Chili's 2012 Annual Report Download - page 42

COSTS AND EXPENSES
Cost of sales, as a percent of revenues, increased 0.4% in fiscal 2012. Cost of sales was negatively impacted
by unfavorable commodity pricing for pork, beef, oils and dairy, partially offset by favorable commodity pricing
for chicken and favorable menu pricing. Cost of sales, as a percent of revenues, decreased 1.6% in fiscal 2011.
Cost of sales was favorably impacted primarily by improved product mix at Chili’s and decreased commodity
pricing for chicken and cheese.
Restaurant labor, as a percent of revenues, decreased 0.5% in fiscal 2012 primarily driven by decreased
hourly labor costs resulting from the installation of new kitchen equipment, changes in the vacation policy and
sales leverage related to higher revenue, partially offset by higher salaries and payroll taxes. Restaurant labor, as
a percent of revenues, decreased 0.3% in fiscal 2011 primarily driven by decreased hourly labor costs resulting
from the successful implementation of team service and food preparation initiatives at Chili’s, partially offset by
higher restaurant manager incentive compensation resulting from improved performance.
Restaurant expenses, as a percent of revenues, decreased 0.6% in fiscal 2012 primarily driven by sales
leverage on fixed costs related to higher revenue and lower repair and maintenance expenses resulting from cost
control initiatives and limitations on discretionary spending. The decrease was also due to reduced credit card
fees as a result of the Durbin Amendment, lower worker’s compensation insurance expenses due to favorable
claims development and decreased utilities expenses due to lower rates and milder winter weather. Restaurant
expenses, as a percent of revenues, increased 0.6% in fiscal 2011 primarily driven by sales deleverage on fixed
costs from the additional operating week in fiscal 2010 and current year changes to Maggiano’s banquet billing
and compensation structure, partially offset by reduced utilities expense due to lower rates.
Depreciation and amortization decreased $3.4 million in fiscal 2012 and $7.4 million in fiscal 2011
primarily driven by an increase in fully depreciated assets and restaurant closures and impairments, partially
offset by an increase in depreciation due to investments in existing restaurants and asset replacements.
General and administrative expenses increased $10.6 million in fiscal 2012 primarily due to a decrease in
income resulting from the expiration of the transaction services agreements with On The Border and Macaroni
Grill. The increase was also due to higher relocation expenses, performance based compensation and salary
expenses. General and administrative expenses decreased $3.4 million in fiscal 2011 primarily due to reductions
in salary and stock-based compensation expenses resulting from lower headcount driven by organizational
changes, partially offset by increased performance based compensation, higher professional fees and decreased
income associated with the transaction services agreement with Macaroni Grill.
Other gains and charges primarily includes $3.2 million of lease termination charges, $3.1 million of
charges related to the impairment of certain underperforming restaurants, $2.6 million of charges related to the
impairment of certain liquor licenses, $1.3 million of litigation charges and $0.4 million of long-lived asset
impairment charges resulting from closures. These charges were partially offset by net gains of $3.3 million
related to land sales.
Other gains and charges in fiscal 2011 consisted of $5.0 million in severance and other benefits resulting
from organizational changes, $3.0 million in lease termination charges related to previously closed restaurants
and $1.9 million in long-lived asset impairments related to underperforming restaurants that are continuing to
operate. Additionally, we recorded $1.5 million related to litigation, partially offset by net gains of $1.7 million
related to land sales.
Other gains and charges in fiscal 2010 included a $19.8 million impairment charge related to 22
underperforming restaurants that are continuing to operate. We also recorded $4.0 million in lease termination
charges and $5.4 million in long-lived asset impairments resulting from the decision to close nine
underperforming restaurants. Additionally, we recorded $2.4 million in lease termination charges related to
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