BJ'S RESTAURANTS, IN

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BJS RESTAURANTS INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/01/2021 | 03:37pm

STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE




Certain information included in this Form 10-Q and other filings with the
Securities and Exchange Commission, in our press releases, in other written
communications, and in oral statements made by or with the approval of one of
our authorized officers may contain "forward-looking" statements about our
current and expected performance trends, growth plans, business goals and other
matters. Words or phrases such as "believe," "plan," "will likely result,"
"expect," "intend," "will continue," "is anticipated," "estimate," "project,"
"may," "could," "would," "should," and similar expressions are intended to
identify "forward-looking" statements. These statements, and any other
statements that are not historical facts, are "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995, as
codified in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended from time to time (the "Act"). The
cautionary statements made in this Form 10-Q should be read as being applicable
to all related "forward-looking" statements wherever they appear in this Form
10-Q. These forward-looking statements are based on information available to us
as of the date any such statements are made, and we assume no obligation to
update these forward-looking statements. These statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those described in the statements. These risks and uncertainties include, but
are not limited to, the risk factors described in Item 1A of our Annual Report
on Form 10-K for the fiscal year ended December 29, 2020, as updated in our Form
10-Q for the thirty-nine weeks ended September 28, 2021 and in other reports
filed subsequently with the SEC.


GENERAL




As of November 1, 2021, we own and operate 212 restaurants located in the 29
states of Alabama, Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts,
Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Virginia and Washington. Our proprietary craft beer is produced at several of
our locations, our Temple, Texas brewpub locations and by independent
third-party brewers using our proprietary recipes.

The first BJ's restaurant, which opened in 1978 in Orange County, California,
was a small sit-down pizzeria that featured Chicago style deep-dish pizza with a
unique California twist. Our goal then and still today is to be the best casual
dining concept ever by focusing on high quality menu options at a compelling
value, a dining experience that exceeds customers' expectations for service,
hospitality and enjoyment, and an atmosphere that is always welcoming and
approachable.

In 1996, we introduced our own proprietary craft beers and expanded the BJ's
concept from its beginnings as a small pizzeria to a full-service, high energy
casual dining restaurant when we opened our first large format restaurant
including our own internal brewing operations in Brea, California. Today our
restaurants feature a broad menu with over 100 items designed to offer something
for everyone including: slow roasted entrees such as prime rib, EnLIGHTened
Entrees® such as our Cherry Chipotle Glazed Salmon, our original signature
deep-dish pizza, the often imitated, but never replicated world-famous Pizookie®
dessert; and our award-winning BJ's proprietary craft beers.

Our revenues are comprised of food and beverage sales from our restaurants and
third-party retail beer sales. Revenues from restaurant sales are recognized
when payment is tendered at the point of sale. Amounts paid with a credit card
are recorded in accounts and other receivables until payment is collected. We
sell gift cards which do not have an expiration date and we do not deduct
non-usage fees from outstanding gift card balances. Gift card sales are recorded
as a liability and recognized as revenues upon redemption in our

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restaurants. Based on historical redemption rates, a portion of our gift card
sales are not expected to be redeemed and will be recognized as gift card
"breakage." Estimated gift card breakage is recorded as revenue and recognized
in proportion to our historical redemption pattern, unless there is a legal
obligation to remit the unredeemed gift cards to the relevant jurisdiction. The
estimated gift card breakage is based on when the likelihood of redemption
becomes remote, which has typically been 24 months after the original gift card
issuance date. Our customer loyalty program enables participants to earn points
for qualifying purchases that can be redeemed for food and beverages in the
future. We allocate the transaction price between the goods delivered and the
future goods that will be delivered, on a relative standalone selling price
basis, and defer the revenues allocated to the points until such points are
redeemed.

All of our restaurants are Company-owned. In calculating comparable restaurant
sales, we include a restaurant in the comparable base once it has been open for
18 months. Customer traffic for our restaurants is estimated based on customer
checks.

Cost of sales is comprised of food and beverage costs, including the cost to
produce and distribute our proprietary craft beer, soda and ciders. The
components of cost of sales are variable and typically fluctuate directly with
sales volumes, but may be impacted by changes in commodity prices, a shift in
sales mix to higher cost proteins or other higher cost items, or varying levels
of promotional activities.


Labor and benefit costs include direct hourly and management wages, bonuses,
payroll taxes, fringe benefits and stock-based compensation and workers'
compensation expense that is directly related to restaurant level employees.




Occupancy and operating expenses include restaurant supplies, credit card fees,
third-party delivery company commissions, marketing costs, fixed rent,
percentage rent, common area maintenance charges, utilities, real estate taxes,
repairs and maintenance and other related restaurant costs.

General and administrative costs include all corporate administrative functions
that support existing operations and provide infrastructure to facilitate our
future growth. Components of this category include corporate management, field
supervision and corporate hourly staff salaries and related employee benefits
(including stock-based compensation expense and cash-based incentive
compensation), travel and relocation costs, information systems, the cost to
recruit and train new restaurant management employees, corporate rent, certain
brand marketing-related expenses and legal, professional and consulting fees.


Depreciation and amortization are composed primarily of depreciation of capital
expenditures for restaurant and brewing equipment and leasehold improvements.




Restaurant opening expenses, which are expensed as incurred, consist of the
costs of hiring and training the initial hourly work force for each new
restaurant, travel, the cost of food and supplies used in training, grand
opening promotional costs, the cost of the initial stock of operating supplies
and other direct costs related to the opening of a restaurant, including rent
during the construction and in-restaurant training period.

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RESULTS OF OPERATIONS




The following table provides, for the periods indicated, our unaudited
Consolidated Statements of Operations expressed as percentages of total
revenues. The results of operations for the thirteen and thirty-nine weeks ended
September 28, 2021 and September 29, 2020, are not necessarily indicative of the
results to be expected for the full fiscal year. Percentages below may not
reconcile due to rounding.



For the Thirteen Weeks Ended For the Thirty-Nine Weeks Ended
September 28, September 29, September 28, September 29,
2021 2020 2021 2020
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Restaurant operating costs
(excluding depreciation and
amortization):
Cost of sales 27.2 24.6 26.2 24.9
Labor and benefits 37.2 37.5 36.6 39.5
Occupancy and operating 24.4 28.4 24.7 28.1
General and administrative 6.1 7.7 6.2 7.1
Depreciation and amortization 6.5 9.1 6.9 9.4
Restaurant opening 0.1 0.1 0.2 0.1
Loss on disposal and
impairment of assets 1.0 0.1 0.4 2.5
Gain on lease transactions,
net - (1.0 ) - (0.3 )
Total costs and expenses 102.5 106.4 101.1 111.4
Loss from operations (2.5 ) (6.4 ) (1.1 ) (11.4 )

Other (expense) income:
Interest expense, net (0.4 ) (0.8 ) (0.5 ) (0.9 )
Gain from legal settlements - 1.1 - 0.4
Other income, net 0.2 0.3 0.1 0.1
Total other (expense) income (0.2 ) 0.6 (0.4 ) (0.4 )
Loss before income taxes (2.7 ) (5.7 ) (1.5 ) (11.7 )

Income tax benefit (1.9 ) (2.4 ) (1.6 ) (4.9 )
Net (loss) income (0.8 )% (3.3 )% 0.1 % (6.8 )%





Thirteen Weeks Ended September 28, 2021 Compared to Thirteen Weeks Ended
September 29, 2020




Revenues. Total revenues increased by $83.3 million, or 41.9%, to $282.2 million
during the thirteen weeks ended September 28, 2021, from $198.9 million during
the comparable thirteen week period of 2020. The increase in revenues primarily
consisted of a 41.8%, or $81.4 million, increase in comparable restaurant sales,
a $4.5 million increase in sales from new restaurants not yet in our comparable
restaurant sales base, and a $0.4 million increase related to our temporarily
closed restaurant, which was re-opened during the quarter, offset by a $2.9
million
decrease in revenues related to less loyalty point expirations. At the
beginning of the COVID-19 pandemic in March 2020, we stopped expirations to
allow customers to use their loyalty points at a later time. During the thirteen
weeks ended September 29, 2020, we resumed the expiration of loyalty points,
resulting in incremental revenue. The increase in comparable restaurant sales
was the result of an increase in customer traffic of approximately 30.1%,
coupled with an increase in average check of approximately 11.7%. The increase
in customer traffic is due to the recovery from the COVID-19 pandemic and the
full re-opening of our dine-in restaurant operations, which were curtailed
during the comparable thirteen week period of 2020. Additionally, the increase
in average check is due to our customers per check, menu mix and sales channels,
which focused heavily on our deep dish pizza and family feast menu offerings for
off-premise sales during the thirteen week period of 2020.

Cost of Sales. Cost of sales increased by $27.7 million, or 56.6%, to $76.6
million
during the thirteen weeks ended September 28, 2021, from $48.9 million
during the comparable thirteen week period of 2020. This increase was primarily
due to the increase in revenue, commodity cost increases and costs related to
our three new restaurants opened since the thirteen weeks ended September
29, 2020
. As a percentage of revenues, cost of sales increased to 27.2% for the
current thirteen week period from 24.6% for the prior year comparable period.
This increase was primarily due to overall menu mix and an increase in meat,
seafood and liquor costs.


Labor and Benefits. Labor and benefit costs for our restaurants increased by
$30.4 million, or 40.8%, to $105.0 million during the thirteen weeks ended
September 28, 2021, from $74.6 million during the comparable thirteen week
period of 2020. This increase was primarily due to the increase in revenue
resulting from the re-opening of our dining rooms, which were closed or
restricted in operation during the same period in 2020, coupled with higher
training and overtime costs due to the full re-opening of our dining



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rooms, and expenses related to the three new restaurants opened since the
thirteen weeks ended September 29, 2020, offset by our Employee Retention Tax
Credit in conjunction with the CARES Act. As a percentage of revenues, labor and
benefit costs decreased to 37.2% for the current thirteen week period from 37.5%
for the prior year comparable period. This decrease was primarily due to our
ability to leverage management and hourly wages over comparable sales increases.
Included in labor and benefits for the thirteen weeks ended September 28, 2021
and September 29, 2020, was approximately $0.6 million and $0.7 million, or 0.2%
and 0.4% of revenues, respectively, of stock-based compensation expense related
to equity awards granted in accordance with our Gold Standard Stock Ownership
Program for certain restaurant management employees.

Occupancy and Operating. Occupancy and operating expenses increased by $12.5
million
, or 22.1%, to $68.9 million during the thirteen weeks ended September
28, 2021
, from $56.4 million during the comparable thirteen week period of 2020.
This increase was primarily due to higher merchant credit card fees as a result
of increased revenues, increased supply costs, higher janitorial services as a
result of the re-opening of our dining rooms, and expenses related to the three
new restaurants opened since the thirteen weeks ended September 29, 2020. As a
percentage of revenues, occupancy and operating expenses decreased to 24.4% for
the current thirteen week period from 28.4% for the prior year comparable
period. This decrease was primarily due to our ability to leverage certain fixed
operating and occupancy costs over a higher revenue base.

General and Administrative. General and administrative expenses increased by
$2.0 million, or 13.4%, to $17.3 million during the thirteen weeks ended
September 28, 2021, from $15.3 million during the comparable thirteen week
period of 2020. This increase was primarily due to increases in personnel,
travel, recruiting and outside services as certain restrictions related to the
COVID-19 pandemic eased and we returned back to more normal operations. Included
in general and administrative costs for the thirteen weeks ended September 28,
2021
and September 29, 2020, was approximately $1.8 million and $2.3 million,
respectively, or 0.6% and 1.2% of revenues, respectively, of stock-based
compensation expense. As a percentage of revenues, general and administrative
expenses decreased to 6.1% for the current thirteen week period from 7.7% for
the prior year comparable period. This decrease was primarily due to our ability
to leverage our fixed costs over a higher revenue base.

Depreciation and Amortization. Depreciation and amortization increased by $0.2
million
, or 1.0%, to $18.2 million during the thirteen weeks ended September 28,
2021
, compared to $18.0 million during the comparable thirteen week period of
2020. This increase was primarily related to the three new restaurants opened
since the thirteen weeks ended September 29, 2020, offset by the impairment and
reduction of carrying value related to one of our restaurants during the
quarter. As a percentage of revenues, depreciation and amortization decreased to
6.5% for the current thirteen week period from 9.1% for the prior year
comparable period. This decrease was primarily due to a higher revenue base.

Restaurant Opening. Restaurant opening expense increased by $0.2 million, or
193.0%, to $0.4 million during the thirteen weeks ended September 28, 2021,
compared to $0.1 million during the comparable thirteen week period of 2020.
This increase was primarily due to the re-opening of our Richmond, Virginia
restaurant that was temporarily closed due to the COVID-19 pandemic. We did not
open any new restaurants during either of the thirteen weeks ended September 28,
2021
or September 29, 2020.

Loss on Disposal and Impairment of Assets. Loss on disposal and impairment of
assets was $2.7 million during the thirteen weeks ended September 28, 2021, and
$0.2 million during the comparable thirteen week period of 2020. For the
thirteen weeks ended September 28, 2021, these costs were primarily related to
the impairment and reduction in the carrying value of the long-lived and
operating lease assets related to one of our restaurants. For the comparable
thirteen week period of 2020, these costs were primarily related to the
disposals of assets in conjunction with initiatives to keep our restaurants up
to date, coupled with disposal of certain unproductive restaurant assets.


Gain on Lease Transactions, net. Gain on lease transactions, net, of $1.9
million
during the thirteen weeks ended September 29, 2020, related to a
sale-leaseback transaction.




Interest Expense, Net. Interest expense, net, decreased by $0.6 million to $1.0
million
during the thirteen weeks ended September 28, 2021, compared to $1.6
million
during the comparable thirteen week period of 2020. This decrease was
primarily due to a lower average debt balance during the thirteen weeks ended
September 28, 2021, compared to the comparable thirteen week period of 2020.

Gain from Legal Settlements. Gain from legal settlements, of $2.3 million during
the thirteen weeks ended September 29, 2020, related to a settlement with credit
card providers pertaining to interchange fees and a settlement related to a
maintenance agreement to repair our handheld tablets.

Other Income, Net. Other income, net, decreased by $0.2 million to $0.4 million
of income during the thirteen weeks ended September 28, 2021, compared to $0.6
million
of income during the comparable thirteen week period of 2020. This was
primarily related to the decrease in the cash surrender value of certain life
insurance policies under our deferred compensation plan.

Income Tax Benefit. Our effective income tax rate for the thirteen weeks ended
September 28, 2021 reflected a 71.2% tax benefit rate compared to a 42.3% tax
benefit rate for the comparable thirteen week period of 2020. The effective tax
rate benefit for the thirteen weeks ended September 28, 2021 was different than
the statutory tax rate primarily due to FICA tax tip credits, excess tax
deductions realized for stock-based compensation and the employee retention
credit. The prior year effective tax rate benefit was different than

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the statutory rate primarily due to FICA tax tip credits and the incremental
benefit arising from the ability to carryback the 2020 loss to prior years when
the tax rate was at 35%.


Thirty-Nine Weeks Ended September 28, 2021 Compared to Thirty-Nine Weeks Ended
September 29, 2020




Revenues. Total revenues increased by $214.3 million, or 36.8%, to $795.8
million
during the thirty-nine weeks ended September 28, 2021 from $581.5
million
during the comparable thirty-nine week period of 2020. The increase in
revenues primarily consisted of a 35.8%, or $205.0 million, increase in
comparable restaurant sales, a $10.3 million increase in sales from new
restaurants not yet in our comparable restaurant sales base, offset by a $0.3
million
decrease related to our temporarily closed restaurant due to the
COVID-19 pandemic. The increase in comparable restaurant sales was the result of
an increase in customer traffic of approximately 22.5%, coupled with an increase
in average check of approximately 13.3%.

Cost of Sales. Cost of sales increased by $63.6 million, or 44.0%, to $208.4
million
during the thirty-nine weeks ended September 28, 2021, from $144.7
million
during the comparable thirty-nine week period of 2020. This increase was
primarily due to the increase in revenues, commodity cost increases and costs
related to our three new restaurants opened since the thirty-nine weeks ended
September 29, 2020. As a percentage of revenues, cost of sales increased to
26.2% for the current thirty-nine week period from 24.9% for the prior year
comparable period. This increase was primarily due to overall menu mix and an
increase in meat and seafood costs.

Labor and Benefits. Labor and benefit costs for our restaurants increased by
$61.0 million, or 26.5%, to $290.9 million during the thirty-nine weeks ended
September 28, 2021 from $229.9 million during the comparable thirty-nine week
period of 2020. This increase was primarily due to the increase in revenue
resulting from the re-opening of our dining rooms, which were closed or
restricted in operation during the same period in 2020, coupled with higher
incentive compensation, higher training and overtime costs due to the full
re-opening of our dining rooms, and expenses related to the three new
restaurants opened since the thirty-nine weeks ended September 29, 2020, offset
by our Employee Retention Tax Credit in conjunction with the CARES Act. As a
percentage of revenues, labor and benefit costs decreased to 36.6% for the
current thirty-nine week period from 39.5% for the prior year comparable period.
This decrease was primarily due to our ability to leverage management and hourly
wages over our comparable sales increases during the thirty-nine weeks ended
September 28, 2021. Included in labor and benefits for the thirty-nine weeks
ended September 28, 2021 and September 29, 2020 was approximately $2.2 million
and $2.0 million, respectively, or 0.3% of revenues of stock-based compensation
expense related to equity awards granted in accordance with our Gold Standard
Stock Ownership Program for certain restaurant management employees.

Occupancy and Operating. Occupancy and operating expenses increased by $32.8
million
, or 20.0%, to $196.3 million during the thirty-nine weeks ended
September 28, 2021 from $163.5 million during the comparable thirty-nine week
period of 2020. This increase was primarily due to higher commissions to
third-party delivery companies as a result of increased off-premise sales,
higher merchant card fees and percentage rent as a result of increased revenues,
increased supply costs, increased janitorial service costs, and expenses related
to the three new restaurants opened since the thirty-nine weeks ended September
29, 2020
. As a percentage of revenues, occupancy and operating expenses
decreased to 24.7% for the current thirty-nine week period from 28.1% for the
prior year comparable period. This decrease was primarily due to our ability to
leverage certain fixed operating and occupancy costs over a higher revenue base.

General and Administrative. General and administrative expenses increased by
$8.3 million, or 20.0%, to $49.6 million during the thirty-nine weeks ended
September 28, 2021, from $41.3 million during the comparable thirty-nine week
period of 2020. This increase was primarily due to increased personnel costs,
including higher incentive compensation, salaries and deferred compensation
expense, and general corporate and office expenses. From mid-April 2020 until
mid-September 2020, restaurant support center salaries were reduced for all
employees making over $100,000, and cash retainer payments to members of our
Board of Directors were similarly reduced. The increase in deferred compensation
expense relates to an increase in the cash surrender value of our life insurance
policies under our deferred compensation plan and is offset by higher other
income included in "Other income (expense), net" on our Unaudited Consolidated
Statements of Operations. Included in general and administrative costs for the
thirty-nine weeks ended September 28, 2021 and September 29, 2020 was
approximately $5.3 million and $4.8 million, respectively, or 0.7% and 0.8% of
revenues, respectively, of stock-based compensation expense. As a percentage of
revenues, general and administrative expenses decreased to 6.2% for the current
thirty-nine week period from 7.1% for the prior year comparable period. This
decrease was primarily due to a higher revenue base.

Depreciation and Amortization. Depreciation and amortization was $54.7 million
during the thirty-nine weeks ended September 28, 2021, and the comparable
thirty-nine week period of 2020. The increase related to the three new
restaurants opened since the thirty-nine weeks ended September 29, 2020 is
offset by the decrease related to the impairment and reduction of carrying value
related to five restaurants in 2020 and one restaurant in 2021. As a percentage
of revenues, depreciation and amortization decreased to 6.9% for the current
thirty-nine week period from 9.4% for the prior year comparable period. This
decrease was primarily due to a higher revenue base.

Restaurant Opening. Restaurant opening expense increased by $0.4 million, or
48.8%, to $1.2 million during the thirty-nine weeks ended September 28,
2021compared to $0.8 million during the comparable thirty-nine week period of
2020. This increase was primarily due to the timing of our restaurant openings
during the period. We opened two new restaurants and re-opened one restaurant,

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which was temporarily closed due to the COVID-19 pandemic, during the
thirty-nine weeks ended September 28, 2021, compared to one restaurant opened
during the thirty-nine weeks ended September 29, 2020.




Loss on Disposal and Impairment of Assets. Loss on disposal and impairment of
assets was $3.2 million during the thirty-nine weeks ended September 28, 2021,
and $14.5 million during the comparable thirty-nine week period of 2020. For the
thirty-nine weeks ended September 28, 2021 these costs were primarily related to
the impairment and reduction in the carrying value of the long-lived and
operating lease assets related to one of our restaurants, coupled with the
disposals of assets in conjunction with initiatives to keep our restaurants up
to date and the disposal of certain unproductive restaurant assets. For the
comparable thirty-nine week period of 2020, these costs primarily related to the
impairment and reduction in the carrying value of the long-lived and operating
lease assets related to five of our restaurants, coupled with a charge to
reserve for beer spoilage due to the sudden decrease in draft beer sales as a
result of the COVID-19 pandemic and routine asset disposals.


Gain on Lease Transactions, net. Gain on lease transactions, net, of $1.9
million
during the thirty-nine weeks ended September 29, 2020, related to a
sale-leaseback transaction.




Interest Expense, Net. Interest expense, net, decreased by $1.0 million to $4.0
million
during the thirty-nine weeks ended September 28, 2021 compared to $5.1
million
during the comparable thirty-nine week period of 2020. This decrease was
primarily due to a lower average debt balance during the thirty-nine weeks ended
September 28, 2021, compared to the comparable thirty-nine week period of 2020.

Gain from Legal Settlements. Gain from legal settlements of $2.3 million during
the thirty-nine weeks ended September 29, 2020, related to a settlement with
credit card providers pertaining to interchange fees and a settlement related to
a maintenance agreement to repair our handheld tablets.

Other Income, Net. Other income, net, increased by $0.2 million to $0.8 million
of income during the thirty-nine weeks ended September 28, 2021, compared to
$0.6 million of expense during the comparable thirty-nine week period of 2020.
This increase was primarily due to the increase in the cash surrender value of
certain life insurance policies under our deferred compensation plan. This
increase offsets the related deferred compensation expense impact included in
"General and administrative" expenses on our Unaudited Consolidated Statements
of Operations.

Income Tax Benefit. Our effective income tax rate for the thirty-nine weeks
ended September 28, 2021 reflected a 108.9% tax benefit rate compared to a 41.7%
tax benefit rate for the comparable thirty-nine week period of 2020. The
effective tax rate benefit for the thirty-nine weeks ended September 28, 2021
was different than the statutory tax rate primarily due to FICA tax tip credits,
excess tax deductions realized for stock-based compensation and the employee
retention credit. The prior year effective tax rate benefit was different than
the statutory rate primarily due to FICA tax tip credits and the incremental
benefit arising from the ability to carryback the 2020 loss to prior years when
the tax rate was at 35%.


LIQUIDITY AND CAPITAL RESOURCES



The following table provides, for the periods indicated, a summary of our key
liquidity measurements (dollars in thousands):






September 28, 2021 December 29, 2020
Cash and cash equivalents $ 59,815 $ 51,664
Net working capital $ (72,909 ) $ (82,609 )
Current ratio 0.6:1.0 0.5:1.0




As a result of uncertainties in the near-term outlook for our business caused by
the COVID-19 pandemic, we continue to focus on cash flow generation. Currently,
we have no intention to repurchase shares or pay dividends until it is
determined that it is in the best interest of the Company and its shareholders
and that it is permitted under our Credit Facility. We will review and, when
appropriate, adjust our overall approach to capital allocation as we know more
about the ultimate duration of the COVID-19 pandemic and how the post-pandemic
recovery will unfold and affect revenues and costs at our restaurants.

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We are taking what we believe to be necessary and appropriate measures to
control costs and maximize liquidity. Our $70 million (before commission and
other fees) private placement of common stock completed in May 2020 and our $30
million
sale (before commission and other fees) of common stock through our ATM
offering program, completed in January 2021, have strengthened our
financial position. As of September 28, 2021, we have approximately
$59.8 million of cash on our balance sheet, with an additional $124.4 million of
borrowings available under our Credit Facility. See Note 4 of Notes to Unaudited
Consolidated Financial Statements in Part I, Item 1 of this report for further
information on our Credit Facility. Based on the current level of operations, we
believe that our current cash and cash equivalents will be adequate to meet our
capital expenditure and working capital needs for at least the next twelve
months. Our future operating performance will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control.

Similar to many restaurant chains, we typically utilize operating lease
arrangements (principally ground leases) for the majority of our restaurant
locations. We believe our operating lease arrangements provide appropriate
leverage for our capital structure in a financially efficient manner. However,
we are not limited to the use of lease arrangements as our only method of
opening new restaurants and from time to time have purchased the underlying land
for new restaurants. We typically lease our restaurant locations for periods of
10 to 20 years under operating lease arrangements. Our rent structures vary from
lease to lease, but generally provide for the payment of both minimum and
contingent (percentage) rent based on sales, as well as other expenses related
to the leases (for example, our pro-rata share of common area maintenance,
property tax and insurance expenses). Many of our lease arrangements include the
opportunity to secure tenant improvement allowances to partially offset the cost
of developing and opening the related restaurants. Generally, landlords recover
the cost of such allowances from increased minimum rents. However, there can be
no assurance that such allowances will be available to us on each project. From
time to time, we may also decide to purchase the underlying land for a new
restaurant if that is the only way to secure a highly desirable site. Currently,
we own the underlying land for our Texas brewpub locations. We also own two
parcels of land adjacent to two of our restaurants. It is not our current
strategy to own a large number of land parcels that underlie our restaurants.
Therefore, in many cases we have subsequently entered into sale-leaseback
arrangements for land parcels that we previously purchased. We disburse cash for
certain site-related work, buildings, leasehold improvements, furnishings,
fixtures and equipment to build our leased and owned premises. We own
substantially all of the equipment, furniture and trade fixtures in our
restaurants and currently plan to do so in the future.


CASH FLOWS



The following tables set forth, for the periods indicated, our cash flows from
operating, investing, and financing activities (in thousands):






For the Thirty-Nine Weeks Ended
September 28, 2021 September 29, 2020
Net cash provided by operating activities $ 46,242 $ 36,222
Net cash used in investing activities (25,145 ) (28,175 )
Net cash (used in) provided by financing
activities (12,946 ) 34,483
Net increase in cash and cash equivalents $ 8,151 $ 42,530




Operating Cash Flows

Net cash provided by operating activities was $46.2 million during the
thirty-nine weeks ended September 28, 2021, representing a $10.0 million
increase from the $36.2 million provided by during the thirty-nine weeks ended
September 29, 2020. The increase over the prior year is primarily due to higher
net income during the thirty-nine weeks ended September 28, 2021, offset by
higher operating lease obligation payments as a result of prior year rent
deferrals, the timing of accounts and other receivables collections and accounts
payable payments.

Investing Cash Flows

Net cash used in investing activities was $25.1 million during the thirty-nine
weeks ended September 28, 2021, representing a $3.0 million decrease from the
$28.2 million used during the thirty-nine weeks ended September 29, 2020. The
decrease over prior year is primarily due to the timing of restaurant openings,
coupled with the suspension of nonessential capital expenditures due to the
COVID-19 pandemic.



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The following table provides, for the periods indicated, the components of
capital expenditures (in thousands):






For the Thirty-Nine Weeks Ended
September 28, 2021 September 29, 2020
New restaurants $ 11,706 $ 15,825
Restaurant maintenance and key productivity
initiatives 11,871 14,021
Restaurant and corporate systems 1,589 2,139
Total capital expenditures $ 25,166 $ 31,985




As of November 1, 2021, we have opened two new restaurants during fiscal 2021 as
well as re-opening our Richmond, Virginia restaurant. Our Richmond restaurant
was our only location that remained closed due to the COVID-19 pandemic. We
currently plan to open at least eight restaurants in fiscal 2022, and we have
entered into signed leases, land purchase agreements or letters of intent for
all of our 2022 new restaurant locations. Our new restaurant unit economics
continue to warrant an appropriate allocation of our available capital, and we
will continue to balance new restaurant growth with quality and hospitality.



Financing Cash Flows

Net cash used in financing activities was $12.9 million during the thirty-nine
weeks ended September 28, 2021, representing a $47.4 million decrease from the
$34.5 million provided during the thirty-nine weeks ended September 29, 2020.
This decrease was primarily due to Line of Credit payments and lower proceeds
from the issuance of common stock during the thirty-nine weeks ended September
28, 2021
.

See Note 4 of Notes to Unaudited Consolidated Financial Statements in Part I,
Item 1 of this report for further information on our Credit Facility. At the
onset of the pandemic in 2020, we took the necessary steps to maximize our
liquidity by drawing down on our Line of Credit and selling $70 million of our
common stock. Additionally, in January 2021, we completed the sale of an
aggregate of 703,399 shares of common stock for proceeds of $30 million (before
commission and other fees) through an ATM offering program. See Note 10 of Notes
to Unaudited Consolidated Financial Statements in Part I, Item 1 of this report
for further information on our ATM offering. We believe that we have sufficient
liquidity for the next twelve months as a result of the actions we undertook,
the improving operating environment and our current capital position. However,
given the events of the COVID-19 pandemic as well as the post pandemic recovery,
we will continue to monitor and evaluate all financing alternatives as these
unprecedented events evolve.


OFF-BALANCE SHEET ARRANGEMENTS




We do not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or variable interest entities ("VIEs"), which
would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow limited purposes. As of September 28,
2021
, we are not involved in any off-balance sheet arrangements.


IMPACT OF INFLATION




Inflation on food, labor, energy and occupancy costs can significantly affect
the profitability of our restaurant operations. Our profitability is dependent,
among other things, on our ability to anticipate and react to changes in the
cost of key operating resources, including food and other raw materials, labor,
energy and other supplies and services. Substantial increases in costs and
expenses could impact our operating results to the extent that such increases
cannot be passed along to our restaurant customers. While we have taken steps to
enter into agreements for some of the commodities used in our restaurant
operations, there can be no assurance that future supplies and costs for such
commodities will not fluctuate due to weather or other market conditions outside
of our control. We are currently unable to contract for certain commodities,
such as fluid dairy, fresh meat or seafood, and most fresh produce items for
long periods of time. Consequently, such commodities can be subject to
unforeseen supply and cost fluctuations.

A general shortage in the availability of qualified restaurant managers and
hourly workers in certain geographic areas in which we operate, which shortage
has been exacerbated by continuing effects of the COVID-19 pandemic, has caused
increases in the costs of recruiting and compensating such employees. Many of
our restaurant employees are paid hourly rates subject to the federal, state or
local minimum wage requirements. Numerous state and local governments have their
own minimum wage and other regulatory requirements for employees that are
generally greater than the federal minimum wage and are subject to annual
increases based on changes in their local consumer price indices. Additionally,
certain operating and other costs, including health benefits in compliance with
the Patient Protection and Affordable Care Act, taxes, insurance, COVID-19
pandemic related benefits, and other outside services continue to increase with
the general level of inflation and may also be subject to other cost and supply
fluctuations outside of our control.


While we have been able to partially offset inflation and other changes in the
costs of key operating resources by gradually increasing prices of our menu
items, coupled with more efficient purchasing practices, productivity
improvements and greater economies of



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scale, there can be no assurance that we will be able to continue to do so in
the future. From time to time, competitive conditions will limit our menu
pricing flexibility. In addition, macroeconomic conditions that impact consumer
discretionary spending for food away from home could make additional menu price
increases imprudent. There can be no assurance that all of our future cost
increases can be offset by higher menu prices or that higher menu prices will be
accepted by our restaurant customers without any resulting changes in their
visit frequencies or purchasing patterns. Many of the leases for our restaurants
provide for contingent rent obligations based on a percentage of sales. As a
result, rent expense will absorb a proportionate share of any menu price
increases in our restaurants. There can be no assurance that we will continue to
generate increases in comparable restaurant sales in amounts sufficient to
offset inflationary or other cost pressures.


SEASONALITY AND ADVERSE WEATHER




Our business is impacted by weather and other seasonal factors that typically
impact other restaurant operations. Holidays (and shifts in the holiday
calendar) and severe weather including hurricanes, tornados, thunderstorms, snow
and ice storms, prolonged extreme temperatures and similar conditions may impact
restaurant sales volumes in some of the markets where we operate. Many of our
restaurants are located in or near shopping centers and malls that typically
experience seasonal fluctuations in sales. Quarterly results have been and will
continue to be significantly impacted by the timing of new restaurant openings
and their associated restaurant opening expenses. As a result of these and other
factors, our financial results for any given quarter may not be indicative of
the results that may be achieved for a full fiscal year.


CRITICAL ACCOUNTING POLICIES




The preparation of financial statements in accordance with U.S. GAAP requires us
to make estimates and assumptions affecting the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
net revenues and expenses in the reporting period. We base our estimates and
assumptions on current facts, historical experience and various other factors
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. We continually review the estimates and underlying
assumptions to ensure they are appropriate for the circumstances. Accounting
assumptions and estimates are inherently uncertain and actual results may differ
materially from our estimates.

A summary of our other critical accounting policies is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in our Annual Report on Form 10-K for the fiscal year ended December
29, 2020
. During the thirty-nine weeks ended September 28, 2021, there were no
significant changes in our critical accounting policies.

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