UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended January 29, 2016

OR

☐ 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: 001‑25225

Cracker Barrel Old Country Store, Inc.

(Exact name of registrant as specified in its charter)

Tennessee	62‑0812904
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

305 Hartmann Drive	37087-4779
Lebanon, Tennessee	(Zip code)
(Address of principal executive offices)

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

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 ☑    No ☐

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 ☑    No ☐

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 ☑	Accelerated filer  ☐
Non-accelerated filer    ☐	Smaller reporting company  ☐

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

Yes ☐    No ☑

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

23,939,998 Shares of Common Stock

Outstanding as of February 17, 2016

CRACKER BARREL OLD COUNTRY STORE, INC.

FORM 10-Q

For the Quarter Ended January 29, 2016

INDEX

PART I. FINANCIAL INFORMATION	Page
ITEM 1. Condensed ConsolidatedFinancial Statements (Unaudited)
a) Condensed Consolidated Balance Sheets as of January 29, 2016 and July 31, 2015	3
b) Condensed Consolidated Statements of Income for the Quarters and Six Months Ended January 29, 2016 and January 30, 2015	4
c) Condensed Consolidated Statements of Comprehensive Income for the Quarters and Six Months Ended January 29, 2016 and January 30, 2015	5
d) Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 29, 2016 and January 30, 2015	6
e) Notes to Condensed Consolidated Financial Statements	7
ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 4.  Controls and Procedures	28
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors	29
ITEM 6.  Exhibits	29
SIGNATURES	30

2

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

ASSETS	January 29, 2016		July 31, 2015*
Current Assets:
Cash and cash equivalents	$	171,643	$	265,455
Accounts receivable		15,900		18,050
Income taxes receivable		2,447		--
Inventories		150,959		153,058
Prepaid expenses and other current assets		18,289		14,167
Deferred income taxes		5,795		6,094
Total current assets		365,033		456,824
Property and equipment		1,955,336		1,931,060
Less: Accumulated depreciation and amortization of capital leases		906,621		878,424
Property and equipment – net		1,048,715		1,052,636
Other assets		63,051		66,748
Total assets	$	1,476,799	$	1,576,208
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	91,474	$	133,117
Taxes withheld and accrued		27,186		39,061
Deferred revenue		87,202		58,980
Dividend payable		27,519		98,796
Current interest rate swap liability		343		1,117
Other current liabilities		92,604		114,540
Total current liabilities		326,328		445,611
Long-term debt		400,000		400,000
Long-term interest rate swap liability		15,649		8,704
Other long-term obligations		134,552		133,594
Deferred income taxes		45,401		50,031
Commitments and Contingencies (Note 11)

Shareholders’ Equity:
Preferred stock – 100,000,000 shares of $.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued		--			--
Common stock – 400,000,000 shares of $.01 par value authorized; 23,939,248 shares issued and outstanding at January 29, 2016, and 23,975,755 shares issued and outstanding at July 31, 2015		240			240
Additional paid-in capital		42,973			56,066
Accumulated other comprehensive loss		(9,875	)		(3,725	)
Retained earnings		521,531			485,687
Total shareholders’ equity		554,869			538,268
Total liabilities and shareholders’ equity	$	1,476,799		$	1,576,208

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, 2015, as filed with the Securities and Exchange Commission in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2015.

3

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

(Unaudited)

	Quarter Ended				Six Months Ended
	January 29, 2016		January 30, 2015		January 29, 2016		January 30, 2015
Total revenue	$	764,002	$	755,966	$	1,466,631	$	1,439,394
Cost of goods sold (exclusive of depreciation and rent)		264,932		262,155		487,905		484,450
Labor and other related expenses		251,935		251,674		496,257		494,001
Other store operating expenses		141,103		133,726		276,810		263,898
Store operating income		106,032		108,411		205,659		197,045
General and administrative expenses		35,507		37,190		69,826		70,382
Operating income		70,525		71,221		135,833		126,663
Interest expense		3,569		4,684		7,113		9,108
Income before income taxes		66,956		66,537		128,720		117,555
Provision for income taxes		18,714		19,374		39,613		36,368
Net income	$	48,242	$	47,163	$	89,107	$	81,187
Net income per share:
Basic	$	2.02	$	1.97	$	3.72	$	3.40
Diluted	$	2.01	$	1.96	$	3.70	$	3.38
Weighted average shares:
Basic		23,937,812		23,914,797		23,947,183		23,888,496
Diluted		24,047,042		24,032,389		24,060,047		24,016,913
Dividends declared per share	$	1.10	$	1.00	$	2.20	$	2.00
Dividends paid per share	$	1.10	$	1.00	$	5.20	$	2.00

See Notes to unaudited Condensed Consolidated Financial Statements.

4

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

	Quarter Ended						Six Months Ended
	January 29, 2016			January 30, 2015			January 29, 2016			January 30, 2015
Net income	$	48,242		$	47,163		$	89,107		$	81,187
Other comprehensive loss before income tax benefit:
Change in fair value of interest rate swaps		(5,048	)		(6,112	)		(9,930	)		(6,887	)
Income tax benefit		(1,931	)		(2,357	)		(3,780	)		(2,656	)
Other comprehensive loss, net of tax		(3,117	)		(3,755	)		(6,150	)		(4,231	)
Comprehensive income	$	45,125		$	43,408		$	82,957		$	76,956

See Notes to unaudited Condensed Consolidated Financial Statements.

5

CRACKER BARREL OLD COUNTRY STORE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Six Months Ended
	January 29, 2016			January 30, 2015
Cash flows from operating activities:
Net income	$	89,107		$	81,187
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		37,783			35,506
Loss on disposition of property and equipment		2,667			3,995
Share-based compensation		4,955			6,330
Excess tax benefit from share-based compensation		(1,948	)		(2,299	)
Changes in assets and liabilities:
Inventories		2,099			24,606
Other current assets		(2,471	)		952
Accounts payable		(41,643	)		(15,575	)
Deferred revenue		28,222			29,803
Other current liabilities		(33,299	)		(13,922	)
Other long-term assets and liabilities		141			2,483
Net cash provided by operating activities		85,613			153,066
Cash flows from investing activities:
Purchase of property and equipment		(36,972	)		(37,788	)
Proceeds from insurance recoveries of property and equipment		175			141
Proceeds from sale of property and equipment		472			1,317
Net cash used in investing activities		(36,325	)		(36,330	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		--			406,250
(Taxes withheld) and proceeds from issuance of share-based compensation awards, net		(5,343	)		(4,420	)
Principal payments under long-term debt and other long-term obligations		--			(406,250	)
Purchases and retirement of common stock		(14,653	)		--
Deferred financing costs		--			(3,537	)
Dividends on common stock		(125,052	)		(47,830	)
Excess tax benefit from share-based compensation		1,948			2,299
Net cash used in financing activities		(143,100	)		(53,488	)
Net (decrease) increase in cash and cash equivalents		(93,812	)		63,248
Cash and cash equivalents, beginning of period		265,455			119,361
Cash and cash equivalents, end of period	$	171,643		$	182,609
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	6,331		$	9,085
Income taxes	$	37,662		$	27,264
Supplemental schedule of non-cash investing and financing activities:
Capital expenditures accrued in accounts payable	$	2,988		$	2,546
Change in fair value of interest rate swaps	$	(9,930	)	$	(6,887	)
Change in deferred tax asset for interest rate swaps	$	3,780		$	2,656
Dividends declared but not yet paid	$	27,877		$	24,340

See Notes to unaudited Condensed Consolidated Financial Statements.

6

CRACKER BARREL OLD COUNTRY STORE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except percentages, share and per share data)

(Unaudited)

1. Condensed Consolidated Financial Statements

Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in these Notes to Condensed Consolidated Financial Statements, the “Company”) are principally engaged in the operation and development in the United States of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.

The condensed consolidated balance sheets at January 29, 2016 and July 31, 2015 and the related condensed consolidated statements of income, comprehensive income and cash flows for the quarters and six months ended January 29, 2016 and January 31, 2015, respectively, have been prepared by 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 (the “SEC”) without audit.  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, 2015 (the “2015 Form 10-K”).  The accounting policies used in preparing these condensed consolidated financial statements are the same as described in the 2015 Form 10-K.  References to a year in these Notes to Condensed Consolidated Financial Statements are to the Company’s fiscal year unless otherwise noted.

Recent Accounting Pronouncements Adopted

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain other disposals that do not meet the new definition.  This accounting guidance is effective for fiscal years beginning on or after December 15, 2014 and interim periods within those years on a prospective basis.  The adoption of this accounting guidance in the first quarter of 2016 did not have a significant impact on the Company’s consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

Revenue Recognition

In May 2014, the FASB issued accounting guidance which clarifies the principles for recognizing revenue and provides a comprehensive model for revenue recognition.  Revenue recognition should depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services.  The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.  This accounting guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years.  Early application is not permitted.  A company may apply this accounting guidance either retrospectively or using the cumulative effect transition method.  The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2018.

7

Debt Issuance Costs

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

Inventory

In July 2015, the FASB issued accounting guidance which requires companies to measure certain inventory at the lower of cost and net realizable value.  This accounting guidance does not apply to inventories measured by using either the last-in, first-out method or the retail inventory method.   This accounting guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years on a prospective basis.  Early application is permitted.  The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2018.

Deferred Taxes

In November 2015, in order to simplify the presentation of deferred income taxes, the FASB issued accounting guidance which requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet.  This accounting guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years.  This accounting guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  Early application is permitted.  The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2018.

2. Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at January 29, 2016 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
Cash equivalents*	$	98,084	$	--	$	--	$	98,084
Interest rate swap asset (see Note 5)		--		--		--		--
Deferred compensation plan assets**		27,414		--		--		27,414
Total assets at fair value	$	125,498	$	--	$	--	$	125,498
Interest rate swap liability (see Note 5)	$	--	$	15,992	$	--	$	15,992
Total liabilities at fair value	$	--	$	15,992	$	--	$	15,992

The Company’s assets and liabilities measured at fair value on a recurring basis at July 31, 2015 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
Cash equivalents*	$	191,084	$	--	$	--	$	191,084
Interest rate swap asset (see Note 5)		--		3,759		--		3,759
Deferred compensation plan assets**		26,947		--		--		26,947
Total assets at fair value	$	218,031	$	3,759	$	--	$	221,790
Interest rate swap liability (see Note 5)	$	--	$	9,821	$	--	$	9,821
Total liabilities at fair value	$	--	$	9,821	$	--	$	9,821

8

*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 Sheets 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 values of the Company’s interest rate swap assets and liabilities are determined based on the present value of expected future cash flows.  Since the values of the Company’s interest rate swaps are based on the LIBOR forward curve, which is observable at commonly quoted intervals for the full terms of the swaps, it is considered a Level 2 input.  Non-performance risk is reflected in determining the fair value of the interest rate swaps by using the Company’s credit spread less the risk-free interest rate, both of which are observable at commonly quoted intervals for the terms of the swaps.  Thus, the adjustment for non-performance risk is also considered a Level 2 input.

The fair values of the Company’s accounts receivable and accounts payable approximate their carrying amounts because of their short duration.  The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amount at January 29, 2016 and July 31, 2015.

3. Inventories

Inventories were comprised of the following at:

	January 29, 2016		July 31, 2015
Retail	$	112,709	$	115,777
Restaurant		22,059		22,212
Supplies		16,191		15,069
Total	$	150,959	$	153,058

4. Debt

The Company has a $750,000 revolving credit facility (the “Revolving Credit Facility”), which expires on January 8, 2020.  At both January 29, 2016 and July 31, 2015, the Company had $400,000 of outstanding borrowings under the Revolving Credit Facility.  At January 29, 2016, the Company had $11,195 of standby letters of credit, which reduce the Company’s borrowing availability under the Revolving Credit Facility (see Note 11 for more information on the Company’s standby letters of credit).  At January 29, 2016, the Company had $338,805 in borrowing availability under the Revolving Credit Facility.

In accordance with the Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios under the Revolving Credit Facility.  As of January 29, 2016, the Company’s outstanding borrowings were swapped at a weighted average interest rate of 2.96% (see Note 5 for information on the Company’s interest rate swaps).

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

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

9

5. Derivative Instruments and Hedging Activities

The Company has interest rate risk relative to its outstanding borrowings (see Note 4 for information on the Company’s outstanding borrowings).  The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt.  To manage this risk in a cost efficient manner, the Company uses derivative instruments, specifically interest rate swaps.

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

A summary of the Company’s interest rate swaps at January 29, 2016 is as follows:

Trade Date	Effective Date	Term (in Years)	Notional Amount	Fixed Rate
July 25, 2011	May 3, 2013	3	$                50,000	2.45%
December 7, 2011	May 3, 2013	3	50,000	1.40%
March 18, 2013	May 3, 2015	3	50,000	1.51%
April 8, 2013	May 3, 2015	2	50,000	1.05%
April 15, 2013	May 3, 2015	2	50,000	1.03%
April 22, 2013	May 3, 2015	3	25,000	1.30%
April 25, 2013	May 3, 2015	3	25,000	1.29%
June 18, 2014	May 3, 2015	4	40,000	2.51%
June 24, 2014	May 3, 2015	4	30,000	2.51%
July 1, 2014	May 5, 2015	4	30,000	2.43%
January 30, 2015	May 3, 2019	2	80,000	2.15%
January 30, 2015	May 3, 2019	2	60,000	2.16%
January 30, 2015	May 4, 2021	3	120,000	2.41%
January 30, 2015	May 3, 2019	2	60,000	2.15%
January 30, 2015	May 4, 2021	3	80,000	2.40%

The notional amount for the interest rate swap entered into on June 18, 2014 increases by $40,000 each May over the four-year term of the interest rate swap beginning in May 2016 until the notional amount reaches $160,000 in May 2018.  The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 increase by $30,000 each May over the four-year terms of the interest rate swaps beginning in May 2016 until the notional amounts each reach $120,000 in May 2018.

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.

Companies may elect to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists.  Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty.  When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement.  If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero.

10

The estimated fair values of the Company’s derivative instruments as of January 29, 2016 and July 31, 2015 were as follows:

(See Note 2)	Balance Sheet Location	January 29, 2016		July 31, 2015
Interest rate swaps	Other assets	$	--	$	3,759
Interest rate swaps	Current interest rate swap liability	$	343	$	1,117
Interest rate swaps	Long-term interest rate swap liability		15,649		8,704
	Total	$	15,992	$	9,821

The following table summarizes the offsetting of the Company’s derivative assets in the Condensed Consolidated Balance Sheets at January 29, 2016 and July 31, 2015:

	Gross Asset Amounts				Liability Amount Offset					Net Asset Amount Presented in the Balance Sheets
(See Note 2)	January 29, 2016		July 31,  2015		January 29, 2016		July 31, 2015			January 29, 2016		July 31, 2015
Interest rate swaps	$	--	$	3,878	$	--	$	(119	)	$	--	$	3,759

The following table summarizes the offsetting of the Company’s derivative liabilities in the Condensed Consolidated Balance Sheets at January 29, 2016 and July 31, 2015:

	Gross Liability Amounts				Asset Amount Offset				Net Liability Amount Presented in the Balance Sheets
(See Note 2)	January 29, 2016		July 31, 2015		January 29, 2016		July 31, 2015		January 29, 2016		July 31, 2015
Interest rate swaps	$	15,992	$	9,821	$	--	$	--	$	15,992	$	9,821

The estimated fair value of the Company’s interest rate swap assets and liabilities incorporates the Company’s non-performance risk (see Note 2).  The adjustment related to the Company’s non-performance risk at January 29, 2016 and July 31, 2015 resulted in reductions of $901 and $209, respectively, in the fair value of the interest rate swap assets and liabilities.  The offset to the interest rate swap assets and liabilities is recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax asset, and will be reclassified into earnings over the term of the underlying debt.  As of January 29, 2016, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $3,564.  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 instruments on AOCL for the six months ended January 29, 2016 and the year ended July 31, 2015:

	Amount of Income Recognized in AOCL on Derivatives (Effective Portion)
	Six Months Ended January 29, 2016		Year Ended July 31, 2015
Cash flow hedges:
Interest rate swaps	$	9,930	$	1,641

The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for the quarters and six-month periods ended January 29, 2016 and January 30, 2015:

	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, 2016		January 30, 2015		January 29, 2016		January 30, 2015
Cash flow hedges:
Interest rate swaps	Interest expense	$	1,444	$	2,005	$	2,891	$	4,016

Any portion of the fair value of the swaps determined to be ineffective will be recognized currently in earnings.  No ineffectiveness has been recorded in the six-month periods ended January 29, 2016 and January 30, 2015.

11

6. Shareholders’ Equity

During the six months ended January 29, 2016, the Company issued 63,493 shares of its common stock resulting from the vesting of share-based compensation awards and stock option exercises.  Related tax withholding payments on these share-based compensation awards exceeded proceeds received from the exercise of stock options, which resulted in a net reduction to shareholders’ equity of $5,343.

During the six months ended January 29, 2016, the Company repurchased 100,000 shares of its common stock in the open market at an aggregate cost of $14,653.

During the six months ended January 29, 2016, total share-based compensation expense was $4,955.  The excess tax benefit realized upon exercise of share-based compensation awards was $1,948.

During the six months ended January 29, 2016, the Company paid regular dividends of $2.20 per share of its common stock and a special dividend of $3.00 per share of its common stock and declared a regular dividend of $1.10 per share of its common stock that was paid on February 5, 2016 to shareholders of record on January 15, 2016.

The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the six months ended January 29, 2016 (see Notes 2 and 5):

	Changes in AOCL
AOCL balance at July 31, 2015	$	(3,725	)
Other comprehensive loss before reclassifications		(4,365	)
Amounts reclassified from AOCL		(1,785	)
Other comprehensive loss, net of tax		(6,150	)
AOCL balance at January 29, 2016	$	(9,875	)

The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the quarter and six months ended January 29, 2016:

	Amount Reclassified from AOCL						Affected Line Item in the
	Quarter Ended			Six Months Ended			Condensed Consolidated Financial Statements
Loss on cash flow hedges:
Interest rate swaps	$	(1,444	)	$	(2,891	)	Interest expense
Tax benefit		552			1,106		Provision for income taxes
	$	(892	)	$	(1,785	)	Net of tax

7. 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 higher during the summer months, thereby contributing to higher profits in the Company’s fourth quarter.  The Company 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.

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8. Segment Information

Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines.  The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects.  Accordingly, the Company currently 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 for the specified periods:

	Quarter Ended				Six Months Ended
	January 29, 2016		January 30, 2015		January 29, 2016		January 30, 2015
Revenue:
Restaurant	$	580,918	$	577,558	$	1,143,197	$	1,124,265
Retail		183,084		178,408		323,434		315,129
Total revenue	$	764,002	$	755,966	$	1,466,631	$	1,439,394

9. Share-Based Compensation

Share-based compensation is recorded in general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.  Total share-based compensation was comprised of the following for the specified periods:

	Quarter Ended				Six Months Ended
	January 29, 2016		January 30, 2015		January 29, 2016		January 30, 2015
Nonvested stock awards	$	2,146	$	2,826	$	3,412	$	4,982
Performance-based market stock units (“MSU Grants”)		857		769		1,543		1,348
	$	3,003	$	3,595	$	4,955	$	6,330

10. 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 shares of common stock 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 shares of common stock were exercised or converted into shares of common stock and is based upon the weighted average number of shares of common stock and common equivalent shares outstanding during the reporting period. Common equivalent shares related to stock options, nonvested stock awards and MSU Grants issued by the Company are calculated using the treasury stock method.  The outstanding stock options, nonvested stock awards and MSU Grants issued by the Company represent the only dilutive effects on diluted consolidated net income per share.

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

	Quarter Ended				Six Months Ended
	January 29, 2016		January 30, 2015		January 29, 2016		January 30, 2015
Net income per share numerator	$	48,242	$	47,163	$	89,107	$	81,187
Net income per share denominator:
Weighted average shares		23,937,812		23,914,797		23,947,183		23,888,496
Add potential dilution:
Stock options, nonvested stock awards and MSU Grants		109,230		117,592		112,864		128,417
Diluted weighted average shares		24,047,042		24,032,389		24,060,047		24,016,913

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11. Commitments and Contingencies

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

Related to its workers’ compensation insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers.  As of January 29, 2016, the Company had $11,195 of standby letters of credit related to securing reserved claims under workers’ compensation insurance.  All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its Revolving Credit Facility (see Note 4).

At January 29, 2016, the Company is secondarily liable for lease payments associated with one property.  The Company is not aware of any non-performance under this lease arrangement that would result in the Company having to perform in accordance with the terms of this guarantee; and therefore, no provision has been recorded in the Condensed Consolidated Balance Sheets for amounts to be paid in case of non-performance by the primary obligor under such lease arrangement.

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 the Condensed Consolidated Balance Sheet as of January 29, 2016.

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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 StoreÒ (“Cracker Barrel”) concept.  At January 29, 2016, we operated 635 Cracker Barrel stores in 42 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 included 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, 2015 (the “2015 Form 10-K”).  Except for specific historical information, many of the matters discussed in this report may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results which we expect will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such 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,” “should,” “projects,” “forecasts” or “continue”  (or the negative or other derivatives of each of these terms) or similar terminology.  We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements.  In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to, those contained in Part I, Item 1A of the 2015 Form 10-K, which is incorporated herein by this reference, as well as the factors described under “Critical Accounting Estimates” on pages 23-27 of this report 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 because the statements speak only as of the report’s date.  Except as may be required by law, we have no obligation or intention to 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.

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Overview

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 that strength in 2016 to grow guest sales and profits.  Our long-term strategy includes the following:

· Enhancing the core business by increasing our brand’s relevance to customers in order to drive guest traffic and sales in both restaurant and retail, implementing geographic pricing tiers to optimize average check and re-engineering store processes to increase operating margin;

· Expanding the footprint through continued use of our proven site selection tools, introducing a new and more efficient building and equipment prototype and continuing our selective entry into new markets; and

· Extending the brand by building on the initial success of our licensing business, leveraging our brand strengths into a new fast casual concept and growing our retail business into an omni-channel business.

Our four priorities for 2016 are to:

· Drive traffic and sales through advertising, menu strategies and targeted marketing programs;

· Apply technology and process improvements to enhance the overall guest experience;

· Implement cost savings initiatives to further drive store operating margins; and

· Invest in long-term growth through new unit expansion and the development of a fast casual concept.

We continue to be focused on initiatives designed to increase operating margin and improve both the employee and guest experience.

Results of Operations

The following table highlights our operating results by percentage relationships to total revenue for the quarter and six-month period ended January 29, 2016 as compared to the same periods in the prior year:

	Quarter Ended						Six Months Ended
	January 29, 2016			January 30, 2015			January 29, 2016			January 30, 2015
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold (exclusive of depreciation and rent)		34.7			34.7			33.3			33.7
Labor and other related expenses		33.0			33.3			33.8			34.3
Other store operating expenses		18.4			17.7			18.9			18.3
Store operating income		13.9			14.3			14.0			13.7
General and administrative expenses		4.7			4.9			4.7			4.9
Operating income		9.2			9.4			9.3			8.8
Interest expense		0.5			0.6			0.5			0.6
Income before income taxes		8.7			8.8			8.8			8.2
Provision for income taxes		2.4			2.6			2.7			2.6
Net income		6.3	%		6.2	%		6.1	%		5.6	%

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The following table sets forth the number of stores in operation at the beginning and end of the quarters and six month periods ended January 29, 2016 and January 31, 2015, respectively:

	Quarter Ended				Six Months Ended
	January 29, 2016		January 30, 2015		January 29, 2016			January 30, 2015
Open at beginning of period		635		633		637			631
Opened during the period		--		1		--			3
Closed during the period		--		--		(2	)		--
Open at end of the period		635		634		635			634

Total Revenue

Total revenue for the second quarter and first six months of 2016 increased 1.1% and 1.9%, respectively, compared to the same periods in the prior year.

The following table highlights the key components of revenue for the quarter and six-month period ended January 29, 2016 as compared to the quarter and six-month period ended January 31, 2015:

	Quarter Ended						Six Months Ended
	January 29, 2016			January 30, 2015			January 29, 2016			January 30, 2015
Revenue in dollars:
Restaurant	$	580,918		$	577,558		$	1,143,197		$	1,124,265
Retail		183,084			178,408			323,434			315,129
Total revenue	$	764,002		$	755,966		$	1,466,631		$	1,439,394
Total revenue by percentage relationships:
Restaurant		76.0	%		76.4	%		77.9	%		78.1	%
Retail		24.0	%		23.6	%		22.1	%		21.9	%
Average unit volumes(1):
Restaurant	$	914.9		$	911.1		$	1,798.0		$	1,775.4
Retail		288.3			281.4			508.7			497.7
Total revenue	$	1,203.2		$	1,192.5		$	2,306.7		$	2,273.1
Comparable store sales increase:
Restaurant		0.6	%		7.9	%		1.5	%		5.6	%
Retail		2.6	%		3.2	%		2.5	%		4.4	%
Restaurant and retail		1.1	%		6.7	%		1.7	%		5.3	%

⁽¹⁾Average unit volumes include sales of all stores.

For the second quarter of 2016, our comparable store restaurant sales increase consisted of a 3.4% average check increase (including a 2.9% average menu price increase) partially offset by a 2.8% guest traffic decrease.  For the second quarter of 2016, our comparable store retail sales increase resulted primarily from strong performance in apparel and accessories merchandise and kitchen and dining merchandise categories. We believe that severe winter weather had a negative impact on comparable store traffic and restaurant and retail sales of approximately 0.6 percentage points for the second quarter of 2016.

For the first six months of 2016, our comparable store restaurant sales increase consisted of a 3.2% average check increase (including a 2.8% average menu price increase) partially offset by a 1.7% guest traffic decrease.  For the first six months of 2016, our comparable store retail sales increase resulted primarily from strong performance in apparel and accessories merchandise and food and convenience merchandise categories.

Restaurant and retail sales from newly opened stores accounted for the balance of the total revenue increases in the second quarter and first six months of 2016 as compared to the same periods in the prior year.

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Cost of Goods Sold (Exclusive of Depreciation and Rent)

The following table highlights the components of cost of goods sold (exclusive of depreciation and rent) in dollar amounts and as percentages of revenues for the second quarter and first six months of 2016 as compared to the same periods in the prior year:

	Quarter Ended						Six Months Ended
	January 29, 2016			January 30, 2015			January 29, 2016			January 30, 2015
Cost of Goods Sold in dollars:
Restaurant	$	164,776		$	163,742		$	319,566		$	317,160
Retail		100,156			98,413			168,339			167,290
Total Cost of Goods Sold	$	264,932		$	262,155		$	487,905		$	484,450
Cost of Goods Sold by percentage of revenue:
Restaurant		28.4	%		28.4	%		28.0	%		28.2	%
Retail		54.7	%		55.2	%		52.0	%		53.1	%

Restaurant cost of goods sold as a percentage of restaurant revenue remained flat in the second quarter of 2016 as compared to the same period in the prior year.  Our menu price increase in the second quarter of 2016 referenced above was partially offset by commodity inflation and higher food waste. Commodity inflation was 1.7% in the second quarter of 2016.  Higher food waste accounted for an increase of 0.4% in restaurant cost of goods sold as a percentage of restaurant revenue for the second quarter of 2016 as compared to the same period in the prior year.

The decrease in restaurant cost of goods sold as a percentage of restaurant revenue in the first six months of 2016 as compared to the same period in the prior year was due to our menu price increase for the first six months of 2016 referenced above offset by commodity inflation and higher food waste.  Commodity inflation was 1.1% in the first six months of 2016.  Higher food waste accounted for an increase of 0.2% in restaurant cost of goods sold as a percentage of restaurant revenue for the first six months of 2016 as compared to the same period in the prior year.

We presently expect the rate of commodity inflation to be approximately 1.0% for 2016.

The decrease in retail cost of goods sold as a percentage of retail revenue in the second quarter of 2016 as compared to the prior year quarter resulted from higher initial margin partially offset by higher markdowns.

	Second Quarter (Decrease) Increase as a Percentage of Retail Revenue
Higher initial margin		(1.0	%)
Markdowns		0.5	%

The decrease in retail cost of goods sold as a percentage of retail revenue in the first six months of 2016 as compared to the same period in the prior year resulted primarily from higher initial margin and lower markdowns.

	First Six Months (Decrease) as a Percentage of Retail Revenue
Higher initial margin		(0.8	%)
Markdowns		(0.2	%)

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Labor and Related Expenses

Labor and related expenses include all direct and indirect labor and related costs incurred in store operations.  Labor and related expenses as a percentage of total revenue decreased to 33.0% in the second quarter of 2016 as compared to 33.3% in the second quarter of 2015.   This percentage change resulted primarily from the following:

	Second Quarter (Decrease) Increase as a Percentage of Total Revenue
Store bonus expense		(0.5	%)
Employee health care expenses		0.1	%

Lower store bonus expense as a percentage of total revenue for the second quarter of 2016 as compared to the same period in the prior year resulted from lower performance against financial objectives in 2016 as compared to the prior year.

The increase in our employee health care expenses as a percentage of total revenue for the second quarter as compared to the same period in the prior year was primarily due to the non-recurrence of retroactive premium credits from our calendar year 2014 fully-insured plans partially offset by lower costs associated with our transition to self-insured plans in calendar year 2015.

Labor and related expenses as a percentage of total revenue decreased to 33.8% in the first six months of 2016 as compared to 34.3% in the same period in the prior year.  This percentage change resulted from the following:

	First Six Months (Decrease) as a Percentage of Total Revenue
Store bonus expense		(0.3	%)
Store hourly labor		(0.1	%)
Payroll tax expense		(0.1	%)

Lower store bonus expense as a percentage of total revenue for the first six months of 2016 as compared to the same period in the prior year resulted from lower performance against financial objectives in 2016 as compared to the prior year.

The decrease in store hourly labor costs as a percentage of total revenue for the first six months of 2016 as compared to the same period in the prior year resulted from menu price increases being higher than wage inflation.

The decrease in payroll tax expense as a percentage of total revenue for the first six months of 2016 as compared to the same period in the prior year resulted primarily from lower unemployment tax rates.

Other Store Operating Expenses

Other store operating expenses include all store-level operating costs, the major components of which are utilities, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit card fees, real and personal property taxes, general insurance and costs associated with our bi-annual manager conference and training event.

Other store operating expenses as a percentage of total revenue increased to 18.4% in the second quarter of 2016 as compared to 17.7% in the second quarter of 2015.  This percentage change resulted primarily from the following:

	Second Quarter Increase (Decrease) as a Percentage of Total Revenue
Maintenance expense		0.5	%
Advertising expense		0.3	%
Utilities expense		(0.2	%)

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Other store operating expenses as a percentage of total revenue increased to 18.9% in the first six months of 2016 as compared to 18.3% in the same period in the prior year.  This percentage change resulted primarily from the following:

	First Six Months Increase (Decrease) as a Percentage of Total Revenue
Maintenance expense		0.3	%
Advertising expense		0.2	%
Bi-annual manager conference and training event expense		0.2	%
Utilities expense		(0.2	%)

The increases in maintenance expense as a percentage of total revenue for the second quarter and the first six months of 2016 resulted primarily from expenses associated with the preventive maintenance and related repair of certain building components and kitchen equipment.

The increases in advertising expense as a percentage of total revenue for the second quarter and the first six months of 2016 resulted primarily from an increased investment in local marketing and the timing of new television spots which is consistent with our previously announced intent to increase our advertising spend in 2016.

In the first quarter of 2016, we held a bi-annual manager conference and training event which was attended by our store operations management team.  We did not hold a manager’s conference and training event in 2015 and we expect to hold our next conference and training event in the first quarter of 2018.

The decrease in utilities expense as a percentage of total revenue for the second quarter of 2016 as compared to the same period in the prior year resulted primarily from lower natural gas prices and usage.  The decrease in utilities expense as a percentage of total revenue for the first six months of 2016 as compared to the same period in the prior year resulted primarily from lower electricity costs and lower natural gas prices and usage.  Lower electricity costs for the first six month of 2016 as compared to the same period in the prior year resulted primarily from our LED lighting installation initiative.

General and Administrative Expenses

General and administrative expenses as a percentage of total revenue decreased to 4.7% in the second quarter of 2016 as compared to 4.9% in the same period in the prior year.  This percentage change resulted primarily from the following:

	Second Quarter (Decrease) Increase as a Percentage of Total Revenue
Incentive compensation expense		(0.4	%)
Litigation accrual		(0.3	%)
Payroll and related expenses		0.2	%
Professional fees		0.1	%
Maintenance expenses		0.1	%

General and administrative expenses as a percentage of total revenue decreased to 4.7% in the first six months of 2016 as compared to 4.9% in the same period in the prior year.  This percentage change resulted primarily from the following:

	First Six Months (Decrease) Increase as a Percentage of Total Revenue
Incentive compensation expense		(0.3	%)
Litigation accrual		0.2	%

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Lower incentive compensation in the second quarter and first six months of 2016 as compared to the same periods in the prior year resulted primarily from lower performance against financial objectives as compared to the prior year and a decrease in the price of our common stock in 2016.  Lower incentive compensation in the second quarter of 2016 as compared to the same period in the prior year was partially offset by higher payroll expenses.

We recorded an accrual of $2,150 in the second quarter of 2015, for a total of $2,750 for the first six months of 2015, related to a litigation matter.

The increase in professional fees as a percentage of total revenue for the second quarter of 2016 as compared to the same period in the prior year resulted primarily from development costs associated with our previously announced fast casual concept.

The increase in maintenance expenses as a percentage of total revenue for the second quarter of 2016 as compared to the same period in the prior year was due to corporate expenses associated with preventative maintenance and related repairs.

Interest Expense

Interest expense for the second quarter of 2016 was $3,569 as compared to $4,684 in the second quarter of 2015.  Interest expense for the first six months of 2016 was $7,113 as compared to $9,108 in the same period in the prior year.  Both decreases resulted primarily from lower weighted average interest rates and the non-recurrence of a $412 write-off of deferred financing costs related to our debt refinancing in the prior year.  The lower weighted average interest rates were due to a reduction in our credit spread by 0.25% as a result of our debt refinancing and the expiration of certain interest rate swaps and the effectiveness of lower-cost swaps that had been entered into previously.

Provision for Income Taxes

Provision for income taxes as a percentage of income before income taxes (the “effective tax rate”) was 27.9% and 29.1% in the second quarters of 2016 and 2015, respectively.  The effective tax rate was 30.8% and 30.9% in the first six months of 2016 and 2015, respectively.  The decreases in the effective tax rate from the second quarter and first six months of 2015 to the second quarter and first six months of 2016 resulted primarily from the impact of the retroactive reinstatement of the Work Opportunity Tax Credit (“WOTC”) through December 31, 2019.  As a result, in the second quarter of 2016, we recorded a tax benefit for WOTC of $4,592.  Of this amount, $334 related to credits for hiring periods prior to January 1, 2015, $2,292 related to credits for the period from January 1, 2015 through July 31, 2015, and $1,966 related to credits for 2016.  In the second quarter of 2015, we recorded a tax benefit for WOTC of $3,504.  Of this amount, $387 related to credits for hiring periods prior to January 1, 2014, $2,319 related to credits for the period from January 1, 2014 through August 1, 2014, and $798 related to credits for 2015.

We presently expect our effective tax rate for 2016 to be between 30.0% and 31.0%.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our $750,000 revolving credit facility (the “Revolving Credit Facility”).  Our internally generated cash, along with cash on hand at July 31, 2015, was sufficient to finance all of our growth, dividend payments, share repurchases, working capital needs and other cash payment obligations in the first six months of 2016.

We believe that cash on hand at January 29, 2016, along with cash generated from our operating activities and the borrowing capacity under our Revolving Credit Facility will be sufficient to finance our continuing operations, expected dividend payments and our continuing expansion plans for at least the next twelve months.

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Cash Generated From Operations

Our operating activities provided net cash of $85,613 for the first six months of 2016, which represented a decrease from the $153,066 net cash provided during the first six months of 2015.  This decrease primarily reflected the timing of payments for accounts payable and income taxes, higher retail inventory and higher bonus payments made in 2016 as a result of the prior year’s performance.  Higher retail inventory resulted primarily from the timing of receipts.

Borrowing Capacity and Debt Covenants

At January 29, 2016, we had $400,000 of outstanding borrowings under the Revolving Credit Facility and we had $11,195 of standby letters of credit related to securing reserved claims under our workers’ compensation insurance which reduce our borrowing availability under the Revolving Credit Facility. At January 29, 2016, we had $338,805 in borrowing availability under our Revolving Credit Facility.  See Note 4 to our Condensed Consolidated Financial Statements for further information on our long-term debt.

The Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio.  We presently are in compliance with all financial covenants.

Capital Expenditures

Capital expenditures (purchase of property and equipment) net of proceeds from insurance recoveries were $36,797 for the first six months of 2016 as compared to $37,647 for the same period in the prior year.  Our capital expenditures consisted primarily of capital expenditures for maintenance programs and costs of new store locations.  We estimate that our capital expenditures during 2016 will be between $90,000 to $100,000.  This estimate includes the acquisition of sites and construction costs of five or six new stores that are expected to open during 2016, as well as for acquisition and construction costs for store locations to be opened in 2017, capital expenditures for maintenance programs and technology and operations improvements.  We intend to fund our capital expenditures with cash flows from operations and borrowings under our Revolving Credit Facility, as necessary.

Dividends, Share Repurchases and Share-Based Compensation Awards

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

During the first six months of 2016, we paid regular dividends of $2.20 per share and a special dividend of $3.00 per share, or an aggregate of $125,052.  During the second quarter of 2016, we declared a dividend of $1.10 per share that was paid on February 5, 2016 to shareholders of record on January 15, 2016.

We have been authorized by our Board of Directors to repurchase shares at management’s discretion up to $25,000 during 2016.  During the first six months of 2016, we repurchased 100,000 shares of our common stock in the open market at an aggregate cost of $14,653.  All of these repurchases were made in the first quarter of 2016.

During the first six months of 2016, we issued 63,493 shares of our common stock resulting from the vesting of share-based compensation awards and stock option exercises.  Related tax withholding payments on these share-based compensation awards exceeded proceeds received from the exercise of stock options, which resulted in a net use of cash of $5,343.

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Working Capital

In the restaurant industry, virtually all sales are either for cash or first-party credit or debit card.   Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while restaurant inventories purchased locally are generally financed from normal trade credit.  Because of our retail gift shops, which have a lower product turnover than the restaurant business, we carry larger inventories than many other companies in the restaurant industry.  Retail inventories purchased domestically are generally financed from normal trade credit, while imported retail inventories are generally purchased through wire transfers.  These various trade terms are aided by the 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.

We had positive working capital of $38,705 at January 29, 2016 versus positive working capital of $11,213 at July 31, 2015.  Working capital increased from July 31, 2015 primarily because of the payment of the special dividend of $3.00 per share of our common stock and the timing of payments for accounts payable partially offset by the decrease in cash.

Off-Balance Sheet Arrangements

Other than various operating leases, we have no other 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 2015 Form 10-K for additional information regarding our operating leases.

Material Commitments

There have been no material changes in our material commitments other than in the ordinary course of business since the end of 2015.  Refer to the sub-section entitled “Material Commitments” under the section entitled “Liquidity and Capital Resources” presented in the MD&A of our 2015 Form 10-K for additional information regarding our material commitments.

Recent Accounting Pronouncements Adopted

See Note 1 to the accompanying Condensed Consolidated Financial Statements for a discussion of recent accounting guidance adopted and not yet adopted.  The adopted accounting guidance discussed in Note 1 did not have a significant impact on our consolidated financial position or results of operations.  Regarding the accounting guidance not yet adopted, the accounting guidance is either expected not to have a significant impact on our consolidated financial position or results of operations or we are still evaluating the impact of adopting the accounting guidance.

Critical Accounting Estimates

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

Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements contained in the 2015 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 most important to the accurate portrayal of both our financial condition and operating results, and

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

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

· Impairment of Long-Lived Assets and Provision for Asset Dispositions

· Insurance Reserves

· Retail Inventory Valuation

· Tax Provision

· Share-Based Compensation

· Legal Proceedings

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

Impairment of Long-Lived Assets and Provision for Asset Dispositions

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

We have not made any material changes in our methodology for assessing impairments during the first six months of 2016, 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 in the future to assess impairment of long-lived assets.  However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of long-lived assets, we may be exposed to losses that could be material.

Insurance Reserves

We self-insure a significant portion of our expected workers’ compensation and general liability insurance programs.  We purchase insurance for individual workers’ compensation claims that exceed $250, $750 or $1,000 depending on the state in which the claim originates.  We purchase insurance for individual general liability claims that exceed $500.  We record a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims.  These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter.  Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves.  The reserves and losses in the actuarial study represent a range of possible outcomes within which no given estimate is more likely than any other estimate.  As such, we record the losses in the lower end of that range and discount them to present value using a risk-free interest rate based on projected timing of payments.  We also monitor actual claims development, including incidence 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.  Additionally, we record a liability for unpaid prescription drug claims based on historical experience.  The majority of our fully-insured health insurance plans for calendar 2014 contained a retrospective feature which decreased premiums based on actual claims experience.

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Our accounting policies regarding workers’ compensation, general insurance and health insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices.  We have not made any material changes in the accounting methodology used to establish our insurance reserves during the first six months of 2016 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, management judgments or claims experience 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 at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of our inventories.  Inherent in the RIM calculation are certain significant management judgments and estimates, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation as well as the ending inventory valuation.

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

We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the first six months of 2016 and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions in the future.  However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.

Tax Provision

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

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

We file our income tax returns many months after our year end.  These returns are subject to audit by various federal and state governments years after the returns are filed and could be subject to differing interpretations of the tax laws.  We then must assess the likelihood of successful legal proceedings or reach a settlement with the relevant taxing authority.  Although we believe that the judgments and estimates used in establishing our tax provision are reasonable, an unsuccessful legal proceeding or a settlement could result in material adjustments to our Consolidated Financial Statements and our consolidated financial position (see Note 13 to our Consolidated Financial Statements contained in the 2015 Form 10-K for additional information).

Share-Based Compensation

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

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Compensation expense is recognized for only the portion of our share-based compensation awards that are expected to vest.  Therefore, an estimated forfeiture rate is derived from historical employee termination behavior and is updated annually.  The forfeiture rate is applied on a straight-line basis over the service (vesting) period for each separately vesting portion of the award as if the award were, in substance, multiple awards.

Our share-based compensation awards accrue dividends.  Dividends will be forfeited for any share-based compensation awards that do not vest.

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

Generally, the fair value of each nonvested stock award that does not accrue dividends is equal to the market price of our common 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.  Other nonvested stock awards accrue dividends and their fair value is equal to the market price of our stock at the date of grant.

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

The fair value of our MSU Grants was determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts.  The Monte-Carlo simulation model uses the average prices for the 60-consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period.  This model also incorporates the following ranges of assumptions:

· The expected volatility is a blend of implied volatility based on market-traded options on our stock and historical volatility of our stock over the period commensurate with the three-year performance period.

· The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period.

· The expected dividend yield is based on our current dividend yield as the best estimate of projected dividend yield for periods within the three-year performance period.

We update the historical and implied components of the expected volatility assumption when new grants are made.

We have not made any material changes in our estimates or assumptions used to determine share-based compensation during the first six months of 2016 and do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine share-based compensation expense.  However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.

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Legal Proceedings

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

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Part II, Item 7A of the 2015 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, 2015.

ITEM 4. Controls and Procedures

Our management, including our principal executive and principal financial officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report.  Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that as of January 29, 2016, 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, 2016 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.

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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 2015 Form 10-K.

ITEM 6. Exhibits

See Exhibit Index immediately following the signature page hereto.

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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: February 23, 2016	By:	/s/Lawrence E. Hyatt
		Lawrence E. Hyatt, Senior Vice President and
		Chief Financial Officer
Date: February 23, 2016	By:	/s/Jeffrey M. Wilson
		Jeffrey M. Wilson, Vice President, Corporate Controller and Principal
		Accounting Officer

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INDEX TO EXHIBITS

Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS	XBRL Instance Document (filed herewith)
101.SCH	XBRL Taxonomy Extension Schema (filed herewith)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.LAB	XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
101.DEF	XBRL Taxonomy Extension Definition Linkbase (filed herewith)

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

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