AmRest

B R I N K E R

I N T E R N A T I O N A L®

Annual Report 2020

B R I N K E R

I N T E R N A T I O N A L®

September 2020

Dear Fellow Shareholders,

I have never been more proud of Brinker and our team. When faced with an unprecedented pandemic, our Team Members
stepped up to the challenge and demonstrated strength, resilience and commitment. With safety as a priority, our operators
kept nearly all of our restaurants operating takeout and delivery. During these uncertain times, our Guests looked to our
restaurants to provide some certainty with our great food, at a great value in an environment they trusted. We made our
Guests and Team Members feel special by making them feel safe with our enhanced safety standards and systems.

While COVID-19 has created a unique operating environment, the critical issue of equality and respect for all members of our
communities is also at the forefront of our focus. While we have always been committed to providing an inclusive and
respectful environment for our Team Members and Guests, we recognized that we must do more to further promote racial
equality. We are listening to our Team Members by giving them direct lines of communication to the highest levels of
leadership, educating Team Members through anti-racism resources and updated unconscious bias training and developing
opportunities we are confident will contribute in a positive manner to this movement.

Staying True to Our Strategy

We were strong when the pandemic hit, and we remain strong. Since April 2020, Chili’s has beat the casual dining industry by
double digits in sales and traffic according to Knapp Track and Black Box. During the pandemic we continued to innovate and
learned ways to be more efficient and to improve profitability as sales volumes grow. Our multi-year strategies to grow our
off-premise business, manage best-in-class operations, strengthen the value proposition and leverage technology allowed
our restaurants to get the most out of an uncertain situation, and we are confident these strategies will allow us to deliver
the best value for our Guests and Shareholders going forward.

• Grow Off-Premise Sales: For years we have invested in our online ordering system and mobile app to expand our
capabilities and provide convenience for Guests. We also strategically embraced third-party delivery and integrated
our point of sale system with DoorDash. This resulted in 58% growth in total off-premises sales at Chili’s from the
first half of fiscal 2018 to the first half of fiscal 2020 prior to the pandemic. We were prepared for the surge in
off-premise business because of our infrastructure. We will continue to focus on ways to meet our Guests’
preference for convenience and off-premise occasions.

•

• Best-in-Class Operations: Our operators are the heart of our brands and we have the best in the business. We have
been dedicated to providing strong and effective operating systems so our operators can provide best-in-class service.
Our Guests recognized our improvements with better food and service scores in our Guest surveys in fiscal 2020.
Strengthen the Value Proposition: Our scale allows us to provide better value to our Guests. Our value platforms
allow us to grow sales through increasing Guest traffic rather than only raising prices, and we significantly grew our
market share of casual dining Guest traffic in fiscal 2020.
Leverage Digital and Technology: We were leading in the digital and technology space long before the pandemic hit
because of our investments to build our digital infrastructure and foster connections with Guests. From mobile app
notification for curbside service to contactless payment options in the parking lot, our technology provided ease and
convenience for Guests during the pandemic. We grew Chili’s loyalty database to 8 million members and will
continue to invest in technology that grows our business.

•

Growing Our Presence

During fiscal 2020 we opened six new company-owned Chili’s restaurants and our franchisees opened 25 Chili’s restaurants,
including 23 in international markets and our first restaurant in Vietnam. Despite the challenging environment, Brinker and
our franchisees expect to continue opening new Chili’s in fiscal 2021 domestically and internationally.

Virtual Brands

During the last week of fiscal 2020, we accomplished something no other restaurant company has
ever done. In a single day, we launched It’s Just Wings, Brinker’s first virtual brand, in more than
1,000 Chili’s and Maggiano’s restaurants across the country. Over the years, casual dining has been
dinged for being overbuilt. We believe this is our opportunity to prove that maybe it’s not
overbuilt, it’s just underutilized. It’s Just Wings reaches new Guests with great food delivered at a
better price than our competitors because we are able to use our existing kitchens and Team
Members. We are excited about the initial success and growth of this brand, as well as
opportunities to grow virtual brands in the future.

Growing Our People

Our more than 62,000 Team Members are who keep our restaurants running each day, so Brinker has long championed
investment into our people. With industry-leading training programs, Brinker provides career growth opportunities and
personal development to Team Members whether they choose a career in restaurants or follow other aspirations. In
February 2020, our last full month prior to the impact of the pandemic, our non-salaried restaurant Team Members earned
an average hourly wage of $16.84 (based on total average compensation at all company-owned restaurants, including tips).
During the pandemic we also provided more than $15 million in relief funds to help Team Members that had reduced
working hours. We provided additional funds to support Team Members diagnosed with COVID-19, in quarantine or living
with someone diagnosed with COVID-19. We regularly invest in our Team Members through the following development
programs:

• Best You EDU is a comprehensive, no-cost education program that allows Team Members to develop foundational
skills or earn a GED or an Associate’s Degree. We believe that continuing education is essential for professional
growth and want to help our BrinkerHeads achieve their educational goals.

• Certified Shift Leader Program is a development pathway for hourly Team Members who want to move into
management. Certified Shift Leaders get on-the-job training to develop the skills needed to be a best-in-class
restaurant leader. Through a partnership with the National Restaurant Association Education Foundation and the US
Department of Labor, we have accredited the Certified Shift Leader program with an official industry apprenticeship.
• Women Taking the Lead is a development program that helps promising female leaders accelerate their careers by

teaching technical skills and providing customized training, mentorships and access to outside resources.

Diversity and Inclusion

At Brinker, our commitment to a diverse and inclusive workforce fuels our unique culture. That’s why we work to cultivate an
environment and build programs where individual strengths and stories are celebrated and unique perspectives are valued.
Our Team Members and Guests are diverse in gender, race, ethnicity, sexual orientation, disability, religion, age, cultural
backgrounds and life experiences. We celebrate these differences and welcome everyone to the table.

People of Color

Women

Brinker

Corporate/Full Service Average*

Brinker

Corporate/Full Service Average*

Restaurant Support Center

Operations Leadership

Hourly Team Members

29%

34%

54%

32%

13%

45%

58%

40%

53%

55%

21%

56%

*Source: TDN2K People Report for Full-Service Dining as of May 31, 2020 and Equal Employment Opportunity Commission, Employer Information Reports
(EEO-1 Single and Establishment Reports), 2018

The world remains unpredictable, but Brinker is starting fiscal 2021 from a position of strength. Thanks to our best-in-class
operators and multi-year strategies and investments, we are poised to continue to outperform and take share in the coming
year. I truly believe in the direction and future of Brinker and our brands. Thank you for contributing to our success and we
look forward to continuing our journey with you.

Sincerely,

Wyman T. Roberts
President and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 24, 2020
Commission File Number 1-10275

BRINKER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DE
(State or other jurisdiction of
incorporation or organization)
3000 Olympus Blvd
Dallas TX
(Address of principal executive offices)

75-1914582
(I.R.S. Employer
Identification No.)

75019
(Zip Code)

(972) 980-9917
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $0.10 par value

EAT

NYSE

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.

Large accelerated filer
Non-accelerated filer

È
‘

Accelerated filer
Smaller reporting company
Emerging growth company

‘
‘
‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. È
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:
$1,886,522,845

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class

Common Stock, $0.10 par value

Outstanding at August 14, 2020

45,065,101 shares

We have incorporated by reference portions of our Proxy Statement for our annual meeting of shareholders expected to be held on November 5, 2020 into Part III
hereof, to the extent indicated herein.

DOCUMENTS INCORPORATED BY REFERENCE

BRINKER INTERNATIONAL, INC.
Annual Report on Form 10-K
Table of Contents

PART I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

SIGNATURES

Page

3

11

24

24

25

25

26

28

29

48

49

99

99

100

100

100

100

100

101

101

104

2

INTRODUCTION

Forward-Looking Statements

Information and statements contained in this Form 10-K, in our other filings with the SEC or in our written and
verbal communications that are not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements are generally accompanied by words like “believes,” “anticipates,” “estimates,” “predicts,”
“expects,” “plans,” “intends,” “projects,” “continues” and other similar expressions that convey uncertainty about
future events or outcomes.

Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties
which could cause actual results to differ materially from our historical results or from those projected in forward-
looking statements, and are currently, or in the future could be, amplified by the novel strain of the coronavirus
(“COVID-19”) pandemic. Such risks and uncertainties include, among other things, uncertainty of the magnitude,
duration, geographic reach and impact of the COVID-19 pandemic on local, national and global economies; the
current, and uncertain future, impact of the COVID-19 pandemic and governments’ responses to it on our industry,
business, growth, reputation, projections, prospects, financial condition, operations, cash flows, and liquidity; the
adequacy or effectiveness of steps we take to respond to the COVID-19 crisis, including cost reduction or other
mitigation programs; the impact of competition; changes in consumer preferences; consumer perception of food
safety; reduced disposable income; unfavorable publicity; increased minimum wages; governmental regulations;
the impact of mergers, acquisitions, divestitures and other strategic transactions; the Company’s ability to meet its
business strategy plan; loss of key management personnel; failure to hire and retain high-quality restaurant
management; the impact of social media; failure to protect the security of data of our guests and team members;
product availability; regional business and economic conditions; litigation; franchisee success; inflation; changes in
the retail industry; technology failures; failure to protect our intellectual property; outsourcing; impairment of
goodwill or assets; failure to maintain effective internal control over financial reporting; actions of activist
shareholders; adverse weather conditions; terrorist acts; health epidemics or pandemics (such as COVID-19); and
tax reform; as well as the risks and uncertainties described in Part I, Item 1A. Risk Factors and uncertainties that
generally apply to all businesses.

We wish to caution you against placing undue reliance on forward-looking statements because of these risks and
uncertainties. Except as required by law, we expressly disclaim any obligation to update or revise any forward-
looking statements, whether as a result of new information, future events, or otherwise. We further caution that it is
not possible to identify all risk and uncertainties, and you should not consider the identified factors as a complete
list of all risks and uncertainties.

PART I

ITEM 1. BUSINESS

General

References to “Brinker,” the “Company,” “we,” “us,” and “our” in this Form 10-K refer
International, Inc. and its subsidiaries and any predecessor companies of Brinker International, Inc.

to Brinker

We own, develop, operate and franchise the Chili’s® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy®
(“Maggiano’s”) restaurant brands. The Company was organized under the laws of the State of Delaware in
September 1983 to succeed to the business operated by Chili’s, Inc., a Texas corporation, which was organized in
August 1977. We completed the acquisition of Maggiano’s in August 1995.

Impact of COVID-19

In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic and a National Public
Health Emergency. The spread of COVID-19 resulted in a significant reduction in sales at our restaurants due to

3

changes in consumer behavior as well as social distancing practices, dining room closures and other restrictions
that have been mandated or encouraged by federal, state and local governments. At the end of the third quarter of
fiscal 2020, we temporarily closed all Company-owned restaurant dining and banquet rooms as we transitioned to
an off-premise business model and temporarily delayed our expansion plans. Beginning on April 27, 2020, we
began to reopen certain dining room locations as permitted by governments. At the end of fiscal 2020, as of
June 24, 2020, and more recently as of our first period of fiscal 2021 ended July 29, 2020, 94.9% and 84.0%,
respectively, of our Company-owned restaurant dining rooms or patios were open in a limited capacity. We do not
yet know the full extent of the effects of the COVID-19 pandemic on the economy, the markets we serve, our
industry, our business or our operations.

Both Chili’s and Maggiano’s have been able to serve our guests during the COVID-19 pandemic as a result of our
strategic decision to invest in technology, training and partnerships that enable online ordering, mobile app
ordering, curbside service and third-party delivery. As a result, our off-premise sales in the third and fourth quarters
of fiscal 2020 grew significantly during the COVID-19 pandemic, although these increases did not fully off-set the
lost dining room sales due to the dining room closures. We are committed to strategies and a Company culture that
we believe are centered on a guest experience. This includes bringing guests back safely, growing long-term sales
and profit, engaging team members and working to return our business to pre-pandemic levels. Our strategies and
culture are intended to differentiate our brands from the competition, effectively and efficiently manage our
restaurants and establish a lasting presence for our brands in key markets around the world.

In the fourth quarter of fiscal 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and
Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the
pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions,
filing payment deadlines and making available certain grant money to assist in this crisis. As of June 24, 2020, this
package allowed us to take advantage of credits, deferments, and deductions. Additional information regarding the
impact of the COVID-19 pandemic on our business and CARES Act is set forth within Part II Item 1A. Risk
Factors, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and
Item 8. Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 2 -
Novel Coronavirus Pandemic and Note 9 - Income Taxes of this Annual Report on Form 10-K.

Restaurant Brands

Chili’s Grill & Bar

Chili’s, a recognized leader in the bar & grill category of casual dining, has been operating restaurants for over 45
years. Chili’s enjoys a global presence with restaurants in the United States, 28 countries and two United States
territories. Whether domestic or international, Company-owned or franchised, Chili’s is dedicated to delivering
fresh, high-quality food with a unique point of view, as well as dining experiences that make guests feel special.
Historically, Chili’s menu has featured bold, kicked-up American favorites. Chili’s has built a reputation for
gourmet burgers, sizzling fajitas, baby back ribs and hand-shaken margaritas. We have refocused on and reinvested
in these core equities, and we plan to continue to innovate our food offerings within these core menu platforms. We
believe our focused menu, our “Chilihead” culture, our focus on standards and our reputation for hospitality will
allow Chili’s to differentiate our food and service from other restaurants.

We also believe that guests are evolving not only their standards of food quality but also their expectations of
convenience. Chili’s to-go menu is available on our www.chilis.com website, through our mobile app, our
exclusive delivery partner DoorDash, or by calling the restaurant.

In fiscal 2019, we relaunched our My Chili’s Rewards program and began offering free chips and salsa or a
non-alcoholic beverage to members based on their visit frequency. We customize offerings for our guests based on
their purchase behavior, and we continue to shift more of our overall marketing spend to these customized channels
and promotions. We expect this strategy to continue to give us a sustained competitive advantage over independent
restaurants and the majority of our competitors.

4

In the fiscal year ended June 24, 2020, at our Company-owned restaurants, entrée selections ranged in menu price
from $8.00 to $19.49. For the full fiscal year, including the impact of the COVID-19 pandemic, our average annual
net sales per Company-owned Chili’s restaurant during fiscal 2020 was $2.6 million, and the average revenue per
meal, including alcoholic beverages, was approximately $15.80 per person. Before the COVID-19 pandemic, in the
first eight months of fiscal 2020, average net sales on an annualized basis per Company-owned Chili’s was
$2.8 million, and the average revenue per meal, including alcoholic beverages, was approximately $16.04 per
person. The COVID-19 pandemic shifted consumer behavior to higher off-premise orders in the last four months of
fiscal 2020, such that our average net sales on an annualized basis per Company-owned Chili’s restaurant was
$2.1 million, and the average revenue per meal during this COVID-19 impacted period, including alcoholic
beverages, was approximately $15.20 per person. The ability to sell alcoholic beverages off-premise varied by
jurisdiction. The sales mix of Chili’s total revenues for fiscal 2020, and before and during the COVID-19 pandemic
months was as follows:

Pre-COVID-19

COVID-19

Full Year Fiscal 2020

Fiscal 2020
Chili’s Sales Mix

87.1%

92.5%

88.6%

12.9%

7.5%

11.4%

0

20

40

60

80

100

% of Total Sales

Food and non-alcoholic beverage sales

Alcoholic beverage sales

Maggiano’s Little Italy

Maggiano’s is a full-service, national, polished casual restaurant brand offering Italian-American cuisine. With a
passion for making people feel special, the brand is known for catering to special occasions and large parties. Each
Maggiano’s location is uniquely designed and features open dining rooms with fresh flowers, rich woods, warm
carpets and soft lighting. Most locations feature designated banquet facilities and all offer catering for large parties
at homes or local businesses. Our full carryout menu is also available for pick up or delivered through a third party
service. Each Maggiano’s has an executive chef preparing authentic recipes from scratch ingredients. Dishes are
served in abundant portions both à la carte and family style. We offer a full range of lunch and dinner options,
complimented by a premium wine list and handcrafted cocktails. On Saturdays and Sundays, all Maggiano’s
restaurants offer a brunch menu alongside our lunch menu.

In the fiscal year ended June 24, 2020, entrée selections ranged in menu price from $10.50 to $41.99. For the full
fiscal year, including the impact of the COVID-19 pandemic, our average annual sales per Maggiano’s restaurant
was $6.4 million, and the average revenue per meal, including alcoholic beverages, was approximately $27.85 per
person. Before the COVID-19 pandemic, in the first eight months of fiscal 2020, average net sales on an
annualized basis per Company-owned Maggiano’s was $7.9 million and the average revenue per meal, including
alcoholic beverages, was approximately $29.18 per person. The COVID-19 pandemic caused closed and reduced
capacity dining and banquet rooms, and shifted consumer behavior to higher off-premise orders in the last four
months of fiscal 2020, such that average net sales on an annualized basis per Company-owned Maggiano’s was
$3.2 million, and the average revenue per meal during this COVID-19 period, including alcoholic beverages, was
approximately $22.66 per person.

For the full fiscal year, sales from events at our banquet facilities made up 15.7% of Maggiano’s total revenues.
Before the COVID-19 pandemic, sales from events at our banquet facilities made up 17.7% of Maggiano’s total
restaurant revenues in the first eight months of fiscal 2020. Banquet sales during the four month pandemic period
of fiscal 2020 made up 0.5% of total restaurant revenues. Additionally, the ability to sell alcoholic beverages

5

off-premise varied by jurisdiction. The sales mix of Maggiano’s total revenues for fiscal 2020, and before and
during the COVID-19 pandemic months was as follows:

Fiscal 2020
Maggiano’s Sales Mix

85.1%

92.0%

86.3%

14.9%

8.0%

13.7%

0

20

40

60

80

100

% of Total Sales

Food and non-alcoholic beverage sales

Alcoholic beverage sales

Pre-COVID-19

COVID-19

Full Year Fiscal 2020

Business Strategy

This information is set forth within Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Overview section of this Annual Report on Form 10-K.

Company Development

During fiscal 2020, we continued the expansion of our restaurant brands domestically through a select number of
new Company-owned restaurants in strategically desirable markets pre-pandemic. Although we are focused on
continued expansion, the COVID-19 pandemic has caused various government restrictions and, as of the fourth
quarter of fiscal 2020 we temporarily delayed construction of new restaurants and the other expansion activities
described below until we believe we will be able to safely resume.

We concentrate on the development of certain identified markets that are most likely to improve our competitive
position and achieve the desired level of marketing potential, profitability and return on invested capital. Our
domestic expansion efforts focus not only on major metropolitan areas in the United States but also on smaller
market areas and partnerships with franchisees to enter non-traditional locations (such as airports and universities)
that can adequately support our restaurant brands. For smaller market areas, we have developed a smaller Chili’s
prototype building that allows us to expand into these markets and serve our guests while maintaining a focus on
profitability and return on invested capital.

The restaurant site selection process is critical, and we devote significant effort to the investigation of new
locations utilizing a variety of sophisticated analytical techniques. Members of each brand’s executive team
inspect, review and approve each restaurant site prior to its lease or acquisition for that brand. Our process
evaluates a variety of factors, including:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Trade area demographics, such as target population density and household income levels;

Physical site characteristics, such as visibility, accessibility and traffic volume;

Relative proximity to activity centers, such as shopping centers, hotel and entertainment complexes and
office buildings; and

Supply and demand trends, such as proposed infrastructure improvements, new developments and existing
and potential competition.

6

The specific rate at which we are able to open new restaurants is determined, in part, by our success in locating
satisfactory sites, negotiating acceptable lease or purchase terms, securing appropriate local governmental permits
and approvals, and by our capacity to supervise construction and recruit and train management and hourly team
members. The following table illustrates the Company-owned restaurants opened in fiscal 2020 and the projected
openings in fiscal 2021. The fiscal 2021 projected openings, which reflect our response to the COVID-19
pandemic, are still however subject to change based on the extent and duration of the COVID-19 pandemic:

New Openings

Company-owned restaurants

Chili’s domestic

Chili’s international

Maggiano’s domestic

Total Company-owned

Relocation Openings

Chili’s domestic Company-owned relocations

Fiscal 2020

Fiscal 2021

Fiscal Year
Openings

Full Year
Projected
Openings

6

0

0

6

0

7

0

0

7

2

We periodically re-evaluate Company-owned restaurant sites to monitor that attributes have not deteriorated below
our minimum standards. In the event site deterioration occurs, each brand makes a concerted effort to improve the
restaurant’s performance by providing physical, operating and marketing enhancements unique to each restaurant’s
situation. In some cases the brand considers relocation to a proximate, more desirable site, or evaluates closing the
restaurant if the brand’s measurement criteria, such as cash flow and area demographic trends, do not support
relocation.

During fiscal 2020, and due to the COVID-19 pandemic restrictions, there were no relocations of any Company-
owned restaurants. In fiscal 2021, we plan to relocate up to two Company-owned Chili’s restaurants provided
conditions improve surrounding the pandemic. Also during fiscal 2020, excluding temporary closures due to the
pandemic, we permanently closed seven Company-owned Chili’s restaurants that were generally performing below
our standards or were near or at the expiration of their lease terms. Our strategic plan is targeted to support our
long-term growth objectives, with a focus on continued development of those restaurant locations that have the
greatest return potential for the Company and our shareholders.

7

Franchise Development

In addition to development of our Company-owned restaurants, we pursue expansion through our franchisees. The
following table illustrates the franchise restaurants opened in fiscal 2020 and the projected openings in fiscal 2021.
The fiscal 2021 projected openings, which reflect the response to the COVID-19 pandemic, are still however
subject to change based on the extent and duration of the COVID-19 pandemic:

New Openings

Franchise restaurants

Chili’s domestic

Chili’s international

Maggiano’s domestic

Total franchise

Fiscal 2020

Fiscal 2021

Fiscal Year
Openings

Full Year
Projected
Openings

2

23

0

25

1-3

6-9

1

8-13

The following table illustrates the percentages of franchise operations out of the total Company-owned and
franchise operations as of June 24, 2020 by restaurant brand:

Brinker

Chili’s

Maggiano’s

Percentage of Franchise Operated Restaurants

Domestic(1)

International(2)

Overall(3)

14%

14%

2%

99%

99%

—%

33%

34%

2%

(1)

(2)

(3)

Domestic - the percentages in this column are based on number of domestic franchised restaurants versus
total domestic restaurants.

International - the percentages in this column are based on number of international franchised restaurants
versus total international restaurants.

Overall - the percentages in this column are based on the total number of franchised restaurants (domestic
and international) versus total system-wide number of restaurants.

International Franchise

We continue our international growth through development agreements with new and existing franchise partners,
introducing Chili’s to new countries and expanding the brand within our existing markets. As of June 24, 2020, we
have 18 total development arrangements. During fiscal 2020, we opened 23 new locations, and entered into one
new arrangement with an existing franchise partner. We plan to strategically pursue expansion of Chili’s
internationally in areas where we see the most growth opportunities. Our international agreements provide the
vehicle for payment of development fees and initial franchise fees in addition to subsequent royalty fees based on
the gross sales of each restaurant. We expect future agreements to remain limited to enterprises that demonstrate a
proven track record as a restaurant operator and showcase financial strength that can support a multi-unit
development agreement.

Domestic Franchise

As of June 24, 2020, one domestic development arrangement existed. Similar to our international agreements, a
typical domestic agreement provides for payment of development and initial franchise fees in addition to
subsequent royalty and advertising fees based on the gross sales of each restaurant. We have from time to time

8

purchased restaurants from our franchisees in order to support our growth objectives in certain markets. In fiscal
2020, we purchased 116 previously franchised Chili’s restaurants located in the Midwest United States. This
acquisition represented an opportunity to create value for our shareholders and generate additional earnings and
cash flow growth. We remain committed to supporting the growth of our existing franchisees.

Restaurant Management

Our Chili’s and Maggiano’s brands have separate designated teams who support each brand, including operations,
finance, franchise, marketing, human resources and culinary. We believe these strategic, brand-focused teams
foster the identities of the individual and uniquely positioned brands. To maximize efficiencies, brands continue to
utilize common and shared infrastructure, including, among other services, accounting, information technology,
purchasing, guest relations, legal, and restaurant development.

At the restaurant level, management structure varies by brand. A typical restaurant is led by a management team
including a general managing partner, two additional managers and shift leaders and for Maggiano’s, an additional
three to four chefs. The level of restaurant supervision depends upon the operating complexity and sales volume of
individual locations. We believe there is a high correlation between the quality of restaurant management and the
long-term success of a brand. In that regard, we encourage increased experience at all management positions
through various short and long-term incentive programs, which may include equity ownership. These programs,
coupled with a general management philosophy emphasizing quality of life, have enabled us to attract and retain
key team members, and enjoy lower turnover of managers and team members that we believe is below industry
averages.

We strive to ensure consistent quality standards in our brands through the issuance of operational manuals covering
all elements of operations and food and beverage manuals, which provide guidance for preparation of brand-
formulated recipes. Routine visitation to the restaurants by all levels of supervision enforces strict adherence to our
overall brand standards and operating procedures. Each brand is responsible for maintaining their operational
training program. Depending on the brand, the training program typically includes a training period of two to three
months for restaurant management trainees, as well as special training for high-potential team members and
managers. We also provide recurring management training for managers and supervisors to improve effectiveness
or prepare them for more responsibility.

Supply Chain

Our ability to maintain consistent quality and continuity of supply throughout each restaurant brand depends upon
acquiring products from reliable sources. Our approved suppliers and our restaurants are required to adhere to strict
product and safety specifications established through our quality assurance and culinary programs. These
requirements are intended to ensure high-quality products are served in each of our restaurants. We strategically
negotiate directly with major suppliers to obtain competitive prices. We also use purchase commitment contracts
when appropriate to stabilize the potentially volatile pricing associated with certain commodity items. All essential
products are available from pre-qualified distributors to be delivered to our restaurant brands. We have not
experienced significant supply chain disruptions during the COVID-19 pandemic.

Additionally, as a purchaser of a variety of food products, we require our suppliers to adhere to our supplier code of
conduct, which sets forth our expectation on business integrity, food safety and food ingredients, animal welfare
and sustainability. Due to the relatively rapid turnover of perishable food products and inventories in the
restaurants, which consist primarily of food, beverages and supplies, our inventories have a modest aggregate
dollar value in relation to revenues. Internationally, our franchisees may encounter cultural and regulatory
differences resulting in variances with product specifications for international restaurant locations.

Advertising and Marketing

Our primary focus for developing menu innovation and targeting our digital advertising and loyalty program direct
promotions are the Generation X and Millennial families who desire quality food, good value and a service

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experience that allows them to connect with family and friends. These young families represent a significant
percentage of our guest base today and, we believe, will only grow in importance in the years ahead. During the
COVID-19 pandemic, we have focused our advertising towards off-premise offerings and have reduced advertising
spend in certain channels to conserve resources.

Our domestic Chili’s franchise agreements generally require advertising contributions to us by the franchisees. We
use these contributions, in conjunction with Company funds, for the purpose of retaining advertising agencies,
obtaining consumer insights, developing and producing brand-specific creative materials and purchasing national
the brand’s strategy. Some franchisees also spend additional amounts on local
or regional media to meet
advertising. Any such local advertising is required to be approved by us.

Maggiano’s, as a “polished casual” restaurant with 53 Company-owned and franchise-operated locations, primarily
targets guests from affluent households who live and work around the higher-end malls where the majority of
Maggiano’s restaurants are located. Maggiano’s relies on digital marketing, direct marketing, social media and
word of mouth to advertise to new guests.

Team Members

Our employee base as of June 24, 2020, consisted of approximately 62.2 thousand team members (which includes
14.7 thousand furloughed restaurant team members), of which 0.5 thousand were corporate personnel located in
Dallas, Texas, 4.7 thousand were restaurant leaders such as regional and area directors, managers, or trainees, and
57.0 thousand were non-management restaurant positions. Our executive officers have an average of 25 years of
experience in the restaurant industry.

As a result of COVID-19 dining room closures, at the end of our third quarter of fiscal 2020, we had furloughed
approximately 34.0 thousand hourly restaurant positions from both Chili’s and Maggiano’s brands, as we
temporarily transitioned to a substantially smaller workforce to execute on the critical activities of the business. We
were able to bring back certain furloughed employees as dining rooms reopened and sales increased during the
fourth quarter of fiscal 2020. As of the end of our first period of fiscal 2021, ended July 29, 2020, 4.6 thousand
employees remain on furlough that we anticipate bringing back as our business operations allow.

In addition to the restaurant furloughs, we also temporarily reduced the base salaries of our executive officers and
corporate staff for approximately two months during the fourth quarter of fiscal 2020 by varying amounts ranging
from 8% to 50%. Additionally, effective May 10, 2020, employer matching contributions to the 401(k) defined
contribution plan were stopped for all eligible employees. As of the end of the fourth quarter of fiscal 2020, base
salaries resumed to pre-COVID-19 pandemic amounts.

In a competitive labor market we have developed and maintain key recruitment and retention strategies. We focus
on helping our team members turn their restaurant jobs into lasting careers. These career paths are made possible
by a number of development programs, including Best You EDU, a no-cost education program providing
foundational learning, ESL, GED, and associate’s degree programs, and the Certified Shift Leader program which
is accredited as an apprenticeship through the National Restaurant Association Education Foundation and United
States Department of Labor, and is intended to give hourly team members a clear path into management. While
developing these programs, we have simultaneously launched all-new digital training for team members at all
levels of the Company that uses digital technology and innovative learning methodologies to set our team members
up for success as part of our commitment to develop future leaders in the restaurant industry.

The majority of our team members, outside of restaurant management and restaurant support and corporate
personnel, are paid on an hourly basis. We stand firm in the belief that we provide competitive working conditions
and wages favorable to other companies in our industry. Our team members are not covered by any collective
bargaining agreements.

10

Trademarks

We have registered or have pending, among other marks, “Brinker International”, “Chili’s”, “Chili’s Too”,
“Maggiano’s”, and “Maggiano’s Little Italy”, as trademarks with the United States Patent and Trademark Office.

Available Information

We maintain an internet website with the address of http://www.brinker.com. You may obtain at our website, free
of charge, copies of our reports filed with, or furnished to, the Securities and Exchange Commission (the “SEC”)
on Forms 10-K, 10-Q and 8-K. The SEC also maintains an internet website, with the address of www.sec.gov,
which contains reports, proxy and information statements, and other information filed electronically or furnished
with the SEC.

In addition, you may view and obtain, free of charge, at our website, copies of our corporate governance materials,
including: Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter,
Governance and Nominating Committee Charter, Code of Conduct for the Board of Directors, Brinker
International Code of Conduct - Making People Feel Special, and Policy Governing the Improper Use of Materials.
The information contained on our website is not a part of this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

We caution you that our business, financial condition and results of operations are subject to a number of risks and
uncertainties that make an investment in our securities risky. The risk factors listed below could cause actual results
to differ materially from our historical results or from those projected in forward-looking statements contained in
this report, our other filings with the SEC, our news releases, or our other verbal or written communications. In
addition to the effects of the COVID-19 pandemic and resulting disruptions on our business and operations and in
the risk factors below, additional risks and uncertainties that are currently not known or believed by us to be
immaterial may also have a material negative impact on our business, financial condition and results of operations.
In any such event, the trading price of our securities could decline and you could lose all or part of your
investment.

Additionally, the COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on
our business, financial condition, and results of operations, as well as those of many of our customers, suppliers,
and local, national, and global economies. The COVID-19 pandemic has also amplified many of the other risks
discussed below to which we are subject. We are unable to predict the extent to which the pandemic and its related
impacts will adversely impact our business, financial condition, and results of operations as well as our stock price.
However, given the unpredictable, unprecedented, and fluid nature of the pandemic, it may also materially and
adversely affect our business, financial condition, and results of operations in ways that are not currently
anticipated by or known to us or that we do not currently consider to present significant risk.

The novel coronavirus (COVID-19) pandemic has materially disrupted and is expected to continue to
materially disrupt for an extended period of time our business, operations, financial condition and results of
operations.

The COVID-19 pandemic has had a material adverse effect on our business. The COVID-19 pandemic, federal,
state and local government responses to COVID-19, our guests’ responses to the pandemic, and our Company’s
responses to the pandemic have all disrupted and will continue to disrupt our business and our industry. In the
United States, as well as globally, individuals are being encouraged to practice social distancing, restricted from
gathering in groups, and in some areas are restricted from non-essential movements outside of their homes, all of
which impacts our ability to operate our business.

Our fiscal 2020 results include the decline in Company sales compared to fiscal 2019 primarily due to the
COVID-19 pandemic. At the end of the third quarter of fiscal 2020, we temporarily closed all Company-owned

11

restaurant dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed
our expansion plans. Beginning on April 27, 2020, we began to reopen certain dining room locations as permitted
by governments. At the end of fiscal 2020, as of June 24, 2020, and more recently as of our first period of fiscal
2021 ended July 29, 2020, 94.9% and 84.0%, respectively, of our Company-owned restaurant dining rooms or
patios were open in a limited capacity.

In response to the pandemic, during the fourth quarter of fiscal 2020, we shifted to off-premise and then limited
dining room re-opening based on regulatory requirements. We also modified work hours for our team members,
implemented enhanced safety protocols, and identified and implemented cost savings measures throughout our
operations. In fiscal 2020, we incurred approximately $12.2 million of expenses related to our response to the
pandemic primarily related to employee relief payments, net of CARES Act employee retention tax credits,
supplies such as sanitizer and face masks, and inventory spoilage. We expect to incur higher ongoing expenses
related to additional cleaning and safety supplies for the duration of the pandemic. In response to the pandemic,
during the fourth quarter of fiscal 2020, certain landlords have provided temporary rent concessions. These
concessions primarily relate to the deferral of certain fourth quarter of fiscal 2020 rent payments until future
periods. However, we have not reached agreement with all landlords and, we cannot provide any assurances
regarding whether similar concessions will be granted in the future. Refer to Part II, Item 7 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations and Note 2 - Novel Coronavirus
Pandemic within Part II, Item 8 - Financial Statements and Supplementary Data Notes to the Consolidated
Financial Statements for more information regarding the financial impact of the pandemic.

Based on government mandates, it is also possible that we may have to close some or all of our re-opened dining
rooms if the pandemic persists or worsens or if cases of COVID-19 increase in certain geographic areas, in each
case reverting back to off-premise only model in such locations. We cannot predict the speed at which we will be
able to re-open our dining rooms at full capacity, or whether we will be able to do so at all, as this will depend in
part on the actions of a number of governmental bodies over which we have no control.

The COVID-19 pandemic’s impact on the economy in general, globally, nationally and locally, could also
adversely affect our guests’ financial condition, resulting in reduced spending at restaurants. The COVID-19
pandemic and these responses have affected and will continue to adversely affect our guest traffic, sales and
operating costs and we cannot predict how long the pandemic will last or what other government responses may
occur. Moreover, once restrictions are lifted, it is unclear whether guests will be comfortable dining out and, if so,
how quickly guests will return to our restaurants, which may be a function of continued concerns over safety and/or
depressed consumer sentiment due to adverse economic conditions, including job losses, and other factors that are
beyond our control. Any failure of consumers to return to pre-pandemic dining patterns could have a long-term
material adverse impact on us and our future prospects.

The equity markets in the United States have been extremely volatile due to the COVID-19 pandemic and our stock
price has fluctuated significantly and may continue to do so. If the business interruptions caused by COVID-19
continue indefinitely or last longer than we expect, we may need to seek other sources of liquidity. The COVID-19
pandemic has created significant disruption and extreme volatility in global capital markets and is adversely
affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional
liquidity will be readily available on favorable terms, especially the longer the COVID-19 pandemic lasts, or
available at all. As discussed in this report, we have amended our revolving credit facility to preserve liquidity and
allow us financial flexibility, including waiving of certain debt covenant compliance for a limited time. In the
fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend and share
repurchase program due to uncertainty surrounding the duration of closures of our dining rooms and other
restrictions mandated by state and local governments in response to COVID-19. Additionally, under the terms of
our revolving credit facility, as recently amended, we are prohibited from making dividends, stock repurchases and
investments from the fourth quarter of fiscal 2020 through the third quarter of fiscal 2021, and following this
period, we will be subject to a $50.0 million aggregate limitation on dividends, stock repurchases and investments.

12

A material increase in our level of debt or material impairments of our assets could cause our debt to total cash
flow ratio to exceed the maximum level permitted under the covenant in our revolving credit facility agreement.

Additionally, certain of our restaurants have been further disrupted when a team member has been diagnosed with
COVID-19 or exposed to a person with a confirmed positive diagnosis of COVID-19. In the event a team member
has been diagnosed with COVID-19, our policy requires temporary closure of the restaurant, quarantine of some or
all of a restaurant’s employees and disinfection of the restaurant facilities. Additionally, if a team member has
direct contact with a friend or family member with a confirmed positive diagnosis of COVID-19, such team
member must exclude himself or herself from work for a certain period of time. If a significant percentage of our
workforce is unable to work, whether because of illness, quarantine, limitations on travel or other government
restrictions in connection with COVID-19, our operations will be negatively impacted, potentially materially
adversely affecting our liquidity, financial condition or results of operations. If an outbreak is traced to one or more
of our locations, it could impact our reputation and subject us to legal claims. Additionally, we have implemented
COVID-19 emergency pay policies and taken other employee compensation relief actions to support our restaurant
team members during the COVID-19 business interruption, but those actions may not be sufficient to compensate
our team members for the entire duration of any business interruption resulting from COVID-19. Those team
members might seek and find other employment during that interruption, which could materially adversely affect
our ability to properly staff and reopen our dining rooms with experienced team members when permitted to do so
by governments.

We have not experienced any significant issues related to suppliers, however, our suppliers could be adversely
impacted by the COVID-19 pandemic. If our suppliers’ employees are unable to work, whether because of illness,
quarantine, limitations on travel or other government restrictions in connection with COVID-19, or if the supply
chain is disrupted for any other reason such as travel limitations and other restrictions on commerce, we could face
shortages of food items or other supplies at our restaurants and our operations and sales could be adversely
impacted by such supply interruptions.

Considering the significant uncertainty as to our ability to increase sales to levels we achieved before the
COVID-19 pandemic based on aforementioned uncertainties and other known and unknown risks related to the
pandemic, refer to Part I, Item 1 - Business Part II, Item 7 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations discussions on Liquidity for further information of our future growth.
Additionally, the impact of COVID-19, and the volatile regional and global economic conditions stemming from
the pandemic, may also precipitate or exacerbate other risks discussed in this Item 1A - Risk Factors and elsewhere
in this report, any of which could have a material effect on us. This situation is changing rapidly and additional
effects may arise that we are not presently aware of or that we currently do not consider to present significant risks
to our operations. If we are not able to respond to and manage the impact of such events effectively, our business
and financial condition will be negatively impacted.

Competition may adversely affect our operations and financial results.

The restaurant business is highly competitive as to price, service, restaurant location, convenience, and type and
quality of food. We compete within each market with locally-owned restaurants as well as national and regional
restaurant chains. The casual dining segment of the restaurant industry has not seen significant growth in customer
traffic in recent years, and seen a significant decrease as a result of the COVID-19 pandemic. If these trends
continue, our ability to grow customer traffic at our restaurants (including through off-premise) will depend on our
ability to increase our market share within the casual dining segment. We also face competition from quick service
and fast casual restaurants; the convergence in grocery, deli and restaurant services; and meal kit and food delivery
providers. We compete primarily on the quality, variety and value perception of menu items, as well as the quality
and efficiency of service, the attractiveness of facilities and the effectiveness of advertising and marketing
programs. Although we may implement a number of business strategies, the success of new products, initiatives
and overall strategies is highly difficult to predict. If we are unable to compete effectively, our gross sales, guest
traffic and profitability may decline.

13

Changes in consumer preferences may decrease demand for food at our restaurants.

Changing health or dietary preferences may cause consumers to avoid our products in favor of alternative foods.
The food service industry as a whole depends on consumer preferences at the local, regional, national and
international levels. New information or changes in dietary, nutritional or health insurance guidelines, whether
issued by government agencies, academic studies, advocacy organizations or similar groups, may cause consumers
to select foods other than those that are offered by our restaurants. We may not be able to adequately adapt our
menu offerings to keep pace with developments in current consumer preferences, which may result in reductions to
the revenues generated by our Company-owned restaurants and the payments we receive from franchisees.

Food safety incidents at our restaurants or in our industry or supply chain may adversely affect customer
perception of our brands or industry and result in declines in sales and profits.

Regardless of the source or cause, any report of food-borne illnesses or other food safety issues at one of our
restaurants or our franchisees’ restaurants could irreparably damage our brand reputations and result in declines in
customer traffic and sales at our restaurants. A food safety incident may subject us to regulatory actions and
litigation, including criminal investigations, and we may be required to incur significant legal costs and other
liabilities. Food safety incidents may occur in our supply chain and be out of our control. Health concerns or
outbreaks of disease in a food product could also reduce demand for particular menu offerings. Even instances of
food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could
result in negative publicity about the restaurant industry generally and adversely affect our sales or cause us to
incur additional costs to implement food safety protocols beyond industry standards. The occurrence of food-borne
illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting
in higher costs and lower margins.

Global and domestic economic conditions negatively impact consumer discretionary spending and could
have a material negative effect on our financial performance.

The restaurant industry is dependent upon consumer discretionary spending, which is negatively affected by global
and domestic economic conditions, such as: slow or negative growth, unemployment, credit conditions and
availability, volatility in financial markets, inflationary pressures, weakness in the housing market, tariffs and trade
barriers, pandemics or public health concerns, and changes in government and central bank monetary policies.
When economic conditions negatively affect consumer incomes, such as the ongoing COVID-19 pandemic,
discretionary spending for restaurant visits will be challenged, our guest traffic may deteriorate and the average
amount guests spend in our restaurants may be reduced. This will negatively impact our revenues and also result in
lower royalties collected, spreading fixed costs across a lower level of sales, and in turn, cause downward pressure
on our profitability. This could result in further reductions in staff levels, asset impairment charges and potential
restaurant closures. There is no assurance that any governmental plans related to the economy to restore fiscal
responsibility or future plans to stimulate the economy will foster growth in consumer confidence, consumer
incomes or consumer spending.

Unfavorable publicity relating to one or more of our restaurants in a particular brand may taint public
perception of the brand.

Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, customer
complaints, litigation, illness or health concerns or other issues stemming from one or a limited number of
restaurants, regardless of whether such events have a factual basis. In particular, since we depend heavily on the
Chili’s brand for a majority of our revenues, unfavorable publicity relating to one or more Chili’s restaurants could
have a material adverse effect on the Chili’s brand, and consequently on our business, financial condition and
results of operations. The speed at which negative publicity (whether or not accurate) can be disseminated has
increased dramatically with the capabilities of the internet. If we are unable to quickly and effectively respond to
such reports, we may suffer declines in guest traffic which could materially impact our financial performance.

14

Employment and labor laws and regulations may increase the cost of labor for our restaurants.

We are subject to various federal, state and local employment and labor laws and regulations that govern
employment and labor matters,
including, employment discrimination, minimum wages, work scheduling,
overtime, tip credits, tax reporting, working conditions, safety standards, family leave and immigration status.
Compliance with these laws and regulations can be costly, and a failure or perceived failure to comply with these
laws could result in negative publicity or litigation. Some states and localities have, and many others are
contemplating, increases to their minimum wage and tip credit wage, and such increases can have a significant
impact on our labor costs. Similarly, any government actions related to employee compensation or employer
liability in response to the COVID-19 pandemic, whether temporary or permanent, could also materially increase
our costs. In addition, new employment or labor laws may mandate additional benefits for employees or impose
additional obligations that may adversely impact the costs of labor, the availability of labor and our business
operations. In addition, our suppliers may be affected by higher minimum wage standards or availability of labor,
which may increase the price of goods and services they supply to us. There are no assurances that a combination
of cost management and price increases can offset all of the costs associated with compliance.

Governmental regulation may adversely affect our ability to maintain our existing and future operations and
to open new restaurants.

We are subject to extensive federal, state, local and international laws and regulations, which vary from jurisdiction
to jurisdiction and which increase our exposure to litigation and governmental proceedings. Among other laws and
regulations, we are subject to laws and regulations relating to the design and operation of facilities, minimum wage,
licensing and regulation by alcoholic beverage control, health, sanitation, safety and fire agencies, nutritional
content and menu labeling, including the Affordable Care Act, which requires restaurant companies such as ours to
disclose calorie information on their menus. Additionally, as a result of the COVID-19 pandemic, certain state and
local jurisdictions are enacting certain health, safety and other regulations that impact or require us to modify our
operations. Compliance with these laws and regulations may lead to increased costs and operational complexity,
changes in sales mix and profitability, and increased exposure to governmental investigations or litigation. We
cannot reliably anticipate any changes in guest behavior resulting from implementation of these laws.

We are also subject to federal and state environmental regulations, and although these have not had a material
negative effect on our operations, we cannot ensure this will not occur in the future. In particular, the United States
and other foreign governments have increased focus on environmental matters such as climate change, greenhouse
gases and water conservation. These efforts could result in increased taxation or in future restrictions on or
increases in costs associated with food and other restaurant supplies, transportation costs and utility costs, any of
which could decrease our operating profits and/or necessitate future investments in our restaurant facilities and
equipment to achieve compliance.

We are subject to federal and state laws and regulations which govern the offer and sale of franchises and which
may supersede the terms of franchise agreements between us and our franchisees. Failure to comply with such laws
and regulations or to obtain or retain licenses or approvals to sell franchises could adversely affect us and our
franchisees. Due to our international franchising, we are also subject to governmental regulations throughout the
world impacting the way we do business with our international franchisees. These include antitrust and tax
requirements, anti-boycott regulations, import/export/customs and other international trade regulations, the USA
Patriot Act and the Foreign Corrupt Practices Act. Failure to comply with any such legal requirements could
subject us to monetary liabilities and other sanctions, which could adversely impact our business and financial
performance.

The impact of current laws and regulations, the effect of future changes in laws or regulations that impose
additional requirements and the consequences of litigation relating to current or future laws and regulations, or our
inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and
other costs of doing business and therefore have an adverse effect on our results of operations. Failure to comply

15

with the laws and regulatory requirements of federal, state, local, and international authorities could result in,
among other things, revocation of required licenses, administrative enforcement actions, fines and civil and
criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to
litigation or governmental investigations or proceedings.

If we are unable to successfully design and execute a business strategy plan, our gross sales and profitability
may be adversely affected.

Our ability to increase revenues and profitability is dependent on designing and executing effective business
strategies. If we are delayed or unsuccessful in executing our strategies or if our strategies do not yield the desired
results, our business, financial condition and results of operations may suffer. Our ability to meet our business
strategy plan is dependent upon, among other things, our and our franchisees’ ability to:

(cid:129)

(cid:129)

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Increase gross sales and operating profits at existing restaurants with food and beverage options desired by
our guests;

Evolve our marketing and branding strategies in order to appeal to guests;

Innovate and implement technology initiatives that provide a unique digital guest experience;

Identify adequate sources of capital to fund and finance strategic initiatives, including reimaging of
existing restaurants, new restaurant development and new restaurant equipment;

Grow and expand operations, including identifying available, suitable and economically viable locations
for new restaurants, or making strategic acquisitions; and

Improve the speed and quality of our service.

Our partnership with DoorDash is subject to risks, and our ability to grow sales through delivery orders is
uncertain.

Our strategy for growth in fiscal 2021 is dependent in part on increased sales from guests that want our food
delivered to them. In the fourth quarter of fiscal year 2019, we entered into an agreement with DoorDash that
allows DoorDash to be the exclusive third party delivery provider for Chili’s and Maggiano’s. We currently rely on
DoorDash for the ordering and payment platforms that receive guest orders and that send orders directly to our
point of sale system. These platforms could be damaged or interrupted by technological failures, cyber-attacks or
other factors, which may adversely impact our sales through these channels. DoorDash generally fulfills delivery
orders through drivers that are independent contractors. These drivers may make errors, fail to make timely
deliveries, damage our food or poorly represent our brands, which may lead to customer disappointment,
reputational harm and unmet sales expectations. Our sales may also be adversely impacted if there is a shortage in
drivers that are willing and available to make deliveries from our restaurants.

Because we have partnered exclusively with DoorDash, our delivery business and growth expectations may be
negatively impacted if DoorDash is not able to effectively compete with other restaurant delivery providers for end
consumers, capital, and delivery drivers or DoorDash ceases or reduces operations. Delivery, as well as other
DoorDash offerings that we may test, are relatively new services, and it is difficult for us to anticipate the level of
sales they may generate, operational challenges we may face or the experiences our guests will have with these
offerings. These factors may adversely impact our sales and our brand reputation. We also incur additional costs
associated with delivery orders, and it is possible that these orders could cannibalize more profitable in-restaurant
visits or carry out orders.

Additionally, we have certain virtual brands that are only available through DoorDash. We rely on DoorDash to
market and deliver certain offerings from our Chili’s and Maggiano’s kitchens. In addition to the delivery and
technological risks discussed above, because certain offerings are only available through the DoorDash platform, if

16

we have to transition to a different third party delivery provider, our sales on such offerings would temporarily be
diminished, and it is possible that we would not generate the same level of profitability with a different provider.

Loss of key management personnel could hurt our business and limit our ability to operate and grow
successfully.

Our success depends, to a significant extent, on our leadership team and other key management personnel. These
personnel serve to maintain a corporate vision for our Company, execute our business strategy, and maintain
consistency in the operating standards of our restaurants. If we are unable to attract and retain sufficiently
experienced and capable key management personnel, our business and financial results may suffer.

Failure to recruit, train and retain high-quality restaurant management and team members may result in
lower guest satisfaction and lower sales and profitability.

Our restaurant-level management and team members are largely responsible for the quality of our service. Our
guests may be dissatisfied and our sales may decline if we fail to recruit, train and retain managers and team
members that effectively implement our business strategy and provide high quality guest service. There is active
competition for quality management personnel and hourly team members. If we experience high turnover, we may
experience higher labor costs and have a shortage of adequate management personnel required for future growth.

Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social
media could materially adversely impact our business.

There has been a marked increase in the use of social media and similar platforms which allow individual access to
a broad audience of consumers and other interested persons. Many social media platforms immediately publish the
content their subscribers and participants’ post, often without filters or checks on accuracy of the content posted.
Information posted on such platforms at any time may be adverse to our interests and may harm our performance,
prospects or business, regardless of the information’s accuracy.

As part of our marketing strategy, we rely on search engine marketing, social media and new technology platforms
to attract and retain guests and maintain brand relevance. Our strategy and initiatives may not be successful,
resulting in expenses incurred without improvement in guest traffic or brand relevance. In addition, a variety of
risks are associated with the use of social media, including the improper disclosure of proprietary information,
negative comments about us, exposure of personally identifiable information, fraud, or out-of-date information.
The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to
litigation or result in negative publicity that could damage our reputation.

We are exposed to risks related to cyber security and protection of confidential information, and failure to
protect the integrity and security of payment card or individually identifiable information of our guests and
teammates or confidential and proprietary information of the Company could damage our reputation and
expose us to loss of revenues, increased costs and litigation.

Our technology systems contain personal, financial and other information that is entrusted to us by our guests and
team members, as well as financial, proprietary and other confidential information related to our business, and a
significant portion of our restaurant sales are by credit or debit cards. If our technology systems, or those of third
party services providers we rely upon, are compromised as a result of a cyber-attack (including whether from
circumvention of security systems, denial-of-service attacks, hacking, “phishing” attacks, computer viruses,
ransomware, malware, or social engineering) or other external or internal method, it could result in an adverse and
material impact on our reputation, operations, and financial condition. The cyber risks we face range from cyber-
attacks common to most industries, to attacks that target us due to the confidential consumer information we obtain
through our electronic processing of credit and debit card transactions. Such security breaches could also result in
litigation or governmental investigation against us, as well as the imposition of penalties. These impacts could also
occur if we are perceived either to have had an attack or to have failed to properly respond to an incident.

17

To conduct our operations, we regularly move data across national borders, and consequently are subject to a
variety of continuously evolving and developing laws and regulations regarding privacy, data protection, and data
security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of
personal data. The use and disclosure of such information is regulated at the federal, state and international levels,
and these laws, rules and regulations are subject to change and increased enforcement activity and are increasing in
complexity and number. For example, the California Consumer Privacy Act, or CCPA, which became effective on
January 1, 2020, imposes new responsibilities on us for the handling, disclosure and deletion of personal
information for consumers who reside in California. The CCPA permits California to assess potentially significant
fines for violating CCPA and creates a right for individuals to bring class action suits seeking damages for
violations.

As privacy and information security laws and regulations change or cyber risks evolve pertaining to data, we may
incur significant additional costs in technology, third-party services and personnel to maintain systems designed to
anticipate and prevent cyber-attacks. As further described below, the Company experienced a cyber security
incident at some Chili’s locations in fiscal 2018. As a result of the incident, we have taken certain additional
preventative measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks
and measures will be successful in preventing future cyber-attacks or data loss. In addition, we expect the cost to
maintain cyber liability insurance in the future will materially increase as a result of the incident.

We have incurred and in the future may incur costs and reputational harm resulting from the unauthorized
access or acquisition of confidential consumer information related to our electronic processing of credit and
debit card transactions.

On May 12, 2018, we issued a public statement notifying guests that we had discovered that credit and debit card
numbers and related payment card information may have been acquired from Chili’s locations without
authorization as a result of a malware attack. The Company engaged third-party forensic firms and cooperated with
law enforcement to investigate the matter. Based on the investigation of our third-party forensic experts, we believe
most Company-owned Chili’s restaurants were impacted by the malware during time frames that vary by
restaurant, but we believe in each case began no earlier than March 21, 2018 and ended no later than April 22,
2018.

As a result of the incident, we have been assessed with financial responsibility by certain payment card companies
for card issuer losses, card replacement costs and other charges issued by payment card companies. In addition, we
are the defendant in a purported class action lawsuit, alleging that we negligently failed to provide adequate
security to protect the payment card information of the plaintiffs, causing those individuals to suffer financial
losses. In the future we may become subject to additional claims for purportedly fraudulent transactions arising out
of the actual or alleged theft of credit or debit card information, and we may also become subject to additional
lawsuits or proceedings relating to the incident. While we do not acknowledge responsibility to pay any such
amounts imposed or demanded, these proceedings and demands may result in significant related settlement costs.

Since the incident, through June 24, 2020, we have incurred total cumulative costs of $8.0 million related to the
cyber security incident, and expect to incur primarily legal expenses associated with the incident in future periods.
Although we maintain cyber liability insurance, we are not able to reliably forecast all of the losses that may occur
as a result of the incident or whether such costs will be covered by insurance. If losses exceed our cyber liability
insurance coverage such excess losses could have a material adverse effect on our financial condition or results of
operations in future periods. See Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the
Consolidated Financial Statements, Note 18 - Commitments and Contingencies of this Annual Report on Form
10-K for additional information regarding the financial impact of this cyber security incident.

Further, the incident may have a negative impact on our reputation and cause guests to lose confidence in our
ability to safeguard their information. We are unable to definitively determine the impact to our relationship with
our guests and whether we will need to engage in significant promotional or other activities to rebuild our

18

relationship with our guests. If the Company experiences another cyber security incident in the future, we believe it
will be even more difficult to regain the trust of our guests and to rebuild our reputation.

Shortages or interruptions in the availability and delivery of food and other products may increase costs or
reduce revenues.

Possible shortages or interruptions in the supply of food items and other products to our restaurants caused by
inclement weather; natural disasters such as floods, droughts and hurricanes; shortages in the availability of truck
drivers; the inability of our suppliers to obtain credit in a tight credit market; trade barriers; food safety warnings or
advisories or the prospect of such pronouncements; animal disease outbreaks; or other conditions beyond our
control could adversely affect the availability, quality and cost of items we buy and the operations of our
restaurants. Our inability to effectively manage supply-chain risk could increase our costs or reduce revenues and
limit the availability of products critical to our restaurant operations.

The large number of Company-owned restaurants concentrated in Texas, Florida and California makes us
susceptible to changes in economic and other trends in those regions.

A high concentration of our Company-owned restaurants are located in Texas, Florida and California comprising
19.5%, 12.5% and 10.1%, respectively, as of June 24, 2020. As a result, we are particularly susceptible to adverse
trends and economic conditions in those states. Negative publicity, local economic conditions, health epidemics or
pandemics (such as COVID-19), local strikes, energy shortages or extreme fluctuations in energy prices, droughts,
earthquakes, fires or other natural disasters in regions where our restaurants are highly concentrated could have a
material adverse effect on our business and operations. For example, declines in oil prices may increase levels of
unemployment and cause other economic pressures that result in lower sales and profits at our restaurants in oil
market regions of Texas and surrounding areas.

Litigation could have a material adverse impact on our business and our financial performance.

We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business or out
of special circumstances. These matters typically involve claims by guests, team members and others regarding
issues such as food-borne illness, food safety, premises liability, compliance with wage and hour requirements,
work-related injuries, discrimination, harassment, disability and other operational issues common to the food
service industry, as well as contract disputes and intellectual property infringement matters. It is also possible that
team members, guests or others could make claims against the Company as a result of the COVID-19 pandemic,
and the nature and scope of such matters, if any, is unknown because the pandemic is novel. Our franchise activity
also creates a risk of us being named as a joint employer of workers of franchisees for alleged violations of labor
and wage laws. We could be adversely affected by negative publicity and litigation costs resulting from these
claims, regardless of their validity. Significant legal fees and costs in complex class action litigation or an adverse
judgment or settlement that is not insured or is in excess of insurance coverage could have a material adverse effect
on our financial position and results of operations.

The success of our franchisees is important to our future growth.

We have a significant percentage of system-wide restaurants owned and operated by our franchisees. While our
franchise agreements are designed to require our franchisees to maintain brand consistency,
the franchise
relationship reduces our direct day-to-day oversight of these restaurants and may expose us to risks not otherwise
encountered if we maintained ownership and control. Our reputation and financial results may be negatively
impacted by: franchisee defaults in their obligations to us; limitations on our ability to enforce franchise obligations
due to bankruptcy proceedings or differences in legal remedies in international markets; franchisee failures to
participate in business strategy changes due to financial constraints; franchisee failures to meet obligations to pay
employees; and franchisees’ failure to comply with food quality and preparation requirements.

19

Additionally, our international franchisees are subject to risks not encountered by our domestic franchisees, and
royalties paid to us may decrease if their businesses are negatively impacted. These risks include:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Difficulties in achieving consistency of product quality and service as compared to United States
operations;

Changes to recipes and menu offerings to meet cultural norms;

Challenges to obtain adequate and reliable supplies necessary to provide menu items and maintain food
quality; and

Differences, changes or uncertainties in economic, regulatory,
conditions.

legal, cultural, social and political

The phase-out of LIBOR could increase our interest expense and have a material adverse effect on us.

Borrowings under our revolving credit facility use LIBOR, the basic rate of interest used in lending between banks
on the London interbank market, as a benchmark for establishing the applicable interest rate. The Financial
Conduct Authority of the United Kingdom has announced that it plans to phase out LIBOR by the end of 2021. It is
unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such
that it continues to exist after 2021. Whether another alternative reference rate attains market traction as a LIBOR
replacement tool remains in question. Although our borrowing arrangements provide for alternative base rates,
those alternative base rates historically would often have led to increased interest rates, in some cases significantly
higher, than those we paid based on LIBOR, and may similarly be higher in the future. Therefore, if, or when,
LIBOR ceases to exist, we will likely need to agree upon a replacement index with our lenders as part of
refinancing our existing indebtedness upon its maturity, and the interest rate thereunder will likely change.

The consequences of the phase out of LIBOR cannot be entirely predicted at this time. For example, we may not be
successful in amending our borrowing arrangements to provide for a replacement rate. If any new or alternative
base rate for calculating interest with respect to our outstanding indebtedness may not be as favorable or perform in
the same manner as LIBOR and could lead to an increase in our interest expense or could impact our ability to
refinance some or all of our existing indebtedness. In addition, the transition process may involve, among other
things, increased volatility or illiquidity in financial markets, which could also have an adverse effect on us
whether or not any replacement rate applicable to our borrowings is affected. Any such effects of the transition
away from LIBOR, as well as other unforeseen impacts, may result in increased interest expense and other
expenses, difficulties, complications or delays in connection with future financing efforts or otherwise have a
material adverse impact on our business, financial condition, and results of operations.

Downgrades in our credit ratings could impact our ability to access capital and materially adversely affect
our business, financial condition and results of operations.

Credit rating agencies have, and in the future may, change their credit rating for us, among other things, based on
the performance of our business, our capital strategies or their overall view of our industry. There can be no
assurance that any rating assigned to our currently outstanding public debt securities will remain in effect for any
given period of time or that any such ratings will not be further lowered, suspended or withdrawn entirely by a
rating agency if, in that agency’s judgment, circumstances so warrant, particularly during the COVID-19 pandemic.
A downgrade of our credit ratings could, among other things:

(cid:129)

(cid:129)

(cid:129)

Increase our cost of borrowing;

Limit our ability to access capital;

Result in more restrictive covenants in agreements governing the terms of any future indebtedness that we
may incur, including restrictions on our ability to pay distributions or repurchase shares;

20

(cid:129)

(cid:129)

Require us to provide collateral for any future borrowings; and

Adversely affect the market price of our outstanding debt securities.

In the fourth quarter of fiscal 2020, S&P lowered our corporate credit rating to B+ with negative outlook. Moody’s
also lowered us to a corporate family rating B1 with negative outlook. The downgrades were a result of the
COVID-19 impact on the restaurant sector that has been one of the sectors most significantly affected given its
sensitivity to consumer demand and sentiment, and the unprecedented precautionary measures implemented by
state and local governments, including temporary closures. These ratings and our current credit condition affect,
among other things, our ability to access new capital. Negative changes to these ratings may result in more
stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be further
lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse
effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our
financial condition, including any further increase in our leverage or decrease in our profitability or cash flows,
could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in
outlook, or could otherwise increase our cost of borrowing.

Inflation and fluctuations in energy costs may increase our operating expenses.

We have experienced impact from inflation and fluctuations in utility and energy costs. Inflation has caused added
food, labor and benefits costs and increased our operating expenses. Fluctuations and increases in utility and energy
costs have also increased our operating expenses on regional and national levels, including through suppliers
putting pressure on margins by passing on higher prices for petroleum-based fuels. As operating expenses rise, we,
to the extent permitted by competition, recover costs by raising menu prices, or by implementing alternative
products, processes or cost reduction procedures. We cannot ensure, however, we will be able to continue to
recover increases in operating expenses due to inflation in this manner.

Challenges to the retail industry may negatively affect guest traffic at our restaurants.

Other tenants at retail centers in which we are located or have executed leases may fail to open or may cease
operations as a result of challenges specific to the retail industry, including competition from online retailers. The
retail industry has been particularly hard hit by the COVID-19 pandemic, with many locations closing for extended
periods of time and have yet to reopen. A number of prominent retail chains have also declared bankruptcy,
including those that are anchor tenants in retail centers where we have locations.

Decreases in total tenant occupancy in retail centers and changes in guest visits to the retail centers in which we are
located, whether as a result of the COVID-19 pandemic or otherwise, may negatively affect guest traffic at our
restaurants.

We are dependent on information technology and any material failure in the operation or security of that
technology or our ability to execute a comprehensive business continuity plan could impair our ability to
efficiently operate our business.

We rely on information systems across our operations, including, for example, point-of-sale processing in our
restaurants, management of our supply chain, collection of cash, payment of obligations, and various other
processes and procedures. Our ability to efficiently manage our business depends significantly on the reliability and
capacity of these systems. The failure of these systems to operate effectively, problems with maintenance,
upgrading or transitioning to replacement systems, or a breach in security of these systems could cause delays in
customer service and reduce efficiency in our operations.

Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled
primarily at our restaurant support center. We have disaster recovery procedures and business continuity plans in
place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and

21

off-site locations for recovery of electronic and other forms of data and information. However, if we are unable to
fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform
vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field
operations and other breakdowns in normal communication and operating procedures that could have a material
adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims.

Failure to protect our service marks or other intellectual property could harm our business.

We regard our Chili’s® and Maggiano’s® service marks, and other service marks and trademarks related to our
restaurant businesses, as having significant value and being important to our marketing efforts. We rely on a
combination of protections provided by contracts, copyrights, patents, trademarks, service marks and other
common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from
infringement. We have registered certain trademarks and service marks in the United States and foreign
jurisdictions. However, we are aware of names and marks identical or similar to our service marks being used from
time to time by other entities. Although our policy is to oppose any such infringement, further or unknown
unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our
brands and adversely affect our business. In addition, effective intellectual property protection may not be available
in every country in which we have or intend to open or franchise a restaurant. Although we believe we have taken
appropriate measures to protect our intellectual property, there can be no assurance that these protections will be
adequate and defending or enforcing our service marks and other intellectual property could result in the
expenditure of significant resources.

We outsource certain business processes to third-party vendors that subject us to risks,
disruptions in business and increased costs.

including

Some business processes are or may in the future be outsourced to third parties. Such processes include certain
information technology processes, gift card tracking and authorization, credit card authorization and processing,
insurance claims processing, certain payroll processing, tax filings and other accounting processes. We also
continue to evaluate our other business processes to determine if additional outsourcing is a viable option to
accomplish our goals. We make a diligent effort to ensure that all providers of outsourced services are observing
proper internal control practices, such as redundant processing facilities and adequate security frameworks to guard
against breaches or data loss; however, there are no guarantees that failures will not occur. Failure of third parties
to provide adequate services could have an adverse effect on our results of operations, financial condition or ability
to accomplish our financial and management reporting.

Declines in the market price of our common stock or changes in other circumstances that may indicate an
impairment of goodwill could adversely affect our financial position and results of operations.

We perform our annual goodwill impairment tests in the second quarter of each fiscal year. Interim goodwill
impairment tests are also required when events or circumstances change between annual tests that would more
likely than not reduce the fair value of our reporting units below their carrying value. Although no triggering event
had been identified in our regular goodwill impairment assessment performed at the end of the second quarter of
fiscal 2020, we determined during the third of fiscal 2020 that the reduced cash flow projections and the significant
decline in our market capitalization as a result of the COVID-19 pandemic could indicate that an impairment loss
may have been incurred. Based on our assessment during the third quarter we determined that our goodwill and
indefinite-lived intangible assets were not impaired at that time. Additionally, we updated the assessment during
the fourth quarter of fiscal 2020 and determined no triggering event existed based on improved market value and
actual results compared to forecast for the third quarter of fiscal 2020. This assessment is predicated on our ability
to continue to operate dining and banquet rooms, and generate off-premise sales at our restaurants. Management’s
judgment about the short and long term impacts of the pandemic could change as additional facts become known
and therefore affect these conclusions. We will continue to monitor and evaluate our results and evaluate the
likelihood of any potential impairment charges at our restaurants and reporting units.

22

It is possible that a change in circumstances such as the decline in the market price of our common stock or
changes in consumer spending levels, or in the numerous variables associated with the judgments, assumptions and
estimates made in assessing the appropriate valuation of our goodwill, could negatively impact the valuation of our
brands and create the potential for a non-cash charge to recognize impairment losses on some or all of our
goodwill. If we were required to write down a portion of our goodwill and record related non-cash impairment
charges, our financial position and results of operations would be adversely affected.

Changes to estimates related to our property and equipment, or operating results that are lower than our
current estimates at certain restaurant locations, may cause us to incur impairment charges on certain long-
lived assets.

We make certain estimates and projections with respect to individual restaurant operations, as well as our overall
performance in connection with our impairment analyses for long-lived assets. An impairment charge is required
when the carrying value of the asset exceeds the estimated fair value. For example, in the fourth quarter of fiscal
year 2020, we recognized $14.5 million of long-lived asset and lease asset impairment charges as a result of
decreased cash flows and it is possible that we may incur similar charges in greater amounts in the future. Refer to
Note 2 - Novel Coronavirus Pandemic within Part II, Item 8 - Financial Statements and Supplementary Data Notes
to the Consolidated Financial Statements for more information. The projection of future cash flows used in the
analyses requires the use of judgment and a number of estimates and projections of future operating results. If
actual results differ from our estimates, additional charges for asset impairments may be required in the future. If
impairment charges are significant, our financial position and results of operations could be adversely affected.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-
Oxley Act could have a material adverse effect on our business and stock price.

We are subject to the internal control requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which
require management to assess the effectiveness of our internal control over financial reporting and our independent
auditors to attest to the effectiveness of our internal control over financial reporting. Our processes for designing
and implementing effective internal controls involve continuous effort that requires us to anticipate and react to
changes in our business as well as in the economic and regulatory environments. As a result, we expend significant
resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public
company. We cannot assure you that the measures we will take as part of this effort will be sufficient to maintain
effective internal control over our financial reporting. Failure to maintain effective internal controls could result in
consolidated financial statements that do not accurately reflect our financial condition, cause investors to lose
confidence in our reported financial information, or result in regulatory scrutiny, penalties or shareholder litigation,
all of which could have a negative effect on the trading price of our common stock.

Our business and operation could be negatively affected if we become subject to any securities litigation or
shareholder activism, which could cause us to incur significant expenses, hinder execution of investment
strategy and impact our stock price.

In the past, following periods of volatility in the market price of a company’s securities, securities class action
litigation has often been brought against that company. Shareholder activism, which could take many forms or arise
in a variety of situations, has been increasing in publicly traded companies recently. Due to the potential volatility
of our stock price and for a variety of other reasons, we may become the target of securities litigation or
shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result
in substantial costs and legal fees and divert management’s and our board of directors’ attention and resources from
our business. Additionally, such securities litigation and shareholder activism could give rise to perceived
uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to
attract and retain qualified personnel. Further, our stock price could be subject to significant fluctuation or
otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder
activism.

23

From time to time we may implement measures that make it more difficult for an activist investor or potential
acquirer to purchase a large portion of our securities, to initiate a tender offer or a proxy contest, or to acquire the
Company through a merger or similar transaction. These measures may discourage investment in our common
stock and may delay or discourage acquisitions that would result in our stockholders receiving a premium for their
shares over the then-current market price.

Other risk factors may adversely affect our financial performance.

Other risk factors that could cause our actual results to differ materially from those indicated in forward-looking
statements, include, without limitation, changes in financial and credit markets (including rising interest rates);
increased fuel costs and availability for our team members, customers and suppliers; increased health care costs;
health epidemics or pandemics (such as COVID-19) or the prospects of these events; changes in consumer
behaviors; changes in demographic trends; labor shortages and availability of employees; union organization;
strikes; terrorist acts; energy shortages and rolling blackouts; and weather (including, major hurricanes and regional
winter storms); inadequate insurance coverage; and limitations imposed by our credit agreements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Restaurant Locations

As of June 24, 2020, our system of Company-owned and franchised restaurants included 1,663 restaurants. The
below table contains a breakdown of our portfolio of restaurants by brand and by domestic versus international
location:

Chili’s

Company-owned

Franchise

Maggiano’s

Company-owned

Franchise

System-wide

Domestic

June 24, 2020

International

Total

1,059

174

1,233

52

1

53

1,286

5

372

377

—

—

—

377

1,064

546

1,610

52

1

53

1,663

Our Company-owned and franchise restaurants in the United States are located in 49 states and Washington, D.C.
We and our franchisees also have restaurants in two United States territories, Guam and Puerto Rico, and 28
countries: Canada, Chile, China, Costa Rica, Dominican Republic, Ecuador, Egypt, Germany, Guatemala,
Honduras, India, Japan, Kuwait, Lebanon, Malaysia, Mexico, Morocco, Oman, Panama, Peru, Philippines, Qatar,
Saudi Arabia, South Korea, Taiwan, Tunisia, United Arab Emirates, and Vietnam.

Chili’s

Maggiano’s

24

June 24, 2020

Domestic

International

No. of States

49

23 & D.C.

No. of countries
and U.S.
territories

30

—

Restaurant Property Information

The following table illustrates the approximate dining capacity for a prototypical restaurant of each of our brands:

Square feet

Dining seats

Dining tables

Chili’s

Maggiano’s

3,200 - 8,100 8,100 - 28,400

140 - 420

35 - 70

260 - 770

60 - 130

As of June 24, 2020, we continue to own property for 43 of the 1,116 Company-owned restaurant locations. The
related book value of these owned restaurant locations as of June 24, 2020 includes land of $34.1 million and the
net book value of buildings totaled $13.9 million.

As of June 24, 2020, the remaining 1,073 Company-owned restaurant locations were leased by us and the net book
value of the buildings and leasehold improvements totaled $500.4 million. These leased restaurant locations can be
categorized as follows: 731 ground leases (where we lease land only, but own the building) and 342 retail leases
(where we lease the land/retail space and building). We believe that our properties are suitable, adequate, well-
maintained and sufficient for the operations contemplated. Our leased restaurants typically have an initial lease
term of 10 to 20 years, with one or more renewal terms typically 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.

Other Properties

We lease an office building containing approximately 216,300 square feet which we use for our corporate
headquarters and menu development activities. We also lease but have ceased use of our previous headquarter
location consisting of 198,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

This information is set forth within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the
Consolidated Financial Statements, Note 18 - Commitments and Contingencies of this Annual Report on
Form 10-K is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

25

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “EAT”, and as of
August 14, 2020, there were 493 holders of record of our common stock.

Comparison of Five Year Cumulative Total Return

The graph below presents Brinker International, Inc.’s cumulative 5-Year total shareholder return on common
stock with the cumulative total returns of the S&P 500 index and the S&P Restaurants index. The graph is based on
$100 invested on June 24, 2015 in stock including reinvestment of dividends, or June 30, 2015 in index since
indexes are calculated on a month-end basis, and its relative performance is tracked through June 24, 2020. The
values shown below are neither indicative nor determinative of future performance.

Comparison of 5 Year Cumulative Return

$250

$200

$150

$100

$50

$0

6/24/2015

6/29/2016

6/28/2017

6/27/2018

6/26/2019

6/24/2020

Brinker International

S&P 500

S&P Restaurants

Brinker International

S&P 500

S&P Restaurants(1)

Fiscal 2015

Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Fiscal 2020

$

$

$

100.00 $

82.38 $

70.06 $

94.99 $

75.92 $

100.00 $

103.99 $

122.60 $

140.23 $

154.83 $

100.00 $

110.56 $

133.23 $

132.42 $

196.08 $

48.07

166.45

178.63

(1)

The S&P Restaurants Index is comprised of Chipotle Mexican Grill, Inc., Darden Restaurants, Inc.,
McDonald’s Corp., Domino’s Pizza Inc., Starbucks Corporation and Yum! Brands, Inc.

Dividend Program

In the third quarter of fiscal 2020, we declared a quarterly dividend on January 27, 2020, that was paid in the fourth
quarter of fiscal 2020, on March 26, 2020, in the amount of $0.38 per share.

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and
local governments in response to COVID-19. Additionally, under the terms of our revolving credit facility, as
recently amended, we are prohibited from making dividends, stock repurchases and investments from the fourth
quarter of fiscal 2020 through the third quarter of fiscal 2021, and following this period, we will be subject to a
$50.0 million aggregate limitation on dividends, stock repurchases and investments. Following the expiration of
these restrictions, the Board of Directors will reevaluate the suspension based on current business conditions at that
time. Refer to Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources for further information.

26

Once permitted under the terms of our lending arrangements, future decisions to reinstate the dividend program to
pay, or to increase or decrease dividends, are at the discretion of the Board and will be dependent on our operating
performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the
terms and conditions of our revolving credit facility and applicable law, and such other factors that the Board
considers relevant. Refer to Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the
Consolidated Financial Statements, Note 12 - Debt and Note 15 - Shareholders’ Deficit of this Annual Report on
Form 10-K for further discussion of our long-term debt and shareholders’ deficit, respectively.

Share Repurchase Program

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend our share repurchase program due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and
local governments in response to COVID-19. Additionally, the amended revolving credit facility restricts our
ability to repurchase shares until the fourth quarter of fiscal year 2021, and subjects any share purchases thereafter,
along with dividends paid and investments, to an aggregate cap. As such, in the fourth quarter of fiscal 2020, we
only repurchased a limited number of shares related to shares owned and tendered by team members to satisfy tax
withholding obligations, and vesting of restricted share awards, which are not deducted from shares available to be
purchased under publicly announced programs. Amounts are presented in millions, except per share amounts,
unless otherwise noted:

March 26, 2020 through April 29, 2020

April 30, 2020 through May 27, 2020

May 28, 2020 through June 24, 2020

Total

Total
Number
of Shares
Purchased(1)

Average
Price Paid
per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program

Approximate
Dollar Value that
May Yet be
Purchased
Under the
Program

— $

0.0 $

0.0 $

0.0 $

—

20.53

28.76

24.50

— $

— $

— $

—

166.8

166.8

166.8

(1)

Shares owned and tendered by team members to satisfy tax withholding obligations were purchased at the
average of the high and low prices of the Company’s shares on the date of vesting. In the fourth quarter of
fiscal 2020, 6.4 thousand shares were tendered by team members at an average price of $24.50.

27

ITEM 6. SELECTED FINANCIAL DATA

BRINKER INTERNATIONAL, INC.
Selected Financial Data
(In millions, except per share amounts and number of restaurants)
Fiscal Years Ended

6/24/2020(1)(2)

6/26/2019(2)

6/27/2018

6/28/2017

6/29/2016(3)

Income Statement Data:
Revenues

Company sales
Franchise and other revenues

Total revenues

Operating costs and expenses
Food and beverage costs
Restaurant labor
Restaurant expenses
Depreciation and amortization
General and administrative
Other (gains) and charges

Total operating costs and expenses

Operating income
Interest expenses
Other (income), net

Income before income taxes
Provision (benefit) for income taxes

Net income

Basic net income per share

Diluted net income per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Balance Sheet Data:
Working capital
Total assets(4)
Long-term obligations(4)
Shareholders’ deficit
Dividends per share

$

3,004.9 $
73.6

3,106.2 $
111.7

3,041.5 $
93.9

3,062.5 $
88.3

3,078.5

3,217.9

3,135.4

3,150.8

798.6
1,045.5
825.8
162.3
136.3
47.4

3,015.9
62.6
59.6
(1.9)

4.9
(19.5)

823.0
1,059.7
812.3
147.6
149.1
(4.5)

2,987.2
230.7
61.6
(2.7)

171.8
16.9

796.0
1,033.9
757.5
151.4
136.0
34.5

2,909.3
226.1
59.0
(3.1)

170.2
44.3

791.3
1,017.9
773.5
156.4
132.8
22.7

2,894.6
256.2
49.6
(1.9)

208.5
57.7

24.4 $

154.9 $

125.9 $

150.8 $

3,166.7
90.8

3,257.5

840.2
1,036.0
762.7
156.4
127.6
17.1

2,940.0
317.5
32.6
(1.5)

286.4
85.8

200.6

0.64 $

4.04 $

2.75 $

2.98 $

3.47

0.63 $

3.96 $

2.72 $

2.94 $

3.42

38.2

38.9

38.3

39.1

45.7

46.3

50.6

51.2

57.9

58.7

(273.5) $
2,356.0
2,337.2
(479.1)

(244.6) $
1,258.3
1,614.9
(778.2)

(278.0) $
1,347.3
1,631.3
(718.3)

(292.0) $
1,403.6
1,461.0
(493.6)

1.14 $

1.52 $

1.52 $

1.36 $

(257.2)
1,458.5
1,248.4
(225.6)
1.28

$

$

$

$

$

Number of Restaurants Open (End of Year):
Company-owned
Franchise

Total

1,116
547
1,663

1,001
664
1,665

997
689
1,686

1,003
671
1,674

1,001
659
1,660

Revenues of Franchisees(5)

$

833.7 $

1,311.3 $

1,309.4 $

1,331.9 $

1,348.6

28

(1)

(2)

(3)

(4)

(5)

Fiscal 2020 reflects the impact of the adoption of the new lease accounting standard using the alternative
transition method. All other periods presented have not been restated. Refer to Part II, Item 8 - Financial
Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 1 - Nature of
Operations and Summary of Significant Accounting Policies and Note 4 - Leases for information regarding
our adoption of the new revenue standard.

Fiscal 2020 and fiscal 2019 reflect the impact of the adoption of the new revenue recognition accounting
standard using the modified retrospective transition method. All other periods presented have not been
restated. Refer to Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the Consolidated
Financial Statements, Note 1 - Nature of Operations and Summary of Significant Accounting Policies for
information on our revenue policy.

Fiscal 2016 consisted of 53 weeks while all other periods presented consisted of 52 weeks.

Debt issuance costs are presented in the Consolidated Balance Sheets as a direct deduction from the
associated debt liability. Amounts presented for fiscal years prior to fiscal 2017 were reclassified from
Other assets to Long-term debt to conform to the current presentation.

Revenues of Franchisees represent
recognized by us are based on these sales generated and reported to us by franchisees.

the gross sales reported by our franchisees. Royalty revenues

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is intended to help you understand our Company, our operations, and our current operating
environment. For an understanding of the significant factors that influenced our performance, the MD&A should be
read in conjunction with the Consolidated Financial Statements and related Notes to the Consolidated Financial
Statements included in Part II, Item 8 - Financial Statements and Supplementary Data of our Annual Report. Our
MD&A consists of the following sections:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Overview - a general description of our business strategy and the casual dining segment of the restaurant
industry

Results of Operations - an analysis of the Consolidated Statements of Comprehensive Income included in
the Consolidated Financial Statements

Liquidity and Capital Resources - an analysis of cash flows, including capital expenditures, aggregate
contractual obligations, share repurchase activity, and known trends that may impact liquidity

Impact of Inflation - a discussion of the effect of inflation on our business

Off-Balance Sheet Arrangements - a discussion of the off-balance sheet arrangements entered into by us

Critical Accounting Estimates - a discussion of accounting policies that require critical judgments and
estimates including recent accounting pronouncements

The following MD&A includes a discussion comparing our results in fiscal 2020 to fiscal 2019, and should be read
together with Part II, Item 6 - Selected Financial Data presented for the fiscal year ended June 24, 2020 and Part II,
Item 8 - Financial Statements and Supplementary Data of our Annual Report. For a discussion comparing our
results from fiscal 2019 to fiscal 2018, refer to “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Exhibit 13 of our Annual Report on Form 10-K for the fiscal year ended June 26, 2019,
filed with the SEC on August 22, 2019.

29

The Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in
the United States, and include the accounts of Brinker International, Inc. and our wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. We have a 52/53 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 years 2020, 2019 and 2018,
which ended on June 24, 2020, June 26, 2019 and June 27, 2018, respectively, each contained 52 weeks. All
amounts within the MD&A are presented in millions unless otherwise specified.

OVERVIEW

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s® Grill & Bar
(“Chili’s”) and Maggiano’s Little Italy® (“Maggiano’s”) restaurant brands. At June 24, 2020, we owned, operated,
or franchised 1,663 restaurants, consisting of 1,116 Company-owned restaurants and 547 franchised restaurants,
located in the United States, 28 countries and two United States territories. Our two restaurant brands, Chili’s and
Maggiano’s, are both operating segments and reporting units.

COVID-19 Pandemic

Impact of COVID-19 Pandemic

COVID-19 caused a dramatic decrease in sales during the last sixteen weeks of fiscal 2020 as it became a global
pandemic. At the end of the third quarter of fiscal 2020, we temporarily closed all Company-owned restaurant
dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed our
expansion plans. Beginning on April 27, 2020, we began to reopen certain dining room locations as permitted by
governments. At the end of fiscal 2020, as of June 24, 2020, 94.9% of our Company-owned restaurant dining
rooms or patios were open in a limited capacity. Our priority has been protecting the health and safety of team
members and guests while continuing to serve our communities.

Both Chili’s and Maggiano’s have been able to serve our guests during the COVID-19 pandemic as a result of our
decision to invest in technology, training and partnerships that enable online ordering, mobile app ordering,
curbside service and third-party delivery. Our off-premise sales have grown significantly during the COVID-19
pandemic, and during the first period of fiscal 2021 ended July 29, 2020, off-premise sales represented
approximately 50% of total revenues. We have been carefully assessing the effect of COVID-19 on our business as
the communities we serve. As a result of COVID-19, we have
conditions continue to evolve throughout
experienced a material adverse impact on our revenues, results of operations and cash flows in the third and fourth
quarters of fiscal 2020, and expect this to continue into fiscal 2021. The financial impacts include:

(cid:129)

(cid:129)

Comparable restaurant sales in the fourth quarter of fiscal 2020 decreased 36.7% (Chili’s decreased 32.2%,
and Maggiano’s decreased 66.7%) compared to the same prior year period

Certain charges, net of (credits) were recorded in the second half of fiscal 2020 related to the COVID-19
pandemic in Other (gains) and charges in the Consolidated Statements of Comprehensive Income, these
primarily included:

–

–

Employee assistance - $17.3 million of expenses related to both Chili’s and Maggiano’s employee
assistance payments and related payroll taxes for the team members that experienced reduced
shifts during this pandemic, who would have otherwise not received such payment under our
normal compensation practices

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

30

–

–

Employee retention credit - $7.9 million credit of certain payroll taxes was received as part of the
Coronavirus Aid Relief and Economic Security (“CARES”) Act relief package. The CARES Act
was designed primarily to help keep businesses running during and after the pandemic. As of
June 24, 2020, this package allowed us to take advantage of credits, deferments, and deductions.
Additional information regarding the impact of the CARES Act is set forth within Part II Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources.

Long-lived and operating lease impairments - $14.5 million of non-cash expenses were recorded
during the fourth quarter of
fiscal 2020 related to 18 underperforming Chili’s and 3
underperforming Maggiano’s restaurants. Of the impaired restaurants, 19 continue to operate, and
2 Chili’s will be permanently closed

During the first quarter of fiscal 2021 Chili’s and Maggiano’s continue to operate with reduced dining room
capacities due to state and local mandates related to COVID-19. The following represents a business update from
our first period of fiscal 2021 ended July 29, 2020 related to Company-owned restaurants:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

As of July 29, 2020, there were 885 Chili’s and 52 Maggiano’s Company-owned restaurants with dining
rooms or patios open, representing 84.0% of total Company-owned restaurants. Capacities are limited in
accordance with state and local mandates

Comparable restaurant sales for the first period of fiscal 2021, ended July 29, 2020, compared to the prior
year are as follows:

Chili’s

Maggiano’s

Comparable Restaurant Sales

Opened Dining
Rooms

Off-Premise Only

Total
Comparable
Restaurant Sales

(3.8)%

(44.6)%

(46.3)%

N/A

(10.9)%

(44.6)%

It’s Just Wings™, a virtual brand offering through our partnership with DoorDash, launched nationally in
1,050 of our Company-owned restaurants on June 23, 2020. It’s Just Wings sales are included in
comparable restaurant sales for restaurants operating the virtual brand

Brinker had total liquidity of $576.2 million as of July 29, 2020

At this time, the impact of COVID-19, in both the short term and long term, is difficult to estimate due to the
uncertainty about the extent and duration of the spread of the pandemic, the discovery of any effective treatments,
cures or vaccines and the related government restrictions. Additional impacts to the business may arise that we are
not aware of currently. We cannot predict whether, when or the manner in which COVID-19 may impact our
business, including the capacity of our dining rooms, what operational restrictions may be imposed, and our ability
to fully staff reopened dining rooms. As such, we have taken a number of proactive measures to adapt our business
to lower demand levels during the COVID-19 pandemic including measures to significantly reduce costs,
partnering with our lenders to provide additional liquidity, issuing additional common stock and negotiating rent
concessions with landlords. We continue to closely monitor and adapt to the evolving situation.

Refer to “COVID-19 Impact on Liquidity” section below and Note 2 - Novel Coronavirus Pandemic within Part II,
Item 8 - Financial Statements and Supplementary Data Notes to the Consolidated Financial Statements for more
information regarding the financial impact of the pandemic.

Fiscal 2020 Performance before the COVID-19 Pandemic

In fiscal 2020, our strategy was delivering comparable restaurant sales growth at Company-owned Chili’s
locations. Before the COVID-19 pandemic, in the first eight months of fiscal 2020, Company-owned Chili’s

31

comparable restaurant sales increased by 2.7%, while Company-owned Maggiano’s comparable restaurant sales
decreased by 1.1%. While the spread of COVID-19 dramatically impacted our fiscal 2020 results, we believe our
results before the pandemic provide evidence of the strong foundation our brands have as they move forward.

At Maggiano’s we believe our focus on operating fundamentals and technology will provide the foundation for
future efficiencies and growth. At Chili’s, our value offerings and My Chili’s Rewards loyalty program helped
drive positive traffic. Our Cheers to Patron® Margarita of the Month and new offerings on our 3 for $10 meal
platform were particularly successful in bringing guests back to Chili’s. Chili’s off-premise sales, which includes
both to-go and delivery, also grew and reached approximately 16% of sales, with approximately 74% coming from
to-go and 26% from delivery during the first eight months of fiscal 2020. Membership in the My Chili’s Rewards
loyalty program also continued to grow.

Operations Strategy

We are committed to strategies and a Company culture that we believe are centered on a guest experience. This
includes bringing guests back safely, growing long-term sales and profit, engaging team members and working to
return our business to pre-pandemic levels. Our strategies and culture are intended to differentiate our brands from
the competition, effectively and efficiently manage our restaurants and establish a lasting presence for our brands
in key markets around the world.

Our primary strategy remains to make our guests feel special through great food and quality service so that they
return to our restaurants. At the end of the second quarter of fiscal 2020, before the COVID-19 pandemic, our guest
survey scores on food quality and service reached an all-time high. Then, during the pandemic, our guest scores
improved even more as we not only made guests feel special with our great food and service, but we also made
them feel safe with our enhanced safety training and systems. Chili’s continues to outpace the casual dining
industry and grow market share.

We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our
service quality and food. During fiscal 2018, we reduced our menu items by approximately one-third, and focused
on our core equities of burgers, ribs, fajitas and margaritas. This initiative improved kitchen efficiency and allowed
our managers and cooks to deliver our food hotter and faster to our guests. We also invested in the quality of our
food. During fiscal 2019, we continued to focus on our core equities and improving guest satisfaction with our food
and service by improving execution of our operations standards. In fiscal 2020, we upgraded the quality of certain
menu items, including new upgraded quality chicken breast we have integrated into several of our menu items.

Part of our strategy is to differentiate Chili’s from our competitors with a flexible platform of value offerings at
both lunch and dinner. We are committed to offering consistent, quality products at a price point that is compelling
to our guests. Our “3 for $10” platform allows guests to combine a starter, a non-alcoholic drink and an entrée for
just $10.00 as part of the every-day base menu and is available for guests to enjoy in our dining rooms or
off-premise. Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor
margarita every month at an every-day value price of $5.00. In fiscal 2020, we continued to see an increase in
popularity of both 3 for $10 and Margarita of the Month, helping us increase guest traffic.

We have also invested in our technology and off-premise options as more guests are opting for to-go and delivery.
Our to-go menu is available through our Chili’s mobile app, on our brand websites, our exclusive delivery partner
DoorDash, or by calling the restaurant. Since fiscal 2018, as of the end of fiscal 2020, our off-premise business has
grown by 133%. Chili’s exclusive partnership with DoorDash has proven instrumental in offering our guests
continued service during the COVID-19 pandemic. We leveraged technology so that DoorDash orders are sent
directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests by
quickly developing and adapting new operational procedures. We believe that guests will continue to prefer more
convenience and off-premise options. We plan to continue investments in our technology systems to support our
carryout and delivery capabilities.

32

It’s Just Wings™, a virtual brand offering, launched on June 23, 2020 and is available only through DoorDash
delivery. The virtual brand allows us to leverage our existing infrastructure, while adding little complexity within
our current system. It’s Just Wings is a no-frills offering that consists of chicken wings available in 11 different
sauces and rubs, curly fries, ranch dressing and fried Oreos for a value price. We will continue to identify
infrastructure and DoorDash
opportunities to drive restaurant growth by utilizing our existing restaurant
partnership.

In dining rooms we use tabletop devices to engage our guests at the table. In fiscal 2020 we rolled out a new
tabletop device to continue to enhance this experience. We also believe our digital guest experience will help us
engage our guests more effectively, particularly during the COVID-19 pandemic. Our My Chili’s Rewards loyalty
database, as of the end of fiscal 2020, included more than 8 million loyal members who have interacted with
Chili’s in the previous six months. We customize offerings for our guests based on their purchase behavior, and we
continue to shift more of our overall marketing spend to these customized channels and promotions. We believe
this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our
competitors.

We believe that improvements at our domestic Chili’s will have a significant impact on the business; however, our
results will also benefit through additional contributions from Maggiano’s and our global Chili’s franchise
business. Maggiano’s has focused on execution of operating fundamentals to improve service and food for its
guests. In fiscal 2020, Maggiano’s also began testing electronic check presenters that facilitate a pay-at-the-table
option to provide convenience and efficiency to guests and to increase digital guest engagement. Maggiano’s also
has an exclusive partnership with DoorDash. Our exclusive partnership creates a more affordable rate structure,
making third party delivery more sustainable and efficient for the brand to operate. In fiscal 2020, our guests were
given the ability to order delivery directly through our Maggiano’s website, in addition from the DoorDash
platforms. In fiscal 2019, Maggiano’s opened its first franchise location in the Dallas Fort Worth International
Airport. Progress for a second franchise airport location has been made.

Our global franchisees continue to grow the Chili’s brand around the world, opening 23 restaurants in fiscal 2020
including our first Chili’s restaurant in Vietnam. Our Chili’s international franchisees are expected to open
approximately 6-9 new restaurants in fiscal 2021. We plan to strategically pursue expansion of Chili’s
internationally through development agreements with new and existing franchise partners. During the COVID-19
pandemic, our franchise partners have experienced similar regulated closures both domestically and globally.
During the fourth quarter of fiscal 2020, we have partnered with our domestic and global franchisees to offer
certain royalty payment flexibility to help provide liquidity relief during this time.

33

RESULTS OF OPERATIONS

The following table sets forth selected operating data as a percentage of Total revenues (unless otherwise noted) for
the periods indicated. All
information is derived from the accompanying Consolidated Statements of
Comprehensive Income:

Revenues

Company sales(1)

Franchise and other revenues(1)

Total revenues(1)

Operating costs and expenses

Food and beverage costs(2)

Restaurant labor(2)

Restaurant expenses(2)

Depreciation and amortization(1)

General and administrative(1)

Other (gains) and charges(1)

Total operating costs and expenses(1)

Operating income(1)

Interest expenses(1)

Other (income), net(1)

Income before income taxes(1)

Provision (benefit) for income taxes(1)

Net income(1)

(1)

(2)

As a percentage of Total revenues

As a percentage of Company sales

Revenues

Fiscal Years Ended

June 24, 2020

June 26, 2019

97.6 %

2.4 %

96.5 %

3.5 %

100.0 %

100.0 %

26.6 %

34.8 %

27.5 %

5.3 %

4.4 %

1.5 %

98.0 %

2.0 %

1.9 %

(0.1) %

0.2 %

(0.6) %

0.8 %

26.5 %

34.1 %

26.2 %

4.6 %

4.6 %

(0.1) %

92.8 %

7.2 %

1.9 %

0.0 %

5.3 %

0.5 %

4.8 %

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income to
provide more clarity around Company-owned restaurant revenues and operating expenses trends:

(cid:129)

(cid:129)

Company sales include revenues generated by the operation of Company-owned restaurants including sales
made with gift card redemptions.

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

34

The following is a summary of the change in Total revenues:

Fiscal year ended June 26, 2019

Change from:

Comparable restaurant sales(1)

Restaurant openings

Restaurant relocations

Restaurant closings(2)

Restaurant acquisitions(3)

Company sales

Royalties(4)

Franchise fees and other revenues

Franchise and other revenues

Fiscal year ended June 24, 2020

Total Revenues

Chili’s

Maggiano’s

Total Revenues

$

2,782.2 $

435.7 $

3,217.9

(226.6)

(82.2)

21.6

(0.1)

(17.3)

203.3

(19.1)

(19.1)

(12.3)

(31.4)

—

—

—

—

(82.2)

(0.1)

(6.6)

(6.7)

(308.8)

21.6

(0.1)

(17.3)

203.3

(101.3)

(19.2)

(18.9)

(38.1)

$

2,731.7 $

346.8 $

3,078.5

(1)

(2)

(3)

(4)

Comparable restaurant sales decreased due to the COVID-19 pandemic that impacted restaurant sales due
to guests dining out less, temporary dining room closures and capacity limitations, partially offset by
increased off-premise sales.

Restaurant closings include the impact of permanently closed locations, including temporary COVID-19
closures that have extended past 14 consecutive days.

Effective September 5, 2019, we acquired 116 Chili’s restaurants from a franchisee. The revenues from
these restaurants are included in Company sales subsequent to the acquisition date.

Royalties are based on franchise sales. Our franchisees generated sales of approximately $833.7 million in
fiscal 2020, and $1,311.3 million in fiscal 2019. Lower royalties in fiscal 2020 are primarily due to the
acquisition of 116 Chili’s restaurants from a franchisee in the first quarter of fiscal 2020 and the adverse
impact of the COVID-19 pandemic.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for fiscal
2020 compared to fiscal 2019:

Percentage Change in the Fifty-Two Week Period Ended June 24, 2020 versus June 26, 2019

Comparable
Sales(1)

Price Impact

Mix
Shift(2)

Traffic

Restaurant
Capacity(3)

Company-owned(4)

Chili’s(4)

Maggiano’s

Chili’s franchise(4)(5)

U.S.(4)

International

Chili’s domestic(4)(6)

System-wide(4)(7)

(10.1)%

(8.6)%

(19.9)%

(14.4)%

(10.1)%

(23.1)%

(8.8)%

(10.8)%

1.3%

1.3%

1.5%

(2.0)%

(1.1)%

(4.0)%

(9.4)%

(8.8)%

(17.4)%

9.5%

10.0%

0.3%

(1)

Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months
except acquired restaurants which are included after more than 12 months ownership. Restaurants
temporarily closed 14 days or more are excluded from comparable restaurant sales. Percentage amounts are
calculated based on the comparable periods year-over-year.

35

(2)

(3)

(4)

(5)

(6)

(7)

Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the
change in menu items ordered by guests.

Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-
year. Chili’s Company-owned Restaurant Capacity increased in fiscal 2020 primarily related to the
acquisition of 116 Chili’s restaurants in the first quarter of fiscal 2020. We believe the COVID-19 related
restaurant closures are temporary and therefore no adjustment has been made to capacity.

Chili’s Company-owned Comparable Restaurant Sales exclude the impact from the 116 Chili’s restaurants
acquired in the first quarter of fiscal 2020. Chili’s Franchise U.S. Comparable Restaurant Sales include
sales from these 116 acquired restaurants until the September 5, 2019 acquisition date.

Chili’s Franchise sales generated by franchisees are not
included in revenues in the Consolidated
Statements of Comprehensive Income; however, we generate royalty revenues and advertising fees based
on franchisee revenues, where applicable. We believe including franchise comparable restaurant sales
provides investors information regarding brand performance that is relevant to current operations.

Chili’s Domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-
owned and franchise-operated Chili’s restaurants in the United States.

System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s
and Maggiano’s restaurants in addition to the sales generated at franchise-operated Chili’s restaurants.

Costs and Expenses

Fiscal Years Ended

June 24, 2020

June 26, 2019

(Favorable) Unfavorable Variance

Dollars

% of Company
Sales

Dollars

% of Company
Sales

Dollars

% of Company
Sales

Food and beverage costs

$

Restaurant labor

Restaurant expenses

Depreciation and amortization

General and administrative

Other (gains) and charges

Interest expenses

Other (income), net

798.6

1,045.5

825.8

162.3

136.3

47.4

59.6

(1.9)

26.6% $

34.8%

27.5%

823.0

1,059.7

812.3

147.6

149.1

(4.5)

61.6

(2.7)

26.5% $

34.1%

26.2%

0.1%

0.7%

1.3%

(24.4)

(14.2)

13.5

14.7

(12.8)

51.9

(2.0)

0.8

Food and beverage costs, as a percentage of Company sales, increased 0.1% consisting of 0.4% of unfavorable
commodity pricing primarily related to beef and produce, partially offset by 0.3% of favorable menu pricing.

Restaurant labor, as a percentage of Company sales, increased 0.7% consisting of 1.1% of sales deleverage as a
result of COVID-19, partially offset by 0.3% of lower manager bonus expenses and 0.1% of lower other net
restaurant labor expenses. Hourly labor was flat due to higher wage rates offset by the impact of reduced staffing
during the fiscal 2020 temporary closures and dining room limited capacities.

Restaurant expenses, as a percentage of Company sales, increased 1.3% consisting of 1.9% of sales deleverage and
1.1% of higher expenses primarily related to delivery fees and supplies in connection with the growth in
off-premise sales. These increases were partially offset by 0.9% of lower advertising expenses, 0.4% of lower
repairs and maintenance expenses and 0.4% of lower other net restaurant expenses.

36

Depreciation and amortization increased $14.7 million as follows:

Fiscal year ended June 26, 2019

Change from:

Additions for existing and new restaurant assets(1)

Finance leases(2)

Acquisition of franchise restaurants(3)

Corporate assets

Retirements and fully depreciated restaurant assets

Other

Fiscal year ended June 24, 2020

Depreciation and
Amortization

$

147.6

15.9

10.6

8.3

1.6

(21.5)

(0.2)

162.3

$

(1)

(2)

(3)

Additions for existing and new restaurant assets increased primarily related to the Chili’s remodel initiative
and six new Chili’s restaurants opened during fiscal 2020.

Finance leases increased primarily due to the new Chili’s table-top devices installed during fiscal 2020.

Acquisition of franchise restaurants represents the depreciation and amortization of the assets and finance
leases acquired of the 116 Chili’s restaurants in the first quarter of fiscal 2020.

General and administrative expenses decreased $12.8 million as follows:

Fiscal year ended June 26, 2019

Change from:

Performance-based compensation

Professional and legal fees

Stock-based compensation

Other

Fiscal year ended June 24, 2020

General and
Administrative

$

149.1

(7.8)

(2.7)

(1.9)

(0.4)

$

136.3

Other (gains) and charges consisted of the following (for further details, refer to Note 8 - Other Gains and
Charges):

Restaurant impairment charges

COVID-19 related charges, net of (credits)

Restaurant closure charges

Remodel-related costs

Severance and other benefit charges

Corporate headquarters relocation charges

Property damages, net of (insurance recoveries)

Loss (gain) on sale of assets, net

Sale leaseback (gain), net of transaction charges

Other

37

Fifty-Two Week Periods Ended
June 26, 2019
June 24, 2020

$

19.1 $

12.2

3.8

3.2

3.2

1.1

(0.7)

(0.2)

—

5.7

$

47.4 $

10.8

—

4.3

7.7

0.9

6.3

(0.7)

(6.9)

(27.3)

0.4

(4.5)

Segment Results

Chili’s Segment

Company sales

Royalties

Franchise fees and other revenues

Franchise and other revenues

Total revenues

Company restaurant expenses(1)

Depreciation and amortization

General and administrative

Other (gains) and charges

Fiscal Years Ended

June 24, 2020

June 26, 2019

Favorable
(Unfavorable)
Variance

$

2,673.5

$

2,692.6

$

33.7

24.5

58.2

52.8

36.8

89.6

2,731.7

2,782.2

2,363.2

133.9

32.1

35.3

2,329.6

120.1

38.7

(6.4)

(19.1)

(19.1)

(12.3)

(31.4)

(50.5)

(33.6)

(13.8)

6.6

(41.7)

(82.5)

Total operating costs and expenses

2,564.5

2,482.0

Operating income

$

167.2

$

300.2

$

(133.0)

Operating income as a percentage of Total revenues

6.1%

10.8%

(4.7)%

(1)

Company restaurant expenses include Food and beverage costs, Restaurant labor, and Restaurant expenses,
including advertising.

Chili’s Total revenues decreased 1.8% primarily due to the COVID-19 pandemic that impacted restaurant sales due
to guests dining out less,
temporary dining room closures and capacity limitations, partially offset by the
acquisition of 116 Chili’s restaurants in the first quarter of fiscal 2020 and increased off-premise sales. Refer to
“Revenues” section above for further details about Chili’s revenues changes.

Company restaurant expenses for Chili’s, as a percentage of Company sales, increased 1.9% consisting of 2.2% of
sales deleverage as a result of COVID-19, 1.4% of higher expenses primarily related to delivery fees and supplies
in connection with the growth in off-premise sales, and 0.4% of unfavorable commodity pricing primarily related
to beef and produce. These increases were partially offset by 1.0% of lower advertising expenses, 0.4% of lower
repairs and maintenance expenses, 0.3% of favorable menu pricing, 0.3% of lower hourly wages as a result of
reduced staffing during the fiscal 2020 temporary closures and dining room limited capacities and 0.1% of lower
other net company restaurant expenses.

Other (gains) and charges for Chili’s in fiscal 2020 consisted primarily of $15.4 million of charges related to
restaurant impairments, $10.1 million of charges primarily related to the COVID-19 pandemic from employee
relief payments and inventory spoilage, $3.7 million related to restaurant closure expenses and $3.2 million of
remodel charges, partially offset by a $3.7 million gain on modification of lease liability. Other (gains) and charges
for Chili’s in fiscal 2019 consisted primarily of gains of $26.8 million related to the sale leaseback transactions and
$1.1 million on the gain on sale of land, partially offset by charges of $10.8 million related to restaurant
impairments, $7.7 million of remodel write-offs, and $4.0 million in charges related to restaurant closure expenses.

Depreciation and amortization for Chili’s increased $13.8 million consisting of $14.3 million in existing and new
restaurant additions primarily related to the Chili’s remodel initiative and six new Chili’s restaurants opened during
fiscal 2020, $10.5 million of additional amortization expenses related to the new Chili’s table-top devices installed
during fiscal 2020, and $8.3 million of additional depreciation and amortization expenses related to the acquisition
of 116 Chili’s restaurants. These increases were partially offset by $19.1 million related to fully depreciated assets
and retirements and $0.2 million in other depreciation and amortization expenses decreases.

38

General and administrative decreased $6.6 million that primarily consisted of a $2.9 million decrease in
performance-based compensation and $2.8 million of payroll-related expenses.

Maggiano’s Segment

Company sales

Royalties

Franchise fees and other revenues

Franchise and other revenues

Total revenues

Company restaurant expenses(1)

Depreciation and amortization

General and administrative

Other (gains) and charges

Total operating costs and expenses

Operating income

Fiscal Years Ended

June 24, 2020

June 26, 2019

Favorable
(Unfavorable)
Variance

$

331.4

$

413.6

$

(82.2)

0.2

15.2

15.4

346.8

306.1

15.4

5.7

6.8

334.0

0.3

21.8

22.1

435.7

364.8

16.2

6.1

1.0

388.1

$

12.8

$

47.6

$

(0.1)

(6.6)

(6.7)

(88.9)

58.7

0.8

0.4

(5.8)

54.1

(34.8)

Operating income as a percentage of Total revenues

3.7%

10.9%

(7.2)%

(1)

Company restaurant expenses includes Food and beverage costs, Restaurant labor, and Restaurant expenses, including
advertising expenses.

Maggiano’s Total revenues decreased 20.4% due to the COVID-19 pandemic that impacted restaurant sales from
guests dining out less, the temporary dining and banquet room closures and limited capacity of reopened locations,
partially offset by increased off-premise sales. Refer to “Revenues” section above for further details about
Maggiano’s revenues changes.

Company restaurant expenses for Maggiano’s, as a percentage of Company sales, increased 4.2% consisting of
6.0% of sales deleverage as a result of COVID-19 and 0.3% of higher expenses primarily related to delivery fees
and supplies in connection with the growth in off-premise sales. These increases were partially offset by 1.5% of
lower manager and hourly labor expenses as a result of reduced staffing during the fiscal 2020 temporary closures
and dining room limited capacities, 0.3% of lower repairs and maintenance expenses, and 0.3% of favorable menu
pricing.

Other (gains) and charges for Maggiano’s in fiscal 2020 consisted primarily of $3.8 million of charges related to
restaurant impairments and $2.0 million of charges primarily related to the COVID-19 pandemic from employee
relief payments and costs related to canceled projects due to the pandemic.

Income Taxes

Effective income tax rate

Fiscal Years Ended

June 24, 2020

June 26, 2019

Change

(398.0)%

9.8%

(407.8)%

The federal statutory tax rate was 21.0% for both fiscal 2020 and 2019.

The effective income tax rate changed in fiscal 2020 primarily driven by the leverage on the FICA tax credit
relative to the Income before income taxes in fiscal 2020, and the impact of lower Income before income taxes due
to the COVID-19 pandemic in the last sixteen weeks of fiscal 2020. Our fiscal 2019 effective income tax rate was
lower than the federal statutory tax rate due to the FICA tax credit benefit, partially offset by the impact of the

39

taxable gain related to the sale leaseback transactions. During fiscal 2019, the sale leaseback transactions resulted
in tax expenses of $78.6 million, which were paid in full during fiscal 2019. Refer to Note 4 - Leases included
within Part II, Item 8 - Financial Statements and Supplementary Data Notes to the Consolidated Financial
Statements for more information.

LIQUIDITY AND CAPITAL RESOURCES

COVID-19 Impact on Liquidity

Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to
finance capital expenditures, such as remodels, maintaining existing restaurants and constructing new restaurants,
to pay dividends and to repurchase shares of our common stock. We currently anticipate the decreased sales to
continue into fiscal 2021 for the majority of our Company-owned restaurants. We expect all our restaurants will
continue offering off-premise options in addition to their dining rooms, except for nine restaurants that have been
temporarily closed due to their location within a closed structure or other local regulations as of June 24, 2020. Our
strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher
volume of off-premise guests during this pandemic. In response to the pandemic, due to the uncertainty in the
economy and to preserve liquidity, we have taken proactive precautionary measures to raise additional capital,
reduce costs and pause non-critical projects that do not significantly impact our current operations. These measures
included:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Issuing common stock for net proceeds of $139.1 million to provide additional liquidity, and amended our
revolving credit facility to provide additional flexibility during this time;

Significantly reducing capital expenditures to essential spend only, including suspending the Chili’s
remodel program and delaying construction of new restaurants;

Temporarily reducing pay for corporate leadership and team members, as well as above-restaurant level
leadership in the fourth quarter of fiscal 2020;

Reducing marketing, general and administrative and restaurant expenses to support the current operations;

Suspending the quarterly cash dividend and the share repurchase program; and

Engaging in discussions with our landlords, vendors and other business partners to temporarily reduce or
defer our lease and other contractual payments and obtain other concessions in the fourth quarter of fiscal
2020. Refer to Note 2 - Novel Coronavirus Pandemic within Part II, Item 8 - Financial Statements and
Supplementary Data Notes to the Consolidated Financial Statements for more information.

As of July 29, 2020, we had total liquidity of $576.2 million, comprised of total cash and revolver availability. We
believe we have sufficient liquidity with our current capital position and continued growth in sales to cover all
current obligations over the next twelve months.

In the fourth quarter of fiscal 2020, S&P lowered our corporate credit rating to B+ with negative outlook. Moody’s
also lowered us to a corporate family rating B1 with negative outlook. The downgrades were a result of the
COVID-19 impact on the restaurant sector that has been one of the sectors most significantly affected given its
sensitivity to consumer demand and sentiment, and the unprecedented precautionary measures implemented by
state and local governments, including temporary closures. Refer to Part I, Item 1A. Risk Factors for further details.

CARES Act Impact

In the fourth quarter of fiscal 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and
Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the
pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions,

40

filing payment deadlines and making available certain grant money to assist in this pandemic. As of June 24, 2020,
this legislation will allow us to:

(cid:129)

(cid:129)

(cid:129)

Reduce our fiscal 2020 payroll tax liability by utilizing employee retention credits to assist with employee
payroll costs during this outbreak of $7.9 million

Amend our 2018 and 2019 U.S. Income Tax Returns in order to claim additional depreciation deductions
related to qualified improvement property that will allow us to generate aggregate refunds of $4.6 million,
and upon filing our fiscal 2020 U.S. Income Tax Return we anticipate to include a benefit related to the
additional depreciation on qualified improvement property of approximately $2.0 million

Defer the employer portion of certain payroll taxes, totaling $12.9 million which will be repaid in two
equal installments: on December 31, 2021, and December 31, 2022

Cash Flows

Cash Flows from Operating Activities

Fiscal Years Ended

June 24, 2020

June 26, 2019

Favorable
(Unfavorable)
Variance

Net cash provided by operating activities

$

245.0 $

212.7 $

32.3

Net cash from operating activities increased primarily due to $78.6 million of taxes paid related to the sale
leaseback transactions during fiscal 2019, $16.4 million of higher gift card sales, net of redemptions due to the
COVID-19 pandemic, and CARES Act credits and deferments as discussed above in the “CARES Act Impact”
section. These increases were partially offset by lower sales in the third and fourth quarters of fiscal 2020 as a
result of the COVID-19 pandemic.

Cash Flows from Investing Activities

Cash flows from investing activities

Payments for property and equipment

Payments for franchise restaurant acquisitions

Proceeds from sale of assets

Insurance recoveries

Proceeds from note receivable

Proceeds from sale leaseback transactions, net of related expenses

Fiscal Years Ended

June 24, 2020

June 26, 2019

Favorable
(Unfavorable)
Variance

$

(104.5) $

(167.6) $

(94.6)

1.2

1.1

2.8

—

(3.1)

1.6

1.7

2.8

485.9

63.1

(91.5)

(0.4)

(0.6)

—

(485.9)

(515.3)

Net cash (used in) provided by investing activities

$

(194.0) $

321.3 $

Net cash from investing activities decreased primarily due to $485.9 million in net cash proceeds received from the
sale leaseback transactions during fiscal 2019. Additionally, $91.5 million cash consideration and related
transactional charges were paid for the purchase of 116 Chili’s restaurants from a franchisee during fiscal 2020.
These decreases were partially offset by $63.1 million of lower capital expenditures in fiscal 2020 primarily related
to a decline in the pace of the Chili’s remodel program and fiscal 2019 expenditures for our new corporate
headquarters, partially offset by an increase in new restaurant construction during fiscal 2020.

41

Cash Flows from Financing Activities

Cash flows from financing activities

Borrowings on revolving credit facility

Payments on revolving credit facility

Purchases of treasury stock

Payments on long-term debt

Payments of dividends

Proceeds from issuance of common stock

Proceeds from issuance of treasury stock

Payments for common stock issuance costs

Payments for debt issuance costs

Net cash used in financing activities

Revolving Credit Facility

Fiscal Years Ended

June 24, 2020

June 26, 2019

Favorable
(Unfavorable)
Variance

$

808.4 $

(858.8)

(32.4)

(17.8)

(57.4)

146.9

1.6

(7.8)

(3.2)

853.0 $

(1,150.0)

(167.7)

(9.5)

(60.3)

—

3.0

—

—

(44.6)

291.2

135.3

(8.3)

2.9

146.9

(1.4)

(7.8)

(3.2)

$

(20.5) $

(531.5) $

511.0

Net repayments of $50.4 million were made during fiscal 2020 on the $1.0 billion revolving credit facility
primarily from funds received from the common stock issuance during the fourth quarter of fiscal 2020, partially
offset by cash used to fund ongoing business operations,
the acquisition of Chili’s restaurants and share
repurchases. As of June 24, 2020, $527.1 million was available under the revolving credit facility. Our revolving
credit facility interest rate as of June 24, 2020 was 3.100%, which is the total of LIBOR plus our applicable margin.
Additionally, the revolving credit facility is subject to a 40 basis points facility fee on the total $1.0 billion credit
facility.

During fiscal 2020, we executed three amendments to our revolving credit facility, which modified the maturity
date of the facility, provided additional financial flexibility, and added certain restrictions as follows:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Modified the maturity date of the $110.0 million portion of the facility to expire on September 12, 2021,
which coincides with the maturity date for the $890.0 million portion

Secured a waiver of compliance with financial covenants effective the third quarter of fiscal 2020 until the
end of the third quarter of fiscal 2021

Imposed a minimum liquidity covenant (defined as availability under the revolving credit facility plus
unrestricted cash and cash equivalents) to require at least $175.0 million through the third quarter of fiscal
2021

Increased interest rates temporarily, from the fourth quarter of fiscal 2020 through the third quarter of fiscal
2021, to be fixed at LIBOR plus 2.350%. After this temporary period, the interest rate will return to
LIBOR plus an applicable margin, which is a function of our credit rating and debt to cash flow ratio, but is
subject to a maximum of LIBOR plus 1.700%. Additionally the LIBOR floor was permanently increased to
0.750%

Increased facility fee temporarily to 40 basis points from the fourth quarter of fiscal 2020 through the third
quarter of fiscal 2021. After this temporary period, the facility fee will return to a set fee schedule which is
a function of our credit rating, but is subject to a maximum of 30 basis points

Prohibited from making dividends, stock repurchases and investments from the fourth quarter of fiscal
2020 through the third quarter of fiscal 2021, and following this period, we will be subject
to a
$50.0 million aggregate limitation on dividends, stock repurchases and investments

42

(cid:129)

Expanded the collateral securing the revolving credit facility, including intellectual property, among other
things, and provided additional subsidiary guarantees

As of June 24, 2020, pursuant to the amendments to the revolving credit facility described above, and under the
terms of the indentures governing our 2023 Notes and 2025 Notes, we are in compliance with our covenants. Refer
to Note 12 - Debt for further information about our notes and revolving credit facility.

Subsequent to fiscal 2020 year-end, on July 23, 2020, we executed the seventh amendment to our revolving credit
facility. This amendment extends the maturity date to December 12, 2022, and has a required commitment
reduction to $900.0 million on September 12, 2021 if the commitments have not previously been reduced to or
below such commitment level by the issuance of certain debt or preferred equity interests. The revolving credit
facility will bear interest of LIBOR, through December 2021, plus an applicable margin of between 2.250% to
3.000%, and an undrawn commitment fee of 0.350% to 0.500%, both based on a function of our debt-to-cash-flow
ratio. In the event of incurrence of more than $250.0 million of certain debt, our interest rate will be further lowered
by 0.250%, and the facility fee lowered by 0.100%. Upon LIBOR’s expiration in December 2021, our interest rate
will be a function of a similar, publicly available, Eurodollar rate. Additionally, subsequent to the end of fiscal
2020, $18.4 million additional net borrowings were drawn on the revolving credit facility as of the date that this
Annual Report on Form 10-K was filed.

Common Stock Issuance

In the fourth quarter of fiscal 2020, we sold 8.1 million shares of our common stock at a price to the public of
$18.25 per share. Total net proceeds raised from the offering were $139.1 million, after deducting the professional
expenses. This common stock issuance was executed in part to provide additional capital through the course of the
COVID-19 pandemic and for general corporate purposes.

Share Repurchase Program

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend our share repurchase program due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and
local governments in response to COVID-19. Additionally, the amended revolving credit facility restricts our
ability to repurchase shares until the fourth quarter of fiscal year 2021, and subjects any share purchases thereafter,
along with dividends paid and investments, to an aggregate cap. Before this suspension, in fiscal 2020, we
repurchased 0.8 million shares of our common stock for $32.4 million. The repurchased shares during fiscal 2020
included shares purchased as part of our share repurchase program as well as shares repurchased to satisfy team
member tax withholding obligations on the vesting of restricted shares. Repurchased shares are reflected as an
increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets. Our share repurchase
program has been used to return capital to shareholders and to minimize the dilutive impact of stock options and
other share-based awards. At June 24, 2020, we had $166.8 million remaining under the suspended share
repurchase program.

Dividend Program

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and
local governments in response to COVID-19. Additionally, the amended revolving credit facility restricts our
ability to pay dividends until the fourth quarter of fiscal year 2021, and subjects any dividends paid thereafter,
along with share purchases and investments, to an aggregate cap. Following the expiration of these restrictions
under our amended revolving credit facility, in the fourth quarter of fiscal year 2021, the Board of Directors will
reevaluate the suspension based on current business conditions at that time. There is significant uncertainty
regarding the future impact of the pandemic on the restaurant industry and the broader U.S. economy. Before this
suspension, we paid dividends of $57.4 million in fiscal 2020 to common stock shareholders, compared to
$60.3 million in fiscal 2019.

43

Cash Flow Outlook

We believe that our various sources of capital, including future cash flow from operating activities and availability
under our existing credit facility are adequate to finance operations as well as the repayment of current debt
obligations within the next year. We continue to serve customers at most of our locations through our off-premise
offerings and limited capacity dining rooms. We will continue to monitor the situation and intend to resume normal
business operations on a case-by-case basis when permitted under applicable government regulations and when we
believe we are able to do so safely. Please refer above to COVID-19 Impact on Liquidity for further details on our
actions to maintain our liquidity position during this pandemic.

We are not aware of any other event or trend that would potentially materially affect our liquidity. In the event such
a trend develops, we believe that there are sufficient funds available under our credit facility and from our internal
cash generating capabilities to adequately manage our ongoing business.

Future Commitments and Contractual Obligations

Payments due under our contractual obligations for outstanding indebtedness, leases, and purchase obligations as
defined by the Securities and Exchange Commission (“SEC”) as of June 24, 2020 are as follows:

Long-term debt(1)

Interest(2)

Finance leases(3)

Operating leases(3)

Purchase obligations(4)

Payments Due by Period

Less than 1 Year

1-3 Years

3-5 Years

More than 5
Years

Total

$

— $

772.9 $

350.0 $

— $

1,122.9

44.4

17.8

179.4

15.8

61.4

42.3

323.0

20.2

26.2

20.9

280.8

12.4

—

53.6

854.2

6.3

132.0

134.6

1,637.4

54.7

(1)

(2)

(3)

(4)

Long-term debt consists of principal amounts owed on the revolving credit facility, 3.875% and 5.000%
notes. As of June 24, 2020, $527.1 million of credit is available under the revolving credit facility. The
revolving credit facility is due in September 2021.

Interest consists of remaining interest payments on the 3.875% and 5.000% notes totaling $113.6 million
and remaining interest payments on the revolver totaling $18.4 million. The interest rates on the notes are
fixed whereas the interest rate on the revolver is variable based on LIBOR and our applicable margin. We
have assumed that the revolver balance carried will be $491.3 million in fiscal 2021 and fiscal 2022 until
the maturity date of September 12, 2021 using the interest rate of 3.100%, which is the total of LIBOR plus
our applicable margin as of June 24, 2020.

Finance leases and Operating leases total future lease payments represent the contractual obligations due
under the contract, including cancelable option periods where we are reasonably assured to exercise the
options. As of June 24, 2020, these total future lease payments included non-cancelable lease commitments
of $113.4 million for finance leases, and $1,083.4 million for operating leases.

Purchase obligations are defined as an agreement to purchase goods or services that is enforceable and
legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our
purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages and
professional services contracts and exclude agreements that are cancelable without significant penalty.

In addition to the amounts shown in the table above, $2.1 million of unrecognized tax benefits have been recorded
as liabilities. The timing and amounts of future cash payments related to these liabilities are uncertain.

44

IMPACT OF INFLATION

We have experienced impact from inflation. Inflation has caused increased food, labor and benefits costs and has
increased our operating expenses. To the extent permitted by competition, increased costs are recovered through a
combination of menu price increases and reviewing, then implementing, alternative products or processes, or by
implementing other cost reduction procedures.

OFF-BALANCE SHEET ARRANGEMENTS

We have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 18 -
Commitments and Contingencies, and have entered into certain pre-commencement leases as disclosed in Note 4 -
Leases included within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the Consolidated
Financial Statements of this Annual Report on Form 10-K. Other than these items, we do not have any off-balance
sheet arrangements.

CRITICAL ACCOUNTING ESTIMATES

Our significant accounting policies are disclosed in Note 1 - Nature of Operations and Summary of Significant
Accounting Policies in Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the Consolidated
Financial Statements. The following discussion addresses our most critical accounting estimates, which are those
that are most important to the portrayal of our financial condition and results, and that require significant judgment.

Leases

Effective the first day of fiscal 2020, we adopted the FASB Accounting Standards Codification (“ASC”) Topic
842, Leases (“ASC 842”) as described in Note 1 - Nature of Operations and Summary of Significant Accounting
Policies and Note 4 - Leases of the Notes to the Consolidated Financial Statements. Upon adoption, we recognized
operating lease assets of $1.0 billion and corresponding operating lease liabilities of $1.2 billion.

At the inception of each lease, we evaluate the property and the lease to determine whether the lease is an operating
or a finance lease. This lease accounting evaluation may require significant judgment in determining the fair value
and useful life of the leased property and the appropriate reasonably certain lease term. These judgments may
produce materially different amounts of rent expense in a given reporting period than would be reported if different
assumed lease terms were used.

Our lease agreements generally do not provide information to determine the implicit interest rate, so we determine
the applicable incremental borrowing rate (“IBR”) used to calculate the initial lease liability for each lease. 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 right-of-use asset and lease liability.

We also estimate the reasonably certain lease term at inception. The lease term commences on the date the lessor
makes the underlying property 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. Such an economic penalty would typically result
from having to abandon a building or equipment with remaining economic value upon vacating a property. Our
judgment in determining the appropriate expected lease term affects our evaluation of the classification and
accounting for leases as finance versus operating, and the period over with the operating lease asset is amortized.
These judgments may produce materially different amounts of depreciation, amortization and rent expense than
would be reported if different expected lease terms were used.

45

Income Taxes

We make certain estimates and judgments in the calculation of tax expenses, the resulting tax liabilities, and in the
recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. When considered necessary, we
record a valuation allowance to reduce deferred tax assets to a balance that is more likely than not to be recognized.
We use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances
available at that time while the actual effective tax rate is calculated at year-end.

We have recorded deferred tax assets reflecting the benefit of income tax credits and state loss carryforwards,
which expire in varying amounts. Realization is dependent on generating sufficient taxable income in the relevant
jurisdiction prior to expiration of the income tax credits and state loss carryforwards. Although realization is not
assured, management believes it is more likely than not that the recognized deferred tax assets will be realized. The
amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of
future taxable income in the carryforward period are reduced.

We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be taken, in an
income tax return. We recognize any interest and penalties related to unrecognized tax benefits in income tax
expenses. Significant judgment is required in assessing, among other things, the timing and amounts of deductible
and taxable items. Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of
audits of various taxing jurisdictions.

In addition to the risks related to the effective tax rate described above, the effective tax rate reflected in forward-
looking statements is based on current tax law. Any significant changes in the tax laws could affect these estimates.

Valuation of Long-Lived Assets

We review the carrying amount of property and equipment semi-annually or when events or circumstances indicate
that the carrying amount may not be recoverable. The impairment test is a two-step process. Step one includes
comparing the operating cash flows of the restaurants over their remaining service life to the carrying value of the
asset group. If the cash flows exceed the carrying value, then the asset group is not impaired and no further
evaluation is required. If the carrying value of the asset group exceeds its cash flows, impairment may exist and
performing step two is necessary to determine the impairment loss. If the carrying amount is not recoverable, we
record an impairment charge for the excess of the carrying amount over the fair value of the asset group. 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. This process requires the use of estimates and
assumptions, which are subject to a high degree of judgment.

Valuation of Goodwill

We assess the recoverability of goodwill related to our restaurant brands on an annual basis or more often if
circumstances or events indicate impairment may exist. We may elect to perform a qualitative assessment to
determine whether it is more likely than not that a reporting unit is impaired. In considering the qualitative
approach, we evaluate factors including, but not limited to, macro-economic conditions, market and industry
conditions, commodity cost fluctuations, competitive environment, share price performance, results of prior
impairment tests, operational stability and the overall financial performance of the reporting units.

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. We
determine fair value based on a combination of market-based values and discounted projected future operating cash
flows of the reporting units using a risk adjusted discount rate that is commensurate with the risk inherent in our
current business model. We make assumptions regarding future revenues and cash flows, expected growth rates,

46

terminal values and other factors which could significantly impact the fair value calculations. The carrying value of
the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed
to be an indicator of impairment. In the event that these assumptions change in the future, we may be required to
record impairment charges related to goodwill.

We consider our restaurants brands, Chili’s and Maggiano’s, to be both our operating segments and reporting units.
The carrying value of goodwill as of June 24, 2020 was $187.6 million, which related to both of our reporting
units. We performed our annual impairment test in the second quarter of fiscal 2020 by utilizing the qualitative
approach and determined that there were no events or circumstances to indicate that it was more likely than not that
the fair value of our reporting units was less than their carrying values.

During the third quarter of fiscal 2020, we performed a quantitative assessment of our goodwill due to the impact
of the COVID-19 pandemic on the market. Based on our assessment as of March 25, 2020, we determined that our
goodwill and indefinite-lived intangible assets were not impaired at that time. Additionally, we updated the
assessment during the fourth quarter of fiscal 2020 and determined no triggering event existed based on improved
market value and actual results compared to forecast for the third quarter of fiscal 2020. This assessment is
predicated on our ability to continue to operate dining and banquet rooms, and generate off-premise sales at our
restaurants. Management’s judgment about the short and long term impacts of the pandemic could change as
additional facts become known and therefore affect these conclusions. We will continue to monitor and evaluate
our results and evaluate the likelihood of any potential impairment charges at our restaurants and reporting units.
Sales declines at our restaurants, unplanned increases in commodity or labor costs, deterioration in overall
economic conditions and challenges in the restaurant industry may result in future impairment charges. It is
possible that changes in circumstances or changes in our judgments, assumptions and estimates could result in an
impairment charge of a portion or all of our goodwill or other intangible assets.

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. We record a liability for all unresolved
claims and for an estimate of incurred but not reported claims at the anticipated cost that falls below our specified
retention levels or per-claim deductible amounts. This liability represents an estimate of the ultimate cost of claims
incurred and unpaid as of the balance sheet date.

In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic
conditions, the frequency and severity of claims and claim development history and settlement practices. 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. If actual results are not consistent
with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Legal Contingencies

We are subject to various lawsuits, administrative proceedings, audits, and claims arising in the ordinary course of
business. Some of these lawsuits purport to be class actions and/or seek substantial damages. The outcomes of legal
proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss
contingency such as a legal proceeding or claim is accrued to expense if it is probable that an asset has been
impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining
whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could
materially impact our consolidated financial statements.

Gift Card Revenues Recognition

Proceeds from the sale of gift cards are recorded as deferred revenues and recognized as revenues when the gift
card is redeemed by the holder. Breakage income represents the value associated with the portion of gift cards sold

47

that will most likely never be redeemed. Effective fiscal 2019, with the adoption of ASC 606, breakage revenues
are recognized proportionate to the pattern of related gift card redemptions. Before fiscal 2019, based on our
historical gift card redemption patterns and considering our gift cards did not have expiration dates or dormancy
fees, we reasonably estimated the amount of gift card balances for which redemption was remote and recorded
breakage income based on this estimate. We recognize breakage income in Franchise and other revenues in the
Consolidated Statements of Comprehensive Income.

We update our breakage rate estimate periodically and, if necessary, adjust the deferred revenues balance
accordingly. If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from
the amounts recorded. Changing our breakage-rate assumption used to record fiscal 2020 breakage by 25 basis
points would result in an impact to the consolidated statement of comprehensive income of approximately
$0.4 million.

Effect of New Accounting Standards

The impact of new accounting pronouncements can be found at Note 19 - Effect of New Accounting Standards in
Part II, Item 8 - Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This market risk discussion contains forward-looking statements. Actual results may differ materially from this
discussion based upon general market conditions and changes in domestic and global financial markets.

Interest Rate Risk

We are exposed to interest rate risk on short-term and long-term financial instruments carrying variable interest
rates. The variable rate financial instruments consist of the outstanding borrowings on our revolving credit facility.
At June 24, 2020, $472.9 million was outstanding under the revolving credit facility. The impact on our annual
results of operations of a hypothetical one-point interest rate change on the outstanding balance of these variable
rate financial instruments as of June 24, 2020 would be approximately $4.7 million.

Food and Commodity Price Risk

We purchase certain commodities such as beef, pork, poultry, seafood, dairy, produce, food oils, and natural gas.
These commodities are generally purchased based upon market prices established with vendors. These purchase
arrangements may contain contractual features that fix the price paid for certain commodities. We do not use
financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate
cost paid.

Impact of Inflation

We believe that our results of operations are not materially impacted by moderate changes in the inflation rate.
Inflation did not have a material impact on our operations in fiscal 2020, 2019 or 2018. However, severe increases
in inflation could affect the United States or global economies and have an adverse impact on our business,
financial condition and results of operations. If several of the various costs in our business experience inflation at
the same time, such as commodity price increases beyond our ability to control and increased labor costs, we may
not be able to adjust prices to sufficiently offset the effect of the various cost increases without negatively
impacting consumer demand.

48

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BRINKER INTERNATIONAL, INC.
Consolidated Financial Statements
Table of Contents

Consolidated Statements of Comprehensive Income – Fiscal Years Ended June 24, 2020, June 26, 2019 and
June 27, 2018

Consolidated Balance Sheets – June 24, 2020 and June 26, 2019

Consolidated Statements of Cash Flows – Fiscal Years Ended June 24, 2020, June 26, 2019 and June 27, 2018

Consolidated Statements of Shareholders’ Deficit – Fiscal Years Ended June 24, 2020, June 26, 2019 and
June 27, 2018

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Management’s Report on Internal Control over Financial Reporting

Page

50

51

52

53

54

94

99

49

BRINKER INTERNATIONAL, INC.
Consolidated Statements of Comprehensive Income
(In millions, except per share amounts)

Revenues

Company sales

Franchise and other revenues

Total revenues

Operating costs and expenses

Food and beverage costs

Restaurant labor

Restaurant expenses

Depreciation and amortization

General and administrative

Other (gains) and charges

Total operating costs and expenses

Operating income

Interest expenses

Other (income), net

Income before income taxes

Provision (benefit) for income taxes

Net income

Basic net income per share

Diluted net income per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Other comprehensive income (loss)

Foreign currency translation adjustment

Other comprehensive income (loss)

Comprehensive income

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

3,004.9 $

3,106.2 $

3,041.5

73.6

3,078.5

798.6

1,045.5

825.8

162.3

136.3

47.4

3,015.9

62.6

59.6

(1.9)

4.9

(19.5)

111.7

3,217.9

823.0

1,059.7

812.3

147.6

149.1

(4.5)

2,987.2

230.7

61.6

(2.7)

171.8

16.9

24.4 $

154.9 $

0.64 $

4.04 $

0.63 $

3.96 $

38.2

38.9

(0.6) $

(0.6)

23.8 $

38.3

39.1

0.2 $

0.2

93.9

3,135.4

796.0

1,033.9

757.5

151.4

136.0

34.5

2,909.3

226.1

59.0

(3.1)

170.2

44.3

125.9

2.75

2.72

45.7

46.3

0.2

0.2

155.1 $

126.1

$

$

$

$

$

See accompanying Notes to the Consolidated Financial Statements

50

BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In millions, except per share amounts)

June 24, 2020

June 26, 2019

ASSETS
Current assets

Cash and cash equivalents
Accounts receivable, net
Inventories
Restaurant supplies
Prepaid expenses
Income taxes receivable, net
Total current assets

Property and equipment, at cost

Land
Buildings and leasehold improvements
Furniture and equipment
Construction-in-progress

Less accumulated depreciation and amortization

Net property and equipment

Other assets

Operating lease assets (Note 4)
Goodwill
Deferred income taxes, net (Note 4)
Intangibles, net
Other

Total other assets
Total assets

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities

Accounts payable
Gift card liability
Accrued payroll
Operating lease liabilities (Note 4)
Other accrued liabilities

Total current liabilities

Long-term debt and finance leases, less current installments
Long-term operating lease liabilities, less current portion (Note 4)
Deferred gain on sale leaseback transactions (Note 4)
Other liabilities (Note 4)
Commitments and contingencies (Note 18)
Shareholders’ deficit

Common stock (250.0 million authorized shares; $0.10 par value; 70.3 million shares issued and
45.0 million shares outstanding at June 24, 2020, and 176.2 million shares issued and
37.5 million shares outstanding at June 26, 2019)
Additional paid-in capital
Accumulated other comprehensive loss
Retained (deficit) earnings
Treasury stock, at cost (25.3 million shares at June 24, 2020, and 138.7 million shares at June 26,
2019)

Total shareholders’ deficit
Total liabilities and shareholders’ deficit

See accompanying Notes to the Consolidated Financial Statements

51

$

$

$

$

43.9 $
52.3
27.3
51.6
13.9
35.4
224.4

34.2
1,534.4
785.7
24.4
2,378.7
(1,573.4)
805.3

1,054.6
187.6
38.2
23.0
22.9
1,326.3
2,356.0 $

104.9 $
109.9
65.2
117.3
100.6
497.9
1,208.5
1,061.6
—
67.1

7.0
669.4
(6.2)
(397.5)

(751.8)
(479.1)
2,356.0 $

13.4
55.0
23.2
47.1
23.7
14.6
177.0

33.4
1,454.6
757.5
19.2
2,264.7
(1,509.6)
755.1

—
165.5
112.0
22.3
26.4
326.2
1,258.3

97.5
100.9
82.1
—
141.1
421.6
1,206.6
—
255.3
153.0

17.6
522.0
(5.6)
2,771.2

(4,083.4)
(778.2)
1,258.3

BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In millions)

Cash flows from operating activities

Net income
Adjustments to reconcile Net income to Net cash provided by operating
activities:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

24.4 $

154.9 $

125.9

Depreciation and amortization
Stock-based compensation
Restructure charges and other impairments
Net loss (gain) on disposal of assets
Undistributed loss on equity investments
Other
Changes in assets and liabilities:

Accounts receivable, net
Inventories
Restaurant supplies
Prepaid expenses
Operating lease assets, net of liabilities
Deferred income taxes, net
Other assets
Accounts payable
Gift card liability
Accrued payroll
Other accrued liabilities
Current income taxes
Other liabilities

Net cash provided by operating activities

Cash flows from investing activities

Payments for property and equipment
Payments for franchise restaurant acquisitions
Proceeds from note receivable
Proceeds from sale of assets
Insurance recoveries
Proceeds from sale leaseback transactions, net of related expenses
Net cash (used in) provided by investing activities

Cash flows from financing activities

Payments on revolving credit facility
Borrowings on revolving credit facility
Payments of dividends
Purchases of treasury stock
Payments on long-term debt
Payments for common stock issuance costs
Payments for debt issuance costs
Proceeds from issuance of common stock
Proceeds from issuance of treasury stock

Net cash used in financing activities

Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

$

162.3
14.8
28.9
1.2
—
2.8

4.1
(2.8)
(1.2)
7.2
3.6
8.6
0.1
9.8
6.3
(17.8)
4.0
(20.7)
9.4
245.0

(104.5)
(94.6)
2.8
1.2
1.1
—
(194.0)

(858.8)
808.4
(57.4)
(32.4)
(17.8)
(7.8)
(3.2)
146.9
1.6
(20.5)
30.5
13.4
43.9 $

147.6
16.4
26.5
(33.1)
—
3.0

(3.0)
1.0
(0.6)
(3.0)
—
(75.8)
0.9
(4.1)
(10.1)
6.8
(7.7)
(12.7)
5.7
212.7

(167.6)
(3.1)
2.8
1.6
1.7
485.9
321.3

(1,150.0)
853.0
(60.3)
(167.7)
(9.5)
—
—
—
3.0
(531.5)
2.5
10.9
13.4 $

151.4
14.2
21.7
1.6
0.3
3.1

(3.3)
—
(1.2)
(1.7)
—
3.4
0.3
1.6
(7.3)
4.2
(6.8)
(14.9)
(8.0)
284.5

(101.3)
—
1.9
19.9
1.7
—
(77.8)

(588.0)
1,016.0
(70.0)
(303.2)
(260.3)
—
(1.6)
—
2.3
(204.8)
1.9
9.0
10.9

See accompanying Notes to the Consolidated Financial Statements

52

BRINKER INTERNATIONAL, INC.
Consolidated Statements of Shareholders’ Deficit
(In millions)

Common Stock

Shares

Amount

Additional
Paid-In
Capital

Retained
Earnings
(Deficit)

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total

Balances at June 28, 2017

48.4 $

17.6 $

502.1 $

2,627.1 $ (3,628.5) $

(11.9) $

(493.6)

Net income

Other comprehensive income

Dividends ($1.52 per share)

Stock-based compensation

Purchases of treasury stock

Issuances of common stock

Disposition of equity method
investment

Balances at June 27, 2018

Effect of ASC 606 adoption

Net income

Other comprehensive income

Dividends ($1.52 per share)

Stock-based compensation

Purchases of treasury stock

Issuances of common stock

Balances at June 26, 2019

Effect of ASC 842 adoption

Net income

Other comprehensive income

Dividends ($1.14 per share)

Stock-based compensation

Purchases of treasury stock

Issuances of common stock

Retirement of treasury stock

—

—

—

—

(7.9)

0.3

—

40.8

—

—

—

—

—

(3.6)

0.3

37.5

—

—

—

—

—

(0.8)

8.3

—

—

—

—

—

—

—

—

17.6

—

—

—

—

—

—

—

—

—

—

14.2

(0.2)

(4.5)

—

511.6

—

—

—

—

16.4

(0.6)

(5.4)

125.9

—

(70.0)

—

—

—

—

—

—

—

—

(303.0)

6.8

—

2,683.0

(3,924.7)

(7.4)

154.9

—

(59.3)

—

—

—

—

—

—

—

—

(167.1)

8.4

17.6

522.0

2,771.2

(4,083.4)

—

—

—

—

—

—

0.8

(11.4)

—

—

—

—

14.7

(0.3)

133.0

195.9

24.4

—

(43.6)

—

—

—

—

—

—

—

—

(32.1)

6.9

—

(3,345.4)

3,356.8

—

0.2

—

—

—

—

5.9

(5.8)

—

—

0.2

—

—

—

—

(5.6)

—

—

(0.6)

—

—

—

—

—

125.9

0.2

(70.0)

14.2

(303.2)

2.3

5.9

(718.3)

(7.4)

154.9

0.2

(59.3)

16.4

(167.7)

3.0

(778.2)

195.9

24.4

(0.6)

(43.6)

14.7

(32.4)

140.7

—

Balances at June 24, 2020

45.0 $

7.0 $

669.4 $

(397.5) $

(751.8) $

(6.2) $

(479.1)

See accompanying Notes to the Consolidated Financial Statements

53

BRINKER INTERNATIONAL, INC.
Notes to the Consolidated Financial Statements
Footnote Index

Note #

Description

Note 1 Nature of Operations and Summary of Significant Accounting Policies

Note 2 Novel Coronavirus Pandemic

Note 3 Chili’s Restaurant Acquisition

Note 4

Leases

Note 5 Revenue Recognition

Note 6

Equity Method Investment

Note 7 Defined Contribution Plan

Note 8 Other Gains and Charges

Note 9

Income Taxes

Note 10 Segment Information

Note 11 Goodwill and Intangibles

Note 12 Debt

Note 13 Accrued and Other Liabilities

Note 14 Stock-based Compensation

Note 15 Shareholders’ Deficit

Note 16 Fair Value Measurements

Note 17 Supplemental Cash Flow Information

Note 18 Commitments and Contingencies

Note 19 Effect of New Accounting Standards

Note 20 Quarterly Results of Operations (Unaudited)

Note 21 Subsequent Events

Page

55

61

63

64

70

71

71

72

74

77

80

81

84

85

87

88

90

90

92

93

93

54

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s® Grill & Bar
(“Chili’s”) and Maggiano’s Little Italy® (“Maggiano’s”) restaurant brands. At June 24, 2020, we owned, operated
or franchised 1,663 restaurants, consisting of 1,116 Company-owned restaurants and 547 franchised restaurants,
located in the United States, 28 countries and two United States territories.

Basis of Presentation

Principles of Consolidation - The Consolidated Financial Statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission, and include the accounts of Brinker International, Inc. and
our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
All amounts within the Notes to the Consolidated Financial Statements are presented in millions unless otherwise
specified.

Fiscal Year - We have a 52/53 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 years 2020, 2019 and 2018, which ended on June 24, 2020, June 26, 2019 and June 27,
2018, respectively, each contained 52 weeks.

Use of Estimates - The preparation of the consolidated financial statements is in conformity with generally
accepted accounting principles in the United States (“GAAP”) and requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and costs and
expenses in the reporting periods. Actual results could differ from those estimates.

New Accounting Standards Implemented

ASU 2016-02, Leases (Topic 842) - In February 2016, the FASB issued ASU 2016-02, and subsequently amended
this update by issuing additional ASU’s that provide clarification and further guidance around areas identified as
potential implementation issues. These updates require a lessee to recognize in the balance sheet a liability to make
lease payments and a corresponding right-of-use asset for virtually all leases, other than leases with a term of 12
months or less if the short-term lease exclusion expedient is elected. The updates also require additional disclosures
about the amount, timing, and uncertainty of cash flows arising from leases. These updates were effective for
annual and interim periods for fiscal years beginning after December 15, 2018, which required us to adopt these
provisions in the first quarter of fiscal 2020. Refer below for our “Significant Accounting Policies - Leases” section
and also Note 4 - Leases for disclosures about our adoption.

The impact of additional accounting standard updates that have not yet been adopted can be found at Note 19 -
Effect of New Accounting Standards.

55

Significant Accounting Policies

Leases

Adoption of ASC 842 and Transition and Practical Expedient Elections - We adopted FASB Accounting Standards
Codification (“ASC”) Topic 842, Leases (“ASC 842”), from the previous guidance ASC Topic 840, Leases
(“Legacy GAAP”) effective June 27, 2019, the first day of fiscal 2020. We adopted ASC 842 using the alternative
transition method, such that our fiscal 2020 Consolidated Financial Statements reflect ASC 842, while our prior
period Consolidated Financial Statements were prepared under Legacy GAAP and have not been restated. In
connection with the adoption of ASC 842, we elected the following practical expedients and policies:

(cid:129)

(cid:129)

(cid:129)

Package of practical expedients - the election of this package allowed us to carry forward our historical
lease classification and our assessment of whether a contract is or contains a lease for any leases that
existed prior to the adoption of ASC 842.

Combine lease and non-lease components policy - we elected for all classes of underlying leased assets to
account for lease and non-lease components (such as common area maintenance) and include executory
costs (such as property taxes and insurance) to combine as a single lease component.

Short-term lease policy - we elected the short-term lease exemption from balance sheet recognition for all
classes of underlying assets with an initial term of 12 months or less and that do not include an option to
purchase the underlying asset that we are reasonably certain to exercise. Short-term leases are expensed as
incurred in Restaurant expenses in the Consolidated Statements of Comprehensive Income.

We did not elect the hindsight practical expedient that permitted a reassessment of lease terms for existing leases.

Lease Accounting Policy under ASC 842 - Effective with our fiscal 2020 year, ASC 842 requires lessees to
recognize on the balance sheet at lease commencement the lease assets and related lease liabilities for the rights
and obligations created by operating and finance leases with lease terms of more than 12 months. The lease term
commences on the date the lessor makes the underlying property 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 will generally be 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 right-of-use lease
asset will generally be based on the lease liability, adjusted for amounts related to other lease-related assets and
liabilities. Our adjustments typically include prepaid rent, straight-line rent for timing differences between payment
streams and lease term, landlord contributions that are recorded when received as a reduction to the asset, and
favorable or unfavorable lease purchase price adjustments. Additionally, upon adoption, we also recorded partial
impairments of certain lease assets with an adjustment to Retained earnings related to previously impaired
properties.

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
right-of-use asset and lease liability.

The right-of-use lease asset carrying amounts are assessed for impairment semi-annually or when events or
circumstances indicate that the carrying amount may not be recoverable, in accordance with our long-lived asset
impairment policy. We monitor for events or changes in circumstances that require reassessment of lease

56

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

Variable lease costs are expensed as incurred in Restaurant expenses related to restaurant properties or General and
administrative for our corporate headquarters, respectively, in the Consolidated Statements of Comprehensive
Income, and are not included in lease liabilities in the Consolidated Balance Sheets. Contingent rent represents
payment of variable lease obligations based on a percentage of sales, as defined by the terms of the applicable
lease, for certain restaurant facilities and is recorded at the point in time we determine that it is probable that such
sales levels will be achieved. Additionally, we have certain leases which periodically reset to a specified index,
such leases are initially recorded using the index that existed at lease commencement. Subsequent index changes
are recorded as variable rental payments. Maintenance and property tax expenses are accounted for on an accrual
basis as variable lease costs.

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

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.

Revenues - Effective at the beginning of fiscal 2019, we adopted ASC Topic 606, Revenue from Contracts with
Customers (“ASC 606”), from the previous guidance ASC Topic 605, Revenue Recognition and ASC Subtopic
952-605, Franchisors - Revenue Recognition (together, “Legacy Revenue GAAP”). Our transition to ASC 606
represents a change in accounting principle. The Consolidated Financial Statements for fiscal 2019 reflect the
application of ASC 606 guidance using the modified retrospective transition method, while the Consolidated
Financial Statements for prior periods were prepared under Legacy Revenue GAAP. The adoption of ASC 606
resulted in a cumulative effect adjustment to retained earnings of $7.4 million in fiscal 2019. Revenues are
presented in Company sales and Franchise and other revenues captions in the Consolidated Statements of
Comprehensive Income. Refer below for our significant revenue accounting policies, to Note 5 - Revenue
Recognition for deferred revenues, and to Note 10 - Segment Information for disaggregation of revenues detail.

Company Sales - Company sales include revenues generated by the operation of Company-owned restaurants
including gift card redemptions. We record the revenues from the sale of food, beverages and alcohol, net of
discounts, upon delivery to the customer.

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

Royalties - Franchise royalties, under the franchise agreements, are based on a percentage of the sales generated by
our franchised restaurants. The performance obligation related to franchise sales is considered complete upon the
sale of food, beverages and alcohol, therefore royalty revenues attributable to franchise restaurants are recognized
in the same period the sales are generated at the franchise restaurants.

Advertising Fee Income - Domestic franchisees are contractually obligated to contribute into certain advertising
and marketing funds. Advertising fees are presented on a gross basis within Franchise and other revenues.

Initial Development and Franchise Fees - We receive development fees from franchisees for territory development
arrangements and franchise fees for new restaurant openings. The performance obligation related to these

57

arrangements are collectively deferred as a contract liability and recognized on a straight-line basis into Franchise
and other revenues in the Consolidated Statements of Comprehensive Income over the term of the underlying
agreements. Deferred franchise fees are classified within Other accrued liabilities for the current portion expected
to be recognized within the next 12 months, and Other liabilities for the long-term portion in the Consolidated
Balance Sheets.

Gift Card Breakage Income - Breakage revenues represent the monetary value associated with outstanding gift card
balances that will not be redeemed. We estimate this amount based on our historical gift card redemption patterns
and update the breakage rate estimate periodically and if necessary, adjust the deferred revenues balance within the
Gift card liability account in the Consolidated Balance Sheets accordingly. 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
various retail locations. We incur incremental direct costs related to gift card sales, 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 redemption.

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 24, 2020 and June 26, 2019,
after the adoption of ASC 606 - Revenue from Contracts with Customers, advertising expenses of $87.0 million
and $108.8 million, respectively, are included in Restaurant expenses, and advertising contributions from
franchisees of $9.7 million and $20.3 million, respectively, are recorded in Franchise and other revenues in the
Consolidated Statements of Comprehensive Income. Advertising costs, net of advertising contributions from
franchisees, was $98.3 million in fiscal year ended June 27, 2018 prior to the adoption of ASC 606 was included in
Restaurant expenses in the Consolidated Statements of Comprehensive Income.

Restaurant Labor Expenses - We report certain labor and related expenses in a separate caption in the
Consolidated Statements of Comprehensive Income titled Restaurant
labor includes all
compensation-related expenses, including benefits and incentive compensation, for restaurant team members at the
general manager level and below. Labor-related expenses attributable to multi-restaurant (or above-restaurant)
supervision is included in Restaurant expenses in the Consolidated Statements of Comprehensive Income.

labor. Restaurant

Fair Value Measurements - Fair value is the price that would be received for an asset or paid to transfer a liability,
or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is
grouped in three levels based on the level of significant inputs used in measuring fair value, as follows:

Level 1

Level 2

Level 3

Unadjusted quoted prices in active markets for identical assets or liabilities

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

Unobservable inputs that cannot be corroborated by observable market data

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 doubtful accounts, represents the estimated
net realizable value. Our primary accounts receivable are due from third-party gift card sales, vendor rebates,
franchisees, restaurant purchases made on credit cards, and from time-to-time insurance recoveries. Provisions for
doubtful accounts 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.

58

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.

Property and Equipment - Property and equipment is recorded at cost, and are 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 24, 2020, June 26, 2019,
and June 27, 2018 of $160.4 million, $146.5 million, and $150.1 million, respectively, was 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 semi-annually 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
is
cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that
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.

Definite-lived Intangible Assets - Definite-lived intangible assets primarily include the reacquired franchise rights
resulting from our acquisitions and are amortized using the straight-line method over the remaining term of the
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 semi-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. The costs of purchasing transferable liquor licenses
through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as
indefinite-lived intangible assets and included in Intangibles, net in the Consolidated Balance Sheets.

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

59

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
the current or long-term nature, in the Consolidated Balance Sheets.

Sales Taxes - 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. The obligation is included
in Other accrued liabilities in the Consolidated Balance Sheets until the taxes are remitted to the appropriate taxing
authorities.

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 Provision (benefit) 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 cost 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 to the date on which retirement eligibility is achieved, if shorter. 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 (the “Board”) are eligible
to receive stock options, restricted stock and restricted stock units. Awards granted to the Board are non-forfeitable
and are fully expensed upon grant. Awards to eligible employees may vest over a specified period of time, or
service period, only or 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 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 at the end of a three-fiscal-year cycle. Vesting of performance shares granted are contingent upon meeting
Company performance goals based on a specified rate of earnings growth at the end of the three-fiscal-year period.
Compensation expenses for the performance shares is recorded based on management’s periodic estimates of the
number of shares that will ultimately be issued and the fair value of the shares as determined by our closing stock
price on the date of grant. A cumulative expenses adjustment is recognized when that estimate changes.

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 24, 2020, no preferred shares were issued.

60

Comprehensive Income - Comprehensive income is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from non-owner sources. For the fiscal years ended
June 24, 2020, June 26, 2019 and June 27, 2018, Comprehensive income consists of Net income and Foreign
currency translation adjustment. The Foreign currency translation adjustment for all the three fiscal years presented
included the unrealized impact of translating the financial statements from Canadian dollars to United States
dollars of the Canadian restaurants. For the fiscal year ended June 27, 2018, foreign currency translation
adjustment also included the impact of translating the Mexico joint venture with CMR, S.A.B. de C.V. (“CMR”)
from Mexican pesos to United States dollars. During fiscal 2018, the Mexico joint venture was sold to CMR. Refer
to Note 6 - Equity Method Investment for further details on the transaction including the note receivable. The
Accumulated other comprehensive loss (“AOCL”) is presented in the 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
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:

Basic weighted average shares outstanding

Dilutive stock options

Dilutive restricted shares

Total dilutive impact

Diluted weighted average shares outstanding

Awards excluded due to anti-dilutive effect

June 24, 2020

June 26, 2019

June 27, 2018

38.2

0.1

0.6

0.7

38.9

1.5

38.3

0.2

0.6

0.8

39.1

0.9

45.7

0.1

0.5

0.6

46.3

1.1

Segment Reporting - Operating segments are components of an enterprise for which separate financial information
is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and
in assessing operating performance. We manage our business on the basis of two operating segments, Chili’s and
Maggiano’s.

2. NOVEL CORONAVIRUS PANDEMIC

In March 2020, the impact from the spreading COVID-19 pandemic was declared a National Public Health
Emergency and resulted in a significant reduction in sales at our restaurants due to changes in consumer behavior
as social distancing practices, dining room closures and other restrictions were mandated or encouraged by federal,
state and local governments. We have not experienced material shortages or service disruptions in our supply chain
or the availability of labor to operate restaurants. Both Chili’s and Maggiano’s have been able to continue to serve
our guests off-premise due to our pre-pandemic strategic decision to enhance this business over the last three years
including online ordering, mobile app, curbside service and third-party delivery. We have been carefully assessing
the effect of COVID-19 on our business as conditions continue to evolve throughout the communities we serve. At
this time, the ultimate impact of COVID-19 cannot be reasonably estimated due to the uncertainty about the extent
and the duration of the spread of the virus and could lead to further reduced sales, capacity restrictions, restaurant
closures, delays in our supply chain, or impair our ability to staff accordingly which could adversely impact our
financial results.

Additionally, at our corporate office, we have adopted an optional remote-work policy and other physical
distancing policies and we do not anticipate these policies to have any adverse impact on our ability to continue to

61

operate our business. Transitioning to an optional remote-work environment has not had a material adverse impact
on our financial reporting system, internal controls or disclosure controls and procedures.

Our fiscal 2020 results include the decline in Company sales, as compared to fiscal 2019 as a result of the
COVID-19 pandemic. At the end of the third quarter of fiscal 2020, we temporarily closed all Company-owned
restaurant dining and banquet rooms as we transitioned to an off-premise business model and temporarily delayed
our expansion plans. Beginning on April 27, 2020, we began to reopen certain dining room locations as permitted
by governments. At the end of fiscal 2020, as of June 24, 2020, 94.9% of our Company-owned restaurant dining
rooms or patios were open in a limited capacity.

Valuation of Goodwill and Indefinite-Lived Intangibles

We perform our annual goodwill impairment tests in the second quarter of each fiscal year. Interim goodwill
impairment tests are also required when events or circumstances change between annual tests that would more
likely than not reduce the fair value of our reporting units below their carrying value. Although no triggering event
had been identified in our regular goodwill impairment assessment performed at the end of the second quarter of
fiscal 2020, we determined during the third of fiscal 2020 that the reduced cash flow projections and the significant
decline in our market capitalization as a result of the COVID-19 pandemic could indicate that an impairment loss
may have been incurred. Our assessment is based on our current projections that are subject to various risks and
uncertainties, including: (1) forecasted revenues, expenses and cash flows, affected by the impact of the COVID-19
pandemic, (2) current discount rates, (3) the reduction in our market capitalization, (4) observable market data, and
(5) changes to the regulatory environment.

Based on our assessment as of March 25, 2020, we determined that our goodwill and indefinite-lived intangible
assets were not impaired at that time. Additionally, we updated the assessment during the fourth quarter of fiscal
2020 and determined no triggering event existed based on improved market value and actual results compared to
forecast for the third quarter of fiscal 2020. This assessment is predicated on our ability to continue to operate
dining and banquet rooms, and generate off-premise sales at our restaurants. Management’s judgment about the
short and long term impacts of the pandemic could change as additional facts become known and therefore affect
these conclusions. We will continue to monitor and evaluate our results and evaluate the likelihood of any potential
impairment charges at our restaurants and reporting units.

Valuation of Long-lived Assets

Our Net property and equipment and Operating lease assets have recorded values of $805.3 million and
$1,054.6 million, respectively, as of June 24, 2020 in the Consolidated Balance Sheets. During the third quarter of
fiscal 2020, we evaluated ASC 360-10-40 - Property, Plant, and Equipment - Impairment or Disposal of Long-
Lived Assets, and determined as of March 25, 2020 there was no triggering event. During our regular semi-annual
analysis in the fourth quarter of fiscal 2020, as of June 24, 2020, we recorded long-lived and operating lease asset
impairments of $14.5 million related to 18 underperforming Chili’s and 3 underperforming Maggiano’s restaurants.
Of the impaired restaurants, 19 continue to operate, and 2 Chili’s will be permanently closed. We will continue to
evaluate our long-lived assets for potential impairment during this COVID-19 pandemic. Refer to Note 16 - Fair
Value Measurements for more information.

Rent Concessions

In response to the COVID-19 pandemic, during the fourth quarter of fiscal 2020, certain landlords have provided
temporary rent concessions. These concessions primarily relate to the deferral of certain rent payments until future
periods. We accounted for these rent deferrals as modifications under ASC 842 which are included in our June 24,
2020 lease balances, refer to Note 4 - Leases for more information.

62

COVID-19 Related Charges

Certain charges, net of credits related to the COVID-19 pandemic were recorded in Other (gains) and charges in
the Consolidated Statements of Comprehensive Income in fiscal 2020, these primarily included:

(cid:129)

(cid:129)

(cid:129)

Employee assistance - $17.3 million of expenses related to both Chili’s and Maggiano’s employee
assistance payments and related payroll taxes for the team members that experienced reduced shifts during
this pandemic, who would have otherwise not received such payment under our normal compensation
practices

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

Employee retention credit - $7.9 million credit of certain payroll taxes was received as part of the
Coronavirus Aid Relief and Economic Security (“CARES”) Act relief package

3. CHILI’S RESTAURANT ACQUISITION

In fiscal 2020, on September 5, 2019, we completed the acquisition of certain assets and liabilities related to 116
previously franchised Chili’s restaurants located in the Midwest United States. Pro-forma financial information of
the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in
the Consolidated Financial Statements.

Total cash consideration of $96.0 million, including post-closing adjustments, was funded with borrowings from
our existing credit facility. We accounted for this acquisition as a business combination. The results of operations,
and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements from the date
of acquisition. The assets and liabilities of these restaurants are recorded at their fair values.

During fiscal 2020, since the acquisition date, these restaurants generated Company sales of $203.3 million, which
included a decrease in normal operations in the second half of fiscal 2020 related to the COVID-19 pandemic.
Refer to Note 2 - Novel Coronavirus Pandemic for further details on the pandemic’s impact to our business.

Net acquisition-related charges of $2.9 million were recorded during fiscal 2020 to Other (gains) and charges in the
Consolidated Statements of Comprehensive Income. In fiscal 2020, the net charges consisted of $4.5 million of
professional services, transaction and transition related costs associated with the purchase, and $1.0 million of
related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully
recognized at the date of the acquisition, partially offset by $2.6 million of franchise deferred revenues balance that
were fully recognized at date of acquisition.

63

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

Current assets(1)

Property and equipment

Operating lease assets

Reacquired franchise rights(2)

Goodwill(3)

Total assets acquired

Current liabilities(4)

Operating lease liabilities, less current portion

Total liabilities assumed

Net assets acquired(5)

Fair Value
September 5,
2019

$

$

7.3

60.3

163.5

6.9

22.4

260.4

9.1

158.3

167.4

93.0

(1)

(2)

(3)

(4)

(5)

Current assets included petty cash, inventory, and restaurant supplies.

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

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.

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

Net assets acquired at fair value are equal to the total purchase price of $99.0 million, less $3.2 million of
closing adjustments and $2.8 million allocated to prepayment of leases entered into between us and the
franchisee (refer to Note 4 - Leases for more information).

4. LEASES

As of June 24, 2020, 1,073 of our 1,116 Company-owned restaurant facilities were leased. We typically lease our
restaurant facilities through ground leases (where we lease land only, but own the building) or retail leases (where
we lease the land/retail space and building). As of June 24, 2020, the restaurant leases have cumulative renewal
clauses of 2 to 40 years at our option. Our leased restaurants typically have an initial lease term of 10 to 20 years,
with one or more renewal terms typically 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 technology and other restaurant equipment. Our lease agreements
do not contain any material residual value guarantees or material covenant restrictions.

64

Financial Statement Impact of ASC 842 Adoption

Refer to Note 1 - Nature of Operations and Summary of Significant Accounting Policies for information on the
transition and practical expedient elections, and our lease accounting policy under ASC 842. The adoption of ASC
842 represents a change in accounting principle. The adoption did not have a significant impact in the Consolidated
Statements of Comprehensive Income or Consolidated Statements of Cash Flows. Upon adoption, there was a
material increase in Total assets and Total liabilities in the Consolidated Balance Sheets primarily due to the
recognition of operating lease assets and related lease liabilities where we are the lessee. The table below reflects
the balance sheet adoption impact related to ASC 842 as an adjustment at June 27, 2019, the first day of fiscal 2020
(condensed, unaudited):

ASSETS

Current assets(1)

Other assets

Operating lease assets(2)

Deferred income taxes, net(3)

Intangibles, net(1)

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current liabilities

Operating lease liabilities(4)

Other accrued liabilities(1)(5)

Long-term operating lease liabilities, less current portion(4)

Deferred gain on sale leaseback transactions(5)

Other liabilities(1)

Retained earnings

Legacy GAAP

June 26, 2019

ASC 842
Cumulative
Adjustments

ASC 842

June 27, 2019

$

177.0 $

0.3 $

177.3

—

112.0

22.3

—

141.1

—

255.3

153.0

2,771.2

1,034.3

1,034.3

(65.1)

(4.1)

46.9

18.2

110.8

(38.3)

1,044.9

(255.3)

(92.6)

195.9

110.8

102.8

1,044.9

—

60.4

2,967.1

(1)

The following prior lease balances were reclassified into Operating lease assets upon adoption of ASC 842:

–

–

–

Current assets adjustment related to the prepaid rent.

Intangibles, net adjustment related to the favorable lease asset position.

Other accrued liabilities and Other liabilities balances adjustments related to the current and long-
term portions of straight-line rent balances, unfavorable lease liability positions, exit-related lease
accruals, and landlord contributions.

Additionally, Other accrued liabilities included $19.3 million of deferred gain on sale leaseback
transactions that was eliminated as a cumulative effect adjustment to Retained earnings upon adoption,
refer to (5) below, and Note 13 - Accrued and Other Liabilities at June 26, 2019 for further details.

(2)

(3)

Operating lease assets represent the capitalization of operating lease assets equal to the amount of
recognized operating lease liability as described in (4) below, adjusted by the net carrying amounts
described in (1) above, and $15.5 million related to the impairment of certain operating lease assets for
restaurant facilities previously fully impaired under our long-lived asset impairment policy that were
recorded to Retained earnings.

Deferred income taxes, net was reduced by $68.6 million related to the elimination of the deferred gain on
sale leaseback transactions as described in (5) below, partially offset by $3.5 million related to the impact of
adopting ASC 842 and recording the operating lease assets and liabilities.

65

(4)

(5)

Operating lease liabilities, both current and long-term, represents the liabilities 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 upon date of adoption.

Deferred gain on sale leaseback transactions balance of $255.3 million, the related short-term deferred gain
balance recorded within Other accrued liabilities of $19.3 million, and the associated Deferred income
taxes, net of $68.6 million as described in (3) above, were eliminated upon ASC 842 adoption into Retained
earnings as required by ASC 842 using the alternative transition method. No further gain will be amortized
to Other (gains) and charges in the Consolidated Statements of Comprehensive Income effective fiscal
2020.

Lease Amounts Included in the Fiscal Year Ended June 24, 2020

Consolidated Balance Sheet Disclosure of Lease Amounts

The following table includes a detail of lease asset and liabilities included in the Consolidated Balance Sheets:

Lease assets

Current lease liabilities

Long-term lease liabilities

Total lease liabilities

Finance
Leases(1)

June 24, 2020

Operating
Leases(2)

Total Leases

81.6 $

1,054.6 $

1,136.2

12.2

89.9

117.3

1,061.6

102.1 $

1,178.9 $

129.5

1,151.5

1,281.0

$

$

(1)

(2)

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.

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.

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:

Operating lease cost

Finance lease amortization

Finance lease interest

Short-term lease cost

Variable lease cost

Sublease (income)

Total lease costs, net

66

Fifty-Two Week
Period Ended
June 24, 2020

$

162.8

20.9

4.6

1.4

57.7

(4.6)

$

242.8

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:

Cash flows from operating activities

Cash paid related to lease liabilities

Operating leases

Finance leases

Cash flows from financing activities

Cash paid related to lease liabilities

Finance leases

Non-cash lease assets obtained in exchange for lease liabilities

Operating leases(1)
Finance leases(1)

Fifty-Two Week
Period Ended
June 24, 2020

$

159.6

4.6

17.8

224.0

73.2

(1)

New lease assets obtained, net of lease liabilities primarily related to the new and assumed operating and
finance leases from the Chili’s restaurant acquisition. Refer to Note 3 - Chili’s Restaurant Acquisition and
“Significant Changes in Leases in the Period” section below for more information.

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:

Weighted average remaining lease term

Weighted average discount rate

Lease Maturity Analysis

June 24, 2020

Finance Leases Operating Leases

9.4 years

11.5 years

5.9%

5.7%

Finance leases and Operating leases total future lease payments represent the contractual obligations due under the
contract, including cancelable option periods where we are reasonably assured to exercise the options. As of
June 24, 2020, accounted for and presented under ASC 842 guidance, the discounted future minimum lease
payments on finance and operating leases, as well as sublease income were as follows:

Fiscal Year

2021

2022

2023

2024

2025

Thereafter

Total future lease payments(1)

Less: Imputed interest

Present value of lease liability

June 24, 2020

Finance Leases Operating Leases

$

17.8 $

179.4 $

Sublease
(Income)

(3.4)

(3.3)

(2.6)

(1.9)

(1.9)

(4.8)

167.4

155.6

145.4

135.4

854.2

1,637.4 $

(17.9)

458.5

1,178.9

22.0

20.3

10.3

10.6

53.6

134.6

32.5

$

102.1 $

67

(1)

Total future lease payments as of June 24, 2020 included non-cancelable lease commitments of
$113.4 million for finance leases, and $1,083.4 million for operating leases.

As of June 26, 2019, as previously disclosed in our fiscal 2019 Form 10-K under Legacy GAAP, undiscounted
future minimum lease payments that represent the contractual obligations due under the contract, including
cancelable option periods where we are reasonably assured to exercise the options, on both capital and operating
leases were as follows:

Fiscal Year

2020

2021

2022

2023

2024

Thereafter

Total minimum lease payments(1)

Imputed interest (average rate of 6.18%)

Present value of minimum lease payments

Less current capital lease obligations

Long-term capital lease obligations

June 26, 2019

Capital Leases

Operating
Leases(2)

12.3 $

10.1

8.2

6.7

6.0

17.4

156.8

154.5

148.6

137.7

127.6

771.7

60.7 $

1,496.9

(12.3)

48.4

(9.7)

38.7

$

$

(1)

(2)

Total minimum lease payments were not reduced by minimum sublease rentals to be received in the future
under non-cancelable subleases. The total of undiscounted future sublease rentals was approximately
$22.0 million and $14.6 million for capital and operating subleases, respectively, as of June 26, 2019.

Operating lease expenses for the fifty-two weeks ended June 26, 2019, recorded under Legacy GAAP,
totaled $158.6 million, which included $141.7 million for straight-lined minimum rent, $3.3 million for
contingent rent, and $13.6 million of other rent-related expenses.

Significant Changes in Leases in the Period

In the first quarter of fiscal 2020, as part of the Chili’s restaurant acquisition, we assumed and entered into 90 new
operating leases included in the balances at June 24, 2020. The leases were recorded net of purchase price
accounting adjustments and prepaid rent. At June 24, 2020, the balances associated with these new leases in the
Consolidated Balance Sheets include Operating lease assets of $154.8 million, Operating lease liabilities of
$5.0 million, and Long-term operating lease liabilities, less current portion of $149.0 million.

Additionally related to this transaction, we entered into 12 new finance leases with the initial
terms of
approximately 11 years, plus renewal options. At June 24, 2020, the balances associated with these finance leases
in the Consolidated Balance Sheets include Buildings and leasehold improvements of $23.9 million, Other accrued
liabilities of $0.6 million, and Long-term debt and finance leases, less current installments of $23.7 million. Refer
to Note 3 - Chili’s Restaurant Acquisition for information about the acquisition.

In the first quarter of fiscal 2020, we executed one finance lease for Chili’s table-top devices with an initial term of
3 years, beginning once all devices had been received, plus one 3-year renewal option. We received all the
table-top devices by the end of the fourth quarter of fiscal 2020. At June 24, 2020, the balances associated with this
finance lease in the Consolidated Balance Sheets include Furniture and equipment of $21.4 million, Other accrued
liabilities of $3.4 million, and Long-term debt and finance leases, less current installments of $18.0 million.

68

Pre-Commencement Leases

In fiscal 2020, we executed two leases for new Chili’s locations with undiscounted fixed payments over the initial
term of $7.2 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.

Fiscal 2019 Sale Leaseback Transactions

Restaurant Properties Sale Leaseback Transactions

In the fiscal 2019, we completed sale leaseback transactions of 152 restaurant properties which were sold for
aggregate consideration of $495.0 million. Of the transactions completed, 151 were Chili’s properties, and one was
a Maggiano’s property. The balances attributable to the restaurant assets sold included Land of $114.4 million,
Buildings and leasehold improvements of $240.5 million, certain fixtures included in Furniture and equipment of
$10.2 million, and Accumulated depreciation of $179.8 million. The total gain was $309.7 million and the net
proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility.

Lease Details

The initial terms of all leases included in the sale leaseback transactions were for 15 years, plus renewal options at
our discretion, which contain scheduled rent increases. All of these leases were determined to be operating leases
under Legacy GAAP. Rent expenses associated with these operating leases were recognized on a straight-line basis
over the lease terms under Legacy GAAP during fiscal 2019. As of June 26, 2019, the straight-line rent accrual
balance of $62.3 million was included in Other accrued liabilities (current portion) and Other liabilities (long-term
portion) in the Consolidated Balance Sheets which included $2.8 million associated with these operating leases that
were reclassified into the Operating lease assets balance upon adoption of ASC 842 effective June 27, 2019, the
first day of fiscal 2020.

Gain and Deferred Gain Recognition

In fiscal 2019, under Legacy GAAP, we recognized the portion of the gross gain in excess of the present value of
the future minimum lease payments, and deferred the remainder of the gain to be recognized straight-line in
proportion to the operating lease terms. In the fiscal year ended June 26, 2019, $35.2 million of the gain, less
transaction costs incurred of $7.9 million related to professional services,
legal and accounting fees, was
recognized to Other (gains) and charges in the Consolidated Statements of Comprehensive Income, respectively.
As of June 26, 2019, the remaining balance of the deferred gain of $274.6 million was recorded in Other accrued
liabilities (current portion) and Deferred gain on sale leaseback transactions (long-term portion) in the Consolidated
Balance Sheets. The deferred gain balance was eliminated through the cumulative effect adjustment to Retained
earnings effective June 27, 2019, the first day of fiscal 2020, upon the adoption of ASC 842. Refer above for ASC
842 adoption details. For any future sale leaseback transactions under the ASC 842 guidance, the gain, adjusted for
any off-market terms, will be recognized immediately in most cases.

Corporate Headquarters Relocation

During fiscal 2018, we sold the owned portion of our corporate headquarters property for net proceeds of
$13.7 million which was deferred in Other accrued liabilities in the Consolidated Balance Sheets until fiscal 2019
when we moved to our new corporate headquarters location, and fully relinquished possession of the sold property
and terminated our involvement. As such, during fiscal 2019, we recognized the sale, removed the balances
attributable to the previous corporate headquarters assets sold that included Land of $5.9 million, Buildings and
leasehold improvements of $10.6 million, Furniture and equipment of $0.7 million, and Accumulated Depreciation
of $9.3 million, and recorded the related net gain of $5.8 million to Other (gains) and charges in the Consolidated
Statements of Comprehensive Income. Refer to Note 8 - Other Gains and Charges for further details, including

69

accelerated depreciation recorded to Other (gains) and charges in the Consolidated Statements of Comprehensive
Income related to the sold property.

5. REVENUE RECOGNITION

Deferred Development and Franchise Fees

Our deferred development and franchise 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 17 years as of June 24, 2020. 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 due to the unsatisfied performance obligations.

Beginning balance

Cumulative effect adjustment from adoption of ASC 606

Additions

Amount recognized for Chili’s restaurant acquisition(1)

Amount recognized to Franchise and other revenues

Ending balance

Deferred Franchise and Development
Fees

June 24, 2020

June 26, 2019

$

$

16.2 $

—

0.8

(2.6)

(1.7)

12.7 $

—

18.1

0.9

—

(2.8)

16.2

(1)

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

Fiscal Year

2021

2022

2023

2024

2025

Thereafter

Franchise and
Development Fees
Revenue
Recognition

$

1.1

1.0

1.0

1.0

1.0

7.6

$

12.7

70

Deferred Gift Card Revenues

Total deferred revenues related to our gift cards includes the full value of unredeemed gift cards less the amortized
portion of the breakage rates and the unamortized portion of third party fees.

Beginning balance

Gift card sales

Gift card redemptions recognized to Company sales

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

Other

Ending balance

Gift Card Liability

June 24, 2020

June 26, 2019

$

100.9 $

164.4

(139.2)

(15.8)

(0.4)

$

109.9 $

119.1

180.3

(169.4)

(26.0)

(3.1)

100.9

(1)

Gift card breakage in fiscal 2019 included the recognition of $8.2 million from the cumulative effect of
adopting ASC 606, Revenue from Contracts with Customers due to the change in timing of recognition of
breakage, with a corresponding $2.0 million decrease in Deferred income taxes, net, and a $6.2 million
decrease in Shareholders’ deficit.

6. EQUITY METHOD INVESTMENT

We had a joint venture agreement with CMR to develop 50 Chili’s restaurants in Mexico, with a total of 45 Chili’s
restaurants operating in the joint venture as of June 28, 2017. We accounted for the joint venture investment under
the equity method of accounting. During fiscal 2018, we sold our Dutch subsidiary that held the equity interest in
the joint venture to CMR for $18.0 million. During fiscal 2018, we recorded a gain of $0.2 million to Other (gains)
and charges in the Consolidated Statements of Comprehensive Income which included the recognition of
$5.4 million of foreign currency translation losses reclassified from AOCL consisting of $5.9 million of foreign
currency translation losses from previous years, partially offset by $0.5 million of fiscal 2018 foreign currency
translation gains.

We received a note as consideration for the sale to be paid in 72 equal installments, with one installment payment
made at closing and the other payments to be made over 71 months pursuant to the note. The note is denominated
in Mexican pesos and is re-measured to United States dollars at the end of each period resulting in a gain or loss
from foreign currency exchange rate changes included in Other (gains) and charges in the Consolidated Statements
of Comprehensive Income for the periods presented. The current portion of the note, which represents the cash
payments to be received over the next 12 months, is included within Accounts receivable, net while the long-term
portion of the note is included within Other assets in the Consolidated Balance Sheets. Refer to Note 16 - Fair
Value Measurements for the fair value and carrying value of the note receivable as of June 24, 2020.

Before the sale of the joint venture during fiscal 2018, we recorded our share of the Mexico joint venture net
income or loss of the investee within Operating income since their operations were similar to our ongoing
operations. These amounts were included in Restaurant expenses in the Consolidated Statements of Comprehensive
Income due to their immaterial nature.

7. 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 the service requirement. Effective January 1, 2020, the service requirement was
changed from 1 year and 1,000 hours of service to 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. In

71

May 2020, the plan was amended to suspend the employer matching contributions to reduce corporate expenses,
which resulted in the loss of safe harbor status. The loss of safe harbor status requires the plan to complete the
average deferral percentage non-discrimination testing each plan year. The amended plan does allow for
discretionary employer contributions should the Company decide to do so. Prior to this amendment, we matched, in
cash, what an employee contributes at a rate of 100% of the first 3% and 50% of the next 2% with immediate
vesting.

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

Employer contributions match expenses

8. OTHER GAINS AND CHARGES

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

9.3 $

9.6 $

9.2

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

June 24, 2020

Fiscal Years Ended
June 26, 2019

June 27, 2018

Restaurant impairment charges

COVID-19 related charges, net of (credits)

Restaurant closure charges

Remodel-related costs

Severance and other benefit charges

Corporate headquarters relocation charges

Property damages, net of (insurance recoveries)

Loss (gain) on sale of assets, net

Sale leaseback (gain), net of transaction charges

Other

Fiscal 2020

10.8 $

10.9

$

19.1 $

12.2

3.8

3.2

3.2

1.1

(0.7)

(0.2)

—

5.7

—

4.3

7.7

0.9

6.3

(0.7)

(6.9)

(27.3)

0.4

$

47.4 $

(4.5) $

—

7.5

1.5

0.3

1.9

5.1

(0.3)

2.0

5.6

34.5

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Restaurant impairment charges primarily consisted of the long-lived assets of 25 underperforming Chili’s
and 3 underperforming Maggiano’s restaurants, which included the $14.5 million impaired during the
fourth quarter of fiscal 2020 during the COVID-19 pandemic related to 18 underperforming Chili’s and 3
underperforming Maggiano’s restaurants. Refer to Note 2 - Novel Coronavirus Pandemic and Note 16 -
Fair Value Measurements for more information.

COVID-19 related charges, net of (credits) that included the employee retention credit, were recorded
related to the initial impact and our efforts to address the COVID-19 pandemic beginning in the third
quarter of fiscal 2020. Refer to Note 2 - Novel Coronavirus Pandemic for further details.

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

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

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

72

(cid:129)

(cid:129)

(cid:129)

Corporate headquarters relocation charges were recorded related to costs associated with the previous
corporate headquarters location.

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

Loss (gain) on sale of assets, net primarily consisted of gain on sale of liquor licenses of closed restaurants.

Fiscal 2019

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

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

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

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

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

Corporate headquarters relocation charges primarily consisted of costs associated with the previous
corporate headquarters location and accelerated depreciation on certain leasehold improvements associated
with the leased portion of our previous corporate headquarters property which closed in the third quarter of
fiscal 2019.

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

Loss (gain) on sale of assets, net primarily consisted of $5.8 million for the net gain recognized on the sale
of the owned-portion of our previous corporate headquarters building and $0.8 million of gain recognized
on the sale of land in Scottsdale, AZ and Pensacola, FL.

Sale leaseback (gain), net of transaction charges were recorded related to the fiscal 2019 sale leaseback
transactions, refer to Note 4 - Leases for further details on this transaction.

Fiscal 2018

(cid:129)

(cid:129)

Restaurant impairment charges primarily consisted of charges of $7.2 million recorded in the first quarter
of fiscal 2018 associated with the closure of nine Alberta, Canada Chili’s restaurants in the second quarter
of fiscal 2018 due to an economic recession primarily related to lower oil production. The decision to close
these restaurants was driven by management’s belief that the long-term profitability of these restaurants
would not meet our required level of return. Additionally, during fiscal 2018, we recorded Restaurant
impairment charges of $3.7 million primarily related to the long-lived assets and reacquired franchise
rights of certain underperforming Maggiano’s and Chili’s restaurants that will continue to operate.

Restaurant closure charges primarily consisted of expenses of $4.6 million associated with the Canada
closures and related lease termination charges. We also recorded $1.8 million in lease termination expenses
related to locations where we are the primary lessee of leases that were sublet to the Macaroni Grill, a
divested brand, currently in bankruptcy proceedings, that discontinued sublease rental payments and closed
the restaurants. Additionally, we recorded Restaurant closure charges of $1.1 million primarily related to
lease termination charges and closure costs associated with Chili’s restaurants closed during fiscal 2018.

73

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

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

Corporate headquarters relocation charges primarily consisted of accelerated depreciation on certain
leasehold improvements associated with the leased portion of our previous corporate headquarters property
which closed in the third quarter of fiscal 2019.

Property damages, net of (insurance recoveries) primarily consisted of incurred expenses associated with
Hurricanes Harvey and Irma primarily related to employee relief payments and inventory spoilage, net of
insurance proceeds related to certain Hurricane Harvey property damage claims. Also in fiscal 2018, we
received property damage insurance proceeds of $0.5 million related to natural flooding in Louisiana that
were recorded within Other (gains) and charges in the Consolidated Statements of Comprehensive Income.
Additionally, we received business interruption funds of $0.4 million related to the Louisiana flooding
from insurers that are recorded within Restaurant expenses in the Consolidated Statements of
Comprehensive Income.

Loss (gain) on sale of assets, net primarily consisted of the gain on sale of our Mexico joint venture. Refer
to Note 6 - Equity Method Investment for more information.

Sale leaseback (gain), net of transaction charges primarily consisted of professional service fees for
brokers, legal, due diligence and other professional services firms in connection with the marketing of sale-
leaseback transactions of certain Company-owned restaurant properties.

9. INCOME TAXES

Income before provision for income taxes consists of the following:

Domestic

Foreign

Income before income taxes

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

$

5.0 $

(0.1)

4.9 $

168.1 $

3.7

171.8 $

182.1

(11.9)

170.2

The provision for income taxes and effective tax rate consists of the following:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

Current income tax (benefit) expenses:

Federal

State

Foreign

Total current income tax (benefit) expenses

Deferred income tax (benefit) expenses:

Federal

State

Foreign

Total deferred income tax (benefit) expenses

$

(32.9)

$

63.3 $

4.8

0.0

(28.1)

8.8

(0.2)

0.0

8.6

28.8

0.6

92.7

(58.5)

(18.0)

0.7

(75.8)

Provision (benefit) for income taxes

$

(19.5)

$

16.9 $

28.7

12.2

0.0

40.9

6.6

0.1

(3.3)

3.4

44.3

Effective tax rate

(398.0)%

9.8%

26.0%

74

A reconciliation between the reported provision for income taxes and the amount computed by applying the
statutory Federal income tax rate to Provision (benefit) for income taxes is as follows:

Income tax expense at statutory rate

FICA and other tax credits

State income taxes, net of Federal benefit

Tax reform impact

Stock based compensation tax shortfall

Other

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

1.0 $

(24.8)

36.1 $

(28.2)

3.6

—

0.5

0.2

8.5

—

0.5

0.0

47.8

(22.6)

8.7

8.2

1.1

1.1

Provision (benefit) for income taxes

$

(19.5) $

16.9 $

44.3

Our federal statutory tax rate for fiscal 2020 and fiscal 2019 was 21.0%. The Tax Cuts and Jobs Act (the “Tax
Act”) was enacted on December 22, 2017 with an effective date of January 1, 2018. The enactment date occurred
prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory tax rate changes stipulated
by the Tax Act were reflected in the second quarter of fiscal 2018. The Tax Act lowered the federal statutory tax
rate from 35.0% to 21.0% effective January 1, 2018. For fiscal 2018, our federal statutory tax rate was 28.1%,
representing a blended tax rate for the number of days in fiscal 2018 before and after the effective date. In the fiscal
year ended June 27, 2018, in accordance with ASC 740, we re-measured our deferred tax accounts as of the
enactment date using the new federal statutory tax rate and recognized the change as a discrete item in the
Provision for income taxes, the adjustment was $8.2 million.

75

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 24, 2020

June 26, 2019

Deferred income tax assets:

Lease liabilities

Gift cards

Insurance reserves

Stock-based compensation

Federal credit carryover

Net operating losses

State credit carryover

Restructure charges and impairments

Deferred gain on sale leaseback transactions

Other, net

Less: Valuation allowance

Total deferred income tax assets

Deferred income tax liabilities:

Lease assets

Goodwill and other amortization

Depreciation and capitalized interest on property and equipment

Prepaid expenses

Other, net

Total deferred income tax liabilities

Deferred income taxes, net

$

313.7 $

13.7

12.2

11.0

7.3

3.2

2.8

1.4

—

10.3

(5.6)

370.0

275.5

21.6

19.8

14.4

0.5

331.8

27.5

12.3

11.5

9.9

9.0

3.7

2.6

3.0

68.6

11.2

(5.5)

153.8

2.2

20.6

4.3

13.6

1.1

41.8

$

38.2 $

112.0

Fiscal 2020 Deferred income taxes, net includes the deferred lease assets and liabilities related to the addition of
operating lease assets and liabilities from the adoption of ASC 842. Refer to Note 1 - Nature of Operations and
Summary of Significant Accounting Policies and Note 4 - Leases for further information on this adoption.

As of June 24, 2020, we have deferred tax assets of $4.0 million reflecting the benefit of state loss carryforwards,
before federal benefit and valuation allowance, which expire at various dates between fiscal 2021 and fiscal 2039.
We have deferred tax assets of $7.3 million of federal and $3.6 million of state tax credits, before federal benefit
and valuation allowance, which expire at various dates between fiscal 2024 and fiscal 2035. The recognized
deferred tax asset for the state loss carryforwards is $1.0 million and the federal tax credits is $7.3 million. The
federal credit carryover is limited by Section 382 of the Internal Revenue Code.

The valuation allowance increased by $0.1 million in fiscal 2020 to recognize certain state net operating loss
benefits and state tax credits management believes are not more-likely-than-not to be realized. In assessing whether
a deferred tax asset will be realized, we consider the likelihood of the realization, and the reversal of existing
taxable temporary differences, projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income, as of
June 24, 2020, 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.

76

CARES Act Impact

In the fourth quarter of fiscal 2020, the United States government passed a $2.0 trillion Coronavirus Aid, Relief and
Economic Security Act (“CARES Act”) designed primarily to help keep businesses running during and after the
pandemic. The CARES Act included provisions for certain deductions and tax credits, filing deadline extensions,
filing payment deadlines and making available certain grant money to assist in this pandemic. As of June 24, 2020,
this legislation will allow us to:

(cid:129)

(cid:129)

(cid:129)

Reduce our fiscal 2020 payroll tax liability by utilizing employee retention credits to assist with employee
payroll costs during this outbreak of $7.9 million

Amend our 2018 and 2019 U.S. Income Tax Returns in order to claim additional depreciation deductions
related to qualified improvement property that will allow us to generate aggregate refunds of $4.6 million,
and upon filing our fiscal 2020 U.S. Income Tax Return we anticipate to include a benefit related to the
additional depreciation on qualified improvement property of approximately $2.0 million

Defer the employer portion of certain payroll taxes, totaling $12.9 million which will be repaid in two
equal installments: on December 31, 2021, and December 31, 2022

Unrecognized Tax Benefits

A reconciliation of unrecognized tax benefits are as follows:

Balance at beginning of year

Additions based on tax positions related to the current year

Additions based on tax positions related to prior years

Settlements with tax authorities

Expiration of statute of limitations

Balance at end of year

June 24, 2020

June 26, 2019

$

$

3.5 $

0.3

—

0.0

(0.8)

3.0 $

3.9

0.4

—

(0.1)

(0.7)

3.5

The total amount of unrecognized tax benefits, excluding interest and penalties, that would affect income tax
expenses if resolved in our favor was $2.4 million and $2.7 million as of June 24, 2020 and June 26, 2019,
respectively. We do not expect any material changes to our liability for uncertain tax positions in the next 12
months.

We recognize accrued interest and penalties related to unrecognized tax benefits in Provision (benefit) for income
taxes in the Consolidated Statements of Comprehensive Income. As of June 24, 2020, we had $0.3 million
($0.2 million net of a $0.1 million Federal deferred tax benefit) of interest and penalties accrued, compared to
$0.3 million ($0.2 million net of a $0.1 million Federal deferred tax benefit) at June 26, 2019.

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 2020 to fiscal 2021, and fiscal 2017 to fiscal
2019 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 2020 and 2021 are currently under examination through the Internal
Revenue Service: Compliance Assurance Process (CAP) program. There are no unrecorded liabilities associated
with these examinations.

10. 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 principally in the United States, within the full-service casual dining segment of the

77

industry. The Chili’s segment also has Company-owned restaurants in Canada, and franchised locations in the
United States, 28 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.

Company sales include revenues generated by the operation of Company-owned restaurants including gift card
redemptions. Franchise and other revenues include Royalties and Franchise fees and other revenues. Franchise fees
and other revenues include gift card breakage, Maggiano’s banquet service charge income, franchise advertising
fees, delivery fee income, digital entertainment revenues, gift card equalization, franchise and development fees,
merchandise income, retail royalty revenues, and gift card discount costs from third-party gift card sales. We do not
rely on any major customers as a source of sales, and the customers and long-lived assets of our operating segments
are predominantly 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. Company restaurant expenses include Food and beverage costs, Restaurant labor, and Restaurant
expenses. Restaurant expenses during the years presented primarily included restaurant rent, supplies, property and
equipment maintenance, utilities, advertising expenses, credit card processing fees and property taxes. The
following tables reconcile our segment results to the consolidated results reported in accordance with GAAP:

Company sales

Royalties

Franchise fees and other revenues

Franchise and other revenues

Total revenues

Company restaurant expenses(1)

Depreciation and amortization

General and administrative

Other (gains) and charges

Total operating costs and expenses

Operating income (loss)

Interest expenses

Other (income), net

Income (loss) before income taxes

Segment assets(3)

Payments for property and equipment

Fiscal Year Ended June 24, 2020

Chili’s(2)

Maggiano’s

Other

Consolidated

$

2,673.5 $

331.4 $

— $

3,004.9

33.7

24.5

58.2

2,731.7

2,363.2

133.9

32.1

35.3

2,564.5

167.2

4.6

(0.6)

0.2

15.2

15.4

346.8

306.1

15.4

5.7

6.8

334.0

12.8

—

—

—

—

—

—

0.6

13.0

98.5

5.3

33.9

39.7

73.6

3,078.5

2,669.9

162.3

136.3

47.4

117.4

3,015.9

(117.4)

55.0

(1.3)

62.6

59.6

(1.9)

4.9

163.2 $

12.8 $

(171.1) $

1,967.3 $

228.2 $

160.5 $

88.2

8.1

8.2

2,356.0

104.5

$

$

78

Company sales

Royalties

Franchise fees and other revenues

Franchise and other revenues

Total revenues

Company restaurant expenses(1)

Depreciation and amortization

General and administrative

Other (gains) and charges(4)

Total operating costs and expenses

Operating income (loss)

Interest expenses

Other (income), net

Income (loss) before income taxes

Segment assets

Payments for property and equipment

Company sales

Franchise and other revenues

Total revenues

Company restaurant expenses(1)

Depreciation and amortization

General and administrative

Other (gains) and charges

Total operating costs and expenses

Operating income (loss)

Interest expenses

Other (income), net

Income (loss) before income taxes

Payments for property and equipment

Fiscal Year Ended June 26, 2019

Chili’s

Maggiano’s

Other

Consolidated

$

2,692.6 $

413.6 $

— $

3,106.2

52.8

36.8

89.6

2,782.2

2,329.6

120.1

38.7

(6.4)

2,482.0

300.2

3.2

—

0.3

21.8

22.1

435.7

364.8

16.2

6.1

1.0

388.1

47.6

0.3

—

—

—

—

—

0.6

11.3

104.3

0.9

117.1

(117.1)

58.1

(2.7)

297.0 $

47.3 $

(172.5) $

53.1

58.6

111.7

3,217.9

2,695.0

147.6

149.1

(4.5)

2,987.2

230.7

61.6

(2.7)

171.8

1,002.8 $

163.9 $

129.1

10.8

91.6 $

27.7

1,258.3

167.6

$

$

Fiscal Year Ended June 27, 2018

Chili’s

Maggiano’s

Other

Consolidated

$

2,628.3 $

413.2 $

— $

3,041.5

71.9

2,700.2

2,224.0

125.0

39.6

24.5

2,413.1

287.1

—

—

22.0

435.2

362.8

15.9

5.5

1.1

385.3

49.9

—

—

—

—

0.6

10.5

90.9

8.9

93.9

3,135.4

2,587.4

151.4

136.0

34.5

110.9

2,909.3

(110.9)

59.0

(3.1)

226.1

59.0

(3.1)

170.2

$

$

287.1 $

49.9 $

(166.8) $

85.3 $

7.6 $

8.4 $

101.3

(1)

Company restaurant expenses include Food and beverage costs, Restaurant labor and Restaurant expenses,
including advertising expenses. Fiscal 2020 and fiscal 2019, are presented under the ASC 606 revenue
accounting standard such that advertising contributions received from Chili’s franchisees are recorded as
Franchise fees and other revenues, which differs from fiscal 2018 that included advertising contributions
on a net basis within Company restaurant expenses.

79

(2)

(3)

(4)

Chili’s segment information for fiscal 2020 includes the results of operations and fair value of assets and
goodwill related to the 116 restaurants purchased from a former franchisee since the September 5, 2019
acquisition date. Refer to Note 3 - Chili’s Restaurant Acquisition for further details.

Segment assets for fiscal 2020 are presented in accordance with the newly adopted ASC 842 lease
accounting standard that now include Operating lease assets. Refer to Note 4 - Leases for further details.

Other (gains) and charges in fiscal 2019 included the net impact from our completed sale leaseback
transactions of 151 Company-owned Chili’s restaurant properties and one Maggiano’s property. As part of
this transaction, we sold the related restaurant fixed assets, net of accumulated depreciation, totaling
$185.3 million. Chili’s recognized a $26.8 million, and Maggiano’s recognized a $0.5 million gain on the
sale, including a certain portion of the deferred gain, net of related transaction costs incurred in Other
(gains) and charges in the Consolidated Statements of Comprehensive Income. Refer to Note 4 - Leases for
further details.

11. GOODWILL AND INTANGIBLES

We performed our annual impairment test in the second quarter of fiscal 2020 by utilizing the qualitative approach
and determined that there were no events or circumstances to indicate that it was more likely than not that the fair
value of our reporting units was less than their carrying values. During the third of fiscal 2020, we also performed a
quantitative assessment of our goodwill due to the COVID-19 pandemic impact on our business and determined
that the fair value of our reporting units was substantially in excess of the carrying values. No indicators of
impairment were identified through the end of fiscal 2020. Refer to Note 2 - Novel Coronavirus Pandemic for
additional disclosures around goodwill and the related COVID-19 assessments.

There have been no impairments of Goodwill for the fiscal years ended June 24, 2020, June 26, 2019 and June 27,
2018. The changes in the carrying amount of Goodwill by segment are as follows:

June 24, 2020

June 26, 2019

Chili’s

Maggiano’s Consolidated

Chili’s

Maggiano’s Consolidated

Balance at beginning of year

$

127.1 $

38.4 $

165.5 $

125.4 $

38.4 $

163.8

Changes in goodwill:

Additions(1)

Foreign currency translation adjustment

22.4

(0.3)

—

—

22.4

(0.3)

1.6

0.1

—

—

1.6

0.1

Balance at end of year

$

149.2 $

38.4 $

187.6 $

127.1 $

38.4 $

165.5

(1)

In the fiscal years ended June 24, 2020 and June 26, 2019, we acquired 116 and three domestic Chili’s
restaurants, respectively, previously owned by franchise partners. Refer to Note 3 - Chili’s Restaurant
Acquisition for information about the fiscal 2020 acquisition.

80

Intangible assets, net are as follows:

Definite-lived intangible assets

Chili’s reacquired franchise rights(1)
Chili’s other

Indefinite-lived intangible assets

Chili’s liquor licenses

Maggiano’s liquor licenses

$

$

$

$

June 24, 2020

June 26, 2019

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

19.8 $

0.4

20.2 $

(7.1) $

(0.4)

(7.5) $

12.7 $

13.3 $

0.0

5.6

12.7 $

18.9 $

(5.5) $

(1.5)

(7.0) $

7.8

4.1

11.9

9.4

0.9

10.3

$

$

9.5

0.9

10.4

(1)

We recorded an impairment charges of $0.2 million in fiscal 2020, and $0.5 million in fiscal 2019, in Other
(gains) and charges in the Consolidated Statements of Comprehensive Income. Refer to Note 8 - Other
Gains and Charges and Note 16 - Fair Value Measurements and for additional disclosures.

Additions, net of accumulated amortization of $6.2 million in fiscal 2020 were recorded related to the
reacquired franchise rights associated with the 116 acquired Chili’s restaurants previously owned by a
franchise partner.

is included in the gross carrying amount and accumulated
Foreign currency translation impact
amortization, and was a loss of $0.1 million and gain of $0.1 million for fiscal 2020 and fiscal 2019,
respectively.

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 24, 2020

June 26, 2019

June 27, 2018

Definite-lived intangible amortization expense

$

1.9 $

1.2 $

1.3

Annual amortization expenses for definite-lived intangible assets are estimated to be $2.0 million for each of the
next three fiscal years, $1.9 million in fiscal 2024, and $1.6 million in fiscal 2025.

12. DEBT

Long-term debt consists of the following:

Revolving credit facility

5.000% notes

3.875% notes

Finance lease obligations

Total long-term debt

Less: unamortized debt issuance costs and discounts

Total long-term debt, less unamortized debt issuance costs and discounts

Less: current installments of long-term debt(1)

Long-term debt less current installments

81

June 24, 2020

June 26, 2019

$

472.9 $

350.0

300.0

102.1

1,225.0

(4.3)

1,220.7

(12.2)

523.3

350.0

300.0

48.4

1,221.7

(5.4)

1,216.3

(9.7)

$

1,208.5 $

1,206.6

(1)

Current installments of long-term debt consist only of finance leases for the periods presented and are
recorded within Other accrued liabilities in the Consolidated Balance Sheets. Refer to Note 13 - Accrued
and Other Liabilities for further details.

Excluding finance lease obligations and interest, our long-term debt maturities for the five fiscal years following
June 24, 2020 and thereafter are as follows:

Fiscal Year

2021

2022

2023

2024

2025

Thereafter

Long-Term Debt

$

—

472.9

300.0

—

350.0

—

$

1,122.9

Revolving Credit Facility

During fiscal 2020, net repayments of $50.4 million were made on the $1.0 billion revolving credit facility from
funds received from the common stock issuance during the fourth quarter of fiscal 2020, partially offset by cash
used to fund ongoing business operations, the acquisition of Chili’s restaurants (refer to Note 3 - Chili’s Restaurant
Acquisition) and share repurchases. As of June 24, 2020, $527.1 million of credit was available under the revolving
credit facility.

The revolving credit facility generally bears interest of LIBOR plus an applicable margin, which is a function of
our credit rating and debt-to-cash-flow ratio, but as of June 24, 2020 was subject to a maximum of LIBOR plus
2.350% on drawn funds. As of June 24, 2020, our interest rate was 3.100% that consisted of 2.350% plus LIBOR,
subject to a floor of 0.750%. We are also subject to a 40 basis points facility fee on the $1.0 billion.

During fiscal 2020, we executed three amendments to our revolving credit facility, which modified the maturity
date of the facility, provided additional financial flexibility, and added certain restrictions as follows:

(cid:129)

(cid:129)

(cid:129)

(cid:129)

(cid:129)

Modified the maturity date of the $110.0 million portion of the facility to expire on September 12, 2021,
which coincides with the maturity date for the $890.0 million portion

Secured a waiver of compliance with financial covenants effective the third quarter of fiscal 2020 until the
end of the third quarter of fiscal 2021

Imposed a minimum liquidity covenant (defined as availability under the revolving credit facility plus
unrestricted cash and cash equivalents) to require at least $175.0 million through the third quarter of fiscal
2021

Increased interest rates temporarily, from the fourth quarter of fiscal 2020 through the third quarter of fiscal
2021, to be fixed at LIBOR plus 2.350%. After this temporary period, the interest rate will return to
LIBOR plus an applicable margin, which is a function of our credit rating and debt to cash flow ratio, but is
subject to a maximum of LIBOR plus 1.700%. Additionally the LIBOR floor was permanently increased to
0.750%

Increased facility fee temporarily to 40 basis points from the fourth quarter of fiscal 2020 through the third
quarter of fiscal 2021. After this temporary period, the facility fee will return to a set fee schedule which is
a function of our credit rating, but is subject to a maximum of 30 basis points

82

(cid:129)

(cid:129)

Prohibited from making dividends, stock repurchases and investments from the fourth quarter of fiscal
2020 through the third quarter of fiscal 2021, and following this period, we will be subject
to a
$50.0 million aggregate limitation on dividends, stock repurchases and investments

Expanded the collateral securing the revolving credit facility, including intellectual property, among other
things, and provided additional subsidiary guarantees

We have incurred $3.2 million of debt issuance costs associated with these amendments, which are included in
Other assets in the Consolidated Balance Sheets at June 24, 2020.

Subsequent to fiscal 2020 year-end, on July 23, 2020, we executed the seventh amendment to our revolving credit
facility. This amendment extends the maturity date to December 12, 2022, and has a required commitment
reduction to $900.0 million on September 12, 2021 if the commitments have not previously been reduced to or
below such commitment level by the issuance of certain debt or preferred equity interests. The revolving credit
facility will bear interest of LIBOR, through December 2021, plus an applicable margin of between 2.250% to
3.000%, and an undrawn commitment fee of 0.350% to 0.500%, both based on a function of our debt-to-cash-flow
ratio. In the event of incurrence of more than $250.0 million of certain debt, our interest rate will be further lowered
by 0.250%, and the facility fee lowered by 0.100%. Upon LIBOR’s expiration in December 2021, our interest rate
will be a function of a similar, publicly available, Eurodollar rate.

5.000% Notes

In fiscal 2017, we completed the private offering of $350.0 million of our 5.000% senior notes due October 2024,
our fiscal 2025 (the “2025 Notes”). We received proceeds of $350.0 million and utilized the proceeds to fund a
$300.0 million accelerated share repurchase agreement and to repay $50.0 million on the amended $1.0 billion
revolving credit facility. The notes require semi-annual interest payments which began on April 1, 2017.

The indenture for the 2025 Notes contains certain covenants, including, but not limited to, limitations and
restrictions on the ability of the Company and its Restricted Subsidiaries (as defined in the indenture) 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 substantially all of their property.
These covenants are subject to a number of important conditions, qualifications, exceptions and limitations.

3.875% Notes

In fiscal 2013, we issued $300.0 million of 3.875% notes due in May 2023, our fiscal 2023. The 2023 Notes
require semi-annual interest payments which began in the second quarter of fiscal 2014.

Financial Covenants

Our debt agreements contain various financial covenants that, among other things, require the maintenance of
certain leverage and fixed charge coverage ratios. As of June 24, 2020, pursuant to the amendments to the
revolving credit facility described above, and under the terms of the indentures governing our 2023 Notes and 2025
Notes, we are in compliance with our covenants. We expect to remain in compliance with our covenants during the
fiscal 2021 year.

83

13. ACCRUED AND OTHER LIABILITIES

Other accrued liabilities consist of the following:

Property tax

Insurance

Sales tax

Current installments of finance leases

Interest

Cyber security incident

Dividends(1)

Deferred franchise and development fees

Deferred sale leaseback gains(2)

Straight-line rent(2)

Landlord contributions(2)

Other(3)

June 24, 2020

June 26, 2019

$

22.9 $

20.7

13.3

12.2

7.5

3.4

1.5

1.1

—

—

—

18.0

$

100.6 $

17.3

17.9

14.6

9.7

7.5

0.8

14.9

1.4

19.3

5.1

2.7

29.9

141.1

(1)

(2)

(3)

Dividends included the current dividend payable on dividends previously accrued related to restricted share
awards that will vest in the next year. Other liabilities contain the dividends accrued related to restricted
shares that will vest after one year. No dividends were declared in the fourth quarter of fiscal 2020, refer to
Note 15 - Shareholders’ Deficit for further details.

Deferred sale leaseback gains at June 26, 2019 related to the current portion of the deferred gain on the sale
leaseback transactions executed during the fiscal 2019. Upon the adoption of ASC 842, in fiscal 2020, the
Deferred sale leaseback gains were eliminated as a cumulative effect adjustment to Retained earnings.
Additionally, Straight-line rent and Landlord contributions balances were reclassified as a decrease to
Operating lease assets upon the adoption of ASC 842. Refer to Note 4 - Leases for further details.

Other primarily consisted of accruals for utilities and services, banquet deposits for Maggiano’s events,
rent-related expenses, charitable donations, certain exit-related lease accruals and other various accruals.
Accrual balances for certain exit-related lease accruals and rent-related expenses were reclassified as a
decrease to Operating lease assets upon the adoption of ASC 842. Refer to Note 4 - Leases for further
details.

Other liabilities consist of the following:

Insurance

Deferred payroll taxes(1)

Deferred franchise fees

Unrecognized tax benefits

Straight-line rent(2)

Landlord contributions(2)

Unfavorable leases(2)

Other

June 24, 2020

June 26, 2019

$

33.7 $

12.9

11.6

2.1

—

—

—

6.8

36.8

—

14.8

2.1

57.2

32.9

2.8

6.4

$

67.1 $

153.0

84

(1)

(2)

Deferred payroll taxes related to the fiscal 2020 deferment of the employer portion of certain social
security taxes as allowed by the CARES Act. Refer to Note 9 - Income Taxes for more information.

Straight-line rent, Landlord contributions and Unfavorable leases balances were reclassified as a decrease
to Operating lease assets upon the adoption of ASC 842. Refer to Note 4 - Leases for more details.

14. 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 (collectively, and as may be amended, the “Plans”). The Plans provide for grants of options to
purchase our common stock, 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.

In fiscal 2019, our shareholders approved and we registered an additional 1.4 million shares of common stock of
Brinker International, Inc. available for issuance under the Employee Plan. The total number of shares authorized
for issuance to employees and non-employee directors and consultants under the Plans at June 24, 2020 is
38.7 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:

Stock-based compensation expenses

Tax benefit related to stock-based compensation expenses

Stock Options

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

14.7 $

2.5

16.4 $

3.0

14.2

4.3

In fiscal 2019 and fiscal 2018, certain eligible employees under the Plans were granted performance stock options
whose vesting is contingent upon meeting Company performance goals based on our annual earnings at the end of
fiscal 2021 and 2022. Expenses for performance stock options are recognized using a graded-vesting schedule over
the vesting period based upon management’s periodic estimates of the number of stock options that ultimately will
vest. The options vest over a period of 4 to 5 years and have a contractual term to exercise of no later than
August 31, 2025.

Stock options that do not contain a performance condition were also granted to eligible employees in fiscal 2020,
fiscal 2019 and fiscal 2018, consistent with prior year grants. 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.

85

Stock option transactions during fiscal 2020 were as follows (option prices in dollars):

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Life (Years)

Aggregate
Intrinsic
Value

Number of
Options

Stock options outstanding at June 26, 2019

Granted

Exercised

Forfeited or canceled

Stock options outstanding at June 24, 2020

2.5 $

0.3

0.0

(0.1)

2.7 $

41.33

35.33

29.07

44.75

40.68

Stock options exercisable at June 24, 2020

1.0 $

45.32

4.8 $

3.4 $

0.3

0.0

During fiscal 2019, we modified certain fiscal 2018 performance-based stock option awards and 0.2 million
options were canceled. We subsequently granted fiscal 2019 performance-based stock option awards of 0.4 million
options with a grant date fair value equivalent to the fair value of the canceled fiscal 2018 options as of the
modification date. Vesting of the fiscal 2019 performance-based options is conditioned on achievement of the same
performance targets and vest on the same schedule as the fiscal 2018 performance-based stock options. There is no
incremental compensation cost as a result of this modification.

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

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

Weighted average fair values of option grants

$

6.92

$

8.25

$

33.4%

1.3%

27.2%

2.9%

5 years

5 years

6 years

3.2%

3.5%

4.4%

4.51

25.2%

1.9%

Expected volatility

Risk-free interest rate

Expected lives

Dividend yield

Expected volatility and the expected life of stock options are based on historical experience. The risk-free rate is
based on the yield of a United States Treasury Note with a term equal to the expected life of the stock options. The
dividend yield is based on the most recent quarterly dividend per share declared and the closing stock price on the
declaration date.

At June 24, 2020, unrecognized compensation expenses related to stock options totaled approximately $1.9 million
and will be recognized over a weighted average period of 1.8 years. The intrinsic value and related tax benefit of
options exercised is as follows:

Intrinsic value of options exercised

Tax benefit realized on options exercised

Restricted Share Awards

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

0.6 $

0.1

1.8 $

0.4

2.5

0.6

Restricted share awards consist of performance shares, restricted stock and restricted stock units. Eligible
employees under the Plans were granted performance shares whose vesting is contingent upon meeting Company
performance goals based on our rate of earnings growth at the end of a three-fiscal-year period. 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 ultimately will be issued.

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Restricted stock units granted to eligible employees under the Plans generally vest in full on the third anniversary
of 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 share awards and restricted stock units granted to non-employee directors under the Plans generally vest
in full on the fourth anniversary of the date of grant or upon each director’s retirement from the Board. The
non-employee directors’ awards are non-forfeitable and are expensed upon grant.

Restricted share awards during fiscal 2020 were as follows (fair value per award in dollars):

Restricted share awards outstanding at June 26, 2019

Granted

Vested

Forfeited

Restricted share awards outstanding at June 24, 2020

Number of
Restricted
Share
Awards

Weighted
Average
Grant Date
Fair Value
Per Award

1.0 $

0.4

(0.2)

(0.1)

1.1 $

39.48

37.86

50.61

38.77

37.17

At June 24, 2020, unrecognized compensation expenses related to restricted share awards totaled approximately
$7.5 million and will be recognized over a weighted average period of 1.8 years. The fair value of shares that
vested is as follows:

Fair value of restricted share awards vested

$

6.6 $

8.6 $

4.3

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

15. SHAREHOLDERS’ DEFICIT

Common Stock Issuance

In the fourth quarter of fiscal 2020, we sold 8.1 million shares of our common stock at a price to the public of
$18.25 per share. Total net proceeds raised from the offering were $139.1 million, after deducting the professional
expenses. This common stock issuance was executed in part to provide additional capital through the course of the
COVID-19 pandemic and for general corporate purposes.

Retirement of Treasury Stock

In fiscal 2020, the Board of Directors approved the retirement of 114.0 million shares of Treasury stock for a
weighted average price per share of $29.45. As of June 24, 2020, 25.3 million shares remain in treasury.

Effect of Accounting Standards Adoption

In fiscal 2020, we adopted the lease accounting standard, ASC 842, and recorded a $195.9 million cumulative
effect adjustment increase to Retained earnings for the change in accounting principle. Refer to Note 4 - Leases for
further details. In fiscal 2019, we adopted the revenue recognition standard, ASC 606, and recorded a $7.4 million
cumulative effect adjustment decrease to Retained earnings for the change in accounting principle.

Dividends

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and

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local governments in response to COVID-19. Additionally, the amended revolving credit facility restricts our
ability to pay dividends until the fourth quarter of fiscal year 2021, and subjects any dividends paid thereafter,
along with share purchases and investments, to an aggregate cap. Following the expiration of these restrictions
under our amended revolving credit facility, in the fourth quarter of fiscal year 2021, the Board of Directors will
reevaluate the suspension based on current business conditions at that time. There is significant uncertainty
regarding the future impact of the pandemic on the restaurant industry and the broader U.S. economy.

Before this suspension, our Board of Directors approved quarterly dividends of $0.38 per share paid each quarter.
During the fifty-two week periods ended June 24, 2020 and June 26, 2019, we paid dividends of $57.4 million and
$60.3 million to common stock shareholders, respectively.

Share Repurchases

In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend our share repurchase program due to
uncertainty surrounding the duration of closures of our dining rooms and other restrictions mandated by state and
local governments in response to COVID-19. Additionally, the amended revolving credit facility restricts our
ability to repurchase shares until the fourth quarter of fiscal year 2021, and subjects any share purchases thereafter,
along with dividends paid and investments, to an aggregate cap. Our share repurchase program has been 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.

Before this suspension, we repurchased approximately 0.8 million and 3.6 million shares of our common stock for
$32.4 million and $167.7 million in fiscal 2020 and fiscal 2019, respectively. In fiscal 2019, our Board of Directors
authorized a $300.0 million increase to our existing share repurchase program resulting in total authorizations of
$4.9 billion. As of June 24, 2020, approximately $166.8 million was available in the suspended share repurchase
program.

16. FAIR VALUE MEASUREMENTS

Non-Financial Assets Measured on a Non-Recurring Basis

We review the carrying amounts of long-lived property and equipment, operating lease assets, reacquired franchise
rights and transferable liquor licenses semi-annually or when events or circumstances indicate that the fair value
may not substantially exceed the carrying amount. We 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 8 - Other Gains and Charges for
more information.

Based on our fiscal 2020 semi-annual reviews, we impaired certain long-lived property and equipment, reacquired
franchise rights and operating lease assets primarily related to 25 underperforming Chili’s and three
underperforming Maggiano’s restaurants. Additionally, we impaired certain finance and operating lease assets
related to closed Chili’s restaurants. We considered the impact of the COVID-19 pandemic as a potential triggering
event for impairment analysis in the third quarter of fiscal 2020, and in our regular fourth quarter of fiscal 2020
impairment analysis, refer to Note 2 - Novel Coronavirus Pandemic for further details. In fiscal 2019, we impaired
certain long-lived assets primarily related to 11 underperforming Chili’s restaurants as part of our regular analysis.

88

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 expenses recorded on these impaired and closed restaurants for the
periods presented:

Underperforming restaurants

Long-lived assets

Reacquired franchise rights assets

Operating lease assets

Finance lease assets

Total underperforming restaurants

Closed restaurants

Operating lease assets

Finance lease assets

Total closed restaurants

Pre-Impairment Carrying Value

Fifty-Two Week Periods Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Impairment Charges

$

$

$

$

16.7 $

10.3 $

16.7 $

0.2

18.5

0.1

0.5

—

—

0.2

2.1

0.1

35.5 $

10.8 $

19.1 $

6.4 $

5.8

12.2 $

— $

—

— $

1.8 $

1.4

3.2 $

10.3

0.5

—

—

10.8

—

—

—

We determine the fair value of transferable liquor licenses based on prices in the open market for licenses in the
same or similar jurisdictions that is considered Level 2. Based on our semi-annual review, during fiscal 2020 and
fiscal 2019, we determined there was no impairment.

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. The carrying amount of debt outstanding
related to the amended revolving credit facility approximates fair value as the interest rate on this instrument
approximates current market rates (Level 2). The fair values of the 3.875% and 5.000% notes are based on quoted
market prices and are considered Level 2 fair value measurements.

The 3.875% notes and 5.000% notes carrying amounts, which are net of unamortized debt issuance costs and
discounts, and fair values are as follows, refer to Note 12 - Debt for further details:

3.875% notes

5.000% notes

June 24, 2020

June 26, 2019

Carrying Amount

Fair Value

Carrying Amount

Fair Value

$

299.0 $

346.7

282.8 $

330.8

298.6 $

345.9

296.3

356.2

The decrease in fair value of the 3.875% notes and 5.000% notes from June 26, 2019 to June 24, 2020 was due to
the impact of the COVID-19 pandemic.

During fiscal 2018, we received an $18.0 million long-term note receivable as consideration related to the sale of
our equity interest in the Chili’s joint venture in Mexico. We determined the fair value of this note based on an
internally developed analysis relying on Level 3 inputs at inception. This analysis was based on a credit rating we
assigned to the counterparty and comparable interest rates associated with similar debt instruments observed in the
market. As a result of this analysis, we determined the fair value of this note was approximately $16.0 million and
recorded this fair value as its initial carrying value. We believe the fair value continues to approximate the note
receivable carrying value, which as of June 24, 2020 was $7.3 million. The current portion of the note represents
cash payments to be received over the next 12 months and is included within Accounts receivable, net while the

89

long-term portion of the note is included within Other assets in the Consolidated Balance Sheets. Refer to Note 6 -
Equity Method Investment for further details about this note receivable.

17. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes and interest is as follows:

Income taxes, net of (refunds)(1)

Interest, net of amounts capitalized

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

$

(7.2) $

106.2 $

53.1

55.5

56.0

53.1

(1)

Income taxes, net of (refunds) for the fiscal year ended June 24, 2020 included the receipt of a refund in
fiscal 2020, partially offset by current year payments. Income taxes, net of (refunds) for the fiscal year
ended June 26, 2019 included payments made for income tax liabilities resulting from sale leaseback
transactions completed in fiscal 2019. Refer to Note 4 - Leases and Note 9 - Income Taxes for further
details.

Non-cash investing and financing activities are as follows:

Fiscal Years Ended

June 24, 2020

June 26, 2019

June 27, 2018

Retirement of fully depreciated assets

$

32.3 $

28.9 $

Dividends declared but not paid

Accrued capital expenditures

Capital lease additions(1)

1.2

7.1

—

15.6

9.3

15.1

32.9

17.0

11.3

7.9

(1)

Capital lease additions for the fiscal year ended June 24, 2020 are now disclosed as part of the finance
lease disclosures in Note 4 - Leases, “Consolidated Statement of Cash Flows Disclosure of Lease
Amounts” section.

18. 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 24, 2020 and June 26, 2019, we have outstanding lease guarantees
or are secondarily liable for $39.7 million and $55.3 million, respectively. These amounts represent the maximum
potential liability of future rent payments under the leases. These leases have been assigned to the buyers and
expire at the end of the respective lease terms, which range from fiscal 2021 through fiscal 2027. Our secondary
liability position was reduced approximately $9.3 million in fiscal 2020 due to certain leases associated with the
acquisition of 116 restaurants from a franchisee, refer to Note 3 - Chili’s Restaurant Acquisition for further details.
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. In the fourth quarter of fiscal 2020, we received some notices of default
pertaining to these leases in circumstances that large divested brands did not pay full rent due to the COVID-19
pandemic. These brands are in communications with the landlords to defer or resolve payments and therefore we
believe the loss is not probable at this time. We will continue to closely monitor this situation.

Letters of Credit

We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of June 24,
2020, we had $27.2 million in undrawn standby letters of credit outstanding. All standby letters of credit are
renewable within the next 3 to 12 months.

90

Cyber Security Incident

In fiscal 2018, we issued a public statement that malware had been discovered at certain Chili’s restaurants that
may have resulted in unauthorized access or acquisition of customer payment card data. Based on investigation by
our third-party forensic experts, we believe most Company-owned Chili’s restaurants were impacted by the
malware during time frames that vary by restaurant, but we believe in each case began no earlier than March 21,
2018 and ended no later than April 22, 2018.

We expect to incur legal and professional services expenses associated with the cyber security incident in future
periods, and will recognize these expenses as services are received. We will record an estimate for any additional
losses at the time when it is both probable that a loss has been incurred and the amount of the loss is reasonably
estimable. We have settled claims from three payment card companies, and the settlement amounts are included in
the costs described in the following paragraph.

To limit our exposure to cyber security events, we maintain cyber liability insurance coverage. This coverage and
certain other insurance coverage may reduce our exposure for this incident. Our cyber liability insurance policy
contains a $2.0 million retention that was fully accrued during fiscal 2018. Since the incident, through June 24,
2020, we have incurred total cumulative costs of $8.0 million related to the cyber security incident. This includes
the $2.0 million retention recorded in fiscal 2018, $1.9 million in costs that have been reimbursed by our insurance
carriers, and $3.6 million of receivable for costs incurred that we believe are reimbursable and probable of recovery
under our insurance coverage, an additional $0.4 million during fiscal 2019 and $0.1 million during fiscal 2020 for
expenses not believed to be covered by our insurance coverage recorded to Other (gains) and charges in the
Consolidated Statements of Comprehensive Income.

The Company was named as a defendant in a putative class action lawsuit in the United States District Court for
the Middle District of Florida styled In re: Brinker Data Incident Litigation, Case No. 18-cv-00686-TJC-MCR (the
“Litigation”) relating to the cyber security incident described above. In the Litigation, plaintiffs assert various
claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer
payment card information and seek monetary damages in excess of $5.0 million, injunctive and declaratory relief,
and attorney’s fees and costs. On January 4, 2019, we filed a Motion to Dismiss all of plaintiffs’ claims asserting
that plaintiffs do not have standing to bring the lawsuit and that plaintiffs have failed to state a claim on which
relief can be granted.

On August 1, 2019, the court granted our Motion to Dismiss for lack of standing as to two plaintiffs and denied the
motion as to the remaining plaintiffs. On January 28, 2020, the court granted in part and denied in part the
remaining portion of our Motion to Dismiss. On March 5, 2020, the court granted our Motion for Protection in its
entirety. On April 15, 2020 the court entered a first phase scheduling order establishing August 31, 2020 as
Plaintiffs’ deadline to file their motion for class certification and November 19, 2020 as the date for hearing
Plaintiffs’ motion. The parties selected a mediator and the discovery process has resumed. We believe we have
defenses and intend to continue defending the Litigation. As such, as of June 24, 2020, 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 complex process involving subjective judgment on the potential
outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis.
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

91

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.

19. EFFECT OF NEW ACCOUNTING STANDARDS

ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments - In June 2013, the FASB issued ASU
2016-13, creating ASC Topic 326 – Financial Instruments – Credit Losses. ASU 2016-13 is intended to improve
financial reporting by requiring timelier recording of credit losses on financial assets measured at amortized cost
basis (including, but not limited to loans), net investments in leases recognized as lessor and off-balance sheet
credit exposures. ASU 2016-13 eliminates the probable initial recognition threshold under the current incurred loss
methodology for recognizing credit losses. Instead, ASU 2016-13 requires the measurement of all expected credit
losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. The new guidance is effective for public entities for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal years, which will require us to adopt these
provisions in the first quarter of fiscal 2021. We expect to adopt this update in the first quarter of fiscal 2021 and do
not expect the adoption of this guidance to have a material impact in the Consolidated Financial Statements.

ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, which modifies the
disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments
under ASU 2018-13 add an incremental requirement, among others, for entities to disclose (1) the range and
weighted average used to develop significant unobservable inputs and (2) how the weighted average was calculated
for fair value measurements categorized within Level 3 of the fair value hierarchy. Entities may disclose other
quantitative information in lieu of the weighted average if they determine that such information embodies a more
reasonable and rational method of reflecting the distribution of significant unobservable inputs used to develop
Level 3 fair value measurements. The new guidance is effective for all entities for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years, which will require us to adopt these provisions in
the first quarter of fiscal 2021. Early adoption is permitted. We expect to adopt this update in the first quarter of
fiscal 2021 and do not expect the adoption of this guidance to have a material impact in the Consolidated Financial
Statements.

ASU No. 2019-12, Simplifying the Accounting for Income Taxes - In December 2019, the FASB issued ASU
2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod
allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in
certain areas,
including recognizing deferred taxes for tax goodwill and allocating taxes to members of a
consolidated group. The new guidance is effective for public entities for fiscal years beginning after December 15,
2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first
quarter of fiscal 2022. Early adoption is permitted. We anticipate to adopt this update in the first quarter of fiscal
2021 and do not expect the adoption of this guidance to have a material impact in the Consolidated Financial
Statements.

92

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables summarize the unaudited consolidated quarterly results of operations for fiscal 2020 and fiscal
2019 (in millions, except per share amounts):

Revenues

Income (loss) before income taxes

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

Revenues

Income before income taxes

Net income

Basic net income per share

Diluted net income per share

Basic weighted average shares outstanding

Diluted weighted average shares outstanding

21. SUBSEQUENT EVENTS

Revolver Amendment & Net Borrowings

$

$

$

$

$

$

$

$

$

$

Fiscal Year Ended June 24, 2020

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

786.0 $

869.3 $

860.0 $

16.8 $

14.9 $

0.40 $

0.39 $

37.5

38.1

29.0 $

27.9 $

0.75 $

0.73 $

37.4

38.1

27.2 $

30.8 $

0.83 $

0.81 $

37.2

37.8

563.2

(68.1)

(49.2)

(1.20)

(1.20)

40.9

40.9

Fiscal Year Ended June 26, 2019

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

753.8 $

790.7 $

839.3 $

834.1

32.1 $

26.4 $

0.65 $

0.64 $

40.4

41.1

35.0 $

32.0 $

0.84 $

0.83 $

38.1

38.8

55.5 $

49.8 $

1.33 $

1.31 $

37.5

38.1

49.2

46.7

1.25

1.22

37.5

38.3

Subsequent to fiscal 2020 year-end, on July 23, 2020, we executed the seventh amendment to our revolving credit
facility. Please refer to Note 12 - Debt for specifics on this amendment.

Additionally, net borrowings of $18.4 million were drawn on the revolving credit facility subsequent to the end of
the fiscal year, as of the date that this Annual Report on Form 10-K was filed.

93

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 24, 2020 and June 26, 2019, the related consolidated statements of comprehensive income,
shareholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended June 24, 2020, 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 24, 2020 and
June 26, 2019, and the results of its operations and its cash flows for each of the fiscal years in the three-year
period ended June 24, 2020, 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 24, 2020, 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 21, 2020 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of
accounting for revenue from contracts with customers as of June 28, 2018 due to the adoption of Accounting
Standards Codification Topic 606, Revenue from Contracts with Customers. As discussed in Notes 1 and 4 to the
consolidated financial statements, the Company has changed its method of accounting for leases as of June 27,
2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

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

The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that:
(1) relate 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 critical audit matters does not

94

alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.

Assessment of the carrying value of goodwill

As discussed in Notes 2 and 11 to the consolidated financial statements, the Company performs goodwill
impairment testing on an annual basis and whenever events and changes in circumstances indicate that the
carrying value might be impaired. The total goodwill balance as of June 24, 2020 was $187.6 million, of
which $149.2 million was allocated to the Chili’s reporting unit and $38.4 million was allocated to the
Maggiano’s reporting unit. In March 2020, the impact from the spreading of a novel strain of coronavirus
(“COVID-19”) pandemic was declared a National Public Health Emergency and resulted in a significant
reduction in sales at the Company’s restaurants due to changes in consumer behavior as social distancing
practices, dining room closures and other restrictions were mandated or encouraged by federal, state and
local governments. This also resulted in a significant decline in market capitalization at March 25, 2020,
the end of the Company’s fiscal third quarter. As a result, the Company determined that a triggering event
had occurred, which required the performance of a goodwill impairment test to assess the carrying value of
goodwill. The Company determined that goodwill was not impaired.

We identified the assessment of the carrying value of goodwill as a critical audit matter. Significant auditor
judgment, and the need to involve professionals with specialized skills in valuation methodology, was
required to evaluate the forecasted future revenues and the discount rate used in the discounted cash flow
model to determine the fair values of the Company’s reporting units. In addition, due to the impact of
COVID-19 on the Company’s business, there was significant uncertainty associated with these inputs.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s goodwill impairment assessment process, including
controls related to the development of the inputs described above. We evaluated the Company’s forecasted
revenue assumptions by comparing historical revenue and guest traffic patterns to the Company’s estimate
of future patterns as restaurants began to resume dine-in service. We compared the Company’s forecasted
revenue assumptions to actual results subsequent to the date of the goodwill impairment test. We involved
valuation professionals with specialized skills and knowledge, who assisted in:

(cid:129)

(cid:129)

evaluating the Company’s discount rate, by comparing it against a discount rate that was
independently developed using publicly available third-party market data for comparable entities,
and;

assessing the Company’s calculated fair values of its reporting units on a combined basis compared
to the Company’s market capitalization.

Assessment of the gift card breakage revenue

As discussed in Notes 1 and 5 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 24, 2020 was approximately $15.8 million.

We identified the assessment of the gift card breakage revenue as a critical audit matter. Subjective auditor
judgment was required to evaluate the trends in historical and expected future redemption patterns used to
estimate breakage revenue.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s gift card breakage revenue process including controls

95

related to the gift card activation and redemption data used to develop the breakage rate. We assessed
breakage revenue by comparing the data used to estimate the breakage rate and recognition pattern to the
actual redemption activity. We evaluated the Company’s estimate of the period of time over which to
recognize breakage revenue by analyzing subsequent redemption activity.

/S/ KPMG LLP

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

Dallas, Texas

August 21, 2020

96

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 24, 2020, 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 24,
2020, 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 24, 2020 and June 26, 2019,
the related consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the
fiscal years in the three-year period ended June 24, 2020, and the related notes (collectively, the consolidated
financial statements), and our report dated August 21, 2020 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.

97

its inherent

reporting may not prevent or detect
Because of
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.

internal control over

limitations,

financial

/S/ KPMG LLP

Dallas, Texas

August 21, 2020

98

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:

(cid:129)

(cid:129)

(cid:129)

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 24, 2020.

its inherent

Because of
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.

internal control over

limitations,

financial

The effectiveness of our internal control over financial reporting as of June 24, 2020 has been audited by KPMG
LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable
assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer and, as appropriate, to allow timely decisions regarding required
disclosures.

In connection with the preparation of this Form 10-K, we carried out an evaluation under the supervision of and
with the participation of management, including the principal executive officer and principal financial officer, as of
June 24, 2020, of the effectiveness of the design and operation of our disclosure controls and procedures. Based
upon this evaluation, the principal executive officer and principal financial officer concluded that as of June 24,
2020, our disclosure controls and procedures were effective.

99

Management’s Report on Internal Control over Financial Reporting

“Management’s Report on Internal Control over Financial Reporting” and the attestation report of the independent
registered public accounting firm of KPMG LLP on internal control over financial reporting are presented within
Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting in the fourth quarter of fiscal 2020 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

For information about our executive officers, Board of Directors, including its committees and their compensation,
and Section 16(a) reporting compliance, refer to the sections entitled “Election of Directors - Information About
Nominees”, “Committees of the Board of Directors”, “Executive Officers”, and to the extent applicable
“Delinquent Section 16(a) Reports” in our Proxy Statement for the 2020 annual meeting of shareholders. We
incorporate that information in this document by reference.

We adopted a code of ethics that applies to all of our team members, including the principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing similar functions. A
copy of the code is posted on our internet website at
the internet address: http://investors.brinker.com/
code_of_conduct. You may obtain free of charge copies of the code from our website at the above internet address.
Any amendment of, or waiver from, our code of ethics required to be disclosed by applicable SEC rules or stock
exchange listing requirements will be posted on our website within four business days of such amendment or
waiver. The information contained on our website is not a part of this Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

For information about our executive compensation, refer to the section entitled “Executive Compensation -
Compensation Discussion and Analysis” in our Proxy Statement for the 2020 annual meeting of shareholders. We
incorporate that information in this document by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

For information about our security ownership of certain beneficial owners and management and related stockholder
matters, refer to the sections “Directors’ Compensation”, “Compensation Discussion and Analysis”, and “Stock
Ownership of Certain Persons” in our Proxy Statement for the 2020 annual meeting of shareholders. We
incorporate that information in this document by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

For information about certain relationships and related transactions, refer to the section “Certain Relationships and
Related Transactions” in our Proxy Statement for the 2020 annual meeting of shareholders. We incorporate that
information in this document by reference.

100

For information about the independence of our non-management directors, refer to the section entitled “Director
Independence” in our Proxy Statement for the 2020 annual meeting of shareholders. We incorporate that
information in this document by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

For information about principal accountant fees and services, refer to the section “Ratification of Independent
Registered Public Accounting Firm” in our Proxy Statement for the 2020 annual meeting of shareholders. We
incorporate that information in this document by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements - For a list of all financial statements, refer to Consolidated Financial Statements
Table of Contents in Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on
Form 10-K.

(a)(2) Financial Statement Schedules - All schedules are omitted as the required information is inapplicable or
the information is presented in the Part II, Item 8 - Financial Statements and Supplementary Data financial
statements or related notes.

(a)(3) Exhibits - We make reference to the exhibits listed under Part (b) below.

101

(b) Exhibits

Exhibit

Description

3(a)

3(b)

4(a)

4(b)

4(c)

4(d)

4(e)

4(f)

10(a)

10(b)

10(c)

10(d)

10(e)

10(f)

10(g)

10(h)

10(i)

10(j)

10(k)

10(l)

Certificate of Incorporation of the Registrant, as amended(1)

Bylaws of the Registrant(2)

Form of 3.875% Note due 2023(3)

Indenture dated as of April 30, 2013 between Registrant and Wilmington Trust, National Association, as
Trustee(4)

Second Supplemental Indenture dated as of May 15, 2013 between the Registrant and Wilmington Trust,
National Association(3)

Form of 5.000% Senior Note due 2024(5)

Senior Notes Indenture dated as of September 23, 2016, by and among the Registrant, the Guarantors named
therein and U.S. Bank National Association, as trustee(5)

Description of Registered Securities(6)

Registrant’s Stock Option and Incentive Plan, as amended(7)

Registrant’s 1999 Stock Option and Incentive Plan for Non-Employee Directors and Consultants(8)

Credit Agreement dated as of March 12, 2015(9)

Second Amendment to Credit Agreement dated September 13, 2016(10)

Third Amendment to Credit Agreement dated April 30, 2018(11)

Fourth Amendment to Credit Agreement dated December 5, 2019(12)

Fifth Amendment to Credit Agreement dated March 31, 2020*

Sixth Amendment to Credit Agreement dated May 6, 2020(13)

Seventh Amendment to Credit Agreement dated July 23, 2020(14)

CEO Severance and Change in Control Agreement(15)

Executive Severance Benefits Plan and Summary Plan Description(15)

NEO Change in Control Severance Agreement(15)

10(m)

Registrant’s Performance Share Plan Description(6)

10(n)

10(o)

10(p)

10(q)

10(r)

21

23

31(a)

31(b)

Registrant’s Terms of Stock Option Award(6)

Registrant’s Terms of Retention Stock Unit Award(6)

Registrant’s Terms of Restricted Stock Unit Award(6)

Registrant’s Terms of Special Equity Award(16)

Registrant’s Terms of Board of Directors Restricted Stock Unit Award*

Subsidiaries of the Registrant*

Consent of Independent Registered Public Accounting Firm*

Certification by Wyman T. Roberts, President and Chief Executive Officer of the Registrant, pursuant to 17 CFR
240.13a-14(a) or 17 CFR 240.15d-14(a)*

Certification by Joseph G. Taylor, Executive Vice President and Chief Financial Officer of the Registrant,
pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a)*

102

Exhibit

Description

32(a)

32(b)

Certification by Wyman T. Roberts, President and Chief Executive Officer of the Registrant, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

Certification by Joseph G. Taylor, Executive Vice President and Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS

Inline XBRL Instance Document

101.SCH Inline XBRL Schema Document

101.CAL Inline XBRL Calculation Linkbase Document

101.DEF

Inline XBRL Definition Linkbase Document

101.LAB Inline XBRL Label Linkbase Document

101.PRE

Inline XBRL Presentation Linkbase

104

The cover page from the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 24, 2020 is
formatted in Inline XBRL

*

Filed herewith.

The following are filed as an exhibit to the specified filing, and incorporated herein by reference:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

Annual report on Form 10-K for year ended June 28, 1995

Annual report on Form 10-K for year ended June 27, 2018

Current report on Form 8-K dated May 15, 2013

Registration statement on Form S-3 filed April 30, 2013, SEC File No. 333-188252

Current report on Form 8-K dated September 23, 2016

Annual report on Form 10-K for year ended June 26, 2019

Proxy Statement of Registrant filed on October 5, 2018

Quarterly report on Form 10-Q for quarter ended December 28, 2005

Current report on Form 8-K dated March 12, 2015

Quarterly report on Form 10-Q for quarter ended September 28, 2016

Quarterly report on Form 10-Q for quarter ended March 28, 2018

Quarterly report on Form 10-Q for quarter ended December 25, 2019

Current report on Form 8-K dated May 6, 2020

Current report on Form 8-K dated July 23, 2020

Quarterly report on Form 10-Q for quarter ended March 29, 2017

Annual report on Form 10-K for year ended June 28, 2017

103

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BRINKER INTERNATIONAL, INC.,
a Delaware corporation

Date: August 21, 2020

By:

/S/ JOSEPH G. TAYLOR
Joseph G. Taylor,
Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, we have signed in our indicated capacities on
August 21, 2020:

Name

/S/ WYMAN T. ROBERTS

Wyman T. Roberts

/S/

JOSEPH G. TAYLOR

Joseph G. Taylor

Title

President and Chief Executive Officer of Brinker International, Inc. and President
of Chili’s Grill & Bar (Principal Executive Officer) and Director

Executive Vice President and Chief Financial Officer (Principal Financial and
Accounting Officer)

/S/

JOSEPH M. DEPINTO

Chairman of the Board

Joseph M. DePinto

/S/ FRANCES L. ALLEN

Director

Frances L. Allen

/S/ CYNTHIA L. DAVIS

Director

Cynthia L. Davis

/S/ HARRIET EDELMAN

Director

Harriet Edelman

/S/ WILLIAM T. GILES

Director

William T. Giles

/S/

JAMES C. KATZMAN

Director

James C. Katzman

/S/ ALEXANDRE G. MACEDO

Director

Alexandre G. Macedo

/S/ GEORGE R. MRKONIC

Director

George R. Mrkonic

/S/ PRASHANT N. RANADE

Director

Prashant N. Ranade

104

Exhibit 21

BRINKER INTERNATIONAL, INC., A DELAWARE CORPORATION
SUBSIDIARIES

BI INTERNATIONAL SERVICES, LLC, a Delaware limited liability company
BI MEXICO HOLDING CORPORATION, a Delaware corporation
BRINKER RESTAURANT CORPORATION, a Virginia corporation
BRINKER INTERNATIONAL PAYROLL COMPANY, L.P., a Delaware limited partnership
BRINKER AIRPORTS, LLC, a Delaware limited liability company
BRINKER ALABAMA, INC., a Virginia corporation
BRINKER ARKANSAS, INC., a Virginia corporation
BRINKER ASIA, INC., a British Virgin Islands corporation
BRINKER BRAZIL, LLC, a Delaware limited liability company
BRINKER CB, LP, a Texas limited partnership
BRINKER CB MANAGEMENT, LLC, a Delaware limited liability company
BRINKER CANADIAN HOLDING CO., ULC, a British Columbia unlimited liability company
BRINKER CANADIAN RESTAURANT CO., ULC, a British Columbia unlimited liability company
BRINKER FHC B.V., a Netherlands private company
BRINKER FLORIDA, INC., a Virginia corporation
BRINKER FREEHOLD, INC., a New Jersey corporation
BRINKER GEORGIA, INC., a Virginia corporation
BRINKER LOUISIANA, INC., a Virginia corporation
BRINKER MICHIGAN, INC., a Virginia corporation
BRINKER MISSISSIPPI, INC., a Virginia corporation
BRINKER MISSOURI, INC., a Virginia corporation
BRINKER NEVADA, INC., a Nevada corporation
BRINKER NEW JERSEY, INC., a Virginia corporation
BRINKER NORTH CAROLINA, INC., a Virginia corporation
BRINKER OF BALTIMORE COUNTY, INC., a Maryland corporation
BRINKER OF CARROLL COUNTY, INC., a Maryland corporation
BRINKER OF CECIL COUNTY, INC., a Maryland corporation
BRINKER OKLAHOMA, INC., a Virginia corporation
BRINKER OPCO, LLC, a Virginia limited liability company
BRINKER PENN TRUST, a Pennsylvania business trust
BRINKER PROPCO FLORIDA, INC., a Delaware corporation
BRINKER PROPERTY CORPORATION, a Delaware corporation
BRINKER PURCHASING, INC., a Delaware corporation
BRINKER RHODE ISLAND, INC., a Rhode Island corporation
BRINKER SERVICES CORPORATION, a Virginia corporation
BRINKER SOUTH CAROLINA, INC., a Virginia corporation
BRINKER TEXAS, INC., a Virginia corporation
BRINKER VIRGINIA, INC., a Virginia corporation
CHILI’S BEVERAGE COMPANY, INC., a Texas corporation
CHILI’S, INC., a Delaware corporation
CHILI’S, INC., a Tennessee corporation
CHILI’S INTERNATIONAL BASES, B.V., a Netherlands private company
CHILI’S OF BEL AIR, INC., a Maryland corporation
CHILI’S OF KANSAS, INC., a Kansas corporation
CHILI’S OF MARYLAND, INC., a Maryland corporation
CHILI’S OF WEST VIRGINIA, INC., a West Virginia corporation
MAGGIANO’S, INC., an Illinois corporation
MAGGIANO’S BEVERAGE COMPANY, a Texas corporation
MAGGIANO’S HOLDING CORPORATION, a Virginia corporation
MAGGIANO’S OF ANNAPOLIS, INC., a Maryland corporation
MAGGIANO’S OF HOWARD COUNTY, INC., a Maryland corporation

MAGGIANO’S OF KANSAS, INC., a Kansas corporation
MAGGIANO’S OF TYSON’S, INC., a Virginia corporation
MAGGIANO’S PROPERTY CORPORATION, a Delaware corporation
MAGGIANO’S TEXAS, INC., a Virginia corporation
PEPPER DINING HOLDING CORP., a Virginia corporation
PEPPER DINING, INC., a Virginia corporation
PEPPER DINING VERMONT, INC., a Vermont corporation
BIPC GLOBAL PAYROLL COMPANY, LLC, a Delaware limited liability company
BIPC MANAGEMENT, LLC, a Delaware limited liability company
BIPC INVESTMENTS, LLC, a Delaware limited liability company

Consent of Independent Registered Public Accounting Firm

Exhibit 23

The Board of Directors

Brinker International, Inc.:

We consent
to the incorporation by reference in the registration statements (Nos. 333-93755, 333-105720,
333-125289, 333-157050, 333-201929, and 333-230574) on Form S-8 and registration statement (No. 333-237891)
on Form S-3 of Brinker International, Inc. of our reports dated August 21, 2020, with respect to the consolidated
balance sheets of Brinker International, Inc. and subsidiaries as of June 24, 2020 and June 26, 2019, the related
consolidated statements of comprehensive income, shareholders’ deficit, and cash flows for each of the years in the
three-year period ended June 24, 2020, and the related notes, and the effectiveness of internal control over financial
reporting as of June 24, 2020, which reports appear in the June 24, 2020 annual report on Form 10-K of Brinker
International, Inc.

Our report dated August 21, 2020 refers to a change in the method of accounting for revenue from contracts with
customers as of June 28, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from
Contracts with Customers. Our report refers to a change in the method of accounting for leases as of June 27, 2019
due to the adoption of Accounting Standards Codification Topic 842, Leases.

/s/ KPMG LLP

Dallas, Texas

August 21, 2020

Exhibit 31(a)

I, Wyman T. Roberts, certify that:

CERTIFICATION

1.

2.

3.

4.

I have reviewed this Annual Report on Form 10-K of Brinker International, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:

a.

b.

c.

d.

Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a.

b.

All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.

Date: August 21, 2020

By:

/S/ WYMAN T. ROBERTS

Wyman T. Roberts,
President and Chief Executive Officer
of Brinker International, Inc.
and President of Chili’s Grill & Bar
(Principal Executive Officer)

Exhibit 31(b)

I, Joseph G. Taylor, certify that:

CERTIFICATION

1.

2.

3.

4.

I have reviewed this Annual Report on Form 10-K of Brinker International, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:

a.

b.

c.

d.

Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, 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;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a.

b.

All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.

Date: August 21, 2020

By:

/S/ JOSEPH G. TAYLOR

Joseph G. Taylor,
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

CERTIFICATION

Exhibit 32(a)

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Brinker International, Inc. (the “Company”), hereby
certifies that the Company’s Annual Report on Form 10-K for the year ended June 24, 2020 (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the
information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

Date: August 21, 2020

By:

/S/ WYMAN T. ROBERTS
Wyman T. Roberts,
President and Chief Executive Officer
of Brinker International, Inc.
and President of Chili’s Grill & Bar
(Principal Executive Officer)

CERTIFICATION

Exhibit 32(b)

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Brinker International, Inc. (the “Company”), hereby
certifies that the Company’s Annual Report on Form 10-K for the year ended June 24, 2020 (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the
information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

Date: August 21, 2020

By:

/S/ JOSEPH G. TAYLOR
Joseph G. Taylor,
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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SHAREHOLDER INFORMATION

Principal Executive Office
Brinker International, Inc.
3000 Olympus Blvd.
Dallas, TX 75019
(972) 980-9917

Annual Meeting
Thursday, November 5, 2020 at 9:00 a.m.
To be held via live audio-only webcast-please visit
www.proxydocs.com/EAT for more details.

Independent Public Accountants
KPMG LLP
717 N. Harwood, Suite 3100
Dallas, TX 75201

NYSE Symbol: EAT

Stock Transfer Agent And Registrar
Computershare
P.O. Box 505008
Louisville, KY 40233-9814
or

Meidinger Tower
462 S. 4th Street
Louisville, KY 40202
Customer Service (800) 213-5156
TDD for Hearing Impaired (800) 231-5469
Foreign Shareowners (201) 680-6578
You can now access your Brinker Shareholder Account
online via
Investor Centre at www.computershare.com

10-K Availability
The company will furnish to any shareholder, without charge,
a copy of
filed with the
Securities and Exchange Commission on Form 10-K for the
2020 fiscal year from our website at: www.brinker.com or
upon written request from the shareholder.

the company’s annual

report

Please send your written request to:
Secretary/Investor Relations
Brinker International, Inc.
3000 Olympus Blvd.
Dallas, TX 75019

CEO/CFO Certifications
On November 26, 2019, the company submitted its annual
Section 303A CEO certification to the New York Stock
Exchange.

The company also filed the CEO and CFO certifications
required under Section 302 of the Sarbanes-Oxley Act of
2002 with the Securities and Exchange Commission as
exhibits to its Annual Report on Form 10-K for the year
ended June 24, 2020.

Chili’s® Grill & Bar and Maggiano’s Little Italy® are
registered and/or proprietary trademarks of Brinker
International Payroll Company, L.P.

BOARD OF DIRECTORS

Frances L. Allen
Chief Executive Officer
Checkers Drive-In Restaurants, Inc.

Cynthia (Cindy) L. Davis
Former Executive
Nike Inc. and Nike Golf

Joseph M. DePinto
Chairman of the Board, Brinker International, Inc.
President and Chief Executive Officer
7-Eleven, Inc.

Harriet Edelman
Special Advisor to the Chairman
Emigrant Bank

William T. Giles
Chief Financial Officer and Executive Vice President,
Finance, Information Technology and Store Development,
Customer Satisfaction
AutoZone

James C. Katzman
Former Partner
Goldman Sachs

Alexandre G. Macedo
Former President
Tim Hortons

George R. Mrkonic
Non-Executive Chairman
MARU Group

Prashant N. Ranade
Former Mentor for Leaders
Atos Syntel

Wyman T. Roberts
President and Chief Executive Officer
Brinker International, Inc.

EXECUTIVE OFFICERS

Wyman T. Roberts
President and Chief Executive Officer and
President of Chili’s Grill & Bar

Wade R. Allen
Senior Vice President of Innovation

Richard A. Badgley
Executive Vice President
Administrative Officer

and Chief People

and

Douglas N. Comings
Senior Vice President and Co-Chief Operating Officer for
Chili’s Grill & Bar

Daniel S. Fuller
Senior Vice President, General Counsel and Secretary

Charles A. Lousignont
Senior Vice President and Chief Supply Chain Officer

Pankaj K. Patra
Senior Vice President and Chief Information Officer

Steve D. Provost
Executive Vice President and President of Maggiano’s
Little Italy

Joseph G. Taylor
Executive Vice President and Chief Financial Officer

Aaron M. White
Senior Vice President and Co-Chief Operating Officer for
Chili’s Grill & Bar

B R I N K E R

I N T E R N A T I O N A L®

3000 Olympus Blvd., Dallas, TX 75019 • www.brinker.com