BRINKER INTERNATIONAL, INC 10-Q

ITEM 1. FINANCIAL STATEMENTS BRINKER INTERNATIONAL, INC. Consolidated Statements of Comprehensive Income (Unaudited) (In millions, except per share amounts) Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 March 27, 2024 March 29, 2023 Revenues Company sales $ 1,108.9 $ 1,072.9 $ 3,174.6 $ 3,028.4 Franchise revenues 11.4 10.3 32.3 29.3 Total revenues 1,120.3 1,083.2 3,206.9 3,057.7 Operating costs and expenses Food and beverage costs 277.8 287.5 809.7 866.4 Restaurant labor 370.6 361.2 1,074.8 1,026.4 Restaurant expenses 303.4 280.9 888.9 818.1 Depreciation and amortization 42.6 42.5 125.8 126.2 General and administrative 46.1 40.6 131.7 115.7 Other (gains) and charges 9.9 6.3 19.5 19.8 Total operating costs and expenses 1,050.4 1,019.0 3,050.4 2,972.6 Operating income 69.9 64.2 156.5 85.1 Interest expenses 16.2 14.2 49.9 40.4 Other income, net ( 0.2 ) ( 0.6 ) ( 0.3 ) ( 1.3 ) Income before income taxes 53.9 50.6 106.9 46.0 Provision (benefit) for income taxes 5.2 ( 0.1 ) 8.9 ( 2.4 ) Net income $ 48.7 $ 50.7 $ 98.0 $ 48.4 Basic net income per share $ 1.10 $ 1.15 $ 2.21 $ 1.10 Diluted net income per share $ 1.08 $ 1.12 $ 2.17 $ 1.08 Basic weighted average shares outstanding 44.3 44.1 44.4 44.0 Diluted weighted average shares outstanding 45.2 45.1 45.2 44.8 Other comprehensive income (loss) Foreign currency translation adjustment $ ( 0.2 ) $ 0.1 $ ( 0.2 ) $ ( 0.8 ) Comprehensive income $ 48.5 $ 50.8 $ 97.8 $ 47.6 See accompanying Notes to Consolidated Financial Statements (Unaudited) 3 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Balance Sheets (In millions, except per share amounts) Unaudited March 27, 2024 June 28, 2023 ASSETS Current assets Cash and cash equivalents $ 15.5 $ 15.1 Accounts receivable, net 47.6 60.9 Inventories 32.5 34.5 Restaurant supplies 54.7 55.6 Prepaid expenses 20.2 17.2 Income taxes receivable 0.4 — Total current assets 170.9 183.3 Property and equipment, at cost Land 42.4 42.4 Buildings and leasehold improvements 1,678.2 1,635.7 Furniture and equipment 800.6 765.8 Construction-in-progress 32.7 30.1 2,553.9 2,474.0 Less accumulated depreciation and amortization ( 1,704.5 ) ( 1,665.7 ) Net property and equipment 849.4 808.3 Other assets Operating lease assets 1,096.7 1,134.9 Goodwill 194.8 195.0 Deferred income taxes, net 106.2 93.4 Intangibles, net 21.1 23.9 Other 56.6 48.2 Total other assets 1,475.4 1,495.4 Total assets $ 2,495.7 $ 2,487.0 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current liabilities Accounts payable $ 150.5 $ 125.7 Gift card liability 66.0 73.0 Accrued payroll 111.6 106.1 Operating lease liabilities 113.6 112.4 Other accrued liabilities 131.3 116.3 Income taxes payable 6.1 2.4 Total current liabilities 579.1 535.9 Long-term debt and finance leases, less current installments 818.5 912.2 Long-term operating lease liabilities, less current portion 1,083.9 1,125.8 Other liabilities 60.9 57.4 Commitments and contingencies (Note 7) Shareholders’ deficit Common stock ( 250.0 million authorized shares; $ 0.10 par value; 60.3 million shares issued; and 44.5 million shares outstanding at March 27, 2024 and 44.6 million shares outstanding at June 28, 2023) 6.0 6.0 Additional paid-in capital 693.4 690.0 Accumulated other comprehensive loss ( 6.2 ) ( 6.0 ) Accumulated deficit ( 253.9 ) ( 351.9 ) Treasury stock, at cost ( 15.8 million shares at March 27, 2024, and 15.7 million shares at June 28, 2023) ( 486.0 ) ( 482.4 ) Total shareholders’ deficit ( 46.7 ) ( 144.3 ) Total liabilities and shareholders’ deficit $ 2,495.7 $ 2,487.0 See accompanying Notes to Consolidated Financial Statements (Unaudited) 4 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Statements of Cash Flows (Unaudited) (In millions) Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 Cash flows from operating activities Net income $ 98.0 $ 48.4 Adjustments to reconcile Net income to Net cash provided by operating activities: Depreciation and amortization 125.8 126.2 Stock-based compensation 16.5 10.3 Deferred income taxes, net ( 12.9 ) ( 18.9 ) Non-cash other (gains) and charges 10.1 12.2 Net loss on disposal of assets 3.2 2.9 Other 2.1 1.3 Changes in assets and liabilities: Accounts receivable, net 11.6 ( 10.0 ) Inventories 1.5 0.5 Restaurant supplies ( 0.4 ) ( 0.7 ) Prepaid expenses ( 9.0 ) ( 11.8 ) Income taxes 2.5 9.2 Operating lease assets, net of liabilities ( 2.9 ) ( 2.2 ) Other assets ( 0.4 ) ( 0.1 ) Accounts payable 26.7 30.2 Gift card liability ( 7.0 ) ( 4.9 ) Accrued payroll 5.4 ( 9.5 ) Other accrued liabilities 7.8 14.6 Other liabilities 1.8 3.1 Net cash provided by operating activities 280.4 200.8 Cash flows from investing activities Payments for property and equipment ( 140.9 ) ( 136.6 ) Proceeds from note receivable 1.3 3.3 Proceeds from sale of assets 0.9 — Insurance recoveries 0.7 — Net cash used in investing activities ( 138.0 ) ( 133.3 ) Cash flows from financing activities Borrowings on revolving credit facility 304.0 375.0 Payments on revolving credit facility ( 414.0 ) ( 425.0 ) Purchases of treasury stock ( 25.6 ) ( 2.2 ) Payments on long-term debt ( 14.4 ) ( 16.7 ) Payments for debt issuance costs ( 0.7 ) — Proceeds from issuance of treasury stock 8.9 2.1 Payments of dividends ( 0.2 ) ( 0.4 ) Net cash used in financing activities ( 142.0 ) ( 67.2 ) Net change in cash and cash equivalents 0.4 0.3 Cash and cash equivalents at beginning of period 15.1 13.5 Cash and cash equivalents at end of period $ 15.5 $ 13.8 Supplemental disclosure of cash flow information: Income taxes paid, net $ 19.2 $ 7.7 Interest paid, net of amounts capitalized 38.7 30.0 Accrued capital expenditures 10.5 13.5 See accompanying Notes to Consolidated Financial Statements (Unaudited) 5 Table of Contents BRINKER INTERNATIONAL, INC. Consolidated Statements of Shareholders’ Deficit (Unaudited) (In millions) Thirty-Nine Week Period Ended March 27, 2024 Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total Balances at June 28, 2023 $ 6.0 $ 690.0 $ ( 351.9 ) $ ( 482.4 ) $ ( 6.0 ) $ ( 144.3 ) Net income — — 7.2 — — 7.2 Other comprehensive loss — — — — ( 0.2 ) ( 0.2 ) Stock-based compensation — 5.7 — — — 5.7 Purchases of treasury stock — ( 0.2 ) — ( 24.5 ) — ( 24.7 ) Issuances of treasury stock — ( 11.7 ) — 11.7 — 0.0 Balances at September 27, 2023 $ 6.0 $ 683.8 $ ( 344.7 ) $ ( 495.2 ) $ ( 6.2 ) $ ( 156.3 ) Net income — — 42.1 — — 42.1 Other comprehensive income — — — — 0.2 0.2 Stock-based compensation — 4.4 — — — 4.4 Purchases of treasury stock — ( 0.1 ) — ( 0.3 ) — ( 0.4 ) Issuances of treasury stock — ( 1.1 ) — 1.6 — 0.5 Balances at December 27, 2023 $ 6.0 $ 687.0 $ ( 302.6 ) $ ( 493.9 ) $ ( 6.0 ) $ ( 109.5 ) Net income — — 48.7 — — 48.7 Other comprehensive loss — — — — ( 0.2 ) ( 0.2 ) Stock-based compensation — 6.4 — — — 6.4 Purchases of treasury stock — ( 0.2 ) — ( 0.3 ) — ( 0.5 ) Issuances of treasury stock — 0.2 — 8.2 — 8.4 Balances at March 27, 2024 $ 6.0 $ 693.4 $ ( 253.9 ) $ ( 486.0 ) $ ( 6.2 ) $ ( 46.7 ) See accompanying Notes to Consolidated Financial Statements (Unaudited) 6 Table of Contents Thirty-Nine Week Period Ended March 29, 2023 Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total Balances at June 29, 2022 $ 7.0 $ 690.9 $ ( 148.4 ) $ ( 812.3 ) $ ( 5.3 ) $ ( 268.1 ) Net loss — — ( 30.2 ) — — ( 30.2 ) Other comprehensive loss — — — — ( 1.0 ) ( 1.0 ) Dividends — — 0.0 — — 0.0 Stock-based compensation — 4.7 — — — 4.7 Purchases of treasury stock — 0.2 — ( 2.2 ) — ( 2.0 ) Issuances of treasury stock — ( 7.8 ) — 7.8 — 0.0 Retirement of stock ( 1.0 ) — ( 306.1 ) 307.1 — — Balances at September 28, 2022 $ 6.0 $ 688.0 $ ( 484.7 ) $ ( 499.6 ) $ ( 6.3 ) $ ( 296.6 ) Net income — — 27.9 — — 27.9 Other comprehensive income — — — — 0.1 0.1 Stock-based compensation — 1.2 — — — 1.2 Purchases of treasury stock — 0.0 — ( 0.1 ) — ( 0.1 ) Issuances of treasury stock — ( 0.5 ) — 0.5 — 0.0 Balances at December 28, 2022 $ 6.0 $ 688.7 $ ( 456.8 ) $ ( 499.2 ) $ ( 6.2 ) $ ( 267.5 ) Net income — — 50.7 — — 50.7 Other comprehensive income — — — — 0.1 0.1 Stock-based compensation — 4.4 — — — 4.4 Purchases of treasury stock — 0.0 — ( 0.1 ) — ( 0.1 ) Issuances of treasury stock — ( 0.8 ) — 2.9 — 2.1 Balances at March 29, 2023 $ 6.0 $ 692.3 $ ( 406.1 ) $ ( 496.4 ) $ ( 6.1 ) $ ( 210.3 ) See accompanying Notes to Consolidated Financial Statements (Unaudited) 7 Table of Contents Footnote Index BRINKER INTERNATIONAL, INC. Notes to Consolidated Financial Statements (Unaudited) Footnote Index Note # Description Page Note 1 Basis of Presentation 9 Note 2 Revenue Recognition 10 Note 3 Fair Value Measurements 11 Note 4 Accrued Liabilities 12 Note 5 Leases 12 Note 6 Debt 13 Note 7 Contingencies 13 Note 8 Income Taxes 15 Note 9 Shareholders’ Deficit 15 Note 10 Net Income Per Share 15 Note 11 Other Gains and Charges 16 Note 12 Segment Information 17 8 Table of Contents Footnote Index 1. BASIS OF PRESENTATION References to “Brinker,” the “Company,” “we,” “us,” and “our” in this Form 10-Q refer to Brinker International, Inc. and its subsidiaries and any predecessor companies of Brinker International, Inc. Our Consolidated Financial Statements (Unaudited) as of March 27, 2024 and June 28, 2023, and for the thirteen and thirty-nine week periods ended March 27, 2024 and March 29, 2023, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 March 27, 2024, we owned, operated or franchised 1,618 restaurants, consisting of 1,176 Company-owned restaurants and 442 franchised restaurants, located in the United States, 27 other countries and two United States territories. Use of Estimates The preparation of the Consolidated Financial Statements (Unaudited) is in conformity with generally accepted accounting principles in the United States (“GAAP”) and requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements (Unaudited), and the reported amounts of revenues and costs and expenses in the reporting periods. Actual results could differ from those estimates. The information furnished herein reflects all adjustments (consisting only of normal recurring accruals and adjustments) which are, in our opinion, necessary to fairly state the interim operating results, financial position and cash flows for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been omitted pursuant to SEC rules and regulations. The Notes to Consolidated Financial Statements (Unaudited) should be read in conjunction with the Notes to Consolidated Financial Statements contained in our June 28, 2023 Form 10-K. We believe the disclosures are sufficient for interim financial reporting purposes. All amounts in the Notes to Consolidated Financial Statements (Unaudited) are presented in millions unless otherwise specified. Foreign Currency Translation The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income (Unaudited) represents the unrealized impact of translating the financial statements of our Canadian restaurants from Canadian dollars to United States dollars. This amount is not included in Net income and would only be realized upon disposition of our Canadian restaurants. The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets (Unaudited). Effect of New Accounting Standards We reviewed accounting pronouncements that became effective for our fiscal 2024 and determined that either they were not applicable, or they did not have a material impact on the Consolidated Financial Statements (Unaudited). In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, which would require us to adopt the provisions in our fiscal 2025 10-K. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on our disclosures. We also reviewed other 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 (Unaudited). 9 Table of Contents Footnote Index 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 our active contracts with franchisees. 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 (Unaudited). The following table reflects the changes in deferred franchise and development fees between June 28, 2023 and March 27, 2024: Deferred Franchise and Development Fees Balance as of June 28, 2023 $ 11.1 Additions 0.4 Amount recognized to Franchise revenues ( 1.7 ) Balance as of March 27, 2024 $ 9.8 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 March 27, 2024: Fiscal Year Franchise and Development Fees Revenue Recognition Remainder of 2024 $ 0.2 2025 0.8 2026 0.7 2027 0.7 2028 0.6 Thereafter 6.8 $ 9.8 10 Table of Contents Footnote Index Deferred Gift Card Revenues Deferred revenues related to our gift cards include the full value of unredeemed gift card balances less recognized breakage and the unamortized portion of third party fees. The following table reflects the changes in the Gift card liability between June 28, 2023 and March 27, 2024: Gift Card Liability Balance as of June 28, 2023 $ 73.0 Gift card sales 95.0 Gift card redemptions recognized to Company sales ( 91.1 ) Gift card breakage recognized to Company sales ( 11.0 ) Other 0.1 Balance as of March 27, 2024 $ 66.0 3. 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 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than quoted prices in active markets for identical assets or liabilities Level 3 Unobservable inputs that cannot be corroborated by observable market data 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. The carrying amount of debt outstanding related to our revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2). The fair values of the 5.000 % and 8.250 % notes are based on quoted market prices and are considered Level 2 fair value measurements. The 5.000 % notes and 8.250 % notes carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values are as follows: March 27, 2024 June 28, 2023 Carrying Amount Fair Value Carrying Amount Fair Value 5.000 % notes $ 349.6 $ 347.9 $ 349.0 $ 343.5 8.250 % notes 345.0 368.9 344.3 348.3 Non-Financial Assets The fair values of transferable liquor licenses are based on prices in the open market for licenses in the same or similar jurisdictions and are categorized as Level 2. The fair values of other non-financial assets are determined based on appraisals, sales prices of comparable assets or estimates of discounted cash flow and are categorized as Level 3. We review the carrying amounts of non-financial assets, primarily long-lived property and equipment, finance lease assets, operating lease assets, reacquired franchise rights, goodwill and transferable liquor licenses annually or when events or circumstances indicate that the fair value may not substantially exceed the carrying amount. We record an impairment charge for the excess of the carrying amount over the fair value. Any impairment charges are included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited). During the 11 Table of Contents Footnote Index thirteen and thirty-nine week periods ended March 27, 2024 and March 29, 2023, no indicators of impairment were identified. Intangibles, net in the Consolidated Balance Sheets (Unaudited) includes both indefinite-lived intangible assets such as transferable liquor licenses and definite-lived intangible assets such as reacquired franchise rights. Accumulated amortization associated with definite-lived intangible assets at March 27, 2024 and June 28, 2023, was $ 16.2 million and $ 15.3 million, respectively. 4. ACCRUED LIABILITIES Other accrued liabilities consist of the following: March 27, 2024 June 28, 2023 Insurance $ 27.2 $ 29.3 Property tax 21.0 24.5 Sales tax 19.7 17.3 Current installments of finance lease obligations 15.5 10.2 Interest 15.5 6.4 Utilities and services 9.8 10.4 Other 22.6 18.2 $ 131.3 $ 116.3 5. LEASES We typically lease our restaurant facilities through ground leases (where we lease land only, but construct the building and improvements) or retail leases (where we lease the land/retail space and building). In addition to our restaurant facilities, we also lease our corporate headquarters location and certain equipment. The components of lease expenses included in the Consolidated Statements of Comprehensive Income (Unaudited) were as follows: Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 March 27, 2024 March 29, 2023 Operating lease cost $ 45.7 $ 45.3 $ 136.9 $ 135.5 Variable lease cost 16.3 16.5 47.4 47.3 Finance lease amortization 3.0 4.9 8.8 15.0 Finance lease interest 1.0 1.0 2.8 3.1 Short-term lease cost 0.1 — 0.2 0.2 Sublease income ( 0.3 ) ( 0.8 ) ( 1.1 ) ( 2.3 ) Total lease costs, net $ 65.8 $ 66.9 $ 195.0 $ 198.8 Supplemental cash flow information related to leases: Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 Operating lease assets obtained in exchange for operating lease liabilities $ 53.1 $ 59.1 Finance leases assets obtained in exchange for finance lease liabilities 30.7 0.2 Finance lease assets are recorded in Property and equipment, at cost, and the net balance as of March 27, 2024 and June 28, 2023 was $ 73.5 million and $ 51.3 million, respectively. 12 Table of Contents Footnote Index Pre-Commencement Leases In the third quarter of fiscal 2024, we executed one finance lease for Chili’s table-top devices with an initial term of 4 years after a rollout period, commencing as devices are installed. The undiscounted fixed payments over the initial term of the lease for the remaining devices not installed as of March 27, 2024 is $ 22.1 million. Additionally, we have executed six leases for new Chili’s locations with undiscounted fixed payments over the initial term of $ 16.1 million. These leases are expected to commence during 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. 6. DEBT Long-term debt consists of the following: March 27, 2024 June 28, 2023 Revolving credit facility $ 51.3 $ 161.3 5.000% notes (1) 350.0 350.0 8.250% notes 350.0 350.0 Finance lease obligations 88.1 67.8 Total long-term debt 839.4 929.1 Less: unamortized debt issuance costs and discounts ( 5.4 ) ( 6.7 ) Total long-term debt, less unamortized debt issuance costs and discounts 834.0 922.4 Less: current installments of long-term debt and finance leases (2) ( 15.5 ) ( 10.2 ) Total long-term debt, less current portion $ 818.5 $ 912.2 (1) Obligations under our 5.000% notes, which will mature in October 2024, have been classified as long-term, reflecting our intent and ability to refinance these notes through our existing revolving credit facility. (2) Current installments of long-term debt consist of finance leases and are recorded within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited). Refer to Note 4 - Accrued Liabilities for further details. Revolving Credit Facility In the thirty-nine week period ended March 27, 2024, net repayments of $ 110.0 million were made on our revolving credit facility. As of March 27, 2024, $ 848.7 million of credit was available under the revolving credit facility. The $ 900.0 million revolving credit facility matures on August 18, 2026 and bears interest of SOFR plus an applicable margin of 1.50 % to 2.25 % and an undrawn commitment fee of 0.25 % to 0.35 %, both based on a function of our debt-to-cash-flow ratio. As of March 27, 2024, our interest rate was 7.20 % consisting of SOFR of 5.32 % plus the applicable margin and spread adjustment of 1.88 %. Financial Covenants Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage ratios. As of March 27, 2024, 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 5.000% and 8.250% notes . 7. CONTINGENCIES Lease Commitments 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 March 27, 2024 and June 28, 2023, we have outstanding lease guarantees or are secondarily liable for an estimated $ 13.2 million and $ 16.9 million, respectively. These amounts 13 Table of Contents Footnote Index 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 2030. 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 govern our ability to pursue and recover amounts we may pay on behalf of such parties. In the thirty-nine week period ended March 27, 2024 we recorded a $ 0.8 million charge in Other (gains) and charges in the Consolidated Statements of Comprehensive Income. Letters of Credit We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of March 27, 2024, we had $ 5.8 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 7 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. The parties have completed their briefing on our petition for writ of certiorari in the United States Supreme Court seeking review of the Eleventh Circuit’s decision to uphold the plaintiff’s damages calculation methodology. We await the Court’s decision whether to take up the matter. Concurrently in the trial court, the court declined to stay the matter and ordered the parties to submit supplemental briefs on the issue of predominance as it relates to class certification in light of the Eleventh Circuit’s ruling on the issue. The parties completed their briefing on March 22, 2024, and now await the court’s ruling. We believe we have defenses and intend to continue defending the Litigation. As such, as of March 27, 2024, we have concluded that a loss, or range of loss, from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation. We will continue to evaluate this matter based on new information as it becomes available. 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. 14 Table of Contents Footnote Index 8. INCOME TAXES Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 Effective income tax rate 8.3 % ( 5.2 ) % The federal statutory tax rate was 21.0 % for the thirty-nine week periods ended March 27, 2024 and March 29, 2023. The change in the effective income tax rate in the thirty-nine week period ended March 27, 2024 to the thirty-nine week period ended March 29, 2023 is primarily due to higher Income before income taxes and the resulting deleverage of the FICA tip tax credit. 9. 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 March 27, 2024, 15.8 million shares remain in treasury. Share Repurchases Our Board of Directors approved a $ 300.0 million share repurchase program during fiscal 2022. Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and planned investment and financing needs. In the thirty-nine week period ended March 27, 2024, we repurchased 0.8 million shares of our common stock for $ 25.6 million, including 0.7 million shares purchased for $ 21.0 million as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan. As of March 27, 2024, approximately $ 183.0 million of share repurchase authorization remains under the current share repurchase program. Stock-based Compensation The following table presents the restricted share awards granted and related weighted average fair value per share amounts. Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 Restricted share awards Restricted share awards granted 0.6 0.7 Weighted average fair value per share $ 33.60 $ 29.69 10. 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 the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are 15 Table of Contents Footnote Index 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: Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 March 27, 2024 March 29, 2023 Basic weighted average shares outstanding 44.3 44.1 44.4 44.0 Dilutive stock options 0.1 0.1 0.1 0.0 Dilutive restricted shares 0.8 0.9 0.7 0.8 Total dilutive impact 0.9 1.0 0.8 0.8 Diluted weighted average shares outstanding 45.2 45.1 45.2 44.8 Awards excluded due to anti-dilutive effect 0.1 0.8 0.6 1.4 11. OTHER GAINS AND CHARGES Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited) consist of the following: Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 27, 2024 March 29, 2023 March 27, 2024 March 29, 2023 Restaurant closure asset write-offs and charges $ 4.0 $ 1.8 $ 4.8 $ 6.6 Enterprise system implementation costs 3.3 1.3 7.4 3.3 Litigation & claims, net 2.0 0.4 5.2 1.2 Severance 0.4 1.0 0.5 3.9 Lease contingencies 0.3 2.0 0.8 2.0 Remodel-related asset write-offs 0.1 0.1 0.4 1.1 Other ( 0.2 ) ( 0.3 ) 0.4 1.7 $ 9.9 $ 6.3 $ 19.5 $ 19.8 • Restaurant closure asset write-offs and charges includes costs associated with the closure of certain Chili’s restaurants in the current year and both Chili’s and Maggiano’s restaurants in the prior year. • Enterprise system implementation costs primarily consist of software subscription fees, certain consulting fees, and contract labor associated with the ongoing enterprise system implementation that are not capitalized. • Litigation & claims, net primarily relates to claims on alcohol service cases and legal contingencies. • Severance relates to changes in our management team and organizational structure. • Lease contingencies includes expenses related to certain sublease receivables and lease guarantees for divested brands when we have determined it is probable that the current lessee will default on the lease obligation. Refer to Note 7 - Contingencies for additional information about our secondarily liable lease guarantees. • Remodel-related asset write-offs relates to assets that are removed or discarded in connection with Maggiano’s and Chili’s remodel projects. 16 Table of Contents Footnote Index 12. 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, 27 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. 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 are included in the results of our operating segments. The Corporate segment includes costs related to the common and shared infrastructure, including accounting, information technology, purchasing, guest relations, and legal and restaurant development. Company sales for each 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 are net of gift card discounts from third-party gift card sales. Franchise revenues for each operating segment include royalties, franchise advertising fees, franchise and development fees and gift card equalization. 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 periods presented primarily include restaurant rent, repairs and maintenance, advertising, utilities, supplies, delivery fees, payment processing fees, franchise and property taxes, supervision expenses, to-go supplies, and workers’ compensation and general liability insurance. The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP: Thirteen Week Period Ended March 27, 2024 Chili's Maggiano's Corporate Consolidated Company sales $ 988.4 $ 120.5 $ — $ 1,108.9 Franchise revenues 11.2 0.2 — 11.4 Total revenues 999.6 120.7 — 1,120.3 Food and beverage costs 249.3 28.5 — 277.8 Restaurant labor 331.3 39.3 — 370.6 Restaurant expenses 268.7 34.6 0.1 303.4 Depreciation and amortization 36.6 3.4 2.6 42.6 General and administrative 10.8 2.4 32.9 46.1 Other (gains) and charges 5.7 0.2 4.0 9.9 Total operating costs and expenses 902.4 108.4 39.6 1,050.4 Operating income (loss) 97.2 12.3 ( 39.6 ) 69.9 Interest expenses 0.8 0.1 15.3 16.2 Other income, net — — ( 0.2 ) ( 0.2 ) Income (loss) before income taxes $ 96.4 $ 12.2 $ ( 54.7 ) $ 53.9 17 Table of Contents Footnote Index Thirteen Week Period Ended March 29, 2023 Chili's Maggiano's Corporate Consolidated Company sales $ 953.2 $ 119.7 $ — $ 1,072.9 Franchise revenues 10.2 0.1 — 10.3 Total revenues 963.4 119.8 — 1,083.2 Food and beverage costs 257.9 29.6 — 287.5 Restaurant labor 322.0 39.2 — 361.2 Restaurant expenses 247.5 33.1 0.3 280.9 Depreciation and amortization 36.7 3.3 2.5 42.5 General and administrative 8.8 2.0 29.8 40.6 Other (gains) and charges 2.2 0.4 3.7 6.3 Total operating costs and expenses 875.1 107.6 36.3 1,019.0 Operating income (loss) 88.3 12.2 ( 36.3 ) 64.2 Interest expenses 1.0 — 13.2 14.2 Other income, net — — ( 0.6 ) ( 0.6 ) Income (loss) before income taxes $ 87.3 $ 12.2 $ ( 48.9 ) $ 50.6 Thirty-Nine Week Period Ended March 27, 2024 Chili's Maggiano's Corporate Consolidated Company sales $ 2,803.1 $ 371.5 $ — $ 3,174.6 Franchise revenues 31.8 0.5 — 32.3 Total revenues 2,834.9 372.0 — 3,206.9 Food and beverage costs 721.6 88.1 — 809.7 Restaurant labor 955.3 119.5 — 1,074.8 Restaurant expenses 785.5 103.0 0.4 888.9 Depreciation and amortization 108.3 9.8 7.7 125.8 General and administrative 31.0 6.9 93.8 131.7 Other (gains) and charges 10.3 0.6 8.6 19.5 Total operating costs and expenses 2,612.0 327.9 110.5 3,050.4 Operating income (loss) 222.9 44.1 ( 110.5 ) 156.5 Interest expenses 2.5 0.2 47.2 49.9 Other income, net ( 0.1 ) — ( 0.2 ) ( 0.3 ) Income (loss) before income taxes $ 220.5 $ 43.9 $ ( 157.5 ) $ 106.9 Segment assets $ 2,111.4 $ 252.7 $ 131.6 $ 2,495.7 Payments for property and equipment 121.3 12.3 7.3 140.9 18 Table of Contents Footnote Index Thirty-Nine Week Period Ended March 29, 2023 Chili's Maggiano's Corporate Consolidated Company sales $ 2,663.1 $ 365.3 $ — $ 3,028.4 Franchise revenues 28.9 0.4 — 29.3 Total revenues 2,692.0 365.7 — 3,057.7 Food and beverage costs 772.5 93.9 — 866.4 Restaurant labor 908.7 117.7 — 1,026.4 Restaurant expenses 718.5 99.0 0.6 818.1 Depreciation and amortization 108.7 9.8 7.7 126.2 General and administrative 26.8 6.0 82.9 115.7 Other (gains) and charges 10.9 1.2 7.7 19.8 Total operating costs and expenses 2,546.1 327.6 98.9 2,972.6 Operating income (loss) 145.9 38.1 ( 98.9 ) 85.1 Interest expenses 2.9 0.2 37.3 40.4 Other income, net — — ( 1.3 ) ( 1.3 ) Income (loss) before income taxes $ 143.0 $ 37.9 $ ( 134.9 ) $ 46.0 Payments for property and equipment $ 119.4 $ 10.7 $ 6.5 $ 136.6 19 Table of Contents