UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 23, 202029, 2021
Commission File Number 1-10275
BRINKER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
DE | | | 75-1914582 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | | |
3000 Olympus Blvd | | | |
Dallas | TX | | | 75019 |
(Address of principal executive offices) | | | (Zip Code) |
| | (972) | 980-9917 | |
(Registrant’s telephone number, including area code) |
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of exchange on which registered |
Common Stock, $0.10 par value | | EAT | | NYSE |
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of January 22, 2021: 45,460,09728, 2022: 44,599,164 shares
BRINKER INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions, except per share amounts)
| | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 |
Revenues | Revenues | | | | | | | | Revenues | | | | | | | |
Company sales | Company sales | $ | 746.2 | | | $ | 847.5 | | | $ | 1,474.4 | | | $ | 1,611.4 | | Company sales | $ | 904.5 | | | $ | 746.2 | | | $ | 1,764.1 | | | $ | 1,474.4 | |
Franchise and other revenues | Franchise and other revenues | 14.5 | | | 21.8 | | | 26.4 | | | 43.9 | | Franchise and other revenues | 21.3 | | | 14.5 | | | 38.1 | | | 26.4 | |
Total revenues | Total revenues | 760.7 | | | 869.3 | | | 1,500.8 | | | 1,655.3 | | Total revenues | 925.8 | | | 760.7 | | | 1,802.2 | | | 1,500.8 | |
Operating costs and expenses | Operating costs and expenses | | | | | | | | Operating costs and expenses | | | | | | | |
Food and beverage costs | Food and beverage costs | 198.9 | | | 223.1 | | | 392.4 | | | 426.9 | | Food and beverage costs | 252.8 | | | 198.9 | | | 487.1 | | | 392.4 | |
Restaurant labor | Restaurant labor | 255.8 | | | 291.8 | | | 503.8 | | | 560.3 | | Restaurant labor | 315.4 | | | 255.8 | | | 620.3 | | | 503.8 | |
Restaurant expenses | Restaurant expenses | 211.3 | | | 224.7 | | | 413.8 | | | 432.0 | | Restaurant expenses | 236.7 | | | 211.3 | | | 468.0 | | | 413.8 | |
Depreciation and amortization | Depreciation and amortization | 37.2 | | | 39.3 | | | 74.6 | | | 77.4 | | Depreciation and amortization | 41.6 | | | 37.2 | | | 80.9 | | | 74.6 | |
General and administrative | General and administrative | 30.0 | | | 34.6 | | | 60.5 | | | 72.6 | | General and administrative | 33.1 | | | 30.0 | | | 69.6 | | | 60.5 | |
Other (gains) and charges | Other (gains) and charges | 5.4 | | | 12.3 | | | 9.2 | | | 11.4 | | Other (gains) and charges | 6.4 | | | 5.4 | | | 10.9 | | | 9.2 | |
Total operating costs and expenses | Total operating costs and expenses | 738.6 | | | 825.8 | | | 1,454.3 | | | 1,580.6 | | Total operating costs and expenses | 886.0 | | | 738.6 | | | 1,736.8 | | | 1,454.3 | |
Operating income | Operating income | 22.1 | | | 43.5 | | | 46.5 | | | 74.7 | | Operating income | 39.8 | | | 22.1 | | | 65.4 | | | 46.5 | |
Interest expenses | Interest expenses | 14.4 | | | 15.0 | | | 29.0 | | | 29.9 | | Interest expenses | 11.2 | | | 14.4 | | | 23.7 | | | 29.0 | |
Other income, net | Other income, net | (0.5) | | | (0.5) | | | (0.9) | | | (1.0) | | Other income, net | (0.5) | | | (0.5) | | | (0.8) | | | (0.9) | |
Income before income taxes | Income before income taxes | 8.2 | | | 29.0 | | | 18.4 | | | 45.8 | | Income before income taxes | 29.1 | | | 8.2 | | | 42.5 | | | 18.4 | |
Provision (benefit) for income taxes | Provision (benefit) for income taxes | (3.8) | | | 1.1 | | | (4.3) | | | 3.0 | | Provision (benefit) for income taxes | 1.5 | | | (3.8) | | | 1.7 | | | (4.3) | |
Net income | Net income | $ | 12.0 | | | $ | 27.9 | | | $ | 22.7 | | | $ | 42.8 | | Net income | $ | 27.6 | | | $ | 12.0 | | | $ | 40.8 | | | $ | 22.7 | |
| Basic net income per share | Basic net income per share | $ | 0.26 | | | $ | 0.75 | | | $ | 0.50 | | | $ | 1.14 | | Basic net income per share | $ | 0.61 | | | $ | 0.26 | | | $ | 0.90 | | | $ | 0.50 | |
| Diluted net income per share | Diluted net income per share | $ | 0.26 | | | $ | 0.73 | | | $ | 0.49 | | | $ | 1.12 | | Diluted net income per share | $ | 0.60 | | | $ | 0.26 | | | $ | 0.88 | | | $ | 0.49 | |
| Basic weighted average shares outstanding | Basic weighted average shares outstanding | 45.3 | | | 37.4 | | | 45.2 | | | 37.4 | | Basic weighted average shares outstanding | 45.1 | | | 45.3 | | | 45.5 | | | 45.2 | |
| Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 46.1 | | | 38.1 | | | 45.9 | | | 38.1 | | Diluted weighted average shares outstanding | 45.9 | | | 46.1 | | | 46.4 | | | 45.9 | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | | Other comprehensive income (loss) | |
Foreign currency translation adjustment | Foreign currency translation adjustment | $ | 0.5 | | | $ | 0.1 | | | $ | 0.8 | | | $ | (0.1) | | Foreign currency translation adjustment | $ | (0.1) | | | $ | 0.5 | | | $ | (0.5) | | | $ | 0.8 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | 0.5 | | | 0.1 | | | 0.8 | | | (0.1) | | Other comprehensive income (loss) | (0.1) | | | 0.5 | | | (0.5) | | | 0.8 | |
Comprehensive income | Comprehensive income | $ | 12.5 | | | $ | 28.0 | | | $ | 23.5 | | | $ | 42.7 | | Comprehensive income | $ | 27.5 | | | $ | 12.5 | | | $ | 40.3 | | | $ | 23.5 | |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
3
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In millions, except per share amounts)
| | | Unaudited | | | Unaudited | |
| | December 23, 2020 | | June 24, 2020 | | December 29, 2021 | | June 30, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 64.1 | | | $ | 43.9 | | Cash and cash equivalents | $ | 15.6 | | | $ | 23.9 | |
Accounts receivable, net | Accounts receivable, net | 79.0 | | | 52.3 | | Accounts receivable, net | 91.8 | | | 65.2 | |
Inventories | Inventories | 26.8 | | | 27.3 | | Inventories | 32.7 | | | 28.9 | |
Restaurant supplies | Restaurant supplies | 51.9 | | | 51.6 | | Restaurant supplies | 55.0 | | | 52.6 | |
Prepaid expenses | Prepaid expenses | 11.8 | | | 13.9 | | Prepaid expenses | 18.5 | | | 13.6 | |
Income taxes receivable, net | Income taxes receivable, net | 32.2 | | | 35.4 | | Income taxes receivable, net | 7.0 | | | 23.0 | |
Total current assets | Total current assets | 265.8 | | | 224.4 | | Total current assets | 220.6 | | | 207.2 | |
Property and equipment, at cost | Property and equipment, at cost | | | | Property and equipment, at cost | | | |
Land | Land | 33.1 | | | 34.2 | | Land | 43.4 | | | 33.1 | |
Buildings and leasehold improvements | Buildings and leasehold improvements | 1,550.9 | | | 1,534.4 | | Buildings and leasehold improvements | 1,664.4 | | | 1,595.2 | |
Furniture and equipment | Furniture and equipment | 793.4 | | | 785.7 | | Furniture and equipment | 859.4 | | | 818.1 | |
Construction-in-progress | Construction-in-progress | 16.5 | | | 24.4 | | Construction-in-progress | 19.7 | | | 14.9 | |
| | 2,393.9 | | | 2,378.7 | | | 2,586.9 | | | 2,461.3 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | (1,628.0) | | | (1,573.4) | | Less accumulated depreciation and amortization | (1,746.6) | | | (1,686.5) | |
Net property and equipment | Net property and equipment | 765.9 | | | 805.3 | | Net property and equipment | 840.3 | | | 774.8 | |
Other assets | Other assets | | | | Other assets | | | |
Operating lease assets | Operating lease assets | 1,039.2 | | | 1,054.6 | | Operating lease assets | 1,095.2 | | | 1,007.4 | |
Goodwill | Goodwill | 188.0 | | | 187.6 | | Goodwill | 194.9 | | | 188.2 | |
Deferred income taxes, net | Deferred income taxes, net | 53.5 | | | 38.2 | | Deferred income taxes, net | 53.6 | | | 50.9 | |
Intangibles, net | Intangibles, net | 22.0 | | | 23.0 | | Intangibles, net | 29.2 | | | 21.1 | |
Other | Other | 23.3 | | | 22.9 | | Other | 23.5 | | | 25.3 | |
Total other assets | Total other assets | 1,326.0 | | | 1,326.3 | | Total other assets | 1,396.4 | | | 1,292.9 | |
Total assets | Total assets | $ | 2,357.7 | | | $ | 2,356.0 | | Total assets | $ | 2,457.3 | | | $ | 2,274.9 | |
LIABILITIES AND SHAREHOLDERS’ DEFICIT | LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | | LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 101.7 | | | $ | 104.9 | | Accounts payable | $ | 118.8 | | | $ | 127.7 | |
Gift card liability | Gift card liability | 129.9 | | | 109.9 | | Gift card liability | 135.2 | | | 106.4 | |
Accrued payroll | Accrued payroll | 60.4 | | | 65.2 | | Accrued payroll | 73.5 | | | 122.4 | |
Operating lease liabilities | Operating lease liabilities | 111.4 | | | 117.3 | | Operating lease liabilities | 113.1 | | | 97.7 | |
Other accrued liabilities | Other accrued liabilities | 116.9 | | | 100.6 | | Other accrued liabilities | 128.8 | | | 117.4 | |
| Total current liabilities | Total current liabilities | 520.3 | | | 497.9 | | Total current liabilities | 569.4 | | | 571.6 | |
Long-term debt and finance leases, less current installments | Long-term debt and finance leases, less current installments | 1,134.6 | | | 1,208.5 | | Long-term debt and finance leases, less current installments | 1,047.3 | | | 917.9 | |
Long-term operating lease liabilities, less current portion | Long-term operating lease liabilities, less current portion | 1,040.2 | | | 1,061.6 | | Long-term operating lease liabilities, less current portion | 1,086.6 | | | 1,006.7 | |
Other liabilities | Other liabilities | 106.7 | | | 67.1 | | Other liabilities | 81.4 | | | 82.0 | |
Commitments and contingencies (Note 14) | Commitments and contingencies (Note 14) | 0 | | 0 | Commitments and contingencies (Note 14) | 0 | | 0 |
Shareholders’ deficit | Shareholders’ deficit | | Shareholders’ deficit | |
Common stock (250.0 million authorized shares; $0.10 par value; 70.3 million shares issued and 45.4 million shares outstanding at December 23, 2020, and 70.3 million shares issued and 45.0 million shares outstanding at June 24, 2020) | 7.0 | | | 7.0 | | |
Common stock (250.0 million authorized shares; $0.10 par value; 70.3 million shares issued; and 44.6 million shares outstanding at December 29, 2021, and 45.9 million shares outstanding at June 30, 2021) | | Common stock (250.0 million authorized shares; $0.10 par value; 70.3 million shares issued; and 44.6 million shares outstanding at December 29, 2021, and 45.9 million shares outstanding at June 30, 2021) | 7.0 | | | 7.0 | |
Additional paid-in capital | Additional paid-in capital | 667.4 | | | 669.4 | | Additional paid-in capital | 683.7 | | | 685.4 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (5.4) | | | (6.2) | | Accumulated other comprehensive loss | (5.2) | | | (4.7) | |
Accumulated deficit | Accumulated deficit | (374.8) | | | (397.5) | | Accumulated deficit | (225.3) | | | (266.1) | |
Treasury stock, at cost (24.9 million shares at December 23, 2020, and 25.3 million shares at June 24, 2020) | (738.3) | | | (751.8) | | |
Treasury stock, at cost (25.7 million shares at December 29, 2021, and 24.4 million shares at June 30, 2021) | | Treasury stock, at cost (25.7 million shares at December 29, 2021, and 24.4 million shares at June 30, 2021) | (787.6) | | | (724.9) | |
Total shareholders’ deficit | Total shareholders’ deficit | (444.1) | | | (479.1) | | Total shareholders’ deficit | (327.4) | | | (303.3) | |
Total liabilities and shareholders’ deficit | Total liabilities and shareholders’ deficit | $ | 2,357.7 | | | $ | 2,356.0 | | Total liabilities and shareholders’ deficit | $ | 2,457.3 | | | $ | 2,274.9 | |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
4
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
| | | Twenty-Six Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Cash flows from operating activities | Cash flows from operating activities | | | | Cash flows from operating activities | | | |
Net income | Net income | $ | 22.7 | | | $ | 42.8 | | Net income | $ | 40.8 | | | $ | 22.7 | |
Adjustments to reconcile Net income to Net cash provided by operating activities: | Adjustments to reconcile Net income to Net cash provided by operating activities: | | Adjustments to reconcile Net income to Net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 74.6 | | | 77.4 | | Depreciation and amortization | 80.9 | | | 74.6 | |
Stock-based compensation | Stock-based compensation | 6.9 | | | 9.7 | | Stock-based compensation | 9.9 | | | 6.9 | |
Restructure charges and other impairments | 3.8 | | | 6.1 | | |
Restructure and impairment charges | | Restructure and impairment charges | 5.4 | | | 3.8 | |
Net loss on disposal of assets | Net loss on disposal of assets | 0.8 | | | 0.5 | | Net loss on disposal of assets | 1.6 | | | 0.8 | |
Other | Other | 1.7 | | | 1.3 | | Other | 2.1 | | | 1.7 | |
Changes in assets and liabilities: | | |
Changes in assets and liabilities, net of the impact of acquisitions: | | Changes in assets and liabilities, net of the impact of acquisitions: | |
Accounts receivable, net | Accounts receivable, net | (23.1) | | | (48.7) | | Accounts receivable, net | (24.6) | | | (23.1) | |
Inventories | Inventories | 0.2 | | | (0.5) | | Inventories | (2.7) | | | 0.2 | |
Restaurant supplies | Restaurant supplies | (0.2) | | | (0.1) | | Restaurant supplies | (0.5) | | | (0.2) | |
Prepaid expenses | Prepaid expenses | 2.1 | | | 1.6 | | Prepaid expenses | (5.0) | | | 2.1 | |
Operating lease assets, net of liabilities | Operating lease assets, net of liabilities | (11.8) | | | (3.0) | | Operating lease assets, net of liabilities | 6.4 | | | (11.8) | |
Deferred income taxes, net | Deferred income taxes, net | (15.3) | | | 6.5 | | Deferred income taxes, net | (2.8) | | | (15.3) | |
Other assets | Other assets | (0.1) | | | (0.2) | | Other assets | (0.1) | | | (0.1) | |
Accounts payable | Accounts payable | (4.0) | | | (4.7) | | Accounts payable | (5.7) | | | (4.0) | |
Gift card liability | Gift card liability | 20.1 | | | 44.8 | | Gift card liability | 28.0 | | | 20.1 | |
Accrued payroll | Accrued payroll | (4.8) | | | (10.8) | | Accrued payroll | (49.0) | | | (4.8) | |
Other accrued liabilities | Other accrued liabilities | 7.3 | | | 14.9 | | Other accrued liabilities | 6.3 | | | 7.3 | |
Current income taxes | Current income taxes | 9.9 | | | 4.4 | | Current income taxes | 16.4 | | | 9.9 | |
Other liabilities | Other liabilities | 39.2 | | | 0.3 | | Other liabilities | 0.0 | | | 39.2 | |
Net cash provided by operating activities | Net cash provided by operating activities | 130.0 | | | 142.3 | | Net cash provided by operating activities | 107.4 | | | 130.0 | |
Cash flows from investing activities | Cash flows from investing activities | | | | Cash flows from investing activities | | | |
Payments for property and equipment | Payments for property and equipment | (37.1) | | | (51.4) | | Payments for property and equipment | (74.1) | | | (37.1) | |
Payments for franchise restaurant acquisitions | | Payments for franchise restaurant acquisitions | (104.5) | | | — | |
Proceeds from sale leaseback transactions, net of related expenses | | Proceeds from sale leaseback transactions, net of related expenses | 20.5 | | | — | |
Proceeds from sale of assets | | Proceeds from sale of assets | 0.0 | | | 1.3 | |
Proceeds from note receivable | Proceeds from note receivable | 1.3 | | | 1.4 | | Proceeds from note receivable | — | | | 1.3 | |
Proceeds from sale of assets | 1.3 | | | 0.3 | | |
Payments for franchise restaurant acquisitions | 0 | | | (96.2) | | |
| Net cash used in investing activities | Net cash used in investing activities | (34.5) | | | (145.9) | | Net cash used in investing activities | (158.1) | | | (34.5) | |
Cash flows from financing activities | Cash flows from financing activities | | | | Cash flows from financing activities | | | |
Borrowings on revolving credit facility | | Borrowings on revolving credit facility | 487.5 | | | 28.4 | |
Payments on revolving credit facility | Payments on revolving credit facility | (95.0) | | | (416.0) | | Payments on revolving credit facility | (355.0) | | | (95.0) | |
Borrowings on revolving credit facility | 28.4 | | | 463.0 | | |
Purchases of treasury stock | | Purchases of treasury stock | (74.7) | | | (3.9) | |
Payments on long-term debt | Payments on long-term debt | (9.8) | | | (5.0) | | Payments on long-term debt | (11.7) | | | (9.8) | |
Purchases of treasury stock | (3.9) | | | (11.3) | | |
Payments for debt issuance costs | Payments for debt issuance costs | (2.2) | | | (1.0) | | Payments for debt issuance costs | (3.1) | | | (2.2) | |
Payments of dividends | Payments of dividends | (1.3) | | | (29.0) | | Payments of dividends | (1.0) | | | (1.3) | |
Proceeds from issuance of treasury stock | Proceeds from issuance of treasury stock | 8.5 | | | 1.5 | | Proceeds from issuance of treasury stock | 0.4 | | | 8.5 | |
Net cash (used in) provided by financing activities | (75.3) | | | 2.2 | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 42.4 | | | (75.3) | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 20.2 | | | (1.4) | | Net change in cash and cash equivalents | (8.3) | | | 20.2 | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 43.9 | | | 13.4 | | Cash and cash equivalents at beginning of period | 23.9 | | | 43.9 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 64.1 | | | $ | 12.0 | | Cash and cash equivalents at end of period | $ | 15.6 | | | $ | 64.1 | |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
5
BRINKER INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
Footnote Index
| | | | | | | | | | | | | | |
Note # | | Description | | Page |
| | Basis of Presentation | | |
| | Effect of New Accounting StandardsChili’s Restaurant Acquisitions | | |
| | Revenue Recognition | | |
| | Other Gains and Charges | | |
| | Income Taxes | | |
| | Net Income Per Share | | |
| | Segment Information | | |
| | Fair Value Measurements | | |
| | Leases | | |
| | Debt | | |
| | Accrued and Other Liabilities | | |
| | Shareholders’ Deficit | | |
| | Supplemental Cash Flow Information | | |
| | Contingencies | | |
| | Fiscal 2020 Chili’s Restaurant Acquisition | | |
| | Subsequent Events | | |
1. BASIS OF PRESENTATION
References to “Brinker,” the “Company,” “we,” “us,” and “our” in this Form 10-Q refer to Brinker International, Inc. and its subsidiaries and any predecessor companies of Brinker International, Inc.
Our Consolidated Financial Statements (Unaudited) as of December 23, 202029, 2021 and June 24, 2020,30, 2021, and for the thirteen and twenty-six week periods ended December 23, 202029, 2021 and December 25, 2019,23, 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
We are principally engaged in the ownership, operation, development and franchising of the Chili’s® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy® (“Maggiano’s”) restaurant brands.brands, as well as virtual brands including It’s Just Wings® and Maggiano’s Italian Classics™. At December 23, 2020,29, 2021, we owned, operated or franchised 1,6551,653 restaurants, consisting of 1,1181,182 Company-owned restaurants and 537471 franchised restaurants, located in the United States, 2728 countries and 2 United States territories.
Fiscal Year
We have a 52/52 or 53 week fiscal year ending on the last Wednesday in June. We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks. Fiscal year 20212022 contains 5352 weeks and will end on June 30, 2021.29, 2022. Fiscal year 2020, which2021 ended on June 24, 2020,30, 2021 and contained 5253 weeks.
Use of Estimates
The preparation of the consolidated financial statementsConsolidated Financial Statements is in conformity with generally accepted accounting principles in the United States (“GAAP”) and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,Consolidated Financial Statements (Unaudited), and the reported amounts of revenues and costs and expenses in the reporting periods. Actual results could differ from those estimates.
The foreign currency translation adjustment included in Comprehensive income in the Consolidated Statements of Comprehensive Income (Unaudited) represents the unrealized impact of translating the financial statements of our Canadian restaurants from Canadian dollars to United States dollars. This amount is not included in Net income and would only be realized upon disposition of our Canadian restaurants. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets (Unaudited).
The information furnished herein reflects all adjustments (consisting only of normal recurring accruals and adjustments) which are, in our opinion, necessary to fairly state the interim operating results, financial position and cash flows for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been omitted pursuant to SEC rules and regulations. The Notes to Consolidated Financial Statements (Unaudited) should be read in conjunction with the Notes to the Consolidated Financial Statements contained in our June 24, 202030, 2021 Form 10-K. We believe the disclosures are sufficient for interim financial reporting purposes. All amounts in the Notes to Consolidated Financial Statements (Unaudited) are presented in millions unless otherwise specified.
RisksForeign Currency Translation
The foreign currency translation adjustment included in Comprehensive income in the Consolidated Statements of Comprehensive Income (Unaudited) represents the unrealized impact of translating the financial statements of our Canadian restaurants from Canadian dollars to United States dollars. This amount is not included in Net income and Uncertaintieswould only be realized upon disposition of our Canadian restaurants. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets (Unaudited).
Impact of COVID-19 Pandemic
In JanuaryMarch 2020, the Secretary of Health and Human Services declared thea novel strain of coronavirus (“COVID-19”) a public health emergency. Subsequently in March 2020, the World Health Organizationwas declared COVID-19 a global pandemic that resulted inand a significant reduction in sales at our restaurants due toNational Public Health Emergency. The spread of COVID-19 has prompted changes in consumer behavior asand social distancing practices,preferences as well as dining room closures and otherdining room capacity restrictions were mandated or encouraged by federal, state and local governments. In response to COVID-19,The number of open dining rooms and the Company temporarily closed all Company-owned restaurant dining and banquet rooms atroom capacity restrictions have fluctuated over the endcourse of the third quarter of fiscal 2020 resulting in a transition to an off-premise business model. Beginningpandemic based on April 27, 2020, we began to reopen certain dining room locations as permitted by state and local governments. The rise in COVID-19 cases during the second quarter of fiscal 2021mandates, which has resulted in some dining room closuressignificant impacts to our guest traffic and capacity restrictions which have negatively impacted oursales primarily in fiscal 2021.
results. AsWe have been carefully assessing the effect of December 23, 2020, approximately 80% ofCOVID-19 on our restaurant dining rooms and patios were opened with limited seating capacity. The capacity limitations and personal safety preferences inbusiness as conditions continue to evolve throughout the reopened dining rooms have resulted in reduced traffic in the Company’s restaurants.
communities we serve. At this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent and the duration of the spread of the virus. A lack of containmentvirus and could lead to further reduced sales, capacity restrictions, restaurant closures, disruptionsdelays in our supply chain and restaurant staffingor impair our ability to staff accordingly which could adversely impact our financial results.
2. EFFECT OF NEW ACCOUNTING STANDARDS
New Accounting Standards Implemented in Fiscal 20212022
Measurement of Credit Losses on Financial Instruments, ASU No. 2016-13 - In June 2013, the FASB issued ASU 2016-13, creating ASC Topic 326 – Financial Instruments – Credit Losses. ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on financial assets measured at amortized cost basis (including, but not limited to loans), net investments in leases recognized as lessor and off-balance sheet credit exposures. ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss methodology for recognizing credit losses. Instead, ASU 2016-13 requires the measurement ofWe reviewed all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The new guidance isaccounting pronouncements that became effective for public entities forour fiscal years beginning after December 15, 2019,2022 and interim periods within those fiscal years, which required us to adopt these provisions in the first quarter of fiscal 2021. The update was applied on a prospective basis. The adoption of this guidancedetermined that either they were not applicable or they did not have a material impact on ourthe Consolidated Financial Statements.
Fair Value Measurement (Topic 820): Disclosure Framework, ASU No. 2018-13 - ChangesStatements (Unaudited). We also reviewed all recently issued accounting pronouncements to the Disclosure Requirements for Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurementsbe adopted in Topic 820, Fair Value Measurement. The amendments under ASU 2018-13 add an incremental requirement, among others, for entitiesfuture periods and determined that they are not expected to disclose (1) the range and weighted average used to develop significant unobservable inputs and (2) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy. Entities may disclose other quantitative information in lieu of the weighted average if they determine that such information embodies a more reasonable and rational method of reflecting the distribution of significant unobservable inputs used to develop Level 3 fair value measurements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which required us to adopt these provisions in the first quarter of fiscal 2021. The update was applied on a prospective basis. The adoption of this guidance did not have an impact on our Consolidated Financial Statements.
Simplifying the Accounting for Income Taxes, ASU No. 2019-12 - In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The new guidance is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal 2022, and early adoption is permitted. We elected to early adopt this update in the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on ourthe Consolidated Financial Statements.Statements (Unaudited).
New Accounting Standards That Will Be Implemented In Future Periods
Reference Rate Reform, ASU 2020-04 - In March 2020,2. CHILI’S RESTAURANT ACQUISITIONS
On October 31, 2021, we completed the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitationacquisition of certain assets and liabilities related to 37 previously franchised Chili’s restaurants located in the Great Lakes and Northeast region of the EffectsUnited States, the “Great Lakes Region Acquisition.” Pro-forma financial information of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptionsthe acquisition is not presented due to the current guidance on contract modificationsimmaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements (Unaudited).
The total purchase price of $56.0 million, excluding post-closing adjustments, was funded with borrowings from our existing credit facility. We accounted for this acquisition as a business combination. The assets and hedge accounting. These updatesliabilities of these restaurants were recorded at their preliminary fair values and are intendedsubject to simplifyrevision as more detailed analyses are completed and additional information about the market transitionfair value of assets acquired and liabilities assumed becomes available. The final purchase price allocation is expected to be completed during the third quarter of fiscal 2022. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements (Unaudited) from the London Interbank Offered Rate (“LIBOR”)date of acquisition.
On September 2, 2021, we completed the acquisition of certain assets and other interbank offered ratesliabilities related to alternative reference rates. This guidance is effective upon issuance to modifications made as early as23 previously franchised Chili’s restaurants located in the beginningMid-Atlantic region of the interim period through December 31, 2022. We are currently assessingUnited States, the “Mid-Atlantic Region Acquisition.” Pro-forma financial information of the acquisition is not presented due to the immaterial impact that this guidance will have on ourof the financial results of the acquired restaurants in the Consolidated Financial Statements.Statements (Unaudited).
The total purchase price of $48.0 million, excluding post-closing adjustments, was funded with borrowings from our existing credit facility and proceeds from a sale leaseback transaction completed simultaneously with the acquisition (refer to Note 9 - Leases for further details on the sale leaseback transaction). We accounted for this acquisition as a business combination. The assets and liabilities of these restaurants were recorded at their preliminary fair values and are subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. The final purchase price allocation is expected to be completed during the third quarter of fiscal 2022. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements (Unaudited) from the date of acquisition.
The fair values of tangible and intangible assets acquired were primarily based on significant inputs not observable in an active market, including estimates of replacement costs, future cash flows and discount rates. These inputs
represent Level 3 fair value measurements as defined under GAAP. The preliminary amounts recorded for the fair value of acquired assets and liabilities at the acquisition date are as follows:
| | | | | | | | | | | |
| Mid-Atlantic Region | | Great Lakes Region |
| Fair Value September 2, 2021 | | Fair Value October 31, 2021 |
Current assets | $ | 1.4 | | | $ | 2.1 | |
| | | |
Property and equipment(2) | 46.2 | | | 43.9 | |
Operating lease assets(2) | 23.6 | | | 45.1 | |
Reacquired franchise rights(1) | 4.7 | | | 4.6 | |
Goodwill(3) | — | | | 6.9 | |
| | | |
Current liabilities | (1.4) | | | (0.3) | |
| | | |
Finance lease liabilities, less current portion | (3.7) | | | — | |
Operating lease liabilities, less current portion(2) | (23.1) | | | (45.2) | |
| | | |
Net assets acquired(4) | $ | 47.7 | | | $ | 57.1 | |
(1)Reacquired franchise rights related to the Mid-Atlantic Region acquisition and Great Lakes Region acquisition both have weighted average amortization periods of approximately 15 years.
(2)Refer to Note 9 - Leases for further details.
(3)Goodwill is expected to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents the benefits expected as a result of the acquisition, including sales and unit growth opportunities, and the benefit of the assembled workforce of the acquired restaurants.
(4)Net assets acquired at fair value related to the Mid-Atlantic Region acquisition are equal to the total purchase price of $48.0 million, less $0.3 million of closing adjustments. Net assets acquired at fair value related to the Great Lakes Region acquisition are equal to the total purchase price of $56.0 million, plus $1.1 million of closing adjustments.
3. REVENUE RECOGNITION
Deferred Franchise and Development Fees
Our deferred franchise and development fees consist of the unrecognized fees received from franchisees. Recognition of these fees in subsequent periods is based on satisfaction of the contractual performance obligations of theour active contracts with franchisees. We also expect to earn subsequent period royalties and advertising fees related to our franchise contracts; however, due to the variability and uncertainty of these future revenues based upon a sales-based measure, these future revenues are not yet estimable as the performance obligations remain unsatisfied.
Deferred franchise and development fees are classified within Other accrued liabilities for the current portion expected to be recognized within the next 12 months, and Other liabilities for the long-term portion in the Consolidated Balance Sheets (Unaudited).
The following table reflects the changes in deferred franchise and development fees between June 30, 2021 and December 29, 2021:
| | | | | | | |
| Deferred Franchise and Development Fees |
| | | |
Balance as of June 24, 202030, 2021 | $ | 12.711.4 | | | |
Additions | 0.1 0.7 | | | |
Amount recognized for Chili's restaurant acquisitions(1) | (0.7) | | | |
Amount recognized to Franchise and other revenues | (0.9)(0.8) | | | |
| | | |
Balance as of December 23, 202029, 2021 | $ | 11.910.6 | | | |
| | | | | |
Fiscal Year | Franchise and Development Fees Revenue Recognition |
Remainder of 2021 | $ | 0.5 | |
2022 | 1.0 | |
2023 | 1.0 | |
2024 | 1.0 | |
2025 | 0.9 | |
Thereafter | 7.5 | |
| $ | 11.9 | |
(1) The remaining deferred franchise and development fee balances associated with the 60 acquired Chili’s restaurants were recognized as of the acquisition dates in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited). Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.The following table illustrates franchise and development fees expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of December 29, 2021:
| | | | | |
Fiscal Year | Franchise and Development Fees Revenue Recognition |
Remainder of 2022 | $ | 0.5 | |
2023 | 0.9 | |
2024 | 0.9 | |
2025 | 0.8 | |
2026 | 0.8 | |
Thereafter | 6.7 | |
| $ | 10.6 | |
Deferred Gift Card Revenues
Total deferredDeferred revenues related to our gift cards include the full value of unredeemed gift card balances less recognized breakage and the unamortized portion of third party fees. The following table reflects the changes in the Gift card liability between June 30, 2021 and December 29, 2021:
| | | | | | | |
| Gift Card Liability |
| | | |
Balance as of June 24, 202030, 2021 | $ | 109.9106.4 | | | |
Gift card sales | 67.691.6 | | | |
Gift card redemptions recognized to Company sales | (41.7)(50.6) | | | |
Gift card breakage recognized to Franchise and other revenues | (4.9)(12.2) | | | |
Other | (1.0) | | | |
Balance as of December 23, 202029, 2021 | $ | 129.9135.2 | | | |
4. OTHER GAINS AND CHARGES
Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited) consist of the following:
| | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 |
Lease contingencies | | Lease contingencies | $ | 2.9 | | | $ | — | | | $ | 2.9 | | | $ | — | |
Remodel-related costs | | Remodel-related costs | 1.6 | | | 0.7 | | | 3.1 | | | 0.9 | |
Acquisition-related costs, net | | Acquisition-related costs, net | 0.9 | | | — | | | 0.9 | | | — | |
Enterprise system implementation costs | | Enterprise system implementation costs | 0.3 | | | — | | | 0.9 | | | — | |
Restaurant closure charges | | Restaurant closure charges | 0.3 | | | 0.4 | | | 0.5 | | | 1.9 | |
| COVID-19 related charges | | COVID-19 related charges | (0.8) | | | 1.0 | | | (0.5) | | | 2.2 | |
Restaurant impairment charges | Restaurant impairment charges | $ | 2.5 | | | $ | 4.6 | | | $ | 2.5 | | | $ | 4.6 | | Restaurant impairment charges | — | | | 2.5 | | | — | | | 2.5 | |
COVID-19 related charges | 1.0 | | | 0 | | | 2.2 | | | 0 | | |
Restaurant closure charges | 0.4 | | | 2.9 | | | 1.9 | | | 3.1 | | |
Remodel-related costs | 0.7 | | | 0.8 | | | 0.9 | | | 1.5 | | |
Lease modification gain, net | 0 | | | 0 | | | (0.5) | | | (3.1) | | |
Acquisition of franchise restaurants costs, net | 0 | | | 2.0 | | | 0 | | | 1.5 | | |
Other | Other | 0.8 | | | 2.0 | | | 2.2 | | | 3.8 | | Other | 1.2 | | | 0.8 | | | 3.1 | | | 1.7 | |
| | $ | 5.4 | | | $ | 12.3 | | | $ | 9.2 | | | $ | 11.4 | | | $ | 6.4 | | | $ | 5.4 | | | $ | 10.9 | | | $ | 9.2 | |
Fiscal 2022
•Lease contingencies were recorded for potential lease defaults on certain lease guarantees and subleases. Refer to Note 14 - Contingencies for additional information about our secondarily liable lease guarantees.
•Remodel-related costs related to existing fixed asset write-offs associated with the ongoing Chili’s and Maggiano’s remodel projects.
•Acquisition-related costs, net primarily related to the 60 restaurants acquired from franchisees in the first and the second quarter, refer to Note 2 - Chili’s Restaurant Acquisitions for further details.
•Enterprise system implementation costs primarily consisted of consulting fees and subscription fees related to the ongoing enterprise system implementation.
•Restaurant closure charges primarily related to closure costs and leases associated with certain closed Chili’s restaurants.
•COVID-19 related charges primarily consisted of an employee retention credit as allowed under the CARES Act in the second quarter and credits received as part of the 2021 New Mexico Senate Bill 1 in the first quarter, partially offset by charges for employee assistance and related payroll taxes for certain team members.
Fiscal 2021
•Remodel-related costs related to fixed asset disposals associated with the ongoing Chili’s remodel initiative.
•Restaurant closure charges primarily related to closure costs and leases associated with certain closed Chili’s restaurants.
•COVID-19 related charges primarily consisted of employee assistance costs and other expenses for the conversion of certain parking lots into dining areas, and initial purchases of face masks and hand sanitizers required to reopen dining rooms.
•Restaurant impairment charges during the thirteen and twenty-six week periods ended December 23, 2020 primarily related to the long-lived and operating lease assets of 10 underperforming Chili’s restaurants and 3 underperforming Maggiano’s restaurants that we continue to operate.
•COVID-19 related charges consists of costs related to both Chili’s and Maggiano’s:
–employee assistance and related payroll taxes for certain team members,
–conversion of certain parking lots into dining areas, and
–initial purchases of restaurant supplies such as face masks and hand sanitizers required to continue to reopen dining rooms.
•Restaurant closure charges primarily relates to closure costs and leases associated with certain closed Chili’s restaurants.
•Remodel-related costs relate to fixed asset disposals associated with the ongoing Chili’s remodel initiative.
•Lease modification gain, net in the twenty-six week period ended December 23, 2020 relates to the lease terminations of certain Chili’s operating lease liabilities.
Fiscal 2020
•Restaurant impairment charges during the thirteen and twenty-six week periods ended December 25, 2019 primarily related to the long-lived and operating lease assets of 10 underperforming Chili’s restaurants.
• Restaurant closure charges during the thirteen and twenty-six week periods ended December 25, 2019 primarily related to leases on certain closed Chili’s restaurants.
• Lease modification gain, net during the twenty-six week period ended December 25, 2019 included the first quarter of fiscal 2020 gain related to the lease termination of a previously impaired Chili’s operating lease.
• Acquisition of franchise restaurants costs, net during the thirteen and twenty-six week periods ended December 25, 2019 related to the 116 restaurants acquired from a franchisee, refer to Note 15 - Fiscal 2020 Chili’s Restaurant Acquisition.
5. INCOME TAXES
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 |
Effective income tax rate | (46.3) | % | | 3.8 | % | | (23.4) | % | | 6.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 |
Effective income tax rate | 5.2 | % | | (46.3) | % | | 4.0 | % | | (23.4) | % |
The federal statutory tax rate for the periods presented was 21.0%.
Fiscal 2021
Our effective income tax rate for the thirteen and twenty-six week periods ended December 23, 202029, 2021 was lower than the federal statutory rate primarily due to lower income before income taxes and the favorable impact from the FICA tip tax credit. The twenty-six week period ended December 23, 202029, 2021 also included the favorable impact of excess tax windfallsbenefits associated with stock-based compensation.
A reconciliation between the reported Provision (benefit) for income taxes and the amount computed by applying the statutory Federalfederal income tax rate to Income before income taxes is as follows:
| | | | | |
| Twenty-Six Week Period Ended |
| December 23,29,
20202021 |
Income tax expense at statutory rate - 21.0% | $ | 3.98.9 | |
FICA tip tax credit | (6.8)(7.6) | |
Stock-based compensation excess tax windfallbenefits | (1.2)(0.7) | |
State income taxes, net of federal benefit | 1.32.6 | |
| |
Other | (1.5) | |
Provision (benefit) for income taxes - (23.4%)4.0% | $ | (4.3)1.7 | |
Fiscal 2020
Our effective income tax rate for the thirteen and twenty-six week periods ended December 25, 201923, 2020 was lower than the federal statutory rate due to the favorable impact from the FICA tip tax credit. The twenty-six week period ended December 23, 2020 also included the favorable impact of excess tax benefits associated with stock-based compensation.
6. NET INCOME PER SHARE
Basic net income per share is computed by dividing Net income by the Basic weighted average shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of Diluted net income per share, the Basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the Diluted net income per share calculation. Basic weighted average shares outstanding are reconciled to Diluted weighted average shares outstanding as follows:
| | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 |
Basic weighted average shares outstanding | Basic weighted average shares outstanding | 45.3 | | | 37.4 | | | 45.2 | | | 37.4 | | Basic weighted average shares outstanding | 45.1 | | | 45.3 | | | 45.5 | | | 45.2 | |
Dilutive stock options | Dilutive stock options | 0.2 | | | 0.1 | | | 0.1 | | | 0.1 | | Dilutive stock options | 0.2 | | | 0.2 | | | 0.3 | | | 0.1 | |
Dilutive restricted shares | Dilutive restricted shares | 0.6 | | | 0.6 | | | 0.6 | | | 0.6 | | Dilutive restricted shares | 0.6 | | | 0.6 | | | 0.6 | | | 0.6 | |
Total dilutive impact | Total dilutive impact | 0.8 | | | 0.7 | | | 0.7 | | | 0.7 | | Total dilutive impact | 0.8 | | | 0.8 | | | 0.9 | | | 0.7 | |
Diluted weighted average shares outstanding | Diluted weighted average shares outstanding | 46.1 | | | 38.1 | | | 45.9 | | | 38.1 | | Diluted weighted average shares outstanding | 45.9 | | | 46.1 | | | 46.4 | | | 45.9 | |
| Awards excluded due to anti-dilutive effect | Awards excluded due to anti-dilutive effect | 0.6 | | | 1.1 | | | 1.1 | | | 1.2 | | Awards excluded due to anti-dilutive effect | 0.9 | | | 0.6 | | | 0.5 | | | 1.1 | |
7. SEGMENT INFORMATION
Our operating segments are Chili’s and Maggiano’s. The Chili’s segment includes the results of our Company-ownedCompany-owned Chili’s restaurants, which are principally located in the United States, within the full-service casual dining segment of the industry. The Chili’s segment also has Company-owned restaurants in Canada, and franchised locations in the United States, 2728 countries and 2 United States territories. The Maggiano’s segment includes the results of our Company-owned Maggiano’s restaurants in the United States as well as the results from our domestic franchise business. The Other segment includes costs related to our restaurant support teams for the Chili’s and Maggiano’s brands, including operations, finance, franchise, marketing, human resources and culinary innovation. The Other segment also includes costs related to the common and shared infrastructure, including accounting, information technology, purchasing, guest relations, legal and restaurant development.
Company sales includefor each segment include revenues generated by the operation of Company-owned restaurants including gift card redemptions and revenues from our It’s Just Wings and Maggiano’s Italian Classics virtual brand revenues.brands. Franchise and other revenues for each operating segment include Royalties and Franchise fees and other revenues. Franchise fees and other revenues include delivery service income,royalties, gift card breakage, franchise advertising fees, digital entertainment revenues, Maggiano’s banquet service charge income, delivery income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization and gift card discount costs from third-party gift card sales and merchandise income. sales.
We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our operating segments are predominantly located in the United States. There were no material transactions amongst our operating segments.
Our chief operating decision maker uses Operating income as the measure for assessing performance of our segments. Operating income includes revenues and expenses directly attributable to segment-level results of operations. Restaurant expenses during the periods presented primarily included restaurant rent, supplies, repairsutilities, property and equipment maintenance, delivery fees, utilities, property taxes, credit card processing fees, property taxes and advertising. worker’s comp and general liability insurance.
The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:
| | | Thirteen Week Period Ended December 23, 2020 | | Thirteen Week Period Ended December 29, 2021 |
| | Chili’s | | Maggiano’s | | Other | | Consolidated | | Chili’s(1) | | Maggiano’s | | Other | | Consolidated |
Company sales | Company sales | $ | 683.0 | | | $ | 63.2 | | | $ | 0 | | | $ | 746.2 | | Company sales | $ | 791.9 | | | $ | 112.6 | | | $ | — | | | $ | 904.5 | |
Royalties | Royalties | 7.6 | | | 0.1 | | | 0 | | | 7.7 | | Royalties | 8.6 | | | 0.1 | | | — | | | 8.7 | |
Franchise fees and other revenues | Franchise fees and other revenues | 5.8 | | | 1.0 | | | 0 | | | 6.8 | | Franchise fees and other revenues | 7.7 | | | 4.9 | | | — | | | 12.6 | |
Franchise and other revenues | Franchise and other revenues | 13.4 | | | 1.1 | | | 0 | | | 14.5 | | Franchise and other revenues | 16.3 | | | 5.0 | | | — | | | 21.3 | |
Total revenues | Total revenues | 696.4 | | | 64.3 | | | 0 | | | 760.7 | | Total revenues | 808.2 | | | 117.6 | | | — | | | 925.8 | |
| Food and beverage costs | Food and beverage costs | 183.7 | | | 15.2 | | | 0 | | | 198.9 | | Food and beverage costs | 224.8 | | | 28.0 | | | — | | | 252.8 | |
Restaurant labor | Restaurant labor | 233.4 | | | 22.4 | | | 0 | | | 255.8 | | Restaurant labor | 277.6 | | | 37.8 | | | — | | | 315.4 | |
Restaurant expenses | Restaurant expenses | 188.7 | | | 22.1 | | | 0.5 | | | 211.3 | | Restaurant expenses | 205.0 | | | 31.5 | | | 0.2 | | | 236.7 | |
Depreciation and amortization | Depreciation and amortization | 30.8 | | | 3.4 | | | 3.0 | | | 37.2 | | Depreciation and amortization | 35.4 | | | 3.4 | | | 2.8 | | | 41.6 | |
General and administrative | General and administrative | 5.4 | | | 1.3 | | | 23.3 | | | 30.0 | | General and administrative | 7.2 | | | 1.9 | | | 24.0 | | | 33.1 | |
Other (gains) and charges | Other (gains) and charges | 4.4 | | | 0.8 | | | 0.2 | | | 5.4 | | Other (gains) and charges | 2.2 | | | — | | | 4.2 | | | 6.4 | |
Total operating costs and expenses | Total operating costs and expenses | 646.4 | | | 65.2 | | | 27.0 | | | 738.6 | | Total operating costs and expenses | 752.2 | | | 102.6 | | | 31.2 | | | 886.0 | |
Operating income (loss) | Operating income (loss) | 50.0 | | | (0.9) | | | (27.0) | | | 22.1 | | Operating income (loss) | 56.0 | | | 15.0 | | | (31.2) | | | 39.8 | |
Interest expenses | Interest expenses | 1.4 | | | 0.1 | | | 12.9 | | | 14.4 | | Interest expenses | 1.4 | | | 0.1 | | | 9.7 | | | 11.2 | |
Other income, net | Other income, net | (0.2) | | | 0 | | | (0.3) | | | (0.5) | | Other income, net | (0.2) | | | — | | | (0.3) | | | (0.5) | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 48.8 | | | $ | (1.0) | | | $ | (39.6) | | | $ | 8.2 | | Income (loss) before income taxes | $ | 54.8 | | | $ | 14.9 | | | $ | (40.6) | | | $ | 29.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Period Ended December 25, 2019 |
| Chili’s | | Maggiano’s | | Other | | Consolidated |
Company sales | $ | 728.4 | | | $ | 119.1 | | | $ | 0 | | | $ | 847.5 | |
Royalties | 9.9 | | | 0 | | | 0 | | | 9.9 | |
Franchise fees and other revenues | 4.8 | | | 7.1 | | | 0 | | | 11.9 | |
Franchise and other revenues | 14.7 | | | 7.1 | | | 0 | | | 21.8 | |
Total revenues | 743.1 | | | 126.2 | | | 0 | | | 869.3 | |
| | | | | | | |
Food and beverage costs | 195.1 | | | 28.0 | | | 0 | | | 223.1 | |
Restaurant labor | 251.0 | | | 40.8 | | | 0 | | | 291.8 | |
Restaurant expenses | 194.2 | | | 30.4 | | | 0.1 | | | 224.7 | |
Depreciation and amortization | 32.1 | | | 4.0 | | | 3.2 | | | 39.3 | |
General and administrative | 8.5 | | | 1.5 | | | 24.6 | | | 34.6 | |
Other (gains) and charges | 10.6 | | | 0 | | | 1.7 | | | 12.3 | |
Total operating costs and expenses | 691.5 | | | 104.7 | | | 29.6 | | | 825.8 | |
Operating income (loss) | 51.6 | | | 21.5 | | | (29.6) | | | 43.5 | |
Interest expenses | 1.1 | | | 0 | | | 13.9 | | | 15.0 | |
Other income, net | (0.1) | | | 0 | | | (0.4) | | | (0.5) | |
Income (loss) before income taxes | $ | 50.6 | | | $ | 21.5 | | | $ | (43.1) | | | $ | 29.0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Week Period Ended December 23, 2020 |
| Chili’s | | Maggiano’s | | Other | | Consolidated |
Company sales | $ | 1,358.0 | | | $ | 116.4 | | | $ | 0 | | | $ | 1,474.4 | |
Royalties | 14.2 | | | 0.1 | | | 0 | | | 14.3 | |
Franchise fees and other revenues | 10.7 | | | 1.4 | | | 0 | | | 12.1 | |
Franchise and other revenues | 24.9 | | | 1.5 | | | 0 | | | 26.4 | |
Total revenues | 1,382.9 | | | 117.9 | | | 0 | | | 1,500.8 | |
| | | | | | | |
Food and beverage costs | 364.5 | | | 27.9 | | | 0 | | | 392.4 | |
Restaurant labor | 461.6 | | | 42.2 | | | 0 | | | 503.8 | |
Restaurant expenses | 370.1 | | | 42.9 | | | 0.8 | | | 413.8 | |
Depreciation and amortization | 61.4 | | | 7.0 | | | 6.2 | | | 74.6 | |
General and administrative | 10.8 | | | 2.6 | | | 47.1 | | | 60.5 | |
Other (gains) and charges | 8.0 | | | 0.9 | | | 0.3 | | | 9.2 | |
Total operating costs and expenses | 1,276.4 | | | 123.5 | | | 54.4 | | | 1,454.3 | |
Operating income (loss) | 106.5 | | | (5.6) | | | (54.4) | | | 46.5 | |
Interest expenses | 2.8 | | | 0.1 | | | 26.1 | | | 29.0 | |
Other income, net | (0.3) | | | 0 | | | (0.6) | | | (0.9) | |
Income (loss) before income taxes | $ | 104.0 | | | $ | (5.7) | | | $ | (79.9) | | | $ | 18.4 | |
| | | | | | | |
Segment assets | $ | 1,929.5 | | | $ | 226.3 | | | $ | 201.9 | | | $ | 2,357.7 | |
Segment goodwill | 149.6 | | | 38.4 | | | 0 | | | 188.0 | |
Payments for property and equipment | 32.8 | | | 1.0 | | | 3.3 | | | 37.1 | |
| | | Twenty-Six Week Period Ended December 25, 2019 | | | Thirteen Week Period Ended December 23, 2020 |
| | Chili’s(1) | | Maggiano’s | | Other | | Consolidated | | | Chili’s | | Maggiano’s | | Other | | Consolidated |
Company sales | Company sales | $ | 1,405.9 | | | $ | 205.5 | | | $ | 0 | | | $ | 1,611.4 | | | Company sales | $ | 683.0 | | | $ | 63.2 | | | $ | — | | | $ | 746.2 | |
Royalties | Royalties | 21.7 | | | 0.1 | | | 0 | | | 21.8 | | | Royalties | 7.6 | | | 0.1 | | | — | | | 7.7 | |
Franchise fees and other revenues | Franchise fees and other revenues | 11.1 | | | 11.0 | | | 0 | | | 22.1 | | | Franchise fees and other revenues | 5.8 | | | 1.0 | | | — | | | 6.8 | |
Franchise and other revenues | Franchise and other revenues | 32.8 | | | 11.1 | | | 0 | | | 43.9 | | | Franchise and other revenues | 13.4 | | | 1.1 | | | — | | | 14.5 | |
Total revenues | Total revenues | 1,438.7 | | | 216.6 | | | 0 | | | 1,655.3 | | | Total revenues | 696.4 | | | 64.3 | | | — | | | 760.7 | |
| Food and beverage costs | Food and beverage costs | 377.5 | | | 49.4 | | | 0 | | | 426.9 | | | Food and beverage costs | 183.7 | | | 15.2 | | | — | | | 198.9 | |
Restaurant labor | Restaurant labor | 484.1 | | | 76.2 | | | 0 | | | 560.3 | | | Restaurant labor | 233.4 | | | 22.4 | | | — | | | 255.8 | |
Restaurant expenses | Restaurant expenses | 375.0 | | | 56.7 | | | 0.3 | | | 432.0 | | | Restaurant expenses | 188.7 | | | 22.1 | | | 0.5 | | | 211.3 | |
Depreciation and amortization | Depreciation and amortization | 62.8 | | | 8.0 | | | 6.6 | | | 77.4 | | | Depreciation and amortization | 30.8 | | | 3.4 | | | 3.0 | | | 37.2 | |
General and administrative | General and administrative | 17.6 | | | 3.2 | | | 51.8 | | | 72.6 | | | General and administrative | 5.4 | | | 1.3 | | | 23.3 | | | 30.0 | |
Other (gains) and charges | Other (gains) and charges | 9.0 | | | 0.1 | | | 2.3 | | | 11.4 | | | Other (gains) and charges | 4.4 | | | 0.8 | | | 0.2 | | | 5.4 | |
Total operating costs and expenses | Total operating costs and expenses | 1,326.0 | | | 193.6 | | | 61.0 | | | 1,580.6 | | | Total operating costs and expenses | 646.4 | | | 65.2 | | | 27.0 | | | 738.6 | |
Operating income (loss) | Operating income (loss) | 112.7 | | | 23.0 | | | (61.0) | | | 74.7 | | | Operating income (loss) | 50.0 | | | (0.9) | | | (27.0) | | | 22.1 | |
Interest expenses | Interest expenses | 2.0 | | | 0 | | | 27.9 | | | 29.9 | | | Interest expenses | 1.4 | | | 0.1 | | | 12.9 | | | 14.4 | |
Other income, net | Other income, net | (0.3) | | | 0 | | | (0.7) | | | (1.0) | | | Other income, net | (0.2) | | | — | | | (0.3) | | | (0.5) | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 111.0 | | | $ | 23.0 | | | $ | (88.2) | | | $ | 45.8 | | | Income (loss) before income taxes | $ | 48.8 | | | $ | (1.0) | | | $ | (39.6) | | | $ | 8.2 | |
| Payments for property and equipment | $ | 42.4 | | | $ | 4.2 | | | $ | 4.8 | | | $ | 51.4 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Week Period Ended December 29, 2021 |
| Chili’s(1) | | Maggiano’s | | Other | | Consolidated |
Company sales | $ | 1,565.2 | | | $ | 198.9 | | | $ | — | | | $ | 1,764.1 | |
Royalties | 17.6 | | | 0.2 | | | — | | | 17.8 | |
Franchise fees and other revenues | 13.0 | | | 7.3 | | | — | | | 20.3 | |
Franchise and other revenues | 30.6 | | | 7.5 | | | — | | | 38.1 | |
Total revenues | 1,595.8 | | | 206.4 | | | — | | | 1,802.2 | |
| | | | | | | |
Food and beverage costs | 438.2 | | | 48.9 | | | — | | | 487.1 | |
Restaurant labor | 551.1 | | | 69.2 | | | — | | | 620.3 | |
Restaurant expenses | 409.6 | | | 58.1 | | | 0.3 | | | 468.0 | |
Depreciation and amortization | 68.4 | | | 6.8 | | | 5.7 | | | 80.9 | |
General and administrative | 15.2 | | | 3.9 | | | 50.5 | | | 69.6 | |
Other (gains) and charges | 5.0 | | | 0.2 | | | 5.7 | | | 10.9 | |
Total operating costs and expenses | 1,487.5 | | | 187.1 | | | 62.2 | | | 1,736.8 | |
Operating income (loss) | 108.3 | | | 19.3 | | | (62.2) | | | 65.4 | |
Interest expenses | 2.8 | | | 0.2 | | | 20.7 | | | 23.7 | |
Other income, net | (0.3) | | | — | | | (0.5) | | | (0.8) | |
Income (loss) before income taxes | $ | 105.8 | | | $ | 19.1 | | | $ | (82.4) | | | $ | 42.5 | |
| | | | | | | |
Segment assets | $ | 2,073.4 | | | $ | 235.9 | | | $ | 148.0 | | | $ | 2,457.3 | |
Segment goodwill | 156.5 | | | 38.4 | | | — | | | 194.9 | |
Payments for property and equipment | 65.4 | | | 5.0 | | | 3.7 | | | 74.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Week Period Ended December 23, 2020 | | | |
| Chili’s | | Maggiano’s | | Other | | Consolidated | | | |
Company sales | $ | 1,358.0 | | | $ | 116.4 | | | $ | — | | | $ | 1,474.4 | | | | |
Royalties | 14.2 | | | 0.1 | | | — | | | 14.3 | | | | |
Franchise fees and other revenues | 10.7 | | | 1.4 | | | — | | | 12.1 | | | | |
Franchise and other revenues | 24.9 | | | 1.5 | | | — | | | 26.4 | | | | |
Total revenues | 1,382.9 | | | 117.9 | | | — | | | 1,500.8 | | | | |
| | | | | | | | | | |
Food and beverage costs | 364.5 | | | 27.9 | | | — | | | 392.4 | | | | |
Restaurant labor | 461.6 | | | 42.2 | | | — | | | 503.8 | | | | |
Restaurant expenses | 370.1 | | | 42.9 | | | 0.8 | | | 413.8 | | | | |
Depreciation and amortization | 61.4 | | | 7.0 | | | 6.2 | | | 74.6 | | | | |
General and administrative | 10.8 | | | 2.6 | | | 47.1 | | | 60.5 | | | | |
Other (gains) and charges | 8.0 | | | 0.9 | | | 0.3 | | | 9.2 | | | | |
Total operating costs and expenses | 1,276.4 | | | 123.5 | | | 54.4 | | | 1,454.3 | | | | |
Operating income (loss) | 106.5 | | | (5.6) | | | (54.4) | | | 46.5 | | | | |
Interest expenses | 2.8 | | | 0.1 | | | 26.1 | | | 29.0 | | | | |
Other income, net | (0.3) | | | — | | | (0.6) | | | (0.9) | | | | |
Income (loss) before income taxes | $ | 104.0 | | | $ | (5.7) | | | $ | (79.9) | | | $ | 18.4 | | | | |
| | | | | | | | | | |
Payments for property and equipment | $ | 32.8 | | | $ | 1.0 | | | $ | 3.3 | | | $ | 37.1 | | | | |
(1)Chili’s segment information for fiscal 20202022 includes the results of operations and the preliminary fair value of assets related to the 11660 restaurants purchased from atwo former franchiseefranchisees subsequent to the September 5, 2019 acquisition date.dates. Refer to Note 152 - Fiscal 2020 Chili’s Restaurant AcquisitionAcquisitions for further details.
8. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is groupedmeasurements are categorized in three levels based on the leveltypes of significant inputs used, in measuring fair value, as follows:
| | | | | |
Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs available at measurement date other than quote prices included in Level 1 |
Level 3 | Unobservable inputs that cannot be corroborated by observable market data |
Non-Financial Assets Measured on a Non-Recurring Basis
We review the carrying amounts of long-lived property and equipment including finance lease assets, operating lease assets, reacquired franchise rights and transferable liquor licenses semi-annuallyannually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount. We record an impairment charge for the excess of the carrying amount over the fair value. All impairment charges were included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited) for the periods presented.
Intangibles, net in the Consolidated Balance Sheets (Unaudited) includes both indefinite-lived intangible assets such as transferable liquor licenses and definite-lived intangible assets that includesuch as reacquired franchise rights and other items such as trademarks. Intangibles, net included accumulated amortization associated with definite-lived intangible assets at December 23, 202029, 2021 and June 24, 2020,30, 2021, of $8.5$10.8 million and $7.5$9.6 million, respectively.
Definite Lived Assets Impairment
Definite lived assets include property and equipment, including finance lease assets, operating lease assets and reacquired franchise rights. During the thirteen and twenty-six week periods ended December 23, 2020, we impaired certain long-lived assets and operating
lease assets primarily related to 10 underperforming Chili’s and 3 underperforming Maggiano’s restaurants. During the thirteen and twenty-six week periods ended December 25, 2019, we impaired certain long-lived assets primarily related to 10 underperforming Chili’s restaurants. Additionally, we impaired certain finance and operating lease assets related to previously closed Chili’s restaurants. We determined the fair value of these assets based on Level 3 fair value measurements. The table below presents the carrying values and related impairment expenses recorded on these impaired restaurants for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Impairment Charges |
| Pre-Impairment Carrying Value | | Thirteen and Twenty-Six Week Periods Ended |
| December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 |
Underperforming restaurants | | | | | | | |
Long-lived assets | $ | 2.2 | | | $ | 4.5 | | | $ | 2.2 | | | $ | 4.5 | |
Reacquired franchise rights assets | 0.1 | | | 0 | | | 0.1 | | | 0 | |
Operating lease assets | 1.1 | | | 0 | | | 0.2 | | | 0 | |
Finance lease assets | 0 | | | 0.1 | | | 0 | | | 0.1 | |
Total underperforming restaurants | $ | 3.4 | | | $ | 4.6 | | | $ | 2.5 | | | $ | 4.6 | |
Closed restaurants | | | | | | | |
Operating lease assets | $ | 0 | | | $ | 6.4 | | | $ | 0 | | | $ | 1.8 | |
Finance lease assets | 0 | | | 5.8 | | | 0 | | | 1.4 | |
Total closed restaurants | $ | 0 | | | $ | 12.2 | | | $ | 0 | | | $ | 3.2 | |
were identified.Indefinite Lived Assets Impairment
We determine theThe fair valuevalues of transferable liquor licenses are based on prices in the open market for licenses in the same or similar jurisdictions, that is consideredand are categorized as Level 2. During the thirteen and twenty-six week periods ended December 23, 202029, 2021 and December 25, 2019,23, 2020, no indicators of impairment were identified.
Goodwill
We review the carrying amounts of goodwill annually or when events or circumstances indicate that the carrying amount may not be recoverable. We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value. If a qualitative assessment is not performed, or if the result of the qualitative assessment indicates a potential impairment, then the fair value of the reporting unit is compared to its carrying value. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the implied fair value of the goodwill.
Related to the qualitative assessment, changes in circumstances existing at the measurement date or at other times in the future, such as declines in our market capitalization, as well as in the market capitalization of other companies in the restaurant industry, declines in sales at our restaurants, and significant adverse changes in the operating environment for the restaurant industry could result in an impairment loss of all or a portion of our goodwill.
We performed a detailed quantitative assessment in the third quarter of fiscal 2020 of our goodwill balances associated with both reporting units. This assessment was performed in response to observed indicators of impairment that were primarily driven by the impact of the COVID-19 pandemic on our business. These indicators were significant declines in operating cash flows and market capitalization. Based on this assessment, we concluded that our goodwill and indefinite-lived intangible assets were not impaired at that time. We updated this assessment in the fourth quarter of fiscal 2020 and again concluded no impairment triggering event existed based on improved market capitalization and improved operating results compared to projections in the detailed quantitative assessment prepared in the third quarter of fiscal 2020. Our operating results and operating cash flows have continued to outperform our initial quantitative assessment in the first and second quarters of fiscal 2021. Our stock price and market capitalization have also increased to levels greater than before the COVID-19 pandemic began in the United States. We performed our annual goodwill impairment analysis in the second quarter of fiscal 20212022 using a
qualitative approach based on these factors and no indicators of impairment were identified. During the thirteen and twenty-six week periods ended December 29, 2021, management concluded that no triggering event occurred.
Our ability to operate dining and banquet rooms and generate off-premise sales at our restaurants is critical to avoiding a future triggering event as the impact of the COVID-19 pandemic continues. Management’s judgments about the impact of the pandemic could change as additional developments occur. We will continue to monitor and evaluate our results in future periods to determine if a more detailed assessment is necessary.
Chili’s Restaurant Acquisitions
In the first two quarters of fiscal 2022, we completed the acquisition of 60 Chili’s restaurants from two former franchisees. The preliminary fair value of assets acquired and liabilities assumed for these restaurants utilized Level 3 inputs. The fair values of intangible assets acquired were primarily based on significant inputs not observable in an active market, including estimates of replacement costs, future cash flows, and discount rates. Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.
Other Financial Instruments
Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of the short maturity of these items.
Long-Term Debt
The carrying amount of debt outstanding related to the amendedour revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2). The fair values of the 3.875% and 5.000% notes are based on quoted market prices and are considered Level 2 fair value measurements.
The carrying amounts and fair values of the 3.875% notes and 5.000% notes, carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values are as follows:
| | | December 23, 2020 | | June 24, 2020 | | December 29, 2021 | | June 30, 2021 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
3.875% notes | 3.875% notes | $ | 299.1 | | | $ | 299.3 | | | $ | 299.0 | | | $ | 282.8 | | 3.875% notes | $ | 299.5 | | | $ | 309.0 | | | $ | 299.3 | | | $ | 309.0 | |
5.000% notes | 5.000% notes | 347.0 | | | 364.0 | | | 346.7 | | | 330.8 | | 5.000% notes | 347.9 | | | 375.0 | | | 347.5 | | | 369.3 | |
9. LEASES
We typically lease our restaurant facilities through ground leases (where we lease land only, but construct the building and improvements) or retail leases (where we lease the land/retail space and building). In addition to our restaurant facilities, we also lease our corporate headquarters location and certain equipment.
Lease Amounts Included in the Consolidated Statements of Comprehensive Income (Unaudited)
The components of lease expenses included in the Consolidated Statements of Comprehensive Income (Unaudited) were as follows:
| | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended | | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 |
Operating lease cost | Operating lease cost | $ | 42.0 | | | $ | 41.9 | | | $ | 83.7 | | | $ | 79.2 | | Operating lease cost | $ | 43.2 | | | $ | 42.0 | | | $ | 84.6 | | | $ | 83.7 | |
Variable lease cost | Variable lease cost | 14.9 | | | 15.1 | | | 28.9 | | | 28.3 | | Variable lease cost | 15.1 | | | 14.9 | | | 30.2 | | | 28.9 | |
Finance lease amortization | Finance lease amortization | 4.2 | | | 3.1 | | | 8.2 | | | 5.7 | | Finance lease amortization | 6.1 | | | 4.2 | | | 11.7 | | | 8.2 | |
Finance lease interest | Finance lease interest | 1.4 | | | 1.1 | | | 2.9 | | | 2.0 | | Finance lease interest | 1.4 | | | 1.4 | | | 3.0 | | | 2.9 | |
Short-term lease cost | Short-term lease cost | 0.1 | | | 0.5 | | | 0.2 | | | 0.7 | | Short-term lease cost | 0.2 | | | 0.1 | | | 0.3 | | | 0.2 | |
Sublease income | Sublease income | (1.2) | | | (1.2) | | | (2.2) | | | (2.3) | | Sublease income | (1.3) | | | (1.2) | | | (2.4) | | | (2.2) | |
Total lease costs, net | Total lease costs, net | $ | 61.4 | | | $ | 60.5 | | | $ | 121.7 | | | $ | 113.6 | | Total lease costs, net | $ | 64.7 | | | $ | 61.4 | | | $ | 127.4 | | | $ | 121.7 | |
Pre-Commencement Leases
As of the end of the second quarter of fiscal 2022, we have 17 pre-commencement leases for new Chili’s locations with undiscounted fixed payments over the initial term of $25.4 million. These leases are expected to commence in the next 12 months and are expected to have an economic lease term of 20 years. These leases will commence when the landlords make the property available to us for new restaurant construction. We will assess the reasonably certain lease term at the lease commencement date.
Significant Changes in Leases during the Period
In the first quarter of fiscal 2022, as part of the Chili’s Mid-Atlantic Region Acquisition, we assumed 11 new real estate operating leases included in the balances at December 29, 2021. At December 29, 2021, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $23.3 million, Operating lease liabilities of $0.6 million, and Long-term operating lease liabilities, less current portion of $22.9 million. The leases were recorded net of prepaid rent at the date of acquisition.
In the second quarter of fiscal 2022, as part of the Chili’s Great Lakes Region Acquisition, we assumed 26 new real estate operating leases included in the balances at December 29, 2021. At December 29, 2021, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $47.7 million, Operating lease liabilities of $1.5 million, and Long-term operating lease liabilities, less current
Lease Maturity Analysisportion of $46.7 million. The leases were recorded net of purchase price accounting adjustments and prepaid rent at the date of acquisition. Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.
AsRestaurant Properties Sale Leaseback Transaction
In the first quarter of December 23, 2020,fiscal 2022, simultaneous with the future minimum lease paymentsMid-Atlantic Region Acquisition, we completed sale leaseback transactions on finance and6 of the acquired restaurants. The properties were sold at their acquisition cost resulting in proceeds of $20.5 million with no gain or loss.
The initial terms of all leases we entered into as part of the sale leaseback transactions are for 15 years, plus renewal options at our discretion. All of the leases were determined to be operating leases. Rent expenses associated with these operating leases as well as sublease income, were as follows:
| | | | | | | | | | | | | | | | | |
| December 23, 2020 |
Fiscal Year | Finance Leases | | Operating Leases | | Sublease Income |
Remainder of 2021 | $ | 10.9 | | | $ | 84.0 | | | $ | 1.7 | |
2022 | 22.5 | | | 173.0 | | | 3.2 | |
2023 | 20.9 | | | 160.8 | | | 2.6 | |
2024 | 11.4 | | | 149.9 | | | 1.8 | |
2025 | 9.4 | | | 140.2 | | | 1.8 | |
Thereafter | 53.6 | | | 879.8 | | | 4.8 | |
Total future lease payments(1) | 128.7 | | | 1,587.7 | | | $ | 15.9 | |
Less: Imputed interest | 29.6 | | | 436.1 | | | |
Present value of lease liability | $ | 99.1 | | | $ | 1,151.6 | | | |
(1)Finance and Operatingare recognized on a straight-line basis over the lease terms under ASC 842. At December 29, 2021, the balances associated with these new leases total future lease payments represent the contractual obligations due under the contract, including certain cancellable option periods where we are reasonably assured to exercise the options. Included in the Total futureConsolidated Balance Sheets (Unaudited) include Operating lease payments asassets of December 23, 2020 was non-cancelable$18.1 million, Operating lease commitmentsliabilities of $108.1$0.4 million, for finance leases, and $1,073.5 million forLong-term operating leases.lease liabilities, less current portion of $17.7 million.
10. DEBT
Long-term debt consists of the following:
| | | December 23, 2020 | | June 24, 2020 | | December 29, 2021 | | June 30, 2021 |
Revolving credit facility | Revolving credit facility | $ | 406.3 | | | $ | 472.9 | | Revolving credit facility | $ | 303.8 | | | $ | 171.3 | |
5.000% notes | 5.000% notes | 350.0 | | | 350.0 | | 5.000% notes | 350.0 | | | 350.0 | |
3.875% notes | 3.875% notes | 300.0 | | | 300.0 | | 3.875% notes | 300.0 | | | 300.0 | |
Finance lease obligations | Finance lease obligations | 99.1 | | | 102.1 | | Finance lease obligations | 120.0 | | | 121.3 | |
Total long-term debt | 1,155.4 | | | 1,225.0 | | |
Total long-term debt and finance leases | | Total long-term debt and finance leases | 1,073.8 | | | 942.6 | |
Less: unamortized debt issuance costs and discounts | Less: unamortized debt issuance costs and discounts | (3.9) | | | (4.3) | | Less: unamortized debt issuance costs and discounts | (2.6) | | | (3.2) | |
Total long-term debt, less unamortized debt issuance costs and discounts | Total long-term debt, less unamortized debt issuance costs and discounts | 1,151.5 | | | 1,220.7 | | Total long-term debt, less unamortized debt issuance costs and discounts | 1,071.2 | | | 939.4 | |
Less: current installments of long-term debt(1) | (16.9) | | | (12.2) | | |
Long-term debt less current installments | $ | 1,134.6 | | | $ | 1,208.5 | | |
Less: current installments of long-term debt and finance leases(1) | | Less: current installments of long-term debt and finance leases(1) | (23.9) | | | (21.5) | |
Long-term debt and finance leases, less current installments | | Long-term debt and finance leases, less current installments | $ | 1,047.3 | | | $ | 917.9 | |
(1)Current installments of long-term debt consist only of finance leases for the periods presented and are recorded within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited). Refer to Note 11 - Accrued and Other Liabilities for further details.
Revolving Credit Facility
On August 18, 2021, we revised our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility to extend the maturity date and provide additional flexibility. In the twenty-six week period ended December 23, 2020,29, 2021, net repaymentsborrowings of $66.6$132.5 million were madedrawn on the $1.0 billion revolving credit facility. As of December 23, 2020, $593.729, 2021, $496.2 million of credit was available under the new revolving credit facility.
Amended Revolving Credit Agreement
In the first quarter of fiscal 2021, we executed the seventh amendment to ourThe $800.0 million revolving credit facility extending the maturity date to December 12, 2022. This amendment requires a capacity reduction to $900.0 million from $1.0 billion which will occurmatures on September 12, 2021. The issuance of certain debt or preferred equity interests will result in an immediate capacity reduction, an interest rate reduction of 0.250% on the spread,August 18, 2026 and 0.100% reduction on the undrawn fee if the issuance exceeds $250.0 million pursuant to the terms of the agreement.
The revolving credit facility bears interest of LIBOR plus an applicable margin of 2.250%1.500% to 3.000%2.250% and an undrawn commitment fee of 0.350%0.250% to 0.500%0.350%, both based on a function of our debt-to-cash-flow ratio. As of December 23, 2020,29, 2021, our interest rate was 3.750%1.875% consisting of the LIBOR floor of 0.750%0.125% plus the applicable margin of 3.000%1.750%.
In the twenty-six week period ended December 23, 2020,29, 2021, we incurred $2.2and capitalized $3.1 million of debt issuance costs associated with the new revolver, amendment, which are included in Other assets in the Consolidated Balance Sheets (Unaudited).
Financial Covenants
Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage and fixed charge coverage ratios. As of December 23, 2020,29, 2021, we arewere in compliance with our covenants pursuant to the amended$800.0
million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes. We expect to remain in compliance with our covenants during the remainder of fiscal 2021.2022.
11. ACCRUED AND OTHER LIABILITIES
Other accrued liabilities consist of the following:
| | | December 23, 2020 | | June 24, 2020 | | December 29, 2021 | | June 30, 2021 |
Property tax | Property tax | $ | 24.3 | | | $ | 22.9 | | Property tax | $ | 25.7 | | | $ | 22.4 | |
Current installments of finance leases | | Current installments of finance leases | 23.9 | | | 21.5 | |
Insurance | Insurance | 21.4 | | | 20.7 | | Insurance | 22.9 | | | 21.7 | |
Current installments of finance leases | 16.9 | | | 12.2 | | |
Sales tax | Sales tax | 16.7 | | | 13.3 | | Sales tax | 19.7 | | | 23.2 | |
Interest | | Interest | 6.3 | | | 6.9 | |
Utilities and services | Utilities and services | 8.3 | | | 8.3 | | Utilities and services | 8.9 | | | 8.4 | |
Interest | 7.1 | | | 7.5 | | |
State income tax payable | 4.8 | | | 0 | | |
Cyber security incident | 3.4 | | | 3.4 | | |
| Other(1) | Other(1) | 14.0 | | | 12.3 | | Other(1) | 21.4 | | | 13.3 | |
| | $ | 116.9 | | | $ | 100.6 | | | $ | 128.8 | | | $ | 117.4 | |
(1)Other primarily consists of charitable donations, banquetcontingent lease liabilities related to our lease guarantees, guest deposits for Maggiano’s events,banquets, rent-related expenses,accruals, certain exit-related lease accruals, deferred franchise and development fees, charitable donations and other various accruals. Refer to Note 14 - Contingencies for additional information about our secondarily liable lease guarantees.
Other liabilities consist of the following:
| | | December 23, 2020 | | June 24, 2020 | | December 29, 2021 | | June 30, 2021 |
Insurance | | Insurance | $ | 36.5 | | | $ | 35.0 | |
Deferred payroll taxes(1) | Deferred payroll taxes(1) | $ | 53.2 | | | $ | 12.9 | | Deferred payroll taxes(1) | 27.2 | | | 27.2 | |
Insurance | 34.2 | | | 33.7 | | |
Deferred franchise fees | 10.8 | | | 11.6 | | |
Deferred franchise and development fees | | Deferred franchise and development fees | 9.6 | | | 10.4 | |
Unrecognized tax benefits | Unrecognized tax benefits | 2.1 | | | 2.1 | | Unrecognized tax benefits | 2.7 | | | 3.5 | |
Other | Other | 6.4 | | | 6.8 | | Other | 5.4 | | | 5.9 | |
| | $ | 106.7 | | | $ | 67.1 | | | $ | 81.4 | | | $ | 82.0 | |
(1)Deferred payroll taxes consists of the second installment of the deferral of the employer portion of certain payroll related taxes as allowed under the CARES Act which will be repaid in two equal installmentsis due on December 31, 2021 and December 31, 2022.
12. SHAREHOLDERS’ DEFICIT
The changes in Total shareholders’ deficit during the twenty-six week periods ended December 23, 202029, 2021 and December 25, 2019,23, 2020, respectively, were as follows:
| | | Twenty-Six Week Period Ended December 23, 2020 | | Twenty-Six Week Period Ended December 29, 2021 |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
Balance at June 24, 2020 | $ | 7.0 | | | $ | 669.4 | | | $ | (397.5) | | | $ | (751.8) | | | $ | (6.2) | | | $ | (479.1) | | |
Balances at June 30, 2021 | | Balances at June 30, 2021 | $ | 7.0 | | | $ | 685.4 | | | $ | (266.1) | | | $ | (724.9) | | | $ | (4.7) | | | $ | (303.3) | |
Net income | Net income | 0 | | | 0 | | | 10.7 | | | 0 | | | 0 | | | 10.7 | | Net income | — | | | — | | | 13.2 | | | — | | | — | | | 13.2 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 0.3 | | | 0.3 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | (0.4) | | | (0.4) | |
Dividends | Dividends | 0 | | | 0 | | | 0.0 | | | 0 | | | 0 | | | 0.0 | | Dividends | — | | | — | | | 0.0 | | | — | | | — | | | 0.0 | |
Stock-based compensation | Stock-based compensation | 0 | | | 3.9 | | | 0 | | | 0 | | | 0 | | | 3.9 | | Stock-based compensation | — | | | 4.3 | | | — | | | — | | | — | | | 4.3 | |
Purchases of treasury stock | Purchases of treasury stock | 0 | | | (1.1) | | | 0 | | | (2.8) | | | 0 | | | (3.9) | | Purchases of treasury stock | — | | | (2.0) | | | — | | | (37.6) | | | — | | | (39.6) | |
Issuances of common stock | 0 | | | (9.0) | | | 0 | | | 12.0 | | | 0 | | | 3.0 | | |
Balance at September 23, 2020 | 7.0 | | | 663.2 | | | (386.8) | | | (742.6) | | | (5.9) | | | (465.1) | | |
Issuances of treasury stock | | Issuances of treasury stock | — | | | (8.3) | | | — | | | 8.6 | | | — | | | 0.3 | |
Balances at September 29, 2021 | | Balances at September 29, 2021 | $ | 7.0 | | | $ | 679.4 | | | $ | (252.9) | | | $ | (753.9) | | | $ | (5.1) | | | $ | (325.5) | |
Net income | Net income | 0 | | | 0 | | | 12.0 | | | 0 | | | 0 | | | 12.0 | | Net income | — | | | — | | | 27.6 | | | — | | | — | | | 27.6 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 0.5 | | | 0.5 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | (0.1) | | | (0.1) | |
Dividends | Dividends | 0 | | | 0 | | | 0.0 | | | 0 | | | 0 | | | 0.0 | | Dividends | — | | | — | | | 0.0 | | | — | | | — | | | 0.0 | |
Stock-based compensation | Stock-based compensation | 0 | | | 3.0 | | | 0 | | | 0 | | | 0 | | | 3.0 | | Stock-based compensation | — | | | 5.6 | | | — | | | — | | | — | | | 5.6 | |
Purchases of treasury stock | Purchases of treasury stock | 0 | | | 0.0 | | | 0 | | | 0.0 | | | 0 | | | 0.0 | | Purchases of treasury stock | — | | | 0.0 | | | — | | | (35.1) | | | — | | | (35.1) | |
Issuances of common stock | 0 | | | 1.2 | | | 0 | | | 4.3 | | | 0 | | | 5.5 | | |
Issuances of treasury stock | | Issuances of treasury stock | — | | | (1.3) | | | — | | | 1.4 | | | — | | | 0.1 | |
| Balance at December 23, 2020 | $ | 7.0 | | | $ | 667.4 | | | $ | (374.8) | | | $ | (738.3) | | | $ | (5.4) | | | $ | (444.1) | | |
Balances at December 29, 2021 | | Balances at December 29, 2021 | $ | 7.0 | | | $ | 683.7 | | | $ | (225.3) | | | $ | (787.6) | | | $ | (5.2) | | | $ | (327.4) | |
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| Twenty-Six Week Period Ended December 25, 2019 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
Balance at June 26, 2019 | $ | 17.6 | | | $ | 522.0 | | | $ | 2,771.2 | | | $ | (4,083.4) | | | $ | (5.6) | | | $ | (778.2) | |
Effect of ASC 842 adoption | — | | | — | | | 195.9 | | | — | | | — | | | 195.9 | |
Net income | 0 | | | 0 | | | 14.9 | | | 0 | | | 0 | | | 14.9 | |
Other comprehensive loss | 0 | | | 0 | | | 0 | | | 0 | | | (0.2) | | | (0.2) | |
Dividends ($0.38 per share) | 0 | | | 0 | | | (14.6) | | | 0 | | | 0 | | | (14.6) | |
Stock-based compensation | 0 | | | 7.1 | | | 0 | | | 0 | | | 0 | | | 7.1 | |
Purchases of treasury stock | 0 | | | (0.3) | | | 0 | | | (11.0) | | | 0 | | | (11.3) | |
Issuances of common stock | 0 | | | (3.7) | | | 0 | | | 5.0 | | | 0 | | | 1.3 | |
Balance at September 25, 2019 | 17.6 | | | 525.1 | | | 2,967.4 | | | (4,089.4) | | | (5.8) | | | (585.1) | |
Net income | 0 | | | 0 | | | 27.9 | | | 0 | | | 0 | | | 27.9 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | | 0.1 | |
Dividends ($0.38 per share) | 0 | | | 0 | | | (14.6) | | | 0 | | | 0 | | | (14.6) | |
Stock-based compensation | 0 | | | 2.6 | | | 0 | | | 0 | | | 0 | | | 2.6 | |
Purchases of treasury stock | 0 | | | 0.0 | | | 0 | | | 0.0 | | | 0 | | | 0.0 | |
Issuances of common stock | 0 | | | (0.4) | | | 0 | | | 0.6 | | | 0 | | | 0.2 | |
Retirement of treasury stock | (11.4) | | | 0 | | | (3,345.4) | | | 3,356.8 | | | 0 | | | 0 | |
Balance at December 25, 2019 | $ | 6.2 | | | $ | 527.3 | | | $ | (364.7) | | | $ | (732.0) | | | $ | (5.7) | | | $ | (568.9) | |
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| Twenty-Six Week Period Ended December 23, 2020 |
| Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
Balances at June 24, 2020 | $ | 7.0 | | | $ | 669.4 | | | $ | (397.5) | | | $ | (751.8) | | | $ | (6.2) | | | $ | (479.1) | |
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Net income | — | | | — | | | 10.7 | | | — | | | — | | | 10.7 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 0.3 | | | 0.3 | |
Dividends | — | | | — | | | 0.0 | | | — | | | — | | | 0.0 | |
Stock-based compensation | — | | | 3.9 | | | — | | | — | | | — | | | 3.9 | |
Purchases of treasury stock | — | | | (1.1) | | | — | | | (2.8) | | | — | | | (3.9) | |
Issuances of treasury stock | — | | | (9.0) | | | — | | | 12.0 | | | — | | | 3.0 | |
Balances at September 23, 2020 | $ | 7.0 | | | $ | 663.2 | | | $ | (386.8) | | | $ | (742.6) | | | $ | (5.9) | | | $ | (465.1) | |
Net income | — | | | — | | | 12.0 | | | — | | | — | | | 12.0 | |
Other comprehensive income | — | | | — | | | — | | | — | | | 0.5 | | | 0.5 | |
Dividends | — | | | — | | | 0.0 | | | — | | | — | | | 0.0 | |
Stock-based compensation | — | | | 3.0 | | | — | | | — | | | — | | | 3.0 | |
Purchases of treasury stock | — | | | 0.0 | | | — | | | 0.0 | | | — | | | 0.0 | |
Issuances of treasury stock | — | | | 1.2 | | | — | | | 4.3 | | | — | | | 5.5 | |
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Balances at December 23, 2020 | $ | 7.0 | | | $ | 667.4 | | | $ | (374.8) | | | $ | (738.3) | | | $ | (5.4) | | | $ | (444.1) | |
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Share Repurchases
Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and
planned investment and financing needs. Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets (Unaudited).
In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic. In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million. In the twenty-six week period ended December 29, 2021, we repurchased 1.6 million shares of our common stock for $74.7 million, including 1.5 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. As of December 29, 2021, approximately $230.0 million was available under our share repurchase authorizations.
Stock-based Compensation
The following table presents the restricted share awards granted and related weighted average fair value per share amounts.
| | | | | | | | | | | |
| Twenty-Six Week Periods Ended |
| December 29, 2021 | | December 23, 2020 |
Restricted share awards | | | |
Restricted share awards granted | 0.4 | | | 0.5 | |
Weighted average fair value per share | $ | 53.27 | | | $ | 39.89 | |
Dividends
In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend in response to liquidity needs created by the COVID-19 pandemic. Before this suspension, we paid dividends of $0.38 per share quarterly. In the twenty-six week periodperiods ended December 29, 2021 and December 23, 2020, dividends paid were solely related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period. Restricted share award dividends are accrued in Other accrued liabilities for the current portion to vest within 12 months, and Other liabilities for the portion that will vest after one year.In the twenty-six week period ended December 25, 2019, we paid dividends of $29.0 million to common stock shareholders.
Stock-based Compensation
The following table presents the stock options and restricted share awards granted, and related weighted average exercise price and fair value per share amounts.
| | | | | | | | | | | |
| Twenty-Six Week Periods Ended |
| December 23, 2020 | | December 25, 2019 |
Stock options | | | |
Stock options granted | 0 | | | 0.3 | |
Weighted average exercise price per share | $ | 0 | | | $ | 38.51 | |
Weighted average fair value per share | $ | 0 | | | $ | 6.83 | |
Restricted share awards | | | |
Restricted share awards granted | 0.5 | | | 0.3 | |
Weighted average fair value per share | $ | 39.89 | | | $ | 38.59 | |
Share Repurchases
In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the COVID-19 pandemic. Prior to the suspension, our share repurchase program was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluated potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings, and planned investment and financing needs. Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets (Unaudited).
In the twenty-six week period ended December 23, 2020, we repurchased 0.1 million shares from team members to satisfy tax withholding obligations on the vesting of restricted shares. Before the suspension, in the twenty-six week period ended December 25, 2019, we repurchased 0.3 million shares of our common stock for $11.3 million.
Effect of Adoption of ASC 842
In the first quarter of fiscal 2020, we adopted the lease accounting standard, ASC 842, and recorded a $195.9 million cumulative effect adjustment increase to Retained earnings (accumulated deficit) for the change in accounting principle.
Retirement of Treasury Stock
During the thirteen week period ended December 25, 2019, the Board of Directors approved the retirement of 114.0 million shares of Treasury stock for a weighted average price per share of $29.45.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest is as follows:
| | | Twenty-Six Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Income taxes, net of (refunds) | Income taxes, net of (refunds) | $ | (0.8) | | | $ | (8.1) | | Income taxes, net of (refunds) | $ | (11.2) | | | $ | 0.8 | |
Interest, net of amounts capitalized | Interest, net of amounts capitalized | 26.2 | | | 27.2 | | Interest, net of amounts capitalized | 20.7 | | | 26.2 | |
Non-cash operating, investing and financing activities are as follows: | | | Twenty-Six Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Operating lease additions(1) | Operating lease additions(1) | $ | 38.0 | | | $ | 203.2 | | Operating lease additions(1) | $ | 141.8 | | | $ | 38.0 | |
Finance lease additions | | Finance lease additions | 11.9 | | | 3.9 | |
Accrued capital expenditures | Accrued capital expenditures | 7.9 | | | 9.0 | | Accrued capital expenditures | 5.6 | | | 7.9 | |
Retirement of fully depreciated assets | Retirement of fully depreciated assets | 7.7 | | | 9.2 | | Retirement of fully depreciated assets | 14.5 | | | 7.7 | |
Dividends declared but not paid | 0 | | | 15.0 | | |
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(1)Operating lease additions include new operating lease assets obtained in exchange for new operating lease liabilities. The twenty-six week period ended December 25, 201929, 2021 primarily included operating lease additions associated with the 11660 restaurants purchased from atwo former franchisee on September 5, 2019 acquisition date.franchisees. Refer to Note 152 - Fiscal 2020 Chili’s Restaurant AcquisitionAcquisitions and to Note 9 - Leases for further details.
14. CONTINGENCIES
Lease Commitments
We have, in certain cases, divested brands or sold restaurants to franchisees and have not been released from lease guarantees for the related restaurants. As of December 23, 202029, 2021 and June 24, 2020,30, 2021, we have outstanding lease guarantees or are secondarily liable for $35.5an estimated $31.9 million and $39.7$29.2 million, respectively. These amounts represent the maximum potential liability of future rent payments under the leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 20212022 through fiscal 2027.
We have received notices of default and have been named a party in lawsuits pertaining to some of these leases in circumstances where the current lessee did not pay its rent obligations. In the event of default under a lease by a franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties. As of December 29, 2021, we have recorded contingent liabilities of $4.0 million for our estimated exposure of the lease defaults related to these lease guarantees. These contingent liabilities are classified within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited).
Letters of Credit
We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of December 23, 2020,29, 2021, we had $29.5$5.8 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 4 to 10 months.
Cyber Security IncidentLitigation
In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data.
Cyber Security Related Charges
To limit our exposure to cyber security events, we maintain cyber liability insurance coverage. Our cyber liability insurance policy contained a $2.0 million insurance retention that was fully accrued during fiscal 2018. Since the incident, through December 23, 2020, we have incurred total cumulative costs of $8.6 million related to the cyber security incident. This includes the $2.0 million retention recorded, $2.2 million in costs that have been reimbursed by our insurance carriers, $3.9 million of receivables for costs incurred that we believe are reimbursable and probable of recovery under our insurance coverage and $0.5 million of costs not reimbursable by our insurance
carriers. We have settled all claims from three payment card companies related to this incident and the settlement amounts are included in these costs. We do not expect material claims from payment card companies in the future.
Cyber Security Litigation
The Company was also named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida styled In re: Brinker Data Incident Litigation, Case No. 18-cv-00686-TJC-MCR (the “Litigation”) relating to the cyber security incident described above.this incident. In the Litigation, plaintiffs assert various claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $5.0 million, injunctive and declaratory relief, and attorney’s fees and costs.
Briefing on Plaintiffs’ motion forOn November 16, 2021, we submitted our appellate brief to the 11th Circuit Court of Appeals seeking to overturn the district court’s class certification is complete. A hearing on Plaintiffs’ motion is scheduled for February 25, 2021. Brinker filed a motion to exclude Plaintiffs’ damages expert. Briefing on that is also completeorders. The US Chamber of Commerce and the parties await the court’s ruling. Mediation was heldRestaurant Law Center/Retail Litigation Center/National Retail Federation filed respective amicus briefs in support of our position two weeks later. Plaintiffs filed their response brief on November 18, 2020 but was unsuccessful.January 6, 2022. Our reply brief is due on February 28, 2022.
We believe we have defenses and intend to continue defending the Litigation. As such, as of December 23, 2020,29, 2021, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation. We will continue to evaluate this matter based on new information as it becomes available.
Legal Proceedings
Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures pertaining to litigated matters each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Consolidated Financial Statements.
We are engaged in various legal proceedings and have certain unresolved claims pending. Liabilities have been established based on our best estimates of our potential liability in certain of these matters. Based upon consultation with legal counsel, management is of the opinion that there are 0no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on the consolidated financial condition or results of operations.
15. FISCAL 2020 CHILI’S RESTAURANT ACQUISITION
In the first quarter of fiscal 2020, on September 5, 2019, we completed the acquisition of certain assets and liabilities related to 116 previously franchised Chili’s restaurants located in the Midwest United States. Pro-forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements (Unaudited).
Total cash consideration of $96.0 million, including post-closing adjustments, was funded with borrowings from our existing credit facility. We accounted for this acquisition as a business combination. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements (Unaudited) from the date of acquisition. The assets and liabilities of these restaurants are recorded at their fair values.
Net acquisition-related charges of $2.0 million and $1.5 million were recorded during the thirteen and twenty-six week periods ended December 25, 2019, respectively, to Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited). In the thirteen week period ended December 25, 2019, the net charges consisted of $1.6 million of professional services, transaction and transition related costs, and a $0.4 million true-up associated with the ERJ-Brinker sublease market valuations. In the twenty-six week period ended December 25, 2019, the net charges consisted of $3.1 million of professional services, transaction and transition related costs associated with the purchase, and $1.0 million of related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully recognized at the date of the acquisition, partially offset by $2.6 million of franchise deferred revenues balance that were fully recognized at the date of the acquisition.
The final purchase price accounting was completed in the third quarter of fiscal 2020, and the final amounts recorded for the fair value of acquired assets and liabilities at the acquisition date were as follows:
| | | | | |
| Fair Value September 5, 2019 |
Current assets(1)
| $ | 7.3 | |
Property and equipment | 60.3 | |
Operating lease assets | 163.5 | |
Reacquired franchise rights(2)
| 6.9 | |
Goodwill(3)
| 22.4 | |
Total assets acquired | 260.4 | |
Current liabilities(4)
| 9.1 | |
Operating lease liabilities, less current portion | 158.3 | |
Total liabilities assumed | 167.4 | |
Net assets acquired(5)
| $ | 93.0 | |
(1)Current assets included petty cash, inventory, and restaurant supplies.
(2)Reacquired franchise rights have a weighted average amortization period of approximately 8 years.
(3)Goodwill is expected to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents the benefits expected as a result of the acquisition, including sales and unit growth opportunities, and the benefit of the assembled workforce of the acquired restaurants.
(4)Current liabilities included current portion of operating lease liabilities, gift card liability and accrued property tax.
(5)Net assets acquired at fair value are equal to the total purchase price of $99.0 million, less $3.2 million of closing adjustments and $2.8 million allocated to prepayment of leases entered into between us and the franchisee.
16. SUBSEQUENT EVENTS
On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. Along with providing funding for normal governmental operation, the bill provides for additional COVID-19 focused relief. The CAA extends certain provisions of the CARES Act, provides additional funding for others and contains new relief provisions. The provisions that impact Brinker are not material.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERALGeneral
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our Company, our operations, and our current operating environment. For an understanding of the significant factors that influenced our performance during the thirteen and twenty-six week periods ended December 23, 202029, 2021 and December 25, 2019,23, 2020, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report. All amounts within the MD&A are presented in millions unless otherwise specified.
OVERVIEWOverview
We are principally engaged in the ownership, operation, development and franchising of the Chili’s® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy® (“Maggiano’s”) restaurant brands.brands, as well as virtual brands including It’s Just Wings® and Maggiano’s Italian Classics™. At December 23, 2020,29, 2021, we owned, operated or franchised 1,6551,653 restaurants, consisting of 1,1181,182 Company-owned restaurants and 537471 franchised
restaurants, located in the United States, 2728 countries and two United States territories. Our restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units. Our Chili’s and Maggiano’s locations support our virtual brand offering, It’s Just Wings® through our partnership with DoorDash.
Impact of COVID-19 Pandemic
The COVID-19In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic causedand a National Public Health Emergency. The spread of COVID-19 has prompted changes in consumer behavior and social distancing preferences as well as dining room closures and dining room capacity restrictions mandated or encouraged by federal, state and local governments. The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the pandemic based on state and local mandates, which has resulted in significant decrease inimpacts to our guest traffic and sales overprimarily in fiscal 2021.
Chili’s and Maggiano’s ability to continue serving guests during the past three quarters. In fiscal 2020, we temporarily closed all Company-owned restaurant diningCOVID-19 pandemic is the result of our strategic decision to invest in technology, virtual brands, and banquet roomsoff-premise capabilities including online ordering, mobile app ordering, curbside service and transitionedthird-party delivery.
We have experienced limited material shortages and service disruptions in our supply chain and in the availability of labor to operate our restaurants. We also experienced an off-premise business model by leveraging our carryout and delivery capabilities. We began opening dining rooms againincrease in May 2020 and have maintained open dining roomsemployee turnover in accordance with state and local government mandates since then. At the end of the second quarterfirst two quarters of fiscal 2021, approximately 80% of2022. We recognize there is significant demand for talent and are actively working to safeguard, engage, attract and retain our Company-owned restaurant diningemployees. It is possible that shortages or disruptions could increase during fiscal 2022 as demand for goods, transportation and banquet rooms or patios were open in a limited capacity.labor increases.
In order to enhance the safety of our team members and guests, we have implemented mandatory table distancing as an added safety measure and increased our already strict sanitation requirements. We conduct daily health and temperature checks for all employees before they begin their shift and require face coverings to be worn by all restaurant employees at all times. Our priority is to protect the health and safety of team members and guests while continuing to serve our communities.Impact on Financial Outlook
The COVID-19 pandemic has negatively impacted our revenues and traffic. The ultimate impactsimpact of the COVID-19 pandemic in both the short and long term is difficult to estimatecannot be reasonably estimated due to the uncertainty about the extent and duration of the pandemic,spread of the virus, the availability, acceptance and acceptanceefficacy of preventative vaccines, the emergence and impact of new COVID-19 variants and changing government restrictions. Additional impacts to the business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which COVID-19 may impact our business, including the capacity of our dining rooms, what operational restrictions may be imposed, and our ability to fully staff reopened dining rooms. As such, we have taken a number of proactive measures to adapt our business to lower demand levels during the COVID-19 pandemic, including measures to significantly reduce costs, capital expenditures, and maintain liquidity. We will continue to closely monitor and adapt to the evolving situation.
Operations Strategy
We are committed to strategies and a Company culture that we believe are centered on a guest experience. This includes improvingwill improve guest traffic, growinggrow sales and profit, engagingprofits, and engage team members and working to return our business to pre-pandemic levels.members. Our strategies and culture are intended to differentiate our brands from the competition and to focus on the guest experience. We are effectively and efficiently managemanaging our restaurants andto establish a lasting presence for our brands in key markets around the world.
Our primary strategy remainsis to make our guests feel special through great food and quality service so that they return to our restaurants. Our guest survey scores on food quality and service reached an all-time high last fiscal year and continued to improve during the pandemic as we continued to provide great food and service. We believe our enhanced safety training and systems have also created a safer environment for our team members and guests.
Guest Engagement Through Technology - We continue to investhave invested in our technology and off-premise options as more guests are opting for to-goTo-Go and delivery. Our to-go menu is available through our Chili’s mobile app, on our Chili’s and Maggiano’s brand websites, through our exclusive delivery partner DoorDash, or by calling the restaurant. Since fiscal 2018, our off-premise business has grown by 226%. Chili’s exclusive partnership with DoorDash ishas been instrumental in connecting withgrowing off-premise business and offering our guests and providing convenience, especiallycontinued service during the COVID-19 pandemic. We leveraged technology so that DoorDash orders are sent directly into our point of sale system, which has facilitatedcreating efficiencies and a streamlined integrationsystem that allows us to better serve our kitchens.guests. We believe that guests will continue to prefer convenience and off-premise options after the pandemic concerns dissipate.options. We plan to continue investinginvestments in our technology systems to support our carryoutTo-Go and delivery capabilities.
In dining rooms, we use tabletop devices to engage our guests at the table. In fiscal 2020, we rolled out a new tabletop device at Chili’s to enhance this experience. These devices allow guests to pay at the table, reordering, digital entertainment, guest feedback and interaction with our My Chili’s Rewards program. Our My Chili’s Rewards loyalty database includes more than 8 millionprogram offers free chips and salsa or a non-alcoholic beverage to members and allows us tobased on their visit frequency. We customize offerings for these
guests based on their purchase behavior. We plan tobehavior, and we continue to shift more of our overall marketing spend to these customized channels and promotions. We believe this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our competitors.
Chili’s - Chili’s continues to outpace the casual dining industry and grow market share. Part of our strategy is to differentiate Chili’s from our competitors with a flexible platform of value offerings at both lunch and dinner as well as connectingand to connect with our guests through our My Chili’s Rewards loyalty program. We are committed to offering consistent, quality products at a price point that is compelling to our guests. Our “3 for $10” platform allowsvalue platforms allow guests to combinemix and match select menu items at a starter, a non-alcoholic drink and an entrée for just $10.00discounted price as part of the every-day base menu. Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price of $5.00. Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise.
Chili’s off-premise dining options, including our virtual brand,brands It’s Just Wings and Maggiano’s Italian Classics, are also a critical part of our strategy going forward.strategy. In the twenty-six week period ended December 29, 2021, Chili’s off-premise sales, including both to-go and delivery, iswere approximately 46%35% of Company sales, with approximately 60%53% coming from to-goTo-Go and 40%47% from delivery during the first two quarters of fiscal 2021.delivery. We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food. We continue to focus on our core equities and improving guest satisfaction with our food and service by improving execution of our operations standards.
Maggiano’s - At Maggiano’s, we believe our focus on operating fundamentals and technology will provide the foundation for future efficiencies and growth. For example, Maggiano’s also has an exclusivedelivery partnership with DoorDash. Our exclusive partnership creates a more affordable rate structure, makingDoorDash makes third party delivery more sustainable and efficient for the brand to operate. OurIn addition to the DoorDash platform, our guests have the ability to order delivery directly through the Maggiano’s website, in addition towebsite. During the DoorDash platforms.pandemic, Maggiano’s has also leveraged carryout and deliveryoff-premise dining options, including It’s Just Wings, to sustain revenues during the pandemic; however, the banquet business has been significantly impacted in the second quarter of fiscal 2021 as large social gatherings are reduced or prohibited.revenues. Maggiano’s historically hosts a significant portion of its banquets in the holiday season.season during the second and third quarters of the fiscal year.
Virtual OpportunitiesBrands -It’s Just Wings, aWe are investing in virtual brand offering, launched on June 23, 2020brands, restaurant-like menu offerings that are only available for purchase digitally, to drive restaurant traffic and is available only through DoorDash. This platform allowssales growth. We expect that our virtual brands will enable us to capitalize on the growth in off-premise dining and to leverage excess kitchen capacity in our existing restaurant infrastructure, while adding minimal complexity in the restaurants. our restaurants’ kitchens.
It’s Just Wings, launched on June 23, 2020, is a no-frillsan offering that consistsconsisting of chicken wings available in 11a variety of different sauces and rubs, curly fries, ranch dressing, and fried Oreos and hand pies for a value price. Maggiano’s Italian Classics offers a select group of items from the full menu of Maggiano’s Little Italy including several appetizers, salads, pastas, entrées, mac & cheese and hand pies.
They are available for purchase through DoorDash, Google Food Ordering and their respective websites - itsjustwings.com and maggianosclassics.com. The operating results for the virtual brands are included in the results of our Chili’s and Maggiano’s brands, based on the restaurants that prepared and processed the food orders. We willplan to continue to identify opportunitiestest and strategically launch additional virtual brands in the future to further drive restaurant growth by utilizing our existing restaurant infrastructure and DoorDash partnership.growth.
Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening sixnine restaurants and entering into onetwo new development agreement infor the first two quarters of fiscaltwenty-six week period ended December 29, 2021. We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and
existing franchise partners. We are also supporting our franchise partners with opportunities to expand sales through the It’s Just Wingsour virtual brand.
Company Development -The following table details the number of restaurant openings during the thirteen and twenty-six week periods ended December 23, 202029, 2021 and December 25, 2019,23, 2020, respectively, total full year projected openings in fiscal 2021,2022, and the total restaurants open at each period end:
| | | Openings During the | | Openings During the | | Full Year Projected Openings | | | | Openings During the | | Openings During the | | Full Year Projected Openings | | |
| | Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended | | Total Open Restaurants at | | Thirteen Week Periods Ended | Twenty-Six Week Periods Ended | | Total Open Restaurants at |
| | December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 | | Fiscal 2021 | | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 | | December 29, 2021 | | December 23, 2020 | | Fiscal 2022 | | December 29, 2021 | | December 23, 2020 |
Company-owned restaurants | Company-owned restaurants | | | | | | | | | | | | | | Company-owned restaurants | | | | | | | | | | | | | |
Chili’s domestic | Chili’s domestic | 1 | | | 4 | | | 4 | | | 5 | | | 8 | | | 1,061 | | | 1,060 | | Chili’s domestic | 1 | | | 1 | | | 2 | | | 4 | | | 4 | | | 1,125 | | | 1,061 | |
Chili’s international | Chili’s international | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | | Chili’s international | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
Maggiano’s domestic | Maggiano’s domestic | — | | | — | | | — | | | — | | | — | | | 52 | | | 52 | | Maggiano’s domestic | — | | | — | | | — | | | — | | | — | | | 52 | | | 52 | |
Total Company-owned | Total Company-owned | 1 | | | 4 | | | 4 | | | 5 | | | 8 | | | 1,118 | | | 1,117 | | Total Company-owned | 1 | | | 1 | | | 2 | | | 4 | | | 4 | | | 1,182 | | | 1,118 | |
Franchise restaurants | Franchise restaurants | | | | | | | | | | | | | | Franchise restaurants | | | | | | | | | | | | | |
Chili’s domestic | Chili’s domestic | — | | | 1 | | | 1 | | | 2 | | | 2 | | | 171 | | | 180 | | Chili’s domestic | 1 | | | — | | | 1 | | | 1 | | | 3 | | | 109 | | | 171 | |
Chili’s international | Chili’s international | 1 | | | 5 | | | 4 | | | 16 | | | 6-9 | | 364 | | | 377 | | Chili’s international | 5 | | | 1 | | | 8 | | | 4 | | | 10-13 | | 360 | | | 364 | |
Maggiano’s domestic | Maggiano’s domestic | 1 | | | — | | | 1 | | | — | | | 1 | | | 2 | | | 1 | | Maggiano’s domestic | — | | | 1 | | | — | | | 1 | | | — | | | 2 | | | 2 | |
Total franchise | Total franchise | 2 | | | 6 | | | 6 | | | 18 | | | 9-12 | | 537 | | | 558 | | Total franchise | 6 | | | 2 | | | 9 | | | 6 | | | 13-16 | | 471 | | | 537 | |
Total restaurants | Total restaurants | | | | | | | | | | | | | | Total restaurants | | | | | | | | | | | | | |
Chili’s domestic | Chili’s domestic | 1 | | | 5 | | | 5 | | | 7 | | | 10 | | | 1,232 | | | 1,240 | | Chili’s domestic | 2 | | | 1 | | | 3 | | | 5 | | | 7 | | | 1,234 | | | 1,232 | |
Chili’s international | Chili’s international | 1 | | | 5 | | | 4 | | | 16 | | | 6-9 | | 369 | | | 382 | | Chili’s international | 5 | | | 1 | | | 8 | | | 4 | | | 10-13 | | 365 | | | 369 | |
Maggiano’s domestic | Maggiano’s domestic | 1 | | | — | | | 1 | | | — | | | 1 | | | 54 | | | 53 | | Maggiano’s domestic | — | | | 1 | | | — | | | 1 | | | — | | | 54 | | | 54 | |
Total | Total | 3 | | | 10 | | | 10 | | | 23 | | | 17-20 | | 1,655 | | | 1,675 | | Total | 7 | | | 3 | | | 11 | | | 10 | | | 17-20 | | 1,653 | | | 1,655 | |
Relocations are not included in the table above. InDuring the twenty-six week period ended December 23, 2020,29, 2021, we relocatedacquired 60 Chili’s restaurants previously owned by two former franchisees. The acquisition of these restaurants is not reflected in Openings during the twenty-six week period ended December 29, 2021 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership. These acquired restaurants are included in Total Open Restaurants at December 29, 2021 within the total for Company-owned restaurants Chili’s domestic Company-owned restaurant, with no additional relocations planned for the remainder of fiscal 2021.domestic.
At December 23, 2020,29, 2021, we own property for 4253 of the 1,1181,182 Company-owned restaurants. The net book values associated with these restaurants included land of $33.1$43.4 million and buildings of $12.2$19.1 million.
RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percentage of Total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying Consolidated Statements of Comprehensive Income (Unaudited):
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Periods Ended | | Twenty-Six Week Periods Ended |
| December 23, 2020 | | December 25, 2019 | | December 23, 2020 | | December 25, 2019 |
Revenues | | | | | | | |
Company sales(1) | 98.1 | % | | 97.5 | % | | 98.2 | % | | 97.3 | % |
Franchise and other revenues(1) | 1.9 | % | | 2.5 | % | | 1.8 | % | | 2.7 | % |
Total revenues(1) | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Operating costs and expenses | | | | | | | |
Food and beverage costs(2) | 26.7 | % | | 26.3 | % | | 26.6 | % | | 26.5 | % |
Restaurant labor(2) | 34.3 | % | | 34.4 | % | | 34.2 | % | | 34.8 | % |
Restaurant expenses(2) | 28.3 | % | | 26.6 | % | | 28.0 | % | | 26.8 | % |
Depreciation and amortization(1) | 4.9 | % | | 4.5 | % | | 5.0 | % | | 4.7 | % |
General and administrative(1) | 3.9 | % | | 4.0 | % | | 4.0 | % | | 4.4 | % |
Other (gains) and charges(1) | 0.7 | % | | 1.4 | % | | 0.6 | % | | 0.7 | % |
Total operating costs and expenses(1) | 97.1 | % | | 95.0 | % | | 96.9 | % | | 95.5 | % |
Operating income(1) | 2.9 | % | | 5.0 | % | | 3.1 | % | | 4.5 | % |
Interest expenses(1) | 1.9 | % | | 1.8 | % | | 1.9 | % | | 1.8 | % |
Other (income), net(1) | (0.1) | % | | (0.1) | % | | (0.1) | % | | (0.1) | % |
Income before income taxes(1) | 1.1 | % | | 3.3 | % | | 1.2 | % | | 2.8 | % |
Provision (benefit) for income taxes(1) | (0.5) | % | | 0.1 | % | | (0.2) | % | | 0.2 | % |
Net income(1) | 1.6 | % | | 3.2 | % | | 1.5 | % | | 2.6 | % |
(1)As a percentage of Total revenues
(2)As a percentage of Company sales
Revenues
Thirteen and Twenty-Six Week Periods Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends:
•Company sales includeinclude revenues generated by the operation of Company-owned restaurants including gift card redemptions and revenues from our It’s Just Wings and Maggiano’s Italian Classics virtual brand revenues.brands.
•Franchise and other revenues include Royalties and Franchise fees and other revenues. Franchise fees and other revenues include delivery service income,royalties, gift card breakage, franchise advertising fees, digital entertainment revenues, Maggiano’s banquet service charge income, delivery income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization and gift card discount costs from third-party gift card sales and merchandise income.sales.
The following is a summary of the change in Total revenues:
| | | Total Revenues | | Total Revenues |
| | Chili’s | | Maggiano’s | | Total Revenues | | Chili’s | | Maggiano’s | | Total Revenues |
Thirteen Week Period Ended December 25, 2019 | $ | 743.1 | | | $ | 126.2 | | | $ | 869.3 | | |
Thirteen Week Period Ended December 23, 2020 | | Thirteen Week Period Ended December 23, 2020 | $ | 696.4 | | | $ | 64.3 | | | $ | 760.7 | |
Change from: | Change from: | | Change from: | |
Comparable restaurant sales(1) | Comparable restaurant sales(1) | (45.0) | | | (55.9) | | | (100.9) | | Comparable restaurant sales(1) | 78.5 | | | 49.4 | | | 127.9 | |
Restaurant openings | | Restaurant openings | 3.2 | | | — | | | 3.2 | |
Restaurant acquisitions(1) | | Restaurant acquisitions(1) | 27.0 | | | — | | | 27.0 | |
Restaurant closures(2) | Restaurant closures(2) | (6.7) | | | — | | | (6.7) | | Restaurant closures(2) | 0.2 | | | — | | | 0.2 | |
Restaurant openings | 5.4 | | | — | | | 5.4 | | |
Restaurant relocations | 0.9 | | | — | | | 0.9 | | |
| | Company sales | Company sales | (45.4) | | | (55.9) | | | (101.3) | | Company sales | 108.9 | | | 49.4 | | | 158.3 | |
Royalties(4) | (2.3) | | | 0.1 | | | (2.2) | | |
Royalties(3) | | Royalties(3) | 1.0 | | | — | | | 1.0 | |
Franchise fees and other revenues | Franchise fees and other revenues | 1.0 | | | (6.1) | | | (5.1) | | Franchise fees and other revenues | 1.9 | | | 3.9 | | | 5.8 | |
Franchise and other revenues | Franchise and other revenues | (1.3) | | | (6.0) | | | (7.3) | | Franchise and other revenues | 2.9 | | | 3.9 | | | 6.8 | |
Thirteen Week Period Ended December 23, 2020 | $ | 696.4 | | | $ | 64.3 | | | $ | 760.7 | | |
Thirteen Week Period Ended December 29, 2021 | | Thirteen Week Period Ended December 29, 2021 | $ | 808.2 | | | $ | 117.6 | | | $ | 925.8 | |
| | | Total Revenues | | Total Revenues |
| | Chili’s | | Maggiano’s | | Total Revenues | | Chili’s | | Maggiano’s | | Total Revenues |
Twenty-Six Week Period Ended December 25, 2019 | $ | 1,438.7 | | | $ | 216.6 | | | $ | 1,655.3 | | |
Twenty-Six Week Period Ended December 23, 2020 | | Twenty-Six Week Period Ended December 23, 2020 | $ | 1,382.9 | | | $ | 117.9 | | | $ | 1,500.8 | |
Change from: | Change from: | | Change from: | |
Comparable restaurant sales(1) | Comparable restaurant sales(1) | (91.9) | | | (89.1) | | | (181) | | Comparable restaurant sales(1) | 166.2 | | | 82.5 | | | 248.7 | |
Restaurant openings | | Restaurant openings | 8.6 | | | — | | | 8.6 | |
Restaurant acquisitions(3)(1) | | Restaurant acquisitions(3)(1) | 31.1 | | | — | | | 31.1 | |
Restaurant closures(2) | Restaurant closures(2) | (16.5) | | | — | | | (16.5) | | Restaurant closures(2) | 0.8 | | | — | | | 0.8 | |
Restaurant acquisitions(3)(1) | 49.7 | | | — | | | 49.7 | | |
Restaurant openings | 9.5 | | | — | | | 9.5 | | |
Restaurant relocations | Restaurant relocations | 1.3 | | | — | | | 1.3 | | Restaurant relocations | 0.5 | | | — | | | 0.5 | |
| Company sales | Company sales | (47.9) | | | (89.1) | | | (137.0) | | Company sales | 207.2 | | | 82.5 | | | 289.7 | |
Royalties(4)(3) | Royalties(4)(3) | (7.5) | | | — | | | (7.5) | | Royalties(4)(3) | 3.4 | | | 0.1 | | | 3.5 | |
Franchise fees and other revenues | Franchise fees and other revenues | (0.4) | | | (9.6) | | | (10.0) | | Franchise fees and other revenues | 2.3 | | | 5.9 | | | 8.2 | |
Franchise and other revenues | Franchise and other revenues | (7.9) | | | (9.6) | | | (17.5) | | Franchise and other revenues | 5.7 | | | 6.0 | | | 11.7 | |
Twenty-Six Week Period Ended December 23, 2020 | $ | 1,382.9 | | | $ | 117.9 | | | $ | 1,500.8 | | |
Twenty-Six Week Period Ended December 29, 2021 | | Twenty-Six Week Period Ended December 29, 2021 | $ | 1,595.8 | | | $ | 206.4 | | | $ | 1,802.2 | |
(1)Comparable restaurant sales decreased due to lower dining room guest traffic resulting from temporary dining room closures, capacity limitations and personal safety preferences, partially offset by increased off-premise sales.
(2)Restaurant closures include the impact of permanently closed locations and temporary COVID-19 closures, that have extended past 14 consecutive days.
(3)We acquired 11623 Chili’s restaurants on September 2, 2021 and 37 Chili’s restaurants on October 31, 2021 from a franchisee effective September 5, 2019. This amount representstwo franchisees. The revenues generated by these restaurants since the changedate of the acquisitions are included in Company sales attributed to these restaurants over the twenty-six week period ended December 23, 2020. Beginning in the second quarter of fiscal 2021, the change in Company sales attributed to these restaurants is included in Comparable restaurant sales.
(4)Lower royalties infor the thirteen and twenty-six week periods ended December 23, 2020 are primarily due to29, 2021.
(2)Restaurant closures include the adverse impact ofchange in Company sales resulting from temporary closures longer than 14 consecutive days that occurred in the COVID-19 pandemic. previous 18 months, partially offset by permanently closed locations.
(3)Our franchisees generated sales of approximately $187.7$204.0 million and $353.2$419.3 million for the thirteen and twenty-six week periods ended December 23, 2020, respectively,29, 2021 compared to $247.4$187.7 million and $545.8$353.2 million in sales for the thirteen and twenty-six week periods ended December 25, 2019, respectively.23, 2020.
The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and twenty-six week periods ended December 23, 202029, 2021 compared to December 25, 2019:23, 2020:
| | | Percentage Change in the Thirteen Week Period Ended December 23, 2020 versus December 25, 2019 | | Percentage Change in the Thirteen Week Period Ended December 29, 2021 versus December 23, 2020 |
| | Comparable Restaurant Sales(1)(2) | | Price Impact | | Mix-Shift(3) | | Traffic | | Restaurant Capacity(4) | | Comparable Restaurant Sales(1) | | Price Impact | | Mix-Shift Impact(2) | | Traffic Impact | | Restaurant Capacity(3) |
Company-owned | Company-owned | (12.1) | % | | 0.4 | % | | (7.7) | % | | (4.8) | % | | 0.0 | % | Company-owned | 17.7 | % | | 2.1 | % | | 6.8 | % | | 8.8 | % | | 4.6 | % |
Chili’s | Chili’s | (6.3) | % | | 0.5 | % | | (5.0) | % | | (1.8) | % | | 0.0 | % | Chili’s | 12.1 | % | | 2.4 | % | | 3.4 | % | | 6.3 | % | | 4.9 | % |
Maggiano’s | Maggiano’s | (47.0) | % | | 0.7 | % | | (9.9) | % | | (37.8) | % | | 0.0 | % | Maggiano’s | 78.1 | % | | (0.1) | % | | 24.9 | % | | 53.3 | % | | 0.0 | % |
Chili’s Franchise(5)(4) | Chili’s Franchise(5)(4) | (9.0) | % | | Chili’s Franchise(5)(4) | 17.0 | % | |
U.S. | U.S. | (4.7) | % | | U.S. | 4.8 | % | |
International | International | (16.2) | % | | International | 27.7 | % | |
Chili’s Domestic(6)(5) | Chili’s Domestic(6)(5) | (6.1) | % | | Chili’s Domestic(6)(5) | 11.5 | % | |
System-wide(7)(6) | System-wide(7)(6) | (11.7) | % | | System-wide(7)(6) | 17.6 | % | |
|
| | | Percentage Change in the Twenty-Six Week Period Ended December 23, 2020 versus December 25, 2019 | | Percentage Change in the Twenty-Six Week Period Ended December 29, 2021 versus December 23, 2020 |
| | Comparable Restaurant Sales(1)(2) | | Price Impact | | Mix-Shift(3) | | Traffic | | Restaurant Capacity(4) | | Comparable Restaurant Sales(1) | | Price Impact | | Mix-Shift Impact(2) | | Traffic Impact | | Restaurant Capacity(3) |
Company-owned | Company-owned | (11.6) | % | | 0.4 | % | | (7.1) | % | | (4.9) | % | | 3.7 | % | Company-owned | 17.4 | % | | 1.5 | % | | 6.1 | % | | 9.8 | % | | 3.0 | % |
Chili’s | Chili’s | (6.7) | % | | 0.3 | % | | (4.5) | % | | (2.5) | % | | 3.9 | % | Chili’s | 12.7 | % | | 1.7 | % | | 3.2 | % | | 7.8 | % | | 3.2 | % |
Maggiano’s | Maggiano’s | (43.5) | % | | 1.7 | % | | (11.3) | % | | (33.9) | % | | 0.0 | % | Maggiano’s | 71.0 | % | | (0.2) | % | | 24.6 | % | | 46.6 | % | | 0.0 | % |
Chili’s Franchise(5)(4) | Chili’s Franchise(5)(4) | (10.4) | % | | Chili’s Franchise(5)(4) | 20.2 | % | |
U.S. | U.S. | (5.1) | % | | U.S. | 12.5 | % | |
International | International | (19.3) | % | | International | 29.6 | % | |
Chili’s Domestic(6)(5) | Chili’s Domestic(6)(5) | (6.5) | % | | Chili’s Domestic(6)(5) | 12.7 | % | |
System-wide(7)(6) | System-wide(7)(6) | (11.4) | % | | System-wide(7)(6) | 17.7 | % | |
(1)Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months except acquired restaurants which are included after 12 months of ownership. Restaurants temporarily closed 14 days or more are excluded from comparable restaurant sales.Comparable Restaurant Sales. Percentage amounts are calculated based on the comparable periods year-over-year.
(2)Comparable Restaurant Sales for Chili’s and Maggiano’s include the results of It’s Just Wings, a virtual brand launched nationally in June 2020.
(3)Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests.
(4)(3)Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year. We believeyear-over-year, including the COVID-19 related restaurant closures are temporaryeffect of the acquisition of 23 Chili’s restaurants in the first quarter of fiscal 2022 and therefore no adjustment has been made to capacity.37 Chili’s restaurants in the second quarter of fiscal 2022.
(5)(4)Chili’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. We believe presenting Chili’s franchise comparable restaurant sales provides investors relevant information regarding total brand performance that is relevant to current operations.performance.
(6)(5)Chili’s domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili’s restaurants in the United States.
(7)(6)System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s and Maggiano’s restaurants in addition to theand sales generated at franchise-operated Chili’s restaurants.
Costs and ExpenseExpenses
Thirteen Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
The following is a summary of the changechanges in Costs and Expenses:
| | | Thirteen Week Periods Ended | | (Favorable) Unfavorable Variance | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
| | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | Food and beverage costs | $ | 198.9 | | | 26.7 | % | | $ | 223.1 | | | 26.3 | % | | $ | (24.2) | | | 0.4 | % | Food and beverage costs | $ | 252.8 | | | 27.9 | % | | $ | 198.9 | | | 26.7 | % | | $ | (53.9) | | | (1.2) | % |
Restaurant labor | Restaurant labor | 255.8 | | | 34.3 | % | | 291.8 | | | 34.4 | % | | (36.0) | | | (0.1) | % | Restaurant labor | 315.4 | | | 34.9 | % | | 255.8 | | | 34.3 | % | | (59.6) | | | (0.6) | % |
Restaurant expenses | Restaurant expenses | 211.3 | | | 28.3 | % | | 224.7 | | | 26.6 | % | | (13.4) | | | 1.7 | % | Restaurant expenses | 236.7 | | | 26.2 | % | | 211.3 | | | 28.3 | % | | (25.4) | | | 2.1 | % |
Depreciation and amortization | Depreciation and amortization | 37.2 | | | 39.3 | | | (2.1) | | | Depreciation and amortization | 41.6 | | | 37.2 | | | (4.4) | | |
General and administrative | General and administrative | 30.0 | | | 34.6 | | | (4.6) | | | General and administrative | 33.1 | | | 30.0 | | | (3.1) | | |
Other (gains) and charges | Other (gains) and charges | 5.4 | | | 12.3 | | | (6.9) | | | Other (gains) and charges | 6.4 | | | 5.4 | | | (1.0) | | |
Interest expenses | Interest expenses | 14.4 | | | 15.0 | | | (0.6) | | | Interest expenses | 11.2 | | | 14.4 | | | 3.2 | | |
Other income, net | Other income, net | (0.5) | | | (0.5) | | | — | | | Other income, net | (0.5) | | | (0.5) | | | — | | |
Food and beverage costs, asAs a percentage of Company sales,sales:
•Food and beverage costs increased 0.4%1.2%, consistingincluding 1.8% of 0.3% of unfavorablehigher meat, poultry and other commodity pricing primarily relatedcosts due to producesupply chain constraints and dairyinflationary pressures, and 0.2%0.1% of unfavorable menu item mix, partially offset by 0.1%0.7% of increased menu pricing.
•Restaurant labor as a percentage increased 0.6%, including 1.7% of Company sales, decreased 0.1% primarily consisting of 1.1% of favorablehigher hourly labor expenses due to increased wage rates, training and 0.5%overtime, 0.8% of favorablehigher manager expenses both due to reduced staffing requirements,merit increases and manager training due to greater than normal manager turnover, partially offset by 1.4%1.8% of sales deleverageleverage and 0.1% of higherlower other labor expenses.
•Restaurant expenses as a percentage decreased 2.1%, including 2.9% of Company sales increased 1.7% primarily consistingleverage and 0.6% of 3.2% of higherlower expenses related to delivery fees and supplies driven by the growthdecline in off-premise sales, and 2.2% of sales deleverage, partially offset by 2.0%0.4% of lower advertisinghigher utilities, 0.3% of higher workers’ compensation and general liability expenses 0.8% of lower repairs and maintenance expenses,resulting from unfavorable claims experience, 0.2% of lower credit card fees, 0.2% of lower utilitieshigher supervision costs and 0.5% of lowerhigher other restaurant expenses.
Depreciation and amortization decreased $2.1increased $4.4 million as follows:
| | | | | |
| Depreciation and Amortization |
Thirteen Week Period Ended December 25, 201923, 2020 | $ | 39.337.2 | |
Change from: | |
Retirements and fully depreciated restaurant assets | (5.8) | |
Additions for new and existing restaurant assets(1) | 2.15.0 | |
Finance leases | 1.11.8 | |
Acquisition of Chili’s restaurants(1) | 1.5 | |
Corporate assets | 0.4 | |
Acquisition of franchise restaurantsRetirements and fully depreciated restaurant assets(2)
| 0.2 (4.5) | |
Other | (0.1)0.2 | |
Thirteen Week Period Ended December 23, 202029, 2021 | $ | 37.241.6 | |
(1)Additions for new and existing restaurants increased due to capital purchases.
(2)Acquisition of franchise restaurants representsRepresents the change inincremental depreciation and amortization of the assets and finance leases of the 11660 Chili’s restaurants acquired on September 5, 2019.in the first two quarters of fiscal 2022.
General and administrative expenses decreased $4.6increased $3.1 million as follows:follows:
| | | | | |
| General and Administrative |
Thirteen Week Period Ended December 25, 201923, 2020 | $ | 34.630.0 | |
Change from: | |
Performance-based compensation(1) | (5.2) | |
Defined contribution plan employer expenses(1)(2) | (2.4)2.7 | |
Stock-based compensation | 2.2 | |
Payroll-related expenses | (1.0)1.0 | |
Professional fees | 0.8 | |
Travel and entertainment expenses | (0.6) | |
Professional fees | (0.2) | |
Performance-based compensation | 0.4 | |
Stock-based compensation | 0.4 | |
Other | (1.2)1.2 | |
Thirteen Week Period Ended December 23, 202029, 2021 | $ | 30.033.1 | |
(1)Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.
(2)Defined contribution plan employer expenses decreasedincreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021.
Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
| | | Thirteen Week Periods Ended | | Thirteen Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Lease contingencies | | Lease contingencies | $ | 2.9 | | | $ | — | |
Remodel-related costs | | Remodel-related costs | 1.6 | | | 0.7 | |
Acquisition-related costs, net | | Acquisition-related costs, net | 0.9 | | | — | |
Enterprise system implementation costs | | Enterprise system implementation costs | 0.3 | | | — | |
Restaurant closure charges | | Restaurant closure charges | 0.3 | | | 0.4 | |
COVID-19 related charges | | COVID-19 related charges | (0.8) | | | 1.0 | |
Restaurant impairment charges | Restaurant impairment charges | $ | 2.5 | | | $ | 4.6 | | Restaurant impairment charges | — | | | 2.5 | |
COVID-19 related charges | 1.0 | | | — | | |
Restaurant closure charges | 0.4 | | | 2.9 | | |
Remodel-related costs | 0.7 | | | 0.8 | | |
Acquisition of franchise restaurants costs, net | — | | | 2.0 | | |
| Other | Other | 0.8 | | | 2.0 | | Other | 1.2 | | | 0.8 | |
| | $ | 5.4 | | | $ | 12.3 | | | $ | 6.4 | | | $ | 5.4 | |
Interest expenses decreased $0.6$3.2 million primarily due to lower interest rates and average borrowing balances on our revolving credit facility partially offset by higher interest expenses due to the Chili’s tabletop device finance lease which rolled out to restaurants beginning in the second quarter of fiscal 2020 and completed in the fourth quarter of fiscal 2020 and higher interest rates on our revolving credit facility in the thirteen week period ended December 23, 2020.2022.
Twenty-Six Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
The following is a summary of the changechanges in costsCosts and expenses:Expenses:
| | | Twenty-Six Week Periods Ended | | (Favorable) Unfavorable Variance | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
| | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | Food and beverage costs | $ | 392.4 | | | 26.6 | % | | $ | 426.9 | | | 26.5 | % | | $ | (34.5) | | | 0.1 | % | Food and beverage costs | $ | 487.1 | | | 27.6 | % | | $ | 392.4 | | | 26.6 | % | | $ | (94.7) | | | (1.0) | % |
Restaurant labor | Restaurant labor | 503.8 | | | 34.2 | % | | 560.3 | | | 34.8 | % | | (56.5) | | | (0.6) | % | Restaurant labor | 620.3 | | | 35.2 | % | | 503.8 | | | 34.2 | % | | (116.5) | | | (1.0) | % |
Restaurant expenses | Restaurant expenses | 413.8 | | | 28.0 | % | | 432.0 | | | 26.8 | % | | (18.2) | | | 1.2 | % | Restaurant expenses | 468.0 | | | 26.5 | % | | 413.8 | | | 28.0 | % | | (54.2) | | | 1.5 | % |
Depreciation and amortization | Depreciation and amortization | 74.6 | | | 77.4 | | | (2.8) | | | Depreciation and amortization | 80.9 | | | 74.6 | | | (6.3) | | |
General and administrative | General and administrative | 60.5 | | | 72.6 | | | (12.1) | | | General and administrative | 69.6 | | | 60.5 | | | (9.1) | | |
Other (gains) and charges | Other (gains) and charges | 9.2 | | | 11.4 | | | (2.2) | | | Other (gains) and charges | 10.9 | | | 9.2 | | | (1.7) | | |
Interest expenses | Interest expenses | 29.0 | | | 29.9 | | | (0.9) | | | Interest expenses | 23.7 | | | 29.0 | | | 5.3 | | |
Other income, net | Other income, net | (0.9) | | | (1.0) | | | 0.1 | | | Other income, net | (0.8) | | | (0.9) | | | (0.1) | | |
As a percentage of Company sales:
•Food and beverage costs increased 1.0%, as a percentageincluding 1.4% of Company sales, increasedhigher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures and 0.1% consisting of 0.2% of unfavorable commodity pricing related to dairy,menu item mix, partially offset by 0.1%0.5% of increasedfavorable menu pricing.
•Restaurant labor increased 1.0%, as a percentageincluding 2.0% of Companyhigher hourly restaurant labor costs primarily including wage rates, training and overtime and 0.9% of higher manager salaries and training resulting from merit increases and greater than normal manager turnover, partially offset by 1.9% of sales leverage.
•Restaurant expensesdecreased 0.6% consisting1.5%, driven by 3.1% of 1.3% favorable hourly labor expensessales leverage and 0.7% of favorable manager expenses both due to reduced staffing requirements,lower delivery fees, partially offset by 1.3%0.8% of sales deleverage and 0.1% of higher other labor expenses.
Restaurant expenses, as a percentage of Company sales, increased 1.2% consisting of 3.3% of higher expenses related to delivery fees and supplies in connection with the growth in off-premise sales and 2.0% of sales deleverage, partially offset by 2.0% of lower advertising expenses, 1.1% of lower repairs and maintenance expenses, 0.3%0.4% of lower credit card fees,higher utilities expenses, 0.4% of higher advertising expenses, 0.2% of lower utilities expenseshigher supervision costs and 0.5% of lowerhigher other restaurant expenses.
Depreciation and amortization decreased $2.8increased $6.3 million as follows:
| | | | | |
| Depreciation and Amortization |
Twenty-Six Week Period Ended December 25, 201923, 2020 | $ | 77.474.6 | |
Change from: | |
Additions for existing and new restaurant assets | 8.9 | |
Finance leases | 3.3 | |
Acquisition of Chili’s restaurants(1) | 1.7 | |
Corporate assets | 0.8 | |
Retirements and fully depreciated restaurant assets | (12.2) | |
Additions for existing and new restaurant assets(1)
| 4.2 | |
Acquisition of Chili’s restaurants(2)
| 2.3 | |
Finance leases | 1.9 | |
Corporate assets | 0.8 (8.6) | |
Other | 0.2 | |
Twenty-Six Week Period Ended December 23, 202029, 2021 | $ | 74.680.9 | |
(1)Additions for existing and new restaurant assets increased related to capital purchases.
(2)Acquisition of Chili’s restaurants representsRepresents the change inincremental depreciation and amortization of the assets and finance leases of the 11660 Chili’s restaurants acquired on September 5, 2019. The increase resulting fromin the timingfirst two quarters of the acquisition.fiscal 2022.
General and administrative expenexpeses decreased $12.1nses increased $9.1 million as follows:follows:
| | | | | |
| General and Administrative |
Twenty-Six Week Period Ended December 25, 201923, 2020 | $ | 72.660.5 | |
Change from: | |
Defined contribution plan employer expenses(1) | (5.0)5.6 | |
Stock-based compensation(2) | (2.8)2.4 | |
Professional fees | 2.3 | |
Payroll-related expenses | (2.1) | |
Professional fees | (1.5)2.0 | |
Travel and entertainment expenses | (1.4)0.8 | |
Performance-based compensation(2) | 2.2 (6.2) | |
Other | (1.5)2.2 | |
Twenty-Six Week Period Ended December 23, 202029, 2021 | $ | 60.569.6 | |
(1)Defined contribution plan employer expenses decreasedincreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021.
(2)Stock-basedPerformance-based compensation decreased primarily due to the acceleration of stock-based compensation expensesadjustment in the first quarter ofexpected bonus payout for fiscal 2020 for retirement eligible executives. Prior2022 resulting from lower business performance metrics compared to fiscal 2021, retirement eligibility resulted in the compensation being recognized in full upon grant as there was no substantive vesting period. In fiscal 2021, the retirement eligible executives received 20% of their stock-based compensation as awards with no substantive vesting period. Their remaining 80% of stock-based compensation granted in fiscal 2021 will be amortized evenly over the three year vesting period.targets.
Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
| | | Twenty-Six Week Periods Ended | | Twenty-Six Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Remodel-related costs | | Remodel-related costs | $ | 3.1 | | | $ | 0.9 | |
Lease contingencies | | Lease contingencies | 2.9 | | | — | |
Acquisition-related costs, net | | Acquisition-related costs, net | 0.9 | | | — | |
Enterprise system implementation costs | | Enterprise system implementation costs | 0.9 | | | — | |
Restaurant closure charges | | Restaurant closure charges | 0.5 | | | 1.9 | |
COVID-19 related charges | | COVID-19 related charges | (0.5) | | | 2.2 |
Restaurant impairment charges | Restaurant impairment charges | $ | 2.5 | | | $ | 4.6 | | Restaurant impairment charges | — | | | 2.5 |
COVID-19 related charges | 2.2 | | | — | | |
Restaurant closure charges | 1.9 | | | 3.1 | | |
Remodel-related costs | 0.9 | | | 1.5 | | |
Lease modification gain, net | (0.5) | | | (3.1) | | |
Acquisition of franchise restaurants costs, net | — | | | 1.5 | | |
Other | Other | 2.2 | | | 3.8 | | Other | 3.1 | | | 1.7 | |
| | $ | 9.2 | | | $ | 11.4 | | | $ | 10.9 | | | $ | 9.2 | |
Interest expenses decreased $0.9$5.3 million consisting ofdue to lower interest rates and average borrowing balances on our revolving credit facility partially offset by higher interest expensesin fiscal 2022.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Periods Ended | | | | Twenty-Six Week Periods Ended | | |
| December 29, 2021 | | December 23, 2020 | | Favorable / (Unfavorable) | | December 29, 2021 | | December 23, 2020 | | Favorable / (Unfavorable) Variance |
Effective income tax rate | 5.2 | % | | (46.3) | % | | (51.5) | % | | 4.0 | % | | (23.4) | % | | (27.4) | % |
The federal statutory tax rate was 21.0% for the Chili’s tabletop device finance lease which rolled out to restaurants beginningthirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020.
The effective income tax rate in the second quarter of fiscal 2020thirteen and completed in the fourth quarter of fiscal 2020, higher interest rates on our revolving credit facility in the twenty-six week periodperiods ended December 29, 2021 increased compared to the thirteen and twenty-six week periods ended December 23, 2020.
2020 primarily due to a reduced
Segment Results
The rise in COVID-19 cases duringfavorable impact from the second quarter resulted in some dining room closuresFICA tip tax credit and capacity restrictions which have negatively impacted our results. Capacity restrictions related to the ongoing COVID-19 pandemic vary by location due to state and local mandates. These capacity restrictions and personal safety preferences have resulted in lower overall guest traffic and many guests have shifted to our off-premise dining options. This shift has changed our staffing requirements, expensesexcess tax benefits associated with off-premise and other operational expenses which are noted below.stock-based compensation in the first quarter of fiscal 2022.
Segment Results
Chili’s Segment
Thirteen Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
| | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as percentage | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as percentage |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Company sales | Company sales | $ | 683.0 | | | $ | 728.4 | | | $ | (45.4) | | | (6.2) | % | Company sales | $ | 791.9 | | | $ | 683.0 | | | $ | 108.9 | | | 15.9 | % |
Royalties | Royalties | 7.6 | | | 9.9 | | | (2.3) | | | (23.2) | % | Royalties | 8.6 | | | 7.6 | | | 1.0 | | | 13.2 | % |
Franchise fees and other revenues | Franchise fees and other revenues | 5.8 | | | 4.8 | | | 1.0 | | | 20.8 | % | Franchise fees and other revenues | 7.7 | | | 5.8 | | | 1.9 | | | 32.8 | % |
Franchise and other revenues | Franchise and other revenues | 13.4 | | | 14.7 | | | (1.3) | | | (8.8) | % | Franchise and other revenues | 16.3 | | | 13.4 | | | 2.9 | | | 21.6 | % |
Total revenues | Total revenues | $ | 696.4 | | | $ | 743.1 | | | $ | (46.7) | | | (6.3) | % | Total revenues | $ | 808.2 | | | $ | 696.4 | | | $ | 111.8 | | | 16.1 | % |
Chili’s Total revenues decreasedincreased by 6.3%16.1% primarily due to lowerhigher dining room guest sales and traffic, the acquisition of 60 Chili’s restaurants from two former franchisees and six new restaurant openings, partially offset by increaseddecreased off-premise sales including It’s Just Wings.sales. Refer to “Revenues” section above for further details about Chili’s revenues changes.
The following is a summary of the changechanges in Chili’s operating costs and expenses:
| | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
| | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | Food and beverage costs | $ | 183.7 | | | 26.9 | % | | $ | 195.1 | | | 26.8 | % | | $ | 11.4 | | | 0.1 | % | Food and beverage costs | $ | 224.8 | | | 28.4 | % | | $ | 183.7 | | | 26.9 | % | | $ | (41.1) | | | (1.5) | % |
Restaurant labor | Restaurant labor | 233.4 | | | 34.2 | % | | 251.0 | | | 34.4 | % | | 17.6 | | | (0.2) | % | Restaurant labor | 277.6 | | | 35.0 | % | | 233.4 | | | 34.2 | % | | (44.2) | | | (0.8) | % |
Restaurant expenses | Restaurant expenses | 188.7 | | | 27.6 | % | | 194.2 | | | 26.7 | % | | 5.5 | | | 0.9 | % | Restaurant expenses | 205.0 | | | 25.9 | % | | 188.7 | | | 27.6 | % | | (16.3) | | | 1.7 | % |
Depreciation and amortization | Depreciation and amortization | 30.8 | | | 32.1 | | | 1.3 | | | Depreciation and amortization | 35.4 | | | 30.8 | | | (4.6) | | |
General and administrative | General and administrative | 5.4 | | | 8.5 | | | 3.1 | | | General and administrative | 7.2 | | | 5.4 | | | (1.8) | | |
Other (gains) and charges | Other (gains) and charges | 4.4 | | | 10.6 | | | 6.2 | | | Other (gains) and charges | 2.2 | | | 4.4 | | | 2.2 | | |
As a percentage of Company sales
•Chili’s Food and beverage costs as a percentageincreased 1.5%, including 1.9% of Company sales, increased 0.1%, consisting ofhigher meat, poultry and other commodity costs due to supply chain constraints and inflationary pressures and 0.3% of unfavorable commodity pricing primarily related to produce and dairy,menu item mix, partially offset by 0.1% of favorable menu item mix and 0.1%0.7% of increased menu pricing.
•Chili’s Restaurant labor as a percentageincreased 0.8%, including 1.5% of Company sales, decreased 0.2% consistingrestaurant labor costs including wage rates, training and overtime, 1.2% of 0.5% of favorable hourly labor expenseshigher manager salaries and 0.3% of favorable manager expenses bothtraining due to reduced staffing requirements,merit increases and greater than normal manager turnover, partially offset by 1.3% of sales leverage, 0.4% of lower manager bonus expenses due to lower operational performance metrics and 0.2% of lower other labor expenses.
•Chili’s Restaurant expenses decreased 1.7%, including 2.7% of sales leverage and 0.6% of lower delivery fee expenses, partially offset by 0.6% of sales deleverage.
Chili’s Restaurant expenses, as a percentage of Company sales, increased 0.9% consisting of 3.5% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales and 1.4% of sales deleverage, partially offset by 2.3% of lower advertising expenses, 0.7% of lower repairs and maintenanceutilities expenses, 0.3% of lower supervisionhigher workers’ compensation and general liability expenses resulting from unfavorable claims experience, 0.2% of lower credit card feeshigher rent expenses and 0.5% of lowerhigher other restaurant expenses.
Chili’s Depreciation and amortization decreased $1.3increased $4.6 million as follows:
| | | | | |
| Depreciation and Amortization |
Thirteen Week Period Ended December 25, 201923, 2020 | $ | 32.130.8 | |
Change from: | |
Additions for new and existing restaurant assets | 4.8 | |
Finance leases | 1.7 | |
Acquisition of Chili’s restaurants(1) | 1.5 | |
Retirements and fully depreciated restaurant assets | (4.6) | |
Additions for new and existing restaurant assets(1)
| 2.0 | |
Finance leases | 1.0 | |
Acquisition of franchise restaurants | 0.2 (3.5) | |
Other | 0.1 | |
Thirteen Week Period Ended December 29, 2021 | $ | 35.4 | |
(1)Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.
Chili’s General and administrative increased $1.8 million as follows:
| | | | | |
| General and Administrative |
Thirteen Week Period Ended December 23, 2020 | $ | 30.85.4 | |
Change from: | |
Defined contribution plan employer expenses(1) | 2.2 | |
Stock-based compensation | 0.2 | |
Payroll-related expenses | 0.1 | |
Performance-based compensation(2) | (1.4) | |
Other | 0.7 | |
Thirteen Week Period Ended December 29, 2021 | $ | 7.2 | |
(1)Additions for new and existing restaurants increased due to capital purchases.
Chili’s General and administrative decreased $3.1 million consisting primarily of a decrease in definedDefined contribution plan employer expenses stock-basedincreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021.
(2)Performance-based compensation and payroll-related expenses.decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.
Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
| | | Thirteen Week Periods Ended | | Thirteen Week Periods Ended |
| | December 23, 2020 | | December 25, 2019 | | December 29, 2021 | | December 23, 2020 |
Remodel-related costs | | Remodel-related costs | $ | 1.6 | | | $ | 0.7 | |
Acquisition of franchise restaurants-related costs | | Acquisition of franchise restaurants-related costs | 0.9 | | | — | |
Restaurant closure charges | | Restaurant closure charges | 0.3 | | | 0.3 | |
Loss from natural disasters, net of (insurance recoveries) | | Loss from natural disasters, net of (insurance recoveries) | 0.2 | | | 0.2 | |
COVID-19 related charges | | COVID-19 related charges | (0.8) | | | 1.0 | |
Restaurant impairment charges | Restaurant impairment charges | $ | 2.1 | | | $ | 4.6 | | Restaurant impairment charges | — | | | 2.1 | |
COVID-19 related charges | 1.0 | | | — | | |
Restaurant closure charges | 0.3 | | | 2.9 | | |
Remodel-related costs | 0.7 | | | 0.8 | | |
Acquisition of franchise restaurants costs, net | — | | | 2.0 | | |
| Other | Other | 0.3 | | | 0.3 | | Other | — | | | 0.1 | |
| | $ | 4.4 | | | $ | 10.6 | | | $ | 2.2 | | | $ | 4.4 | |
Twenty-Six Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
| | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as percentage | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as percentage |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Company sales | Company sales | $ | 1,358.0 | | | $ | 1,405.9 | | | $ | (47.9) | | | (3.4) | % | Company sales | $ | 1,565.2 | | | $ | 1,358.0 | | | $ | 207.2 | | | 15.3 | % |
Royalties | Royalties | 14.2 | | | 21.7 | | | (7.5) | | | (34.6) | % | Royalties | 17.6 | | | 14.2 | | | 3.4 | | | 23.9 | % |
Franchise fees and other revenues | Franchise fees and other revenues | 10.7 | | | 11.1 | | | (0.4) | | | (3.6) | % | Franchise fees and other revenues | 13.0 | | | 10.7 | | | 2.3 | | | 21.5 | % |
Franchise and other revenues | Franchise and other revenues | 24.9 | | | 32.8 | | | (7.9) | | | (24.1) | % | Franchise and other revenues | 30.6 | | | 24.9 | | | 5.7 | | | 22.9 | % |
Total revenues | Total revenues | $ | 1,382.9 | | | $ | 1,438.7 | | | $ | (55.8) | | | (3.9) | % | Total revenues | $ | 1,595.8 | | | $ | 1,382.9 | | | $ | 212.9 | | | 15.4 | % |
Chili’s Total revenues decreased 3.9%increased 15.4% primarily due lowerto higher dining room guest sales and traffic, the acquisition of 60 Chili’s restaurants from two former franchisees and six new restaurant openings, partially offset by increaseddecreased off-premise sales including It’s Just Wings and the acquisition of 116 Chili’s restaurants on September 5, 2019.sales. Refer to “Revenues” section above for further details about Chili’s revenues changes.
The following is a summary of the changes in Chili’s operating costs and expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| December 29, 2021 | | December 23, 2020 | |
| Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | $ | 438.2 | | | 28.0 | % | | $ | 364.5 | | | 26.8 | % | | $ | (73.7) | | | (1.2) | % |
Restaurant labor | 551.1 | | | 35.2 | % | | 461.6 | | | 34.0 | % | | (89.5) | | | (1.2) | % |
Restaurant expenses | 409.6 | | | 26.2 | % | | 370.1 | | | 27.3 | % | | (39.5) | | | 1.1 | % |
Depreciation and amortization | 68.4 | | | | | 61.4 | | | | | (7.0) | | | |
General and administrative | 15.2 | | | | | 10.8 | | | | | (4.4) | | | |
Other (gains) and charges | 5.0 | | | | | 8.0 | | | | | 3.0 | | | |
As a percentage of Company sales:
•Chili’s Food and beverage costs increased 1.2%, including 1.5% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures and 0.2% of unfavorable menu item mix, partially offset by 0.5% of increased menu pricing.
•Chili’s Restaurant labor increased 1.2%, including 2.0% of higher restaurant hourly labor costs primarily including wage rates, training and overtime and 0.8% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 1.4% of sales leverage and 0.2% of lower manager bonus expenses due to lower operational performance metrics.
•Chili’s Restaurant expenses decreased 1.1%, including 2.4% of sales leverage and 0.6% of lower delivery fee expenses, partially offset by 0.8% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher workers’ compensation and general liability expenses resulting from unfavorable claims experience and 0.4% of higher other restaurant expenses.
The following is a summary of the change in Chili’s operating costs and expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| December 23, 2020 | | December 25, 2019 | |
| Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | $ | 364.5 | | | 26.8 | % | | $ | 377.5 | | | 26.9 | % | | $ | 13.0 | | | (0.1) | % |
Restaurant labor | 461.6 | | | 34.0 | % | | 484.1 | | | 34.4 | % | | 22.5 | | | (0.4) | % |
Restaurant expenses | 370.1 | | | 27.3 | % | | 375.0 | | | 26.7 | % | | 4.9 | | | 0.6 | % |
Depreciation and amortization | 61.4 | | | | | 62.8 | | | | | 1.4 | | | |
General and administrative | 10.8 | | | | | 17.6 | | | | | 6.8 | | | |
Other (gains) and charges | 8.0 | | | | | 9.0 | | | | | 1.0 | | | |
Chili’s Food and beverage costs, as a percentage of Company sales, decreased 0.1%, consisting of 0.2% of favorable menu item mix and 0.1% of increased menu pricing, partially offset by 0.2% of unfavorable commodity pricing primarily related to produce and dairy.
Chili’s Restaurant labor, as a percentage of Company sales, decreased 0.4% primarily consisting of 0.7% of favorable hourly labor expenses and 0.5% of favorable manager expenses both due to reduced staffing requirements, and 0.1% of lower other labor expenses, partially offset by 0.9% of sales deleverage.
Chili’s Restaurant expenses, as a percentage of Company sales, increased 0.6% primarily consisting of 3.5% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales and 1.6% of sales deleverage, partially offset by 2.4% of lower advertising expenses, 1.1% of lower repairs and maintenance expenses, 0.3% of lower utilities, 0.1% of lower credit card fees and 0.6% of lower other restaurant expenses.
Chili’s Depreciation and amortization decreased $1.4increased $7.0 million as follows:
| | | | | |
| Depreciation and Amortization |
Twenty-Six Week Period Ended December 25, 201923, 2020 | $ | 62.861.4 | |
Change from: | |
Additions for existing and new restaurant assets | 8.6 | |
Finance leases | 3.1 | |
Acquisition of Chili’s restaurants(1) | 1.7 | |
Retirements and fully depreciated restaurant assets | (9.8) | |
Additions for existing and new restaurant assets(1)
| 3.9 | |
Acquisition of Chili’s restaurants(2)
| 2.3 | |
Finance leases | 1.9 (6.5) | |
Other | 0.30.1 | |
Twenty-Six Week Period Ended December 29, 2021 | $ | 68.4 | |
(1)Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.
Chili’s General and administrative increased $4.4 million as follows:
| | | | | |
| General and Administrative |
Twenty-Six Week Period Ended December 23, 2020 | $ | 61.410.8 | |
Change from: | |
Defined contribution plan employer expenses(1) | 4.3 | |
Stock-based compensation | 0.5 | |
Travel and entertainment expenses | 0.4 | |
Professional fees | 0.2 | |
Payroll-related expenses | 0.1 | |
Performance-based compensation(2) | (1.7) | |
Other | 0.6 | |
Twenty-Six Week Period Ended December 29, 2021 | $ | 15.2 | |
(1)Additions for existing and new restaurant assets increased related to capital purchases.
(2)Acquisition of Chili’s restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili’s restaurants acquired on September 5, 2019. The increase resulting from the timing of the acquisition.
Chili’s General and administrative decreased $6.8 million primarily consisting of $4.0 million of lower definedDefined contribution plan employer expenses $1.0 millionincreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021.
(2)Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower payroll-related expenses, $0.8 million of lower stock-based compensation expenses and $0.7 million of lower travel and entertainment expenses.business performance metrics compared to the targets.
Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):
| | | | | | | | | | | |
| Twenty-Six Week Periods Ended |
| December 23, 2020 | | December 25, 2019 |
Restaurant impairment charges | $ | 2.1 | | | $ | 4.6 | |
COVID-19 related charges | 2.1 | | | — | |
Restaurant closure charges | 1.8 | | | 3.1 | |
Remodel-related costs | 0.9 | | | 1.5 | |
Lease modification gain, net | (0.5) | | | (3.1) | |
Acquisition of franchise restaurants costs, net | — | | | 1.5 | |
Other | 1.6 | | | 1.4 | |
| $ | 8.0 | | | $ | 9.0 | |
Maggiano’s Segment
Thirteen Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
| | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as a percentage | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as a percentage |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Company sales | Company sales | $ | 63.2 | | | $ | 119.1 | | | $ | (55.9) | | | (46.9) | % | Company sales | $ | 112.6 | | | $ | 63.2 | | | $ | 49.4 | | | 78.2 | % |
Royalties | Royalties | 0.1 | | | 0.0 | | | 0.1 | | | 100.0 | % | Royalties | 0.1 | | | 0.1 | | | 0.0 | | | — | % |
Franchise fees and other revenues | Franchise fees and other revenues | 1.0 | | | 7.1 | | | (6.1) | | | (85.9) | % | Franchise fees and other revenues | 4.9 | | | 1.0 | | | 3.9 | | | 390.0 | % |
Franchise and other revenues | Franchise and other revenues | 1.1 | | | 7.1 | | | (6.0) | | | (84.5) | % | Franchise and other revenues | 5.0 | | | 1.1 | | | 3.9 | | | 354.5 | % |
Total revenues | Total revenues | $ | 64.3 | | | $ | 126.2 | | | $ | (61.9) | | | (49.0) | % | Total revenues | $ | 117.6 | | | $ | 64.3 | | | $ | 53.3 | | | 82.9 | % |
|
Maggiano’s Total revenues decreased 49.0%increased 82.9% primarily due to lowerhigher dining and banquet room guest traffic including lower banquet volumes driven by the COVID-19 pandemic, partially offset by increased off-premise sales.sales and traffic. Refer to “Revenues” section above for further details about Maggiano’s revenues changes.
The following is a summary of the changechanges in Maggiano’s operating costs and expenses:
| | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance | | Thirteen Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
| | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | Food and beverage costs | $ | 15.2 | | | 24.1 | % | | $ | 28.0 | | | 23.5 | % | | $ | 12.8 | | | 0.6 | % | Food and beverage costs | $ | 28.0 | | | 24.9 | % | | $ | 15.2 | | | 24.1 | % | | $ | (12.8) | | | (0.8) | % |
Restaurant labor | Restaurant labor | 22.4 | | | 35.4 | % | | 40.8 | | | 34.3 | % | | 18.4 | | | 1.1 | % | Restaurant labor | 37.8 | | | 33.5 | % | | 22.4 | | | 35.4 | % | | (15.4) | | | 1.9 | % |
Restaurant expenses | Restaurant expenses | 22.1 | | | 35.0 | % | | 30.4 | | | 25.5 | % | | 8.3 | | | 9.5 | % | Restaurant expenses | 31.5 | | | 28.0 | % | | 22.1 | | | 35.0 | % | | (9.4) | | | 7.0 | % |
Depreciation and amortization | Depreciation and amortization | 3.4 | | | 4.0 | | | 0.6 | | | Depreciation and amortization | 3.4 | | | 3.4 | | | — | | |
General and administrative | General and administrative | 1.3 | | | 1.5 | | | 0.2 | | | General and administrative | 1.9 | | | 1.3 | | | (0.6) | | |
Other (gains) and charges | Other (gains) and charges | 0.8 | | | — | | | (0.8) | | | Other (gains) and charges | — | | | 0.8 | | | 0.8 | | |
As a percentage of Company sales:
•Maggiano’s Food and beverage costs as a percentageincreased 0.8%, including 1.1% of Company sales, increased 0.6%, consistinghigher seafood, meat and produce commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.2% of 0.4% of unfavorablefavorable menu item mix and 0.3% of unfavorable commodity pricing primarily related to produce and pasta, partially offset by 0.1% of increased menu pricing.
•Maggiano’s Restaurant labor as a percentagedecreased 1.9%, including 6.9% of Company sales increased 1.1% consistingleverage and 0.7% of 4.4% of favorable hourlylower other labor expenses and 0.9% of favorable manager expenses both due to reduced staffing requirements,expense, partially offset by 6.0% of sales deleverage and 0.4%2.3% of higher employee health insurance expenses.restaurant hourly labor costs primarily including wage rates, training and overtime, 1.9% of higher manager bonus expenses and 1.5% of higher manager salaries and training.
•Maggiano’s Restaurant expenses as a percentage of Company sales, increased 9.5% primarily consisting of 12.7%decreased 7.0%, driven by 12.9% of sales deleverage andleverage, partially offset by higher expenses including 1.6% of supervision expenses, 1.3% of higherrepairs and maintenance expenses, related to1.2% of advertising expenses, 0.8% of utilities, 0.5% of delivery fees and supplies driven by the growth in off-and 0.5% of other restaurant expenses.
premise sales, partially offset by 1.3% of lower repairs and maintenance expenses, 0.9% of lower banquet expenses, 0.7% of lower advertising expenses, 0.6% of lower credit card fees, 0.5% of lower utilities and 0.5% of lower other restaurant expenses.
Twenty-Six Week Period Ended December 23, 202029, 2021 compared to December 25, 201923, 2020
| | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as a percentage | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Variance as a percentage |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Company sales | Company sales | $ | 116.4 | | | $ | 205.5 | | | $ | (89.1) | | | (43.4) | % | Company sales | $ | 198.9 | | | $ | 116.4 | | | $ | 82.5 | | | 70.9 | % |
Royalties | Royalties | 0.1 | | | 0.1 | | | 0.0 | | | — | % | Royalties | 0.2 | | | 0.1 | | | 0.1 | | | 100.0 | % |
Franchise fees and other revenues | Franchise fees and other revenues | 1.4 | | | 11.0 | | | (9.6) | | | (87.3) | % | Franchise fees and other revenues | 7.3 | | | 1.4 | | | 5.9 | | | 421.4 | % |
Franchise and other revenues | Franchise and other revenues | 1.5 | | | 11.1 | | | (9.6) | | | (86.5) | % | Franchise and other revenues | 7.5 | | | 1.5 | | | 6.0 | | | 400.0 | % |
Total revenues | Total revenues | $ | 117.9 | | | $ | 216.6 | | | $ | (98.7) | | | (45.6) | % | Total revenues | $ | 206.4 | | | $ | 117.9 | | | $ | 88.5 | | | 75.1 | % |
|
Maggiano’s Total revenues decreased 45.6%increased 75.1% primarily due to lower comparable restaurant sales driven by reducedhigher dining and banquet room traffic due to the COVID-19 pandemic, partially offset by increased off-premise sales.sales and traffic. Refer to “Revenues” section above for further details about Maggiano’s revenues changes.
The following is a summary of the changechanges in Maggiano’s operating costs and expenses:
| | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
| | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales | | Dollars | | % of Company Sales |
Food and beverage costs | Food and beverage costs | $ | 27.9 | | | 24.0 | % | | $ | 49.4 | | | 24.0 | % | | $ | 21.5 | | | — | % | Food and beverage costs | $ | 48.9 | | | 24.6 | % | | $ | 27.9 | | | 24.0 | % | | $ | (21.0) | | | (0.6) | % |
Restaurant labor | Restaurant labor | 42.2 | | | 36.2 | % | | 76.2 | | | 37.1 | % | | 34.0 | | | (0.9) | % | Restaurant labor | 69.2 | | | 34.8 | % | | 42.2 | | | 36.2 | % | | (27.0) | | | 1.4 | % |
Restaurant expenses | Restaurant expenses | 42.9 | | | 36.9 | % | | 56.7 | | | 27.6 | % | | 13.8 | | | 9.3 | % | Restaurant expenses | 58.1 | | | 29.2 | % | | 42.9 | | | 36.9 | % | | (15.2) | | | 7.7 | % |
Depreciation and amortization | Depreciation and amortization | 7.0 | | | 8.0 | | | 1.0 | | | Depreciation and amortization | 6.8 | | | 7.0 | | | 0.2 | | |
General and administrative | General and administrative | 2.6 | | | 3.2 | | | 0.6 | | | General and administrative | 3.9 | | | 2.6 | | | (1.3) | | |
Other (gains) and charges | Other (gains) and charges | 0.9 | | | 0.1 | | | (0.8) | | | Other (gains) and charges | 0.2 | | | 0.9 | | | 0.7 | | |
As a percentage of Company sales:
•Maggiano’s Food and beverage costs as a percentageincreased 0.6%, including 0.7% of Company sales, were flat consisting of 0.2% of unfavorablehigher seafood and other commodity pricing primarily related to pastacosts resulting from supply chain constraints and seafood,inflationary pressures, partially offset by 0.2%0.1% of favorableincreased menu item mix.pricing.
•Maggiano’s Restaurant labor as a percentage of Company sales, decreased 0.9% primarily consisting of 5.6% of favorable hourly labor expenses and 1.4% of favorable manager expenses both due to reduced staffing requirements, partially offset by 5.8%, including 6.7% of sales deleverage and 0.3% of higher employee health insurance expenses.
Maggiano’s Restaurant expenses, as a percentage of Company sales, increased 9.3% primarily consisting of 11.2% of sales deleverage and 1.8% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales, partially offset by 1.6% of lower repairs and maintenance expenses, 0.7% of lower credit card fees, 0.5% of lower advertising expenses, 0.3% of lower utilities, 0.3% lower banquet expensesleverage and 0.3% of lower other labor expenses, partially offset by 2.8% of higher restaurant hourly labor costs primarily including wage rates, training and overtime, 1.5% of higher manager bonus expenses and 1.3% of higher manager salaries and training.
•Maggiano’s Restaurant expenses decreased 7.7%, driven by 12.8% of sales leverage, partially offset by higher expenses including 1.7% of repairs and maintenance expenses, 1.4% of supervision expenses, 1.2% of higher advertising expenses and 0.8% of other restaurant expenses.
Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Week Periods Ended | | | | Twenty-Six Week Periods Ended | | |
| December 23, 2020 | | December 25, 2019 | | Change | | December 23, 2020 | | December 25, 2019 | | Change |
Effective income tax rate | (46.3) | % | | 3.8 | % | | (50.1) | % | | (23.4) | % | | 6.6 | % | | (30.0) | % |
The federal statutory tax rate was 21.0% for the thirteen and twenty-six week periods ended December 23, 2020 and December 25, 2019.
The effective income tax rate in the thirteen and twenty-six week periods ended December 23, 2020 decreased compared to the thirteen and twenty-six week periods ended December 25, 2019 primarily due to lower income
before income taxes and leverage of the FICA tip tax credit. The twenty-six week period ended December 23, 2020 also included the favorable impact of excess tax windfalls associated with stock-based compensation.
Liquidity and Capital Resources
COVID-19 Impact on Liquidity
Cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures, such as remodels, maintaining existing restaurants and constructing new restaurants, to pay dividends and to repurchase shares of our common stock when authorized. Our strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic compared to other industry competitors. Due to
At the uncertaintyoutset of the COVID-19 pandemic in the economyfiscal 2020 and to preserve liquidity,into early fiscal 2021, we have takentook proactive precautionary measures to raise additional capital,preserve liquidity, reduce costs and pause non-critical projects that dodid not significantly impact our current operations. These measures duringIn the second half of fiscal 2021, included:our operational results and liquidity returned to pre-pandemic levels. Beginning in the first quarter of fiscal 2022, we took or plan to take the following actions:
•AmendedRevised our revolving credit facility during the first quarter of fiscal 20212022 to extend the maturity date and provide additional flexibility during this time;flexibility;
•Reduced capital expenditures, although we have begun to strategically resumeResumed the Chili’s and Maggiano’s remodel program and construction of certain new restaurants;
•ReducedSelectively increased marketing general and administrative and restaurant expenses;spend;
•Continued the suspension of both the quarterly cash dividend andReinstated the share repurchase program; and
•AmendedRepaid the fiscal 2018 and fiscal 2019 U.S. Consolidated Income tax returns in order to claim the increased depreciation deductions for Brinker’s qualified improvement propertyfirst installment of $27.2 million of payroll taxes deferred in accordance with the CARES Act which resulted in an anticipated refundthe second quarter of $4.6 million.fiscal 2022 and will repay the remaining $27.2 million that is due on December 31, 2022.
Cash Flows
Cash Flows from Operating Activities
| | | | | | | | | | | | | | | | | |
| Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| December 23, 2020 | | December 25, 2019 | |
Net cash provided by operating activities | $ | 130.0 | | | $ | 142.3 | | | $ | (12.3) | |
| | | | | | | | | | | | | | | | | |
| Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| December 29, 2021 | | December 23, 2020 | |
Net cash provided by operating activities | $ | 107.4 | | | $ | 130.0 | | | $ | (22.6) | |
Net cash provided by operating activities decreased primarily due to lower salesthe repayment of the first installment of $27.2 million of payroll taxes that were previously deferred under the CARES Act, as well as an increase in payments of performance based compensation and bonuses in the twenty-six week period ended December 23, 2020 as a resultcurrent year, partially offset by improved operating performance in the first two quarters of fiscal 2022 compared to the COVID-19 pandemic, the timing of income tax refunds (net of payments), the timing of rent payments on operating leases,prior year and the timing of other operational receipts and payments, partially offset by additional deferred payroll taxes as a result of the CARES Act and lower performance-based compensation payments in the current fiscal year.payments.
Cash Flows from Investing Activities
| | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Cash flows from investing activities | Cash flows from investing activities | | | | | | Cash flows from investing activities | | | | | |
Payments for property and equipment | Payments for property and equipment | $ | (37.1) | | | $ | (51.4) | | | $ | 14.3 | | Payments for property and equipment | $ | (74.1) | | | $ | (37.1) | | | $ | (37.0) | |
Payments for franchise restaurant acquisitions | | Payments for franchise restaurant acquisitions | (104.5) | | | — | | | (104.5) | |
Proceeds from sale leaseback transactions, net of related expenses | | Proceeds from sale leaseback transactions, net of related expenses | 20.5 | | | — | | | 20.5 | |
Proceeds from sale of assets | Proceeds from sale of assets | 1.3 | | | 0.3 | | | 1.0 | | Proceeds from sale of assets | 0.0 | | | 1.3 | | | (1.3) | |
Proceeds from note receivable | Proceeds from note receivable | 1.3 | | | 1.4 | | | (0.1) | | Proceeds from note receivable | — | | | 1.3 | | | (1.3) | |
Payments for franchise restaurant acquisitions | — | | | (96.2) | | | 96.2 | | |
| Net cash used in investing activities | Net cash used in investing activities | $ | (34.5) | | | $ | (145.9) | | | $ | 111.4 | | Net cash used in investing activities | $ | (158.1) | | | $ | (34.5) | | | $ | (123.6) | |
Net cash used in investing activities decreasedincreased primarily due to $96.2$104.5 million of cash consideration and related transactional charges paid for the purchase of 11660 Chili’s restaurants from a franchiseetwo franchisees, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants. Additionally, capital expenditures increased in fiscal 2022 primarily for equipment purchases and an increase in the prior year.pace of the Chili’s remodel initiative.
Additionally, capital expenditures decreased in fiscal 2021 primarily due to the timing of spend on new restaurants, a decline in the pace of the Chili’s remodel initiative, and a reduction in spend for routine capital purchases.
Cash Flows from Financing Activities
| | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance | | Twenty-Six Week Periods Ended | | Favorable (Unfavorable) Variance |
| | December 23, 2020 | | December 25, 2019 | | | December 29, 2021 | | December 23, 2020 | |
Cash flows from financing activities | Cash flows from financing activities | | | | | | Cash flows from financing activities | | | | | |
Borrowings on revolving credit facility | | Borrowings on revolving credit facility | $ | 487.5 | | | $ | 28.4 | | | $ | 459.1 | |
Payments on revolving credit facility | Payments on revolving credit facility | $ | (95.0) | | | $ | (416.0) | | | $ | 321.0 | | Payments on revolving credit facility | (355.0) | | | (95.0) | | | (260.0) | |
Borrowings on revolving credit facility | 28.4 | | | 463.0 | | | (434.6) | | |
Purchases of treasury stock | | Purchases of treasury stock | (74.7) | | | (3.9) | | | (70.8) | |
Payments on long-term debt | Payments on long-term debt | (9.8) | | | (5.0) | | | (4.8) | | Payments on long-term debt | (11.7) | | | (9.8) | | | (1.9) | |
Purchases of treasury stock | (3.9) | | | (11.3) | | | 7.4 | | |
Payments for debt issuance costs | Payments for debt issuance costs | (2.2) | | | (1.0) | | | (1.2) | | Payments for debt issuance costs | (3.1) | | | (2.2) | | | (0.9) | |
Payments of dividends | Payments of dividends | (1.3) | | | (29.0) | | | 27.7 | | Payments of dividends | (1.0) | | | (1.3) | | | 0.3 | |
Proceeds from issuance of treasury stock | Proceeds from issuance of treasury stock | 8.5 | | | 1.5 | | | 7.0 | | Proceeds from issuance of treasury stock | 0.4 | | | 8.5 | | | (8.1) | |
Net cash (used in) provided by financing activities | $ | (75.3) | | | $ | 2.2 | | | $ | (77.5) | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | $ | 42.4 | | | $ | (75.3) | | | $ | 117.7 | |
Net cash used inprovided by financing activities increased primarily due to $132.5 million of net borrowing activity in fiscal 2022 compared to $66.6 million of net repayment activity in fiscal 2021 compared to $47.0 million of net borrowing activity in fiscal 2020 on the revolving credit facility, partially offset by the impact of suspending the dividend payments, and share repurchases and by an increase in proceeds from stock option exercises.share repurchases following the reinstatement of the share repurchase program in August 2021.
Revolving Credit Facility
On August 18, 2021, we revised our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility. Net repaymentsborrowings of $66.6$132.5 million were madedrawn during the twenty-six week period ended December 23, 202029, 2021 on the $1.0 billion revolving credit facility. As of December 23, 2020, $593.729, 2021, $496.2 million of credit was available under the new revolving credit facility.
The $800.0 million revolving credit facility matures on August 18, 2026 and bears interest of LIBOR plus an applicable margin of 1.500% to 2.250% and an undrawn commitment fee of 0.250% to 0.350%, both based on a function of our debt-to-cash-flow ratio. As of December 29, 2021, our interest rate was 1.875% consisting of LIBOR of 0.125% plus the applicable margin of 1.750%. In the first quarter of fiscaltwenty-six week period ended December 29, 2021, we executedincurred and capitalized $3.1 million of debt issuance costs associated with the seventh amendment tonew revolver, which are included in Other assets in the revolving credit facility. This amendment extended the maturity date to December 12, 2022. This amendment includes a required commitment reduction to $900.0 million from $1.0 billion which will occur on September 12, 2021. Refer to Note 10 - Debt for more information.Consolidated Balance Sheets (Unaudited).
As of December 23, 2020,29, 2021, we arewere in compliance with our covenants pursuant to the amended$800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes. Refer to Note 10 - Debt for further information about our notes and revolving credit facility.
Share Repurchase Program
In the fourth quarter of fiscal 2020, ourOur share repurchase program was suspended in response to the liquidity needs created by the COVID-19 pandemic. Prior to the suspension, our share repurchase program wasis used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and planned investment and financing needs. Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets (Unaudited).
In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic. In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million. In the twenty-six week period ended December 23, 2020,29, 2021, we repurchased 1.6 million shares of our common stock for $74.7 million, including 1.5 million shares purchased as part of our share repurchase program and 0.1 million shares solely relatedpurchased from team members to shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares. Before the suspension, in the twenty-six week period endedAs of December 25, 2019, we repurchased 0.329, 2021, approximately $230.0 million shareswas available under our share repurchase authorizations.
Dividend Program
In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend was suspended in response to the liquidity needs created by the COVID-19 pandemic. In the twenty-six week periodperiods ended December 29, 2021 and December 23, 2020, dividends paid were solely related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period. Restricted share award dividends are accrued in Other accrued liabilities for the current portion to vest within 12 months, and Other liabilities for the portion that will vest after one year. In the twenty-six week period ended December 25, 2019, we paid dividends of $29.0 million to common stock shareholders.
Cash Flow Outlook
We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations within the next year. We continue to serve customersguests at substantially all of our locations through our dining rooms and off-premise offerings, and limited capacity dining rooms. We will continue to monitor the situation and intend to resumehave resumed normal business operations on a case by case basis when permitted under applicable government regulationsin accordance with state and when we believe we are able to do so safely.local mandates.
We are not aware of any other event or trend that would potentially materially affect our liquidity. In the event such a trend develops, we believe that there are sufficient funds available under our credit facility and from our internal cash generating capabilities to adequately manage our ongoing business.
OFF-BALANCE SHEET ARRANGEMENTSOff-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which the Company has: (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us. We have entered into certain pre-commencement leases as disclosed in Note 9 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 14 - Contingencies, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. Other than these items, we do not have any off-balance sheet arrangements.
RECENT ACCOUNTING PRONOUNCEMENTSRecent Accounting Pronouncements
The impact of recent accounting pronouncements can be found at Note 21 - EffectBasis of New Accounting StandardsPresentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June 24, 2020.30, 2021.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and ProceduresEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.
Internal Control Over Financial ReportingINTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the thirteen week period ended December 23, 202029, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
Information and statements contained in this Form 10-Q, in our other filings with the SEC or in our written and verbal communications that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are generally accompanied by words like “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “plans,” “intends,” “projects,” “continues” and other similar expressions that convey uncertainty about future events or outcomes. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which could cause actual results to differ materially from our historical results or from those projected in forward-looking statements. These risks and uncertainties are, in many instances, beyond our control. We wish to caution you against placing undue reliance on forward-looking statements because of these risks and uncertainties. Except as required by law, we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
The forward-looking statements contained in this Form 10-Q report are subject to the risks and uncertainties described in Part I, Item IA “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 24, 2020,30, 2021, and below in Part II, Item 1A “Risk Factors” in this report on Form 10-Q, as well as the risks and uncertainties that generally apply to all businesses. We further caution that it is not possible to identify all risks and uncertainties, and you should not consider the identified factors as a complete list of all risks and uncertainties. Among the factors that could cause actual results to differ materially are: disruptions from COVID-19 pandemic, the impact of competition, changes in consumer preferences, consumer perception of food safety, reduced disposable income, unfavorable publicity, increased minimum wages, governmental regulations, the Company’s ability to meet its business strategy plan, third party delivery risks, loss of key management personnel, failure to hire and retain high-quality restaurant management, the impact of social media, failure to protect the security of data of our guests and team members, product availability, regional business and economic conditions, litigation, franchisee success, changes in interest rates due to phase out of LIBOR, downgrades in our credit ratings, inflation, changes in the retail industry, technology failures, failure to protect our intellectual property, outsourcing, impairment of goodwill or assets, failure to maintain effective internal control over financial reporting, actions of activist shareholders, adverse weather conditions, terrorist acts, health epidemics or pandemics (such as COVID-19), tax reform, changes in financial and credit markets, weather, inadequate insurance coverage and limitations imposed by our credit agreements.
It is possible that there could be a material adverse impact on our revenues, results of operations and cash flows in connection with COVID-19. The situation is rapidly changingLack of continued public acceptance of the COVID-19 vaccines and boosters, their on-going efficacy and emergence of new variants of COVID-19 could have adverse effects on the situation. Therefore, additional impacts to the business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which the conditions surrounding COVID-19 will change, including the duration or re-emergence of restrictions and dining room closure requirements, staffing levels for reopened dining rooms, supply chain disruptions and customer re-engagement with our brands.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding legal proceedings is incorporated by reference from Note 14 - Contingencies to the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.
ITEM 1A. RISK FACTORS
In addition to the other information in this Form 10-Q report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 24, 2020,30, 2021, which could materially affect our business, financial condition or results of operations. It is not possible to predict or identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business, financial condition or results of operations. Therefore, the risks identified are not intended to be a complete discussion of all potential risks or uncertainties.
During the thirteen week period ended December 23, 2020,29, 2021, there have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 24, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DuringIn the fourth quarter of fiscal 2020, our share repurchase program was suspended duein response to the impacts ofbusiness downturn caused by the COVID-19 pandemic. In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million.
During the thirteen week period ended December 23, 2020,29, 2021, we repurchased sharessolely to satisfy team member tax withholding obligations on the vesting of restricted shares as follows (in millions, except per share amounts, unless otherwise noted):
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value that May Yet be Purchased Under the Program(2) |
September 24, 2020 through October 28, 2020 | — | | | $ | — | | | — | | | $ | 166.8 | |
October 29, 2020 through November 25, 2020 | 0.0 | | | 43.94 | | | — | | | 166.8 | |
November 26, 2020 through December 23, 2020 | — | | | — | | | — | | | 166.8 | |
Total | 0.0 | | | 43.94 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value that May Yet be Purchased Under the Program(2) |
September 30, 2021 through November 3, 2021 | 0.0 | | | $ | 59.03 | | | — | | | $ | 265.0 | |
November 4, 2021 through December 1, 2021 | 0.4 | | | 43.80 | | | 0.4 | | | 245.0 | |
December 2, 2021 through December 29, 2021 | 0.4 | | | 35.62 | | | 0.4 | | | 230.0 | |
Total | 0.8 | | | 39.89 | | | 0.8 | | | |
(1)These amounts include shares purchased as part of our publicly announced programs and shares owned and tendered by team members to satisfy tax withholding obligations on the vesting of restricted share awards, which are not deducted from shares available to be purchased under publicly announced programs. Unless otherwise indicated, shares owned and tendered by team members to satisfy tax withholding obligations were purchased at the average of the high and low prices of the Company’s shares on the date of vesting. During the thirteen week period ended December 23, 2020,29, 2021, 0.2 thousand919 shares were tendered by team members at an average price of $43.9459.03.
(2)The final amount shown is as of December 23, 2020.29, 2021.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit | | Description |
| | Certificate of Incorporation of Registrant, as amended(1) |
| | Bylaws of Registrant(2) |
| | |
| | Certification by Wyman T. Roberts, President and Chief Executive Officer of the Registrant and President of Chili’s Grill & Bar, pursuant to 17 CFR 240.13a – 14(a) or 17 CFR 240.15d – 14(a)* |
| | Certification by Joseph G. Taylor, Executive Vice President and Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a – 14(a) or 17 CFR 240.15d – 14(a)* |
| | Certification by Wyman T. Roberts, President and Chief Executive Officer of the Registrant and President of Chili’s Grill & Bar, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| | Certification by Joseph G. Taylor, Executive Vice President and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | XBRL Schema Document |
101.CAL | | XBRL Calculation Linkbase Document |
101.DEF | | XBRL Definition Linkbase Document |
101.LAB | | XBRL Label Linkbase Document |
101.PRE | | XBRL Presentation Linkbase |
104 | | The cover page from the Registrant's Quarterly Report on Form 10-Q for the thirteen week period ended December 23, 202029, 2021 is formatted in Inline XBRL. |
* Filed herewith.
(1)Filed as an exhibit to Annual Report on Form 10-K for fiscal year ended June 28, 1995 and incorporated herein by reference.
(2)Filed as an exhibit to Annual Report on Form 10-K for fiscal year ended June 27, 2018 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| BRINKER INTERNATIONAL, INC., a Delaware corporation |
|
Date: January 27, 2021February 2, 2022 | By: | | /S/ WYMAN T. ROBERTS |
| | | Wyman T. Roberts, |
| | | President and Chief Executive Officer |
| | | of Brinker International, Inc. |
| | | and President of Chili’s Grill & Bar |
| | | (Principal Executive Officer) |
|
Date: January 27, 2021February 2, 2022 | By: | | /S/ JOSEPH G. TAYLOR |
| | | Joseph G. Taylor, |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |