What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-08-26 compared with 2021-08-26 · 117 added, 158 removed, 311 unchanged (47% of the section changed)

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Our MD&A consists of the following sections:

• Overview - a brief description of our business and a discussion on the financial impact of the COVID-19 pandemic

• Overview - a brief description of our business and a discussion on the financial impact of the COVID-19 pandemic and other trends impacting our business

• Results of Operations - an analysis of the Consolidated Statements of Comprehensive Income included in the Consolidated Financial Statements

• Liquidity and Capital Resources - an analysis of cash flows, including capital expenditures, aggregate contractual obligations, share issuance and repurchase activity, and known trends that may impact liquidity

• Impact of Inflation - a discussion of the effect of inflation on our business

• Off-Balance Sheet Arrangements - a discussion of the off-balance sheet arrangements entered into by us

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We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks.

Fiscal 2021 ended on June 30, 2021 and contained 53 weeks.

Fiscal 2020 and 2019, which ended on June 24, 2020 and June 26, 2019, respectively, each contained 52 weeks.

Fiscal 2022 and Fiscal 2020, which ended on June 29, 2022 and June 24, 2020, respectively, each contained 52 weeks.

Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

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

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Impact of COVID-19 Pandemic

In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic and a National Public Health Emergency.

Beginning in March 2020, our restaurants experienced a significant decrease in guest traffic and sales due to the spread of COVID-19, which 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.

In March 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms, transitioned to an off-premise business model and temporarily delayed our expansion plans.

Beginning on April 27, 2020, we reopened certain dining room locations as permitted by state and local mandates.

For the remainder of fiscal 2020 and throughout fiscal 2021, the number of open dining rooms, and the dining room capacity restrictions fluctuated based on state and local mandates.

The following table shows the percentages of our Company-owned restaurant dining rooms or patios that were open in at least a limited capacity at the end of each fiscal quarter since the beginning of the pandemic:

Fiscal quarters ended on

June 30, 2021 March 24, 2021 December 23, 2020 September 23, 2020 June 24, 2020 March 25, 2020

Open dining rooms or patios 100.0 % 99.7 % 84.3 % 98.2 % 94.9 % — %

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.

Our off-premise sales grew significantly during the COVID-19 pandemic and partially offset the lost dining room sales due to the capacity restrictions and closures.

During fiscal 2021, off-premise sales represented approximately 42.2% of Company sales compared to 26.4% in fiscal 2020.

During the COVID-19 pandemic, our franchise partners also experienced regulated closures both domestically and internationally, which negatively impacted our franchise royalties.

COVID-19 Impact to Results of Operations, Liquidity and Capital Resources in Fiscal 2021

We incurred $3.3 million of net charges in Other (gains) and charges which are recorded in the Consolidated Statements of Comprehensive Income in fiscal 2021, including the following:

• employee assistance and related payroll taxes for certain team members,

• conversion of certain parking lots into dining areas, and

• initial purchases of restaurant and personal protective supplies such as face masks and hand sanitizers required to maintain open dining rooms.

We also took the following proactive precautionary measures in fiscal 2021 to preserve liquidity, reduce costs and pause non-critical projects that did not significantly impact our current operations:

• Amended our revolving credit facility in the first quarter of fiscal 2021 to extend the maturity date and provide additional borrowing flexibility.

• Temporarily reduced capital expenditures, although we have begun to strategically resume the Chili’s remodel program and construction of certain new restaurants.

• Reduced marketing, general and administrative and restaurant expenses.

• Continued the suspension of the quarterly cash dividend and the share repurchase program;

• Amended our fiscal 2018 and fiscal 2019 U.S.

Income Tax Returns in order to claim additional depreciation deductions related to qualified improvement property of $4.6 million in accordance with the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

We also were able to include a benefit in our fiscal 2020 U.S.

Income Tax Return related to the additional depreciation on qualified improvement property of approximately $ 2.0 million.

• Deferred the employer portion of certain payroll taxes, totaling $ 54.5 million, in accordance with the CARES Act.

These taxes will be repaid in two equal installments on December 31, 2021, and December 31, 2022.

Impact on Financial Outlook

The ultimate impact of the COVID-19 pandemic cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus, the availability, acceptance and efficacy of preventative vaccines, the emergence and impact of new COVID-19 variants and changing government restrictions.

The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the pandemic based on state and local mandates and has resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021 and fiscal 2020.

In fiscal 2022, we have experienced limited product shortages and service disruptions in our supply chain, limited availability of labor to operate our restaurants due to a tight labor market and an increase in employee turnover.

It is possible that supply chain and labor shortages or disruptions could continue or increase in future periods if demand for goods, transportation and labor remains high.

Additional impacts to the business may arise that we are not aware of currently.

We will continue to closely monitor and adapt to the evolving situation.

Impact of Inflation

In fiscal 2022, inflation did have a material impact on our operations resulting in an increase of high single digits to Food and beverage costs and Restaurant labor and we reasonably expect inflation to be in the mid-teens in fiscal 2023.

Increases in inflation could have a severe impact on the United States or global economies and have an adverse impact on our business, financial condition and results of operations.

If commodity pricing and labor costs increase significantly, we may not be able to adjust menu prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

RESULTS OF OPERATIONS

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All others are calculated as a percentage of Total revenues.

(2) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues.

While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.

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

• Company sales include revenues generated by the operation of Company-owned restaurants including sales from gift card redemptions and virtual brands.

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

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

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53rd week in Fiscal 2021 (62.5) (6.9) (69.4)

Restaurant acquisitions (2)

108.0 — 108.0

Restaurant openings 13.5 — 13.5

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Restaurant closures 0.7 — 0.7

(19.3) — (19.3)

Restaurant acquisitions (3)

Company sales 299.7 133.4 433.1

Royalties (3)

(3.4) — (3.4)

Franchise fees and other revenues (4)

16.3 13.0 29.3

Franchise and other revenues 20.0 13.2 33.2

Fiscal year ended June 29, 2022 $ 3,379.6 $ 424.5 $ 3,804.1

(1) Comparable restaurant sales increased due to higher off-premise sales and higher dining room guest sales and traffic during the fourth quarter of fiscal 2021.

These increases were partially offset by lower dining room guest traffic during the first three quarters of fiscal 2021 resulting from temporary dining room closures, capacity limitations and our guests’ personal safety preferences related to the pandemic.

(2) Restaurant closures include the impact of permanently closed locations and temporary closures longer than 14 consecutive days.

(3) We acquired 116 Chili’s restaurants from a franchisee effective September 5, 2019.

Restaurant acquisitions include the change in Company sales attributed to these restaurants over the first ten weeks of fiscal 2021.

For the remainder of fiscal 2021, the change in Company sales attributed to these restaurants is included in Comparable restaurant sales.

(4) Lower royalties in fiscal 2021 were primarily due to lower dining room sales by our domestic and global franchisees due to the impacts of the COVID-19 pandemic.

Royalties are based on franchise sales and our franchisees generated sales of approximately $780.7 million in fiscal 2021 including $18.1 million from the additional operating week, and $833.7 million in fiscal 2020.

(1) Comparable restaurant sales increased due to higher dining room and delivery sales and traffic during fiscal 2022 partially offset by lower To-Go sales.

(2) We acquired 68 Chili’s restaurants from three former franchisees in fiscal 2022.

The revenues generated by these restaurants since each respective acquisition date are included in Company sales.

(3) Royalties are based on franchise sales and our franchisees generated sales of approximately $814.7 million in fiscal 2022 and $780.7 million including $18.1 million from the additional operating week in fiscal 2021.

(4) Franchise fees and other revenues increased primarily due to incremental gift card breakage resulting from a change in estimate.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for fiscal 2022 compared to fiscal 2021:

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Maggiano’s 53.0 % 2.9 % 16.4 % 33.7 % 0.0 %

Chili’s franchise (5)

Franchise (4)

International 28.9 %

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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.

Restaurants temporarily

closed 14 days or more are excluded from comparable restaurant sales.

(1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months.

Restaurants temporarily closed 14 days or more are excluded from Comparable Restaurant Sales.

Percentage amounts are calculated based on the comparable periods year-over-year.

(2) Comparable Restaurant Sales for Chili’s and Maggiano’s include the results of It’s Just Wings, which was launched nationally in June 2020.

(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.

(4) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year.

(3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisition of 68 Chili’s restaurants in fiscal 2022.

No adjustments have been made to capacity for temporary closures.

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

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

however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable.

We believe presenting Chili’s franchise comparable restaurant sales provides investors relevant information regarding total brand performance.

We believe presenting Franchise Comparable Restaurant Sales provides investors relevant information regarding total brand performance.

(5) Chili’s domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili’s restaurants in the United States.

(7) System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s and Maggiano’s restaurants and sales generated at franchise-operated Chili’s restaurants.

(6) System-wide Comparable Restaurant Sales are derived from sales generated by Chili’s and Maggiano’s Company-owned and franchise-operated restaurants.

Costs and Expenses

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As a percentage of Company sales:

• Food and beverage costs decreased 0.2%, consisting of 0.3% of favorable menu item mix and 0.1% of increased menu pricing, partially offset by 0.2% of unfavorable commodity pricing primarily related to cheese and poultry.

• Restaurant labor decreased 1.0%, consisting of 0.6% of lower hourly labor expenses due to reduced staffing requirements, 0.6% of sales leverage, inclusive of the impact of the additional operating week in fiscal 2021, and 0.1% of lower other labor expenses, partially offset by 0.3% of higher manager bonus expenses resulting from improved operational performance metrics compared to targets.

• Restaurant expenses decreased 1.3%, consisting of 2.0% of lower advertising expenses, 1.5% of sales leverage, inclusive of the impact of the additional operating week in fiscal 2021, and 0.3% of lower repairs and maintenance expenses, partially offset by 2.5% of higher delivery fees and supplies driven by the growth in off-premise sales.

Depreciation and amortization decreased $12.1 million as follows:

• Food and beverage costs increased 1.8%, consisting of 2.4% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures and 0.3% of unfavorable menu item mix, partially offset by 0.9% of favorable menu pricing.

• Restaurant labor increased 0.9%, consisting of 1.6% of higher hourly restaurant labor costs primarily due to increased wage rates, training and overtime and 0.5% of higher manager salaries and training resulting from merit increases and greater than normal manager turnover, partially offset by 1.0% of sales leverage and 0.2% of lower manager bonus expenses.

• Restaurant expenses decreased 0.1%, consisting of 1.6% of sales leverage and 0.4% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.5% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher advertising expenses, 0.2% of higher workers’ compensation and general liability expenses and 0.5% of higher other restaurant expenses.

Depreciation and amortization increased $14.2 million as follows:

Depreciation and Amortization

Fiscal year ended June 30, 2021 $ 150.2

Retirements and fully depreciated restaurant assets (21.8)

Finance leases (4.3)

Additions for existing and new restaurant assets 20.5

Acquisition of franchise restaurants (1)

Acquisition of Chili’s restaurants (1)

Finance leases 4.9

Corporate assets 1.8

Retirements and fully depreciated restaurant assets (18.6)

Fiscal year ended June 29, 2022 $ 164.4

(1) Acquisition of franchise restaurants represents the incremental depreciation and amortization of the assets and finance leases of the 116 Chili’s restaurants acquired on September 5, 2019.

General and administrative expenses decreased $1.5 million as follows:

(1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022.

General and administrative expenses increased $9.3 million as follows:

General and Administrative

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Payroll-related expenses 3.2

Travel and entertainment expenses (1.6)

Professional fees 3.2

Performance-based compensation (2)

Travel and entertainment expenses 1.4

Recruiting 1.3

Stock-based compensation 1.1

Performance-based compensation (2)

Fiscal year ended June 29, 2022 $ 144.1

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

(1) Defined contribution plan employer expenses increased due to the reinstatement of employer matching contributions related to the Company’s 401(k) plan that were temporarily suspended from May 2020 through December 2020.

Employer matching contributions were reinstated beginning January 1, 2021.

(2) Performance-based compensation increased in fiscal 2021 due to improved business performance metrics compared to targets.

(2) Performance based compensation decreased in fiscal 2022 due to lower business performance metrics compared to targets.

Other (gains) and charges consisted of the following (for further details, refer to Note 5 - Other Gains and Charges):

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June 29, 2022 June 30, 2021

COVID-19 related charges $ 3.3 $ 12.2

Restaurant impairment charges $ 8.3 $ 3.0

Loss from natural disasters, net of (insurance recoveries) 2.9 (0.7)

Restaurant closure charges 2.4 3.8

Remodel-related costs 4.9 2.3

Loss on lease contingencies 2.2 —

Severance and other benefit charges 0.5 3.2

Foreign currency transaction (gain) loss (0.6) 1.4

Restaurant closure charges 3.7 2.4

Lease contingencies 3.1 2.2

Enterprise system implementation costs 2.4 —

Acquisition-related costs, net 1.6 —

Loss from natural disasters, net of (insurance recoveries) 1.1 2.9

COVID-19 related charges 0.5 3.3

Other 5.6 2.9

$ 31.2 $ 19.0

Interest expenses decreased $3.4 million due to lower average borrowing balances on our revolving credit facility, partially offset by higher interest rates on our revolving credit facility and finance leases in fiscal 2021.

Interest expenses decreased $10.1 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022.

Fiscal Years Ended

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The federal statutory tax rate was 21.0% for both fiscal 2022 and 2021.

Our fiscal 2021 effective income tax rate of 9.4% was lower than the federal statutory tax rate primarily due to the leverage of the FICA tip tax credit relative to Income before income taxes in fiscal 2021.

Our fiscal 2020 effective income tax rate benefit of 398.0% was lower than the federal statutory tax rate primarily due to near break-even Income before income taxes and a tax benefit driven by leverage of the FICA tip tax credit.

Our effective income tax rates for fiscal 2022 and 2021 were lower than the federal statutory tax rate primarily due to the leverage of the FICA tip tax credit relative to Income before income taxes.

Segment Results

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Fiscal Years Ended Favorable (Unfavorable) Variance

June 30, 2021 June 24, 2020 Dollars %

June 29, 2022 June 30, 2021 (1)

Company sales $ 3,305.4 $ 3,005.7 $ 299.7 10.0 %

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Total revenues $ 3,379.6 $ 3,059.9 $ 319.7 10.4 %

(1) Company restaurant expenses include Food and beverage costs, Restaurant labor, and Restaurant expenses, including advertising.

Chili’s Total revenues increased 12.0% primarily due to higher off-premise sales and higher dining room guest sales and traffic during the fourth quarter of fiscal 2021.

(1) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues.

While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.

Chili’s Total revenues increased 10.4% primarily due to dining room sales growth, the acquisition of 68 Chili’s restaurants from three former franchisees, higher delivery sales, and five new restaurant openings, partially offset by decreased To-Go sales.

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

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As a percentage of Company sales:

• Chili’s Food and beverage costs decreased 0.2%, including 0.2% of favorable menu item mix and 0.1% of increased menu pricing, partially offset by 0.1% of unfavorable commodity pricing.

• Chili’s Restaurant labor decreased 0.7%, including 0.9% of sales leverage, inclusive of the impact of the additional operating week in fiscal 2021, and 0.2% of lower other labor expenses, partially offset by 0.2% of higher manager expenses and 0.2% of higher manager bonus expenses due to improved operational performance metrics compared to targets.

• Chili’s Restaurant expenses decreased 1.6%, including 2.2% of lower advertising expenses, 2.1% of sales leverage, inclusive of the impact of the additional operating week in fiscal 2021, and 0.2% of lower repairs and maintenance expenses, partially offset by 2.6% of higher delivery fees and supplies driven by the growth in off-premise sales and 0.3% of higher other restaurant expenses.

Chili’s Depreciation and amortization decreased $9.6 million as follows:

• Chili’s Food and beverage costs increased 1.9%, including 2.7% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.8% of increased menu pricing.

• Chili’s Restaurant labor increased 1.0%, including 1.5% of higher restaurant hourly labor costs primarily due to increased wage rates, training and overtime and 0.6% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 0.7% of sales leverage, 0.3% of lower manager bonus expenses and 0.1% of lower other restaurant labor costs.

• Chili’s Restaurant expenses increased 0.2%, including 0.4% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.3% of higher rent expenses, 0.3% of higher advertising expenses and 0.3% of higher other restaurant expense.

These increases were partially offset by 1.1% of sales leverage, and 0.4% of lower delivery fee expenses due to changes in sales channel mix.

Chili’s Depreciation and amortization increased $15.5 million as follows:

Depreciation and Amortization

Fiscal year ended June 30, 2021 $ 124.3

Retirements and fully depreciated restaurant assets (17.2)

Finance leases (4.2)

Additions for new and existing restaurant assets 19.4

Acquisition of franchise restaurants (1)

Acquisition of Chili’s restaurants (1)

Finance leases 4.6

Retirements and fully depreciated restaurant assets (14.1)

Fiscal year ended June 29, 2022 $ 139.8

(1) Acquisition of Chili’s restaurants represents the incremental depreciation and amortization of the assets and finance leases of the 116 Chili’s restaurants acquired on September 5, 2019.

Chili’s General and administrative decreased $4.7 million as follows:

(1) Represents the incremental depreciation and amortization of the assets and finance leases related to the 68 Chili’s restaurants acquired in fiscal 2022.

Chili’s General and administrative increased $5.9 million as follows:

General and Administrative

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Defined contribution plan employer expenses (1)

Recruiting 1.2

Payroll-related expenses 0.9

Travel and entertainment expenses 0.7

Performance-based compensation 1.0

Professional fees 0.1

Stock-based compensation 0.1

Performance-based compensation (2.7)

Fiscal year ended June 29, 2022 $ 33.3

Employer matching contributions were reinstated beginning January 1, 2021.

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June 29, 2022 June 30, 2021

COVID-19 related charges $ 2.7 $ 10.1

Restaurant impairment charges $ 8.1 $ 2.6

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Restaurant closure charges 3.6 2.2

Loss from natural disasters, net of (insurance recoveries) 1.5 (0.8)

Acquisition of franchise restaurants-related costs 1.6 —

Loss from natural disasters, net of (insurance recoveries) 1.1 1.5

COVID-19 related charges 0.3 2.7

Other 3.8 1.4

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Fiscal Years Ended Favorable (Unfavorable) Variance

June 30, 2021 June 24, 2020 Dollars %

June 29, 2022 June 30, 2021 (1)

Company sales $ 406.7 $ 273.3 $ 133.4 48.8 %

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Total revenues $ 424.5 $ 277.9 $ 146.6 52.8 %

Maggiano’s Total revenues decreased 19.9% primarily driven by reduced dining room traffic in the first three quarters of fiscal 2021 and reduced banquet room traffic due to the COVID-19 pandemic.

These declines were partially offset by higher off-premise sales and higher dining room traffic during the fourth quarter of fiscal 2021.

(1) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues.

While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.

Maggiano’s Total revenues increased 52.8% primarily due to higher dining and banquet room sales and traffic.

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

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As a percentage of Company sales:

• Maggiano’s Food and beverage costs decreased 0.6%, including 0.4% of favorable menu item mix and 0.3% of increased menu pricing, partially offset by 0.1% of unfavorable commodity pricing.

• Maggiano’s Restaurant labor decreased 3.3%, including 4.9% of favorable hourly labor expenses and 0.4% of favorable manager expenses both due to reduced staffing requirements, partially offset by 1.7% of sales deleverage and 0.3% of higher manager bonus expenses.

• Maggiano’s Restaurant expenses increased 3.1%, including 4.0% of sales deleverage and 1.5% of higher delivery fees and supplies driven by the growth in off-premise sales.

These increases were partially offset by 0.7% of lower repairs and maintenance expenses, 0.5% of lower credit card fees, 0.4% of lower utilities, 0.2% of lower banquet expenses, 0.2% of lower property tax expenses and 0.4% of lower other restaurant expenses.

• Maggiano’s Food and beverage costs increased 1.7%, including 2.2% of unfavorable commodity pricing, partially offset by 0.4% of increased menu pricing and 0.1% of favorable menu item mix.

• Maggiano’s Restaurant labor increased 0.4%, including 3.1% of higher restaurant hourly labor costs primarily due to increased wage rates, training and overtime, and 1.9% of higher manager salaries, training and bonus expenses, partially offset by 4.6% of sales leverage.

• Maggiano’s Restaurant expenses decreased 4.7%, including 8.8% of sales leverage, partially offset by 1.4% of higher supervision expenses, 0.9% of higher repairs and maintenance expenses, 0.9% of higher advertising expenses, 0.6% of higher utilities expenses and 0.3% of higher rent expenses.

LIQUIDITY AND CAPITAL RESOURCES

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Net cash provided by operating activities $ 252.2 $ 369.7 $ (117.5)

Net cash from operating activities increased primarily due to an increase in Net income and the deferral of payroll tax payments as allowed under the CARES Act in fiscal 2021.

These increases were partially offset by an increase in operating lease payments due to the payment of rent from fiscal 2020 that was deferred to fiscal 2021 and rent that was prepaid at the end of fiscal 2021.

Net cash provided by operating activities decreased due to the current year repayment of the first installment of $27.2 million of payroll taxes that were previously deferred under the CARES Act, an increase in payments of performance based compensation and bonuses in the current year, and the timing of operational receipts and payments.

Cash Flows from Investing Activities

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Payments for franchise restaurant acquisitions (106.6) — (106.6)

Proceeds from sale of assets 1.6 1.2 0.4

Insurance recoveries — 1.1 (1.1)

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

Proceeds from note receivable 2.1 1.5 0.6

Proceeds from sale of assets 0.1 1.6 (1.5)

Net cash used in investing activities $ (234.2) $ (90.9) $ (143.3)

Net cash used in investing activities decreased primarily due to cash outflows related to the acquisition of 116 Chili’s restaurants from a franchisee in fiscal 2020.

Additionally, capital expenditures decreased in fiscal 2021 primarily due to lower spending on new restaurant construction, a decline in the pace of the Chili’s remodel initiative and a reduction in spend for routine capital purchases.

Net cash used in investing activities increased primarily due to $106.6 million of cash consideration paid for the purchase of 68 Chili’s restaurants from three former franchisees, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants.

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

Cash Flows from Financing Activities

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Payments of dividends (1.1) (1.5) 0.4

Proceeds from issuance of common stock — 146.9 (146.9)

Proceeds from issuance of treasury stock 0.4 30.7 (30.3)

Payments for common stock issuance costs — (7.8) 7.8

Payments for debt issuance costs (3.1) (2.2) (0.9)

Net cash used in financing activities $ (28.4) $ (298.8) $ 270.4

Net cash from financing activities decreased primarily due to higher net repayment activity on the revolving credit facility in fiscal 2021 and the absence of cash proceeds from the issuance of common stock in fiscal 2020.

offsets included the impact of suspending the quarterly cash dividend payments and the share repurchase program, and an increase in proceeds from stock option exercises.

Net cash used in financing activities decreased primarily due to $100.0 million of net borrowing activity in fiscal 2022 compared to $301.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially

offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021 and a decrease in proceeds from employee stock option exercises.

Revolving Credit Facility

Net repayments of $301.6 million were made during fiscal 2021 on the $1.0 billion revolving credit facility.

As of June 30, 2021, $828.7 million was available under the revolving credit facility.

As of June 30, 2021, our interest rate was 3.250% consisting of the LIBOR floor of 0.750% plus the applicable margin of 2.500%.

In fiscal 2021, we executed the seventh amendment to our revolving credit facility, extending the maturity date to December 12, 2022.

This amendment included a capacity reduction to $900.0 million from $1.0 billion which will occur on September 12, 2021.

Under the terms of the amendment, the issuance of certain debt or preferred equity interests will result in an immediate capacity reduction, an interest rate reduction of 0.250% on the spread and 0.100% reduction on the undrawn fee if the issuance exceeds $250.0 million.

During fiscal 2021, we incurred $2.2 million of debt issuance costs, associated with this amendment, which are included in Other assets in the Consolidated Balance Sheets.

As of June 30, 2021, we were in compliance with our covenants pursuant to the amended revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes.

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

Net borrowings of $100.0 million were drawn during fiscal 2022 on the revolving credit facility.

As of June 29, 2022, $528.7 million was available under the new revolving credit facility.

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

As of June 29, 2022, our interest rate was 3.375% consisting of LIBOR of 1.625% plus the applicable margin of 1.750%.

During fiscal 2022, we incurred and capitalized $3.1 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets.

As of June 29, 2022, we were in compliance with our covenants pursuant to the $800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes.

Refer to Note 10 - Debt within Part II, Item 8 - Financial Statements and Supplementary Data for further information about our notes and revolving credit facility.

On August 18, 2021, we replaced our existing $1.0 billion revolving credit facility with an $800.0 million revolving credit facility that matures on August 18, 2026.

The new facility is guaranteed by certain of our subsidiaries, includes covenant restrictions relating to leverage that are similar to our prior arrangement, and contains customary events of default terms.

As of August 18, 2021, $211.3 million was drawn from the new revolver.

Share Repurchase Program

In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic.

In fiscal 2021, we repurchased 0.1 million shares of our common stock for $4.2 million to satisfy team member tax withholding obligations on the vesting of restricted shares.

Before the suspension of our share repurchase program, in fiscal 2020, we repurchased 0.8 million shares of our common stock for $32.4 million.

Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards.

We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and planned investment and financing needs.

Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets.

Our share repurchase program has been used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based award s.

At June 30, 2021, we had $166.8 million of authorized repurchases remaining under the suspended share repurchase program.

Subsequent to fiscal 2021 year-end, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300 million.

In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic.

In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300 million.

In fiscal 2022, we repurchased 2.4 million shares of our common stock for $100.9 million, including 2.3 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

On June 29, 2022, we had $204.0 million of authorized repurchases remaining under the share repurchase program.

Dividend Program

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to COVID-19.

Before this suspension, we paid dividends of $57.4 million in fiscal 2020 to co mmon stock shareholders.

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

In fiscal 2022 and fiscal 2021, dividends paid were solely related to the accrued dividends for restricted share awards that were granted prior to the suspension and vested in the applicable period.

Restricted share award dividends were recorded 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.

Refer to Note 13 - Shareholders’ Deficit included within Part II, Item 8 - Financial Statements and Supplementary Data for details.

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We continue to serve guests at all of our locations through our dining rooms and off-premise offerings and have resumed normal business operations in accordance with state and local mandates.

In the fourth quarter of fiscal 2021, S&P upgraded our corporate credit rating to BB- with stable outlook.

Moody’s affirmed our B1 corporate family rating and changed the outlook to positive.

Refer to Part I, Item 1A.

Risk Factors for further details.

We are not aware of any other event or trend that would potentially materially affect our liquidity.

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37.6 44.7 15.3 — 97.6

(1) Long-term debt consists of principal amounts owed on the revolving credit facility, 3.875% and 5.000% notes.

(1) Long-term debt consists of principal amounts owed on the 3.875% and 5.000% notes and the revolving credit facility.

The $300.0 million 3.875% notes mature in May 2023 and are expected to be paid using availability under the revolving credit facility.

As a result of our intent and ability to refinance these notes through our existing revolving credit facility, the notes are classified as long-term debt in the Consolidated Balance Sheets on June 29, 2022.

As of June 29, 2022, $528.7 million of credit is available under the revolving credit facility.

The revolving credit facility is due in December 2022.

The impact of the new revolving credit facility entered into in August 2021 is not reflected in the table because it occurred after June 30, 2021.

The revolving credit facility is due in August 2026.

(2) Interest consists of remaining interest payments on the 3.875% and 5.000% notes totaling $55.4 million and remaining interest payments on the revolver totaling $70.6 million.

The interest rates on the notes are fixed whereas the interest rate on the revolver is variable based on LIBOR and our applicable margin.

We have assumed that the revolver balance carried will be $171.3 million in fiscal 2022 and fiscal 2023 until the maturity date of December 12, 2022 using the interest rate of 3.250%, which is the total of LIBOR plus our applicable margin as of June 30, 2021.

The impact of the new revolving credit facility entered into in August 2021 is not reflected in the table because it occurred after June 30, 2021.

We have assumed that the revolver balance carried will be $271.3 million until May 2023 when the 3.875% notes will be paid using availability under the revolver, and then will increase to $571.3 million until the maturity date of August 18, 2026 using the interest rate of 3.375%, which is the total of LIBOR plus our applicable margin as of June 29, 2022.

(3) Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options.

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and the approximate timing of the transaction.

Our purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages, software, and professional services contracts and exclude agreements that are cancellable without significant penalty.

IMPACT OF INFLATION

From time to time, we experience the impacts of inflation, which cause increased food, labor and benefits costs and higher operating expenses.

To the extent permitted by competition, increased costs are recovered through a combination of menu price increases and reviewing, then implementing, alternative products or processes, or by implementing other cost reduction procedures.

Our purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages, software, professional services contracts and electricity, and exclude agreements that are cancellable without significant penalty.

OFF-BALANCE SHEET ARRANGEMENTS

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Proceeds from the sale of gift cards are recorded as deferred revenues and recognized as revenues when the gift cards are redeemed by the holders.

Breakage income represents the value associated with the portion of gift cards sold that will most likely never be redeemed.

Breakage income represents the value associated with the portion of gift cards sold that will most likely never be redeemed and is estimated based on our historical gift card redemption patterns and actuarial estimates.

Breakage revenues are recognized proportionate to the pattern of related gift card redemptions.

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If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from the amounts recorded.

Changing our breakage-rate assumption used to record fiscal 2021 breakage by 25 basis points would result in an impact to the Consolidated Statements of Comprehensive Income of approximately $0.3 million.

Changing our breakage-rate assumption used to record breakage attributable to gift cards sold in fiscal 2022 by 50 basis points would result in an impact to the Consolidated Statements of Comprehensive Income of approximately $0.7 million on the current year.

Valuation of Goodwill

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The carrying value of goodwill as of June 29, 2022 was $195.1 million, which related to both of our reporting units.

We performed our annual impairment test in the second quarter of fiscal 2021 by utilizing the qualitative approach

and determined that there were no events or circumstances to indicate that it was more likely than not that the fair value of our reporting units was less than their carrying values.

We performed our annual impairment test in the second quarter of fiscal 2022 by utilizing the qualitative approach and determined that there were no events or circumstances to indicate that it was more likely than not that the fair value of our reporting units was less than their carrying values.

Additionally, no indicators of impairment were identified through the end of fiscal 2022.

During the third quarter of fiscal 2020, we performed a quantitative assessment of our goodwill due to the impact of the COVID-19 pandemic on our operations and on the market.

Based on our assessment as of March 25, 2020, 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.

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.

Our assessment is predicated on our ability to continue to operate dining and banquet rooms and generate off-premise sales at our restaurants.

Management’s judgment about the short and long term impacts of the COVID-19 pandemic could change as additional facts become known and therefore affect these conclusions.

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

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Valuation of Long-Lived Assets

We review the carrying amount of property, equipment and lease assets semi-annually or when events or circumstances indicate that the carrying amount may not be recoverable.

We review the carrying amount of property, equipment and lease assets on an annual basis or more often if events or circumstances indicate that the carrying amount may not be recoverable.

The impairment test is a two-step process.

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At the inception of each lease, we evaluate the lease agreement to determine whether it is an operating or finance lease.

The evaluation requires significant judgments in determining the fair value of the leased asset and the lease liability and the appropriate reasonably certain lease term.

The evaluation requires significant judgments in determining the fair value of the lease asset and the lease liability and the appropriate reasonably certain lease term.

Given that our lease agreements generally do not provide an implicit interest rate, we estimate our fully collateralized incremental borrowing rate corresponding with the lease terms for the purposes of determining the fair value of initial liability for each lease.

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• Expenses such as rent, depreciation and amortization in a given reporting period

• Fair value of leased asset and lease liability at inception

• Fair value of lease asset and lease liability at inception

• Reasonably certain lease term at inception

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Effect of New Accounting Standards

The impact of new accounting pronouncements can be found at Note 2 - Effect of New Accounting Standards in Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements.

The impact of new accounting pronouncements can be found at Note 1 - Nature of Operations and Summary of Significant Accounting Policies in Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements.

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 7. Management’s Discussion and Analysis