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 endedSeptember 23, 2020 andSeptember 25, 2019 , the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to the Consolidated Financial Statements (Unaudited) included in this quarterly report. All amounts within the MD&A are presented in millions unless otherwise specified. 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. AtSeptember 23, 2020 , we owned, operated or franchised 1,660 restaurants, consisting of 1,116 Company-owned restaurants and 544 franchised restaurants, located inthe United States , 28 countries and twoUnited States territories. Our restaurant brands, Chili's and Maggiano's, are both operating segments and reporting units. Our Chili's and Maggiano's locations support our virtual brand offering, It's Just Wings™ through our partnership withDoorDash . COVID-19 Pandemic Impact of COVID-19 Pandemic The COVID-19 global pandemic caused a significant decrease in sales during the third and fourth quarters of fiscal 2020, continuing into the first quarter of fiscal 2021. At the end of the third quarter of fiscal 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed our expansion plans. During the fourth quarter of fiscal 2020, beginning onApril 27, 2020 , we began to reopen certain dining room locations as permitted by state and local governments. At the end of the first quarter of fiscal 2021,September 23, 2020 , substantially all of our Company-owned restaurant dining and banquet rooms or patios were open in a limited capacity. As dining rooms have reopened, we have mandatory table distancing as an added safety measure for our guests. In addition, we have increased our already strict sanitation requirements, are conducting daily health and temperature checks for all employees before they begin their shift and are requiring personal protective equipment to be worn by all restaurant employees at all times. Our priority has been protecting the health and safety of team members and guests while continuing to serve our communities. 22 -------------------------------------------------------------------------------- Table of Contents As a result of COVID-19, we have experienced a negative impact on our revenues and traffic. At this time, the impact of COVID-19, in both the short term and long term, is difficult to estimate due to the uncertainty about the duration of the pandemic, the discovery of any effective treatments, cures or vaccines and the related government restrictions. Additional impacts to the business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which COVID-19 may impact our business, including the capacity of our dining rooms, what operational restrictions may be imposed, and our ability to fully staff reopened dining rooms. As such, we have taken a number of proactive measures to adapt our business to lower demand levels during the COVID-19 pandemic including measures to significantly reduce costs, partnering with our lenders to provide additional liquidity, issuing additional common stock and negotiating rent concessions with landlords. We continue to closely monitor and adapt to the evolving situation. Operations Strategy We are committed to strategies and a Company culture that we believe are centered on a guest experience. This includes bringing guests back safely, growing long-term sales and profit, engaging team members and working to return our business to pre-pandemic levels. Our strategies and culture are intended to differentiate our brands from the competition, effectively and efficiently manage our restaurants and establish a lasting presence for our brands in key markets around the world. Our primary strategy remains to make our guests feel special through great food and quality service so that they return to our restaurants. Our guest survey scores on food quality and service reached an all-time high last year and continued to improve during the pandemic as we continued to provide great food and service. Our enhanced safety training and systems have also created a safer environment for our team and guests. Guest Engagement Through Technology - We have invested in our technology and off-premise options as more guests are opting for to-go and delivery. Our to-go menu is available through our Chili's mobile app, on our Chili's and Maggiano's brand websites, our exclusive delivery partnerDoorDash , or by calling the restaurant. Since fiscal 2018, our off-premise business has grown by 177%. Chili's exclusive partnership withDoorDash is instrumental in connecting with our guests and providing convenience especially during the COVID-19 pandemic.DoorDash orders are sent directly into our point of sale system which has created a streamlined integration to our kitchens. We believe that guests will continue to prefer more convenience and off-premise options after the pandemic concerns dissipate. We plan to continue investing in our technology systems to support our carryout and delivery capabilities. In dining rooms we use tabletop devices to engage our guests at the table. In fiscal 2020, we rolled out a new tabletop device to continue to enhance this experience. These devices provide pay at the table, reordering, digital entertainment, guest feedback and support our My Chili's Rewards program. My Chili's Rewards loyalty database includes more than 8 million loyal members who have interacted with Chili's in the previous six months. We customize offerings for our guests based on their purchase behavior, and we continue to shift more of our overall marketing spend to these customized channels and promotions. We believe this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our competitors. Chili's - Chili's continues to outpace the casual dining industry and grow market share. Part of our strategy is to differentiate Chili's from our competitors with a flexible platform of value offerings at both lunch and dinner as well as connecting with our guests through our My Chili's Rewards loyalty program. Our Cheers to Patron® Margarita of the Month and new offerings on our 3 for$10 meal platform were particularly successful in bringing guests back to Chili's during fiscal 2020. We are committed to offering consistent, quality products at a price point that is compelling to our guests. Our "3 for$10 " platform allows guests to combine a starter, a non-alcoholic drink and an entrée for just$10.00 as part of the every-day base menu. Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price of$5.00 . Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise. Chili's off-premise dining options including our virtual brand, It's Just Wings are a critical part of our strategy going forward. Chili's off-premise sales, including both to-go and delivery, is approximately 48% of sales, with approximately 61% coming from to-go and 39% from delivery during the first quarter of fiscal 2021. We regularly evaluate our processes and menu at Chili's to identify opportunities where we can improve our service quality and 23 -------------------------------------------------------------------------------- Table of Contents food. We continue to focus on our core equities and improving guest satisfaction with our food and service by improving execution of our operations standards. Maggiano's - At Maggiano's, we believe our focus on operating fundamentals and technology will provide the foundation for future efficiencies and growth. Maggiano's also has an exclusive partnership withDoorDash . Our exclusive partnership creates a more affordable rate structure, making third party delivery more sustainable and efficient for the brand to operate. Our guests have the ability to order delivery directly through the Maggiano's website, in addition to theDoorDash platforms. Virtual Opportunities - It's Just Wings, a virtual brand offering, launched onJune 23, 2020 and is available only throughDoorDash delivery. This platform allows us to leverage our existing infrastructure, while adding minimal complexity in the restaurants. It's Just Wings is a no-frills offering that consists of chicken wings available in 11 different sauces and rubs, curly fries, ranch dressing and fried Oreos for a value price. We will continue to identify opportunities to drive restaurant growth by utilizing our existing restaurant infrastructure andDoorDash partnership. Franchise Partnerships - Our global franchisees continue to grow the Chili's brand around the world, opening four restaurants and entering into one new development agreement in the first quarter of fiscal 2021. We plan to strategically pursue expansion of Chili's internationally through development agreements with new and existing franchise partners. We are supporting our franchise partners with opportunities to expand sales through the It's Just Wings virtual brand.Company Development -The following table details the number of restaurant openings during the thirteen week periods endedSeptember 23, 2020 andSeptember 25, 2019 , respectively, total full year projected openings in fiscal 2021, and the total restaurants open at each period end: Openings During the Full Year Thirteen Week Periods Ended Projected OpeningsTotal Open Restaurants at September 23, 2020September 25, 2019 Fiscal 2021September 23, 2020 September 25, 2019 Company-owned restaurants Chili's domestic 3 1 8 1,059 1,061 Chili's international - - - 5 5 Maggiano's domestic - - - 52 52Total Company -owned 3 1 8 1,116 1,118 Franchise restaurants Chili's domestic 1 1 3 172 180 Chili's international 3 11 6-9 371 373 Maggiano's domestic - - 1 1 1 Total franchise 4 12 10-13 544 554 Total restaurants Chili's domestic 4 2 11 1,231 1,241 Chili's international 3 11 6-9 376 378 Maggiano's domestic - - 1 53 53 Total 7 13 18-21 1,660 1,672 Included in the Total Restaurants Open atSeptember 23, 2020 are locations that were temporarily closed due to the COVID-19 pandemic which included: four Company-owned Chili's restaurants, seven domestic Chili's franchise locations, and 27 Chili's international franchise locations. Additionally, during the first quarter of fiscal 2021, we resumed construction of new restaurants and opened three Chili's domestic locations. Relocations are not included in the table above. During the thirteen week period endedSeptember 23, 2020 we have relocated one Company-owned restaurant, and we plan to relocate one Chili's domestic Company-owned restaurant during the remainder of fiscal 2021. 24 -------------------------------------------------------------------------------- Table of Contents AtSeptember 23, 2020 , we own property for 42 of the 1,116 Company-owned restaurants. The net book values associated with these restaurants included land of$33.1 million and buildings of$13.0 million . RESULTS OF OPERATIONS The following table sets forth selected operating data as a percentage of Total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying Consolidated Statements of Comprehensive Income (Unaudited):
Thirteen Week Periods Ended
September 23 ,September 25, 2020 2019 Revenues Company sales(1)
98.4 % 97.2 % Franchise and other revenues(1) 1.6 % 2.8 % Total revenues(1) 100.0 % 100.0 % Operating costs and expenses Food and beverage costs(2) 26.6 % 26.7 % Restaurant labor(2) 34.0 % 35.2 % Restaurant expenses(2) 27.8 % 27.1 % Depreciation and amortization(1) 5.1 % 4.8 % General and administrative(1) 4.1 % 4.8 % Other (gains) and charges(1) 0.5 % (0.1) % Total operating costs and expenses(1) 96.7 % 96.0 % Operating income(1) 3.3 % 4.0 % Interest expenses(1) 2.0 % 1.9 % Other (income), net(1) (0.1) % 0.0 % Income before income taxes(1) 1.4 % 2.1 % Provision (benefit) for income taxes(1) 0.0 % 0.2 % Net income(1) 1.4 % 1.9 % (1)As a percentage of Total revenues (2)As a percentage of Company sales Revenues Thirteen Week Period EndedSeptember 23, 2020 compared toSeptember 25, 2019 Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends: •Company sales include revenues generated by the operation of Company-owned restaurants including sales made with gift card redemptions. •Franchise and other revenues include Royalties and Franchise fees and other revenues. Franchise fees and other revenues include delivery service income, gift card breakage, franchise advertising fees, digital entertainment revenues, franchise and development fees, Maggiano's banquet service charge income, gift card equalization, merchandise income, and gift card discount costs from third-party gift card sales. 25 -------------------------------------------------------------------------------- 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 25, 2019$ 695.6 $ 90.4 $ 786.0 Change from: Comparable restaurant sales(1) (46.9) (33.2) (80.1) Restaurant openings 4.1 - 4.1 Restaurant relocations 0.4 - 0.4 Restaurant closings(2) (9.8) - (9.8) Restaurant acquisitions(3) 49.7 - 49.7 Company sales (2.5) (33.2) (35.7) Royalties(4) (5.2) (0.1) (5.3) Franchise fees and other revenues (1.4) (3.5) (4.9) Franchise and other revenues (6.6) (3.6) (10.2)
Thirteen Week Period Ended
(1)Comparable restaurant sales decreased due to lower dining room guest traffic resulting from capacity limitations and personal safety preferences, partially offset by increased off-premise sales. (2)Restaurant closings include the impact of permanently closed locations and temporary COVID-19 closures, that have extended past 14 consecutive days. (3)We acquired 116 Chili's restaurants from a franchisee effectiveSeptember 5, 2019 . This amount represents the change in Company sales attributed to owning these restaurants over the entire thirteen week period endedSeptember 23, 2020 . (4)Lower royalties in the thirteen week period endedSeptember 23, 2020 are primarily due to the adverse impact of the COVID-19 pandemic. Our franchisees generated sales of approximately$164.0 million for the thirteen week period endedSeptember 23, 2020 compared to$298.3 million in sales for the thirteen week period endedSeptember 25, 2019 . The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period endedSeptember 23, 2020 compared toSeptember 25, 2019 : Percentage Change in the
Thirteen Week Period Ended
Comparable Restaurant Sales(1)(2) Price Impact Mix-Shift(3) Traffic Restaurant Capacity(4) Company-owned (10.9) % 0.4 % (6.3) % (5.0) % 7.8 % Chili's (7.2) % 0.2 % (4.2) % (3.2) % 8.2 % Maggiano's (38.6) % 3.0 % (12.7) % (28.9) % 0.0 % Chili's Franchise(5) (11.5) % U.S. (5.6) % International (21.9) % Chili's Domestic(6) (7.0) % System-wide(7) (11.0) % (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. 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, a virtual brand launched nationally inJune 2020 . 26 -------------------------------------------------------------------------------- Table of Contents (3)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. We believe the COVID-19 related restaurant closures are temporary and therefore no adjustment has been made to capacity. (5)Chili's franchise sales generated by franchisees are not included in revenues in the Consolidated Statements of Comprehensive Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. We believe including Chili's franchise comparable restaurant sales provides investors information regarding brand performance that is relevant to current operations. (6)Chili's domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili's restaurants inthe United States . (7)System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili's and Maggiano's restaurants in addition to the sales generated at franchise-operated Chili's restaurants. Costs and Expenses Thirteen Week Periods EndedSeptember 23, 2020 compared toSeptember 25, 2019 The following is a summary of the change in costs and expenses: Thirteen Week
Periods Ended
September 23, 2020 September 25, 2019 (Favorable) Unfavorable Variance % of Company % of Company % of Company Dollars Sales Dollars Sales Dollars Sales Food and beverage costs$ 193.5 26.6 %$ 203.8 26.7 %$ (10.3) (0.1) % Restaurant labor 248.0 34.0 % 268.5 35.2 % (20.5) (1.2) % Restaurant expenses 202.5 27.8 % 207.3 27.1 % (4.8) 0.7 % Depreciation and amortization 37.4 38.1 (0.7) General and administrative 30.5 38.0 (7.5) Other (gains) and charges 3.8 (0.9) 4.7 Interest expenses 14.6 14.9 (0.3) Other income, net (0.4) (0.5) 0.1 Food and beverage costs, as a percentage of Company sales, decreased 0.1% consisting of 0.2% of favorable menu item mix and 0.2% of favorable commodity pricing related to produce, partially offset by 0.3% of unfavorable commodity pricing primarily related to dairy and beef. Restaurant labor, as a percentage of Company sales, decreased 1.2% consisting of 1.5% of favorable hourly labor expenses due to reduced staffing requirements, 1.0% of lower manager compensation, and 0.3% of lower other net restaurant labor expenses, partially offset by 1.6% of sales deleverage. Restaurant expenses, as a percentage of Company sales, increased 0.7% consisting of 3.4% of higher expenses primarily related to delivery fees and supplies in connection with the growth in off-premise sales, and 2.2% of sales deleverage, partially offset by 2.1% of lower advertising expenses, 1.3% of lower repairs and maintenance expenses, 0.3% of lower utilities expenses, 0.3% of lower credit card fees, and 0.9% of lower other net restaurant expenses. 27 -------------------------------------------------------------------------------- Table of Contents Depreciation and amortization decreased$0.7 million as follows:
Depreciation and
Amortization
Thirteen Week Period Ended September 25, 2019 $ 38.1 Change from: Retirements and fully depreciated restaurant assets (6.4) Additions for existing and new restaurant assets(1) 2.1 Acquisition of Chili's restaurants(2) 2.1 Finance leases 0.8 Corporate assets 0.4 Other 0.3 Thirteen Week Period EndedSeptember 23, 2020
$ 37.4
(1)Additions for existing and new restaurant assets increased primarily related to capital purchases. (2)Acquisition of Chili's restaurants represents the depreciation and amortization of the assets and finance leases of the 116 Chili's restaurants acquired in the first quarter of fiscal 2020. General and administrative expenses decreased$7.5 million as follows: General and
Administrative
Thirteen Week Period EndedSeptember 25, 2019 $
38.0
Change from: Stock-based compensation(1)
(3.2)
Defined contribution plan employer expenses(2) (2.6) Professional fees (1.3) Payroll-related expenses (1.1) Travel and entertainment expenses
(0.8)
Performance-based compensation
1.8
Other
(0.3)
Thirteen Week Period EndedSeptember 23, 2020 $
30.5
(1)Stock-based compensation decreased primarily due to the acceleration of stock-based compensation expenses in the first quarter of fiscal 2020 for retirement eligible executives. Prior to fiscal 2021, retirement eligibility resulted in the compensation being recognized in full upon grant as there was no substantive vesting period. In fiscal 2021, the retirement eligible executives received only 20% of their equity as awards with no substantive vesting period. Their remaining 80% of equity granted in fiscal 2021 will be amortized evenly over the three year vesting period. (2)Defined contribution plan employer expenses decreased due to the suspension of employer matching contributions inMay 2020 . 28 -------------------------------------------------------------------------------- Table of Contents Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges): Thirteen Week Periods Ended September 23, September 25, 2020 2019 Restaurant closure charges $ 1.5 $ 0.2 COVID-19 related charges 1.2 - Remodel-related costs 0.2 0.7 Lease modification gain, net (0.5) (3.1) Other 1.4 1.3 $ 3.8 $ (0.9) Interest expenses decreased$0.3 million consisting of lower average borrowing balances on our revolving credit facility in the thirteen week period endedSeptember 23, 2020 , partially offset by higher interest expenses related to the real estate finance leases acquired from the acquisition of 116 Chili's restaurants onSeptember 5, 2019 . Segment Results At the end of the first quarter of fiscal 2021 substantially all our Company-owned restaurant dining rooms or patios were open in some capacity. Capacity restrictions related to the ongoing COVID-19 pandemic vary by location due to state and local mandates. These capacity restrictions and personal safety preferences have resulted in lower overall guest traffic and many guests have shifted to our off-premise dining options. This shift has changed the staffing requirements in the restaurants and other expenses associated with off-premise which are noted below. Chili's Segment Thirteen Week Periods Ended Favorable September 23, September 25, (Unfavorable) Variance as 2020 2019 Variance percentage Company sales$ 675.0 $ 677.5 $ (2.5) (0.4) % Royalties 6.6 11.8 (5.2) (44.1) % Franchise fees and other revenues 4.9 6.3 (1.4) (22.2) % Franchise and other revenues 11.5 18.1 (6.6) (36.5) % Total revenues 686.5 695.6 (9.1) (1.3) % Food and beverage costs 180.8 182.4 1.6 0.9 % Restaurant labor 228.2 233.1 4.9 2.1 % Restaurant expenses 181.4 180.8 (0.6) (0.3) % Depreciation and amortization 30.6 30.7 0.1 0.3 % General and administrative 5.4 9.1 3.7 40.7 % Other (gains) and charges 3.6 (1.6) (5.2) 325.0 % Total operating costs and expenses 630.0 634.5 4.5 0.7 % Operating income (loss)$ 56.5 $ 61.1$ (4.6) (7.5) % Operating income as a percentage of Total revenues 8.2 % 8.8 % (0.6) % (6.8) % Thirteen Week Period EndedSeptember 23, 2020 compared toSeptember 25, 2019 Chili's Total revenues decreased by 1.3% primarily due to lower dining room guest traffic, partially offset by increased off-premise sales including It's Just Wings and the acquisition of 116 Chili's restaurants in the first quarter of fiscal 2020 onSeptember 5, 2019 . Refer to "Revenues" section above for further details about Chili's revenues changes. 29 -------------------------------------------------------------------------------- Table of Contents Company restaurant expenses for Chili's, as a percentage of Company sales, decreased 0.5% consisting of 2.3% of lower advertising expenses, 1.5% of lower manager and hourly labor as a result of reduced staffing during the first quarter of fiscal 2021, and 1.4% of lower repairs and maintenance expenses. These decreases were partially offset by 2.4% of sales deleverage and 2.3% of higher expenses primarily related to delivery fees and supplies in connection with the growth in off-premise sales. Depreciation and amortization for Chili's decreased$0.1 million consisting of$5.2 million related to fully depreciated assets and retirements, partially offset by$2.1 million of additional depreciation and amortization expenses related to the 116 Chili's restaurants acquired in the first quarter of fiscal 2020,$1.9 million in existing and new restaurant additions primarily related to routine capital purchases,$0.9 million in additional amortization expenses related to finance leases, and$0.2 million in other depreciation and amortization expenses increases. General and administrative for Chili's decreased$3.7 million consisting primarily of a decrease in defined contribution plan employer expenses, stock-based compensation, payroll-related expenses and professional fees, partially offset by an increase in performance-based compensation. Other (gains) and charges for Chili's in the thirteen week period endedSeptember 23, 2020 consisted primarily of$1.5 million of restaurant closure charges and$1.1 million of employee assistance payments and other COVID-19 related expenses. Other (gains) and charges in the thirteen week period endedSeptember 25, 2019 consisted primarily of$3.1 million of lease modification (gain) and$0.5 million of net gain related to the 116 Chili's restaurants acquired in the first quarter of fiscal 2020, partially offset by$0.7 million of Chili's remodel-related costs. Maggiano's Segment Thirteen Week Periods Ended September 23, September 25, Favorable Variance as a 2020 2019 (Unfavorable) Variance percentage Company sales$ 53.2 $ 86.4$ (33.2) (38.4) % Royalties - 0.1 (0.1) (100.0) % Franchise fees and other revenues 0.4 3.9 (3.5) (89.7) % Franchise and other revenues 0.4 4.0 (3.6) (90.0) % Total revenues 53.6 90.4 (36.8) (40.7) % Food and beverage costs 12.7 21.4 8.7 40.7 % Restaurant labor 19.8 35.4 15.6 44.1 % Restaurant expenses 20.8 26.3 5.5 20.9 % Depreciation and amortization 3.6 4.0 0.4 10.0 % General and administrative 1.3 1.7 0.4 23.5 % Other (gains) and charges 0.1 0.1 - - % Total operating costs and expenses 58.3 88.9 30.6 34.4 % Operating income (loss)$ (4.7) $ 1.5$ (6.2) (413.3) % Operating income as a percentage of Total revenues (8.8) % 1.7 % (10.5) % (617.6) % Thirteen Week Period EndedSeptember 23, 2020 compared toSeptember 25, 2019 Maggiano's Total revenues decreased 40.7% primarily due to lower dining room guest traffic including lower banquet volume, partially offset by increased off-premise sales including It's Just Wings. Refer to "Revenues" section above for further details about Maggiano's revenues changes. Company restaurant expenses for Maggiano's, as a percentage of Company sales, increased 4.0% primarily consisting of 15.6% of sales deleverage and 2.5% of higher expenses primarily related to delivery fees and supplies in connection with the growth in off-premise sales. These increases were partially offset by 9.4% of lower manager 30 -------------------------------------------------------------------------------- Table of Contents and hourly labor as a result of reduced staffing during the first quarter of fiscal 2021, 1.7% of lower repairs and maintenance expenses, 0.7% of lower credit card fees, 0.6% of lower utilities expenses, 0.6% of lower advertising, 0.5% of favorable menu item mix, and 0.4% of favorable menu pricing. Income Taxes Thirteen Week Periods Ended September 23, September 25, 2020 2019 Change Effective income tax rate (4.9) % 11.3 % (16.2) % The federal statutory tax rate was 21.0% for both thirteen week periods endedSeptember 23, 2020 andSeptember 25, 2019 . The effective income tax rate in the thirteen week period endedSeptember 23, 2020 decreased compared to the thirteen week period endedSeptember 25, 2019 primarily due to the favorable impact from the FICA tax credit and excess tax windfalls associated with stock-based compensation in the first quarter of fiscal 2021. Liquidity and Capital Resources COVID-19 Impact on Liquidity Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures, such as remodels, maintaining existing restaurants and constructing new restaurants, to pay dividends and to repurchase shares of our common stock. Our strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic compared to other industry competitors. Due to the uncertainty in the economy and to preserve liquidity, we have taken proactive precautionary measures to raise additional capital, reduce costs and pause non-critical projects that do not significantly impact our current operations. These measures during fiscal 2021 included: •Amended our revolving credit facility to extend the maturity and provide additional flexibility during this time; •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 both the quarterly cash dividend and the share repurchase program; and •Amended the fiscal 2018 and fiscal 2019 U.S. Consolidated Income tax returns in order to claim the increased depreciation deductions for Brinker's qualified improvement property in accordance with the CARES Act which resulted in an anticipated refund of$4.6 million . 31 -------------------------------------------------------------------------------- Table of Contents Cash Flows Cash Flows from Operating Activities Thirteen Week Periods Ended Favorable September 23, September 25, (Unfavorable) 2020 2019 Variance Net cash provided by operating activities $ 82.8 $ 86.6 $ (3.8) Net cash provided by operating activities decreased primarily due to lower sales in the first quarter of fiscal 2021 as a result of the COVID-19 pandemic, the timing of income tax refunds (net of payments), and the timing of operational receipts and payments, partially offset by additional deferred payroll taxes as a result of the CARES Act and a lower profit sharing payment in the current fiscal year. Cash Flows from Investing Activities Thirteen Week Periods Ended Favorable September 23, September 25, (Unfavorable) 2020 2019 Variance Cash flows from investing activities Payments for property and equipment$ (13.6) $ (20.5) $ 6.9 Payments for franchise restaurant acquisitions - (96.2) 96.2 Proceeds from sale of assets - 0.2 (0.2) Proceeds from note receivable 0.6 0.7 (0.1) Net cash used in investing activities$ (13.0) $ (115.8) $ 102.8 Net cash used in investing activities decreased primarily due to$96.2 million of cash consideration and related transactional charges paid for the purchase of 116 Chili's restaurants from a franchisee in the prior year. Additionally, capital expenditures decreased in fiscal 2021 primarily due to a reduction in spend for routine capital purchases in order to prioritize debt repayment, the timing of spend on new restaurants, and a decline in the pace of the Chili's remodel initiative. Cash Flows from Financing Activities Thirteen Week Periods Ended Favorable September 23, September 25, (Unfavorable) 2020 2019 Variance Cash flows from financing activities Borrowings on revolving credit facility $ 28.4$ 299.0 $ (270.6) Payments on revolving credit facility (75.0) (227.0) 152.0 Purchases of treasury stock (3.9) (11.3) 7.4 Payments of dividends (1.3) (14.8) 13.5 Payments on long-term debt (4.6) (2.4) (2.2) Proceeds from issuance of treasury stock 3.0 1.3 1.7 Payments for debt issuance costs (1.5) - (1.5)
Net cash (used in) provided by financing activities
$ 44.8 $ (99.7)
Net cash used in financing activities increased primarily due to$46.6 million of net repayment activity in fiscal 2021 compared to$72.0 million of net borrowing activity in fiscal 2020 on the revolving credit facility, partially offset by the impact of suspending the payment of dividends and share repurchases. Revolving Credit Facility Net repayments of$46.6 million were made during the thirteen week period endedSeptember 23, 2020 on the$1.0 billion revolving credit facility primarily from cash from operations. As ofSeptember 23, 2020 ,$573.7 million of credit was available under the revolving credit facility. 32 -------------------------------------------------------------------------------- Table of Contents In the first quarter of fiscal 2021, we executed the seventh amendment to the revolving credit facility. This amendment extended the maturity date toDecember 12, 2022 , and contained a required commitment reduction to$900.0 million onSeptember 12, 2021 from the previous$1.0 billion commitment. Refer to Note 10 - Debt for more information. Additionally, subsequent to the end of the first quarter of fiscal 2021,$20.0 million additional net payments were made on the revolving credit facility as of the date that this Quarterly Report on Form 10-Q was filed. As ofSeptember 23, 2020 , pursuant to the amended revolving credit facility and under the terms of the indentures governing our 2023 Notes and 2024 Notes, we are in compliance with our covenants. Refer to Note 10 - Debt for further information about our notes and revolving credit facility. Share Repurchase Program In the fourth quarter of fiscal 2020, our share repurchase program was primarily suspended in response to the liquidity needs created by the COVID-19 pandemic. Prior to the suspension, our share repurchase program was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the thirteen week period endedSeptember 23, 2020 , we repurchased 0.1 million shares solely related to shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares. Before the suspension, in the thirteen week period endedSeptember 25, 2019 , we repurchased 0.3 million shares of our common stock for$11.3 million . Dividend Program In the fourth quarter of fiscal 2020, our quarterly cash dividend was suspended in response to the liquidity needs created by the COVID-19 pandemic. Before this suspension, our Board of Directors approved quarterly dividends of$0.38 per share paid quarterly. In the thirteen week period endedSeptember 23, 2020 , dividends paid solely related to the previously accrued dividends for restricted share awards that 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. Before the suspension, in the thirteen week period endedSeptember 25, 2019 , we paid dividends of$14.8 million to common stock shareholders. 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 customers at substantially all of our locations through our off-premise offerings and limited capacity dining rooms. We will continue to monitor the situation and intend to resume normal business operations on a case by case basis when permitted under applicable government regulations and when we believe we are able to do so safely. 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 obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 14 - Contingencies, in the Consolidated Financial Statements (Unaudited), and have entered into certain pre-commencement leases as disclosed in Note 9 - Leases included in the Notes to the 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. RECENT ACCOUNTING PRONOUNCEMENTS The impact of recent accounting pronouncements can be found at Note 2 - Effect of New Accounting Standards in the Notes to the Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. 33
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