Chili's 2009 Annual Report Download - page 17

The global economic crisis adversely impacted our business and financial results in fiscal 2009 and a
prolonged recession could materially affect us in the future.
The restaurant industry is dependent upon consumer discretionary spending. The global economic
crisis has reduced consumer confidence to historic lows impacting the public’s ability and/or desire to
spend discretionary dollars as a result of job losses, home foreclosures, significantly reduced home values,
investment losses in the financial markets, personal bankruptcies and reduced access to credit, resulting in
lower levels of guest traffic in our restaurants. If this difficult economic situation continues for a prolonged
period of time and/or deepens in magnitude, our business, results of operations and ability to comply with
the covenants under our credit facility could be materially affected. Continued deterioration in guest traffic
and/or a reduction in the average amount guests spend in our restaurants will negatively impact our
revenues. This will result in sales deleverage, spreading fixed costs across a lower level of sales, and will, in
turn cause downward pressure on our profitability. The result could be further reductions in staff levels,
asset impairment charges and potential restaurant closures. In addition, the adverse fiscal condition of any
states where we operate restaurants could result in these state governments issuing IOUs rather than tax
refunds or employee paychecks, which could affect guest spending patterns in these locations.
Future recessionary effects on us are unknown at this time and could have a potential material adverse
effect on our financial position and results of operations. There can be no assurance that the government’s
plan to stimulate the economy will restore consumer confidence, stabilize the financial markets, increase
liquidity and the availability of credit, or result in lower unemployment.
The current economic crisis could have a material adverse impact on our landlords or other tenants in
retail centers in which we or our franchisees are located, which in turn could negatively affect our
financial results.
If the recession continues or increases in severity, our landlords may be unable to obtain financing or
remain in good standing under their existing financing arrangements, resulting in failures to pay required
construction contributions or satisfy other lease covenants to us. In addition other tenants at retail centers
in which we or our franchisees are located or have executed leases may fail to open or may cease
operations. If our landlords fail to satisfy required co-tenancies, such failures may result in us or our
franchisees terminating leases or delaying openings in these locations. Also, decreases in total tenant
occupancy in retail centers in which we are located may affect guest traffic at our restaurants. All of these
factors could have a material adverse impact on our operations.
Inflation may increase our operating expenses.
We have experienced impact from inflation. Inflation has caused increased food, labor and benefits
costs and has increased our operating expenses. We have in the recent past experienced increased food
costs due to the diversion of food crop production to non-traditional uses, as well as increased food costs
due to increased fuel costs for our vendors. As operating expenses increase, we, to the extent permitted by
competition, recover increased costs by increasing menu prices, or by reviewing, then implementing,
alternative products or processes, or by implementing other cost reduction procedures. We cannot ensure,
however, that we will be able to continue to recover increases in operating expenses due to inflation in this
manner.
Changes in governmental regulation may adversely affect our ability to maintain our existing and
future operations and to open new restaurants.
We are subject to the Fair Labor Standards Act (which governs such matters as minimum wages,
overtime and other working conditions), along with the Americans with Disabilities Act, the Immigration
Reform and Control Act of 1986, various family leave mandates and a variety of other laws enacted, or
rules and regulations promulgated by federal, state and local governmental authorities that govern these
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