10q10k10q10k.net

What changed in BRINKER INTERNATIONAL, INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of BRINKER INTERNATIONAL, INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+217 added−229 removedSource: 10-K (2023-08-23) vs 10-K (2022-08-26)

Top changes in BRINKER INTERNATIONAL, INC's 2023 10-K

217 paragraphs added · 229 removed · 161 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+23 added−21 removed23 unchanged
Biggest changeOur no-cost education program, Best You EDU ™ , provides foundational learning, ESL, citizenship preparation courses, GED, associate degree programs and other educational benefits, such as Spanish and standard tuition reimbursement. This program is available for all team members with a minimum of 45 days of tenure and at least 15 hours of work per week.
Biggest changeBeginning in fiscal 2024, our hourly team members identified for potential leadership positions will be immediately elevated to assistant managers and we have discontinued the CSL program. 9 Table of Contents Our no-cost education program, Best You EDU ™ , provides foundational learning, ESL, citizenship preparation courses, GED, associate degree programs and other educational benefits, such as Spanish and standard tuition reimbursement.
These programs, coupled with a general management philosophy emphasizing quality of life, have enabled us to attract and retain key team members. We strive to ensure consistent quality standards in our brands through the issuance of operational manuals covering all elements of operations and food and beverage manuals, which provide guidance for preparation of brand-formulated recipes.
These programs, coupled with a general management philosophy emphasizing quality of life, have enabled us to attract and retain key team members. We strive to provide consistent quality standards in our brands through the issuance of operational manuals covering all elements of operations and food and beverage manuals, which provide guidance for preparation of brand-formulated recipes.
Our domestic expansion efforts focus not only on major metropolitan areas in the United States but also on smaller market areas and partnerships with franchisees to enter non-traditional locations (such as airports and universities) that can adequately support our restaurant brands.
Our domestic expansion efforts focus not only on major metropolitan areas in the United States but also on smaller market areas and partnerships with franchisees to enter non-traditional locations (such as airports) that can adequately support our restaurant brands.
Maggiano’s, as a “polished casual” restaurant with 54 Company-owned and franchise-operated locations, primarily targets guests from affluent households who live and work around the higher-end malls where the majority of Maggiano’s restaurants are located. Maggiano’s relies on digital marketing, direct marketing, social media and word of mouth to advertise.
Maggiano’s, as a “polished casual” restaurant with 52 Company-owned and franchise-operated locations, primarily targets guests from affluent households who live and work around the higher-end malls where the majority of Maggiano’s restaurants are located. Maggiano’s relies on digital marketing, direct marketing, social media and word of mouth to advertise.
Our executive officers have an average of more than 23 years of experience in the restaurant industry. Culture and Wellbeing For decades, our culture has been built on our passion for making people feel special, and that starts with our team members.
Our executive officers have an average of more than 17 years of experience in the restaurant industry. Culture and Wellbeing For decades, our culture has been built on our passion for making people feel special, and that starts with our team members.
For smaller market areas, we have developed a smaller Chili’s building prototype that allows us to expand into these markets and serve our guests while maintaining a focus on profitability and return on invested capital. 5 Table of Contents The restaurant site selection process is critical, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques.
For smaller market areas, we have developed a smaller Chili’s building prototype that allows us to expand into these markets and serve our guests while maintaining a focus on profitability and return on invested capital. The restaurant site selection process is critical, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques.
Our strategic plan is targeted to support our long-term growth objectives, with a focus on continued development of those restaurant locations that have the greatest return potential for the Company and our shareholders. 6 Table of Contents Franchise Development We also pursue expansion through the development of our franchisees.
Our strategic plan is targeted to support our long-term growth objectives, with a focus on continued development of those restaurant locations that have the greatest return potential for the Company and our shareholders. Franchise Development We also pursue expansion through the development of our franchisees.
These young families represent a significant percentage of our guest base today and, we believe, will only grow in importance in the years ahead. We rely on digital marketing, direct marketing, social media and word of mouth to advertise.
These young families represent a significant 8 Table of Contents percentage of our guest base today and, we believe, will only grow in importance in the years ahead. We rely on digital marketing, direct marketing, social media and word of mouth to advertise.
Domestic Franchises As of June 29, 2022, no domestic development arrangement existed, however, certain of our domestic partners have opened new domestic franchised locations. Similar to our international agreements, a typical domestic franchise agreement provides for initial franchise fees revenues in addition to subsequent royalty and advertising fee revenues based on the gross sales of each restaurant.
Domestic Franchises As of June 28, 2023, no domestic development arrangement existed, however, certain of our domestic partners have opened new domestic franchised locations. Similar to our international agreements, a typical domestic franchise agreement provides for initial franchise fees revenues in addition to subsequent royalty and advertising fee revenues based on the gross sales of each restaurant.
To maximize efficiencies, brands continue to utilize common and shared infrastructure, including, among other services, accounting, information technology, purchasing, guest relations, legal, and restaurant development. At the restaurant level, management structure varies by brand.
To maximize efficiencies, brands continue to utilize common and shared infrastructure, including, among other services, accounting, information technology, supply chain, guest relations, legal, and restaurant development. At the restaurant level, management structure varies by brand.
We are working to strengthen the foundation of our culture of inclusion and to build greater diverse leadership at Brinker through the following programs and initiatives: • Journey Groups – Opportunities for team members to connect with other team members interested in taking steps on their personal journey to learn and discuss anti-racism, allyship and equality in a safe space focused on a supporting book, video, podcast, etc. • Women Taking the Lead – Development, mentoring and resources to help professionally develop female leaders • Leaders Leading Through Diversity – A development program to increase diverse representation among restaurant operations leadership • DE&I Training – Online learning paths on topics such as conscious and unconscious bias, as well as additional mandatory training programs for certain operations leaders • Communities of Interest – Five resource groups providing safe spaces for underrepresented groups and allies to develop connections, share ideas and encourage diversity of thought in the organization • Culture of Inclusion Series – Events to help educate team members about inclusion and different cultures • TM Highlights – Opportunities for team members to share their personal stories, experiences, and what inclusion and allyship means to them • Serving it Forward – allows us to go out and support, learn and impact communities to help create a better more-inclusive tomorrow partnering with non-profits that align with our giveback pillars of education, kids and hunger COVID-19 Team Member Support When faced with an unprecedented pandemic, our team members stepped up to the challenge and demonstrated strength, resilience and commitment.
We are working to strengthen the foundation of our culture of inclusion and to build greater diverse leadership at Brinker through the following programs and initiatives: • Journey Groups – Opportunities for team members to connect with other team members interested in taking steps on their personal journey to learn and discuss anti-racism, allyship and equality in a safe space focused on a supporting book, video, podcast, etc. • Women Taking the Lead – Development, mentoring and resources to help professionally develop female leaders. • Leaders Leading Through Diversity – A development program to increase diverse representation among restaurant operations leadership. • DE&I Training – Online learning paths on topics such as conscious and unconscious bias, as well as additional mandatory training programs for certain operations leaders. • Communities of Interest – Six resource groups providing safe spaces for underrepresented groups and allies to develop connections, share ideas and encourage diversity of thought in the organization. • Culture of Inclusion Series – Events to help educate team members about inclusion and different cultures. • TM Highlights – Opportunities for team members to share their personal stories, experiences, and what inclusion and allyship means to them. • Serving it Forward – allows us to go out and support, learn and impact communities to help create a better more-inclusive tomorrow partnering with non-profits that align with our giveback pillars of education, kids and hunger.
Restaurant Brands Chili’s Grill & Bar Chili’s is a recognized leader in the casual dining industry and the flagship brand of Dallas-based Brinker International, Inc. Chili’s has been operating restaurants for over 47 years and enjoys a global presence with restaurants in the United States, 28 countries and two United States territories.
Restaurant Brands Chili’s Grill & Bar Chili’s is a recognized leader in the casual dining industry and the flagship brand of Dallas-based Brinker International, Inc. Chili’s has been operating restaurants for over 48 years and enjoys a global presence with restaurants in the United States, 29 other countries and two United States territories.
We completed the acquisition of Maggiano’s in August 1995. 3 Table of Contents References to “fiscal” or “fiscal year” are to the fiscal year ended of the applicable year. For example, fiscal 2022 refers to the fiscal year ended June 29, 2022.
We completed the acquisition of Maggiano’s in August 1995. 3 Table of Contents References to “fiscal” or “fiscal year” are to the fiscal year ended of the applicable year. For example, fiscal 2023 refers to the fiscal year ended June 28, 2023.
The specific rate at which we are able to open new restaurants is determined, in part, by our success in locating satisfactory sites, negotiating acceptable lease or purchase terms, securing appropriate local governmental permits and approvals, and by our capacity to supervise construction and team member recruitment and training.
The specific rate at which we are able to open new restaurants is determined, in part, by our success in locating satisfactory sites, negotiating acceptable lease or purchase terms, securing appropriate local governmental permits and approvals, our capacity to supervise construction and recruit and train team members.
Our data centers are geographically dispersed, which helps support continuity of our operations and systems. Our systems operate in multiple cloud environments, which gives us ability to scale up infrastructure and provides flexibility for expansion. They are comprised of a combination of internally developed and third-party developed software; our team builds foundational frameworks to integrate and bridge technologies.
Our systems operate in multiple cloud environments, which gives us ability to scale up infrastructure and provides flexibility for expansion. They are comprised of a combination of internally developed and third-party developed software; our team builds foundational frameworks to integrate and bridge technologies.
Of our hourly team members, approximately 28% are full-time and 72% are part-time employees. As of June 29, 2022, approximately 52% of our employees are women and approximately 55% of our employees (who self-identified as a race or ethnicity) are racially or ethnically diverse. Our team members are not covered by any collective bargaining agreements.
Of our hourly team members, approximately 27% are full-time and 73% are part-time employees. As of June 28, 2023, approximately 52% of our employees are women and approximately 56% of our employees (who self-identified as a race or ethnicity) are racially or ethnically diverse. Our team members are not covered by any collective bargaining agreements.
Trademarks We have registered, among other marks, “Brinker International”, “Chili’s”, “Maggiano’s”, “Maggiano’s Little Italy”, “It’s Just Wings” and “Maggiano’s Italian Classics” as trademarks with the United States Patent and Trademark Office. 11 Table of Contents Available Information We maintain a website with the address of http://www.brinker.com.
Trademarks We have registered, among other marks, “Brinker International”, “Chili’s”, “Maggiano’s” and “It’s Just Wings” as trademarks with the United States Patent and Trademark Office. Available Information We maintain a website with the address of http://www.brinker.com.
As of June 29, 2022, we have 15 active development arrangements. During fiscal 2022, we opened 12 new locations, and entered into two new arrangements, both with existing franchise partners. We plan to strategically pursue expansion of Chili’s internationally in areas where we see the most growth opportunities.
As of June 28, 2023, we have 18 active development arrangements. During fiscal 2023, we opened 18 new locations, and entered into three new arrangements, both with existing and new franchise partners. We plan to strategically pursue expansion of Chili’s internationally in areas where we see the most growth opportunities.
The operating results for 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. Business Strategy We are committed to strategies and a Company culture that we believe will improve guest traffic, grow sales and profits, and engage team members.
The operating results for 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. 4 Table of Contents Business Strategy We are committed to strategies and a Company culture that we believe will grow sales, increase profits, bring back guests and engage team members.
We own, develop, operate and franchise the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands, as well as certain virtual brands including It’s Just Wings ® and Maggiano’s Italian Classics ® .
We own, develop, operate and franchise the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands, as well as a virtual brand, It’s Just Wings ® .
In addition, you may view and obtain, free of charge, at our website, copies of our corporate governance materials, including: Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Governance and Nominating Committee Charter, Code of Conduct for the Board of Directors, Brinker International Code of Conduct - Making People Feel Special and Policy Governing the Improper Use of Materials.
In addition, you may view and obtain, free of charge, at our website, copies of our corporate governance materials, including: Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Governance and Nominating Committee Charter, Code of Conduct for the Board of Directors, Brinker International Inc.
We remain committed to supporting the growth of our existing franchisees. 7 Table of Contents Restaurant Management Our Chili’s and Maggiano’s brands have separate designated teams who support each brand, including operations, finance, franchise, marketing, human resources and culinary. We believe these strategic, brand-focused teams foster the identities of the individual and uniquely positioned brands.
Restaurant Management Our Chili’s and Maggiano’s brands have separate designated teams who support each brand, including operations, finance, franchise, marketing, human resources and culinary. We believe these strategic, brand-focused teams foster the identities of the individual and uniquely positioned brands.
In the event site deterioration occurs, each brand makes a concerted effort to improve the restaurant’s performance by providing physical, operating, and marketing enhancements unique to each restaurant’s situation.
In the event that a restaurant’s financial performance falls below expectations, each brand makes a concerted effort to improve the restaurant’s performance by providing physical, operating, and marketing enhancements unique to each restaurant’s situation.
We celebrate the differences that make us stronger. We are committed to a workplace environment where every team member feels that they belong and where every team member can succeed. Our Board of Directors through its committees provides oversight for aspects of our culture equity and inclusion.
We celebrate the differences that make us stronger. We are committed to a workplace environment where every team member feels that they belong and where every team member can succeed. Our Board’s Talent and Compensation Committee provides oversight for aspects of our culture, equity, and inclusion, in addition to quarterly and annual reviews by our Board of Directors.
The following table illustrates the franchise-operated restaurants opened during fiscal 2022 and the projected openings for fiscal 2023.
The following table illustrates the franchise-operated restaurants opened during fiscal 2023 and the projected openings for fiscal 2024. The fiscal 2024 projected openings remain subject to change.
In addition to our career development programs discussed above, we provide resources and opportunities to raise millions of dollars 9 Table of Contents annually for charitable causes, and we provide annual fitness reimbursements for salaried team members and free mental health counselling for those enrolled in our benefit plans.
This program focuses on five areas of wellbeing: career, social, financial, physical/emotional and community. In addition to our career development programs discussed above, we provide resources and opportunities to raise millions of dollars annually for charitable causes, and we provide annual fitness reimbursements for salaried team members and free mental health counselling for those enrolled in our benefit plans.
The fiscal 2023 projected openings remain subject to change based on the extent and duration of the COVID-19 pandemic: Fiscal 2022 Fiscal 2023 Fiscal Year Openings Projected Openings Franchise-operated restaurants Chili’s domestic 2 1-3 Chili’s international 12 16-20 Maggiano’s domestic — — Total openings 14 17-23 The following table illustrates the percentages of franchise-operated restaurants out of the total Company-owned and franchise-operated restaurants as of June 29, 2022, by restaurant brand: Percentage of Franchise-Operated Restaurants Domestic (1) International (2) Overall (3) Brinker 8 % 99 % 28 % Chili’s 8 % 99 % 29 % Maggiano’s 4 % — % 4 % (1) Domestic franchise-operated restaurants as a percentage of total domestic restaurants.
Fiscal 2023 Fiscal 2024 Fiscal Year Openings Projected Openings Franchise-operated restaurants Chili’s domestic 2 0-1 Chili’s international 18 19-24 Maggiano’s domestic — — Total openings 20 19-25 The following table illustrates the percentages of franchise-operated restaurants out of the total Company-owned and franchise-operated restaurants as of June 28, 2023, by restaurant brand: Percentage of Franchise-Operated Restaurants Domestic (1) International (2) Overall (3) Brinker 8 % 99 % 28 % Chili’s 8 % 99 % 29 % Maggiano’s 4 % — % 4 % (1) Domestic franchise-operated restaurants as a percentage of total domestic restaurants.
We believe these acquisitions represent an opportunity to create value for our shareholders and to generate additional earnings and cash flow growth.
We 7 Table of Contents believe these acquisitions represent an opportunity to create value for our shareholders and to generate additional earnings and cash flow growth. We remain committed to supporting the growth of our existing franchisees.
We believe that hiring, training, mentoring and supporting team members is the key to retention and living our culture. We strive to help our team members turn their restaurant jobs into lasting careers.
We believe that hiring, training, mentoring and supporting team members is the key to retention and living our culture. We strive to help our team members turn their restaurant jobs into lasting careers. We provide separate development programs for each of our new managers, managers preparing to become general managers and general managers preparing to become directors of operations.
Brinker cares about the health and wellbeing of all team members and provides resources and opportunities to help team members be their best, while at work and at home with their family, with our Be Well program. This program focuses on five areas of wellbeing: career, social, financial, physical/emotional and community.
Beginning in fiscal 2024 this program is available to all team members on their first day of employment. Brinker cares about the health and wellbeing of all team members and provides resources and opportunities to help team members be their best, while at work and at home with their family, with our Be Well program.
Each brand is responsible for maintaining their operational training program. Depending on the brand, the training program typically includes a training period of two to three months for restaurant management trainees, as well as special training for high-potential team members and managers.
Depending on the brand, the training program typically includes a training period of two to three months for restaurant management trainees, as well as special training for high-potential team members and managers. We also provide recurring management training for managers and supervisors to improve effectiveness or prepare them for more responsibility.
Our full carryout menu is also available for pick up or delivered through third-party delivery providers. Each Maggiano’s has an executive chef preparing authentic recipes from scratch ingredients. Dishes are served in abundant portions both à la carte and family style. We offer a full range of lunch and dinner options, complimented by a premium wine list and handcrafted cocktails.
Most locations feature designated banquet facilities and all offer catering for large parties at homes or local businesses. Our full carryout menu is also available for pick up or delivered through third-party delivery providers. Each Maggiano’s has an executive chef preparing authentic recipes from scratch ingredients. Dishes are served in abundant portions both à la carte and family style.
The information contained on our website is not a part of this Annual Report on Form 10-K.
Code of Conduct - Making People Feel Special and Policy Governing the Improper Use of Materials. The information contained on our website is not a part of this Annual Report on Form 10-K.
A typical restaurant is led by a management team including a general managing partner, two additional managers and certified shift leaders and for Maggiano’s, an executive chef partner with an additional two to three chefs. The level of restaurant supervision depends upon the operating complexity and sales volume of individual locations.
A typical restaurant is led by a management team including a general manager and two to three additional managers; and for Maggiano’s, an executive chef partner with an additional two to three chefs.
Whether domestic or international, Company-owned or franchised, Chili’s is dedicated to delivering fresh and high-quality food with value-centric offerings such as 3 for Me, as well as dining experiences that make guests feel special.
Whether domestic or international, or franchised, Chili’s is dedicated to delivering delicious and craveable food with value-centric offerings such as “3 for Me” starting at only $10.99, as well as dining experiences in a vibrant atmosphere that make guests feel special.
With a passion for making people feel special, the brand is known for catering to special occasions and large parties. Each Maggiano’s location is uniquely designed and features open dining rooms with fresh flowers, warm carpets and soft lighting. Most locations feature designated banquet facilities and all offer catering for large parties at homes or local businesses.
Maggiano’s Little Italy Maggiano’s is a full-service, national, polished casual restaurant brand offering Italian-American cuisine. With a passion for making people feel special, the brand is known for catering to special occasions and large parties. Each Maggiano’s location is uniquely designed and features open dining rooms with fresh flowers, warm carpets and soft lighting.
Company Development During fiscal 2022, we continued the expansion of our restaurant brands domestically through new Company-owned restaurants in strategically desirable markets. We concentrate on the development of certain identified markets that are most likely to improve our competitive position and achieve the desired level of marketing potential, profitability and return on invested capital.
We concentrate on the development within certain identified markets that we believe are most likely to improve our competitive position and achieve the desired level of market share potential, profitability and return on invested capital.
Routine restaurant visits by all levels of management from our President and CEO and Chili’s Leadership Team to our Vice Presidents of Operations and Directors of Operations enforce strict adherence to our overall brand standards and operating procedures and also create an opportunity to capture and act on feedback so we continue to improve.
Routine restaurant visits by Regional Management and brand and executive leadership enforce strict adherence to our overall brand standards and operating procedures and also create an opportunity to capture and act on feedback so we continue to improve. Each brand is responsible for maintaining their operational training program.
The fiscal 2023 projected openings remain subject to change: Fiscal 2022 Fiscal 2023 Fiscal Year Openings Projected Openings Company-owned restaurants Chili’s domestic 5 18 Chili’s international — — Maggiano’s domestic — — Total Company-owned new openings 5 18 Company-owned relocations Chili’s domestic — 1 We periodically re-evaluate Company-owned restaurant sites to monitor that their attributes have not deteriorated below our minimum standards.
The fiscal 2024 projected openings remain subject to change: Fiscal 2023 Fiscal 2024 Fiscal Year Openings Projected Openings Company-owned restaurants Chili’s domestic 14 12 Chili’s international — — Maggiano’s domestic — — Total Company-owned new openings 14 12 Company-owned relocations Chili’s domestic 1 — We periodically evaluate the financial performance of Company-owned restaurants to assess whether performance has fallen below our minimum standards.
Our existing cyber security policy includes continuous monitoring and detection programs, network security precautions, encryption of critical data, in depth security assessment of vendors and incident response guidelines. We continue to invest and innovate around the areas of protection of systems, sensitive data, technology and processes using third-party and in-house tools and resources.
We continue to invest and innovate around the areas of protection of systems, sensitive data, technology and processes using third-party and in-house tools and resources.
Sales from events at our banquet facilities made up 12.5% and 4.8% of Maggiano’s Company sales in fiscal 2022 and 2021, respectively.
Sales from events at our banquet facilities made up 14.5% and 12.5% of Maggiano’s Company sales in fiscal 2023 and 2022, respectively. Food and non-alcoholic beverage sales accounted for 87.6% of Maggiano’s Company sales for fiscal 2023 with alcoholic beverage sales accounting for the remainder.
Our To-Go menu is now available through the Chili’s mobile app, chilis.com, our delivery partners DoorDash, Uber Eats and Grubhub, Google Food Ordering or by calling the restaurant directly. In dining rooms, we use tabletop devices to engage our guests at the table.
Investments in our technology and off-premise options have enabled us to provide a faster, more convenient dine-in experience and to offer more To-Go and delivery options for our guests. Our To-Go menu is available through the Chili’s mobile app, chilis.com, our delivery partners DoorDash, Uber Eats and Grubhub, Google Food Ordering or by calling the restaurant directly.
In fiscal 2022, entrée selections ranged in menu price from $8.99 to $42.99. Our average annual sales per Maggiano’s restaurant in fiscal 2022 was $8.1 million, and the average revenue per meal, including alcoholic beverages, was approximately $29.40 per guest.
We offer a full range of lunch and dinner options, complimented by a premium wine list and handcrafted cocktails. In fiscal 2023, entrée selections ranged in menu price from $9.99 to $44.99. Our average annual sales per Maggiano’s restaurant in fiscal 2023 was $9.5 million and the average revenue per meal, including alcoholic beverages, was approximately $32.28 per guest.
We believe our shift in focusing on a few core equities on our menu, our fun laid-back Chilihead culture, and our strong hospitality standards that prioritize making our guests feel special have allowed Chili’s to differentiate its high-quality food and service from other casual dining restaurants.
We believe our shift in focusing on four core equities, simplifying our menu, being intentional about our fun laid-back Chilihead culture, and maintaining our strong hospitality standards allow Chili’s to differentiate its high-quality food and service from other casual dining restaurants. In fiscal 2023, entrée selections at our Company-owned restaurants ranged in menu price from $8.29 to $23.17.
We also use purchase commitment contracts when appropriate to stabilize the potentially volatile pricing associated with certain commodity items. All essential products are available from pre-qualified distributors to be delivered to our restaurant brands. Although we have not experienced significant supply chain disruptions since the COVID-19 pandemic, we have experienced limited product shortages in our supply chain.
These requirements are intended to ensure high-quality products are served in each of our restaurants. We strategically negotiate directly with major suppliers to obtain competitive prices. We also use purchase commitment contracts when appropriate to stabilize the potentially volatile pricing associated with certain commodity items. All essential products are available from pre-qualified distributors to be delivered to our restaurant brands.
In some cases, the brand considers relocation to a proximate, more desirable site, or evaluates closing the restaurant if the brand’s measurement criteria, such as cash flow and area demographic trends, do not support relocation.
In some cases, the brand considers relocation to a proximate, more desirable site, or evaluates closing the restaurant if the brand’s measurement criteria, such as cash flow and area demographic trends, do not support relocation. 6 Table of Contents During fiscal 2023, excluding temporary closures, we permanently closed 16 Company-owned Chili’s, including one relocation closure and two Company-owned Maggiano’s restaurants that were performing below our standards and were near or at the expiration of their lease terms.
We have created and implemented technologies to facilitate a contactless guest experience through apps, tabletop and handheld devices and QR code payment. Our restaurant operators utilize our back office systems for inventory control, curbside management, forecasting, demand preparation and productivity. Our service desk supports the needs of both our restaurant support center and each of our restaurants.
Our 10 Table of Contents restaurant operators utilize our back office systems for inventory control, curbside management, forecasting, demand preparation and productivity. Our service desk supports the needs of both our restaurant support center and each of our restaurants. Our data centers are geographically dispersed, which helps support continuity of our operations and systems.
These devices provide functionality for guests to pay at the table, order or re-order, engage in digital entertainment, provide guest feedback and interact with our My Chili’s Rewards program. Our My Chili’s Rewards ® program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency.
Our My Chili’s Rewards loyalty program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency and allows us to communicate and advertise to our guests through email and text.
Historically, the menu featured bold, kicked-up American favorites and Chili’s has built a reputation for big mouth burgers, full-on sizzling fajitas, baby back ribs and hand-shaken margaritas. In recent years, our culinary innovations have focused on these core food offerings.
Our menu features bold, Southwest inspired American favorites and Chili’s has built a reputation for big mouth burgers, full-on sizzling fajitas, crispy Chicken Crispers ® and hand-shaken margaritas. As part of our new strategy, we’re improving and innovating on these four core food and drink offerings.
We also provide recurring management training for managers and supervisors to improve effectiveness or prepare them for more responsibility. Supply Chain and Quality Assurance Our ability to maintain consistent quality and continuity of supply throughout each restaurant brand depends upon acquiring products from reliable sources.
Supply Chain and Quality Assurance Our ability to maintain consistent quality and continuity of supply throughout each restaurant brand depends upon acquiring products from reliable sources. Our approved suppliers and our restaurants are required to adhere to strict product and safety specifications established through our quality assurance and culinary programs.
We believe our information systems are sufficient to support our business and we continually seek to improve our processes based on the strategic and financial priorities of the business. Information and data security is a priority for us, and we are consistently reviewing and evaluating risks and requirements to keep the data we have secure.
We believe our information systems are sufficient to support our business and we continually seek to improve our processes based on the strategic and financial priorities of the business. Our existing cyber security policy includes continuous monitoring and detection programs, network security precautions, encryption of critical data, in depth security assessment of vendors and incident response guidelines.
In addition, Chili’s has focused on a seamless digital experience as our guests’ preferences and expectations around dining convenience have evolved in recent years. Investments in our technology and off-premise options have enabled us to provide a faster, more convenient dine-in experience and to offer more To-Go and delivery options for our guests.
We have increased menu pricing in other areas in light of the inflationary challenges and we have also improved menu offerings and merchandising to incentivize our guests to purchase higher priced items. In addition, Chili’s has focused on a seamless digital experience as our guests’ preferences and expectations around dining convenience have evolved in recent years.
The temporary shutdown of development activities during the COVID-19 pandemic negatively impacted the 2022 opening count. However, in fiscal 2023, we will resume development activities at a higher scale. The following table illustrates the Company-owned restaurants opened during fiscal 2022 and the projected openings for fiscal 2023.
The following table illustrates the Company-owned restaurants opened during fiscal 2023 and the projected openings for fiscal 2024.
We customize offerings for our guests based on their purchase behavior. In fiscal 2022, entrée selections at our Company-owned restaurants ranged in menu price from $8.00 to $21.63. Our average annual net sales per Company-owned Chili’s restaurant during fiscal 2022 was $3.2 million, and the average revenue per meal, including alcoholic beverages, was approximately $16.37 per guest.
Our average annual net sales per Company-owned Chili’s restaurant during fiscal 2023 was $3.4 million, and the average revenue per meal, including alcoholic beverages, was approximately $18.76 per guest. Food and non-alcoholic beverage sales accounted for 89.3% of Chili’s Company sales in fiscal 2023 with alcoholic beverage sales accounting for the remainder.
Removed
Food and non-alcoholic beverage sales accounted for 89.8% and 90.7% of Chili’s Company sales in fiscal 2022 and 2021, respectively, with alcoholic beverage sales accounting for the remainder. Maggiano’s Little Italy Maggiano’s is a full-service, national, polished casual restaurant brand offering Italian-American cuisine.
Added
Virtual Brands Our virtual brand, It’s Just Wings, provides restaurant-like menu offerings that are only available for purchase digitally. It’s Just Wings primarily offers chicken wings available with a variety of different sauces and rubs. It’s Just Wings is available for purchase through our third-party service providers and a brand specific website, itsjustwings.com.
Removed
Food and non-alcoholic beverage sales accounted for 87.0% and 89.2% of Maggiano’s Company sales for fiscal 2022 and fiscal 2021, respectively, with alcoholic beverage sales accounting for the remainder. 4 Table of Contents Virtual Brands We have invested in virtual brands, restaurant-like menu offerings that are only available for purchase digitally, to drive restaurant traffic and sales growth.
Added
Maggiano’s Italian Classics, which offered a select group of items inspired by the menu at Maggiano’s Little Italy, was phased out by the end of fiscal 2023 so we can focus on the Chili’s strategies discussed below.
Removed
Our virtual brands have enabled 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 our restaurants’ kitchens.
Added
Our strategies and culture are intended to strengthen our position in casual dining and grow our core business over time. Chili’s Our strategy is to make everyone feel special through a fun atmosphere, delicious food and drinks and our Chili’s hospitality.
Removed
It’s Just Wings, launched on June 23, 2020, and is a no-frills offering that consists of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing and hand pies for a value price.
Added
We are making work at Chili’s easier, more fun and more rewarding for our team members so that they are more engaged and provide a better experience for our guests. One way we have done this is by eliminating tasks that were unnecessary and did not add value to our guests.
Removed
Maggiano’s Italian Classics offers a select group of items inspired by the menu at Maggiano’s Little Italy, including several appetizers, salads, pastas, entrées and hand pies. These brands are available for purchase through our third-party service providers including DoorDash, Google Food Ordering, Uber Eats, as well as the brand specific websites, itsjustwings.com and maggianosclassics.com.
Added
We have also simplified our menu to focus on core equities we believe can help grow sales—burgers, fajitas, Chicken Crispers, and margaritas, as well as other classic favorites. Our team members can make our core menu items better and more consistently because we have fewer menu items that need to be perfected.
Removed
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 managing our restaurants to establish a lasting presence for our brands in key markets around the world.
Added
We are improving our hospitality by scheduling more team members per shift to serve our guests and by improving systems and technology that can help with our order accuracy and guest experience. Another priority is having clean and well-maintained restaurants that provide an inviting atmosphere for team members to work and guests to dine.
Removed
Our primary strategy is to make our guests feel special through great food and quality service so that they return to our restaurants. We differentiate Chili’s from our competitors with a flexible platform of value offerings at both lunch and dinner and are committed to offering consistent, quality products at a price point that is compelling to our guests.
Added
We have a flexible platform of value offerings at both lunch and dinner that we believe is compelling to our guests. Our “3 for Me” platform allows guests to enjoy a non-alcoholic drink, an appetizer and certain entrées starting at just $10.99.
Removed
We discontinued the 3 for $10.99 platform and replaced it with 3 for Me, a flexible value bundle providing guests an unbeatable everyday value, while allowing us to be more flexible in terms of pricing, in light of the inflationary challenges. Guests can order customized meals inclusive of a non-alcoholic drink, appetizer and entrée starting at just $10.99.
Added
In fiscal 2023, we returned to advertising on television with a campaign that highlighted this incredible value and we believe our value offerings will continue to be an important traffic driver in the current economic circumstances.
Removed
The bundle can be augmented with a premium appetizer, dessert, or alcoholic beverage, each for just $2.49 extra. Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price. Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise.
Added
In dining rooms, we use tabletop devices with functionality for guests to pay at the table, provide guest feedback and interact with our My Chili’s Rewards ® program.
Removed
We have also invested in our technology and off-premise options as more guests are opting for To-Go and delivery. From the beginning of fiscal 2020 to the end of fiscal 2022, Chili’s off-premise business has grown by 51%. Chili’s partnership with DoorDash was instrumental in offering our guests continued service during the COVID-19 pandemic.
Added
Our servers use handheld tablets to place orders for our guests, increasing the efficiency of our team members and allowing orders to reach our kitchen quicker for better service to our guests. Maggiano’s Little Italy At Maggiano’s, we are focused making our guests feel special.
Removed
During fiscal 2022, we expanded partnerships with third-party delivery companies, and by the end of the year Chili’s, Maggiano’s, and It’s Just Wings brands were available on DoorDash, Uber Eats, and Grubhub. Orders to these third-party delivery companies are sent directly into our point-of-sale system, creating efficiencies and a system that allows us to better serve our guests.
Added
This warm and generous hospitality creates an environment where guests come together to celebrate birthdays, weddings and many more special occasions.
Removed
In addition, Maggiano’s Italian Classics is now available to order through DoorDash and Uber Eats at over 800 Chili’s restaurants. We believe that guests will continue to prefer more convenience and off-premise options. We plan to continue investments in our technology systems to support our To-Go and delivery capabilities.
Added
While our dining rooms support the majority of our business, we have focused on increasing our carry-out and delivery business in recent years, including through partnerships with delivery service providers that have made our restaurants more accessible to guests and helped create an additional significant revenue channel.
Removed
During fiscal 2022, excluding temporary closures, we permanently closed six Company-owned Chili’s restaurants that were performing below our standards and were near or at the expiration of their lease terms.
Added
Our restaurants also have banquet rooms to host large party events and we have a begun to renovate these banquet rooms in certain restaurants to provide a better experience for this profitable revenue channel, particularly during the holiday season in the second and third quarters of the fiscal year. 5 Table of Contents Company Development During fiscal 2023, we continued to develop our restaurant brands domestically through the opening of new Company-owned restaurants in strategically desirable markets.

… 18 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

39 edited+6 added−7 removed92 unchanged
Biggest changeWe compete primarily on the quality, variety and value perception of menu items, as well as the quality and efficiency of service, the attractiveness of facilities and the effectiveness of advertising and marketing programs. Although we may implement a number of business strategies, the success of new products, initiatives and overall strategies is highly difficult to predict.
Biggest changeAlthough we may implement a number of business strategies, the success of new products, initiatives and overall strategies is highly difficult to predict. If we are unable to compete effectively, our gross sales, guest traffic and profitability may decline.
Possible shortages or interruptions in the supply of food items and other products to our restaurants caused by inclement weather; natural disasters such as floods, droughts and hurricanes; health epidemics or pandemics (such as COVID-19); shortages in the availability of truck drivers; the inability of our suppliers to obtain credit in a tight credit market; trade barriers; food safety warnings or advisories or the prospect of such pronouncements; animal disease outbreaks; or other conditions beyond our control could adversely affect the availability, quality and cost of items we buy and the operations of our restaurants.
Possible shortages or interruptions in the supply of food items and other products to our restaurants caused by inclement weather; natural disasters such as floods, droughts and hurricanes; health epidemics or pandemics; shortages in the availability of truck drivers; the inability of our suppliers to obtain credit in a tight credit market; trade barriers; food safety warnings or advisories or the prospect of such pronouncements; animal disease outbreaks; or other conditions beyond our control could adversely affect the availability, quality and cost of items we buy and the operations of our restaurants.
Natural disasters such as earthquakes, hurricanes, and severe adverse weather conditions, climate change and health pandemics (such as COVID-19) whether occurring in the United States or abroad, can keep customers in the affected area from dining out, adversely affect consumer spending and confidence levels and supply availability and costs, cause damage to or closure of restaurants and result in lost opportunities for our restaurants.
Natural disasters such as earthquakes, hurricanes, and severe adverse weather conditions, climate change and health pandemics, whether occurring in the United States or abroad, can keep customers in the affected area from dining out, adversely affect consumer spending and confidence levels and supply availability and costs, cause damage to or closure of restaurants and result in lost opportunities for our restaurants.
The speed at which negative publicity (whether or not accurate) can be disseminated has increased dramatically with the capabilities of the internet. If we are unable to quickly and effectively respond to such reports, we may suffer declines in guest traffic which could materially impact our financial performance.
The speed at which negative publicity (whether or not accurate) can be disseminated has increased dramatically with the capabilities of social media and the internet. If we are unable to quickly and effectively respond to such reports, we may suffer declines in guest traffic which could materially impact our financial performance.
Interim goodwill impairment tests are also required when events or circumstances change between annual tests that would more likely than not reduce the fair value of our reporting units below their carrying value. We performed our annual goodwill impairment test in the second quarter of fiscal 2022 and no indicators of impairment were identified.
Interim goodwill impairment tests are also required when events or circumstances change between annual tests that would more likely than not reduce the fair value of our reporting units below their carrying value. We performed our annual goodwill impairment test in the second quarter of fiscal 2023 and no indicators of impairment were identified.
We are subject to various federal, state and local employment and labor laws and regulations that govern employment and labor matters, including, employment discrimination, minimum wages, work scheduling, overtime, tip credits, tax reporting, working conditions, safety standards, family leave and immigration status.
We are subject to various federal, state and local employment and labor laws and regulations that govern employment and labor matters, including, employment discrimination, minimum wages, work scheduling, overtime, tip credits, tax reporting, working conditions, safety standards, employment of minors, family leave and immigration status.
In addition, our suppliers may be affected by higher minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us. There are no assurances that a combination of cost management and price increases can offset all of the costs associated with compliance.
In addition, our suppliers may be affected by higher 19 Table of Contents minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us. There are no assurances that a combination of cost management and price increases can offset all of the costs associated with compliance.
Any significant increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price .
Any significant increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results. 20 Table of Contents Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price .
The restaurant industry is dependent upon consumer discretionary spending, which is negatively affected by global and domestic economic conditions, such as: fluctuations in disposable income and changes in consumer confidence, the price of gasoline, slow or negative growth, unemployment, credit conditions and availability, volatility in financial markets, inflationary pressures, weakness in the housing market, tariffs and trade barriers, pandemics or public health concerns, and changes in government and central bank monetary policies.
The restaurant industry is dependent upon consumer discretionary spending, which is negatively affected by global and domestic economic conditions, such as: fluctuations in disposable income and changes in consumer confidence, the price of gasoline, slow or negative growth, unemployment, credit conditions and availability, volatility in financial markets, inflationary pressures, weakness in the housing market, tariffs and trade barriers, wars or conflict in certain regions, pandemics or public health concerns, and changes in government and central bank monetary policies.
Macroeconomic and Industry Risks Competition may adversely affect our operations and financial results. The restaurant business is highly competitive as to price, service, restaurant location, convenience, and type and quality of food. We compete within each market with locally-owned restaurants as well as national and regional restaurant chains.
Macroeconomic and Industry Risks Competition may adversely affect our operations and financial results. The restaurant business is highly competitive as to price, service, restaurant location, convenience, and type and quality of food. We compete within each market with locally-owned restaurants as well as national and regional 15 Table of Contents restaurant chains.
We are also impacted by settlements of pending or any future adjustments proposed by taxing and governmental authorities inside and outside of the United 20 Table of Contents States in connection with our tax audits, all of which will depend on their timing, nature and scope.
We are also impacted by settlements of pending or any future adjustments proposed by taxing and governmental authorities inside and outside of the United States in connection with our tax audits, all of which will depend on their timing, nature and scope.
Our reputation and financial results may be negatively impacted by: franchisee defaults in their obligations to us; limitations on our ability to enforce franchise obligations due to bankruptcy proceedings or differences in legal remedies in international markets; franchisee failures to 14 Table of Contents participate in business strategy changes due to financial constraints; franchisee failures to meet obligations to pay employees; and franchisees’ failure to comply with food quality and preparation requirements.
Our reputation and financial results may be negatively impacted by: franchisee defaults in their obligations to us; limitations on our ability to enforce franchise obligations due to bankruptcy proceedings or differences in legal remedies in international markets; franchisee failures to participate in business strategy changes due to financial constraints; franchisee failures to meet obligations to pay employees; and franchisees’ failure to comply with food quality and preparation requirements.
We have been adversely impacted by, and may continue to be adversely impacted by, ongoing macroeconomic challenges in the U.S. and other regions of the world where our franchisees operate arising in connection with the COVID-19 pandemic, including recent labor, commodity, transportation and other inflationary pressures, supply chain disruptions, military conflict and impacts arising from governmental restrictions implemented in certain regions to mitigate against the pandemic.
We have been adversely impacted by, and may continue to be adversely impacted by, ongoing macroeconomic challenges in the U.S. and other regions of the world where our franchisees operate, including recent labor, commodity, transportation and other inflationary pressures, supply chain disruptions, military conflict and impacts arising from governmental restrictions implemented in certain regions to mitigate against the pandemic.
We have disaster recovery procedures and business continuity plans in 17 Table of Contents place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information.
We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information.
If the third-party aggregators that we utilize for delivery cease or curtail their operations, fail to maintain sufficient labor 13 Table of Contents force to satisfy demand, materially change fees, access or visibility to our products or give greater priority or promotions on their platforms to our competitors, our business may be negatively impacted.
If the third-party aggregators that we utilize for delivery cease or curtail their operations, fail to maintain sufficient labor force to satisfy demand, materially change fees, access or visibility to our products or give greater priority or promotions on their platforms to our competitors, our business may be negatively impacted.
Other risk factors that could cause our actual results to differ materially from those indicated in forward-looking statements, include, without limitation, changes in financial and credit markets (including rising interest rates); increased fuel costs and availability for our team members, customers and suppliers; increased health care costs; health epidemics or pandemics (such as COVID-19) or the prospects of these events; changes in consumer behaviors; changes in demographic trends; labor shortages and availability of employees; union organization; strikes; terrorist acts; energy shortages and rolling blackouts; weather and climate change (including, major hurricanes and regional winter storms); inadequate insurance coverage; and limitations imposed by our credit agreements.
Other risk factors that could cause our actual results to differ materially from those indicated in forward-looking statements, include, without limitation, changes in financial and credit markets (including rising interest rates); increased fuel costs and availability for our team members, customers and suppliers; increased health care costs; health epidemics or pandemics or the prospects of these events; changes in consumer behaviors; changes in demographic trends; labor shortages and availability of employees; union organization; strikes; wars or conflicts in certain regions; terrorist acts; energy shortages and rolling blackouts; weather and climate change (including, major hurricanes and regional winter storms); inadequate insurance coverage; and limitations imposed by our credit agreements.
Our guests may be dissatisfied and our sales may decline if we fail to recruit, train and retain managers and team members that effectively implement our business strategy and provide high quality guest service. There is active competition for quality management personnel and hourly team members.
Our guests may be dissatisfied and our sales may decline if we fail to recruit, train and retain managers and team members that effectively implement our business strategy and provide high quality guest service. There is active 13 Table of Contents competition for quality management personnel and hourly team members.
Further, concern over climate change and other environmental sustainability matters, has and may in the future result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment, including greenhouse gas emissions regulations, alternative energy policies, and sustainability 15 Table of Contents initiatives.
Further, concern over climate change and other environmental sustainability matters, has and may in the future result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment, including greenhouse gas emissions regulations, alternative energy policies, and sustainability initiatives.
A high concentration of our Company-owned restaurants are located in Texas, Florida and California comprising 18.5%, 11.6% and 9.5%, respectively, as of June 29, 2022. As a result, we are particularly susceptible to adverse trends and economic conditions in those states.
A high concentration of our Company-owned restaurants are located in Texas, Florida and California comprising 18.7%, 11.6% and 9.5%, respectively, as of June 28, 2023. As a result, we are particularly susceptible to adverse trends and economic conditions in those states.
Our results can be adversely affected by events, such as adverse weather conditions, natural disasters, climate change, pandemics such as the COVID-19 pandemic or other catastrophic events. Adverse weather conditions, natural disasters, climate change or catastrophic events, such as terrorist acts, can adversely impact restaurant sales.
Our results can be adversely affected by events, such as adverse weather conditions, natural disasters, climate change, pandemics or other catastrophic events. Adverse weather conditions, natural disasters, climate change or catastrophic events, such as terrorist acts, can adversely impact restaurant sales.
While our franchise agreements are designed to require our franchisees to maintain brand consistency, the franchise relationship reduces our direct day-to-day oversight of these restaurants and may expose us to risks not otherwise encountered if we maintained ownership and control.
Our franchise related revenue is not material to our total revenues; however, franchise agreements are designed to require our franchisees to maintain brand consistency and the franchise relationship reduces our direct day-to-day oversight of these restaurants and may expose us to risks not otherwise encountered if we maintained ownership and control.
However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims.
However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims. 17 Table of Contents Financial Risks Downgrades in our credit ratings could impact our ability to access capital and materially adversely affect our business, financial condition and results of operations.
For example, in fiscal 2022, we recognized $8.3 million of long-lived asset and lease asset impairment charges as a result of decreased cash flows, and it is possible that we may incur similar charges in greater amounts in the future.
For example, in fiscal 2023, we recognized 18 Table of Contents $12.0 million of long-lived asset and lease asset impairment charges as a result of decreased cash flows, and it is possible that we may incur similar charges in greater amounts in the future.
These risks include: • Difficulties in achieving consistency of product quality and service as compared to domestic operations; • Changes to recipes and menu offerings to meet cultural norms; • Challenges to obtain adequate and reliable supplies necessary to provide menu items and maintain food quality; and • Differences, changes or uncertainties in economic, regulatory, legal, cultural, social and political conditions.
These risks include: • Difficulties in achieving consistency of product quality and service as compared to domestic operations; • Changes to recipes and menu offerings to meet cultural norms; • Challenges to obtain adequate and reliable supplies necessary to provide menu items and maintain food quality; and • Differences, changes or uncertainties in economic, regulatory, legal, cultural, social and political conditions. 14 Table of Contents Failure to protect our service marks or other intellectual property could harm our business.
Failure to protect our service marks or other intellectual property could harm our business. We regard our Chili’s ® and Maggiano’s ® service marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts.
We regard our Chili’s ® and Maggiano’s ® service marks, and other service marks and trademarks related to our restaurant businesses, as having significant value and being important to our marketing efforts.
Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, customer complaints, litigation, illness or health concerns or other issues stemming from one or a limited number of restaurants, regardless of whether such events have a factual basis.
Unfavorable publicity relating to one or more of our restaurants in a particular brand may affect public perception of the brand. 12 Table of Contents Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, customer complaints, litigation, illness or health concerns or other issues stemming from one or a limited number of restaurants, regardless of whether such events have a factual basis.
As a result of the incident, we have taken certain additional preventative measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future cyber-attacks or data loss.
As with many public companies, our defenses are under attack regularly. There have been and will be minor intrusions from time-to-time. As a result of the incident, we have taken certain additional preventative measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future significant cyber-attacks or data loss.
Information and Technology Related Risks We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and teammates or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
Our inability to effectively manage supply chain risk could increase our costs or reduce revenues and limit the availability of products critical to our restaurant operations. 16 Table of Contents Information and Technology Related Risks We are exposed to risks related to cyber security and protection of confidential information, and failure to protect the integrity and security of payment card or individually identifiable information of our guests and teammates or confidential and proprietary information of the Company could damage our reputation and expose us to loss of revenues, increased costs and litigation.
We may not be able to adequately adapt our menu offerings to keep pace with developments in current consumer preferences, which may result in reductions to the revenues generated by our Company-owned restaurants and the payments we receive from franchisees. 12 Table of Contents Food safety incidents at our restaurants or in our industry or supply chain may adversely affect customer perception of our brands or industry and result in declines in sales and profits.
We may not be able to adequately adapt our menu offerings to keep pace with developments in current consumer preferences, which may result in reductions to the revenues generated by our Company-owned restaurants and the payments we receive from franchisees.
The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins. Unfavorable publicity relating to one or more of our restaurants in a particular brand may taint public perception of the brand.
The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
If we are unable to compete effectively, our gross sales, guest traffic and profitability may decline. Global and domestic economic conditions negatively impact consumer discretionary spending and our business operations and could have a material negative effect on our financial performance.
Global and domestic economic conditions negatively impact consumer discretionary spending and our business operations and could have a material negative effect on our financial performance.
Compliance 19 Table of Contents with these laws and regulations can be costly, and a failure or perceived failure to comply with these laws could result in negative publicity or litigation.
Compliance with these laws and regulations can be costly, and a failure or perceived failure to comply with these laws could result in negative publicity or litigation. We have been and are under investigation for compliance periodically, and we have been and will be fined for alleged violations of these regulations.
As operating expenses rise, we, to the extent permitted by competition, recover costs by raising menu prices, or by implementing alternative products, processes or cost reduction procedures.
As operating expenses rise, we, to the extent permitted by competition, recover costs by raising menu prices, or by implementing alternative products, processes or cost reduction procedures. We cannot ensure, however, we will be able to continue to recover some of the increases in operating expenses due to economic conditions, including inflation, in this manner.
If we were required to write down a portion of our goodwill and record related non-cash impairment charges, our financial position and results of operations would be adversely affected. 18 Table of Contents Changes to estimates related to our property and equipment, or operating results that are lower than our current estimates at certain restaurant locations, may cause us to incur impairment charges on certain long-lived assets.
Changes to estimates related to our property and equipment, or operating results that are lower than our current estimates at certain restaurant locations, may cause us to incur impairment charges on certain long-lived assets.
If these trends continue, our ability to grow customer traffic at our restaurants (including through off-premise) will depend on our ability to increase our market share within the casual dining segment. We also face competition from quick service and fast casual restaurants; the convergence in grocery, deli and restaurant services; and meal kit and food delivery providers.
The casual dining segment of the restaurant industry has not seen significant growth in customer traffic in recent years. If these trends continue, our ability to grow customer traffic at our restaurants (including through off-premise) will depend on our ability to increase our market share within the casual dining segment.
Additionally, no indicators of impairment were identified through the end of fiscal 2022. This assessment is predicated on our ability to continue to operate dining and banquet rooms and generate off-premise sales at our restaurants. Management’s judgment about the short and long term impacts of the COVID-19 pandemic could change as additional facts become known and therefore affect these conclusions.
Additionally, no indicators of impairment were identified through the end of fiscal 2023. This assessment is predicated on our ability to continue to operate dining and banquet rooms and generate off-premise sales at our restaurants. We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.
In any such event, the trading price of our securities could decline and you could lose all or part of your investment. Strategic and Operational Risks If we are unable to successfully design and execute a business strategy plan, our gross sales and profitability may be adversely affected.
Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations. Strategic and Operational Risks If we are unable to successfully design and execute a business strategy plan, our gross sales and profitability may be adversely affected.
We cannot ensure, however, we will be able to continue to recover some of the increases in operating expenses due to economic conditions, including inflation, in this manner. 16 Table of Contents Shortages or interruptions in the availability and delivery of food and other products may increase costs or reduce revenues.
Shortages or interruptions in the availability and delivery of food and other products may increase costs or reduce revenues.
For example, declines in oil prices may increase levels of unemployment and cause other economic pressures that result in lower sales and profits at our restaurants in oil market regions of Texas and surrounding areas. The success of our franchisees is important to our future growth. We have a significant percentage of system-wide restaurants owned and operated by our franchisees.
The operational success of our franchise system is important to our business and future international growth. A significant percentage of system-wide restaurants are owned and operated by our franchisees.
Removed
ITEM 1A. RISK FACTORS We caution you that our business, financial condition and results of operations are subject to a number of risks and uncertainties that make an investment in our securities risky.
Added
ITEM 1A. RISK FACTORS Various risks and uncertainties could affect our business.
Removed
The risk factors listed below could cause actual results to differ materially from our historical results or from those projected in forward-looking statements contained in this report, our other filings with the SEC, our news releases, or our other verbal or written communications.
Added
In addition to the information contained elsewhere in this report and other filings that we make with the SEC, the risk factors described below could have a material impact on 11 Table of Contents our business, financial condition, results of operation, cash flows or the trading price of our common stock. It is not possible to identify all risk factors.
Removed
In addition to the effects of the COVID-19 pandemic and resulting disruptions on our business and operations and in the risk factors below, additional risks and uncertainties that are currently not known or believed by us to be immaterial may also have a material negative impact on our business, financial condition and results of operations.
Added
Food safety incidents at our restaurants or in our industry or supply chain may adversely affect customer perception of our brands or industry and result in declines in sales and profits.
Removed
The casual dining segment of the restaurant industry has not seen significant growth in customer traffic in recent years and saw a significant decrease as a result of the COVID-19 pandemic, from which a full recovery has not yet been made.
Added
Our international restaurants are substantially all franchised and our ability to grow internationally is largely dependent on the success of our franchise partners in developing and maintaining new restaurants.
Removed
Our inability to effectively manage supply chain risk could increase our costs or reduce revenues and limit the availability of products critical to our restaurant operations.
Added
We also face competition from quick service and fast casual restaurants; the convergence in grocery, deli and restaurant services; and meal kit and food delivery providers. We compete primarily on the quality, variety and value perception of menu items, as well as the quality and efficiency of service, the attractiveness of facilities and the effectiveness of advertising and marketing programs.
Removed
Financial Risks Downgrades in our credit ratings could impact our ability to access capital and materially adversely affect our business, financial condition and results of operations.
Added
If we were required to write down a portion of our goodwill and record related non-cash impairment charges, our financial position and results of operations would be adversely affected.
Removed
We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.

Item 2. Properties

Properties — owned and leased real estate

8 edited+1 added−0 removed0 unchanged
Biggest changeJune 29, 2022 Domestic International No. of States No. of countries and U.S. territories Chili’s 49 30 Maggiano’s 23 & D.C. — Restaurant Property Information The following table illustrates the approximate dining room capacity for a prototypical restaurant of each of our brands: Chili’s Maggiano’s Square feet 3,200-8,100 8,100-28,400 Dining seats 140-350 260-770 Dining tables 20-70 60-100 As of June 29, 2022, we own 52 properties of the 1,188 Company-owned restaurant locations.
Biggest changeRestaurant Property Information The following table illustrates the approximate dining room capacity for a prototypical restaurant of each of our brands: Chili’s Maggiano’s Square feet 3,200-8,000 8,200-23,300 Dining seats 140-340 250-760 Dining tables 20-70 40-130 As of June 28, 2023, we own 50 properties of the 1,185 Company-owned restaurant locations.
Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms typically ranging from 1 to 10 years. The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume.
Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms ranging from one to 10 years. The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume.
We and our franchisees also have restaurants in two United States territories, Guam and Puerto Rico, and 28 countries: Bahrain, Canada, Chile, China, Costa Rica, the Dominican Republic, Ecuador, Egypt, Germany, Guatemala, Honduras, India, Japan, Kuwait, Lebanon, Malaysia, Mexico, Morocco, Oman, Peru, Philippines, Qatar, Saudi Arabia, South Korea, Sri Lanka, Taiwan, Tunisia, and the United Arab Emirates.
We and our franchisees also have Chili’s restaurants in two United States territories, Guam and Puerto Rico, and 29 other countries: Bahrain, Canada, Chile, China, Costa Rica, the Dominican Republic, Ecuador, Egypt, Germany, Guatemala, Honduras, India, Japan, Kuwait, Lebanon, Malaysia, Mexico, Morocco, Oman, Pakistan, Peru, 21 Table of Contents Philippines, Qatar, Saudi Arabia, South Korea, Sri Lanka, Taiwan, Tunisia, and the United Arab Emirates.
ITEM 2. PROPERTIES Restaurant Locations As of June 29, 2022, our system of Company-owned and franchise-operated restaurants included 1,650 restaurants.
ITEM 2. PROPERTIES Restaurant Locations As of June 28, 2023, our system of Company-owned and franchise-operated restaurants included 1,657 restaurants.
These leased restaurant locations can be categorized as follows: 773 ground leases (where we lease land only, but construct the building and leasehold improvements) and 363 retail leases (where we lease the land/retail space and building, but construct the leasehold improvements). We believe that our properties are suitable, adequate, well-maintained and sufficient for the operations contemplated.
These leased restaurant locations can be categorized as follows: 777 ground leases (where we lease land only, but construct the building and leasehold improvements) and 358 retail leases (where we lease the land/retail space and building, but construct the leasehold improvements).
Other Properties We lease an office building in Dallas, Texas containing approximately 216,300 square feet which we use for our corporate headquarters and menu development activities. We also lease but have ceased use of our previous headquarters location consisting of 198,000 square feet.
Other Properties We lease an office building in Dallas, Texas containing approximately 216,300 square feet which we use for our corporate headquarters and menu development activities. As of June 28, 2023, we have also acquired land for a future Company-owned restaurant location with a value of $0.8 million.
The below table contains a breakdown of our portfolio of restaurants: June 29, 2022 Domestic International Total Chili’s Company-owned 1,131 5 1,136 Franchise 101 359 460 1,232 364 1,596 Maggiano’s Company-owned 52 — 52 Franchise 2 — 2 54 — 54 System-wide 1,286 364 1,650 21 Table of Contents Our Company-owned and franchise-operated restaurants in the United States are located in 49 states and Washington, D.C.
The below table contains a breakdown of our portfolio of restaurants: June 28, 2023 Domestic International Total Chili’s Company-owned 1,130 5 1,135 Franchise 101 369 470 1,231 374 1,605 Maggiano’s Company-owned 50 — 50 Franchise 2 — 2 52 — 52 System-wide 1,283 374 1,657 Our Chili’s domestic Company-owned and franchise-operated restaurants are located in 49 states.
The related book value of these owned restaurant locations as of June 29, 2022 includes Land of $42.9 million and the net book value of Buildings and leasehold improvements totaling $14.9 million. The remaining 1,136 Company-owned restaurant locations are leased by us and the net book value of the Buildings and leasehold improvements totaled $475.1 million.
The related book value of these owned restaurant locations as of June 28, 2023 includes Land of $41.6 million and the net book value of Buildings and improvements totaling $12.6 million. In fiscal 2023, we sold Land related to three closed restaurants, with a combined book value of $1.8 million. The remaining 1,135 Company-owned restaurant locations are leased.
Added
Our Maggiano’s Company-owned and franchise-operated restaurants are located in 22 states and Washington, D.C.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS This information is set forth within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 16 - Commitments and Contingencies of this Annual Report on Form 10-K is incorporated herein by reference.
Biggest changeITEM 3. LEGAL PROCEEDINGS This information is set forth within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 9 - Commitments and Contingencies of this Annual Report on Form 10-K is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−3 removed1 unchanged
Biggest changeDuring the thirteen week period ended June 29, 2022 , we repurchased 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) March 31, 2022 through May 4, 2022 — $ — — $ 204.0 May 5, 2022 through June 1, 2022 0.0 $ 38.83 — $ 204.0 June 2, 2022 through June 29, 2022 — $ — — $ 204.0 Total 0.0 $ 38.83 — (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.
Biggest changeThe Company did not repurchase any shares under the repurchase program in fiscal 2023. 23 Table of Contents During the thirteen week period ended June 28, 2023, we repurchased 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) March 30, 2023 through May 3, 2023 0.0 $ 38.62 — $ 204.0 May 4, 2023 through May 31, 2023 — — — 204.0 June 1, 2023 through June 28, 2023 0.1 38.83 — $ 204.0 Total 0.1 $ 38.81 — (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.
The graph is based on $100 invested as of June 28, 2017 in the Company’s common stock and each index, including the reinvestment of all dividends. The values shown below are neither indicative nor determinative of future performance.
The graph is based on $100 invested as of June 27, 2018 in the Company’s common stock and each index, including the reinvestment of all dividends. The values shown below are neither indicative nor determinative of future performance.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “EAT”, and as of August 19, 2022, there were 453 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “EAT”, and as of August 18, 2023, there were 430 holders of record of our common stock.
Comparison of Five Year Cumulative Total Return The graph below presents Brinker International, Inc.’s cumulative 5-Year total shareholder return on common stock relative to the cumulative total returns of the S&P 500 index and the S&P Restaurants index for the period of June 28, 2017 through June 29, 2022.
Comparison of Five Year Cumulative Total Return The graph below presents Brinker International, Inc.’s cumulative 5-Year total shareholder return on common stock relative to the cumulative total returns of the S&P 500 index and the S&P Restaurants index for the period of June 27, 2018 through June 28, 2023.
Brands, Inc. Dividend Program In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to the COVID-19 pandemic.
(2) The final amount shown is as of June 28, 2023. Dividend Program In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to the COVID-19 pandemic.
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. In the fourth quarter of fiscal 2022, 563 shares were tendered by team members at an average price of $38.83.
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. In the fourth quarter of fiscal 2023, 70,401 shares were tendered by team members at an average price of $38.81.
Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Brinker International $ 100.00 $ 135.57 $ 108.36 $ 68.61 $ 180.35 $ 65.35 S&P 500 $ 100.00 $ 114.37 $ 126.29 $ 135.77 $ 191.15 $ 170.86 S&P Restaurants (1) $ 100.00 $ 99.39 $ 147.18 $ 134.08 $ 188.11 $ 171.47 (1) The S&P Restaurants Index is comprised of Chipotle Mexican Grill, Inc., Darden Restaurants, Inc., Domino’s Pizza Inc., McDonald’s Corp., Starbucks Corp., and Yum!
Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023 Brinker International, Inc. $ 100.00 $ 79.93 $ 50.61 $ 133.03 $ 48.20 $ 77.86 S&P 500 $ 100.00 $ 110.42 $ 118.70 $ 167.13 $ 149.39 $ 178.66 S&P Restaurants (1) $ 100.00 $ 148.08 $ 134.90 $ 189.26 $ 172.52 $ 223.43 (1) The S&P Restaurants Index is comprised of Chipotle Mexican Grill, Inc., Darden Restaurants, Inc., Domino’s Pizza Inc., McDonald’s Corp., Starbucks Corp., and Yum!
Removed
Refer to Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for further information. 23 Table of Contents Refer to Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note 10 - Debt and Note 13 - Shareholders’ Deficit of this Annual Report on Form 10-K for further discussion of our long-term debt and shareholders’ deficit, respectively.
Added
Brands, Inc. Share Repurchase Program In fiscal 2022, our Board of Directors approved a $300.0 million share repurchase program, and the Company repurchased 2.3 million shares of our common stock for $96.0 million.
Removed
Share Repurchase Program 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 million.
Removed
(2) The final amount shown is as of June 29, 2022. ITEM 6. RESERVED Reserved.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

50 edited+22 added−35 removed17 unchanged
Biggest changeCosts and Expenses The following is a summary of the changes in Costs and Expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 1,048.5 28.2 % $ 867.8 26.4 % $ (180.7) (1.8) % Restaurant labor 1,288.1 34.7 % 1,108.2 33.8 % (179.9) (0.9) % Restaurant expenses 968.3 26.1 % 858.5 26.2 % (109.8) 0.1 % Depreciation and amortization 164.4 150.2 (14.2) General and administrative 144.1 134.8 (9.3) Other (gains) and charges 31.2 19.0 (12.2) Interest expenses 46.1 56.2 10.1 Other income, net (1.8) (2.1) (0.3) As a percentage of Company sales: • Food and beverage costs increased 1.8%, consisting of 2.4% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures and 0.3% of unfavorable menu item mix, partially offset by 0.9% of favorable menu pricing. • Restaurant labor increased 0.9%, consisting of 1.6% of higher hourly restaurant labor costs primarily due to increased wage rates, training and overtime and 0.5% of higher manager salaries and training resulting from merit increases and greater than normal manager turnover, partially offset by 1.0% of sales leverage and 0.2% of lower manager bonus expenses. • Restaurant expenses decreased 0.1%, consisting of 1.6% of sales leverage and 0.4% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.5% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher advertising expenses, 0.2% of higher workers’ compensation and general liability expenses and 0.5% of higher other restaurant expenses. 28 Table of Contents Depreciation and amortization increased $14.2 million as follows: Depreciation and Amortization Fiscal year ended June 30, 2021 $ 150.2 Change from: Additions for existing and new restaurant assets 20.5 Acquisition of Chili’s restaurants (1) 6.0 Finance leases 4.9 Corporate assets 1.8 Retirements and fully depreciated restaurant assets (18.6) Other (0.4) Fiscal year ended June 29, 2022 $ 164.4 (1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022.
Biggest changeCosts and Expenses The following is a summary of the changes in Costs and Expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 1,146.3 28.0 % $ 1,048.5 27.9 % $ (97.8) (0.1) % Restaurant labor 1,389.3 34.0 % 1,288.1 34.2 % (101.2) 0.2 % Restaurant expenses 1,097.5 26.8 % 968.3 25.7 % (129.2) (1.1) % Depreciation and amortization 168.5 164.4 (4.1) General and administrative 154.5 144.1 (10.4) Other (gains) and charges 32.7 31.2 (1.5) Interest expenses 54.9 46.1 (8.8) Other income, net (1.3) (1.8) (0.5) As a percentage of Company sales: • Food and beverage costs increased 0.1%, including 3.3% of higher poultry, meat, produce and other commodity costs resulting from inflationary pressures, partially offset by 2.4% of favorable menu pricing and 0.8% of favorable menu item mix. • Restaurant labor decreased 0.2%, including 2.5% of sales leverage and 0.2% of lower other restaurant labor, partially offset by 1.4% of higher hourly restaurant wages due to increased staffing levels and higher wage rates and 1.1% of higher manager salaries and bonus expenses. • Restaurant expenses increased 1.1%, driven by 0.8% of higher repairs and maintenance, 0.5% of higher advertising, 0.3% of higher utilities, 0.3% of higher workers’ compensation and general liability insurance, 0.2% of higher rent and 0.5% of higher other restaurant expenses.
We recognize breakage income in Franchise and other revenues in the Consolidated Statements of Comprehensive Income. We update our breakage rate estimate periodically and, if necessary, adjust the deferred revenues balance accordingly. If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from the amounts recorded.
We recognize breakage income in Franchise revenues in the Consolidated Statements of Comprehensive Income. We update our breakage rate estimate periodically and, if necessary, adjust the deferred revenues balance accordingly. If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from the amounts recorded.
For an understanding of the significant factors that influenced our performance, the MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements included in Part II, Item 8 - Financial Statements and Supplementary Data of our Annual Report.
For an understanding of the significant factors that influenced our performance, the MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements included in Part II, Item 8 - Financial Statements and Supplementary Data of this report.
Our effective income tax rates for fiscal 2022 and 2021 were lower than the federal statutory tax rate primarily due to the leverage of the FICA tip tax credit relative to Income before income taxes.
Our effective income tax rates for fiscal 2023 and 2022 were lower than the federal statutory tax rate primarily due to the leverage of the FICA tip tax credit relative to Income before income taxes.
Breakage income represents the value associated with the portion of gift cards sold that will most likely never be redeemed and is estimated based on our historical gift card redemption patterns and actuarial estimates. Breakage revenues are recognized proportionate to the pattern of related gift card redemptions.
Breakage income represents the value associated with the portion of gift cards sold that will most likely never be redeemed and is estimated based on our historical gift card redemption patterns and actuarial estimates. Breakage revenues are recognized proportionate to the pattern of related gift card 33 Table of Contents redemptions.
The $800.0 million revolving credit facility, as amended, 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.
The $900.0 million revolving credit facility, as amended, matures on August 18, 2026 and bears interest of SOFR 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.
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 2022 and Fiscal 2020, which ended on June 29, 2022 and June 24, 2020, respectively, each contained 52 weeks. Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.
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 2023 and Fiscal 2022, which ended on June 28, 2023 and June 29, 2022, respectively, each contained 52 weeks. Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.
For a discussion comparing our results from fiscal 2021 to fiscal 2020, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on August 26, 2021.
For a discussion comparing our results from fiscal 2022 to fiscal 2021, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2022, filed with the SEC on August 26, 2022.
The interest rates on the notes are fixed whereas the interest rate on the revolver is variable based on LIBOR and our applicable margin.
The interest rates on the notes are fixed whereas the interest rate on the revolver is variable based on SOFR and our applicable margin.
Changing our breakage-rate assumption used to record breakage attributable to gift cards sold in fiscal 2022 by 50 basis points would result in an impact to the Consolidated Statements of Comprehensive Income of approximately $0.7 million on the current year.
Changing our breakage-rate assumption used to record breakage attributable to gift cards sold in fiscal 2023 by 50 basis points would result in an impact to the Consolidated Statements of Comprehensive Income of approximately $0.6 million on the current year.
The impairment test is a two-step process. Step one includes comparing the operating cash flows of each restaurant over its remaining service life to the carrying value of the asset group. If the cash flows exceed the carrying value, then the asset group is not impaired, and no further evaluation is required.
Step one includes comparing the operating cash flows of each restaurant over its remaining service life to the carrying value of the asset group. If the cash flows exceed the carrying value, then the asset group is not impaired, and no further evaluation is required.
(2) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests. 27 Table of Contents (3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisition of 68 Chili’s restaurants in fiscal 2022.
(2) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests. 27 Table of Contents (3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisitions completed during fiscal 2022.
The table below presents the percentage change in comparable restaurant sales and restaurant capacity for fiscal 2022 compared to fiscal 2021: Comparable Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 12.3 % 3.3 % 4.7 % 4.3 % 4.7 % Chili’s 8.6 % 3.3 % 2.6 % 2.7 % 4.9 % Maggiano’s 53.0 % 2.9 % 16.4 % 33.7 % 0.0 % Franchise (4) 19.2 % U.S. 7.5 % International 28.9 % Chili’s domestic (5) 8.3 % System-wide (6) 13.2 % (1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months.
The table below presents the percentage change in comparable restaurant sales and restaurant capacity for fiscal 2023 compared to fiscal 2022: Comparable Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 8.1 % 9.0 % 4.4 % (5.3) % 1.7 % Chili’s 7.0 % 9.2 % 4.7 % (6.9) % 1.8 % Maggiano’s 17.3 % 7.9 % 2.8 % 6.6 % (2.1) % Franchise (4) 9.6 % U.S. 3.3 % International 13.3 % Chili’s domestic (5) 6.5 % System-wide (6) 8.4 % (1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 full months.
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 16 - Commitments and Contingencies included within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Off -Balance Sheet Arrangements We have entered into certain pre-commencement leases as disclosed in Note 7 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 9 - Commitments and Contingencies included within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. 38 Table of Contents
Our purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages, software, professional services contracts and electricity, and exclude agreements that are cancellable without significant penalty.
Our purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages, software and professional services contracts, as well as non-cancellable insurance premiums, and exclude agreements that are cancellable without significant penalty.
Our MD&A consists of the following sections: • Overview - a brief description of our business and a discussion on the financial impact of the COVID-19 pandemic and other trends impacting our business • Results of Operations - an analysis of the Consolidated Statements of Comprehensive Income included in the Consolidated Financial Statements • Liquidity and Capital Resources - an analysis of cash flows, including capital expenditures, aggregate contractual obligations, share issuance and repurchase activity, and known trends that may impact liquidity • Off-Balance Sheet Arrangements - a discussion of the off-balance sheet arrangements entered into by us 24 Table of Contents • Critical Accounting Estimates - a discussion of accounting policies that require critical judgments and estimates including recent accounting pronouncements The following MD&A includes a discussion comparing our results in fiscal 2022 to fiscal 2021.
Our MD&A consists of the following sections: • Overview - a brief description of our business and a discussion on the financial impact of COVID-19 and other trends impacting our business; • Results of Operations - an analysis of the Consolidated Statements of Comprehensive Income included in the Consolidated Financial Statements; • Liquidity and Capital Resources - an analysis of cash flows, including capital expenditures, aggregate contractual obligations, financing activity, and known trends that may impact liquidity, including off-balance sheet arrangements; and 24 Table of Contents • Critical Accounting Estimates - a discussion of accounting policies that require critical judgments and estimates, including recent accounting pronouncements.
(3) Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options. As of June 29, 2022, these total future lease payments included non-cancelable lease commitments of $90.1 million for finance leases and $1,110.4 million for operating leases.
(3) Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options. As of June 28, 2023, these total future lease payments included non-cancelable lease commitments of $63.6 million for finance leases and $1,067.6 million for operating leases.
Income Taxes Fiscal Years Ended June 29, 2022 June 30, 2021 Effective income tax rate (2.1) % 9.4 % The federal statutory tax rate was 21.0% for both fiscal 2022 and 2021.
Income Taxes Fiscal Years Ended June 28, 2023 June 29, 2022 Effective income tax rate (13.0) % (2.1) % The federal statutory tax rate was 21.0% for both fiscal 2023 and 2022.
Refer to the “Revenues” section above for further details about Chili’s revenues changes. 30 Table of Contents The following is a summary of the changes in Chili’s operating costs and expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 945.9 28.6 % $ 803.5 26.7 % $ (142.4) (1.9) % Restaurant labor 1,146.5 34.7 % 1,014.2 33.7 % (132.3) (1.0) % Restaurant expenses 849.8 25.7 % 765.6 25.5 % (84.2) (0.2) % Depreciation and amortization 139.8 124.3 (15.5) General and administrative 33.3 27.4 (5.9) Other (gains) and charges 23.3 12.7 (10.6) As a percentage of Company sales: • Chili’s Food and beverage costs increased 1.9%, including 2.7% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.8% of increased menu pricing. • Chili’s Restaurant labor increased 1.0%, including 1.5% of higher restaurant hourly labor costs primarily due to increased wage rates, training and overtime and 0.6% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 0.7% of sales leverage, 0.3% of lower manager bonus expenses and 0.1% of lower other restaurant labor costs. • Chili’s Restaurant expenses increased 0.2%, including 0.4% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher rent expenses, 0.3% of higher advertising expenses and 0.3% of higher other restaurant expense.
Refer to the “Revenues” section above for further details about Chili’s revenues changes. 30 Table of Contents The following is a summary of the changes in Chili’s operating costs and expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 1,022.9 28.3 % $ 945.9 28.4 % $ (77.0) 0.1 % Restaurant labor 1,232.3 34.2 % 1,146.5 34.3 % (85.8) 0.1 % Restaurant expenses 966.2 26.8 % 849.8 25.4 % (116.4) (1.4) % Depreciation and amortization 145.3 139.8 (5.5) General and administrative 35.5 33.3 (2.2) Other (gains) and charges 22.0 23.3 1.3 As a percentage of Company sales: • Chili’s Food and beverage costs decreased 0.1%, including 2.5% of favorable menu pricing and 1.0% of favorable menu item mix, partially offset by 3.4% of higher poultry, meat, produce and other commodity costs resulting from inflationary pressures. • Chili’s Restaurant labor decreased 0.1%, including 2.4% of sales leverage and 0.1% of lower other restaurant labor, partially offset by 1.2% of higher restaurant hourly wages and 1.2% of higher manager salaries and bonus expenses. • Chili’s Restaurant expenses increased 1.4%, driven by 0.8% of higher repairs and maintenance, 0.6% of higher advertising, 0.3% of higher workers’ compensation and general liability insurance, 0.2% of higher utilities, 0.2% of higher rent, and 0.5% of higher other restaurant expense.
As of June 29, 2022, we were in compliance with our covenants pursuant to the $800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes.
As of June 28, 2023, we were in compliance with our covenants pursuant to the $900.0 million revolving credit facility and under the terms of the indentures governing our 2024 Notes and 2030 Notes.
Cash Flows from Financing Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Cash flows from financing activities Borrowings on revolving credit facility $ 720.5 $ 43.4 $ 677.1 Payments on revolving credit facility (620.5) (345.0) (275.5) Purchases of treasury stock (100.9) (4.2) (96.7) Payments on long-term debt (23.7) (20.0) (3.7) Payments of dividends (1.1) (1.5) 0.4 Proceeds from issuance of treasury stock 0.4 30.7 (30.3) Payments for debt issuance costs (3.1) (2.2) (0.9) Net cash used in financing activities $ (28.4) $ (298.8) $ 270.4 Net cash used in financing activities decreased primarily due to $100.0 million of net borrowing activity in fiscal 2022 compared to $301.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially 34 Table of Contents offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021 and a decrease in proceeds from employee stock option exercises.
Cash Flows from Financing Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Cash flows from financing activities Borrowings on revolving credit facility $ 765.0 $ 720.5 $ 44.5 Payments on revolving credit facility (875.0) (620.5) (254.5) Proceeds from issuance of long-term debt 350.0 — 350.0 Payments on long-term debt (322.1) (23.7) (298.4) Purchases of treasury stock (5.0) (100.9) 95.9 Proceeds from issuance of treasury stock 12.5 0.4 12.1 Payments for debt issuance costs (5.3) (3.1) (2.2) Payments of dividends (0.6) (1.1) 0.5 Net cash used in financing activities $ (80.5) $ (28.4) $ (52.1) Net cash used in financing activities increased primarily due to the payoff of the $300.0 million 3.875% notes and $110.0 million of net repayment activity in fiscal 2023 compared to $100.0 million of net borrowing activity in fiscal 2022 on the revolving credit facility, partially offset by proceeds from issuance of the $350.0 million 8.250% notes (the “2030 Notes”), a decrease in share repurchases and an increase in proceeds from employee stock option exercises.
Revenues Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income to provide more clarity around Company-owned restaurant revenues and operating expenses trends: • Company sales include revenues generated by the operation of Company-owned restaurants including sales from gift card redemptions and virtual brands. • Franchise and other revenues include gift card breakage, royalties, Maggiano’s banquet service charge income, delivery income, digital entertainment revenue, advertising revenue, franchise and development fees, gift card equalization, merchandise income and gift card discount costs from third-party gift card sales. 26 Table of Contents The following is a summary of the change in Total revenues: Total Revenues Chili’s Maggiano’s Total Revenues Fiscal year ended June 30, 2021 $ 3,059.9 $ 277.9 $ 3,337.8 Change from: Comparable restaurant sales (1) 239.5 140.3 379.8 53rd week in Fiscal 2021 (62.5) (6.9) (69.4) Restaurant acquisitions (2) 108.0 — 108.0 Restaurant openings 13.5 — 13.5 Restaurant relocations 0.5 — 0.5 Restaurant closures 0.7 — 0.7 Company sales 299.7 133.4 433.1 Royalties (3) 3.7 0.2 3.9 Franchise fees and other revenues (4) 16.3 13.0 29.3 Franchise and other revenues 20.0 13.2 33.2 Fiscal year ended June 29, 2022 $ 3,379.6 $ 424.5 $ 3,804.1 (1) Comparable restaurant sales increased due to higher dining room and delivery sales and traffic during fiscal 2022 partially offset by lower To-Go sales.
Revenues Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income to provide more clarity around Company-owned restaurant revenues and operating expenses trends: • Company sales include revenues generated by the operation of Company-owned restaurants including food and beverage sales, net of discounts, gift card breakage, Maggiano’s banquet service charge income, delivery, digital entertainment revenues, merchandise income and gift card discount costs from third-party gift card sales. • Franchise revenues include royalties, franchise advertising fees, gift card equalization, and franchise and development fees. 26 Table of Contents The following is a summary of the change in Total revenues: Total Revenues Chili’s Maggiano’s Total Revenues Fiscal year ended June 29, 2022 $ 3,379.6 $ 424.5 $ 3,804.1 Change from: Comparable restaurant sales (1) 220.3 68.3 288.6 Restaurant acquisitions (2) 52.6 — 52.6 Restaurant openings 27.7 — 27.7 Maggiano's banquet income — 4.3 4.3 Gift card discount costs 0.9 0.2 1.1 Gift card breakage (3) (17.2) (2.4) (19.6) Merchandise income 0.2 — 0.2 Digital entertainment revenues 2.7 — 2.7 Delivery service fee income (3.1) 0.6 (2.5) Restaurant closures (17.9) (8.5) (26.4) Company sales 266.2 62.5 328.7 Franchise revenues (4) 0.3 0.1 0.4 Fiscal year ended June 28, 2023 $ 3,646.1 $ 487.1 $ 4,133.2 (1) Comparable restaurant sales increased due to menu price increases and favorable menu item mix, partially offset by lower traffic.
All amounts within the MD&A are presented in millions unless otherwise specified. OVERVIEW 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, as well as virtual brands including It’s Just Wings ® and Maggiano’s Italian Classics ® .
All amounts within the MD&A are presented in millions unless otherwise specified. OVERVIEW The Company is 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. Our two restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units.
As of June 29, 2022, $528.7 million of credit is available under the revolving credit facility. The revolving credit facility is due in August 2026. (2) Interest consists of remaining interest payments on the 3.875% and 5.000% notes totaling $55.4 million and remaining interest payments on the revolver totaling $70.6 million.
As of June 28, 2023, $738.7 million of credit is available under the revolving credit facility. The revolving credit facility is due in August 2026. (2) Interest consists of remaining interest payments on the 5.000% and 8.250% notes totaling $230.2 million and remaining interest payments on the revolver totaling $35.0 million.
We record a liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost that falls below our specified retention levels or per-claim deductible amounts. This liability represents an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date.
We maintain stop loss coverage with third-party insurers to limit our total exposure. We record a liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost that falls below our specified retention levels or per-claim deductible amounts.
(2) Performance based compensation decreased in fiscal 2022 due to lower business performance metrics compared to targets. 29 Table of Contents Other (gains) and charges consisted of the following (for further details, refer to Note 5 - Other Gains and Charges): Fiscal Years Ended June 29, 2022 June 30, 2021 Restaurant impairment charges $ 8.3 $ 3.0 Remodel-related costs 4.9 2.3 Restaurant closure charges 3.7 2.4 Lease contingencies 3.1 2.2 Enterprise system implementation costs 2.4 — Acquisition-related costs, net 1.6 — Loss from natural disasters, net of (insurance recoveries) 1.1 2.9 COVID-19 related charges 0.5 3.3 Other 5.6 2.9 $ 31.2 $ 19.0 Interest expenses decreased $10.1 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022.
(3) Other increased primarily due to an increase in professional consulting fees and costs related to IT initiatives. 29 Table of Contents Other (gains) and charges consisted of the following (for further details, refer to Note 14 - Other Gains and Charges): Fiscal Years Ended June 28, 2023 June 29, 2022 Restaurant level impairment charges $ 12.1 $ 8.5 Restaurant closure asset write-offs and charges 8.3 3.7 Enterprise system implementation costs 4.7 2.4 Severance and other benefit charges 3.7 — Lease contingencies 2.0 3.1 Remodel-related asset write-off 1.1 4.9 Loss from natural disasters, net of (insurance recoveries) 0.8 1.1 Gain on sale of assets, net (3.7) — Other 3.7 7.5 $ 32.7 $ 31.2 Interest expenses increased $8.8 million primarily due to higher interest rates and average borrowing balances on our revolving credit facility in fiscal 2023.
We have assumed that the revolver balance carried will be $271.3 million until May 2023 when the 3.875% notes will be paid using availability under the revolver, and then will increase to $571.3 million until the maturity date of August 18, 2026 using the interest rate of 3.375%, which is the total of LIBOR plus our applicable margin as of June 29, 2022.
We have assumed that the revolver balance carried will be $161.3 million until the maturity date of August 18, 2026 using the interest rate of 6.952%, which is the total of SOFR plus our applicable margin as of June 28, 2023.
Cash Flows from Investing Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Cash flows from investing activities Payments for property and equipment $ (150.3) $ (94.0) $ (56.3) Payments for franchise restaurant acquisitions (106.6) — (106.6) Proceeds from sale leaseback transactions, net of related expenses 20.5 — 20.5 Proceeds from note receivable 2.1 1.5 0.6 Proceeds from sale of assets 0.1 1.6 (1.5) Net cash used in investing activities $ (234.2) $ (90.9) $ (143.3) Net cash used in investing activities increased primarily due to $106.6 million of cash consideration paid for the purchase of 68 Chili’s restaurants from three former franchisees, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants.
LIQUIDITY AND CAPITAL RESOURCES Cash Flows Cash Flows from Operating Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Net cash provided by operating activities $ 256.3 $ 252.2 $ 4.1 Net cash provided by operating activities increased due to a decrease in payments of performance-based compensation in the current year and the timing of operational receipts and payments, partially offset by an increase in income tax payments, net of refunds received and a decrease in operating income. 35 Table of Contents Cash Flows from Investing Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Cash flows from investing activities Payments for property and equipment $ (184.9) $ (150.3) $ (34.6) Payments for franchise restaurant acquisitions — (106.6) 106.6 Proceeds from sale leaseback transactions, net of related expenses — 20.5 (20.5) Proceeds from note receivable 4.5 2.1 2.4 Proceeds from sale of assets 5.5 0.1 5.4 Insurance recoveries 0.7 — 0.7 Net cash used in investing activities $ (174.2) $ (234.2) $ 60.0 Net cash used in investing activities decreased primarily due to $106.6 million of cash consideration paid for the purchase of 68 Chili’s restaurants in fiscal 2022, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants in fiscal 2022.
It is possible that changes in circumstances or changes in our judgments, assumptions and estimates could result in an impairment charge of a portion or all of our goodwill or other intangible assets. 37 Table of Contents Valuation of Long-Lived Assets We review the carrying amount of property, equipment and lease assets on an annual basis or more often if events or circumstances indicate that the carrying amount may not be recoverable.
Valuation of Long-Lived Assets We review the carrying amount of property, equipment and lease assets on an annual basis or more often if events or circumstances indicate that the carrying amount may not be recoverable. The impairment test is a two-step process.
Variation in judgements applied could result in a change of lease classification and materially different: • Expenses such as rent, depreciation and amortization in a given reporting period • Fair value of lease asset and lease liability at inception • Reasonably certain lease term at inception Income Taxes We make certain estimates and judgments in the calculation of tax expenses, the resulting tax liabilities, and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Income Taxes We make certain estimates and judgments in the calculation of tax expenses, the resulting tax liabilities, and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return. We recognize any interest and penalties related to unrecognized tax benefits in Provision (benefit) for income taxes. Significant judgment is required in assessing, among other factors, the timing and amounts of deductible and taxable items.
We recognize any interest and penalties related to unrecognized tax benefits in (Benefit) Provision for income taxes. Significant judgment is required in assessing, among other factors, the timing and amounts of deductible and taxable items. Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.
Although realization is not assured, management believes it is more likely than not that the recognized deferred tax assets will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income in the carryforward period are reduced.
Although realization is not assured, management believes it is more likely than not that the recognized deferred tax assets will be realized.
In fiscal 2022, we repurchased 2.4 million shares of our common stock for $100.9 million, including 2.3 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.
In fiscal 2023, we repurchased 0.1 million shares of our common stock for $5.0 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan.
Other than these items, we do not have any off-balance sheet arrangements. 36 Table of Contents CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are disclosed in Note 1 - Nature of Operations and Summary of Significant Accounting Policies in Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements.
Maggiano’s Other (gains) and charges primarily consisted of restaurant closure asset write offs and charges, refer to Note 14 - Other Gains and Charges) CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are disclosed in Note 1 - Nature of Operations and Summary of Significant Accounting Policies in Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements.
Any significant changes in the tax laws could affect these estimates. Insurance Reserves We are self-insured for certain losses related to health, general liability and workers’ compensation. We maintain stop loss coverage with third-party insurers to limit our total exposure.
In addition to the risks related to the effective tax rate described above, the effective tax rate reflected in forward-looking statements is based on current tax law. Any significant changes in the tax laws could affect these estimates. Insurance Reserves We are self-insured for certain losses related to health, general liability and workers’ compensation.
The following is a summary of the changes in Maggiano’s operating costs and expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 102.6 25.2 % $ 64.3 23.5 % $ (38.3) (1.7) % Restaurant labor 141.6 34.8 % 94.0 34.4 % (47.6) (0.4) % Restaurant expenses 117.9 29.0 % 92.1 33.7 % (25.8) 4.7 % Depreciation and amortization 13.4 13.8 0.4 General and administrative 8.0 5.8 (2.2) Other (gains) and charges 0.0 1.4 1.4 As a percentage of Company sales: • Maggiano’s Food and beverage costs increased 1.7%, including 2.2% of unfavorable commodity pricing, partially offset by 0.4% of increased menu pricing and 0.1% of favorable menu item mix. • Maggiano’s Restaurant labor increased 0.4%, including 3.1% of higher restaurant hourly labor costs primarily due to increased wage rates, training and overtime, and 1.9% of higher manager salaries, training and bonus expenses, partially offset by 4.6% of sales leverage. • Maggiano’s Restaurant expenses decreased 4.7%, including 8.8% of sales leverage, partially offset by 1.4% of higher supervision expenses, 0.9% of higher repairs and maintenance expenses, 0.9% of higher advertising expenses, 0.6% of higher utilities expenses and 0.3% of higher rent expenses. 33 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Cash Flows Cash Flows from Operating Activities Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 Net cash provided by operating activities $ 252.2 $ 369.7 $ (117.5) Net cash provided by operating activities decreased due to the current year repayment of the first installment of $27.2 million of payroll taxes that were previously deferred under the CARES Act, an increase in payments of performance based compensation and bonuses in the current year, and the timing of operational receipts and payments.
The following is a summary of the changes in Maggiano’s operating costs and expenses: Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 123.4 25.3 % $ 102.6 24.2 % $ (20.8) (1.1) % Restaurant labor 157.0 32.3 % 141.6 33.4 % (15.4) 1.1 % Restaurant expenses 130.4 26.8 % 117.9 27.8 % (12.5) 1.0 % Depreciation and amortization 13.0 13.4 0.4 General and administrative 7.8 8.0 0.2 Other (gains) and charges 1.4 — (1.4) As a percentage of Company sales: • Maggiano’s Food and beverage costs increased 1.1%, including 2.1% of unfavorable commodity pricing and 0.2% of unfavorable menu item mix, partially offset by 1.2% of favorable menu pricing. • Maggiano’s Restaurant labor decreased 1.1%, including 4.2% of sales leverage, 0.2% of lower manager bonus and 0.1% of other restaurant labor, partially offset by 2.8% of higher restaurant hourly wages and 0.6% of higher manager salaries. • Maggiano’s Restaurant expenses decreased 1.0%, driven by 2.5% of sales leverage, partially offset by 0.5% of higher delivery fees and to-go supplies, 0.4% of higher repairs and maintenance, 0.2% of higher workers’ compensation and general liability insurance and 0.4% of higher other restaurant expenses.
If commodity pricing and labor costs increase significantly, we may not be able to adjust menu prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand. 25 Table of Contents RESULTS OF OPERATIONS The following table sets forth selected operating data: Fiscal Years Ended June 29, 2022 June 30, 2021 (2) Dollars As a percentage (1) Dollars As a percentage (1) Revenues Company sales $ 3,712.1 97.6 % $ 3,279.0 98.2 % Franchise and other revenues 92.0 2.4 % 58.8 1.8 % Total revenues 3,804.1 100.0 % 3,337.8 100.0 % Operating costs and expenses Food and beverage costs 1,048.5 28.2 % 867.8 26.4 % Restaurant labor 1,288.1 34.7 % 1,108.2 33.8 % Restaurant expenses 968.3 26.1 % 858.5 26.2 % Depreciation and amortization 164.4 4.3 % 150.2 4.5 % General and administrative 144.1 3.8 % 134.8 4.0 % Other (gains) and charges 31.2 0.8 % 19.0 0.6 % Total operating costs and expenses 3,644.6 95.8 % 3,138.5 94.0 % Operating income 159.5 4.2 % 199.3 6.0 % Interest expenses 46.1 1.2 % 56.2 1.7 % Other income, net (1.8) 0.0 % (2.1) (0.1) % Income before income taxes 115.2 3.0 % 145.2 4.4 % Provision (benefit) for income taxes (2.4) (0.1) % 13.6 0.5 % Net income $ 117.6 3.1 % $ 131.6 3.9 % (1) Food and beverage costs, Restaurant labor and Restaurant expenses are calculated based on a percentage of Company sales.
Many of our restaurants had face mask requirements and some of our restaurants had proof of vaccination requirements for our customers, team members or both. 25 Table of Contents RESULTS OF OPERATIONS The following table sets forth selected operating data: Fiscal Years Ended June 28, 2023 June 29, 2022 Dollars As a percentage (1) Dollars As a percentage (1) Revenues Company sales $ 4,093.2 99.0 % $ 3,764.5 99.0 % Franchise revenues 40.0 1.0 % 39.6 1.0 % Total revenues 4,133.2 100.0 % 3,804.1 100.0 % Operating costs and expenses Food and beverage costs 1,146.3 28.0 % 1,048.5 27.9 % Restaurant labor 1,389.3 34.0 % 1,288.1 34.2 % Restaurant expenses 1,097.5 26.8 % 968.3 25.7 % Depreciation and amortization 168.5 4.1 % 164.4 4.3 % General and administrative 154.5 3.7 % 144.1 3.8 % Other (gains) and charges 32.7 0.8 % 31.2 0.8 % Total operating costs and expenses 3,988.8 96.5 % 3,644.6 95.8 % Operating income 144.4 3.5 % 159.5 4.2 % Interest expenses 54.9 1.3 % 46.1 1.2 % Other income, net (1.3) 0.0 % (1.8) 0.0 % Income before income taxes 90.8 2.2 % 115.2 3.0 % (Benefit) Provision for income taxes (11.8) (0.3) % (2.4) (0.1) % Net income $ 102.6 2.5 % $ 117.6 3.1 % (1) Food and beverage costs, Restaurant labor and Restaurant expenses are calculated based on a percentage of Company sales.
General and administrative expenses increased $9.3 million as follows: General and Administrative Fiscal year ended June 30, 2021 $ 134.8 Change from: Defined contribution plan employer expenses (1) 6.4 Payroll-related expenses 3.2 Professional fees 3.2 Travel and entertainment expenses 1.4 Recruiting 1.3 Stock-based compensation 1.1 Performance-based compensation (2) (10.3) Other 3.0 Fiscal year ended June 29, 2022 $ 144.1 (1) Defined contribution plan employer expenses increased due to the reinstatement of employer matching contributions related to the Company’s 401(k) plan that were temporarily suspended from May 2020 through December 2020.
General and administrative expenses increased $10.4 million as follows: General and Administrative Fiscal year ended June 29, 2022 $ 144.1 Change from: Performance-based compensation (1) 7.3 Defined contribution plan employer expenses and other benefits 2.4 Payroll expenses 1.5 Travel and entertainment expenses 0.4 Stock-based compensation (2) (4.4) Other (3) 3.2 Fiscal year ended June 28, 2023 $ 154.5 (1) Performance-based compensation increased in fiscal 2023 due to higher business performance metrics compared to targets.
Refer to Note 10 - Debt within Part II, Item 8 - Financial Statements and Supplementary Data for further information about our notes and revolving credit facility. Share Repurchase Program 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.
Refer to Note 8 - Debt within Part II, Item 8 - Financial Statements and Supplementary Data for further information about our notes and revolving credit facility. Share Repurchase Program In fiscal 2022, our Board of Directors approved a $300.0 million share repurchase program, and the Company repurchased 2.3 million shares of our common stock for $96.0 million.
Additionally, capital expenditures increased in fiscal 2022 primarily for equipment purchases and an increase in the pace of the Chili’s remodel initiative.
Additionally, capital expenditures increased in fiscal 2023 primarily for construction of new restaurants, new equipment purchases, and increased capital maintenance, partially offset by the reduction in scope of the Chili’s remodel initiative and reduced technology spend.
In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates and is reviewed on a quarterly basis to ensure that the liability is appropriate.
The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates and is reviewed on a quarterly basis to ensure that the liability is appropriate. If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.
Chili’s Depreciation and amortization increased $15.5 million as follows: Depreciation and Amortization Fiscal year ended June 30, 2021 $ 124.3 Change from: Additions for new and existing restaurant assets 19.4 Acquisition of Chili’s restaurants (1) 6.0 Finance leases 4.6 Retirements and fully depreciated restaurant assets (14.1) Other (0.4) Fiscal year ended June 29, 2022 $ 139.8 (1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022. 31 Table of Contents Chili’s General and administrative increased $5.9 million as follows: General and Administrative Fiscal year ended June 30, 2021 $ 27.4 Change from: Defined contribution plan employer expenses (1) 5.1 Recruiting 1.2 Payroll-related expenses 0.9 Travel and entertainment expenses 0.7 Professional fees 0.1 Stock-based compensation 0.1 Performance-based compensation (2.7) Other 0.5 Fiscal year ended June 29, 2022 $ 33.3 (1) Defined contribution plan employer expenses increased due to the reinstatement of employer matching contributions related to the Company’s 401(k) plan that were temporarily suspended from May 2020 through December 2020.
These increases were partially offset by 1.5% of sales leverage. 28 Table of Contents Depreciation and amortization increased $4.1 million as follows: Depreciation and Amortization Fiscal year ended June 29, 2022 $ 164.4 Change from: Additions for existing and new restaurant assets 22.0 Acquisition of Chili’s restaurants (1) 3.2 Corporate assets 1.8 Finance leases (3.2) Retirements and fully depreciated restaurant assets (19.2) Other (0.5) Fiscal year ended June 28, 2023 $ 168.5 (1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022.
As of June 29, 2022, our interest rate was 3.375% consisting of LIBOR of 1.625% plus the applicable margin of 1.750%. During fiscal 2022, we incurred and capitalized $3.1 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets.
During fiscal 2023, we incurred and capitalized $0.5 million of debt issuance costs associated with the revolving credit facility, which are included in Other assets in the Consolidated Balance Sheets.
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. 35 Table of Contents Future Commitments and Contractual Obligations Payments due under our contractual obligations for outstanding indebtedness, leases and purchase obligations as defined by the Securities and Exchange Commission (“SEC”) as of June 29, 2022 are as follows: Payments Due by Period Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total Long-term debt (1) $ 300.0 $ 350.0 $ 271.3 $ — $ 921.3 Interest (2) 39.5 64.8 21.7 — 126.0 Finance leases (3) 24.5 28.0 15.8 47.5 115.8 Operating leases (3) 177.6 343.2 288.7 950.6 1,760.1 Purchase obligations (4) 37.6 44.7 15.3 — 97.6 (1) Long-term debt consists of principal amounts owed on the 3.875% and 5.000% notes and the revolving credit facility.
Future Commitments and Contractual Obligations Payments due under our contractual obligations for outstanding indebtedness, leases and purchase obligations as of June 28, 2023 are as follows: Payments Due by Period Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total Long-term debt (1) $ — $ 350.0 $ 161.3 $ 350.0 $ 861.3 Interest (2) 44.9 88.9 59.2 72.2 265.2 Finance leases (3) 13.7 20.4 15.1 40.1 89.3 Operating leases (3) 179.4 342.4 277.0 944.5 1,743.3 Purchase obligations (4) 30.0 38.3 2.5 — 70.8 (1) Long-term debt consists of principal amounts owed on the 5.000% and 8.250% notes and the revolving credit facility.
Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 5 - Other Gains and Charges): Fiscal Years Ended June 29, 2022 June 30, 2021 Restaurant impairment charges $ 8.1 $ 2.6 Remodel-related costs 4.8 2.3 Restaurant closure charges 3.6 2.2 Acquisition of franchise restaurants-related costs 1.6 — Loss from natural disasters, net of (insurance recoveries) 1.1 1.5 COVID-19 related charges 0.3 2.7 Other 3.8 1.4 $ 23.3 $ 12.7 32 Table of Contents Maggiano’s Segment Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 (1) Dollars % Company sales $ 406.7 $ 273.3 $ 133.4 48.8 % Royalties 0.4 0.2 0.2 100.0 % Franchise fees and other revenues 17.4 4.4 13.0 295.5 % Franchise and other revenues 17.8 4.6 13.2 287.0 % Total revenues $ 424.5 $ 277.9 $ 146.6 52.8 % (1) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.
Chili’s Depreciation and amortization increased $5.5 million as follows: Depreciation and Amortization Fiscal year ended June 29, 2022 $ 139.8 Change from: Additions for new and existing restaurant assets 20.3 Acquisition of Chili’s restaurants (1) 3.2 Finance leases (3.0) Retirements and fully depreciated restaurant assets (14.7) Other (0.3) Fiscal year ended June 28, 2023 $ 145.3 (1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022. 31 Table of Contents Chili’s General and administrative increased $2.2 million as follows: General and Administrative Fiscal year ended June 29, 2022 $ 33.3 Change from: Performance-based compensation 2.0 Payroll expenses 0.9 Defined contribution plan employer expenses and other benefits 0.7 Stock-based compensation (1.2) Other (0.2) Fiscal year ended June 28, 2023 $ 35.5 Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 14 - Other Gains and Charges): Fiscal Years Ended June 28, 2023 June 29, 2022 Restaurant level impairment charges $ 12.1 $ 8.3 Restaurant closure asset write-offs and charges 7.3 3.6 Severance and other benefit charges 1.9 — Remodel-related asset write-off 1.1 4.8 Loss from natural disasters, net of (insurance recoveries) 0.8 1.1 Gain on sale of assets, net (3.7) — Other 2.5 5.5 $ 22.0 $ 23.3 32 Table of Contents Maggiano’s Segment Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Dollars % Company sales $ 486.5 $ 424.0 $ 62.5 14.7 % Franchise revenues 0.6 0.5 0.1 20.0 % Total revenues $ 487.1 $ 424.5 $ 62.6 14.7 % Maggiano’s Total revenues increased 14.7% primarily due to increased menu pricing, favorable menu item mix and higher traffic.
These increases were partially offset by 1.1% of sales leverage, and 0.4% of lower delivery fee expenses due to changes in sales channel mix.
These increases were partially offset by 1.2% of sales leverage.
On June 29, 2022, we had $204.0 million of authorized repurchases remaining under the share repurchase program. Dividend Program 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.
Dividend Program In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to the COVID-19 pandemic.
Refer to the “Revenues” section above for further details about Maggiano’s revenues changes.
Total banquet income increased $4.3 million in fiscal 2023 compared to fiscal 2022 as our banquet business recovered from the effects of the COVID-19 pandemic. Refer to the “Revenues” section above for further details about Maggiano’s revenues changes.
Our two restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units. Refer to Part I, Item 1 - Business of this document for additional information about our business and operational strategies.
Refer to Part I, Item 1 - Business of this document for additional information about our business and operational strategies. External impacts to Our Operating Environment During both fiscal 2022 and fiscal 2023, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and food and beverage costs.
Segment Results Chili’s Segment Fiscal Years Ended Favorable (Unfavorable) Variance June 29, 2022 June 30, 2021 (1) Dollars % Company sales $ 3,305.4 $ 3,005.7 $ 299.7 10.0 % Royalties 34.0 30.3 3.7 12.2 % Franchise fees and other revenues 40.2 23.9 16.3 68.2 % Franchise and other revenues 74.2 54.2 20.0 36.9 % Total revenues $ 3,379.6 $ 3,059.9 $ 319.7 10.4 % (1) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.
Segment Results Chili’s Segment Fiscal Years Ended Favorable (Unfavorable) Variance June 28, 2023 June 29, 2022 Dollars % Company sales $ 3,606.7 $ 3,340.5 $ 266.2 8.0 % Franchise and other revenues 39.4 39.1 0.3 0.8 % Total revenues $ 3,646.1 $ 3,379.6 $ 266.5 7.9 % Chili’s Total revenues increased 7.9% primarily due to increased menu pricing, favorable menu item mix and the acquisition of 68 Chili’s restaurants from three former franchisees, partially offset by lower traffic.
Removed
Impact of COVID-19 Pandemic 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 and has resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021 and fiscal 2020.
Added
The following MD&A includes a discussion comparing our results in fiscal 2023 to fiscal 2022.
Removed
In fiscal 2022, we have experienced limited product shortages and service disruptions in our supply chain, limited availability of labor to operate our restaurants due to a tight labor market and an increase in employee turnover.
Added
Geopolitical and other macroeconomic events could lead to wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operation. Such events could also negatively affect consumer spending potentially reducing guest traffic and/or reducing the average amount guests spend in our restaurants.
Removed
It is possible that supply chain and labor shortages or disruptions could continue or increase in future periods if demand for goods, transportation and labor remains high. Additional impacts to the business may arise that we are not aware of currently. We will continue to closely monitor and adapt to the evolving situation.
Added
During fiscal 2023, all our domestic Company-owned and franchise restaurants operated with no restrictions. During fiscal 2022, the continuing spread of COVID-19 cases (particularly the Omicron variant), significantly impacted our guest traffic and sales.
Removed
Impact of Inflation In fiscal 2022, inflation did have a material impact on our operations resulting in an increase of high single digits to Food and beverage costs and Restaurant labor and we reasonably expect inflation to be in the mid-teens in fiscal 2023.
Added
All others are calculated as a percentage of Total revenues.
Removed
Increases in inflation could have a severe impact on the United States or global economies and have an adverse impact on our business, financial condition and results of operations.
Added
(2) We acquired 68 Chili’s restaurants from three former franchisees in fiscal 2022. Restaurant acquisitions includes revenues of acquired restaurants until the restaurant has been in operation for more than 18 months. (3) Gift card breakage decreased primarily due to a prior year change in estimate to increase the breakage rate on certain aged sales years.
Removed
All others are calculated as a percentage of Total revenues. (2) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks. The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues.
Added
(4) Our Chili’s and Maggiano’s franchisees generated sales of approximately $876.0 million and $10.6 million respectively in fiscal 2023 compared to $806.2 million and $8.5 million respectively in fiscal 2022.
Removed
While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.
Added
(2) Stock-based compensation decreased primarily due to the reversal in the second quarter of fiscal 2023 of performance-based award expense as certain performance targets are no longer expected to be achieved.
Removed
(2) We acquired 68 Chili’s restaurants from three former franchisees in fiscal 2022. The revenues generated by these restaurants since each respective acquisition date are included in Company sales.
Added
The higher tax benefit in fiscal 2023 is primarily due to an increased leverage of the FICA tip tax credit against a lower Income before incomes taxes compared to fiscal 2022.
Removed
(3) Royalties are based on franchise sales and our franchisees generated sales of approximately $814.7 million in fiscal 2022 and $780.7 million including $18.1 million from the additional operating week in fiscal 2021. (4) Franchise fees and other revenues increased primarily due to incremental gift card breakage resulting from a change in estimate.
Added
Variation in judgements applied could result in a change of lease classification and materially different expenses such as rent, depreciation and amortization in a given reporting period; fair value of lease asset and lease liability at inception; or reasonably certain lease terms at inception.
Removed
Employer matching contributions were reinstated beginning January 1, 2021.
Added
The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income in the carryforward period are reduced. 34 Table of Contents We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return.
Removed
The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues. While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.
Added
This liability represents an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date. In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices.
Removed
Chili’s Total revenues increased 10.4% primarily due to dining room sales growth, the acquisition of 68 Chili’s restaurants from three former franchisees, higher delivery sales, and five new restaurant openings, partially offset by decreased To-Go sales.
Added
Revolving Credit Facility On May 2, 2023, we amended our $800.0 million revolving credit facility to increase the capacity to $900.0 million and to adopt SOFR as the new benchmark rate, replacing LIBOR.
Removed
Employer matching contributions were reinstated beginning January 1, 2021.
Added
As of June 28, 2023, our interest rate was 6.952% consisting of SOFR 36 Table of Contents of 5.102% plus the applicable margin and spread adjustment of 1.850%. As of June 28, 2023, there was $738.7 million of borrowing capacity under the revolving credit facility.
Removed
The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues. While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis. Maggiano’s Total revenues increased 52.8% primarily due to higher dining and banquet room sales and traffic.
Added
On May 15, 2023, our $300.0 million 3.875% notes matured and the payoff was funded with borrowings from our revolving credit facility. On June 27, 2023, we issued $350.0 million of 8.250% senior notes due July 15, 2030 and used $340.0 million of the proceeds to reduce outstanding borrowings on the revolver.
Removed
Revolving Credit Facility On August 18, 2021, we amended our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility. Net borrowings of $100.0 million were drawn during fiscal 2022 on the revolving credit facility. As of June 29, 2022, $528.7 million was available under the new revolving credit facility.
Added
The 2030 Notes require semi-annual interest payments in arrears, on each January 15 and July 15, beginning on January 15, 2024. During fiscal 2023, we incurred and capitalized $5.7 million of debt issuance costs associated with the 2030 Notes, which are included in Long-term debt and finance leases, less current installments in the Consolidated Balance Sheets.

… 27 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+3 added−2 removed0 unchanged
Biggest changeThe impact on our annual results of operations of a hypothetical one-point interest rate change on the outstanding balance of these variable rate financial instruments as of June 29, 2022 would be approximately $2.7 million. Food and Commodity Price Risk We purchase certain commodities such as beef, pork, poultry, seafood, dairy, produce, food oils, and natural gas.
Biggest changeThe impact on our annual results of operations of a hypothetical 100 basis points interest rate change on the outstanding balance of this variable rate financial instrument as of June 28, 2023 would be approximately $1.6 million. Commodity Price Risk We purchase food and other commodities for use in our operations based on market prices established with our suppliers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets. Interest Rate Risk We are exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets.
Removed
The variable rate financial instruments consist of the outstanding borrowings on our revolving credit facility. On June 29, 2022, $271.3 million was outstanding under the revolving credit facility.
Added
Interest Rate Risk The terms of our revolving credit facility require us to pay interest on outstanding borrowings at SOFR plus an applicable margin based on a function of our debt-to-cash-flow ratio. As of June 28, 2023, $161.3 million was outstanding under the revolving credit facility.
Removed
These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid. 39 Table of Contents
Added
While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease, inclement weather or recent geopolitical unrest, will not cause the prices of the commodities used in our restaurant operations to fluctuate. The aggregate impact of these and other factors have contributed to significant cost inflation.
Added
Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected. 39 Table of Contents

Other EAT 10-K year-over-year comparisons