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Item 1. Financial Statements

2024-08-05 compared with 2024-05-08 · 58 added, 70 removed, 325 unchanged (28% of the section changed)

29 unchanged sentences

Common stock, $ .01 par value, 250,000,000 shares authorized;

107,875,007 shares issued and 50,972,401 shares outstanding at April 2, 2024 and 107,195,287 shares issued and 50,652,129 shares outstanding at January 2, 2024

107,916,784 shares issued and 50,902,796 shares outstanding at July 2, 2024 and 107,195,287 shares issued and 50,652,129 shares outstanding at January 2, 2024

Additional paid-in capital

Retained earnings

Treasury stock inclusive of excise tax, 56,902,606 and 56,543,158 shares at cost at April 2, 2024 and January 2, 2024, respectively

Treasury stock inclusive of excise tax, 57,013,988 and 56,543,158 shares at cost at July 2, 2024 and January 2, 2024, respectively

( 1,828,382 )

7 unchanged sentences

(In thousands, except per share data)

April 2, 2024

April 4, 2023

Costs and expenses:

4 unchanged sentences

Depreciation and amortization expenses

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expenses

Acquisition-related contingent consideration, compensation and amortization expenses

12 unchanged sentences

(In thousands)

April 2, 2024

April 4, 2023

Other comprehensive (loss)/gain:

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

For the thirteen weeks ended April 2, 2024:

(In thousands, except per share data)

For the twenty-six weeks ended July 2, 2024:

Comprehensive

8 unchanged sentences

( 1,824,493 )

For the thirteen weeks ended April 4, 2023:

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures, $ 0.27 per share

Stock-based compensation

Treasury stock purchases, inclusive of excise tax

Balance, July 2, 2024

( 1,828,382 )

For the twenty-six weeks ended July 4, 2023:

Comprehensive

5 unchanged sentences

Stock-based compensation

Treasury stock purchases, inclusive of excise tax

Treasury stock purchases

Balance, April 4, 2023

( 1,778,017 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures, $ 0.27 per share

Stock-based compensation

Treasury stock purchases, inclusive of excise tax

Balance, July 4, 2023

( 1,787,419 )

See the accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

April 2, 2024

April 4, 2023

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization expenses

Impairment of assets and lease termination expenses

Impairment of assets and lease termination (income)/expense

Deferred income taxes

Stock-based compensation

Payment of deferred consideration and compensation in excess of acquisition-date fair value

Changes in assets and liabilities:

12 unchanged sentences

Cash flows from financing activities:

Acquisition-related deferred consideration and compensation

Common stock dividends paid

29 unchanged sentences

Beginning in 2021, our operating results were impacted by geopolitical and other macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation.

Some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs.

While we have seen improvements in many of these areas, some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs.

We have also encountered delays in opening new restaurants primarily due to delays in permitting and landlord readiness, as well as supply chain challenges.

23 unchanged sentences

The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):

April 2, 2024

Assets/(Liabilities)

8 unchanged sentences

The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities categorized as Level 3 (in thousands):

April 2, 2024

April 4, 2023

Beginning balance

2 unchanged sentences

The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment.

The undiscounted range of outcomes per the Monte Carlo model utilized to determine the fair value of the acquisition-related contingent consideration and compensation liabilities at April 2, 2024 was $ 2.6 million to $ 235.4 million.

Results could change materially if different estimates and assumptions were used.

During the first six months of fiscal 2024 and fiscal 2023, we made payments of $ 6.5 million and $ 13.0 million, respectively, per the Fox Restaurant Concept LLC (“FRC”) acquisition agreement.

The fair values of our cash and cash equivalents, accounts and other receivables, income taxes receivable, prepaid expenses, accounts payable, income taxes payable and other accrued liabilities approximate their carrying amounts due to their short duration.

As of April 2, 2024, we had $ 345.0 million aggregate principal amount of Notes outstanding.

The estimated fair value of the Notes based on a market approach as of April 2, 2024 was approximately $ 304.6 million and was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period.

As of July 2, 2024, we had $ 345.0 million aggregate principal amount of Notes outstanding.

The estimated fair value of the Notes based on a market approach as of July 2, 2024 was approximately $ 311.2 million and was determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period.

The decrease in the fair value of the Notes was primarily due to a decline in our stock price from the date of the issuance of the Notes.

1 unchanged sentence

Inventories consisted of (in thousands):

April 2, 2024

January 2, 2024

4 unchanged sentences

The following tables present information related to gift cards (in thousands):

April 2, 2024

April 4, 2023

Gift card liabilities:

2 unchanged sentences

Ending balance

April 2, 2024

April 4, 2023

Gift card contract assets:

9 unchanged sentences

Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility.

As of April 2, 2024, we had net availability for borrowings of $ 236.5 million, based on a $ 130.0 million outstanding debt balance and $ 33.5 million in standby letters of credit under the Revolver Facility.

As of July 2, 2024, we had net availability for borrowings of $ 236.5 million, based on a $ 130.0 million outstanding debt balance and $ 33.5 million in standby letters of credit under the Revolver Facility.

Under the Revolver Facility, we are subject to the following financial covenants as of the last day of each fiscal quarter:

1 unchanged sentence

The Amended Net Adjusted Leverage Ratio includes a rental expense multiplier of six .

As of April 2, 2024, we were in compliance with all the foregoing covenants in effect at that date.

As of July 2, 2024, we were in compliance with all the foregoing covenants in effect at that date.

Borrowings under the Loan Agreement bear interest, at the Company’s election, at a rate equal to either:

22 unchanged sentences

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

As of April 2, 2024, the conversion rate for the Notes was 13.5979 shares of common stock per $ 1,000 principal amount of the Notes, which represents a conversion price of approximately $ 73.54 per share of common stock.

In connection with the cash dividend that was declared by our Board on May 7, 2024, on May 21, 2024 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

As of July 2, 2024, the conversion rate for the Notes was 13.6938 shares of common stock per $ 1,000 principal amount of the Notes, which represents a conversion price of approximately $ 73.03 per share of common stock.

In connection with the cash dividend that was declared by our Board on July 25, 2024, on August 13, 2024 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

The Notes are redeemable, in whole or in part (subject to certain limitations described below), at our option at any time, and from time to time, on or after June 20, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice;

and (ii) the trading day immediately before the date we send such notice.

However, we may not redeem less than all of the outstanding Notes unless at least $ 150.0 million

aggregate principal amount of Notes are outstanding and not called for redemption as of the time we send the related redemption notice.

However, we may not redeem less than all of the outstanding Notes unless at least $ 150.0 million aggregate principal amount of Notes are outstanding and not called for redemption as of the time we send the related redemption notice.

In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

12 unchanged sentences

However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50 % on the principal amount of the Notes.

As of April 2, 2024, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 340.6 million, net of unamortized issuance costs of $ 4.4 million.

Total amortization expense was $ 0.5 million during both the first quarter of fiscal 2024 and fiscal 2023.

The effective interest rate for the Notes was 0.96 % as of April 2, 2024.

As of July 2, 2024, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 341.1 million, net of unamortized issuance costs of $ 3.9 million.

Total amortization expense was $ 0.5 million and $ 1.0 million during the thirteen and twenty-six weeks ended July 2, 2024, respectively.

Total amortization expense was $ 0.5 million and $ 1.0 million during the thirteen and twenty-six weeks ended July 4, 2023, respectively.

The effective interest rate for the Notes was 0.96 % as of July 2, 2024.

Components of lease expense were as follows (in thousands):

April 2, 2024

April 4, 2023

Supplemental information related to leases (in thousands):

April 2, 2024

April 4, 2023

Cash paid for amounts included in the measurement of lease liabilities:

12 unchanged sentences

Common Stock – Dividends and Share Repurchases

On February 15, 2024, our Board declared a quarterly cash dividend of $ 0.27 per share that was paid on March 19, 2024 to the stockholders of record of each share of our common stock at the close of business on March 6, 2024.

On May 7, 2024 , our Board declared a quarterly cash dividend of $ 0.27 per share that was paid on June 4, 2024 to the stockholders of record of each share of our common stock at the close of business on May 22, 2024 .

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Loan Agreement and applicable law, and such other factors that the Board considers relevant.

(See Notes 5 and 12 for further discussion of our long-term debt and dividends declared subsequent to April 2, 2024, respectively.)

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 56.9 million shares at a total cost of $ 1,824.2 million, excluding excise tax, through April 2, 2024, with 0.4 million shares repurchased at a cost of $ 12.5 million, excluding excise tax, during the thirteen weeks ended April 2, 2024.

(See Notes 5 and 12 for further discussion of our long-term debt and dividends declared subsequent to July 2, 2024, respectively.)

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 57.0 million shares at a total cost of $ 1,828.1 million, excluding excise tax, through July 2, 2024, with 0.1 million and 0.5 million shares repurchased at a cost of $ 3.9 million and $ 16.4 million, excluding excise tax, during the thirteen and twenty-six weeks ended July 2, 2024, respectively.

Our objectives with regard to share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth.

1 unchanged sentence

Share repurchases may be made from time to time in open market purchases, privately-negotiated transactions, accelerated share repurchase programs, issuer self-tender offers or otherwise.

Future decisions to repurchase shares are at the discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Fox Restaurant Concept (“FRC”) acquisition agreement, our share price and current market conditions.

Future decisions to repurchase shares are at the discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the FRC acquisition agreement, our share price and current market conditions.

The timing and number of shares repurchased are also subject to legal constraints and covenants under the Loan Agreement that limit share repurchases based on a defined ratio.

3 unchanged sentences

The following table presents information related to stock-based compensation, net of forfeitures (in thousands):

April 2, 2024

April 4, 2023

Labor expenses

8 unchanged sentences

Stock Options

The weighted - average fair value at the grant date for options issued during the first quarter of fiscal 2024 and 2023 was $ 12.45 and $ 15.76 per share, respectively.

The fair value of options issued was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for the first quarter of fiscal 2024 and 2023, respectively:

(a) an expected option term of 6.9 and 6.7 years, (b) expected stock price volatility of 41.9 % and 45.2 %, (c) a risk-free interest rate of 4.3 % and 4.0 %, and (d) a dividend yield on our stock of 3.1 % and 2.7 %.

Stock option activity during the thirteen weeks ended April 2, 2024 was as follows:

We did not issue any stock options during the second quarters of fiscal 2024 and fiscal 2023.

Stock option activity during twenty-six weeks ended July 2, 2024 was as follows:

Exercise Price

4 unchanged sentences

Forfeited or cancelled

Outstanding at April 2, 2024

Exercisable at April 2, 2024

Outstanding at July 2, 2024

Exercisable at July 2, 2024

(1) Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal period-end date.

There were no options exercised during both the first quarters of fiscal 2024 and 2023.

As of April 2, 2024, total unrecognized stock-based compensation expense related to unvested stock options was $ 2.2 million, which we expect to recognize over a weighted-average period of approximately 2.6 years.

There were no options exercised during the thirteen and twenty-six weeks ended July 2, 2024.

There were no options exercised during the thirteen and twenty-six weeks ended July 4, 2023.

As of July 2, 2024, total unrecognized stock-based compensation expense related to unvested stock options was $ 1.9 million, which we expect to recognize over a weighted-average period of approximately 2.4 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the thirteen weeks ended April 2, 2024 was as follows:

Restricted share and restricted share unit activity during the twenty-six weeks ended July 2, 2024 was as follows:

(In thousands)

Outstanding at January 2, 2024

Outstanding at April 2, 2024

Outstanding at July 2, 2024

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant.

The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2024 and 2023 was $ 34.77 and $ 39.94 , respectively.

The fair value of shares that vested during the thirteen weeks ended April 2, 2024 and April 4, 2023 was $ 17.8 million and $ 15.2 million, respectively.

As of April 2, 2024, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 67.6 million, which we expect to recognize over a weighted-average period of approximately 3.3 years.

The weighted average fair value for restricted shares and restricted share units issued during the second quarter of fiscal 2024 and 2023 was $ 37.25 and $ 33.84 , respectively.

The fair value of shares that vested during the thirteen and twenty-six weeks ended July 2, 2024 was $ 4.7 million and $ 22.5 million, respectively.

The fair value of shares that vested during the thirteen and twenty - six weeks ended July 4, 2023 was $ 1.4 million and $ 16.6 million, respectively.

As of July 2, 2024, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 65.0 million, which we expect to recognize over a weighted-average period of approximately 3.0 years.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards.

As of April 2, 2024 and April 4, 2023, 3.2 million and 2.8 million shares, respectively, of restricted stock and restricted stock units issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

As of July 2, 2024 and July 4, 2023, 3.1 million and 2.8 million shares, respectively, of restricted stock and restricted stock units issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

Diluted net income per share is computed by dividing net income by the weighted-average number of common stock equivalents outstanding for the period.

Common stock equivalents for the Notes are determined by application of the if-converted method, and common stock equivalents for outstanding stock options, restricted stock and restricted stock units are determined by the application of the treasury stock method.

April 2, 2024

April 4, 2023

(In thousands, except per share data)

4 unchanged sentences

Diluted net income per share

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 2.4 million and 1.9 million for April 2, 2024 and April 4, 2023, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 2.6 million for both July 2, 2024 and July 4, 2023, were excluded from the diluted calculation due to their anti-dilutive effect.

No shares of common stock equivalents related to the Notes were included in the diluted calculation due to their anti-dilutive effect.

5 unchanged sentences

Segment information is presented below (in thousands):

April 2, 2024

April 4, 2023