What changed in this filing

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Item 1A. Risk Factors

2022-08-26 compared with 2021-08-26 · 74 added, 100 removed, 189 unchanged (48% of the section changed)

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The use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.

Our ability to grow sales through delivery orders is uncertain.

Part of our strategy for growth is dependent on increased sales from guests that want our food delivered to them.

We currently rely on third-party delivery providers for the ordering and payment platforms that receive guest orders and that send orders directly to our point of sale system.

These platforms could be damaged or interrupted by technological failures, cyber-attacks or other factors, which may adversely impact our sales through these channels.

Delivery providers generally fulfills delivery orders through drivers that are independent contractors.

We face risks related to our ability to continue to grow sales through delivery orders and digital commerce.

Part of our strategy for growth is dependent on increased sales from guests that want to enjoy our food off premises.

Customers are increasingly using websites and applications, including both our internally developed brand websites and third-party delivery aggregators, to place and pay for their orders.

As we become increasingly reliant on digital ordering and payment as a sales channel, our business could be negatively impacted if we are unable to successfully implement, execute or maintain our consumer-facing digital initiatives, such as curbside pick-up, brand websites, and application based ordering.

These digital ordering and payment platforms also could be damaged or interrupted by power loss, technological failures, user errors, cyber-attacks, other forms of sabotage, inclement weather or natural disasters.

The digital ordering platforms we rely on could experience interruptions, which could limit or delay customers’ ability to order through such platforms or make customers less inclined to return to such platforms.

We currently rely on third-party delivery providers for our off premise delivery (other than Maggiano’s catering).

We rely on such third-party providers for ordering and payment platforms that receive guest orders and that send orders directly to our point-of-sale system.

These platforms, as well as our own brand websites, could be damaged or interrupted by technological failures, cyber-attacks or other factors, which may adversely impact our sales through these channels.

Delivery providers generally fulfill delivery orders through drivers that are independent contractors.

These drivers may make errors, fail to make timely deliveries, damage our food or poorly represent our brands, which may lead to customer disappointment, reputational harm and unmet sales expectations.

Our sales may also be adversely impacted if there is a shortage of drivers that are willing and available to make deliveries from our restaurants.

We also incur additional costs associated with delivery orders, and it is possible that these orders could cannibalize more profitable in-restaurant visits or To-Go orders.

Additionally, we have certain virtual brands that are only available through third-party platforms.

We rely on DoorDash and Google Food Ordering to market and deliver certain offerings from our Chili’s and Maggiano’s kitchens.

In addition to the delivery and technological risks discussed above, because certain offerings are only available through third-party platforms, if we have to transition to a different third-party delivery provider, our sales on such offerings would temporarily be diminished, and it is possible that we would not generate the same level of profitability with a different provider.

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.

Loss of key management personnel could hurt our business and limit our ability to operate and grow successfully.

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There is active competition for quality management personnel and hourly team members.

We are experiencing and may continue to experience challenges in recruiting and retaining team members in various locations.

These challenges may result in higher labor costs, increased turnover and a shortage of adequate management personnel and hourly team members required for operations and for future growth, which can lead to lower guest satisfaction and decreased profitability.

We are experiencing and may continue to experience challenges in recruiting and retaining team members in various locations as we are experiencing an increasingly tight and competitive labor market.

These challenges may continue to result in higher labor costs (such as increased overtime to meet demand and increased wages to attract and retain team members), increased turnover and a shortage of adequate management personnel and hourly team members required for operations and for future growth, which can lead to lower guest satisfaction and decreased profitability.

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.

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Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be insufficient to cover our losses fully.

Measures implemented to reduce the spread of COVID-19 have adversely affected workforces, customers, consumer sentiment, economies and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets.

As a result of COVID-19, we and many of our franchisees experienced reduced operating hours and dining-room closures, some of which are still fully or partially continuing.

While many markets have reopened for dine-in guests, the capacity may be limited, and local conditions may lead again to

closures or increased limitations.

As a result of COVID-19, restaurant traffic and system-wide sales were negatively impacted.

Refer to Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Revenues for more information.

We cannot predict the duration or scope of the COVID-19 pandemic or when operations will cease to be affected by it.

Because a large portion of our restaurant operating costs are fixed or semi-fixed in nature, the loss of sales during these periods hurts our and our franchisees’ operating margins and can result in restaurant operating losses and our loss of royalties.

The COVID-19 pandemic is ongoing and has the potential to negatively impact our future financial results and depending on the duration and scope, such impact could be material.

Shortages or interruptions in the availability and delivery of food and other products may increase costs or reduce revenues.

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.

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.

The large number of Company-owned restaurants concentrated in Texas, Florida and California makes us susceptible to changes in economic and other trends in those regions.

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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

participate in business strategy changes due to financial constraints;

franchisee failures to meet obligations to pay employees;

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• Differences, changes or uncertainties in economic, regulatory, legal, cultural, social and political conditions.

Challenges to the retail industry may negatively affect guest traffic at our restaurants.

Other tenants at retail centers in which we are located or have executed leases may fail to open or may cease operations as a result of challenges specific to the retail industry, including competition from online retailers.

The retail industry has been particularly hard hit by the COVID-19 pandemic, with many locations closing for extended periods of time and have yet to reopen.

A number of prominent retail chains have also declared bankruptcy, including those that are anchor tenants in retail centers where we have locations.

Decreases in total tenant occupancy in retail centers and changes in guest visits to the retail centers in which we are located, whether as a result of the COVID-19 pandemic or otherwise, may negatively affect guest traffic at our restaurants.

Inflation and fluctuations in energy costs may increase our operating expenses.

We have in the past, and are currently experiencing the impacts of inflation and fluctuations in utility and energy costs.

Inflation has caused added food, labor and benefits costs and increased our operating expenses.

Fluctuations and increases in utility and energy costs have also increased our operating expenses on regional and national levels, including through suppliers putting pressure on margins by passing on higher prices for petroleum-based fuels.

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 increases in operating expenses due to inflation in this manner.

Failure to protect our service marks or other intellectual property could harm our business.

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Failure of third parties to provide adequate services could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting.

ESG matters, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition, and operating results and may damage our reputation.

Companies across all industries are facing increasing scrutiny relating to their environmental, social, and governance practices.

Changing consumer preferences may result in increased demands regarding our products and supply chain and their respective environmental and social impact, including on sustainability.

These demands could require additional transparency, due diligence, and reporting and could cause us to incur additional costs or to make changes to our operations to comply with such demands.

We may also determine that certain changes are required in anticipation of further evolution of consumer preferences and demands.

Increased focus and activism related to ESG may also result in investors reconsidering their investment decisions as a result of their assessment of a company’s ESG practices.

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

If we fail to achieve any goals, targets, or objectives we may set with respect to ESG matters, if we do not meet or comply with new regulations or evolving consumer, investor, industry, or stakeholder expectations and standards, including those related to reporting, or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions, the imposition of fines, penalties, or other sanctions, adverse publicity, and decreased demand from consumers, or the price of our common shares could decline, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition, or operating results.

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.

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.

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.

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.

Although 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.

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.

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.

When economic conditions negatively affect consumer spending, discretionary spending for restaurant visits will be challenged, our guest traffic may deteriorate and the average amount guests spend in our restaurants may be reduced.

This will negatively impact our revenues and also result in lower royalties collected, spreading fixed costs across a lower level of sales, and in turn, cause downward pressure on our profitability.

This could result in further reductions in staff levels, asset impairment charges and potential restaurant closures.

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.

General economic conditions, including inflation and fluctuations in energy costs, may continue to increase our operating expenses.

We have in the past, and are currently experiencing the impacts of economic conditions, including inflation and fluctuations in utility and energy costs.

Inflation has caused added food, labor and benefits costs and increased our operating expenses.

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.

Shortages or interruptions in the availability and delivery of food and other products may increase costs or reduce revenues.

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.

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.

Information and Technology Related Risks

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To conduct our operations, we regularly move data across national borders, and consequently are subject to a variety of continuously evolving and developing laws and regulations regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data.

The use and disclosure of such information is regulated at the federal, state and international levels, and these laws, rules and regulations are subject to change and increased enforcement activity and are increasing in complexity and number.

For example, the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, imposes new responsibilities on us for the handling, disclosure and deletion of personal information for consumers who reside in California.

The CCPA permits California to assess potentially significant fines for violating CCPA regulations and creates a right for individuals to bring class action suits seeking damages for violations.

The use and disclosure of such information is regulated and enforced at the federal, state and international levels, and these laws, rules and regulations are subject to change.

As privacy and information security laws and regulations change or cyber risks evolve pertaining to data, we may incur significant additional costs in technology, third-party services and personnel to maintain systems designed to anticipate and prevent cyber-attacks.

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Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled primarily at our restaurant support center.

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.

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.

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.

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.

Financial Risks

The phase-out of LIBOR could increase our interest expense and have a material adverse effect on us.

Borrowings under our revolving credit facility use LIBOR, the basic rate of interest used in lending between banks on the London interbank market, as a benchmark for establishing the applicable interest rate.

In July 2017, the Financial Conduct Authority of the United Kingdom, which regulates LIBOR, announced that it planned to phase out LIBOR by the end of 2021.

On March 5, 2021, however, ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease the publication of all settings of non-U.S.

dollar LIBOR and only the one-week and two-month U.S.

dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S.

dollar LIBOR settings being discontinued after June 30, 2023.

Whether another alternative reference rate attains market traction as a LIBOR replacement tool remains in question.

Although our borrowing arrangements provide for alternative base rates, those alternative base rates historically would often have led to increased interest rates, in some cases significantly higher, than those we paid based on LIBOR, and may similarly be higher in the future.

Therefore, when LIBOR ceases to exist, we will likely need to agree upon a replacement index with our lenders, and the interest rate thereunder will likely change.

The consequences of the phase out of LIBOR cannot be entirely predicted at this time.

For example, we may not be successful in amending our borrowing arrangements to provide for a replacement rate.

Any new or alternative base rate for calculating interest with respect to our outstanding indebtedness may not be as favorable or perform in the same manner as LIBOR and could lead to an increase in our interest expense or could impact our ability to refinance some or all of our existing indebtedness.

In addition, the transition process may involve, among other things, increased volatility or illiquidity in financial markets, which could also have an adverse effect on us whether or not any replacement rate applicable to our borrowings is affected.

Any such effects of the transition away from LIBOR, as well as other unforeseen impacts, may result in increased interest expense and other expenses, difficulties, complications or delays in connection with future financing efforts or otherwise have a material adverse impact on our business, financial condition and results of operations.

Downgrades in our credit ratings could impact our ability to access capital and materially adversely affect our business, financial condition and results of operations.

Credit rating agencies have, and in the future may, change their credit rating for us, among other things, based on the performance of our business, our capital strategies or their overall view of our industry.

There can be no assurance that any rating assigned to our currently outstanding public debt securities will remain in effect for any given period of time or that any such ratings will not be further lowered, suspended or withdrawn entirely by a rating agency if, in that agency’s judgment, circumstances so warrant, particularly during the COVID-19 pandemic.

A downgrade of our credit ratings could, among other things:

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Our credit ratings could be further lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.

In particular, a weakening of our financial condition, including any further increase in our leverage or

decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.

In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.

Declines in the market price of our common stock or changes in other circumstances that may indicate an impairment of goodwill could adversely affect our financial position and results of operations.

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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.

Although no triggering event had been identified in our regular goodwill impairment assessment performed at the end of the second quarter of fiscal 2020, we determined during the third quarter of fiscal 2020 that the reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic could indicate that an impairment loss may have been incurred.

Based on our assessment, we determined that our goodwill and indefinite-lived intangible assets were not impaired.

Additionally, we updated the assessment during the fourth quarter of fiscal 2020 and determined no triggering event existed based on improved market value and actual results compared to projections in the quantitative assessment prepared in the third quarter.

We performed our annual goodwill impairment test in the second quarter of fiscal 2022 and no indicators of impairment were identified.

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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 pandemic could change as additional facts become known and therefore affect these conclusions.

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.

We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.

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These matters typically involve claims by guests, team members and others regarding issues such as food-borne illness, food safety, premises liability, compliance with wage and hour requirements, work-related injuries, discrimination, harassment, disability and other operational issues common to the food service industry, as well as contract disputes and intellectual property infringement matters.

It is also possible that team members, guests or others could make claims against the Company as a result of the COVID-19 pandemic, and the nature and scope of such matters, if any, is unknown because the pandemic is novel.

Our franchise activity also

creates a risk of us being named as a joint employer of workers of franchisees for alleged violations of labor and wage laws.

Our franchise activity also creates a risk of us being named as a joint employer of workers of franchisees for alleged violations of labor and wage laws.

We could be adversely affected by negative publicity and litigation costs resulting from these claims, regardless of their validity.

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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company.

Publicly traded companies also may become the target of shareholder activism, which could take many form or arise in a variety of situations.

Publicly traded companies also may become the target of shareholder activism, which could take many forms or arise in a variety of situations.

Due to the potential volatility of our stock price and for a variety of other reasons, we may become the target of securities litigation or shareholder activism.

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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.

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.

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.

Some states and localities have, and many others are contemplating, increases to their minimum wage and tip credit wage, and such increases can have a significant impact on our labor costs.

Similarly, any government actions related to employee compensation or employer liability in response to the COVID-19 pandemic, whether temporary or permanent, could also materially increase our costs.

In addition, new employment or labor laws may mandate additional benefits for employees or impose additional obligations that may adversely impact the costs of labor, the availability of labor and our business operations.

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Among other laws and regulations, we are subject to laws and regulations relating to the design and operation of facilities, minimum wage, licensing and regulation by alcoholic beverage control, health, sanitation, safety and fire agencies, nutritional content and menu labeling, including the Affordable Care Act, which requires restaurant companies such as ours to disclose calorie information on their menus.

Additionally, as a result of the COVID-19 pandemic, certain state and local jurisdictions are enacting certain health, safety and other regulations that impact or require us to modify our operations.

Compliance with these laws and regulations may lead to increased costs and operational complexity,

changes in sales mix and profitability, and increased exposure to governmental investigations or litigation.

Compliance with these laws and regulations may lead to increased costs and operational complexity, changes in sales mix and profitability, and increased exposure to governmental investigations or litigation.

We cannot reliably anticipate any changes in guest behavior resulting from implementation of these laws.

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In particular, we are affected by the impact of changes to tax laws or policy or related authoritative interpretations.

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.

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.

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.

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Failure to maintain effective internal controls could result in consolidated financial statements that do not accurately reflect our financial condition, cause investors to lose confidence in our reported financial information, or result in regulatory scrutiny, penalties or shareholder litigation, all of which could have a negative effect on the trading price of our common stock.

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.

The casual dining segment of the restaurant industry has not seen significant growth in customer traffic in recent years, and seen a significant decrease as a result of the COVID-19 pandemic.

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.

Although 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.

Global and domestic economic conditions negatively impact consumer discretionary spending and could have a material negative effect on our financial performance.

The restaurant industry is dependent upon consumer discretionary spending, which is negatively affected by global and domestic economic conditions, such as:

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.

When economic conditions negatively affect consumer incomes, such as the ongoing COVID-19 pandemic, discretionary spending for restaurant visits will be challenged, our guest traffic may deteriorate and the average amount guests spend in our restaurants may be reduced.

This will negatively impact our revenues and also result in lower royalties collected, spreading fixed costs across a lower level of sales, and in turn, cause downward pressure on our profitability.

This could result in further reductions in staff levels, asset impairment charges and potential restaurant closures.

There is no assurance that any governmental plans related to the economy to restore fiscal responsibility or future plans to stimulate the economy will foster growth in consumer confidence, consumer incomes or consumer spending.

General Risk Factors

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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-K

Item 1A. Risk Factors