Edgar Filing: CRACKER BARREL OLD COUNTRY STORE, INC

cbrl10qjanuary2010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended January 29, 2010

o Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Transition Period from ________ to _______.

Commission file number 000-25225

CRACKER BARREL OLD COUNTRY STORE, INC.

(Exact Name of Registrant as

Specified in Its Charter)

Tennessee	62-1749513
(State or Other Jurisdiction	(IRS Employer
of Incorporation or Organization)	Identification No.)

305 Hartmann Drive, P. O. Box 787

Lebanon, Tennessee 37088-0787

(Address of Principal Executive Offices)

(Zip Code)

615-444-5533

(Registrant’s Telephone Number, Including Area Code)

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 x No o

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 o No o

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

Large accelerated filer o	Accelerated filer x

Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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

22,904,895 Shares of Common Stock

Outstanding as of February 26, 2010

CRACKER BARREL OLD COUNTRY STORE, INC.

FORM 10-Q

For the Quarter Ended January 29, 2010

INDEX

PART I. FINANCIAL INFORMATION			Page

	Item 1
	· Condensed Consolidated Financial Statements (Unaudited)

		a) Condensed Consolidated Balance Sheet as of January 29, 2010 and July 31, 2009	3

		b) Condensed Consolidated Statement of Income for the Quarters and Six Months Ended January 29, 2010 and January 30, 2009	4

		c) Condensed Consolidated Statement of Cash Flows for the Six Months Ended January 29, 2010 and January 30, 2009	5

		d) Notes to Condensed Consolidated Financial Statements	6

	Item 2
	· Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

	Item 3
	· Quantitative and Qualitative Disclosures About Market Risk		27

	Item 4
	· Controls and Procedures		27

PART II. OTHER INFORMATION

	Item 1A
	· Risk Factors		28

	Item 2
	· Unregistered Sales of Equity Securities and Use of Proceeds		28

	Item 5
	· Other Information		28

	Item 6
	· Exhibits		28

SIGNATURES			29

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except share data)

(Unaudited)

	January 29,			July 31,
	2010				2009*
ASSETS
Current assets:
Cash and cash equivalents	$	13,151		$	11,609
Accounts receivable		17,692			12,730
Income taxes receivable		2,332			4,078
Inventories		120,859			137,424
Prepaid expenses and other current assets		12,421			9,193
Deferred income taxes		25,585			23,291
Total current assets		192,040			198,325

Property and equipment		1,590,027			1,572,438
Less: Accumulated depreciation and amortization of capital leases		595,213			570,662
Property and equipment – net		994,814			1,001,776

Other assets		50,010			45,080

Total assets	$	1,236,864		$	1,245,181

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	71,606		$	92,168
Current maturities of long-term debt and other long-term obligations		6,975			7,422
Deferred revenue		40,718			22,528
Accrued interest expense		10,930			10,379
Other accrued expenses		123,247			132,465
Total current liabilities		253,476			264,962

Long-term debt		595,236			638,040
Capital lease obligations		51			60
Interest rate swap liability		64,251			61,232
Other long-term obligations		95,392			89,610
Deferred income taxes		55,371			55,655

Commitments and contingencies (Note 15)

Shareholders’ equity:
Preferred stock – 100,000,000 shares of $.01 par
value authorized; no shares issued		--			--
Common stock – 400,000,000 shares of $.01 par value authorized;
22,802,610 shares issued and outstanding at January 29, 2010,
and 22,722,685 shares issued and outstanding at July 31, 2009		228			227
Additional paid-in capital		16,789			12,972
Accumulated other comprehensive loss		(45,361	)		(44,822	)
Retained earnings		201,431			167,245
Total shareholders’ equity		173,087			135,622

Total liabilities and shareholders’ equity	$	1,236,864		$	1,245,181

See notes to unaudited condensed consolidated financial statements.

* This condensed consolidated balance sheet has been derived from the audited consolidated balance sheet as of July 31, 2009, as filed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009.

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(In thousands, except share data)

(Unaudited)

	Quarter Ended				Six Months Ended
	January 29,		January 30,		January 29,		January 30,
	2010		2009		2010		2009

Total revenue	$	632,616	$	630,182	$	1,213,799	$	1,204,114

Cost of goods sold		211,898		222,493		389,369		403,850
Gross profit		420,718		407,689		824,430		800,264

Labor and other related expenses		228,594		234,118		453,354		456,551
Impairment and store closing charges		2,263		--		2,263		--
Other store operating expenses		105,501		105,740		210,967		211,706
Store operating income		84,360		67,831		157,846		132,007

General and administrative expenses		34,975		28,558		70,476		60,176
Operating income		49,385		39,273		87,370		71,831

Interest expense		13,293		13,281		25,063		27,314
Income before income taxes		36,092		25,992		62,307		44,517

Provision for income taxes		10,699		7,630		18,890		13,323

Net income	$	25,393	$	18,362	$	43,417	$	31,194

Net income per share:
Basic	$	1.11	$	0.82	$	1.90	$	1.39
Diluted	$	1.09	$	0.81	$	1.87	$	1.38

Weighted average shares:
Basic		22,831,645		22,389,598		22,796,846		22,369,783
Diluted		23,397,279		22,597,183		23,266,832		22,631,754

Dividends declared per share	$	0.20	$	0.20	$	0.40	$	0.40

See notes to unaudited condensed consolidated financial statements.

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited and in thousands)

	Six Months Ended
	January 29,			January 30,
	2010			2009
Cash flows from operating activities:
Net income	$	43,417		$	31,194
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,499			28,938
Loss on disposition of property and equipment		2,033			1,790
Impairment		2,263			--
Share-based compensation		5,825			3,744
Excess tax benefit from share-based compensation		(1,228	)		--
Changes in assets and liabilities:
Accounts receivable		(4,962	)		797
Income taxes receivable		2,974			1,834
Inventories		16,565			18,196
Prepaid expenses and other current assets		(3,228	)		(1,089	)
Accounts payable		(20,562	)		(36,969	)
Deferred revenue		18,190			13,615
Accrued interest expense		551			(1,486	)
Other accrued expenses		(9,176	)		(13,543	)
Deferred income taxes		(98	)		(1,293	)
Other long-term assets and liabilities		3,201			4,106
Net cash provided by operating activities		86,264			49,834

Cash flows from investing activities:
Purchase of property and equipment		(27,550	)		(37,444	)
Proceeds from sale of property and equipment		100			1,496
Proceeds from insurance recoveries of property and equipment		176			74
Net cash used in investing activities		(27,274	)		(35,874	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		270,100			518,200
Principal payments under long-term debt and other long-term obligations		(313,360	)		(525,265	)
Proceeds from exercise of share-based compensation awards		4,564			877
Excess tax benefit from share-based compensation		1,228			--
Purchases and retirement of common stock		(7,799	)		--
Deferred financing costs		(2,908	)		--
Dividends on common stock		(9,273	)		(8,615	)
Net cash used in financing activities		(57,448	)		(14,803	)

Net increase (decrease) in cash and cash equivalents		1,542			(843	)
Cash and cash equivalents, beginning of period		11,609			11,978
Cash and cash equivalents, end of period	$	13,151		$	11,135

Supplemental disclosures of cash flow information:
Cash paid during the six months for:
Interest, excluding interest rate swap payments, net of amounts capitalized	$	7,708		$	18,832
Interest rate swap	$	14,630		$	8,743
Income taxes	$	16,755		$	10,856

Supplemental schedule of non-cash financing activity:
Change in fair value of interest rate swap	$	(3,019	)	$	(23,708	)
Change in deferred tax asset for interest rate swap	$	2,480		$	6,843

See notes to unaudited condensed consolidated financial statements.

CRACKER BARREL OLD COUNTRY STORE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except percentages and share data)

(Unaudited)

1.	Condensed Consolidated Financial Statements

The condensed consolidated balance sheets at January 29, 2010 and July 31, 2009 and the related condensed consolidated statements of income and cash flows for the quarters and/or six-month periods ended January 29, 2010 and January 30, 2009, have been prepared by Cracker Barrel Old Country Store, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) without audit. The Company is principally engaged in the operation and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) restaurant and retail concept. In the opinion of management, all adjustments (consisting of normal and recurring items) necessary for a fair presentation of such condensed consolidated financial statements have been made. The results of operations for any interim period are not necessarily indicative of results for a full year.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended July 31, 2009 (the “2009 Form 10-K”). References in these Notes to Condensed Consolidated Financial Statements to a year are to the Company’s fiscal year unless otherwise noted.

2.	Summary of Significant Accounting Policies

The significant accounting policies of the Company are included in the 2009 Form 10-K. During the six-month period ended January 29, 2010, there were no significant changes to those accounting policies.

3.	Recent Accounting Pronouncements

Accounting Standards Codification

On September 15, 2009, the Company adopted the Accounting Standards Codification (“ASC”) as issued by the Financial Accounting Standards Board (“FASB”). The ASC is the single source of authoritative nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The adoption did not have an impact on the Company’s consolidated financial statements.

Fair Value

On August 1, 2009, the first day of 2010, the Company adopted, on a prospective basis, accounting guidance as issued by the FASB for certain nonfinancial assets and liabilities that are recorded or disclosed at fair value on a nonrecurring basis, such as nonfinancial long-lived asset groups measured at fair value for an impairment assessment. The adoption did not have an impact on the Company’s consolidated financial statements. See Note 4 for further information related to the Company’s assets and liabilities measured at fair value on a nonrecurring basis.

4.	Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at January 29, 2010 were as follows:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of January 29, 2010

Cash equivalents*	$	2,348	$	--	$	--	$	2,348
Deferred compensation plan assets**		25,224		--		--		25,224
Total assets at fair value	$	27,572	$	--	$	--	$	27,572

Interest rate swap liability (Note 7)	$	--	$	64,251	$	--	$	64,251
Total liabilities at fair value	$	--	$	64,251	$	--	$	64,251

The Company’s assets and liabilities measured at fair value on a recurring basis at July 31, 2009 were as follows:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of July 31, 2009

Cash equivalents*	$	48	$	--	$	--	$	48
Deferred compensation plan assets**		22,583		--		--		22,583
Total assets at fair value	$	22,631	$	--	$	--	$	22,631

Interest rate swap liability (Note 7)	$	--	$	61,232	$	--	$	61,232
Total liabilities at fair value	$	--	$	61,232	$	--	$	61,232

*Consists of money market fund investments.

**Represents plan assets invested in mutual funds established under a Rabbi Trust for the Company’s non-qualified savings plan and is included in the condensed consolidated balance sheet as other assets.

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

The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts due to their short duration. The fair value of the Company’s variable-rate term loans and revolving credit facility, based on quoted market prices, totaled approximately $590,932 and $619,200 at January 29, 2010 and July 31, 2009, respectively. See Note 6 for additional information on the Company’s debt.

The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value 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 amount is written down to the estimated fair value of an asset to be held and used or the fair value, net of estimated costs of disposal, of an asset to be disposed of, and a loss resulting from impairment is recognized by a charge to income. During the quarter ended January 29, 2010, one leased Cracker Barrel store was determined to be impaired based on declining operating performance and resulting negative cash flow projections. Fair value of the leased store was determined by using a cash flow model. Assumptions used in the cash flow model included projected annual revenue growth rates and projected cash flows and are impacted by economic conditions and management’s expectations. The Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs, and thus, are considered Level 3 inputs. Based on its analysis, the Company reduced the leased store’s carrying value to zero; this resulted in an impairment charge of $2,263.

5.	Inventories

Inventories were comprised of the following at:

	January 29,		July 31,
	2010		2009

Retail	$	89,483	$	108,412
Restaurant		18,722		16,782
Supplies		12,654		12,230
Total	$	120,859	$	137,424

Debt

Long-term debt consisted of the following at:

	January 29, 2010			July 31, 2009

Term loans payable on or before April 27, 2013	$	367,861		$	645,000

Term loans payable on or before April 27, 2016		233,937			--

Revolving Credit Facility		--			--

Note payable		395			444
		602,193			645,444
Current maturities		(6,957	)		(7,404	)
Long-term debt	$	595,236		$	638,040

The Company’s credit facility (the “Credit Facility”) consists of term loans (aggregate outstanding at January 29, 2010 was $601,798) and a $250,000 revolving credit facility (the “Revolving Credit Facility”). On November 6, 2009, the Company entered into an amendment to the Credit Facility which extended the availability of $165,000 of the $250,000 Revolving Credit Facility to January 27, 2013 from April 27, 2011. The amendment also extended the maturity date of $250,000 of the Company’s then outstanding term loans to April 27, 2016 from April 27, 2013.

At January 29, 2010, $600,000 of the Company’s term loans was swapped at a weighted average interest rate of 7.46% (see Note 7). The weighted average interest rate on the remaining $1,798 was 2.14%. At January 29, 2010, the Company had outstanding $32,626 of standby letters of credit, which reduce the Company’s availability under the Revolving Credit Facility (see Note 15). At January 29, 2010, the Company had $217,374 available under the Revolving Credit Facility.

The Credit Facility contains customary financial covenants, which are specified in the agreement and include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. At January 29, 2010, the Company was in compliance with all debt covenants.

The Credit Facility also imposes restrictions on the amount of dividends the Company is able to pay. If there is no default then existing and there is at least $100,000 then available under the Revolving Credit Facility, the Company may both: (1) pay cash dividends on its common stock if the aggregate amount of dividends paid in any fiscal year is less than 15% of Consolidated EBITDA from continuing operations (as defined in the Credit Facility) during the immediately preceding fiscal year; and (2) in any event, increase its regular quarterly cash dividend in any quarter by an amount not to exceed the greater of $.01 or 10% of the amount of the dividend paid in the prior fiscal quarter.

The note payable consists of a five-year note with a vendor in the original principal amount of $507 and represents the financing of prepaid maintenance for telecommunications equipment. The note payable is payable in monthly installments of principal and interest of $9 through October 16, 2013 and bears interest at 2.88%.

7.	Derivative Instruments and Hedging Activities

The Company uses derivative instruments to mitigate its interest rate risk. 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.

The Company has interest rate risk relative to its outstanding borrowings under its Credit Facility (see Note 6). Loans under the Credit Facility 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.

The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt (see Note 6). To manage this risk, the Company entered into an interest rate swap on May 4, 2006 in which it agreed to exchange with a counterparty, at specified intervals effective August 3, 2006, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rate swap was accounted for as a cash flow hedge. The swapped portion of the Company’s outstanding debt is fixed at a rate of 5.57% plus the Company’s credit spread over the 7-year life of the interest rate swap. The Company’s weighted average credit spread at January 29, 2010 was 1.89%.

The swapped portion of the outstanding debt or notional amount of the interest rate swap over its remaining life is as follows:

From May 5, 2009 to May 3, 2010	$	600,000
From May 4, 2010 to May 2, 2011		575,000
From May 3, 2011 to May 2, 2012		550,000
From May 3, 2012 to May 3, 2013		525,000

At January 29, 2010 and July 31, 2009, the estimated fair values of the Company’s derivative instrument were as follows:

	Balance Sheet Location		January 29, 2010				July 31, 2009
Interest rate swap (See Note 4)	Interest rate swap liability		$	64,251			$	61,232

The estimated fair value of the Company’s interest rate swap liability incorporates the Company’s own non-performance risk (see Note 4). The adjustment related to non-performance risk at January 29, 2010 and July 31, 2009 resulted in reductions of $3,513 and $5,372, respectively, in the fair values of the interest rate swap liability. The offset to the interest rate swap liability is recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt. As of January 29, 2010, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $29,875. Cash flows related to the interest rate swap are included in interest expense and in operating activities.

The following table summarizes the pre-tax effects of the Company’s derivative instrument on AOCL for the six-month period ended January 29, 2010 and the year ended July 31, 2009:

	Amount of Loss Recognized in AOCL on Derivative (Effective Portion)
	Six Months Ended			Year Ended
	January 29, 2010			July 31, 2009
Cash flow hedge:
Interest rate swap	$	(3,019	)	$	(21,614	)

The following table summarizes the pre-tax effects of the Company’s derivative instrument on income for the quarters and six-month periods ended January 29, 2010 and January 30, 2009:

	Location of Loss Reclassified from AOCL into Income (Effective Portion)	Amount of Loss Reclassified from AOCL into Income (Effective Portion)
		Quarter Ended				Six Months Ended
		January 29, 2010		January 30, 2009		January 29, 2010		January 30, 2009
Cash flow hedge:
Interest rate swap	Interest expense	$	7,799	$	4,391	$	14,630	$	8,743

No ineffectiveness has been recorded in the six-month periods ended January 29, 2010 and January 30, 2009.

8.	Shareholders’ Equity

During the six-month period ended January 29, 2010, the Company received proceeds of $4,564 from the exercise of share-based compensation awards and the corresponding issuance of 284,925 shares of its common stock. During the six-month period ended January 29, 2010, the Company repurchased 205,000 shares of its common stock in the open market at an aggregate cost of $7,799 (see Note 10).

During the six-month period ended January 29, 2010, the Company paid dividends of $0.40 per common share. During the second quarter of 2010, the Company also declared an additional dividend of $0.20 per common share that was paid on February 5, 2010 and is recorded in other accrued expenses in the accompanying condensed consolidated balance sheet. On February 25, 2010, the Company’s Board of Directors declared a regular dividend of $0.20 per share payable on May 5, 2010 to shareholders of record on April 16, 2010.

During the six-month period ended January 29, 2010, the unrealized loss, net of tax, on the Company’s interest rate swap increased by $539 to $45,361 and is recorded in AOCL (see Notes 4, 7 and 9).

During the six-month period ended January 29, 2010, total share-based compensation expense was $5,825. During the six-month period ended January 29, 2010, the excess tax benefit realized upon exercise of share-based compensation awards was $1,228.

9.	Comprehensive Income

Comprehensive income consisted of the following at:

	Quarter Ended					Six Months Ended
	January 29, 2010		January 30, 2009			January 29, 2010			January 30, 2009

Net income	$	25,393	$	18,362		$	43,417		$	31,194
Other comprehensive income:
Change in fair value of interest rate swap, net of tax		47		(15,304	)		(539	)		(16,865	)
Total comprehensive income	$	25,440	$	3,058		$	42,878		$	14,329

For the quarters ended January 29, 2010 and January 30, 2009, the change in fair value of the Company’s interest rate swap is net of a tax provision of $386 and a tax benefit of $6,584, respectively. For the six-month periods ended January 29, 2010 and January 30, 2009, the change in fair value of the Company’s interest rate swap is net of a tax benefit of $2,480 and $6,843, respectively.

10.	Share Repurchases

During 2010, the Company has been authorized by its Board of Directors to repurchase shares to offset share dilution that might result from employee option exercises or employee share issuance. See Note 7 to the Company’s Consolidated Financial Statements contained in the 2009 Form 10-K. During the second quarter ended January 29, 2010, the Company repurchased 205,000 shares of its common stock in the open market at an aggregate cost of $7,799. Related transaction costs and fees that were recorded as a reduction to shareholders’ equity resulted in the shares being repurchased at an average cost of $38.04 per share.

11.	Seasonality

Historically, the net income of the Company has been lower in the first and third quarters and higher in the second and fourth quarters. Management attributes these variations to the Christmas holiday shopping season and the summer vacation and travel season. The Company's retail sales, which are made substantially to the Company’s restaurant customers, historically have been highest in the Company's second quarter, which includes the Christmas holiday shopping season. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter. The Company also generally opens additional new locations throughout the year. Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year.

12.	Segment Reporting

Cracker Barrel units represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product line of a Cracker Barrel unit 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:

	Quarter Ended				Six Months Ended
	January 29, 2010		January 30, 2009		January 29, 2010		January 30, 2009
Revenue:
Restaurant	$	473,953	$	468,919	$	940,785	$	924,886
Retail		158,663		161,263		273,014		279,228
Total revenue	$	632,616	$	630,182	$	1,213,799	$	1,204,114

13. Shared-Based Compensation

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. Share-based compensation expense is recorded in general and administrative expenses. For the quarter and six-month period ended January 29, 2010, share-based compensation expense totaled $789 and $1,711, respectively, for stock options and $2,123 and $4,114, respectively, for nonvested stock. For the quarter and six-month period ended January 30, 2009, share-based compensation expense totaled $925 and $1,952, respectively, for stock options and $1,091 and $1,792, respectively, for nonvested stock.

14. Net Income Per Share and Weighted Average Shares

Basic consolidated net income per share is computed by dividing consolidated net income available 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 reporting period. Common equivalent shares related to stock options and nonvested stock and stock awards issued by the Company are calculated using the treasury stock method. The Company’s outstanding stock options and nonvested stock and stock awards represent the only dilutive effects on diluted consolidated net income per share.

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

	Quarter Ended				Six Months Ended
	January 29,		January 30,		January 29,		January 30,
	2010		2009		2010		2009
Net income per share numerator	$	25,393	$	18,362	$	43,417	$	31,194

Net income per share denominator:
Weighted average shares		22,831,645		22,389,598		22,796,846		22,369,783
Add potential dilution:
Stock options and nonvested stock and stock awards		565,634		207,585		469,986		261,971
Diluted weighted average shares		23,397,279		22,597,183		23,266,832		22,631,754

15.	Commitments and Contingencies

The Company and its subsidiaries are parties to various legal and regulatory proceedings and claims incidental to and arising out of the ordinary course of its business. 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 is contingently liable pursuant to standby letters of credit as credit guarantees related to insurers. At January 29, 2010, the Company had $32,626 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 availability under its Revolving Credit Facility (see Note 6 for further information on the Company’s Revolving Credit Facility).

The Company is secondarily liable for lease payments under the terms of an operating lease that has been assigned to a third party. At January 29, 2010, the lease has a remaining life of approximately 3.7 years with annual lease payments of approximately $361 for a total guarantee of $1,322. The Company’s performance is required only if the assignee fails to perform its obligations as lessee. At this time, the Company has no reason to believe that the assignee will not perform, and, therefore, no provision has been made in the accompanying condensed consolidated balance sheet for amounts to be paid in case of non-performance by the assignee.

Upon the sale of Logan’s Roadhouse, Inc. (“Logan’s”) in 2007, the Company reaffirmed its guarantee on the lease payments for two Logan’s restaurants. At January 29, 2010, the operating leases have remaining lives of 1.9 and 10.2 years with annual payments of approximately $94 and $106, respectively, for a total guarantee of $1,322. The Company’s performance is required only if Logan’s fails to perform its obligations as lessee. At this time, the Company has no reason to believe Logan’s will not perform, and therefore, no provision has been made in the condensed consolidated balance sheet for amounts to be paid as a result of non-performance by Logan’s.

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 such indemnification agreements is sufficiently remote so that no liability has been recorded. In connection with the divestiture of Logan’s and Logan’s sale-leaseback transaction (see Note 16 to the Company’s Consolidated Financial Statements included in the 2009 Form 10-K), the Company entered into various agreements to indemnify third parties against certain tax obligations, for any breaches of representations and warranties in the applicable transaction documents and for certain costs and expenses that may arise out of specified real estate matters, including potential relocation and legal costs. With the exception of certain tax indemnifications, the Company believes that the probability of being required to make any indemnification payments to Logan’s is remote. Therefore, at January 29, 2010, the Company has recorded a liability of $78 in the condensed consolidated balance sheet for these potential tax indemnifications, but no provision has been recorded for potential non-tax indemnifications.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cracker Barrel Old Country Store, Inc. and its subsidiaries (collectively, the “Company,” “our” or “we”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) restaurant and retail concept. At January 29, 2010, we operated 593 Cracker Barrel units in 41 states. All dollar amounts reported or discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are shown in thousands, except per share amounts and certain statistical information (e.g., number of stores). References to years in MD&A are to our fiscal year unless otherwise noted.

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 (i) condensed consolidated financial statements and notes thereto in this Quarterly Report on Form 10-Q and (ii) financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2009 (the “2009 Form 10-K”). Except for specific historical information, many of the matters discussed in this report may express or imply projections of revenues or expenditures, plans and objectives for future operations, 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 which we expect will or may occur in the future, are forward-looking statements that involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by those 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. 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 the 2009 Form 10-K, which is incorporated herein by this reference, as well as other factors discussed throughout this report, including, without limitation, the factors described under “Critical Accounting Estimates” on pages 22-26 of this Form 10-Q 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, and do not intend, 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.

Results of Operations

The following table highlights operating results by percentage relationships to total revenue for the quarter and six-month period ended January 29, 2010 as compared to the same periods in the prior year:

	Quarter Ended						Six Months Ended
	January 29,			January 30,			January 29,			January 30,
	2010			2009			2010			2009

Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

Cost of goods sold		33.5			35.3			32.1			33.5
Gross profit		66.5			64.7			67.9			66.5

Labor and other related expenses		36.1			37.1			37.3			37.9
Impairment and store closing charges		0.4			--			0.2			--
Other store operating expenses		16.7			16.8			17.4			17.6
Store operating income		13.3			10.8			13.0			11.0

General and administrative expenses		5.5			4.6			5.8			5.0
Operating income		7.8			6.2			7.2			6.0

Interest expense		2.1			2.1			2.1			2.3
Income before income taxes		5.7			4.1			5.1			3.7

Provision for income taxes		1.7			1.2			1.5			1.1

Net income		4.0	%		2.9	%		3.6	%		2.6	%

The following table highlights the components of total revenue by percentage relationships to total revenue for the quarter and the six-month period ended January 29, 2010 as compared to the same periods in the prior year:

	Quarter Ended						Six Months Ended
	January 29,			January 30,			January 29,			January 30,
	2010			2009			2010			2009
Revenue:
Restaurant		74.9	%		74.4	%		77.5	%		76.8	%
Retail		25.1			25.6			22.5			23.2
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%

The following table sets forth the number of units in operation at the beginning and end of the quarters and six-month periods ended January 29, 2010 and January 30, 2009, respectively:

	Quarter Ended				Six Months Ended
	January 29,		January 30,		January 29,		January 30,
	2010		2009		2010		2009

Open at beginning of period		591		581		588		577
Open during period		2		4		5		8
Open at the end of period		593		585		593		585

Average unit volumes include sales of all stores. The following table highlights average unit volumes for the quarter and six-month period ended January 29, 2010 as compared to the same periods in the prior year:

	Quarter Ended				Six Months Ended
	January 29,		January 30,		January 29,		January 30,
	2010		2009		2010		2009
Revenue:
Restaurant	$	799.3	$	802.7	$	1,591.1	$	1,591.6
Retail		267.6		276.1		461.8		480.5
Total revenue	$	1,066.9	$	1,078.8	$	2,052.9	$	2,072.1

Total Revenue

Total revenue for the second quarter of 2010 increased 0.4% compared to the prior year second quarter. For the quarter, comparable store restaurant sales decreased 0.2% and comparable store retail sales decreased 3.0% resulting in a combined comparable store sales (total revenue) decrease of 0.9%. The comparable store restaurant sales decrease consisted of a 2.1% average check increase for the quarter (including a 2.4% average menu price increase) and a 2.3% guest traffic decrease. The comparable store retail sales decrease was due to the decline in guest traffic. We continue to experience the effects of pressures on consumer discretionary income in our guest traffic and sales. Sales from newly opened stores accounted for the total revenue increase in the second quarter.

Total revenue for the six-month period ended January 29, 2010 increased 0.8% compared to the six-month period ended January 30, 2009. For the six-month period ended January 29, 2010, comparable store restaurant sales increased 0.2% and comparable store retail sales decreased 3.8% resulting in a combined comparable store sales (total revenue) decrease of 0.7%. The comparable store restaurant sales increase consisted of a 2.0% average check increase for the six months (including a 2.6% average menu price increase) and a 1.8% guest traffic decrease. The comparable store retail sales decrease was due to the decline in guest traffic. We continue to experience the effects of pressures on consumer discretionary income in our guest traffic and sales. Sales from newly opened stores accounted for the balance of the total revenue increase in the six-month period ended January 29, 2010.

Gross Profit

Gross profit as a percentage of total revenue for the second quarter of 2010 increased to 66.5% compared to 64.7% in the second quarter of the prior year. The increase was due to our menu price increase referenced above, commodity deflation of 2.4%, a decrease in markdowns of retail merchandise that reduced retail cost of goods sold 2.0% as a percentage of retail sales as compared with the prior year and a decrease in food waste that reduced restaurant cost of goods sold 0.4% as a percentage of restaurant sales as compared with the prior year. These gross profit increases were partially offset by unfavorable menu mix related to promotions that increased restaurant cost of goods sold 0.2% as a percentage of restaurant sales as compared with the prior year.

Gross profit as a percentage of total revenue for the six-month period ended January 29, 2010 increased to 67.9% compared to 66.5% in the six-month period ended January 30, 2009. The increase was due to our menu price increase referenced above and commodity deflation of 2.2%.

Labor and Other Related Expenses

Labor and other related expenses include all direct and indirect labor and related costs incurred in store operations. Labor and other related expenses as a percentage of total revenue decreased to 36.1% in the second quarter of 2010 from 37.1% in the prior year. This decrease resulted primarily from decreases of 0.5%, 0.4% and 0.3% as a percentage of total revenue, respectively, in healthcare costs, wages (as a result of a one-time benefit related to a change in hourly pay practices) and workers’ compensation expense partially offset by a 0.2% increase in store management compensation as a percentage of total revenue as compared to the prior year. The decrease in healthcare costs was due to lower medical claims. In 2010, we changed certain hourly pay policies which resulted in lower wages being paid in the second quarter of 2010 as compared to the prior year. Although our limited scope actuarial reviews completed during the second quarters of 2010 and 2009 both resulted in reductions in our workers’ compensation expense, we recorded a higher reduction in the second quarter of 2010 as compared to the prior year. The increase in store management compensation was due to higher store bonus accruals, which reflected better performance against financial objectives in the second quarter of 2010 as compared to the prior year, partially offset by lower staffing levels.

Labor and other related expenses as a percentage of total revenue decreased to 37.3% in the six-month period ended January 29, 2010 as compared to 37.9% in the six-month period ended January 30, 2009. This decrease resulted primarily (and equally) from a reduction in hourly wages, lower workers’ compensation expense and lower healthcare costs. The reduction in hourly wages resulted from a one-time benefit in the second quarter of 2010 related to a change in hourly pay practices. Lower workers’ compensation expense resulted from revised actuarial estimates. The decrease in healthcare costs was due to lower medical claims.

Impairment and Store Closing Charges

During the second quarter of 2010, one leased Cracker Barrel store was determined to be impaired, resulting in an impairment charge of $2,263 for the six-month period ended January 29, 2010. This store was impaired due to declining operating performance and resulting negative cash flow projections. See Note 4 to the accompanying Condensed Consolidated Financial Statements for more details surrounding the impairment charge. We did not incur any impairment charges in the six-month period ended January 30, 2009 or any store closing costs in the six-month periods ended January 29, 2010 and January 30, 2009.

Other Store Operating Expenses

Other store operating expenses include all unit-level operating costs, the major components of which are utilities, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit card fees and non-labor-related pre-opening expenses. Other store operating expenses as a percentage of total revenue was relatively constant during the second quarter and first six months of 2010 as compared to the same periods in the prior year. Other store operating expense as a percentage of total revenue was 16.7% and 16.8%, respectively, in the second quarters of 2010 and 2009 and was 17.4% and 17.6%, respectively, in the first six months of 2010 and 2009.

General and Administrative Expenses

General and administrative expenses as a percentage of total revenue were 5.5% and 5.8%, respectively, in the quarter and six-month periods ended January 29, 2010 as compared to 4.6% and 5.0%, respectively, in the quarter and six-month periods ended January 30, 2009. Both increases were due to higher incentive compensation accruals, including share-based compensation, which reflected better performance against financial objectives in 2010 as compared to the same periods in prior year.

Interest Expense

Interest expense as a percentage of total revenue was relatively constant during the quarter and six-month periods ended January 29, 2010 as compared to the same periods in the prior year. Interest expense as a percentage of total revenue was flat at 2.1% in the second quarters of 2010 and 2009 and was 2.1% and 2.3%, respectively, in the first six months of 2010 and 2009.

Provision for Income Taxes

The provision for income taxes as a percent of pre-tax income was relatively constant during the quarter and six-month periods ended January 29, 2010 as compared to the same periods in the prior year. The provision for income taxes as a percent of pretax income was 29.6% and 29.4%, respectively, in the second quarters of 2010 and 2009. The provision for income taxes as a percent of pre-tax income was 30.3% and 29.9%, respectively, in the first six months of 2010 and 2009.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our $250,000 revolving credit facility (the “Revolving Credit Facility”). Our internally generated cash, along with cash on hand at July 31, 2009, our borrowings under our Revolving Credit Facility and proceeds from exercises of share-based compensation awards were sufficient to finance all of our growth, dividend payments, working capital needs and other cash payment obligations in the first six months of 2010.

We believe that cash at January 29, 2010, along with cash generated from our operating activities, the borrowing capacity under our Revolving Credit Facility and proceeds from exercises of share-based compensation awards will be sufficient to finance our continued operations, our continued expansion plans, our principal payments on our debt and our dividend payments for at least the next twelve months and thereafter for the foreseeable future. See “Borrowing Capacity and Debt Covenants” section below regarding the amendment to extend $165,000 of the availability under our Revolving Credit Facility to January 27, 2013.

Cash Generated From Operations

Our operating activities provided net cash of $86,264 for the six-month period ended January 29, 2010, which represented an increase from the $49,834 provided during the same period a year ago. This increase reflected higher net income and the timing of payments for accounts payable.

Borrowing Capacity and Debt Covenants

On November 6, 2009, we amended our $1,250,000 credit facility (the “Credit Facility”), which consists of term loans (aggregate outstanding at January 29, 2010 was $601,798) and the Revolving Credit Facility. The amendment extended the maturity date of $250,000 of our then outstanding term loans to April 27, 2016 from April 27, 2013. The amendment also extended the availability of $165,000 of the Revolving Credit Facility to January 27, 2013 from April 27, 2011. During the second quarter of 2010, we made $39,578 in optional principal prepayments under the term loans. At January 29, 2010, although we did not have any outstanding borrowings under the Revolving Credit Facility, we had $32,626 of standby letters of credit related to securing reserved claims under workers' compensation insurance which reduce our availability under the Revolving Credit Facility. At January 29, 2010, we had $217,374 in borrowing capacity under our Revolving Credit Facility. See Note 6 to our accompanying Condensed Consolidated Financial Statements for further information on our long-term debt.

The Credit Facility contains customary financial covenants, which include a requirement that we maintain a maximum consolidated total leverage ratio (ratio of total indebtedness to EBITDA, which is defined as earnings before interest, taxes, depreciation and amortization) of 3.75 at January 29, 2010 and throughout the remaining term of the Credit Facility. The Credit Facility’s financial covenants also require that we maintain a minimum consolidated interest coverage ratio (ratio of earnings before interest, taxes, depreciation and amortization to cash interest payable, as defined) of 3.75 at January 29, 2010. The minimum consolidated interest coverage ratio increases to 4.00 for the fourth quarter of 2010 and for the remaining term of the Credit Facility.

At January 29, 2010, our consolidated total leverage ratio and consolidated interest coverage ratio were 2.56 and 11.04, respectively. We presently expect to remain in compliance with the Credit Facility’s financial covenants for the remaining term of the facility.

Share Repurchases, Dividends and Proceeds from the Exercise of Share-Based Compensation Awards

We have been authorized by our Board of Directors to repurchase shares during 2010 to offset share dilution that might result from employee option exercises or employee share issuance. The principal criteria for share repurchases are that they be accretive to expected net income per share, are within the limits imposed by our Credit Facility and that they be made only from free cash flow (operating cash flow less capital expenditures and dividends) rather than borrowings. During the quarter ended January 29, 2010, we repurchased 205,000 shares of our common stock in the open market at an aggregate cost of $7,799.

Our Credit Facility imposes restrictions on the amount of dividends we are able to pay. If there is no default then existing and there is at least $100,000 then available under our Revolving Credit Facility, we may both: (1) pay cash dividends on our common stock if the aggregate amount of such dividends paid during any fiscal year is less than 15% of Consolidated EBITDA from continuing operations (as defined in the Credit Facility) during the immediately preceding fiscal year; and (2) in any event, increase our regular quarterly cash dividend in any quarter by an amount not to exceed the greater of $.01 or 10% of the amount of the dividend paid in the prior fiscal quarter.

During the six-month period ended January 29, 2010, we paid dividends of $0.40 per common share. During the second quarter of 2010, we also declared an additional dividend of $0.20 per common share that was paid on February 5, 2010. On February 25, 2010, our Board of Directors declared a regular dividend of $0.20 per share payable on May 5, 2010 to shareholders of record on April 16, 2010.

During the six-month period ended January 29, 2010, we received proceeds of $4,564 from the exercise of share-based compensation awards and the corresponding issuance of 284,925 shares of our common stock.

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 restaurant inventories purchased locally generally are financed from normal trade credit. Retail inventories purchased domestically generally are financed from normal trade credit, while imported retail inventories generally are purchased through wire transfers. These various trade terms are aided by rapid turnover of the restaurant inventory. Employees generally are paid on weekly, bi-weekly or semi-monthly schedules in arrears of hours worked, and certain expenses such as certain taxes and some benefits are deferred for longer periods of time.

We had negative working capital of $61,436 at January 29, 2010 versus negative working capital of $66,637 at July 31, 2009. Working capital increased from July 31, 2009 primarily as a result of the timing of payments for certain obligations and an increase in cash, partially offset by lower retail inventories and a net decrease in working capital related to the increase in sales of our gift cards during the 2010 Christmas holiday season.

Capital Expenditures

Capital expenditures (purchase of property and equipment) were $27,550 for the six-month period ended January 29, 2010 as compared to $37,444 during the same period a year ago. Capital expenditures for maintenance programs accounted for most of the expenditures. The decrease in capital expenditures from the first six months of 2009 to the first six months of 2010 is primarily due to a reduction in the number of new locations acquired and under construction as compared to the prior year. We estimate that our capital expenditures for 2010 will be between $70,000 and $75,000. This estimate includes certain costs related to the acquisition of sites and construction of six new stores that have opened or will open during 2010 (one subsequent to the end of the second quarter), as well as for acquisition and construction costs for locations that we expect to open in 2011, capital expenditures for maintenance programs and operational innovation initiatives. We intend to fund our capital expenditures with cash flows from operations and borrowings under our Revolving Credit Facility, as necessary. Capitalized interest was $45 and $125, respectively, for the quarter and six-month period ended January 29, 2010, as compared to $94 and $294, respectively, for the quarter and six-month period ended January 30, 2009.

Off-Balance Sheet Arrangements

Other than various operating leases, we have no material off-balance sheet arrangements. Refer to the sub-section entitled “Off-Balance Sheet Arrangements” under the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2009 Form 10-K for additional information regarding our operating leases.

Material Commitments

Except as described above under “Borrowing Capacity and Debt Covenants,” there have been no material changes in our material commitments other than in the ordinary course of business since the end of 2009. Refer to the sub-section entitled “Material Commitments” under the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2009 Form 10-K for additional information regarding our material commitments.

Recent Accounting Pronouncements

Accounting Standards Codification

On September 15, 2009, we adopted the Accounting Standards Codification (“ASC”) as issued by the Financial Accounting Standards Board (“FASB”). The ASC is the single source of authoritative nongovernmental accounting principles generally accepted in the United States of America (“GAAP”), except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The adoption did not have an impact on our consolidated financial statements.

Fair Value

On August 1, 2009, the first day of 2010, we adopted, on a prospective basis, new accounting guidance as issued by the FASB for certain nonfinancial assets and liabilities that are recorded or disclosed at fair value on a nonrecurring basis, such as nonfinancial long-lived asset groups measured at fair value for an impairment assessment. The adoption did not have an impact on our consolidated financial statements. See Note 4 to the accompanying Condensed Consolidated Financial Statements for further information related to our assets and liabilities measured at fair value on a nonrecurring basis.

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 contained in the 2009 Form 10-K. 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 both most important to the portrayal of 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

·	Inventory Reserves

·	Tax Provision

·	Share-Based Compensation

·	Unredeemed Gift Cards

·	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 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 amount is written down to the estimated fair value of an asset to be held and used or the fair value, net of estimated costs of disposal, of an asset to be disposed of, and a 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 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 first six months of 2010 and we do not believe that there will be a material change in the estimates or assumptions we use to assess impairment on 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 the first six months of 2010, we recorded an impairment charge of $2,263. For a more detailed discussion of this charge see the sub-section entitled “Impairment and Store Closing Charges” under the section entitled “Results of Operations” presented earlier in the MD&A.

Insurance Reserves

We self-insure a significant portion of our expected workers’ compensation, general liability and health insurance programs. We purchase insurance for individual workers’ compensation claims that exceed $250, $500 or $1,000 depending on the state in which the claim originates. We purchase insurance for individual general liability claims that exceed $500. We self-insure a portion of our group health program. For our calendar 2009 plan, benefits for any individual (employee or dependents) in the self-insured program are limited to not more than $1,000 lifetime, $100 in any given plan year and, in certain cases, to not more than $15 in any given plan year. Beginning January 1, 2010, benefits for any individual (employee or dependents) in the self-insured program are limited to not more than $20 in any given plan year and, in certain cases, to not more than $8 in any given year. 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 provided by our third party administrator.

We record a liability for workers’ compensation and general liability for all unresolved claims and for an actuarially determined estimate of incurred but not reported claims at the anticipated cost to us based upon an actuarially determined reserve as of the end of our third quarter and adjust it by the actuarially determined losses and actual claims payments for the subsequent quarters until the next annual actuarial study of our reserve requirements. Those reserves and these losses are determined actuarially from a range of possible outcomes within which no given estimate is more likely than any other estimate. As such, we record the actuarially determined losses at the low end of that range and discount them to present value using a risk-free interest rate based on the actuarially projected timing of payments. We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim period between actuarial studies as another means of estimating the adequacy of our reserves. From time to time, we perform limited scope interim updates of our actuarial studies to verify and/or modify our reserves. During the second quarters of 2010 and 2009, we performed such updates, each of which resulted in reductions in our workers’ compensation expense in the corresponding quarters.

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 first six months of 2010 and do not believe 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.

Inventory Reserves

Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory accounting method. 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 in subsequent periods. Physical inventory counts are conducted throughout the third and fourth quarters of the fiscal year 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 methodology used to estimate shrinkage during the first six months of 2010 and do not believe that there will be a material change in the future estimates or assumptions used to calculate shrinkage. However, actual shrinkage recorded may produce materially different amounts of shrinkage 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, Work Opportunity and Welfare to Work credits, as well as estimates related to certain depreciation and capitalization policies.

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.

Our estimates are made based on current tax laws, the best available information at the time of the provision and historical experience. We file our income tax returns several months after our year end. These returns are subject to audit by the federal and various 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, a successful legal proceeding or settlement could result in material adjustments to our consolidated financial statements and our consolidated financial position (see Note 15 to our Consolidated Financial Statements contained in the 2009 Form 10-K for additional information).

Share-Based Compensation

Share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period. Our policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Additionally, our policy is to issue new shares of common stock to satisfy exercises of share-based compensation awards.

The fair value of each option award granted was estimated on the date of grant using a binomial lattice-based option valuation model. This model 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 contractual life of the options.

We use historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected life of options granted is derived from the output of the option valuation model and represents the period of time the options are expected to be outstanding.

·	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option.

·	The expected dividend yield is based on our current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

The expected volatility, option exercise and termination assumptions involve management’s best estimates at that time, all of which affect the fair value of the option calculated by the binomial lattice-based option valuation model and, ultimately, the expense that will be recognized over the life of the option. We update the historical and implied components of the expected volatility assumption when new grants are made. We update option exercise and termination assumptions annually. The expected life is a by-product of the lattice model and is updated when new grants are made.

Compensation expense is recognized for only the portion of awards that are expected to vest. Therefore, an estimated forfeiture rate derived from historical employee termination behavior, grouped by job classification, is applied against share-based compensation expense. The forfeiture rate is applied on a straight-line basis over the service (vesting) period for each separately vesting portion of the award as if the award were, in substance, multiple awards. We update the estimated forfeiture rate to actual on each of the vesting dates and adjust compensation expense accordingly so that the amount of compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date.

Generally, the fair value of each nonvested stock grant is equal to the market price of our stock at the date of grant reduced by the present value of expected dividends to be paid prior to the vesting period, discounted using an appropriate risk-free interest rate.

All of our nonvested stock grants are time vested except the nonvested stock grants of one executive that are based upon the achievement of strategic goals. Compensation cost for performance-based awards is recognized when it is probable that the performance criteria will be met. At each reporting period, we reassess the probability of achieving the performance targets and the performance period required to meet those targets. Determining whether the performance targets will be achieved involves judgment and the estimate of expense may be revised periodically based on the probability of achieving the performance targets. Revisions are reflected in the period in which the estimate is changed. If any performance goals are not met, no compensation cost is ultimately recognized and, to the extent previously recognized, compensation cost is reversed.

We have not made any material changes in our estimates or assumptions used to determine share-based compensation expense during the first six months of 2010. We do not believe 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.

Unredeemed Gift Cards

Unredeemed gift cards represent a liability 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 are sold. For those states that exempt gift cards from their escheat laws, we make estimates of the ultimate unredeemed (“breakage”) gift cards in the period of the original sale and amortize this breakage over the redemption period that other gift cards historically have been redeemed by reducing the liability and recording revenue accordingly. For those states that do not exempt gift cards from their escheat laws, we record breakage in the period that gift cards are remitted to the state and reduce our liability accordingly. Any amounts remitted to states under escheat laws reduce our deferred revenue liability and have no effect on revenue or expense while any amounts that we are permitted to retain by state escheat laws for administrative costs are recorded as revenue. Changes in redemption behavior or management's judgments regarding redemption trends in the future may produce materially different amounts of deferred revenue to be reported.

We have not made any material changes in the methodology used to record the deferred revenue liability for unredeemed gift cards during the first six months of 2010 and do not believe there will be material changes in the future estimates or assumptions used to record this liability. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Legal Proceedings

We are parties to various legal and regulatory proceedings and claims incidental to our business. In the opinion of management, however, based upon information currently available, the ultimate liability with respect to these actions will not materially affect our consolidated results of operations or financial position. We review outstanding claims and proceedings internally and with external counsel as necessary 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. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Part II, Item 7A of the 2009 Form 10-K is incorporated in this item of this Quarterly Report on Form 10-Q by this reference. There have been no material changes in our quantitative and qualitative market risks since July 31, 2009.

Item 4. 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 Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of January 29, 2010, our disclosure controls and procedures were effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e).

There have been no changes (including corrective actions with regard to significant deficiencies and material weaknesses) during the quarter ended January 29, 2010 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.

PART II – OTHER INFORMATION

Item 1A.	Risk Factors

	There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” of our 2009 Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

There were no equity securities sold by the Company during the period covered by this Form 10-Q that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of shares of the Company’s common stock made during the quarter ended January 29, 2010 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:

Period	Total Number of Shares Purchased		Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
10/31/09 – 11/27/09		--		--		--	Indeterminate (2)
11/28/09 – 12/25/09		27,000	$	39.05		27,000	Indeterminate (2)
12/26/09 – 1/29/10		178,000	$	37.89		178,000	Indeterminate (2)
Total for the quarter		205,000	$	38.04		205,000	Indeterminate (2)

(1)	Average price paid per share is calculated on a settlement basis and includes commissions and fees.

(2)

Subject to a maximum amount of $65,000 that may be expended, during 2010, we have been authorized, and intend, to repurchase shares to offset share dilution that might result from employee option exercises or employee share issuance. See Note 7 to our Consolidated Financial Statements contained in the 2009 Form 10-K.

Item 5.

Other Information

We held our annual meeting of shareholders on December 2, 2009. Part II, Item 4 of the Company’s Quarterly Report on Form 10-Q for the Quarterly Period ended October 30, 2009 (filed with the SEC on December 8, 2009) is incorporated herein by this reference.

Item 6.	Exhibits

	See Exhibit Index immediately following the signature page hereto.

SIGNATURES

Pursuant to the requirements 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.

	CRACKER BARREL OLD COUNTRY STORE, INC.



Date: 3/9/10	By:	/s/Sandra B. Cochran
		Sandra B. Cochran, Executive Vice President and
		Chief Financial Officer


Date: 3/9/10	By:	/s/Patrick A. Scruggs
		Patrick A. Scruggs, Vice President, Accounting and Tax
		and Chief Accounting Officer

EXHIBIT INDEX

Exhibit No.	Description

10.1	Second Amendment to the Credit Agreement, dated as of November 6, 2009, among Cracker Barrel Old Country Store, the Guarantors identified on the signature pages hereto, the Lenders party hereto, Wachovia Bank, National Association, as Administrative Agent, and Wells Fargo Securities, LLC, Banc of America Securities, LLC and SunTrust Robinson Humphrey, Inc. as the joint lead arrangers and joint bookrunners, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated November 6, 2009 and filed with the Commission on November 10, 2009

10.2	The Company’s 2002 Omnibus Incentive Compensation Plan (as amended through December 2, 2009)

31	Rule 13a-14(a)/15d-14(a) Certifications

32	Section 1350 Certifications