Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions, except per share amounts)
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022 December 27,
2023 December 28,
2022
Revenues
Company sales $ 1,063.7 $ 1,009.4 $ 2,065.7 $ 1,955.5
Franchise revenues 10.4 9.6 20.9 19.0
Total revenues 1,074.1 1,019.0 2,086.6 1,974.5
Operating costs and expenses
Food and beverage costs 273.1 289.4 531.9 578.9
Restaurant labor 356.1 334.6 704.2 665.2
Restaurant expenses 294.7 268.4 585.5 537.2
Depreciation and amortization 41.3 41.8 83.2 83.7
General and administrative 43.2 35.6 85.6 75.1
Other (gains) and charges 3.3 8.5 9.6 13.5
Total operating costs and expenses 1,011.7 978.3 2,000.0 1,953.6
Operating income 62.4 40.7 86.6 20.9
Interest expenses 16.7 13.9 33.7 26.2
Other income, net ( 0.1 ) ( 0.3 ) ( 0.1 ) ( 0.7 )
Income (loss) before income taxes 45.8 27.1 53.0 ( 4.6 )
Provision (benefit) for income taxes 3.7 ( 0.8 ) 3.7 ( 2.3 )
Net income (loss) $ 42.1 $ 27.9 $ 49.3 $ ( 2.3 )
Basic net income (loss) per share $ 0.95 $ 0.63 $ 1.11 $ ( 0.05 )
Diluted net income (loss) per share $ 0.94 $ 0.62 $ 1.09 $ ( 0.05 )
Basic weighted average shares outstanding 44.2 44.0 44.4 44.0
Diluted weighted average shares outstanding 44.9 44.8 45.1 44.0
Other comprehensive income (loss)
Foreign currency translation adjustment $ 0.2 $ 0.1 $ 0.0 $ ( 0.9 )
Comprehensive income (loss) $ 42.3 $ 28.0 $ 49.3 $ ( 3.2 )
See accompanying Notes to Consolidated Financial Statements (Unaudited)
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BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In millions, except per share amounts)
Unaudited
December 27,
2023 June 28,
2023
ASSETS
Current assets
Cash and cash equivalents $ 22.7 $ 15.1
Accounts receivable, net 79.4 60.9
Inventories 34.3 34.5
Restaurant supplies 55.1 55.6
Prepaid expenses 19.7 17.2
Income taxes receivable 0.1 —
Total current assets 211.3 183.3
Property and equipment, at cost
Land 42.5 42.4
Buildings and leasehold improvements 1,665.9 1,635.7
Furniture and equipment 757.1 765.8
Construction-in-progress 33.5 30.1
2,499.0 2,474.0
Less accumulated depreciation and amortization ( 1,680.2 ) ( 1,665.7 )
Net property and equipment 818.8 808.3
Other assets
Operating lease assets 1,099.9 1,134.9
Goodwill 195.0 195.0
Deferred income taxes, net 101.7 93.4
Intangibles, net 22.1 23.9
Other 61.9 48.2
Total other assets 1,480.6 1,495.4
Total assets $ 2,510.7 $ 2,487.0
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable $ 148.9 $ 125.7
Gift card liability 90.4 73.0
Accrued payroll 100.1 106.1
Operating lease liabilities 111.7 112.4
Other accrued liabilities 134.6 116.3
Income taxes payable 4.3 2.4
Total current liabilities 590.0 535.9
Long-term debt and finance leases, less current installments 882.4 912.2
Long-term operating lease liabilities, less current portion 1,087.6 1,125.8
Other liabilities 60.2 57.4
Commitments and contingencies (Note 7)
Shareholders’ deficit
Common stock ( 250.0 million authorized shares; $ 0.10 par value; 60.3 million shares issued; and 44.2 million shares outstanding at December 27, 2023 and 44.6 million shares outstanding at June 28, 2023)
6.0 6.0
Additional paid-in capital 687.0 690.0
Accumulated other comprehensive loss ( 6.0 ) ( 6.0 )
Accumulated deficit ( 302.6 ) ( 351.9 )
Treasury stock, at cost ( 16.1 million shares at December 27, 2023, and 15.7 million shares at June 28, 2023)
( 493.9 ) ( 482.4 )
Total shareholders’ deficit ( 109.5 ) ( 144.3 )
Total liabilities and shareholders’ deficit $ 2,510.7 $ 2,487.0
See accompanying Notes to Consolidated Financial Statements (Unaudited)
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BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022
Cash flows from operating activities
Net income (loss) $ 49.3 $ ( 2.3 )
Adjustments to reconcile Net income (loss) to Net cash provided by operating activities:
Depreciation and amortization 83.2 83.7
Stock-based compensation 10.1 5.9
Deferred income taxes, net ( 8.4 ) ( 10.3 )
Non-cash other (gains) and charges 4.3 7.2
Net loss on disposal of assets 1.5 2.1
Other 1.3 0.9
Changes in assets and liabilities:
Accounts receivable, net ( 20.2 ) ( 28.4 )
Inventories — ( 2.0 )
Restaurant supplies ( 0.2 ) ( 0.4 )
Prepaid expenses ( 10.9 ) ( 9.2 )
Income taxes 1.4 4.0
Operating lease assets, net of liabilities ( 3.9 ) ( 1.5 )
Other assets ( 6.5 ) ( 0.1 )
Accounts payable 19.4 5.0
Gift card liability 17.3 22.0
Accrued payroll ( 6.1 ) ( 20.2 )
Other accrued liabilities 16.5 9.3
Other liabilities 2.2 2.3
Net cash provided by operating activities 150.3 68.0
Cash flows from investing activities
Payments for property and equipment ( 89.5 ) ( 95.3 )
Proceeds from note receivable 1.3 2.1
Proceeds from sale of assets 0.7 —
Insurance recoveries 0.7 —
Net cash used in investing activities ( 86.8 ) ( 93.2 )
Cash flows from financing activities
Borrowings on revolving credit facility 199.0 280.0
Payments on revolving credit facility ( 224.0 ) ( 240.0 )
Purchases of treasury stock ( 25.1 ) ( 2.1 )
Payments on long-term debt ( 5.6 ) ( 11.3 )
Payments for debt issuance costs ( 0.7 ) —
Proceeds from issuance of treasury stock 0.5 —
Payments of dividends 0.0 ( 0.2 )
Net cash (used in) provided by financing activities ( 55.9 ) 26.4
Net change in cash and cash equivalents 7.6 1.2
Cash and cash equivalents at beginning of period 15.1 13.5
Cash and cash equivalents at end of period $ 22.7 $ 14.7
Supplemental disclosure of cash flow information:
Income taxes paid, net $ 10.7 $ 4.4
Interest paid, net of amounts capitalized 18.8 23.6
Accrued capital expenditures 16.0 17.9
See accompanying Notes to Consolidated Financial Statements (Unaudited)
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BRINKER INTERNATIONAL, INC.
Consolidated Statements of Shareholders’ Deficit (Unaudited)
(In millions)
Twenty-Six Week Period Ended December 27, 2023
Common Stock Additional
Paid-In
Capital Accumulated Deficit Treasury
Stock Accumulated
Other
Comprehensive
Loss Total
Balances at June 28, 2023 $ 6.0 $ 690.0 $ ( 351.9 ) $ ( 482.4 ) $ ( 6.0 ) $ ( 144.3 )
Net income — — 7.2 — — 7.2
Other comprehensive loss — — — — ( 0.2 ) ( 0.2 )
Stock-based compensation — 5.7 — — — 5.7
Purchases of treasury stock — ( 0.2 ) — ( 24.5 ) — ( 24.7 )
Issuances of treasury stock — ( 11.7 ) — 11.7 — —
Balances at September 27, 2023 $ 6.0 $ 683.8 $ ( 344.7 ) $ ( 495.2 ) $ ( 6.2 ) $ ( 156.3 )
Net income — — 42.1 — — 42.1
Other comprehensive income — — — — 0.2 0.2
Stock-based compensation — 4.4 — — — 4.4
Purchases of treasury stock — ( 0.1 ) — ( 0.3 ) — ( 0.4 )
Issuances of treasury stock — ( 1.1 ) — 1.6 — 0.5
Balances at December 27, 2023 $ 6.0 $ 687.0 $ ( 302.6 ) $ ( 493.9 ) $ ( 6.0 ) $ ( 109.5 )
Twenty-Six Week Period Ended December 28, 2022
Common Stock Additional
Paid-In
Capital Accumulated Deficit Treasury
Stock Accumulated
Other
Comprehensive
Loss Total
Balances at June 29, 2022 $ 7.0 $ 690.9 $ ( 148.4 ) $ ( 812.3 ) $ ( 5.3 ) $ ( 268.1 )
Net loss — — ( 30.2 ) — — ( 30.2 )
Other comprehensive loss — — — — ( 1.0 ) ( 1.0 )
Stock-based compensation — 4.7 — — — 4.7
Purchases of treasury stock — 0.2 — ( 2.2 ) — ( 2.0 )
Issuances of treasury stock — ( 7.8 ) — 7.8 — —
Retirement of stock ( 1.0 ) — ( 306.1 ) 307.1 — —
Balances at September 28, 2022 $ 6.0 $ 688.0 $ ( 484.7 ) $ ( 499.6 ) $ ( 6.3 ) $ ( 296.6 )
Net income — — 27.9 — — 27.9
Other comprehensive income — — — — 0.1 0.1
Stock-based compensation — 1.2 — — — 1.2
Purchases of treasury stock — 0.0 — ( 0.1 ) — ( 0.1 )
Issuances of treasury stock — ( 0.5 ) — 0.5 — —
Balances at December 28, 2022 $ 6.0 $ 688.7 $ ( 456.8 ) $ ( 499.2 ) $ ( 6.2 ) $ ( 267.5 )
See accompanying Notes to Consolidated Financial Statements (Unaudited)
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BRINKER INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
Footnote Index
Note # Description Page
Note 1
Basis of Presentation 8
Note 2
Revenue Recognition 8
Note 3
Fair Value Measurements 9
Note 4
Accrued Liabilities 10
Note 5
Leases 11
Note 6
Debt 11
Note 7
Contingencies 12
Note 8
Income Taxes 13
Note 9
Shareholders’ Deficit 13
Note 10
Net Income Per Share 14
Note 11
Other Gains and Charges 14
Note 12
Segment Information 15
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1. BASIS OF PRESENTATION
References to “Brinker,” the “Company,” “we,” “us,” and “our” in this Form 10-Q refer to Brinker International, Inc. and its subsidiaries and any predecessor companies of Brinker International, Inc. Our Consolidated Financial Statements (Unaudited) as of December 27, 2023 and June 28, 2023, and for the thirteen and twenty-six week periods ended December 27, 2023 and December 28, 2022, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The Company is 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 of December 27, 2023, we owned, operated or franchised 1,658 restaurants, consisting of 1,184 Company-owned restaurants and 474 franchised restaurants, located in the United States, 29 other countries and two United States territories.
Use of Estimates
The preparation of the Consolidated Financial Statements (Unaudited) is in conformity with generally accepted accounting principles in the United States (“GAAP”) and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements (Unaudited), and the reported amounts of revenues and costs and expenses in the reporting periods. Actual results could differ from those estimates.
The information furnished herein reflects all adjustments (consisting only of normal recurring accruals and adjustments) which are, in our opinion, necessary to fairly state the interim operating results, financial position and cash flows for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been omitted pursuant to SEC rules and regulations. The Notes to Consolidated Financial Statements (Unaudited) should be read in conjunction with the Notes to Consolidated Financial Statements contained in our June 28, 2023 Form 10-K. We believe the disclosures are sufficient for interim financial reporting purposes. All amounts in the Notes to Consolidated Financial Statements (Unaudited) are presented in millions unless otherwise specified.
Foreign Currency Translation
The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income (Loss) (Unaudited) represents the unrealized impact of translating the financial statements of our Canadian restaurants from Canadian dollars to United States dollars. This amount is not included in Net income (loss) and would only be realized upon disposition of our Canadian restaurants. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets (Unaudited).
New Accounting Standards Implemented in Fiscal 2024
We reviewed accounting pronouncements that became effective for our fiscal 2024 and determined that either they were not applicable or they did not have a material impact on the Consolidated Financial Statements (Unaudited). We also reviewed recently issued accounting pronouncements to be adopted in future periods and determined that they are not expected to have a material impact on the Consolidated Financial Statements (Unaudited).
2. REVENUE RECOGNITION
Deferred Franchise and Development Fees
Our deferred franchise and development fees consist of the unrecognized fees received from franchisees. Recognition of these fees in subsequent periods is based on satisfaction of the contractual performance obligations of our active contracts with franchisees. We also expect to earn subsequent period royalties and advertising fees related to our franchise contracts; however, due to the variability and uncertainty of these future revenues based upon a sales-based measure, these future revenues are not yet estimable as the performance obligations remain unsatisfied.
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Deferred franchise and development fees are classified within Other accrued liabilities for the current portion expected to be recognized within the next 12 months, and Other liabilities for the long-term portion in the Consolidated Balance Sheets (Unaudited).
The following table reflects the changes in deferred franchise and development fees between June 28, 2023 and December 27, 2023:
Deferred Franchise and Development Fees
Balance as of June 28, 2023 $ 11.1
Additions 0.2
Amount recognized to Franchise revenues ( 0.8 )
Balance as of December 27, 2023 $ 10.5
The following table illustrates franchise and development fees expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of December 27, 2023:
Fiscal Year Franchise and Development Fees Revenue Recognition
Remainder of 2024 $ 0.4
2025 0.9
2026 0.8
2027 0.8
2028 0.7
Thereafter 6.9
$ 10.5
Deferred Gift Card Revenues
Deferred revenues related to our gift cards include the full value of unredeemed gift card balances less recognized breakage and the unamortized portion of third party fees. The following table reflects the changes in the Gift card liability between June 28, 2023 and December 27, 2023:
Gift Card Liability
Balance as of June 28, 2023 $ 73.0
Gift card sales 75.7
Gift card redemptions recognized to Company sales ( 50.3 )
Gift card breakage recognized to Company sales ( 6.8 )
Other ( 1.2 )
Balance as of December 27, 2023
$ 90.4
3. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under market conditions. Fair value measurements are categorized in three levels based on the types of significant inputs used, as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than quoted prices in active markets for identical assets or liabilities
Level 3 Unobservable inputs that cannot be corroborated by observable market data
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Financial Instruments
Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of the short maturity of these items.
The carrying amount of debt outstanding related to our revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2). The fair values of the 5.000 % and 8.250 % notes are based on quoted market prices and are considered Level 2 fair value measurements.
The 5.000 % notes and 8.250 % notes carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values are as follows:
December 27, 2023 June 28, 2023
Carrying Amount Fair Value Carrying Amount Fair Value
5.000 % notes
$ 349.4 $ 347.7 $ 349.0 $ 343.5
8.250 % notes 344.8 364.4 344.3 348.3
Non-Financial Assets
The fair values of transferable liquor licenses are based on prices in the open market for licenses in the same or similar jurisdictions and are categorized as Level 2. The fair values of other non-financial assets are determined based on appraisals, sales prices of comparable assets or estimates of discounted cash flow and are categorized as Level 3.
We review the carrying amounts of non-financial assets, primarily long-lived property and equipment, finance lease assets, operating lease assets, reacquired franchise rights, goodwill and transferable liquor licenses annually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount. We record an impairment charge for the excess of the carrying amount over the fair value. Any impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Loss) (Unaudited). During the thirteen and twenty-six week periods ended December 27, 2023 and December 28, 2022, no indicators of impairment were identified.
Intangibles, net in the Consolidated Balance Sheets (Unaudited) includes both indefinite-lived intangible assets such as transferable liquor licenses and definite-lived intangible assets such as reacquired franchise rights. Accumulated amortization associated with definite-lived intangible assets at December 27, 2023 and June 28, 2023, was $ 15.7 million and $ 15.3 million, respectively.
4. ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
December 27,
2023 June 28,
2023
Insurance $ 28.9 $ 29.3
Property tax 25.9 24.5
Interest 19.9 6.4
Sales tax 18.3 17.3
Current installments of finance lease obligations 10.6 10.2
Utilities and services 10.5 10.4
Other 20.5 18.2
$ 134.6 $ 116.3
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5. LEASES
We typically lease our restaurant facilities through ground leases (where we lease land only, but construct the building and improvements) or retail leases (where we lease the land/retail space and building). In addition to our restaurant facilities, we also lease our corporate headquarters location and certain equipment.
The components of lease expenses included in the Consolidated Statements of Comprehensive Income (Loss) (Unaudited) were as follows:
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022 December 27,
2023 December 28,
2022
Operating lease cost $ 45.6 $ 45.1 $ 91.2 $ 90.2
Variable lease cost 15.5 15.2 31.1 30.8
Finance lease amortization 2.6 4.9 5.8 10.1
Finance lease interest 0.9 1.0 1.8 2.1
Short-term lease cost 0.0 0.1 0.1 0.2
Sublease income ( 0.4 ) ( 0.6 ) ( 0.8 ) ( 1.5 )
Total lease costs, net $ 64.2 $ 65.7 $ 129.2 $ 131.9
Supplemental cash flow information related to leases:
Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022
Operating lease assets obtained in exchange for operating lease liabilities
$ 21.3 $ 45.5
Finance leases assets obtained in exchange for finance lease liabilities
0.1 0.2
Finance lease assets are recorded in Property and equipment, at cost, and the net balance as of December 27, 2023 and June 28, 2023 was $ 45.9 million and $ 51.3 million, respectively.
6. DEBT
Long-term debt consists of the following:
December 27,
2023 June 28,
2023
Revolving credit facility $ 136.3 $ 161.3
5.000% notes (1)
350.0 350.0
8.250% notes 350.0 350.0
Finance lease obligations 62.6 67.8
Total long-term debt 898.9 929.1
Less: unamortized debt issuance costs and discounts ( 5.9 ) ( 6.7 )
Total long-term debt, less unamortized debt issuance costs and discounts 893.0 922.4
Less: current installments of long-term debt and finance leases (2)
( 10.6 ) ( 10.2 )
Total long-term debt, less current portion $ 882.4 $ 912.2
(1) Obligations under our 5.000% notes, which will mature in October 2024, have been classified as long-term, reflecting our intent and ability to refinance these notes through our existing revolving credit facility.
(2) Current installments of long-term debt consist of finance leases and are recorded within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited). Refer to Note 4 - Accrued Liabilities for further details.
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Revolving Credit Facility
In the twenty-six week period ended December 27, 2023, net repayments of $ 25.0 million were made on our revolving credit facility. As of December 27, 2023, $ 763.7 million of credit was available under the revolving credit facility.
The $ 900.0 million revolving credit facility matures on August 18, 2026 and bears interest of SOFR plus an applicable margin of 1.50 % to 2.25 % and an undrawn commitment fee of 0.25 % to 0.35 %, both based on a function of our debt-to-cash-flow ratio. As of December 27, 2023, our interest rate was 7.21 % consisting of SOFR of 5.36 % plus the applicable margin and spread adjustment of 1.85 %.
Financial Covenants
Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage ratios. As of December 27, 2023, we were in compliance with our covenants pursuant to the $900.0 million revolving credit facility and under the terms of the indentures governing our 5.000% and 8.250% notes .
7. CONTINGENCIES
Lease Commitments
We have, in certain cases, divested brands or sold restaurants to franchisees and have not been released from lease guarantees for the related restaurants. As of December 27, 2023 and June 28, 2023, we have outstanding lease guarantees or are secondarily liable for an estimated $ 13.5 million and $ 16.9 million, respectively. These amounts represent the maximum known potential liability of rent payments under the leases, but outstanding rent payments can exist outside of our knowledge as a result of the landlord and tenant relationship being between two third parties. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2024 through fiscal 2029.
We have received notices of default and have been named a party in lawsuits pertaining to some of these leases in circumstances where the current lessee did not pay its rent obligations. In the event of default under a lease by an owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties. In the twenty-six week period ended December 27, 2023 we recorded a $ 0.5 million charge in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.
Letters of Credit
We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of December 27, 2023, we had $ 5.8 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 12 months.
Cyber Security Litigation
In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data. We settled all claims from payment card companies related to this incident and do not expect material claims from payment card companies in the future. In connection with this event, the Company was also named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida (the “Litigation”) relating to this incident. In the Litigation, plaintiffs assert various claims at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $ 5.0 million, injunctive and declaratory relief, and attorney’s fees and costs.
On December 13, 2023, we filed a petition for writ of certiorari in the United States Supreme Court seeking review of the 11 th Circuit’s decision to uphold the plaintiff’s damages calculation methodology. We also sought further stay of the district court proceedings pending final adjudication of our petition and await the court’s ruling on such request. We believe we have defenses and intend to continue defending the Litigation. As such, as of December 27, 2023, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not
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recorded a liability related to the Litigation. We will continue to evaluate this matter based on new information as it becomes available.
Legal Proceedings
Evaluating contingencies related to litigation is a process involving judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures pertaining to litigated matters each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Consolidated Financial Statements.
We are engaged in various legal proceedings and have certain unresolved claims pending. Liabilities have been established based on our best estimates of our potential liability in certain of these matters. Based upon consultation with legal counsel, management is of the opinion that there are no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on the consolidated financial condition or results of operations.
8. INCOME TAXES
Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022
Effective income tax rate 7.0 % 50.0 %
The federal statutory tax rate was 21.0 % for the twenty-six week periods ended December 27, 2023 and December 28, 2022.
The change in the effective income tax rate in the twenty-six week period ended December 27, 2023 to the twenty-six week period ended December 28, 2022 is primarily due to a less favorable impact from the FICA tip tax credit against higher Income before income taxes.
9. SHAREHOLDERS’ DEFICIT
Retirement of Common Stock
During the first quarter of fiscal 2023, the Board of Directors approved the retirement of 10.0 million shares of Treasury stock for a weighted average price per share of $ 30.71 . As of December 27, 2023, 16.1 million shares remain in treasury.
Share Repurchases
Our Board of Directors approved a $ 300.0 million share repurchase program during fiscal 2022. 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.
In the twenty-six week period ended December 27, 2023, we repurchased 0.8 million shares of our common stock for $ 25.1 million, including 0.7 million shares purchased for $ 21.0 million 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. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. As of December 27, 2023, approximately $ 183.0 million of share repurchase authorization remains under the current share repurchase program.
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Stock-based Compensation
The following table presents the restricted share awards granted and related weighted average fair value per share amounts.
Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022
Restricted share awards
Restricted share awards granted 0.6 0.7
Weighted average fair value per share $ 33.44 $ 29.48
10. NET INCOME PER SHARE
Basic net income (loss) per share is computed by dividing Net income (loss) by the Basic weighted average shares outstanding for the reporting period. Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of Diluted net income (loss) per share, the Basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the Diluted net income (loss) per share calculation. Basic weighted average shares outstanding are reconciled to Diluted weighted average shares outstanding as follows:
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022 December 27,
2023 December 28,
2022
Basic weighted average shares outstanding 44.2 44.0 44.4 44.0
Dilutive stock options (1)
0.0 0.0 0.0 —
Dilutive restricted shares (1)
0.7 0.8 0.7 —
Total dilutive impact 0.7 0.8 0.7 —
Diluted weighted average shares outstanding 44.9 44.8 45.1 44.0
Awards excluded due to anti-dilutive effect 0.8 1.4 0.8 2.8
(1) Due to the net loss for the twenty-six week period ended December 28, 2022, zero incremental shares are included because the effect would be anti-dilutive.
11. OTHER GAINS AND CHARGES
Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Loss) (Unaudited) consist of the following:
Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 27,
2023 December 28,
2022 December 27,
2023 December 28,
2022
Enterprise system implementation costs $ 2.1 $ 1.0 $ 4.1 $ 2.0
Litigation & claims, net 1.0 0.3 3.2 0.8
Restaurant closure asset write-offs and charges 0.2 3.3 0.8 4.8
Lease contingencies — — 0.5 —
Remodel-related asset write-offs 0.1 0.2 0.3 1.0
Loss from natural disasters, net of (insurance recoveries) ( 0.6 ) 1.1 ( 0.4 ) 0.9
Gain on the disposition of restaurants ( 0.4 ) — ( 0.4 ) —
Other 0.9 2.6 1.5 4.0
$ 3.3 $ 8.5 $ 9.6 $ 13.5
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• Enterprise system implementation costs primarily consists of software subscription fees, certain consulting fees, and contract labor associated with the ongoing enterprise system implementation that are not capitalized.
• Litigation & claims, net primarily relates to legal contingencies and claims on alcohol service cases.
• Restaurant closure asset write-offs and charges includes costs associated with the closure of certain Chili’s restaurants in the current year and both Chili’s and Maggiano’s restaurants in the prior year.
• Lease contingencies includes expenses related to certain sublease receivables for divested brands when we have determined it is probable that the current lessee will default on the lease obligation. Refer to Note 7 - Contingencies for additional information about our secondarily liable lease guarantees.
• Remodel-related asset write-offs relates to assets that are removed or discarded in connection with Maggiano’s and Chili’s remodel projects.
• Loss from natural disasters, net of (insurance recoveries) primarily relates to the receipt of insurance proceeds for the Hurricane Ida claim in the current year and to costs incurred related to Hurricane Ian & Winter Storm in the prior year.
• Gain on the disposition of restaurants relates to the net proceeds from the sale of a Canada Company-owned restaurant.
12. SEGMENT INFORMATION
Our operating segments are Chili’s and Maggiano’s. The Chili’s segment includes the results of our Company-owned Chili’s restaurants, which are principally located in the United States, within the full-service casual dining segment of the industry. The Chili’s segment also has Company-owned restaurants in Canada, and franchised locations in the United States, 29 other countries and two United States territories. The Maggiano’s segment includes the results of our Company-owned Maggiano’s restaurants in the United States as well as the results from our domestic franchise business. The Corporate segment includes costs related to our restaurant support teams for the Chili’s and Maggiano’s brands, including operations, finance, franchise, marketing, human resources and culinary innovation. The Corporate segment also includes costs related to the common and shared infrastructure, including accounting, information technology, purchasing, guest relations, legal and restaurant development.
Company sales for each segment 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, digital entertainment revenues, merchandise income and are net of gift card discounts from third-party gift card sales. Franchise revenues for each operating segment include royalties, franchise advertising fees, franchise and development fees and gift card equalization.
We do not rely on any major customers as a source of sales , and the customers and long-lived assets of our operating segments are predominantly located in the United States. There were no material transactions amongst our operating segments.
Our chief operating decision maker uses Operating income as the measure for assessing performance of our segments. Operating income includes revenues and expenses directly attributable to segment-level results of operations. Restaurant expenses during the periods presented primarily include restaurant rent, repairs and maintenance, delivery fees and to-go supplies, utilities, advertising, supplies, payment processing fees, franchise and property taxes, workers’ compensation and general liability insurance and supervision expenses.
The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:
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Thirteen Week Period Ended December 27, 2023
Chili's Maggiano's Corporate Consolidated
Company sales $ 916.9 $ 146.8 $ — $ 1,063.7
Franchise revenues 10.3 0.1 — 10.4
Total revenues 927.2 146.9 — 1,074.1
Food and beverage costs 239.2 33.9 — 273.1
Restaurant labor 313.0 43.1 — 356.1
Restaurant expenses 258.3 36.2 0.2 294.7
Depreciation and amortization 35.5 3.2 2.6 41.3
General and administrative 10.2 2.1 30.9 43.2
Other (gains) and charges 0.9 0.2 2.2 3.3
Total operating costs and expenses 857.1 118.7 35.9 1,011.7
Operating income (loss) 70.1 28.2 ( 35.9 ) 62.4
Interest expenses 0.9 — 15.8 16.7
Other income, net ( 0.1 ) — — ( 0.1 )
Income (loss) before income taxes $ 69.3 $ 28.2 $ ( 51.7 ) $ 45.8
Thirteen Week Period Ended December 28, 2022
Chili's Maggiano's Corporate Consolidated
Company sales $ 869.3 $ 140.1 $ — $ 1,009.4
Franchise revenues 9.4 0.2 — 9.6
Total revenues 878.7 140.3 — 1,019.0
Food and beverage costs 253.7 35.7 — 289.4
Restaurant labor 292.3 42.3 — 334.6
Restaurant expenses 234.1 34.2 0.1 268.4
Depreciation and amortization 36.0 3.3 2.5 41.8
General and administrative 8.5 1.5 25.6 35.6
Other (gains) and charges 5.7 0.3 2.5 8.5
Total operating costs and expenses 830.3 117.3 30.7 978.3
Operating income (loss) 48.4 23.0 ( 30.7 ) 40.7
Interest expenses 0.9 0.1 12.9 13.9
Other income, net — — ( 0.3 ) ( 0.3 )
Income (loss) before income taxes $ 47.5 $ 22.9 $ ( 43.3 ) $ 27.1
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Twenty-Six Week Period Ended December 27, 2023
Chili's Maggiano's Corporate Consolidated
Company sales $ 1,814.7 $ 251.0 $ — $ 2,065.7
Franchise revenues 20.6 0.3 — 20.9
Total revenues 1,835.3 251.3 — 2,086.6
Food and beverage costs 472.3 59.6 — 531.9
Restaurant labor 624.0 80.2 — 704.2
Restaurant expenses 516.8 68.4 0.3 585.5
Depreciation and amortization 71.7 6.4 5.1 83.2
General and administrative 20.2 4.5 60.9 85.6
Other (gains) and charges 4.6 0.4 4.6 9.6
Total operating costs and expenses 1,709.6 219.5 70.9 2,000.0
Operating income (loss) 125.7 31.8 ( 70.9 ) 86.6
Interest expenses 1.7 0.1 31.9 33.7
Other income, net ( 0.1 ) — — ( 0.1 )
Income (loss) before income taxes $ 124.1 $ 31.7 $ ( 102.8 ) $ 53.0
Segment assets $ 2,052.5 $ 246.6 $ 211.6 $ 2,510.7
Payments for property and equipment 74.6 9.4 5.5 89.5
Twenty-Six Week Period Ended December 28, 2022
Chili's Maggiano's Corporate Consolidated
Company sales
$ 1,709.9 $ 245.6 $ — $ 1,955.5
Franchise revenues
18.7 0.3 — 19.0
Total revenues 1,728.6 245.9 — 1,974.5
Food and beverage costs 514.6 64.3 — 578.9
Restaurant labor 586.7 78.5 — 665.2
Restaurant expenses 471.0 65.9 0.3 537.2
Depreciation and amortization 72.0 6.5 5.2 83.7
General and administrative 18.0 4.0 53.1 75.1
Other (gains) and charges 8.7 0.8 4.0 13.5
Total operating costs and expenses 1,671.0 220.0 62.6 1,953.6
Operating income (loss) 57.6 25.9 ( 62.6 ) 20.9
Interest expenses 1.9 0.2 24.1 26.2
Other income, net — — ( 0.7 ) ( 0.7 )
Income (loss) before income taxes $ 55.7 $ 25.7 $ ( 86.0 ) $ ( 4.6 )
Payments for property and equipment $ 85.1 $ 6.1 $ 4.1 $ 95.3
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.