Cracker Barrel Old Country Store, Inc. Annual Report 2017

FY2017 Annual Report · Cracker Barrel Old Country Store, Inc.

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CRACKER BARREL OLD COUNTRY STORE, INC.
Directors

Thomas H. Barr
President of Sono Bello; former
Vice President, Global Coffee at
Starbucks Corporation

James W. Bradford
Chairman of the Board; Retired; former
Dean and Professor for the Practice of
Managementat Vanderbilt University’s
Owen Graduate School of Management

Sandra B. Cochran
President and CEO of
Cracker Barrel Old Country Store, Inc.

Meg G. Crofton
Retired; former President of Parks and
Resorts Operations, U.S. and France for
The Walt Disney Company

The annual meeting of shareholders will be held at 10:00 a.m.

House” are trademarks of CBOCS Properties, Inc.

Thursday, November 16, 2017, at the Cracker Barrel Old Country Store

home office on Hartmann Drive, Lebanon, Tennessee.

Glenn A. Davenport
President of G.A. Food Service, Inc.;
former Chairman and CEO of Morrison
Management Specialists

Richard J. Dobkin
Retired; former Managing Partner of the
Tampa, FL office of Ernst & Young, LLP

Norman E. Johnson
Retired; former Executive Chairman
and CEO of CLARCOR, Inc.

William W. McCarten
Retired; former Chairman of the
board of directors of DiamondRock
Hospitality Company

Coleman H. Peterson
President and CEO of Hollis Enterprises,
LLC; former Chief People Officer of
Wal-Mart Stores, Inc.

Andrea M. Weiss
President and CEO of Retail
Consulting, Inc.; former
President of dELiA*s Corp.

Dividend Reinvestment and Direct Stock Purchase Plan

Although our company does not sponsor a dividend reinvestment or direct stock

purchase plan, our transfer agent, American Stock Transfer & Trust Company,

LLC (“AST”), sponsors and administers such programs. You may call AST at

800-485-1883 to obtain enrollment forms.

10-K Report

A copy of the Cracker Barrel Old Country Store, Inc. Form 10-K Annual Report

for Fiscal 2017, filed with the Securities and Exchange Commission, may be

obtained without charge through our Internet website, located at

crackerbarrel.com.

Unless specifically noted otherwise, references in this annual report to “CBRL,”

“Cracker Barrel” or “The Company” refer to Cracker Barrel Old Country Store,

Inc. and its subsidiaries; or its Cracker Barrel Old Country Store® concept.

“Cracker Barrel Old Country Store” name and logo, “Cracker Barrel”,

“Pleasing People”, “CB Old Country Store”, and “Holler & Dash Biscuit

CRACKER BARREL OLD COUNTRY STORE, INC.

Corporate Information

Corporate Offices

Cracker Barrel Old Country Store, Inc.

P.O. Box 787

305 Hartmann Drive

Lebanon, TN 37088-0787

Phone: 615-444-5533

crackerbarrel.com

American Stock Transfer & Trust Company

Transfer Agent

6201 15th Avenue

Brooklyn, NY 11219

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Nashville, Tennessee

Annual Meeting

Comparison of Five-Year Total Return

Among Cracker Barrel Old Country Store, Inc.,

S&P 400 Restaurants Index, and S&P Mid Cap

Index. Assumes $100 invested on 8/3/12 and

includes reinvestment of dividends. Copyright

@ Standard and Poor’s, Inc.

$400

$300

$200

$100

2012

2013

2014

2015

2016

2017

Cracker Barrel Old Country Store, Inc.

S&P Mid Cap

S&P 400 Restaurants

Regional Vice President, Retail Operations

Vice President, Human Resources

Senior Vice President and Chief People Officer

Vice President, Information Services and CIO

Regional Vice President, Restaurant Operations

Senior Vice President, Sourcing and Supply Chain

Vice President, Strategic Initiatives

Vice President, Operations Business Model and New Unit

Regional Vice President, Restaurant Operations

Vice President, Merchandise Planning and Allocation

Senior Vice President, Restaurant and Retail Operations

Regional Vice President, Restaurant Operations

William M. Prentice

Senior Vice President and Chief Financial Officer

Vice President, Distribution and Logistics

Beth J. Quinn

Senior Vice President, General Counsel and Corporate

Divisional Vice President, Restaurant Operations

Cindy M. Sasse

Vice President, Strategy and Business Development

Myson S. Rice

Brenda L. Cool

Leon M. De Wet

Alan L. Emery

Bevan T. Flavin

Deborah A. Fratrik

Scott A. Gardner

Joshua L. Greear

Anthony P. Guadagno

Corporate Officers

Sandra B. Cochran

President and Chief Executive Officer

Beverly K. Carmichael

P. Doug Couvillion

Laura A. Daily

Senior Vice President, Retail

Nicholas V. Flanagan

Jill M. Golder

Donald H. Hoffman

Senior Vice President, Marketing

Richard M. Wolfson

Secretary

Charlie E. Austin

Regional Vice President, Restaurant Operations

Robert E. Bowman, Jr.

Vice President, Internal Audit

Bethany B. Champ

Vice President, Talent and Leadership Development

Michael J. Chissler

COO, Holler & Dash

Derrick L. Collins

Michael W. Mott

Benjamin E. Noyes

Thomas R. Pate

Openings

Maja N. Patton

Regional Vice President, Restaurant Operations

Regional Vice President, Retail Operations

Regional Vice President, Restaurant Operations

Vice President, Retail Operations

Cammie Spillyards-Schaefer

Vice President, Culinary

David R. Swartling

Regional Vice President, Restaurant Operations

Walter W. Tyree

Regional Vice President, Restaurant Operations

Andress R. Urteaga

Regional Vice President, Restaurant Operations

Jeffrey M. Wilson

Officer

Michael T. Hackney

Vice President, Management and Employee Training

Erin T. Hasselgren

Regional Vice President, Restaurant Operations

Douglas Hisel

Ray T. Johnson

Divisional Vice President, Restaurant Operations

Serena G. Johnson

Regional Vice President, Retail Operations

Sherri L. Moore

Vice President, Restaurant and Retail Operations Support

Regional Vice President, Retail Operations

Vice President, Corporate Controller and Principal Accounting

To our shareholders,

Fiscal 2017 represented a year of solid earnings growth for the Cracker Barrel Old Country Store® brand. We remained focused on our long-term
strategic plan to “Enhance the Core, Expand the Footprint, Extend the Brand,” and, as a result, we delivered a significant increase in our
operating income margin.

The restaurant and retail industries faced ongoing head winds from a challenged environment. We continued to deliver the Cracker Barrel brand
experience which differentiates us from our peers, and as a result, we outperformed the casual dining industry in both restaurant sales and traffic
and outperformed the specialty retail industry in merchandise sales.

Throughout fiscal 2017, we introduced several seasonal menu entrees to provide variety through limited-time offerings which we believe
appealed to our most frequent guests as well as our lighter users. These included entrées like a French Dip Sandwich Platter, Mushroom Braised
Pot Roast, and Peppermill Steak and Eggs Breakfast.

We also expanded our off-premise platform through our holiday Heat ‘n Serve program, adding new holiday opportunities for the family-sized
meal to be picked up in store and enjoyed at home. We believe our strong equity in real homestyle foods and history as a destination for holiday
occasions position us well for large-party, off-premise occasions, and we anticipate growing our off-premise platform in the coming years.

With our marketing, we continued to evolve our media spending strategies and focused on the role of each of our brand communication touch
points in order to reach multiple demographics with uniquely tailored content. We believe this allowed us to strengthen the Cracker Barrel brand
connection among our guests across various platforms, including new TV and radio messaging, focused digital media outreach, new billboard
messaging as well as creative, and memorable exclusive music programs.

Throughout the year, our retail teams merchandised our stores with collections offering broad generational appeal and unique product
assortments. We continue to innovate and introduce newness into our merchandise assortments. During a year of heavy retail industry
discounting, I was pleased with the team’s management of retail gross margins and inventory levels.

As part of our strategic plan to Enhance the Core we identified several initiatives to reduce store operating costs and further improve our
business model. Over the past year we implemented initiatives that targeted labor productivity, food waste, and utility expense. We targeted $15
million to $20 million in annual cost reductions to be realized in fiscal 2017 and thanks to the hard work of our field and leadership teams, we
delivered above our savings goal.

We opened six new Cracker Barrel Old Country Store locations during the year, continuing our westward expansion with new store openings in
Las Vegas, Nevada and Tualatin, Oregon. Guest response to the new stores has been very good. Additionally we further developed our fast
casual brand, Holler & Dash Biscuit House, with two store openings. Each new opening brings additional learnings as we seek to understand the
long-term growth potential of this brand.

In fiscal 2017, we grew our revenues by 0.5% to $2.93 billion, with comparable store restaurant sales increasing 0.2% and comparable store
retail sales decreasing 3.7%. We improved our operating margins to 10.7% from 9.6% in the prior fiscal year. This improvement was supported
by favorability in the commodity market and the many cost savings initiatives that we implemented as part of our long-term strategic plan. Our
earnings per diluted share grew to $8.37, compared to fiscal 2016 EPS of $7.86.

Also during fiscal 2017, we directly increased shareholder returns by growing our regular quarterly dividend to $1.20 per share. Over the last six
years, we have increased our dividend 8 times, or nearly 450 percent. Also reflecting our commitment to a balanced approach to capital
allocation, we declared a special dividend of $3.50 per share. This was our third special dividend declaration in as many years. These dividends
result in an annual yield of 5.3%.

In addition to our financial achievements, we believe success can be measured by what others say about us. This year we received notable
recognitions that demonstrate the strengths of the Cracker Barrel brand, including being named in the Top 100 of Forbes Magazine’s America’s
Most Reputable Companies list and as the Best Full-Service Restaurant in America by the American Customer Satisfaction Index. I am very
pleased with these prestigious recognitions.

In closing, I am proud to be a part of the Cracker Barrel team. We have a strong Board of Directors and Leadership Team who bring diversity of
thinking and experience to our brand. Fiscal 2018 will be another year of change and progress as we continue to evolve the brand to meet the
needs of our employees and guests. I am confident we are prepared to meet this challenge and above all, provide value to our shareholders and
guests, while remaining committed to our mission of Pleasing People®.

Thank you for your interest and commitment to our brand,

Sandy Cochran

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

FORM 10-K

(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended July 28, 2017

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from

Commission file number: 000-25225

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

Tennessee
(State or other jurisdiction of
incorporation or organization)

305 Hartmann Drive
Lebanon, Tennessee
(Address of principal executive offices)

62-0812904
(I.R.S. Employer
Identification Number)

37087-4779
(Zip code)

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

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

Title of each class
Common Stock (Par Value $.01)
Rights to Purchase Series A Junior Participating
Preferred Stock (Par Value $0.01)

Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the

Securities Act. Yes (cid:59) No (cid:133)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of

the Act. Yes (cid:133) No (cid:59)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days. Yes (cid:59) No (cid:133)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes (cid:59) No (cid:133)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of
this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (cid:59)

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

Large accelerated filer (cid:59)
Smaller reporting company (cid:133)

Accelerated filer (cid:133)
Emerging growth company (cid:133)

Non-accelerated filer (cid:133)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. (cid:133)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:133) No (cid:59)

The aggregate market value of voting stock held by nonaffiliates of the registrant as of January 27, 2017 (the

last business day of the registrant’s most recently completed second fiscal quarter) was $3,779,368,550.

As of September 14, 2017, there were 24,055,682 shares of common stock outstanding.

Documents Incorporated by Reference

Document from which Portions
are Incorporated by Reference

1. Proxy Statement for Annual Meeting of

Shareholders to be held November 16, 2017
(the “2017 Proxy Statement”)

Part of Form 10-K
into which incorporated

Part III

PART I

PAGE

INTRODUCTION ..................................................................................................................................................... 4(cid:3)

ITEM 1. BUSINESS ............................................................................................................................................. 5(cid:3)
ITEM 1A. RISK FACTORS ................................................................................................................................... 10(cid:3)

ITEM 1B. UNRESOLVED STAFF COMMENTS .................................................................................................. 22(cid:3)
ITEM 2. PROPERTIES ...................................................................................................................................... 22(cid:3)

ITEM 3. LEGAL PROCEEDINGS ...................................................................................................................... 23(cid:3)
EXECUTIVE OFFICERS OF THE REGISTRANT ................................................................................ 23(cid:3)

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES ..................................................................... 24(cid:3)

ITEM 6. SELECTED FINANCIAL DATA ............................................................................................................. 25(cid:3)

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

OF OPERATIONS.................................................................................................................................. 26(cid:3)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ................................ 41(cid:3)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .............................................................. 43(cid:3)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE ................................................................................................................... 68(cid:3)
ITEM 9A. CONTROLS AND PROCEDURES ....................................................................................................... 69(cid:3)

ITEM 9B. OTHER INFORMATION ....................................................................................................................... 71

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ................................... 71(cid:3)
ITEM 11. EXECUTIVE COMPENSATION ........................................................................................................... 71(cid:3)

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS .............................................................................................. 71(cid:3)

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE ..................................................................................................................................71(cid:3)

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES ........................................................................... 71

ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES.................................................................. 71(cid:3)

PART IV

INDEX TO EXHIBITS ............................................................................................................................................ 72(cid:3)

SIGNATURES ....................................................................................................................................................... 75(cid:3)

General

INTRODUCTION

This report contains references to years 2017, 2016 and 2015, which represent our fiscal years ended July
28, 2017, July 29, 2016 and July 31, 2015, 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 stores) 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, those 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 the 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.

ITEM 1. BUSINESS

OVERVIEW

PART I

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.

Cracker Barrel Old Country Store Concept

As of September 14, 2017, we operated 645 Cracker Barrel stores in 44 states. None of our stores are
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 and toys, apparel, cookware and foods. All stores are
freestanding buildings. Store interiors are subdivided into a dining room occupying approximately 26% of the total
interior store space, a gift shop occupying approximately 22% of such space and the balance primarily consisting of
kitchen, storage and training areas. 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 that can be used by guests while waiting for a table in our dining room or after enjoying a meal and are sold
by the gift shop. The kitchens contain modern food preparation and storage equipment allowing for flexibility in
menu variety and development.

Products: Our restaurants, which generated approximately 80% of our total revenue in 2017, offer home-style
country cooking featuring many of our own recipes that emphasize authenticity and quality. Our restaurants serve
breakfast, lunch and dinner daily. Menu items are moderately priced. The restaurants do not serve alcoholic
beverages.

Breakfast items can be ordered at any time throughout the day and include juices, eggs, pancakes, fruit and
yogurt parfaits, bacon, country ham, sausage, grits, and a variety of biscuit specialties, such as gravy and biscuits
and country ham and biscuits. Lunch and dinner items include country ham, chicken and dumplings, chicken fried
chicken, meatloaf, country fried steak, pork chops, fish, steak, roast beef, vegetable plates, a variety of salads,
sandwiches, soups, fresh side items and specialty items such as pinto beans and turnip greens. We also offer
lower calorie breakfast, lunch and dinner items, which are full of flavor but with fewer calories. Additionally, we may
from time to time feature new items as off-menu specials or in 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 for both breakfast and lunch/dinner. The average check per guest during
2017 was $10.19, which represents a 1.6% increase over the prior year. We served an average of approximately
7,000 restaurant guests per week in a typical store in 2017.

The following table highlights the price ranges for our meals in 2017:

Breakfast
Lunch and Dinner

Price Range
$3.39 to $11.99
$4.49 to $16.69

The following table highlights each day-part’s percentage of restaurant sales in 2017:

Breakfast Day-Part (until 11:00 a.m.)
Lunch Day-Part (11:00 a.m. to 4:00 p.m.)
Dinner Day-Part (4:00 p.m. to close)

Percentage of
Restaurant
Sales in 2017
24%
39%
37%

We also offer items for sale in our gift shops that are featured on, or related to, the restaurant menu, such as
pies, cornbread mix, coffee, syrups and pancake mixes. Our gift shops, which generated approximately 20% of our
total revenue in 2017, offer a wide variety of decorative and functional items such as rocking chairs, seasonal gifts,
apparel, toys, music CDs, cookware and various other gift items, as well as various candies, preserves and other
food items.

The following table highlights the five categories which accounted for the largest shares of our retail sales in

2017:

Apparel and Accessories
Food
Décor
Toys
Bed and Bath

Percentage of
Retail Sales in
2017
30%
18%
13%
11%
8%

Our typical gift shop features approximately 4,800 stock keeping units. A selection of the 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 $427 per square foot in 2017) as compared to mall stores both by offering
appealing merchandise and by having a significant source of customers who are typically our restaurant guests.

We also sell certain licensed food products under the “CB Old Country Store” brand name in the grocery store
and retail channels. These licensed food products currently include ham, bacon, deli meat, jerky, summer sausage,
baking mix and gravy mix.

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. 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 core and seasonal themes. Our seasonal themes are designed to
create interest and excitement in our stores by providing our guests with additional choices. Our licensees develop
new licensed food products under our direction for consideration and approval.

Store Management and Quality Controls: At each store, our store management typically consists of one
general manager, four associate managers and one retail manager. Our store management is responsible for
an average of 104 employees operating two shifts. The relative complexity of operating one of our stores
requires an effective management team at the individual store level. To motivate store managers to improve
sales and operational performance, we maintain bonus plans designed to provide store managers with an
opportunity to share in the profits of their store. The bonus plans also reward managers who achieve specific
operational targets. Each store is assigned to both a restaurant and a retail district manager which each report
to a regional vice president.

To ensure that individual stores are operated at a high level of quality, we focus significant attention on the
selection and training of store managers. The store management recruiting and training program begins with an
evaluation and screening process. In addition to multiple interviews and verification of background and experience,
we conduct assessments designed to identify those applicants most likely to be best suited to manage store
operations. Candidates who successfully pass this screening process are then required to complete a training
program. The restaurant manager training program consists of three weeks of training at our home office and five
weeks of in-store training. The retail manager training program consists of two weeks of training at our home office
and three weeks of in-store training. We believe that our training programs develop managers who can effectively
deliver a great employee and guest experience through the leadership and execution of our operating systems.
These programs allow new managers the opportunity to become familiar with our operations, culture, management
objectives, controls and evaluation criteria before assuming management responsibility. 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.

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; and
Ft. Mill, South Carolina. 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 three times a week through a network of approximately
fifty independent produce suppliers. Fluid dairy is delivered three times a week through approximately fifty regional
dairies, the majority of which are under the ownership of two separate companies.

The following table highlights the five food categories which accounted for the largest shares of our food

purchasing expense in 2017:

Beef
Dairy (including eggs)
Fruits and vegetables
Poultry
Pork

Percentage of
Food Purchases
in 2017
14%
12%
12%
11%
10%

Each of these categories includes several individual items. The single food item within these categories
that accounted for the largest share of our food purchasing expense in 2017 was chicken tenders at
approximately 5% of total food purchases. Dairy, fruits and vegetables are purchased through numerous
vendors, including local vendors. Eggs are purchased through three vendors. We purchase our pork through
five vendors, poultry through eight vendors and beef through nine vendors. Should any food items from a
particular vendor become unavailable, we generally believe that these food items could 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 2017) directly from domestic and
international vendors and warehouse, or crossdock, such items at our retail distribution center in Lebanon,
Tennessee, which we lease. 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 a third-party
dedicated freight line. 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 2017 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.

Operational and Inventory Controls: Our information technology and telecommunications systems and various
analytical tools are used to evaluate store operating information and provide management with reports to support
prompt detection of unusual variances in food costs, labor costs or operating expenses. Management also
monitors individual store restaurant and retail sales on a daily basis and closely monitors sales mix, sales trends,
operational costs and inventory levels. The information generated by the information technology and
telecommunication systems, analysis tools and monitoring processes is used to manage the operations of each
store, replenish retail inventory levels and facilitate retail purchasing decisions. These systems and processes also
are used in the development of forecasts, budget analyses and planning.

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 2017, we had over 1,600 billboards and this expenditure accounts for approximately one-third of
total advertising spend annually. We believe we are among the top billboard advertisers in the restaurant industry.
Our use of non-billboard media has increased in recent years as we look to build market awareness for local
occasions. This increased support has used broadcast television, national cable and digital support. In 2017, we
ran media in each quarter. We continued to increase our efforts in the digital space to drive preference and
engagement with the brand. We now have properties on multiple social media sites, an e-commerce platform and
our brand site. Our exclusive music program drives awareness for the brand and builds cultural relevance and
affinity with our guests. We plan to continue to have multiple releases each year with specific promotional support
for each release. In 2017, we spent approximately 2.9% of our revenues on advertising.

Store Development: We opened six new stores in 2017. We plan to open eight to nine new stores during
2018. As of September 14, 2017, approximately 83% of our stores are located along interstate highways. Our
remaining stores are located off-interstate or near tourist destinations. We believe we should pursue
development of both interstate locations and off-interstate locations to capitalize on the strength of our brand
associated with travelers on the interstate highway system and by locating in certain local markets where our
guests live and work, including locations outside of our existing core markets and in states where we currently
do not operate.

Of the 645 stores open as of September 14, 2017, we own the land and buildings for 418, while the other
227 properties are either ground leases or ground and building leases. Land costs for stores opened during
2017 averaged $596 per site if owned. Building, site improvement, furniture, equipment and related
development costs for stores opened during 2017 averaged $3,942. Pre-opening costs averaged $544 per
store in 2017.

Our current store prototype is approximately 9,000 square feet, including approximately 2,100 square feet
of retail selling space, and has dining room seating for approximately 180 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.

Holler & Dash Concept

In 2016, the Company launched its new fast casual concept, Holler & Dash Biscuit HouseTM. The concept
offers biscuit-inspired entrées and a unique portfolio of alcoholic and non-alcoholic beverage options. We
opened two new locations in 2017. We plan to open three to four new locations in 2018. At September 14,
2017, five Holler & Dash locations were open - all leased properties in Alabama, Florida, Tennessee and
Georgia. The new concept is a smaller footprint and has operating hours limited to the breakfast and lunch day
parts.

EMPLOYEES

As of July 28, 2017, we employed approximately 73,000 people, of whom 529 were in advisory and supervisory
capacities, 3,547 were in-store management positions and 38 were officers. Many store personnel are employed
on a part-time basis. None of our employees is represented by any union, and management considers its
employee relations to be good.

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 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. We expect competition to continue in all of these areas, which
could cause consumers to choose less expensive alternatives. 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. In addition, 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 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 several 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.

ENVIRONMENTAL MATTERS

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 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 has a lower product turnover than the restaurant, we carry larger inventories than many other
companies in the restaurant industry. Retail inventories are generally financed through trade credit at terms of 60
days or less. These various trade terms are aided by rapid 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.

ITEM 1A. RISK FACTORS

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.

General economic, business and societal conditions as well as those specific to the restaurant or retail
industries that are largely out of our control may adversely affect our business, financial condition and
results of operations.

Our business results depend on a number of industry-specific and general economic factors, many of which
are beyond our control. These factors include consumer income, interest rates, inflation, consumer credit
availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence
consumer confidence and spending. The full-service dining sector of the restaurant industry and the retail
industry are affected by changes in national, regional and local economic conditions, seasonal fluctuation of
sales volumes, consumer preferences, including changes in consumer tastes and dietary habits and the level of
consumer acceptance of our restaurant concept and retail merchandise, and consumer spending patterns.

Discretionary consumer spending, which is critical to our success, is influenced by general economic
conditions and the availability of discretionary income. Global economic factors and a weak economic recovery
have reduced consumer confidence and affected consumers’ ability or desire to spend disposable income. A
deterioration in the economy or other economic conditions affecting disposable consumer income, such as
unemployment levels, reduced home values, investment losses, inflation, business conditions, fuel and other
energy costs, consumer debt levels, lack of available credit, consumer confidence, interest rates, tax rates and
changes in tax laws, may adversely affect our business by reducing overall consumer spending or by causing
customers to reduce the frequency with which they shop and dine out or to shift their spending to our
competitors or to products sold by us that are less profitable than other product choices, all of which could result
in lower revenues, decreases in inventory turnover, greater markdowns on inventory, and a reduction in
profitability due to lower margins.

In addition, many of the factors discussed above, along with the current economic environment and the
related impact on available credit, may affect us and our suppliers and other business partners, landlords, and
customers in an adverse manner, including, but not limited to, reducing access to liquid funds or credit
(including through the loss of one or more financial institutions that are a part of our revolving credit facility),
increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk of bankruptcy of
our suppliers, landlords or counterparties to or other financial institutions involved in our revolving credit facility
and our derivative and other contracts, increasing the cost of goods to us, and other adverse consequences
which we are unable to fully anticipate.

We also cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to
combat terrorism, military action against any foreign state or group located in a foreign state or heightened
security requirements on the economy or consumer confidence in the United States. Any of these events could
also affect consumer sentiment and confidence that in turn affect consumer spending patterns or result in
increased costs for us due to security measures.

Unfavorable changes in the factors described above or in other business and economic conditions affecting
our customers could increase our costs, reduce traffic in some or all of our locations or impose practical limits
on pricing, any of which could lower our profit margins and have a material adverse effect on our financial
condition and results of operations.

There can be no assurance that the economic conditions that have adversely affected the restaurant and
retail industries, and the capital, credit and real estate markets generally or us in particular will remain static in
2018, or thereafter, in which case we could experience declines in revenues and profits, and could face capital
and liquidity constraints or other business challenges.

We face intense competition, and if we are unable to continue to compete effectively, our business,
financial condition and results of operations would 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. Competition from other regional or national restaurant and retail chains
typically represents 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. 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 competitive pressures 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.

The price and availability of food, ingredients, retail merchandise and utilities used by our stores could
adversely affect our revenues and results of operations.

We are subject to the general risks of inflation, and our operating profit margins and results of operations
depend significantly on our ability to anticipate and react to changes in the price, quality and availability of food
and other commodities, ingredients, retail merchandise, utilities and other related costs over which we have
limited control. Fluctuations in economic conditions, weather, demand and other factors affect the availability,
quality and cost of the ingredients and products that we buy. Some climatologists predict that the long-term
effects of climate change may result in more severe, volatile weather, which could result in greater volatility in
product supply and price. Furthermore, many of the products that we use and their costs are interrelated.
Changes in global demand for corn, wheat and dairy products could cause volatility in the feed costs for poultry
and livestock. 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. In addition, food
safety concerns, widespread outbreaks of livestock and poultry diseases, such as, among other things, the
Avian Flu, and product recalls, all of which are out of our control, and, in many instances, unpredictable, could
also increase our 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. In addition, because we provide a moderately-priced
product, we may not seek to or be able to pass along price increases to our customers sufficient to completely
offset cost increases.

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 rely to improve our results of operations and financial
condition. These priorities and initiatives include, but are not limited to, tiered menu pricing, evolving our
marketing messaging to support the brand, improving the quality and breadth of retail assortments, 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 our new fast casual concept, and
extending the brand beyond our existing stores, including initiatives to sell licensed products through grocery
and other retail channels and through evaluating strategic transactions such as 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 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. Even though recent trends in employee turnover have
been favorable, if store management and staff turnover were to increase, we could suffer 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 be operated with reduced staff, which negatively
affects our ability to provide appropriate service levels to our customers. 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 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:

fluctuating currency exchange rates or control regulations;
foreign government regulations;
import/export restrictions and product testing regulations;
foreign political and economic instability;

•
•
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•
• disruptions due to labor stoppages, strikes or slowdowns, or other disruptions, involving our vendors or the

•

transportation and handling industries; and
tariffs, trade barriers and other trade restrictions by the U.S. government on products or components
shipped from foreign sources.

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.

Health concerns, government regulation relating to the consumption of food products and widespread
infectious diseases could affect consumer preferences and could negatively affect our results of
operations.

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 health concerns about the consumption of beef or chicken 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, the bird/Avian Flu, peanut and other food
allergens, and other public health concerns affecting the food supply, including beef, chicken, pork, dairy and
eggs. In addition, if a regional or global health pandemic occurs, depending upon its location, duration and
severity, our business could be severely affected. In the event a health pandemic occurs, customers might
avoid public places, and local, regional or national governments might limit or ban public gatherings to halt or
delay the spread of disease. A regional or global health pandemic might also adversely affect our business by
disrupting or delaying production and delivery of materials and products in our supply chain and by causing
staffing shortages in our stores. In addition, government regulations or the likelihood of government regulation
could increase the costs of obtaining or preparing food products. 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 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 affecting either of
these warehouses 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 and 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.

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. Any of these factors could have an adverse effect on our results of operations, cash flows
from operations and our financial condition.

If we fail to execute our business strategy, which includes our ability to find new store locations and
open new stores that are profitable, our business could suffer.

One of the means of achieving our growth objectives is opening and operating new and profitable stores.
This strategy involves numerous risks, and we may not be able to open all of our planned new stores and the
new stores that we open may not be profitable or as profitable as our existing stores.

A significant risk in executing our business strategy is locating, securing and profitably operating an
adequate supply of suitable new store sites. Competition for suitable store sites and operating personnel in our
target markets is intense, and there can be no assurance that we will be able to find sufficient suitable locations,
or negotiate suitable purchase or lease terms, for our planned expansion in any future period. Recently, our
target markets have been expanded to include markets that are outside of our existing core markets and in
states where we currently do not have existing operations, which increases the risk of executing our business
strategy. The recession and current economic conditions have reduced commercial development activity and
limited the availability of attractive sites for new stores. New stores typically experience an adjustment period
before sales levels and operating margins normalize, and even sales at successful newly-opened stores
generally do not make a significant contribution to profitability in their initial months of operation. Our ability to
open and operate new stores successfully also depends on numerous other factors, some of which are beyond
our control, including, among other items discussed in other risk factors, the following: our ability to control
construction and development costs of new stores; our ability to manage the local, state or other regulatory
approvals and permits, zoning and licensing processes in a timely manner; our ability to appropriately train
employees and staff the stores; consumer acceptance of our stores in new markets; our ability to manage
construction delays related to the opening of a new store. Delays or failures in opening new stores, or
achieving lower than expected sales in new stores, or drawing a greater than expected proportion of sales in
new stores from existing stores, could materially adversely affect our business strategy and could have an
adverse effect on our business and results of operations.

A material disruption in our information technology, network infrastructure and telecommunication
systems could adversely affect 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 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. Any
material interruption in our information technology and telecommunication systems could adversely affect our
business or results of operations.

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. The regulatory environment surrounding information security and privacy is increasingly
demanding, with the frequent imposition of new and constantly changing requirements. 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 prohibit 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, fines, a loss of the ability to process credit and debit card payments, litigation and serious disruption
of our operations. Additionally, any resulting negative publicity could significantly harm our reputation.

Our capital structure contains significant indebtedness, which may decrease our flexibility, increase
our borrowing costs and adversely affect our liquidity. In addition, we cannot provide any guaranty 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 our leverage ratio may have the effect, among other things, of reducing
our flexibility to respond to changing business and economic conditions and increasing borrowing costs. There
are various financial covenants and other restrictions in our revolving credit facility. If we fail to comply with any
of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and
payable prior to its stated maturity. A default under our credit agreement 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 affect our
liquidity and results of operations.

In recent years, we have increased the quarterly cash dividends on our common stock and, in 2015, 2016
and 2017, we also declared special dividends on our common stock. Any determination to pay cash dividends
on our common stock in the future will be based primarily upon our financial condition, results of operations,
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.

Our advertising is heavily dependent on billboards, which are highly regulated; and our evolving
marketing strategy involves increased advertising and marketing costs that could adversely affect our
results of operations.

Historically, we have relied upon billboards as our principal method of advertising. A number of states in
which we operate restrict highway signage and billboards. Because many of our stores are located on the
interstate highway system, our business is highly related to highway travel. Thus, signage or billboard
restrictions or loss of existing signage or billboards could adversely affect our visibility and ability to attract
customers.

Additionally, as we continue to evolve our marketing strategy, we are increasingly utilizing more traditional
and higher cost methods of advertising, such as national cable television, radio and online and digital media.
These types of advertising, their effects upon our revenues and, in turn, our profits, are uncertain. Additionally,
if our competitors increased their spending on advertising and promotions, we could be forced to substantially
increase our advertising, media or marketing expenses. If we did so or if our current advertising and promotion
programs become less effective, we could experience a material adverse effect on our results of operations.

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, food-borne illness, product defects, personal injury, adverse
health effects (including obesity) or other concerns stemming from one or a limited number of our stores. Even
when the allegations or complaints are not valid, unfavorable publicity relating to a limited number of our stores,
or only to a single store, could adversely affect public perception of the entire brand. Additionally, negative
publicity from online social network postings may also result from actual or alleged incidents taking place in our
stores. 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.

Our business is somewhat seasonal and also can be affected by extreme weather conditions and
natural disasters.

Historically, our highest sales and profits have occurred during the second and fourth quarters, which
include the holiday shopping season and the summer vacation and travel season. Retail sales historically have
been seasonally higher between Thanksgiving and Christmas. Therefore, the results of operations for any
quarter or period of less than one year cannot be considered indicative of the operating results for an entire
year.

Additionally, extreme weather conditions in the areas where our stores are located can adversely affect our
business. For example, frequent or unusually heavy snowfall, ice storms, rain storms, floods, droughts or other
extreme weather conditions over a prolonged period could make it difficult for our customers to travel to our
stores and can disrupt deliveries of food and supplies to our stores and thereby reduce our sales and
profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended
periods of unseasonably warm temperatures during the winter season or cool weather during the summer
season could render a portion of our retail inventory incompatible with those unseasonable conditions.
Reduced sales from extreme or prolonged unseasonable weather conditions could adversely affect our
business. These risks may be exacerbated in the future as some climatologists predict that the long-term
effects of climate change may result in more severe, volatile weather.

In addition, natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or
other factors, could severely damage or destroy one or more of our stores, warehouses or suppliers located in
the affected areas, thereby disrupting our business operations for a more extended period of time.

Individual store locations are affected by local conditions that could change and adversely affect the
carrying value of those locations.

The success of our business depends on the success of individual locations, which in turn depends on
stability of or improvements in operating conditions at and around those locations. Our revenues and expenses
can be affected significantly by the number and timing of the opening of new stores and the closing, relocating
and remodeling of existing stores. We incur substantial pre-opening expenses each time we open a new store
and other expenses when we close, relocate or remodel existing stores. The expenses of opening, closing,
relocating or remodeling any of our stores may be higher than anticipated. An increase in such expenses could
have an adverse effect on our results of operations. Also, as demographic and economic patterns (e.g.,
highway or roadway traffic patterns, concentrations of general retail or hotel activity, local population densities
or increased competition) change, current locations may not continue to be attractive or profitable. Possible
declines in neighborhoods where our stores are located or adverse economic conditions in areas surrounding
those neighborhoods could result in reduced revenues in those locations. The occurrence of one or more of
these events could have a material adverse effect on our revenues and results of operations as well as the
carrying value of our individual locations.

Our expansion into new geographic markets may present increased risks due to our relative
unfamiliarity with these markets.

Some of our new store locations may be located in areas where we have lower market presence and, as a
result, less or no meaningful business experience than in our traditional, existing markets. Those new markets
may have different competitive conditions, consumer tastes and discretionary spending patterns than our
traditional, existing markets, which may cause our new store locations to be less successful than restaurants in
our existing markets. An additional risk of expanding into new markets is the potential for lower or lacking
market awareness of our brand in those areas. Stores opened in new markets may open at lower average
weekly sales volumes than stores opened in existing markets and may have higher store-level operating
expense ratios than in existing markets. Sales at stores opened in new markets may take longer to reach
average unit volume and margins, if at all, thereby affecting our overall profitability.

We are subject to a number of risks relating to federal, state and local regulation of our business,
including the areas of minimum wage increases, health care reform and environmental matters, and an
insufficient or ineffective response to government regulation may increase our costs and decrease our
profit margins.

The restaurant industry is subject to extensive federal, state and local laws and regulations, including those
relating to food safety, minimum wage and other labor issues (such as unionization), health care, menu labeling
and building and zoning requirements and those relating to the preparation and sale of food as well as certain
retail products. The development and operation of our stores depend to a significant extent on the selection
and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other
regulations and requirements. We are also subject to licensing and regulation by state and local authorities
relating to health, sanitation, safety and fire standards, federal and state laws governing our relationships with
employees (including the Fair Labor Standards Act of 1938, the Immigration Reform and Control Act of 1986,
the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and
applicable requirements concerning minimum wage, overtime, healthcare coverage, family leave, medical
privacy, tip credits, working conditions, safety standards and immigration status), federal and state laws which
prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans
With Disabilities Act of 1990. In addition, we are subject to a variety of federal, state and local laws and
regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. We also face
risks from new and changing laws and regulations relating to gift cards, nutritional content, nutritional labeling,
product safety and menu labeling. Compliance with these laws and regulations can be costly and can increase
our exposure to litigation or governmental investigations or proceedings.

Increases in state or federal minimum wage rates, including recent proposals to increase state or federal
minimum wage rates and index future increases to inflation, or other changes in these laws could increase our
labor costs. Our ability to respond to minimum wage increases by increasing menu prices will depend on the
responses of our competitors and customers. Our distributors and suppliers also may be affected by higher
minimum wage and benefit standards and tracking costs, which could result in higher costs for goods and
services supplied to us.

The Patient Protection and Affordable Care Act and the Health Care and Education Affordability
Reconciliation Act of 2010, was enacted in 2010 and, in June 2012, the U.S. Supreme Court upheld the
constitutionality of the law except for certain parts related to the expansion of Medicaid. Although we cannot
predict with certainty the financial and operational impacts the law will have on us, such changes could affect
our business, financial condition and results of operations. The law requires restaurant companies such as
ours to disclose calorie information on their menus. We do not expect to incur any material costs from
compliance with this provision of the law, but cannot anticipate the changes in guest behavior that could result
from the implementation of this provision, which could have an adverse effect on our sales or results of
operations.

There also has been increasing focus by U.S. and foreign governmental authorities on environmental
matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased
focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters,
such as the emission of greenhouse gases, where “cap and trade” initiatives could effectively impose a tax on
carbon emissions. Legislative, regulatory or other efforts to combat climate change or other environmental
concerns could result in future increases in taxes, the cost of raw materials, transportation and utilities, which
could decrease our operating profits and necessitate future investments in facilities and equipment.

The impact of current laws and regulations, the effect of future changes in laws or regulations that impose
additional requirements and the consequences of litigation relating to current or future laws and regulations
could increase our compliance and other costs of doing business and therefore have an adverse effect on our
results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local
authorities could result in, among other things, revocation of required licenses, administrative enforcement
actions, fines and civil and criminal liability. Compliance with these laws and regulations can be costly and can
increase our exposure to litigation or governmental investigations or proceedings. Also, the failure to obtain
and maintain required licenses, permits and approvals could adversely affect our operating results. Typically,
licenses must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if
governmental authorities determine that our conduct violates applicable regulations, which could adversely
affect our business and results of operations.

Failure to maximize or to successfully assert our intellectual property rights could adversely affect our
business and results of operations.

We rely on trademark, trade secret and copyright laws to protect our intellectual property rights. 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. Our failure to
perfect 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.

We outsource certain business processes to third-party vendors that subject us to risks, including
disruptions in business and increased costs; our use of third party technologies has increased and if
we are unable to maintain our rights to these technologies our business may be harmed.

Some of our business processes are currently outsourced to third parties. Such processes include
distribution of food and retail products to our store locations, credit and debit card authorization and processing,
gift card tracking and authorization, employee payroll card services, health care and workers’ compensation
insurance claims processing, wage and related tax credit documentation and approval, guest satisfaction
survey programs, employee engagement surveys and externally hosted business software applications. We
cannot ensure that all providers of outsourced services are observing proper internal control practices, such as
redundant processing facilities, and there are no guarantees that failures will not occur. Failure of third parties
to provide adequate services could have an adverse effect on our financial condition and results of operations.

We rely on certain technology licensed from third parties and may be required to license additional
technology in the future for use in managing our Internet sites and providing services to our guests and
employees. These third-party technology licenses may not continue to be available to us on acceptable terms
or at all. The inability to enter into and maintain these technology licenses could adversely affect our business.

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of litigation by employees, guests, suppliers, shareholders, governmental
agencies, competitors or others through private actions, class actions, administrative proceedings, regulatory
actions or other litigation. These actions and proceedings may involve allegations of illegal, unfair or
inconsistent employment practices, including wage and hour violations and employment discrimination; guest
discrimination; food safety issues, including poor food quality, food-borne illness, food tampering, food
contamination, and adverse health effects from consumption of various food products or high-calorie foods
(including obesity); other personal injury; trademark and patent infringement; violation of the federal securities
laws; or other concerns. The outcome of litigation, particularly class action lawsuits and regulatory actions, is
difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or
indeterminate amounts and the magnitude of the potential loss relating to such lawsuits may remain unknown
for substantial periods of time. The cost to defend future litigation may be significant. There may also be
adverse publicity associated with litigation that could decrease guest or consumer acceptance of our brand,
regardless of whether the allegations are valid or we ultimately are found liable. Litigation could adversely
impact our operations and our ability to expand our brand in other ways as well. As a result, litigation may
adversely affect our business, financial condition and results of operations.

The loss of key executives or difficulties in recruiting and retaining qualified personnel could jeopardize
our future growth and success.

We have assembled a senior management team which has substantial background and experience in the
restaurant and retail industries. Our future growth and success depends substantially on the contributions and
abilities of our senior management and other key personnel, and we design our compensation programs to
attract and retain key personnel and facilitate our ability to develop effective succession plans. If we fail to
attract or retain senior management or other key personnel, our succession planning and operations could be
materially and adversely affected. We must continue to recruit, retain and motivate management and other
employees sufficiently to maintain our current business and support our projected growth. A loss of key
employees or a significant shortage of high quality store employees could jeopardize our ability to meet our
business goals.

Our current insurance programs may expose us to unexpected costs, which could have a material
adverse effect on our financial condition and results of operations.

Our insurance coverage is structured to include deductibles, self-insured retentions, limits of liability, stop
loss limits and similar provisions that we believe prudent based on our operations. However, there are types of
losses we may incur against which we cannot be insured or which we believe are not economically reasonable
to insure, such as losses due to acts of terrorism and some natural disasters, including floods. If we incur such
losses, our business could suffer. In addition, we self-insure a significant portion of expected losses under our
workers’ compensation, general liability and group health insurance programs. Unanticipated changes in the
actuarial assumptions and management estimates underlying our reserves for these losses, including
unexpected increases in medical and indemnity costs, could result in materially different amounts of expense
than expected under these programs.

Our annual and quarterly operating results may fluctuate significantly and could fall below the
expectations of investors and securities analysts due to a number of factors, some of which are beyond
our control, resulting either in volatility or a decline in the price of our securities.

Our business is not static – it changes periodically as a result of many factors, including, among other items

discussed in other risk factors, the following:

•

•
•

increases and decreases in guest traffic, average weekly sales, restaurant and retail sales and restaurant
profitability;
the rate at which we open new stores, the timing of new store openings and the related high initial operating
costs;
changes in advertising and promotional activities and expansion into new markets; and
impairment of long-lived assets and any loss on store closures.

Our quarterly operating results and restaurant and retail sales may fluctuate as a result of any of these or
other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected
for any other quarter or for any year, and restaurant and retail sales for any particular future period may
decrease. In the future, operating results may fall below the expectations of securities analysts and investors.
In such event, the price of our securities could fluctuate dramatically over time or could decrease generally.

Failure of our internal control over financial reporting could adversely affect our business and financial
results.

Our management is responsible for establishing and maintaining effective internal control over financial
reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the
reliability of financial reporting for external purposes in accordance with the United States generally accepted
accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that we would prevent or detect a misstatement of our financial
statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could
limit our ability to report our financial results accurately and timely or to detect and prevent fraud. The
identification of a material weakness could indicate a lack of controls adequate to generate accurate financial
statements that, in turn, could cause a loss of investor confidence and decline in the market price of our
common stock. We cannot assure you that we will be able to timely remediate any material weaknesses that
may be identified in future periods or maintain all of the controls necessary for continued compliance. Likewise,
we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel,
especially in light of the increased demand for such personnel among publicly traded companies.

Our reported results can be affected adversely and unexpectedly by the implementation of new, or
changes in the interpretation of existing, accounting principles or financial reporting requirements.

Our financial reporting complies with GAAP, and GAAP is subject to change over time. If new rules or
interpretations of existing rules require us to change our financial reporting (including the upcoming lease
accounting changes and the proposed adoption of international financial reporting standards in the United
States), our reported results of operations and financial condition could be affected substantially, including
requirements to restate historical financial reporting.

Our business could be negatively affected as a result of actions of activist shareholders.

The Lion Fund II, L.P., an affiliate of Biglari Holdings Inc. (“BH”), the owner of Steak N Shake and Western
Sizzlin’ restaurants, is the beneficial owner of approximately 19.7% of our outstanding common stock as of
June 7, 2017 (based on Schedule 13D/A filed with the SEC on June 12, 2017 by BH). In the past, BH and its
affiliates have nominated candidates for election to our board of directors at our annual meetings of
shareholders, resulting in proxy contests, and called publicly for special meetings of shareholders to consider
other proposals. While BH and its affiliates have not nominated director candidates for election at our 2017
Annual Meeting of Shareholders, the actions of BH and its affiliates or another activist shareholder in the future
could adversely affect our business because:

•

responding to public proposals, special meeting requests and other actions by activist shareholders can
disrupt our operations, be costly and time-consuming, and divert the attention of our management and
employees;

• perceived uncertainties as to our future direction may result in the loss of potential business opportunities,

and may make it more difficult to attract and retain qualified personnel and business partners; and

• pursuit of an activist shareholder’s agenda may adversely affect our ability to effectively implement our

business strategy and create additional value for our shareholders.

Provisions in our charter, Tennessee law and our shareholder rights plan may discourage potential
acquirers of the Company.

Our charter documents contain provisions that may have the effect of making it more difficult for a third
party to acquire or attempt to acquire control of the Company. In addition, we are subject to certain provisions
of Tennessee law that limit, in some cases, our ability to engage in certain business combinations with
significant shareholders. In addition, we have adopted a shareholder rights plan, which provides, among other
things, that when specified events occur, our shareholders will be entitled to purchase from us shares of junior
preferred stock. The shareholder rights plan will expire on April 9, 2018. The preferred stock purchase rights
are triggered ten days after the date of a public announcement that a person or group acting in concert has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more of our outstanding common
stock. The preferred stock purchase rights would cause dilution to a person or group that attempts to acquire
the Company on terms that do not satisfy the requirements of a qualifying offer under the shareholder rights
plan or are otherwise not approved by our Board of Directors.

These provisions, either alone or in combination with each other, give our current directors and executive
officers a substantial ability to influence the outcome of a proposed acquisition of the Company. These
provisions would apply even if an acquisition or other significant corporate transaction was considered
beneficial by some of our shareholders. If a change in control or change in management is delayed or
prevented by these provisions, the market price of our securities could decline.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our home office headquarters and warehouse facilities are located on approximately 90 acres of land owned
by the Company in Lebanon, Tennessee. We use approximately 245,000 square feet of office space for our home
office headquarters and decorative fixtures warehouse. We also lease our retail distribution center, which consists
of approximately 370,000 square feet of warehouse facilities and an additional approximately 14,000 square feet of
office and maintenance space.

In addition to the various corporate facilities, we have five owned properties for future development, a motel
used for housing management trainees and for the general public, and four parcels of excess real property and
improvements that we intend to sell.

In addition to the properties mentioned above, we own or lease the following store properties (including both
our 645 Cracker Barrel Old Country Store locations and five locations for our Holler & Dash brand) as of September
14, 2017:

State
Tennessee
Florida
Texas
Georgia
North Carolina
Kentucky
Alabama
Virginia
Ohio
Indiana
South Carolina
Pennsylvania
Illinois
Missouri
Michigan
Mississippi
Arizona
Arkansas
Louisiana
Maryland
New York
West Virginia

Owned
37
40
33
31
24
22
21
19
22
22
14
9
19
14
13
10
2
5
8
3
8
3

Leased
15
19
18
17
16
14
11
13
9
7
12
14
2
3
3
4
11
7
2
6
1
6

State

Oklahoma
New Jersey
Wisconsin
Colorado
Kansas
Massachusetts
New Mexico
Utah
Idaho
Iowa
Connecticut
Montana
Nebraska
Nevada
Delaware
Maine
Minnesota
New Hampshire
North Dakota
Oregon
Rhode Island
South Dakota
Total

Owned
6
2
5
3
3
0
3
4
2
3
1
2
1
0
0
0
1
1
1
0
0
1
418

Leased
2
4
0
1
1
4
1
0
1
0
1
0
1
2
1
1
0
0
0
1
1
0
232

We believe that our properties are suitable, adequate, well-maintained and sufficient for the operations
contemplated. See “Operations" and "Store Development" in Item 1 of this Annual Report on Form 10-K for
additional information on our properties.

ITEM 3. LEGAL PROCEEDINGS

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.

Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) to Form 10-K, the following
information is included in Part I of this Form 10-K.

Executive Officers of the Registrant

The following table sets forth certain information concerning our executive officers:

Name

Age

Position with the Company

Sandra B. Cochran

President and Chief Executive Officer

Jill M. Golder

Senior Vice President and Chief Financial Officer

Beverly K. Carmichael

Senior Vice President and Chief People Officer

Laura A. Daily

Senior Vice President, Retail

Nicholas V. Flanagan

Senior Vice President, Operations

Donald H. Hoffman

Senior Vice President, Marketing

Richard M. Wolfson

Senior Vice President, General Counsel and Secretary

Doug Couvillion

Senior Vice President, Sourcing and Supply Chain

Jeffrey M. Wilson

Vice President, Corporate Controller and Principal Accounting Officer

The following information summarizes the business experience of each of our executive officers for at least the

past five years:

Ms. Cochran has been employed with us since 2009 and assumed her current position as President and Chief
Executive Officer in September 2011, when she also became a member of our Board of Directors. Prior to
September 2011, Ms. Cochran served as our President and Chief Operating Officer since November 2010 and as
our Executive Vice President and Chief Financial Officer from April 2009 to November 2010. Before joining us in
April 2009, she was the Chief Executive Officer of Books-A-Million, Inc. Ms. Cochran has 24 years of experience in
the retail industry and eight years of experience in the restaurant industry.

Ms. Golder has been employed with us since April 2016 and assumed the responsibilities of Senior Vice
President and Chief Financial Officer in June 2016. Prior to April 2016, she served as Executive Vice President and
Chief Financial Officer of Ruby Tuesday, Inc. since June 2014, and as Senior Vice President, Finance from April
2013 to June 2014. Prior to her tenure with Ruby Tuesday, Inc., she was Chief Financial Officer of Cooper’s Hawk
Winery & Restaurants from December 2012 to April 2013. Before joining Cooper’s Hawk Winery & Restaurants,
Ms. Golder spent 23 years at Darden Restaurants, Inc., where she held progressively more responsible positions in
finance, including Senior Vice President of Finance. Ms. Golder has almost 30 years of experience in the
restaurant industry.

Ms. Carmichael has been employed with us in her current capacity since January 2014. Previously, she was
with Frisco, Texas-based Star HR LLC, a human resource consulting firm, which she founded in 2010 and served
as President. From 2009 to 2011, she served as an adjunct professor and advisor in the masters of business
administration program in the Price College of Business for the University of Oklahoma. Ms. Carmichael was
Executive Vice President Human Resources and Chief People Officer of Ticketmaster from 2006 to 2009. She has
over 20 years of human resources leadership experience.

Ms. Daily has been employed with us as Senior Vice President, Retail since May 2012. Prior to May 2012, she
served as Vice President for Ballard Designs, an Internet and catalog home furnishings retailer that is part of HSN,
Inc., where she was in charge of all merchandising and trends for the company. She has over 24 years of
experience as a merchant with a number of retail organizations.

Mr. Flanagan has been employed with us since 2004 and assumed his current position in November 2010.
From 2004 to 2010, he served in various capacities including Vice President of Restaurant Operations. Mr.
Flanagan has over 28 years of experience in the restaurant industry.

Mr. Hoffman has been employed with us since November 2015 and assumed his current position in April 2017.
Prior to April 2017, Mr. Hoffman served as Vice President, Marketing. Before joining us in November 2015, Mr.
Hoffman spent 20 years at DDB Worldwide Communications Group, where he held various positions including
Executive Vice President. Mr. Hoffman has almost 30 years of marketing and communications experience.

Mr. Wolfson has been employed with us in his current capacity since July 2017. From January 2006 to April
2017, he served as Vice President, General Counsel and Corporate Secretary at CLARCOR Inc., a publicly traded
(NYSE:CLC) industrial company. From 2001 to 2006, he was a partner of the InterAmerican Group, an advisory
services and private equity firm. Mr. Wolfson has over 25 years of legal experience.

Mr. Couvillion has been employed with us since 2001 and assumed his current position in November 2016.
From 2001 to 2016, he served in various capacities including Vice President of Supply Chain and Quality
Assurance and Corporate Controller and Principal Accounting Officer. Mr. Couvillion has 23 years of experience in
the restaurant industry and 16 years of experience in the retail industry.

Mr. Wilson has been employed with us since 2007 and assumed his current position in June 2015. From 2007
to 2015, he served in various capacities including Vice President, Operations Analysis. Mr. Wilson has 20 years of
experience in the restaurant industry and six years of experience in the retail industry.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market (“Nasdaq”) under the symbol “CBRL.”

There were 7,503 shareholders of record as of September 14, 2017.

The following table indicates the high and low sales prices of our common stock, as reported by Nasdaq,

and dividends declared and paid for the quarters indicated.

Fiscal Year 2017

Fiscal Year 2016

Prices

High

Low

First
Second
Third
Fourth

$162.33 $130.15
131.74
175.04
154.79
169.07
154.46
170.50

Dividends
Declared
$1.15
1.15
1.15
4.70

Dividends
Paid
$1.15
1.15
1.15
4.65

Prices

High

Low

$155.97 $117.95
118.01
141.94
124.80
156.65
144.00
172.89

Dividends
Declared
$1.10
1.10
1.10
4.40

Dividends
Paid
$4.10
1.10
1.10
4.35

See Note 5 to Consolidated Financial Statements with respect to dividend restrictions.

See the table labeled “Equity Compensation Plan Information” to be contained in the 2017 Proxy Statement,

incorporated by reference in Part III, Item 12 of this Annual Report on Form 10-K.

Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by this reference.

Unregistered Sales of Equity Securities

There were no equity securities sold by the Company during the period covered by this Annual Report on

Form 10-K that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

On September 22, 2016, our Board of Directors approved the repurchase of up to $25,000 of our common
stock, with such authorization to expire on October 6, 2017 to the extent it remains unused. We did not
repurchase any of our common stock in the fourth quarter ended July 28, 2017.

ITEM 6. SELECTED FINANCIAL DATA

Selected Income Statement Data:
Total revenue
Net income
Net income per share:

Basic
Diluted

Dividends declared per share
Dividends paid per share

As Percent of Total Revenue:
Cost of goods sold (exclusive of

depreciation and rent)

Labor and related expenses
Other store operating expenses
Store operating income
General and administrative expenses
Operating income
Income before income taxes

Selected Balance Sheet Data:
Working capital (deficit)
Total assets
Long-term debt
Long-term interest rate swap liability
Other long-term obligations
Shareholders’ equity

(Dollars in thousands except percentages and share data)
For each of the fiscal years ended

July 28,

2017

July 29,
2016

July 31,
2015(a)

August 1,
2014(b)

August 2,

2013

$ 2,926,289
201,899

$ 2,912,351
189,299

$ 2,842,284
163,903

$ 2,683,677
132,128

$ 2,644,630
117,265

8.40
8.37
8.15
8.10

30.5
34.8
19.2
15.5
4.8
10.7
10.2

7.91
7.86
7.70
10.65

31.9
34.6
19.0
14.5
4.9
9.6
9.1

6.85
6.82
7.10
4.00

32.5
34.9
18.4
14.2
5.2
9.0
8.4

5.55
5.51
3.25
3.00

32.5
36.0
18.9
12.6
4.8
7.8
7.1

4.95
4.90
2.25
1.90

32.3
36.5
18.2
13.0
5.4
7.6
6.3

$ (16,971)
1,521,942
400,000
6,833
129,353
544,507

$ (13,077)
1,497,664
400,000
22,070
126,608
526,443

$ 11,213
1,576,208
400,000
8,704
133,594
538,268

$ (14,789)
1,432,248
375,000
3,239
123,221
528,641

$ (13,873)
1,388,306
400,000
11,644
120,073
484,026

Selected Cash Flow Data:
Purchase of property and equipment, net
Share repurchases

$ 110,108
--

$ 113,360
14,653

$ 90,490 $ 90,564
12,473

$ 73,961
3,570

Selected Other Data:
Common shares outstanding at end of year 24,055,682
649
Stores open at end of year

23,956,134
641

23,975,755
637

23,821,227
631

23,795,327
624

Average Unit Volumes(c):

Restaurant
Retail

Comparable Store Sales(d):
Period to period increase (decrease) in

comparable store sales:

Restaurant
Retail
Number of stores in comparable base

$ 3,646
892

$ 3,651
926

$ 3,581
904

$ 3,415
873

$ 3,390
869

0.2 %
(3.7)
632

2.2 %
2.7
623

5.1 %
3.6
621

0.7 %
0.4
609

3.1 %
2.9
596

(a) We incurred approximately $3,500 in costs related to a litigation matter, which are included in general and
administrative expenses. Our debt refinancing in the second quarter of fiscal 2015 resulted in additional
interest expense of $412 related to the write-off of deferred financing costs.

(b) We incurred $4,313 in costs related to the November 2013 proxy contest and April 2014 special

shareholders’ meeting, which are included in general and administrative expenses.

(c) Average unit volumes include sales of all stores.
(d) Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year

and are measured on comparable calendar weeks.

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

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

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

• Executive Overview – a general description of our business, the restaurant and retail industries, our key

performance indicators and the Company’s performance in 2017.

• Results of Operations – an analysis of our consolidated statements of income for the three years

presented in our Consolidated Financial Statements.

• Liquidity and Capital Resources – an analysis of our primary sources of liquidity, capital expenditures

and material commitments.

• Critical Accounting Estimates – a discussion of accounting policies that require critical judgments and

estimates.

EXECUTIVE OVERVIEW

Cracker Barrel Old Country Store, Inc. (the “Company,” “our” or “we”) is a publicly traded (Nasdaq: CBRL)
company that, through its operations and those of certain subsidiaries, is principally engaged in the operation
and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. Each Cracker Barrel
store consists of a restaurant with a gift shop. The restaurants serve breakfast, lunch and dinner. The gift shop
offers a variety of decorative and functional items specializing in rocking chairs, holiday gifts, toys, apparel and
foods. As of September 14, 2017, the Company operated 645 Cracker Barrel stores located in 44 states.

Restaurant and Retail Industries

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

Additionally, economic, seasonal and weather conditions affect the restaurant and retail industries.
Adverse economic conditions and unemployment rates affect consumer discretionary income and dining and
shopping habits. Historically, interstate tourist traffic and the propensity to dine out have been much higher
during the summer months, thereby contributing to higher profits in our fourth quarter. Retail sales, which are
made substantially to our restaurant guests, are strongest in the second quarter, which includes the holiday
shopping season. Severe weather also affects restaurant and retail sales adversely from time to time.

Key Performance Indicators

Management uses a number of key performance measures to evaluate our operational and financial

performance, including the following:

Comparable store restaurant and retail sales and restaurant guest traffic consist of sales and calculated
number of guests, respectively, of stores open at least six full quarters at the beginning of the year and are
measured on comparable calendar weeks. This measure excludes the impact of new store openings.

Retail conversion is the percentage of restaurant guest traffic that make a retail purchase. Management
uses retail conversion as its metric to analyze a store’s ability to convert restaurant traffic into a retail sales
occasion.

Average check per guest is an indicator which management uses to analyze the dollars spent per guest in
our stores on restaurant purchases. This measure aids management in identifying trends in guest preferences
as well as the effectiveness of menu price increases and other menu changes.

Store operating margins are defined as total revenue less cost of goods sold (exclusive of depreciation and
rent), labor and other related expenses and other store operating expenses, all as a percentage of total
revenue. Management uses this indicator as a primary measure of operating profitability.

Company Performance in 2017

Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated

brands in the restaurant industry.

Our long-term strategy includes the following:

• Enhancing the Core business by increasing our brand’s relevance to customers in order to drive guest
traffic and sales in both restaurant and retail across demographic groups and generations and improving
our business model to reduce operating costs and further drive margins;

• Expanding the Footprint in new and developing markets while expanding our store opening pipeline to

accelerate future growth; and

• Extending the Brand by optimizing on long-term drivers, such as Holler & Dash Biscuit HouseTM, to further

drive shareholder value.

Our first strategic priority, which is to Enhance the Core business, encompasses the key sales and traffic
drivers of our business, including menu innovation, retail merchandising, and marketing programs, as well as
our cost-saving initiatives. During 2017, we introduced several seasonal menu entrées. These included entrées
like a French Dip Sandwich Platter, Mushroom Braised Pot Roast, and Peppermill Steak and Eggs Breakfast.
We also expanded our off-premise platform through our holiday Heat ‘n Serve program, adding new holiday
opportunities for the family-sized meal to be picked up in store and enjoyed at home. We are focused on
continuing to grow our off-premise platform in the future. Within advertising, we strengthened the Cracker
Barrel brand connection to our guests through multiple channels, including new television and radio messaging,
focused digital media outreach, new billboard messaging and creative, and memorable exclusive music
programs. Our retail teams merchandised our stores with collections offering broad generational appeal and
unique product assortments as we continue to introduce newness into our merchandise assortments. During
2017, we achieved cost reductions and increased our operating income margin through initiatives which
targeted labor productivity, food waste and utility expense.

Our second strategic priority is to Expand the Cracker Barrel Footprint with new store openings outside of
our core markets. We opened six new Cracker Barrel Old Country Store locations during the year, continuing
our westward expansion with new store openings in Las Vegas, Nevada and Portland, Oregon.

Our third strategic priority is to Extend the Brand outside of the Cracker Barrel store. We further developed

our fast casual brand, Holler & Dash Biscuit House, with two store openings.

Additionally, during 2017, we increased shareholder return by growing our regular quarterly dividend to
$1.20 per share. Also reflecting our commitment to a balanced approach to capital allocation, we declared a
special dividend of $3.50 per share.

We believe that our continued focus on our long-term strategy contributed to our revenue growth during the
year, positive comparable store restaurant sales for the year and higher operating margin and profit as compared
to the prior year.

RESULTS OF OPERATIONS

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

Total revenue
Cost of goods sold (exclusive of depreciation and rent)
Labor and other related expenses
Other store operating expenses
Store operating income
General and administrative
Operating income
Interest expense
Income before income taxes
Provision for income taxes
Net income

Total Revenue

Relationship to Total Revenue
2017
2016
100.0%
100.0%
31.9
30.5
34.6
34.8
19.0
19.2
14.5
15.5
4.9
4.8
9.6
10.7
0.5
0.5
9.1
10.2
2.6
3.3
6.5
6.9

2015
100.0%
32.5
34.9
18.4
14.2
5.2
9.0
0.6
8.4
2.6
5.8

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

2017

2016

2015

Revenue in dollars:
Restaurant
Retail
Total revenue

Total revenue percentage increase
Total revenue by percentage relationships:

Restaurant
Retail

Comparable number of stores
Comparable store averages per store:

Restaurant
Retail
Total

575,077

$ 2,351,212 $ 2,323,199 $ 2,269,610
572,674
589,152
$ 2,926,289 $ 2,912,351 $ 2,842,284
5.9%

0.5%

2.5%

80.3%
19.7%
632

79.8%
20.2%
623

79.9%
20.1%
621

$ 3,669
890
$ 4,559
$ 70.1
17.1

925

$ 3,670 $ 3,569
894
$ 4,595 $ 4,463
$ 70.2 $ 68.9
17.4

Restaurant average weekly sales (1)
Retail average weekly sales (1)
(1) Average weekly sales are calculated by dividing net sales by operating weeks and include all stores.

17.8

Total revenue benefited from the opening of eight new stores in 2017 and six new stores in both 2016 and

2015.

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

Period to Period
Increase (Decrease)

2017 vs 2016
(632 Stores)

2016 vs 2015
(623 Stores)

Restaurant
Retail
Restaurant & Retail
*Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year
and are measured on comparable calendar weeks.

0.2%
(3.7)
(0.6)

2.2%
2.7
2.3

Our comparable store restaurant sales increase from 2016 to 2017 resulted from a higher average check of
1.6%, primarily attributable to a 1.8% average menu price increase, partially offset by a decrease in guest traffic
of 1.4%. Our comparable store restaurant sales increase from 2015 to 2016 resulted from a higher average
check of 3.5%, primarily attributable to a 2.8% average menu price increase, partially offset by a decrease in
guest traffic of 1.3%.

Our comparable store retail sales decrease from 2016 to 2017 resulted primarily from the decrease in guest
traffic and lower performance in apparel and accessories, bed and bath, and toys merchandise categories. Our
comparable store retail sales increase from 2015 to 2016 resulted primarily from strong performance in apparel
and accessories, media, and food merchandise categories partially offset by a planned reduction in the toys
merchandise category.

Cost of Goods Sold (Exclusive of Depreciation and Rent)

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

years:

Cost of Goods Sold:
Restaurant
Retail
Total Cost of Goods Sold

2017

2016

2015

$ 595,186 $ 627,713 $ 630,417
293,754
$ 891,293 $ 928,176 $ 924,171

300,463

296,107

The following table highlights restaurant cost of goods sold as a percentage of restaurant revenue for the

past three years:

Restaurant Cost of Goods Sold

2017
25.3%

2016
27.0%

2015
27.8%

The decrease from 2016 to 2017 was primarily the result of food commodity deflation of 4.6%, our menu
price increase referenced above and lower food waste. Lower food waste accounted for 0.1% in restaurant cost
of goods sold as a percentage of restaurant revenue. The decrease from 2015 to 2016 was the result of food
commodity deflation of 0.4% and our menu price increase referenced above partially offset by a shift to higher
cost menu items. Higher cost menu items accounted for 0.1% in restaurant cost of goods sold as a percentage
of restaurant revenue.

We presently expect the rate of commodity deflation to be approximately 1.5% in 2018 as compared to

2017.

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

years:

Retail Cost of Goods Sold

2017
51.5%

2016
51.0%

2015
51.3%

The increase in retail cost of goods sold as a percentage of retail revenue in 2017 as compared to 2016
resulted primarily from higher markdowns, lower initial margin and an increase in the provision for obsolete
inventory partially offset by higher retail credits.

Markdowns
Lower initial margin
Provision for obsolete inventory
Retail credits

2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
0.4%
0.2%
0.1%
(0.3%)

The decrease in retail cost of goods sold as a percentage of retail revenue in 2016 as compared to 2015
resulted from higher initial margin and lower freight costs partially offset by higher markdowns and an increase
in the provision for obsolete inventory.

Higher initial margin
Freight
Markdowns
Provision for obsolete inventory

Labor and Related Expenses

2015 to 2016
(Decrease) Increase as a
Percentage of Total Revenue

(0.8%)
(0.1%)
0.5%
0.1%

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

Labor and other related expenses

2017
34.8%

2016
34.6%

2015
34.9%

The year-to-year percentage change from 2016 to 2017 resulted primarily from the following:

Store hourly labor
Store management compensation
Employee health care expenses

2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
0.1%
0.1%
(0.1%)

The increase in store hourly labor in 2017 as compared to 2016 resulted primarily from wage inflation

partially offset by improvements in productivity resulting from the continuation of our cost-saving initiatives.

The increase in store management compensation in 2017 as compared to 2016 was primarily the result of

an increase in variable costs resulting from a higher rate of vacancy in management headcounts.

The decrease in employee health care expenses in 2017 as compared to 2016 resulted primarily from lower

claims activity.

The year-to-year percentage change from 2015 to 2016 resulted from the following:

Store bonus expense
Payroll taxes

2015 to 2016
(Decrease) as a Percentage
of Total Revenue

(0.2%)
(0.1%)

Lower store bonus expense in 2016 as compared to 2015 was driven by lower performance against

financial objectives in 2016 as compared to the prior year.

The decrease in payroll tax expense as a percentage of total revenue in 2016 as compared to 2015

resulted primarily from lower unemployment tax rates.

Other Store Operating Expenses

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

Other store operating expenses

2017
19.2%

2016
19.0%

2015
18.4%

The year-to-year percentage change from 2016 to 2017 resulted from the following:

Depreciation
Advertising
Maintenance

2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
0.3%
0.1%
(0.2%)

The increase in depreciation expense as a percentage of total revenue for 2017 as compared to 2016

resulted from higher capital investments in 2016 and the capital additions in 2017.

The increase in advertising expense as a percentage of total revenue for 2017 as compared to 2016 is

consistent with our planned increase in advertising spend for 2017.

Lower maintenance expense as a percentage of total revenue for 2017 as compared to 2016 resulted

primarily from reduced spending on building repairs.

The year-to-year percentage change from 2015 to 2016 resulted from the following:

Advertising
Maintenance
Supplies
Depreciation
Store manager conference expense
Utilities

2015 to 2016
Increase (Decrease) as a
Percentage of Total Revenue
0.3%
0.2%
0.1%
0.1%
0.1%
(0.2%)

The increase in advertising expense as a percentage of total revenue for 2016 as compared to 2015 is

consistent with our planned increase in advertising spend for 2016.

Higher maintenance expense as a percentage of total revenue for 2016 as compared to 2015 resulted
primarily from expenses associated with the preventative maintenance and related repair of certain building
components and kitchen equipment.

The increase in supplies expense as a percentage of total revenue for 2016 as compared to 2015 resulted

primarily from a higher volume of purchases in certain categories.

The increase in depreciation expense as a percentage of total revenue for 2016 as compared to 2015

resulted from higher capital expenditures in 2016 as compared to 2015.

In the first quarter of 2016, we held a bi-annual manager conference and training event which was attended
by our store operations management team. We did not hold a manager’s conference and training event in
2015.

The decrease in utilities expense from 2015 to 2016 resulted primarily from lower natural gas prices and
usage and lower electricity costs. Lower electricity costs resulted primarily from our LED lighting installation
initiative.

General and Administrative Expenses

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

past three years:

General and administrative expenses

2017
4.8%

2016
4.9%

2015

5.2%

The year-to-year percentage changes from 2016 to 2017 and from 2015 to 2016 both resulted primarily from
lower incentive compensation. Lower incentive compensation in 2017 as compared to 2016 and in 2016 as
compared to 2015 was driven by lower performance against financial objectives as compared to each prior year
period.

Interest Expense

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

Interest expense

2017

2015
2016
$ 14,271 $ 14,052 $ 16,679

The year-to-year increase from 2016 to 2017 resulted primarily from higher weighted average interest rates.
The year-to-year decrease from 2015 to 2016 resulted primarily from lower weighted average interest rates and
the non-recurrence of $412 in deferred financing costs as a result of our debt refinancing in 2015.

Provision for Income Taxes

The following table highlights the provision for income taxes as a percentage of income before income

taxes (“effective tax rate”) for the past three years:

Effective tax rate

2017
32.4%

2016
28.9%

2015
31.2%

The increase in our effective tax rate from 2016 to 2017 resulted primarily from lower Work Opportunity Tax
Credit collections in 2017 than in the prior year and a reduction in certain reserves for uncertain tax positions in
2016. The decrease in our effective tax rate from 2015 to 2016 resulted primarily from a reduction during 2016
of our reserves for uncertain tax positions.

We presently expect our effective tax rate for 2018 to be between 31% and 32%.

LIQUIDITY AND CAPITAL RESOURCES

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

Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents

2015

2017

2016
$ 320,767 $ 271,378 $ 334,055
(88,614)
(112,515)
(109,605)
(99,347)
(273,352)
(201,127)
$ 10,035 $ (114,489) $ 146,094

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under
our revolving credit facility. Our internally generated cash, along with cash on hand at July 29, 2016, was
sufficient to finance all of our growth, dividend payments, working capital needs and other cash payment
obligations in 2017.

We believe that cash at July 28, 2017, along with cash expected to be generated from our operating
activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing
operations, our continuing expansion plans, our expected share repurchases and our expected dividend
payments for 2018.

Cash Generated from Operations

The increase in net cash flow provided by operating activities from 2016 to 2017 primarily reflected the
timing of payments for income taxes, higher net income, the timing of payroll payments as compared to prior
year due to our fiscal year end dates and lower incentive compensation payments made in 2017 as a result of
the prior year’s performance partially offset by the decrease in accounts payable. The decrease in accounts
payable reflected the results of conversion to more electronic invoice methods and lower accounts payable
related to retail inventory. The decrease in net cash flow provided by operating activities from 2015 to 2016
primarily reflected the timing of payments for accounts payable and income taxes and the change in retail
inventories.

Capital Expenditures

The following table presents our capital expenditures (purchase of property and equipment), net of

proceeds from insurance recoveries, for the last three years:

Capital expenditures, net of proceeds from insurance recoveries

2017

2016
$ 110,108 $ 113,360 $ 90,490

2015

Our capital expenditures consisted primarily of capital investments for existing stores, new store locations
and strategic initiatives. The increases in capital expenditures from 2016 to 2017 and from 2015 to 2016 both
resulted primarily from capital for existing stores, as well as an increase in the number of new store locations.

We estimate that our capital expenditures during 2018 will be between $150,000 to $160,000. This estimate
includes the acquisition of sites and construction costs of eight to nine new Cracker Barrel stores and three to four
new Holler & Dash Biscuit HouseTM locations that we plan to open during 2018, as well as acquisition and
construction costs for store locations to be opened in 2019. We also expect to increase capital expenditures for
technology and strategic initiatives, which are intended to improve the guest experience and improve margins.
We intend to fund our capital expenditures with cash generated by operations and borrowings under our revolving
credit facility, as necessary.

Borrowing Capacity and Debt Covenants

In 2015, we entered into a five-year $750,000 revolving credit facility (the “Revolving Credit Facility”). The
Revolving Credit Facility replaced a term loan totaling $181,250 and a $218,750 revolving credit facility (“Prior
Credit Facility”).

The following table highlights our borrowing capacity and outstanding borrowings under the Revolving
Credit Facility, our standby letters of credit and our borrowing availability under the Revolving Credit Facility as
of July 28, 2017:

Borrowing capacity under the Revolving Credit Facility

Less: Outstanding borrowings under the Revolving Credit Facility
Less: Standby letters of credit*

Borrowing availability under the Revolving Credit Facility
*Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and
reduce our borrowing availability under the Revolving Credit Facility.

July 28, 2017
$ 750,000
400,000
9,655
$ 340,345

We did not borrow or make any debt payments in 2017 or 2016. In 2015, we both borrowed and paid down

$6,250 under our Prior Credit Facility.

See “Material Commitments” below and Note 5 to our Consolidated Financial Statements for further

information on our long-term debt.

The Revolving Credit Facility contains customary financial covenants, which include maintenance of a
maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. We presently
are and expect to remain in compliance with the Revolving Credit Facility’s financial covenants for the
remaining term of the facility.

Dividends, Share Repurchases and Share-Based Compensation Awards

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

During each of the first three quarters of 2017, we declared a regular quarterly dividend of $1.15 per share
of our common stock. Each of these dividends was paid in the immediately following quarter. Additionally,
during the fourth quarter of 2017, we increased our regular quarterly dividend by 4.3% by declaring a dividend
of $1.20 per share and declared a special dividend of $3.50 per share. The special dividend was paid on July
28, 2017 to shareholders of record on July 14, 2017. The regular quarterly dividend was paid on August 4,
2017 to shareholders of record on July 14, 2017. Both special dividends of $3.00 and $3.25 per share of
common stock declared in the fourth quarters of 2015 and 2016, respectively, were paid in 2016.

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

Dividends per share paid

2017

2016

2015

8.10 $

10.65 $

4.00

Our current criteria for share repurchases are that they be accretive to expected net income per share and
are within the limits imposed by our Revolving Credit Facility. Subject to the limits imposed by our credit facility,
in each of 2017, 2016 and 2015, we were authorized by our Board of Directors to repurchase shares at the
discretion of management up to $25,000. We did not repurchase any shares of our common stock in 2017 and
2015. In 2016, we repurchased 100,000 shares of our common stock in the open market at an aggregate cost
of $14,653.

In 2017, 2016 and 2015, related tax withholding payments on certain share-based compensation awards
exceeded proceeds received from the exercise of stock options which resulted in a net use of cash of $6,896,
$5,779 and $4,816, respectively.

Working Capital

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

The following table highlights our working capital (deficit):

Working capital (deficit)

2017

2016
$ (16,971) $ (13,077) $ 11,213

2015

The change in working capital at July 28, 2017 compared to July 29, 2016 primarily reflected the timing of
payments for income taxes, an increase in deferred revenue related to the sale of our gifts cards and higher
payroll accruals due to the timing of payments partially offset by lower accounts payable and an increase in
cash. The decrease in accounts payable reflected the results of conversion to more electronic invoice methods
and lower accounts payable related to retail inventory. The increase in cash resulted primarily from cash
generated by operations partially offset by spending for capital expenditures and the payment of dividends. The
change in working capital at July 29, 2016 compared to July 31, 2015 primarily reflected a decrease in cash
from operations partially offset by a decrease in our dividend payable and the timing of payments for income
taxes.

Off-Balance Sheet Arrangements

Other than various operating leases, which are disclosed more fully in “Material Commitments” below and
Notes 2 and 9 to our Consolidated Financial Statements, we have no other material off-balance sheet
arrangements.

Material Commitments

Our contractual cash obligations and commitments as of July 28, 2017, are summarized in the tables

below:

Contractual Obligations (a)
Revolving Credit Facility(b)
Operating leases (c)
Purchase obligations (d)
Other long-term obligations (e)
Total contractual cash obligations

Revolving Credit Facility(b)
Standby letters of credit(f)
Guarantees (g)
Total commitments

2018

Total

Payments due by Years
After 2022
2021-2022
2019-2020
$ 400,000 $ -- $ 400,000 $ -- $ --
480,140
--
32,694
$ 1,195,088 $ 103,448 $ 517,370 $ 61,436 $ 512,834

101,400
10,970
5,000

707,158
49,661
38,269

65,253
37,953
242

60,365
738
333

2018

Total

Amount of Commitment Expirations by Years
After 2022
2019-2020
$ 750,000 $ -- $ 750,000 $ -- $ --
--
--
$ 760,607 $ 9,890 $ 750,471 $ 246 $ --

9,655
235

9,655
952

--
471

2021-2022

--
246

(a) At July 28, 2017, the entire liability for uncertain tax positions (including penalties and interest) is classified
as a long-term liability. At this time, we are unable to make a reasonably reliable estimate of the amounts
and timing of payments in individual years because of uncertainties in the timing of the effective settlement
of tax positions. As such, the liability for uncertain tax positions of $26,859 is not included in the contractual
cash obligations and commitments table above.

(b) Our Revolving Credit Facility expires on January 8, 2020. Even though the Revolving Credit Facility expires
in 2020, we have the intent and ability to refinance our debt to maintain a sufficient amount of outstanding
borrowings during the terms of our interest rate swaps that expire in 2021 and 2024. Using projected
interest rates, we anticipate having interest payments of $13,374, $25,268, $24,334 and $21,864 in 2018,
2019-2020, 2021-2022 and after 2022, respectively. The projected interest rates for our swapped portion of
our outstanding borrowings are our fixed rates under our interest rate swaps (see Note 6 to the
Consolidated Financial Statements) plus our current credit spread of 1.00%. The projected interest rate for
our unswapped portion of our outstanding borrowings is the average of the three-year and five-year swap
rates at July 28, 2017 of 1.77% plus our current credit spread of 1.00%. Based on our outstanding
borrowings under our Revolving Credit Facility, our standby letters of credit at July 28, 2017 and our current
unused commitment fee as defined in the Revolving Credit Facility, our unused commitment fees in 2018
and 2019-2020 would be $516 and $740, respectively; however, the actual amount will differ based on
actual usage of the Revolving Credit Facility in those years.

reasonably assured that we will exercise.

(d) Purchase obligations consist of purchase orders for food and retail merchandise; purchase orders for
capital expenditures, supplies, other operating needs and other services; and commitments under contracts
for maintenance needs and other services. We have excluded contracts that do not contain minimum
purchase obligations. We excluded long-term agreements for services and operating needs that can be
cancelled within 60 days without penalty. We included long-term agreements and certain retail purchase
orders for services and operating needs that can be cancelled with more than 60 days notice without
penalty only through the term of the notice. We included long-term agreements for services and operating
needs that only can be cancelled in the event of an uncured material breach or with a penalty through the
entire term of the contract. Because of the uncertainties of seasonal demands and promotional calendar
changes, our best estimate of usage for food, supplies and other operating needs and services is ratably
over either the notice period or the remaining life of the contract, as applicable, unless we had better
information available at the time related to each contract.

(e) Other long-term obligations include our Non-Qualified Savings Plan ($31,196, with a corresponding long-
term asset to fund the liability; see Note 12 to the Consolidated Financial Statements), Deferred
Compensation Plan ($1,741) and our long-term incentive plans ($5,332).

(f) Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and

reduce our borrowing availability under the Revolving Credit Facility.

(g) Consists solely of guarantees associated with lease payments for two properties. We are not aware of any
non-performance under these arrangements that would result in us having to perform in accordance with
the terms of these guarantees.

Recent Accounting Pronouncements Adopted and Not Yet Adopted

See Note 2 to the accompanying Consolidated Financial Statements for a discussion of recent accounting
guidance adopted and not yet adopted. The adopted accounting guidance discussed in Note 2 did not have a
significant impact on our consolidated financial position or results of operations. The Company either expects
that the accounting guidance not yet adopted will not have a significant impact on the Company’s consolidated
financial position or results of operations or is currently evaluating the impact of adopting the accounting
guidance.

CRITICAL ACCOUNTING ESTIMATES

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

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

• management believes are most important to the accurate portrayal of both our financial condition and

•

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

We consider the following accounting estimates to be most critical in understanding the judgments that are

involved in preparing our Consolidated Financial Statements:

•
Impairment of Long-Lived Assets and Provision for Asset Dispositions
•
Insurance Reserves
• Retail Inventory Valuation
• Tax Provision
• Share-Based Compensation
• Legal Proceedings

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

Impairment of Long-Lived Assets and Provision for Asset Dispositions

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

We have not made any material changes in our methodology for assessing impairments during the past
three years and we do not believe that there is a reasonable likelihood that there will be a material change in
the estimates or assumptions used by us to assess impairment of long-lived assets. However, if actual results
are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of
long-lived assets, we may be exposed to losses that could be material.

Insurance Reserves

We self-insure a significant portion of our expected workers’ compensation and general liability programs.
In 2015, we purchased insurance for individual workers’ compensation claims that exceeded $250, $500 or
$1,000 depending on the state in which the claim originates. Beginning in 2016, we purchase insurance for
individual workers’ compensation claims that exceed $250, $750 or $1,000 depending on the state in which the
claim originated. We purchase insurance for individual general liability claims that exceed $500. We record a
reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred
but not reported (“IBNR”) claims. These reserves and estimates of IBNR claims are based upon a full scope
actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially
determined losses and actual claims payments for the fourth quarter. Additionally, we perform limited scope
actuarial studies on a quarterly basis to verify and/or modify our reserves. The reserves and losses in the
actuarial study represent a range of possible outcomes within which no given estimate is more likely than any
other estimate. As such, we record the losses in the lower end of that range and discount them to present
value using a risk-free interest rate based on projected timing of payments. We also monitor actual claims
development, including incurrence or settlement of individual large claims during the interim periods between
actuarial studies as another means of estimating the adequacy of our reserves.

Our group health plans combine the use of self-insured and fully-insured programs. Benefits for any
individual (employee or dependents) in the self-insured group health program are limited. We record a liability
for the self-insured portion of our group health program for all unpaid claims based upon a loss development
analysis derived from actual group health claims payment experience. We also record a liability for unpaid
prescription drug claims based on historical experience. The majority of our fully-insured health insurance
plans for calendar 2014 contained a retrospective feature which could increase or decrease premiums based
on actual claims experience.

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

Retail Inventory Valuation

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

Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage.
Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as appropriate based on
assumptions made by management and judgment regarding inventory aging and future promotional activities.
Cost of goods sold includes an estimate of shrinkage that is adjusted upon physical inventory counts. Annual
physical inventory counts are conducted throughout the third quarter based upon a cyclical inventory schedule.
An estimate of shrinkage is recorded for the time period between physical inventory counts by using a three-
year average of the physical inventories’ results on a store-by-store basis.

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

Tax Provision

We must make estimates of certain items that comprise our income tax provision. These estimates include
effective state and local income tax rates, employer tax credits for items such as FICA taxes paid on employee
tip income and the Work Opportunity credit, as well as estimates related to certain depreciation and
capitalization policies. Our estimates are made based on current tax laws, the best available information at the
time of the provision and historical experience.

We recognize (or derecognize) a tax position taken or expected to be taken in a tax return in the financial
statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be
sustained (or not sustained) upon examination by tax authorities. A recognized tax position is then measured at
the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

We file our income tax returns many months after our year end. These returns are subject to audit by
various federal and state governments years after the returns are filed and could be subject to differing
interpretations of the tax laws. We then must assess the likelihood of successful legal proceedings or reach a
settlement with the relevant taxing authority. Although we believe that the judgments and estimates used in
establishing our tax provision are reasonable, an unsuccessful legal proceeding or a settlement could result in
material adjustments to our Consolidated Financial Statements and our consolidated financial position.

Share-Based Compensation

Our share-based compensation primarily consists of nonvested stock awards and units and performance-
based market stock units (“MSU Grants”). Share-based compensation expense is recognized based on the
grant date fair value and the achievement of performance conditions for certain awards. We recognize share-
based compensation expense on a straight-line basis over the requisite service period, which is generally the
award’s vesting period, or the date on which retirement eligibility is achieved, if shorter.

Compensation expense is recognized for only the portion of our share-based compensation awards that are
expected to vest. Therefore, an estimated forfeiture rate is derived from historical employee termination
behavior and is updated annually. The forfeiture rate is applied on a straight-line basis over the service
(vesting) period and we update the estimated forfeiture rate to actual at each reporting period.

Our share-based compensation awards accrue dividends. Dividends will be forfeited for any share-based

compensation awards that do not vest.

The fair value of our nonvested stock awards which accrue dividends is equal to the market price of our
stock at the date of the grant. Our nonvested stock awards are time vested except for awards under our long-
term incentive plans which also contain performance conditions. At each reporting period, we reassess the
probability of achieving the performance conditions under our long-term incentive plans. Determining whether
the performance conditions will be achieved involves judgment and the estimate of expense for nonvested
stock awards may be revised periodically based on changes in our determination of the probability of achieving
the performance conditions. Revisions are reflected in the period in which the estimate is changed. If any
performance conditions are not met, no shares will be granted, no compensation will ultimately be recognized
and, to the extent previously recognized, compensation expense will be reversed.

In addition to providing the requisite service, MSU Grants contain both a market condition, total shareholder
return, and a performance condition. Total shareholder return is defined as the change in our stock price plus
dividends paid during the performance period. The number of shares awarded at the end of the performance
period will vary in direct proportion to a target number of shares set at the beginning of the period, up to a
maximum of 150% of target, based on the change in our cumulative total shareholder return over the period.
The probability of the actual shares expected to be awarded is considered in the grant date valuation; therefore,
the expense will not be adjusted to reflect the actual units awarded. However, if the performance condition is
not met, no shares will be granted, no compensation will ultimately be recognized and, to the extent previously
recognized, compensation expense will be reversed.

The fair value of our MSU Grants was determined using the Monte-Carlo simulation model, which
simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The
Monte-Carlo simulation 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 volatility is a blend of implied volatility based on market-traded options on our stock and
historical volatility of our stock 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 expected dividend yield is assumed to be zero since the award holders are entitled to any dividends

paid over the performance period.

We update the historical and implied components of the expected volatility assumption when new grants are
made. No MSU Grants were awarded in 2017.

Beginning in 2017, we adopted long-term incentive plans that award nonvested stock units based upon
relative total shareholder return. In addition to requiring the requisite service, these nonvested stock units
contain both a market condition based on relative total shareholder return and a performance condition based
on operating income. Relative total shareholder return is defined as increases in our 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 Compensation 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 awarded is considered in the grant date valuation; therefore, the expense will not
be adjusted to reflect the actual units awarded. However, if the performance condition is not met, no shares will
be granted, no compensation will ultimately be recognized and, to the extent previously recognized,
compensation expense will be reversed.

The fair value of these nonvested stock units was determined using the Monte-Carlo simulation model,
which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts.
The Monte-Carlo simulation 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 volatility is the historical volatility of our stock and the members of the peer group over

the period commensurate with the performance period.

• The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the

performance period.

• The expected dividend yield is assumed to be zero since the award holders are entitled to any

dividends paid over the performance period.

We update the expected volatility assumption when new grants are made.

We have not made any material changes in our estimates or assumptions used to determine share-based
compensation during the past three years. We do not believe there is a reasonable likelihood that there will be
a material change in the future estimates or assumptions used to determine share-based compensation
expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed
to changes in share-based compensation expense that could be material.

Legal Proceedings

We are parties to various legal and regulatory proceedings and claims incidental to our business from time
to time. We review outstanding claims and proceedings internally and with external counsel, as necessary and
appropriate, to assess probability of loss and for the ability to estimate loss. These assessments are re-
evaluated each quarter or as new information becomes available to determine whether a reserve should be
established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding
ultimately may be substantially different than the amount of the recorded reserve. Although we believe that the
judgments and estimates used in establishing our legal reserves are reasonable, an unsuccessful legal
proceeding or a settlement could result in material adjustments to our Consolidated Financial Statements and
our consolidated financial position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, such as changes in interest rates and commodity prices. We do not hold or

use derivative financial instruments for trading purposes.

Interest Rate Risk. We have interest rate risk relative to our outstanding borrowings under our revolving
credit facility. At both July 28, 2017 and July 29, 2016, our outstanding borrowings totaled $400,000 (see Note
5 to our Consolidated Financial Statements). Loans under our credit facility bear interest, at our election, either
at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios. Our
policy has been to manage interest cost using a mix of fixed and variable rate debt (see Notes 5, 6 and 9 to our
Consolidated Financial Statements). To manage this risk in a cost efficient manner, we have entered into
interest rate swaps. A summary of our interest rate swaps at July 28, 2017 is as follows:

Trade Date
March 18, 2013
April 22, 2013
April 25, 2013
June 18, 2014
June 24, 2014
July 1, 2014
January 30, 2015
January 30, 2015
January 30, 2015
January 30, 2015
January 30, 2015

Effective Date

Term
(in Years)

May 3, 2015
May 3, 2015
May 3, 2015
May 3, 2015
May 3, 2015
May 5, 2015
May 3, 2019
May 3, 2019
May 4, 2021
May 3, 2019
May 4, 2021

3
3
3
4
4
4
2
2
3
2
3

Notional Amount
$ 50,000
25,000
25,000
120,000
90,000
90,000
80,000
60,000
120,000
60,000
80,000

Fixed
Rate

1.51%
1.30%
1.29%
2.51%
2.51%
2.43%
2.15%
2.16%
2.41%
2.15%
2.40%

The notional amount for the interest rate swap entered into on June 18, 2014 increases by $40,000 each
May over the four-year term of the interest rate swap until the notional amount reaches $160,000 in May 2018.
The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 increase by
$30,000 each May over the four-year terms of the interest rate swaps until the notional amounts each reach
$120,000 in May 2018.

At July 28, 2017 and July 29, 2016, our outstanding borrowings were swapped at a weighted average
interest rate of 3.21% and 3.10%, respectively, which are the weighted average fixed rates of our interest rate
swaps plus our current credit spread. See Note 6 to our Consolidated Financial Statements for further
discussion of our interest rate swaps.

Commodity Price Risk. Many of the food products that we purchase are affected by commodity pricing and
are, therefore, subject to price volatility caused by market conditions, weather, production problems, delivery
difficulties and other factors which are outside our control and which are generally unpredictable.

The following table highlights the five food categories which accounted for the largest shares of our food

purchases in 2017 and 2016:

Beef
Dairy (including eggs)
Fruits and vegetables
Poultry
Pork

Percentage of Food Purchases

2017
14%
12%
12%
11%
10%

2016
15%
13%
12%
11%
11%

Other categories affected by the commodities markets, such as grains and seafood, may each account for
as much as 8% of our food purchases. While some of our food items are produced to our proprietary
specifications, our food items are based on generally available products, and if any existing suppliers fail, or are
unable to deliver in quantities required by us, we believe that there are sufficient other quality suppliers in the
marketplace that our sources of supply can be replaced as necessary to allow us to avoid any material adverse
effects that could be caused by such unavailability. We also recognize, however, that commodity pricing is
extremely volatile and can change unpredictably even over short periods of time. Changes in commodity prices
would affect us and our competitors generally, and depending on the terms and duration of supply contracts,
sometimes simultaneously. We enter into contracts for certain of our products in an effort to minimize volatility
of supply and pricing. In many cases, or over the longer term, we believe we will be able to pass through some
or much of the increased commodity costs by adjusting our menu pricing. From time to time, competitive
circumstances, or judgments about consumer acceptance of price increases, may limit menu price flexibility,
and in those circumstances, increases in commodity prices can result in lower margins.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cracker Barrel Old Country Store, Inc.
Lebanon, Tennessee

We have audited the accompanying consolidated balance sheets of Cracker Barrel Old Country Store, Inc. and
its subsidiaries (the “Company”) as of July 28, 2017 and July 29, 2016, and the related consolidated statements
of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three fiscal
years in the period ended July 28, 2017. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of Cracker Barrel Old Country Store, Inc. and its subsidiaries as of July 28, 2017 and July 29, 2016,
and the results of their operations and their cash flows for each of the three fiscal years in the period ended July
28, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of July 28, 2017, based on the criteria
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated September 22, 2017 expressed an
unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Nashville, Tennessee
September 22, 2017

CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED BALANCE SHEETS

ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable
Income taxes receivable
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property and Equipment:
Land
Buildings and improvements
Buildings under capital leases
Restaurant and other equipment
Leasehold improvements
Construction in progress
Total

Less: Accumulated depreciation and amortization of capital leases

Property and equipment – net
Other assets
Total

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Taxes withheld and accrued
Accrued employee compensation
Accrued employee benefits
Deferred revenues
Dividend payable
Other current liabilities
Total current liabilities
Long-term debt
Long-term interest rate swap liability
Other long-term obligations
Deferred income taxes
Commitments and Contingencies (Notes 9 and 15)
Shareholders’ Equity:
Preferred stock – 100,000,000 shares of $.01 par value authorized;

300,000 shares designated as Series A Junior Participating Preferred
Stock; no shares issued

Common stock – 400,000,000 shares of $.01 par value authorized; 2017

– 24,055,682 shares issued and outstanding; 2016 – 23,956,134

shares issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total

See Notes to Consolidated Financial Statements.

(In thousands except share data)
July 28, 2017

July 29, 2016

$ 161,001
18,116
4,265
156,367
16,047
3,061
358,857

$ 150,966
19,389
16,184
152,308
14,573
2,320
355,740

306,105
837,804
3,289
604,413
326,750
15,087
2,093,448
995,351
1,098,097
64,988

303,416
814,176
3,289
572,551
306,489
11,924
2,011,845
931,656
1,080,189
61,735
$ 1,521,942 $ 1,497,664

$ 118,395
36,725
70,945
26,759
72,376
30,639
19,989
375,828
400,000
6,833
129,353
65,421

$ 132,493
37,561
61,187
27,928
64,028
29,706
15,914
368,817
400,000
22,070
126,608
53,726

241
55,659
(4,229)
492,836
544,507
$ 1,521,942

240
51,462
(13,740)
488,481
526,443
$ 1,497,664

CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF INCOME

(In thousands except share data)
Fiscal years ended
July 29, 2016

July 31, 2015

July 28, 2017

Total revenue
Cost of goods sold (exclusive of depreciation and rent)
Labor and other related expenses
Other store operating expenses
Store operating income
General and administrative expenses
Operating income
Interest expense
Income before income taxes
Provision for income taxes
Net income

$ 2,926,289 $ 2,912,351
928,176
1,006,188
554,534
423,453
142,982
280,471
14,052
266,419
77,120
$ 201,899 $ 189,299

891,293
1,017,124
563,300
454,572
141,414
313,158
14,271
298,887
96,988

$ 2,842,284
924,171
992,382
523,307
402,424
147,544
254,880
16,679
238,201
74,298
$ 163,903

Net income per share - basic
Net income per share - diluted

$ 8.40 $ 7.91 $ 6.85
$ 8.37 $ 7.86 $ 6.82

Basic weighted average shares outstanding
Diluted weighted average shares outstanding

24,031,810
24,118,288

23,945,041
24,074,273

23,918,368
24,048,924

See Notes to Consolidated Financial Statements.

CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)
Fiscal years ended
July 29, 2016

July 31, 2015

July 28, 2017

Net income

$ 201,899

$ 189,299

$ 163,903

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

Change in fair value of interest rate swaps

Income tax expense (benefit)
Other comprehensive income (loss), net of tax
Comprehensive income

See Notes to Consolidated Financial Statements.

15,402
5,891
9,511
$ 211,410

1,641
(16,188)
633
(6,173)
(10,015)
1,008
$ 179,284 $ 164,911

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

Balances at August 1, 2014
Comprehensive Income:

Net income
Other comprehensive income, net of tax
Total comprehensive income

Cash dividends declared - $7.10 per share
Share-based compensation
Issuance of share-based compensation awards,
net of shares withheld for employee taxes

Tax benefit realized upon exercise of share-based

compensation awards

Purchases and retirement of common stock

Balances at July 31, 2015
Comprehensive Income:

Net income
Other comprehensive income, net of tax
Total comprehensive income

Cash dividends declared - $7.70 per share
Share-based compensation
Issuance of share-based compensation awards,
net of shares withheld for employee taxes
Tax benefit realized upon exercise of share-based

compensation awards

Purchases and retirement of common stock

Balances at July 29, 2016
Comprehensive Income:

Net income
Other comprehensive income, net of tax
Total comprehensive income

Cash dividends declared - $8.15 per share
Share-based compensation
Issuance of share-based compensation awards,
net of shares withheld for employee taxes
Tax benefit realized upon exercise of share-based

compensation awards

Purchases and retirement of common stock

Balances at July 28, 2017

Common Stock

Amount
23,821,227 $ 238 $ 39,969

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings
$ (4,733) $ 493,167

Total
Shareholders’
Equity

528,641

--
--
--
--
--

154,528

--
--
23,975,755

--
--
--
--
--

80,379

--
--
--
--
--

--
--
240

--
--
--
--
--

--
--
--
--
16,210

(4,818)

4,705
--
56,066

--
--
--
--
13,202

(5,780)

--
1,008
1,008
--
--

163,903
--
163,903
(171,383)
--

163,903
1,008
164,911
(171,383)
16,210

(4,816)

--
--
(3,725)

--
(10,015)
(10,015)
--
--

--
--
485,687

189,299
--
189,299
(186,505)
--

4,705
--
538,268

189,299
(10,015)
179,284
(186,505)
13,202

(5,779)

--
(100,000)
23,956,134

--
(1)
240

2,626
(14,652)
51,462

--
--
(13,740)

--
--
488,481

2,626
(14,653)
526,443

--
--
--
--
--

--
--
--
--
8,458

--
9,511
9,511
--
--

201,899
--
201,899
(197,544)
--

201,899
9,511
211,410
(197,544)
8,458

99,548

(6,897)

(6,896)

--
--
24,055,682

--
--

2,636
--
$ 241 $ 55,659

--
--
$ (4,229)

--
--
$ 492,836

2,636
--
$ 544,507

See Notes to Consolidated Financial Statements.

CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided
by operating activities:

Depreciation and amortization
Loss on disposition of property and equipment
Share-based compensation
Excess tax benefit from share-based compensation

Changes in assets and liabilities:

Accounts receivable
Income taxes receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Taxes withheld and accrued
Accrued employee compensation
Accrued employee benefits
Deferred revenues
Other current liabilities
Other long-term obligations
Deferred income taxes

Net cash provided by operating activities

Cash flows from investing activities:

Purchase of property and equipment
Proceeds from insurance recoveries of property and

equipment

Proceeds from sale of property and equipment
Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt
(Taxes withheld) and proceeds from issuance of share-

July 28, 2017

(In thousands)
Fiscal years ended
July 29, 2016

July 31, 2015

$ 201,899 $ 189,299 $ 163,903

86,319
5,585
8,458
(2,636)

78,223
7,146
13,202
(2,626)

72,955
6,872
16,210
(4,705)

1,273
14,555
(4,059)
(1,274)
(4,344)
(14,098)
(836)
9,752
(1,169)
8,348
4,470
3,461
5,063
320,767

(1,339)
(13,558)
750
(406)
130
(624)
(1,500)
(6,246)
211
5,048
(3,705)
(6,269)
13,642

271,378

4,654
2,973
12,368
(2,170)
(1,659)
34,640
2,800
6,485
1,667
9,155
4,034
11,090
(7,217)
334,055

(110,591)

(114,022)

(90,855)

483
503
(109,605)

662
845
(112,515)

365
1,876
(88,614)

406,250

based compensation awards, net

(6,896)

(5,779)

(4,816)

Principal payments under long-term debt and other long-

term obligations

Purchases and retirement of common stock
Deferred financing costs
Dividends on common stock
Excess tax benefit from share-based compensation
Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Supplemental disclosure of cash flow information:

Cash paid during the year for:

Interest, net of amounts capitalized
Income taxes

Supplemental schedule of non-cash investing and financing

activities:
Capital expenditures accrued in accounts payable
Change in fair value of interest rate swaps
Change in deferred tax asset for interest rate swaps
Dividends declared but not yet paid

(406,250)

--
--
--
(196,867)
2,636
(201,127)
10,035
150,966

(3,537)
(95,699)
4,705
(99,347)
146,094
119,361
$ 161,001 $ 150,966 $ 265,455

--
(14,653)
--
(255,546)
2,626
(273,352)
(114,489)
265,455

$ 12,847 $ 12,752 $ 15,356
69,948

78,092

84,868

$ 6,743 $ 6,379 $ 5,800
15,402 (16,188)
1,641
(633)
(5,891)
6,173
99,678
30,625

31,296

See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)

1. Description of the Business

Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in the Notes, the “Company”) are
principally engaged in the operation and development in the United States (“U.S.”) of the Cracker Barrel Old
Country Store® (“Cracker Barrel”) concept.

2. Summary of Significant Accounting Policies

GAAP – The accompanying Consolidated Financial Statements have been prepared in accordance with

generally accepted accounting principles in the U.S. (“GAAP”).

Fiscal year – The Company’s fiscal year ends on the Friday nearest July 31st and each quarter consists of
thirteen weeks unless noted otherwise. References in these Notes to a year or quarter are to the Company’s
fiscal year or quarter unless noted otherwise.

Principles of consolidation – The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have
been eliminated.

Cash and cash equivalents – The Company’s policy is to consider all highly liquid investments purchased

with an original maturity of three months or less to be cash equivalents.

Accounts receivable – Accounts receivable represent their estimated net realizable value. Accounts

receivable are written off when they are deemed uncollectible.

Inventories – Inventories are stated at the lower of cost or market. Cost of restaurant inventory is
determined by the first-in, first-out (“FIFO”) method. Retail inventories are valued using the retail inventory
method (“RIM”) except at the retail distribution center which uses average cost. Approximately 75% to 85% of
retail inventories are valued using RIM and the remaining retail inventories are valued using an average cost
method. See Note 4 for additional information regarding the components of inventory.

Valuation provisions are included for retail inventory obsolescence, retail inventory shrinkage, returns and
amortization of certain items. Cost of goods sold includes an estimate of retail inventory shrinkage that is
adjusted upon physical inventory counts. Annual physical inventory counts are conducted throughout the third
quarter based upon a cyclical inventory schedule. An estimate of shrinkage is recorded for the time period
between physical inventory counts by using a three-year average of the physical inventories’ results on a store-
by-store basis.

Property and equipment – Property and equipment are stated at cost. For financial reporting purposes,
depreciation and amortization on these assets are computed by use of the straight-line and double-declining
balance methods over the estimated useful lives of the respective assets, as follows:

Buildings and improvements
Buildings under capital leases
Restaurant and other equipment
Leasehold improvements

Accelerated depreciation methods are generally used for income tax purposes.

Years
30-45
15-25
2-10
1-35

Total depreciation expense and depreciation expense related to store operations for each of the three years

are as follows:

Total depreciation expense
Depreciation expense related to store operations*
*Depreciation expense related to store operations is included in other store operating expenses in the
Consolidated Statements of Income.

71,382

79,214

2017

2016
$ 85,912 $ 77,816 $ 72,390
66,754

2015

Gain or loss is recognized upon disposal of property and equipment. The asset and related accumulated

depreciation and amortization amounts are removed from the accounts.

Maintenance and repairs, including the replacement of minor items, are charged to expense and major

additions to property and equipment are capitalized.

Impairment of long-lived assets – The Company assesses the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Recoverability of assets is measured by comparing the carrying value of the asset to the undiscounted future
cash flows expected to be generated by the asset. If the total expected future cash flows are less than the
carrying value of the asset, the carrying value is written down, for an asset to be held and used, to the
estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal. Any
loss resulting from impairment is recognized by a charge to income.

Derivative instruments and hedging activities – The Company is exposed to market risk, such as changes in
interest rates and commodity prices. The Company has interest rate risk relative to its outstanding borrowings,
which bear interest at the Company’s election either at the prime rate or LIBOR plus a percentage point spread
based on certain specified financial ratios under its revolving credit facility (see Note 5). The Company’s policy
has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost
efficient manner, the Company uses derivative instruments, specifically interest rate swaps.

Companies may elect whether or not to offset related assets and liabilities and report the net amount on
their financial statements if the right of setoff exists. Under a master netting agreement, the Company has the
legal right to offset the amounts owed to the Company against amounts owed by the Company under a
derivative instrument that exists between the Company and a counterparty. When the Company is engaged in
more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable
master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under
the master netting agreement. If, on a net basis, the Company owes the counterparty, the Company regards its
credit exposure to the counterparty as being zero.

The Company does not hold or use derivative instruments for trading purposes. The Company also does
not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as
hedging instruments. See Note 6 for additional information on the Company’s derivative and hedging activities.

Segment reporting – Operating segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Using these criteria, the Company manages its business on
the basis of one reportable operating segment (see Note 8 for additional information regarding segment
reporting).

Revenue recognition – The Company records revenue from the sale of products as they are sold. The
Company provides for estimated returns based on return history and sales levels. The Company’s policy is to
present sales in the Consolidated Statements of Income on a net presentation basis after deducting sales tax.

Unredeemed gift cards and certificates – Unredeemed gift cards and certificates represent a liability of the
Company related to unearned income and are recorded at their expected redemption value. No revenue is
recognized in connection with the point-of-sale transaction when gift cards or gift certificates are sold. For
those states that exempt gift cards and certificates from their escheat laws, the Company makes estimates of
the ultimate unredeemed (“breakage”) gift cards and certificates in the period of the original sale and amortizes
this breakage over the redemption period that other gift cards and certificates historically have been redeemed
by reducing its liability and recording revenue accordingly. For those states that do not exempt gift cards and
certificates from their escheat laws, the Company records breakage in the period that gift cards and certificates
are remitted to the state and reduces its liability accordingly. Any amounts remitted to states under escheat or
similar laws reduce the Company’s deferred revenue liability and have no effect on revenue or expense while
any amounts that the Company is permitted to retain are recorded as revenue.

Insurance – The Company self-insures a significant portion of its workers’ compensation and general
liability programs. In 2015, the Company purchased insurance for individual workers’ compensation claims that
exceeded $250, $500 or $1,000 depending on the state in which the claim originated. Beginning in 2016, the
Company purchases insurance for individual workers’ compensation claims that exceed $250, $750 or $1,000
depending on the state in which the claim originates. The Company purchases insurance for individual general
liability claims that exceed $500.

The Company records a reserve for workers’ compensation and general liability for all unresolved claims
and for an estimate of incurred but not reported claims (“IBNR”). These reserves and estimates of IBNR claims
are based upon a full scope actuarial study which is performed annually at the end of the Company’s third
quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter.
Additionally, the Company performs limited scope actuarial studies on a quarterly basis to verify and/or modify
the Company’s reserves. The reserves and losses in the actuarial study represent a range of possible
outcomes within which no given estimate is more likely than any other estimate. As such, the Company records
the losses at the lower end of that range and discounts them to present value using a risk-free interest rate
based on projected timing of payments. The Company also monitors actual claims development, including
incurrence or settlement of individual large claims during the interim periods between actuarial studies as
another means of estimating the adequacy of its reserves.

The Company’s group health plans combine the use of self-insured and fully-insured programs. Benefits
for any individual (employee or dependents) in the self-insured program are limited. The Company records a
liability for the self-insured portion of its group health program for all unpaid claims based upon a loss
development analysis derived from actual group health claims payment experience. The Company also
records a liability for unpaid prescription drug claims based on historical experience. The majority of the
Company’s fully-insured plans for calendar 2014 contained a retrospective feature which could increase or
decrease premiums based on actual claims experience.

Store pre-opening costs – Start-up costs of a new store are expensed when incurred, with the exception of
rent expense under operating leases, in which the straight-line rent includes the pre-opening period during
construction, as explained further under the “Leases” section in this Note.

Leases – The Company’s leases are classified as either capital or operating leases. The Company has
ground leases and office space leases that are recorded as operating leases. The Company also leases its
advertising billboards which are recorded as operating leases. A majority of the Company’s lease agreements
provide renewal options and some of these options contain rent escalation clauses. Additionally, some of the
leases have rent holiday and contingent rent provisions. During rent holiday periods, which include the pre-
opening period during construction, the Company has possession of and access to the property, but is not
obligated to, and normally does not, make rent payments. Contingent rent is determined as a percentage of
gross sales in excess of specified levels. The Company records a contingent rent liability and corresponding
rent expense when it is probable sales have been achieved in amounts in excess of the specified levels.

The liabilities under these leases are recognized on the straight-line basis over the shorter of the useful life,
with a maximum of 35 years, or the related lease life. The Company uses a lease life that generally begins on
the date that the Company becomes legally obligated under the lease, including the rent holiday periods, and
generally extends through certain renewal periods that can be exercised at the Company’s option, for which at
the inception of the lease, it is reasonably assured that the Company will exercise those renewal options. This
lease period is consistent with the period over which leasehold improvements are amortized.

Advertising – The Company expenses the costs of producing advertising the first time the advertising takes

place. Other advertising costs are expensed as incurred.

Advertising expense for each of the three years was as follows:

Advertising expense

2017

2016
$ 83,623 $ 79,409 $ 68,665

2015

Share-based compensation – The Company’s share-based compensation consists of nonvested stock
awards and units and performance-based market stock units (“MSU Grants”). Share-based compensation is
recorded in general and administrative expenses in the Consolidated Statements of Income. Share-based
compensation expense is recognized based on the grant date fair value and the achievement of performance
conditions for certain awards. The Company recognizes share-based compensation expense on a straight-line
basis over the requisite service period, which is generally the award’s vesting period, or to the date on which
retirement eligibility is achieved, if shorter.

Certain nonvested stock awards and units and the Company’s MSU Grants contain performance
conditions. Compensation expense for performance-based awards is recognized when it is probable that the
performance criteria will be met. If any performance goals are not met, no compensation expense is ultimately
recognized and, to the extent previously recognized, compensation expense is reversed.

If a share-based compensation award is modified after the grant date, incremental compensation expense
is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the
original award immediately before the modification. Incremental compensation expense for vested awards is
recognized immediately. For unvested awards, the sum of the incremental compensation expense and the
remaining unrecognized compensation expense for the original award on the modification date is recognized
over the modified service period.

Additionally, the Company’s policy is to issue shares of common stock to satisfy exercises of share-based

compensation awards.

Income taxes – The Company’s provision for income taxes includes employer tax credits for FICA taxes
paid on employee tip income and other employer tax credits are accounted for by the flow-through method.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
Company recognizes (or derecognizes) a tax position taken or expected to be taken in a tax return in the
financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position
would be sustained (or not sustained) upon examination by tax authorities. A recognized tax position is then
measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate
settlement. The Company recognizes, net of tax, interest and estimated penalties related to uncertain tax
positions in its provision for income taxes. See Note 13 for additional information regarding income taxes.

Comprehensive income – Comprehensive income includes net income and the effective unrealized portion

of the changes in the fair value of the Company’s interest rate swaps.

Net income per share – Basic consolidated net income per share is computed by dividing consolidated net
income to common shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if
securities, options or other contracts to issue common stock were exercised or converted into common stock
and is based upon the weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares related to stock options, nonvested stock awards and units and
MSU Grants issued by the Company are calculated using the treasury stock method. The outstanding stock
options, nonvested stock awards and units and MSU Grants issued by the Company represent the only dilutive
effects on diluted consolidated net income per share. See Note 14 for additional information regarding net
income per share.

Use of estimates – Management of the Company has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the Consolidated
Financial Statements and the reported amounts of revenues and expenses during the reporting periods to
prepare these Consolidated Financial Statements in conformity with GAAP. Management believes that such
estimates have been based on reasonable and supportable assumptions and that the resulting estimates are
reasonable for use in the preparation of the Consolidated Financial Statements. Actual results, however, could
differ from those estimates.

Recent Accounting Pronouncements Adopted

Debt Issuance Costs

In April 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which
requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability
rather than as an asset. This accounting guidance is effective for fiscal years beginning after December 15,
2015, and interim periods within those years on a retrospective basis. Since this accounting guidance does not
pertain to debt issuance costs related to revolving debt agreements, this accounting guidance did not have a
significant impact on the Company’s consolidated financial position or results of operations upon adoption in the
first quarter of 2017.

Recent Accounting Pronouncements Not Yet Adopted

Revenue Recognition

In May 2014, the FASB issued accounting guidance which clarifies the principles for recognizing revenue
and provides a comprehensive model for revenue recognition. Revenue recognition should depict the transfer
of goods or services to a customer at an amount that reflects the consideration it expects to receive in
exchange for those goods or services. The guidance also requires additional disclosures about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This accounting
guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years.
Early application is permitted for fiscal years beginning after December 15, 2016. A company may apply this
accounting guidance either retrospectively or using the cumulative effect transition method. The Company is
currently evaluating the impact of adopting this accounting guidance in the first quarter of 2019.

Inventory

In July 2015, the FASB issued accounting guidance which requires companies to measure certain inventory
at the lower of cost and net realizable value. This accounting guidance does not apply to inventories measured
by using either the last-in, first-out method or the retail inventory method. This accounting guidance is effective
for fiscal years beginning after December 15, 2016, and interim periods within those years on a prospective
basis. The Company does not expect that the adoption of this accounting guidance in the first period of 2018
will have a significant impact on the Company’s consolidated financial position or results of operations.

Deferred Taxes

In November 2015, in order to simplify the presentation of deferred income taxes, the FASB issued
accounting guidance which requires deferred tax liabilities and assets to be classified as noncurrent in the
balance sheet. This accounting guidance is effective for fiscal years beginning after December 15, 2016, and
interim periods within those years. This accounting guidance may be applied either prospectively to all deferred
tax liabilities and assets or retrospectively to all periods presented. Other than the revised balance sheet
presentation of deferred tax liabilities and assets, the Company does not expect that the adoption of this
accounting guidance in the first quarter of 2018 on a prospective basis will have a significant impact on the
Company’s financial position or results of operations.

Leases

In February 2016, the FASB issued accounting guidance which requires the recognition of lease assets and
lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The
accounting guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within
those fiscal years on a modified retrospective basis. Early adoption is permitted. The Company is currently
evaluating the impact of adopting this accounting guidance in the first quarter of 2020.

Recognition of Breakage for Certain Prepaid Stored-Value Products

In March 2016, in order to address diversity in practice related to the derecognition of a prepaid stored-
value product liability, the FASB issued accounting guidance requiring breakage for prepaid stored-value
product liabilities to be accounted for consistent with the breakage guidance in the revenue recognition
standard (see “Revenue Recognition” above). This accounting guidance is effective for fiscal years beginning
after December 15, 2017, and interim periods within those years. This accounting guidance may be applied
either on a modified retrospective basis or on a retrospective basis. Early application is permitted. The
Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2019.

Share-Based Payments

In March 2016, the FASB issued accounting guidance in order to simplify certain aspects of the accounting
and presentation of share-based payments, including the income tax consequences, classification of awards as
either equity or liabilities and classification on the statement of cash flows. This accounting guidance is
effective for fiscal periods beginning after December 15, 2016, and interim periods within those years. This
guidance may be applied either on a prospective basis, retrospective basis or a modified retrospective basis
depending on the specific accounting topic covered in the accounting guidance. The Company does not expect
that the adoption of this accounting guidance in the first quarter of 2018 will have a significant impact on the
Company’s consolidated financial position or results of operations.

Modification of Share-Based Payment Awards

In May 2017, the FASB issued accounting guidance to provide clarity, reduce the diversity in practice and to
simplify the accounting guidance related to a change to the terms or conditions of a share-based payment
award. This new standard provides guidance for evaluating which changes to the terms or conditions of a
share-based payment award are substantive and require modification accounting to be applied. This
accounting guidance is effective for fiscal periods beginning after December 15, 2017, and interim periods
within those years on a prospective basis. Early adoption is permitted. The Company is currently evaluating
the impact of adopting this accounting guidance in the first quarter of 2019.

3. Fair Value Measurements

Fair value for certain of the Company’s assets and liabilities is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. In determining fair value, a three level hierarchy for inputs is used. These levels are:

• Quoted Prices in Active Markets for Identical Assets (“Level 1”) – quoted prices (unadjusted) for an identical

asset or liability in an active market.

• Significant Other Observable Inputs (“Level 2”) – quoted prices for a similar asset or liability in an active
market or model-derived valuations in which all significant inputs are observable for substantially the full
term of the asset or liability.

• Significant Unobservable Inputs (“Level 3”) – unobservable and significant to the fair value measurement of

the asset or liability.

The Company’s assets and liabilities measured at fair value on a recurring basis at July 28, 2017 were as

follows:

Cash equivalents*
Interest rate swap asset (see Note 6)
Deferred compensation plan assets**
Total assets at fair value

Level 1
$ 82,524
--
31,196
$ 113,720

Level 2
$ --
32
--
$ 32

Level 3
$ --
--
--
$ --

Fair Value
$ 82,524
32
31,196
$ 113,752

Interest rate swap liability (see Note 6)
Total liabilities at fair value

$ --
$ --

$ 6,880
$ 6,880

$ --
$ --

$ 6,880
$ 6,880

The Company’s assets and liabilities measured at fair value on a recurring basis at July 29, 2016 were as

follows:

Cash equivalents*
Interest rate swap asset (see Note 6)
Deferred compensation plan assets**
Total assets at fair value

Level 1
$ 76,084
--
27,764
$ 103,848

Level 2
$ --
--
--
$ --

Level 3
$ --
--
--
$ --

Fair Value
$ 76,084
--
27,764
$ 103,848

Interest rate swap liability (see Note 6)
Total liabilities at fair value

$ --
$ --

$ 22,250
$ 22,250

$ --
$ --

$ 22,250
$ 22,250

*Consists of money market fund investments.
**Represents plan assets invested in mutual funds established under a Rabbi Trust for the Company’s non-
qualified savings plan and is included in the Consolidated Balance Sheets as other assets (see Note 12).

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

The fair values of accounts receivable and accounts payable at July 28, 2017 and July 29, 2016,
approximate their carrying amounts because of their short duration. The fair value of the Company’s variable
rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying
amounts at July 28, 2017 and July 29, 2016.

4. Inventories

Inventories were comprised of the following at:

Retail
Restaurant
Supplies
Total

5. Debt

July 28, 2017

July 29, 2016

$ 119,446 $ 114,610
21,522
16,176
$ 156,367 $ 152,308

20,252
16,669

On January 8, 2015, the Company entered into a five-year $750,000 revolving credit facility (the “Revolving
Credit Facility”). At both July 28, 2017 and July 29, 2016, the Company had $400,000 in outstanding
borrowings under the Revolving Credit Facility.

At July 28, 2017, the Company had $9,655 of standby letters of credit, which reduce the Company’s
borrowing availability under the Revolving Credit Facility (see Note 15). At July 28, 2017, the Company had
$340,345 in borrowing availability under the Revolving Credit Facility.

In accordance with the Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s
election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios. At
July 28, 2017 and July 29, 2016, the Company’s outstanding borrowings were swapped at a weighted average
interest rates of 3.21% and 3.10%, respectively (see Note 6 for information on the Company’s interest rate
swaps).

The Revolving Credit Facility contains customary financial covenants, which include maintenance of a
maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. At July 28,
2017 and July 29, 2016, the Company was in compliance with all debt covenants.

The Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is
permitted to pay and the amount of shares the Company is permitted to repurchase. Under the Revolving Credit
Facility, provided there is no default existing and the total of the Company’s availability under the Revolving
Credit Facility plus the Company’s cash and cash equivalents on hand is at least $100,000 (the “cash
availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase
shares of its common stock (1) in an unlimited amount if at the time such dividend or repurchase is made the
Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to
exceed $100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to
1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after
giving effect to the payment of any such dividends, cash availability is at least $100,000, the Company may
declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any
fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately
preceding fiscal year multiplied by four.

6. Derivative Instruments and Hedging Activities

For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty
the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional
principal amount. The interest rates on the portion of the Company’s outstanding debt covered by its interest
rate swaps are fixed at the rates in the table below plus the Company’s credit spread. The Company’s credit
spread at July 28, 2017 and July 29, 2016 was 1.00% and 1.25%, respectively. All of the Company’s interest
rate swaps are accounted for as cash flow hedges.

A summary of the Company’s interest rate swaps at July 28, 2017 is as follows:

Trade Date
March 18, 2013
April 22, 2013
April 25, 2013
June 18, 2014
June 24, 2014
July 1, 2014
January 30, 2015
January 30, 2015
January 30, 2015
January 30, 2015
January 30, 2015

Effective Date

Term
(in Years)

May 3, 2015
May 3, 2015
May 3, 2015
May 3, 2015
May 3, 2015
May 5, 2015
May 3, 2019
May 3, 2019
May 4, 2021
May 3, 2019
May 4, 2021

3
3
3
4
4
4
2
2
3
2
3

Notional Amount
$ 50,000
25,000
25,000
120,000
90,000
90,000
80,000
60,000
120,000
60,000
80,000

Fixed
Rate

1.51%
1.30%
1.29%
2.51%
2.51%
2.43%
2.15%
2.16%
2.41%
2.15%
2.40%

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

(See Note 3)
Interest rate swaps

Balance Sheet Location
Prepaid expenses and other current assets

July 28, 2017
$ 32

July 29, 2016

$ --

Interest rate swaps
Interest rate swaps
Total liabilities

$ 180
22,070
$ 22,250
*These interest rate swap assets and liabilities are recorded at gross at both July 28, 2017 and July 29,

Other current liabilities
Long-term interest rate swap liability

$ 47
6,833
$ 6,880

2016 since there were no offsetting assets and liabilities under the Company’s master netting agreements.

The estimated fair values of the Company’s interest rate swap assets and liabilities incorporate the
Company’s non-performance risk. The adjustment related to the Company’s non-performance risk at July 28,
2017 and July 29, 2016 resulted in reductions of $103 and $1,035, respectively, in the total fair value of the
interest rate swap assets and liabilities. The offset to the interest rate swap assets and liabilities is recorded in
accumulated other comprehensive loss (“AOCL”), net of the deferred tax assets, and will be reclassified into
earnings over the term of the underlying debt. As of July 28, 2017, the estimated pre-tax portion of AOCL that
is expected to be reclassified into earnings over the next twelve months is $2,538. Cash flows related to the
interest rate swaps are included in interest expense and in operating activities.

The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for

each of the three years:

Amount of Income (Loss) Recognized
in AOCL on Derivatives (Effective
Portion)
2016

2017

2015

Cash flow hedges:
Interest rate swaps

$ 15,402

$ (16,188)

$ 1,641

The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate

swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:

Beginning AOCL balance

Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCL into earnings

Other comprehensive income (loss), net of tax
Ending AOCL balance

July 28,
2017
$ (13,740)

July 29,
2016
$ (3,725)

July 31,
2015

$ (4,733)

12,082
(2,571)
9,511
$ (4,229)

(6,683)
(3,332)
(10,015)
$ (13,740)

5,955
(4,947)
1,008
$ (3,725)

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

each of the three years:

Cash flow hedges:
Interest rate swaps

Location of Loss Reclassified from
AOCL into Income (Effective Portion)

Amount of Loss Reclassified from AOCL into
Income (Effective Portion)
2016

2017

2015

Interest expense

$ 4,163

$ 5,395

$ 8,052

The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest

rate swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:

Details about AOCL
Loss on cash flow hedges:

Interest rate swaps

Tax benefit

July 28, 2017

July 29, 2016

July 31, 2015

Affected Line Item in
the Consolidated
Statement of Income

$ (4,163)
1,592
$ (2,571)

$ (5,395)
2,063
$ (3,332)

$ (8,052)
3,105 Provision for income taxes
$ (4,947) Net of tax

Interest expense

Any portion of the fair value of the interest rate swaps determined to be ineffective will be recognized currently
in earnings. No ineffectiveness has been recorded in 2017, 2016 and 2015.

7. Share Repurchases

In each of 2017, 2016 and 2015, subject to a maximum amount of $25,000 and the limits imposed by its
credit facility, the Company was authorized to repurchase shares at management’s discretion. The Company
did not repurchase any shares of its common stock in 2017 and 2015. In 2016, the Company repurchased
100,000 shares of its common stock in the open market at an aggregate cost of $14,653.

8. Segment Information

Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated
product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are
shared and are indistinguishable in many respects. Accordingly, the Company manages its business on the
basis of one reportable operating segment. All of the Company’s operations are located within the United
States.

Total revenue was comprised of the following at:

Restaurant
Retail

Total revenue

9. Leases

2017

2016
$ 2,351,212 $ 2,323,199 $ 2,269,610
575,077
572,674
$ 2,926,289 $ 2,912,351 $ 2,842,284

589,152

2015

As of July 28, 2017, the Company operated 231 stores in leased facilities and also leased certain land, a

retail distribution center and advertising billboards.

Rent expense under operating leases, including the sale-leaseback transactions discussed below, for each

of the last three years was:

Year
2017
2016
2015

Minimum
$ 75,000
74,405
72,877

Contingent
$ 252
263
252

Total

$ 75,252
74,668
73,129

The following is a schedule by year of the future minimum rental payments required under the Company’s

operating leases as of July 28, 2017:

Year
2018
2019
2020
2021
2022
Later years
Total

Sale-Leaseback Transactions

Total

$ 65,253
53,102
48,298
29,993
30,372
480,140
$ 707,158

In 2009, the Company completed sale-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.

The Company leases 65 of its stores pursuant to a sale-leaseback transaction which closed in 2000. 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 include specified renewal options for up to 20 additional years
and have certain financial covenants related to fixed charge coverage for the leased stores. At July 28, 2017
and July 29, 2016, the Company was in compliance with these covenants.

10. Share-Based Compensation

Stock Compensation Plans

The Company’s employee compensation plans are administered by the Compensation Committee of the
Company’s Board of Directors (the “Committee”). The Committee is authorized to determine, at time periods
within its discretion and subject to the direction of the Board of Directors, which employees will be granted
awards, the number of shares covered by any awards granted, and within applicable limits, the terms and
provisions relating to the exercise and vesting of any awards.

The Company has one active compensation plan, the 2010 Omnibus Incentive Compensation Plan (the
“2010 Omnibus Plan”), for employees and non-employee directors which authorizes the granting of nonvested
stock awards and units, performance-based MSU Grants, stock options and other types of share-based
awards. The Company also has stock options outstanding under one other compensation plan in which no
future grants may be made.

The 2010 Omnibus Plan allows the Committee to grant awards for an aggregate of 1,500,000 shares of the
Company’s common stock. However, this share reserve is increased by shares awarded under this and prior
plans which are forfeited, expired, settled for cash and shares withheld by the Company in payment of a tax
withholding obligation. Additionally, this share reserve was decreased by shares granted from prior plans after
July 30, 2010 until December 1, 2010. At July 28, 2017, the number of shares authorized for future issuance
under the Company’s active plan is 1,044,309.

The following table summarizes the number of outstanding awards under each plan at July 28, 2017:

2010 Omnibus Plan
2002 Omnibus Incentive Compensation Plan
Total

Types of Share-Based Awards

Nonvested Stock Awards

131,575
4,000
135,575

Nonvested stock awards consist of the Company’s common stock, generally accrue dividend equivalents
and vest over 1–5 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 28, 2017:

Long-Term Performance Plan (“LTPP”)
2017 LTPP
2016 LTPP

Performance Period
2017 – 2018
2016 – 2017

Vesting Period
(in Years)
2 or 3
2 or 3

The following table summarizes the shares that have been accrued under the 2017 LTPP and 2016 LTPP

at July 28, 2017:

2017 LTPP
2016 LTPP

13,704
28,797

A summary of the Company’s nonvested stock activity as of July 28, 2017, and changes during 2017 are

presented in the following table:

Nonvested Stock
Unvested at July 29, 2016
Granted
Vested
Forfeited
Unvested at July 28, 2017

Weighted-Average Grant
Date Fair Value

Shares
40,437 $ 112.52
154.63
94,432
142.93
(102,852)
--
--
32,017 $ 139.04

The following table summarizes the total fair value of nonvested stock that vested for each of the three

years:

Total fair value of nonvested stock

Nonvested Stock Units

2017

2015
$ 14,700 $ 8,418 $ 8,152

2016

Beginning in 2017, the Company adopted long-term incentive plans that award nonvested stock units based
upon relative total shareholder return. 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. In addition to a service
requirement, the vesting of the nonvested stock units is also subject to the achievement of a specified level of
operating income during the performance period. If this performance goal is not met, no nonvested stock units will
be awarded and no compensation expense will be recorded.

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 rates for the nonvested stock units granted in 2017 ranged from 1.0% to
1.4%.

• 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.

At July 28, 2017, 3,025 nonvested stock units were accrued.

Performance-Based Market Stock Units

The number of MSU Grants that will ultimately be awarded and will vest at the end of the applicable three-year
performance period for each annual plan is based on total shareholder return, which is defined as the change in the
Company’s stock price plus dividends paid during the performance period. The number of shares awarded at the
end of the performance period will vary in direct proportion to a target number of shares set at the beginning of the
period, up to a maximum of 150% of target, based on the change in the Company’s cumulative total shareholder
return over the performance period. 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. In addition to a
service requirement, the vesting of the MSU Grants is also subject to the achievement of a specified level of
operating income during the performance period. If this performance goal is not met, no MSU Grants will be
awarded and no compensation expense will be recorded.

The fair value of the MSU Grants 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 volatility is a blend of implied volatility based on market-traded options on the Company’s
stock and historical volatility of our stock 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 expected dividend yield is assumed to be zero since the award holders are entitled to any dividends

paid over the performance period.

The following assumptions were used in determining the fair value for the Company’s MSU Grants:

Dividend yield***
Expected volatility
Risk-free interest rate range

Year Ended

July 29, 2016
--
23% - 24%
0.9% - 1.0%

July 31, 2015
--
21%
1.0%

***Dividends accrue on the 2015 and 2016 MSU Grants. Dividends will be forfeited for any MSU Grants

that do not vest. No MSU Grants were awarded in 2017.

The following table summarizes the shares that have been accrued under the 2015 MSU Grants and 2016

MSU Grants at July 28, 2017:

2015 MSU Grants
2016 MSU Grants

Stock Options

39,467
14,565

Prior to 2012, stock options were granted with an exercise price equal to the market price of the Company’s
stock on the grant date; those option awards generally vest at a cumulative rate of 33% per year beginning on
the first anniversary of the grant date and expire ten years from the date of grant. No stock options were
granted in 2015, 2016 or 2017.

A summary of the Company’s stock option activity as of July 28, 2017, and changes during 2017 are

presented in the following table:

Fixed Options
Outstanding at July 29, 2016
Granted
Exercised
Forfeited
Canceled
Outstanding at July 28, 2017
Exercisable

Weighted-
Average
Price

Weighted-Average
Remaining
Contractual Term

Aggregate
Intrinsic
Value

12,683 $ 32.71
--
--
32.64
(8,683)
--
--
--
--
4,000 $ 32.86
4,000 $ 32.86

0.33
0.33

$ 490
$ 490

The following table summarizes the total intrinsic values of options exercised during each of the three

years:

Total intrinsic values of options exercised*
*The intrinsic value for stock options is defined as the difference between the current market value and the
grant price.

2017
$ 1,070

2016
$ 917

2015
$ 4,652

Compensation Expense

The following table highlights the components of share-based compensation expense for each of the three

years:

Nonvested stock awards and units
MSU Grants

Total compensation expense

2015
2016
2017
$ 6,654 $ 10,277 $ 13,243
2,967
$ 8,458 $ 13,202 $ 16,210

1,804

2,925

The following table highlights the total unrecognized compensation expense related to nonvested stock
awards, nonvested stock units and MSU Grants and the weighted-average periods over which the expense is
expected to be recognized as of July 28, 2017:

Total unrecognized compensation
Weighted-average period in years

Nonvested
Stock Awards

$ 2,692 $ 770
2.01

2.12

Nonvested
Stock Units MSU Grants
$ 862
1.02

The following table highlights the total income tax benefit recognized in the Consolidated Statements of

Income for each of the three years:

Total income tax benefit

2015
2016
2017
$ 2,740 $ 3,819 $ 5,056

During 2017, the Company issued 99,548 shares of its common stock resulting from the vesting of share-
based compensation awards and stock option exercises. Related tax withholding payments on certain share-
based compensation awards exceeded proceeds received from the exercise of stock options which resulted in
a net reduction to shareholders’ equity of $6,896. The excess tax benefit realized upon exercise of share-
based compensation awards was $2,636.

11. Shareholder Rights Plan

On April 9, 2015, 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, 2015 (the “Rights Agreement”),
by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The
dividend was payable on April 20, 2015 to the shareholders of record as of the close of business on April 20,
2015. The Rights Agreement replaced the Company’s previous shareholder rights plan adopted in 2012 (the
“2012 Plan”), and it became effective immediately following the expiration of the 2012 Plan at the close of
business on April 9, 2015. The 2012 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 2012 Plan.

The Rights

The Rights initially trade with, and are inseparable from, the Company’s common stock. The Rights are
evidenced only by the balances indicated in the book-entry account system of the transfer agent for the
Company’s common stock or, in the case of certificated shares, the certificates that represent such shares of
common stock. New Rights will accompany any new shares of common stock the Company issues after April
20, 2015 until the earlier of the Distribution Date, redemption of the Rights by the Board of Directors or the final
expiration date of the Rights Agreement, each as 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, once the Rights become exercisable. This
portion of a Preferred Share will give the shareholder approximately the same dividend and liquidation rights as
would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or
liquidation rights.

Exercisability

The Rights will not be exercisable until 10 days after the public announcement that a person or group has
become an “Acquiring Person” by obtaining beneficial ownership of 20% or more of the Company’s outstanding
common stock.

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. 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 – 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 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 28, 2017, none of the Rights were exercisable.

Consequences of a Person or Group Becoming an Acquiring Person

If a person or group becomes an Acquiring Person, after the Distribution Date, each Right will generally
entitle the holder, except the Acquiring Person or any associate or affiliate thereof, to acquire, for the exercise
price of $600.00 per Right (subject to adjustment as provided in the Rights Agreement), shares of the
Company’s common stock (or, in certain circumstances, Preferred Shares) having a market value equal to
twice the Right’s then-current exercise price. In addition, if, the Company is later acquired in a merger or similar
transaction after the Distribution Date, each Right will generally entitle the holder, except the Acquiring Person
or any associate or affiliate thereof, to acquire, for the exercise price of $600.00 per Right (subject to
adjustment as provided in the Rights Agreement), shares of the acquiring corporation having a market value
equal to twice the Right’s then-current exercise price.

Preferred Share Provisions

Each one one-hundredth of a Preferred Share, if issued:

• will not be redeemable.
• will entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the

dividend paid on one share of common stock, whichever is greater.

• will entitle holders upon liquidation either to receive $1.00 per share or an amount equal to the payment

made on one share of common stock, whichever is greater.
• will have the same voting power as one share of common stock.
•

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 all-cash, fully financed tender offers for all shares of common stock
that remain open for a minimum of 60 business days, are 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”). 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 shall not cause the offeror or its affiliates or associates 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, 2018.

12. Employee Savings Plans

The Company sponsors a qualified defined contribution retirement plan (“401(k) Savings Plan”) covering
salaried and hourly employees who have completed ninety days of service and have attained the age of twenty-
one. This plan allows eligible employees to defer receipt of up to 50% of their compensation, as defined in the
plan. The Company also sponsors a non-qualified defined contribution retirement plan (“Non-Qualified Savings
Plan”) covering highly compensated employees, as defined in the plan. This plan allows eligible employees to
defer receipt of up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the
plan.

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 2017, 2016 and 2015, the Company matched 25% of employee contributions
for each participant in either plan up to a total of 6% of the employee’s compensation. 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 $31,196 is
included in other assets and the related liability to the participants of $31,196 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:

401(k) Savings Plan
Non-Qualified Savings Plan

2017

2016

2015

$ 2,501

291

$ 2,528 $ 2,364
234

296

13. Income Taxes

The components of the provision for income taxes for each of the three years were as follows:

2017

2016

2015

Current:

Federal
State
Deferred:

Federal
State

Total provision for income taxes

$ 83,743 $ 62,054 $ 71,386
6,050

7,567

6,447

(6,178)
12,477
4,696
982
3,040
(3,858)
$ 96,988 $ 77,120 $ 74,298

A reconciliation of the Company’s provision for income taxes and income taxes based on the statutory U.S.

federal rate of 35% was as follows:

Provision computed at federal statutory income tax rate
State and local income taxes, net of federal benefit
Employer tax credits for FICA taxes paid on employee tip income
Other employer tax credits
Other-net
Total provision for income taxes

2015
2016
2017
$ 104,611 $ 93,247 $ 83,370
6,378
1,427
5,856
(10,681)
(11,048)
(11,543)
(5,058)
(7,326)
(2,814)
878
289
820
$ 96,988 $ 77,120 $ 74,298

Significant components of the Company’s net deferred tax liability consisted of the following at:

Deferred tax assets:

Compensation and employee benefits
Deferred rent
Accrued liabilities
Insurance reserves
Inventory
Other

Deferred tax assets

Deferred tax liabilities:

Property and equipment
Inventory
Other

Deferred tax liabilities

Net deferred tax liability

July 28, 2017

July 29, 2016

$ 10,110
18,270
13,233
12,401
4,411
2,767
$ 61,192

$ 13,937
17,183
12,466
11,444
4,368
8,718
$ 68,116

$ 100,373
10,906
12,273
123,552
$ 62,360

$ 97,695
9,803
12,024
119,522
$ 51,406

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 28, 2017 and July 29, 2016, the Company’s gross liability for uncertain tax positions,
exclusive of interest and penalties, was $20,731 and $21,899, 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:

Balance at beginning of year
Tax positions related to the current year:

Additions
Reductions

Tax positions related to the prior year:

Additions
Reductions

Settlements
Expiration of statute of limitations
Balance at end of year

July 28, 2017

July 31, 2015
July 29, 2016
$ 21,899 $ 25,507 $ 22,832

4,003
--

4,860
--

3,994
--

118
2,186
582
(227)
(6,896)
(2,966)
(204)
(2,324)
(1,027)
(1,760)
(1,006)
(1,434)
$ 20,731 $ 21,899 $ 25,507

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:

Uncertain tax positions

2015
2016
2017
$ 13,475 $ 14,234 $ 16,579

The Company had $6,128, $5,497 and $9,754 in interest and penalties accrued as of July 28, 2017, July

29, 2016, and July 31, 2015, respectively.

The Company recognized accrued interest and penalties related to unrecognized tax benefits of $631,
$(4,256) and $1,194 in its provision for income taxes on July 28, 2017, July 29, 2016 and July 31, 2015,
respectively. The increase from 2016 to 2017 and the decrease from 2015 to 2016 both are attributable to the
Company’s revaluation of select reserves and audit settlements in 2016.

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 28, 2017 by approximately
$3,000 to $4,000 within the next twelve months. At July 28, 2017, the Company was subject to income tax
examinations for its U.S. federal income taxes after 2013 and for state and local income taxes generally after
2013.

14. Net Income Per Share and Weighted Average Shares

The following table reconciles the components of diluted earnings per share computations:

Net income per share numerator

Net income per share denominator:

Basic weighted average shares outstanding
Add potential dilution:

2017
$ 201,899

2016

2015

$ 189,299

$ 163,903

24,031,810

23,945,041

23,918,368

Stock options, nonvested stock awards and MSU Grants

Diluted weighted average shares outstanding

86,478
24,118,288

129,232
24,074,273

130,556
24,048,924

15. Commitments and Contingencies

The Company and its subsidiaries are party to various legal and regulatory proceedings and claims
incidental to their business in the ordinary course. In the opinion of management, based upon information
currently available, the ultimate liability with respect to these proceedings and claims will not materially affect
the Company’s consolidated results of operations or financial position.

The Company maintains insurance coverage for various aspects of its business and operations. The
Company has elected, however, to retain all or a portion of losses that occur through the use of various
deductibles, limits and retentions under its insurance programs. This situation may subject the Company to
some future liability for which it is only partially insured, or completely uninsured. The Company intends to
mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms
and conditions of its contracts. See Note 2 for a further discussion of insurance and insurance reserves.

Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit
as credit guarantees to certain insurers. As of July 28, 2017, the Company had $9,655 of standby letters of
credit related to securing reserved claims under workers’ compensation insurance. All standby letters of credit
are renewable annually and reduce the Company’s borrowing availability under its Revolving Credit facility (see
Note 5).

As of July 28, 2017, the Company is secondarily liable for lease payments associated with two properties.
The Company is not aware of any non-performance under these lease arrangements that would result in the
Company having to perform in accordance with the terms of these guarantees, and therefore, no provision has
been recorded in the Consolidated Balance Sheets for amounts to be paid in case of non-performance by the
third party by the primary obligor under such lease agreements.

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.

16. Quarterly Financial Data (Unaudited)

Quarterly financial data for 2017 and 2016 are summarized as follows:

1st Quarter

2nd Quarter 3rd Quarter

4th Quarter

2017
Total revenue
Store operating income
Income before income taxes
Net income
Net income per share – basic
Net income per share – diluted
2016
Total revenue
Store operating income
Income before income taxes
Net income
Net income per share – basic
Net income per share – diluted

$ 709,971 $ 772,682 $ 700,410 $ 743,226
119,749
79,672
53,893
2.24
2.23

117,513
79,058
52,727
2.19
2.19

107,478
68,089
46,924
1.95
1.95

109,832
72,068
48,355
2.01
2.01

$ 702,629 $ 764,002 $ 700,136 $ 745,584
114,375
74,107
51,023
2.13
2.12

99,627
61,764
40,865
1.71
1.70

106,032
66,956
48,242
2.02
2.01

103,419
63,592
49,169
2.05
2.04

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 28, 2017, our disclosure controls and procedures were effective.

There have been no changes (including corrective actions with regard to significant deficiencies and material
weaknesses) during the quarter ended July 28, 2017 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, all 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 all 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 28, 2017, 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/Jill M. Golder
Jill M. Golder
Senior Vice President and Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Cracker Barrel Old Country Store, Inc.
Lebanon, Tennessee

We have audited the internal control over financial reporting of Cracker Barrel Old Country Store, Inc. and its
subsidiaries (the “Company”) as of July 28, 2017, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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 other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of July 28, 2017, based on the criteria established in Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements of the Company as of and for the year ended July 28,
2017, and our report dated September 22, 2017 expressed an unqualified opinion on those consolidated
financial statements.

/s/ Deloitte & Touche LLP

Nashville, Tennessee
September 22, 2017

ITEM 9B. OTHER INFORMATION

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 2017 Proxy Statement: “Board of Directors and Committees,”
“Proposal 1: Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Certain
Relationships and Related Transactions—Code of Ethics.” 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
“Executive Officers of the Registrant.”

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by this reference to the following sections of
the 2017 Proxy Statement: “Executive Compensation” and “Board of Directors and Committees—Compensation
of Directors.” The “Compensation Committee Report” set forth in the section of the 2017 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
2017 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 2017 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 2017 Proxy Statement. No other portion of the section of the
2017 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.

ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES

(a)

List of documents filed as part of this report:

PART IV

All financial statements – see Item 8.

All schedules have been omitted since they are either not required or not applicable, or
the required information is included.

The exhibits listed in the accompanying Index to Exhibits immediately prior to the
signature page to this Annual Report on Form 10-K.

Exhibit

INDEX TO EXHIBITS

3(I), 4(a)

Amended and Restated Charter of Cracker Barrel Old Country Store, Inc. (1)

3(II), 4(b)

Amended and Restated Bylaws of Cracker Barrel Old Country Store, Inc. (2)

4(c), 10(a)

Credit Agreement, dated as of January 8, 2015, among Cracker Barrel Old Country Store, Inc.,
the Subsidiary Guarantors named therein, the Lenders party thereto, and Wells Fargo Bank,
National Association as Administrative Agent and Collateral Agent (3)

4(d)

10(b)

10(c)

10(d)

10(e)

10(f)

10(g)

10(h)

10(i)

10(j)

10(k)

10(l)

10(m)

10(n)

10(o)

Rights Agreement, dated as of April 9, 2015, between Cracker Barrel Old Country Store, Inc. and
American Stock Transfer & Trust Company, LLC, as rights agent (4)

Form of Stock Option Award under the CBRL Group, Inc. 2002 Omnibus Incentive
Compensation Plan† (5)

Master Lease, dated July 31, 2000, between Country Stores Property I, LLC, as Lessor, and
Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 21 Cracker Barrel Old Country
Store® sites (6)

Master Lease, dated July 31, 2000, between Country Stores Property I, LLC, as Lessor, and
Cracker Barrel Old Country Store, Inc., as Lessee, for lease of nine Cracker Barrel Old Country
Store® sites (filed herewith)

Master Lease, dated July 31, 2000, between Country Stores Property II, LLC, as Lessor, and
Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 23 Cracker Barrel Old Country
Store® sites (filed herewith)

Master Lease, dated July 31, 2000, between Country Stores Property III, LLC, as Lessor, and
Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 12 Cracker Barrel Old Country
Store® sites (filed herewith)

Cracker Barrel Old Country Store, Inc. Amended and Restated Stock Option Plan (as
amended to date)† (7)

Cracker Barrel Old Country Store, Inc. Corporate Policy—Severance Benefits Policy (as
amended to date)† (8)

Cracker Barrel Old Country Store, Inc. 2002 Omnibus Incentive Compensation Plan (as
amended to date)† (9)

Cracker Barrel Old Country Store, Inc. 2010 Omnibus Stock and Incentive Plan† (10)

Cracker Barrel Old Country Store, Inc. Form of Performance-Based Stock Unit Award† (11)

Cracker Barrel Old Country Store, Inc. Non-Qualified Savings Plan (as amended to date)† (12)

Cracker Barrel Old Country Store, Inc. Deferred Compensation Plan† (13)

Amendment to Deferred Compensation Plan†(14)

Executive Employment Agreement with Sandra B. Cochran, dated as of September 26, 2013†
(15)

10(p)

Cracker Barrel Old Country Store, Inc. Form of Restricted Stock Award Notice† (16)

10(q)

10(r)

10(s)

10(t)

10(u)

10(v)

10(w)

10(x)

31.1

31.2

32.1

32.2

Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2015 Long-Term Incentive Program†
(17)

Form of Change in Control and Severance Agreement between Cracker Barrel Old Country
Store, Inc. and certain of its named officers† (18)

Change in Control and Severance Agreement with Nicholas V. Flanagan, dated May 22,
2015† (filed herewith)

Retirement Agreement with Lawrence E. Hyatt, dated as of September 25, 2015† (19)

Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2016 Long-Term Incentive Program†
(20)

Change in Control and Severance Agreement with Jill Golder, dated April 28, 2016† (21)

Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2017 Annual Bonus Plan† (22)

Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2017 Long-Term Incentive Program†
(23)

Subsidiaries of the Registrant (filed herewith)

Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP (filed
herewith)

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith)

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith)

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)

101.INS

XBRL Instance Document (filed herewith)

101.SCH

XBRL Taxonomy Extension Schema (filed herewith)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase (filed herewith)

101.LAB

XBRL Taxonomy Extension Label Linkbase (filed herewith)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

101.DEF

XBRL Taxonomy Extension Definition Linkbase (filed herewith)

(1)

(2)

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).

Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on February 24, 2012 (Commission File No. 000-25225).

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on January 9, 2015.

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, 2015.

Incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K filed under the
Exchange Act for the fiscal year ended July 29, 2005 (Commission File No. 000-25225).

Incorporated by reference to Exhibit 10(r) to the Company’s Annual Report on Form 10-K filed under
the Exchange Act for the fiscal year ended July 28, 2000 (Commission File No. 000-25225).

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 January 30, 2009 (Commission File No. 000-25225).

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).

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 January 29, 2010 (Commission File No. 000-25225).

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).

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).

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).

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).

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).

Incorporated by reference to Exhibit 10(dd) to the Company’s Annual Report on Form 10-K filed under
the Exchange Act for the fiscal year ended August 2, 2013.

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.

Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on October 7, 2014.

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on May 22, 2015.

Incorporated by reference to Exhibit 10(z) to the Company’s Annual Report on Form 10-K filed under
the Exchange Act on September 29, 2015.

Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on September 30, 2015.

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on April 29, 2016.

Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on October 28, 2016.

(23)

Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the
Exchange Act on October 28, 2016.

†Denotes management contract or compensatory plan, contract or arrangement.

SIGNATURES

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 22nd day of
September, 2017.

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 22nd day of September, 2017.

Name

Title

/s/Sandra B. Cochran
Sandra B. Cochran

/s/Jill M. Golder
Jill M. Golder

/s/Jeffrey M. Wilson
Jeffrey M. Wilson

/s/Thomas H. Barr
Thomas H. Barr

/s/James W. Bradford
James W. Bradford

/s/Meg G. Crofton
Meg G. Crofton

/s/Glenn A. Davenport
Glenn A. Davenport

/s/Richard J. Dobkin
Richard J. Dobkin

/s/Norman E. Johnson
Norman E. Johnson

/s/William W. McCarten
William W. McCarten

/s/Coleman H. Peterson
Coleman H. Peterson

/s/Andrea M. Weiss
Andrea M. Weiss

President, Chief Executive Officer and Director

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Vice President, Corporate Controller (Principal Accounting Officer)

Director

Director and Chairman of the Board

Director

CRACKER BARREL OLD COUNTRY STORE, INC.

Directors

Thomas H. Barr

President of Sono Bello; former

Vice President, Global Coffee at

Starbucks Corporation

James W. Bradford

Chairman of the Board; Retired; former

Sandra B. Cochran

President and CEO of

Dean and Professor for the Practice of

Cracker Barrel Old Country Store, Inc.

Managementat Vanderbilt University’s

Owen Graduate School of Management

Meg G. Crofton

Retired; former President of Parks and

Resorts Operations, U.S. and France for

The Walt Disney Company

CRACKER BARREL OLD COUNTRY STORE, INC.
Corporate Information

Corporate Offices
Cracker Barrel Old Country Store, Inc.
P.O. Box 787
305 Hartmann Drive
Lebanon, TN 37088-0787
Phone: 615-444-5533
crackerbarrel.com

Transfer Agent
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219

Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Nashville, Tennessee

Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m.
Thursday, November 16, 2017, at the Cracker Barrel Old Country Store
home office on Hartmann Drive, Lebanon, Tennessee.

Comparison of Five-Year Total Return
Among Cracker Barrel Old Country Store, Inc.,
S&P 400 Restaurants Index, and S&P Mid Cap
Index. Assumes $100 invested on 8/3/12 and
includes reinvestment of dividends. Copyright
@ Standard and Poor’s, Inc.

$400

$300

$200

$100

Dividend Reinvestment and Direct Stock Purchase Plan
Although our company does not sponsor a dividend reinvestment or direct stock
purchase plan, our transfer agent, American Stock Transfer & Trust Company,
LLC (“AST”), sponsors and administers such programs. You may call AST at
800-485-1883 to obtain enrollment forms.

10-K Report
A copy of the Cracker Barrel Old Country Store, Inc. Form 10-K Annual Report
for Fiscal 2017, filed with the Securities and Exchange Commission, may be
obtained without charge through our Internet website, located at
crackerbarrel.com.

Unless specifically noted otherwise, references in this annual report to “CBRL,”
“Cracker Barrel” or “The Company” refer to Cracker Barrel Old Country Store,
Inc. and its subsidiaries; or its Cracker Barrel Old Country Store® concept.

“Cracker Barrel Old Country Store” name and logo, “Cracker Barrel”,
“Pleasing People”, “CB Old Country Store”, and “Holler & Dash Biscuit
House” are trademarks of CBOCS Properties, Inc.

Glenn A. Davenport

President of G.A. Food Service, Inc.;

former Chairman and CEO of Morrison

Management Specialists

Richard J. Dobkin

Norman E. Johnson

Retired; former Managing Partner of the

Retired; former Executive Chairman

Tampa, FL office of Ernst & Young, LLP

and CEO of CLARCOR, Inc.

William W. McCarten

Retired; former Chairman of the

board of directors of DiamondRock

Hospitality Company

Corporate Officers

Sandra B. Cochran
President and Chief Executive Officer

2012
2014
2013
Cracker Barrel Old Country Store, Inc.

2015
S&P Mid Cap

2016

2017

S&P 400 Restaurants

Brenda L. Cool
Regional Vice President, Retail Operations

Michael W. Mott
Vice President, Human Resources

Coleman H. Peterson

President and CEO of Hollis Enterprises,

LLC; former Chief People Officer of

Wal-Mart Stores, Inc.

Andrea M. Weiss

President and CEO of Retail

Consulting, Inc.; former

President of dELiA*s Corp.

Beverly K. Carmichael
Senior Vice President and Chief People Officer

Leon M. De Wet
Vice President, Information Services and CIO

Benjamin E. Noyes
Regional Vice President, Restaurant Operations

P. Doug Couvillion
Senior Vice President, Sourcing and Supply Chain

Alan L. Emery
Vice President, Strategic Initiatives

Laura A. Daily
Senior Vice President, Retail

Bevan T. Flavin
Regional Vice President, Restaurant Operations

Nicholas V. Flanagan
Senior Vice President, Restaurant and Retail Operations

Deborah A. Fratrik
Regional Vice President, Restaurant Operations

Jill M. Golder
Senior Vice President and Chief Financial Officer

Scott A. Gardner
Vice President, Distribution and Logistics

Donald H. Hoffman
Senior Vice President, Marketing

Richard M. Wolfson
Senior Vice President, General Counsel and Corporate
Secretary

Charlie E. Austin
Regional Vice President, Restaurant Operations

Robert E. Bowman, Jr.
Vice President, Internal Audit

Bethany B. Champ
Vice President, Talent and Leadership Development

Michael J. Chissler
COO, Holler & Dash

Derrick L. Collins
Regional Vice President, Retail Operations

Joshua L. Greear
Vice President, Strategy and Business Development

Anthony P. Guadagno
Divisional Vice President, Restaurant Operations

Michael T. Hackney
Vice President, Management and Employee Training

Erin T. Hasselgren
Regional Vice President, Restaurant Operations

Douglas Hisel
Regional Vice President, Restaurant Operations

Ray T. Johnson
Divisional Vice President, Restaurant Operations

Serena G. Johnson
Regional Vice President, Retail Operations

Sherri L. Moore
Vice President, Restaurant and Retail Operations Support

Thomas R. Pate
Vice President, Operations Business Model and New Unit
Openings

Maja N. Patton
Vice President, Merchandise Planning and Allocation

William M. Prentice
Regional Vice President, Restaurant Operations

Beth J. Quinn
Regional Vice President, Retail Operations

Myson S. Rice
Regional Vice President, Restaurant Operations

Cindy M. Sasse
Vice President, Retail Operations

Cammie Spillyards-Schaefer
Vice President, Culinary

David R. Swartling
Regional Vice President, Restaurant Operations

Walter W. Tyree
Regional Vice President, Restaurant Operations

Andress R. Urteaga
Regional Vice President, Restaurant Operations

Jeffrey M. Wilson
Vice President, Corporate Controller and Principal Accounting
Officer