BRINKER INTERNATIONAL, INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA BRINKER INTERNATIONAL, INC. Consolidated Financial Statements Table of Contents Page Report of Independent Registered Public Accounting Firm ( KPMG LLP , Dallas, TX , PCAOB ID: 185 ) 41 Management’s Report on Internal Control over Financial Reporting 45 Consolidated Statements of Comprehensive Income - Fiscal Years Ended June 28, 2023, June 29, 2022 and June 30, 2021 46 Consolidated Balance Sheets - June 28, 2023 and June 29, 2022 47 Consolidated Statements of Cash Flows - Fiscal Years Ended June 28, 2023, June 29, 2022 and June 30, 2021 48 Consolidated Statements of Shareholders’ Deficit - Fiscal Years Ended June 28, 2023, June 29, 2022 and June 30, 2021 49 Notes to Consolidated Financial Statements 50 40 Table of Contents 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 28, 2023 and June 29, 2022, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the years in the three-year period ended June 28, 2023, 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 28, 2023 and June 29, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended June 28, 2023, 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 28, 2023, 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 23, 2023 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 2 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 28, 2023 was $16.5 million. 41 Table of Contents 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. /s/ KPMG LLP We have served as the Company’s auditor since 1984. Dallas, Texas August 23, 2023 42 Table of Contents 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 28, 2023, 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 28, 2023, 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 28, 2023 and June 29, 2022, the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the years in the three-year period ended June 28, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated August 23, 2023 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. 43 Table of Contents 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. /s/ KPMG LLP Dallas, Texas August 23, 2023 44 Table of Contents 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; and • 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 28, 2023. 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 28, 2023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein. 45 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Statements of Comprehensive Income (In millions, except per share amounts) Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 (1) Revenues Company sales $ 4,093.2 $ 3,764.5 $ 3,301.3 Franchise revenues 40.0 39.6 36.5 Total revenues 4,133.2 3,804.1 3,337.8 Operating costs and expenses Food and beverage costs 1,146.3 1,048.5 867.8 Restaurant labor 1,389.3 1,288.1 1,108.2 Restaurant expenses 1,097.5 968.3 858.5 Depreciation and amortization 168.5 164.4 150.2 General and administrative 154.5 144.1 134.8 Other (gains) and charges 32.7 31.2 19.0 Total operating costs and expenses 3,988.8 3,644.6 3,138.5 Operating income 144.4 159.5 199.3 Interest expenses 54.9 46.1 56.2 Other income, net ( 1.3 ) ( 1.8 ) ( 2.1 ) Income before income taxes 90.8 115.2 145.2 (Benefit) Provision for income taxes ( 11.8 ) ( 2.4 ) 13.6 Net income $ 102.6 $ 117.6 $ 131.6 Basic net income per share $ 2.33 $ 2.62 $ 2.89 Diluted net income per share $ 2.28 $ 2.58 $ 2.83 Basic weighted average shares outstanding 44.1 44.8 45.5 Diluted weighted average shares outstanding 45.0 45.6 46.6 Other comprehensive income Foreign currency translation adjustment $ ( 0.7 ) $ ( 0.6 ) $ 1.5 Other comprehensive income (loss) ( 0.7 ) ( 0.6 ) 1.5 Comprehensive income $ 101.9 $ 117.0 $ 133.1 (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 46 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Balance Sheets (In millions, except per share amounts) June 28, 2023 June 29, 2022 ASSETS Current assets Cash and cash equivalents $ 15.1 $ 13.5 Accounts receivable, net 60.9 66.4 Inventories 34.5 35.6 Restaurant supplies 55.6 55.5 Prepaid expenses 17.2 25.7 Income taxes receivable, net — 4.5 Total current assets 183.3 201.2 Property and equipment, at cost Land 42.4 43.4 Buildings and leasehold improvements 1,635.7 1,603.9 Furniture and equipment 765.8 793.0 Construction-in-progress 30.1 33.6 2,474.0 2,473.9 Less accumulated depreciation and amortization ( 1,665.7 ) ( 1,657.2 ) Net property and equipment 808.3 816.7 Other assets Operating lease assets 1,134.9 1,160.5 Goodwill 195.0 195.1 Deferred income taxes, net 93.4 62.5 Intangibles, net 23.9 27.4 Other 48.2 21.0 Total other assets 1,495.4 1,466.5 Total assets $ 2,487.0 $ 2,484.4 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current liabilities Accounts payable $ 125.7 $ 134.3 Gift card liability 73.0 83.9 Accrued payroll 106.1 111.0 Operating lease liabilities 112.4 112.7 Other accrued liabilities 116.3 116.1 Income taxes payable, net 2.4 — Total current liabilities 535.9 558.0 Long-term debt and finance leases, less current installments 912.2 989.1 Long-term operating lease liabilities, less current portion 1,125.8 1,151.1 Other liabilities 57.4 54.3 Commitments and contingencies (Note 9) Shareholders’ deficit Common stock ( 250.0 million authorized shares; $ 0.10 par value; 60.3 million shares issued and 44.6 million shares outstanding at June 28, 2023, and 70.3 million shares issued and 43.8 million shares outstanding at June 29, 2022) 6.0 7.0 Additional paid-in capital 690.0 690.9 Accumulated other comprehensive loss ( 6.0 ) ( 5.3 ) Accumulated deficit ( 351.9 ) ( 148.4 ) Treasury stock, at cost ( 15.7 million shares at June 28, 2023, and 26.5 million shares at June 29, 2022) ( 482.4 ) ( 812.3 ) Total shareholders’ deficit ( 144.3 ) ( 268.1 ) Total liabilities and shareholders’ deficit $ 2,487.0 $ 2,484.4 See accompanying Notes to Consolidated Financial Statements 47 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Statements of Cash Flows (In millions) Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Cash flows from operating activities Net income $ 102.6 $ 117.6 $ 131.6 Adjustments to reconcile Net income to Net cash provided by operating activities: Depreciation and amortization 168.5 164.4 150.2 Deferred income taxes, net ( 30.9 ) ( 11.7 ) ( 12.5 ) Restructure and impairment charges 24.0 20.3 9.8 Stock-based compensation 14.4 18.6 16.4 Net loss on disposal of assets 2.7 3.4 1.8 Other 1.8 3.0 3.7 Changes in assets and liabilities, net of the impact of acquisitions: Accounts receivable, net 0.7 3.4 ( 9.9 ) Inventories 0.0 ( 5.5 ) ( 2.2 ) Restaurant supplies ( 1.1 ) ( 1.6 ) ( 1.0 ) Prepaid expenses ( 20.6 ) ( 12.2 ) 0.3 Current income taxes 8.0 14.4 14.7 Operating lease assets, net of liabilities ( 2.8 ) 3.4 ( 27.6 ) Other assets 0.0 0.0 ( 0.5 ) Accounts payable ( 5.8 ) 0.2 21.1 Gift card liability ( 10.9 ) ( 23.3 ) ( 3.5 ) Accrued payroll ( 5.3 ) ( 11.5 ) 57.2 Other accrued liabilities 10.0 ( 2.0 ) 6.3 Other liabilities 1.0 ( 28.7 ) 13.8 Net cash provided by operating activities 256.3 252.2 369.7 Cash flows from investing activities Payments for property and equipment ( 184.9 ) ( 150.3 ) ( 94.0 ) Payments for franchise restaurant acquisitions — ( 106.6 ) — Proceeds from sale leaseback transactions, net of related expenses — 20.5 — Proceeds from note receivable 4.5 2.1 1.5 Proceeds from sale of assets 5.5 0.1 1.6 Insurance recoveries 0.7 — — Net cash used in investing activities ( 174.2 ) ( 234.2 ) ( 90.9 ) Cash flows from financing activities Borrowings on revolving credit facility 765.0 720.5 43.4 Payments on revolving credit facility ( 875.0 ) ( 620.5 ) ( 345.0 ) Proceeds from issuance of long-term debt 350.0 — — Payments on long-term debt ( 322.1 ) ( 23.7 ) ( 20.0 ) Purchases of treasury stock ( 5.0 ) ( 100.9 ) ( 4.2 ) Proceeds from issuance of treasury stock 12.5 0.4 30.7 Payments for debt issuance costs ( 5.3 ) ( 3.1 ) ( 2.2 ) Payments of dividends ( 0.6 ) ( 1.1 ) ( 1.5 ) Net cash used in financing activities ( 80.5 ) ( 28.4 ) ( 298.8 ) Net change in cash and cash equivalents 1.6 ( 10.4 ) ( 20.0 ) Cash and cash equivalents at beginning of period 13.5 23.9 43.9 Cash and cash equivalents at end of period $ 15.1 $ 13.5 $ 23.9 Supplemental disclosure of cash flow information: Income taxes paid (refunds received), net $ 12.4 $ ( 4.7 ) $ 9.7 Interest paid, net of amounts capitalized 51.0 41.0 49.5 Accrued capital expenditures 11.3 15.2 8.8 See accompanying Notes to Consolidated Financial Statements 48 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Statements of Shareholders’ Deficit (In millions) Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total Shares Amount Balances at June 24, 2020 45.0 $ 7.0 $ 669.4 $ ( 397.5 ) $ ( 751.8 ) $ ( 6.2 ) $ ( 479.1 ) Net income — — — 131.6 — — 131.6 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 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 loss — — — — — ( 0.6 ) ( 0.6 ) Dividends — — — 0.1 — — 0.1 Stock-based compensation — — 18.6 — — — 18.6 Purchases of treasury stock ( 2.4 ) — ( 2.0 ) — ( 98.9 ) — ( 100.9 ) 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 ) Net income — — — 102.6 — — 102.6 Other comprehensive loss — — — — — ( 0.7 ) ( 0.7 ) Dividends — — — 0.0 — — 0.0 Stock-based compensation — — 14.4 — — — 14.4 Purchases of treasury stock ( 0.1 ) — ( 0.4 ) — ( 4.6 ) — ( 5.0 ) Issuances of treasury stock 0.9 — ( 14.9 ) — 27.4 — 12.5 Retirement of stock — ( 1.0 ) — ( 306.1 ) 307.1 — — Balances at June 28, 2023 44.6 $ 6.0 $ 690.0 $ ( 351.9 ) $ ( 482.4 ) $ ( 6.0 ) $ ( 144.3 ) See accompanying Notes to Consolidated Financial Statements 49 Table of Contents BRINKER INTERNATIONAL, INC. Notes to Consolidated Financial Statements Footnote Index Note # Description Page Note 1 Nature of Operations and Summary of Significant Accounting Policies 51 Note 2 Revenue Recognition 56 Note 3 Acquisitions 57 Note 4 Fair Value Measurements 58 Note 5 Goodwill and Intangibles 60 Note 6 Accrued Liabilities 61 Note 7 Leases 61 Note 8 Debt 63 Note 9 Commitments and Contingencies 65 Note 10 Income Taxes 66 Note 11 Shareholders’ Deficit 68 Note 12 Stock-based Compensation 69 Note 13 Defined Contribution Plan 71 Note 14 Other Gains and Charges 72 Note 15 Segment Information 73 50 Table of Contents Footnote Index 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Company is 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 of June 28, 2023, we owned, operated or franchised 1,657 restaurants, consisting of 1,185 Company-owned restaurants and 472 franchised restaurants, located in the United States, 29 other countries and two United States territories. Basis of Presentation Principles of Consolidation - The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), and include the accounts of Brinker International, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. All amounts within the Notes to Consolidated Financial Statements are presented in millions unless otherwise specified. Fiscal Year - We have a 52 or 53 week fiscal year ending on the last Wednesday in June. We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks. Fiscal 2023 and Fiscal 2022, which ended on June 28, 2023 and June 29, 2022, respectively, each contained 52 weeks. Fiscal 2021, which ended on June 30, 2021, contained 53 weeks. Reclassifications - Beginning in 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. Our presentation of Franchise revenues will now include only revenues related to the ongoing franchise-operated restaurants. Comparative figures in prior years have been adjusted to conform to the current year’s presentation. These reclassifications have no effect on Total revenues or Net income previously reported. Use of Estimates - The preparation of the Consolidated Financial Statements is in conformity with GAAP and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and costs and expenses in the reporting periods. Actual results could differ from those estimates. External Impacts to Our Operating Environment - During both 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. During fiscal 2023, all our domestic Company-owned and franchise restaurants operated with no restrictions. During fiscal 2022, the continuing spread of COVID-19 cases (particularly 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. Significant Accounting Policies Cash and Cash Equivalents - Our policy is to invest cash in excess of operating requirements in income-producing investments. Income-producing investments with original maturities of three months or less are reflected as cash equivalents. Accounts Receivable - Accounts receivable, net of the allowance for credit losses, represents the estimated net realizable value. Our primary accounts receivables are due from third-party gift card sales, vendor rebates, restaurant sales made with credit cards 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. Inventories - Inventories consist of food, beverages and supplies and are valued at the lower of cost (using the first-in, first-out method) or net realizable value. 51 Table of Contents Footnote Index Cloud-Based Computing Arrangements - The Company defers application development stage costs for cloud-based computing arrangements and amortizes those costs over the related service (subscription) agreement. The current and long term portion is included in Prepaid expenses and Other assets in the Consolidated Balance Sheets, respectively. Fair Value Measurements - 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 3 Unobservable inputs that cannot be corroborated by observable market data Property and Equipment - Property and equipment is recorded at cost and depreciated using the straight-line method over the lesser of the remaining term of the lease, including certain renewal options, or the estimated useful lives of the assets. Typical useful lives of our Buildings and leasehold improvements range from 5 to 20 years, and Furniture and equipment range from 3 to 7 years. Depreciation expenses related to property and equipment for the fiscal years ended June 28, 2023, June 29, 2022, and June 30, 2021, of $ 165.3 million, $ 161.3 million, and $ 148.2 million, respectively, were recorded in Depreciation and amortization in the Consolidated Statements of Comprehensive Income. Routine repair and maintenance costs are expensed when incurred. Major replacements and improvements are capitalized. 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. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on discounted projected future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the inherent risk that is considered Level 3 (refer to Fair Value Measurements policy above for definition of levels). Impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. 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. 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, 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. We have derived our incremental borrowing rate using the interest rate we would pay on our existing borrowings, adjusted for the effect of designating collateral and the lease terms using market data as well as publicly available data for instruments with similar characteristics. The reasonably certain lease term and incremental borrowing rate for each lease requires judgment by management and can impact the classification and accounting for a lease as operating or finance, as well as the value of the lease asset and lease liability. 52 Table of Contents Footnote Index 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, 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. 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. Finance lease expenses are recognized on a straight-line basis over the lesser of the useful life of the leased asset or the lease term and the expenses are recognized in Depreciation and amortization in the Consolidated Statements of Comprehensive Income. Interest on each finance lease liability is recorded to Interest expenses in the Consolidated Statements of Comprehensive Income. Definite-Lived Intangible Assets - Definite-lived intangible assets primarily include the reacquired franchise rights resulting from our acquisitions and included in Intangibles, net in the Consolidated Balance Sheets. These assets are amortized using the straight-line method over the remaining term of the related franchise agreement. We determine the fair value of reacquired franchise rights based on discounted projected future operating cash flows of the restaurants associated with these franchise rights. We review the carrying amount 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. Impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. Indefinite-Lived Intangible Assets - The costs of obtaining non-transferable liquor licenses from local government agencies are expensed over the specified term of the license to Restaurant expenses in the Consolidated Statements of Comprehensive Income. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in Intangibles, net in the Consolidated Balance Sheets. 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. We determine fair value based on prices in the open market for licenses in same or similar jurisdictions. Impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. Goodwill - Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is assigned to the reporting unit in which the acquired business will operate for purposes of impairment testing. Goodwill is tested for impairment annually, as of the first day of the second quarter of each fiscal year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our two restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units. We may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated. The carrying value of the reporting unit is compared to its estimated fair value, and if the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value. 53 Table of Contents Footnote Index During fiscal 2023, 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 2023, fiscal 2022 and fiscal 2021. Additionally, no indicators of impairment were identified through the end of each fiscal year. Insurance Reserves - We are self-insured for certain losses related to health, general liability and workers’ compensation. We maintain stop loss coverage with third-party insurers to limit our total exposure. The self-insurance liability represents an estimate of the ultimate cost of claims incurred and unpaid as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates and is reviewed on a quarterly basis to ensure that the liability is appropriate. The estimated incurred but unreported costs to settle unpaid claims are included in Other accrued liabilities and Other liabilities, depending on their current or long-term nature, in the Consolidated Balance Sheets. Preferred Stock - Our Board of Directors is authorized to provide for the issuance of 1.0 million preferred shares with a par value of $ 1.00 per share, in one or more series, and to fix the voting rights, liquidation preferences, dividend rates, conversion rights, redemption rights, and terms, including sinking fund provisions, and certain other rights and preferences. As of June 28, 2023, no preferred shares were issued. Revenues - Revenues are presented in the Company sales and Franchise revenues captions in the Consolidated Statements of Comprehensive Income. Company Sales - Company sales include revenues generated by the operation of Company-owned restaurants including food and beverage sales, net of discounts, gift card breakage, Maggiano’s banquet service charge income, delivery, digital entertainment revenues, 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. Sales taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue transactions and collected from a customer have been excluded from revenues. 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. We do not charge dormancy, or any other fees related to monitoring or administering the gift card program to cardholders. Additionally, proceeds from the sale of gift cards are recorded as deferred revenues in the Gift card liability in the Consolidated Balance Sheets and recognized as Company sales when the gift card is redeemed by the holder. Gift Card Discount Costs - Our gift cards are sold through various outlets such as in-restaurant, Chili’s and Maggiano’s websites, directly to other businesses and through third-party distributors that sell our gift cards at retail locations. We incur incremental direct costs, such as commissions and activation fees, for gift cards sold by third-party businesses and distributors. These initial direct costs are deferred and amortized against revenues proportionate to the pattern of related gift card redemptions. Franchise Revenues - Franchise revenues include royalties, franchise advertising fees, gift card equalization, and franchise and development fees. 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. Franchise advertising contributions from domestic franchisees are contractually obligated to contribute into certain advertising and marketing funds. Franchise and Development Fees are received from franchises for new restaurant openings and for territory development arrangements. The performance obligation related to these arrangements are collectively deferred as a contract liability and recognized 54 Table of Contents Footnote Index on a straight-line basis into Franchise revenues in the Consolidated Statements of Comprehensive Income over the term of the underlying agreements. Advertising Expenses - Advertising production costs are expensed in the period when the advertising first takes place. Other advertising costs are expensed as incurred. In the fiscal years ended June 28, 2023, June 29, 2022 and June 30, 2021, advertising expenses of $ 58.2 million, $ 37.4 million and $ 26.4 million, respectively, were included in Restaurant expenses, and advertising contributions from franchisees of $ 3.0 million, $ 2.4 million and $ 2.8 million, respectively, were recorded in Franchise revenues in the Consolidated Statements of Comprehensive Income. Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an income tax return that is not more-likely-than-not to be realized. We recognize any interest and penalties related to unrecognized tax benefits in (Benefit) Provision for income taxes in the Consolidated Statements of Comprehensive Income. Additionally, income taxes are computed on a consolidated legal jurisdiction basis with no regard to brand. Stock-Based Compensation - We measure and recognize compensation costs at fair value for all share-based payments. We record compensation expenses using a graded-vesting schedule or on a straight-line basis, as applicable, over the vesting period, or the date on which retirement eligibility is achieved, if earlier. We recognize compensation expenses for only the portion of share-based awards that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from our historical forfeitures of similar awards. Certain employees are eligible to receive stock options, performance stock options, performance shares, restricted stock and restricted stock units, while non-employee members of the Board of Directors are eligible to receive stock options, restricted stock and restricted stock units. Awards granted to the Board of Directors are non-forfeitable and are fully expensed upon grant. Awards to eligible employees may vest over a specified period of time or service period and may also contain performance-based conditions. The fair value of restricted stock and restricted stock units that do not contain a performance condition are based on our closing stock price on the date of grant, while the fair value of stock options, if granted, is estimated using the Black-Scholes option-pricing model on the date of grant. Performance shares represent a right to receive shares of common stock upon satisfaction of Company performance goals 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 or a specified range of earnings at the end of the three-fiscal-year period and may also include a market-based metric, such as TSR. Compensation expenses for the performance shares is recorded to General and administrative expenses based on management’s periodic estimates of the number of shares that will be earned under the Company performance metric, and the fair value of the shares as determined by our closing stock price on the date of grant, or by Monte Carlo simulation if a market-based metric is included. A cumulative expenses adjustment is recognized when that estimate changes. Foreign Currency - Foreign currency translation adjustments represent the unrealized impact of translating the financial statements of our Canadian restaurants from their respective functional currency (Canadian dollars) to U.S. dollars and are reported as a component of comprehensive income and recorded in Accumulated other comprehensive loss on our Consolidated Balance Sheets. Net Income Per Share - Basic net income per share is computed by dividing Net income by the Basic weighted average shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of Diluted net income per share, the Basic weighted average shares outstanding is increased by 55 Table of Contents Footnote Index the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the Diluted net income per share calculation. Basic weighted average shares outstanding are reconciled to Diluted weighted average shares outstanding as follows: June 28, 2023 June 29, 2022 June 30, 2021 Basic weighted average shares outstanding 44.1 44.8 45.5 Dilutive stock options 0.1 0.2 0.4 Dilutive restricted shares 0.8 0.6 0.7 Total dilutive impact 0.9 0.8 1.1 Diluted weighted average shares outstanding 45.0 45.6 46.6 Awards excluded due to anti-dilutive effect 1.3 0.8 0.5 New Accounting Standards Implemented We reviewed all accounting pronouncements that became effective for our fiscal 2023 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. 2. REVENUE RECOGNITION Deferred Franchise and Development Fees Our deferred franchise and development fees consist of the unrecognized fees received from franchisees. Recognition of these fees in subsequent periods is based on satisfaction of the contractual performance obligations of the active contracts with franchisees. The weighted average remaining term of the current franchise agreements, including certain renewal periods expected to be exercised, was approximately 20 years as of June 28, 2023. We also expect to earn subsequent period royalties and advertising fees related to our franchise contracts; however, due to the variability and uncertainty of these future revenues based upon a sales-based measure, these future revenues are not yet estimable as the performance obligations remain unsatisfied. 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. The following table reflects the changes in deferred franchise and development fees for the fiscal years ended on June 28, 2023 and June 29, 2022: June 28, 2023 June 29, 2022 Beginning balance $ 10.1 $ 11.4 Additions 1.9 1.1 Amount recognized to Other gains and charges (1) — ( 0.9 ) Amount recognized to Franchise revenues ( 0.9 ) ( 1.5 ) Ending balance $ 11.1 $ 10.1 (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 Consolidated Statements of Comprehensive Income. Refer to Note 3 - Acquisitions for further details. 56 Table of Contents 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 June 28, 2023: Fiscal Year Franchise and Development Fees Revenue Recognition 2024 $ 0.9 2025 0.9 2026 0.8 2027 0.8 2028 0.7 Thereafter 7.0 $ 11.1 Deferred Gift Card Revenues Total deferred revenues related to our gift cards include the full value of unredeemed gift card balances less recognized breakage and the unamortized portion of third-party fees. The following table reflects the changes in the Gift card liability for fiscal years ended on June 28, 2023 and June 29, 2022: June 28, 2023 June 29, 2022 Beginning balance $ 83.9 $ 106.4 Gift card sales 127.1 134.8 Gift card redemptions recognized to Company sales ( 121.7 ) ( 122.1 ) Gift card breakage recognized to Company sales (1) ( 16.5 ) ( 36.1 ) Other 0.2 0.9 Ending balance $ 73.0 $ 83.9 (1) Gift card breakage recognized to Company sales decreased due to prior year change in estimate to increase gift card breakage rates primarily attributable to gift cards sold prior to fiscal 2022. 3. 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 7 - 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. We accounted for each of these acquisitions as a business combination. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements from the acquisition dates. The assets and liabilities of the acquired restaurants were recorded at their fair values. The fair values of tangible and 57 Table of Contents Footnote Index 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 for the more significant 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 23.6 47.8 Reacquired franchise rights (1) 4.7 4.6 Goodwill (2) — 7.2 Current liabilities ( 1.4 ) ( 1.4 ) Finance lease liabilities, less current portion ( 3.7 ) — Operating lease liabilities, less current portion ( 23.1 ) ( 46.8 ) Net assets acquired $ 47.7 $ 57.1 (1) 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. (2) 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. FAIR VALUE MEASUREMENTS Non-Financial Assets 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. All impairment charges were included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income for the periods presented. Refer to Note 14 - Other Gains and Charges for more information. Intangibles, net in the Consolidated Balance Sheets includes both indefinite-lived intangible assets such as transferable liquor licenses and definite-lived intangible assets such as reacquired franchise rights and trademarks. Definite-Lived Assets Impairment Definite-lived assets include property and equipment, including finance lease assets, operating lease assets and reacquired franchise rights. During fiscal 2023, we impaired certain long-lived assets and operating lease assets primarily related to 38 underperforming Chili’s restaurants. 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. 58 Table of Contents Footnote Index We determined the fair value of these assets based on Level 3 fair value measurements. The table below presents the carrying values and related impairment charges recorded on these impaired restaurants for the periods presented: Impairment Charges Pre-Impairment Carrying Value Fiscal Years Ended June 28, 2023 June 29, 2022 June 28, 2023 June 29, 2022 Underperforming restaurants Long-lived assets $ 10.2 $ 7.3 $ 10.2 $ 7.3 Reacquired franchise rights assets 0.3 — 0.3 — Operating lease assets 21.4 13.0 1.5 1.0 Total underperforming restaurants $ 31.9 $ 20.3 $ 12.0 $ 8.3 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 annual reviews, in fiscal 2023 we determined there was a $ 0.1 million impairment and in fiscal 2022 we determined there was $ 0.2 million impairment. 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 3 - Acquisitions for further details. Other 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). The fair values of our notes are based on quoted market prices and are considered Level 2 fair value measurements. The 5.000 %, 8.250 % and 3.875 % notes’ carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values are as follows, refer to Note 8 - Debt for further details: June 28, 2023 June 29, 2022 Carrying Amount Fair Value Carrying Amount Fair Value 5.000 % notes $ 349.0 $ 343.5 $ 348.2 $ 329.0 8.250% notes (1) 344.3 348.3 — — 3.875% notes (2) — — 299.7 295.4 (1) On June 27, 2023 we issued $ 350.0 million of 8.250% senior notes due July 2030 (the “2030 Notes”). (2) On May 15, 2023 the 3.875% notes matured and were repaid in full using borrowings under our revolving credit facility. 59 Table of Contents Footnote Index 5. GOODWILL AND INTANGIBLES There have been no impairments of Goodwill for the fiscal years ended June 28, 2023, June 29, 2022 and June 30, 2021. The changes in the carrying amount of Goodwill by segment are as follows: June 28, 2023 June 29, 2022 Chili’s Maggiano’s Consolidated Chili’s Maggiano’s Consolidated Balance at beginning of year $ 156.7 $ 38.4 $ 195.1 $ 149.8 $ 38.4 $ 188.2 Changes in goodwill: Additions (1) — — — 7.2 — 7.2 Foreign currency translation adjustment ( 0.1 ) — ( 0.1 ) ( 0.3 ) — ( 0.3 ) Balance at end of year $ 156.6 $ 38.4 $ 195.0 $ 156.7 $ 38.4 $ 195.1 (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 3 - Acquisitions for further information. Intangible assets, net are as follows: June 28, 2023 June 29, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Definite-lived intangible assets Chili’s reacquired franchise rights $ 28.4 $ ( 14.9 ) $ 13.5 $ 29.3 $ ( 12.2 ) $ 17.1 Chili’s other 0.4 ( 0.4 ) — 0.4 ( 0.4 ) — $ 28.8 $ ( 15.3 ) $ 13.5 $ 29.7 $ ( 12.6 ) $ 17.1 Indefinite-lived intangible assets Chili’s liquor licenses $ 9.6 $ 9.4 Maggiano’s liquor licenses 0.8 0.9 $ 10.4 $ 10.3 Amortization expenses for all definite-lived intangible assets were recorded in Depreciation and amortization in the Consolidated Statements of Comprehensive Income as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Definite-lived intangibles amortization expense $ 3.2 $ 3.0 $ 2.0 Annual amortization expenses for definite-lived intangible assets are estimated to be $ 3.0 million for fiscal 2024, $ 2.7 million for each of fiscal 2025, fiscal 2026, and fiscal 2027 and $ 1.4 million for fiscal 2028. 60 Table of Contents Footnote Index 6. ACCRUED LIABILITIES Other accrued liabilities consist of the following: June 28, 2023 June 29, 2022 Insurance $ 29.3 $ 23.5 Property tax 24.5 23.3 Sales tax 17.3 14.4 Utilities and services 10.4 9.6 Current installments of finance lease obligations 10.2 20.3 Interest 6.4 6.5 Other 18.2 18.5 $ 116.3 $ 116.1 7. LEASES As of June 28, 2023, 1,135 of our 1,185 Company-owned restaurant facilities were leased. We typically lease our restaurant facilities through ground leases (where we lease land only, but construct the building and leasehold improvements) or retail leases (where we lease the land/retail space and building, but construct the leasehold improvements). As of June 28, 2023, the restaurant leases have cumulative renewal clauses of 1 to 30 years at our option. Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms ranging from 1 to 10 years. The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume. In addition to our restaurant facilities, we also lease our corporate headquarters location and certain equipment. Our lease agreements do not contain any material residual value guarantees or material covenant restrictions. Consolidated Balance Sheet Disclosure of Lease Amounts The following table includes a detail of lease assets and liabilities included in the Consolidated Balance Sheets: June 28, 2023 Finance Leases (1) Operating Leases (2) Total Leases Lease assets $ 51.3 $ 1,134.9 $ 1,186.2 Current lease liabilities 10.2 112.4 122.6 Long-term lease liabilities 57.6 1,125.8 1,183.4 Total lease liabilities $ 67.8 $ 1,238.2 $ 1,306.0 June 29, 2022 Finance Leases (1) Operating Leases (2) Total Leases Lease assets $ 71.1 $ 1,160.5 $ 1,231.6 Current lease liabilities 20.3 112.7 133.0 Long-term lease liabilities 69.9 1,151.1 1,221.0 Total lease liabilities $ 90.2 $ 1,263.8 $ 1,354.0 (1) Finance lease assets are recorded in Property and equipment, at cost , and the related current and long-term lease liabilities are recorded within Other accrued liabilities and Long-term debt and finance leases, less current installments , respectively. (2) Operating lease assets are recorded in Operating lease assets and the related current and long-term lease liabilities are recorded within Operating lease liabilities and Long-term operating lease liabilities, less current portion, respectively. 61 Table of Contents Footnote Index Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts The components of lease expenses, including variable lease costs primarily consisting of rent based on a percentage of sales, common area maintenance and real estate tax charges, and short-term lease expenses for leases with lease terms less than twelve months are included in the Consolidated Statements of Comprehensive Income as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Operating lease cost $ 181.0 $ 173.7 $ 167.2 Finance lease amortization 19.7 21.9 17.3 Finance lease interest 4.1 5.5 5.9 Short-term lease cost 0.3 0.6 0.5 Variable lease cost 63.5 60.5 57.9 Sublease income ( 2.8 ) ( 4.2 ) ( 4.4 ) Total lease costs, net $ 265.8 $ 258.0 $ 244.4 Consolidated Statement of Cash Flows Disclosure of Lease Amounts Supplemental cash flow information related to leases recorded in the Consolidated Statements of Cash Flows is as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Cash flows from operating activities Cash paid related to lease liabilities Operating leases (1) $ 184.3 $ 171.1 $ 195.5 Finance leases 4.1 5.5 5.9 Cash flows from financing activities Cash paid related to lease liabilities Finance leases 22.1 23.7 20.0 Non-cash lease assets obtained in exchange for lease liabilities Operating leases (2) 101.7 255.4 60.6 Finance leases 0.3 13.4 29.8 (1) Cash paid related to lease liabilities for Operating leases were higher in fiscal 2021 primarily due to the lease payments made during fiscal 2021 for rents that were deferred in fiscal 2020 due to the impacts of the COVID-19 pandemic. (2) 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, including sale leaseback transactions on six of the acquired restaurants. The combined transactions resulted in increased operating lease assets of $ 86.8 million as of the end of fiscal 2022, and cash proceeds of $ 20.5 million were received from the sale leaseback transactions. Additionally, the modifications of 25 leases in fiscal 2022 from finance leases to operating leases, resulted in increased operating lease assets of $ 47.9 million. 62 Table of Contents Footnote Index Weighted Average Lease Term and Discount Rate Other information related to leases is as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 Finance Leases Operating Leases Finance Leases Operating Leases Weighted average remaining lease term 9.9 years 11.8 years 9.1 years 12.0 years Weighted average discount rate 5.5 % 5.8 % 5.1 % 5.5 % Lease Maturity Analysis Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options. As of June 28, 2023, the future minimum lease payments on finance and operating leases, as well as sublease income were as follows: June 28, 2023 Fiscal Year Finance Leases Operating Leases Sublease Income 2024 $ 13.7 $ 179.4 $ 0.8 2025 12.3 177.6 0.7 2026 8.1 164.8 0.6 2027 7.6 147.7 0.5 2028 7.5 129.3 0.3 Thereafter 40.1 944.5 0.1 Total future lease payments 89.3 1,743.3 $ 3.0 Less: Imputed interest 21.5 505.1 Present value of lease liability $ 67.8 $ 1,238.2 Pre-Commencement Leases In fiscal 2023, we executed five leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 17.7 million. These leases are expected to commence in the next 12 months and are expected to have an economic lease term of 20 years. These leases will commence when the landlords make the property available to us for new restaurant construction. We will assess the reasonably certain lease term at the lease commencement date. 8. DEBT Long-term debt consists of the following: June 28, 2023 June 29, 2022 Revolving credit facility $ 161.3 $ 271.3 5.000% notes 350.0 350.0 8.250% notes (1) 350.0 — 3.875% notes (2) — 300.0 Finance lease obligations 67.8 90.2 Total long-term debt 929.1 1,011.5 Less: unamortized debt issuance costs and discounts ( 6.7 ) ( 2.1 ) Total long-term debt, less unamortized debt issuance costs and discounts 922.4 1,009.4 Less: current installments of finance lease obligations (3) ( 10.2 ) ( 20.3 ) Total long-term debt, less current portion $ 912.2 $ 989.1 (1) On June 27, 2023 we issued $ 350.0 million of 8.250% senior notes due July 2030. 63 Table of Contents Footnote Index (2) On May 15, 2023 the 3.875% notes matured and were repaid in full using borrowings under our revolving credit facility. (3) Current installments of finance lease obligations, for the periods presented, are recorded within Other accrued liabilities in the Consolidated Balance Sheets. Refer to Note 6 - Accrued Liabilities for further details. Excluding finance lease obligations and interest, our long-term debt maturities for the five fiscal years following June 28, 2023 and thereafter are as follows: Fiscal Year Long-Term Debt 2024 $ — 2025 350.0 2026 — 2027 161.3 2028 — Thereafter 350.0 $ 861.3 Revolving Credit Facility On May 2, 2023, we amended our $ 800.0 million revolving credit facility to increase the capacity to $ 900.0 million and to adopt SOFR as the new benchmark rate, replacing LIBOR . During fiscal 2023, we incurred and capitalized $ 0.5 million of debt issuance costs associated with the revolving credit facility, which are included in Other assets in the Consolidated Balance Sheets. The $ 900.0 million revolving credit facility, as amended, matures on August 18, 2026 and bears interest of SOFR 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 28, 2023, our interest rate was 6.952 % consisting of SOFR of 5.102 % plus the applicable margin and spread adjustment of 1.850 %. As of June 28, 2023, there was $ 738.7 million of borrowing capacity under the revolving credit facility. 3.875 % Notes On May 15, 2023, our $ 300.0 million 3.875 % notes matured and the payoff was funded with borrowings from our revolving credit facility. 8.250 % Notes On June 27, 2023, we issued $ 350.0 million of 8.250 % senior notes due July 15, 2030 and used $ 340.0 million of the proceeds to reduce outstanding borrowings on the revolver. The 2030 Notes require semi-annual interest payments in arrears, on each January 15 and July 15, beginning on January 15, 2024. During fiscal 2023, we incurred and capitalized $ 5.7 million of debt issuance costs associated with the 2030 Notes, which are included in Long-term debt and finance leases, less current installments in the Consolidated Balance Sheets. 5.000 % Notes In fiscal 2017, we issued $ 350.0 million of 5.000 % senior notes due October 2024 (the “2024 Notes”). The notes require semi-annual interest payments which began on April 1, 2017. Financial and Other Covenants The indentures for the 2024 Notes and 2030 Notes contain certain covenants, including, but not limited to, limitations and restrictions on the ability of the Company and its Restricted Subsidiaries (as defined in the indentures) to (i) create liens on Principal Property (as defined in the Indenture) and (ii) merge, consolidate or amalgamate with or into any other person or sell, transfer, assign, lease, convey or otherwise dispose of all or 64 Table of Contents Footnote Index substantially all of their property. These covenants are subject to a number of important conditions, qualifications, exceptions and limitations. Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage ratios. As of June 28, 2023, we were in compliance with our covenants pursuant to the $900.0 million revolving credit facility and under the terms of the indentures governing our 2024 Notes and 2030 Notes . We expect to remain in compliance with our covenants throughout fiscal 2024. 9. COMMITMENTS AND CONTINGENCIES Lease Commitments and Guarantees 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 June 28, 2023 and June 29, 2022, we have outstanding lease guarantees or are secondarily liable for $ 16.9 million and $ 26.3 million, respectively. These amounts represent the maximum known potential liability of rent payments under the leases, but outstanding rent payments can exist outside of our knowledge as a result of the landlord and tenant relationship being between two third parties. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2024 through fiscal 2029. In the event of default under a lease by a franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties. 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 an owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws, including bankruptcy laws, govern our ability to pursue and recover amounts we may pay on behalf of such third parties. We recorded a $ 2.0 million and $ 3.1 million charge in fiscal 2023 and fiscal 2022, respectively, which are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. These amounts are related to these leases and lawsuits and represent the low end of our estimated range of losses. We will continue to closely monitor our exposure. Letters of Credit We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of June 28, 2023, we had $ 5.8 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 11 months. Cyber Security Litigation 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. On July 11, 2023, the Eleventh Circuit Court of Appeals issued its order on our appeal of the district court’s class certification order. The majority (1) found that only one plaintiff sufficiently alleged standing, but that Plaintiffs’ allegation that all cards involved in the data breach were posted to the “dark web” constitutes misuse sufficient to establish Article III standing; (2) vacated and remanded the class certification decision for the district court to reconsider its predominance requirement; and (3) upheld Plaintiff’s “averaging” damages methodology. While the court’s decision to decertify the class is favorable, we believe the majority’s reasoning on the issues of standing and damages calculation is erroneous. Accordingly, we intend to file a petition for rehearing with the Eleventh Circuit. All matters at the district court remain stayed. We believe we have defenses and intend to continue defending the Litigation. As such, as of June 28, 2023, we have concluded that a loss, or range of loss, from this matter is not 65 Table of Contents Footnote Index 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. Legal Proceedings 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. We are engaged in various legal proceedings and have certain unresolved claims pending. Liabilities have been established based on our best estimates of our potential liability in certain of these matters. 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. 10. INCOME TAXES Income before income taxes consists of the following: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Domestic $ 87.8 $ 113.5 $ 146.7 Foreign 3.0 1.7 ( 1.5 ) Income before income taxes $ 90.8 $ 115.2 $ 145.2 The (Benefit) Provision for income taxes and effective tax rate consists of the following: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Current income tax (benefit) expenses: Federal $ 12.2 $ 5.8 $ 11.6 State 6.8 3.7 14.4 Foreign 0.2 ( 0.3 ) 0.0 Total current income tax expenses 19.2 9.2 26.0 Deferred income tax (benefit) expenses: Federal ( 29.5 ) ( 15.7 ) ( 9.4 ) State ( 2.0 ) 3.7 ( 3.0 ) Foreign 0.5 0.4 0.0 Total deferred income tax (benefit) expenses ( 31.0 ) ( 11.6 ) ( 12.4 ) (Benefit) Provision for income taxes $ ( 11.8 ) $ ( 2.4 ) $ 13.6 Effective tax rate ( 13.0 ) % ( 2.1 ) % 9.4 % 66 Table of Contents Footnote Index A reconciliation between the reported (Benefit) Provision for income taxes and the amount computed by applying the statutory Federal income tax rate to Income before income taxes is as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Income tax expense at statutory rate $ 19.0 $ 24.2 $ 30.5 FICA and other tax credits ( 34.6 ) ( 32.9 ) ( 24.7 ) State income taxes, net of Federal benefit 4.7 6.2 7.8 Stock based compensation tax shortfall (windfall) 0.8 ( 0.7 ) ( 2.3 ) Other ( 1.7 ) 0.8 2.3 (Benefit) Provision for income taxes $ ( 11.8 ) $ ( 2.4 ) $ 13.6 Our federal statutory tax rate for fiscal 2023, fiscal 2022 and fiscal 2021 was 21.0 %. Deferred Tax and Allowances The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows: June 28, 2023 June 29, 2022 Deferred income tax assets: Lease liabilities $ 451.5 $ 337.3 Gift cards 9.2 9.9 Insurance reserves 13.7 11.6 Stock-based compensation 9.5 11.6 Federal credit carryover 59.5 41.1 Net operating losses 4.2 3.7 State credit carryover 2.1 2.5 Restructure charges and impairments 2.1 2.3 Payroll tax deferral — 6.8 Other, net 9.7 8.0 Less: Valuation allowance ( 4.3 ) ( 5.8 ) Total deferred income tax assets 557.2 429.0 Deferred income tax liabilities: Lease assets 421.9 307.1 Goodwill and other amortization 23.2 23.3 Depreciation and capitalized interest on property and equipment 0.7 17.8 Prepaid expenses 17.3 16.9 Other, net 0.7 1.4 Total deferred income tax liabilities 463.8 366.5 Deferred income taxes, net $ 93.4 $ 62.5 As of June 28, 2023, we have deferred tax assets of $ 5.3 million reflecting the benefit of state loss carryforwards, before federal benefit and valuation allowance, which expire at various dates between 2024 and 2043. We have deferred tax assets of $ 59.5 million of federal and $ 2.6 million of state tax credits, before federal benefit and valuation allowance, which expire at various dates between 2024 and 2043. The recognized deferred tax asset for the state loss carryforwards, net of valuation allowance, is $ 2.3 million and the federal tax credits is $ 59.5 million. $ 5.7 million of the federal credit carryover is limited by Section 382 of the Internal Revenue Code. The valuation allowance is $ 4.3 million at the end of fiscal 2023 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 67 Table of Contents Footnote Index 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 28, 2023, 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. Unrecognized Tax Benefits A reconciliation of unrecognized tax benefits are as follows: June 28, 2023 June 29, 2022 Balance at beginning of year $ 3.7 $ 4.3 Additions based on tax positions related to the current year 0.4 0.3 Additions (Decreases) based on tax positions related to prior years 0.1 ( 0.1 ) Settlements with tax authorities — ( 0.8 ) Expiration of statute of limitations ( 1.4 ) 0.0 Balance at end of year $ 2.8 $ 3.7 The total amount of unrecognized tax benefits, excluding interest and penalties, which would affect income tax expenses if resolved in our favor was $ 2.2 million and $ 2.9 million as of June 28, 2023 and June 29, 2022, 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 (Benefit) Provision for income taxes in the Consolidated Statements of Comprehensive Income. As of June 28, 2023, we had $ 0.2 million ($ 0.2 million net of a $ 0.0 million Federal deferred tax benefit) of interest and penalties accrued, compared to $ 0.5 million ($ 0.4 million net of a $ 0.1 million Federal deferred tax benefit) as of June 29, 2022. Our income tax returns are subject to examination by taxing authorities in the jurisdictions in which we operate. The periods subject to examination for our federal return are fiscal 2022 to fiscal 2024, and fiscal 2020 to fiscal 2022 for our Canadian returns. State income tax returns are generally subject to examination for a period of three to five years from date return is filed. We have various state income tax returns in the process of examination or settlements. Our federal returns for fiscal 2022 to 2024 are currently under examination through the Internal Revenue Service: Compliance Assurance Process (CAP) program. There are no unrecorded liabilities associated with these examinations. 11. SHAREHOLDERS’ DEFICIT Retirement of Common Stock 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 June 28, 2023, 15.7 million shares remain in treasury. 68 Table of Contents Footnote Index Share Repurchases In fiscal 2022, our Board of Directors approved a $ 300.0 million share repurchase program and the Company repurchased 2.3 million shares of our common stock for $ 96.0 million. The Company did not repurchase any shares under the repurchase program in fiscal 2023. 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 2023, we repurchased 0.1 million shares of our common stock for $ 5.0 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 June 28, 2023, approximately $ 204.0 million was available in the share repurchase program. 12. STOCK-BASED COMPENSATION Our shareholder approved stock-based compensation plans include the Stock Option and Incentive Plan for employees (“Employee Plan”) and the Stock Option and Incentive Plan for Non-Employee Directors and Consultants (“Non-Employee Plan” and collectively, the “Plans”). In fiscal 2023, our shareholders approved and we registered an additional 0.3 million shares of common stock of Brinker International, Inc. available for issuance under the Non-Employee Plan. The Plans provide for grants of options to purchase our common stock, performance shares, restricted stock, restricted stock units, and stock appreciation rights. Additionally, grants to eligible employees may vest over a specified period of time or service period, or may contain performance-based conditions. As of June 28, 2023, the total number of shares authorized for issuance to employees and non-employee directors and consultants under the Plans was 39.0 million shares. Presented below is total stock-based compensation expenses, and the related total income tax benefit recognized in the Consolidated Statements of Comprehensive Income: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Stock-based compensation expenses $ 14.4 $ 18.6 $ 16.4 Tax benefit related to stock-based compensation expenses 2.6 3.9 3.0 Stock Options In fiscal 2019 and fiscal 2018, certain eligible employees under the Plans were granted performance stock options whose vesting was contingent upon meeting Company performance goals based on our annual earnings at the end of fiscal 2021 and fiscal 2022. Expenses for performance stock options were recognized using a graded-vesting schedule over the vesting period based upon management’s periodic estimates of the number of stock options that ultimately vested. 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 resulted 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 the fiscal years prior to fiscal 2021. Expenses related to these stock options are recognized using a graded-vesting schedule over the vesting period or to the date on which retirement eligibility is achieved, if shorter. Stock options generally vest over a period of 1 to 4 years and have contractual terms to exercise of 8 years. 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. No stock options have been granted in fiscal 2023, fiscal 2022, or fiscal 2021. 69 Table of Contents Footnote Index Stock option transactions during fiscal 2023 were as follows (option prices in dollars): Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Stock options outstanding at June 29, 2022 1.9 $ 38.73 Exercised ( 0.4 ) 31.52 Forfeited or canceled ( 0.5 ) 40.36 Stock options outstanding at June 28, 2023 1.0 $ 40.74 2.5 $ 1.3 Stock options exercisable at June 28, 2023 1.0 $ 40.98 2.4 $ 1.1 The intrinsic value and related tax benefit of options exercised is as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Intrinsic value of options exercised $ 3.3 $ 0.2 $ 9.8 Tax benefit realized on options exercised 0.8 — 2.4 Restricted Share Awards Restricted share awards consist of performance shares and restricted stock units. In fiscal 2023 and 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. The fiscal 2023 grant also includes a provision that will increase or decrease the number of shares to be vested if Brinker’s relative TSR ranking compared to the peer group falls in the top 25% or bottom 25%, respectively. 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. Expenses are recognized ratably over the vesting period, or to the date on which retirement eligibility is achieved, if shorter, based upon management’s periodic estimates of the number of shares that will be earned under the Company performance metric. Restricted stock units granted to eligible employees under the Plans generally vest over a three-year period from the date of grant. Restricted stock units issued to eligible employees under our career equity plan generally vest upon each employee’s retirement from the Company. Expenses are recognized ratably over the vesting period, or to the date on which retirement eligibility is achieved, if shorter. Full or partial vesting of awards may occur upon a change in control (as defined in the Plans), or upon an employee’s death, disability or involuntary termination. Restricted 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 one year after grant to two years following departure from the Board. 70 Table of Contents Footnote Index Restricted share award transactions, including performance shares reflected at target, during fiscal 2023 were as follows (fair value per award in dollars): Number of Restricted Share Awards Weighted Average Grant Date Fair Value Per Award Restricted share awards outstanding at June 29, 2022 1.3 $ 42.85 Granted 0.8 29.87 Vested ( 0.5 ) 40.85 Forfeited ( 0.1 ) 39.95 Restricted share awards outstanding at June 28, 2023 1.5 $ 36.97 As of June 28, 2023, unrecognized compensation expenses related to unvested restricted share awards that are expected to vest totaled approximately $ 14.0 million and will be recognized over a weighted average period of 1.7 years. The fair value of shares that vested is as follows: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Fair value of restricted share awards vested $ 16.1 $ 18.1 $ 14.9 13. DEFINED CONTRIBUTION PLAN We sponsor a qualified defined contribution retirement plan. The plan covers all employees who have attained the age of 21 and have completed 90 days of eligible service. Eligible employees are allowed to contribute, subject to IRS limitations on total annual contributions, up to 50 % of their base compensation and 100 % of their eligible bonuses, as defined in the plan, to various investment funds. 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. We contributed employer matching contributions in each fiscal year which is recorded to General and administrative in the Consolidated Statements of Comprehensive Income: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Employer contributions match expenses $ 11.9 $ 11.0 $ 4.6 71 Table of Contents Footnote Index 14. OTHER GAINS AND CHARGES Other (gains) and charges in the Consolidated Statements of Comprehensive Income consist of the following: Fiscal Years Ended June 28, 2023 June 29, 2022 June 30, 2021 Restaurant level impairment charges $ 12.1 $ 8.5 $ 3.0 Restaurant closure asset write-offs and charges 8.3 3.7 2.4 Enterprise system implementation costs 4.7 2.4 — Severance and other benefit charges 3.7 — 0.5 Lease contingencies 2.0 3.1 2.2 Remodel-related asset write-off 1.1 4.9 2.3 Loss from natural disasters, net of (insurance recoveries) 0.8 1.1 2.9 Gain on sale of assets, net ( 3.7 ) — ( 0.3 ) Other 3.7 7.5 6.0 $ 32.7 $ 31.2 $ 19.0 Restaurant level impairment charges primarily associated with the following long-lived assets: • Fiscal 2023 - 38 underperforming Chili’s restaurants. Refer to Note 4 - Fair Value Measurements for further details. • Fiscal 2022 - 30 underperforming Chili’s and two underperforming Maggiano’s restaurants. • Fiscal 2021 - 11 underperforming Chili’s and three underperforming Maggiano’s restaurants. Restaurant closure asset write-offs and charges includes costs associated with the closure of certain Chili’s and Maggiano’s restaurants. Enterprise system implementation costs primarily consists of software subscription fees, certain consulting fees, and contract labor associated with the ongoing enterprise system implementation that are not capitalized. Severance and other benefit charges relates to changes in our management team and organizational structure in fiscal 2023 and the elimination of certain Maggiano’s banquet manager positions in fiscal 2021. Lease contingencies includes expenses related to lease guarantees and certain sublease receivables for divested brands when we have determined it is probable that the current lessee will default on the lease obligation. Refer to Note 9 - Commitments and Contingencies for additional information about our secondarily liable lease guarantees. Remodel-related asset write-off relates to assets that are removed or discarded in connection with Chili’s and Maggiano’s remodel projects. Loss from natural disasters, net of (insurance recoveries) primarily relates to the following natural disasters: • Fiscal 2023 - Hurricane Ian in September 2022 and the Winter Storm in December 2022. • Fiscal 2022 - Hurricane Ida in August 2021. • Fiscal 2021 - Winter Storm Uri in February 2021. Gain on sale of assets, net in fiscal 2023 relates to sale of three land parcels for previously closed Chili’s restaurants. 72 Table of Contents Footnote Index 15. SEGMENT INFORMATION Our operating segments are Chili’s and Maggiano’s. The Chili’s segment includes the results of our Company-owned Chili’s restaurants, which are principally located in the United States, within the full-service casual dining segment of the industry. The Chili’s segment also has Company-owned restaurants in Canada, and franchised locations in the United States, 29 other countries and two United States territories. The Maggiano’s segment includes the results of our Company-owned Maggiano’s restaurants in the United States as well as the results from our domestic franchise business. The Other segment includes costs related to our restaurant support teams for the Chili’s and Maggiano’s brands, including operations, finance, franchise, marketing, human resources and culinary innovation. The Other segment also includes costs related to the common and shared infrastructure, including accounting, information technology, purchasing, guest relations, legal and restaurant development. Company sales for each operating segment include revenues generated by the operation of Company-owned restaurants including food and beverage sales, net of discounts, gift card breakage, Maggiano’s banquet service charge income, delivery, 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, gift card equalization, and franchise and development fees. 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 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 years presented primarily included restaurant rent, supplies, repairs and maintenance, utilities, delivery fees, advertising, property taxes and workers’ compensation and general liability insurance. The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP: Fiscal Year Ended June 28, 2023 Chili’s Maggiano's Corporate Consolidated Company sales $ 3,606.7 $ 486.5 $ — $ 4,093.2 Franchise revenues 39.4 0.6 — 40.0 Total revenues 3,646.1 487.1 — 4,133.2 Food and beverage costs 1,022.9 123.4 — 1,146.3 Restaurant labor 1,232.3 157.0 — 1,389.3 Restaurant expenses 966.2 130.4 0.9 1,097.5 Depreciation and amortization 145.3 13.0 10.2 168.5 General and administrative 35.5 7.8 111.2 154.5 Other (gains) and charges 22.0 1.4 9.3 32.7 Total operating costs and expenses 3,424.2 433.0 131.6 3,988.8 Operating income (loss) 221.9 54.1 ( 131.6 ) 144.4 Interest expenses 3.7 0.3 50.9 54.9 Other income, net ( 0.1 ) — ( 1.2 ) ( 1.3 ) Income (loss) before income taxes $ 218.3 $ 53.8 $ ( 181.3 ) $ 90.8 Segment assets $ 2,079.5 $ 244.5 $ 163.0 $ 2,487.0 Payments for property and equipment 158.1 16.6 10.2 184.9 73 Table of Contents Footnote Index Fiscal Year Ended June 29, 2022 Chili's (1) Maggiano's Corporate Consolidated Company sales $ 3,340.5 $ 424.0 $ — $ 3,764.5 Franchise revenues 39.1 0.5 — 39.6 Total revenues 3,379.6 424.5 — 3,804.1 Food and beverage costs 945.9 102.6 — 1,048.5 Restaurant labor 1,146.5 141.6 — 1,288.1 Restaurant expenses 849.8 117.9 0.6 968.3 Depreciation and amortization 139.8 13.4 11.2 164.4 General and administrative 33.3 8.0 102.8 144.1 Other (gains) and charges 23.3 — 7.9 31.2 Total operating costs and expenses 3,138.6 383.5 122.5 3,644.6 Operating income (loss) 241.0 41.0 ( 122.5 ) 159.5 Interest expenses 5.1 0.4 40.6 46.1 Other income, net ( 0.3 ) — ( 1.5 ) ( 1.8 ) Income (loss) before income taxes $ 236.2 $ 40.6 $ ( 161.6 ) $ 115.2 Segment assets $ 2,116.7 $ 223.6 $ 144.1 $ 2,484.4 Payments for property and equipment 133.7 9.1 7.5 150.3 Fiscal Year Ended June 30, 2021 (2) Chili’s Maggiano's Corporate Consolidated Company sales $ 3,023.7 $ 277.6 $ — $ 3,301.3 Franchise revenues 36.2 0.3 — 36.5 Total revenues 3,059.9 277.9 — 3,337.8 Food and beverage costs 803.5 64.3 — 867.8 Restaurant labor 1,014.2 94.0 — 1,108.2 Restaurant expenses 765.6 92.1 0.8 858.5 Depreciation and amortization 124.3 13.8 12.1 150.2 General and administrative 27.4 5.8 101.6 134.8 Other (gains) and charges 12.7 1.4 4.9 19.0 Total operating costs and expenses 2,747.7 271.4 119.4 3,138.5 Operating income (loss) 312.2 6.5 ( 119.4 ) 199.3 Interest expenses 5.6 0.2 50.4 56.2 Other income, net ( 0.5 ) — ( 1.6 ) ( 2.1 ) Income (loss) before income taxes $ 307.1 $ 6.3 $ ( 168.2 ) $ 145.2 Payments for property and equipment $ 82.9 $ 2.6 $ 8.5 $ 94.0 (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 3 - 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. 74 Table of Contents Footnote Index ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.