What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-02 compared with 2021-11-03 · 250 added, 100 removed, 242 unchanged (59% of the section changed)

1 unchanged sentence

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our Company, our operations, and our current operating environment.

For an understanding of the significant factors that influenced our performance during the thirteen week periods ended September 29, 2021 and September 23, 2020, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report.

For an understanding of the significant factors that influenced our performance during the thirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report.

All amounts within the MD&A are presented in millions unless otherwise specified.

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™.

At September 29, 2021, we owned, operated or franchised 1,650 restaurants, consisting of 1,145 Company-owned restaurants and 505 franchised restaurants, located in the United States, 28 countries and two United States territories.

At December 29, 2021, we owned, operated or franchised 1,653 restaurants, consisting of 1,182 Company-owned restaurants and 471 franchised restaurants, located in the United States, 28 countries and two United States territories.

Our restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units.

2 unchanged sentences

The spread of COVID-19 has prompted changes in consumer behavior and social distancing preferences as well as dining room closures and dining room capacity restrictions mandated or encouraged by federal, state and local governments.

The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the pandemic based on state and local mandates, which has resulted in significant impacts to our guest traffic and sales.

At the end of the first quarter of fiscal 2022, all of our Company-owned restaurant dining rooms or patios were open in some capacity.

Chili’s and Maggiano’s ability to continue serving guests during the COVID-19 pandemic is the result of our strategic decision to invest in technology, virtual brands, and off-premise capabilities including online ordering, mobile app ordering, curbside service and third-party delivery.

We have experienced limited material shortages and service disruptions in our supply chain and in the availability of labor to operate our restaurants.

We also experienced an increase in employee turnover in the first quarter of fiscal 2022.

We also experienced an increase in employee turnover in the first two quarters of fiscal 2022.

We recognize there is significant demand for talent and are actively working to safeguard, engage, attract and retain our employees.

22 unchanged sentences

Our value platforms allow guests to mix and match select menu items at a discounted price as part of the every-day base menu.

Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita

every month at an every-day value price of $5.00.

Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price of $5.00.

Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise.

Chili’s off-premise dining options, including our virtual brands It’s Just Wings and Maggiano’s Italian Classics, are also a critical part of our strategy.

In the first quarter of fiscal 2022, Chili’s off-premise sales, including both to-go and delivery, were approximately 35% of Company sales, with approximately 55% coming from To-Go and 45% from delivery.

In the twenty-six week period ended December 29, 2021, Chili’s off-premise sales, including both to-go and delivery, were approximately 35% of Company sales, with approximately 53% coming from To-Go and 47% from delivery.

We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food.

7 unchanged sentences

We expect that our virtual brands will enable us to capitalize on the growth in off-premise dining and to leverage excess kitchen capacity in our existing restaurant infrastructure, while adding minimal complexity in our restaurants’ kitchens.

It’s Just Wings, launched on June 23, 2020, is a no-frills offering that consists of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing, fried Oreos and hand pies for a value price.

It’s Just Wings, launched on June 23, 2020, is an offering consisting of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing, fried Oreos and hand pies for a value price.

Maggiano’s Italian Classics offers a select group of items from the full menu of Maggiano’s Little Italy including several appetizers, salads, pastas, entrées, mac & cheese and hand pies.

2 unchanged sentences

We plan to continue to test and strategically launch additional virtual brands in the future to further drive our growth.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening three restaurants and entering into one new development agreement for the thirteen week period ended September 29, 2021.

We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and existing franchise partners.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening nine restaurants and entering into two new development agreement for the twenty-six week period ended December 29, 2021.

We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and

existing franchise partners.

We are also supporting our franchise partners with opportunities to expand sales through our virtual brand offerings.

Company Development - The following table details the number of restaurant openings during the thirteen week periods ended September 29, 2021 and September 23, 2020, respectively, total full year projected openings in fiscal 2022, and the total restaurants open at each period end:

Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Total Open Restaurants at

September 29, 2021 September 23, 2020 Fiscal 2022 September 29, 2021 September 23, 2020

Company Development - The following table details the number of restaurant openings during the thirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020, respectively, total full year projected openings in fiscal 2022, and the total restaurants open at each period end:

Openings During the Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Twenty-Six Week Periods Ended Total Open Restaurants at

December 29, 2021 December 23, 2020 December 29, 2021 December 23, 2020 Fiscal 2022 December 29, 2021 December 23, 2020

Company-owned restaurants

13 unchanged sentences

Total 7 3 11 10 17-20 1,653 1,655

During the thirteen week period ended September 29, 2021, we acquired 23 Chili’s restaurants located in the Mid-Atlantic region of the United States owned by a franchisee.

The acquisition of these restaurants is not reflected in Openings during the thirteen week period ended September 29, 2021 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership.

These acquired restaurants are included in Total Open Restaurants at September 29, 2021 within the total for Company-owned restaurants Chili’s domestic.

At September 29, 2021, we own property for 46 of the 1,145 Company-owned restaurants.

During the twenty-six week period ended December 29, 2021, we acquired 60 Chili’s restaurants previously owned by two former franchisees.

The acquisition of these restaurants is not reflected in Openings during the twenty-six week period ended December 29, 2021 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership.

These acquired restaurants are included in Total Open Restaurants at December 29, 2021 within the total for Company-owned restaurants Chili’s domestic.

At December 29, 2021, we own property for 53 of the 1,182 Company-owned restaurants.

The net book values associated with these restaurants included land of $43.4 million and buildings of $19.1 million.

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen and Twenty-Six Week Periods Ended December 29, 2021 compared to December 23, 2020

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends:

• Company sales include revenues generated by the operation of Company-owned restaurants including gift card redemptions and revenues from our It’s Just Wings and Maggiano’s Italian Classics virtual brands.

• Franchise and other revenues include royalties, delivery fee income, gift card breakage, Maggiano’s banquet service charge income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization, merchandise income and gift card discount costs from third-party gift card sales.

• Franchise and other revenues include royalties, gift card breakage, Maggiano’s banquet service charge income, delivery income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization and gift card discount costs from third-party gift card sales.

The following is a summary of the change in Total revenues:

1 unchanged sentence

Chili’s Maggiano’s Total Revenues

Thirteen Week Period Ended September 23, 2020 $ 686.5 $ 53.6 $ 740.1

Thirteen Week Period Ended December 23, 2020 $ 696.4 $ 64.3 $ 760.7

Comparable restaurant sales 78.5 49.4 127.9

2 unchanged sentences

Restaurant closures (2)

Company sales 108.9 49.4 158.3

Royalties (3)

Franchise fees and other revenues 1.9 3.9 5.8

Franchise and other revenues 2.9 3.9 6.8

Thirteen Week Period Ended December 29, 2021 $ 808.2 $ 117.6 $ 925.8

Total Revenues

Chili’s Maggiano’s Total Revenues

Twenty-Six Week Period Ended December 23, 2020 $ 1,382.9 $ 117.9 $ 1,500.8

Comparable restaurant sales 166.2 82.5 248.7

Restaurant openings 8.6 — 8.6

Restaurant acquisitions (1)

Restaurant closures (2)

Restaurant relocations 0.5 — 0.5

3 unchanged sentences

Franchise and other revenues 5.7 6.0 11.7

Thirteen Week Period Ended September 29, 2021 $ 787.6 $ 88.8 $ 876.4

(1) We acquired 23 Chili’s restaurants from a franchisee on September 2, 2021.

The revenues generated by these restaurants since the date of the acquisition are included in Company sales for the thirteen week period ended September 29, 2021.

Twenty-Six Week Period Ended December 29, 2021 $ 1,595.8 $ 206.4 $ 1,802.2

(1) We acquired 23 Chili’s restaurants on September 2, 2021 and 37 Chili’s restaurants on October 31, 2021 from two franchisees.

The revenues generated by these restaurants since the date of the acquisitions are included in Company sales for the thirteen and twenty-six week periods ended December 29, 2021.

(2) Restaurant closures include the change in Company sales resulting from temporary closures longer than 14 consecutive days that occurred in the previous 18 months, partially offset by permanently closed locations.

(3) Our franchisees generated sales of approximately $211.9 million for the thirteen week period ended September 29, 2021 compared to $163.5 million in sales for the thirteen week period ended September 23, 2020.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period ended September 29, 2021 compared to September 23, 2020:

Percentage Change in the Thirteen Week Period Ended September 29, 2021 versus September 23, 2020

(3) Our franchisees generated sales of approximately $204.0 million and $419.3 million for the thirteen and twenty-six week periods ended December 29, 2021 compared to $187.7 million and $353.2 million in sales for the thirteen and twenty-six week periods ended December 23, 2020.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and twenty-six week periods ended December 29, 2021 compared to December 23, 2020:

Percentage Change in the Thirteen Week Period Ended December 29, 2021 versus December 23, 2020

Comparable Restaurant Sales (1)

8 unchanged sentences

System-wide (6)

Percentage Change in the Twenty-Six Week Period Ended December 29, 2021 versus December 23, 2020

Comparable Restaurant Sales (1)

Price Impact Mix-Shift Impact (2)

Traffic Impact Restaurant Capacity (3)

Company-owned 17.4 % 1.5 % 6.1 % 9.8 % 3.0 %

Chili’s 12.7 % 1.7 % 3.2 % 7.8 % 3.2 %

Maggiano’s 71.0 % (0.2) % 24.6 % 46.6 % 0.0 %

Chili’s Franchise (4)

International 29.6 %

Chili’s Domestic (5)

System-wide (6)

(1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months except acquired restaurants which are included after 12 months of ownership.

2 unchanged sentences

(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.

(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 23 Chili’s restaurants in the first quarter of fiscal 2022.

(4) Chili’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive Income (Unaudited);

4 unchanged sentences

Costs and Expenses

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen Week Period Ended December 29, 2021 compared to December 23, 2020

The following is a summary of the changes in Costs and Expenses:

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29, 2021 September 23, 2020

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

8 unchanged sentences

As a percentage of Company sales:

• Food and beverage costs increased 0.6%, including 1.0% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher poultry and other commodity costs, partially offset by 0.2% of favorable menu pricing and 0.2% of favorable menu item mix.

• Restaurant labor increased 1.5%, including 4.0% of higher restaurant labor costs primarily including wage rates, training and overtime and 0.3% of higher other labor expenses, partially offset by 2.8% of sales leverage.

• Restaurant expenses decreased 0.9%, including 3.2% of sales leverage and 0.8% of lower delivery fees and To-Go supplies, partially offset by 1.4% of higher repairs and maintenance expenses, 0.6% of higher utilities expenses, 0.3% of higher advertising expenses, 0.3% of higher restaurant supplies and 0.5% of higher other restaurant expenses.

• Food and beverage costs increased 1.2%, including 1.8% of higher meat, poultry and other commodity costs due to supply chain constraints and inflationary pressures, and 0.1% of unfavorable menu item mix, partially offset by 0.7% of increased menu pricing.

• Restaurant labor increased 0.6%, including 1.7% of higher hourly labor expenses due to increased wage rates, training and overtime, 0.8% of higher manager expenses due to merit increases and manager training due to greater than normal manager turnover, partially offset by 1.8% of sales leverage and 0.1% of lower other labor expenses.

• Restaurant expenses decreased 2.1%, including 2.9% of sales leverage and 0.6% of lower expenses related to delivery fees driven by the decline in off-premise sales, partially offset by 0.4% of higher utilities, 0.3% of higher workers’ compensation and general liability expenses resulting from unfavorable claims experience, 0.2% of higher supervision costs and 0.5% of higher other restaurant expenses.

Depreciation and amortization increased $4.4 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended September 23, 2020 $ 37.4

Retirements and fully depreciated restaurant assets (4.1)

Thirteen Week Period Ended December 23, 2020 $ 37.2

Additions for new and existing restaurant assets 5.0

Finance leases 1.8

Additions for existing and new restaurant assets 3.9

Acquisition of Chili’s restaurants (1)

Corporate assets 0.4

Thirteen Week Period Ended September 29, 2021 $ 39.3

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 23 Chili’s restaurants acquired on September 2, 2021.

Retirements and fully depreciated restaurant assets (4.5)

Thirteen Week Period Ended December 29, 2021 $ 41.6

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.

General and administrative expen ses increased $3.1 million as follows:

General and Administrative

Thirteen Week Period Ended September 23, 2020 $ 30.5

Thirteen Week Period Ended December 23, 2020 $ 30.0

Performance-based compensation (1)

Defined contribution plan employer expenses (2)

Professional fees 1.5

Stock-based compensation 2.2

Payroll-related expenses 1.0

Professional fees 0.8

Travel and entertainment expenses 0.4

Stock-based compensation 0.2

Performance-based compensation (1.0)

Thirteen Week Period Ended September 29, 2021 $ 36.5

Thirteen Week Period Ended December 29, 2021 $ 33.1

(1) Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.

(2) Defined contribution plan employer expenses increased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020.

2 unchanged sentences

Thirteen Week Periods Ended

September 29,

2021 September 23,

2021 December 23,

Lease contingencies $ 2.9 $ —

Remodel-related costs 1.6 0.7

Enterprise system implementation 0.6 —

Loss from natural disasters, net of (insurance recoveries) 0.6 —

Acquisition-related costs, net 0.9 —

Enterprise system implementation costs 0.3 —

Restaurant closure charges 0.3 0.4

COVID-19 related charges (0.8) 1.0

Restaurant impairment charges — 2.5

Other 1.2 0.8

Interest expenses decreased $3.2 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022.

Twenty-Six Week Period Ended December 29, 2021 compared to December 23, 2020

The following is a summary of the changes in Costs and Expenses:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 487.1 27.6 % $ 392.4 26.6 % $ (94.7) (1.0) %

Restaurant labor 620.3 35.2 % 503.8 34.2 % (116.5) (1.0) %

Restaurant expenses 468.0 26.5 % 413.8 28.0 % (54.2) 1.5 %

Depreciation and amortization 80.9 74.6 (6.3)

General and administrative 69.6 60.5 (9.1)

Other (gains) and charges 10.9 9.2 (1.7)

Interest expenses 23.7 29.0 5.3

Other income, net (0.8) (0.9) (0.1)

As a percentage of Company sales:

• Food and beverage costs increased 1.0%, including 1.4% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures and 0.1% of unfavorable menu item mix, partially offset by 0.5% of favorable menu pricing.

• Restaurant labor increased 1.0%, including 2.0% of higher hourly restaurant labor costs primarily including wage rates, training and overtime and 0.9% of higher manager salaries and training resulting from merit increases and greater than normal manager turnover, partially offset by 1.9% of sales leverage.

• Restaurant expenses decreased 1.5%, driven by 3.1% of sales leverage and 0.7% of lower delivery fees, partially offset by 0.8% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.4% of higher advertising expenses, 0.2% of higher supervision costs and 0.5% of higher other restaurant expenses.

Depreciation and amortization increased $6.3 million as follows:

Depreciation and Amortization

Twenty-Six Week Period Ended December 23, 2020 $ 74.6

Additions for existing and new restaurant assets 8.9

Finance leases 3.3

Acquisition of Chili’s restaurants (1)

Corporate assets 0.8

Retirements and fully depreciated restaurant assets (8.6)

Twenty-Six Week Period Ended December 29, 2021 $ 80.9

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.

General and administrative expe nses increased $9.1 million as follows:

General and Administrative

Twenty-Six Week Period Ended December 23, 2020 $ 60.5

Defined contribution plan employer expenses (1)

Stock-based compensation 2.4

Professional fees 2.3

Payroll-related expenses 2.0

Travel and entertainment expenses 0.8

Performance-based compensation (2)

Twenty-Six Week Period Ended December 29, 2021 $ 69.6

(1) Defined contribution plan employer expenses increased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020.

Employer matching contributions were reinstated beginning January 1, 2021.

(2) Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.

Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Twenty-Six Week Periods Ended

2021 December 23,

Remodel-related costs $ 3.1 $ 0.9

Lease contingencies 2.9 —

Acquisition-related costs, net 0.9 —

Enterprise system implementation costs 0.9 —

Restaurant closure charges 0.5 1.9

COVID-19 related charges (0.5) 2.2

Restaurant impairment charges — 2.5

Other 3.1 1.7

Interest expenses decreased $5.3 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022.

Thirteen Week Periods Ended

September 29,

2021 September 23,

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 Favorable / (Unfavorable) December 29,

2021 December 23,

2020 Favorable / (Unfavorable) Variance

Effective income tax rate 5.2 % (46.3) % (51.5) % 4.0 % (23.4) % (27.4) %

The federal statutory tax rate was 21.0% for the thirteen week periods ended September 29, 2021 and September 23, 2020.

The effective income tax rate in the thirteen week period ended September 29, 2021 increased compared to the thirteen week period ended September 23, 2020 primarily due to a reduced favorable impact from the FICA tip tax credit and the excess tax benefits associated with stock-based compensation in the first quarter of fiscal 2022.

The federal statutory tax rate was 21.0% for the thirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020.

The effective income tax rate in the thirteen and twenty-six week periods ended December 29, 2021 increased compared to the thirteen and twenty-six week periods ended December 23, 2020 primarily due to a reduced

favorable impact from the FICA tip tax credit and the excess tax benefits associated with stock-based compensation in the first quarter of fiscal 2022.

Segment Results

Chili’s Segment

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen Week Period Ended December 29, 2021 compared to December 23, 2020

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

September 29,

2021 September 23,

2021 December 23,

Company sales $ 791.9 $ 683.0 $ 108.9 15.9 %

3 unchanged sentences

Total revenues $ 808.2 $ 696.4 $ 111.8 16.1 %

Chili’s Total revenues increased 14.7% primarily due to higher dining room guest sales and traffic, six restaurant openings and the acquisition of 23 Chili’s restaurants on September 2, 2021, partially offset by decreased off-premise sales.

Chili’s Total revenues increased by 16.1% primarily due to higher dining room guest sales and traffic, the acquisition of 60 Chili’s restaurants from two former franchisees and six new restaurant openings, partially offset by decreased off-premise sales.

Refer to “Revenues” section above for further details about Chili’s revenues changes.

1 unchanged sentence

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29, 2021 September 23, 2020

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

6 unchanged sentences

As a percentage of Company sales

• Chili’s Food and beverage costs increased 0.8%, including 0.9% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher poultry and other commodity costs and 0.1% of unfavorable menu item mix, partially offset by 0.2% of increased menu pricing.

• Chili’s Restaurant labor increased 1.5%, including 3.6% of higher restaurant labor costs primarily including wage rates, training and overtime and 0.2% of higher other labor expenses, partially offset by 2.3% of sales leverage.

• Chili’s Restaurant expenses decreased 0.4%, including 2.5% of sales leverage and 0.6% of lower delivery fees and To-Go supplies, partially offset by 1.3% of higher repairs and maintenance expenses, 0.6% of higher utilities expenses and 0.8% of higher other restaurant expenses.

• Chili’s Food and beverage costs increased 1.5%, including 1.9% of higher meat, poultry and other commodity costs due to supply chain constraints and inflationary pressures and 0.3% of unfavorable menu item mix, partially offset by 0.7% of increased menu pricing.

• Chili’s Restaurant labor increased 0.8%, including 1.5% of restaurant labor costs including wage rates, training and overtime, 1.2% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 1.3% of sales leverage, 0.4% of lower manager bonus expenses due to lower operational performance metrics and 0.2% of lower other labor expenses.

• Chili’s Restaurant expenses decreased 1.7%, including 2.7% of sales leverage and 0.6% of lower delivery fee expenses, partially offset by 0.6% of higher utilities expenses, 0.3% of higher workers’ compensation and general liability expenses resulting from unfavorable claims experience, 0.2% of higher rent expenses and 0.5% of higher other restaurant expenses.

Chili’s Depreciation and amortization increased $4.6 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended September 23, 2020 $ 30.6

Thirteen Week Period Ended December 23, 2020 $ 30.8

Additions for new and existing restaurant assets 4.8

Finance leases 1.7

Acquisition of Chili’s restaurants (1)

Retirements and fully depreciated restaurant assets (3.5)

Thirteen Week Period Ended December 29, 2021 $ 35.4

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.

Chili’s General and administrative increased $1.8 million as follows:

General and Administrative

Thirteen Week Period Ended December 23, 2020 $ 5.4

Defined contribution plan employer expenses (1)

Stock-based compensation 0.2

Payroll-related expenses 0.1

Performance-based compensation (2)

Thirteen Week Period Ended December 29, 2021 $ 7.2

Employer matching contributions were reinstated beginning January 1, 2021.

(2) Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Thirteen Week Periods Ended

2021 December 23,

Remodel-related costs $ 1.6 $ 0.7

Acquisition of franchise restaurants-related costs 0.9 —

Restaurant closure charges 0.3 0.3

Loss from natural disasters, net of (insurance recoveries) 0.2 0.2

COVID-19 related charges (0.8) 1.0

Restaurant impairment charges — 2.1

Twenty-Six Week Period Ended December 29, 2021 compared to December 23, 2020

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

2021 December 23,

Company sales $ 1,565.2 $ 1,358.0 $ 207.2 15.3 %

Royalties 17.6 14.2 3.4 23.9 %

Franchise fees and other revenues 13.0 10.7 2.3 21.5 %

Franchise and other revenues 30.6 24.9 5.7 22.9 %

Total revenues $ 1,595.8 $ 1,382.9 $ 212.9 15.4 %

Chili’s Total revenues increased 15.4% primarily due to higher dining room guest sales and traffic, the acquisition of 60 Chili’s restaurants from two former franchisees and six new restaurant openings, partially offset by decreased off-premise sales.

Refer to “Revenues” section above for further details about Chili’s revenues changes.

The following is a summary of the changes in Chili’s operating costs and expenses:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 438.2 28.0 % $ 364.5 26.8 % $ (73.7) (1.2) %

Restaurant labor 551.1 35.2 % 461.6 34.0 % (89.5) (1.2) %

Restaurant expenses 409.6 26.2 % 370.1 27.3 % (39.5) 1.1 %

Depreciation and amortization 68.4 61.4 (7.0)

General and administrative 15.2 10.8 (4.4)

Other (gains) and charges 5.0 8.0 3.0

As a percentage of Company sales:

• Chili’s Food and beverage costs increased 1.2%, including 1.5% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures and 0.2% of unfavorable menu item mix, partially offset by 0.5% of increased menu pricing.

• Chili’s Restaurant labor increased 1.2%, including 2.0% of higher restaurant hourly labor costs primarily including wage rates, training and overtime and 0.8% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 1.4% of sales leverage and 0.2% of lower manager bonus expenses due to lower operational performance metrics.

• Chili’s Restaurant expenses decreased 1.1%, including 2.4% of sales leverage and 0.6% of lower delivery fee expenses, partially offset by 0.8% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher workers’ compensation and general liability expenses resulting from unfavorable claims experience and 0.4% of higher other restaurant expenses.

Chili’s Depreciation and amortization increased $7.0 million as follows:

Depreciation and Amortization

Twenty-Six Week Period Ended December 23, 2020 $ 61.4

Additions for existing and new restaurant assets 8.6

2 unchanged sentences

Retirements and fully depreciated restaurant assets (6.5)

Thirteen Week Period Ended September 29, 2021 $ 33.0

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 23 Chili’s restaurants acquired on September 2, 2021.

Twenty-Six Week Period Ended December 29, 2021 $ 68.4

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 60 Chili’s restaurants acquired in the first two quarters of fiscal 2022.

Chili’s General and administrative increased $4.4 million as follows:

General and Administrative

Thirteen Week Period Ended September 23, 2020 $ 5.4

Twenty-Six Week Period Ended December 23, 2020 $ 10.8

Defined contribution plan employer expenses (1)

Professional fees 0.3

Stock-based compensation 0.5

Travel and entertainment expenses 0.4

Professional fees 0.2

Payroll-related expenses 0.1

Performance-based compensation (2)

Thirteen Week Period Ended September 29, 2021 $ 8.0

Twenty-Six Week Period Ended December 29, 2021 $ 15.2

Employer matching contributions were reinstated beginning January 1, 2021.

(2) Performance-based compensation decreased due to adjustment in the expected bonus payout for fiscal 2022 resulting from lower business performance metrics compared to the targets.

Maggiano’s Segment

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen Week Period Ended December 29, 2021 compared to December 23, 2020

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

September 29,

2021 September 23,

2021 December 23,

Company sales $ 112.6 $ 63.2 $ 49.4 78.2 %

3 unchanged sentences

Total revenues $ 117.6 $ 64.3 $ 53.3 82.9 %

Maggiano’s Total revenues increased 65.7% primarily due to higher dining and banquet room sales and traffic, and higher delivery sales, including virtual brands, partially offset by a decrease in To-Go sales.

Maggiano’s Total revenues increased 82.9% primarily due to higher dining and banquet room sales and traffic.

Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

1 unchanged sentence

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29, 2021 September 23, 2020

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

6 unchanged sentences

As a percentage of Company sales:

• Maggiano’s Food and beverage costs increased 0.3%, including 0.6% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher seafood and other commodity costs, partially offset by 0.3% of favorable menu item mix.

• Maggiano’s Restaurant labor decreased 0.8%, including 9.0% of sales leverage, partially offset by 7.0% of higher restaurant labor costs primarily including wage rates, training and overtime, 1.1% of higher manager bonus expenses and 0.1% of higher other labor expenses.

• Maggiano’s Restaurant expenses decreased 8.3%, including 12.5% of sales leverage and 0.9% lower delivery fees and To-Go supplies, partially offset by 2.2% of higher repairs and maintenance expenses, 1.4% of higher advertising expenses, 1.4% of higher supervision expenses and 0.1% of higher other restaurant expenses.

• Maggiano’s Food and beverage costs increased 0.8%, including 1.1% of higher seafood, meat and produce commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.2% of favorable menu item mix and 0.1% of increased menu pricing.

• Maggiano’s Restaurant labor decreased 1.9%, including 6.9% of sales leverage and 0.7% of lower other labor expense, partially offset by 2.3% of higher restaurant hourly labor costs primarily including wage rates, training and overtime, 1.9% of higher manager bonus expenses and 1.5% of higher manager salaries and training.

• Maggiano’s Restaurant expenses decreased 7.0%, driven by 12.9% of sales leverage, partially offset by higher expenses including 1.6% of supervision expenses, 1.3% of repairs and maintenance expenses, 1.2% of advertising expenses, 0.8% of utilities, 0.5% of delivery fees and supplies and 0.5% of other restaurant expenses.

Twenty-Six Week Period Ended December 29, 2021 compared to December 23, 2020

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

2021 December 23,

Company sales $ 198.9 $ 116.4 $ 82.5 70.9 %

Royalties 0.2 0.1 0.1 100.0 %

Franchise fees and other revenues 7.3 1.4 5.9 421.4 %

Franchise and other revenues 7.5 1.5 6.0 400.0 %

Total revenues $ 206.4 $ 117.9 $ 88.5 75.1 %

Maggiano’s Total revenues increased 75.1% primarily due to higher dining and banquet room sales and traffic.

Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

The following is a summary of the changes in Maggiano’s operating costs and expenses:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 29, 2021 December 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 48.9 24.6 % $ 27.9 24.0 % $ (21.0) (0.6) %

Restaurant labor 69.2 34.8 % 42.2 36.2 % (27.0) 1.4 %

Restaurant expenses 58.1 29.2 % 42.9 36.9 % (15.2) 7.7 %

Depreciation and amortization 6.8 7.0 0.2

General and administrative 3.9 2.6 (1.3)

Other (gains) and charges 0.2 0.9 0.7

As a percentage of Company sales:

• Maggiano’s Food and beverage costs increased 0.6%, including 0.7% of higher seafood and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.1% of increased menu pricing.

• Maggiano’s Restaurant labor decreased 1.4%, including 6.7% of sales leverage and 0.3% of lower other labor expenses, partially offset by 2.8% of higher restaurant hourly labor costs primarily including wage rates, training and overtime, 1.5% of higher manager bonus expenses and 1.3% of higher manager salaries and training.

• Maggiano’s Restaurant expenses decreased 7.7%, driven by 12.8% of sales leverage, partially offset by higher expenses including 1.7% of repairs and maintenance expenses, 1.4% of supervision expenses, 1.2% of higher advertising expenses and 0.8% of other restaurant expenses.

Liquidity and Capital Resources

7 unchanged sentences

• Resumed the Chili’s and Maggiano’s remodel program and construction of new restaurants;

• Selectively increased marketing and restaurant expenses

• Selectively increased marketing spend;

• Reinstated the share repurchase program;

• Will repay $54.5 million of payroll taxes deferred in accordance with the CARES Act in two equal installments on December 31, 2021 and December 31, 2022.

• Repaid the first installment of $27.2 million of payroll taxes deferred in accordance with the CARES Act in the second quarter of fiscal 2022 and will repay the remaining $27.2 million that is due on December 31, 2022.

Cash Flows from Operating Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2021 December 23,

Net cash provided by operating activities $ 107.4 $ 130.0 $ (22.6)

Net cash provided by operating activities decreased primarily due to an increase in payments of performance based compensation and bonuses in the current year and to the impact of the deferral of payroll tax payments as allowed under the CARES Act in the prior year.

Net cash provided by operating activities decreased primarily due to the repayment of the first installment of $27.2 million of payroll taxes that were previously deferred under the CARES Act, as well as an increase in payments of performance based compensation and bonuses in the current year, partially offset by improved operating performance in the first two quarters of fiscal 2022 compared to the prior year and the timing of operational receipts and payments.

Cash Flows from Investing Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2021 December 23,

Cash flows from investing activities

2 unchanged sentences

Proceeds from sale leaseback transactions, net of related expenses 20.5 — 20.5

Proceeds from sale of assets 0.0 1.3 (1.3)

Proceeds from note receivable — 1.3 (1.3)

Net cash used in investing activities $ (158.1) $ (34.5) $ (123.6)

Net cash used in investing activities increased primarily due to $47.5 million of cash consideration paid for the purchase of 23 Chili’s restaurants from a franchisee.

Simultaneous with the acquisition, we completed sale leaseback transactions on six of the acquired restaurants resulting in $20.5 million in proceeds received.

Net cash used in investing activities increased primarily due to $104.5 million of cash consideration paid for the purchase of 60 Chili’s restaurants from two franchisees, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants.

Additionally, capital expenditures increased in fiscal 2022 primarily for equipment purchases and an increase in the pace of the Chili’s remodel initiative.

Subsequent to the end of the first quarter of fiscal 2022, we acquired 36 Chili’s restaurants located in the Great Lakes and Northeast region of the United States that were owned by a franchisee.

The purchase price of $55 million, excluding post-closing adjustments, was funded with availability under our existing revolving credit facility.

Cash Flows from Financing Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2021 December 23,

Cash flows from financing activities

7 unchanged sentences

Net cash provided by (used in) financing activities $ 42.4 $ (75.3) $ 117.7

Net cash from financing activities increased primarily due to $80.0 million of net borrowing activity in fiscal 2022 compared to $46.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021.

Net cash provided by financing activities increased primarily due to $132.5 million of net borrowing activity in fiscal 2022 compared to $66.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021.

Revolving Credit Facility

On August 18, 2021, we revised our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility.

Net borrowings of $80.0 million were drawn during the thirteen week period ended September 29, 2021 on the revolving credit facility.

As of September 29, 2021, $548.7 million of credit was available under the new revolving credit facility.

Net borrowings of $132.5 million were drawn during the twenty-six week period ended December 29, 2021 on the revolving credit facility.

As of December 29, 2021, $496.2 million of credit was available under the new revolving credit facility.

The $800.0 million revolving credit facility matures on August 18, 2026 and bears interest of LIBOR plus an applicable margin of 1.500% to 2.250% and an undrawn commitment fee of 0.250% to 0.350%, both based on a function of our debt-to-cash-flow ratio.

As of September 29, 2021, our interest rate was 1.875% consisting of LIBOR of 0.125% plus the applicable margin of 1.750%.

In the thirteen week period ended September 29, 2021, we incurred and capitalized $3.0 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets (Unaudited).

As of September 29, 2021, 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 December 29, 2021, our interest rate was 1.875% consisting of LIBOR of 0.125% plus the applicable margin of 1.750%.

In the twenty-six week period ended December 29, 2021, 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 (Unaudited).

As of December 29, 2021, 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.

Refer to Note 10 - Debt for further information about our notes and revolving credit facility.

5 unchanged sentences

In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million.

In the thirteen week period ended September 29, 2021, we repurchased 0.8 million shares of our common stock for $39.6 million, including 0.7 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

As of September 29, 2021, approximately $265.0 million was available under our share repurchase authorizations.

In the twenty-six week period ended December 29, 2021, we repurchased 1.6 million shares of our common stock for $74.7 million, including 1.5 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

As of December 29, 2021, approximately $230.0 million was available under our share repurchase authorizations.

Dividend Program

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend in response to the liquidity needs created by the COVID-19 pandemic.

In the thirteen week periods ended September 29, 2021 and September 23, 2020, dividends paid related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period.

In the twenty-six week periods ended December 29, 2021 and December 23, 2020, dividends paid were solely related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period.

Restricted share award dividends are accrued in Other accrued liabilities for the current portion to vest within 12 months, and Other liabilities for the portion that will vest after one year.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis