CRACKER BARREL OLD COUNTRY STORE, INC (CBRL) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Executive Overview – a general description of our business, the restaurant and retail industries, our strategic priorities and our key performance indicators. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Results of Operations – an analysis of our consolidated statements of income for the three years presented in our Consolidated Financial Statements. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Liquidity and Capital Resources – an analysis of our primary sources of liquidity, capital expenditures and material commitments. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | 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 13, 2023, the Company operated 661 Cracker Barrel stores located in 45 states. On October 19, 2019, the
Company acquired 100% ownership of Maple Street Biscuit Company (“MSBC”), a breakfast and lunch fast casual concept. As of September 13, 2023, the Company operated 59 MSBC locations in ten states.
Strategic Priorities
Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry, and we plan to continue to leverage and build on that
strength as a core component of our business strategy.
Our long-term strategy remains centered on driving sustainable sales growth, continued business model improvements, building profitable Cracker Barrel and MSBC stores, and ultimately driving
shareholder returns.
Our strategic priorities include the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Delivering an exceptional guest experience; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Emphasizing and protecting our strong value proposition; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Accelerating frequency of visits among our growth segments; and |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Enhancing our business model through our cost savings program and investing in technology. |
Additionally, during 2023, we continued our focus on generating shareholder returns by paying $5.20 per share in dividends for fiscal 2023 and declaring a dividend of $1.30 per share that was
subsequently paid on August 8, 2023 to shareholders of record on July 21, 2023, totaling $144,302 dividends declared or paid in 2023, and repurchasing $17,449 in shares of our common stock.
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Key Performance Indicators
Management uses a number of key performance indicators to evaluate our operational and financial performance, including the following:
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Comparable store restaurant sales increase/(decrease): To calculate comparable store restaurant sales increase/(decrease), we determine total restaurant sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks. We then subtract total comparable store restaurant sales for the current year period from total comparable store restaurant sales for the applicable historical period to calculate the absolute dollar change. To calculate comparable store restaurant sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store restaurant sales for the historical period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Comparable store average restaurant sales: To calculate comparable store average restaurant sales, we determine total restaurant sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks, and divide by the number of comparable stores for the applicable period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Comparable store retail sales increase/(decrease): To calculate comparable store retail sales increase/(decrease), we determine total retail sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks. We then subtract total comparable store retail sales for the current year period from total comparable store retail sales for the applicable historical period to calculate the absolute dollar change. To calculate comparable store retail sales increase/(decrease), which we express as a percentage, we divide the absolute dollar change by the comparable store retail sales for the historical period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Comparable store retail average weekly sales: To calculate comparable store average retail sales, we determine total retail sales of stores open at least six full quarters before the beginning of the applicable period, measured on comparable calendar weeks, and divide by the number of comparable stores for the applicable period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Comparable restaurant guest traffic increase/(decrease): To calculate comparable restaurant guest traffic increase/(decrease), we determine the number of entrees sold in our dine-in and off-premise business from stores open at least six full quarters at the beginning of the applicable period, measured on comparable calendar weeks. We then subtract total entrees sold for the current year period from total entrees sold for the applicable historical period to calculate the absolute numerical change. To calculate comparable restaurant guest traffic increase/(decrease), which we express as a percentage, we divide the absolute numerical change by the total entrees sold for the historical period. |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| • | Average check increase per guest: To calculate average check per guest, we determine comparable store restaurant sales, as described above, and divide by comparable guest traffic, as described above. We then subtract average check per guest for the current year period from average check per guest for the applicable historical period to calculate the absolute dollar change. The absolute dollar change is divided by the prior year average check number to calculate average check increase per guest, which we express as a percentage. |
These performance indicators exclude the impact of new store openings and sales related to MSBC.
We use comparable store sales metrics as indicators of sales growth to evaluate how our established stores have performed over time. We use comparable restaurant guest traffic increase/(decrease) to
evaluate how established stores have performed over time, excluding growth achieved through menu price and sales mix change. Finally, we use average check per guest to identify trends in guest preferences, as well as the effectiveness of menu
changes. We believe these key performance indicators are useful for investors to provide a consistent comparison of sales results and trends across comparable periods within our core, established store base, unaffected by results of store openings,
closings, and other transitional changes.
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Restaurant and Retail Industries
Our stores operate in both the restaurant and retail industries in the United States. The restaurant and retail industries are highly competitive with respect to quality, variety and price of the
food products, availability of carryout and home delivery, internet and mobile ordering capabilities and retail merchandise offered. We compete with a significant number of national and regional restaurant and retail chains. Additionally, there are
many segments within the restaurant industry, such as family dining, casual dining, full-service, fast casual and quick service, which often overlap and provide competition for widely diverse restaurant concepts. Cracker Barrel primarily operates in
the full-service segment of the restaurant industry, and our growing MSBC concept operates in the fast casual segment. Competition also exists in securing prime real estate locations for new stores, in hiring qualified employees, in advertising, in
the attractiveness of facilities and with competitors having similar menu offerings or convenience features. 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, such as elevated inflation, and higher unemployment rates affect
consumer discretionary income and dining and shopping habits. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby contributing to higher profits in our fourth quarter.
Retail sales, which are made substantially to our restaurant guests, are historically strongest in the second quarter, which includes the holiday shopping season.
Severe weather events such as hurricanes, floods, tornadoes, and winter storms may prevent or dissuade guests from visiting our stores, impair our ability to staff our stores or
force us to temporarily close affected stores, adversely impacting our restaurant and retail sales. Additionally, severe drought conditions and associated restrictions on water use may impair restaurant operations or increase costs in locations
affected by such conditions. Climate change, changing weather patterns or unpredictable weather patterns may increase the incidence of any of these events and otherwise also impact guest visitation patterns on a macro scale. In addition to its
impact on store operations, severe weather may also disrupt our supply chain, both in distribution to ports and central warehouses and in distribution to local stores. In general, we
believe that the geographic dispersion of our stores and multiple sources of distribution adequately mitigate the potential impact of severe weather and changing weather patterns on our stores, but our Board of Directors and management team
continually monitor and reexamine these considerations in light of ongoing trends.
External Impacts to Our Operating Environment
Our operating results have been impacted by the COVID-19 pandemic and other macroeconomic conditions. During 2021, our business began recovering from the COVID-19 pandemic, but we continued to see
negative impacts on our sales and traffic as a result of both changes in consumer behavior and federal, state and local governmental authorities’ continuation of various restrictions on travel, group gatherings and dine-in services. Dining room
service was operational to varying degrees, yet most locations were impacted at times by capacity restrictions, social distancing guidelines and decreased consumer demand for in-person dining. In 2022, the Company continued to recover from the
COVID-19 pandemic; however, we believe outbreaks of new variants adversely impacted consumer demand in 2022. While our dining rooms operated without COVID-related restrictions in 2023, it is possible that renewed outbreaks, increases in cases and/or
new variants of the disease, either as part of a national trend or on a more localized basis, could result in COVID-19-related restrictions including capacity restrictions or otherwise limit our dine-in services, or negatively affect consumer demand.
In 2023 and 2022, we experienced inflationary conditions with respect to the cost for food, ingredients, retail merchandise, transportation, distribution, labor and utilities resulting, in part, from economic pressures related to the COVID-19
pandemic.
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RESULTS OF OPERATIONS
The following table highlights operating results over the past three years:
| Relationship to Total Revenue | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | ||||||||||
| Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
| Cost of goods sold (exclusive of depreciation and rent) | 32.8 | 32.1 | 30.7 | |||||||||
| Labor and other related expenses | 35.1 | 35.2 | 34.8 | |||||||||
| Other store operating expenses | 23.2 | 23.2 | 24.0 | |||||||||
| General and administrative | 5.0 | 4.8 | 5.2 | |||||||||
| Gain on sale and leaseback transactions | — | — | (7.7 | ) | ||||||||
| Impairment and store closing costs | 0.4 | — | — | |||||||||
| Operating income | 3.5 | 4.7 | 13.0 | |||||||||
| Interest expense | 0.5 | 0.3 | 2.0 | |||||||||
| Income before income taxes | 3.0 | 4.4 | 11.0 | |||||||||
| Provision for income taxes | 0.1 | 0.4 | 2.0 | |||||||||
| Net income | 2.9 | 4.0 | 9.0 |
Total Revenue
The following table highlights the key components of revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue in dollars(1): | ||||||||||||
| Restaurant | $ | 2,740,866 | $ | 2,565,628 | $ | 2,227,246 | ||||||
| Retail | 701,942 | 702,158 | 594,198 | |||||||||
| Total revenue | $ | 3,442,808 | $ | 3,267,786 | $ | 2,821,444 | ||||||
| Total revenue percentage increase | 5.4 | % | 15.8 | % | 11.8 | % | ||||||
| Total revenue by percentage relationships: | ||||||||||||
| Restaurant | 79.6 | % | 78.5 | % | 78.9 | % | ||||||
| Retail | 20.4 | % | 21.5 | % | 21.1 | % | ||||||
| Comparable number of stores | 659 | 659 | 655 | |||||||||
| Comparable store sales averages per store: (1) | ||||||||||||
| Restaurant | $ | 4,047 | $ | 3,804 | $ | 3,312 | ||||||
| Retail | 1,049 | 1,052 | 890 | |||||||||
| Total | $ | 5,096 | $ | 4,856 | $ | 4,202 | ||||||
| Restaurant average weekly sales (2) | $ | 77.7 | $ | 72.9 | $ | 63.4 | ||||||
| Retail average weekly sales (2) | 20.3 | 20.3 | 17.2 | |||||||||
| Average check increase | 9.8 | % | 7.0 | % | 3.1 | % | ||||||
| Comparable restaurant guest traffic increase/(decrease) (3) | (3.5 | %) | 8.0 | % | 5.3 | % |
(1) Comparable store averages exclude MSBC.
(2) Average weekly sales are calculated by dividing net sales by operating weeks and include all stores except for MSBC.
(3) Comparable store sales and traffic consist of sales of stores open at least six full quarters at the beginning of the period and are
measured on comparable calendar weeks. Comparable store sales and traffic exclude MSBC.
Total revenue benefited from the opening of two new Cracker Barrel and 12 new MSBC units in 2023, the opening of seven new MSBC units in 2022 and two new units for both Cracker Barrel and MSBC in
2021, partially offset by the closing of six Cracker Barrel and four MSBC units in 2023 and one Cracker Barrel unit in 2021. Additionally, in the fourth quarter of 2022, the Company acquired direct ownership of MSBC’s seven franchised units from
their respective franchisees.
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The following table highlights comparable store sales* results over the past two years:
| Period to Period Increase (Decrease) | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 vs 2022 | 2022 vs 2021 | |||||||
| (659 Stores) | (659 Stores) | |||||||
| Restaurant | 6.3 | % | 15.0 | % | ||||
| Retail | (0.4 | %) | 18.2 | |||||
| Restaurant & Retail | 4.9 | % | 15.7 | % |
*Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year, are measured on comparable calendar weeks and exclude MSBC.
Our comparable store restaurant sales increase in 2023 as compared to 2022 resulted from an average check increase of 9.8% (including an 8.6% average menu price increase) partially offset by a
decrease in guest traffic of 3.5%. Off-premise sales represented approximately 20% of restaurant sales volumes in both 2023 and 2022. Our comparable store restaurant sales increase in 2022 as compared to 2021 resulted from an average check increase
of 7.0% (including a 5.9% average menu price increase) and an increase in guest traffic of 8.0%. Off-premise sales represented approximately 24% of restaurant sales volumes in 2021 when a large number of restaurants were operating with limitations
on or full prohibitions of dine-in services due to the COVID-19 pandemic.
Our retail sales are made primarily to our restaurant guests. The decrease in our comparable store retail sales in 2023 as compared to 2022 resulted
primarily from the decrease in guest traffic partially offset by strong performance in the apparel merchandise category. The increase in our comparable store retail sales in 2022 as compared to 2021 resulted primarily from the increase in guest
traffic and strong performance in the apparel and accessories, food and convenience, toys, décor, and bed and bath merchandise categories.
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:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost of Goods Sold: | |||||||||||
| Restaurant | $ | 769,295 | $ | 706,125 | $ | 567,825 | |||||
| Retail | 358,322 | 343,759 | 297,436 | ||||||||
| Total Cost of Goods Sold | $ | 1,127,617 | $ | 1,049,884 | $ | 865,261 |
The following table highlights restaurant cost of goods sold as a percentage of restaurant revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Restaurant Cost of Goods Sold | 28.1 | % | 27.5 | % | 25.5 | % |
The increase in restaurant cost of goods sold as a percentage of restaurant revenue in 2023 as compared to 2022 was primarily the result of higher cost menu items. The increase in restaurant cost of
goods sold as a percentage of restaurant revenue in 2022 as compared to 2021 was primarily the result of commodity inflation of 13.1% partially offset by our menu price increase referenced above.
We presently expect the rate of commodity deflation to be approximately 1% to 2% in the first quarter of 2024.
The following table highlights retail cost of goods sold as a percentage of retail revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Retail Cost of Goods Sold | 51.1 | % | 49.0 | % | 50.1 | % |
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The year-to-year percentage change in 2023 as compared to 2022 resulted primarily from the following:
| 2023 Compared to 2022 Increase as a Percentage of Total Retail Revenue | ||||
|---|---|---|---|---|
| Markdowns | 1.7 | % | ||
| Freight expense | 0.5 | % |
The increase in retail cost of goods sold as a percentage of retail revenue in 2023 as compared to 2022 resulted primarily from higher markdowns and higher freight expense.
The year-to-year percentage change in 2022 as compared to 2021 resulted from the following:
| 2022 Compared to 2021 (Decrease) Increase as a Percentage of Total Retail Revenue | ||||
|---|---|---|---|---|
| Markdowns | (1.4 | %) | ||
| Provision for obsolete inventory | 0.4 | % |
The decrease in retail cost of goods sold as a percentage of retail revenue in 2022 as compared to 2021 resulted primarily from lower markdowns partially offset by the change in the provision for
obsolete inventory.
Labor and Other Related Expenses
Labor and other related expenses include all direct and indirect labor and related costs incurred in store operations. The following table highlights labor and other related expenses as a percentage
of total revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Labor and other related expenses | 35.1 | % | 35.2 | % | 34.8 | % |
The year-to-year percentage change in 2023 as compared to 2022 resulted from the following:
| 2023 Compared to 2022 (Decrease) Increase as a Percentage of Total Revenue | ||||
|---|---|---|---|---|
| Employee health care expense | (0.2 | %) | ||
| Store management compensation | (0.1 | %) | ||
| Store hourly labor | 0.2 | % |
The decrease in employee health care expenses as a percentage of total revenue in 2023 as compared to 2022 resulted primarily from lower enrollment.
The decrease in store management compensation as a percentage of total revenue in 2023 as compared to 2022 was primarily driven by the increase in total revenue in 2023 partially offset by wage
inflation.
The increase in store hourly labor expense as a percentage of total revenue in 2023 as compared to 2022 resulted primarily from wage inflation exceeding menu price increases and investments in
additional labor hours to support the guest experience. In addition to menu price increases, we continue to partially offset inflationary pressures through labor productivity initiatives, and we presently expect the rate of wage inflation to be
approximately 4.0% to 5.0% in the first quarter of 2024.
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The year-to-year percentage change in 2022 as compared to 2021 resulted from the following:
| 2022 Compared to 2021 Increase (Decrease) as a Percentage of Total Revenue | ||||
|---|---|---|---|---|
| Store hourly labor | 1.1 | % | ||
| Store management compensation | (0.7 | %) |
The increase in store hourly labor in 2022 as compared to 2021 as a percentage of total revenue resulted primarily from wage inflation exceeding menu price increases and lower productivity, i.e.,
fewer guests served per labor hours incurred.
The decrease in store management compensation as a percentage of total revenue in 2022 as compared to 2021 was primarily driven by lower bonus expense in 2022 and the increase in total revenue in
2022 partially offset by wage inflation. The lower bonus expense resulted from lower performance against financial objectives for certain components of the incentive plan in 2022 as compared to 2021.
Other Store Operating Expenses
Other store operating expenses include all store-level operating costs, the major components of which are occupancy costs, operating supplies, advertising, third-party delivery fees, credit card and
gift card fees, real and personal property taxes and general insurance. Occupancy costs include maintenance, utilities, depreciation and rent.
The following table highlights other store operating expenses as a percentage of total revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Other store operating expenses | 23.2 | % | 23.2 | % | 24.0 | % |
Other store operating expenses as a percentage of total revenue in 2023 as compared to 2022 remained flat at 23.2%.
The year-to-year percentage change in 2022 as compared to 2021 resulted primarily from the following:
| 2022 Compared to 2021 (Decrease) Increase as a Percentage of Total Revenue | ||||
|---|---|---|---|---|
| Store occupancy costs | (0.7 | %) | ||
| Advertising | (0.2 | %) | ||
| Other store expenses | 0.2 | % |
The decreases in store occupancy costs and advertising expenses as a percentage of total revenue for 2022 as compared to 2021 were primarily driven by the increase in total revenue in 2022.
Additionally, the decrease in store occupancy costs was partially offset by higher maintenance expenditures, which were the result of increased repair costs associated with limited availability of replacement equipment.
The increase in other store expenses as a percentage of total revenue for 2022 as compared to the same period in the prior year resulted primarily from costs associated with the expansion of our
off-premise business.
General and Administrative Expenses
The following table highlights general and administrative expenses as a percentage of total revenue for the past three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| General and administrative expenses | 5.0 | % | 4.8 | % | 5.2 | % |
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The year-to-year percentage change in 2023 as compared to 2022 resulted from higher corporate-level incentive compensation resulting from better performance against financial objectives in 2023 as
compared to 2022.
The year-to-year percentage change in 2022 as compared to 2021 resulted from lower incentive compensation. The decrease in incentive compensation as a percentage of total revenue in 2022 as compared
to 2021 was primarily the result of lower performance against financial objectives in 2022 as compared to 2021.
Gain on Sale and Leaseback Transactions
On July 29, 2020, we entered into a sale and leaseback transaction involving 64 of our owned Cracker Barrel properties and recorded a gain of $69,954. On August 4, 2020, we entered into a second
sale and leaseback transaction involving 62 of our owned Cracker Barrel stores and recorded a gain of $217,722. See Note 8 to the Consolidated Financial Statements for additional information regarding these sale and leaseback transactions.
Impairment and Store Closing Costs
During 2023, we recorded impairment charges of $11,692 as a result of the deterioration in operating performance of six Cracker Barrel locations. Additionally, during 2023, we incurred costs of
$2,307 in connection with the closure of six Cracker Barrel and four MSBC locations because of poor operating performance.
Impairment and store closing costs consisted of the following:
| 2023 | |||
|---|---|---|---|
| Impairment | $ | 11,692 | |
| Store closing costs | 2,307 | ||
| Total | $ | 13,999 |
Interest Expense
The following table highlights interest expense for the past three years:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest expense | $ | 17,006 | $ | 9,620 | $ | 56,108 |
The year-to-year increase in 2023 as compared to 2022 resulted primarily from higher weighted average debt levels during 2023 and higher weighted average interest rates under our revolving credit
facility.
The year-to-year decrease in 2022 as compared to 2021 resulted primarily from lower weighted average debt levels, lower weighted average interest rates and the prior year including costs associated
with the termination of the Company’s interest rate swaps.
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:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Effective tax rate | 4.4 | % | 8.0 | % | 18.0 | % |
Our effective tax rate is lower than statutory rates primarily due to the benefit of tax credits. The decreases in our effective tax rate in 2023 as compared to 2022 and in 2022 as compared to 2021 reflect the impact
of higher tax credits on lower income before income tax.
We presently expect our effective tax rate for 2024 to be approximately 6%.
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LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of our cash flows for the last three years:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided by operating activities | $ | 250,457 | $ | 205,253 | $ | 301,903 | ||||||
| Net cash provided by (used in) investing activities | (124,319 | ) | (98,499 | ) | 78,330 | |||||||
| Net cash used in financing activities | (146,096 | ) | (206,242 | ) | (672,636 | ) | ||||||
| Net decrease in cash and cash equivalents | $ | (19,958 | ) | $ | (99,488 | ) | $ | (292,403 | ) |
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, 2022 and borrowings under our revolving credit facility, were sufficient to finance all of our growth, share repurchases, dividend payments, working capital needs, interest payments on long-term debt obligations and other cash payment obligations
in 2023. We believe that cash at July 28, 2023, 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, debt service, dividend payments and working capital needs for the next twelve months. Furthermore, we believe that 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, capital expenditures, interest expense on long-term debt obligations, operating lease obligations, continuing expansion plans and working capital needs beyond the next twelve
months.
A summary of our contractual cash obligations and commitments as of July 28, 2023, is as follows:
| Payments due by Years | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations (a) | Total | 2024 | 2025-2026 | 2027-2028 | After 2028 | ||||||||||||||
| 2022 Revolving Credit Facility (b) | $ | 120,000 | $ | — | $ | — | $ | 120,000 | $ | — | |||||||||
| Convertible Debt (c) | 305,625 | 1,875 | 303,750 | — | — | ||||||||||||||
| Leases (d) | 1,134,447 | 82,360 | 144,086 | 134,309 | 773,692 | ||||||||||||||
| Purchase obligations (e) | 156,455 | 108,561 | 29,946 | 13,831 | 4,117 | ||||||||||||||
| Other long-term obligations (f) | 32,366 | — | 2,711 | 76 | 29,579 | ||||||||||||||
| Total contractual cash obligations | $ | 1,748,893 | $ | 192,796 | $ | 480,493 | $ | 268,216 | $ | 807,388 |
| Amount of Commitment Expirations by Years | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 2024 | 2025-2026 | 2027-2028 | After 2028 | |||||||||||||||
| 2022 Revolving Credit Facility(b) | $ | 700,000 | $ | — | $ | — | $ | 700,000 | $ | — | |||||||||
| Convertible Debt (c) | 300,000 | — | 300,000 | — | — | ||||||||||||||
| Standby letters of credit(g) | 31,896 | 25,502 | 6,394 | — | — | ||||||||||||||
| Total commitments | $ | 1,031,896 | $ | 25,502 | $ | 306,394 | $ | 700,000 | $ | — |
| Column 1 | Column 2 |
|---|---|
| (a) | At July 28, 2023, 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 $17,572 is not included in the contractual cash obligations and commitments table above. |
| Column 1 | Column 2 |
|---|---|
| (b) | Our 2022 Revolving Credit Facility expires on June 17, 2027. Using our weighted average interest rate of 6.79% at July 28, 2023 and the outstanding borrowings at July 28, 2023, we anticipate having interest payments of $8,398, $16,478 and $7,243 in 2024, 2025-2026 and 2027, respectively. Based on our outstanding borrowings and our standby letters of credit at July 28, 2023 and our current unused commitment fee as defined in the 2022 Revolving Credit Facility, our unused commitment fees in 2024, 2025-2026 and 2027 would be $1,694, $3,325 and $1,462, respectively; however, the actual amount will differ based on actual usage of the 2022 Revolving Credit Facility. |
| Column 1 | Column 2 |
|---|---|
| (c) | Our $300,000 aggregate principal amount of 0.625% Convertible Senior Notes mature on June 15, 2026. The Notes bear cash interest at an annual rate of 0.625%, payable semi-annually in arrears on June 15 and December 15 of each year. |
| Column 1 | Column 2 |
|---|---|
| (d) | Includes base lease terms and certain optional renewal periods for which, at the inception of the lease, it is reasonably certain that we will exercise. |
| Column 1 | Column 2 |
|---|---|
| (e) | 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. |
| Column 1 | Column 2 |
|---|---|
| (f) | Other long-term obligations include our Non-Qualified Savings Plan ($27,129, with a corresponding long-term asset to fund the liability; see Note 11 to the Consolidated Financial Statements), Deferred Compensation Plan ($2,450) and our long-term incentive plans ($2,787). |
| Column 1 | Column 2 |
|---|---|
| (g) | Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and securing certain sale and leaseback transactions. Our standby letters of credit reduce our borrowing availability under our revolving credit facility. |
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Cash Generated from Operations
The increase in net cash flow provided by operating activities in 2023 as compared to 2022 primarily reflected lower retail inventory partially offset by the timing of payments for accounts payable
and certain taxes.
The decrease in net cash flow provided by operating activities in 2022 as compared to 2021 primarily reflected higher retail inventory, the timing of payments for certain taxes and higher bonus
payments made in 2022 as a result of the prior year’s performance. The higher retail inventory in 2022 as compared to 2021 was driven by unusually low retail inventory in 2021 resulting from market constraints on the availability of goods.
Capital Expenditures and Proceeds from Sale of Property and Equipment
The following table presents our capital expenditures (purchase of property and equipment), net of proceeds from insurance recoveries, for the last three years:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital expenditures, net of proceeds from insurance recoveries | $ | 125,387 | $ | 97,104 | $ | 70,130 |
Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and strategic initiatives. The increase in capital expenditures in 2023 from 2022
resulted primarily from higher capital expenditures for existing stores and higher capital expenditures for strategic initiatives, including investments in digital and technology infrastructure and the development of a loyalty program. The increase
in capital expenditures in 2022 from 2021 resulted primarily from higher capital expenditures for existing stores and an increase in the number of new store locations partially offset by lower capital expenditures for strategic initiatives.
We estimate that our capital expenditures during the first quarter of 2024 will be approximately $27,000 to $32,000. This estimate includes existing store maintenance and aging equipment
replacement, the acquisition of sites and construction costs of one to two new Cracker Barrel stores and approximately four to five MSBC locations that we plan to open during the first quarter of 2024. We intend to fund our capital expenditures with
cash generated by operations and cash on hand as the result of borrowings under our revolving credit facility, as necessary.
The following table presents our proceeds from sale of property and equipment for the last three years:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Proceeds from sale of property and equipment | $ | 1,068 | $ | 105 | $ | 149,960 |
The increase in proceeds from sale of property and equipment in 2023 from 2022 resulted primarily from the sale of excess real property in 2023. In 2021, we completed a sale and leaseback
transaction. The decrease in proceeds from sale of property and equipment in 2022 from 2021 resulted from the sale and leaseback transaction in 2021. See Note 8 to the Consolidated Financial Statements for additional information regarding the sale
and leaseback transaction.
Borrowing Capacity, Debt Covenants and Notes
On June 17, 2022, we entered into a five-year $700,000 revolving credit facility (the “2022 Revolving Credit Facility”) with substantially the same terms and financial covenants as our previous
amended $800,000 revolving credit facility (the “2019 Revolving Credit Facility”). The 2022 Revolving Credit Facility also contains an option for the Company to increase the revolving credit facility by $200,000.
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The following table highlights our borrowing capacity and outstanding borrowings under the 2022 Revolving Credit Facility, our standby letters of credit and our borrowing availability under the 2022
Revolving Credit Facility as of July 28, 2023:
| July 28, 2023 | |||
|---|---|---|---|
| Borrowing capacity under the 2022 Revolving Credit Facility | $ | 700,000 | |
| Less: Outstanding borrowings under the 2022 Revolving Credit Facility | 120,000 | ||
| Less: Standby letters of credit* | 31,896 | ||
| Borrowing availability under the 2022 Revolving Credit Facility | $ | 548,104 |
*Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and securing certain sale and leaseback transactions. Our standby letters of credit reduce our borrowing
availability under the 2022 Revolving Credit Facility.
During 2023, we borrowed $180,000 and repaid $190,000 under the 2022 Revolving Credit Facility. During 2022, in addition to the refinancing of the revolving credit facility, we borrowed $100,000 and
repaid $55,000 of borrowings under the 2019 Revolving Credit Facility. During 2021, we repaid $924,395 under the 2019 Revolving Credit Facility and borrowed an additional $60,000 under the 2019 Revolving Credit Facility.
Our 2022 Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total senior secured leverage ratio and a minimum consolidated interest
coverage ratio. We were in compliance with the 2022 Revolving Credit Facility’s financial covenants at July 28, 2023, and we expect to be in compliance with the 2022 Revolving Credit Facility’s financial covenants for the remaining term of the
facility.
On June 18, 2021, the Company issued and sold $300,000 in aggregate principal amount of 0.625% Convertible Senior Notes due 2026. The Notes are senior, unsecured obligations of the Company and
bear cash interest at a rate of 0.625% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The Notes mature on June 15, 2026, unless earlier converted, repurchased or redeemed. Net
proceeds from the Notes were $291,125, after deducting the initial purchasers’ discounts and commissions and the Company’s offering fees and expenses.
In connection with the issuance of the Notes, the Company entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the
initial purchasers of the Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”), which cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the
Company’s common stock that initially underlie the Notes. Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, privately negotiated warrant transactions with the Hedge
Counterparties collectively relating to the same number of shares of the Company’s common stock underlying the Notes, subject to customary anti-dilution adjustments, and for which the Company received premiums that partially offset the cost of
entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”). The portion of the net proceeds to the Company from the offering of the Notes that was used to pay the premium on the Convertible Note Hedge Transactions, net of
the proceeds to the Company from the Warrant Transactions, was approximately $30,300.
See Note 4 to our Consolidated Financial Statements for further information on our long-term debt.
Dividends, Share Repurchases and Share-Based Compensation Awards
Our 2022 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 2022 Revolving Credit
Facility, provided there is no default existing and the total of our availability under the 2022 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 senior secured leverage ratio is 2.75 to 1.00 or less and (2) in
an aggregate amount not to exceed $100,000 in any fiscal year if our consolidated total leverage ratio is greater than 2.75 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving
effect to the payment of any such dividends, Cash Availability is at least $100,000, 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.
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In 2023, we paid regular dividends of $5.20 per share and declared a dividend of $1.30 per share that was subsequently paid on August 8, 2023 to shareholders of record on July 21, 2023.
Additionally, on August 29, 2023, our Board of Directors declared a dividend of $1.30 per share payable on November 7, 2023 to shareholders of record on October 20, 2023. In 2022, we paid regular dividends of $4.90 per share and declared a dividend
of $1.30 per share that was subsequently paid on August 5, 2022 to shareholders of record on July 15, 2022. In 2021, in order to preserve available cash during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic
impact, we deferred the payment of the dividend of $1.30 per share declared in the third quarter of 2020 until the first quarter of 2021 and temporarily suspended future dividend payments. In the fourth quarter of 2021, in light of the ongoing
recovery from the COVID-19 pandemic, our Board of Directors resumed our dividend program.
The following table highlights the dividends per share we paid for the last three years:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Dividends per share paid | $ | 5.20 | $ | 4.90 | $ | 1.30 |
Our criteria for share repurchases are that they be accretive to expected net income per share and are within the limits imposed by our debt commitments. Subject to the limits
imposed by our revolving credit facility, in September 2021, we were authorized by our Board of Directors to repurchase shares at the discretion of management up to $100,000. In the fourth quarter of 2022, we were authorized by our Board of
Directors to repurchase shares of the Company’s outstanding common stock at management’s discretion up to a total value of $200,000 with such authorization to expire on June 2, 2023; this authorization replaced the previous unused portion of the
previous $100,000 authorization and expired on June 2, 2023. On June 2, 2023, our Board of Directors extended this repurchase authorization for an additional year.
The following table highlights our share repurchases for the last three years:
| 2023 | 2022 | 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares of common stock repurchased | 171,792 | 1,248,184 | 232,543 | ||||||||
| Cost of shares repurchased | $ | 17,449 | $ | 131,542 | $ | 35,000 |
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:
| 2023 | 2022 | 2021 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Working capital deficit | $ | (206,679 | ) | $ | (185,048 | ) | $ | (111,666 | ) |
The change in working capital at July 28, 2023 compared to July 29, 2022 primarily reflected the decrease in retail inventory levels and the decrease in cash partially offset by the timing of
payments for certain taxes. The decrease in cash resulted primarily from share repurchases during 2023.
The change in working capital at July 29, 2022 compared to July 30, 2021 primarily reflected the decrease in cash, higher accounts payable and the timing of payments for income taxes partially offset
by higher inventory levels. The decrease in cash resulted primarily from higher share repurchases partially offset by net borrowings under of revolving credit facility.
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Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.
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 1 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:
| Column 1 | Column 2 |
|---|---|
| • | management believes are most important to the accurate portrayal of both our financial condition and operating results; and |
| Column 1 | Column 2 |
|---|---|
| • | 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:
| Column 1 | Column 2 |
|---|---|
| • | Impairment of Long-Lived Assets |
| Column 1 | Column 2 |
|---|---|
| • | Insurance Reserves |
| Column 1 | Column 2 |
|---|---|
| • | Retail Inventory Valuation |
| Column 1 | Column 2 |
|---|---|
| • | Lease Accounting |
Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
Impairment of Long-Lived Assets
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets is measured by
comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset. If the total expected future cash flows are less than the carrying amount of the asset, the carrying value is written down, for an
asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal. Any loss resulting from impairment is recognized by a charge to income. Judgments and estimates that
we make related to the expected useful lives of long-lived assets and future cash flows are affected by factors such as changes in economic conditions and changes in operating performance. The accuracy of such provisions can vary materially from
original estimates and management regularly monitors the adequacy of the provisions until final disposition occurs.
We have not made any material changes in our methodology for assessing impairments during the past three years and we do not believe that there is a reasonable likelihood that there will be a
material change in the estimates or assumptions used by us to assess impairment of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of long-lived
assets, we may be exposed to losses that could be material. During 2023, we recorded impairment charges of $11,692 as a result of the deterioration in operating performance of six Cracker Barrel locations.
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Insurance Reserves
We self-insure a significant portion of our expected workers’ compensation and general liability programs. We purchase insurance for individual workers’ compensation claims that exceed $750 or
$1,000 depending on the state in which the claim originated. We purchase insurance for individual general liability claims that exceed $500. We record a reserve for workers’ compensation and general liability for all unresolved claims and for an
estimate of incurred but not reported (“IBNR”) claims. These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially determined
losses and actual claims payments for the fourth quarter. Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves. The reserves and losses in the actuarial study represent a range of
possible outcomes within which no given estimate is more likely than any other estimate. As such, we record the losses in the lower half of that range and discount them to present value using a risk-free interest rate based on projected timing of
payments. We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of our reserves.
Our group health plans combine the use of self-insured and fully-insured programs. Benefits for any individual (employee or dependents) in the self-insured group health program are limited. We
record a liability for the self-insured portion of our group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience. We also record a liability for unpaid prescription
drug claims based on historical experience.
Our accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim
development history and settlement practices. We have not made any material changes in the methodology used to establish our insurance reserves during the past three years and do not believe there is a reasonable likelihood that there will be a
material change in the estimates or assumptions used to calculate the insurance reserves. However, changes in these actuarial assumptions or management judgments in the future may produce materially different amounts of expense that would be
reported under these insurance programs.
Retail Inventory Valuation
Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory method (“RIM”). Under RIM, the valuation of our retail inventories is determined by
applying a cost-to-retail ratio to the retail value of our inventories. Inherent in the RIM calculation are certain inputs, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation as
well as the ending inventory valuation.
Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage. Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as
appropriate based on assumptions made by management and judgment regarding inventory aging and future promotional activities. Retail inventory also includes an estimate of shrinkage that is adjusted upon physical inventory counts. Annual physical
inventory counts are conducted based upon a cyclical inventory schedule. An estimate of shrinkage is recorded for the time period between physical inventory counts by using a two-year average of the physical inventories’ results on a store-by-store
basis.
We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the past three years and do not believe there is a reasonable
likelihood that there will be a material change in the estimates or assumptions in the future. However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.
Lease Accounting
We have ground leases for our leased stores and office space leases that are recorded as operating leases under various non-cancellable operating leases. Additionally, we lease our retail
distribution center, advertising billboards, vehicle fleets, and certain equipment under various non-cancellable operating leases.
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We evaluate our leases at contract inception to determine whether we have the right to control use of the identified asset for a period of time in exchange for consideration. If we determine that we
have the right to obtain substantially all of the economic benefit from use of the identified asset and the right to direct the use of the identified asset, we recognize a right-of-use asset and lease liability. Also, at contract inception, we
evaluate our leases to estimate their expected term which includes renewal options that we are reasonably assured that we will exercise, and the classification of the lease as either an operating lease or a finance lease. Additionally, as our leases
do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the time of commencement or modification date in determining the present value of lease payments. Assumptions used in determining our
incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based on comparable market data. We assess the impairment of the right-of-use asset at the asset group level whenever events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable.
Changes in these assumptions and management judgments may produce materially different amounts in the recognition of the right-of-use assets and lease liabilities. Additionally, any loss resulting
from an impairment of the right-of-use assets is recognized by a charge to income, which could be material.