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PART I |
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ITEM 1. | | 5 |
ITEM 1A. | | 13 |
ITEM 1B. | | 27 |
ITEM 2. | | 27 |
ITEM 3. | | 28 |
ITEM 4. | | 28 |
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PART II |
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ITEM 5. | | 2930 |
ITEM 6. | | 30 |
ITEM 7. | | 3031 |
ITEM 7A 7A. | | 4745 |
ITEM 8. | | 4847 |
ITEM 9. | | 7574 |
ITEM 9A. | | 7674 |
ITEM 9B. | | 7876 |
ITEM 9C. | | 7876 |
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PART III |
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ITEM 10. | | 7876 |
ITEM 11. | | 7877 |
ITEM 12. | | 7877 |
ITEM 13. | | 7877 |
ITEM 14. | | 7877 |
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PART IV |
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ITEM 15. | | 7877 |
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General
This report contains references to years 2023, 2022 2021 and 2020,2021, which represent our fiscal years ended July 28, 2023, July 29, 2022 and July 30, 2021, and July 31, 2020, respectively. All of the discussion in this report should be read with, and is qualified in its entirety by, the Consolidated Financial Statements and the notes thereto. All amounts other than share and certain statistical information (e.g., number of units) are in thousands unless the context clearly indicates otherwise. Similarly, references to a year or quarter are to our fiscal year or quarter unless expressly noted or the context clearly indicates otherwise.
Forward-Looking Statements/Risk Factors
Except for specific historical information, many of the matters discussed in this Annual Report on Form 10-K, as well as other documents incorporated herein by reference, may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results that Cracker Barrel Old Country Store, Inc. (the “Company”) expects will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such forward-looking statements. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “regular,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements. In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to risks and uncertainties associated with current and future inflationary conditions with respect to the cost for food, ingredients,price of commodities, transportation, distribution and labor; disruptions to our restaurant or retail merchandise, labor, transportation and distribution,supply chain; the COVID-19 pandemic, including the duration of the COVID-19 pandemic and any outbreaks of COVID-19 variants, levels of consumer confidence in the safety of dine-in restaurants, restrictions (including occupancy restrictions) imposed by governmental authorities, disruptions toits ultimate impact on our operations as a result of the spread of COVID-19 in our workforce; general or regional economic weakness, business and societal conditions, and weather on sales and customer travel; discretionary income or personal expenditure activity of our customers; information technology-related incidents, including data privacy and information security breaches, whether as a result of infrastructure failures, employee or vendor errors, or actions of third parties;business; our ability to identify, acquire and sell successful new lines of retail merchandise and new menu items at our restaurants; our ability to sustain or the effects of plans intended to improve operational or marketing execution and performance; uncertain performance of acquired businesses, strategic investments and other initiatives that we may pursue from time to time; changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, pensions, insurance or other undeterminable areas; the effects of plans intended to promote or protect our brands and products; commodity price increases; the ability of and cost to us to recruit, train, and retain qualified hourly and management employees; the effects of increased competition at our locations on sales and on labor recruiting, cost, and retention; workers’ compensation, group health and utility price changes; consumer behavior based on negative publicity or changes in consumer health or dietary trends or safety aspects of our food or products or those of the restaurant industry in general, including concerns about outbreaks of infectious disease, as well as the possible effects of such events on the price or availability of ingredients used in our restaurants; the effects of our indebtedness and associated restrictions on our financial and operating flexibility and ability to execute or pursue our operating plans and objectives; changes in interest rates, increases in borrowed capital or capital market conditions affecting our financing costs and ability to refinance allour indebtedness, in whole or portionsin part; our reliance on limited distribution facilities and certain significant vendors; information technology-related incidents, including data privacy and information security breaches, whether as a result of our indebtedness;infrastructure failures, employee or vendor errors, or actions of third parties; changes in or implementation of additional governmental or regulatory rules, regulations and interpretations affecting tax, wage and hour matters, health and safety, animal welfare, pensions, insurance or other undeterminable areas; the effects of business trends on the outlook for individual restaurant locationsplans intended to promote or protect our brands and the effect on the carrying value of those locations; our ability to retain key personnel; the availability and cost of suitable sites for restaurant development and our ability to identify those sites; our ability to enter successfully into new geographic markets that may be less familiar to us; changes in land, building materials and construction costs;products; the actual results of pending, future or threatened litigation or governmental investigations and the costs and effects of negative publicity or our ability to manage the impact of social media associated with these activities; the impact of activist shareholders; our ability to enter successfully into new geographic markets that may be less familiar to us; changes in land, building materials and construction costs; the availability and cost of suitable sites for restaurant development and our ability to identify those sites; our ability to retain key personnel; the ability of and cost to us to recruit, train, and retain qualified hourly and management employees; uncertain performance of acquired businesses, strategic investments and other initiatives that we may pursue from time to time; the effects of business trends on the outlook for individual restaurant locations and the effect on the carrying value of those locations; general or regional economic weakness, business and societal conditions and the weather impact on sales and customer travel; discretionary income or personal expenditure activity of our customers; economic or psychological effects of natural disasters or other unforeseen events such as terrorist acts, social unrest or war and the military or government responses to such events; disruptions to our restaurant or retail supply chain, including as a result of COVID-19; changes in foreign exchange rates affecting our future retail inventory purchases; the impact of activist shareholders; our reliance on limited distribution facilitiesworkers’ compensation, group health and certain significant vendors;utility price changes; implementation of new or changes in interpretation of existing accounting principles generally accepted in the United States of America (“GAAP”), and those factors contained in Part I, Item 1A of this report below, as well as the factors described under “Critical Accounting Estimates” in Part II, Item 7 of this report below or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.
Readers are cautioned not to place undue reliance on forward-looking statements made in this report, since the statements speak only as of thethis report’s date. Except as may be required by law, we have no obligation or intention to publicly update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. Readers are advised, however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.
PART I
OVERVIEW
Cracker Barrel Old Country Store, Inc. (“we,” “us,” “our” or the “Company,” which reference, unless the context requires otherwise, also includes our direct and indirect wholly owned subsidiaries), is principally engaged in the operation and development of the Cracker Barrel Old Country Store® concept (“Cracker Barrel”). We are headquartered in Lebanon, Tennessee and were originally founded in 1969. We are organized under the laws of the State of Tennessee.
We maintain a website at crackerbarrel.com. We make available free of charge through our website our periodic and other reports filed with or furnished to the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Information on our website is not deemed to be incorporated by reference into this Annual Report on Form 10-K or any other filings that we make from time to time with the SEC.
As of September 13, 2023, we operated 661 Cracker Barrel stores in 45 states and 59 Maple Street Biscuit Company stores in 10 states. The following description of our business should be read in conjunction with the information in Part II of this report under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.”
Cracker Barrel Old Country Store Concept
As of September 14, 2022, we operated 664 Our 661 Cracker Barrel stores in 45 states. Our stores are not franchised. Our stores are intended to appeal to both the traveler and the local customer, and we believe they have consistently been a consumer favorite. We pride ourselves on our consistent quality, value and friendly service.
Store Format: The format of our stores consists of a trademarked rustic old country-store design offering a full-service restaurant menu that features home-style country food and a wide variety of decorative and functional items such as rocking chairs, holiday and seasonal gifts, toys, apparel, cookware and foods. All stores are freestanding buildings and consist of approximately 20% of gift shop space with the remainder dedicated to our restaurant, training and storage space. Our stores have stone fireplaces and are decorated with antique‑style furnishings and other authentic and nostalgic items, reminiscent of and similar to those found and sold in the past in traditional old country stores. The front porch of each store features rows of the signature Cracker Barrel rocking chairs, thatwhich are a popular item sold by the gift shops and which we invite guests to use while waiting for a table in our dining room or after enjoying a meal and they are a popular item sold by the gift shops.meal.
Products: Our restaurants, which generated approximately 78%79% of our total revenue in 2022,2023, offer home-style country cooking featuring many of our own recipes that emphasize authenticity and quality. Our restaurants serve breakfast, lunch and dinner daily and offer dine-in, pick-up and delivery services. Menu items are moderately priced. Beginning in 2020, certain of our Cracker Barrel restaurants began serving an assortment of beer and wine, and the subsequent ongoing expansion of this program throughout our system has resulted in beer and wine service in 574,approximately 590 stores, or approximately 86%89%, of our Cracker Barrel restaurants as of the end of 2022.2023.
Breakfast items can be ordered at any time throughout the day and include juices, eggs, pancakes, meats, grits, and a variety of biscuit specialties, such as gravy and biscuits and country ham and biscuits. Lunch and dinner items include fried and grilled chicken, chicken and dumplings, chicken pot pie, meatloaf, country fried steak, pork chops, fish, country fried shrimp, steak, roast beef, ham, vegetable plates, sandwiches and a variety of salads. We also offer multi-serving takeout family meal baskets. Additionally, from time to time, we feature new items as off-menu specials or on test menus at certain locations to evaluate possible ways to enhance customer interest and identify potential future additions to the menu. We offer weekday lunch specials, which include some of our favorite entrées in lunch-sized portions. Our menu also features weekday and weekend dinner specials that showcase a popular dinner entrée. There is some variation in menu pricing and content in different regions of the country. The average check per guest during 20222023 was $12.13,$13.36, which represents a 6.4%10.3% increase over the prior year. We served an average of approximately 5,9005,800 restaurant guests per week in a typical store in 2022.2023.
The following table highlights the price ranges for our meals in 2022:2023:
| | Price Range |
Breakfast
| $5.99 to $15.99 |
Breakfast | | $ | 6.99 to $17.49 | |
Lunch and Dinner | | $ | $5.19 to $18.99$19.49 | |
The following table highlights each day-part’s percentage of restaurant sales in 2022:2023:
| | Percentage of Restaurant Sales in 20222023 |
|
Breakfast Day-Part (until 11:00 a.m.) | | 25% |
|
Lunch Day-Part (11:00 a.m. to 4:00 p.m.) | 39% | 40% |
|
Dinner Day-Part (4:00 p.m. to close) | 36% | 35% |
|
We also offer items for sale in our gift shops items that are featured on, or related to, the restaurant menu, such as pies, cornbread mix, coffee, syrups and pancake mixes. Our gift shops offer a wide variety of decorative and functional items such as rocking chairs, seasonal gifts, apparel, toys, cookware and various other gift items, as well as various candies, preserves and other food items.
The following table highlights the five categories whichthat accounted for the largest shares of our retail sales in 2022:2023:
| | Percentage of Retail Sales in 20222023
|
|
Apparel and Accessories | 28% | 30% |
|
Food | | 18% |
Toys
| 15%
|
Décor | | 14% |
|
Toys | | 14% |
|
Bed and Bath | 8% | 7% |
|
Our typical gift shop features approximately 4,100 stock keeping units. Certain food items are sold under the “Cracker Barrel Old Country Store” brand name. We believe that we achieve high retail sales per square foot of retail selling space (approximately $503$523 per square foot in 2022)2023) as compared to malltraditional retail stores both by offering appealing merchandise and by having a significant source of customers who are typically our restaurant guests.
Product Development and Merchandising: We maintain a product development department, which develops new and improved menu items either in response to shifts in customer preferences or to create customer interest. We use a formal development and testing process, which includes guest research and in-store market tests to ensure products brought to market have a greater likelihood of meeting our goals. Menu-driven growth is built through three areas: enhancements to our current core menu offerings, the addition of new core menu offerings and limited time offer promotions we call seasonal events.events or promotions.
Our merchandising department selects and develops products for our gift shop. We are focused on driving retail sales by converting those customers who come to us for a restaurant visit. Our assortment includes both core and seasonal themes. Our seasonal themes are designed to create interest and excitement in our stores by providing our guests with additional choices.choices that vary throughout the year.
Store Management: At each store, our store management typically consists of one general manager, four associate managers and one retail manager. The relative complexity of operating one of our stores requires an effective management team at the individual store level. To motivate managers to improve sales and operational performance, we maintain bonus plans designed to provide managers with incentives to meet and exceed the operational targets of their store. Each store is assigned to both a restaurant and a retail district manager who each report to a regional vice president.
Purchasing and Distribution: We negotiate directly with food vendors as to specification, price and other material terms of most food purchases. We have a contract with an unaffiliated distributor with custom distribution centers in Lebanon, Tennessee; McKinney, Texas; Gainesville, Florida; Elkton, Maryland; Kendallville, Indiana; Rock Hill, South Carolina; and Shafter, California. We purchase the majority of our food products and restaurant supplies on a cost‑plus basis through this unaffiliated distributor. The distributor is responsible for placing food orders, warehousing and delivering food products to our stores. Deliveries are generally made once per week to individual stores. Produce is purchased through a national program and is delivered two to three times a week through a network of approximately fifty independent produce suppliers. Fluid dairy is delivered two to three times a week through approximately fifty regional dairies, the majority of which are under the ownership of two separate unaffiliated companies. Beer and wine currently in approximately 574 stores, are purchased and distributed through approximately 314565 distributors with deliveries ranging from weekly to monthly.
The following table highlights the five food categories which accounted for the largest shares of our food purchasing expense in 2022:2023:
| | Percentage of Food Purchases in 2022 |
Beef2023
| 15% |
Fruits and vegetables
| 12%
|
Poultry | 12% | 14% |
|
Pork Fruits and vegetables | 12% | 14% |
|
Dairy (including eggs) | | 13% | |
Beef | | 11% |
|
Pork | | 10% |
|
Each of these categories includes several individual items. TheChicken is the single food item within these categories that accounted for the largest share of our food purchasing expense in 2022 was bacon2023 at approximately 6%5% of total food purchases. Dairy, fruits and vegetables are purchased through numerous vendors, including local vendors. Eggs are purchased through five vendors. We purchase our pork through six vendors, poultry through twelvenine vendors and beef through seven vendors. Should any food items from a particular vendor become unavailable, we generally believe that these food items could readily be obtained, or alternative products substituted, in sufficient quantities from other sources at competitive prices to allow us to avoid any material adverse effects that could be caused by such unavailability.
We purchase the majority of our retail items (approximately 80% in 2022)2023) directly from domestic and international vendors, and we warehouse, or crossdock, such items at our retail distribution center in Lebanon, Tennessee, which we lease.Tennessee. The distribution center fulfills retail item orders generated by our automated replenishment system and generally ships the retail orders once a week to the individual stores by two third-party dedicated freight lines. Certain retail items, not centrally purchased and warehoused at the distribution center, are drop-shipped directly by our vendors to individual stores.
Approximately one-third of our 20222023 retail items were purchased directly from vendors in the People’s Republic of China. We have relationships with several foreign buying agencies to source product, monitor quality control and supplement product development.
Information Technology: We believe that an essential part of pleasing people is established through our ability to leverage technology. We use technology to enhance the experiences of our guests and our employees, and to assist management in all aspectaspects of operating the business. Examples include a digital experience that effectively enables our off-premise business, allows for mobile payments in store, and provides guests with a digital waitlist.waitlist that can be accessed remotely through our own mobile application. Our store employees use our recently upgraded pointa range of sale system, our new food management and labor management systems, and our retail systems to manage inventory, labor, forecasting and orders for retail and restaurants. In our distribution center, we manage retail merchandise planning, purchasing, warehousing, and distribution using various retail management solutions. We have recently migrated from an on-premise data storage and computing platform to a modern cloud-based data as a service platform providing advanced security and reliability features. Our data solutions provide management with daily reports used to operate stores in a cost-effective manner. Our service desk leverages technology solutions that enable an efficient and effective way to resolve technology concerns. We believe our technology is highly effective in supporting Cracker Barrel’s daily operations, and we continue to enhance this technology in line with our Company’s strategic vision.
We continue to make investments in our cybersecurity program to protect and fortify our brands. From protecting guest information to ensuring systems are reliably available and effective, data privacy and cybersecurity are organization-wide efforts that are incorporated into every technology and business decision at allboth our brands. Led by our Chief Information Officer and Senior Director of Security, cybersecurity is a top priority that is reviewed by our Audit Committee on a quarterly basis and the Board of Directors on an annual basis. Our program is designed to monitor, assess, and manage cyber-risk with a continuous improvement mindset.
Our cybersecurity program is aligned with the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Every year we have a third-party organization assess and measure the maturity of our program.program, which has shown annual improvement for the past three years. We also perform regular technical assessments, including annual penetration testing of our online systems and internal networks. Feedback from our maturity and technical assessments is incorporated into our actionssystems and procedures through continual upgrades intended to further improve our security posture.
Off-Premise Business: Approximately 20% of our restaurant sales are generated through our off-premise channels. Our off-premise business consists of three channels. Individual To Go includes to go orders that guests pick up from our stores. Third-Party Delivery includes to go orders that are placed through an aggregator, i.e., Door Dash, Uber Eats, etc. and delivered to guests by an employee of the aggregator. Catering and Occasion includes offerings for large party sizes, which includes our popular Heat n’ Serve offerings that are available for certain holidays. In 2023, Individual To Go, Third-Party Delivery and Catering and Occasion accounted for approximately 40%, 34% and 26% of total off-premise sales, respectively.
Guest Satisfaction: We are committed to providing our guests a home-style, country-cooked meal, and a variety of retail merchandise served and sold with genuine hospitality in a comfortable environment. Our commitment to offering guests a quality experience begins with our employees. Our mission statement, “Pleasing People,” embraces guests and employees alike, and our employees are trained on the importance of that mission in a culture of mutual respect. We also are committed to staffing each store with an experienced management team to ensure attentive guest service and consistent food quality. Through the regular use of guest surveys and store visits by district managers and operational vice presidents, management receives valuable feedback that is used in our ongoing efforts to improve the stores and to demonstrate our continuing commitment to pleasing our guests. We have a guest-relations call center that takes comments and suggestions from guests and forwards them to operations or other management for information and follow up. We use internet and interactive voice response systems to monitor operational performance and guest satisfaction at all stores on an ongoing basis. We have public notices in our menus, on our website and posted in our stores informing customers and employees about how to contact us by internet or toll-free telephone number with questions, complaints or concerns regarding services or products. We conduct training on how to gather information and investigate and resolve customer concerns. This is accompanied by comprehensive training for all store employees on our public accommodations policy and commitment to “Pleasing People.”
Marketing: We employ multiple media to reach and engage our guests. Outdoor advertising (i.e., billboards and state department of transportation signs) is the largest advertising vehicle we use to reach our traveling and local guests. In 2022,2023, we had over 1,5001,400 billboards and this expenditure accounted for approximately one-third of our total advertising spend for the year. We continue to optimize our non-billboard advertising mix which includes television (increasingly digital), digital display and video, mobile, social media, and search marketing. Our digital marketing efforts have also expanded to focus on improving brand preference, guest engagement and sales. We have a presence on multiple social media sites and several food delivery apps, an e-commerce platform that integrates individual-to-go and catering shopping, and a customer relationship management (CRM) program that employs email, text messages, push notifications and personalization. Our exclusive holiday music program drivesevent activations drive awareness for the brand and buildsbuild cultural relevance and affinity with our guests.
Store Development: While we did not open anyWe opened two new Cracker Barrel stores in 2022,2023. Currently, we plan to open threeone to fourtwo new stores during 2023.the first quarter of 2024. As of September 14, 2022,13, 2023, approximately 83% of our stores are located along interstate highways. Our remaining stores are located off-interstate or near tourist destinations.
Of the 664661 stores open as of September 14, 2022,13, 2023, we own the land and buildings for 360,358, while the other 304303 properties are either ground leases or ground and building leases. Building, site improvement, furniture, equipment and related development costs for stores opened during 20212023 averaged approximately $4,900$5,500 and pre-opening costs averaged $428$826 per store in 2021, the most recent period in which we opened new Cracker Barrel stores.2023.
Our current store prototype is approximately 8,900 square feet, including approximately 1,900 square feet of retail selling space and dining room seating for approximately 170 guests. Our capital investment in new stores may differ in the future due to changes in our store prototype, building design specifications, site location and site characteristics.
Maple Street Biscuit Company
Effective October 10, 2019, weWe acquired 100% ownership of Maple Street Biscuit Company (“MSBC”), on October 10, 2019. MSBC is a breakfast and lunch fast casual concept as we believe this to be an attractive category within the restaurant space.concept. Like Cracker Barrel, MSBC values genuine hospitality and made-from-scratch cooking including biscuit-inspired entrées as well as freshly roasted coffee with a proprietary blend and a limited selection of beer and wine in certain locations. MSBC operates in a smaller footprint than our Cracker Barrel Old Country Store concept and has operating hours limited to the breakfast and lunch day parts. As of September 14, 2022, 5313, 2023, 59 MSBC locations were open, an increase from 4453 at the same time last year (seven of which were franchised at that time) -—— all are currently leased properties in Alabama, Florida, Georgia, Kentucky, Ohio, North Carolina, South Carolina, Tennessee, Texas and Virginia. As of September 14, 2022,13, 2023, no locations were franchised.
MSBC will serve as a long-term growth vehicle that complements Cracker Barrel while providing increased exposure to urban and suburban markets. We anticipate accelerating unit growth in the coming years.
COVID-19 Impact
During 2022, Currently, we plan to open approximately four to five MSBC locations during the Company continued to recover from the COVID-19 pandemic (notwithstanding new variant outbreaks), and all dining rooms were open to some extent during 2022. While allfirst quarter of our dining rooms are currently operating without COVID-19-related restrictions, it is possible that renewed outbreaks or increases in cases and/or further new variants of the disease, either as part of a national trend or on a more localized basis, could result in COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.
In response to the COVID-19 pandemic, we instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and we implemented and continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain environment. We continue to focus on growing our off-premise business and investing in our digital infrastructure to improve the guest experience in the face of these ongoing challenges.2024.
HUMAN CAPITAL
As of July 29, 2022,28, 2023, we employed approximately 73,00077,000 people (as compared to approximately 70,00073,000 people as of July 30, 2021)29, 2022), of whom approximately 361350 were in advisory and supervisory capacities, approximately 3,2153,300 were in-store management positions and 4744 were officers. Many store personnel are employed on a part-time basis. Our employees are not represented by any union, and management considers its employee relations to be good. People are at the core of our business and an essential part of our Company.
Diversity, Equity & Inclusion
Since 1969, our corporate mission has been Pleasing People. As an organization, we have a responsibility to live up to our mission of Pleasing People each day, ensuring that every member of our team and every guest feels at home, feels cared for like family, and feels like they belong. Also guiding our way is the sense of belonging we strive to deliver as part of our People Promise. Our teams work hard to create a culture of hospitality that’s welcoming, respectful and inclusive to everyone who walks through our doors – whether as an employee or as a guest. Also guiding our way is the sense of belonging we strive to deliver as part of our People Promise. This includes embracing openness for all people, ideas, and perspectives. Our food and décor celebrate warm memories of the past, and we believe our inclusive culture and beliefs are vital to reinforcing these positive feelings in our employees and guests, and are thus critical to the strength of our brand and our corporate strategy. Our firmly held organization-wide policy is that discrimination, overt or through unconscious bias, has no place at Cracker Barrel Old Country Store.
As of July 29, 2022,28, 2023, more than 33%30% of our employee population is comprised of racial and ethnic minorities and approximately 67%68% of our employee population is female.
We provide opportunities for our employees to drive our Diversity, Equity & Inclusion strategy by creating programs that raise awareness and allow for a more inclusive culture. Our Business Resource Groups allow employees to come together with common interests, perspectives, and experiences around topics such as race, ethnicity, gender identity, and other special interests. These employee-led organizations provide opportunities to network, to obtain and develop leadership skills, and to inform and influence on all aspects of the Cracker Barrel brand.
Currently, there are seven Business Resource Groups in Cracker Barrel:
| - | AMPT (“Advancing Modern Professionals for Tomorrow”): Aims to connect and empower modern professionals by promoting a community of inclusive, ambitious, and diverse members that unify through Cracker Barrel to equip our community and leaders for the future; |
| - | Be Bold: Cultivates and develops Black Leaders within the Cracker Barrel organization utilizing allyship, mentorship, and education to create a path to continued excellence as well as a vibrant and diverse community; |
| - | B-WELL: Improving the employee experience by sponsoring health and wellness activities that nurture employees’ physical, emotional, financial and intellectual wellbeing; |
| - | HOLA:HOLA (“Hispanic Organization for Leadership and Advancement"): Promoting Hispanic and Latino culture through hiring, developing and retaining talent within Cracker Barrel;
|
| - | LGBTQ+ Alliance: Promoting LGBTQ+ Awareness and Building Workplace Inclusion; |
| - | SERVE: Advocating for leadership and development opportunities for Veterans, fostering an environment of networking and volunteerism and focusing on recruitment, retention and advancement; and |
| - | Women’s Connect: Inspiring Women Leaders. |
Employee Development / Training
Because of the importance of our employees to ouremployees’ ability to deliver the service levels that are a vital part of the hospitality that drives our brand appeal to guests, we emphasize employee development and training. To ensure that individual stores operate at a high level of quality, we focus significant attention on the training of store managers. We believe that our training programs are key in developing our managers’ leadership skills and commitment to operational excellence, which we believe isare important to delivering a positive employee and guest experience. We provide our managers and hourly employees with ongoing training through various development courses taught through a blended learning approach, including a mix of hands-on, traditional classroom, written and cloud-based training. Each store is equipped with dedicated training computers and cloud-based proprietary eLearning instruction programs. Additionally, each store typically has an employee training coordinator who oversees the training of the store’s hourly employees.
We are increasing our focus on leadership development and mentorship programs to better secure strong, diverse talents across all facets of our organization. This commitment is exemplified by our D.E.L.T.A program (“Diverse Employee Leadership Talent Advancement”). This leadership program identifies diverse managers who have exhibited all the skills we value in our top-performing managers, brings them together to learn from each other, positions them to advance to their next role, while continuing to advance our business and strategic goals in the process.
Our new, robust diversity training includes education throughout all levels of the Company about unconscious and implicit bias and focuses on creating an inclusive culture.culture and fostering a sense of belonging for all.
Employee Benefits / Compensation
Cracker Barrel is committed to providing comprehensive and competitive benefits to meet our employees’ needs. We offer a robust set of benefits to help our employees and their families stay healthy and effectively manage spend related to health and financial well-being. These benefits include programs such as medical, dental, vision, prescription drug, and life insurance coverage, as well as short and long term disability insurance coverage. Additionally, Cracker Barrel is pleased to offer our Employee Assistance Program to all employees and family members. This confidential program is available 24/7 for personal or professional consultations.
In addition, we provide all of our employees with access to paid parental leave and adoption benefits, a 401(k) savings plan, an employee discount policy at our Cracker Barrel stores, an employee stock purchase plan, and a competitive vacation policy.
Our compensation and performance evaluation systems are carefully designed to maintain pay equity by focusing pay decisions on experience and performance to ensure the Company retains a highly productive workforce to operate our business while providing a high level of service to our guests.
Health & Safety
SinceWhile all of our dining rooms are currently operating without COVID-19-related restrictions, it is possible that renewed outbreaks or increases in cases and/or further new variants of the beginningdisease, either as part of a national trend or on a more localized basis, could result in COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.
In response to the COVID-19 pandemic, we instituted operational protocols to comply with applicable regulatory requirements to protect the health and safety of employees and guests, and we implemented and continually adapted a number of strategies to support the recovery of our business and navigate through the uncertain environment. We continue to focus on growing our off-premise business and investing in our digital infrastructure to improve the guest experience in the face of these ongoing challenges.
Following the COVID-19 pandemic, our teams have maintained close contact with applicable regulatory agencies, from the Centers for Disease Control and Prevention (“CDC”) and the U.S. Food and Drug Administration to state and local regulatory agencies and health authorities, to ensure we are following the latest recommended practices and procedures to protect the health and safety of employees and guests. We instituted operational changes and enhancements to safety protocols to ensure that both our guests and employees experience a clean and safe environment. These enhanced processes were added to the already rigorous food safety and sanitation standards that we continuously follow and are verified by a third-party firm.
Cracker Barrel incorporates robust quality assurance and food safety processes to ensure the safety of all our food and retail products delivered to our guests including the following:
Extensive requirements for food supplier approval:approval;
Ongoing third-party food safety audits of food production and distribution centers:centers;
Periodic food product audits conducted by Cracker Barrel quality assurance team:team;
Rigid processes to ensure new or alternative source suppliers deliver food products to exact specifications:specifications;
Third-party testing of retail non-food products to ensure compliance with all specifications and Federal regulations:regulations;
Food safety audits conducted on all Cracker Barrel locations three times per year:year;
Ensuring a pest free environment in our locations though a stringent pest control process:process;
Monitoring of all national and local food safety regulations pertaining to both food products and store operations:operations;
Monitoring of all health department inspections of all Cracker Barrel locations:locations; and
Monitoring and responding to:
| o | Food borne illness outbreaks, |
| o | Food and product recalls, and |
| o | Pandemic situations, e.g., COVID-19. |
COMPETITION
The restaurant and retail industries are intensely competitive with respect to the type and quality of food, retail merchandise, price, service, location, personnel, concept, attractiveness of facilities, availability of carryout and home delivery, internet and mobile ordering capabilities and effectiveness of advertising and marketing. We compete with a significant number of national and regional restaurant and retail chains, some of which have greater resources than us, as well as locally owned restaurants and retail stores. We also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the deli section; fast casual restaurants; quick-service restaurants; and highly promotional casual and family dining restaurants. In addition, improving product offerings at fast casual restaurants and quick-service restaurants and expansion of home delivery services, together with negative economic conditions, could cause consumers to choose less expensive alternatives. We expect competition to continue in all of these areas. The restaurant and retail businesses are also often affected by changes in consumer taste and preference; national, regional or local economic conditions; demographic trends; traffic and weather patterns; the type, number and location of competing restaurants and retailers; and consumers’ discretionary purchasing power. Factors such as inflation, increased food, labor and benefits costs and the lack of experienced management and hourly employees may adversely affect the restaurant and retail industries in general and our stores in particular. We believe we compete effectively and have successfully differentiated ourselves from many of our competitors in the restaurant and retail industries through a unique brand and guest experience, which offers a diversified full=servicefull-service menu and a large variety of nostalgic and unique retail items. For further information regarding competition, see Item 1A. Risk Factors.
RAW MATERIALS SOURCES AND AVAILABILITY
Essential restaurant supplies and raw materials are generally available from severala number of sources. Generally, we are not dependent upon single sources of supplies or raw materials. However, in our stores, certain branded items are single source products or product lines. Our ability to maintain consistent quality throughout our store system depends in part upon our ability to acquire food products and related items from reliable sources. When the supply of certain products is uncertain or prices are expected to rise significantly, we may enter into purchase contracts or purchase bulk quantities for future use.
Adequate alternative sources of supply, as well as the ability to adjust menus if needed, are believed to exist for substantially all of our restaurant products. Our retail supply chain generally involves longer lead-times and, often, more remote sources of product, including the People’s Republic of China, and most of our retail product is distributed to our stores through a single distribution center. Although disruption of our retail supply chain could be difficult to overcome, we continuously evaluate the potential for disruptions and ways to mitigate such disruptions should they occur.
GOVERNMENT REGULATION
We are subject to various federal, state and local laws affecting our business, including areas of food safety, minimum wage increases, health care, zoning requirements, preparation and sale, among others, of food and alcoholic beverages, information security, and environmental matters. Each of our stores must comply with licensing requirements and regulations by a number of governmental authorities and we have not been significantly affected by any delay in obtaining these licenses. Federal, state and local environmental laws and regulations have not historically had a significant impact on our operations; however, we cannot predict the effect of possible future environmental legislation or regulations on our operations.
TRADEMARKS
We deem the various Cracker Barrel and MSBC trademarks and service marks that we own to be of substantial value. Our policy is to obtain federal registration of trademarks and other intellectual property whenever possible and to pursue vigorously any infringement of our trademarks and service marks.
RESEARCH AND DEVELOPMENT
While research and development is important to us, these expenditures have not been material due to the nature of the restaurant and retail industries.
SEASONAL ASPECTS
Historically, our revenue and profits have been lower in the first and third fiscal quarters and higher in the second and fourth fiscal quarters. We attribute these variations primarily to the holiday shopping season and the summer vacation and travel season. Our gift shop sales, which are made substantially to our restaurant guests, historically have been highest in our second quarter, which includes the holiday shopping season. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby generally contributing to higher profits in the Company’s fourth quarter. We also generally open additional new stores throughout the year. Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year.
WORKING CAPITAL
In the restaurant industry, substantially all sales are either for cash or third-party credit card. Therefore, like many 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 generally are financed through trade credit at terms of 30 days or less. Because of our gift shop, which have a lower product turnover than our restaurants, 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 product turnover of the restaurant inventory. Employees generally are paid on weekly or semi-monthly schedules in arrears of 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.
Investing in our securities involves a degree of risk. Persons buying our securities should carefully consider the risks described below and the other information contained in this Annual Report on Form 10-K and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows could be materially adversely affected. In any such case, the trading price of our securities could decline and you could lose all or part of your investment.
Risks Related to Macroeconomic and Industry Conditions
We have experienced and continue to experience inflationary conditions with respect to the cost for food, ingredients, retail merchandise, transportation, distribution, labor and utilities, and we may not be able to increase prices or implement operational improvements sufficient to fully offset inflationary pressures on such costs, which may adversely impacthave a material adverse effect on our revenues and results of operations.
The strength of our revenues and results of operations are dependent upon, among other things, the price and availability of food, ingredients, retail merchandise, transportation, distribution, labor and utilities. In fiscal 2021 and fiscal 2022, the costs of commodities, labor, energy, fuel, transportation and other inputs necessary to operate our stores have significantly increased.2023, we faced significant inflationary pressures. Fluctuations in economic conditions, weather, supply chain disruptions, freight efficiency, demand and other factors also affect the availability, quality and cost of the ingredients and productsretail merchandise that we buy. Furthermore, many of the products that we use and their costs are interrelated. Changes in global demand for corn, wheat and dairy products have caused and could continue to cause volatility in the feed costs for poultry and livestock. Operating margins for our restaurants are subject to changes in the price and availability of food commodities, including beef, pork, chicken, dairy and produce. The effect of, introduction of, or changes to tariffs or exchange rates on imported retail products or food products could increase our costs and possibly affect the supply of those products. Changes in demand for over-the-road transportation and distribution services could cause volatility, increase our costs and adversely affect our operating margins. In addition, food safety concerns, widespread outbreaks of livestock and poultry diseases, and product recalls, all of which are out the prices of our control,retail merchandise are similarly impacted by economic and in many instances, unpredictable, could also increase ourinflationary pressures, which have caused and may continue to cause higher costs and possibly affect the supply of livestock and poultry products. Our operating margins are also affected, whether as a result of general inflation or otherwise, by fluctuations in the price of utilities such as natural gas and electricity, on which our locations depend for much of their energy supply. Our inability to anticipate and respond effectively to one or more adverse changes in any of these factors could have a significant adverse effect on our results of operations. We expect the inflationary pressures and other fluctuations impacting the cost of these items to continue to impact our business in 2023.lower margins. Our attempts to offset cost pressures, such as through menu price increases and operational improvements, may not be successful. We seek to provide a moderately priced product, and, as a result, we may not seek to or be able to pass along price increases to our customers sufficient to completely offset cost increases.increases without adversely affecting our customers’ demand. Consumers may be less willing to pay our menu prices and may increasingly visit lower-priced competitors, or may forgo some purchases altogether. To theThe extent thatto which price increases are not sufficient to offset higher costs adequately or in a timely manner, and/or if they result in significant decreases in revenue volume, may have a material adverse effect on our revenues and results of operations may be adversely affected.operations.
Labor is a primary component in our operating costs, and increases in labor costs due to increased minimum wages, competition, unemployment rates, or health care and other benefit costs may have a material adverse effect on our results of operations. We operate in many states and localities where the minimum wage is significantly higher than the federal minimum wage. Our distributors and suppliers could also be affected by higher minimum wage, benefit standards and compliance costs, which could result in higher costs for goods and services supplied to us. The market for labor in the United States is competitive, which has resulted in upward pressure on wages and may continue to do so in the future.
Our operating margins are also affected, whether as a result of general inflation or otherwise, by fluctuations in the price of utilities such as natural gas and electricity, on which our locations depend for much of their energy supply. Our failure to anticipate and respond effectively to one or more adverse changes in any of these factors could have a material adverse effect on our results of operations. Inflationary pressures and other fluctuations impacting the cost of these items could have a negative impact on our business in 2024.
The COVID-19 pandemic has had and may in the future have a material adverse effect on our business, financial condition, results of operations, and our ability to make distributions to our shareholders for an extended period of time.
In March 2020,The Department of Health and Human Services declared the World Health Organization declared COVID-19 to be a pandemic. In connection with the efforts to contain and mitigate the spread of COVID-19, we have experienced significant disruptions for the past two and one half years to our business resulting from the limitations on or full prohibitions of dine-in services (in the earlier stages of the pandemic) mandated or suggested by U.S. federal, state and local governmental authorities. Continuing uncertainty remains as to the potential impactend of the COVID-19 pandemicpublic health emergency on the U.S. economy as a whole, as well as on the restaurant industry and our business, in particular. In responseMay 11 2023. However, during 2023, we continued to experience negative economic pressures related to the COVID-19 pandemic,pandemic. both our off-premise and dine-in operations have been conducted under enhanced health and safety procedures and practices that are intended to ensure the safety and comfort of our employees and guests, and these enhanced measures have had and will continue to have adverse effects on our operating costs.
During 2022, consumer demand decreased in part as a result of outbreaks of new variants of COVID-19. We cannot predict how quickly or whether consumer demand for our business will return to pre-pandemic levels which may be a function of continued concerns over safety and/or depressed consumer sentiment as a result of adverse economic conditions and uncertainty, including job losses and lower discretionary income. In addition, we also cannot predict whether future variants of COVID-19 or outbreaks of other infectious disease will have similar effects on consumer demand. As a result of these factors, the COVID-19 pandemic, the resulting public health response and diminished economic activity have had and may continue to have a material adverse effect on our guest traffic, sales and operating costs, andin 2024. Additionally, we cannot predict the duration of the pandemic or what other government responses or economic effects may occur.
Our restaurant operations could be further disrupted if large numbers of our employees are diagnosed with COVID-19. If a significant percentage of our workforce is unable to work,anticipate whether because of illness, quarantine, fear of contracting COVID-19, limitations on travel or other government restrictions in connection with COVID-19, our operations may be negatively impacted, potentially having a material adverse effect on our liquidity, financial condition or results of operations.
Our suppliers have been and could continue to be adversely impacted by the COVID-19 pandemic. If our suppliers’ employees are unable to work, whether because of illness, quarantine, fear of contracting COVID-19, limitations on travel or other government restrictions in connection with COVID-19 or if our suppliers will face shortages that are otherwiseeconomic challenges caused or exacerbated by the COVID-19 pandemic, and as a result, we couldmay face shortages of food items or other supplies at our restaurants, and our operations and sales couldmay be adversely impacted by such supply interruptions. Although we have not experienced material adverse impacts to date, additional or prolonged closures of meat processing facilities that have occurred because of COVID-19 could adversely impact our supply chain and the products that we offer. Similarly, many of the products sold in our retail operations are sourced from international suppliers, including from the People’s Republic of China, and have experienced, and will likely continue to experience, disruptions, temporary closures and worker shortages that may result in an inability to fulfill our orders timely or, in some cases, at all, which could have an adverse impact on our retail sales and margins.
In addition, we also cannot predict whether future variants of COVID-19 or outbreaks of other infectious disease will have similar effects on consumer demand. As a result of these factors, diminished economic activity has had and may continue to have a material adverse effect on our guest traffic, sales and operating costs, and we cannot predict the duration of the ongoing economic uncertainty.
The COVID-19 pandemic may also have the effect of heightening other risk factors, or amplifying the adverse effects on our liquidity, financial condition or results of operations should other risks that we discuss in this Annual Report on Form 10-K actually occur.
Risks Related to Our Business
Health concerns, government regulation relating to the consumption of food products and widespread infectious diseases could affect consumer preferences and could negatively affecthave a material adverse effect on our results of operations.
In addition to the COVID-19 pandemic, the United States and other countries have experienced, orand may experience in the future, outbreaks of other viruses, such as norovirus, the bird/avian flu or other diseases. As we have experienced withIn recent years there has been publicity concerning E. coli bacteria, hepatitis A, “mad cow” disease, “foot-and-mouth” disease, salmonella, African swine fever, peanut and other food allergens, and other public health concerns affecting the COVID-19 pandemic, if a regional or global health pandemic occurs, depending upon its location, durationfood supply, including beef, chicken, pork, dairy and severity, our business could be severely affected. In the event a health pandemic occurs, customers might avoid public places,eggs. Food safety concerns, widespread outbreaks of livestock and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. Jurisdictions in which we have restaurants may impose mandatory closures or impose restrictions on operations. If a virus is transmitted by human contact or respiratory transmission, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, anypoultry diseases, and product recalls, all of which would adverselyare out of our control, and, in many instances, unpredictable, could also increase our costs and possibly affect the supply of livestock and poultry products. Additionally, we rely on our restaurant guest trafficsuppliers to comply with applicable laws and industry standards, and if our suppliers are unable to comply with such laws or perform functions at the corporate level. A regional or global health pandemic might also adversely affectdo not otherwise meet our business by disrupting or delaying production and delivery of materials and productsquality standards, we may face a disruption in our supply chain that could have a material adverse effect on our business. If we are unable to respond effectively, food safety concerns could have a negative impact on our business and by causing staffing shortages in our stores.reputation.
The sale of food and prepared food products for human consumption involves the risk of injury to our customers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling and transportation phases. Additionally, many of the food items on our menu contain beef and chicken. The preferences of our customers toward beef and chicken could be affected by changes in consumer health or dietary trends and preferences regarding meat consumption or health concerns and publicity concerning food quality, illness and injury generally. In recent years there has been publicity concerning E. coli bacteria, hepatitis A, “mad cow” disease, “foot-and-mouth” disease, salmonella, African swine fever, peanut and otherChanges in consumer dietary preferences may impact our menu offerings. Further, consumers may change their dining-in preferences, such as during the COVID-19 pandemic, when consumers often chose to order food allergens, and other public health concerns affecting the food supply, including beef, chicken, pork, dairy and eggs.to go or for delivery. In addition, government regulations or the likelihood of government regulation could increase the costs of obtaining or preparing food products. Failure to respond and adapt to changing consumer preferences could have a material adverse effect on our results of operation and financial condition. A decrease in guest traffic to our stores, a change in our mix of products sold or an increase in costs as a result of these health concerns either in general or specific to our operations, could result in a decrease in sales or higher costs to our stores that would materially harm our business.
Our plans depend significantly on our strategic priorities and business initiatives designed to enhance our menu and retail offerings, support our brand, improve operating margins and improve the efficiencies and effectiveness of our operations. Failure to achieve or sustain these plans could adversely affect our results of operations.
We have had, and expect to continue to have, priorities and initiatives in various stages of testing, evaluation and implementation, upon which we expect to improve our results of operations and financial condition. These priorities and initiatives include, but are not limited to, tiered menu and retail pricing, evolving our marketing messaging to support the brand, improving the quality and breadth of retail assortments, evolving our menu, re-engineering store processes to reduce costs and improve store margins, applying technology to improve the employee and guest experience, expanding our store footprint, focusing on new and existing fast casual concepts, focusing on our off premise business and transactions such as strategic relationships, joint ventures and acquisitions. It is possible that our focus on these priorities and initiatives and constantly changing consumer preferences could cause unintended changes to our current results of operations. Additionally, many of these initiatives are inherently risky and uncertain in their application to our business in general, even when tested successfully on a more limited scale. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation. Testing and general implementation also can be affected by other risk factors described herein that reduce the results expected. Successful system-wide implementation across hundreds of stores and involving tens of thousands of employees relies on consistency of training, stability of workforce, ease of execution and the absence of offsetting factors that can adversely influence results. Failure to achieve successful implementation of our initiatives could adversely affect our results of operations.
We face intense competition, and if we are unable to continue to compete effectively, our business, financial condition and results of operations wouldmay be adversely affected.
The restaurant and retail industries are intensely competitive, and we face many well-established competitors. We compete within each market with national and regional restaurant and retail chains and locally owned restaurants and retailers.retailers within each market. Competition from other regional or national restaurant and retail chains typically representsrepresent the more important competitive influence, principally because of their significant marketing and financial resources. We also face competition as a result of the convergence of grocery, deli, retail and restaurant services, particularly in the supermarket industry. We also face competition from various off-premise meal replacement offerings including, but not limited to, home meal kits delivery, third-party meal delivery and catering and the rapid growth of these channels by our competitors. Moreover, our competitors can harm our business even if they are not successful in their own operations by taking away customers or employees through aggressive and costly advertising, promotions or hiring practices. We compete primarily on the quality, variety and perceived value of menu and retail items. The number and location of stores, the growth of e-commerce, type of concept, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs also are important factors. We anticipate that intense competition will continue with respect to all of these factors. We also compete with other restaurant chains and other retail businesses for quality site locations, management and hourly employees, and other competitive pressures that could affect both the availability and cost of these important resources. If we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.
Unfavorable publicity could harm our business. In addition, our failure to recognize, respond to and effectively manage the impact of social media could materially impact our business.
Multi-unit businesses such as ours can be adversely affected by publicity resulting from complaints or litigation alleging poor food quality, poor service, guest discrimination, food-borne illness, viruses, product defects, personal injury, adverse health effects (including obesity), employee relations or other concerns stemming from one or a limited number of our stores. Even when the allegations or complaints are not accurate or valid, unfavorable publicity relating to one or more of our stores, or only to a single store, could adversely affect public perception of the entire brand. Additionally, social media can be utilized to target specific companies or brands as a result of a variety of actual or perceived actions or inactions that are disfavored by our customers, local culture, employees, or interest groups, which can materially and immediately impact consumer behavior. Social media allows users to organize collective actions and engage in other brand-damaging behaviors that, if targeted at us, could impact our business. Adverse publicity and its effect on overall consumer perceptions of food safety or customer service could have a material adverse effect on our business, financial condition and results of operations.
Additionally, social media uses and platforms are constantly evolving, and as a result, we need to innovate and develop our social media strategies to maintain brand relevance. We rely on social media and other forms of digital marketing to increase brand recognition and reach a broader audience. If our social media initiatives or strategies are not successful, our brand awareness may decline or we may otherwise suffer reputational harm. In addition, a variety of risks are associated with the use of social media, including the public dissemination of proprietary or confidential information, negative comments about us, personally identifiable information, or out-of-date or false information. The inappropriate use of social media by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
Failure to maximize or to successfully assert our intellectual property rights could adversely affect our business and results of operations.
We rely on trademark, unfair competition, trade secret and copyright laws to protect our intellectual property rights. We have registered certain trademarks and service marks with appropriate governmental authorities. We cannot guarantee that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect our own, or, where appropriate, license intellectual property rights necessary to support new product introductions or other brand extensions. We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future. Additionally, we cannot guarantee that third parties will not claim our trademarks or menu offerings will infringe on their intellectual property rights, regardless of merit. Our failure to protect or successfully assert our intellectual property rights could make us less competitive and could have an adverse effect on our business and results of operations.
Risks Related to our Capital Structure
The performance of our business as affected by the level of our indebtedness could prevent us from meeting the obligations under our revolving credit facility or the indenture governing the $300 million aggregate principal amount of 0.625% Convertible Senior Notes due 2026 (the “Notes”), maintaining sufficient liquidity to operate our business or service our debt obligations, and we cannot provide any guarantee of future cash dividend payments or that we will be able to actively repurchase our common stock pursuant to a share repurchase program.
Our consolidated indebtedness and restrictions in our revolving credit facility may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing borrowing costs. Given the significant uncertainty relating to the macroeconomic environment, there are potential scenarios under which we could fail to comply with these covenants, which would result in an event of default that, if not waived, could have a material adverse effect on our financial condition, results of operations or ability to continue to service our debt obligations. A default under our credit agreement or under the indenture governing the Notes may also significantly affect our ability to obtain additional or alternative financing. For example, the lenders’ ongoing obligation to extend credit under the revolving credit facility is dependent upon our compliance with these covenants and restrictions.
Our ability to make scheduled interest payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. Our inability to refinance our indebtedness when necessary or to do so upon attractive terms would materially and adversely affectmay have a material adverse effect on our liquidity and results of operations.
Depending on the impact of macroeconomic environment, we may seek other sources of liquidity and other ways of preserving liquidity. No assurance can be made that sources of additional liquidity will be readily available or that we will be successful in obtaining additional liquidity or preserving liquidity. Further, no assurance can be made that sources of additional liquidity will be available on terms that are favorable to us.
Any determination to pay cash dividends on our common stock in the future will be based primarily upon our financial condition, and prospects, results of operations and business requirements and our Board of Directors’ conclusion that the declaration of cash dividends is in the best interest of our shareholders and is in compliance with all laws and agreements applicable to the payment of dividends. Furthermore, there can be no assurance that we will be able to actively repurchase our common stock, and we may discontinue plans to repurchase common stock at any time.
We may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay the cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.
Noteholders may require us to repurchase their Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, all conversions of Notes will be settled partially or entirely in cash. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.
Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the Notes. A default under the indenture governing the Notes or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have or be able to secure financing for sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.
Provisions in the indenture governing the Notes could delay or discourage a takeover of us.
Certain provisions in the Notes and the indenture governing the Notes could make a third party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate for the Notes. In either case, and in other cases, our obligations under the Notes and the indenture governing the Notes could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.
The convertible note hedge and warrant transactions may affect the value of the notes and our common stock.
In connection with the issuance of the Notes, we entered into convertible note hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Notes. We also entered into warrant transactions with the hedge counterparties collectively relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments, and for which we received premiums to partially offset the cost of entering into the hedge transactions.
The convertible note hedge transactions are expected generally to reduce or offset potential dilution to our common stock upon any conversion of the Notes and/or offset any cash payments we may be required to make in excess of the principal amount of converted Notes, as the case may be. However, the warrant transactions could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the strike price of the warrants. In connection with establishing and maintaining their initial hedges of the convertible note hedge and warrant transactions, we understand that the hedge counterparties or their respective affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time to time by purchasing or selling shares of our common stock or the Notes in privately negotiated transactions or open-market transactions or by entering into or unwinding various over-the-counter derivative transactions with respect to our common stock.
The effect, if any, of these activities on the trading price of our common stock will depend on a variety of factors, including market conditions, and is uncertain at this time. Any of these activities could, however, adversely affect the trading price of our common stock.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The hedge counterparties are financial institutions, and we are subject to the risk that one or more of the hedge counterparties might default under their respective convertible note hedge transactions. Our exposure to the credit risk of the hedge counterparties is not secured by any collateral. Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a hedge counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with such hedge counterparty.
Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated to the increase in the market price and in the volatility of our common stock. In addition, upon a default by any hedge counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any of the hedge counterparties.
Conversion of the Notes or exercise of the warrants evidenced by the warrant transactions may dilute the ownership interest of existing stockholders,shareholders, including noteholders who have previously converted their Notes.
At our election, if applicable, we may settle Notes tendered for conversion partly in shares of our common stock. Furthermore, the warrants evidenced by the warrant transactions are expected to be settled on a net-share basis. As a result, the conversion of some or all of the Notes or the exercise of some or all of such warrants may dilute the ownership interests of existing stockholders.shareholders. Any sales in the public market of the shares of our common stock issuable upon such conversion of the Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress the price of our common stock.
Risks Related to Labor and Supply Chains
Our reliance on certain significant vendors, particularly for foreign-sourced retail products, subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
Our ability to maintain consistent quality throughout our operations depends in part upon our ability to acquire specified food and retail products and supplies in sufficient quantities. Partly because of our size, finding qualified vendors and accessing food, retail products, supplies and certain outsourced services in a timely and efficient manner is a significant challenge that typically is more difficult with respect to goods or services sourced outside the United States. In some cases, we may have only one supplier for a product or service. Our dependence on single-source suppliers subjects us to the possible risks of shortages, interruptions and price fluctuations, and possible litigation when we change vendors because of performance issues. Global economic factors and the weak economic recovery continue to put significant pressure on suppliers, with some suppliers facing financial distress and others attempting to rebuild profitability, all of which tends to make the supply environment more expensive. If any of these vendors is unable to fulfill its obligations, or if we are unable to find replacement suppliers in the event of a supply disruption, we could encounter supply shortages and/or incur higher costs to secure adequate supplies, either of which could materially harm our business.
Additionally, we use a number of products that are or may be manufactured in a number of foreign countries. In addition to the risk presented by the possible long lead times to source these products, our results of operations may be materially affected by risks such as:
tariffs, trade barriers, sanctions, import limitations and other trade restrictions by the U.S. government on products or components shipped from foreign sources (particularly, the People’s Republic of China);
fluctuating currency exchange rates or control regulations;
foreign government regulations;
product testing regulations;
foreign political and economic instability; and
disruptions due to labor stoppages, strikes or slowdowns, or other disruptions, involving our vendors or the transportation and handling industries.
Possible shortages or interruptions in the supply of food items, retail merchandise and other supplies to our stores caused by inclement weather, natural disasters such as droughts, floods and earthquakes, the inability of our vendors to obtain credit in a tightened credit market or other conditions beyond our control could adversely affect the availability, quality and cost of the items we buy and the operations of our stores. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products that are critical to our store operations. If we temporarily close a store or remove popular items from a store’s menu or retail product assortment, that store may experience a significant reduction in revenue during the time affected by the shortage or thereafter as a result of our customers changing their dining and shopping habits.
We are dependent upon attracting and retaining qualified employees while also controlling labor costs.
Our performance is dependent on attracting and retaining a large and growing number of qualified store employees. Availability of staff varies widely from location to location. Many staff members are in entry-level or part-time positions, typically with high rates of turnover. High turnover of store management and staff would cause us to incur higher direct costs associated with recruiting, training and retaining replacement personnel. Management turnover as well as general shortages in the labor pool can cause our stores to operate with reduced staff, which negatively affects our ability to provide appropriate service levels to our customers. The market for the most qualified talent continues to be competitive and we must provide competitive wages, benefits and workplace conditions to maintain our most qualified employees. Additionally, personal or public health concerns related to COVID-19 or other widespread outbreaks of infectious disease might make some existing team members or potential candidates reluctant to work in enclosed restaurant environments. Competition for qualified employees exerts upward pressure on wages paid to attract such personnel, resulting in higher labor costs, together with greater recruiting and training expenses
Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, minimum wage legislation, health care legislation, payroll taxes and changing demographics. Many of our employees are hourly workers whose wages are affected by increases in the federal or state minimum wage or changes to tip credits. Tip credits are the amounts an employer is permitted to assume an employee receives in tips when the employer calculates the employee’s hourly wage for minimum wage compliance purposes. Increases in minimum wage levels and changes to the tip credit have been made and continue to be proposed at both federal and state levels. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline.
Our ability to manage our retail inventory levels and changes in merchandise mix may adversely affect our business.
The long lead times required for a substantial portion of our retail merchandise and the risk of product damages or non-compliance with required specifications could affect the amount of inventory we have available for sale. Additionally, our success depends on our ability to anticipate and respond in a timely manner to changing consumer demand and preferences for merchandise. If we misjudge the market, we may overstock unpopular products and be forced to take significant markdowns, which could reduce our gross margin. Conversely, if we underestimate demand for our merchandise we may experience inventory shortages resulting in lost revenues. Inventory shrinkage may also result in lost revenues. Any of these factors could have an adverse effect on our results of operations, cash flows from operations and our financial condition.
Our risks are heightened because of our single retail distribution facility and our potential inability or failure to execute on a comprehensive business continuity plan following a major disaster at or near our corporate facility could adversely affect our business.
The majority of our retail inventory is shipped into, stored at and shipped out of a single warehouse located in Lebanon, Tennessee. All of the decorative fixtures used in our stores are shipped into, stored at and shipped out of a separate warehouse that is also located in Lebanon, Tennessee. A natural disaster or public health crisis (such as the COVID-19 pandemic) affecting either of these warehouses or their personnel and operations could materially adversely affect our business. Additionally, our corporate systems and processes and support for our restaurant and retail operations are centralized on one campus in Tennessee. We have disaster recovery procedures and business continuity plans in place to address most events, back up and offsite locations for recovery of electronic and other forms of data and information. However, if we are unable to implement our disaster recovery and business continuity plans, we may experience delays in recovery of data, failure to support field operations, tardiness in required reporting and compliance and the inability to perform vital corporate functions which could adversely affect our business.
Risks Related to IT Systems, Cybersecurity and Data Privacy
A material disruption in our information technology, network infrastructure and telecommunication systems could adversely affecthave a material adverse effect on our business and results of operations.
We rely extensively on our information technology across our operations, including, but not limited to, point of sales processing, supply chain management, retail merchandise allocation and distribution, labor productivity and expense management Our business depends significantly on the reliability, security and capacity of our information technology systems to process these transactions, summarize results, manage and report on our business and our supply chain. Our information technology systems are subject to damage or interruption from power outages, computer, network, cable system, internet and telecommunications failures, computer viruses, security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology and telecommunication systems are damaged or cease to function properly, we may have to make a significant investment to repair or replace them, and we could suffer loss of critical data and interruptions or delays in our operations in the interim. In addition, from time to time, our systems may become obsolete or require attention and could result in interruptions in our services and non-compliance with certain laws or regulations. Any material interruption in our information technology and telecommunication systems could adversely affecthave a material adverse effect on our business or results of operations. In addition, some of these essential technology-based business systems are outsourced to third parties. While we make efforts to ensure that our outsourced providers are observing proper standards and controls, we cannot guarantee that breaches, disruptions or failures caused by these providers will not occur.
A privacy breach could adversely affect our business.
The protection of customer, employee and company data is critical to us. We are subject to laws relating to information security, privacy, cashless payments, consumer credit, and fraud. Additionally, an increasing number of government and industry groups have established laws and standards for the protection of personal and health information. As a merchant and service provider of point-of-sale services, we are also subject to the Payment Card Industry Data Security Standard issued by the Payment Card Industry Council. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements, including the recently enacted California Consumer Privacy Act, (“CCPA”).which became effective on January 1, 2020. Compliance with these requirements may result in cost increases due to necessary system changes and the development of new administrative processes. In addition, customers and employees have a high expectation that we will adequately protect their personal information. For example, in connection with credit and debit card sales, we transmit confidential card information. Third parties may have the technology or know-how to breach the security of this customer information, and our security measures and those of our technology vendors may not effectively prevent others from obtaining improper access to this information. If we fail to comply with the laws and regulations regarding privacy and security or experience a security breach, we could be exposed to risks of data loss, regulatory investigations and/or penalties, a loss of the ability to process credit and debit card payments, substantial inconvenience or harm to our guests, litigation and serious disruption of our operations. Additionally, any resulting negative publicity could significantly harm our reputation and damage our relations with our guests. As privacy and information security laws, regulations and practices change and cyber risks continue to evolve, we may incur additional costs to ensure we remain in compliance and protect guest, employee and Company information.
Failure to maximize or to successfully assert our intellectual property rights could adversely affect our business and results19
8.7. Segment Information
Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects. Accordingly, the Company manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States.
Disaggregation of revenue
Total revenue was comprised of the following at:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Restaurant | | $ | 2,565,628 | | | $ | 2,227,246 | | | $ | 2,032,030 | | | $ | 2,740,866 | | | $ | 2,565,628 | | | $ | 2,227,246 | |
Retail | | | 702,158 | | | | 594,198 | | | | 490,762 | | | | 701,942 | | | | 702,158 | | | | 594,198 | |
Total revenue | | $ | 3,267,786 | | | $ | 2,821,444 | | | $ | 2,522,792 | | | $ | 3,442,808 | | | $ | 3,267,786 | | | $ | 2,821,444 | |
9.8. Leases
In 2020, the Company adopted new accounting guidance for leases. As part of the adoption of this accounting guidance for leases, the Company elected to not separate lease and non-lease components. Additionally, the Company elected to apply the short term lease exemption to all asset classes and the short term lease expense for the period reasonably reflects the short term lease commitments. As the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate as of the adoption date. Assumptions used in determining the Company’s incremental borrowing rate include the Company’s implied credit rating and an estimate of secured borrowing rates based on comparable market data.
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 20232024 and 2025 with undiscounted future payments of $35,433.$15,714 and $21,673, respectively.
The following table summarizes the components of lease cost for operating leases for the years ended July 28, 2023, July 29, 2022 and July 30, 2021 and July 31, 2020:2021:
| | 2022 | | | 2021 | | 2020 | | | 2023 | | | 2022 | | 2021 | |
Operating lease cost | | $ | 108,903 | | | $ | 106,266 | | | $ | 82,963 | | | $ | 109,908 | | | $ | 108,903 | | | $ | 106,266 | |
Short term lease cost | | | 2,409 | | | | 2,363 | | | | 2,896 | | | | 2,947 | | | | 2,409 | | | | 2,363 | |
Variable lease cost | | | 2,673 | | | | 2,248 | | | | 1,719 | | | | 3,669 | | | | 2,673 | | | | 2,248 | |
Total lease cost | | $ | 113,985 | | | $ | 110,877 | | | $ | 87,578 | | | $ | 116,524 | | | $ | 113,985 | | | $ | 110,877 | |
The following table summarizes supplemental cash flow information and non-cash activity related to the Company’s operating leases for the yearyears ended July 28, 2023, July 29, 2022 July 30, 2021 and July 31, 202030, 2021:
| | 2022 | | | 2021 | | 2020 | | | 2023 | | | 2022 | | 2021 | |
Operating cash flow information: | | | | | | | | | | | | | | | | |
Gain on sale and leaseback transactions | | $ | — | | | $ | 217,722 | | | $ | 69,954 | | | $ | — | | | $ | — | | | $ | 217,722 | |
Cash paid for amounts included in the measurement of lease liabilities | | | 92,600 | | | | 89,264 | | | | 80,265 | | | | 95,294 | | | | 92,600 | | | | 89,264 | |
Noncash information: | | | | | | | | | | | | | | | | | | | | | | | | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | | 19,143 | | | | 316,563 | | | | 267,266 | | | | 17,378 | | | | 19,143 | | | | 316,563 | |
Lease modifications or reassessments increasing or decreasing right-of-use assets | | | 11,978 | | | | 35,059 | | | | 29,793 | | | | 11,320 | | | | 11,978 | | | | 35,059 | |
Lease modifications removing right-of-use assets | |
| (670 | ) | | | | | |
| (19,939 | ) | |
| (413 | ) | | | | | |
| (544 | ) |
The following table summarizes the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of July 28, 2023, July 29, 2022 and July 30, 2021 and July 31, 2020:2021:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Weighted-average remaining lease term | | 17.38 Years | | | 18.17 Years | | 19.05 Years | | | 16.88 Years | | | 17.38 Years | | 18.17 Years | |
Weighted-average discount rate | | | 4.90 | % | | | | | | | 4.50 | % | | | 5.09 | % | | | | | | | 4.84 | % |
The following table summarizes the maturities of undiscounted cash flows reconciled to the total operating lease liability as of July 29, 2022:28, 2023:
Year | | Total | | | Total | |
2023 | | $ | 90,446 | | |
2024 | | | 69,633 | | | $ | 82,360 | |
2025 | | | 65,841 | | | | 73,888 | |
2026 | | | 64,635 | | | | 70,198 | |
2027 | | | 64,350 | | | | 67,451 | |
2028 | | | | 66,858 | |
Thereafter | | | 832,487 | | | | 773,692 | |
Total future minimum lease payments | | | 1,187,392 | | | | 1,134,447 | |
Less imputed remaining interest | | | (410,662 | ) | | | (385,698 | ) |
Total present value of operating lease liabilities | | $ | 776,730 | | | $ | 748,749 | |
Sale and Leaseback Transactions
In 2009, the Company completed sale and leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years.
In 2000, the Company completed a sale and leaseback transaction involving 65 of its owned Cracker Barrel stores. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for a term of 21 years. The leases for these stores included specified renewal options for up to 20 additional years. On July 29, 2020, the Company entered into an agreement with the original lessor and a third-party financier to obtain ownership of 64 of the 65 Cracker Barrel properties and simultaneously entered into a sale and leaseback transaction with the financier for an aggregate purchase price, net of closing costs, of $198,083. The Company purchased the remaining property for approximately $3,200. In connection with the sale and leaseback transaction, the Company entered into lease agreements for each of the properties for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $14,379 and includes 1% annual rent increases over the initial lease terms. All the properties qualified for sale and leaseback and operating lease accounting classification and the Company recorded a gain on the sale and leaseback transaction of $69,954 which is recorded in the gain on sale and leaseback transactions line in the Consolidated Statements of Income (Loss).Income. The Company also recorded operating lease right-of-use assets and corresponding operating lease liabilities of $261,698 and $182,649, respectively.
On August 4, 2020, the Company completed a subsequent sale and leaseback transaction involving 62 of its owned Cracker Barrel stores for an aggregate purchase price, net of closing costs, of $146,357. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for initial terms of 20 years and renewal options up to 50 years. The aggregate initial annual rent payment for the properties is approximately $10,393 and includes 1% annual rent increases over the initial lease terms. All of the properties qualified for sale and leaseback and operating lease accounting classification, and the Company recorded a gain of $217,722 which is recorded in the gain on sale and leaseback transaction line in the Consolidated Statement of Income in the first quarter of 2021. The Company also recorded operating lease right-of-use assets, including a non-cash asset recognized as part of accounting for the transaction of $175,960, and corresponding operating lease liabilities of $309,624 and $133,663, respectively.
10.9. Share-Based Compensation
Stock Compensation Plans
The Company’s employee compensation plans are administered by the Compensation Committee of the Company’s Board of Directors (the “Committee”). The Committee is authorized to determine, at time periods within its discretion and subject to the direction of the Board of Directors, which employees will be granted awards, the number of shares covered by any awards granted, and within applicable limits, the terms and provisions relating to the exercise and vesting of any awards.
On November 19, 2020, the Company’s shareholders approved the 2020 Omnibus Incentive Plan (the “2020 Omnibus Plan”) which became effective on that date. The 2020 Omnibus Plan authorizes the following types of awards for employees and non-employee directors: stock options, stock appreciation rights, nonvested stock, restricted stock units, other share-based awards and performance awards. After the effective date of the 2020 Omnibus Plan, no additional awards could be granted under the Company’s 2010 Omnibus Incentive Stock and Incentive Plan (the “Prior Plan”).
The 2020 Omnibus Plan allows the Committee to grant awards for an aggregate of 1,033,441 shares, the number of shares that were available for issuance as of September 24, 2020 (the “Cutoff Date”) pursuant to the Prior Plan, plus the number of shares that became available for issuance pursuant to the terms of the Prior Plan following the Cutoff Date and prior to the effective date. However, this share reserve is increased by shares awarded under this and the Prior Plan which are forfeited, expired, settled for cash and shares withheld by the Company in payment of a tax withholding obligation after the effective date of the 2020 Omnibus Plan. Additionally, this share reserve was decreased by shares granted from the 2020 Omnibus Plan after the effective date. At July 29, 2022,28, 2023, the number of shares authorized for future issuance under the Company’s active plan is 1,052,602.1,016,341. At July 29, 2022,28, 2023, the number of outstanding awards under the 2020 Omnibus Plan and the Prior Plan was 80,356161,738 and 89,176,37,464, respectively.
Types of Share-Based Awards
Nonvested Stock Awards
Nonvested stock awards consist of the Company’s common stock, generally accrue dividend equivalents and vest over one to five years. The fair value of the Company’s nonvested stock awards which accrue dividends is equal to the market price of the Company’s stock at the date of the grant. Dividends are forfeited for any nonvested stock awards that do not vest.
The Company’s nonvested stock awards include its long-term performance plans which were established by the Committee for the purpose of rewarding certain officers with shares of the Company’s common stock if the Company achieved certain performance targets. The stock awards under the long-term performance plans are calculated or estimated based on achievement of financial performance measures.
The following table summarizes the performance periods and vesting periods for the Company’s nonvested stock awards under its long-term performance plans at July 29, 2022:28, 2023:
Long-Term Performance Plan (“LTPP”) | | Performance Period | | Vesting Period (in Years) | |
2023 LTPP | | 2023 – 2025 | | 3 | |
2022 LTPP | | 2022 – 2024 | | 3 | |
2021 LTPP | | 2021 – 2022 | | 2 or 3 | |
The following table summarizes the shares that have been accrued under the 20222023 LTPP and 20212022 LTPP at July 29, 2022:28, 2023:
| | | |
2023 LTPP | | | 3,410 | |
2022 LTPP | | | 8,813 | |
2021 LTPP | | | 30,74715,135 | |
A summary of the Company’s nonvested stock activity as of July 29, 2022,28, 2023, and changes during 20222023 are presented in the following table:
| | | | | | |
Nonvested Stock | | Shares | | | Weighted-Average Grant Date Fair Value | | | Shares | | | Weighted-Average Grant Date Fair Value | |
Unvested at July 30, 2021 | | | 89,323 | | | $ | 135.81 | | |
Unvested at July 29, 2022 | | | | 123,942 | | | $ | 131.21 | |
Granted | | | 84,670 | | | | 133.41 | | | | 111,117 | | | | 104.95 | |
Vested | | | (42,870 | ) | | | 143.84 | | | | (33,289 | ) | | | 148.60 | |
Forfeited | | | (7,181 | ) | | | 138.94 | | | | (21,113 | ) | | | 108.81 | |
Unvested at July 29, 2022 | | | 123,942 | | | $ | 131.21 | | |
Unvested at July 28, 2023 | | | | 180,657 | | | $ | 114.47 | |
The following table summarizes the total fair value of nonvested stock that vested for each of the three years:
| | 2022 | | | 2021 | | | 2020 | |
Total fair value of nonvested stock | | $ | 6,166 | | | $ | 3,200 | | | $ | 3,084 | |
| | 2023 | | | 2022 | | | 2021 | |
Total fair value of nonvested stock | | $ | 4,947 | | | $ | 6,166 | | | $ | 3,200 | |
Nonvested Stock Units
Beginning in 2017 through 2020, the Company adopted long-term incentive plans that award nonvested stock units based upon relative total shareholder return (“rTSR RSUs”). The number of nonvested stock units that will ultimately be awarded and will vest at the end of the applicable three-year performance period is based on relative total shareholder return, which is defined as increases in the Company’s stock price plus dividends paid during the performance period as compared to the total shareholder return of a group of peer companies determined by the Committee. The number of shares awarded at the end of the performance period for each nonvested stock unit may range from 75% to 125% of the target award. The probability of the actual shares expected to be earned is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units earned.
The fair value of the nonvested stock units is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions:
● | The expected volatilities are the historical volatilities of the Company’s stock and the members of the peer group over the period commensurate with the three-year performance period. |
● | The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. The risk-free rate for the nonvested stock units granted in 2020 was 1.6%.
|
● | The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period. |
Dividends accrue on the nonvested stock units. Dividends will be forfeited for nonvested stock units that do not vest.
Shares accrued for rTSR awards under the 2020 long-term incentive plan at July 29, 2022 were 6,030.
The following table highlights the components of share-based compensation expense for each of the three years:
| | 2022 | | | 2021 | | | 2020 | |
Total compensation expense | | $ | 8,198 | | | $ | 8,729 | | | $ | 6,386 | |
| | 2023 | | | 2022 | | | 2021 | |
Total compensation expense | | $ | 9,045 | | | $ | 8,198 | | | $ | 8,729 | |
The following table highlights the total unrecognized compensation expense related to the outstanding nonvested stock awards and nonvested stock units and the weighted-average periods over which the expense is expected to be recognized as of July 29, 2022:28, 2023:
| | Nonvested Stock Awards | | | Nonvested Stock Awards | |
Total unrecognized compensation | | $ | 6,859 | | | $ | 8,038 | |
Weighted-average period in years | | | 1.76 | | | | 1.82 | |
During 2022,2023, the Company issued 32,46143,974 shares of its common stock resulting from the vesting of share-based compensation awards. Related tax withholding payments on these share-based compensation awards resulted in a net reduction to shareholders’ equity of $2,599.$2,448.
11.10. Shareholder Rights Plan
On April 9, 2021, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, and adopted a shareholder rights plan, as set forth in the Rights Agreement dated as of April 9, 2021 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was payable on April 19, 2021 to the shareholders of record on April 19, 2021. The Rights Agreement replaced the Company’s previous shareholder rights plan adopted in 2018 (the “2018 Plan”), and it became effective immediately following the expiration of the 2018 Plan at the close of business on April 9, 2021. The 2018 Plan and the preferred share purchase rights issued thereunder expired by their own terms and shareholders of the Company were not entitled to any payment as a result of the expiration of the 2018 Plan.
The Rights
The Rights initially trade with, and are inseparable from, the Company’s common stock. The Rights are evidenced only by certificates or book entries that represent shares of common stock. New Rights will accompany any new shares of common stock the Company issues after April 19, 2021 until the Distribution Date described below.
Exercise Price
Each Right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Preferred Share”) for $600.00 (the “Exercise Price”), once the Rights become exercisable. This portion of a Preferred Share will give the shareholder approximately the same dividend and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
Exercisability
The Rights will not be exercisable until 10ten days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 20% or more of the Company’s outstanding common stock.
Certain synthetic interests in securities created by derivative positions – whether or not such interests are considered to be ownership of the underlying common stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) – are treated as beneficial ownership of the number of shares of the Company’s common stock equivalent to the economic exposure created by the derivative.
The date when the Rights become exercisable is the “Distribution Date.” Until the Distribution Date, the common stock certificates will also evidence the Rights, and any transfer of shares of common stock will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and will be evidenced by book-entry credits or by Rights certificates that the Company will mail to all eligible holders of common stock. Any Rights held by an Acquiring Person will be void and may not be exercised.
At July 29, 2022,28, 2023, none of the Rights were exercisable.
Consequences of a Person or Group Becoming an Acquiring Person
| ● | Flip in. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for $600.00, purchase shares of the Company’s common stock with a market value of $1,200.00, based on the market price of the common stock prior to such acquisition. |
| ● | Flip Over. If the Company is later acquired in a merger or similar transaction after the Distribution Date, all holders of Rights except the Acquiring Person may, for $600.00, purchase shares of the acquiring corporation with a market value of $1,200.00, based on the market price of the acquiring corporation’s stock prior to such transaction. |
| ● | Notional Shares. Shares held by affiliates and associates of an Acquiring Person, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person. |
Preferred Share Provisions
Each one one-hundredth of a Preferred Share, if issued:
| ● | will entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the dividend paid on one share of common stock, whichever is greater; |
| ● | will entitle holders upon liquidation either to receive $1.00 per share or an amount equal to the payment made on one share of common stock, whichever is greater; |
| ● | will have the same voting power as one share of common stock; and |
| ● | if shares of the Company’s common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock. |
The value of one one-hundredth of a Preferred Share will generally approximate the value of one share of common stock.
Redemption
The Board of Directors may redeem the Rights for $0.01 per Right at any time before any person or group becomes an Acquiring Person. If the Board of Directors redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $0.01 per Right. The redemption price will be adjusted if the Company has a stock split or stock dividends of its common stock.
Qualifying Offer Provision
The Rights would also not interfere with any all-cash, fully financed tender offer, exchange offer of common stock of the offeror meeting certain terms and conditions further described below, or a combination thereof, in each case for all shares of common stock that remain open for a minimum of 60 business days and subject to a minimum condition of a majority of the outstanding shares and provide for a 20-business day “subsequent offering period” after consummation (such offers are referred to as “qualifying offers”). If an offer includes shares of common stock of the offeror, the Rights would not interfere with such offer if such consideration consists solely of freely-tradeable common stock of a publicly-owned United States corporation; such common stock is listed or admitted to trading on the New York Stock Exchange, Nasdaq Global Select Market or Nasdaq Global Market; the offeror has already received stockholder approval to issue such common stock prior to the commencement of such offer or no such approval is or will be required; the offeror has no other class of voting stock outstanding; no person (including such person’s affiliated and associated persons) beneficially owns twenty percent (20%) or more of the shares of common stock of the offeror then outstanding at the time of commencement of the offer or at any time during the term of the offer; and the offeror meets the registrant eligibility requirements for use of a registration statement on Form S-3 for registering securities under the Securities Act of 1933, as amended, including the filing of all reports required to be filed pursuant to the Exchange Act in a timely manner during the twelve (12) calendar months prior to the date of commencement, and throughout the term, of such offer. In the event the Company receives a qualifying offer and the Board of Directors has not redeemed the Rights prior to the consummation of such offer, the consummation of the qualifying offer will not cause the offeror or its affiliates to become an Acquiring Person, and the Rights will immediately expire upon consummation of the qualifying offer.
Exchange
After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the Company’s outstanding common stock, the Board of Directors may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by the Acquiring Person.
Anti-Dilution Provisions
The Board of Directors may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Preferred Shares or common stock. No adjustments to the Exercise Price of less than 1% will be made.
Amendments
The terms of the Rights Agreement may be amended by the Board of Directors without the consent of the holders of the Rights. After a person or group becomes an Acquiring Person, the Board of Directors may not amend the agreement in a way that adversely affects holders of the Rights.
Expiration
The Rights will expire on April 9, 2024.
12.11. Employee Savings Plans
The Company sponsors a qualified defined contribution retirement plan (“401(k) Savings Plan”) covering salaried and hourly employees who have completed ninety days of service and have attained the age of twenty-one. This plan allows eligible employees to defer receipt of up to 50% of their compensation, as defined in the plan. The Company also sponsors a non-qualified defined contribution retirement plan (“Non-Qualified Savings Plan”) covering highly compensated employees, as defined in the plan. This plan allows eligible employees to defer receipt of up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the plan.
Contributions under both plans may be invested in various investment funds at the employee’s discretion. Such contributions, including the Company’s matching contributions described below, may not be invested in the Company’s common stock. In 2023, 2022 2021 and 2020 (prior to the COVID-19 pandemic),2021, the Company matched 50% of employee contributions for each participant in the 401(k) Savings Plan up to a total of 5% of the employee’s compensation and matched 25% of employee contributions in the Non-Qualified Savings Plan up to a total of 6% of the employee’s compensation. compensationIn response to the COVID-19 pandemic, the Company temporarily suspended matches to the 401(k) Savings Plan and the Non-Qualified Savings Plan through the end of 2020 and resumed matches at the beginning of 2021.. Employee contributions vest immediately while Company contributions vest 20% annually beginning on the first anniversary of a contribution date and are vested 100% on the fifth anniversary of such contribution date.
At the inception of the Non-Qualified Savings Plan, the Company established a Rabbi Trust to fund the plan’s obligations. The market value of the trust assets for the Non-Qualified Savings Plan of $27,843$27,129 is included in other assets and the related liability to the participants of $27,843$27,129 is included in other long-term obligations in the Consolidated Balance Sheets. Company contributions under both plans are recorded as either labor and other related expenses or general and administrative expenses in the Consolidated Statements of Income.
The following table summarizes the Company’s contributions for each plan for each of the three years:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
401(k) Savings Plan | | $ | 4,713 | | | $ | 4,071 | | | $ | 3,271 | | | $ | 4,963 | | | $ | 4,713 | | | $ | 4,071 | |
Non-Qualified Savings Plan | | | 285 | | | | 259 | | | | 239 | | | | 230 | | | | 285 | | | | 259 | |
13.12. Income Taxes
The components of the provision for income taxes (income tax benefit) for each of the three years were as follows:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Current: | | | | | | | | | | | | | | | | | | |
Federal | | $ | 16,462 | | | $ | (13,505 | ) | | $ | (15,375 | ) | | $ | 6,925 | | | $ | 16,462 | | | $ | (13,505 | ) |
State | | | 1,188 | | | | 2,405 | | | | (2,115 | ) | | | 3,573 | | | | 1,188 | | | | 2,405 | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | (4,543 | ) | | | 57,580 | | | | (13,467 | ) | | | (4,902 | ) | | | (4,543 | ) | | | 57,580 | |
State | | | (1,604 | ) | | | 9,558 | | | | 2,274 | | | | (1,035 | ) | | | (1,604 | ) | | | 9,558 | |
Total provision for income taxes (income tax benefit) | | $ | 11,503 | | | $ | 56,038 | | | $ | (28,683 | ) | |
Total provision for income taxes
| | | $ | 4,561 | | | $ | 11,503 | | | $ | 56,038 | |
A reconciliation of the Company’s provision for income taxes (income tax benefit) and income taxes based on the statutory U.S. federal rate of 21.0% in 2023, 2022 2021 and 20202021 was as follows:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Provision computed at federal statutory income tax rate | | $ | 30,110 | | | $ | 65,216 | | | $ | 17,070 | | | $ | 21,758 | | | $ | 30,110 | | | $ | 65,216 | |
State and local income taxes, net of federal benefit | | | 1,452 | | | | 10,589 | | | | (263 | ) | | | 2,069 | | | | 1,452 | | | | 10,589 | |
Loss on unconsolidated subsidiary | | | — | | | | — | | | | (29,913 | ) | |
Federal net operating loss benefit | | | — | | | | (5,402 | ) | | | (1,573 | ) | | | — | | | | — | | | | (5,402 | ) |
Employer tax credits for FICA taxes paid on employee tip income | | | (15,395 | ) | | | (12,323 | ) | | | (11,489 | ) | | | (16,772 | ) | | | (15,395 | ) | | | (12,323 | ) |
Other employer tax credits | | | (4,929 | ) | | | (3,234 | ) | | | (3,606 | ) | | | (3,673 | ) | | | (4,929 | ) | | | (3,234 | ) |
Tax audit settlement
| | | (1,939 | ) | | | —
| | | | —
| | | | — | | | | (1,939 | ) | | | —
| |
Other-net | | | 2,204 | | | | 1,192 | | | | 1,091 | | | | 1,179 | | | | 2,204 | | | | 1,192 | |
Total provision for income taxes (income tax benefit) | | $ | 11,503 | | | $ | 56,038 | | | $ | (28,683 | ) | |
Total provision for income taxes
| | | $ | 4,561 | | | $ | 11,503 | | | $ | 56,038 | |
The decrease in the Company’s provision for income taxes in 2023 as compared to 2022 is primarily due to the decrease in income before income taxes. The decrease in the Company’s provision for income taxes in 2022 as compared to 2021 is primarily due to the decrease in income before income taxes and the benefit of higher income tax credits. The increase in the Company’s provision for income taxes in 2021 as compared to 2020 is primarily due to the increase in income before income taxes.
Significant components of the Company’s net deferred tax liability consisted of the following at:
| | July 29, 2022 | | | July 30, 2021 | | | July 28, 2023 | | | July 29, 2022 | |
Deferred tax assets: | | | | | | | | | | | | |
Compensation and employee benefits | | $ | 7,329 | | | $ | 12,089 | | | $ | 6,406 | | | $ | 7,329 | |
Accrued liabilities | | | 15,770 | | | | 14,145 | | | | 15,843 | | | | 15,770 | |
Operating lease liabilities | | | 193,794 | | | | 199,029 | | | | 186,813 | | | | 193,794 | |
Insurance reserves | | | 7,115 | | | | 7,141 | | | | 7,360 | | | | 7,115 | |
Inventory | | | 3,002 | | | | 2,968 | | | | 3,204 | | | | 3,002 | |
Deferred tax credits and carryforwards | | | 24,896 | | | | 16,978 | | | | 30,720 | | | | 24,896 | |
Other | | | 13,875 | | | | 4,507 | | | | 11,057 | | | | 13,875 | |
Deferred tax assets | | $ | 265,781 | | | $ | 256,857 | | | $ | 261,403 | | | $ | 265,781 | |
| | | | | | | | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Property and equipment | | $ | 101,268 | | | $ | 99,075 | | | $ | 100,185 | | | $ | 101,268 | |
Inventory | | | 5,517 | | | | 7,161 | | | | 6,028 | | | | 5,517 | |
Operating lease right-of-use asset | | | 232,914 | | | | 243,553 | | | | 221,882 | | | | 232,914 | |
Other | | | 6,275 | | | | 5,694 | | | | 7,564 | | | | 6,275 | |
Deferred tax liabilities | | | 345,974 | | | | 355,483 | | | | 335,659 | | | | 345,974 | |
Net deferred tax liability | | $ | 80,193 | | | $ | 98,626 | | | $ | 74,256 | | | $ | 80,193 | |
The Company has a deferred tax asset of $15,248$20,508 reflecting federal income tax credit carryforwards that expire in 2043. The Company has state income tax net operating loss carryforwards (“NOL”) of $67,418$84,630 and has recorded a deferred tax asset of $3,811$4,762 reflecting this benefit. These state NOLs generally expire in years beginning 2037 and after.
The Company believes that adequate amounts of tax, interest and penalties have been provided for potential tax uncertainties; these amounts are included in other long-term liabilities in the Consolidated Balance Sheets. As of July 29, 202228, 2023 and July 30, 2021,29, 2022, the Company’s gross liability for uncertain tax positions, exclusive of interest and penalties, was $10,8589,675 and $14,47710,858, respectively.
Summarized below is a tabular reconciliation of the beginning and ending balance of the Company’s total gross liability for uncertain tax positions exclusive of interest and penalties:
| | July 29, 2022 | | | July 30, 2021 | | | July 31, 2020 | | | July 28, 2023 | | | July 29, 2022 | | | July 30, 2021 | |
Balance at beginning of year | | $ | 14,477 | | | $ | 17,835 | | | $ | 18,006 | | | $ | 10,858 | | | $ | 14,477 | | | $ | 17,835 | |
Tax positions related to the current year: Additions | | | 1,152 | | | | 1,596 | | | | 1,407 | | | | 710 | | | | 1,152 | | | | 1,596 | |
Reductions | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Tax positions related to the prior year: Additions | | | 17 | | | | — | | | | 202 | | | | 52 | | | | 17 | | | | — | |
Reductions | | | (1,241 | ) | | | (1,045 | ) | | | (256 | ) | | | (298 | ) | | | (1,241 | ) | | | (1,045 | ) |
Settlements | | | (1,942 | ) | | | (1,786 | ) | | | (138 | ) | | | — | | | | (1,942 | ) | | | (1,786 | ) |
Expiration of statute of limitations | | | (1,605 | ) | | | (2,123 | ) | | | (1,386 | ) | | | (1,647 | ) | | | (1,605 | ) | | | (2,123 | ) |
Balance at end of year | | $ | 10,858 | | | $ | 14,477 | | | $ | 17,835 | | | $ | 9,675 | | | $ | 10,858 | | | $ | 14,477 | |
If the Company were to prevail on all uncertain tax positions, the reversal of this accrual would be a tax benefit to the Company and impact the effective tax rate. The following table highlights the amount of uncertain tax positions, exclusive of interest and penalties, which, if recognized, would affect the effective tax rate for each of the three years:
| | 2022 | | | 2021 | | | 2020 | |
Uncertain tax positions | | $ | 8,578 | | | $ | 11,437 | | | $ | 14,090 | |
| | 2023 | | | 2022 | | | 2021 | |
Uncertain tax positions | | $ | 7,644 | | | $ | 8,578 | | | $ | 11,437 | |
The Company had $7,1337,896, $7,7557,133, and $7,2107,755 in interest and penalties accrued as of July 28, 2023, July 29, 2022, and July 30, 2021, and July 31, 2020, respectively.
The Company recognized accrued interest and penalties related to unrecognized tax benefits of $(622)764, $545(622) and $913545 in its provision for income taxes on July 28, 2023, July 29, 2022 and July 30, 2021, and July 31, 2020, respectively.
In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. Based on the outcome of these examinations or as a result of the expiration of the statutes of limitations for specific taxing jurisdictions, it is reasonably possible that the related uncertain tax positions taken regarding previously filed tax returns could decrease from those recorded as liabilities for uncertain tax positions in the Company’s financial statements at July 29, 202228, 2023 by approximately $4,0003,000 to $6,0005,000 within the next twelve months. At July 29, 2022,28, 2023, the Company was subject to income tax examinations for its U.S. federal income taxes after 2018 and for state and local income taxes generally after 2018.
14.13. Net Income (Loss) Per Share and Weighted Average Shares
The following table reconciles the components of diluted earnings per share computations:
| | 2022 | | | 2021 | | | 2020 | | | 2023 | | | 2022 | | | 2021 | |
Net income (loss) per share numerator | | $ | 131,880 | | | $ | 254,513 | | | $ | (32,475 | ) | |
Net income per share numerator | | | $ | 99,050 | | | $ | 131,880 | | | $ | 254,513 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) per share denominator: | | | | | | | | | | | | | |
Net income per share denominator: | | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 23,164,180 | | | | 23,692,063 | | | | 23,865,367 | | | | 22,167,875 | | | | 23,164,180 | | | | 23,692,063 | |
Add potential dilution: | | | | | | | | | | | | | | | | | | | | | | | | |
Nonvested stock awards and units | | | 81,830 | | | | 75,327 | | | | — | | | | 97,524 | | | | 81,830 | | | | 75,327 | |
Diluted weighted average shares outstanding | | | 23,246,010 | | | | 23,767,390 | | | | 23,865,367 | | | | 22,265,399 | | | | 23,246,010 | | | | 23,767,390 | |
15.14. Commitments and Contingencies
The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position.
The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain all or a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured. The Company intends to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of its contracts. See Note 21 for a further discussion of insurance and insurance reserves.
Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers. As of July 29, 2022,28, 2023, the Company had $31,896 of standby letters of credit related to securing reserved claims under workers’ compensation insurance and the July 29, 2020 and August 4, 2021 sale and leaseback transactions. All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its Revolving Credit facility (see Note 5)4).
The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business. The Company believes that the probability of incurring an actual liability under other indemnification agreements is sufficiently remote so that no liability has been recorded in the Consolidated Balance Sheet.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Our management, with the participation of our principal executive and financial officers, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of July 29, 2022,28, 2023, our disclosure controls and procedures were effective.
There have been no changes (including corrective actions with regard to material weaknesses) during the quarter ended July 29, 202228, 2023 in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). We maintain a system of internal controls that is designed to provide reasonable assurance in a cost-effective manner as to the fair and reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition.
Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Corporate Governance Guidelines our Financial Code of Ethics, and our Code of Business Conduct and Ethics, allboth of which may be viewed on our website. They set the tone for our organization and include factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures, which are reviewed, modified and improved as changes occur in business conditions and operations. Neither our disclosure controls and procedures nor our internal controls, however, can or will prevent all errors and allor fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion based on this evaluation. We have concluded that our internal control over financial reporting was effective as of July 29, 2022,28, 2023, based on these criteria.
In addition, Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included herein.
| /s/Sandra B. Cochran |
| Sandra B. Cochran |
| President and Chief Executive Officer |
|
|
| /s/Craig A. Pommells |
| Craig A. Pommells |
| Senior Vice President and Chief Financial Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Cracker Barrel Old Country Store, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cracker Barrel Old Country Store, Inc. and subsidiaries (the “Company”) as of July 29, 2022,28 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 29, 2022,28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended July 29, 2022,28, 2023 of the Company and our report dated September 27, 2022,26, 2023 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company's adoption of Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
September 27, 202226, 2023
ITEM 9B. | OTHER INFORMATION |
NoneDuring the fiscal quarter ended July 28, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408 of Regulation S-K).
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
None
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this Item with respect to directors of the Company is incorporated herein by this reference to the following sections of the 20222023 Proxy Statement: “Board of Directors and Committees,” “Proposal 1: Election of Directors,” “Certain Relationships and Related Transactions—Code of Ethics” and, if applicable, “Delinquent Section 16(a) Reports.” The information required by this Item with respect to executive officers of the Company is set forth in Part I of this Annual Report on Form 10-K under the heading “Information About our Executive Officers.”
The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees. The Code of Business Conduct and Ethics is available on our website at www.crackerbarrel.com under the Investors – Corporate Governance section. We intend to satisfy the disclosure requirements under the Exchange Act regarding amendment to, or waiver from a material provision of our Code of Business Conduct and Ethics involving our principal executive, financial or accounting officer or controller by posting such information on our website.
The Company has adopted a Statement of Policy Regarding Insider Trading and integrated Special Trading Procedures Policy that governs the purchase, sale, and/or other dispositions of the Company’s securities by directors, officers and employees that is reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the Company. A copy of the Company’s Statement of Policy Regarding Insider Trading and integrated Special Trading Procedures Policy is filed as Exhibit 19 to this Annual Report on Form 10-K.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this Item is incorporated herein by this reference to the following sections of the 20222023 Proxy Statement: “Executive Compensation” and “Board of Directors and Committees—Compensation of Directors.” The “Compensation Committee Report” set forth in the section of the 20222023 Proxy Statement entitled “Executive Compensation” is deemed to be “furnished” and is not, and shall not be deemed to be, “filed” for purposes of Section 18 of the Exchange Act.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item is incorporated herein by this reference to the sections entitled “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 20222023 Proxy Statement.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this Item is incorporated herein by this reference to the sections entitled "Certain Relationships and Related Transactions” and “Director Independence” in the 20222023 Proxy Statement.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this Item is incorporated herein by this reference to the sections entitled “Fees Paid to Auditors” and “Audit Committee Report” in the 20222023 Proxy Statement. No other portion of the section of the 20222023 Proxy Statement entitled “Audit Committee Report” is, nor shall it be deemed to be, incorporated by reference into this Annual Report on Form 10-K. Deloitte & Touche LLP (PCAOB ID No. 34) is our principal accountant.
PART IV
ITEM 15. | EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES |
(a) | (a) | List of documents filed as part of this report: |
| 1. | All financial statements – see Item 8. |
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| 2. | All schedules have been omitted since they are either not required or not applicable, or the required information is included. |
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| 3. | The exhibits listed in the accompanying Index to Exhibits immediately prior to the signature page to this Annual Report on Form 10-K. |
INDEX TO EXHIBITS
Exhibit |
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3(I), 4(a) | |
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3(II), 4(b) | |
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4(c) | |
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4(d), 10(a) | |
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4(e) | |
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4(f) | |
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10(b) | |
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10(c) | |
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10(d) | |
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10(e) | |
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10(f) | |
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10(g) | |
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10(h) | |
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10(i) | |
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10(j) | |
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10(k) | |
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10(l) | |
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10(m) | |
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10(n) | |
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10(o) | |
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10(p) | |
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10(q) | |
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10(r) | |
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10(s) | |
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10(t) | |
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10(u) | |
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10(v) | |
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10(y) | |
10(w) | |
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10(x) | |
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19 | |
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21 | |
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23 | |
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31.1 | |
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31.2 | |
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32.1 | |
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32.2 | |
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97
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101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101.SCH | Inline XBRL Taxonomy Extension Schema |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
(1) | Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed under the Exchange Act on April 10, 2012 (Commission File No. 000-25225). |
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(2) | Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act on June 7, 2022. |
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(3) | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on April 9, 2021. |
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(4) | Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on June 21, 2021. |
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(5) | Incorporated by reference to Exhibit A to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on June 21, 2021. |
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(6) | Incorporated by reference to Exhibit 4(f) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 30, 2021. |
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(7) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on June 17, 2022. |
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(8) | Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended May 1, 2009 (Commission File No. 000-25225). |
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(9) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on December 7, 2010 (Commission File No. 000-25225). |
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(10) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on November 23, 2020 (Commission File No. 001-25225). |
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(11) | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on December 7, 2010 (Commission File No. 000-25225). |
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(12) | Incorporated by reference to Exhibit 10(aa) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225). |
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(13) | Incorporated by reference to Exhibit 10(bb) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225). |
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(14) | Incorporated by reference to Exhibit 10(cc) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225). |
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(15) | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed under the Exchange Act on July 31, 2013 (Commission File No. 000-25225). |
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(16) | Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended April 27, 2018.2018 (Commission File No. 001-25225). |
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(17) | Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended April 27, 2018.2018 (Commission File No. 001-25225). |
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(18) | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on August 3, 2020. |
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(19) | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed under the Exchange Act on August 3, 2020. |
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(20) | Incorporated by reference to Exhibit 10.1 to the Company’s Amended Current Report on Form 8-K filed under the Exchange Act on August 5, 2020. |
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(21) | Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act on December 3, 2020. |
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(22) | Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act on December 3, 2020. |
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(23) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on June 21, 2021. |
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(24) | Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on June 21, 2021. |
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(25) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on September 28, 2022. |
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(26) | Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on July 30, 2018.18, 2023. |
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(26)(27) | Incorporated by reference to Exhibit 10.110.2 to the Company’s QuarterlyCurrent Report on Form 10-Q8-K filed under the Exchange Act on February 24, 2022.July 18, 2023. |
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(28) | Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed under the Exchange Act on July 18, 2023. |
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(29) | Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed under the Exchange Act on July 18, 2023. |
†Denotes management contract or compensatory plan, contract or arrangement.
*Certain schedules and similar attachments have been omitted in reliance on Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 2726th day of September, 2022.2023.
| | CRACKER BARREL OLD COUNTRY STORE, INC. |
| By: | |
|
| /s/Sandra B. Cochran |
|
| Sandra B. Cochran, |
|
| President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities on this 2726th day of September, 2022.2023.
Name | Title |
|
|
/s/Sandra B. Cochran | |
Sandra B. Cochran | President, Chief Executive Officer and Director |
|
|
/s/Craig A. Pommells | |
Craig A. Pommells | Senior Vice President, and Chief Financial Officer and Principal Accounting Officer |
|
|
/s/Thomas H. Barr Thomas H. Barr | Director |
| |
/s/Kara S. JacobsCarl T. Berquist Carl T. Berquist | |
Kara S. Jacobs | Vice President, Corporate Controller and Principal Accounting OfficerDirector |
| |
/s/Thomas H. Barr | |
Thomas H. BarrJody L. BilneyJody L. Bilney | Director |
| |
/s/Carl T. BerquistMeg G. Crofton Meg G. Crofton | |
Carl T. Berquist | Director |
| |
/s/Meg G. CroftonGilbert R. Dávila Gilbert R. Dávila | |
Meg G. Crofton | Director |
| |
/s/Gilbert R. DávilaWilliam W. McCarten William W. McCarten | |
Gilbert R. Dávila | Director and Chairman of the Board |
| |
/s/William W. McCarten | |
Moreton William W. McCartenMoreton | Director and Chairman of the Board |
| |
/s/Coleman H. Peterson | |
Coleman H. Peterson | Director |
| |
/s/Gisel Ruiz | |
Gisel Ruiz | Director |
| |
/s/Darryl Wade Darryl L. Wade | |
Darryl Wade | Director |
| |
/s/Andrea M. Weiss | |
Andrea M. Weiss | Director |
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