Chili's 2015 Annual Report Download - page 71

14. COMMITMENTS AND CONTINGENCIES
In connection with the sale of restaurants to franchisees and brand divestitures, we have, in certain cases,
guaranteed lease payments. As of June 24, 2015 and June 25, 2014, we have outstanding lease guarantees or are
secondarily liable for $98.9 million and $116.5 million, respectively. This amount represents the maximum
potential liability of future payments under the guarantees. These leases have been assigned to the buyers and
expire at the end of the respective lease terms, which range from fiscal 2016 through fiscal 2025. In the event of
default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover
damages incurred. No material liabilities have been recorded as of June 25, 2014, as the likelihood of default by
the buyers on the assignment agreements was deemed to be less than probable. Our secondary liability position
will be reduced by approximately $19.0 million in the first quarter of fiscal 2016 related to the Pepper Dining
acquisition. See Note 16 for additional disclosures related to the acquisition.
We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of
June 24, 2015, we had $32.1 million in undrawn standby letters of credit outstanding. All standby letters of credit
are renewable annually.
Evaluating contingencies related to litigation is a complex process involving subjective 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.
In August 2004, certain current and former hourly restaurant team members filed a putative class action
lawsuit against us in California Superior Court alleging violations of California labor laws with respect to meal
periods and rest breaks, styled as Hohnbaum, et al. v. Brinker Restaurant Corp., et al. On August 6, 2014, the
parties reached a preliminary settlement agreement, which remained subject to court approval, to resolve all
claims in exchange for a settlement payment not to exceed $56.5 million. On December 12, 2014, the court
granted final approval of the settlement agreement. In February 2015, we funded the settlement in the amount of
$44.0 million against our previously established reserve. We do not expect any further payments related to this
matter.
We are engaged in various other legal proceedings and have certain unresolved claims pending. Reserves
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 our consolidated
financial condition or results of operations.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results of operations for fiscal 2015
and 2014 (in thousands, except per share amounts):
Fiscal Year 2015
Quarters Ended
Sept. 24 Dec. 24 March 25 June 24
Revenues ............................................. $711,018 $742,898 $784,215 $764,147
Income before provision for income taxes ................... $ 47,814 $ 58,744 $ 96,316 $ 81,403
Net income ........................................... $ 32,738 $ 41,306 $ 65,427 $ 57,223
Basic net income per share ............................... $ 0.51 $ 0.65 $ 1.04 $ 0.94
Diluted net income per share .............................. $ 0.49 $ 0.64 $ 1.02 $ 0.92
Basic weighted average shares outstanding .................. 64,668 63,590 62,891 61,132
Diluted weighted average shares outstanding ................. 66,263 64,963 64,091 62,294
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