases

As further discussed in Note 2 under the “Lease” discussion in the “Recent Accounting Standards Adopted” section, in 2020, the Company adopted new accounting guidance for leases. As part of the adoption of the new 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.

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 2021 with undiscounted future payments of $246,622. This amount includes the sale and leaseback transaction completed in August 2020 discussed below.

The following table summarizes the components of lease cost for operating leases for the year ended July 31, 2020:

Operating lease cost $ 82,963

Short term lease cost 2,896

Variable lease cost 1,719

Prior to the adoption of the new lease accounting guidance in 2020, rent expense under operating leases, including the sale-leaseback transactions discussed below, for 2019 and 2018 was:

Year Minimum Contingent Total

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The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the year ended July 31,2020:

Operating cash flow information: