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Item 1. Financial Statements

2022-05-04 compared with 2022-02-02 · 155 added, 134 removed, 520 unchanged (36% of the section changed)

3 unchanged sentences

(In millions, except per share amounts)

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 December 29,

2021 December 23,

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2022 March 24,

2021 March 30,

2022 March 24,

Company sales $ 960.6 $ 813.7 $ 2,724.7 $ 2,288.1

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Income before income taxes 38.7 38.4 81.2 56.8

Provision (benefit) for income taxes 1.5 ( 3.8 ) 1.7 ( 4.3 )

Provision for income taxes 2.1 4.5 3.8 0.2

Net income $ 36.6 $ 33.9 $ 77.4 $ 56.6

51 unchanged sentences

70.3 million shares issued;

and 44.6 million shares outstanding at December 29, 2021, and 45.9 million shares outstanding at June 30, 2021)

and 43.8 million shares outstanding at March 30, 2022, and 45.9 million shares outstanding at June 30, 2021)

Additional paid-in capital 687.8 685.4

1 unchanged sentence

Accumulated deficit ( 188.7 ) ( 266.1 )

Treasury stock, at cost ( 25.7 million shares at December 29, 2021, and 24.4 million shares at June 30, 2021)

Treasury stock, at cost ( 26.5 million shares at March 30, 2022, and 24.4 million shares at June 30, 2021)

( 812.5 ) ( 724.9 )

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(In millions)

Twenty-Six Week Periods Ended

2021 December 23,

Thirty-Nine Week Periods Ended

2022 March 24,

Cash flows from operating activities

25 unchanged sentences

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

Proceeds from sale of assets 0.0 1.3

Proceeds from note receivable 1.0 1.5

Proceeds from sale of assets 0.1 1.6

Net cash used in investing activities ( 193.4 ) ( 59.3 )

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Proceeds from issuance of treasury stock 0.4 14.1

Net cash provided by (used in) financing activities 42.4 ( 75.3 )

Net cash used in financing activities ( 29.2 ) ( 189.6 )

Net change in cash and cash equivalents ( 11.0 ) 19.7

23 unchanged sentences

and its subsidiaries and any predecessor companies of Brinker International, Inc.

Our Consolidated Financial Statements (Unaudited) as of December 29, 2021 and June 30, 2021, and for the thirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Our Consolidated Financial Statements (Unaudited) as of March 30, 2022 and June 30, 2021, and for the thirteen and thirty-nine week periods ended March 30, 2022 and March 24, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

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 December 29, 2021, we owned, operated or franchised 1,653 restaurants, consisting of 1,182 Company-owned restaurants and 471 franchised restaurants, located in the United States, 28 countries and two United States territories.

At March 30, 2022, we owned, operated or franchised 1,650 restaurants, consisting of 1,187 Company-owned restaurants and 463 franchised restaurants, located in the United States, 28 countries and two United States territories.

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

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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 (Unaudited), and the reported amounts of revenues and costs and expenses in the reporting periods.

The preparation of the Consolidated Financial Statements (Unaudited) 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 (Unaudited), and the reported amounts of revenues and costs and expenses in the reporting periods.

Actual results could differ from those estimates.

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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 primarily in fiscal 2021.

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, and has resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021.

Footnote Index

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CHILI’S RESTAURANT ACQUISITIONS

On October 31, 2021, we completed the acquisition of certain assets and liabilities related to 37 previously franchised Chili’s restaurants located in the Great Lakes and Northeast region of the United States, the “Great Lakes Region Acquisition.” 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 (Unaudited).

The total purchase price of $ 56.0 million, excluding post-closing adjustments, was funded with borrowings from our existing credit facility.

We accounted for this acquisition as a business combination.

The assets and liabilities of these restaurants were recorded at their preliminary fair values and are subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available.

The final purchase price allocation is expected to be completed during the third quarter of fiscal 2022.

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

On September 2, 2021, we completed the acquisition of certain assets and liabilities related to 23 previously franchised Chili’s restaurants located in the Mid-Atlantic region of the United States, the “Mid-Atlantic Region Acquisition.” 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 (Unaudited).

The total purchase price of $ 48.0 million, excluding post-closing adjustments, was funded with borrowings from our existing credit facility and proceeds from a sale leaseback transaction completed simultaneously with the acquisition (refer to Note 9 - Leases for further details on the sale leaseback transaction).

We accounted for this acquisition as a business combination.

The final purchase price allocation is expected to be completed during the third quarter of fiscal 2022.

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

During the first three quarters of fiscal 2022, we completed three acquisitions of certain assets and liabilities related to previously franchised Chili’s locations, as follows:

• Mid-Atlantic Region Acquisition - On September 2, 2021, we acquired 23 previously franchised Chili’s restaurants located in the Mid-Atlantic region of the United States for a total purchase price of $ 47.7 million, including post-closing adjustments.

The acquisition was funded with borrowings from our existing credit facility and proceeds from a sale leaseback transaction completed simultaneously with the acquisition (refer to Note 9 - Leases for further details on the sale leaseback transaction).

• Great Lakes Region Acquisition - On October 31, 2021, we acquired 37 previously franchised Chili’s restaurants located in the Great Lakes and Northeast region of the United States for a total purchase price of $ 56.0 million, excluding post-closing adjustments, funded with borrowings from our existing credit facility.

• Northwest Region Acquisition - On February 1, 2022, we acquired six previously franchised Chili’s restaurants located in the Northwest region of the United States for a total purchase price of $ 1.3 million, excluding post-closing adjustments, funded with borrowings from our existing credit facility.

Pro-forma financial information for these acquisitions are not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements (Unaudited).

We accounted for each of these acquisitions as a business combination.

The assets and liabilities of the Mid-Atlantic Region Acquisition restaurants were recorded at their fair values.

The assets and liabilities of the Great Lakes Region Acquisition and Northwest Region Acquisition restaurants were recorded based on preliminary estimates of their fair values and are subject to revision.

The final purchase price allocations are expected to be completed during the fourth quarter of fiscal 2022.

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

The fair values of tangible and intangible assets acquired were primarily based on significant inputs not observable in an active market, including estimates of replacement costs, future cash flows and discount rates.

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represent Level 3 fair value measurements as defined under GAAP.

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

Mid-Atlantic Region Great Lakes Region

Fair Value September 2, 2021 Fair Value October 31, 2021

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

Mid-Atlantic Region Great Lakes Region (Preliminary)

Current assets $ 1.4 $ 2.1

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Footnote Index

The following table reflects the changes in deferred franchise and development fees between June 30, 2021 and December 29, 2021:

The following table reflects the changes in deferred franchise and development fees between June 30, 2021 and March 30, 2022:

Deferred Franchise and Development Fees

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Amount recognized to Franchise and other revenues ( 1.3 )

Balance as of December 29, 2021 $ 10.6

Balance as of March 30, 2022 $ 10.1

(1) The remaining deferred franchise and development fee balances associated with the 66 acquired Chili’s restaurants were recognized as of the acquisition dates in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited).

Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.

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 December 29, 2021:

Fiscal Year Franchise and Development Fees Revenue Recognition

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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 between June 30, 2021 and December 29, 2021:

The following table reflects the changes in the Gift card liability between June 30, 2021 and March 30, 2022:

Gift Card Liability

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Gift card breakage recognized to Franchise and other revenues ( 16.5 )

Balance as of December 29, 2021

Balance as of March 30, 2022

Footnote Index

1 unchanged sentence

Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited) consist of the following:

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 December 29,

2021 December 23,

Lease contingencies $ 2.9 $ — $ 2.9 $ —

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2022 March 24,

2021 March 30,

2022 March 24,

Restaurant closure charges $ 1.2 $ 0.3 $ 1.7 $ 2.2

Remodel-related costs 0.9 0.9 4.0 1.8

COVID-19 related charges 0.7 0.9 0.2 3.1

Acquisition-related costs, net 0.6 — 1.5 —

Enterprise system implementation costs 0.5 — 1.4 —

Restaurant closure charges 0.3 0.4 0.5 1.9

COVID-19 related charges ( 0.8 ) 1.0 ( 0.5 ) 2.2

Loss from natural disasters, net of (insurance recoveries) — 1.8 0.8 2.0

Lease contingencies — — 2.9 —

Restaurant impairment charges — — — 2.5

1 unchanged sentence

$ 6.1 $ 4.3 $ 17.0 $ 13.5

• Restaurant closure charges related to closure costs and leases associated with certain closed Chili’s restaurants.

• Remodel-related costs related to existing fixed asset write-offs associated with ongoing Chili’s and Maggiano’s remodel projects.

• COVID-19 related charges primarily consisted of charges for employee assistance and related payroll taxes for certain team members partially offset by an employee retention credit as allowed under the CARES Act in the second quarter and credits received as part of the 2021 New Mexico Senate Bill 1 in the first quarter.

• Acquisition-related costs, net primarily related to the 66 restaurants acquired from franchisees during the first three quarters.

Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.

• Enterprise system implementation costs primarily consisted of consulting and subscription fees related to the ongoing enterprise system implementation.

• Lease contingencies were recorded for potential lease defaults on certain lease guarantees and subleases.

Refer to Note 14 - Contingencies for additional information about our secondarily liable lease guarantees.

• Remodel-related costs related to existing fixed asset write-offs associated with the ongoing Chili’s and Maggiano’s remodel projects.

• Acquisition-related costs, net primarily related to the 60 restaurants acquired from franchisees in the first and the second quarter, refer to Note 2 - Chili’s Restaurant Acquisitions for further details.

• Enterprise system implementation costs primarily consisted of consulting fees and subscription fees related to the ongoing enterprise system implementation.

• Restaurant closure charges primarily related to closure costs and leases associated with certain closed Chili’s restaurants.

• COVID-19 related charges primarily consisted of an employee retention credit as allowed under the CARES Act in the second quarter and credits received as part of the 2021 New Mexico Senate Bill 1 in the first quarter, partially offset by charges for employee assistance and related payroll taxes for certain team members.

• Restaurant closure charges in the thirty-nine week period related to closure costs and leases associated with certain closed Chili’s restaurants.

• Remodel-related costs related to fixed asset disposals associated with the ongoing Chili’s remodel initiative.

• Restaurant closure charges primarily related to closure costs and leases associated with certain closed Chili’s restaurants.

• COVID-19 related charges primarily consisted of employee assistance costs and other expenses for the conversion of certain parking lots into dining areas, and initial purchases of face masks and hand sanitizers required to reopen dining rooms.

• Restaurant impairment charges primarily related to the long-lived and operating lease assets of 10 underperforming Chili’s restaurants and three underperforming Maggiano’s restaurants that we continue to operate.

• COVID-19 related charges in the thirty-nine week period ended March 24, 2021 consisted of the 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.

Footnote Index

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 December 29,

2021 December 23,

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

• Restaurant impairment charges primarily related to the long-lived and operating lease assets of 10 underperforming Chili’s restaurants and three underperforming Maggiano’s restaurants.

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2022 March 24,

2021 March 30,

2022 March 24,

Effective income tax rate 5.4 % 11.7 % 4.7 % 0.4 %

The federal statutory tax rate for the periods presented was 21.0 %.

Our effective income tax rate for the thirteen and twenty-six week periods ended December 29, 2021 was lower than the federal statutory rate primarily due to the favorable impact from the FICA tip tax credit.

The twenty-six week period ended December 29, 2021 also included the favorable impact of excess tax benefits associated with stock-based compensation.

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:

Twenty-Six Week Period Ended

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

Thirty-Nine Week Period Ended

Income tax expense at statutory rate - 21.0 %

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Other ( 1.2 )

Provision (benefit) for income taxes - 4.0 %

Our effective income tax rate for the thirteen and twenty-six week periods ended December 23, 2020 was lower than the federal statutory rate due to the favorable impact from the FICA tip tax credit.

The twenty-six week period ended December 23, 2020 also included the favorable impact of excess tax benefits associated with stock-based compensation.

Provision for income taxes - 4.7 %

NET INCOME PER SHARE

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

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 December 29,

2021 December 23,

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2022 March 24,

2021 March 30,

2022 March 24,

Basic weighted average shares outstanding 44.4 45.5 45.2 45.3

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

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

Franchise and other revenues for each operating segment include royalties, gift card breakage, delivery income, Maggiano’s banquet service charge income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization 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.

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

Restaurant expenses during the periods presented primarily included restaurant rent, supplies, utilities, property and equipment maintenance, delivery fees, credit card processing fees, property taxes and worker’s comp and general liability insurance.

Restaurant expenses during the periods presented primarily included restaurant rent, supplies, property and equipment maintenance, delivery fees, utilities, credit card processing fees, property taxes, supervision expenses, and worker’s comp and general liability insurance.

Footnote Index

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

Thirteen Week Period Ended December 29, 2021

Thirteen Week Period Ended March 30, 2022

Maggiano’s Other Consolidated

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Income (loss) before income taxes $ 72.0 $ 7.5 $ ( 40.8 ) $ 38.7

Footnote Index

Thirteen Week Period Ended December 23, 2020

Thirteen Week Period Ended March 24, 2021

Chili’s Maggiano’s Other Consolidated

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Income (loss) before income taxes $ 79.0 $ 1.4 $ ( 42.0 ) $ 38.4

Twenty-Six Week Period Ended December 29, 2021

Footnote Index

Thirty-Nine Week Period Ended March 30, 2022

Maggiano’s Other Consolidated

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Payments for property and equipment 96.7 6.8 5.5 109.0

Footnote Index

Twenty-Six Week Period Ended December 23, 2020

Thirty-Nine Week Period Ended March 24, 2021

Chili’s Maggiano’s Other Consolidated

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Payments for property and equipment $ 56.3 $ 1.4 $ 4.7 $ 62.4

(1) Chili’s segment information for fiscal 2022 includes the results of operations and the preliminary fair value of assets related to the 60 restaurants purchased from two former franchisees subsequent to the acquisition dates.

Footnote Index

(1) Chili’s segment information for fiscal 2022 includes the results of operations and the fair values of assets related to the 66 restaurants purchased from three former franchisees subsequent to the acquisition dates.

Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.

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

Intangibles, net included accumulated amortization associated with definite-lived intangible assets at December 29, 2021 and June 30, 2021, of $ 10.8 million and $ 9.6 million, respectively.

Footnote Index

Intangibles, net included accumulated amortization associated with definite-lived intangible assets at March 30, 2022 and June 30, 2021, of $ 11.8 million and $ 9.6 million, respectively.

Definite Lived Assets Impairment

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

During the thirteen and twenty-six week periods ended December 29, 2021, no indicators of impairment were identified.

During the thirteen and thirty-nine week periods ended March 30, 2022, no indicators of impairment were identified.

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.

During the thirteen and twenty-six week periods ended December 29, 2021 and December 23, 2020, no indicators of impairment were identified.

During the thirteen and thirty-nine week periods ended March 30, 2022 and March 24, 2021, no indicators of impairment were identified.

We review the carrying amounts of goodwill annually or when events or circumstances indicate that the carrying amount may not be recoverable.

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We performed our annual goodwill impairment analysis in the second quarter of fiscal 2022 using a qualitative approach based on these factors and no indicators of impairment were identified.

During the thirteen and twenty-six week periods ended December 29, 2021, management concluded that no triggering event occurred.

During the thirteen and thirty-nine week periods ended March 30, 2022, management concluded that no triggering event occurred.

Footnote Index

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.

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Chili’s Restaurant Acquisitions

In the first two quarters of fiscal 2022, we completed the acquisition of 60 Chili’s restaurants from two former franchisees.

In the first three quarters of fiscal 2022, we completed the acquisition of 66 Chili’s restaurants from three former franchisees.

The preliminary fair value of assets acquired and liabilities assumed for these restaurants utilized Level 3 inputs.

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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.

Footnote Index

Long-Term Debt

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The carrying amounts and fair values of the 3.875 % notes and 5.000 % notes, net of unamortized debt issuance costs and discounts, are as follows:

December 29, 2021 June 30, 2021

March 30, 2022 June 30, 2021

Carrying Amount Fair Value Carrying Amount Fair Value

7 unchanged sentences

The components of lease expenses included in the Consolidated Statements of Comprehensive Income (Unaudited) were as follows:

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2021 December 23,

2020 December 29,

2021 December 23,

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2022 March 24,

2021 March 30,

2022 March 24,

Operating lease cost $ 44.1 $ 41.9 $ 128.7 $ 125.6

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Total lease costs, net $ 64.4 $ 61.3 $ 191.8 $ 183.0

Footnote Index

Pre-Commencement Leases

As of the end of the second quarter of fiscal 2022, we have 17 pre-commencement leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 25.4 million.

As of the end of the third quarter of fiscal 2022, we have 18 pre-commencement leases for new Chili’s locations with undiscounted fixed payments of $ 25.5 million over the initial term.

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

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Significant Changes in Leases during the Period

In the first quarter of fiscal 2022, as part of the Chili’s Mid-Atlantic Region Acquisition, we assumed 11 new real estate operating leases included in the balances at December 29, 2021.

At December 29, 2021, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 23.3 million, Operating lease liabilities of $ 0.6 million, and Long-term operating lease liabilities, less current portion of $ 22.9 million.

In the first quarter of fiscal 2022, as part of the Chili’s Mid-Atlantic Region Acquisition, we assumed 11 new real estate operating leases.

At March 30, 2022, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 23.1 million, Operating lease liabilities of $ 0.6 million, and Long-term operating lease liabilities, less current portion of $ 22.7 million.

The leases were recorded net of prepaid rent at the date of acquisition.

In the second quarter of fiscal 2022, as part of the Chili’s Great Lakes Region Acquisition, we assumed 26 new real estate operating leases included in the balances at December 29, 2021.

At December 29, 2021, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 47.7 million, Operating lease liabilities of $ 1.5 million, and Long-term operating lease liabilities, less current

Footnote Index

portion of $ 46.7 million.

In the second quarter of fiscal 2022, as part of the Chili’s Great Lakes Region Acquisition, we assumed 26 new real estate operating leases.

At March 30, 2022, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 46.6 million, Operating lease liabilities of $ 1.6 million, and Long-term operating lease liabilities, less current portion of $ 45.8 million.

The leases were recorded net of purchase price accounting adjustments and prepaid rent at the date of acquisition.

In the third quarter of fiscal 2022, as part of the Chili’s Northwest Region Acquisition, we assumed 3 new real estate operating leases.

At March 30, 2022, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 5.5 million, Operating lease liabilities of $ 0.1 million, and Long-term operating lease liabilities, less current portion of $ 5.4 million.

The leases were recorded net of prepaid rent at the date of acquisition.

Refer to Note 2 - Chili’s Restaurant Acquisitions for further details.

In the third quarter of fiscal 2022, we completed lease modifications related to 25 real estate leases that were previously classified as finance leases.

As a result of the modifications, the lease terms are for 20 years and the leases were reassessed as operating leases.

At March 30, 2022, the balances associated with these leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 48.3 million, Operating lease liabilities of $ 1.0 million, and Long-term operating lease liabilities, less current portion of $ 47.6 million.

Also, as a result of these modifications, the finance lease asset and lease liability balances decreased in the Consolidated Balance Sheets (Unaudited) including decreases to Buildings and leasehold improvements of $ 17.4 million, Other accrued liabilities of $ 2.8 million and Long-term debt and finance leases, less current installments of $ 15.0 million.

Restaurant Properties Sale Leaseback Transaction

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Rent expenses associated with these operating leases are recognized on a straight-line basis over the lease terms under ASC 842.

At December 29, 2021, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 18.1 million, Operating lease liabilities of $ 0.4 million, and Long-term operating lease liabilities, less current portion of $ 17.7 million.

At March 30, 2022, the balances associated with these new leases in the Consolidated Balance Sheets (Unaudited) include Operating lease assets of $ 17.9 million, Operating lease liabilities of $ 0.4 million, and Long-term operating lease liabilities, less current portion of $ 17.6 million.

Footnote Index

Long-term debt consists of the following:

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Long-term debt and finance leases, less current installments $ 987.9 $ 917.9

(1) 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 (Unaudited).

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

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

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On August 18, 2021, we revised our existing $ 1.0 billion revolving credit facility to an $ 800.0 million revolving credit facility to extend the maturity date and provide additional flexibility.

In the twenty-six week period ended December 29, 2021, net borrowings of $ 132.5 million were drawn on the revolving credit facility.

As of December 29, 2021, $ 496.2 million of credit was available under the new revolving credit facility.

In the thirty-nine week period ended March 30, 2022, net borrowings of $ 93.0 million were drawn on the revolving credit facility.

As of March 30, 2022, $ 535.7 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 December 29, 2021, our interest rate was 1.875 % consisting of LIBOR of 0.125 % plus the applicable margin of 1.750 %.

In the twenty-six week period ended December 29, 2021, we incurred and capitalized $ 3.1 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets (Unaudited).

As of March 30, 2022, our interest rate was 2.250 % consisting of LIBOR of 0.500 % plus the applicable margin of 1.750 %.

In the thirty-nine week period ended March 30, 2022, we incurred and capitalized $ 3.1 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets (Unaudited).

Financial Covenants

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

As of December 29, 2021, we were in compliance with our covenants pursuant to the $800.0

Footnote Index

million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes .

As of March 30, 2022, 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 .

We expect to remain in compliance with our covenants during the remainder of fiscal 2022.

Footnote Index

ACCRUED AND OTHER LIABILITIES

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2022 June 30,

Property tax $ 25.7 $ 22.4

Current installments of finance leases 23.9 21.5

Insurance $ 21.7 $ 21.7

Current installments of long-term debt and finance leases 21.1 21.5

Property tax 19.0 22.4

Sales tax 18.8 23.2

2 unchanged sentences

$ 125.2 $ 117.4

(1) Other primarily consists of contingent lease liabilities related to our lease guarantees, guest deposits for Maggiano’s banquets, rent-related accruals, certain exit-related lease accruals, deferred franchise and development fees, charitable donations and other various accruals.

Refer to Note 14 - Contingencies for additional information about our secondarily liable lease guarantees.

(1) Other primarily consists of guest deposits for Maggiano’s banquets, state income taxes payable, contingent lease liabilities related to our lease guarantees, rent-related accruals, deferred franchise and development fees, charitable donations and other various accruals.

Refer to Note 14 - Contingencies for additional information about our lease guarantees.

Other liabilities consist of the following:

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Insurance $ 38.6 $ 35.0

Deferred payroll taxes (1)

Deferred franchise and development fees 9.1 10.4

Unrecognized tax benefits 2.7 3.5

Deferred payroll taxes (1)

Other 5.3 5.9

$ 55.7 $ 82.0

(1) Deferred payroll taxes consists 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.

(1) Deferred payroll taxes consisted of the employer portion of certain payroll related taxes that were deferred as allowed under the CARES Act.

The first installment, due on December 31, 2021, was paid during the second quarter of fiscal 2022.

The second installment, due on December 31, 2022, is classified within Accrued payroll in the Consolidated Balance Sheets (Unaudited).

Footnote Index

SHAREHOLDERS’ DEFICIT

The changes in Total shareholders’ deficit during the twenty-six week periods ended December 29, 2021 and December 23, 2020, respectively, were as follows:

Twenty-Six Week Period Ended December 29, 2021

The changes in Total shareholders’ deficit during the thirty-nine week periods ended March 30, 2022 and March 24, 2021, respectively, were as follows:

Thirty-Nine Week Period Ended March 30, 2022

Common Stock Additional

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Balances at December 29, 2021 $ 7.0 $ 683.7 $ ( 225.3 ) $ ( 787.6 ) $ ( 5.2 ) $ ( 327.4 )

Twenty-Six Week Period Ended December 23, 2020

Net income — — 36.6 — — 36.6

Other comprehensive income — — — — 0.4 0.4

Dividends — — — — — —

Stock-based compensation — 5.3 — — — 5.3

Purchases of treasury stock — — — ( 26.1 ) — ( 26.1 )

Issuances of treasury stock — ( 1.2 ) — 1.2 — —

Balances at March 30, 2022 $ 7.0 $ 687.8 $ ( 188.7 ) $ ( 812.5 ) $ ( 4.8 ) $ ( 311.2 )

Footnote Index

Thirty-Nine Week Period Ended March 24, 2021

Common Stock Additional

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Balances at December 23, 2020 $ 7.0 $ 667.4 $ ( 374.8 ) $ ( 738.3 ) $ ( 5.4 ) $ ( 444.1 )

Net income — — 33.9 — — 33.9

Other comprehensive income — — — — 0.3 0.3

Dividends — — 0.0 — — 0.0

Stock-based compensation — 4.4 — — — 4.4

Purchases of treasury stock — ( 0.1 ) — ( 0.1 ) — ( 0.2 )

Issuances of treasury stock — 5.7 — 9.4 — 15.1

Balances at March 24, 2021 $ 7.0 $ 677.4 $ ( 340.9 ) $ ( 729.0 ) $ ( 5.1 ) $ ( 390.6 )

Share Repurchases

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

Footnote Index

planned investment and financing needs.

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).

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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 twenty-six week period ended December 29, 2021, we repurchased 1.6 million shares of our common stock for $ 74.7 million, including 1.5 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 December 29, 2021, approximately $ 230.0 million was available under our share repurchase authorizations.

In the thirty-nine week period ended March 30, 2022, we repurchased 2.4 million shares of our common stock for $ 100.8 million, including 2.3 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 March 30, 2022, approximately $ 204.0 million was available under our share repurchase authorizations.

Footnote Index

Stock-based Compensation

The following table presents the restricted share awards granted and related weighted average fair value per share amounts.

Twenty-Six Week Periods Ended

2021 December 23,

Thirty-Nine Week Periods Ended

2022 March 24,

Restricted share awards

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

In the twenty-six week periods ended December 29, 2021 and December 23, 2020, dividends paid were solely related to the accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period.

In the thirty-nine week periods ended March 30, 2022 and March 24, 2021, dividends paid were solely related to the 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.

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Cash paid for income taxes and interest is as follows:

Twenty-Six Week Periods Ended

2021 December 23,

Thirty-Nine Week Periods Ended

2022 March 24,

Income taxes, net of (refunds)

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Non-cash operating, investing and financing activities are as follows:

Twenty-Six Week Periods Ended

2021 December 23,

Thirty-Nine Week Periods Ended

2022 March 24,

Operating lease additions (1)

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Retirement of fully depreciated assets (2)

(1) The twenty-six week period ended December 29, 2021 primarily included operating lease additions associated with the 60 restaurants purchased from two former franchisees.

(1) The thirty-nine week period ended March 30, 2022 primarily included operating lease additions associated with the 66 restaurants purchased from three former franchisees and the modifications of 25 leases.

Refer to Note 2 - Chili’s Restaurant Acquisitions and to Note 9 - Leases for further details.

Footnote Index

(2) The thirty-nine week period ended March 30, 2022 included the retirement of fully depreciated assets no longer in use based on a periodic review performed during fiscal 2022.

CONTINGENCIES

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We have, in certain cases, divested brands or sold restaurants to franchisees and have not been released from lease guarantees for the related restaurants.

As of December 29, 2021 and June 30, 2021, we have outstanding lease guarantees or are secondarily liable for an estimated $ 31.9 million and $ 29.2 million, respectively.

As of March 30, 2022 and June 30, 2021, we have outstanding lease guarantees or are secondarily liable for an estimated $ 28.7 million and $ 29.2 million, respectively.

These amounts represent the maximum potential liability of 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 2032.

Footnote Index

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.

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.

As of December 29, 2021, we have recorded contingent liabilities of $ 4.0 million for our estimated exposure of the lease defaults related to these lease guarantees.

As of March 30, 2022, we have contingent liabilities of $ 3.2 million for our estimated exposure of the lease defaults related to these lease guarantees.

These contingent liabilities are classified within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited).

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We provide letters of credit to various insurers to collateralize obligations for outstanding claims.

As of December 29, 2021, we had $ 5.8 million in undrawn standby letters of credit outstanding.

As of March 30, 2022, we had $ 5.8 million in undrawn standby letters of credit outstanding.

All standby letters of credit are renewable within the next 7 months.

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In the Litigation, plaintiffs assert various claims 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 November 16, 2021, we submitted our appellate brief to the 11 th Circuit Court of Appeals seeking to overturn the district court’s class certification orders.

The US Chamber of Commerce and the Restaurant Law Center/Retail Litigation Center/National Retail Federation filed respective amicus briefs in support of our position two weeks later.

Plaintiffs filed their response brief on January 6, 2022.

Our reply brief is due on February 28, 2022.

Briefing of our appeal to the 11 th Circuit Court of Appeals seeking to overturn the district court’s class certification orders is complete.

Oral argument of the appeal is scheduled for June 8, 2022 in Jacksonville, Florida.

We believe we have defenses and intend to continue defending the Litigation.

As such, as of December 29, 2021, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation.

As such, as of March 30, 2022, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation.

We will continue to evaluate this matter based on new information as it becomes available.

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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 1. Financial Statements