BRINKER INTERNATIONAL, INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General 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 28, 2022 and September 29, 2021, 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. 19 Table of Contents Overview We are principally engaged in the ownership, operation, development and franchising of the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands, as well as virtual brands including It’s Just Wings ® and Maggiano’s Italian Classics ® . As of September 28, 2022, we owned, operated or franchised 1,645 restaurants, consisting of 1,182 Company-owned restaurants and 463 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. Impact of COVID-19 Pandemic The number of open dining rooms and the dining room capacity restrictions fluctuated over the course of the COVID-19 pandemic based on state and local mandates and resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021. Starting in fiscal 2022, we 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 During the first quarter of fiscal 2023, inflation did have a material impact on our operations. Increasing 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. Operations Strategy We are committed to strategies and a Company culture that we believe will grow sales, increase profits, bring back guests and engage team members. Our strategies and culture are intended to strengthen our position in casual dining and grow our core business over time. Our primary brand strategy is to make our guests feel special through a fun atmosphere, delicious food and drinks, with quality service so that our guests return to our restaurants. Guest Engagement Through Technology - We have invested in our technology and off-premise options as more guests are opting for To-Go and delivery. During fiscal 2022, we expanded partnerships with third-party delivery companies, and Chili’s, Maggiano’s, and It’s Just Wings brands are currently available on DoorDash, Uber Eats, and Grubhub. Orders to these third-party delivery companies are sent directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests. We believe that guests will continue to prefer convenience and off-premise options. We plan to continue investments in our technology systems to support our To-Go and delivery capabilities. In dining rooms, we use tabletop devices to engage our guests at the table. These devices provide functionality for guests to pay at the table, order or re-order, engage in digital entertainment, to provide guest feedback and interact with our My Chili’s Rewards program. Our My Chili’s Rewards loyalty program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency. We customize offerings for these guests based on their purchase behavior. Chili’s - Chili’s strategy is to differentiate from our competitors with a flexible platform of value offerings at both lunch and dinner and we are committed to offering consistent, quality products at a price point that is compelling to our guests. During fiscal 2022, we discontinued the 3 for $10.99 platform and replaced it with 3 for Me, a flexible value bundle providing guests an unbeatable everyday value, while allowing us to be more flexible in terms of pricing, in light of the inflationary challenges. Guests can order customized meals inclusive of a non-alcoholic drink, appetizer and entrée starting at just $10.99. The bundle can be augmented with a premium appetizer, dessert, or alcoholic beverage, each for just $2.49 extra. Additionally, we have continued our Margarita of the Month 20 Table of Contents promotion that features a premium-liquor margarita every month at an every-day value price. Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise. Maggiano’s - At Maggiano’s, we believe our focus on operating fundamentals and technology provide the foundation for future efficiencies and growth. For example, Maggiano’s partnerships with delivery service providers make third party delivery more sustainable and efficient for the brand to operate. In addition, our guests have the ability to order delivery directly through the Maggiano’s website. Maggiano’s historically hosts a significant portion of its banquets in the holiday season during the second and third quarters of the fiscal year. Virtual Brands - We have invested in virtual brands, restaurant-like menu offerings that are only available for purchase digitally, to drive restaurant traffic and sales growth at both Chili’s and Maggiano’s. Our virtual brands have enabled us to capitalize on the growth in off-premise dining and to leverage excess kitchen capacity in our existing restaurant infrastructure, while adding minimal complexity in our restaurants’ kitchens. It’s Just Wings, launched at the end of fiscal 2020, is an offering consisting of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing and hand pies for a value price. Maggiano’s Italian Classics offers a select group of items inspired by the menu of Maggiano’s Little Italy including several appetizers, salads, pastas, entrées, mac & cheese and hand pies. These brands are available for purchase through our third party service providers including DoorDash, UberEats, Google Food Ordering and the brand-specific websites itsjustwings.com and maggianosclassics.com. The operating results for the virtual brands are included in the results of our Chili’s and Maggiano’s brands, based on the restaurants that prepared and processed the food orders. Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening three restaurants for the thirteen week period ended September 28, 2022. 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. 21 Table of Contents Company Development - The following table details the number of restaurant openings during the thirteen week periods ended September 28, 2022 and September 29, 2021, respectively, total full year projected openings in fiscal 2023 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 28, 2022 September 29, 2021 Fiscal 2023 September 28, 2022 September 29, 2021 Company-owned restaurants Chili’s domestic — 1 17 1,126 1,088 Chili’s international — — — 5 5 Maggiano’s domestic — — — 51 52 Total Company-owned — 1 17 1,182 1,145 Franchise restaurants Chili’s domestic 1 — 1-2 102 146 Chili’s international 2 3 16-20 359 357 Maggiano’s domestic — — — 2 2 Total franchise 3 3 17-22 463 505 Total restaurants Chili’s domestic 1 1 18-19 1,228 1,234 Chili’s international 2 3 16-20 364 362 Maggiano’s domestic — — — 53 54 Total 3 4 34-39 1,645 1,650 Relocations are not included in the table above. We plan to relocate one Chili’s domestic Company-owned restaurant during the remainder of fiscal 2023. At September 28, 2022, we own property for 51 of the 1,182 Company-owned restaurants and two closed restaurants. The net book values associated with these restaurants included land of $43.4 million and buildings of $14.1 million. Revenues Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021 Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive (Loss) 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 food and beverage sales, net of discounts, Maggiano’s banquet service charge income, gift card breakage, delivery income, digital entertainment revenues, merchandise income and gift card discount costs from third-party gift card sales. • Franchise revenues include royalties, franchise advertising fees, franchise and development fees and gift card equalization. 22 Table of Contents The following is a summary of the change in Total revenues: Total Revenues Chili’s Maggiano’s Total Revenues Thirteen Week Period Ended September 29, 2021 $ 787.6 $ 88.8 $ 876.4 Change from: Comparable restaurant sales 28.5 15.3 43.8 Restaurant acquisitions (1) 33.7 — 33.7 Restaurant openings 2.6 — 2.6 Maggiano's banquet income — 1.1 1.1 Gift card discount costs 0.3 0.1 0.4 Gift card breakage 0.4 — 0.4 Digital entertainment revenues 0.4 — 0.4 Delivery service fee income (0.9) 0.1 (0.8) Restaurant closures (1.3) 0.2 (1.1) Company sales 63.7 16.8 80.5 Franchise revenues (2) (1.4) — (1.4) Thirteen Week Period Ended September 28, 2022 $ 849.9 $ 105.6 $ 955.5 (1) We acquired 23 Chili’s restaurants on September 2, 2021, 37 Chili’s restaurants on October 31, 2021, six Chili’s restaurants on February 1, 2022 and two Chili’s restaurants on May 5, 2022 from three franchisees. The revenues generated by these restaurants since the date of the acquisitions are included in Company sales for the thirteen week period ended September 28, 2022. (2) Our Chili’s and Maggiano’s franchisees generated sales of approximately $203.3 million and $2.4 million respectively for the thirteen week period ended September 28, 2022 compared to $211.9 million and $1.9 million respectively in sales for the thirteen week period ended September 29, 2021. The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period ended September 28, 2022 compared to September 29, 2021: Percentage Change in the Thirteen Week Period Ended September 28, 2022 versus September 29, 2021 Comparable Restaurant Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 5.3 % 7.2 % 3.0 % (4.9) % 5.2 % Chili’s 3.8 % 7.4 % 3.0 % (6.6) % 5.4 % Maggiano’s 18.2 % 5.8 % 3.1 % 9.3 % 0.0 % Franchise (4) 6.6 % U.S. 0.6 % International 10.4 % Chili’s domestic (5) 3.4 % System-wide (6) 5.5 % (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) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests. 23 Table of Contents (3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisitions completed during fiscal 2022. (4) Chili’s and Maggiano’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. 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. (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 Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021 The following is a summary of the changes in Costs and Expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 289.5 30.7 % $ 234.3 27.1 % $ (55.2) (3.6) % Restaurant labor 330.6 34.9 % 304.9 35.2 % (25.7) 0.3 % Restaurant expenses 268.8 28.4 % 231.3 26.7 % (37.5) (1.7) % Depreciation and amortization 41.9 39.3 (2.6) General and administrative 39.5 36.5 (3.0) Other (gains) and charges 5.0 4.5 (0.5) Interest expenses 12.3 12.5 0.2 Other income, net (0.4) (0.3) 0.1 As a percentage of Company sales: • Food and beverage costs increased 3.6%, including 5.9% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures, partially offset by 2.1% of increased menu pricing and 0.2% of favorable menu item mix. • Restaurant labor decreased 0.3%, including 1.7% of sales leverage, partially offset by 0.7% of increased manager salaries rates and headcount and 0.7% of increased hourly wage rates. • Restaurant expenses increased 1.7%, driven by 0.8% of higher delivery fee expenses, 0.5% of higher utilities expenses, 0.5% of higher repairs and maintenance expenses, 0.2% of higher rent expenses, 0.2% of higher workers’ compensation and general liability insurance, 0.2% of higher supplies and 0.5% of higher other restaurant expenses, These increases were partially offset by 1.0% of sales leverage and 0.2% of lower advertising expenses. 24 Table of Contents Depreciation and amortization increased $2.6 million as follows: Depreciation and Amortization Thirteen Week Period Ended September 29, 2021 $ 39.3 Change from: Additions for existing and new restaurant assets 5.3 Acquisition of Chili’s restaurants (1) 2.3 Corporate assets 0.5 Retirements and fully depreciated restaurant assets (5.0) Finance leases (0.5) Thirteen Week Period Ended September 28, 2022 $ 41.9 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili’s restaurants acquired in fiscal 2022. General and administrative expe nses increased $3.0 million as follows: General and Administrative Thirteen Week Period Ended September 29, 2021 $ 36.5 Change from: Performance-based compensation 1.0 Payroll-related expenses 0.9 Recruiting 0.4 Professional fees (1.1) Other 1.8 Thirteen Week Period Ended September 28, 2022 $ 39.5 Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges): Thirteen Week Periods Ended September 28, 2022 September 29, 2021 Restaurant closure charges $ 1.5 $ 0.2 Enterprise system implementation costs 1.0 0.6 Remodel-related costs 0.8 1.5 Lease modification gain, net (0.7) — Other 2.4 2.2 $ 5.0 $ 4.5 Income Taxes Thirteen Week Periods Ended September 28, 2022 September 29, 2021 Effective income tax rate 4.7 % 1.5 % The federal statutory tax rate was 21.0% for the thirteen week periods ended September 28, 2022 and September 29, 2021. The effective income tax rate in the thirteen week period ended September 28, 2022 increased compared to the thirteen week period ended September 29, 2021 creating a tax benefit due to negative Income before income taxes. 25 Table of Contents The increase in benefit is primarily due to the more favorable impact from the FICA tip tax credit, partially offset by the excess tax shortfalls associated with stock-based compensation. Segment Results Chili’s Segment Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage September 28, 2022 September 29, 2021 Company sales $ 840.6 $ 776.9 $ 63.7 8.2 % Franchise revenues 9.3 10.7 (1.4) (13.1) % Total revenues $ 849.9 $ 787.6 $ 62.3 7.9 % Chili’s Total revenues increased 7.9% primarily due to price increases, favorable mix, the acquisition of 68 Chili’s restaurants in fiscal 2022 and four new restaurant openings, partially offset by lower traffic. 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: Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 260.9 31.0 % $ 213.4 27.5 % $ (47.5) (3.5) % Restaurant labor 294.4 35.0 % 273.5 35.2 % (20.9) 0.2 % Restaurant expenses 236.9 28.2 % 204.6 26.3 % (32.3) (1.9) % Depreciation and amortization 36.0 33.0 (3.0) General and administrative 9.5 8.0 (1.5) Other (gains) and charges 3.0 2.8 (0.2) As a percentage of Company sales: • Chili’s Food and beverage costs increased 3.5%, including 5.9% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 2.1% of increased menu pricing and 0.3% of favorable menu item mix. • Chili’s Restaurant labor decreased 0.2%, including 1.2% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 0.9% of increased manager salary rates, headcount and bonus and 0.4% of increased hourly wage rates. • Chili’s Restaurant expenses increased 1.9%, including 0.9% of higher delivery fee expenses, 0.5% of higher utilities expenses, 0.5% of higher repairs and maintenance expenses, 0.2% of higher rent expenses and 0.4% of higher other restaurant expenses, partially offset by 0.6% of sales leverage. 26 Table of Contents Chili’s Depreciation and amortization increased $3.0 million as follows: Depreciation and Amortization Thirteen Week Period Ended September 29, 2021 $ 33.0 Change from: Additions for existing and new restaurant assets 4.9 Acquisition of Chili’s restaurants (1) 2.3 Retirements and fully depreciated restaurant assets (3.7) Finance leases (0.5) Thirteen Week Period Ended September 28, 2022 $ 36.0 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili’s restaurants acquired in fiscal 2022. Chili’s General and administrative increased $1.5 million as follows: General and Administrative Thirteen Week Period Ended September 29, 2021 $ 8.0 Change from: Payroll-related expenses 0.5 Performance-based compensation 0.4 Stock-based compensation (0.2) Other 0.8 Thirteen Week Period Ended September 28, 2022 $ 9.5 Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges): Thirteen Week Periods Ended September 28, 2022 September 29, 2021 Restaurant closure charges $ 1.1 $ 0.2 Remodel-related costs 0.8 1.4 Lease modification gain, net (0.7) — Other 1.8 1.2 $ 3.0 $ 2.8 Maggiano’s Segment Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage September 28, 2022 September 29, 2021 Company sales $ 105.5 $ 88.7 $ 16.8 18.9 % Franchise revenues 0.1 0.1 — — % Total revenues $ 105.6 $ 88.8 $ 16.8 18.9 % Maggiano’s Total revenues increased 18.9% primarily due to higher dining and banquet room traffic and increased menu pricing. Refer to “Revenues” section above for further details about Maggiano’s revenues changes. 27 Table of Contents The following is a summary of the changes in Maggiano’s operating costs and expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 28.6 27.1 % $ 20.9 23.6 % $ (7.7) (3.5) % Restaurant labor 36.2 34.3 % 31.4 35.4 % (4.8) 1.1 % Restaurant expenses 31.7 30.1 % 26.6 30.0 % (5.1) (0.1) % Depreciation and amortization 3.2 3.4 0.2 General and administrative 2.5 2.0 (0.5) Other (gains) and charges 0.5 0.2 (0.3) As a percentage of Company sales: • Maggiano’s Food and beverage costs increased 3.5%, including 4.6% of higher seafood and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.9% of increased menu pricing and 0.2% of favorable menu item mix. • Maggiano’s Restaurant labor decreased 1.1%, including 1.8% of sales leverage, 0.3% of lower manager bonus expenses and 0.2% of lower manager training, partially offset by 1.2% of higher manager salaries. • Maggiano’s Restaurant expenses increased 0.1%, driven by higher expenses including 0.8% of delivery fees, 0.6% of utilities, 0.5% of repairs and maintenance expenses, 0.3% of supervision expenses and 1.6% of other restaurant expenses, partially offset by 3.7% of sales leverage. Liquidity and Capital Resources Cash Flows Cash Flows from Operating Activities Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Net cash provided by operating activities $ 24.6 $ 40.2 $ (15.6) Net cash provided by operating activities decreased due to a decrease in net income, partially offset by a decrease 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 Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Cash flows from investing activities Payments for property and equipment $ (46.7) $ (37.3) $ (9.4) Proceeds from note receivable 1.1 — 1.1 Payments for franchise restaurant acquisitions — (47.5) 47.5 Proceeds from sale leaseback transactions, net of related expenses — 20.5 (20.5) Net cash used in investing activities $ (45.6) $ (64.3) $ 18.7 Net cash used in investing activities decreased primarily due to $47.5 million of cash consideration paid in the prior year for the purchase of 23 Chili’s restaurants purchased from a former franchisee, partially offset by proceeds of 28 Table of Contents $20.5 million received from the sale leaseback transactions on six of the acquired restaurants. Additionally, capital expenditures increased in fiscal 2023 primarily for the construction of new restaurants. Cash Flows from Financing Activities Thirteen Week Periods Ended Favorable (Unfavorable) Variance September 28, 2022 September 29, 2021 Cash flows from financing activities Borrowings on revolving credit facility $ 135.0 $ 285.0 $ (150.0) Payments on revolving credit facility (100.0) (205.0) 105.0 Payments on long-term debt (5.8) (5.5) (0.3) Purchases of treasury stock (2.0) (39.6) 37.6 Payments of dividends (0.2) (0.8) 0.6 Payments for debt issuance costs — (3.0) 3.0 Proceeds from issuance of treasury stock 0.0 0.3 (0.3) Net cash provided by financing activities $ 27.0 $ 31.4 $ (4.4) Net cash provided by financing activities decreased primarily due to $35.0 million of net borrowing activity in fiscal 2023 compared to $80.0 million of net borrowing activity in fiscal 2022 on the revolving credit facility, partially offset by a decrease in share repurchases in fiscal 2023. Revolving Credit Facility Net borrowings of $35.0 million were drawn during the thirteen week period ended September 28, 2022 on the revolving credit facility. As of September 28, 2022, $493.7 million of credit was available under the 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 28, 2022, our interest rate was 4.875% consisting of LIBOR of 3.125% plus the applicable margin of 1.750%. As of September 28, 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 9 - Debt for further information about our notes and revolving credit facility. Share Repurchase Program Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. 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 (Unaudited). In August 2021, our Board of Directors reinstated our share repurchase program, allowing for a total available repurchase authority of $300.0 million. In the thirteen week period ended September 28, 2022, we repurchased 0.1 million shares of our common stock for $2.0 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. As of September 28, 2022, approximately $204.0 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 28, 2022 and September 29, 2021, dividends paid were solely related to the previously accrued dividends for restricted share 29 Table of Contents 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. Cash Flow Outlook We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations within the next year. 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. We are not aware of any other event or trend that would potentially materially affect our liquidity. In the event such a trend develops, we believe that there are sufficient funds available under our credit facility and from our internal cash generating capabilities to adequately manage our ongoing business. Off-Balance Sheet Arrangements We have entered into certain pre-commencement leases as disclosed in Note 8 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 13 - Contingencies, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. Other than these items, we do not have any off-balance sheet arrangements. Critical Accounting Estimates The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates. Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended June 29, 2022. Recent Accounting Pronouncements The impact of recent accounting pronouncements can be found at Note 1 - Basis of Presentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June 29, 2022.