What changed in this filing

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Item 1. Financial Statements

2023-02-01 compared with 2022-11-02 · 199 added, 182 removed, 381 unchanged (50% of the section changed)

3 unchanged sentences

(In millions, except per share amounts)

Thirteen Week Periods Ended

September 28,

2022 September 29,

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Company sales $ 1,009.4 $ 915.8 $ 1,955.5 $ 1,781.4

9 unchanged sentences

Total operating costs and expenses 978.3 886.0 1,953.6 1,736.8

Operating (loss) income ( 19.8 ) 25.6

Operating income 40.7 39.8 20.9 65.4

Interest expenses 13.9 11.2 26.2 23.7

7 unchanged sentences

Diluted weighted average shares outstanding 44.8 45.9 44.0 46.4

Other comprehensive loss

Other comprehensive income (loss)

Foreign currency translation adjustment $ 0.1 $ ( 0.1 ) $ ( 0.9 ) $ ( 0.5 )

Other comprehensive loss ( 1.0 ) ( 0.4 )

Other comprehensive income (loss) 0.1 ( 0.1 ) ( 0.9 ) ( 0.5 )

Comprehensive (loss) income $ 28.0 $ 27.5 $ ( 3.2 ) $ 40.3

3 unchanged sentences

(In millions, except per share amounts)

September 28,

2022 June 29,

37 unchanged sentences

$ 0.10 par value;

60.3 million shares issued and 44.0 million shares outstanding at September 28, 2022, and 70.3 million shares issued and 43.8 million shares outstanding at June 29, 2022)

60.3 million shares issued and 44.0 million shares outstanding at December 28, 2022, and 70.3 million shares issued and 43.8 million shares outstanding at June 29, 2022)

Additional paid-in capital 688.7 690.9

1 unchanged sentence

Accumulated deficit ( 456.8 ) ( 148.4 )

Treasury stock, at cost ( 16.3 million shares at September 28, 2022, and 26.5 million shares at June 29, 2022)

Treasury stock, at cost ( 16.3 million shares at December 28, 2022, and 26.5 million shares at June 29, 2022)

( 499.2 ) ( 812.3 )

5 unchanged sentences

(In millions)

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Cash flows from operating activities

40 unchanged sentences

See accompanying Notes to Consolidated Financial Statements (Unaudited)

BRINKER INTERNATIONAL, INC.

Consolidated Statements of Shareholders’ Deficit (Unaudited)

(In millions)

Twenty-Six Week Period Ended December 28, 2022

Common Stock Additional

Capital Accumulated Deficit Treasury

Stock Accumulated

Comprehensive

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

Net loss — — ( 30.2 ) — — ( 30.2 )

Other comprehensive loss — — — — ( 1.0 ) ( 1.0 )

Dividends — — 0.0 — — 0.0

Stock-based compensation — 4.7 — — — 4.7

Purchases of treasury stock — 0.2 — ( 2.2 ) — ( 2.0 )

Issuances of treasury stock — ( 7.8 ) — 7.8 — —

Retirement of stock ( 1.0 ) — ( 306.1 ) 307.1 — —

Balances at September 28, 2022 $ 6.0 $ 688.0 $ ( 484.7 ) $ ( 499.6 ) $ ( 6.3 ) $ ( 296.6 )

Net income — — 27.9 — — 27.9

Other comprehensive income — — — — 0.1 0.1

Dividends — — — — — —

Stock-based compensation — 1.2 — — — 1.2

Purchases of treasury stock — 0.0 — ( 0.1 ) — ( 0.1 )

Issuances of treasury stock — ( 0.5 ) — 0.5 — 0.0

Balances at December 28, 2022 $ 6.0 $ 688.7 $ ( 456.8 ) $ ( 499.2 ) $ ( 6.2 ) $ ( 267.5 )

Twenty-Six Week Period Ended December 29, 2021

Common Stock Additional

Capital Accumulated Deficit Treasury

Stock Accumulated

Comprehensive

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

Net income — — 13.2 — — 13.2

Other comprehensive loss — — — — ( 0.4 ) ( 0.4 )

Dividends — — 0.0 — — 0.0

Stock-based compensation — 4.3 — — — 4.3

Purchases of treasury stock — ( 2.0 ) — ( 37.6 ) — ( 39.6 )

Issuances of treasury stock — ( 8.3 ) — 8.6 — 0.3

Balances at September 29, 2021 $ 7.0 $ 679.4 $ ( 252.9 ) $ ( 753.9 ) $ ( 5.1 ) $ ( 325.5 )

Net income — — 27.6 — — 27.6

Other comprehensive loss — — — — ( 0.1 ) ( 0.1 )

Dividends — — 0.0 — — 0.0

Stock-based compensation — 5.6 — — — 5.6

Purchases of treasury stock — 0.0 — ( 35.1 ) — ( 35.1 )

Issuances of treasury stock — ( 1.3 ) — 1.4 — 0.1

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

See accompanying Notes to Consolidated Financial Statements (Unaudited)

Footnote Index

10 unchanged sentences

Fair Value Measurements 14

Accrued and Other Liabilities 15

Accrued Liabilities 16

Shareholders’ Deficit 16

6 unchanged sentences

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

Our Consolidated Financial Statements (Unaudited) as of September 28, 2022 and June 29, 2022, and for the thirteen week periods ended September 28, 2022 and September 29, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Our Consolidated Financial Statements (Unaudited) as of December 28, 2022 and June 29, 2022, and for the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Effective for the first quarter of fiscal 2023, we are presenting certain revenue streams related to gift cards, digital entertainment, Maggiano’s banquet service charges and delivery fees within Company sales to better align with the presentation used within the casual dining industry.

3 unchanged sentences

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

As of September 28, 2022, we owned, operated or franchised 1,645 restaurants, consisting of 1,182 Company-owned restaurants and 463 franchised restaurants, located in the United States, 28 countries and two United States territories.

As of December 28, 2022, we owned, operated or franchised 1,648 restaurants, consisting of 1,182 Company-owned restaurants and 466 franchised restaurants, located in the United States, 28 countries and two United States territories.

Use of Estimates

11 unchanged sentences

The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets (Unaudited).

Impact of COVID-19 Pandemic

The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the COVID-19 pandemic based on state and local mandates and has resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021.

Starting 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.

COVID-19 Pandemic and Other Impacts to Our Operating Environment

During fiscal 2022, increasing COVID-19 cases in the United States, including the Omicron variant, significantly impacted our guest traffic and sales.

Many of our restaurants had face mask requirements and some of our restaurants had proof of vaccination requirements, for our customers, team members or both.

During fiscal 2022 and fiscal 2023, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and food and beverage costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further capacity restrictions, mask and

Footnote Index

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

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

Impact of Inflation

During the first quarter of fiscal 2023, inflation did have a material impact on our operations.

Increasing inflation could have a severe impact on the United States or global economies and have an adverse impact on our business, financial condition and results of operations.

If commodity pricing and labor costs increase significantly, we may not be able to adjust menu prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

vaccine mandates, wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operation.

Such events could also negatively affect consumer spending potentially reducing guest traffic and/or reducing the average amount guests spend in our restaurants.

New Accounting Standards Implemented in Fiscal 2023

8 unchanged sentences

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 (Unaudited).

The following table reflects the changes in deferred franchise and development fees between June 29, 2022 and September 28, 2022:

The following table reflects the changes in deferred franchise and development fees between June 29, 2022 and December 28, 2022:

Deferred Franchise and Development Fees

2 unchanged sentences

Amount recognized to Franchise revenues ( 0.5 )

Balance as of September 28, 2022 $ 10.5

Footnote Index

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 September 28, 2022:

Balance as of December 28, 2022 $ 11.3

Fiscal Year Franchise and Development Fees Revenue Recognition

1 unchanged sentence

Thereafter 7.7

Footnote Index

Deferred Gift Card Revenues

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

The following table reflects the changes in the Gift card liability between June 29, 2022 and September 28, 2022:

The following table reflects the changes in the Gift card liability between June 29, 2022 and December 28, 2022:

Gift Card Liability

3 unchanged sentences

Gift card breakage recognized to Company sales ( 6.6 )

Balance as of September 28, 2022

Other ( 1.6 )

Balance as of December 28, 2022

OTHER GAINS AND CHARGES

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

Thirteen Week Periods Ended

September 28,

2022 September 29,

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Restaurant closure charges $ 3.3 $ 0.3 $ 4.8 $ 0.5

Severance and other benefit charges 2.4 — 2.9 —

Loss from natural disasters, net of (insurance recoveries) 1.1 0.2 0.9 0.8

Enterprise system implementation costs 1.0 0.3 2.0 0.9

Remodel-related costs 0.2 1.6 1.0 3.1

Lease modification gain, net ( 0.7 ) —

Lease contingencies — 2.9 — 2.9

Other 0.5 1.1 1.9 2.7

Restaurant closure charges related to closure costs and leases associated with certain closed Chili’s restaurants for all periods presented.

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

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

Lease modification gain, net related to the lease termination of certain Chili’s operating lease liabilities.

$ 8.5 $ 6.4 $ 13.5 $ 10.9

• Restaurant closure charges relates to closure costs and leases associated with certain closed Chili’s restaurants for all periods presented and one closed Maggiano’s in the first quarter of fiscal 2023.

• Severance and other benefit charges relates to changes in our management team and organizational structure.

• Loss from natural disasters, net of (insurance recoveries) in the current year primarily consists of costs incurred related to Hurricane Ian and the Winter Storm in December 2022.

• Enterprise system implementation costs primarily consists of consulting fees and subscription fees related to the ongoing enterprise system implementation for all periods presented.

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

• Lease contingencies in the prior year were recorded for potential lease defaults on certain lease guarantees and subleases.

Footnote Index

Thirteen Week Periods Ended

September 28,

2022 September 29,

Effective income tax rate 4.7 % 1.5 %

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

Reconciliation between the statutory tax rate and the effective tax rate is as follows:

Thirteen Week Period Ended

September 28,

Federal statutory tax rate 21.0 %

FICA tip tax credit ( 22.8 ) %

State income taxes, net of federal benefit 5.9 %

Stock-based compensation tax shortfalls 0.7 %

Other ( 0.1 ) %

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Effective income tax rate ( 3.0 ) % 5.2 % 50.0 % 4.0 %

The federal statutory tax rate was 21.0 % for the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 2021.

The change in the effective income tax rate in the twenty-six week period ended December 28, 2022 to the twenty-six week period ended December 29, 2021, is primarily due to lower Income before income taxes and leverage of the FICA tip credit, partially offset by the excess tax shortfalls associated with stock-based compensation.

NET (LOSS) INCOME PER SHARE

4 unchanged sentences

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

Thirteen Week Periods Ended

September 28,

2022 September 29,

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Basic weighted average shares outstanding 44.0 45.1 44.0 45.5

Dilutive stock options (1)

0.0 0.2 — 0.3

Dilutive restricted shares (1)

0.8 0.6 — 0.6

Total dilutive impact 0.8 0.8 — 0.9

1 unchanged sentence

Awards excluded due to anti-dilutive effect 1.4 0.9 2.8 0.5

(1) Due to the net loss for the twenty-six week period ended December 28, 2022, zero incremental shares are included because the effect would be anti-dilutive.

SEGMENT INFORMATION

5 unchanged sentences

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

Footnote Index

Company sales for each segment include revenues generated by the operation of Company-owned restaurants including food and beverage sales, net of discounts, Maggiano’s banquet service charge income, gift card breakage, delivery income, digital entertainment revenues, merchandise income and gift card discount costs from third-party gift card sales.

Franchise revenues for each operating segment include royalties, franchise advertising fees, franchise and development fees and gift card equalization.

Footnote Index

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

There were no material transactions amongst our operating segments.

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

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

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

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

Restaurant expenses during the periods presented primarily included restaurant rent, supplies, repair and maintenance expenses, delivery fees, utilities, credit card processing fees, property taxes, and workers’ compensation and general liability expenses.

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

Thirteen Week Period Ended September 28, 2022

Chili’s Maggiano’s Other Consolidated

Thirteen Week Period Ended December 28, 2022

Chili’s Maggiano's Corporate Consolidated

Company sales $ 869.3 $ 140.1 $ — $ 1,009.4

12 unchanged sentences

Income (loss) before income taxes $ 47.5 $ 22.9 $ ( 43.3 ) $ 27.1

Thirteen Week Period Ended December 29, 2021

Maggiano's Corporate Consolidated

Company sales (2)

$ 798.4 $ 117.4 $ — $ 915.8

Franchise revenues (2)

9.8 0.2 — 10.0

Total revenues 808.2 117.6 — 925.8

Food and beverage costs 224.8 28.0 — 252.8

Restaurant labor 277.6 37.8 — 315.4

Restaurant expenses 205.0 31.5 0.2 236.7

Depreciation and amortization 35.4 3.4 2.8 41.6

General and administrative 7.2 1.9 24.0 33.1

Other (gains) and charges 2.2 — 4.2 6.4

Total operating costs and expenses 752.2 102.6 31.2 886.0

Operating income (loss) 56.0 15.0 ( 31.2 ) 39.8

Interest expenses 1.4 0.1 9.7 11.2

Other income, net ( 0.2 ) — ( 0.3 ) ( 0.5 )

Income (loss) before income taxes $ 54.8 $ 14.9 $ ( 40.6 ) $ 29.1

Footnote Index

Twenty-Six Week Period Ended December 28, 2022

Chili’s Maggiano's Corporate Consolidated

Company sales $ 1,709.9 $ 245.6 $ — $ 1,955.5

Franchise revenues 18.7 0.3 — 19.0

Total revenues 1,728.6 245.9 — 1,974.5

Food and beverage costs 514.6 64.3 — 578.9

Restaurant labor 586.7 78.5 — 665.2

Restaurant expenses 471.0 65.9 0.3 537.2

Depreciation and amortization 72.0 6.5 5.2 83.7

General and administrative 18.0 4.0 53.1 75.1

Other (gains) and charges 8.7 0.8 4.0 13.5

Total operating costs and expenses 1,671.0 220.0 62.6 1,953.6

Operating income (loss) 57.6 25.9 ( 62.6 ) 20.9

Interest expenses 1.9 0.2 24.1 26.2

Other income, net — — ( 0.7 ) ( 0.7 )

Income (loss) before income taxes $ 55.7 $ 25.7 $ ( 86.0 ) $ ( 4.6 )

Segment assets $ 2,128.5 $ 230.0 $ 161.1 $ 2,519.6

1 unchanged sentence

Payments for property and equipment 85.1 6.1 4.1 95.3

Footnote Index

Thirteen Week Period Ended September 29, 2021

Maggiano’s Other Consolidated

Twenty-Six Week Period Ended December 29, 2021

Maggiano's Corporate Consolidated

Company sales (2)

15 unchanged sentences

Payments for property and equipment $ 65.4 $ 5.0 $ 3.7 $ 74.1

(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.

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

Refer to Note 14 - Fiscal 2022 Chili’s Restaurant Acquisitions for further details.

2 unchanged sentences

Refer to Note 1 - Basis of Presentation for further details.

Footnote Index

FAIR VALUE MEASUREMENTS

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

Fair value is the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date under market conditions.

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

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

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

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than quoted prices in active markets for identical assets or liabilities

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

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 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.

All impairment charges were included in Other (gains) and charges in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the periods presented.

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

Intangibles, net included accumulated amortization associated with definite-lived intangible assets at September 28, 2022 and June 29, 2022, of $ 13.2 million and $ 12.6 million, respectively.

Footnote Index

Definite Lived Assets Impairment

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

During the thirteen week periods ended September 28, 2022 and September 29, 2021, no indicators of impairment were identified.

Indefinite Lived Assets Impairment

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

During the thirteen week periods ended September 28, 2022 and September 29, 2021, no indicators of impairment were identified.

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

We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value.

If a qualitative assessment is not performed, or if the result of the qualitative assessment indicates a potential impairment, then the fair value of the reporting unit is compared to its carrying value.

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

Related to the qualitative assessment, changes in circumstances existing at the measurement date or at other times in the future, such as declines in our market capitalization, as well as in the market capitalization of other companies in the restaurant industry, declines in sales at our restaurants, and significant adverse changes in the operating environment for the restaurant industry could result in an impairment loss of all or a portion of our goodwill.

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

During the thirteen week period ended September 28, 2022, management concluded that no triggering event occurred.

Chili’s Restaurant Acquisitions

In 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 14 - Fiscal 2022 Chili’s Restaurant Acquisitions for further details.

Other Financial Instruments

Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt.

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

Long-Term Debt

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

1 unchanged sentence

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

September 28, 2022 June 29, 2022

December 28, 2022 June 29, 2022

Carrying Amount Fair Value Carrying Amount Fair Value

3 unchanged sentences

348.6 338.9 348.2 329.0

Non-Financial Assets

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.

The fair values of other non-financial assets are determined based on appraisals, sales prices of comparable assets or estimates of discounted cash flow and are categorized as Level 3.

We review the carrying amounts of non-financial assets, primarily long-lived property and equipment, finance lease assets, operating lease assets, reacquired franchise rights, goodwill 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.

Any impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited).

During the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 2021, no indicators of impairment were identified.

Accumulated amortization associated with definite-lived intangible assets at December 28, 2022 and June 29, 2022, was $ 13.9 million and $ 12.6 million, respectively.

Chili’s Restaurant Acquisitions

In 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.

Refer to Note 14 - Fiscal 2022 Chili’s Restaurant Acquisitions for further details.

Footnote Index

1 unchanged sentence

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

Lease Amounts Included in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

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

Thirteen Week Periods Ended

September 28,

2022 September 29,

Operating lease expenses (amortization and interest) $ 45.1 $ 41.4

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Operating lease cost $ 45.1 $ 43.2 $ 90.2 $ 84.6

Variable lease cost 15.2 15.1 30.8 30.2

4 unchanged sentences

Total lease costs, net $ 65.7 $ 64.7 $ 131.9 $ 127.4

Pre-Commencement Leases

As of the end of the first quarter of fiscal 2023, we have 11 pre-commencement leases for new Chili’s locations with undiscounted fixed payments of $ 15.8 million over the initial term.

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

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

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

Long-term debt consists of the following:

September 28,

2022 June 29,

11 unchanged sentences

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

Refer to Note 10 - Accrued and Other Liabilities for further details.

Footnote Index

Refer to Note 10 - Accrued Liabilities for further details.

Revolving Credit Facility

In the thirteen week period ended September 28, 2022, net borrowings of $ 35.0 million were drawn on our revolving credit facility.

As of September 28, 2022, $ 493.7 million of credit was available under the revolving credit facility.

In the twenty-six week period ended December 28, 2022, net borrowings of $ 40.0 million were drawn on our revolving credit facility.

As of December 28, 2022, $ 488.7 million of credit was available under the revolving credit facility.

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

As of September 28, 2022, our interest rate was 4.875 % consisting of LIBOR of 3.125 % plus the applicable margin of 1.750 %.

As of December 28, 2022, our interest rate was 6.438 % consisting of LIBOR of 4.438 % plus the applicable margin of 2.000 %.

Footnote Index

Financial Covenants

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

As of September 28, 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 .

As of December 28, 2022, we were in compliance with our covenants pursuant to the $800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes .

We expect to remain in compliance with our covenants during the remainder of fiscal 2023.

ACCRUED AND OTHER LIABILITIES

ACCRUED LIABILITIES

Other accrued liabilities consist of the following:

September 28,

2022 June 29,

1 unchanged sentence

Insurance 24.8 23.5

Current installments of long-term debt and finance leases 18.2 20.3

Sales tax 20.5 14.4

Interest 13.9 6.5

Current installments of long-term debt and finance leases 15.4 20.3

Utilities and services 10.3 9.6

$ 133.3 $ 116.1

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

Refer to Note 13 - Contingencies for additional information about our lease guarantees.

Other liabilities consist of the following:

September 28,

2022 June 29,

Insurance $ 37.0 $ 36.9

Deferred franchise and development fees 9.6 9.2

Unrecognized tax benefits 3.0 3.0

Interest 7.2 6.5

Other 18.5 18.5

$ 122.0 $ 116.1

Footnote Index

SHAREHOLDERS’ DEFICIT

The changes in Total shareholders’ deficit during the thirteen week periods ended September 28, 2022 and September 29, 2021, respectively, were as follows:

Thirteen Week Period Ended September 28, 2022

Common Stock Additional

Capital Accumulated Deficit Treasury

Stock Accumulated

Comprehensive

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

Net loss — — ( 30.2 ) — — ( 30.2 )

Other comprehensive loss — — — — ( 1.0 ) ( 1.0 )

Dividends — — 0.0 — — 0.0

Stock-based compensation — 4.7 — — — 4.7

Purchases of treasury stock — 0.2 — ( 2.2 ) — ( 2.0 )

Issuances of treasury stock — ( 7.8 ) — 7.8 — —

Retirement of Common Stock

Balances at September 28, 2022 $ 6.0 $ 688.0 $ ( 484.7 ) $ ( 499.6 ) $ ( 6.3 ) $ ( 296.6 )

Thirteen Week Period Ended September 29, 2021

Common Stock Additional

Capital Accumulated Deficit Treasury

Stock Accumulated

Comprehensive

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

Net income — — 13.2 — — 13.2

Other comprehensive loss — — — — ( 0.4 ) ( 0.4 )

Dividends — — 0.0 — — 0.0

Stock-based compensation — 4.3 — — — 4.3

Purchases of treasury stock — ( 2.0 ) — ( 37.6 ) — ( 39.6 )

Issuances of treasury stock — ( 8.3 ) — 8.6 — 0.3

Balances at September 29, 2021 $ 7.0 $ 679.4 $ ( 252.9 ) $ ( 753.9 ) $ ( 5.1 ) $ ( 325.5 )

Retirement of Common Stock

During the thirteen week period ended September 28, 2022, the Board of Directors approved the retirement of 10.0 million shares of Treasury stock for a weighted average price per share of $ 30.71 .

As of September 28, 2022, 16.3 million shares remain in treasury.

During the first quarter of fiscal 2023, the Board of Directors approved the retirement of 10.0 million shares of Treasury stock for a weighted average price per share of $ 30.71 .

As of December 28, 2022, 16.3 million shares remain in treasury.

Share Repurchases

Our Board of Directors approved a $ 300.0 million share repurchase program during fiscal 2022.

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

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

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

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

In the thirteen week period ended September 28, 2022, we repurchased 0.1 million shares of our common stock for $ 2.0 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

As of September 28, 2022, approximately $ 204.0 million was available under our share repurchase authorizations.

Footnote Index

In the twenty-six week period ended December 28, 2022, we repurchased 0.1 million shares of our common stock for $ 2.1 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan.

As of December 28, 2022, approximately $ 204.0 million of share repurchase authorization remains under the current share repurchase program.

Stock-based Compensation

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

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Restricted share awards

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Weighted average fair value per share $ 29.48 $ 53.27

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

In the thirteen week periods ended September 28, 2022 and September 29, 2021, dividends paid were solely related to the accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period.

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

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SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes and interest is as follows:

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Income taxes, net

$ 4.4 $ ( 11.2 )

Interest, net of amounts capitalized 23.6 20.7

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

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Operating lease additions (1)

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Retirement of fully depreciated assets 84.5 14.5

(1) The thirteen week period ended September 29, 2021 primarily included operating lease additions associated with the 23 restaurants purchased from a former franchisee.

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

Refer to Note 14 - Fiscal 2022 Chili’s Restaurant Acquisitions for further details.

2 unchanged sentences

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

As of September 28, 2022 and June 29, 2022, we have outstanding lease guarantees or are secondarily liable for an estimated $ 24.6 million and $ 26.3 million, respectively.

As of December 28, 2022 and June 29, 2022, we have outstanding lease guarantees or are secondarily liable for an estimated $ 22.8 million and $ 26.3 million, respectively.

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

1 unchanged sentence

We have received notices of default and have been named a party in lawsuits pertaining to some of these leases in circumstances where the current lessee did not pay its rent obligations.

In the event of default under a lease by a

Footnote Index

franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties.

As of September 28, 2022, we have contingent liabilities of $ 2.0 million for our estimated exposure of the lease defaults related to these lease guarantees.

In the event of default under a lease by an owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties.

As of December 28, 2022, we have contingent liabilities of $ 1.1 million for our estimated exposure of the lease defaults related to these lease guarantees.

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

1 unchanged sentence

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

As of September 28, 2022, we had $ 5.8 million in undrawn standby letters of credit outstanding.

As of December 28, 2022, we had $ 5.8 million in undrawn standby letters of credit outstanding.

All standby letters of credit are renewable within the next 10 months.

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

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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.

2 unchanged sentences

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

As such, as of September 28, 2022, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation.

As such, as of December 28, 2022, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation.

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

10 unchanged sentences

• 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.

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• 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.

3 unchanged sentences

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

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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.

18 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements