What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-04-28 · 167 added, 342 removed, 175 unchanged (74% of the section changed)

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our Company, our operations, and our current operating environment.

For an understanding of the significant factors that influenced our performance during the thirteen and thirty-nine week periods ended March 24, 2021 and March 25, 2020, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report.

For an understanding of the significant factors that influenced our performance during the thirteen week periods ended September 29, 2021 and September 23, 2020, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report.

All amounts within the MD&A are presented in millions unless otherwise specified.

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands.

At March 24, 2021, we owned, operated or franchised 1,657 restaurants, consisting of 1,120 Company-owned restaurants and 537 franchised restaurants, located in the United States, 27 countries and two United States territories.

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 ® and Maggiano’s Italian Classics™.

At September 29, 2021, we owned, operated or franchised 1,650 restaurants, consisting of 1,145 Company-owned restaurants and 505 franchised restaurants, located in the United States, 28 countries and two United States territories.

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

Our Chili’s and Maggiano’s locations also support our virtual brand offerings through our partnerships with DoorDash and Google Food Ordering.

Impact of COVID-19 Pandemic

The COVID-19 global pandemic caused a significant decrease in guest traffic and sales since March 2020.

In fiscal 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms and transitioned to an off-premise business model by leveraging our carryout and delivery capabilities.

We began opening dining rooms again in May 2020 and have maintained dining room capacities in accordance with state and local government mandates since then.

At the end of the third quarter of fiscal 2021, substantially all of our Company-owned restaurant dining and banquet rooms or patios were open in some capacity.

To enhance the safety of our team members and guests, we have implemented mandatory table distancing in our dining rooms, and we increased our already strict sanitation requirements.

We conduct daily health and temperature checks for all employees before they begin their shift and require face coverings to be worn by all restaurant employees at all times.

In March 2021, certain state and local governments began lifting the mask mandates, however, we will continue to follow our enhanced safety measures to ensure the safety of our guests and team members.

Our priority is to protect the health and safety of team members and guests while continuing to serve our communities.

The ultimate impact of the COVID-19 pandemic in both the short and long term is not currently estimable due to the uncertainty surrounding the duration of the pandemic, the availability and acceptance of preventative vaccines, the emergence and impact of new COVID-19 variants, and changing government restrictions.

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

The spread of COVID-19 has 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.

The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the pandemic based on state and local mandates, which has resulted in significant impacts to our guest traffic and sales.

At the end of the first quarter of fiscal 2022, all of our Company-owned restaurant dining rooms or patios were open in some capacity.

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 experienced limited material shortages and service disruptions in our supply chain and in the availability of labor to operate our restaurants.

We also experienced an increase in employee turnover in the first quarter of fiscal 2022.

We recognize there is significant demand for talent and are actively working to safeguard, engage, attract and retain our employees.

It is possible that shortages or disruptions could increase during fiscal 2022 as demand for goods, transportation and labor increases.

Impact on Financial Outlook

The ultimate impact of the COVID-19 pandemic cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus, the availability, acceptance and efficacy of preventative vaccines, the emergence and impact of new COVID-19 variants and changing government restrictions.

Additional impacts to the business may arise that we are not aware of currently.

We cannot predict whether, when or the manner in which COVID-19 may impact our business, including the capacity of our dining rooms, what operational restrictions may be imposed, and our ability to fully staff reopened dining rooms.

As such, we have taken a number of proactive measures to adapt our business to lower demand levels during the pandemic, including measures to significantly reduce costs, capital expenditures, and maintain liquidity.

We will continue to closely monitor and adapt to the evolving situation.

Operations Strategy

We are committed to strategies and a Company culture that we believe will improve guest traffic, grow sales and profit, engage team members and work to return our business to pre-pandemic levels.

We are committed to strategies and a Company culture that we believe will improve guest traffic, grow sales and profits, and engage team members.

Our strategies and culture are intended to differentiate our brands from the competition and to focus on the guest experience.

We are effectively and efficiently managing our restaurants to establish a lasting presence for our brands in key markets around the world.

Our primary strategy remains to make our guests feel special through great food and quality service so that they return to our restaurants.

Our guest survey scores on food quality and service reached an all-time high last fiscal year and remain consistent with pre-pandemic levels as we continue to provide great food and service.

We believe our enhanced safety training and systems have also created a safer environment for our team members and guests.

Guest Engagement Through Technology - We continue to invest in our technology and off-premise options as more guests are opting for to-go and delivery.

Our to-go menu is available through our Chili’s mobile app, on our Chili’s and Maggiano’s brand websites, Google Food Ordering, and through our exclusive delivery partner DoorDash, or by calling the restaurant.

Since fiscal 2018, our off-premise business has grown by 275%.

Our partnership with DoorDash has been instrumental in connecting with our guests and providing convenience, especially during the pandemic.

DoorDash orders are sent directly into our point of sale system, which has facilitated a streamlined integration to our kitchens.

We believe that guests will continue to prefer convenience and off-premise options after the pandemic concerns dissipate.

We plan to continue investing in our technology systems to support our carryout and delivery capabilities.

Our primary strategy is to make our guests feel special through great food and quality service so that they return to our restaurants.

Guest Engagement Through Technology - We have invested in our technology and off-premise options as more guests are opting for To-Go and delivery.

Chili’s partnership with DoorDash has been instrumental in growing off-premise business and offering our guests continued service during the COVID-19 pandemic.

We leveraged technology so that DoorDash orders are sent directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests.

We believe that guests will continue to prefer convenience and off-premise options.

We plan to continue investments in our technology systems to support our To-Go and delivery capabilities.

In dining rooms, we use tabletop devices to engage our guests at the table.

In fiscal 2020, we rolled out a new tabletop device at Chili’s to enhance this experience.

These devices allow guests to pay at the table, reordering, digital entertainment, guest feedback and interaction with our My Chili’s Rewards program.

Our My Chili’s Rewards loyalty database includes more than 8 million members and allows us to customize offerings for these guests based on their purchase behavior.

We plan to continue focusing our marketing spend on these customized

channels and promotions.

Our My Chili’s Rewards loyalty program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency.

We customize offerings for these guests based on their purchase behavior, and we continue to shift more of our overall marketing spend to these customized channels and promotions.

We believe this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our competitors.

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We are committed to offering consistent, quality products at a price point that is compelling to our guests.

Our “3 for $10” platform allows guests to combine a starter, a non-alcoholic drink and an entrée for just $10.00 as part of the every-day base menu.

Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price of $5.00.

Our value platforms allow guests to mix and match select menu items at a discounted price as part of the every-day base menu.

Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita

every month at an every-day value price of $5.00.

Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise.

Chili’s off-premise dining options, including our virtual brand It’s Just Wings, are also a critical part of our strategy.

In the third quarter of fiscal 2021, Chili’s off-premise sales, including both to-go and delivery, were approximately 45% of Company sales, with approximately 59% coming from to-go and 41% from delivery.

Chili’s off-premise dining options, including our virtual brands It’s Just Wings and Maggiano’s Italian Classics, are also a critical part of our strategy.

In the first quarter of fiscal 2022, Chili’s off-premise sales, including both to-go and delivery, were approximately 35% of Company sales, with approximately 55% coming from To-Go and 45% from delivery.

We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food.

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Maggiano’s - At Maggiano’s, we believe our focus on operating fundamentals and technology provide the foundation for future efficiencies and growth.

For example, Maggiano’s exclusive delivery partnership with DoorDash creates a more affordable rate structure, making third party delivery more sustainable and efficient for the brand to operate.

For example, Maggiano’s delivery partnership with DoorDash makes third party delivery more sustainable and efficient for the brand to operate.

In addition to the DoorDash platform, our guests have the ability to order delivery directly through the Maggiano’s website.

During the pandemic, Maggiano’s has leveraged off-premise dining options, including our virtual brand It’s Just Wings, to sustain revenues and to partially mitigate a decline in its banquet business caused by restrictions on large social gatherings.

Maggiano’s historically hosts a significant portion of its banquets in the holiday season, which occurred during our second and third quarters of fiscal 2021.

Virtual Opportunities - It’s Just Wings is a virtual brand offering launched on June 23, 2020 that is available through DoorDash and Google Food Ordering.

This platform allows us to leverage our existing infrastructure, while adding minimal complexity in the restaurants.

It’s Just Wings is a no-frills offering that consists of chicken wings available in 11 different sauces and rubs, curly fries, ranch dressing and fried Oreos for a value price.

We will continue to identify opportunities to drive restaurant growth by utilizing our existing restaurant infrastructure, DoorDash partnership and Google Food Ordering.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening ten restaurants and entering into two new development agreement for the thirty-nine week period ended March 24, 2021.

During the pandemic, Maggiano’s has leveraged off-premise dining options, including It’s Just Wings, to sustain revenues.

Maggiano’s historically hosts a significant portion of its banquets in the holiday season during the second and third quarters of the fiscal year.

Virtual Brands - We are investing in virtual brands, restaurant-like menu offerings that are only available for purchase digitally, to drive restaurant traffic and sales growth.

We expect that our virtual brands will enable us to capitalize on the growth in off-premise dining and to leverage excess kitchen capacity in our existing restaurant infrastructure, while adding minimal complexity in our restaurants’ kitchens.

It’s Just Wings, launched on June 23, 2020, is a no-frills offering that consists of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing, fried Oreos and hand pies for a value price.

Maggiano’s Italian Classics offers a select group of items from the full menu of Maggiano’s Little Italy including several appetizers, salads, pastas, entrées, mac & cheese and hand pies.

They are available for purchase through DoorDash, Google Food Ordering and their respective websites - itsjustwings.com and maggianosclassics.com.

The operating results for the virtual brands are included in the results of our Chili’s and Maggiano’s brands, based on the restaurants that prepared and processed the food orders.

We plan to continue to test and strategically launch additional virtual brands in the future to further drive our growth.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening three restaurants and entering into one new development agreement for the thirteen week period ended September 29, 2021.

We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and existing franchise partners.

We are also supporting our franchise partners with opportunities to expand sales through our virtual brand offerings.

Company Development - The following table details the number of restaurant openings during the thirteen and thirty-nine week periods ended March 24, 2021 and March 25, 2020, respectively, total full year projected openings in fiscal 2021, and the total restaurants open at each period end:

Openings During the Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended Total Open Restaurants at

March 24, 2021 March 25, 2020 March 24, 2021 March 25, 2020 Fiscal 2021 March 24, 2021 March 25, 2020

Company Development - The following table details the number of restaurant openings during the thirteen week periods ended September 29, 2021 and September 23, 2020, respectively, total full year projected openings in fiscal 2022, and the total restaurants open at each period end:

Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Total Open Restaurants at

September 29, 2021 September 23, 2020 Fiscal 2022 September 29, 2021 September 23, 2020

Company-owned restaurants

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Total 4 7 20-23 1,650 1,660

Relocations are not included in the table above.

In the thirty-nine week period ended March 24, 2021, we relocated two Chili’s domestic Company-owned restaurants, with no additional relocations planned for the remainder of fiscal 2021.

At March 24, 2021, we own property for 42 of the 1,120 Company-owned restaurants.

During the thirteen week period ended September 29, 2021, we acquired 23 Chili’s restaurants located in the Mid-Atlantic region of the United States owned by a franchisee.

The acquisition of these restaurants is not reflected in Openings during the thirteen week period ended September 29, 2021 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership.

These acquired restaurants are included in Total Open Restaurants at September 29, 2021 within the total for Company-owned restaurants Chili’s domestic.

At September 29, 2021, we own property for 46 of the 1,145 Company-owned restaurants.

The net book values associated with these restaurants included land of $38.3 million and buildings of $13.2 million.

Thirteen and Thirty-Nine Week Periods Ended March 24, 2021 compared to March 25, 2020

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends:

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

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

• Company sales include revenues generated by the operation of Company-owned restaurants including gift card redemptions and revenues from our It’s Just Wings and Maggiano’s Italian Classics virtual brands.

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

The following is a summary of the change in Total revenues:

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Chili’s Maggiano’s Total Revenues

Thirteen Week Period Ended March 25, 2020 $ 764.4 $ 95.6 $ 860.0

Thirteen Week Period Ended September 23, 2020 $ 686.5 $ 53.6 $ 740.1

Comparable restaurant sales 87.7 33.1 120.8

0.0 (27.0) (27.0)

Restaurant closures (2)

(4.6) — (4.6)

Restaurant openings 5.4 — 5.4

Restaurant relocations 0.5 — 0.5

Company sales 0.3 (27.0) (26.7)

Royalties (4)

(1.3) — (1.3)

Franchise fees and other revenues (0.4) (3.2) (3.6)

Franchise and other revenues (1.7) (3.2) (4.9)

Thirteen Week Period Ended March 24, 2021 $ 763.0 $ 65.4 $ 828.4

Total Revenues

Chili’s Maggiano’s Total Revenues

Thirty-Nine Week Period Ended March 25, 2020 $ 2,203.1 $ 312.2 $ 2,515.3

Comparable restaurant sales (1)

(91.9) (116.1) (208)

Restaurant closures (2)

(21.1) — (21.1)

Restaurant acquisitions (1)

Restaurant openings 13.9 — 13.9

Restaurant closures (2)

Restaurant relocations 0.5 — 0.5

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Royalties (3)

(8.8) — (8.8)

Franchise fees and other revenues 0.4 2.0 2.4

Franchise and other revenues 2.8 2.1 4.9

Thirty-Nine Week Period Ended March 24, 2021 $ 2,145.9 $ 183.3 $ 2,329.2

(1) Comparable restaurant sales were negatively impacted by lower dining room guest traffic resulting from temporary dining room closures, capacity limitations and our guests’ personal safety preferences, offset by increased off-premise sales.

(2) Restaurant closures include the impact of permanently closed locations and temporary closures longer than 14 consecutive days.

(3) We acquired 116 Chili’s restaurants from a franchisee effective September 5, 2019.

This amount represents the change in Company sales attributed to these restaurants over the thirteen week period ended September 23, 2020.

Beginning in the second quarter of fiscal 2021, the change in Company sales attributed to these restaurants is included in Comparable restaurant sales.

(4) Lower royalties in the thirteen and thirty-nine week periods ended March 24, 2021 are primarily due to lower sales by our franchisees due to the COVID-19 pandemic.

Our franchisees generated sales of approximately $190.8 million and $543.7 million for the thirteen and thirty-nine week periods ended March 24, 2021, respectively, compared to $218.0 million and $742.6 million in sales for the thirteen and thirty-nine week periods ended March 25, 2020, respectively.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and thirty-nine week periods ended March 24, 2021 compared to March 25, 2020:

Percentage Change in the Thirteen Week Period Ended March 24, 2021 versus March 25, 2020

Comparable Restaurant Sales (1)(2)

Price Impact Mix-Shift Impact (3)

Traffic Impact Restaurant Capacity (4)

Company-owned (3.3) % 0.6 % (6.2) % 2.3 % 0.0 %

Chili’s 0.0 % 0.5 % (4.5) % 4.0 % 0.0 %

Maggiano’s (29.6) % 1.2 % (9.2) % (21.6) % 0.0 %

Chili’s Franchise (5)

International (8.8) %

Chili’s Domestic (6)

System-wide (7)

Percentage Change in the Thirty-Nine Week Period Ended March 24, 2021 versus March 25, 2020

Thirteen Week Period Ended September 29, 2021 $ 787.6 $ 88.8 $ 876.4

(1) We acquired 23 Chili’s restaurants from a franchisee on September 2, 2021.

The revenues generated by these restaurants since the date of the acquisition are included in Company sales for the thirteen week period ended September 29, 2021.

(2) Restaurant closures include the change in Company sales resulting from temporary closures longer than 14 consecutive days that occurred in the previous 18 months, partially offset by permanently closed locations.

(3) Our franchisees generated sales of approximately $211.9 million for the thirteen week period ended September 29, 2021 compared to $163.5 million in sales for the thirteen week period ended September 23, 2020.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period ended September 29, 2021 compared to September 23, 2020:

Percentage Change in the Thirteen Week Period Ended September 29, 2021 versus September 23, 2020

Comparable Restaurant Sales (1)

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Percentage amounts are calculated based on the comparable periods year-over-year.

(2) Comparable Restaurant Sales for Chili’s and Maggiano’s include the results of It’s Just Wings, a virtual brand launched nationally in June 2020.

(2) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests.

(4) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year.

The COVID-19 related restaurant closures are temporary and therefore no adjustment has been made to capacity.

(5) Chili’s franchise sales generated by franchisees are not included in revenues in the Consolidated Statements of Comprehensive Income (Unaudited);

(3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisition of 23 Chili’s restaurants in the first quarter of fiscal 2022.

(4) Chili’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive Income (Unaudited);

however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable.

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(5) Chili’s domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili’s restaurants in the United States.

(7) System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s and Maggiano’s restaurants in addition to the sales generated at franchise-operated Chili’s restaurants.

(6) System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s and Maggiano’s restaurants and sales generated at franchise-operated Chili’s restaurants.

Costs and Expenses

Thirteen Week Period Ended March 24, 2021 compared to March 25, 2020

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

The following is a summary of the changes in Costs and Expenses:

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 213.9 26.3 % $ 226.7 27.0 % $ 12.8 0.7 %

Restaurant labor 270.8 33.3 % 285.9 34.0 % 15.1 0.7 %

Restaurant expenses 216.1 26.5 % 220.2 26.2 % 4.1 (0.3) %

Depreciation and amortization 37.4 43.5 6.1

General and administrative 33.7 23.3 (10.4)

Other (gains) and charges 4.3 19.3 15.0

Interest expenses 14.1 14.3 0.2

Other income, net (0.3) (0.4) (0.1)

As a percentage of Company sales:

• Food and beverage costs decreased 0.7%, including 0.6% of favorable menu item mix, 0.3% of favorable commodity pricing primarily related to beef and produce and 0.1% of increased menu pricing, partially offset by 0.3% of unfavorable commodity pricing primarily related to dairy, poultry and other.

• Restaurant labor decreased 0.7%, including 1.3% of favorable hourly labor expenses due to reduced staffing requirements and labor shortages and 0.3% of lower other labor expenses, partially offset by 0.6% of higher manager bonus expenses due to improved operational performance metrics and 0.3% of sales deleverage.

• Restaurant expenses increased 0.3%, including 3.3% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales and 0.5% of sales deleverage, partially offset by 2.2% of lower advertising expenses, 0.4% of lower repairs and maintenance expenses, 0.3% of lower miscellaneous restaurant supplies expenses, 0.2% of lower credit card fees and 0.4% of lower other restaurant expenses.

Depreciation and amortization decreased $6.1 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended March 25, 2020 $ 43.5

Retirements and fully depreciated restaurant assets (5.3)

Finance leases (3.8)

Additions for new and existing restaurant assets 1.9

Acquisition of franchise restaurants 0.5

Corporate assets 0.4

Thirteen Week Period Ended March 24, 2021 $ 37.4

General and administrative expen ses increased $10.4 million as follows:

General and Administrative

Thirteen Week Period Ended March 25, 2020 $ 23.3

Performance-based compensation (1)

Stock-based compensation (2)

Defined contribution plan employer expenses (1.0)

Payroll-related expenses (1.0)

Travel and entertainment expenses (0.4)

Professional fees (0.2)

Thirteen Week Period Ended March 24, 2021 $ 33.7

(1) Performance-based compensation increased due to improved business performance metrics in fiscal 2021, and due to a prior year expense reduction to reflect a decline in the expected payout for fiscal 2020 caused by the negative impact of the COVID-19 pandemic.

(2) Stock-based compensation increased primarily due to the prior year expense reduction to reflect a decline in the expected achievement for grants vesting at the end of fiscal 2020.

The expected achievement for those awards was negatively impacted by the COVID-19 pandemic.

Additionally, stock-based compensation increased during the third quarter of 2021 to reflect a higher expected achievement for grants vesting at the end of fiscal 2021.

Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Thirteen Week Periods Ended

2021 March 25,

Loss from natural disasters, net of (insurance recoveries) $ 1.8 $ (0.9)

Remodel-related costs 0.9 0.6

COVID-19 related charges 0.9 16.1

Restaurant closure charges 0.3 0.3

Foreign currency transaction (gain) loss 0.1 2.3

Acquisition of franchise restaurants costs, net — 1.1

Other 0.3 (0.2)

Thirty-Nine Week Period Ended March 24, 2021 compared to March 25, 2020

The following is a summary of the changes in Costs and Expenses:

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

September 29, 2021 September 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales:

• Food and beverage costs decreased 0.2%, including 0.2% of favorable menu item mix and 0.1% of increased menu pricing, partially offset by 0.1% of unfavorable commodity pricing related to dairy.

• Restaurant labor decreased 0.6%, including 1.3% favorable hourly labor expenses and 0.4% of favorable manager salaries expenses, both due to reduced staffing requirements and 0.1% of lower other labor expenses, partially offset by 1.0% of sales deleverage and 0.2% of higher manager bonus expenses due to improved operational performance metrics.

• Restaurant expenses increased 0.9%, including 3.3% of higher expenses related to delivery fees and supplies in connection with the growth in off-premise sales and 1.6% of sales deleverage, partially offset by 2.2% of lower advertising expenses, 0.9% of lower repairs and maintenance expenses, 0.3% of lower credit card fees, 0.2% of lower utilities expenses and 0.4% of lower other restaurant expenses.

Depreciation and amortization decreased $8.9 million as follows:

• Food and beverage costs increased 0.6%, including 1.0% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher poultry and other commodity costs, partially offset by 0.2% of favorable menu pricing and 0.2% of favorable menu item mix.

• Restaurant labor increased 1.5%, including 4.0% of higher restaurant labor costs primarily including wage rates, training and overtime and 0.3% of higher other labor expenses, partially offset by 2.8% of sales leverage.

• Restaurant expenses decreased 0.9%, including 3.2% of sales leverage and 0.8% of lower delivery fees and To-Go supplies, partially offset by 1.4% of higher repairs and maintenance expenses, 0.6% of higher utilities expenses, 0.3% of higher advertising expenses, 0.3% of higher restaurant supplies and 0.5% of higher other restaurant expenses.

Depreciation and amortization increased $1.9 million as follows:

Depreciation and Amortization

Thirty-Nine Week Period Ended March 25, 2020 $ 120.9

Thirteen Week Period Ended September 23, 2020 $ 37.4

Retirements and fully depreciated restaurant assets (4.1)

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Corporate assets 0.4

Thirty-Nine Week Period Ended March 24, 2021 $ 112.0

(1) Acquisition of Chili’s restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili’s restaurants acquired on September 5, 2019.

The increase resulted primarily from the timing of the acquisition.

Thirteen Week Period Ended September 29, 2021 $ 39.3

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 23 Chili’s restaurants acquired on September 2, 2021.

General and administrative expen ses increased $6.0 million as follows:

General and Administrative

Thirty-Nine Week Period Ended March 25, 2020 $ 95.9

Performance-based compensation (1)

Stock-based compensation (2)

Thirteen Week Period Ended September 23, 2020 $ 30.5

Defined contribution plan employer expenses (1)

Professional fees 1.5

Payroll-related expenses 1.0

Travel and entertainment expenses 0.4

Professional fees (1.7)

Thirty-Nine Week Period Ended March 24, 2021 $ 94.2

(1) Performance-based compensation increased due to improved business performance metrics in fiscal 2021 and due to a prior year expense reduction to reflect a decline in the expected payout for fiscal 2020 caused by the negative impact of the COVID-19 pandemic.

(2) Stock-based compensation increased primarily due to the prior year expense reduction to reflect a decline in the expected achievement for grants vesting at the end of fiscal 2020.

The expected achievement for those awards was negatively impacted by the COVID-19 pandemic.

Additionally, stock-based compensation increased during the third quarter of 2021 to reflect a higher expected achievement for grants vesting at the end of fiscal 2021.

These increases were partially offset by a decrease primarily due to the acceleration of stock-based compensation expenses in the first quarter of fiscal 2020 for retirement eligible executives.

(3) Defined contribution plan employer expenses decreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020.

Stock-based compensation 0.2

Performance-based compensation (1.0)

Thirteen Week Period Ended September 29, 2021 $ 36.5

(1) Defined contribution plan employer expenses increased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020.

Employer matching contributions were reinstated beginning January 1, 2021.

Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Thirty-Nine Week Periods Ended

2021 March 25,

Thirteen Week Periods Ended

September 29,

2021 September 23,

Remodel-related costs $ 1.5 $ 0.2

Enterprise system implementation 0.6 —

Loss from natural disasters, net of (insurance recoveries) 0.6 —

COVID-19 related charges 0.3 1.2

Restaurant impairment charges 2.5 4.6

Restaurant closure charges 0.2 1.5

Loss from natural disasters, net of (insurance recoveries) 2.0 (0.6)

Remodel-related costs 1.8 2.1

Lease modification gain, net (0.5) (3.1)

Foreign currency transaction (gain) loss (0.3) 2.2

Acquisition of franchise restaurants costs, net — 2.6

Other 1.3 0.9

$ 13.5 $ 30.7

Interest expenses decreased $1.1 million due to lower average borrowing balances on our revolving credit facility, partially offset by higher interest rates on our revolving credit facility in 2021 and higher interest expenses for the Chili’s tabletop device finance lease which rolled out to restaurants beginning in the second quarter of fiscal 2020 and completed in the fourth quarter of fiscal 2020.

Interest expenses decreased $2.1 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022.

Thirteen Week Periods Ended

September 29,

2021 September 23,

2020 Favorable / (Unfavorable) Variance

Effective income tax rate 1.5 % (4.9) % (6.4) %

The federal statutory tax rate was 21.0% for the thirteen week periods ended September 29, 2021 and September 23, 2020.

The effective income tax rate in the thirteen week period ended September 29, 2021 increased compared to the thirteen week period ended September 23, 2020 primarily due to a reduced favorable impact from the FICA tip tax credit and the excess tax benefits associated with stock-based compensation in the first quarter of fiscal 2022.

Segment Results

The third quarter of fiscal 2021 results for the thirteen and thirty-nine week periods include the continued impact from the COVID-19 pandemic.

Dining room restrictions and our guests’ personal safety preferences have resulted in a shift to our off-premise dining options, which has changed our staffing requirements.

Expenses associated with off-premise and other operational expenses are noted below.

Chili’s Segment

Thirteen Week Period Ended March 24, 2021 compared to March 25, 2020

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

2021 March 25,

September 29,

2021 September 23,

Company sales $ 773.3 $ 675.0 $ 98.3 14.6 %

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Total revenues $ 787.6 $ 686.5 $ 101.1 14.7 %

Chili’s Total revenues decreased by 0.2% primarily due to lower dining room guest traffic and lower royalties, partially offset by increased off-premise sales including It’s Just Wings.

Chili’s Total revenues increased 14.7% primarily due to higher dining room guest sales and traffic, six restaurant openings and the acquisition of 23 Chili’s restaurants on September 2, 2021, partially offset by decreased off-premise sales.

Refer to “Revenues” section above for further details about Chili’s revenues changes.

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 198.7 26.6 % $ 204.1 27.3 % $ 5.4 0.7 %

Restaurant labor 248.7 33.2 % 251.1 33.5 % 2.4 0.3 %

Restaurant expenses 194.2 25.9 % 193.2 25.8 % (1.0) (0.1) %

Depreciation and amortization 31.0 36.5 5.5

General and administrative 7.0 5.9 (1.1)

Other (gains) and charges 3.1 14.9 11.8

As a percentage of Company sales:

• Chili’s Food and beverage costs decreased 0.7%, including 0.5% of favorable menu item mix, 0.4% of favorable commodity pricing related to beef and produce and 0.1% of increased menu pricing, partially offset by 0.3% of unfavorable commodity pricing primarily related to dairy and poultry.

• Chili’s Restaurant labor decreased 0.3%, including 0.8% of favorable hourly labor expenses due to reduced staffing requirements and labor shortages and 0.1% of lower other labor expenses, partially offset by 0.6% of higher manager bonus expenses due to improved operational performance metrics.

• Chili’s Restaurant expenses increased 0.1%, including 3.4% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales, partially offset by 2.3% of lower advertising expenses, 0.4% of lower miscellaneous restaurant supplies, 0.3% of lower repairs and maintenance expenses and 0.3% of lower other restaurant expenses.

Chili’s Depreciation and amortization decreased $5.5 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended March 25, 2020 $ 36.5

Retirements and fully depreciated restaurant assets (4.3)

Finance leases (3.7)

Additions for new and existing restaurant assets 1.9

Acquisition of franchise restaurants 0.5

Thirteen Week Period Ended March 24, 2021 $ 31.0

Chili’s General and administrative increased $1.1 million as follows:

General and Administrative

Thirteen Week Period Ended March 25, 2020 $ 5.9

Performance-based compensation 2.0

Stock-based compensation 0.9

Defined contribution plan employer expenses (0.7)

Payroll-related expenses (0.7)

Thirteen Week Period Ended March 24, 2021 $ 7.0

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Thirteen Week Periods Ended

2021 March 25,

Loss from natural disasters, net of (insurance recoveries) $ 1.1 $ (0.9)

Remodel-related costs 0.9 0.6

COVID-19 related charges 0.8 13.8

Restaurant closure charges 0.3 0.3

Acquisition of franchise restaurants-related costs — 1.1

Thirty-Nine Week Period Ended March 24, 2021 compared to March 25, 2020

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

2021 March 25,

Company sales $ 2,107.0 $ 2,154.6 $ (47.6) (2.2) %

Royalties 21.9 30.7 (8.8) (28.7) %

Franchise fees and other revenues 17.0 17.8 (0.8) (4.5) %

Franchise and other revenues 38.9 48.5 (9.6) (19.8) %

Total revenues $ 2,145.9 $ 2,203.1 $ (57.2) (2.6) %

Chili’s Total revenues decreased 2.6% primarily due lower dining room guest traffic and lower royalties, partially offset by increased off-premise sales including It’s Just Wings and the acquisition of 116 Chili’s restaurants on September 5, 2019.

Refer to “Revenues” section above for further details about Chili’s revenues changes.

The following is a summary of the changes in Chili’s operating costs and expenses:

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

September 29, 2021 September 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales:

• Chili’s Food and beverage costs decreased 0.3%, including 0.3% of favorable menu item mix and 0.1% of increased menu pricing, partially offset by 0.1% of unfavorable commodity pricing primarily related to dairy.

• Chili’s Restaurant labor decreased 0.4%, including 1.0% of favorable hourly labor and manager expenses due to reduced staffing requirements, partially offset by 0.5% of sales deleverage and 0.1% of higher other labor expenses.

• Chili’s Restaurant expenses increased 0.4%, including 3.4% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales and 0.9% of sales deleverage, partially offset by 2.4% of lower advertising expenses, 0.7% of lower repairs and maintenance expenses, 0.2% of lower credit card fees and 0.6% of lower other restaurant expenses.

Chili’s Depreciation and amortization decreased $6.9 million as follows:

• Chili’s Food and beverage costs increased 0.8%, including 0.9% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher poultry and other commodity costs and 0.1% of unfavorable menu item mix, partially offset by 0.2% of increased menu pricing.

• Chili’s Restaurant labor increased 1.5%, including 3.6% of higher restaurant labor costs primarily including wage rates, training and overtime and 0.2% of higher other labor expenses, partially offset by 2.3% of sales leverage.

• Chili’s Restaurant expenses decreased 0.4%, including 2.5% of sales leverage and 0.6% of lower delivery fees and To-Go supplies, partially offset by 1.3% of higher repairs and maintenance expenses, 0.6% of higher utilities expenses and 0.8% of higher other restaurant expenses.

Chili’s Depreciation and amortization increased $2.4 million as follows:

Depreciation and Amortization

Thirty-Nine Week Period Ended March 25, 2020 $ 99.3

Retirements and fully depreciated restaurant assets (14.1)

Finance leases (1.8)

Thirteen Week Period Ended September 23, 2020 $ 30.6

Additions for existing and new restaurant assets 3.8

Finance leases 1.4

Acquisition of Chili’s restaurants (1)

Thirty-Nine Week Period Ended March 24, 2021 $ 92.4

(1) Acquisition of Chili’s restaurants represents the change in depreciation and amortization of the assets and finance leases of the 116 Chili’s restaurants acquired on September 5, 2019.

The increase resulting from the timing of the acquisition.

Chili’s General and administrative decreased $5.7 million as follows:

Retirements and fully depreciated restaurant assets (3.0)

Thirteen Week Period Ended September 29, 2021 $ 33.0

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 23 Chili’s restaurants acquired on September 2, 2021.

Chili’s General and administrative increased $2.6 million as follows:

General and Administrative

Thirty-Nine Week Period Ended March 25, 2020 $ 23.5

Thirteen Week Period Ended September 23, 2020 $ 5.4

Defined contribution plan employer expenses (1)

Payroll-related expenses (1.7)

Travel and entertainment expenses (0.8)

Professional fees 0.3

Performance-based compensation (2)

Stock-based compensation 0.3

Thirty-Nine Week Period Ended March 24, 2021 $ 17.8

(1) Defined contribution plan employer expenses decreased due to the temporary suspension of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020.

Travel and entertainment expenses 0.1

Performance-based compensation (0.3)

Thirteen Week Period Ended September 29, 2021 $ 8.0

Employer matching contributions were reinstated beginning January 1, 2021.

(2) Performance-based compensation increased due to improved business performance metrics in fiscal 2021 and due to a prior year expense reduction to reflect a decline in the expected payout for fiscal 2020 caused by the negative impact of the COVID-19 pandemic.

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges):

Thirty-Nine Week Periods Ended

2021 March 25,

COVID-19 related charges $ 2.9 $ 13.8

Restaurant impairment charges 2.1 4.6

Restaurant closure charges 2.1 3.4

Remodel-related costs 1.8 2.1

Loss from natural disasters, net of (insurance recoveries) 1.3 (0.6)

Lease modification gain, net (0.5) (3.1)

Acquisition of franchise restaurants-related costs — 2.6

Other 1.4 1.1

$ 11.1 $ 23.9

Maggiano’s Segment

Thirteen Week Period Ended March 24, 2021 compared to March 25, 2020

Thirteen Week Period Ended September 29, 2021 compared to September 23, 2020

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

2021 March 25,

September 29,

2021 September 23,

Company sales $ 86.3 $ 53.2 $ 33.1 62.2 %

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Total revenues $ 88.8 $ 53.6 $ 35.2 65.7 %

Maggiano’s Total revenues decreased 31.6% primarily due to lower dining room guest traffic including lower banquet volumes driven by the COVID-19 pandemic, partially offset by increased off-premise sales.

Maggiano’s Total revenues increased 65.7% primarily due to higher dining and banquet room sales and traffic, and higher delivery sales, including virtual brands, partially offset by a decrease in To-Go sales.

Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 15.2 23.5 % $ 22.6 24.6 % $ 7.4 1.1 %

Restaurant labor 22.1 34.2 % 34.8 37.9 % 12.7 3.7 %

Restaurant expenses 21.7 33.5 % 26.9 29.4 % 5.2 (4.1) %

Depreciation and amortization 3.4 3.8 0.4

General and administrative 1.3 1.1 (0.2)

Other (gains) and charges 0.3 2.4 2.1

As a percentage of Company sales:

• Maggiano’s Food and beverage costs decreased 1.1%, including 2.4% of favorable menu item mix related to steak, produce and other items from menu changes, partially offset by 1.3% of unfavorable menu item mix related to poultry and non-alcoholic beverages.

• Maggiano’s Restaurant labor decreased 3.7%, including 7.1% of favorable hourly labor expenses and 1.1% of favorable manager expenses both due to reduced staffing requirements and 0.4% of lower other labor expenses, partially offset by 3.8% of sales deleverage, 0.7% of higher manager bonus expenses and 0.4% of higher employee health insurance expenses.

• Maggiano’s Restaurant expenses increased 4.1%, including 6.9% of sales deleverage and 2.0% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales.

Partial offsets include 1.5% of lower repairs and maintenance expenses, 0.8% of lower variable rent expenses, 0.5% of lower banquet expenses, 0.5% of lower credit card fees, 0.5% of lower utilities, 0.4% of lower advertising expenses and 0.6% of lower other restaurant expenses.

Thirty-Nine Week Period Ended March 24, 2021 compared to March 25, 2020

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

2021 March 25,

Company sales $ 181.1 $ 297.2 $ (116.1) (39.1) %

Royalties 0.1 0.1 0.0 — %

Franchise fees and other revenues 2.1 14.9 (12.8) (85.9) %

Franchise and other revenues 2.2 15.0 (12.8) (85.3) %

Total revenues $ 183.3 $ 312.2 $ (128.9) (41.3) %

Maggiano’s Total revenues decreased 41.3% primarily driven by reduced dining and banquet room traffic due to the COVID-19 pandemic, partially offset by increased off-premise sales.

Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

The following is a summary of the changes in Maggiano’s operating costs and expenses:

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 24, 2021 March 25, 2020

September 29, 2021 September 23, 2020

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales:

• Maggiano’s Food and beverage costs decreased 0.4%, including 1.9% of favorable menu item mix from menu changes and 0.1% of increased menu pricing, partially offset by 1.4% of unfavorable menu item mix related to poultry and non-alcoholic beverages and 0.2% of unfavorable commodity pricing.

• Maggiano’s Restaurant labor decreased 1.9%, including 6.2% of favorable hourly labor expenses and 1.1% of favorable manager expenses both due to reduced staffing requirements, partially offset by 5.0% of sales deleverage and 0.4% of higher employee health insurance expenses.

• Maggiano’s Restaurant expenses increased 7.6%, including 10.0% of sales deleverage and 2.0% of higher expenses related to delivery fees and supplies driven by the growth in off-premise sales, partially offset by 1.6% of lower repairs and maintenance expenses, 0.6% of lower credit card fees, 0.6% of lower advertising expenses, 0.5% lower banquet expenses, 0.4% of lower utilities, 0.2% of lower variable rent expenses and 0.5% of lower other restaurant expenses.

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2021 March 25,

2020 Change March 24,

2021 March 25,

Effective income tax rate 11.7 % (13.2) % 24.9 % 0.4 % (0.8) % 1.2 %

The federal statutory tax rate was 21.0% for the thirteen and thirty-nine week periods ended March 24, 2021 and March 25, 2020.

The effective income tax rate in the thirteen and thirty-nine week periods ended March 24, 2021 increased compared to the thirteen and thirty-nine week periods ended March 25, 2020 primarily due to leverage of the FICA

tip tax credit, partially offset by the favorable impact of excess tax benefits associated with stock-based compensation.

• Maggiano’s Food and beverage costs increased 0.3%, including 0.6% of unfavorable commodity pricing due to supply chain constraints and inflationary pressures resulting in higher seafood and other commodity costs, partially offset by 0.3% of favorable menu item mix.

• Maggiano’s Restaurant labor decreased 0.8%, including 9.0% of sales leverage, partially offset by 7.0% of higher restaurant labor costs primarily including wage rates, training and overtime, 1.1% of higher manager bonus expenses and 0.1% of higher other labor expenses.

• Maggiano’s Restaurant expenses decreased 8.3%, including 12.5% of sales leverage and 0.9% lower delivery fees and To-Go supplies, partially offset by 2.2% of higher repairs and maintenance expenses, 1.4% of higher advertising expenses, 1.4% of higher supervision expenses and 0.1% of higher other restaurant expenses.

Liquidity and Capital Resources

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Our strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic compared to other industry competitors.

Due to the uncertainty in the economy and to preserve liquidity, we took proactive precautionary measures to raise additional capital, reduce costs and pause non-critical projects that do not significantly impact our current operations.

These measures during fiscal 2021 included:

• Amended our revolving credit facility during the first quarter of fiscal 2021 to extend the maturity and provide additional flexibility during this time;

• Reduced capital expenditures, although we have begun to strategically resume the Chili’s remodel program and construction of certain new restaurants;

• Reduced marketing, general and administrative and restaurant expenses;

• Continued the suspension of the quarterly cash dividend and the share repurchase program;

• Amended the fiscal 2018 and fiscal 2019 U.S.

Consolidated Income tax returns in order to claim the increased depreciation deductions for Brinker’s qualified improvement property in accordance with the CARES Act which resulted in an anticipated refund of $4.6 million.

At the outset of the COVID-19 pandemic in fiscal 2020 and into early fiscal 2021, we took proactive precautionary measures to preserve liquidity, reduce costs and pause non-critical projects that did not significantly impact our current operations.

In the second half of fiscal 2021, our operational results and liquidity returned to pre-pandemic levels.

Beginning in the first quarter of fiscal 2022, we took or plan to take the following actions:

• Revised our revolving credit facility during the first quarter of fiscal 2022 to extend the maturity date and provide additional flexibility;

• Resumed the Chili’s and Maggiano’s remodel program and construction of new restaurants;

• Selectively increased marketing and restaurant expenses

• Reinstated the share repurchase program;

• Will repay $54.5 million of payroll taxes deferred in accordance with the CARES Act in two equal installments on December 31, 2021 and December 31, 2022.

Cash Flows from Operating Activities

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2021 March 25,

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Net cash provided by operating activities $ 40.2 $ 82.8 $ (42.6)

Net cash provided by operating activities increased primarily due to the deferral of payroll tax payments as allowed under the CARES Act and higher accounts payable due to the timing of other operational receipts and payments, partially offset by lower net income in the thirty-nine week period ended March 24, 2021.

Net cash provided by operating activities decreased primarily due to an increase in payments of performance based compensation and bonuses in the current year and to the impact of the deferral of payroll tax payments as allowed under the CARES Act in the prior year.

Cash Flows from Investing Activities

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2021 March 25,

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Cash flows from investing activities

Payments for property and equipment $ (37.3) $ (13.6) $ (23.7)

Proceeds from sale of assets 1.6 1.0 0.6

Proceeds from note receivable 1.5 2.2 (0.7)

Payments for franchise restaurant acquisitions (47.5) — (47.5)

Proceeds from sale leaseback transactions, net of related expenses 20.5 — 20.5

Proceeds from note receivable — 0.6 (0.6)

Net cash used in investing activities $ (64.3) $ (13.0) $ (51.3)

Net cash used in investing activities decreased primarily due to $94.6 million of cash consideration and related transactional charges paid for the purchase of 116 Chili’s restaurants from a franchisee in the prior year.

Additionally, capital expenditures decreased in fiscal 2021 primarily due to a decline in the pace of the Chili’s remodel initiative, the timing of spend on new restaurants, and a reduction in spend for routine capital purchases.

Net cash used in investing activities increased primarily due to $47.5 million of cash consideration paid for the purchase of 23 Chili’s restaurants from a franchisee.

Simultaneous with the acquisition, we completed sale leaseback transactions on six of the acquired restaurants resulting in $20.5 million in proceeds received.

Additionally, capital expenditures increased in fiscal 2022 primarily for equipment purchases and an increase in the pace of the Chili’s remodel initiative.

Subsequent to the end of the first quarter of fiscal 2022, we acquired 36 Chili’s restaurants located in the Great Lakes and Northeast region of the United States that were owned by a franchisee.

The purchase price of $55 million, excluding post-closing adjustments, was funded with availability under our existing revolving credit facility.

Cash Flows from Financing Activities

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2021 March 25,

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 29,

2021 September 23,

Cash flows from financing activities

Payments on revolving credit facility $ (210.0) $ (630.0) $ 420.0

Borrowings on revolving credit facility $ 285.0 $ 28.4 $ 256.6

Payments on long-term debt (14.3) (12.4) (1.9)

Payments on revolving credit facility (205.0) (75.0) (130.0)

Purchases of treasury stock (39.6) (3.9) (35.7)

Payments on long-term debt (5.5) (4.6) (0.9)

Payments for debt issuance costs (3.0) (1.5) (1.5)

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Proceeds from issuance of treasury stock 0.3 3.0 (2.7)

Net cash (used in) provided by financing activities $ (189.6) $ 89.4 $ (279.0)

Net cash used in financing activities increased primarily due to $181.6 million of net repayment activity in fiscal 2021 compared to $176.8 million of net borrowing activity in fiscal 2020 on the revolving credit facility, partially offset by the impact of suspending the dividend payments and share repurchases, and by an increase in proceeds from stock option exercises.

Net cash provided by (used in) financing activities $ 31.4 $ (54.9) $ 86.3

Net cash from financing activities increased primarily due to $80.0 million of net borrowing activity in fiscal 2022 compared to $46.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021.

Revolving Credit Facility

Net repayments of $181.6 million were made during the thirty-nine week period ended March 24, 2021 on the $1.0 billion revolving credit facility.

As of March 24, 2021, $708.7 million of credit was available under the revolving credit facility.

Additionally, subsequent to the end of the third quarter of fiscal 2021, $20.0 million of net payments were made on the revolving credit facility.

As of March 24, 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.

On August 18, 2021, we revised our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility.

Net borrowings of $80.0 million were drawn during the thirteen week period ended September 29, 2021 on the revolving credit facility.

As of September 29, 2021, $548.7 million of credit was available under the new revolving credit facility.

The $800.0 million revolving credit facility matures on August 18, 2026 and bears interest of LIBOR plus an applicable margin of 1.500% to 2.250% and an undrawn commitment fee of 0.250% to 0.350%, both based on a function of our debt-to-cash-flow ratio.

As of September 29, 2021, our interest rate was 1.875% consisting of LIBOR of 0.125% plus the applicable margin of 1.750%.

In the thirteen week period ended September 29, 2021, we incurred and capitalized $3.0 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets (Unaudited).

As of September 29, 2021, we were in compliance with our covenants pursuant to the $800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes.

Refer to Note 10 - Debt for further information about our notes and revolving credit facility.

Share Repurchase Program

In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the liquidity needs created by the COVID-19 pandemic.

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.

In the thirty-nine week period ended March 24, 2021, we repurchased 0.1 million shares related to shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares.

Before the suspension of our share repurchase program, i n the thirty-nine week period ended March 25, 2020, we repurchased 0.8 million shares of our common stock for $32.3 million.

Our share repurchase program is 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 (Unaudited).

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.

In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million.

In the thirteen week period ended September 29, 2021, we repurchased 0.8 million shares of our common stock for $39.6 million, including 0.7 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

As of September 29, 2021, approximately $265.0 million was available under our share repurchase authorizations.

Dividend Program

In the fourth quarter of fiscal 2020, our quarterly cash dividend was suspended in response to the liquidity needs created by the COVID-19 pandemic.

In the thirty-nine week period ended March 24, 2021, dividends paid related to the previously accrued dividends for restricted share awards that vested in the period.

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend in response to the liquidity needs created by the COVID-19 pandemic.

In the thirteen week periods ended September 29, 2021 and September 23, 2020, dividends paid related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period.

Restricted share award dividends are accrued 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.

In the thirty-nine week period ended March 25, 2020, we paid dividends of $43.3 million to common stock shareholders.

Cash Flow Outlook

We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations within the next year.

We continue to serve customers at substantially all of our locations through our dining rooms and off-premise offerings.

We will continue to monitor the situation and have resumed normal business operations in accordance with state and local mandates.

We continue to serve guests at all of our locations through our dining rooms and off-premise offerings, and have resumed normal business operations in accordance with state and local mandates.

We are not aware of any other event or trend that would potentially materially affect our liquidity.

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(1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us.

We have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 14 - Contingencies, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

We have entered into certain pre-commencement leases as disclosed in Note 9 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 14 - Contingencies, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

Other than these items, we do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

The impact of recent accounting pronouncements can be found at Note 2 - Effect of New Accounting Standards in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

The impact of recent accounting pronouncements can be found at Note 1 - Basis of Presentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis