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Item 8. Financial Statements and Supplementary Data

2022-08-26 compared with 2021-08-26 · 374 added, 440 removed, 768 unchanged (51% of the section changed)

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Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ( KPMG LLP , Dallas, TX , Auditor Firm ID:

Management’s Report on Internal Control over Financial Reporting

Consolidated Statements of Comprehensive Income - Fiscal Years Ended June 29, 2022, June 30, 2021 and June 24, 2020

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Brinker International, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Brinker International, Inc.

and subsidiaries (the Company) as of June 29, 2022 and June 30, 2021, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended June 29, 2022, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 29, 2022 and June 30, 2021, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended June 29, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 26, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of gift card breakage revenue

As discussed in Notes 1 and 3 to the consolidated financial statements, gift card breakage revenue represents the monetary value associated with outstanding gift card balances that will not be redeemed.

The Company estimates this amount based on the historical gift card redemption patterns and recognizes the estimated breakage as revenue in proportion to the pattern of related gift card redemptions.

The gift card breakage revenue recognized for the year ended June 29, 2022 was $36.1 million.

We identified the assessment of gift card breakage revenue as a critical audit matter.

Subjective auditor judgment was required to evaluate the Company’s assessment of the trends in historical and expected future redemption patterns as well as the actuarial models utilized to update the breakage rate.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s gift card breakage revenue process.

This included controls related to the Company’s estimation of the breakage rate, review of the actuarial models used, and the timing of breakage revenue recognition.

We assessed breakage revenue by comparing the Company’s estimated breakage rate to rates derived from historical redemption data.

We evaluated the timing of breakage revenue recognition by analyzing historical redemption patterns and assessing the volume of redemptions subsequent to the period of breakage revenue recognition.

We also involved actuarial professionals with specialized skills and knowledge, who assisted in assessing the reasonableness of the actuarial models by comparing them to generally accepted actuarial standards.

We have served as the Company’s auditor since 1984.

Dallas, Texas

August 26, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Brinker International, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Brinker International, Inc.

and subsidiaries' (the Company) internal control over financial reporting as of June 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 29, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 29, 2022 and June 30, 2021, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended June 29, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated August 26, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Dallas, Texas

August 26, 2022

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

We have assessed the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment, we concluded that our internal control over financial reporting was effective as of June 29, 2022.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The effectiveness of our internal control over financial reporting as of June 29, 2022 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein.

BRINKER INTERNATIONAL, INC.

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Fiscal Years Ended

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

June 29, 2022 June 30, 2021 (1)

June 24, 2020

Company sales $ 3,712.1 $ 3,279.0 $ 3,004.9

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Comprehensive income $ 117.0 $ 133.1 $ 23.8

(1) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

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

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

See accompanying Notes to Consolidated Financial Statements

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$ 0.10 par value;

70.3 million shares issued and 45.9 million shares outstanding at June 30, 2021, and 70.3 million shares issued and 45.0 million shares outstanding at June 24, 2020)

70.3 million shares issued;

43.8 million shares outstanding at June 29, 2022, and 45.9 million shares outstanding at June 30, 2021)

Additional paid-in capital 690.9 685.4

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Depreciation and amortization 164.4 150.2 162.3

Stock-based compensation 16.4 14.8 16.4

Restructure and impairment charges 20.3 9.8 28.9

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

Stock-based compensation 18.6 16.4 14.8

Net loss on disposal of assets 3.4 1.8 1.2

Other 3.0 3.7 2.8

Changes in assets and liabilities:

Changes in assets and liabilities, net of the impact of acquisitions:

Accounts receivable, net 3.4 ( 9.9 ) 4.1

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Prepaid expenses ( 12.2 ) 0.3 7.2

Current income taxes 14.4 14.7 ( 20.7 )

Operating lease assets, net of liabilities 3.4 ( 27.6 ) 3.6

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Other accrued liabilities ( 2.0 ) 6.3 4.0

Current income taxes 14.7 ( 20.7 ) ( 12.7 )

Other liabilities ( 28.7 ) 13.8 9.4

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Payments for property and equipment ( 150.3 ) ( 94.0 ) ( 104.5 )

Proceeds from sale of assets 1.6 1.2 1.6

Proceeds from note receivable 1.5 2.8 2.8

Payments for franchise restaurant acquisitions ( 106.6 ) — ( 94.6 )

Insurance recoveries — 1.1 1.7

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

Net cash (used in) provided by investing activities ( 90.9 ) ( 194.0 ) 321.3

Proceeds from note receivable 2.1 1.5 2.8

Proceeds from sale of assets 0.1 1.6 1.2

Insurance recoveries — — 1.1

Net cash used in investing activities ( 234.2 ) ( 90.9 ) ( 194.0 )

Cash flows from financing activities

Payments on revolving credit facility ( 345.0 ) ( 858.8 ) ( 1,150.0 )

Borrowings on revolving credit facility 720.5 43.4 808.4

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

Payments on revolving credit facility ( 620.5 ) ( 345.0 ) ( 858.8 )

Purchases of treasury stock ( 100.9 ) ( 4.2 ) ( 32.4 )

Payments on long-term debt ( 23.7 ) ( 20.0 ) ( 17.8 )

Payments for debt issuance costs ( 3.1 ) ( 2.2 ) ( 3.2 )

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Common Stock Additional

Capital Retained Earnings (Accumulated Deficit) Treasury

Capital Accumulated Deficit Treasury

Stock Accumulated

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Net income — — — 24.4 — — 24.4

Other comprehensive income — — — — — 0.2 0.2

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

Dividends ($ 1.14 per share)

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Purchases of treasury stock ( 0.8 ) — ( 0.3 ) — ( 32.1 ) — ( 32.4 )

Issuances of treasury stock 0.2 — ( 5.3 ) — 6.9 — 1.6

Issuances of common stock 8.1 0.8 138.3 — — — 139.1

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

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

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

Net income — — — 131.6 — — 131.6

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

Dividends ($ 1.14 per share)

— — — ( 43.6 ) — — ( 43.6 )

Other comprehensive income — — — — — 1.5 1.5

Dividends — — — ( 0.2 ) — — ( 0.2 )

Stock-based compensation — — 16.4 — — — 16.4

Purchases of treasury stock ( 0.1 ) — ( 1.2 ) — ( 3.0 ) — ( 4.2 )

Issuances of common stock 8.3 0.8 133.0 — 6.9 — 140.7

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

Issuances of treasury stock 1.0 — 0.8 — 29.9 — 30.7

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

Net income — — — 117.6 — — 117.6

Other comprehensive income — — — — — 1.5 1.5

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

Dividends — — — 0.1 — — 0.1

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Purchases of treasury stock ( 2.4 ) — ( 2.0 ) — ( 98.9 ) — ( 100.9 )

Issuances of common stock 1.0 — 0.8 — 29.9 — 30.7

Issuances of treasury stock 0.3 — ( 11.1 ) — 11.5 — 0.4

Balances at June 29, 2022 43.8 $ 7.0 $ 690.9 $ ( 148.4 ) $ ( 812.3 ) $ ( 5.3 ) $ ( 268.1 )

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Nature of Operations and Summary of Significant Accounting Policies 51

Effect of New Accounting Standards 55

Chili's Restaurant Acquisitions 57

Revenue Recognition 58

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Commitments and Contingencies 78

Fiscal 2020 Chili's Restaurant Acquisition 77

Subsequent Events 78

Footnote Index

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Nature of Operations

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

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

On June 29, 2022, we owned, operated or franchised 1,650 restaurants, consisting of 1,188 Company-owned restaurants and 462 franchised restaurants, located in the United States, 28 countries and two United States territories.

Basis of Presentation

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

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

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

Fiscal 2022 and Fiscal 2020, which ended on June 29, 2022 and June 24, 2020, respectively, each contained 52 weeks.

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

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

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Impact of COVID-19 Pandemic

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

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

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

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

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

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

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

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

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 and fiscal 2020.

In fiscal 2022, we have experienced limited product shortages and service disruptions in our supply chain, limited availability of labor to operate our restaurants due to a tight labor market and an increase in employee turnover.

It is possible that supply chain and labor shortages or disruptions could continue or increase in future periods if demand for goods, transportation and labor remains high.

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

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New Accounting Standards Implemented

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

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

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

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

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

The update was applied on a prospective basis.

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

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

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

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

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

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

The update was applied on a prospective basis.

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

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

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

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

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

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

We reviewed all accounting pronouncements that became effective for our fiscal 2022 and determined that either they were not applicable or they did not have a material impact on the Consolidated Financial Statements.

We also reviewed all recently issued accounting pronouncements to be adopted in future periods and determined that they are not expected to have a material impact on the Consolidated Financial Statements.

Significant Accounting Policies

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

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

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

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

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

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

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

Footnote Index

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

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

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

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

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

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

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

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

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

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

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

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

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

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Other advertising costs are expensed as incurred.

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

In the fiscal years ended June 29, 2022, June 30, 2021 and June 24, 2020, advertising expenses of $ 37.4 million, $ 26.4 million and $ 87.0 million, respectively, were included in Restaurant expenses, and advertising contributions from franchisees of $ 2.4 million, $ 2.8 million and $ 9.7

Footnote Index

million, respectively, were recorded in Franchise and other revenues in the Consolidated Statements of Comprehensive Income.

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

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

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

Provisions for credit losses are recorded based

Footnote Index

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

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

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

Accounts receivable are written off when they are deemed uncollectible.

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Major replacements and improvements are capitalized.

We review the carrying amount of property and equipment semi-annually or when events or circumstances indicate that the carrying amount may not be recoverable.

We review the carrying amount of property and equipment on an annual basis or when events or circumstances indicate that the carrying amount may not be recoverable.

We have determined the restaurant level is the lowest level of identifiable cash flows.

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

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

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

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

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

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

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

Footnote Index

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

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

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

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

Our adjustments typically include prepaid rent, landlord contributions as a reduction to the asset and favorable or unfavorable lease purchase price adjustments.

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

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

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

Footnote Index

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

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

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

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

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

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

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

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

Subsequent index changes are recorded as variable rental payments.

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

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

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

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

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

If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value.

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

Transferable liquor licenses are tested for impairment semi-annually or more frequently if events or circumstances indicate that the asset might be impaired.

Transferable liquor licenses are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired.

Impairment charges are recognized based on the excess of carrying value over fair value.

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

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

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

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During fiscal 2022 and fiscal 2021, we performed our annual goodwill impairment analysis using a qualitative approach to determine whether indicators of impairment exist.

Related to the qualitative assessment, we evaluated factors including our market capitalization, as well as the market capitalization of other companies in the restaurant industry, sales at our restaurants and significant adverse changes in the operating environment for the restaurant industry.

Based on these factors, no indicators of impairment were identified during our annual analysis performed in the second quarters of fiscal 2022 and fiscal 2021.

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

During fiscal 2020, we performed a quantitative assessment in response to observed declines in operating cash flows and market capitalization primarily driven by the impact of the COVID-19 pandemic on our business.

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

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

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

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

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

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

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

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

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

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

The Foreign currency translation adjustment for all three fiscal years presented

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

For the fiscal years ended June 29, 2022, June 30, 2021, and June 24, 2020, Comprehensive income consists of Net income and Foreign currency translation adjustment.

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

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

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

EFFECT OF NEW ACCOUNTING STANDARDS

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

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CHILI’S RESTAURANT ACQUISITIONS

During fiscal 2022, we completed three acquisitions of substantially all of the assets and certain 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 $ 57.1 million, including 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 and on May 5, 2022, we acquired two additional previously franchised Chili’s restaurants located in the Northwest region of the United States for a total purchase price of $ 2.0 million, including post-closing adjustments, funded with borrowings from our existing credit facility.

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

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

The assets and liabilities of the acquired restaurants were recorded at their fair values.

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

Net acquisition-related charges of $ 1.6 million were recorded during fiscal 2022 to Other (gains) and charges in the Consolidated Statements of Comprehensive Income.

The net charges consisted of $ 2.3 million of professional services, transaction and transition related costs associated with the purchase, partially offset by $ 0.7 million of franchise deferred revenues balance that were fully recognized at date of acquisition.

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.

These inputs represent Level 3 fair value measurements as defined under GAAP.

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

Mid-Atlantic Region Great Lakes Region

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

Current assets $ 1.4 $ 2.1

Property and equipment 46.2 43.6

Operating lease assets (1)

Reacquired franchise rights (2)

Current liabilities ( 1.4 ) ( 1.4 )

Finance lease liabilities, less current portion ( 3.7 ) —

Operating lease liabilities, less current portion (1)

( 23.1 ) ( 46.8 )

Net assets acquired (4)

$ 47.7 $ 57.1

(1) Refer to Note 9 - Leases for further details.

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(2) Reacquired franchise rights related to the Mid-Atlantic Region acquisition and Great Lakes Region acquisition both have weighted average amortization periods of approximately 15 years.

(3) Goodwill is expected to be deductible for tax purposes.

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

(4) Net assets acquired at fair value related to the Mid-Atlantic Region acquisition are equal to the total purchase price of $ 48.0 million, less $ 0.3 million of closing adjustments.

Net assets acquired at fair value related to the Great Lakes Region acquisition are equal to the total purchase price of $ 56.0 million, plus $ 1.1 million of closing adjustments.

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

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

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

We accounted for this acquisition as a business combination.

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

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

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

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

REVENUE RECOGNITION

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

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The following table reflects the changes in deferred franchise and development fees for the fiscal years ended on June 29, 2022 and June 30, 2021:

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Additions 1.1 0.3

Amount recognized for Chili's restaurant acquisition (1)

Amount recognized to Other gains and charges (1)

Amount recognized to Franchise and other revenues ( 1.5 ) ( 1.8 )

Ending balance $ 10.1 $ 11.4

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

(1) The remaining deferred franchise and development fee balances associated with the 68 Chili’s restaurants acquired during fiscal 2022 were recognized as of the acquisition dates in Other (gains) and charges in the

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Consolidated Statements of Comprehensive Income.

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 June 29, 2022:

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Gift card breakage recognized to Franchise and other revenues (1)

( 36.1 ) ( 13.0 )

Other 0.9 0.2

Ending balance $ 83.9 $ 106.4

(1) Gift card breakage recognized to Franchise and other revenues increased due to a change in estimated gift card breakage rates primarily attributable to gift cards sold prior to fiscal 2022.

DEFINED CONTRIBUTION PLAN

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

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

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

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

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

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

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

Effective January 1, 2021, the Plan was amended and restated in its entirety primarily for the purpose of reinstating the safe harbor matching employer contributions which were suspended in May 2020 to reduce corporate expenses in response to the business downturn caused by the COVID-19 impact.

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

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

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June 29, 2022 June 30, 2021 June 24, 2020

COVID-19 related charges $ 3.3 $ 12.2 $ —

Restaurant impairment charges $ 8.3 $ 3.0 $ 19.1

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

Restaurant closure charges 2.4 3.8 4.3

Remodel-related costs 4.9 2.3 3.2

Loss on lease contingencies 2.2 — —

Severance and other benefit charges 0.5 3.2 0.9

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

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

Restaurant closure charges 3.7 2.4 3.8

Lease contingencies 3.1 2.2 —

Enterprise system implementation costs 2.4 — —

Acquisition-related costs, net 1.6 — 2.9

Loss from natural disasters, net of (insurance recoveries) 1.1 2.9 ( 0.7 )

COVID-19 related charges 0.5 3.3 12.2

Other 5.6 2.9 6.9

$ 31.2 $ 19.0 $ 47.4

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

Restaurant impairment charges primarily consisted of the long-lived assets of the following:

• Fiscal 2022 - 30 underperforming Chili’s and two underperforming Maggiano’s restaurants.

Refer to Note 14 - Fair Value Measurements for further details.

• Fiscal 2021 - 11 underperforming Chili’s and three underperforming Maggiano’s restaurants.

• Fiscal 2020 - 25 underperforming Chili’s and three underperforming Maggiano’s restaurants.

Remodel-related costs related to existing fixed asset write-offs associated with the Chili’s remodel project for all fiscal years presented.

Restaurant closure charges primarily consisted of Chili’s lease termination charges and certain Chili’s restaurant closure costs for all fiscal years presented.

Lease contingencies were recorded in fiscal 2022 and fiscal 2021 for estimated lease defaults on certain secondarily liable lease guarantees and subleases.

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

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

These fees are considered redundant costs until the new systems go live and replace our current legacy systems.

Acquisition-related costs, net primarily related to the following:

• Fiscal 2022 - 68 restaurants acquired from former franchisees.

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

• Fiscal 2020 - 116 restaurants acquired from a former franchisee.

Loss from natural disasters, net of (insurance recoveries) primarily consists of the following:

• Fiscal 2022 - costs incurred related to Hurricane Ida in August 2021.

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• Fiscal 2021 - costs incurred related to Winter Storm Uri in February 2021.

• Fiscal 2020 - proceeds related to a previously filed fire claim, partially offset by costs incurred for damages from Tropical Storm Imelda.

COVID-19 related charges primarily consisted of the following costs related to both Chili’s and Maggiano’s:

• Fiscal 2022:

◦ employee assistance and related payroll taxes for certain team members, partially offset by

◦ employee retention credit as allowed under the CARES Act and

◦ credits received as part of the 2021 New Mexico Senate Bill 1.

• Fiscal 2021:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Fiscal 2020:

◦ employee assistance payments and related payroll taxes for team members that experienced reduced shifts during the pandemic,

◦ restaurant supplies such as face masks and hand sanitizer required to reopen dining rooms,

◦ costs related to canceled projects due to the pandemic and

◦ expenses related to spoiled inventory due to the unexpected decline in sales and dining room closures, partially offset by

◦ employee retention credit for certain payroll taxes received as part of the CARES Act relief package.

Income before income taxes consists of the following:

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Income before income taxes $ 115.2 $ 145.2 $ 4.9

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

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Effective tax rate ( 2.1 ) % 9.4 % ( 398.0 ) %

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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:

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Our federal statutory tax rate for fiscal 2022, fiscal 2021 and fiscal 2020 was 21.0 %.

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Deferred Tax and Allowances

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Deferred income taxes, net $ 62.5 $ 50.9

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

We have deferred tax assets of $ 6.8 million of federal and $ 3.2 million of state tax credits, before federal benefit and valuation allowance, which expire at various dates between fiscal 2024 and fiscal 2035.

The recognized deferred tax asset for the state loss carryforwards is $ 1.6 million and the federal tax credits is $ 6.8 million.

The federal credit carryover is limited by Section 382 of the Internal Revenue Code.

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

In assessing whether

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

As of June 29, 2022, we have deferred tax assets of $ 4.2 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between 2023 and 2042 .

We have deferred tax assets of $ 41.1 million of federal and $ 3.2 million of state tax credits, before federal benefit and valuation allowance, which expire at various dates between 2024 and 2042 .

The recognized deferred tax asset for the state loss carryforwards, net of valuation allowance, is $ 1.5 million and the federal tax credits is $ 41.1 million.

$ 6.2 million of the federal credit carryover is limited by Section 382 of the Internal Revenue Code.

The valuation allowance is $ 5.8 million at the end of fiscal 2022 to recognize certain deductions and tax credits management believes are more-likely-than-not to not be realized.

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

Based upon the level of historical taxable income and projections for future taxable income, as of June 29, 2022, we believe it is more-likely-than-not that we will realize the benefits of the deferred tax assets, net of the existing valuation allowances.

CARES Act Impact

In the fourth quarter of fiscal 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the pandemic.

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

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

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

• Amend our 2018 and 2019 U.S.

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

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

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

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

Footnote Index

Unrecognized Tax Benefits

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Additions based on tax positions related to the current year 0.3 0.3

Additions based on tax positions related to prior years 1.4 —

(Decreases) Additions based on tax positions related to prior years ( 0.1 ) 1.4

Settlements with tax authorities ( 0.8 ) —

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Balance at end of year $ 3.7 $ 4.3

The total amount of unrecognized tax benefits, excluding interest and penalties, that would affect income tax expenses if resolved in our favor was $ 3.4 million and $ 2.4 million as of June 30, 2021 and June 24, 2020, respectively.

The total amount of unrecognized tax benefits, excluding interest and penalties, which would affect income tax expenses if resolved in our favor was $ 2.9 million and $ 3.4 million as of June 29, 2022 and June 30, 2021, respectively.

We do not expect any material changes to our liability for uncertain tax positions in the next 12 months.

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

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

As of June 29, 2022, we had $ 0.5 million ($ 0.4 million net of a $ 0.1 million Federal deferred tax benefit) of interest and penalties accrued, compared to $ 0.4 million ($ 0.3 million net of a $ 0.1 million Federal deferred tax benefit) as of June 30, 2021.

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

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We have various state income tax returns in the process of examination or settlements.

Our federal returns for fiscal 2021 and 2022 are currently under examination through the Internal Revenue Service:

Our federal returns for fiscal 2021 to 2023 are currently under examination through the Internal Revenue Service:

Compliance Assurance Process (CAP) program.

There are no unrecorded liabilities associated with these examinations.

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SEGMENT INFORMATION

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

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

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

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

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

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

Restaurant expenses during the years presented primarily included restaurant rent, supplies, property and

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equipment maintenance, delivery fees, utilities, property taxes, credit card processing fees, supervision expenses, worker’s comp and general liability insurance and advertising.

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

Fiscal Year Ended June 29, 2022

Chili’s Maggiano’s Other Consolidated

Maggiano’s Other Consolidated

Company sales $ 3,305.4 $ 406.7 $ — $ 3,712.1

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Fiscal Year Ended June 30, 2021 (2)

Maggiano’s Other Consolidated

Chili’s Maggiano’s Other Consolidated

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

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Fiscal Year Ended June 24, 2020

Chili’s Maggiano’s Other Consolidated

Maggiano’s Other Consolidated

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

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Footnote Index

(1) Chili’s segment information for fiscal 2022 includes the results of operations and the fair values of assets related to the 68 restaurants purchased from three former franchisees subsequent to the acquisition dates.

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

(2) Fiscal 2021, which ended on June 30, 2021, contained 53 weeks.

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

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

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

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

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

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

Refer to Note 9 - Leases for further details.

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

GOODWILL AND INTANGIBLES

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

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

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

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

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

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

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

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

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

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

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

There have been no impairments of Goodwill for the fiscal years ended June 29, 2022, June 30, 2021 and June 24, 2020.

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Balance at end of year $ 156.7 $ 38.4 $ 195.1 $ 149.8 $ 38.4 $ 188.2

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

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

Footnote Index

(1) In the fiscal year ended June 29, 2022, we acquired 68 domestic Chili’s restaurants previously owned by three franchise partners.

Refer to Note 2 - Chili's Restaurant Acquisitions for further information.

Intangible assets, net are as follows:

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$ 10.3 $ 10.3

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

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

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

(1) Additions, net of accumulated amortization, of $ 8.4 million in fiscal 2022 were recorded related to reacquired franchise rights associated with the 68 acquired Chili’s restaurants previously owned by three franchise partners.

Refer to Note 2 - Chili's Restaurant Acquisitions for further information.

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

Footnote Index

Fiscal Years Ended

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Definite-lived intangible amortization expense $ 3.0 $ 2.0 $ 1.9

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

Annual amortization expenses for definite-lived intangible assets are estimated to be $ 3.3 million for each of the next two fiscal years, and $ 3.0 million for fiscal 2025, fiscal 2026 and fiscal 2027.

As of June 29, 2022, 1,136 of our 1,188 Company-owned restaurant facilities were leased.

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

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Consolidated Balance Sheet Disclosure of Lease Amounts

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

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Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts

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Fiscal Years Ended

June 30, 2021 June 24, 2020

Operating lease cost $ 167.2 $ 162.8

June 29, 2022 June 30, 2021 June 24, 2020

Operating lease expenses (amortization and interest) $ 173.7 $ 167.2 $ 162.8

Finance lease amortization 21.9 17.3 20.9

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Total lease costs, net $ 258.0 $ 244.4 $ 242.8

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Consolidated Statement of Cash Flows Disclosure of Lease Amounts

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Fiscal Years Ended

June 30, 2021 June 24, 2020

June 29, 2022 June 30, 2021 June 24, 2020

Cash flows from operating activities

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Operating leases (3)

255.4 60.6 224.0

Finance leases 13.4 29.8 73.2

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

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

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

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

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

Refer to Note 2 - Chili's Restaurant Acquisitions for more information.

(3) Non-cash operating lease assets obtained in exchange for operating lease liabilities were higher in fiscal 2022 primarily due to the new and assumed operating lease additions associated with the 68 restaurants purchased from three former franchisees and the modifications of 25 leases.

Refer to Note 2 - Chili's Restaurant Acquisitions and “Significant Changes in Leases in Fiscal 2022” section below for more information.

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Weighted Average Lease Term and Discount Rate

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Weighted average discount rate 5.1 % 5.5 % 5.4 % 5.6 %

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Lease Maturity Analysis

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Pre-Commencement Leases

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

In fiscal 2022, we executed fourteen leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 19.0 million.

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 in Fiscal 2022

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

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

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

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

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

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

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

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

Fiscal 2019 Sale Leaseback Transactions

Restaurant Properties Sale Leaseback Transactions

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

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

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

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.

On June 29, 2022, the balances associated with these new leases in the Consolidated Balance Sheets include Operating lease assets of $ 22.9 million, Operating lease liabilities of $ 0.6 million, and Long-term operating lease liabilities, less current portion of $ 22.5 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.

On June 29, 2022, the balances associated with these new leases in the Consolidated Balance Sheets include Operating lease assets of $ 46.1 million, Operating lease liabilities of $ 1.6 million, and Long-term operating lease liabilities, less current portion of $ 45.4 million.

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

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Gain and Deferred Gain Recognition

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

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

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

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.

On June 29, 2022, the balances associated with these leases in the Consolidated Balance Sheets include Operating lease assets of $ 47.9 million, Operating lease liabilities of $ 1.1 million, and Long-term operating lease liabilities, less current portion of $ 47.3 million.

Also, as a result of these modifications, the finance lease asset and lease liability balances decreased in the Consolidated Balance Sheets 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

In the first quarter of fiscal 2022, simultaneous with the Mid-Atlantic Region Acquisition, we completed sale leaseback transactions on six of the acquired restaurants.

The properties were sold at their acquisition cost resulting in proceeds of $ 20.5 million with no gain or loss.

The initial terms of all leases we entered into as part of the sale leaseback transactions are for 15 years, plus renewal options at our discretion.

All of the leases were determined to be operating leases.

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

On June 29, 2022, the balances associated with these new leases in the Consolidated Balance Sheets include Operating lease assets of $ 17.8 million, Operating lease liabilities of $ 0.4 million, and Long-term operating lease liabilities, less current portion of $ 17.5 million.

Long-term debt consists of the following:

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Fiscal Year Long-Term Debt

Revolving Credit Facility, as Amended

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

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

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

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

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

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

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

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

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

(1) Obligations under our 3.875 % notes, which will mature in May 2023, have been classified as long-term, reflecting our intent and ability to refinance these notes through our existing revolving credit facility.

Revolving Credit Facility

On August 18, 2021, we amended 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.

During fiscal 2022, net borrowings of $ 100.0 million were drawn on the $ 800.0 million revolving credit facility.

As of June 29, 2022, $ 528.7 million of credit was available under the revolving credit facility.

The $ 800.0 million revolving credit facility, as amended, 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 June 29, 2022, our interest rate was 3.375 % consisting of LIBOR of 1.625 % plus the applicable margin of 1.750 %.

During fiscal 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.

5.000 % Notes

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Financial Covenants

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

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

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

As of June 29, 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 throughout fiscal 2023.

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ACCRUED AND OTHER LIABILITIES

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June 29, 2022 June 30, 2021

Sales tax $ 23.2 $ 13.3

Property tax 22.4 22.9

Insurance $ 23.5 $ 21.7

Current installments of finance leases 21.5 12.2

Property tax 23.3 22.4

Current installments of long-term debt and finance leases 20.3 21.5

Sales tax 14.4 23.2

Utilities and services 9.6 8.4

Interest 6.5 6.9

State income tax payable 1.1 —

Cyber security incident — 3.4

$ 116.1 $ 117.4

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

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

Other liabilities consist of the following:

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Insurance $ 36.9 $ 35.0

Deferred payroll taxes (1)

Deferred franchise and development fees 9.2 10.4

Unrecognized tax benefits 3.0 3.5

Deferred payroll taxes (1)

Other 5.2 5.9

$ 54.3 $ 82.0

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

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

(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.

STOCK-BASED COMPENSATION

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

In fiscal 2019, our shareholders approved and we registered an additional 1.4 million shares of common stock of Brinker International, Inc.

available for issuance under the Employee Plan.

As of June 29, 2022, the total number of shares authorized for issuance to employees and non-employee directors and consultants under the Plans was 38.7 million shares.

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Tax benefit related to stock-based compensation expenses 3.9 3.0 2.5

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Stock Options

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

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

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

At the end of fiscal 2022, the second performance goal was not met, which will result in the forfeiture of the remaining 0.4 million performance stock options.

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

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

No stock options were granted in fiscal 2021.

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

No stock options were granted in fiscal 2022 or 2021.

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

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

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Stock option transactions during fiscal 2022 were as follows (option prices in dollars):

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Stock options exercisable at June 29, 2022 1.3 $ 39.21 3.2 $ 0.1

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

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

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

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

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June 29, 2022 (1)

June 24, 2020 June 26, 2019

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

Expected volatility n/a 33.4 % 27.2 %

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

Expected lives n/a 5 years 5 years

Dividend yield n/a 3.2 % 3.5 %

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

June 30, 2021 (1)

June 24, 2020

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

Expected volatility n/a n/a 33.4 %

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

Expected lives n/a n/a 5 years

Dividend yield n/a n/a 3.2 %

(1) No stock option awards were granted in fiscal 2022 or 2021.

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

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The dividend yield is based on the most recent quarterly dividend per share declared and the closing stock price on the declaration date.

At June 30, 2021, unrecognized compensation expenses related to stock options totaled approximately $ 0.6 million and will be recognized over a weighted average period of 1.3 years.

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As of June 29, 2022, unrecognized compensation expenses related to unvested stock options that are expected to vest totaled approximately $ 0.1 million and will be recognized over a weighted average period of 1.1 years.

The intrinsic value and related tax benefit of options exercised is as follows:

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

In fiscal 2022, eligible employees under the Plans were granted performance shares whose vesting is contingent upon meeting Company performance goals based on our earnings at the end of a three-fiscal-year period.

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

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

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

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

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

In fiscal 2020, eligible employees under the Plans were granted performance shares whose vesting is contingent upon meeting Company performance goals based on our rate of earnings growth at the end of a three-fiscal-year period.

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

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

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

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

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

Restricted share award transactions, including performance shares reflected at target, during fiscal 2022 were as follows (fair value per award in dollars):

Awards Weighted

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Restricted share awards outstanding at June 29, 2022 1.3 42.85

At June 30, 2021, unrecognized compensation expenses related to restricted share awards totaled approximately $ 14.0 million and will be recognized over a weighted average period of 2.0 years.

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As of June 29, 2022, unrecognized compensation expenses related to unvested restricted share awards that are expected to vest totaled approximately $ 15.5 million and will be recognized over a weighted average period of 1.7 years.

The fair value of shares that vested is as follows:

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SHAREHOLDERS’ DEFICIT

Common Stock Issuance

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

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

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

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

Share Repurchases

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

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

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

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share repurchase programs for the remainder of fiscal 2021.

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

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

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

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.

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

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

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

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

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

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

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

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

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 fiscal 2022, we repurchased 2.4 million shares of our common stock for $ 100.9 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 June 29, 2022, approximately $ 204.0 million was available in the share repurchase program.

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 fiscal 2022 and fiscal 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 applicable period.

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

Retirement of Treasury Stock

In fiscal 2020, the Board of Directors approved the retirement of 114.0 million shares of Treasury stock for a weighted average price per share of $ 29.45 .

As of June 30, 2021, 24.4 million shares remain in treasury.

Effect of Accounting Standards Adoption

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

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

FAIR VALUE MEASUREMENTS

Non-Financial Assets Measured on a Non-Recurring Basis

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

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

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

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

During fiscal 2022, we impaired certain long-lived assets and operating lease assets primarily related to 30 underperforming Chili’s and two underperforming Maggiano’s restaurants.

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

During fiscal

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

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

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

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Total underperforming restaurants $ 20.3 $ 3.9 $ 8.3 $ 3.0

Closed restaurants

Operating lease assets $ — $ 6.4 $ — $ 1.8

Finance lease assets — 5.8 — 1.4

Total closed restaurants $ — $ 12.2 $ — $ 3.2

Indefinite Lived Assets Impairment

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

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

Based on our annual reviews, in fiscal 2022 we determined there was a $ 0.2 million impairment and in fiscal 2021 we determined there was no impairment.

Chili’s Restaurant Acquisitions

During fiscal 2022, we completed the acquisition of 68 Chili’s restaurants from three former franchisees.

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

The fair values of 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.

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

Other Financial Instruments

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Long-Term Debt

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

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

The fair values of the 3.875 % and 5.000 % notes are based on quoted market prices and are considered Level 2 fair value measurements.

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We determined the fair value of the amended note based on an internally developed analysis relying on Level 3 inputs using a credit rating we assigned to the counterparty and comparable interest rates associated with similar debt instruments.

As a result of this

As a result of this analysis, we believe the fair value continues to approximate the note receivable carrying value of $ 5.2 million as of June 29, 2022.

The current portion of the note represents cash payments to be received over the next 12 months and

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analysis, we believe the fair value continues to approximate the note receivable carrying value of $ 6.9 million as of June 30, 2021.

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

is included within Accounts receivable, net while the long-term portion of the note is included within Other assets in the Consolidated Balance Sheets.

SUPPLEMENTAL CASH FLOW INFORMATION

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Income taxes, net of (refunds) $ ( 4.7 ) $ 9.7 $ ( 7.2 )

$ 9.7 $ ( 7.2 ) $ 106.2

Interest, net of amounts capitalized 41.0 49.5 53.1

(1) Income taxes, net of (refunds) for the fiscal year ended June 24, 2020 included the receipt of a refund in fiscal 2020, partially offset by payments.

Income taxes, net of (refunds) for the fiscal year ended June 26, 2019 included payments made for income tax liabilities resulting from sale leaseback transactions completed in fiscal 2019.

Refer to Note 9 - Leases for further details.

Non-cash investing and financing activities are as follows:

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Retirement of fully depreciated assets (1)

$ 133.4 $ 22.4 $ 32.3

Accrued capital expenditures 15.2 8.8 7.1

Dividends declared but not paid — — 1.2

Capital lease additions (1)

(1) Capital lease additions for the fiscal years ended June 30, 2021 and June 24, 2020 are now disclosed as part of the finance lease disclosures in Note 9 - Leases, “Consolidated Statement of Cash Flows Disclosure of Lease Amounts” section.

(1) Fiscal 2022 included the retirement of fully depreciated assets no longer in use based on a periodic review performed during fiscal 2022.

COMMITMENTS AND CONTINGENCIES

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As of June 29, 2022 and June 30, 2021, we have outstanding lease guarantees or are secondarily liable for $ 26.3 million and $ 29.2 million, respectively.

These amounts represent the known potential liability of future rent payments under the leases.

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 2023 through fiscal 2032.

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These lessees are in communication with the landlords to defer or resolve payments.

We recorded a $ 1.5 million contingent loss, which represents the low end of our estimated range of losses, in fiscal 2021 in Other (gains) and charges in the Consolidated Statements of Comprehensive Income related to these leases and lawsuits.

We recorded a $ 2.0 million and $ 1.5 million contingent loss, which represents the low end of our estimated range of losses, in fiscal 2022 and fiscal 2021, respectively, in Other (gains) and charges in the Consolidated Statements of Comprehensive Income related to these leases and lawsuits.

As of June 29, 2022, we have contingent liabilities of $ 2.2 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.

We will continue to closely monitor this situation.

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As of June 29, 2022, we had $ 5.8 million in undrawn standby letters of credit outstanding.

All standby letters of credit are renewable within the next 4 to 12 months.

All standby letters of credit are renewable within the next 11 months.

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Cyber Security Incident

In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data.

Cyber Security Related Charges

To limit our exposure to cyber security events, we maintain cyber liability insurance coverage.

Our cyber liability insurance policy contains a $ 2.0 million insurance retention that was fully accrued during fiscal 2018.

Since the incident, through June 30, 2021, we have incurred total cumulative costs of $ 9.2 million related to the cyber security incident.

This includes the $ 2.0 million retention recorded, $ 2.6 million in costs that have been reimbursed by our insurance carriers, $ 4.1 million of receivables for costs incurred that we believe are reimbursable and probable of recovery under our insurance coverage and $ 0.5 million of costs not reimbursable by our insurance carriers.

We have settled claims from three payment card companies, and the settlement amounts are included in these costs.

We do not expect material claims from payment card companies in the future.

Cyber Security Litigation

The Company was named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida styled In re:

Brinker Data Incident Litigation, Case No.

18-cv-00686-TJC-MCR (the “Litigation”) relating to the cyber security incident described above.

In the Litigation, plaintiffs assert various claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $ 5.0 million, injunctive and declaratory relief, and attorney’s fees and costs.

On April 14, 2021, the district court issued an order granting in part and deferring in part Plaintiffs’ motion for class certification.

The court certified a class on Plaintiffs’ negligence claim and a separate class on Plaintiffs’ California state Unfair Competition Law claims.

On April 28, 2021, Brinker filed a Rule 23(f) petition in the Eleventh Circuit Court of Appeals seeking immediate discretionary review of the district court’s certification orders.

In fiscal 2018, we discovered malware at certain Chili’s restaurants that may have resulted in unauthorized access or acquisition of customer payment card data.

We settled all claims from payment card companies related to this incident and do not expect material claims from payment card companies in the future.

In connection with this event, the Company was also named as a defendant in a putative class action lawsuit in the United States District Court for the Middle District of Florida (the “Litigation”) relating to this incident.

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.

Oral argument of our appeal of the district court’s class certification order was held before the Eleventh Circuit Court of Appeals on June 8, 2022 in Jacksonville, Florida.

We await the court’s ruling.

In the interim, all matters at the district court have been stayed.

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

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Legal Proceedings

Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis.

Evaluating contingencies related to litigation is a process involving judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis.

Accordingly, we review the adequacy of accruals and disclosures pertaining to litigated matters each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Consolidated Financial Statements.

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Based upon consultation with legal counsel, management is of the opinion that there are no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on the consolidated financial condition or results of operations.

FISCAL 2020 CHILI'S RESTAURANT ACQUISITION

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

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

Footnote Index

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

We accounted for this acquisition as a business combination.

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

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

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

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

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

Fair Value September 5, 2019

Current assets (1)

Property and equipment 60.3

Operating lease assets 163.5

Reacquired franchise rights (2)

Total assets acquired 260.4

Current liabilities (4)

Operating lease liabilities, less current portion 158.3

Total liabilities assumed 167.4

Net assets acquired (5)

(1) Current assets included petty cash, inventory, and restaurant supplies.

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

(3) Goodwill is expected to be deductible for tax purposes.

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

(5) Net assets acquired at fair value are equal to the total purchase price of $ 99.0 million, less $ 3.2 million of closing adjustments and $ 2.8 million allocated to prepayment of leases entered into between us and the franchisee.

SUBSEQUENT EVENTS

Revolver Amendment & Net Borrowings

On August 18, 2021, we replaced our existing $ 1.0 billion revolving credit facility with an $ 800.0 million revolving credit facility that matures on August 18, 2026.

The new facility is guaranteed by certain of our subsidiaries, includes covenant restrictions relating to leverage that are similar to our prior arrangement, and contains customary events of default terms.

As of August 18, 2021, $ 211.3 million was drawn from the new revolver.

Share Repurchases

In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $ 300 million.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Brinker International, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Brinker International, Inc.

and subsidiaries (the Company) as of June 30, 2021 and June 24, 2020, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended June 30, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and June 24, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended June 30, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of June 27, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Assessment of the gift card breakage revenue

The Company estimates this amount based on the historical gift card redemption patterns and recognizes the estimated breakage as revenue in proportion to the pattern of related gift card redemptions.

The gift card breakage revenue recognized for the year ended June 30, 2021 was approximately $13.0 million.

We identified the assessment of gift card breakage revenue as a critical audit matter.

Subjective auditor judgment was required to evaluate the Company’s assessment of the trends in historical and expected future redemption patterns used to recognize breakage revenue.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s gift card breakage revenue process.

This included controls related to the Company’s estimation of the breakage rate and the timing of breakage revenue recognition.

We assessed breakage revenue by comparing the Company’s estimated breakage rate to rates derived from historical redemption data.

We evaluated the timing of breakage revenue recognition by analyzing historical redemption patterns and assessing the volume of redemptions subsequent to the period of breakage revenue recognition.

We have served as the Company’s auditor since 1984.

Dallas, Texas

August 26, 2021

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Brinker International, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Brinker International, Inc.

and subsidiaries' (the Company) internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2021 and June 24, 2020, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended June 30, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated August 26, 2021 expressed an unqualified opinion on those consolidated financial statements.