Chili's 2012 Annual Report Download - page 38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 past
three fiscal years, the MD&A should be read in conjunction with the consolidated financial statements and
related notes included in this annual report. Our MD&A consists of the following sections:
•Overview—a general description of our business and the casual dining segment of the restaurant
industry
•Results of Operations—an analysis of our consolidated statements of income for the three years
presented in our consolidated financial statements
•Liquidity and Capital Resources—an analysis of cash flows, including capital expenditures,
aggregate contractual obligations, share repurchase activity, known trends that may impact liquidity,
and the impact of inflation
•Critical Accounting Estimates—a discussion of accounting policies that require critical judgments
and estimates
We have a 52/53 week fiscal year ending on the last Wednesday in June. Fiscal years 2012 and 2011, which
ended on June 27, 2012 and June 29, 2011, respectively, each contained 52 weeks. Fiscal year 2010 ended on
June 30, 2010 and contained 53 weeks. The 53rd week in fiscal 2010 contributed approximately $52 million of
incremental revenue and nine cents of incremental earnings per diluted share. While certain expenses increased
in direct relationship to additional revenue from the 53rd week, other expenses, such as fixed costs, are incurred
on a calendar month basis.
We report certain labor and related expenses in a separate caption on the consolidated statements of income
titled restaurant labor. Restaurant labor includes all compensation-related expenses, including benefits and
incentive compensation, for restaurant team members at the general manager level and below. Labor-related
expenses attributable to multi-restaurant (or above-restaurant) supervision is included in restaurant expenses.
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. At June 27, 2012, we owned,
operated, or franchised 1,581 restaurants. We sold On The Border Mexican Grill & Cantina (“On The Border”)
to OTB Acquisition LLC (“OTB Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in June
2010. On The Border is presented as discontinued operations in the consolidated financial statements.
We are committed to strategies and initiatives that are centered on long-term sales and profit growth,
enhancing the guest experience and team member engagement. These strategies are intended to differentiate our
brands from the competition, reduce the costs associated with managing our restaurants and establish a strong
presence for our brands in key markets around the world. Key economic factors such as total employment,
consumer confidence and spending levels improved this year; however, economic growth remains sluggish. We
will continue to maintain a strong balance sheet and maintain our ability to provide results in all operating
environments.
Our current initiatives are designed to drive profitable sales growth and improve the guest experience in our
restaurants. We have implemented a team service model at Chili’s which has resulted in labor efficiencies and
positive guest feedback. Additional labor savings were achieved through improved food preparation procedures,
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