What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-08-26 compared with 2020-08-24 · 591 added, 751 removed, 617 unchanged (69% of the section changed)

13 unchanged sentences

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Company sales $ 3,279.0 $ 3,004.9 $ 3,106.2

14 unchanged sentences

Provision (benefit) for income taxes 13.6 ( 19.5 ) 16.9

Net income $ 131.6 $ 24.4 $ 154.9

Basic net income per share $ 2.89 $ 0.64 $ 4.04

6 unchanged sentences

Comprehensive income $ 133.1 $ 23.8 $ 155.1

See accompanying Notes to the Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements

BRINKER INTERNATIONAL, INC.

1 unchanged sentence

(In millions, except per share amounts)

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Current assets

1 unchanged sentence

Accounts receivable, net 65.2 52.3

Inventories 28.9 27.3

Restaurant supplies 52.6 51.6

3 unchanged sentences

Property and equipment, at cost

Land 33.1 34.2

Buildings and leasehold improvements 1,595.2 1,534.4

1 unchanged sentence

Construction-in-progress 14.9 24.4

2,461.3 2,378.7

Less accumulated depreciation and amortization ( 1,686.5 ) ( 1,573.4 )

Net property and equipment 774.8 805.3

Operating lease assets (Note 4)

Deferred income taxes, net (Note 4)

Operating lease assets 1,007.4 1,054.6

Goodwill 188.2 187.6

Deferred income taxes, net 50.9 38.2

Intangibles, net 21.1 23.0

Other 25.3 22.9

Total other assets 1,292.9 1,326.3

Total assets $ 2,274.9 $ 2,356.0

LIABILITIES AND SHAREHOLDERS’ DEFICIT

3 unchanged sentences

Accrued payroll 122.4 65.2

Operating lease liabilities (Note 4)

Operating lease liabilities 97.7 117.3

Other accrued liabilities 117.4 100.6

1 unchanged sentence

Long-term debt and finance leases, less current installments 917.9 1,208.5

Long-term operating lease liabilities, less current portion (Note 4)

Deferred gain on sale leaseback transactions (Note 4)

Other liabilities (Note 4)

Long-term operating lease liabilities, less current portion 1,006.7 1,061.6

Other liabilities 82.0 67.1

Commitments and contingencies (Note 16)

5 unchanged sentences

Accumulated other comprehensive loss ( 4.7 ) ( 6.2 )

Retained (deficit) earnings

Accumulated deficit ( 266.1 ) ( 397.5 )

Treasury stock, at cost ( 24.4 million shares at June 30, 2021, and 25.3 million shares at June 24, 2020)

( 724.9 ) ( 751.8 )

Total shareholders’ deficit ( 303.3 ) ( 479.1 )

Total liabilities and shareholders’ deficit $ 2,274.9 $ 2,356.0

See accompanying Notes to the Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements

BRINKER INTERNATIONAL, INC.

2 unchanged sentences

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Cash flows from operating activities

Net income $ 131.6 $ 24.4 $ 154.9

Adjustments to reconcile Net income to Net cash provided by operating activities:

1 unchanged sentence

Stock-based compensation 16.4 14.8 16.4

Restructure charges and other impairments

Restructure and impairment charges 9.8 28.9 26.5

Net loss (gain) on disposal of assets 1.8 1.2 ( 33.1 )

Undistributed loss on equity investments

Other 3.7 2.8 3.0

Changes in assets and liabilities:

Accounts receivable, net ( 9.9 ) 4.1 ( 3.0 )

Inventories ( 2.2 ) ( 2.8 ) 1.0

Restaurant supplies ( 1.0 ) ( 1.2 ) ( 0.6 )

2 unchanged sentences

Deferred income taxes, net ( 12.5 ) 8.6 ( 75.8 )

Other assets ( 0.5 ) 0.1 0.9

Accounts payable 21.1 9.8 ( 4.1 )

7 unchanged sentences

Payments for property and equipment ( 94.0 ) ( 104.5 ) ( 167.6 )

Payments for franchise restaurant acquisitions

Proceeds from note receivable

Proceeds from sale of assets 1.6 1.2 1.6

Proceeds from note receivable 1.5 2.8 2.8

Payments for franchise restaurant acquisitions — ( 94.6 ) ( 3.1 )

Insurance recoveries — 1.1 1.7

4 unchanged sentences

Borrowings on revolving credit facility 43.4 808.4 853.0

Payments of dividends

Purchases of treasury stock

Payments on long-term debt ( 20.0 ) ( 17.8 ) ( 9.5 )

Payments for common stock issuance costs

Purchases of treasury stock ( 4.2 ) ( 32.4 ) ( 167.7 )

Payments for debt issuance costs ( 2.2 ) ( 3.2 ) —

Proceeds from issuance of common stock

Payments of dividends ( 1.5 ) ( 57.4 ) ( 60.3 )

Proceeds from issuance of treasury stock 30.7 1.6 3.0

Proceeds from issuance of common stock — 146.9 —

Payments for common stock issuance costs — ( 7.8 ) —

Net cash used in financing activities ( 298.8 ) ( 20.5 ) ( 531.5 )

2 unchanged sentences

Cash and cash equivalents at end of period $ 23.9 $ 43.9 $ 13.4

See accompanying Notes to the Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements

BRINKER INTERNATIONAL, INC.

1 unchanged sentence

(In millions)

Retained Earnings (Deficit)

Common Stock Additional

Capital Retained Earnings (Accumulated Deficit) Treasury

Stock Accumulated

Comprehensive

Shares Amount

Balances at June 27, 2018 40.8 $ 17.6 $ 511.6 $ 2,683.0 $ ( 3,924.7 ) $ ( 5.8 ) $ ( 718.3 )

Effect of ASC 606 adoption — — — ( 7.4 ) — — ( 7.4 )

Net income — — — 154.9 — — 154.9

Other comprehensive income — — — — — 0.2 0.2

Dividends ($ 1.52 per share)

— — — ( 59.3 ) — — ( 59.3 )

Stock-based compensation — — 16.4 — — — 16.4

1 unchanged sentence

Issuances of common stock 0.3 — ( 5.4 ) — 8.4 — 3.0

Disposition of equity method investment

Balances at June 26, 2019 37.5 17.6 522.0 2,771.2 ( 4,083.4 ) ( 5.6 ) ( 778.2 )

Effect of ASC 842 adoption — — — 195.9 — — 195.9

Other comprehensive income

Net income — — — 24.4 — — 24.4

Other comprehensive loss — — — — — ( 0.6 ) ( 0.6 )

Dividends ($ 1.14 per share)

— — — ( 43.6 ) — — ( 43.6 )

Stock-based compensation — — 14.7 — — — 14.7

1 unchanged sentence

Issuances of common stock 8.3 0.8 133.0 — 6.9 — 140.7

Retirement of treasury stock — ( 11.4 ) — ( 3,345.4 ) 3,356.8 — —

Balances at June 24, 2020 45.0 7.0 669.4 ( 397.5 ) ( 751.8 ) ( 6.2 ) ( 479.1 )

Effect of ASC 842 adoption

Net income — — — 131.6 — — 131.6

Other comprehensive income — — — — — 1.5 1.5

Dividends ($1.14 per share)

Dividends — — — ( 0.2 ) — — ( 0.2 )

Stock-based compensation — — 16.4 — — — 16.4

1 unchanged sentence

Issuances of common stock 1.0 — 0.8 — 29.9 — 30.7

Retirement of treasury stock

Balances at June 30, 2021 45.9 $ 7.0 $ 685.4 $ ( 266.1 ) $ ( 724.9 ) $ ( 4.7 ) $ ( 303.3 )

See accompanying Notes to the Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements

BRINKER INTERNATIONAL, INC.

Notes to the Consolidated Financial Statements

Notes to Consolidated Financial Statements

Footnote Index

Note # Description Page

Nature of Operations and Summary of Significant Accounting Policies 49

Novel Coronavirus Pandemic

Chili's Restaurant Acquisition

Effect of New Accounting Standards 55

Revenue Recognition 55

Equity Method Investment

Defined Contribution Plan 56

Other Gains and Charges 57

Income Taxes 59

Segment Information 62

6 unchanged sentences

Commitments and Contingencies 76

Effect of New Accounting Standards

Quarterly Results of Operations (Unaudited)

Fiscal 2020 Chili's Restaurant Acquisition 77

Subsequent Events 78

2 unchanged sentences

Nature of Operations

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.

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, as well as virtual brands including It’s Just Wings ® .

At June 30, 2021, we owned, operated or franchised 1,648 restaurants, consisting of 1,121 Company-owned restaurants and 527 franchised restaurants, located in the United States, 27 countries and two United States territories.

3 unchanged sentences

All intercompany accounts and transactions have been eliminated in consolidation.

All amounts within the Notes to the Consolidated Financial Statements are presented in millions unless otherwise specified.

Fiscal Year - We have a 52/53 week fiscal year ending on the last Wednesday in June.

All amounts within the Notes to Consolidated Financial Statements are presented in millions unless otherwise specified.

Fiscal Year - We have a 52 or 53 week fiscal year ending on the last Wednesday in June.

We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks.

Fiscal years 2020 , 2019 and 2018 , which ended on June 24, 2020 , June 26, 2019 and June 27, 2018 , respectively, each contained 52 weeks .

Fiscal 2021 ended on June 30, 2021 and contained 53 weeks.

Fiscal 2020 and 2019, which ended on June 24, 2020 and June 26, 2019, respectively, each contained 52 weeks.

The impact of the 53rd week in fiscal 2021 resulted in an increase in Total revenues in comparison to fiscal 2020.

While certain expenses increased in direct relationship to additional revenues from the 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.

Use of Estimates - The preparation of the Consolidated Financial Statements is in conformity with generally accepted accounting principles in the United States (“GAAP”) and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and costs and expenses in the reporting periods.

Actual results could differ from those estimates.

Impact of COVID-19 Pandemic

In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic and a National Public Health Emergency.

Beginning in March 2020, our restaurants experienced a significant decrease in guest traffic and sales due to the spread of COVID-19, which prompted changes in consumer behavior and social distancing preferences as well as dining room closures and dining room capacity restrictions mandated or encouraged by federal, state and local governments.

In March 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms, transitioned to an off-premise business model and temporarily delayed our expansion plans.

Beginning on April 27, 2020, we reopened certain dining room locations as permitted by state and local mandates.

For the remainder of fiscal 2020 and throughout fiscal 2021, the number of open dining rooms, and the dining room capacity restrictions fluctuated based on state and local mandates.

As of June 30, 2021, 100.0 % of our Company-owned restaurant dining rooms or patios were open in at least a limited capacity.

We have not experienced material shortages or service disruptions in our supply chain or the availability of labor to operate restaurants.

Chili’s and Maggiano’s ability to continue serving guests during the COVID-19 pandemic is the result of our strategic decision to invest in technology, virtual brands, and off-premise capabilities including online ordering, mobile app ordering, curbside service and third-party delivery.

We have been carefully assessing the effect of COVID-19 on our business as conditions continue to evolve throughout the communities we serve.

At this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent and the duration of the spread of the virus and could lead to further reduced sales, capacity restrictions, restaurant closures, delays in our supply chain or impair our ability to staff accordingly which could adversely impact our financial results.

Footnote Index

New Accounting Standards Implemented

ASU 2016-02, Leases (Topic 842) - In February 2016, the FASB issued ASU 2016-02, and subsequently amended this update by issuing additional ASU’s that provide clarification and further guidance around areas identified as potential implementation issues.

These updates require a lessee to recognize in the balance sheet a liability to make lease payments and a corresponding right-of-use asset for virtually all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is elected.

The updates also require additional disclosures about the amount, timing, and uncertainty of cash flows arising from leases.

These updates were effective for annual and interim periods for fiscal years beginning after December 15, 2018, which required us to adopt these provisions in the first quarter of fiscal 2020.

Refer below for our “Significant Accounting Policies - Leases” section and also Note 4 - Leases for disclosures about our adoption.

The impact of additional accounting standard updates that have not yet been adopted can be found at Note 19 - Effect of New Accounting Standards .

2016-13, Measurement of Credit Losses on Financial Instruments - In June 2013, the FASB issued ASU 2016-13, creating ASC Topic 326 – Financial Instruments – Credit Losses.

ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on financial assets measured at amortized cost basis (including, but not limited to loans), net investments in leases recognized as lessor and off-balance sheet credit exposures.

ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss methodology for recognizing credit losses.

Instead, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The new guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which required us to adopt these provisions in the first quarter of fiscal 2021.

The update was applied on a prospective basis.

The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

The amendments under ASU 2018-13 add an incremental requirement, among others, for entities to disclose (1) the range and weighted average used to develop significant unobservable inputs and (2) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy.

Entities may disclose other quantitative information in lieu of the weighted average if they determine that such information embodies a more reasonable and rational method of reflecting the distribution of significant unobservable inputs used to develop Level 3 fair value measurements.

The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which required us to adopt these provisions in the first quarter of fiscal 2021.

The update was applied on a prospective basis.

The adoption of this guidance did not have an impact on our Consolidated Financial Statements.

2019-12, Simplifying the Accounting for Income Taxes - In December 2019, the FASB issued ASU 2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

The new guidance is effective for public entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal 2022 and early adoption is permitted.

We elected to early adopt this update in the first quarter of fiscal 2021.

The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.

Significant Accounting Policies

Adoption of ASC 842 and Transition and Practical Expedient Elections - We adopted FASB Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), from the previous guidance ASC Topic 840, Leases (“Legacy GAAP”) effective June 27, 2019 , the first day of fiscal 2020.

We adopted ASC 842 using the alternative transition method, such that our fiscal 2020 Consolidated Financial Statements reflect ASC 842, while our prior period Consolidated Financial Statements were prepared under Legacy GAAP and have not been restated.

In connection with the adoption of ASC 842, we elected the following practical expedients and policies:

Package of practical expedients - the election of this package allowed us to carry forward our historical lease classification and our assessment of whether a contract is or contains a lease for any leases that existed prior to the adoption of ASC 842.

Footnote Index

Combine lease and non-lease components policy - we elected for all classes of underlying leased assets to account for lease and non-lease components (such as common area maintenance) and include executory costs (such as property taxes and insurance) to combine as a single lease component.

Short-term lease policy - we elected the short-term lease exemption from balance sheet recognition for all classes of underlying assets with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise.

Short-term leases are expensed as incurred in Restaurant expenses in the Consolidated Statements of Comprehensive Income .

We did not elect the hindsight practical expedient that permitted a reassessment of lease terms for existing leases.

Lease Accounting Policy under ASC 842 - Effective with our fiscal 2020 year, ASC 842 requires lessees to recognize on the balance sheet at lease commencement the lease assets and related lease liabilities for the rights and obligations created by operating and finance leases with lease terms of more than 12 months.

The lease term commences on the date the lessor makes the underlying property available, irrespective of when lease payments begin under the contract.

When determining the lease term at commencement, we consider both termination and renewal option periods available, and only include the period for which failure to renew the lease imposes a penalty on us in such an amount that renewal, or termination options, appear to be reasonably certain.

Our lease liability will generally be based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term .

The right-of-use lease asset will generally be based on the lease liability, adjusted for amounts related to other lease-related assets and liabilities.

Our adjustments typically include prepaid rent, straight-line rent for timing differences between payment streams and lease term, landlord contributions that are recorded when received as a reduction to the asset, and favorable or unfavorable lease purchase price adjustments.

Additionally, upon adoption, we also recorded partial impairments of certain lease assets with an adjustment to Retained earnings related to previously impaired properties.

The interest rates used in our lease contracts are not implicit.

We have derived our incremental borrowing rate using the interest rate we would pay on our existing borrowings, adjusted for the effect of designating collateral and the lease terms using market data as well as publicly available data for instruments with similar characteristics.

The reasonably certain lease term and incremental borrowing rate for each lease requires judgment by management and can impact the classification and accounting for a lease as operating or finance, as well as the value of the right-of-use asset and lease liability.

The right-of-use lease asset carrying amounts are assessed for impairment semi-annually or when events or circumstances indicate that the carrying amount may not be recoverable, in accordance with our long-lived asset impairment policy.

We monitor for events or changes in circumstances that require reassessment of lease classification.

When a reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying amount of the lease asset.

Variable lease costs are expensed as incurred in Restaurant expenses related to restaurant properties or General and administrative for our corporate headquarters, respectively, in the Consolidated Statements of Comprehensive Income , and are not included in lease liabilities in the Consolidated Balance Sheets .

Contingent rent represents payment of variable lease obligations based on a percentage of sales, as defined by the terms of the applicable lease, for certain restaurant facilities and is recorded at the point in time we determine that it is probable that such sales levels will be achieved.

Additionally, we have certain leases which periodically reset to a specified index, such leases are initially recorded using the index that existed at lease commencement.

Subsequent index changes are recorded as variable rental payments.

Maintenance and property tax expenses are accounted for on an accrual basis as variable lease costs.

Operating lease expenses are recognized on a straight-line basis over the lease term in Restaurant expenses for restaurant properties, or General and administrative for our corporate headquarters, in the Consolidated Statements of Comprehensive Income , respectively.

Finance lease expenses are recognized on a straight-line basis over the lesser of the useful life of the leased asset or the lease term and the expenses are recognized in Depreciation and amortization in the Consolidated Statements of

Footnote Index

Comprehensive Income .

Interest on each finance lease liability is recorded to Interest expenses in the Consolidated Statements of Comprehensive Income .

Revenues - Effective at the beginning of fiscal 2019, we adopted ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), from the previous guidance ASC Topic 605, Revenue Recognition and ASC Subtopic 952-605, Franchisors - Revenue Recognition (together, “Legacy Revenue GAAP”).

Our transition to ASC 606 represents a change in accounting principle.

The Consolidated Financial Statements for fiscal 2019 reflect the application of ASC 606 guidance using the modified retrospective transition method, while the Consolidated Financial Statements for prior periods were prepared under Legacy Revenue GAAP.

The adoption of ASC 606 resulted in a cumulative effect adjustment to retained earnings of $ 7.4 million in fiscal 2019.

Revenues are presented in Company sales and Franchise and other revenues captions in the Consolidated Statements of Comprehensive Income .

Refer below for our significant revenue accounting policies, to Note 5 - Revenue Recognition for deferred revenues, and to Note 10 - Segment Information for disaggregation of revenues detail.

Company Sales - Company sales include revenues generated by the operation of Company-owned restaurants including gift card redemptions.

Revenues - Revenues are presented in the Company sales and Franchise and other revenues captions in the Consolidated Statements of Comprehensive Income.

Company Sales - Company sales include revenues generated by the operation of Company-owned restaurants including sales from gift card redemptions and virtual brands.

We record the revenues from the sale of food, beverages and alcohol, net of discounts, upon delivery to the customer.

Franchise and Other Revenues - Franchise and other revenues include Royalties and Franchise fees and other revenues .

Franchise fees and other revenues include gift card breakage, Maggiano’s banquet service charge income, franchise advertising fees, delivery fee income, digital entertainment revenues, gift card equalization, franchise and development fees, merchandise income, retail royalty revenues, and gift card discount costs from third-party gift card sales

Royalties - Franchise royalties, under the franchise agreements, are based on a percentage of the sales generated by our franchised restaurants.

The performance obligation related to franchise sales is considered complete upon the sale of food, beverages and alcohol, therefore royalty revenues attributable to franchise restaurants are recognized in the same period the sales are generated at the franchise restaurants.

Franchise and Other Revenues - Franchise and other revenues include royalties, delivery fee income, gift card breakage, digital entertainment revenues, Maggiano’s banquet service charge income, franchise advertising fees, franchise and development fees, gift card equalization, merchandise income and gift card discount costs from third-party gift card sales .

Royalties - Franchise royalties are based on a percentage of the sales generated by our franchise-operated restaurants.

The performance obligation related to franchise sales is considered complete upon the sale of food, beverages and alcohol, therefore royalty revenues are recognized in the same period the sales are generated at the franchise-operated restaurants.

Footnote Index

Advertising Fee Income - Domestic franchisees are contractually obligated to contribute into certain advertising and marketing funds.

Advertising fees are presented on a gross basis within Franchise and other revenues.

Initial Development and Franchise Fees - We receive development fees from franchisees for territory development arrangements and franchise fees for new restaurant openings.

Initial Franchise and Development Fees - We receive franchise fees for new restaurant openings and development fees from franchisees for territory development arrangements.

The performance obligation related to these arrangements are collectively deferred as a contract liability and recognized on a straight-line basis into Franchise and other revenues in the Consolidated Statements of Comprehensive Income over the term of the underlying agreements.

Deferred franchise fees are classified within Other accrued liabilities for the current portion expected to be recognized within the next 12 months, and Other liabilities for the long-term portion in the Consolidated Balance Sheets .

Deferred franchise and development fees are classified within Other accrued liabilities for the current portion expected to be recognized within the next 12 months and Other liabilities for the long-term portion in the Consolidated Balance Sheets.

Gift Card Breakage Income - Breakage revenues represent the monetary value associated with outstanding gift card balances that will not be redeemed.

We estimate this amount based on our historical gift card redemption patterns and update the breakage rate estimate periodically and if necessary, adjust the deferred revenues balance within the Gift card liability account in the Consolidated Balance Sheets accordingly.

Breakage revenues are recognized proportionate to the pattern of related gift card redemptions.

1 unchanged sentence

Additionally, proceeds from the sale of gift cards are recorded as deferred revenues in the Gift card liability in the Consolidated Balance Sheets and recognized as Company sales when the gift card is redeemed by the holder.

Gift Card Discount Costs - Our gift cards are sold through various outlets such as in-restaurant, Chili’s and Maggiano’s websites, directly to other businesses, and through third-party distributors that sell our gift cards at various retail locations.

We incur incremental direct costs related to gift card sales, such as commissions and activation fees, for gift cards sold by third-party businesses and distributors.

These initial direct costs are deferred and amortized against revenues proportionate to the pattern of related gift card redemption.

Gift Card Discount Costs - Our gift cards are sold through various outlets such as in-restaurant, Chili’s and Maggiano’s websites, directly to other businesses and through third-party distributors that sell our gift cards at retail locations.

We incur incremental direct costs, such as commissions and activation fees, for gift cards sold by third-party businesses and distributors.

These initial direct costs are deferred and amortized against revenues proportionate to the pattern of related gift card redemptions.

Advertising Expenses - Advertising production costs are expensed in the period when the advertising first takes place.

Other advertising costs are expensed as incurred.

In the fiscal years ended June 24, 2020 and June 26, 2019 , after the adoption of ASC 606 - Revenue from Contracts with Customers , advertising expenses of $ 87.0 million and $ 108.8

Footnote Index

million, respectively, are included in Restaurant expenses , and advertising contributions from franchisees of $ 9.7 million and $ 20.3 million , respectively, are recorded in Franchise and other revenues in the Consolidated Statements of Comprehensive Income .

Advertising costs, net of advertising contributions from franchisees, was $ 98.3 million in fiscal year ended June 27, 2018 prior to the adoption of ASC 606 was included in Restaurant expenses in the Consolidated Statements of Comprehensive Income .

In the fiscal years ended June 30, 2021, June 24, 2020 and June 26, 2019, advertising expenses of $ 26.4 million, $ 87.0 million and $ 108.8 million, respectively, were included in Restaurant expenses, and advertising contributions from franchisees of $ 2.8 million, $ 9.7 million and $ 20.3 million, respectively, were recorded in Franchise and other revenues in the Consolidated Statements of Comprehensive Income.

Restaurant Labor Expenses - We report certain labor and related expenses in a separate caption in the Consolidated Statements of Comprehensive Income titled Restaurant labor.

2 unchanged sentences

Fair Value Measurements - Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date.

Fair value is grouped in three levels based on the level of significant inputs used in measuring fair value, as follows:

Unadjusted quoted prices in active markets for identical assets or liabilities

Observable inputs available at measurement date other than quote prices included in Level 1

Unobservable inputs that cannot be corroborated by observable market data

Fair value measurements are categorized in three levels based on the types of significant inputs used, as follows:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs available at measurement date other than quote prices included in Level 1

Level 3 Unobservable inputs that cannot be corroborated by observable market data

Cash and Cash Equivalents - Our policy is to invest cash in excess of operating requirements in income-producing investments.

Income-producing investments with original maturities of three months or less are reflected as cash equivalents.

Accounts Receivable - Accounts receivable, net of the allowance for doubtful accounts, represents the estimated net realizable value.

Our primary accounts receivable are due from third-party gift card sales, vendor rebates, franchisees, restaurant purchases made on credit cards, and from time-to-time insurance recoveries.

Provisions for doubtful accounts are recorded based on management’s judgment regarding our ability to collect as well as the age of the receivables.

Accounts Receivable - Accounts receivable, net of the allowance for credit losses, represents the estimated net realizable value.

Our primary accounts receivable are due from third-party gift card sales, vendor rebates, restaurant sales made with credit cards, insurance recoveries and franchisees.

Provisions for credit losses are recorded based

Footnote Index

on management’s judgment regarding our ability to collect as well as the age of the receivables.

Accounts receivable are written off when they are deemed uncollectible.

Inventories - Inventories consist of food, beverages and supplies and are valued at the lower of cost (using the first-in, first-out method) or net realizable value.

Property and Equipment - Property and equipment is recorded at cost, and are depreciated using the straight-line method over the lesser of the remaining term of the lease, including certain renewal options, or the estimated useful lives of the assets .

Property and Equipment - Property and equipment is recorded at cost, and depreciated using the straight-line method over the lesser of the remaining term of the lease, including certain renewal options, or the estimated useful lives of the assets.

Typical useful lives of our Buildings and leasehold improvements range from 5 to 20 years, and Furniture and equipment range from 3 to 7 years.

Depreciation expenses related to property and equipment for the fiscal years ended June 24, 2020 , June 26, 2019 , and June 27, 2018 of $ 160.4 million , $ 146.5 million , and $ 150.1 million , respectively, was recorded in Depreciation and amortization in the Consolidated Statements of Comprehensive Income .

Depreciation expenses related to property and equipment for the fiscal years ended June 30, 2021, June 24, 2020, and June 26, 2019 of $ 148.2 million, $ 160.4 million, and $ 146.5 million, respectively, were recorded in Depreciation and amortization in the Consolidated Statements of Comprehensive Income.

Routine repair and maintenance costs are expensed when incurred.

5 unchanged sentences

Impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

Definite-lived Intangible Assets - Definite-lived intangible assets primarily include the reacquired franchise rights resulting from our acquisitions and are amortized using the straight-line method over the remaining term of the franchise agreement.

We determine the fair value of reacquired franchise rights based on discounted projected future operating

Leases - Effective June 27, 2019, the first day of fiscal 2020, we adopted FASB Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), from the previous guidance ASC Topic 840, Leases.

We recognize the lease assets and related lease liabilities for the rights and obligations created by operating and finance leases with lease terms of more than 12 months on the balance sheet at lease commencement.

The lease term commences on the date the lessor makes the underlying asset or assets available, irrespective of when lease payments begin under the contract.

Our lease liability is generally based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term.

The lease asset is generally based on the lease liability, adjusted for amounts related to other lease-related assets and liabilities.

Our adjustments typically include prepaid rent, straight-line rent for timing differences between payment streams and lease term, landlord contributions that are recorded when received as a reduction to the asset and favorable or unfavorable lease purchase price adjustments.

Additionally, upon adoption of the new lease accounting standard in fiscal 2020, we also recorded partial impairments of certain lease assets with an adjustment to Retained earnings related to previously impaired properties.

The interest rates used in our lease contracts are not implicit.

Lease asset carrying amounts are assessed for impairment semi-annually or when events or circumstances indicate that the carrying amount may not be recoverable, in accordance with our long-lived asset impairment policy.

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cash flows of the restaurants associated with these franchise rights.

monitor for events or changes in circumstances that require reassessment of lease classification.

When a reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying amount of the lease asset.

Variable lease costs are expensed as incurred in Restaurant expenses related to restaurant properties and General and administrative for our corporate headquarters in the Consolidated Statements of Comprehensive Income, and are not included in lease liabilities in the Consolidated Balance Sheets.

Additionally, we have certain leases which periodically reset to a specified index, such leases are initially recorded using the index that existed at lease commencement.

Subsequent index changes are recorded as variable rental payments.

Maintenance and property tax expenses are accounted for on an accrual basis as variable lease costs.

Operating lease expenses are recognized on a straight-line basis over the lease term in Restaurant expenses for restaurant properties and General and administrative for our corporate headquarters, in the Consolidated Statements of Comprehensive Income.

Interest on each finance lease liability is recorded to Interest expenses in the Consolidated Statements of Comprehensive Income.

Definite-lived Intangible Assets - Definite-lived intangible assets primarily include the reacquired franchise rights resulting from our acquisitions and included in Intangibles, net in the Consolidated Balance Sheets.

These assets are amortized using the straight-line method over the remaining term of the related franchise agreement.

We determine the fair value of reacquired franchise rights based on discounted projected future operating cash flows of the restaurants associated with these franchise rights.

We review the carrying amount semi-annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

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Impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

Indefinite Lived Intangible Assets - The costs of obtaining non-transferable liquor licenses from local government agencies are expensed over the specified term of the license.

Indefinite-lived Intangible Assets - The costs of obtaining non-transferable liquor licenses from local government agencies are expensed over the specified term of the license to Restaurant expenses in the Consolidated Statements of Comprehensive Income.

The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in Intangibles, net in the Consolidated Balance Sheets.

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Goodwill - Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is assigned to the reporting unit in which the acquired business will operate for purposes of impairment testing.

Goodwill is tested for impairment annually, as of the first day of the second fiscal quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Goodwill is tested for impairment annually, as of the first day of the second quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Our two restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units.

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If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated.

The carrying value of the reporting unit is compared to its estimated fair value, and i f the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value.

The carrying value of the reporting unit is compared to its estimated fair value, and if the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value.

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Insurance Reserves - We are self-insured for certain losses related to health, general liability and workers’ compensation.

2 unchanged sentences

The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates, and is reviewed on a quarterly basis to ensure that the liability is appropriate.

The estimated incurred but unreported costs to settle unpaid claims are included in Other accrued liabilities and Other liabilities , depending on the current or long-term nature, in the Consolidated Balance Sheets .

The estimated incurred but unreported costs to settle unpaid claims are included in Other accrued liabilities and Other liabilities, depending on their current or long-term nature, in the Consolidated Balance Sheets.

Sales Taxes - Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue transactions and collected from a customer have been excluded from revenues.

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Additionally, Income taxes are computed on a consolidated legal jurisdiction basis with no regard to brand.

Stock-Based Compensation - We measure and recognize compensation cost at fair value for all share-based payments.

We record compensation expenses using a graded-vesting schedule or on a straight-line basis, as applicable, over the vesting period, or to the date on which retirement eligibility is achieved, if shorter.

We recognize compensation expenses

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for only the portion of share-based awards that are expected to vest.

Stock-Based Compensation - We measure and recognize compensation costs at fair value for all share-based payments.

We record compensation expenses using a graded-vesting schedule or on a straight-line basis, as applicable, over the vesting period, or the date on which retirement eligibility is achieved, if earlier.

We recognize compensation expenses for only the portion of share-based awards that are expected to vest.

Therefore, we apply estimated forfeiture rates that are derived from our historical forfeitures of similar awards.

Certain employees are eligible to receive stock options, performance stock options, performance shares, restricted stock, and restricted stock units, while non-employee members of the Board of Directors (the “Board”) are eligible to receive stock options, restricted stock and restricted stock units.

Awards granted to the Board are non-forfeitable and are fully expensed upon grant.

Awards to eligible employees may vest over a specified period of time, or service period, only or may also contain performance-based conditions.

Certain employees are eligible to receive stock options, performance stock options, performance shares, restricted stock and restricted stock units, while non-employee members of the Board of Directors are eligible to receive stock options, restricted stock and restricted stock units.

Awards granted to the Board of Directors are non-forfeitable and are fully expensed upon grant.

Awards to eligible employees may vest over a specified period of time or service period and may also contain performance-based conditions.

The fair value of restricted stock and restricted stock units that do not contain a performance condition are based on our closing stock price on the date of grant, while the fair value of stock options is estimated using the Black-Scholes option-pricing model on the date of grant.

Performance shares represent a right to receive shares of common stock upon satisfaction of Company performance goals at the end of a three-fiscal-year cycle.

Vesting of performance shares granted are contingent upon meeting Company performance goals based on a specified rate of earnings growth at the end of the three-fiscal-year period.

Compensation expenses for the performance shares is recorded based on management’s periodic estimates of the number of shares that will ultimately be issued and the fair value of the shares as determined by our closing stock price on the date of grant.

Performance shares represent a right to receive shares of common stock upon satisfaction of Company performance goals usually at the end of a three-fiscal-year cycle.

Vesting of performance shares granted are generally contingent upon meeting Company performance goals based on a specified rate of earnings growth at the end of the three-fiscal-year period.

Compensation expenses for the performance shares is recorded to Restaurant expenses and General and administrative expenses based on management’s periodic estimates of the number of shares that will ultimately be issued and the fair value of the shares as determined by our closing stock price on the date of grant.

A cumulative expenses adjustment is recognized when that estimate changes.

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Comprehensive Income - Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

For the fiscal years ended June 24, 2020 , June 26, 2019 and June 27, 2018 , Comprehensive income consists of Net income and Foreign currency translation adjustment .

The Foreign currency translation adjustment for all the three fiscal years presented included the unrealized impact of translating the financial statements from Canadian dollars to United States dollars of the Canadian restaurants.

For the fiscal year ended June 27, 2018 , foreign currency translation adjustment also included the impact of translating the Mexico joint venture with CMR, S.A.B.

(“CMR”) from Mexican pesos to United States dollars.

During fiscal 2018 , the Mexico joint venture was sold to CMR.

Refer to Note 6 - Equity Method Investment for further details on the transaction including the note receivable.

The Accumulated other comprehensive loss (“AOCL”) is presented in the Consolidated Balance Sheets .

For the fiscal years ended June 30, 2021, June 24, 2020 and June 26, 2019, Comprehensive income (loss) consists of Net income and Foreign currency translation adjustment.

The Foreign currency translation adjustment for all three fiscal years presented

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related to the unrealized impact of translating the financial statements from Canadian dollars to United States dollars of the Canadian restaurants.

The Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets.

Net Income Per Share - Basic net income per share is computed by dividing Net income by the Basic weighted average shares outstanding for the reporting period.

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Basic weighted average shares outstanding are reconciled to Diluted weighted average shares outstanding as follows:

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Basic weighted average shares outstanding 45.5 38.2 38.3

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Awards excluded due to anti-dilutive effect 0.5 1.5 0.9

Segment Reporting - Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in

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assessing operating performance.

We manage our business on the basis of two operating segments, Chili’s and Maggiano’s.

NOVEL CORONAVIRUS PANDEMIC

In March 2020, the impact from the spreading COVID-19 pandemic was declared a National Public Health Emergency and resulted in a significant reduction in sales at our restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.

We have not experienced material shortages or service disruptions in our supply chain or the availability of labor to operate restaurants.

Both Chili’s and Maggiano’s have been able to continue to serve our guests off-premise due to our pre-pandemic strategic decision to enhance this business over the last three years including online ordering, mobile app, curbside service and third-party delivery.

We have been carefully assessing the effect of COVID-19 on our business as conditions continue to evolve throughout the communities we serve.

At this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent and the duration of the spread of the virus and could lead to further reduced sales, capacity restrictions, restaurant closures, delays in our supply chain, or impair our ability to staff accordingly which could adversely impact our financial results.

Additionally, at our corporate office, we have adopted an optional remote-work policy and other physical distancing policies and we do not anticipate these policies to have any adverse impact on our ability to continue to operate our business.

Transitioning to an optional remote-work environment has not had a material adverse impact on our financial reporting system, internal controls or disclosure controls and procedures.

Our fiscal 2020 results include the decline in Company sales, as compared to fiscal 2019 as a result of the COVID-19 pandemic.

At the end of the third quarter of fiscal 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed our expansion plans.

Beginning on April 27, 2020, we began to reopen certain dining room locations as permitted by governments.

At the end of fiscal 2020, as of June 24, 2020 , 94.9 % of our Company-owned restaurant dining rooms or patios were open in a limited capacity.

Valuation of Goodwill and Indefinite-Lived Intangibles

We perform our annual goodwill impairment tests in the second quarter of each fiscal year.

Interim goodwill impairment tests are also required when events or circumstances change between annual tests that would more likely than not reduce the fair value of our reporting units below their carrying value.

Although no triggering event had been identified in our regular goodwill impairment assessment performed at the end of the second quarter of fiscal 2020, we determined during the third of fiscal 2020 that the reduced cash flow projections and the significant decline in our market capitalization as a result of the COVID-19 pandemic could indicate that an impairment loss may have been incurred.

Our assessment is based on our current projections that are subject to various risks and uncertainties, including:

(1) forecasted revenues, expenses and cash flows, affected by the impact of the COVID-19 pandemic, (2) current discount rates, (3) the reduction in our market capitalization, (4) observable market data, and (5) changes to the regulatory environment.

Based on our assessment as of March 25, 2020, we determined that our goodwill and indefinite-lived intangible assets were not impaired at that time.

Additionally, we updated the assessment during the fourth quarter of fiscal 2020 and determined no triggering event existed based on improved market value and actual results compared to forecast for the third quarter of fiscal 2020.

This assessment is predicated on our ability to continue to operate dining and banquet rooms, and generate off-premise sales at our restaurants.

Management’s judgment about the short and long term impacts of the pandemic could change as additional facts become known and therefore affect these conclusions.

We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our restaurants and reporting units.

Valuation of Long-lived Assets

Our Net property and equipment and Operating lease assets have recorded values of $ 805.3 million and $ 1,054.6 million , respectively, as of June 24, 2020 in the Consolidated Balance Sheets .

During the third quarter of fiscal 2020, we evaluated ASC 360-10-40 - Property, Plant, and Equipment - Impairment or Disposal of Long-Lived Assets , and

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determined as of March 25, 2020 there was no triggering event.

During our regular semi-annual analysis in the fourth quarter of fiscal 2020, as of June 24, 2020 , we recorded long-lived and operating lease asset impairments of $ 14.5 million related to 18 underperforming Chili’s and 3 underperforming Maggiano’s restaurants .

Of the impaired restaurants, 19 continue to operate, and 2 Chili’s will be permanently closed .

We will continue to evaluate our long-lived assets for potential impairment during this COVID-19 pandemic.

Refer to Note 16 - Fair Value Measurements for more information.

Rent Concessions

In response to the COVID-19 pandemic, during the fourth quarter of fiscal 2020, certain landlords have provided temporary rent concessions.

These concessions primarily relate to the deferral of certain rent payments until future periods.

We accounted for these rent deferrals as modifications under ASC 842 which are included in our June 24, 2020 lease balances, refer to Note 4 - Leases for more information.

COVID-19 Related Charges

Certain charges, net of credits related to the COVID-19 pandemic were recorded in Other (gains) and charges in the Consolidated Statements of Comprehensive Income in fiscal 2020 , these primarily included:

Employee assistance - $ 17.3 million of expenses related to both Chili’s and Maggiano’s employee assistance payments and related payroll taxes for the team members that experienced reduced shifts during this pandemic, who would have otherwise not received such payment under our normal compensation practices

Other COVID-19-related expenses - $ 1.5 million of expenses related to restaurant supplies such as face masks and hand sanitizer required to reopen dining rooms, as well as costs related to canceled projects due to the pandemic , and $ 1.1 million of expenses related to spoiled inventory at both Chili’s and Maggiano’s due to the unexpected decline in sales and dining room closures

Employee retention credit - $ 7.9 million credit of certain payroll taxes was received as part of the Coronavirus Aid Relief and Economic Security (“CARES”) Act relief package

CHILI'S RESTAURANT ACQUISITION

In fiscal 2020, on September 5, 2019 , we completed the acquisition of certain assets and liabilities related to 116 previously franchised Chili’s restaurants located in the Midwest United States .

Pro-forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements .

Total cash consideration of $ 96.0 million , including post-closing adjustments, was funded with borrowings from our existing credit facility.

We accounted for this acquisition as a business combination.

The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements from the date of acquisition.

The assets and liabilities of these restaurants are recorded at their fair values.

During fiscal 2020 , since the acquisition date, these restaurants generated Company sales of $ 203.3 million , which included a decrease in normal operations in the second half of fiscal 2020 related to the COVID-19 pandemic.

Refer to Note 2 - Novel Coronavirus Pandemic for further details on the pandemic’s impact to our business.

Net acquisition-related charges of $ 2.9 million were recorded during fiscal 2020 to Other (gains) and charges in the Consolidated Statements of Comprehensive Income .

In fiscal 2020 , the net charges consisted of $ 4.5 million of professional services, transaction and transition related costs associated with the purchase, and $ 1.0 million of related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully recognized at the date of the acquisition, partially offset by $ 2.6 million of franchise deferred revenues balance that were fully recognized at date of acquisition.

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The final amounts recorded for the fair value of acquired assets and liabilities at the acquisition date are as follows:

Fair Value September 5, 2019

Current assets (1)

Property and equipment

Operating lease assets

Reacquired franchise rights (2)

Total assets acquired

Current liabilities (4)

Operating lease liabilities, less current portion

Total liabilities assumed

Net assets acquired (5)

Current assets included petty cash, inventory, and restaurant supplies.

Reacquired franchise rights have a weighted average amortization period of approximately 8 years .

Goodwill is expected to be deductible for tax purposes.

The portion of the purchase price attributable to goodwill represents the benefits expected as a result of the acquisition, including sales and unit growth opportunities, and the benefit of the assembled workforce of the acquired restaurants.

Current liabilities included current portion of operating lease liabilities, gift card liability and accrued property tax.

Net assets acquired at fair value are equal to the total purchase price of $ 99.0 million , less $ 3.2 million of closing adjustments and $ 2.8 million allocated to prepayment of leases entered into between us and the franchisee (refer to Note 4 - Leases for more information).

As of June 24, 2020 , 1,073 of our 1,116 Company-owned restaurant facilities were leased.

We typically lease our restaurant facilities through ground leases (where we lease land only, but own the building) or retail leases (where we lease the land/retail space and building) .

As of June 24, 2020 , the restaurant leases have cumulative renewal clauses of 2 to 40 years at our option.

Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms typically ranging from 1 to 10 years.

The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume.

In addition to our restaurant facilities, we also lease our corporate headquarters location and certain technology and other restaurant equipment.

Our lease agreements do not contain any material residual value guarantees or material covenant restrictions.

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Financial Statement Impact of ASC 842 Adoption

Refer to Note 1 - Nature of Operations and Summary of Significant Accounting Policies for information on the transition and practical expedient elections, and our lease accounting policy under ASC 842.

The adoption of ASC 842 represents a change in accounting principle.

The adoption did not have a significant impact in the Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows .

Upon adoption, there was a material increase in Total assets and Total liabilities in the Consolidated Balance Sheets primarily due to the recognition of operating lease assets and related lease liabilities where we are the lessee.

The table below reflects the balance sheet adoption impact related to ASC 842 as an adjustment at June 27, 2019 , the first day of fiscal 2020 (condensed, unaudited):

ASC 842 Cumulative Adjustments

June 26, 2019

June 27, 2019

Current assets (1)

Operating lease assets (2)

Deferred income taxes, net (3)

Intangibles, net (1)

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current liabilities

Operating lease liabilities (4)

Other accrued liabilities (1)(5)

Long-term operating lease liabilities, less current portion (4)

Deferred gain on sale leaseback transactions (5)

Other liabilities (1)

Retained earnings

The following prior lease balances were reclassified into Operating lease assets upon adoption of ASC 842:

Current assets adjustment related to the prepaid rent.

Intangibles, net adjustment related to the favorable lease asset position.

Other accrued liabilities and Other liabilities balances adjustments related to the current and long-term portions of straight-line rent balances, unfavorable lease liability positions, exit-related lease accruals, and landlord contributions.

Additionally, Other accrued liabilities included $ 19.3 million of deferred gain on sale leaseback transactions that was eliminated as a cumulative effect adjustment to Retained earnings upon adoption, refer to (5) below, and Note 13 - Accrued and Other Liabilities at June 26, 2019 for further details.

Operating lease assets represent the capitalization of operating lease assets equal to the amount of recognized operating lease liability as described in (4) below, adjusted by the net carrying amounts described in (1) above, and $ 15.5 million related to the impairment of certain operating lease assets for restaurant facilities previously fully impaired under our long-lived asset impairment policy that were recorded to Retained earnings.

Deferred income taxes, net was reduced by $ 68.6 million related to the elimination of the deferred gain on sale leaseback transactions as described in (5) below, partially offset by $ 3.5 million related to the impact of adopting ASC 842 and recording the operating lease assets and liabilities.

Operating lease liabilities, both current and long-term, represents the liabilities based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term upon date of adoption.

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Deferred gain on sale leaseback transactions balance of $ 255.3 million , the related short-term deferred gain balance recorded within Other accrued liabilities of $ 19.3 million , and the associated Deferred income taxes, net of $ 68.6 million as described in (3) above, were eliminated upon ASC 842 adoption into Retained earnings as required by ASC 842 using the alternative transition method.

No further gain will be amortized to Other (gains) and charges in the Consolidated Statements of Comprehensive Income effective fiscal 2020.

Lease Amounts Included in the Fiscal Year Ended June 24, 2020

Consolidated Balance Sheet Disclosure of Lease Amounts

The following table includes a detail of lease asset and liabilities included in the Consolidated Balance Sheets :

June 24, 2020

Current lease liabilities

Long-term lease liabilities

Total lease liabilities

Finance lease assets are recorded in Property and equipment, at cost , and the related current and long-term lease liabilities are recorded within Other accrued liabilities and Long-term debt and finance leases, less current installments , respectively.

Operating lease assets are recorded in Operating lease assets and the related current and long-term lease liabilities are recorded within Operating lease liabilities and Long-term operating lease liabilities, less current portion, respectively.

Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts

The components of lease expenses, including variable lease costs primarily consisting of rent based on a percentage of sales, common area maintenance and real estate tax charges, and short-term lease expenses for leases with lease terms less than twelve months are included in the Consolidated Statements of Comprehensive Income as follows:

Fifty-Two Week Period Ended June 24, 2020

Operating lease cost

Finance lease amortization

Finance lease interest

Short-term lease cost

Variable lease cost

Sublease (income)

Total lease costs, net

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Consolidated Statement of Cash Flows Disclosure of Lease Amounts

Supplemental cash flow information related to leases recorded in the Consolidated Statements of Cash Flows is as follows:

Fifty-Two Week Period Ended June 24, 2020

Cash flows from operating activities

Cash paid related to lease liabilities

Operating leases

Finance leases

Cash flows from financing activities

Cash paid related to lease liabilities

Finance leases

Non-cash lease assets obtained in exchange for lease liabilities

Operating leases (1)

Finance leases (1)

New lease assets obtained, net of lease liabilities primarily related to the new and assumed operating and finance leases from the Chili’s restaurant acquisition.

Refer to Note 3 - Chili's Restaurant Acquisition and “ Significant Changes in Leases in the Period ” section below for more information.

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:

June 24, 2020

Finance Leases

Operating Leases

Weighted average remaining lease term

Weighted average discount rate

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Lease Maturity Analysis

Finance leases and Operating leases total future lease payments represent the contractual obligations due under the contract, including cancelable option periods where we are reasonably assured to exercise the options .

As of June 24, 2020 , accounted for and presented under ASC 842 guidance, the discounted future minimum lease payments on finance and operating leases, as well as sublease income were as follows:

June 24, 2020

Finance Leases

Operating Leases

Sublease (Income)

Total future lease payments (1)

Imputed interest

Present value of lease liability

Total future lease payments as of June 24, 2020 included non-cancelable lease commitments of $ 113.4 million for finance leases, and $ 1,083.4 million for operating leases.

As of June 26, 2019, as previously disclosed in our fiscal 2019 Form 10-K under Legacy GAAP, undiscounted future minimum lease payments that represent the contractual obligations due under the contract, including cancelable option periods where we are reasonably assured to exercise the options, on both capital and operating leases were as follows:

June 26, 2019

Capital Leases

Operating Leases (2)

Total minimum lease payments (1)

Imputed interest (average rate of 6.18%)

Present value of minimum lease payments

Less current capital lease obligations

Long-term capital lease obligations

Total minimum lease payments were not reduced by minimum sublease rentals to be received in the future under non-cancelable subleases.

The total of undiscounted future sublease rentals was approximately $ 22.0 million and $ 14.6 million for capital and operating subleases, respectively, as of June 26, 2019.

Operating lease expenses for the fifty-two weeks ended June 26, 2019, recorded under Legacy GAAP, totaled $ 158.6 million , which included $ 141.7 million for straight-lined minimum rent, $ 3.3 million for contingent rent, and $ 13.6 million of other rent-related expenses.

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Significant Changes in Leases in the Period

In the first quarter of fiscal 2020 , as part of the Chili’s restaurant acquisition, we assumed and entered into 90 new operating leases included in the balances at June 24, 2020 .

The leases were recorded net of purchase price accounting adjustments and prepaid rent.

At June 24, 2020 , the balances associated with these new leases in the Consolidated Balance Sheets include Operating lease assets of $ 154.8 million , Operating lease liabilities of $ 5.0 million , and Long-term operating lease liabilities, less current portion of $ 149.0 million .

Additionally related to this transaction, we entered into 12 new finance leases with the initial terms of approximately 11 years, plus renewal options.

At June 24, 2020 , the balances associated with these finance leases in the Consolidated Balance Sheets include Buildings and leasehold improvements of $ 23.9 million , Other accrued liabilities of $ 0.6 million , and Long-term debt and finance leases, less current installments of $ 23.7 million .

Refer to Note 3 - Chili's Restaurant Acquisition for information about the acquisition.

In the first quarter of fiscal 2020, we executed one finance lease for Chili’s table-top devices with an initial term of 3 years, beginning once all devices had been received, plus one 3 -year renewal option.

We received all the table-top devices by the end of the fourth quarter of fiscal 2020.

At June 24, 2020 , the balances associated with this finance lease in the Consolidated Balance Sheets include Furniture and equipment of $ 21.4 million , Other accrued liabilities of $ 3.4 million , and Long-term debt and finance leases, less current installments of $ 18.0 million .

Pre-Commencement Leases

In fiscal 2020 , we executed two leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 7.2 million .

These leases are expected to commence in the next 12 months and are expected to have an economic lease term of 20 years.

These leases will commence when the landlords make the property available to us for new restaurant construction.

We will assess the reasonably certain lease term at the lease commencement date.

Fiscal 2019 Sale Leaseback Transactions

Restaurant Properties Sale Leaseback Transactions

In the fiscal 2019 , we completed sale leaseback transactions of 152 restaurant properties which were sold for aggregate consideration of $ 495.0 million .

Of the transactions completed, 151 were Chili’s properties, and one was a Maggiano’s property.

The balances attributable to the restaurant assets sold included Land of $ 114.4 million , Buildings and leasehold improvements of $ 240.5 million , certain fixtures included in Furniture and equipment of $ 10.2 million , and Accumulated depreciation of $ 179.8 million .

The total gain was $ 309.7 million an d the net proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility.

Lease Details

The initial terms of all leases included in the sale leaseback transactions were for 15 years , plus renewal options at our discretion, which contain scheduled rent increases.

All of these leases were determined to be operating leases under Legacy GAAP.

Rent expenses associated with these operating leases were recognized on a straight-line basis over the lease terms under Legacy GAAP during fiscal 2019.

As of June 26, 2019 , the straight-line rent accrual balance of $ 62.3 million was included in Other accrued liabilities (current portion) and Other liabilities (long-term portion) in the Consolidated Balance Sheets which included $ 2.8 million associated with these operating leases that were reclassified into the Operating lease assets balance upon adoption of ASC 842 effective June 27, 2019 , the first day of fiscal 2020.

Gain and Deferred Gain Recognition

In fiscal 2019 , under Legacy GAAP, we recognized the portion of the gross gain in excess of the present value of the future minimum lease payments, and deferred the remainder of the gain to be recognized straight-line in proportion to the operating lease terms.

In the fiscal year ended June 26, 2019 , $ 35.2 million of the gain, less transaction costs incurred of $ 7.9 million related to professional services, legal and accounting fees, was recognized to Other (gains) and charges in the Consolidated Statements of Comprehensive Income , respectively.

As of June 26, 2019 , the remaining balance of the deferred gain of $ 274.6 million was recorded in Other accrued liabilities (current portion) and Deferred gain on sale leaseback transactions (long-term portion) in the Consolidated Balance Sheets .

The deferred gain balance

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was eliminated through the cumulative effect adjustment to Retained earnings effective June 27, 2019 , the first day of fiscal 2020, upon the adoption of ASC 842.

Refer above for ASC 842 adoption details.

For any future sale leaseback transactions under the ASC 842 guidance, the gain, adjusted for any off-market terms, will be recognized immediately in most cases.

Corporate Headquarters Relocation

During fiscal 2018 , we sold the owned portion of our corporate headquarters property for net proceeds of $ 13.7 million which was deferred in Other accrued liabilities in the Consolidated Balance Sheets until fiscal 2019 when we moved to our new corporate headquarters location, and fully relinquished possession of the sold property and terminated our involvement.

As such, during fiscal 2019 , we recognized the sale, removed the balances attributable to the previous corporate headquarters assets sold that included Land of $ 5.9 million , Buildings and leasehold improvements of $ 10.6 million , Furniture and equipment of $ 0.7 million , and Accumulated Depreciation of $ 9.3 million , and recorded the related net gain of $ 5.8 million to Other (gains) and charges in the Consolidated Statements of Comprehensive Income .

Refer to Note 8 - Other Gains and Charges for further details, including accelerated depreciation recorded to Other (gains) and charges in the Consolidated Statements of Comprehensive Income related to the sold property.

EFFECT OF NEW ACCOUNTING STANDARDS

We reviewed all recently issued accounting pronouncements and determined that they were either not applicable or are not expected to have a material impact on the Consolidated Financial Statements.

REVENUE RECOGNITION

Deferred Development and Franchise Fees

Our deferred development and franchise fees consist of the unrecognized fees received from franchisees.

Deferred Franchise and Development Fees

Our deferred franchise and development fees consist of the unrecognized fees received from franchisees.

Recognition of these fees in subsequent periods is based on satisfaction of the contractual performance obligations of the active contracts with franchisees.

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We also expect to earn subsequent period royalties and advertising fees related to our franchise contracts;

however, due to the variability and uncertainty of these future revenues based upon a sales-based measure, these future revenues are not yet estimable due to the unsatisfied performance obligations.

Deferred Franchise and Development Fees

June 24, 2020

June 26, 2019

however, due to the variability and uncertainty of these future revenues based upon a sales-based measure, these future revenues are not yet estimable as the performance obligations remain unsatisfied.

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The following table reflects the changes in deferred franchise and development fees for the fiscal years ended on June 30, 2021 and June 24, 2020:

June 30, 2021 June 24, 2020

Beginning balance $ 12.7 $ 16.2

Cumulative effect adjustment from adoption of ASC 606

Additions 0.3 0.8

Amount recognized for Chili's restaurant acquisition (1)

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Ending balance $ 11.4 $ 12.7

Deferred development and franchise fees remaining balances associated with the 116 Chili’s restaurants acquired from a franchisee at the September 5, 2019 acquisition date were recognized in Other (gains) and charges in the Consolidated Statements of Comprehensive Income .

Franchise and Development Fees Revenue Recognition

Footnote Index

(1) The remaining balances of deferred franchise and development fees associated with the 116 Chili’s restaurants acquired from a franchisee at the September 5, 2019 acquisition date were recognized in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

The following table illustrates franchise and development fees expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of June 30, 2021:

Fiscal Year Franchise and Development Fees Revenue Recognition

Thereafter 6.8

Deferred Gift Card Revenues

Total deferred revenues related to our gift cards includes the full value of unredeemed gift cards less the amortized portion of the breakage rates and the unamortized portion of third party fees.

Gift Card Liability

June 24, 2020

June 26, 2019

Total deferred revenues related to our gift cards include the full value of unredeemed gift card balances less recognized breakage and the unamortized portion of third-party fees.

The following table reflects the changes in the Gift card liability for fiscal years ended on June 30, 2021 and June 24, 2020:

June 30, 2021 June 24, 2020

Beginning balance $ 109.9 $ 100.9

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Gift card breakage recognized to Franchise and other revenues ( 13.0 ) ( 15.8 )

Other 0.2 ( 0.4 )

Ending balance $ 106.4 $ 109.9

Gift card breakage in fiscal 2019 included the recognition of $ 8.2 million from the cumulative effect of adopting ASC 606, Revenue from Contracts with Customers due to the change in timing of recognition of breakage, with a corresponding $ 2.0 million decrease in Deferred income taxes, net, and a $ 6.2 million decrease in Shareholders’ deficit .

EQUITY METHOD INVESTMENT

We had a joint venture agreement with CMR to develop 50 Chili’s restaurants in Mexico, with a total of 45 Chili’s restaurants operating in the joint venture as of June 28, 2017.

We accounted for the joint venture investment under the equity method of accounting.

During fiscal 2018 , we sold our Dutch subsidiary that held the equity interest in the joint venture to CMR for $ 18.0 million .

During fiscal 2018 , we recorded a gain of $ 0.2 million to Other (gains) and charges in the Consolidated Statements of Comprehensive Income which included the recognition of $ 5.4 million of foreign currency translation losses reclassified from AOCL consisting of $ 5.9 million of foreign currency translation losses from previous years, partially offset by $ 0.5 million of fiscal 2018 foreign currency translation gains.

We received a note as consideration for the sale to be paid in 72 equal installments, with one installment payment made at closing and the other payments to be made over 71 months pursuant to the note.

The note is denominated in Mexican pesos and is re-measured to United States dollars at the end of each period resulting in a gain or loss from foreign currency exchange rate changes included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income for the periods presented.

The current portion of the note, which represents the cash payments to be received over the next 12 months, is included within Accounts receivable, net while the long-term portion of the note is included within Other assets in the Consolidated Balance Sheets .

Refer to Note 16 - Fair Value Measurements for the fair value and carrying value of the note receivable as of June 24, 2020 .

Before the sale of the joint venture during fiscal 2018 , we recorded our share of the Mexico joint venture net income or loss of the investee within Operating income since their operations were similar to our ongoing operations.

These amounts were included in Restaurant expenses in the Consolidated Statements of Comprehensive Income due to their immaterial nature.

DEFINED CONTRIBUTION PLAN

We sponsor a qualified defined contribution retirement plan.

The plan covers all employees who have attained the age of 21 and have completed the service requirement.

Effective January 1, 2020, the service requirement was changed from 1 year and 1,000 hours of service to 90 days of eligible service.

The plan covers all employees who have attained the age of 21 and have completed 90 days of eligible service.

Eligible employees are allowed to contribute, subject to IRS limitations on total annual contributions, up to 50 % of their base compensation and 100 % of their eligible bonuses, as defined in the plan, to various investment funds.

In May 2020, the plan was amended to suspend the employer matching contributions to reduce corporate expenses, which resulted in the loss of safe harbor status.

The loss of safe harbor status requires the plan to complete the average deferral percentage non-discrimination testing each plan year.

The amended plan does allow for discretionary employer

In May 2020, the plan was amended to suspend the employer matching contributions to reduce corporate expenses in response to the business downturn caused by the COVID-19 impact.

This resulted in the loss of safe harbor status and required the plan to complete the average deferral percentage non-discrimination testing each plan year.

Footnote Index

contributions should the Company decide to do so.

Prior to this amendment, we matched, in cash, what an employee contributes at a rate of 100 % of the first 3 % and 50 % of the next 2 % with immediate vesting.

this amendment, we matched, in cash, what an employee contributes at a rate of 100 % of the first 3 % and 50 % of the next 2 % with immediate vesting.

Effective January 1, 2021, the Plan was amended and restated in its entirety primarily for the purpose of reinstating the safe harbor matching employer contributions, incorporating previous Plan amendments, and implementing an updated plan document.

As a result of this amendment and restatement, the Plan subsequently restored its safe harbor status.

Additionally, in June 2021, the Plan was amended and restated to adopt a new pre-approved plan document as required by the IRS.

We contributed employer matching contributions in each fiscal year which is recorded to General and administrative in the Consolidated Statements of Comprehensive Income:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Employer contributions match expenses $ 4.6 $ 9.3 $ 9.6

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Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

COVID-19 related charges $ 3.3 $ 12.2 $ —

Restaurant impairment charges 3.0 19.1 10.8

COVID-19 related charges, net of (credits)

Loss from natural disasters, net of (insurance recoveries) 2.9 ( 0.7 ) ( 0.7 )

Restaurant closure charges 2.4 3.8 4.3

Remodel-related costs 2.3 3.2 7.7

Loss on lease contingencies 2.2 — —

Severance and other benefit charges 0.5 3.2 0.9

Corporate headquarters relocation charges

Property damages, net of (insurance recoveries)

Loss (gain) on sale of assets, net

Foreign currency transaction (gain) loss ( 0.6 ) 1.4 ( 0.7 )

Sale leaseback (gain), net of transaction charges — — ( 27.3 )

Restaurant impairment charges primarily consisted of the long-lived assets of 25 underperforming Chili’s and 3 underperforming Maggiano’s restaurants , which included the $ 14.5 million impaired during the fourth quarter of fiscal 2020 during the COVID-19 pandemic related to 18 underperforming Chili’s and 3 underperforming Maggiano’s restaurants .

Refer to Note 2 - Novel Coronavirus Pandemic and Note 16 - Fair Value Measurements for more information.

COVID-19 related charges, net of (credits) that included the employee retention credit, were recorded related to the initial impact and our efforts to address the COVID-19 pandemic beginning in the third quarter of fiscal 2020 .

Refer to Note 2 - Novel Coronavirus Pandemic for further details.

Other 3.0 5.2 0.5

$ 19.0 $ 47.4 $ ( 4.5 )

• COVID-19 related charges consists of following costs related to both Chili’s and Maggiano’s:

– employee assistance and related payroll taxes for certain team members,

– conversion of certain parking lots into dining areas, and

– initial purchases of restaurant and personal protective supplies such as face masks and hand sanitizers required to maintain open dining rooms.

• Restaurant impairment charges primarily consisted of the long-lived assets of 11 underperforming Chili’s and three underperforming Maggiano’s restaurants.

• Loss from natural disasters, net of (insurance recoveries) primarily consists of costs incurred related to Winter Storm Uri in February 2021.

• Restaurant closure charges primarily consisted of Chili’s lease termination charges and certain Chili’s restaurant closure costs.

Remodel-related costs were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

Severance and other benefit charges primarily consisted of $ 2.7 million of expenses incurred for a corporate reorganization related to the elimination of 44 corporate positions to align and support our current operating model in the fourth quarter of fiscal 2020.

Corporate headquarters relocation charges were recorded related to costs associated with the previous corporate headquarters location.

Footnote Index

Property damages, net of (insurance recoveries) primarily consisted of proceeds related to a previously filed fire claim, partially offset by costs incurred for damages from Tropical Storm Imelda.

Loss (gain) on sale of assets, net primarily consisted of gain on sale of liquor licenses of closed restaurants.

• Remodel-related costs related to existing fixed asset write-offs associated with the Chili’s remodel project.

• Loss on lease contingencies were recorded for estimated lease defaults on certain secondarily liable lease guarantees and subleases.

Refer to Note 16 - Commitments and Contingencies for additional information about our secondarily liable lease guarantees.

• Severance and other benefit charges primarily related to the elimination of certain Maggiano’s banquet manager positions.

• Foreign currency transaction (gain) loss resulted from the change in the value of our Mexican peso denominated note receivable received as consideration from the sale of our equity interest in our Mexico joint venture in fiscal 2018.

• COVID-19 related charges were recorded related to the initial impact and our efforts to address the pandemic beginning in the third quarter of fiscal 2020.

The charges consisted of following costs related to both Chili’s and Maggiano’s:

– employee assistance payments and related payroll taxes expenses of $ 17.3 million for team members that experienced reduced shifts during the pandemic, who would have otherwise not received such payment under our normal compensation practices,

– other COVID-19 related expenses of $ 1.5 million for restaurant supplies such as face masks and hand sanitizer required to reopen dining rooms, as well as costs related to canceled projects due to the pandemic, and $ 1.1 million of expenses related to spoiled inventory due to the unexpected decline in sales and dining room closures,

– employee retention credit of $ 7.9 million for certain payroll taxes was received as part of the CARES Act relief package.

• Restaurant impairment charges primarily consisted of the long-lived assets of 25 underperforming Chili’s and three underperforming Maggiano’s restaurants.

• Loss from natural disasters, net of (insurance recoveries) primarily consisted of proceeds related to a previously filed fire claim, partially offset by costs incurred for damages from Tropical Storm Imelda.

• Restaurant closure charges primarily consisted of Chili’s lease termination charges and certain Chili’s restaurant closure costs.

• Remodel-related costs related to existing fixed asset write-offs associated with the Chili’s remodel project.

• Severance and other benefit charges primarily consisted of $ 2.7 million of expenses incurred for a corporate reorganization related to the elimination of 44 corporate positions to align and support our current operating model in the fourth quarter of fiscal 2020.

• Restaurant impairment charges primarily consisted of the long-lived assets of 11 underperforming Chili’s restaurants.

• Loss from natural disasters, net of (insurance recoveries) primarily consisted of insurance proceeds received related to a previously filed fire claim and final proceeds received from the Hurricane Harvey claim, partially offset by expenses associated with storm damages at certain restaurant locations.

Footnote Index

• Restaurant closure charges primarily consisted of Chili’s lease termination charges and certain Chili’s restaurant closure costs.

Remodel-related costs were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

• Remodel-related costs related to existing fixed asset write-offs associated with the Chili’s remodel project.

• Severance and other benefit charges primarily consisted of the restructuring of certain Maggiano’s back-office positions.

Corporate headquarters relocation charges primarily consisted of costs associated with the previous corporate headquarters location and accelerated depreciation on certain leasehold improvements associated with the leased portion of our previous corporate headquarters property which closed in the third quarter of fiscal 2019.

Property damages, net of (insurance recoveries) primarily consisted of insurance proceeds received related to a previously filed fire claim and final proceeds received from the Hurricane Harvey claim, partially offset by expenses associated with storm damages at certain restaurant locations.

Loss (gain) on sale of assets, net primarily consisted of $ 5.8 million for the net gain recognized on the sale of the owned-portion of our previous corporate headquarters building and $ 0.8 million of gain recognized on the sale of land in Scottsdale, AZ and Pensacola, FL.

• Sale leaseback (gain), net of transaction charges were recorded related to the fiscal 2019 sale leaseback transactions, refer to Note 9 - Leases for further details on this transaction.

Restaurant impairment charges primarily consisted of charges of $ 7.2 million recorded in the first quarter of fiscal 2018 associated with the closure of nine Alberta, Canada Chili’s restaurants in the second quarter of fiscal 2018 due to an economic recession primarily related to lower oil production.

The decision to close these restaurants was driven by management’s belief that the long-term profitability of these restaurants would not meet our required level of return.

Additionally, during fiscal 2018 , we recorded Restaurant impairment charges of $ 3.7 million primarily related to the long-lived assets and reacquired franchise rights of certain underperforming Maggiano’s and Chili’s restaurants that will continue to operate.

Restaurant closure charges primarily consisted of expenses of $ 4.6 million associated with the Canada closures and related lease termination charges.

We also recorded $ 1.8 million in lease termination expenses related to locations where we are the primary lessee of leases that were sublet to the Macaroni Grill, a divested brand, currently in bankruptcy proceedings, that discontinued sublease rental payments and closed the restaurants.

Additionally, we recorded Restaurant closure charges of $ 1.1 million primarily related to lease termination charges and closure costs associated with Chili’s restaurants closed during fiscal 2018 .

Remodel-related costs were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

Corporate headquarters relocation charges primarily consisted of accelerated depreciation on certain leasehold improvements associated with the leased portion of our previous corporate headquarters property which closed in the third quarter of fiscal 2019.

Footnote Index

Property damages, net of (insurance recoveries) primarily consisted of incurred expenses associated with Hurricanes Harvey and Irma primarily related to employee relief payments and inventory spoilage, net of insurance proceeds related to certain Hurricane Harvey property damage claims.

Also in fiscal 2018 , we received property damage insurance proceeds of $ 0.5 million related to natural flooding in Louisiana that were recorded within Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

Additionally, we received business interruption funds of $ 0.4 million related to the Louisiana flooding from insurers that are recorded within Restaurant expenses in the Consolidated Statements of Comprehensive Income.

Loss (gain) on sale of assets, net primarily consisted of the gain on sale of our Mexico joint venture.

Refer to Note 6 - Equity Method Investment for more information.

Sale leaseback (gain), net of transaction charges primarily consisted of professional service fees for brokers, legal, due diligence and other professional services firms in connection with the marketing of sale-leaseback transactions of certain Company-owned restaurant properties.

Income before provision for income taxes consists of the following:

Income before income taxes consists of the following:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Domestic $ 146.7 $ 5.0 $ 168.1

Foreign ( 1.5 ) ( 0.1 ) 3.7

Income before income taxes $ 145.2 $ 4.9 $ 171.8

The provision for income taxes and effective tax rate consists of the following:

The Provision (benefit) for income taxes and effective tax rate consists of the following:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Current income tax (benefit) expenses:

Federal $ 11.6 $ ( 32.9 ) $ 63.3

State 14.4 4.8 28.8

Foreign — 0.0 0.6

Total current income tax (benefit) expenses 26.0 ( 28.1 ) 92.7

Deferred income tax (benefit) expenses:

Federal ( 9.4 ) 8.8 ( 58.5 )

State ( 3.0 ) ( 0.2 ) ( 18.0 )

Foreign — 0.0 0.7

Total deferred income tax (benefit) expenses ( 12.4 ) 8.6 ( 75.8 )

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Footnote Index

A reconciliation between the reported provision for income taxes and the amount computed by applying the statutory Federal income tax rate to Provision (benefit) for income taxes is as follows:

A reconciliation between the reported Provision (benefit) for income taxes and the amount computed by applying the statutory Federal income tax rate to Income before income taxes is as follows:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Income tax expense at statutory rate $ 30.5 $ 1.0 $ 36.1

1 unchanged sentence

State income taxes, net of Federal benefit 7.8 3.6 8.5

Tax reform impact

Stock based compensation tax shortfall

Stock based compensation tax shortfall (windfall) ( 2.3 ) 0.5 0.5

Other 2.3 0.2 —

Provision (benefit) for income taxes $ 13.6 $ ( 19.5 ) $ 16.9

Our federal statutory tax rate for fiscal 2020 and fiscal 2019 was 21.0 % .

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 with an effective date of January 1, 2018.

The enactment date occurred prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory tax rate changes stipulated by the Tax Act were reflected in the second quarter of fiscal 2018 .

The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018.

For fiscal 2018 , our federal statutory tax rate was 28.1 % , representing a blended tax rate for the number of days in fiscal 2018 before and after the effective date.

In the fiscal year ended June 27, 2018 , in accordance with ASC 740, we re-measured our deferred tax accounts as of the enactment date using the new federal statutory tax rate and recognized the change as a discrete item in the Provision for income taxes, the adjustment was $ 8.2 million .

Our federal statutory tax rate for fiscal 2021, fiscal 2020 and fiscal 2019 was 21.0 %.

Deferred Tax and Allowances

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Deferred income tax assets:

Lease liabilities $ 305.1 $ 313.7

Gift cards 17.0 13.7

Insurance reserves 11.5 12.2

4 unchanged sentences

Restructure charges and impairments 1.5 1.4

Deferred gain on sale leaseback transactions

Payroll tax deferral 13.6 3.2

Other, net 10.6 7.1

Valuation allowance ( 6.1 ) ( 5.6 )

1 unchanged sentence

Deferred income tax liabilities:

Lease assets 275.7 275.5

Goodwill and other amortization 22.6 21.6

1 unchanged sentence

Prepaid expenses 16.0 14.4

Other, net 0.5 0.5

Total deferred income tax liabilities 326.6 331.8

Deferred income taxes, net $ 50.9 $ 38.2

Footnote Index

Fiscal 2020 Deferred income taxes, net includes the deferred lease assets and liabilities related to the addition of operating lease assets and liabilities from the adoption of ASC 842.

Refer to Note 1 - Nature of Operations and Summary of Significant Accounting Policies and Note 4 - Leases for further information on this adoption.

As of June 30, 2021, we have deferred tax assets of $ 4.4 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between fiscal 2026 and fiscal 2041.

3 unchanged sentences

The valuation allowance increased by $ 0.5 million in fiscal 2021 to recognize certain state net operating loss benefits and state tax credits management believes are not more-likely-than-not to be realized.

In assessing whether a deferred tax asset will be realized, we consider the likelihood of the realization, and the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment.

In assessing whether

Footnote Index

a deferred tax asset will be realized, we consider the likelihood of the realization, and the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income, as of June 30, 2021, we believe it is more-likely-than-not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowances.

2 unchanged sentences

The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions, filing payment deadlines and making available certain grant money to assist in this pandemic.

As of June 24, 2020, this legislation will allow us to:

Reduce our fiscal 2020 payroll tax liability by utilizing employee retention credits to assist with employee payroll costs during this outbreak of $ 7.9 million

As of June 30, 2021, this legislation has allowed us to:

• Reduce our payroll tax liability by utilizing employee retention credits to assist with employee payroll costs during the pandemic of $ 7.9 million in fiscal 2020.

• Amend our 2018 and 2019 U.S.

Income Tax Returns in order to claim additional depreciation deductions related to qualified improvement property that will allow us to generate aggregate refunds of $ 4.6 million , and upon filing our fiscal 2020 U.S.

Income Tax Return we anticipate to include a benefit related to the additional depreciation on qualified improvement property of approximately $ 2.0 million

Defer the employer portion of certain payroll taxes, totaling $ 12.9 million which will be repaid in two equal installments:

on December 31, 2021, and December 31, 2022

Income Tax Returns in order to claim additional depreciation deductions related to qualified improvement property of $ 4.6 million.

We also were able to include a benefit in our fiscal 2020 U.S.

Income Tax Return related to the additional depreciation on qualified improvement property of approximately $ 2.0 million

• Defer the employer portion of certain payroll taxes, totaling $ 54.5 million which will be repaid in two equal installments on December 31, 2021, and December 31, 2022

Unrecognized Tax Benefits

A reconciliation of unrecognized tax benefits are as follows:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Balance at beginning of year $ 3.0 $ 3.5

7 unchanged sentences

We recognize accrued interest and penalties related to unrecognized tax benefits in Provision (benefit) for income taxes in the Consolidated Statements of Comprehensive Income.

As of June 24, 2020 , we had $ 0.3 million ( $ 0.2 million net

Footnote Index

of a $ 0.1 million Federal deferred tax benefit) of interest and penalties accrued, compared to $ 0.3 million ( $ 0.2 million net of a $ 0.1 million Federal deferred tax benefit) at June 26, 2019 .

As of June 30, 2021, we had $ 0.4 million ($ 0.3 million net of a $ 0.1 million Federal deferred tax benefit) of interest and penalties accrued, compared to $ 0.3 million ($ 0.2 million net of a $ 0.1 million Federal deferred tax benefit) at June 24, 2020.

Our income tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate.

5 unchanged sentences

There are no unrecorded liabilities associated with these examinations.

Footnote Index

SEGMENT INFORMATION

Our operating segments are Chili’s and Maggiano’s.

The Chili’s segment includes the results of our Company-owned Chili’s restaurants principally in the United States, within the full-service casual dining segment of the industry.

The Chili’s segment includes the results of our Company-owned Chili’s restaurants, which are principally located in the United States, within the full-service casual dining segment of the industry.

The Chili’s segment also has Company-owned restaurants in Canada, and franchised locations in the United States, 27 countries and two United States territories.

The Maggiano’s segment includes the results of our Company-owned Maggiano’s restaurants in the United States as well as the results from our domestic franchise business.

Company sales include revenues generated by the operation of Company-owned restaurants including gift card redemptions.

Franchise and other revenues include Royalties and Franchise fees and other revenues .

We do not rely on any major customers as a source of sales , and the customers and long-lived assets of our operating segments are predominantly in the United States .

The Other segment includes costs related to our restaurant support teams for the Chili’s and Maggiano’s brands, including operations, finance, franchise, marketing, human resources and culinary innovation.

The Other segment also includes costs related to the common and shared infrastructure, including accounting, information technology, purchasing, guest relations, legal and restaurant development.

Company sales for each operating segment inclu de revenues generated by the operation of Company-owned restaurants including gift card redemptions and virtual brand revenues.

Franchise and other revenues for each operating segment include royalties, delivery fee income, gift card breakage, digital entertainment revenues, Maggiano’s banquet service charge income, franchise advertising fees, franchise and development fees, gift card equalization, merchandise income and gift card discount costs from third-party gift card sales .

We do not rely on any major customers as a source of sales , and the customers and long-lived assets of our operating segments are predominantly located in the United States.

There were no material transactions amongst our operating segments.

Footnote Index

Our chief operating decision maker uses Operating income as the measure for assessing performance of our segments.

Operating income includes revenues and expenses directly attributable to segment-level results of operations.

Company restaurant expenses include Food and beverage costs, Restaurant labor, and Restaurant expenses.

Restaurant expenses during the years presented primarily included restaurant rent, supplies, property and equipment maintenance, utilities, advertising expenses, credit card processing fees and property taxes.

The following tables reconcile our segment results to the consolidated results reported in accordance with GAAP:

Restaurant expenses during the years presented primarily included restaurant rent, delivery fees, property and equipment maintenance, utilities, supplies, property taxes and credit card processing fees.

The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:

Fiscal Year Ended June 30, 2021

Chili’s Maggiano’s Other Consolidated

Company sales $ 3,005.7 $ 273.3 $ — $ 3,279.0

Royalties 30.3 0.2 — 30.5

Franchise fees and other revenues 23.9 4.4 — 28.3

1 unchanged sentence

Total revenues 3,059.9 277.9 — 3,337.8

Company restaurant expenses (1)

Food and beverage costs 803.5 64.3 — 867.8

Restaurant labor 1,014.2 94.0 — 1,108.2

Restaurant expenses 765.6 92.1 0.8 858.5

Depreciation and amortization 124.3 13.8 12.1 150.2

10 unchanged sentences

Fiscal Year Ended June 24, 2020

Maggiano’s Other Consolidated

Company sales $ 2,673.5 $ 331.4 $ — $ 3,004.9

Royalties 33.7 0.2 — 33.9

Franchise fees and other revenues 24.5 15.2 — 39.7

1 unchanged sentence

Total revenues 2,731.7 346.8 — 3,078.5

Company restaurant expenses (1)

Food and beverage costs 718.7 79.9 — 798.6

Restaurant labor 920.8 124.7 — 1,045.5

Restaurant expenses 723.7 101.5 0.6 825.8

Depreciation and amortization 133.9 15.4 13.0 162.3

9 unchanged sentences

Fiscal Year Ended June 26, 2019

Chili’s Maggiano’s Other Consolidated

Company sales $ 2,692.6 $ 413.6 $ — $ 3,106.2

Royalties 52.8 0.3 — 53.1

Franchise fees and other revenues 36.8 21.8 — 58.6

Franchise and other revenues 89.6 22.1 — 111.7

Total revenues 2,782.2 435.7 — 3,217.9

Company restaurant expenses (1)

Food and beverage costs 723.3 99.7 — 823.0

Restaurant labor 907.2 152.5 — 1,059.7

Restaurant expenses 699.1 112.6 0.6 812.3

Depreciation and amortization 120.1 16.2 11.3 147.6

1 unchanged sentence

Other (gains) and charges (2)

( 6.4 ) 1.0 0.9 ( 4.5 )

Total operating costs and expenses 2,482.0 388.1 117.1 2,987.2

4 unchanged sentences

Payments for property and equipment $ 129.1 $ 10.8 $ 27.7 $ 167.6

Company restaurant expenses include Food and beverage costs , Restaurant labor and Restaurant expenses , including advertising expenses.

Fiscal 2020 and fiscal 2019, are presented under the ASC 606 revenue accounting standard such that advertising contributions received from Chili’s franchisees are recorded as Franchise fees and other revenues, which differs from fiscal 2018 that included advertising contributions on a net basis within Company restaurant expenses.

Footnote Index

Chili’s segment information for fiscal 2020 includes the results of operations and fair value of assets and goodwill related to the 116 restaurants purchased from a former franchisee since the September 5, 2019 acquisition date.

Refer to Note 3 - Chili's Restaurant Acquisition for further details.

Segment assets for fiscal 2020 are presented in accordance with the newly adopted ASC 842 lease accounting standard that now include Operating lease assets .

Refer to Note 4 - Leases for further details.

(1) Chili’s segment information for fiscal 2020 includes the results of operations related to the 116 restaurants purchased from a former franchisee subsequent to the September 5, 2019 acquisition date.

Refer to Note 17 - Fiscal 2020 Chili's Restaurant Acquisition for further details.

(2) Other (gains) and charges in fiscal 2019 included the net impact from our completed sale leaseback transactions of 151 Company-owned Chili’s restaurant properties and one Maggiano’s property.

As part of this transaction, we sold the related restaurant fixed assets, net of accumulated depreciation, totaling $ 185.3 million .

Chili’s recognized a $ 26.8 million, and Maggiano’s recognized a $ 0.5 million gain on the sale, including a certain portion of the deferred gain, net of related transaction costs incurred in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

1 unchanged sentence

GOODWILL AND INTANGIBLES

We performed our annual impairment test in the second quarter of fiscal 2020 by utilizing the qualitative approach and determined that there were no events or circumstances to indicate that it was more likely than not that the fair value of our reporting units was less than their carrying values.

During the third of fiscal 2020, we also performed a quantitative assessment of our goodwill due to the COVID-19 pandemic impact on our business and determined that the fair value of our reporting units was substantially in excess of the carrying values.

No indicators of impairment were identified through the end of fiscal 2020 .

Refer to Note 2 - Novel Coronavirus Pandemic for additional disclosures around goodwill and the related COVID-19 assessments.

We performed a detailed quantitative assessment in the third quarter of fiscal 2020 of our goodwill balances associated with both reporting units.

This assessment was performed in response to observed declines in operating cash flows and market capitalization that were primarily driven by the impact of the COVID-19 pandemic on our business.

Based on this assessment, we concluded that our goodwill and indefinite-lived intangible assets were not impaired at that time.

We updated this assessment in the fourth quarter of fiscal 2020 and again concluded no impairment triggering event existed based on improved market capitalization and operating results compared to projections in the quantitative assessment prepared in the third quarter of fiscal 2020.

Our operating results and operating cash flows for fiscal 2021 outperformed our initial quantitative assessment.

Our stock price and market capitalization also increased to levels greater than before the COVID-19 pandemic began in the United States.

We performed our annual goodwill impairment analysis in the second quarter of fiscal 2021 using a qualitative approach based on these factors and no indicators of impairment were identified.

Additionally, no indicators of impairment were identified through the end of fiscal 2021.

Our ability to operate dining and banquet rooms and generate off-premise sales at our restaurants is critical to avoiding a future triggering event as the impact of the COVID-19 pandemic continues.

Management’s judgments about the impact of the pandemic could change as additional developments occur.

We will continue to monitor and evaluate our results in future periods to determine if a more detailed assessment is necessary.

There have been no impairments of Goodwill for the fiscal years ended June 30, 2021, June 24, 2020 and June 26, 2019.

The changes in the carrying amount of Goodwill by segment are as follows:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Chili’s Maggiano’s Consolidated Chili’s Maggiano’s Consolidated

Balance at beginning of year $ 149.2 $ 38.4 $ 187.6 $ 127.1 $ 38.4 $ 165.5

1 unchanged sentence

Additions (1)

— — — 22.4 — 22.4

Foreign currency translation adjustment 0.6 — 0.6 ( 0.3 ) — ( 0.3 )

Balance at end of year $ 149.8 $ 38.4 $ 188.2 $ 149.2 $ 38.4 $ 187.6

In the fiscal years ended June 24, 2020 and June 26, 2019 , we acquired 116 and three domestic Chili’s restaurants, respectively, previously owned by franchise partners.

Refer to Note 3 - Chili's Restaurant Acquisition for information about the fiscal 2020 acquisition.

(1) In the fiscal year ended June 24, 2020, we acquired 116 domestic Chili’s restaurants previously owned by a franchise partner.

Refer to Note 17 - Fiscal 2020 Chili's Restaurant Acquisition for further information.

Footnote Index

Intangible assets, net are as follows:

June 24, 2020

June 26, 2019

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

June 30, 2021 June 24, 2020

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Definite-lived intangible assets

Chili’s reacquired franchise rights (1)

$ 20.0 $ ( 9.2 ) $ 10.8 $ 19.8 $ ( 7.1 ) $ 12.7

Chili’s other 0.4 ( 0.4 ) — 0.4 ( 0.4 ) 0.0

$ 20.4 $ ( 9.6 ) $ 10.8 $ 20.2 $ ( 7.5 ) $ 12.7

Indefinite-lived intangible assets

1 unchanged sentence

Maggiano’s liquor licenses 0.9 0.9

We recorded an impairment charges of $ 0.2 million in fiscal 2020 , and $ 0.5 million in fiscal 2019 , in Other (gains) and charges in the Consolidated Statements of Comprehensive Income .

Refer to Note 8 - Other Gains and Charges and Note 16 - Fair Value Measurements and for additional disclosures.

Additions, net of accumulated amortization of $ 6.2 million in fiscal 2020 were recorded related to the reacquired franchise rights associated with the 116 acquired Chili’s restaurants previously owned by a franchise partner.

Foreign currency translation impact is included in the gross carrying amount and accumulated amortization, and was a loss of $ 0.1 million and gain of $ 0.1 million for fiscal 2020 and fiscal 2019 , respectively.

$ 10.3 $ 10.3

(1) We recorded impairment charges of $ 0.1 million in fiscal 2021, and $ 0.2 million in fiscal 2020, in Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

Refer to Note 14 - Fair Value Measurements for additional disclosures.

Foreign currency translation impact is included in the gross carrying amount and accumulated amortization, and was a gain of $ 0.3 million and loss of $ 0.1 million for fiscal 2021 and fiscal 2020, respectively.

Amortization expenses for all definite-lived intangible assets were recorded in Depreciation and amortization in the Consolidated Statements of Comprehensive Income as follows:

Fiscal Years Ended

June 30, 2021 June 24, 2020 June 26, 2019

Definite-lived intangible amortization expense $ 2.0 $ 1.9 $ 1.2

Annual amortization expenses for definite-lived intangible assets are estimated to be $ 2.0 million for each of the next three fiscal years, and $ 1.6 million for fiscal 2025 and fiscal 2026.

As of June 30, 2021, 1,079 of our 1,121 Company-owned restaurant facilities were leased.

We typically lease our restaurant facilities through ground leases (where we lease land only, but construct the building and leasehold improvements) or retail leases (where we lease the land/retail space and building, but construct the leasehold improvements).

As of June 30, 2021, the restaurant leases have cumulative renewal clauses of 2 to 40 years at our option.

Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms typically ranging from 1 to 10 years.

The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume.

In addition to our restaurant facilities, we also lease our corporate headquarters location and certain equipment.

Our lease agreements do not contain any material residual value guarantees or material covenant restrictions.

Footnote Index

Consolidated Balance Sheet Disclosure of Lease Amounts

The following table includes a detail of lease assets and liabilities included in the Consolidated Balance Sheets:

June 30, 2021

Lease assets $ 98.2 $ 1,007.4 $ 1,105.6

Current lease liabilities 21.5 97.7 119.2

Long-term lease liabilities 99.8 1,006.7 1,106.5

Total lease liabilities $ 121.3 $ 1,104.4 $ 1,225.7

June 24, 2020

Lease assets $ 81.6 $ 1,054.6 $ 1,136.2

Current lease liabilities 12.2 117.3 129.5

Long-term lease liabilities 89.9 1,061.6 1,151.5

Total lease liabilities $ 102.1 $ 1,178.9 $ 1,281.0

(1) Finance lease assets are recorded in Property and equipment, at cost, and the related current and long-term lease liabilities are recorded within Other accrued liabilities and Long-term debt and finance leases, less current installments, respectively.

(2) Operating lease assets are recorded in Operating lease assets and the related current and long-term lease liabilities are recorded within Operating lease liabilities and Long-term operating lease liabilities, less current portion, respectively.

Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts

Fiscal Years Ended

June 30, 2021 June 24, 2020

Operating lease cost $ 167.2 $ 162.8

Finance lease amortization 17.3 20.9

Finance lease interest 5.9 4.6

Short-term lease cost 0.5 1.4

Variable lease cost 57.9 57.7

Sublease income ( 4.4 ) ( 4.6 )

Total lease costs, net $ 244.4 $ 242.8

Footnote Index

Consolidated Statement of Cash Flows Disclosure of Lease Amounts

Supplemental cash flow information related to leases recorded in the Consolidated Statements of Cash Flows is as follows:

Fiscal Years Ended

June 30, 2021 June 24, 2020

Cash flows from operating activities

Cash paid related to lease liabilities

Operating leases (1)

$ 195.5 $ 159.6

Finance leases 5.9 4.6

Cash flows from financing activities

Cash paid related to lease liabilities

Finance leases 20.0 17.8

Non-cash lease assets obtained in exchange for lease liabilities (2)

Operating leases 60.6 224.0

Finance leases 29.8 73.2

(1) Cash paid related to lease liabilities for Operating leases increased in fiscal 2021 primarily due to the prepayment of July 2021 lease payments and lease payments made during fiscal 2021 for rents that were deferred in fiscal 2020 due to the impacts of the COVID-19 pandemic.

Refer to “Significant Changes in Leases in Fiscal 2020” section below for more information.

(2) Non-cash lease assets obtained in exchange for lease liabilities were higher in fiscal 2020 primarily due to the new and assumed operating and finance leases from the Chili’s restaurant acquisition and the new Chili’s finance lease for table-top devices.

Refer to Note 17 - Fiscal 2020 Chili's Restaurant Acquisition and “Significant Changes in Leases in the Period” section below for more information.

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:

Fiscal Years Ended

June 30, 2021 June 24, 2020

Finance Leases Operating Leases Finance Leases Operating Leases

Weighted average remaining lease term 8.5 years 11.0 years 9.4 years 11.5 years

Weighted average discount rate 5.4 % 5.6 % 5.9 % 5.7 %

Footnote Index

Lease Maturity Analysis

Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options.

As of June 30, 2021, the future minimum lease payments on finance and operating leases, as well as sublease income were as follows:

June 30, 2021

Definite-lived intangible amortization expense

Annual amortization expenses for definite-lived intangible assets are estimated to be $ 2.0 million for each of the next three fiscal years, $ 1.9 million in fiscal 2024 , and $ 1.6 million in fiscal 2025 .

Fiscal Year Finance Leases Operating Leases Sublease Income

2022 $ 27.4 $ 155.9 $ ( 3.2 )

2023 26.6 163.3 ( 2.6 )

2024 17.0 153.8 ( 1.8 )

2025 14.2 144.1 ( 1.8 )

2026 11.5 130.1 ( 1.3 )

Thereafter 56.3 770.5 ( 3.5 )

Total future lease payments (1)

153.0 1,517.7 $ ( 14.2 )

Imputed interest 31.7 413.3

Present value of lease liability $ 121.3 $ 1,104.4

(1) Total future lease payments as of June 30, 2021 included non-cancelable lease commitments of $ 132.7 million for finance leases and $ 1,044.9 million for operating leases.

Pre-Commencement Leases

In fiscal 2021, we executed six leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 20.8 million.

These leases are expected to commence in the next 12 months and are expected to have an economic lease term of 20 years.

These leases will commence when the landlords make the property available to us for new restaurant construction.

We will assess the reasonably certain lease term at the lease commencement date.

Significant Changes in Leases in Fiscal 2020

In the first quarter of fiscal 2020, as part of the Chili’s restaurant acquisition, we assumed and entered into 90 new operating leases.

The leases were recorded net of purchase price accounting adjustments and prepaid rent.

Additionally related to this transaction, we entered into 12 new finance leases with the initial terms of approximately 11 years, plus renewal options.

Refer to Note 17 - Fiscal 2020 Chili's Restaurant Acquisition for more information.

We received all the table-top devices by the end of the fourth quarter of fiscal 2020.

In response to the COVID-19 pandemic, during the fourth quarter of fiscal 2020, certain landlords provided temporary rent concessions primarily resulting in the deferral of rent payments until future periods.

We accounted for these rent deferrals as modifications under ASC 842 which were included in our June 24, 2020 lease balances.

Fiscal 2019 Sale Leaseback Transactions

Restaurant Properties Sale Leaseback Transactions

In fiscal 2019, we completed sale leaseback transactions of 152 restaurant properties which were sold for aggregate consideration of $ 495.0 million.

Of the transactions completed, 151 were Chili’s properties, and one was a Maggiano’s property.

The total gain was $ 309.7 million an d the net proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility.

Footnote Index

Gain and Deferred Gain Recognition

In fiscal 2019 , under the previous lease standard ASC 840, we recognized the portion of the gross gain in excess of the present value of the future minimum lease payments, and deferred the remainder of the gain to be recognized straight-line in proportion to the operating lease terms.

In the fiscal year ended June 26, 2019, $ 35.2 million of the gain, less transaction costs incurred of $ 7.9 million related to professional services, legal and accounting fees, was recognized to Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

The deferred gain balance was eliminated through the cumulative effect adjustment to Retained earnings effective June 27, 2019, the first day of fiscal 2020, upon the adoption of ASC 842.

Long-term debt consists of the following:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Revolving credit facility $ 171.3 $ 472.9

5.000% notes 350.0 350.0

3.875% notes 300.0 300.0

Finance lease obligations 121.3 102.1

Total long-term debt

Total long-term debt and finance leases 942.6 1,225.0

unamortized debt issuance costs and discounts ( 3.2 ) ( 4.3 )

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current installments of long-term debt (1)

Long-term debt less current installments

Current installments of long-term debt consist only of finance leases for the periods presented and are recorded within Other accrued liabilities in the Consolidated Balance Sheets .

( 21.5 ) ( 12.2 )

Long-term debt and finance leases, less current installments $ 917.9 $ 1,208.5

(1) Current installments of long-term debt consist of finance leases for the periods presented and are recorded within Other accrued liabilities in the Consolidated Balance Sheets.

Refer to Note 11 - Accrued and Other Liabilities for further details.

Excluding finance lease obligations and interest, our long-term debt maturities for the five fiscal years following June 30, 2021 and thereafter are as follows:

Long-Term Debt

Revolving Credit Facility

During fiscal 2020 , net repayments of $ 50.4 million were made on the $ 1.0 billion revolving credit facility from funds received from the common stock issuance during the fourth quarter of fiscal 2020, partially offset by cash used to fund ongoing business operations, the acquisition of Chili’s restaurants (refer to Note 3 - Chili's Restaurant Acquisition ) and share repurchases.

Fiscal Year Long-Term Debt

Revolving Credit Facility, as Amended

During fiscal 2021, net repayments of $ 301.6 million were made on the $ 1.0 billion revolving credit facility.

As of June 30, 2021, $ 828.7 million of credit was available under the revolving credit facility.

The revolving credit facility generally bears interest of LIBOR plus an applicable margin, which is a function of our credit rating and debt-to-cash-flow ratio, but as of June 24, 2020 was subject to a maximum of LIBOR plus 2.350 % on drawn funds.

As of June 24, 2020 , our interest rate was 3.100 % that consisted of 2.350 % plus LIBOR, subject to a floor of 0.750 % .

We are also subject to a 40 basis points facility fee on the $ 1.0 billion .

During fiscal 2020, we executed three amendments to our revolving credit facility, which modified the maturity date of the facility, provided additional financial flexibility, and added certain restrictions as follows:

Modified the maturity date of the $110.0 million portion of the facility to expire on September 12, 2021 , which coincides with the maturity date for the $890.0 million portion

Secured a waiver of compliance with financial covenants effective the third quarter of fiscal 2020 until the end of the third quarter of fiscal 2021

The revolving credit facility generally bears interest of LIBOR plus an applicable margin of 2.250 % to 3.000 % and an undrawn commitment fee of 0.350 % to 0.500 %, both based on a function of our debt-to-cash-flow ratio.

As of June 30, 2021, our interest rate was 3.250 % consisting of the LIBOR floor of 0.750 % plus the applicable margin of 2.500 %.

In fiscal 2021, we executed the seventh amendment to our revolving credit facility, extending the maturity date to December 12, 2022 .

This amendment included a capacity reduction to $ 900.0 million from $ 1.0 billion which will occur on September 12, 2021 .

The issuance of certain debt or preferred equity interests will result in an immediate

Footnote Index

Imposed a minimum liquidity covenant (defined as availability under the revolving credit facility plus unrestricted cash and cash equivalents) to require at least $ 175.0 million through the third quarter of fiscal 2021

Increased interest rates temporarily, from the fourth quarter of fiscal 2020 through the third quarter of fiscal 2021, to be fixed at LIBOR plus 2.350 % .

After this temporary period, the interest rate will return to LIBOR plus an applicable margin, which is a function of our credit rating and debt to cash flow ratio, but is subject to a maximum of LIBOR plus 1.700 % .

Additionally the LIBOR floor was permanently increased to 0.750 %

Increased facility fee temporarily to 40 basis points from the fourth quarter of fiscal 2020 through the third quarter of fiscal 2021.

After this temporary period, the facility fee will return to a set fee schedule which is a function of our credit rating, but is subject to a maximum of 30 basis points

Prohibited from making dividends, stock repurchases and investments from the fourth quarter of fiscal 2020 through the third quarter of fiscal 2021, and following this period, we will be subject to a $ 50.0 million aggregate limitation on dividends, stock repurchases and investments

Expanded the collateral securing the revolving credit facility, including intellectual property, among other things, and provided additional subsidiary guarantees

We have incurred $ 3.2 million of debt issuance costs associated with these amendments, which are included in Other assets in the Consolidated Balance Sheets at June 24, 2020 .

Subsequent to fiscal 2020 year-end, on July 23, 2020, we executed the seventh amendment to our revolving credit facility.

This amendment extends the maturity date to December 12, 2022, and has a required commitment reduction to $900.0 million on September 12, 2021 if the commitments have not previously been reduced to or below such commitment level by the issuance of certain debt or preferred equity interests.

The revolving credit facility will bear interest of LIBOR, through December 2021, plus an applicable margin of between 2.250% to 3.000%, and an undrawn commitment fee of 0.350% to 0.500%, both based on a function of our debt-to-cash-flow ratio.

In the event of incurrence of more than $250.0 million of certain debt, our interest rate will be further lowered by 0.250%, and the facility fee lowered by 0.100%.

Upon LIBOR’s expiration in December 2021, our interest rate will be a function of a similar, publicly available, Eurodollar rate.

capacity reduction, an interest rate reduction of 0.250 % on the spread and 0.100 % reduction on the undrawn fee if the issuance exceeds $ 250.0 million pursuant to the terms of the agreement.

We incurred $ 2.2 million of debt issuance costs, associated with this revolver amendment, which are included in Other assets in the Consolidated Balance Sheets.

5.000 % Notes

In fiscal 2017, we completed the private offering of $ 350.0 million of our 5.000 % senior notes due October 2024, our fiscal 2025 (the “2025 Notes”).

We received proceeds of $ 350.0 million and utilized the proceeds to fund a $ 300.0 million accelerated share repurchase agreement and to repay $ 50.0 million on the amended $ 1.0 billion revolving credit facility.

In fiscal 2017, we issued $ 350.0 million of 5.000 % senior notes due October 2024 (the “2024 Notes”).

The notes require semi-annual interest payments which began on April 1, 2017.

2 unchanged sentences

3.875 % Notes

In fiscal 2013 , we issued $ 300.0 million of 3.875 % notes due in May 2023, our fiscal 2023.

In fiscal 2013, we issued $ 300.0 million of 3.875 % notes due in May 2023 (the “2023 Notes”).

The 2023 Notes require semi-annual interest payments which began in the second quarter of fiscal 2014.

1 unchanged sentence

Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage and fixed charge coverage ratios.

As of June 24, 2020 , pursuant to the amendments to the revolving credit facility described above, and under the terms of the indentures governing our 2023 Notes and 2025 Notes, we are in compliance with our covenants .

We expect to remain in compliance with our covenants during the fiscal 2021 year.

Footnote Index

As of June 30, 2021, we were in compliance with our covenants pursuant to the amended revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes.

We expect to remain in compliance with our covenants throughout fiscal 2022.

ACCRUED AND OTHER LIABILITIES

Other accrued liabilities consist of the following:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Sales tax $ 23.2 $ 13.3

Property tax 22.4 22.9

Insurance 21.7 20.7

Current installments of finance leases 21.5 12.2

Utilities and services 8.4 8.3

Interest 6.9 7.5

State income tax payable 1.1 —

Cyber security incident — 3.4

Dividends (1)

Deferred franchise and development fees

Deferred sale leaseback gains (2)

Straight-line rent (2)

Landlord contributions (2)

Dividends included the current dividend payable on dividends previously accrued related to restricted share awards that will vest in the next year.

Other liabilities contain the dividends accrued related to restricted shares that will vest after one year.

No dividends were declared in the fourth quarter of fiscal 2020 , refer to Note 15 - Shareholders’ Deficit for further details .

Deferred sale leaseback gains at June 26, 2019 related to the current portion of the deferred gain on the sale leaseback transactions executed during the fiscal 2019.

Upon the adoption of ASC 842, in fiscal 2020, the Deferred sale leaseback gains were eliminated as a cumulative effect adjustment to Retained earnings.

Additionally, Straight-line rent and Landlord contributions balances were reclassified as a decrease to Operating lease assets upon the adoption of ASC 842.

Refer to Note 4 - Leases for further details .

Other primarily consisted of accruals for utilities and services, banquet deposits for Maggiano’s events, rent-related expenses, charitable donations, certain exit-related lease accruals and other various accruals.

Accrual balances for certain exit-related lease accruals and rent-related expenses were reclassified as a decrease to Operating lease assets upon the adoption of ASC 842.

Refer to Note 4 - Leases for further details .

$ 117.4 $ 100.6

(1) Other primarily consisted of accruals for rent-related expenses, certain exit-related lease accruals, charitable donations, deferred franchise and development fees, banquet deposits for Maggiano’s events and other various accruals.

Footnote Index

Other liabilities consist of the following:

June 24, 2020

June 26, 2019

June 30, 2021 June 24, 2020

Insurance $ 35.0 $ 33.7

Deferred payroll taxes (1)

Deferred franchise fees

Deferred franchise and development fees 10.4 11.6

Unrecognized tax benefits 3.5 2.1

Straight-line rent (2)

Landlord contributions (2)

Unfavorable leases (2)

Deferred payroll taxes related to the fiscal 2020 deferment of the employer portion of certain social security taxes as allowed by the CARES Act.

Refer to Note 9 - Income Taxes for more information.

Footnote Index

Straight-line rent , Landlord contributions and Unfavorable leases balances were reclassified as a decrease to Operating lease assets upon the adoption of ASC 842.

Refer to Note 4 - Leases for more details.

Other 5.9 6.8

$ 82.0 $ 67.1

(1) Deferred payroll taxes consist of the second installment of the deferral of the employer portion of certain payroll related taxes as allowed under the CARES Act which is due on December 31, 2022.

The first installment of $ 27.2 million, which is due on December 31, 2021, is recorded within Accrued payroll in the Consolidated Balance Sheets.

STOCK-BASED COMPENSATION

Our shareholder approved stock-based compensation plans include the Stock Option and Incentive Plan for employees (“Employee Plan”) and the Stock Option and Incentive Plan for Non-Employee Directors and Consultants (collectively, and as may be amended, the “Plans”).

The Plans provide for grants of options to purchase our common stock, restricted stock, restricted stock units, and stock appreciation rights.

The Plans provide for grants of options to purchase our common stock, performance shares, restricted stock, restricted stock units, and stock appreciation rights.

Additionally, grants to eligible employees may vest over a specified period of time or service period, or may contain performance-based conditions.

1 unchanged sentence

available for issuance under the Employee Plan.

The total number of shares authorized for issuance to employees and non-employee directors and consultants under the Plans at June 24, 2020 is 38.7 million shares.

As of June 30, 2021, the total number of shares authorized for issuance to employees and non-employee directors and consultants under the Plans was 38.7 million shares.

Presented below is total stock-based compensation expenses, and the related total income tax benefit recognized in the Consolidated Statements of Comprehensive Income:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Stock-based compensation expenses $ 16.4 $ 14.7 $ 16.4

1 unchanged sentence

Stock Options

In fiscal 2019 and fiscal 2018 , certain eligible employees under the Plans were granted performance stock options whose vesting is contingent upon meeting Company performance goals based on our annual earnings at the end of fiscal 2021 and 2022.

In fiscal 2019 and fiscal 2018, certain eligible employees under the Plans were granted performance stock options whose vesting is contingent upon meeting Company performance goals based on our annual earnings at the end of fiscal 2021 and fiscal 2022.

Expenses for performance stock options are recognized using a graded-vesting schedule over the vesting period based upon management’s periodic estimates of the number of stock options that ultimately will vest.

The options vest over a period of 4 to 5 years and have a contractual term to exercise of no later than August 31, 2025.

Stock options that do not contain a performance condition were also granted to eligible employees in fiscal 2020 , fiscal 2019 and fiscal 2018 , consistent with prior year grants.

At the end of fiscal 2021, one of the performance goals was met, resulting in the vesting of 0.4 million, or one-half, of the outstanding performance stock options.

The options have a contractual term to exercise of no later than August 31, 2025.

Stock options that do not contain a performance condition were also granted to eligible employees in fiscal 2020 and fiscal 2019, consistent with prior year grants.

No stock options were granted in fiscal 2021.

Expenses related to these stock options are recognized using a graded-vesting schedule over the vesting period or to the date on which retirement eligibility is achieved, if shorter.

1 unchanged sentence

Full or partial vesting of awards may occur upon a change in control (as defined in the Plans), or upon an employee’s death, disability or involuntary termination.

Footnote Index

Stock option transactions during fiscal 2021 were as follows (option prices in dollars):

Options Weighted

Price Weighted

Life (Years) Aggregate

Stock options outstanding at June 24, 2020 2.7 $ 40.68

Exercised ( 0.7 ) 46.61

Forfeited or canceled 0.0 38.03

1 unchanged sentence

Stock options exercisable at June 30, 2021 0.7 $ 41.44 3.8 $ 14.4

Footnote Index

During fiscal 2019 , we modified certain fiscal 2018 performance-based stock option awards and 0.2 million options were canceled.

We subsequently granted fiscal 2019 performance-based stock option awards of 0.4 million options with a grant date fair value equivalent to the fair value of the canceled fiscal 2018 options as of the modification date.

During fiscal 2019, we granted fiscal 2019 performance-based stock option awards of 0.4 million options with a grant date fair value equivalent to the fair value of the canceled fiscal 2018 options as of the modification date.

Vesting of the fiscal 2019 performance-based options is conditioned on achievement of the same performance targets and vest on the same schedule as the fiscal 2018 performance-based stock options.

There is no incremental compen sation cost as a result of this modification.

The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions, and the weighted average fair value of option grants:

There was no incremental compen sation cost as a result of this modification.

The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions, and the weighted average fair value of option grants:

Fiscal Years Ended

June 30, 2021 (1)

June 26, 2019

June 27, 2018

Weighted average fair values of option grants

Expected volatility

Risk-free interest rate

Expected lives

Dividend yield

June 24, 2020 June 26, 2019

Weighted average fair values of option grants n/a $ 6.92 $ 8.25

Expected volatility n/a 33.4 % 27.2 %

Risk-free interest rate n/a 1.3 % 2.9 %

Expected lives n/a 5 years 5 years

Dividend yield n/a 3.2 % 3.5 %

(1) No stock option awards were granted in fiscal 2021

Expected volatility and the expected life of stock options are based on historical experience.

4 unchanged sentences

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Intrinsic value of options exercised $ 9.8 $ 0.6 $ 1.8

2 unchanged sentences

Restricted share awards consist of performance shares, restricted stock and restricted stock units.

Eligible employees under the Plans were granted performance shares whose vesting is contingent upon meeting Company performance goals based on our rate of earnings growth at the end of a three-fiscal-year period.

In fiscal 2021, certain eligible employees under the Plans were granted performance shares whose vesting is contingent upon the Company exceeding a specified level of annual earnings in any of fiscal 2022, fiscal 2023 or fiscal 2024.

The number of shares that will vest varies depending on the fiscal year that the performance criteria is first met.

In fiscal 2020 and fiscal 2019, eligible employees under the Plans were granted performance shares whose vesting is

Footnote Index

contingent upon meeting Company performance goals based on our rate of earnings growth at the end of a three-fiscal-year period.

The number of shares that will vest varies depending on the rate of earnings growth achieved as compared to the target rate.

Expenses are recognized ratably over the vesting period, or to the date on which retirement eligibility is achieved, if shorter, based upon management’s periodic estimates of the number of shares that ultimately will be issued.

3 unchanged sentences

Full or partial vesting of awards may occur upon a change in control (as defined in the Plans), or upon an employee’s death, disability or involuntary termination.

Restricted share awards and restricted stock units granted to non-employee directors under the Plans generally vest in full on the fourth anniversary of the date of grant or upon each director’s retirement from the Board.

The non-employee directors’ awards are non-forfeitable and are expensed upon grant.

Footnote Index

Restricted share awards during fiscal 2020 were as follows (fair value per award in dollars):

Restricted share awards and restricted stock units granted to non-employee directors under the Plans are non-forfeitable and are expensed upon grant.

Non-employee directors’ awards have variable distribution dates ranging from four years after grant to two years following departure from the Board.

Restricted share awards, including performance shares reflected at target, during fiscal 2021 were as follows (fair value per award in dollars):

Awards Weighted

Restricted share awards outstanding at June 24, 2020 1.1 $ 37.17

Granted 0.5 41.17

Vested ( 0.3 ) 32.58

Forfeited ( 0.1 ) 38.70

Restricted share awards outstanding at June 30, 2021 1.2 $ 40.07

2 unchanged sentences

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Fair value of restricted share awards vested $ 14.9 $ 6.6 $ 8.6

1 unchanged sentence

Common Stock Issuance

In the fourth quarter of fiscal 2020 , we sold 8.1 million shares of our common stock at a price to the public of $ 18.25 per share.

In fiscal 2020, we sold 8.1 million shares of our common stock at a price to the public of $ 18.25 per share.

Total net proceeds raised from the offering were $ 139.1 million, after deducting the professional expenses.

This common stock issuance was executed in part to provide additional capital through the course of the COVID-19 pandemic and for general corporate purposes.

This common stock issuance was executed to provide additional capital through the course of the COVID-19 pandemic and for general corporate purposes.

In fiscal 2021, employee stock option exercises resulted in the issuance of 1.0 million shares of our common stock for proceeds of $ 30.7 million.

Share Repurchases

In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic.

Additionally, the amended revolving credit facility restricted our ability to repurchase shares in fiscal 2021 through the third quarter of fiscal 2021.

Following the expiration of these restrictions under our amended revolving credit facility, we did not repurchase any shares under publicly announced

Footnote Index

share repurchase programs for the remainder of fiscal 2021.

Future decisions to repurchase shares will be dependent on our operating performance, financial condition and other such factors that we consider relevant.

Prior to the suspension, our share repurchase program was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards.

We evaluated potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings, and planned investment and financing needs.

Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets.

In fiscal 2021, we repurchased 0.1 million shares from team members to satisfy tax withholding obligations on the vesting of restricted shares.

Before the suspension, we repurchased approximately 0.8 million shares of our common stock for $ 32.4 million in fiscal 2020.

In fiscal 2019, our Board of Directors authorized a $ 300.0 million increase to our existing share repurchase program resulting in total authorizations of $ 4.9 billion.

As of June 30, 2021, approximately $ 166.8 million was available in the suspended share repurchase program.

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to COVID-19.

Before this suspension, our Board of Directors approved quarterly dividends of $ 0.38 per share paid each quarter.

During fiscal 2020, we paid dividends of $ 57.4 million to common stock shareholders.

In fiscal 2021, dividends paid were solely related to the previously accrued dividends for restricted share awards that vested in the period.

Restricted share award dividends were recorded in Other accrued liabilities for the current portion to vest within 12 months, and Other liabilities for the portion that will vest after one year.

Retirement of Treasury Stock

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In fiscal 2020, we adopted the lease accounting standard, ASC 842, and recorded a $ 195.9 million cumulative effect adjustment increase to Retained earnings for the change in accounting principle.

Refer to Note 4 - Leases for further details.

In fiscal 2019, we adopted the revenue recognition standard, ASC 606, and recorded a $ 7.4 million cumulative effect adjustment decrease to Retained earnings for the change in accounting principle.

Additionally, the amended revolving credit facility restricts our ability to pay dividends until the fourth quarter of fiscal year 2021, and subjects any dividends paid thereafter, along with share purchases and investments, to an aggregate cap.

Following the expiration of these restrictions under our amended revolving credit facility, in the fourth quarter of fiscal year 2021, the Board of Directors will reevaluate the suspension based on current business conditions at that time.

There is significant uncertainty regarding the future impact of the pandemic on the restaurant industry and the broader U.S.

Before this suspension, our Board of Directors approved quarterly dividends of $ 0.38 per share paid each quarter.

During the fifty-two week periods ended June 24, 2020 and June 26, 2019 , we paid dividends of $ 57.4 million and $ 60.3 million to common stock shareholders, respectively.

Footnote Index

Share Repurchases

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend our share repurchase program due to uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and local governments in response to COVID-19.

Additionally, the amended revolving credit facility restricts our ability to repurchase shares until the fourth quarter of fiscal year 2021, and subjects any share purchases thereafter, along with dividends paid and investments, to an aggregate cap.

Our share repurchase program has been used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards.

We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings, and planned investment and financing needs.

Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets .

Before this suspension, we repurchased approximately 0.8 million and 3.6 million shares of our common stock for $ 32.4 million and $ 167.7 million in fiscal 2020 and fiscal 2019 , respectively.

In fiscal 2019 , our Board of Directors authorized a $ 300.0 million increase to our existing share repurchase program resulting in total authorizations of $ 4.9 billion .

As of June 24, 2020 , approximately $ 166.8 million was available in the suspended share repurchase program.

FAIR VALUE MEASUREMENTS

Non-Financial Assets Measured on a Non-Recurring Basis

We review the carrying amounts of long-lived property and equipment, operating lease assets, reacquired franchise rights and transferable liquor licenses semi-annually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount.

We review the carrying amounts of long-lived property and equipment including finance lease assets, operating lease assets, reacquired franchise rights and transferable liquor licenses semi-annually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount.

We record an impairment charge for the excess of the carrying amount over the fair value.

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Refer to Note 5 - Other Gains and Charges for more information.

Based on our fiscal 2020 semi-annual reviews, we impaired certain long-lived property and equipment, reacquired franchise rights and operating lease assets primarily related to 25 underperforming Chili’s and three underperforming Maggiano’s restaurants .

Intangibles, net in the Consolidated Balance Sheets includes both indefinite-lived intangible assets such as transferable liquor licenses and definite-lived intangible assets such as reacquired franchise rights and trademarks.

Definite Lived Assets Impairment

Definite lived assets include property and equipment including finance lease assets, operating lease assets and reacquired franchise rights.

During fiscal 2021, we impaired certain long-lived assets and operating lease assets primarily related to 11 underperforming Chili’s and three underperforming Maggiano’s restaurants.

During fiscal

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2020, we impaired certain long-lived property and equipment including finance lease assets, reacquired franchise rights and operating lease assets primarily related to 25 underperforming Chili’s and three underperforming Maggiano’s restaurants.

Additionally, we impaired certain finance and operating lease assets related to closed Chili’s restaurants.

We considered the impact of the COVID-19 pandemic as a potential triggering event for impairment analysis in the third quarter of fiscal 2020, and in our regular fourth quarter of fiscal 2020 impairment analysis, refer to Note 2 - Novel Coronavirus Pandemic for further details.

In fiscal 2019 , we impaired certain long-lived assets primarily related to 11 underperforming Chili’s restaurants as part of our regular analysis.

We determined the fair value of these assets based on Level 3 fair value measurements.

The table below presents the carrying values and related impairment expenses recorded on these impaired and closed restaurants for the periods presented:

The table below presents the carrying values and related impairment charges recorded on these impaired restaurants for the periods presented:

Impairment Charges

Pre-Impairment Carrying Value

Fifty-Two Week Periods Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Pre-Impairment Carrying Value Fiscal Years Ended

June 30, 2021 June 24, 2020 June 30, 2021 June 24, 2020

Underperforming restaurants

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Total closed restaurants $ — $ 12.2 $ — $ 3.2

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We determine the fair value of transferable liquor licenses based on prices in the open market for licenses in the same or similar jurisdictions that is considered Level 2.

Based on our semi-annual review, during fiscal 2020 and fiscal 2019 , we determined there was no impairment.

Indefinite Lived Assets Impairment

The fair values of transferable liquor licenses are based on prices in the open market for licenses in the same or similar jurisdictions, and are categorized as Level 2.

Based on our semi-annual reviews in fiscal 2021 and fiscal 2020, we determined there was no impairment.

Other Financial Instruments

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The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of the short maturity of these items.

Long-Term Debt

The carrying amount of debt outstanding related to the amended revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2).

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The 3.875 % notes and 5.000 % notes carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values are as follows, refer to Note 10 - Debt for further details:

June 24, 2020

June 26, 2019

Carrying Amount

June 30, 2021 June 24, 2020

Carrying Amount Fair Value Carrying Amount Fair Value

3.875 % notes $ 299.3 $ 309.0 $ 299.0 $ 282.8

5.000 % notes 347.5 369.3 346.7 330.8

The decrease in fair value of the 3.875 % notes and 5.000 % notes from June 26, 2019 to June 24, 2020 was due to the impact of the COVID-19 pandemic.

Note Receivable

During fiscal 2018, we received an $ 18.0 million long-term note receivable as consideration related to the sale of our equity interest in the Chili’s joint venture in Mexico.

We determined the fair value of this note based on an internally developed analysis relying on Level 3 inputs at inception.

This analysis was based on a credit rating we assigned to the counterparty and comparable interest rates associated with similar debt instruments observed in the market.

As a result of this analysis, we determined the fair value of this note was approximately $ 16.0 million and recorded this fair value as its initial carrying value.

We believe the fair value continues to approximate the note receivable carrying value, which as of June 24, 2020 was $ 7.3 million .

In fiscal 2021, the note was amended to defer certain scheduled payments from calendar year 2021 to calendar years 2022 and 2023.

We determined the fair value of the amended note based on an internally developed analysis relying on Level 3 inputs using a credit rating we assigned to the counterparty and comparable interest rates associated with similar debt instruments.

As a result of this

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analysis, we believe the fair value continues to approximate the note receivable carrying value of $ 6.9 million as of June 30, 2021.

The current portion of the note represents cash payments to be received over the next 12 months and is included within Accounts receivable, net while the long-term portion of the note is included within Other assets in the Consolidated Balance Sheets.

Refer to Note 6 - Equity Method Investment for further details about this note receivable.

SUPPLEMENTAL CASH FLOW INFORMATION

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Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Income taxes, net of (refunds) (1)

$ 9.7 $ ( 7.2 ) $ 106.2

Interest, net of amounts capitalized 49.5 53.1 55.5

Income taxes, net of (refunds) for the fiscal year ended June 24, 2020 included the receipt of a refund in fiscal 2020, partially offset by current year payments .

(1) Income taxes, net of (refunds) for the fiscal year ended June 24, 2020 included the receipt of a refund in fiscal 2020, partially offset by payments.

Income taxes, net of (refunds) for the fiscal year ended June 26, 2019 included payments made for income tax liabilities resulting from sale leaseback transactions completed in fiscal 2019.

Refer to Note 4 - Leases and Note 9 - Income Taxes for further details.

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Refer to Note 9 - Leases for further details.

Non-cash investing and financing activities are as follows:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

June 30, 2021 June 24, 2020 June 26, 2019

Retirement of fully depreciated assets $ 22.4 $ 32.3 $ 28.9

Dividends declared but not paid

Accrued capital expenditures 8.8 7.1 9.3

Dividends declared but not paid — 1.2 15.6

Capital lease additions (1)

Capital lease additions for the fiscal year ended June 24, 2020 are now disclosed as part of the finance lease disclosures in Note 4 - Leases , “ Consolidated Statement of Cash Flows Disclosure of Lease Amounts ” section.

(1) Capital lease additions for the fiscal years ended June 30, 2021 and June 24, 2020 are now disclosed as part of the finance lease disclosures in Note 9 - Leases, “Consolidated Statement of Cash Flows Disclosure of Lease Amounts” section.

COMMITMENTS AND CONTINGENCIES

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As of June 30, 2021 and June 24, 2020, we have outstanding lease guarantees or are secondarily liable for $ 29.2 million and $ 39.7 million, respectively.

These amounts represent the maximum potential liability of future rent payments under the leases.

These amounts represent the known potential liability of future rent payments under the leases.

These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2022 through fiscal 2027.

Our secondary liability position was reduced approximately $ 9.3 million in fiscal 2020 due to certain leases associated with the acquisition of 116 restaurants from a franchisee, refer to Note 3 - Chili's Restaurant Acquisition for further details .

In the event of default under a lease by a franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties.

In the fourth quarter of fiscal 2020, we received some notices of default pertaining to these leases in circumstances that large divested brands did not pay full rent due to the COVID-19 pandemic.

These brands are in communications with the landlords to defer or resolve payments and therefore we believe the loss is not probable at this time.

We have received notices of default and have been named a party in lawsuits pertaining to some of these leases in circumstances where the current lessee did not pay its rent obligations.

These lessees are in communication with the landlords to defer or resolve payments.

We recorded a $ 1.5 million contingent loss, which represents the low end of our estimated range of losses, in fiscal 2021 in Other (gains) and charges in the Consolidated Statements of Comprehensive Income related to these leases and lawsuits.

We will continue to closely monitor this situation.

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All standby letters of credit are renewable within the next 4 to 12 months.

Footnote Index

Cyber Security Incident

In fiscal 2018, we issued a public statement that malware had been discovered at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data.

Based on investigation by our third-party forensic experts, we believe most Company-owned Chili’s restaurants were impacted by the malware during time frames that vary by restaurant, but we believe in each case began no earlier than March 21, 2018 and ended no later than April 22, 2018 .

We expect to incur legal and professional services expenses associated with the cyber security incident in future periods, and will recognize these expenses as services are received.

We will record an estimate for any additional losses at the time when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.

We have settled claims from three payment card companies, and the settlement amounts are included in the costs described in the following paragraph.

In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data.

Cyber Security Related Charges

To limit our exposure to cyber security events, we maintain cyber liability insurance coverage.

This coverage and certain other insurance coverage may reduce our exposure for this incident.

Our cyber liability insurance policy contains a $ 2.0 million retention that was fully accrued during fiscal 2018 .

Our cyber liability insurance policy contains a $ 2.0 million insurance retention that was fully accrued during fiscal 2018.

Since the incident, through June 30, 2021, we have incurred total cumulative costs of $ 9.2 million related to the cyber security incident.

This includes the $ 2.0 million retention recorded in fiscal 2018 , $ 1.9 million in costs that have been reimbursed by our insurance carriers, and $ 3.6

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million of receivable for costs incurred that we believe are reimbursable and probable of recovery under our insurance coverage , an additional $ 0.4 million during fiscal 2019 and $ 0.1 million during fiscal 2020 for expenses not believed to be covered by our insurance coverage recorded to Other (gains) and charges in the Consolidated Statements of Comprehensive Income .

This includes the $ 2.0 million retention recorded, $ 2.6 million in costs that have been reimbursed by our insurance carriers, $ 4.1 million of receivables for costs incurred that we believe are reimbursable and probable of recovery under our insurance coverage and $ 0.5 million of costs not reimbursable by our insurance carriers.

We have settled claims from three payment card companies, and the settlement amounts are included in these costs.

We do not expect material claims from payment card companies in the future.

Cyber Security Litigation

The Company was named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida styled In re:

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In the Litigation, plaintiffs assert various claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $ 5.0 million, injunctive and declaratory relief, and attorney’s fees and costs.

On January 4, 2019, we filed a Motion to Dismiss all of plaintiffs’ claims asserting that plaintiffs do not have standing to bring the lawsuit and that plaintiffs have failed to state a claim on which relief can be granted.

On August 1, 2019, the court granted our Motion to Dismiss for lack of standing as to two plaintiffs and denied the motion as to the remaining plaintiffs.

On January 28, 2020, the court granted in part and denied in part the remaining portion of our Motion to Dismiss.

On March 5, 2020, the court granted our Motion for Protection in its entirety.

On April 15, 2020 the court entered a first phase scheduling order establishing August 31, 2020 as Plaintiffs’ deadline to file their motion for class certification and November 19, 2020 as the date for hearing Plaintiffs’ motion.

The parties selected a mediator and the discovery process has resumed.

On April 14, 2021, the district court issued an order granting in part and deferring in part Plaintiffs’ motion for class certification.

The court certified a class on Plaintiffs’ negligence claim and a separate class on Plaintiffs’ California state Unfair Competition Law claims.

On April 28, 2021, Brinker filed a Rule 23(f) petition in the Eleventh Circuit Court of Appeals seeking immediate discretionary review of the district court’s certification orders.

We believe we have defenses and intend to continue defending the Litigation.

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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 the consolidated financial condition or results of operations.

EFFECT OF NEW ACCOUNTING STANDARDS

2016-13, Measurement of Credit Losses on Financial Instruments - In June 2013, the FASB issued ASU 2016-13, creating ASC Topic 326 – Financial Instruments – Credit Losses.

ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss methodology for recognizing credit losses.

The new guidance is effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal 2021.

We expect to adopt this update in the first quarter of fiscal 2021 and do not expect the adoption of this guidance to have a material impact in the Consolidated Financial Statements.

2018-13, Fair Value Measurement (Topic 820):

FISCAL 2020 CHILI'S RESTAURANT ACQUISITION

On September 5, 2019, we completed the acquisition of certain assets and liabilities related to 116 previously franchised Chili’s restaurants located in the Midwest United States.

Pro-forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements.

Footnote Index

measurements categorized within Level 3 of the fair value hierarchy.

The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal 2021.

Early adoption is permitted.

We expect to adopt this update in the first quarter of fiscal 2021 and do not expect the adoption of this guidance to have a material impact in the Consolidated Financial Statements.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

Early adoption is permitted.

We anticipate to adopt this update in the first quarter of fiscal 2021 and do not expect the adoption of this guidance to have a material impact in the Consolidated Financial Statements.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables summarize the unaudited consolidated quarterly results of operations for fiscal 2020 and fiscal 2019 (in millions, except per share amounts):

Fiscal Year Ended June 24, 2020

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Income (loss) before income taxes

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Fiscal Year Ended June 26, 2019

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Income before income taxes

Basic net income per share

Diluted net income per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Total cash consideration of $ 96.0 million, including post-closing adjustments, was funded with borrowings from our existing credit facility.

We accounted for this acquisition as a business combination.

The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements from the date of acquisition.

The assets and liabilities of these restaurants are recorded at their fair values.

Net acquisition-related charges of $ 2.9 million were recorded during fiscal 2020 to Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

In fiscal 2020, the net charges consisted of $ 4.5 million of professional services, transaction and transition related costs associated with the purchase, and $ 1.0 million of related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully recognized at the date of the acquisition, partially offset by $ 2.6 million of franchise deferred revenues balance that were fully recognized at date of acquisition.

The final amounts recorded for the fair value of acquired assets and liabilities at the acquisition date are as follows:

Fair Value September 5, 2019

Current assets (1)

Property and equipment 60.3

Operating lease assets 163.5

Reacquired franchise rights (2)

Total assets acquired 260.4

Current liabilities (4)

Operating lease liabilities, less current portion 158.3

Total liabilities assumed 167.4

Net assets acquired (5)

(1) Current assets included petty cash, inventory, and restaurant supplies.

(2) Reacquired franchise rights have a weighted average amortization period of approximately 8 years.

(3) Goodwill is expected to be deductible for tax purposes.

(4) Current liabilities included current portion of operating lease liabilities, gift card liability and accrued property tax.

(5) Net assets acquired at fair value are equal to the total purchase price of $ 99.0 million, less $ 3.2 million of closing adjustments and $ 2.8 million allocated to prepayment of leases entered into between us and the franchisee.

SUBSEQUENT EVENTS

Revolver Amendment & Net Borrowings

Subsequent to fiscal 2020 year-end, on July 23, 2020, we executed the seventh amendment to our revolving credit facility.

Please refer to Note 12 - Debt for specifics on this amendment.

Additionally, net borrowings of $ 18.4 million were drawn on the revolving credit facility subsequent to the end of the fiscal year, as of the date that this Annual Report on Form 10-K was filed.

On August 18, 2021, we replaced our existing $ 1.0 billion revolving credit facility with an $ 800.0 million revolving credit facility that matures on August 18, 2026.

The new facility is guaranteed by certain of our subsidiaries, includes covenant restrictions relating to leverage that are similar to our prior arrangement, and contains customary events of default terms.

As of August 18, 2021, $ 211.3 million was drawn from the new revolver.

Share Repurchases

In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $ 300 million.

Report of Independent Registered Public Accounting Firm

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Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers as of June 28, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers .

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company has changed its method of accounting fo r leases as of June 27, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases .

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of June 27, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the carrying value of goodwill

As discussed in Notes 2 and 11 to the consolidated financial statements, the Company performs goodwill impairment testing on an annual basis and whenever events and changes in circumstances indicate that the carrying value might be impaired.

The total goodwill balance as of June 24, 2020 was $187.6 million , of which $149.2 million was allocated to the Chili’s reporting unit and $38.4 million was allocated to the Maggiano’s reporting unit.

In March 2020, the impact from the spreading of a novel strain of coronavirus (“COVID-19”) pandemic was declared a National Public Health Emergency and resulted in a significant reduction in sales at the Company’s restaurants due to changes in consumer behavior as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal, state and local governments.

This also resulted in a significant decline in market capitalization at March 25, 2020, the end of the Company’s fiscal third quarter.

As a result, the Company determined that a triggering event had occurred, which required the performance of a goodwill impairment test to assess the carrying value of goodwill.

The Company determined that goodwill was not impaired.

We identified the assessment of the carrying value of goodwill as a critical audit matter.

Significant auditor judgment, and the need to involve professionals with specialized skills in valuation methodology, was required to evaluate the forecasted future revenues and the discount rate used in the discounted cash flow model to determine the fair values of the Company’s reporting units.

In addition, due to the impact of COVID-19 on the Company’s business, there was significant uncertainty associated with these inputs.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s goodwill impairment assessment process, including controls related to the development of the inputs described above.

We evaluated the Company’s forecasted revenue assumptions by comparing historical revenue and guest traffic patterns to the Company’s estimate of future patterns as restaurants began to resume dine-in service.

We compared the Company’s forecasted revenue assumptions to actual results subsequent to the date of the goodwill impairment test.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

evaluating the Company’s discount rate, by comparing it against a discount rate that was independently developed using publicly available third-party market data for comparable entities, and;

assessing the Company’s calculated fair values of its reporting units on a combined basis compared to the Company’s market capitalization.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the gift card breakage revenue

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The gift card breakage revenue recognized for the year ended June 30, 2021 was approximately $13.0 million.

We identified the assessment of the gift card breakage revenue as a critical audit matter.

Subjective auditor judgment was required to evaluate the trends in historical and expected future redemption patterns used to estimate breakage revenue.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s gift card breakage revenue process including controls related to the gift card activation and redemption data used to develop the breakage rate.

We assessed breakage revenue by comparing the data used to estimate the breakage rate and recognition pattern to the actual redemption activity.

We evaluated the Company’s estimate of the period of time over which to recognize breakage revenue by analyzing subsequent redemption activity.

We identified the assessment of gift card breakage revenue as a critical audit matter.

Subjective auditor judgment was required to evaluate the Company’s assessment of the trends in historical and expected future redemption patterns used to recognize breakage revenue.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s gift card breakage revenue process.

This included controls related to the Company’s estimation of the breakage rate and the timing of breakage revenue recognition.

We assessed breakage revenue by comparing the Company’s estimated breakage rate to rates derived from historical redemption data.

We evaluated the timing of breakage revenue recognition by analyzing historical redemption patterns and assessing the volume of redemptions subsequent to the period of breakage revenue recognition.

We have served as the Company’s auditor since 1984.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Dallas, Texas

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data