EXHIBIT 13

BRINKER INTERNATIONAL, INC.

SELECTED FINANCIAL DATA

(In thousands, except per share amounts and number of restaurants)

	Fiscal Years
	2011			2010(a)			2009			2008			2007
Income Statement Data:
Revenues	$	2,761,386		$	2,858,498		$	3,276,362		$	3,860,921		$	4,007,771
Operating Costs and Expenses:
Cost of sales		742,283			816,015			923,668			1,101,125			1,126,756
Restaurant labor		886,559			926,474			1,054,078			1,239,604			1,261,579
Restaurant expenses		655,060			660,922			784,657			922,382			950,957
Depreciation and amortization		128,447			135,832			145,220			147,393			171,768
General and administrative		132,834			136,270			147,372			163,996			188,630
Other gains and charges		10,783			28,485			118,612			196,364			(9,082	)
Total operating costs and expenses		2,555,966			2,703,998			3,173,607			3,770,864			3,690,608
Operating income		205,420			154,500			102,755			90,057			317,163
Interest expense		28,311			28,515			33,330			45,862			30,929
Other, net		(6,220	)		(6,001	)		(9,430	)		(4,046	)		(5,071	)
Income before provision for income taxes		183,329			131,986			78,855			48,241			291,305
Provision for income taxes		42,269			28,264			6,734			2,644			80,144
Income from continuing operations		141,060			103,722			72,121			45,597			211,161
Income from discontinued operations, net of taxes		0			33,982			7,045			6,125			18,888
Net income	$	141,060		$	137,704		$	79,166		$	51,722		$	230,049
Basic net income per share:
Income from continuing operations	$	1.55		$	1.02		$	0.71		$	0.44		$	1.74
Income from discontinued operations	$	0.00		$	0.33		$	0.07		$	0.06		$	0.16
Net income per share	$	1.55		$	1.35		$	0.78		$	0.50		$	1.90
Diluted net income per share:
Income from continuing operations	$	1.53		$	1.01		$	0.70		$	0.43		$	1.70
Income from discontinued operations	$	0.00		$	0.33		$	0.07		$	0.06		$	0.15
Net income per share	$	1.53		$	1.34		$	0.77		$	0.49		$	1.85
Basic weighted average shares outstanding		90,807			102,287			101,852			103,101			121,062
Diluted weighted average shares outstanding		92,320			103,044			102,713			104,897			124,116
Balance Sheet Data:
Working capital	$	(184,241	)	$	51,190		$	110,812		$	88,745		$	277,298
Total assets		1,484,568			1,852,104			1,948,947			2,193,122			2,318,021
Long-term obligations		640,057			673,479			883,521			1,061,669			960,196
Shareholders’ equity		438,910			728,748			646,924			595,089			805,089
Dividends per share	$	0.56		$	0.47		$	0.44		$	0.42		$	0.34
Number of Restaurants Open (End of Period):
Company-operated		868			871			1,024			1,265			1,312
Franchised/Joint venture		711			679			665			623			489
Total		1,579			1,550			1,689			1,888			1,801
Revenues of franchisees(b)	$	1,558,886

(a) Fiscal year 2010 consisted of 53 weeks while all other periods presented consisted of 52 weeks.

(b) Revenues of franchisees are not recorded as revenues by the Company. Management believes that franchisee revenue information is important in understanding the Company’s financial performance because these revenues are the basis on which the Company calculates and records franchise revenues.

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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 during the past three fiscal years, the MD&A should be read in conjunction with the consolidated financial statements and related notes included in this annual report. Our MD&A consists of the following sections:

• Overview—a general description of our business and the casual dining segment of the restaurant industry

• Results of Operations—an analysis of our consolidated statements of income for the three years presented in our consolidated financial statements

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

• Critical Accounting Estimates—a discussion of accounting policies that require critical judgments and estimates

We have a 52/53 week fiscal year ending on the last Wednesday in June. Fiscal years 2011 and 2009, which ended on June 29, 2011 and June 24, 2009, respectively, each contained 52 weeks. Fiscal year 2010 ended on June 30, 2010 and contained 53 weeks. The 53^rd week in fiscal 2010 contributed approximately $52 million of incremental revenue and nine cents of incremental earnings per diluted share. While certain expenses increased in direct relationship to additional revenue from the 53^rd week, other expenses, such as fixed costs, are incurred on a calendar month basis.

At the beginning of fiscal 2011, we began reporting certain labor and related expenses in a separate caption on the consolidated statements of income titled restaurant labor. All prior year amounts previously classified in restaurant expenses have been reclassified to conform to the fiscal 2011 presentation. 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 supervision above the individual restaurant level continue to be included in restaurant expenses. These reclassifications have no effect on our net income or financial position as previously reported.

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 29, 2011, we owned, operated, or franchised 1,579 restaurants. We sold On The Border Mexican Grill & Cantina (“On The Border”) to OTB Acquisition LLC (“OTB Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in June 2010. On The Border is presented as discontinued operations in the consolidated financial statements.

We are committed to strategies and initiatives that are centered on long-term sales and profit growth, enhancing the guest experience and team member engagement. These strategies are intended to differentiate our brands from the competition, reduce the costs associated with managing our restaurants and establish a strong presence for our brands in key markets around the world. We will continue to maintain a strong balance sheet and financial flexibility to support our strategic initiatives and to provide stability in all operating environments.

Economic conditions have been turbulent over the last year and have provided a challenging operating environment for Brinker and the casual dining industry. Key economic factors such as total employment,

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consumer confidence and spending levels have been soft this year. More recently, the political environment and governmental deficits in the United States and abroad have negatively impacted consumer confidence. In addition, higher gas prices and the potential for near term commodity price increases may negatively impact the industry. We anticipate that market conditions will continue to affect our business and consumers will remain cautious. We will continue to evaluate our business and implement initiatives designed to mitigate risk, improve short-term sales and profitability and provide opportunities for long-term growth.

Our current initiatives are designed to drive profitable sales growth and improve the guest experience in our restaurants. We have implemented a team service model at Chili’s which has resulted in labor efficiencies and better guest feedback. Additional labor savings were achieved through improved food preparation procedures, a component of our kitchen retrofit initiative which was implemented at an accelerated pace in the second quarter. Another component of this initiative is the modification of our kitchens to include improved technology and equipment to provide a more consistent, high quality product at a faster pace, while generating substantial labor cost savings. We expect to install this equipment in a substantial number of Chili’s restaurants in fiscal 2012. We are also implementing new restaurant information systems which we anticipate will increase profits through increased kitchen efficiency and better inventory control. In addition to executing these operational strategies, we have repurchased shares of our common stock in order to return value to our shareholders and recently executed a revised credit facility to increase our financial flexibility while taking advantage of more favorable financing costs. We believe that the successful implementation of these operational and financial initiatives will help drive sales growth and operational efficiency while strengthening our competitive advantage and enhancing shareholder value.

We plan to leverage our improved business model and elevated guest experience by implementing multiple initiatives that will further enhance guest traffic and sales. We continually evaluate our menu at Chili’s to improve quality, freshness and value by introducing new items and improving existing favorites. Our new lunch menu items are focused on value and pace to drive our lunch daypart sales. Additionally, we have introduced new items and promotions to enhance our dinner and happy hour business. We will continue to utilize promotional activities as a tool to drive incremental sales; however, this is only one aspect of our overall sales strategy. We are committed to offering a compelling everyday menu that provides items our guests prefer at a solid value. We intend to remodel a significant number of company-owned restaurants in fiscal 2012, revitalizing Chili’s in a way which modernizes the brand and raises guest expectations regarding the quality of the experience. Improvements at Chili’s will have the most significant impact on the business; however, our results will also benefit through additional contributions from Maggiano’s and our global business. Maggiano’s sales trends and traffic continue to improve, driven by offering guests a great value with classic pasta, new menu items and direct marketing. We believe our unique food and signature drinks, improved service and updated atmospheres will result in stronger brands and sustainable sales and profit growth through increased guest loyalty and traffic.

Global expansion allows further diversification which is intended to enable us to build strength in a variety of markets and economic conditions. This expansion will come through joint venture arrangements, equity investments and franchise relationships, taking advantage of demographic and eating trends that will accelerate in the international market over the next decade. Our growing percentage of franchise operations, both domestically and internationally, enable us to improve margins as royalty payments impact the bottom line.

The casual dining industry is a competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. Our priority remains increasing profitable growth over time in all operating environments. We have designed both operational and financial strategies to achieve this goal and in our opinion, improve shareholder value. Success with our initiatives to improve sales trends and operational effectiveness will enhance the profitability of our restaurants and strengthen our competitive position. The effective execution of our financial strategies, including repurchasing shares of our common stock, disciplined use of capital and efficient management of operating expenses, will further enhance our profitability and return value to our shareholders. We remain confident in the financial health of our company, the long-term prospects of the industry as well as our ability to perform effectively in a competitive marketplace and a variety of economic environments.

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RESULTS OF OPERATIONS FOR FISCAL YEARS 2011, 2010, AND 2009

The following table sets forth income and expense items as a percentage of total revenues for the periods indicated:

	Percentage of Total Revenues Fiscal Years
	2011			2010			2009
Revenues		100.0	%		100.0	%		100.0	%
Operating Costs and Expenses:
Cost of sales		26.9	%		28.5	%		28.2	%
Restaurant labor		32.1	%		32.4	%		32.2	%
Restaurant expenses		23.7	%		23.1	%		23.9	%
Depreciation and amortization		4.7	%		4.8	%		4.5	%
General and administrative		4.8	%		4.8	%		4.5	%
Other gains and charges		0.4	%		1.0	%		3.6	%
Total operating costs and expenses		92.6	%		94.6	%		96.9	%
Operating income		7.4	%		5.4	%		3.1	%
Interest expense		1.0	%		1.0	%		1.0	%
Other, net		(0.2	)%		(0.2	)%		(0.3	)%
Income before provision for income taxes		6.6	%		4.6	%		2.4	%
Provision for income taxes		1.5	%		1.0	%		0.2	%
Income from continuing operations		5.1	%		3.6	%		2.2	%
Income from discontinued operations, net of taxes		0.0	%		1.2	%		0.2	%
Net income		5.1	%		4.8	%		2.4	%

REVENUES

Revenues for fiscal 2011 decreased to $2,761.4 million, a 3.4% decrease from the $2,858.5 million generated for fiscal 2010. Excluding revenues of approximately $52 million attributable to the additional operating week in fiscal 2010, the decrease in revenue was primarily due to the change in comparable restaurant sales resulting from a decline in guest traffic, partially offset by favorable menu pricing, as well as a decline in capacity at company-owned restaurants as follows:

	Fiscal Year Ended June 29, 2011(1)
	Comparable Sales			Price Increase			Mix Shift			Traffic			Capacity
Company-owned		(1.2	)%		1.1	%		(0.1	)%		(2.2	)%		(1.9	)%
Chili’s		(2.0	)%		1.2	%		0.0	%		(3.2	)%		(2.0	)%
Maggiano’s		3.9	%		0.7	%		(0.6	)%		3.8	%		0.2	%
Franchise(2)		(1.5	)%
Domestic		(3.2	)%
International		3.5	%
System-wide(3)		(1.3	)%

(1) Amounts are calculated based on 52 weeks in each fiscal year.

(2) Revenues generated by franchisees are not included in revenues on the consolidated statements of income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchisee comparable restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.

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(3) 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 franchisee operated restaurants.

Chili’s revenues decreased to $2,321.7 million in fiscal 2011, a 4.9% decrease from $2,441.9 million in fiscal 2010. The decrease was primarily driven by the impact of the additional operating week in fiscal 2010 and a decline in comparable restaurant sales of 2.0% attributable to a decrease in guest traffic, partially offset by favorable menu pricing. Revenues were also impacted by a decrease in capacity of 2.0% for fiscal 2011 (as measured by average-weighted sales weeks) primarily due to three restaurant closures during fiscal 2011.

Maggiano’s revenues increased to $374.0 million in fiscal 2011, a 6.3% increase from $352.0 million in fiscal 2010 driven primarily by an increase in guest traffic partially offset by the impact of the additional operating week in fiscal 2010.

Royalty and franchise revenues increased 1.7% to $65.7 million in fiscal 2011 compared to $64.6 million in fiscal 2010. The increase is primarily due to the net addition of six domestic and 23 international franchised restaurants during fiscal 2011. Royalty revenues are recognized based on the sales generated by our franchisees and reported to us. Our franchisees generated approximately $1,559 million in sales, an increase of 1.1% over prior year.

Revenues for fiscal 2010 decreased to $2,858.5 million, a 12.8% decrease from the $3,276.4 million generated for fiscal 2009. The decrease in revenue was primarily attributable to the change in comparable restaurant sales resulting from a decline in guest traffic, product mix and capacity at company-owned restaurants, partially offset by the positive impact of the additional operating week as follows:

	Fiscal Year Ended June 30, 2010(1)
	Comparable Sales			Price Increase			Mix Shift			Traffic			Capacity
Company-owned		(4.2	)%		1.3	%		(1.2	)%		(4.3	)%		(13.2	)%
Chili’s		(4.6	)%		1.5	%		(1.2	)%		(4.9	)%		(4.1	)%
Maggiano’s		(1.2	)%		0.5	%		(1.2	)%		(0.5	)%		2.3	%
Franchise(2)		(4.8	)%
Domestic		(5.9	)%
International		(1.2	)%
System-wide(3)		(4.4	)%

(1) Amounts are calculated based on 52 weeks in each fiscal year.

(2) Revenues generated by franchisees are not included in revenues on the consolidated statements of income; however, we generate royalty revenue and advertising fees based on franchisee revenues, where applicable. We believe including franchisee comparable restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development.

(3) 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 franchisee operated restaurants.

Our capacity decreased 13.2% in fiscal 2010 (as measured by average-weighted sales weeks). The reduction in capacity was primarily due to the sale of 189 Macaroni Grill restaurants at the end of the second quarter of fiscal 2009 as well as the sale of 21 Chili’s restaurants to a franchisee and 11 restaurant closures during fiscal 2010.

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Chili’s revenues decreased to $2,441.9 million in fiscal 2010, a 6.5% decrease from $2,611.9 million in fiscal 2009. The decrease was primarily driven by a decline in comparable restaurant sales of 4.6%, partially offset by the impact of the additional operating week in fiscal 2010. The decrease in comparable restaurant sales was attributable to a decline in guest traffic and unfavorable product mix shifts, partially offset by favorable menu pricing. Revenues were also impacted by a decrease in capacity of 4.1% for fiscal 2010 (as measured by average-weighted sales weeks) primarily due to the sale of 21 restaurants to a franchisee and 10 Chili’s restaurant closures during fiscal 2010.

Maggiano’s revenues increased to $352.0 million in fiscal 2010, a 2.1% increase from $344.6 million in fiscal 2009. The increase was primarily driven by the additional operating week in fiscal 2010 and an increase in capacity of 2.3% for fiscal 2010 (as measured by average-weighted sales weeks) primarily due to one restaurant opening in fiscal 2010. Revenues were also impacted by a decrease in comparable restaurant sales of 1.2% resulting primarily from unfavorable product mix shifts.

Royalty and franchise revenues of $64.6 million for fiscal 2010 were flat as compared to fiscal 2009. Royalty revenues are recognized based on the sales generated by our franchisees and reported to us.

COSTS AND EXPENSES

Cost of sales, as a percent of revenues, decreased 1.6% in fiscal 2011. Cost of sales was favorably impacted primarily by improved product mix at Chili’s and decreased commodity pricing for chicken and cheese. Cost of sales, as a percent of revenues, increased 0.3% in fiscal 2010. Cost of sales was negatively impacted primarily by promotions and the impact of the new menu rollout at Chili’s, partially offset by favorable menu pricing and favorable commodity pricing for beef and chicken.

Restaurant labor, as a percent of revenues, decreased 0.3% in fiscal 2011 primarily driven by lower labor expenses due to the successful implementation of team service and food preparation initiatives at Chili’s, partially offset by higher restaurant manager incentive compensation resulting from improved restaurant performance. Restaurant labor, as a percent of revenues, increased 0.2% in fiscal 2010 primarily driven by the unfavorable impact of menu promotions and the rollout of new menu items for Chili’s, partially offset by lower manager salaries and incentive compensation due to reduced headcount. Restaurant labor includes all compensation-related expenses, including benefits and incentive compensation, for restaurant team members at the general manager level and below.

Restaurant expenses, as a percent of revenues, increased 0.6% in fiscal 2011 primarily driven by sales deleverage on fixed costs from the additional operating week in fiscal 2010 and current year changes to Maggiano’s banquet billing and compensation structure, partially offset by a reduced utilities expense due to lower rates. Restaurant expenses, as a percent of revenues, decreased 0.8% in fiscal 2010 primarily driven by reduced utility and advertising expense, sales leverage due to the additional operating week and the receipt of a $3.3 million credit card class action lawsuit settlement.

Depreciation and amortization decreased $7.4 million in fiscal 2011 and $9.4 million in fiscal 2010 primarily driven by an increase in fully depreciated assets, restaurant closures and impairments, partially offset by an increase in depreciation due to asset replacements and investments in existing restaurants.

General and administrative expenses decreased $3.4 million in fiscal 2011 primarily due to reductions in salary and stock-based compensation expenses resulting from lower headcount driven by organizational changes, partially offset by increased performance based compensation, higher professional fees and the expiration of the transitional services agreement with Macaroni Grill that offset the internal cost of providing the services. General and administrative expenses decreased $11.1 million in fiscal 2010 primarily due to lower headcount and the sale of Macaroni Grill in the second quarter of fiscal 2009, decreases in professional fees, and income related to transitional services provided to Macaroni Grill. The reductions in general and administrative expenses were partially offset by higher annual performance based compensation expense.

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Other gains and charges in fiscal 2011 consisted of $5.0 million in severance and other benefits resulting from organizational changes, $3.0 million in lease termination charges related to previously closed restaurants and $1.9 million in long-lived asset impairments related to underperforming restaurants that are continuing to operate. Additionally, we recorded a $1.5 million charge related to litigation and net gains of $1.7 million related to land sales.

Other gains and charges in fiscal 2010 included a $19.8 million impairment charge related to 22 underperforming restaurants that are continuing to operate. We also recorded $4.0 million in lease termination charges and $5.4 million in long-lived asset impairments resulting from the decision to close nine underperforming restaurants. Additionally, we recorded $2.4 million in lease termination charges related to restaurants closed in prior years and $1.9 million in severance and other benefits resulting from organizational changes. These charges were partially offset by gains of $4.9 million related to the sale of 21 restaurants to a franchisee and land sales.

Other gains and charges in fiscal 2009 included $59.4 million in charges primarily resulting from the decision to close 37 underperforming restaurants, including eight international restaurants. The charges include $40.8 million in long-lived asset impairments, $5.2 million in lease termination charges, $1.2 million of charges related to the write-off of other assets and liabilities, and $2.1 million of charges related to realized foreign currency translation losses. Also included is $6.2 million in lease termination charges associated with restaurants closed in prior years. Additionally, we recorded a $10.5 million impairment charge related to underperforming restaurants, a $7.7 million goodwill impairment charge as a result of the international restaurant closings and organizational changes resulted in charges of $5.5 million for severance and other costs. In December 2008, we sold Macaroni Grill to Mac Acquisition and recorded a loss on the sale of $40.4 million. The charges were partially offset by a $3.9 million gain related to the sale of nine restaurants to a franchisee and land sales.

Interest expense remained flat in fiscal 2011 as a result of higher average interest rates on our debt carrying variable interest rates, offset by the impact of a lower average borrowing balance and $1.7 million in accelerated expense in the prior year related to the remaining capitalized financing costs associated with the terminated revolving credit facility in fiscal 2010. Interest expense decreased $4.8 million in fiscal 2010 primarily as a result of a lower average borrowing balance and a decrease in interest rates on our debt carrying variable interest rates. We repaid $190.0 million on the three-year term loan during the year. These decreases were partially offset by $1.7 million in accelerated expense related to the remaining capitalized financing costs associated with the terminated revolving credit facility.

Other, net in fiscal 2011 includes $5.3 million of sublease income from Mac Acquisition and franchisees as part of the sale agreements and other subtenants as well as $0.6 million of interest income on short-term investment balances. Other, net in fiscal 2010 includes $4.7 million of sublease income from Mac Acquisition as part of the sale agreement and other subtenants as well as $0.6 million of interest income on short-term investment balances. Other, net in fiscal 2009 includes a $5.5 million gain from insurance proceeds, $1.7 million of sublease income and $1.6 million of interest income on short-term investment balances.

Income from discontinued operations, net of taxes, increased to $34.0 million in fiscal 2010 from $7.0 million in fiscal 2009. In fiscal 2010, we recorded a $16.5 million pre-tax gain on the sale of the On The Border restaurants.

INCOME TAXES

The effective income tax rate from continuing operations increased to 23.1% for fiscal 2011 from 21.4% in fiscal 2010 primarily due to an increase in earnings, partially offset by the resolution of certain tax positions resulting in a positive impact in the current year greater than the prior year. Excluding the impact of special items and resolved tax positions, the effective income tax rate from continuing operations increased to 27.8% in fiscal 2011 from 26.0% in fiscal 2010 due to an increase in earnings, partially offset by a decrease in state income tax expense.

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The effective income tax rate increased to 21.4% for fiscal 2010 from 8.5% for fiscal 2009. The variation in the effective tax rates during fiscal 2009 was significantly impacted by the loss on the sale of Macaroni Grill and charges for long-lived asset impairments. Excluding the impact of these significant non-recurring items, the effective income tax rate from continuing operations decreased slightly to 26.0% in fiscal 2010 compared to 26.5% in fiscal 2009 due to a decrease in earnings.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash Flow from Operating Activities—Continuing Operations

During fiscal 2011, net cash flow provided by operating activities of continuing operations was $260.0 million compared to $297.4 million in the prior year. The decrease was driven by significant changes in working capital during the fiscal year. The settlement of liabilities associated with the On The Border brand and cash paid for taxes in the current year negatively impacted operating cash flow in comparison to the prior year. Cash paid for taxes in the prior year was positively impacted by the recognition of losses related to the Macaroni Grill divestiture.

Working capital decreased to a deficit of $184.2 million at June 29, 2011 from a surplus of $51.2 million at June 30, 2010. The deficit as of June 29, 2011 was primarily due to purchases of treasury stock and quarterly dividend payments in fiscal 2011, partially offset by the timing of income tax and operational payments. The surplus as of June 30, 2010 was primarily due to proceeds from the sale of On The Border at year-end and the retention of cash from operations to maximize our liquidity position.

Cash Flow from Investing Activities—Continuing Operations

	2011			2010
Net cash used in investing activities (in thousands):
Payments for property and equipment	$	(70,361	)	$	(60,879	)
Proceeds from sale of assets		8,696			26,603
Investments in equity method investees		(2,896	)		—
Decrease in restricted cash		—			29,749
	$	(64,561	)	$	(4,527	)

Net cash used in investing activities of continuing operations for fiscal 2011 increased to approximately $64.6 million compared to $4.5 million in the prior year. Capital expenditures increased to $70.4 million for fiscal 2011 compared to $60.9 million for fiscal 2010 driven primarily by increases in asset replacements, investments in information technology infrastructure and remodel investments. We estimate that our capital expenditures during fiscal 2012 will be approximately $155 million to $165 million and will be funded entirely by cash from operations.

During fiscal 2010, we sold 21 Chili’s restaurants to a franchisee for $19.0 million. We also dissolved our wholly-owned captive insurance company which allowed us to access $29.7 million of cash that was previously pledged as collateral and classified as restricted.

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Cash Flow from Financing Activities—Continuing Operations

	2011			2010
Net cash used in financing activities (in thousands):
Purchases of treasury stock	$	(422,099	)	$	(22,868	)
Payments of dividends		(53,185	)		(34,448	)
Proceeds from issuances of treasury stock		33,057			2,396
Payments on long-term debt		(16,127	)		(391,046	)
Net proceeds from issuance of long-term debt		—			196,389
Other		291			139
	$	(458,063	)	$	(249,438	)

Net cash used in financing activities of continuing operations for fiscal 2011 increased to approximately $458.1 million compared to $249.4 million in the prior year primarily due to higher treasury stock purchases and dividend payments, partially offset by lower debt payments in the current year.

Pursuant to our stock repurchase plan, we repurchased approximately 20.6 million shares of our common stock for $420.0 million during fiscal 2011. The share repurchases were funded using proceeds from the On The Border divestiture in June 2010 as well as cash flow from operations. As of August 23, 2011, we have repurchased approximately 1.9 million shares for $45.8 million in fiscal 2012.

We paid dividends of $53.2 million to common stock shareholders in fiscal 2011 compared to $34.4 million in dividends paid in fiscal 2010. The increase is primarily due to the payment of four quarterly cash dividends in fiscal 2011 compared to three quarterly cash dividends in fiscal 2010, as the fourth quarter fiscal 2010 dividend was declared in March 2010 and paid in July 2010. The increase also reflects a 27 percent increase in our quarterly dividend rate from $0.11 to $0.14 per share effective with the July 2010 payment. Additionally, we declared a quarterly dividend late in fiscal 2011 which was paid early in fiscal 2012 on June 30, 2011. We will continue to target a 40 percent dividend payout ratio to provide additional return to shareholders. We received $33.1 million of proceeds from issuances of treasury stock related to stock option exercises in fiscal 2011.

During fiscal 2011, we paid our required installments totaling $15.0 million on our five-year term loan bringing the outstanding balance to $185.0 million. The term loan bears interest at LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%, and expires in June 2015. Based on our current credit rating, we are paying interest at a rate of LIBOR plus 2.75% (2.94% as of June 29, 2011).

As of June 29, 2011, we have an undrawn $200 million revolving credit facility, which expires in June 2015. The revolving credit facility bears interest at LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%. Based on our current credit rating, the revolving credit facility carries an interest rate of LIBOR plus 2.75% (2.94% as of June 29, 2011). We are in compliance with all financial debt covenants.

On August 9, 2011, we executed a revised unsecured senior credit facility increasing the total capacity from $400 million to $500 million. The maturity date of the revised facility is August 2016. The facility includes a $250 million revolver and a $250 million term loan. The net term loan proceeds of approximately $68 million will be used for general corporate purposes in fiscal 2012.

Standard and Poor’s (“S&P”) reaffirmed our debt rating of BBB- (investment grade) with a stable outlook in fiscal 2010. In December 2010, Moody’s reaffirmed our corporate family rating of Ba1 (non-investment grade) and our senior unsecured note rating of Ba2 (non-investment grade) with a stable outlook. Our goal is to retain the investment grade rating from S&P and ultimately regain our investment grade rating from Moody’s.

F-9

Our Board of Directors has authorized a total of $2,885.0 million of share repurchases. As of June 29, 2011, approximately $445 million was available under our share repurchase authorization. Our stock repurchase plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. Repurchased common stock is reflected as a reduction of shareholders’ equity.

We have evaluated ways to monetize the value of our owned real estate and determined that the alternatives considered are more costly than other financing options currently available due to a combination of the income tax impact and higher effective borrowing rates.

Cash Flow Outlook

We believe that our various sources of capital, including future cash flow from operating activities of continuing operations and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations. We are not aware of any other event or trend that would potentially 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.

Payments due under our contractual obligations for outstanding indebtedness, purchase obligations as defined by the Securities and Exchange Commission (“SEC”), and the expiration of the credit facility as of June 29, 2011 are as follows:

	Payments Due by Period (in thousands)
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-term debt(a)	$	524,582	$	36,675	$	362,907	$	125,000	$	—
Capital leases		81,318		5,367		11,054		11,498		53,399
Operating leases		541,454		100,441		178,973		132,955		129,085
Purchase obligations(b)		123,779		20,167		25,937		22,037		55,638
	Amount of Revolving Credit Facility Expiration by Period (in thousands)
	Total Commitment		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Revolving credit facility	$	200,000	$	—	$	—	$	200,000	$	—

(a) Long-term debt consists of amounts owed on the existing five-year term loan and 5.75% notes, as well as remaining interest payments on the 5.75% notes totaling $50.0 million. No amount was outstanding under the revolving credit facility as of June 29, 2011.

(b) A “purchase obligation” is 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, procurement outsourcing, and energy and exclude agreements that are cancelable without significant penalty.

In addition to the amounts shown in the table above, $9.1 million of unrecognized tax benefits have been recorded as liabilities. The timing and amounts of future cash payments related to these liabilities are uncertain.

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.

F-10

CRITICAL ACCOUNTING ESTIMATES

Our significant accounting policies are disclosed in Note 1 to our 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.

Stock Based Compensation

We measure and recognize compensation cost at fair value for all share-based payments, including stock options. We determine the fair value of our stock option awards using the Black-Scholes option valuation model. The Black-Scholes model requires judgmental assumptions including expected life and stock price volatility. We base our expected life assumptions on historical experience regarding option life. Stock price volatility is calculated based on historical prices and the expected life of the options. We determine the fair value of our performance shares using a Monte Carlo simulation model. The Monte Carlo method is a statistical modeling technique that requires highly judgmental assumptions regarding our future operating performance compared to our plan designated peer group in the future. The simulation is based on a probability model and market-based inputs that are used to predict future stock returns. We use the historical operating performance and correlation of stock performance to the S&P 500 composite index of us and our peer group as inputs to the simulation model. These historical returns could differ significantly in the future and as a result, the fair value assigned to the performance shares could vary significantly to the final payout. We believe the Monte Carlo simulation model provides the best evidence of fair value at the grant date and is an appropriate technique for valuing share-based awards. We recognize compensation expense 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.

Income Taxes

In determining net income for financial statement purposes, we make certain estimates and judgments in the calculation of tax expense and the resulting tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense. 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 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 expense. 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.

Property and Equipment

Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The useful lives of the assets are based upon our expectations for the period of time that the asset will be used to generate revenues. We periodically review the assets for changes in circumstances, which may impact their useful lives.

Impairment 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. If the carrying amount is not recoverable, we record an

F-11

impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment.

Impairment 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 consider our restaurants brands, Chili’s and Maggiano’s, to be both our operating segments and reporting units. The impairment test is a two-step process. Step one includes comparing the fair value of our reporting units to their carrying value. If the fair value of the reporting unit exceeds the carrying value, then the goodwill balance is not impaired and no further evaluation is required. If the carrying value of the reporting unit exceeds its fair value, impairment may exist and performing step two is necessary to determine the impairment loss. The amount of impairment would be determined by performing a hypothetical analysis resulting in an implied goodwill value by performing a fair value allocation as if the unit were being acquired in a business combination. This implied value would be compared to the carrying value to determine the amount of impairment loss, if any.

We determine fair value based on projected discounted future operating cash flows of the restaurant brands using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. We make assumptions regarding future profits and cash flows, expected growth rates, terminal values, and other factors which could significantly impact the fair value calculations. In the event that these assumptions change in the future, we may be required to record impairment charges related to goodwill. The fair value of our reporting units was substantially in excess of the carry value as of our fiscal 2011 goodwill impairment test that was performed at the end of the second quarter. No indicators of impairment were identified from the date of our impairment test through the end of fiscal year 2011.

Self-Insurance

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. If actual trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

Recent Accounting Pronouncements

We reviewed all significant newly issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our financial statements as a result of future adoption.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 term loan and revolving credit facility. At June 29, 2011, $185.0 million was outstanding under the term loan and no amount was outstanding under the revolving credit facility. The impact on our annual results of operations of a one-point interest rate change on the outstanding balance of these variable rate financial instruments as of June 29, 2011 would be approximately $1.9 million.

We purchase certain commodities such as beef, pork, poultry, seafood, produce, and dairy. These commodities are generally purchased based upon market prices established with vendors. These purchase

F-12

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 and any commodity price aberrations are generally short-term in nature.

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.

F-13

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Fiscal Years
	2011			2010			2009
Revenues	$	2,761,386		$	2,858,498		$	3,276,362
Operating Costs and Expenses:
Cost of sales		742,283			816,015			923,668
Restaurant labor		886,559			926,474			1,054,078
Restaurant expenses		655,060			660,922			784,657
Depreciation and amortization		128,447			135,832			145,220
General and administrative		132,834			136,270			147,372
Other gains and charges		10,783			28,485			118,612
Total operating costs and expenses		2,555,966			2,703,998			3,173,607
Operating income		205,420			154,500			102,755
Interest expense		28,311			28,515			33,330
Other, net		(6,220	)		(6,001	)		(9,430	)
Income before provision for income taxes		183,329			131,986			78,855
Provision for income taxes		42,269			28,264			6,734
Income from continuing operations		141,060			103,722			72,121
Income from discontinued operations, net of taxes		0			33,982			7,045
Net income	$	141,060		$	137,704		$	79,166
Basic net income per share:
Income from continuing operations	$	1.55		$	1.02		$	0.71
Income from discontinued operations	$	0.00		$	0.33		$	0.07
Net income per share	$	1.55		$	1.35		$	0.78
Diluted net income per share:
Income from continuing operations	$	1.53		$	1.01		$	0.70
Income from discontinued operations	$	0.00		$	0.33		$	0.07
Net income per share	$	1.53		$	1.34		$	0.77
Basic weighted average shares outstanding		90,807			102,287			101,852
Diluted weighted average shares outstanding		92,320			103,044			102,713
Dividends per share	$	0.56		$	0.47		$	0.44

See accompanying notes to consolidated financial statements.

F-14

BRINKER INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	2011			2010
ASSETS
Current Assets:
Cash and cash equivalents	$	81,988		$	344,624
Accounts receivable		42,785			45,140
Inventories		25,365			26,735
Prepaid expenses and other		59,698			63,961
Deferred income taxes		11,524			20,607
Total current assets		221,360			501,067
Property and Equipment:
Land		156,731			163,018
Buildings and leasehold improvements		1,383,311			1,367,646
Furniture and equipment		543,682			556,815
Construction-in-progress		6,425			11,870
		2,090,149			2,099,349
Less accumulated depreciation and amortization		(1,033,870	)		(970,272	)
Net property and equipment		1,056,279			1,129,077
Other Assets:
Goodwill		124,089			124,089
Deferred income taxes		30,365			44,213
Other		52,475			53,658
Total other assets		206,929			221,960
Total assets	$	1,484,568		$	1,852,104
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current installments of long-term debt	$	22,091		$	16,866
Accounts payable		87,549			112,824
Accrued liabilities		287,365			300,540
Income taxes payable		8,596			19,647
Total current liabilities		405,601			449,877
Long-term debt, less current installments		502,572			524,511
Other liabilities		137,485			148,968
Commitments and Contingencies (Notes 9 and 14)
Shareholders’ Equity:
Common stock—250,000,000 authorized shares; $.10 par value; 176,246,649 shares issued and 82,938,493 shares outstanding at June 29, 2011, and 176,246,649 shares issued and 101,571,588 shares outstanding at June 30, 2010		17,625			17,625
Additional paid-in capital		463,688			465,721
Retained earnings		2,013,189			1,923,561
		2,494,502			2,406,907
Less treasury stock, at cost (93,308,156 shares at June 29, 2011 and 74,675,061 shares at June 30, 2010)		(2,055,592	)		(1,678,159	)
Total shareholders’ equity		438,910			728,748
Total liabilities and shareholders’ equity	$	1,484,568		$	1,852,104

See accompanying notes to consolidated financial statements.

F-15

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

	Common Stock					Additional Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
	Shares			Amount
Balances at June 25, 2008		101,316		$	17,625	$	464,666		$	1,800,300		$	(1,687,334	)	$	(168	)	$	595,089
Net income		0			0		0			79,166			0			0			79,166
Currency translation adjustment		0			0		0			0			0			(2,068	)		(2,068	)
Realized loss on currency translation		0			0		0			0			0			2,236			2,236
Comprehensive income																			79,334
Dividends ($0.44 per share)		0			0		0			(45,159	)		0			0			(45,159	)
Stock-based compensation		0			0		17,518			0			0			0			17,518
Purchases of treasury stock		(30	)		0		(3,116	)		0			(623	)		0			(3,739	)
Issuances of common stock		816			0		(13,721	)		0			18,371			0			4,650
Tax benefit from stock options exercised		0			0		(769	)		0			0			0			(769	)
Issuances of restricted stock, net of forfeitures		23			0		(598	)		0			598			0			0
Balances at June 24, 2009		102,125			17,625		463,980			1,834,307			(1,668,988	)		0			646,924
Net income and comprehensive income		0			0		0			137,704			0			0			137,704
Dividends ($0.47 per share)		0			0		0			(48,450	)		0			0			(48,450	)
Stock-based compensation		0			0		16,493			0			0			0			16,493
Purchases of treasury stock		(1,046	)		0		(2,448	)		0			(20,420	)		0			(22,868	)
Issuances of common stock		518			0		(9,268	)		0			11,664			0			2,396
Tax benefit from stock options exercised		0			0		(3,451	)		0			0			0			(3,451	)
Issuances of restricted stock, net of forfeitures		(25	)		0		415			0			(415	)		0			0
Balances at June 30, 2010		101,572			17,625		465,721			1,923,561			(1,678,159	)		0			728,748
Net income and comprehensive income		0			0		0			141,060			0			0			141,060
Dividends ($0.56 per share)		0			0		0			(51,432	)		0			0			(51,432	)
Stock-based compensation		0			0		13,381			0			0			0			13,381
Purchases of treasury stock		(20,585	)		0		(1,788	)		0			(420,311	)		0			(422,099	)
Issuances of common stock		1,951			0		(9,821	)		0			42,878			0			33,057
Tax benefit from stock options exercised		0			0		(3,805	)		0			0			0			(3,805	)
Balances at June 29, 2011		82,938		$	17,625	$	463,688		$	2,013,189		$	(2,055,592	)	$	0		$	438,910

See accompanying notes to consolidated financial statements.

F-16

BRINKER INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Fiscal Years
	2011			2010			2009
Cash Flows from Operating Activities:
Net income	$	141,060		$	137,704		$	79,166
Income from discontinued operations, net of taxes		0			(33,982	)		(7,045	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		128,447			135,832			145,220
Restructure charges and other impairments		8,427			31,766			76,957
Deferred income taxes		15,277			(25,516	)		40,921
Net (gain) loss on disposal of assets		(401	)		(4,878	)		36,955
Stock-based compensation		12,789			15,595			17,128
(Earnings) Loss on equity investments		(1,802	)		(114	)		201
Other		405			2,637			(823	)
Changes in assets and liabilities, excluding effects of dispositions:
Accounts receivable		1,255			6,083			(800	)
Inventories		1,341			6,544			(1,680	)
Prepaid expenses and other		1,044			1,847			2,150
Other assets		406			551			1,496
Current income taxes		(3,976	)		51,800			(42,153	)
Accounts payable		(21,515	)		(9,963	)		(43,512	)
Accrued liabilities		(15,178	)		(7,483	)		(68,199	)
Other liabilities		(7,591	)		(11,021	)		(1,975	)
Net cash provided by operating activities		259,988			297,402			234,007
Cash Flows from Investing Activities:
Payments for property and equipment		(70,361	)		(60,879	)		(88,152	)
Proceeds from sale of assets		8,696			26,603			81,865
Investment in equity method investees		(2,896	)		0			(4,612	)
Decrease in restricted cash		0			29,749			4,688
Net cash used in investing activities		(64,561	)		(4,527	)		(6,211	)
Cash Flows from Financing Activities:
Purchases of treasury stock		(422,099	)		(22,868	)		(3,739	)
Payments of dividends		(53,185	)		(34,448	)		(45,355	)
Proceeds from issuances of treasury stock		33,057			2,396			4,650
Payments on long-term debt		(16,127	)		(391,046	)		(19,735	)
Net proceeds from issuance of long-term debt		0			196,389			0
Excess tax benefits from stock-based compensation		291			139			551
Net payments on credit facilities		0			0			(160,757	)
Net cash used in financing activities		(458,063	)		(249,438	)		(224,385	)
Cash Flows from Discontinued Operations:
Net cash provided by operating activities		0			39,033			40,958
Net cash provided by (used in) investing activities		0			167,998			(4,927	)
Net cash provided by discontinued operations		0			207,031			36,031
Net change in cash and cash equivalents		(262,636	)		250,468			39,442
Cash and cash equivalents at beginning of year		344,624			94,156			54,714
Cash and cash equivalents at end of year	$	81,988		$	344,624		$	94,156

See accompanying notes to consolidated financial statements.

F-17

BRINKER INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) 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 29, 2011, we owned, operated, or franchised 1,579 restaurants in the United States and 30 countries and two territories outside of the United States.

We sold On The Border Mexican Grill & Cantina (“On The Border”) to OTB Acquisition LLC (“OTB Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in June 2010. We sold Romano’s Macaroni Grill (“Macaroni Grill”) to Mac Acquisition LLC (“Mac Acquisition”), also an affiliate of Golden Gate Capital, in December 2008 and we currently hold a 15.6% ownership interest in the new entity.

(b) Basis of Presentation

Our consolidated financial statements 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. Fiscal years 2011 and 2009, which ended on June 29, 2011 and June 24, 2009, respectively, each contained 52 weeks. Fiscal year 2010 ended on June 30, 2010 and contained 53 weeks.

At the beginning of fiscal 2011, we began reporting certain labor and related expenses in a separate caption on the consolidated statements of income titled restaurant labor. All prior year amounts previously classified in restaurant expenses have been reclassified to conform to the fiscal 2011 presentation. 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 supervision above the individual restaurant level continue to be included in restaurant expenses. These reclassifications have no effect on our net income or financial position as previously reported.

Certain other prior year amounts in the accompanying consolidated financial statements have been reclassified to conform with fiscal 2011 presentation. These reclassifications have no effect on our net income or financial position as previously reported.

On The Border has been presented as discontinued operations in the consolidated financial statements. See Note 2 for additional disclosures. As a result of our retained interest and involvement in the ongoing operations, Macaroni Grill’s operating results were included in continuing operations in the consolidated financial statements for fiscal 2009 (through the sale date of December 18, 2008).

(c) Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 during the reporting period. Actual results could differ from those estimates.

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(d) Revenue Recognition

We record revenue from the sale of food, beverages and alcohol as products are sold. Initial fees received from a franchisee to establish a new franchise are recognized as income when we have performed our obligations required to assist the franchisee in opening a new franchise restaurant, which is generally upon the opening of such restaurant. Continuing royalties, which are a percentage of net sales of franchised restaurants, are accrued as income when earned. Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as income when the gift card is redeemed by the holder or the likelihood of redemption, based upon our historical redemption patterns, becomes remote.

(e) Fair Value Measurements

Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants on the measurement date. In determining fair value, the accounting standards establish a three level hierarchy for inputs used in measuring fair value, as follows:

• Level 1—inputs are quoted prices in active markets for identical assets or liabilities.

• Level 2—inputs are observable for the asset or liability, either directly or indirectly, including quoted prices in active markets for similar assets or liabilities.

• Level 3—inputs are unobservable and reflect our own assumptions.

(f) 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.

(g) Accounts Receivable

Accounts receivable, net of the allowance for doubtful accounts, represents their estimated net realizable value. 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.

(h) Inventories

Inventories, which consist of food, beverages, and supplies, are stated at the lower of cost (weighted average cost method) or market.

(i) Property and Equipment

Property and equipment is stated at cost. Buildings and leasehold improvements are depreciated using the straight-line method over the lesser of the life of the lease, including renewal options, or the estimated useful lives of the assets, which range from 5 to 20 years. Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. 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. 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 projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. Impairment charges are included in other gains and charges in the consolidated statements of income.

F-19

(j) Operating Leases

Rent expense for leases that contain scheduled rent increases is recognized on a straight-line basis over the lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty such that the renewal appears reasonably assured. The straight-line rent calculation and rent expense includes the rent holiday period, which is the period of time between taking control of a leased site and the rent commencement date. Contingent rents are generally amounts due as a result of sales in excess of amounts stipulated in certain restaurant leases and are included in rent expense as they are incurred. Landlord contributions are recorded when received as a deferred rent liability and amortized as a reduction of rent expense on a straight-line basis over the lesser of the lease term, including renewal options, or 20 years.

(k) Advertising

Advertising production costs are expensed in the period when the advertising first takes place. Other advertising costs are expensed as incurred. Advertising costs, net of advertising contributions from franchisees, were $80.2 million, $80.6 million and $103.5 million in fiscal 2011, 2010, and 2009, respectively, and are included in restaurant expenses in the consolidated statements of income.

(l) Goodwill

Goodwill is not subject to amortization, but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill has been assigned to reporting units for purposes of impairment testing. Our two restaurant brands, Chili’s and Maggiano’s, are both reporting units and operating segments. We have established that the appropriate level to evaluate goodwill is at the operating segment level. The menu items, services offered and food preparation are virtually identical at each restaurant within the reporting unit and our targeted customer is consistent across each brand. We maintain a centralized purchasing department which manages all purchasing and distribution for our restaurants. In addition, contracts for our food supplies are negotiated at a consolidated level in order to secure the best prices and maintain similar quality across all of our brands. Local laws, regulations and other issues may result in slightly different legal and regulatory environments; however, the overall regulatory climate within and across our operating segments is quite similar. As such, we believe that aggregating components is appropriate for the evaluation of goodwill.

Goodwill impairment tests consist of a comparison of each reporting unit’s fair value with its carrying value. We determine fair value based on a combination of market based values and projected discounted future operating cash flows of the restaurant brands using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. If the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value. We determined that there was no goodwill impairment during our annual test and no indicators of impairment were identified through the end of fiscal year 2011. See Note 5 for additional disclosures related to goodwill.

We have occasionally acquired restaurants from our franchisees. Goodwill from these acquisitions represents the excess of the cost of a business acquired over the net amounts assigned to assets acquired, including identifiable intangible assets, primarily reacquired franchise rights. In connection with the sale of restaurants, we have allocated goodwill from the reporting unit, or restaurant brand, to the disposal group in the determination of the gain or loss on the disposition. The allocation was based on the relative fair values of the disposal group and the portion of the reporting unit that was retained. We have recognized reacquired rights in connection with previous business combinations; however, we have not sold any restaurants acquired in those combinations. When we have disposed a restaurant brand and all related restaurants, the entire goodwill balance associated with the reporting unit or brand has been included in the disposal group for purposes of determining the gain or loss on the disposition.

F-20

(m) Sales Taxes

Sales taxes collected from guests are excluded from revenues. The obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities.

(n) Self-Insurance Program

We utilize a paid loss self-insurance plan for health, general liability and workers’ compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit our per occurrence cash outlay. Accrued and other liabilities include the estimated incurred but unreported costs to settle unpaid claims and estimated future claims.

In December 2009, we dissolved our wholly-owned captive insurance company which allowed us to access $29.7 million of cash that was previously pledged as collateral and classified as restricted.

(o) 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. We recognize any interest and penalties related to unrecognized tax benefits in income tax expense. Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions.

(p) Stock-Based Compensation

We measure and recognize compensation cost at fair value for all share-based payments, including stock options. We record compensation expense using a graded-vesting schedule over the vesting period, or to the date on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach).

Certain employees are eligible to receive stock options, performance shares, restricted stock and restricted stock units, while non-employee members of the Board of Directors are eligible to receive stock options, restricted stock and restricted stock units. Performance shares represent a right to receive shares of common stock upon satisfaction of performance goals or other specified metrics at the end of a three-year cycle. Performance shares are paid out in common stock and will be fully vested upon issuance. The fair value of performance shares is determined on the date of grant based on a Monte Carlo simulation model. The fair value of restricted stock and restricted stock units are based on our closing stock price on the date of grant.

Stock-based compensation expense from continuing operations totaled approximately $13.4 million, $15.8 million and $17.2 million for fiscal 2011, 2010 and 2009, respectively. The total income tax benefit recognized in the consolidated statements of income related to stock-based compensation expense from continuing operations was approximately $5.7 million, $5.3 million and $6.4 million during fiscal 2011, 2010 and 2009, respectively.

F-21

The weighted average fair values of option grants were $7.20, $6.04 and $5.52 during fiscal 2011, 2010 and 2009, respectively. The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2011		2010		2009
Expected volatility		55.6%		53.7%		37.8%
Risk-free interest rate		1.6%		2.5%		2.9%
Expected lives		5 years		5 years		5 years
Dividend yield		3.1%		3.1%		2.8%

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 Treasury Note with a term equal to the expected life of the stock options.

(q) 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 29, 2011, no preferred shares were issued.

(r) Shareholders’ Equity

Our Board of Directors has authorized a total of $2,885.0 million of share repurchases. Pursuant to our stock repurchase plan, we repurchased approximately 20.6 million shares of our common stock for $420.0 million during fiscal 2011. As of June 29, 2011, approximately $445 million was available under our share repurchase authorizations. Our stock repurchase plan has been and will be 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 common stock is reflected as a reduction of shareholders’ equity.

We paid dividends of $53.2 million, or $0.56 per share, to common stock shareholders during fiscal 2011, compared to $34.4 million, or $0.33 per share, in the prior year. Additionally, we declared a quarterly dividend of $11.6 million, or $0.14 per share, in June 2011 which was paid on June 30, 2011.

(s) 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. Fiscal 2011 and 2010 comprehensive income consists of net income. Fiscal 2009 comprehensive income consists of net income, currency translation adjustments and a realized loss on currency translation adjustments related to the closure of international company-owned restaurants (see Note 4).

(t) Net Income Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings 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 number of shares is increased by the dilutive effect of stock options and restricted share awards, determined using the treasury stock method. We had approximately 1.7 million stock options and restricted share awards outstanding at June 29, 2011, 6.9 million stock options and restricted share awards outstanding at June 30, 2010, and 7.4 million stock options and restricted share awards outstanding at June 24, 2009 that were not included in the dilutive earnings per share calculation because the effect would have been antidilutive.

F-22

(u) Segment Reporting

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Two or more operating segments may be aggregated into a single operating segment if they have similar economic characteristics and are similar in the following areas:

• The nature of products and services

• Nature of production processes

• Type or class of customer

• Methods used to distribute products or provide services

• The nature of the regulatory environment, if applicable

Our two brands have similar types of products, contracts, customers, and employees and all operate as full-service restaurants offering lunch and dinner in the casual-dining segment of the industry. In addition, we have similar long-term average margins across our brands. Therefore, we believe we meet the criteria for aggregating operating segments into a single reporting segment.

2. DISCONTINUED OPERATIONS

In June 2010, we completed the sale of On The Border for gross proceeds of approximately $180 million and recorded a pre-tax gain of $16.5 million in income from discontinued operations, net of taxes, in the consolidated statement of income in fiscal 2010. The assets sold totaled approximately $164.0 million and consisted primarily of property and equipment of $146.7 million and goodwill of $5.8 million. The associated liabilities totaled approximately $9.9 million and consisted primarily of straight-line rent accruals of $9.3 million.

As part of the sale, we entered into an agreement with OTB Acquisition whereby we provided corporate support services for the new entity during fiscal 2011 until the agreement terminated in June 2011. The income generated offset the internal cost of providing the services.

On The Border has been presented as discontinued operations in the consolidated financial statements in fiscal 2010 and 2009. Discontinued operations includes only the revenues and expenses which can be specifically identified with On The Border and excludes any allocation of corporate costs, including general and administrative expenses. The results of On The Border consist of the following (in thousands):

	2010		2009
Revenues	$	331,247	$	344,218
Income before income taxes from discontinued operations		51,488		7,883
Income tax expense		17,506		838
Net income from discontinued operations(a)	$	33,982	$	7,045

(a) Other gains and charges, net of taxes, was a gain of $8.4 million and a loss of $10.2 million in fiscal 2010 and 2009, respectively.

Other gains and charges in fiscal 2010 included a $16.5 million gain on the sale of On The Border, partially offset by $2.9 million of charges related to long-lived asset impairments and lease termination charges primarily associated with the closure of three underperforming restaurants.

F-23

Other gains and charges in fiscal 2009 included a $9.0 million charge related to long-lived asset impairments, $1.0 million of lease termination charges resulting from the decision to close six underperforming restaurants and $1.6 million of lease termination charges associated with restaurants closed in prior years. Also included was a $3.7 million impairment charge associated with four underperforming restaurants that are continuing to operate.

3. OTHER RESTAURANT DISPOSITIONS AND EQUITY METHOD INVESTMENTS

(a) Sale of Macaroni Grill

In December 2008, we completed the sale of Macaroni Grill. We received cash proceeds of approximately $88.0 million and recorded a loss of $40.4 million in other gains and charges in the consolidated statement of income in fiscal 2009. The net assets sold totaled approximately $110 million and consisted primarily of property and equipment of $105 million. Macaroni Grill operating results were included in continuing operations for fiscal 2009 (through the sale date of December 18, 2008) as we have involvement in the ongoing operations of Macaroni Grill. As of June 29, 2011, we held a 15.6% ownership interest in the new entity, compared to 18.2% as of June 30, 2010.

In fiscal 2011, we resumed the application of the equity method of accounting as Macaroni Grill reported net income during the period subsequent to reporting net losses in fiscal 2010 and 2009. We recorded our share of Macaroni Grill’s fiscal 2011 net income, net of our share of fiscal 2010 and 2009 losses, within operating income since the operations of Macaroni Grill are similar to our ongoing operations. This amount has been included in restaurant expense instead of a separate caption in our consolidated statements of income due to the immaterial nature of the amount.

(b) Other Dispositions

During fiscal 2010, we sold 21 restaurants to a franchisee for $19.0 million in cash and recorded a gain of $2.8 million in other gains and charges in the consolidated statement of income.

During fiscal 2009, we recorded gains of $3.9 million related to the sale of nine restaurants to a franchisee and other land sales.

(c) Joint Venture Investments

In fiscal 2011, we entered into an agreement with BTTO Participacoes Ltda for a joint venture investment in a new company to develop five Chili’s restaurants in Brazil. We made a $1.3 million capital contribution to the joint venture in fiscal 2011. The first restaurant is projected to open in fiscal 2012.

In fiscal 2008, we entered into an agreement with CMR, S.A.B. de C.V. for a joint venture investment in a new corporation to develop 50 Chili’s and Maggiano’s restaurants in Mexico. We made a $1.6 million and a $4.6 million capital contribution to the joint venture in fiscal 2011 and 2009, respectively. At June 29, 2011, 25 Chili’s restaurants were operating in the joint venture.

We account for these investments under the equity method of accounting and record our share of the net income or loss of the investees within operating income since the operations of the joint ventures are similar to our ongoing operations. These amounts have been included in restaurant expense in our consolidated statements of income due to the immaterial nature of the amounts.

F-24

4. OTHER GAINS AND CHARGES

	2011			2010			2009
Restaurant impairment charges	$	1,937		$	19,789		$	10,517
Restaurant closure charges		4,515			13,409			59,362
Severance and other benefits		5,034			1,887			5,496
Gains on the sale of assets, net (see Note 3)		(2,100	)		(4,878	)		(3,902	)
Charges related to the sale of Macaroni Grill (see Note 3)		0			0			40,362
Impairment of goodwill		0			0			7,713
Other gains and charges, net		1,397			(1,722	)		(936	)
	$	10,783		$	28,485		$	118,612

We recorded impairment charges for the excess of the carrying amount of property and equipment over the fair value related to underperforming restaurants. Restaurant impairment charges were $1.9 million, $19.8 million, and $10.5 million during fiscal 2011, 2010, and 2009, respectively. See Note 10 for fair value disclosures related to the fiscal 2011 and 2010 charges.

In fiscal 2011, we recorded $4.5 million in charges, including $3.0 million in lease termination charges associated with restaurants closed in prior years.

In fiscal 2010, we recorded $13.4 million in charges primarily related to long-lived asset impairments resulting from the decision to close nine underperforming restaurants. The charges included $5.4 million of long-lived asset impairments and $4.0 million in lease termination charges. Also included is $2.4 million in lease termination charges related to restaurants closed in prior years.

In fiscal 2009, we recorded $59.4 million in charges primarily related to long-lived asset impairments resulting from the decision to close 37 underperforming restaurants, including eight international restaurants. The charges related to the domestic restaurant closures include $35.2 million of long-lived asset impairments, $5.2 million in lease termination charges and $1.2 million of charges related to the write-off of other assets and liabilities. The charges related to the international restaurant closures include $5.6 million of long-lived asset impairments and $2.1 million of charges related to realized foreign currency translation losses. We also recorded a goodwill impairment charge of $7.7 million resulting from the closure of the international restaurants as well as $6.2 million in lease termination charges associated with restaurants closed in prior years.

During the last three fiscal years, we made organizational changes designed to streamline decision making and support our strategic goals and evolving business model. We incurred $5.0 million, $1.9 million and $5.5 million in severance and other benefits resulting from these actions in fiscal 2011, 2010, and 2009, respectively. The severance charges are net of income related to the forfeiture of stock-based compensation awards.

F-25

5. GOODWILL

The changes in the carrying amount of goodwill for the fiscal years ended June 29, 2011 and June 30, 2010 are as follows (in thousands):

	2011			2010
Balance at beginning of year:
Goodwill	$	186,923		$	187,766
Accumulated impairment losses(a)		(62,834	)		(62,834	)
		124,089			124,932
Changes in goodwill:
Disposals and other, net(b)		0			(843	)
Balance at end of year:
Goodwill		186,923			186,923
Accumulated impairment losses		(62,834	)		(62,834	)
	$	124,089		$	124,089

(a) The impairment losses recorded in prior years are related to restaurant brands that we no longer own.

(b) Disposals and other, net primarily reflects goodwill write-offs associated with refranchising transactions.

6. ACCRUED AND OTHER LIABILITIES

Accrued liabilities consist of the following (in thousands):

	2011		2010
Payroll	$	91,935	$	79,159
Gift cards		79,837		78,505
Insurance		25,138		28,234
Sales tax		19,234		24,801
Property tax		15,844		17,423
Dividends		11,609		14,565
Other		43,768		57,853
	$	287,365	$	300,540

Other liabilities consist of the following (in thousands):

	2011		2010
Straight-line rent	$	55,180	$	52,241
Insurance		42,674		47,123
Landlord contributions		28,420		30,810
Unrecognized tax benefits		5,245		13,290
Other		5,966		5,504
	$	137,485	$	148,968

F-26

7. INCOME TAXES

The provision for income taxes from continuing operations consists of the following (in thousands):

	2011		2010			2009
Current income tax expense (benefit):
Federal	$	16,596	$	36,493		$	(41,803	)
State		1,694		9,055			(1,189	)
Foreign		2,046		1,904			1,808
Total current income tax expense (benefit)		20,336		47,452			(41,184	)
Deferred income tax expense (benefit):
Federal		20,507		(15,773	)		41,878
State		1,426		(3,415	)		6,040
Total deferred income tax expense (benefit)		21,933		(19,188	)		47,918
	$	42,269	$	28,264		$	6,734

A reconciliation between the reported provision for income taxes from continuing operations and the amount computed by applying the statutory Federal income tax rate of 35% to income before provision for income taxes is as follows (in thousands):

	2011			2010			2009
Income tax expense at statutory rate	$	64,165		$	46,196		$	27,599
FICA tax credit		(15,779	)		(16,625	)		(19,307	)
State income taxes, net of Federal benefit		(316	)		1,711			3,154
Other		(5,801	)		(3,018	)		(4,712	)
	$	42,269		$	28,264		$	6,734

The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities as of June 29, 2011 and June 30, 2010 are as follows (in thousands):

	2011		2010
Deferred income tax assets:
Leasing transactions	$	41,603	$	35,795
Stock-based compensation		15,320		17,671
Restructure charges and impairments		4,962		9,134
Insurance reserves		23,636		26,734
Employee benefit plans		591		1,044
Gift cards		9,369		8,733
Other, net		10,296		12,882
Total deferred income tax assets		105,777		111,993
Deferred income tax liabilities:
Prepaid expenses		13,448		12,963
Goodwill and other amortization		22,297		19,971
Depreciation and capitalized interest on property and equipment		24,672		11,143
Other, net		3,471		3,096
Total deferred income tax liabilities		63,888		47,173
Net deferred income tax asset	$	41,889	$	64,820

F-27

A reconciliation of unrecognized tax benefits for the fiscal years ended June 29, 2011 and June 30, 2010 are as follows (in thousands):

	2011			2010
Balance at beginning of year	$	18,850		$	27,711
Additions based on tax positions related to the current year		1,199			1,184
Additions (Reductions) based on tax positions related to prior years		188			(1,754	)
Settlements with tax authorities		(5,387	)		(2,290	)
Expiration of statute of limitations		(5,708	)		(6,001	)
Balance at end of year	$	9,142		$	18,850

The total amount of unrecognized tax benefits as of June 29, 2011 was $9.1 million ($6.3 million of which would favorably affect the effective tax rate if resolved in our favor due to the effect of deferred tax benefits). During the next twelve months, we anticipate that it is reasonably possible that the amount of unrecognized tax benefits could be reduced by approximately $2.5 million ($1.7 million of which would affect the effective tax rate due to the effect of deferred tax benefits) either because our tax position will be sustained upon audit or as a result of the expiration of the statute of limitations for specific jurisdictions.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. We recognized benefits in interest of approximately $1.8 million and $1.0 million in fiscal 2011 and 2010, respectively, due to the reduction of accrued interest from statute expirations and settlements, net of accrued interest for remaining positions. As of June 29, 2011, we had $3.0 million ($2.3 million net of a $0.7 million Federal deferred tax benefit) of interest and penalties accrued, compared to $4.9 million ($3.5 million net of a $1.4 million Federal deferred tax benefit) at June 30, 2010.

8. DEBT

Long-term debt consists of the following (in thousands):

	2011			2010
Term loan	$	185,000		$	200,000
5.75% notes		289,557			289,405
Capital lease obligations (see Note 9)		50,106			51,972
		524,663			541,377
Less current installments		(22,091	)		(16,866	)
	$	502,572		$	524,511

During fiscal 2011, we paid our required installments totaling $15.0 million on our five-year term loan bringing the outstanding balance to $185.0 million. The term loan bears interest at LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%, and expires in June 2015. Based on our current credit rating, we are paying interest at a rate of LIBOR plus 2.75% (2.94% as of June 29, 2011).

As of June 29, 2011, we have an undrawn $200 million revolving credit facility, which expires in June 2015. The revolving credit facility bears interest at LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%. Based on our current credit rating, the revolving credit facility carries an interest rate of LIBOR plus 2.75% (2.94% as of June 29, 2011).

F-28

On August 9, 2011, we executed a revised unsecured senior credit facility increasing the total capacity from $400 million to $500 million. The maturity date of the revised facility is August 2016. The facility includes a $250 million revolver and a $250 million term loan. The revised term loan and revolving credit facility bear interest at LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 2.5%. Based on our current credit rating, we anticipate paying interest at a rate of LIBOR plus 1.625% (1.82% as of June 29, 2011) on the term loan and on the revolving credit facility should we draw any funds.

In May 2004, we issued $300.0 million of 5.75% notes and received proceeds totaling approximately $298.4 million prior to debt issuance costs. The notes require semi-annual interest payments and mature in June 2014. In April 2009, we repurchased and retired $10.0 million of the notes at a discount and recorded a $1.3 million gain on the extinguishment of debt in interest expense in the consolidated statement of income in fiscal 2009.

Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage and fixed charge coverage ratios. We are currently in compliance with all financial covenants.

Excluding capital lease obligations (see Note 9) our long-term debt maturities for the five years following June 29, 2011 are as follows (in thousands):

Fiscal Year	Long-Term Debt
2012	$	20,000
2013		20,000
2014		309,557
2015		125,000
2016		0
Thereafter		0
	$	474,557

9. LEASES

(a) Capital Leases

We lease certain buildings under capital leases. The asset value of $39.8 million at June 29, 2011 and $40.6 million at June 30, 2010, and the related accumulated amortization of $14.6 million and $12.5 million at June 29, 2011 and June 30, 2010, respectively, are included in property and equipment. Amortization of assets under capital leases is included in depreciation and amortization expense.

(b) Operating Leases

We lease restaurant facilities, office space, and certain equipment under operating leases having terms expiring at various dates through fiscal 2093. The restaurant leases have renewal clauses of 1 to 35 years at our option and, in some cases, have provisions for contingent rent based upon a percentage of sales in excess of specified levels, as defined in the leases. Rent expense for fiscal 2011, 2010, and 2009 was $101.0 million, $102.5 million, and $117.5 million, respectively. Contingent rent included in rent expense for fiscal 2011, 2010, and 2009 was $4.1 million, $4.7 million, and $6.5 million, respectively.

F-29

(c) Commitments

As of June 29, 2011, future minimum lease payments on capital and operating leases were as follows (in thousands):

Fiscal Year	Capital Leases			Operating Leases
2012	$	5,367		$	100,441
2013		5,473			94,315
2014		5,581			84,658
2015		5,692			73,473
2016		5,806			59,482
Thereafter		53,399			129,085
Total minimum lease payments(a)		81,318		$	541,454
Imputed interest (average rate of 7%)		(31,212	)
Present value of minimum lease payments		50,106
Less current installments		(2,091	)
	$	48,015

(a) Future minimum lease payments have not been reduced by minimum sublease rentals due in the future under non-cancelable subleases. Sublease rentals are approximately $40.7 million and $59.1 million for capital and operating subleases, respectively.

10. FAIR VALUE DISCLOSURES

(a) Non-Financial Assets Measured on a Non-Recurring Basis

In fiscal 2011, three underperforming restaurants with a carrying value of $2.2 million were written down to their fair value of $0.3 million resulting in an impairment charge of $1.9 million, which was included in other gains and charges in the consolidated statement of income for the period. In fiscal 2010, 22 underperforming restaurants with a carrying value of $27.1 million were written down to their fair value of $7.3 million resulting in an impairment charge of $19.8 million, which was included in other gains and charges in the consolidated statement of income for the period. We determined fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model.

The following table presents fair values for those assets measured at fair value on a non-recurring basis at June 29, 2011 and June 30, 2010 (in thousands):

	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
Long-lived assets held for use:
At June 29, 2011	$	—	$	—	$	255.0	$	255.0
At June 30, 2010	$	—	$	—	$	7,343.0	$	7,343.0

(b) Other Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximates their carrying amounts while the fair value of the 5.75% notes is based on quoted market prices. At June 29, 2011, the 5.75% notes had a carrying value of $289.6 million and a fair value of $308.1 million. At June 30, 2010, the 5.75% notes had a carrying value of $289.4 million and a fair value of $302.6 million.

F-30

11. STOCK-BASED COMPENSATION

Our shareholders approved stock-based compensation plans including the Stock Option and Incentive Plan and the Stock Option and Incentive Plan for Non-Employee Directors and Consultants (collectively, the “Plans”). The total number of shares authorized for issuance to employees and non-employee directors and consultants under the Plans is currently 35.3 million. The Plans provide for grants of options to purchase our common stock, restricted stock, restricted stock units, performance shares and stock appreciation rights.

(a) Stock Options

Expense related to stock options issued to eligible employees under the Plans is 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 to 10 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.

Transactions during fiscal 2011 were as follows (in thousands, except option prices):

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Options outstanding at June 30, 2010		7,640		$	21.52
Granted		786			19.07
Exercised		(1,726	)		19.15
Forfeited or canceled		(563	)		22.57
Options outstanding at June 29, 2011		6,137		$	21.77		3.5	$	19,599
Options exercisable at June 29, 2011		4,723		$	22.62		2.5	$	11,406

At June 29, 2011, unrecognized compensation expense related to stock options totaled approximately $4.0 million and will be recognized over a weighted average period of 2.1 years. The intrinsic value of options exercised totaled approximately $5.5 million, $0.7 million and $3.3 million during fiscal 2011, 2010 and 2009, respectively. The tax benefit realized on options exercised totaled approximately $2.1 million, $0.3 million and $1.2 million during fiscal 2011, 2010 and 2009, respectively.

(b) Restricted Share Awards

Restricted share awards consist of performance shares, restricted stock and restricted stock units. Performance shares and most restricted stock units issued to eligible employees under the Plans generally vest in full on the third anniversary of the date of grant, while restricted stock units issued to eligible employees under our career equity plan generally vest upon each employee’s retirement from the Company. Expense is recognized ratably over the vesting period, or to the date on which retirement eligibility is achieved, if shorter. Restricted stock and restricted stock units issued 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 and are expensed when granted. Full or partial vesting of awards may occur upon a change in control (as defined in the Plans), or upon an employee’s death, disability or involuntary termination.

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Transactions during fiscal 2011 were as follows (in thousands, except fair values):

	Number of Restricted Share Awards			Weighted Average Fair Value Per Award
Restricted share awards outstanding at June 30, 2010		2,448		$	17.40
Granted		1,051			12.72
Vested		(711	)		24.28
Forfeited		(446	)		13.07
Restricted share awards outstanding at June 29, 2011		2,342		$	14.03

At June 29, 2011, unrecognized compensation expense related to restricted share awards totaled approximately $8.2 million and will be recognized over a weighted average period of 2.4 years. The fair value of shares that vested during fiscal 2011, 2010, and 2009 totaled approximately $7.5 million, $9.6 million and $12.7 million, respectively.

12. SAVINGS PLANS

We sponsor a qualified defined contribution retirement plan (“Plan I”) covering all employees who have attained the age of twenty-one and have completed one year and 1,000 hours of service. Plan I allows eligible employees to contribute, subject to IRS limitations on total annual contributions, up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the plan, to various investment funds. We match in cash at a rate of 100% of the first 3% an employee contributes and 50% of the next 2% the employee contributes with immediate vesting. In fiscal 2011, 2010, and 2009, we contributed approximately $6.3 million, $7.3 million, and $8.1 million, respectively.

We also sponsor a non-qualified defined contribution plan covering a select group of highly compensated employees, as defined in the plan. Eligible employees are allowed to defer receipt of up to 50% of their base compensation and bonus, as defined in the plan. There is no company match, but employee contributions earn interest based on a rate determined and announced in November prior to the start of the plan year. Employee contributions and earnings thereon vest immediately. A Rabbi Trust is used to fund obligations of the non-qualified plan. The market value of the trust assets is included in other assets and the liability to plan participants is included in other liabilities.

13. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes is as follows (in thousands):

	2011		2010		2009
Income taxes, net of refunds	$	38,340	$	20,052	$	5,219
Interest, net of amounts capitalized		25,810		23,923		34,473

Non-cash investing activities are as follows (in thousands):

	2011		2010		2009
Retirement of fully depreciated assets	$	60,175	$	45,854	$	46,382

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14. CONTINGENCIES

In connection with the sale of restaurants to franchisees and brand divestitures, we have, in certain cases, guaranteed lease payments. As of June 29, 2011 and June 30, 2010, we have outstanding lease guarantees or are secondarily liable for $166.1 million and $208.0 million, respectively. This amount represents the maximum potential liability of future payments under the guarantees. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2012 through fiscal 2023. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of June 29, 2011.

Certain current and former hourly restaurant employees filed a lawsuit against us in California Superior Court alleging violations of California labor laws with respect to meal and rest breaks. The lawsuit seeks penalties and attorney’s fees and was certified as a class action in July 2006. In July 2008, the California Court of Appeal decertified the class action on all claims with prejudice. In October 2008, the California Supreme Court granted a writ to review the decision of the Court of Appeal. We intend to vigorously defend our position. It is not possible at this time to reasonably estimate the possible loss or range of loss, if any.

We are engaged in various other legal proceedings and have certain unresolved claims pending. Reserves have been established based on our best estimates of our potential liability in certain of these matters. Based upon consultation with legal counsel, Management is of the opinion that there are no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on our consolidated financial condition or results of operations.

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table summarizes the unaudited consolidated quarterly results of operations for fiscal 2011 and 2010 (in thousands, except per share amounts):

	Fiscal Year 2011 Quarters Ended
	Sept. 29		Dec. 29		March 30		June 29
Revenues	$	654,893	$	671,886	$	717,119	$	717,488
Income before provision for income taxes	$	26,919	$	45,426	$	55,499	$	55,485
Income from continuing operations	$	21,431	$	37,464	$	40,246	$	41,919
Income from discontinued operations, net of taxes	$	0	$	0	$	0	$	0
Net income	$	21,431	$	37,464	$	40,246	$	41,919
Basic net income per share:
Income from continuing operations	$	0.21	$	0.41	$	0.46	$	0.50
Income from discontinued operations	$	0.00	$	0.00	$	0.00	$	0.00
Net income per share	$	0.21	$	0.41	$	0.46	$	0.50
Diluted net income per share:
Income from continuing operations	$	0.21	$	0.41	$	0.45	$	0.49
Income from discontinued operations	$	0.00	$	0.00	$	0.00	$	0.00
Net income per share	$	0.21	$	0.41	$	0.45	$	0.49
Basic weighted average shares outstanding		100,667		90,936		87,679		83,888
Diluted weighted average shares outstanding		101,556		92,111		89,647		85,906

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	Fiscal Year 2010 Quarters Ended
	Sept. 23		Dec. 23		March 24		June 30(1)
Revenues	$	696,543	$	705,515	$	713,380	$	743,060
Income before provision for income taxes	$	13,411	$	17,827	$	44,245	$	56,503
Income from continuing operations	$	10,279	$	14,837	$	35,508	$	43,098
Income from discontinued operations, net of taxes	$	5,488	$	3,487	$	4,490	$	20,517
Net income	$	15,767	$	18,324	$	39,998	$	63,615
Basic net income per share:
Income from continuing operations	$	0.10	$	0.14	$	0.35	$	0.42
Income from discontinued operations	$	0.05	$	0.04	$	0.04	$	0.20
Net income per share	$	0.15	$	0.18	$	0.39	$	0.62
Diluted net income per share:
Income from continuing operations	$	0.10	$	0.14	$	0.35	$	0.42
Income from discontinued operations	$	0.05	$	0.04	$	0.04	$	0.20
Net income per share	$	0.15	$	0.18	$	0.39	$	0.62
Basic weighted average shares outstanding		102,243		102,481		102,470		101,934
Diluted weighted average shares outstanding		103,016		102,994		103,357		102,791

(1) The quarter ended June 30, 2010 consisted of 14 weeks, while all other quarters consisted of 13 weeks.

Income from continuing operations for fiscal year 2011 included severance charges of $2.8 million, $0.9 million and $1.0 million in the first, second and third quarters, respectively. Lease termination charges of $1.2 million, $0.8 million and $1.0 million were incurred in the first, second and fourth quarters, respectively. Income from continuing operations also included long-lived asset impairments of $1.1 million and $0.8 million in the second and fourth quarters, respectively.

Income from continuing operations for fiscal year 2010 included long-lived asset impairments of $20.6 million and $4.6 million in the second and fourth quarters, respectively. Lease termination charges of $2.2 million and $4.0 million were also incurred in the first and third quarters, respectively.

Income from discontinued operations, net of taxes, in the fourth quarter of fiscal 2010 included a pre-tax gain on the sale of On The Border of $16.5 million.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Brinker International, Inc.:

We have audited the accompanying consolidated balance sheets of Brinker International, Inc. and subsidiaries (“the Company”) as of June 29, 2011 and June 30, 2010, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended June 29, 2011. 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brinker International, Inc. and subsidiaries as of June 29, 2011 and June 30, 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended June 29, 2011 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), the Company’s internal control over financial reporting as of June 29, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 29, 2011 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP

Dallas, TX

August 29, 2011

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Brinker International, Inc.:

We have audited Brinker International, Inc. and subsidiaries’ (“the Company”) internal control over financial reporting as of June 29, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 29, 2011, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Brinker International, Inc. and subsidiaries as of June 29, 2011 and June 30, 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended June 29, 2011, and our report dated August 29, 2011 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Dallas, TX

August 29, 2011

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MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the reliability of the consolidated financial statements and related notes, which have been prepared in conformity with U. S. generally accepted accounting principles and include amounts based upon our estimate and judgments, as required. The consolidated financial statements have been audited and reported on by our independent registered public accounting firm, KPMG LLP, who were given free access to all financial records and related data, including minutes of the meetings of the Board of Directors and Committees of the Board. We believe that the representations made to the independent auditors were valid and appropriate.

We maintain a system of internal controls over financial reporting designed to provide reasonable assurance of the reliability of the consolidated financial statements. Our internal audit function monitors and reports on the adequacy of the compliance with the internal control system and appropriate actions are taken to address significant control deficiencies and other opportunities for improving the system as they are identified. The Audit Committee of the Board of Directors, which is comprised solely of outside directors, provides oversight to the financial reporting process through periodic meetings with our independent auditors, internal auditors, and management. Both our independent auditors and internal auditors have free access to the Audit Committee. Although no cost-effective internal control system will preclude all errors and irregularities, we believe our controls as of and for the year ended June 29, 2011 provide reasonable assurance that the consolidated financial statements are reliable.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting. We have assessed the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that our internal control over financial reporting was effective as of June 29, 2011.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection 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 and procedures may deteriorate.

The effectiveness of our internal control over financial reporting as of June 29, 2011 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein.

/s/ DOUGLAS H. BROOKS

DOUGLAS H. BROOKS

President and Chief Executive Officer

/s/ GUY J. CONSTANT

GUY J. CONSTANT

Executive Vice President and Chief Financial Officer

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