UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December ~~26, 2018~~25, 2019

Commission File Number 1-10275

BRINKER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



~~DELAWARE~~DE			75-1914582
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

~~6820 LBJ FREEWAY, DALLAS, TEXAS~~3000 Olympus Blvd		~~75240~~
Dallas	TX		75019
(Address of principal executive offices)			(Zip Code)

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



Class	Trading Symbol(s)	Name of exchange on which registered	Outstanding at January 24, 2020
Common Stock, $0.10 par value	EAT	NYSE	37,406,847 shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~Yes~~ xYes ☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ~~Yes~~ xYes ☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large ~~accelerated filer~~Accelerated Filer	x☒	Accelerated ~~filer~~Filer	o☐
Non-accelerated ~~filer~~Filer	o☐	Smaller reporting company	o☐
		Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

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



~~Class~~	~~Outstanding at January 28, 2019~~
~~Common Stock, $0.10 par value~~	~~37.5 million shares~~

BRINKER INTERNATIONAL, INC.

TABLE OF CONTENTS



	Page
Part I. Financial Information	3
Item 1. Financial Statements	3
Consolidated ~~Balance Sheets~~Statements of Comprehensive Income (Unaudited) — Thirteen and Twenty-Six Week Periods Ended December 25, 2019 and December 26, ~~2018 (Unaudited) and June 27,~~ 2018	3
Consolidated ~~Statements of Comprehensive Income~~Balance Sheets - December 25, 2019 (Unaudited) ~~— Thirteen Week~~ and ~~Twenty-Six Week Periods Ended December~~June 26, ~~2018 and December 27, 2017~~2019	4
Consolidated Statements of Cash Flows (Unaudited) — Twenty-Six Week Periods Ended December ~~26, 2018~~25, 2019 and December ~~27, 2017~~26, 2018	5
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4443
Item 4. Controls and Procedures	4543
Part II. Other Information	4644
Item 1. Legal Proceedings	4644
Item 1A. Risk Factors	4645
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4645
Item 5. Other Information	4645
Item 6. Exhibits	4746
Signatures	47

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~BRINKER INTERNATIONAL, INC.~~

~~Consolidated Balance Sheets~~

~~(In millions, except per share amounts)~~

Unaudited
December 26,
2018 June 27,
2018
ASSETS
Current assets
Cash and cash equivalents $ 16.2
$ 10.9
Accounts receivable, net 81.5
53.7
Inventories 24.0
24.2
Restaurant supplies 46.8
46.7
Prepaid expenses 23.1
20.8
Income taxes receivable 4.4
—
Total current assets 196.0
156.3
Property and equipment, at cost
Land 47.2
154.0
Buildings and leasehold improvements 1,465.9
1,673.3
Furniture and equipment 725.9
722.0
Construction-in-progress 38.2
22.1
2,277.2
2,571.4
Less accumulated depreciation and amortization (1,507.9 ) (1,632.5 )
Net property and equipment 769.3
938.9
Other assets
Goodwill 163.7
163.8
Deferred income taxes, net 113.9
33.6
Intangibles, net 23.0
24.0
Other 28.9
30.7
Total other assets 329.5
252.1
Total assets $ 1,294.8
$ 1,347.3
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Current installments of long-term debt $ 8.1
$ 7.1
Accounts payable 112.2
104.7
Gift card liability 153.0
119.1
Accrued payroll 66.5
74.5
Other accrued liabilities 148.2
127.2
Income taxes payable —
1.7
Total current liabilities 488.0
434.3
Long-term debt, less current installments 1,263.9
1,499.6
Deferred gain on sale leaseback transactions 252.2
—
Other liabilities 145.9
131.7
Commitments and contingencies (Note 13)

Shareholders’ deficit
Common stock (250.0 million authorized shares; $0.10 par value; 176.2 million shares issued and 37.4 million shares outstanding at December 26, 2018, and 176.2 million shares issued and 40.8 million shares outstanding at June 27, 2018) 17.6
17.6
Additional paid-in capital 514.2
511.6
Accumulated other comprehensive loss (6.1 ) (5.8 )
Retained earnings 2,704.0
2,683.0
3,229.7
3,206.4
Less treasury stock, at cost (138.8 million shares at December 26, 2018, and 135.4 million shares at June 27, 2018) (4,084.9 ) (3,924.7 )
Total shareholders’ deficit (855.2 ) (718.3 )
Total liabilities and shareholders’ deficit $ 1,294.8
$ 1,347.3

BRINKER INTERNATIONAL, INC.

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions, except per share amounts)


	Thirteen Week Periods Ended						Twenty-Six Week Periods Ended						Thirteen Week Periods Ended						Twenty-Six Week Periods Ended
	December 26, 2018			December 27, 2017			December 26, 2018			December 27, 2017			December 25, 2019			December 26, 2018			December 25, 2019			December 26, 2018
Revenues
Company sales	$	761.5		$	742.7		$	1,489.8		$	1,459.6		$	847.5		$	761.5		$	1,611.4		$	1,489.8
Franchise and other revenues (Note 2)	29.2			23.7			54.7			46.2
Franchise and other revenues													21.8			29.2			43.9			54.7
Total revenues	790.7			766.4			1,544.5			1,505.8			869.3			790.7			1,655.3			1,544.5
Operating costs and expenses
Company restaurants (excluding depreciation and amortization)
Cost of sales	200.9			192.9			392.8			380.5			223.1			200.9			426.9			392.8
Restaurant labor	260.8			250.4			517.1			501.5			291.8			260.8			560.3			517.1
Restaurant expenses (Note 2)	205.7			188.6			404.7			376.7
Restaurant expenses													224.7			205.7			432.0			404.7
Company restaurant expenses	667.4			631.9			1,314.6			1,258.7			739.6			667.4			1,419.2			1,314.6
Depreciation and amortization	36.1			37.7			73.1			76.2			39.3			36.1			77.4			73.1
General and administrative	35.4			33.1			69.2			65.4			34.6			35.4			72.6			69.2
Other (gains) and charges	2.2			9.3			(8.9		)	22.5			12.3			2.2			11.4			(8.9		)
Total operating costs and expenses	741.1			712.0			1,448.0			1,422.8			825.8			741.1			1,580.6			1,448.0
Operating income	49.6			54.4			96.5			83.0			43.5			49.6			74.7			96.5
Interest expense	15.4			14.3			31.0			28.2
Interest expenses													15.0			15.4			29.9			31.0
Other (income), net	(0.8		)	(1.0		)	(1.6		)	(1.5		)	(0.5		)	(0.8		)	(1.0		)	(1.6		)
Income before provision for income taxes	35.0			41.1			67.1			56.3			29.0			35.0			45.8			67.1
Provision for income taxes	3.0			15.8			8.7			21.1			1.1			3.0			3.0			8.7
Net income	$	32.0		$	25.3		$	58.4		$	35.2		$	27.9		$	32.0		$	42.8		$	58.4

Basic net income per share	$	0.84		$	0.55		$	1.49		$	0.74		$	0.75		$	0.84		$	1.14		$	1.49

Diluted net income per share	$	0.83		$	0.54		$	1.46		$	0.74		$	0.73		$	0.83		$	1.12		$	1.46

Basic weighted average shares outstanding	38.1			46.4			39.2			47.4			37.4			38.1			37.4			39.2

Diluted weighted average shares outstanding	38.8			46.9			39.9			47.8			38.1			38.8			38.1			39.9

Other comprehensive income (loss)
Foreign currency translation adjustment	$	(0.6	)	$	(0.2	)	$	(0.3	)	$	0.8		$	0.1		$	(0.6	)	$	(0.1	)	$	(0.3	)
Other comprehensive income (loss)	(0.6		)	(0.2		)	(0.3		)	0.8			0.1			(0.6		)	(0.1		)	(0.3		)
Comprehensive income	$	31.4		$	25.1		$	58.1		$	36.0		$	28.0		$	31.4		$	42.7		$	58.1

BRINKER INTERNATIONAL, INC.

Consolidated Balance Sheets

(In millions, except per share amounts)



	Unaudited
	December 25, 2019			June 26, 2019
ASSETS
Current assets
Cash and cash equivalents	$	12.0		$	13.4
Accounts receivable, net	103.5			55.0
Inventories	26.2			23.2
Restaurant supplies	51.7			47.1
Prepaid expenses	21.8			23.7
Income taxes receivable, net	9.1			14.6
Total current assets	224.3			177.0
Property and equipment, at cost
Land	34.9			33.4
Buildings and leasehold improvements	1,540.1			1,454.6
Furniture and equipment	781.3			757.5
Construction-in-progress	22.3			19.2
	2,378.6			2,264.7
Less accumulated depreciation and amortization	(1,555.6		)	(1,509.6		)
Net property and equipment	823.0			755.1
Other assets
Operating lease assets (Note 3)	1,175.9			—
Goodwill (Note 2)	189.6			165.5
Deferred income taxes, net (Note 3)	40.3			112.0
Intangibles, net	23.8			22.3
Other	26.8			26.4
Total other assets	1,456.4			326.2
Total assets	$	2,503.7		$	1,258.3
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	92.1		$	97.5
Gift card liability	148.3			100.9
Accrued payroll	71.6			82.1
Operating lease liabilities (Note 3)	119.9			—
Other accrued liabilities	120.5			141.1
Total current liabilities	552.4			421.6
Long-term debt and finance leases, less current installments	1,290.2			1,206.6
Long-term operating lease liabilities, less current portion (Note 3)	1,172.1			—
Deferred gain on sale leaseback transactions (Note 3)	—			255.3
Other liabilities (Note 3)	57.9			153.0
Commitments and contingencies (Note 14)
Shareholders’ deficit
Common stock (250.0 million authorized shares; $0.10 par value; 62.2 million shares issued and 37.4 million shares outstanding at December 25, 2019, and 176.2 million shares issued and 37.5 million shares outstanding at June 26, 2019)	6.2			17.6
Additional paid-in capital	527.3			522.0
Accumulated other comprehensive loss	(5.7		)	(5.6		)
Retained (deficit) earnings	(364.7		)	2,771.2
Treasury stock, at cost (24.8 million shares at December 25, 2019, and 138.7 million shares at June 26, 2019)	(732.0		)	(4,083.4		)
Total shareholders’ deficit	(568.9		)	(778.2		)
Total liabilities and shareholders’ deficit	$	2,503.7		$	1,258.3

BRINKER INTERNATIONAL, INC.

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	Twenty-Six Week Periods Ended						Twenty-Six Week Periods Ended
	December 26, 2018			December 27, 2017			December 25, 2019			December 26, 2018
Cash flows from operating activities
Net income	$	58.4		$	35.2		$	42.8		$	58.4
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization	73.1			76.2			77.4			73.1
Stock-based compensation	7.2			6.3			9.7			7.2
Restructure charges and other impairments	8.4			14.5			6.1			8.4
Net (gain) loss on disposal of assets	(18.3		)	1.3
Undistributed loss on equity investments	—			0.3
Net loss (gain) on disposal of assets							0.5			(18.3		)
Other	1.3			1.7			1.3			1.3
Changes in assets and liabilities:
Accounts receivable, net	(32.3		)	(37.2		)	(48.7		)	(32.3		)
Inventories	0.1			(0.5		)	(0.5		)	0.1
Restaurant supplies	(0.2		)	(1.1		)	(0.1		)	(0.2		)
Prepaid expenses	(2.4		)	2.0			1.6			(2.4		)
Operating lease assets, net of liabilities							(3.0		)	—
Deferred income taxes, net	(77.8		)	10.5			6.5			(77.8		)
Other assets	(0.2		)	(0.2		)	(0.2		)	(0.2		)
Accounts payable	4.7			(4.3		)	(4.7		)	4.7
Gift card liability	42.1			40.3			44.8			42.1
Accrued payroll	(8.0		)	(7.4		)	(10.8		)	(8.0		)
Other accrued liabilities	(2.6		)	5.0			14.9			(2.6		)
Current income taxes	3.4			(20.4		)	4.4			3.4
Other liabilities	(0.7		)	(2.5		)	0.3			(0.7		)
Net cash provided by operating activities	56.2			119.7			142.3			56.2
Cash flows from investing activities
Payments for property and equipment	(78.7		)	(48.6		)	(51.4		)	(78.7		)
Payments for franchise restaurant acquisitions							(96.2		)	—
Proceeds from sale of assets	1.2			0.3			0.3			1.2
Proceeds from note receivable	1.3			0.5			1.4			1.3
Insurance recoveries	1.4			1.0			—			1.4
Proceeds from sale leaseback transactions, net of related expenses	458.0			—			—			458.0
Net cash provided by (used in) investing activities	383.2			(46.8		)
Net cash (used in) provided by investing activities							(145.9		)	383.2
Cash flows from financing activities
Borrowings on revolving credit facility	479.0			320.0			463.0			479.0
Payments on revolving credit facility	(713.0		)	(276.0		)	(416.0		)	(713.0		)
Purchases of treasury stock	(167.6		)	(71.8		)	(11.3		)	(167.6		)
Payments of dividends	(31.6		)	(35.4		)	(29.0		)	(31.6		)
Payments on long-term debt	(3.7		)	(5.1		)	(5.0		)	(3.7		)
Proceeds from issuances of treasury stock	2.8			1.0			1.5			2.8
Net cash used in financing activities	(434.1		)	(67.3		)
Payments for debt issuance costs							(1.0		)	—
Net cash provided by (used in) financing activities							2.2			(434.1		)
Net change in cash and cash equivalents	5.3			5.6			(1.4		)	5.3
Cash and cash equivalents at beginning of period	10.9			9.1			13.4			10.9
Cash and cash equivalents at end of period	$	16.2		$	14.7		$	12.0		$	16.2

BRINKER INTERNATIONAL, INC.

Notes to the Consolidated Financial Statements (Unaudited)

1. BASIS OF PRESENTATION

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

Nature of Operations

Our Consolidated Financial Statements (Unaudited) as of December ~~26, 2018~~25, 2019 and June ~~27, 2018,~~26, 2019, and for the thirteen and twenty-six week periods ended December ~~26, 2018~~25, 2019 and December ~~27, 2017,~~26, 2018, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 December ~~26, 2018~~,25, 2019, we owned, operated or franchised ~~1,685~~1,675 restaurants, consisting of ~~995~~ ~~company-owned~~1,117 Company-owned restaurants and ~~690~~558 franchised restaurants, located in the United States, ~~and~~ 3029 countries and ~~two~~2 United States territories.

Basis of Presentation

The preparation of the consolidated financial statements is in conformity with generally accepted accounting principles in the United States ~~of America~~ (“GAAP”) and requires management to make certain 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 periods. Actual results could differ from those estimates.

The foreign currency translation adjustment included in Comprehensive income in the Consolidated Statements of Comprehensive Income (Unaudited) represents the unrealized impact of translating the financial statements of our Canadian restaurants ~~and our Mexican joint venture (prior~~from Canadian dollars to ~~divestiture in the second quarter of fiscal 2018, see Note 11 - Shareholders’ Deficit for more details) from their respective functional currencies to U.S.~~United States dollars. This amount is not included in Net income and would only be realized upon disposition of ~~the businesses.~~our Canadian restaurants. The related Accumulated other comprehensive loss (“AOCL”) is presented in the Consolidated Balance ~~Sheets.~~Sheets (Unaudited).

The information furnished herein reflects all adjustments (consisting only of normal recurring accruals and adjustments) which are, in our opinion, necessary to fairly state the interim operating results, financial position and cash flows for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with GAAP, have been omitted pursuant to SEC rules and regulations. The Notes to the Consolidated Financial Statements (Unaudited) should be read in conjunction with the Notes to the Consolidated Financial Statements contained in ~~the Company’s~~our June ~~27, 2018~~26, 2019 Form 10-K. We believe the disclosures are sufficient for interim financial reporting purposes. All amounts ~~within~~in the Notes to the Consolidated Financial Statements (Unaudited) are presented in millions unless otherwise specified.

New Accounting Standards ~~Implemented~~Adopted

ASU ~~2014-09, Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606)~~842) - In ~~May 2014,~~February 2016, the FASB issued ~~Accounting Standards Update (“ASU”) 2014-09,~~ASU 2016-02, and subsequently amended this update by issuing additional ASU’s that provide clarification and further guidance around areas identified as potential implementation issues. These updates ~~provide~~require a ~~comprehensive new revenue recognition model that requires a company~~lessee to recognize ~~revenue~~in the balance sheet a liability to ~~depict~~make lease payments and a corresponding right-of-use asset for virtually all leases, other than leases with a term of 12 months or less if the ~~transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. These~~short-term lease exclusion expedient is elected. The updates also require additional ~~disclosure~~disclosures about the ~~nature,~~ amount, timing, and uncertainty of ~~revenue and~~ cash flows arising from ~~customer contracts.~~leases. These updates ~~are~~were effective for annual and interim periods for fiscal years beginning after December 15, ~~2017,~~2018, which required us to adopt these provisions in the first quarter of fiscal ~~2019. Please refer~~2020. Refer to Note 23 - ~~Revenue Recognition~~Leases for disclosures about our adoption.

~~ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230)~~ - In August 2016, the FASB issued ASU 2016-15, this update provides clarification regarding how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for annual and interim periods for fiscal years beginning after December 15, 2017, which required us to adopt these provisions in the first quarter of fiscal 2019. The update was applied on a retrospective basis. The adoption of this guidance did not have an impact on our Consolidated Financial Statements or debt covenants.

~~ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ - In January 2017, the FASB issued ASU 2017-04, this update eliminates step two of the goodwill impairment analysis. Companies will no longer be required to perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, they will measure impairment as the difference between the carrying amount and the fair value of the reporting unit. This update is effective for annual and interim periods for fiscal years beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed with measurement dates after January 1, 2017. We elected to early adopt this guidance as of September 27, 2018. The guidance was adopted prospectively. The adoption of this guidance did not have an impact on our Consolidated Financial Statements. Refer to Note 10 - Fair Value Measurements for disclosure about goodwill impairment.

The impact of additional accounting ~~standards~~standard updates that have not yet been adopted can be found at Note 1415 - Effect of New Accounting Standards.

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2. ~~REVENUE RECOGNITION~~CHILI’S RESTAURANT ACQUISITION

~~Effective June 28, 2018,~~On September 5, 2019, we completed the acquisition of certain assets and liabilities related to 116 previously franchised Chili’s restaurants located in the Midwest United States. Pro-forma financial information of the acquisition is not presented due to the immaterial impact of the financial results of the acquired restaurants in the Consolidated Financial Statements (Unaudited).

The total purchase price of $99.0 million, excluding post-closing adjustments, was funded with borrowings from our ~~first~~existing credit facility. We accounted for this acquisition as a business combination. The results of operations, and assets and liabilities, of these restaurants are included in the Consolidated Financial Statements (Unaudited) from the date of acquisition. The assets and liabilities of these restaurants are recorded at their preliminary fair values and are subject to revision as additional information about the fair value of assets acquired and liabilities assumed becomes available. We expect the final purchase price allocation to be completed in the third quarter of fiscal 2020.

The acquired restaurants are expected to generate approximately $300.0 million of annualized revenues which will be partially offset by the loss of average annualized royalty and advertising revenues of approximately $22.0 million. During the thirteen and twenty-six week periods ended December 25, 2019, since the acquisition date, these restaurants generated Company sales of $70.9 million and $86.2 million, respectively.

Net acquisition-related charges of $2.0 million and $1.5 million were recorded during the thirteen and twenty-six week periods ended December 25, 2019, respectively, to Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited). In the thirteen week period ended December 25, 2019, the net charges consisted of $1.6 million of professional services, transaction and transition related costs, and a $0.4 million true-up associated with the ERJ-Brinker sublease market valuations. In the twenty-six week period ended December 25, 2019, the net charges consisted of $3.1 million of professional services, transaction and transition related costs associated with the purchase, and $1.0 million of related franchise straight-line rent balances, net of market leasehold improvement adjustments that were fully recognized at the date of the acquisition, partially offset by $2.6 million of franchise deferred revenues balance that were fully recognized at date of acquisition.

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



	Fair Value September 5, 2019
Current assets⁽¹⁾	$	7.3
Property and equipment	60.6
Operating lease assets	163.5
Reacquired franchise rights⁽²⁾	6.5
Goodwill⁽³⁾	24.2
Other assets	1.1
Total assets acquired	263.2
Current liabilities⁽⁴⁾	10.2
Operating lease liabilities, less current portion	158.3
Total liabilities assumed	168.5
Net assets acquired⁽⁵⁾	$	94.7


⁽¹⁾	Current assets included petty cash, inventory, and restaurant supplies.


⁽²⁾	Reacquired franchise rights have a weighted average amortization period of approximately 8 years.


⁽³⁾	Goodwill is expected to be deductible for tax purposes. The portion of the purchase price attributable to goodwill represents the benefits expected as a result of the acquisition, including sales and unit growth opportunities, and the benefit of the assembled workforce of the acquired restaurants.

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⁽⁴⁾	Current liabilities included current portion of operating lease liabilities, gift card liability and accrued property tax.

⁽⁵⁾

Net assets acquired at fair value are equal to the total purchase price of $99.0 million, less $1.6 million of closing adjustments and $2.8 million allocated to prepayment of leases entered into between us and the franchisee (refer to Note 3 - Leases for more information), partially offset by $0.1 million related to net favorable market valuation adjustment recognized on pre-existing subleases that were terminated on the transaction date.

3. LEASES

As of December 25, 2019, 1,074 of our 1,117 Company-owned restaurant facilities were leased. We typically lease our restaurant facilities through ground leases (where we lease land only, but own the building) or retail leases (where we lease the land/retail space and building). Our leased restaurants typically have an initial lease term of 10 to 20 years, with one or more renewal terms typically ranging from 1 to 10 years. The leases typically provide for a fixed rental or a fixed rental plus percentage rentals based on sales volume. In addition to our restaurant facilities, we also lease our corporate headquarters location and certain technology and other restaurant equipment. Our lease agreements do not contain any material residual value guarantees or material covenant restrictions.

Adoption of ASC 842

Transition and Practical Expedient Elections

We adopted FASB Accounting Standards Codification (“ASC”) Topic ~~606,~~842, ~~Revenue from Contracts with Customers~~Leases (“ASC ~~606”~~842”), from the previous guidance ASC Topic ~~605,~~840, ~~Revenue Recognition~~Leases ~~and~~(“Legacy GAAP”) effective June 27, 2019, the first day of fiscal 2020. We adopted ASC ~~Subtopic 952-605, Franchisors - Revenue Recognition (together, “Legacy GAAP”). Our~~842 using the alternative transition ~~to ASC 606 represents a change in accounting principle. Our~~ method, such that our fiscal 2020 Consolidated Financial Statements ~~for the second quarter and year-to-date periods of fiscal 2019~~ (Unaudited) reflect ~~the application of~~ ASC ~~606 guidance using the modified retrospective transition method,~~842, while our prior period Consolidated Financial Statements ~~for prior periods~~ (Unaudited) were prepared under Legacy ~~GAAP.~~GAAP and have not been restated. In connection with the adoption of ASC 842, we elected the following practical expedients and policies:


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


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

•

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

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

Lease Accounting Policy under ASC 842

ASC 842 requires lessees to recognize on the balance sheet at lease commencement the lease assets and related lease liabilities for the rights and obligations created by operating and finance leases with lease terms of more than 12 months. The lease term commences on the date the lessor makes the underlying property available, irrespective of when lease payments begin under the contract. When determining the lease term at commencement, we consider both termination and renewal option periods available, and only include the period for which failure to renew the lease imposes a penalty on us in such an amount that renewal, or termination options, appear to be reasonably certain.

Our lease liability will generally be based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term. The right-of-use lease asset will generally be based on the lease liability, adjusted for amounts related to other lease-related assets and liabilities.

~~Revenues~~Table of Contents

Our adjustments typically include prepaid rent, straight-line rent for timing differences between payment streams and lease term, landlord contributions that are ~~presented~~recorded when received as a reduction to the asset, and favorable or unfavorable lease purchase price adjustments. Additionally, upon adoption, we also recorded partial impairments of certain lease assets with an adjustment to Retained earnings related to previously impaired properties.

The interest rates used in ~~Company sales~~our lease contracts are not implicit. We have derived our incremental borrowing rate using the interest rate we would pay on our existing borrowings, adjusted for the effect of designating collateral and ~~Franchise~~the lease terms. The reasonably certain lease term and ~~other revenues captions~~incremental borrowing rate for each lease requires judgment by management and can impact the classification and accounting for a lease as operating or finance, as well as the value of the lease asset and liability.

The lease asset carrying amounts are assessed for impairment semi-annually or when events or circumstances indicate that the carrying amount may not be recoverable, in accordance with our long-lived asset impairment policy. We monitor for events or changes in circumstances that require reassessment of lease classification. When a reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying amount of the lease asset.

Variable lease costs are expensed as incurred in Restaurant expenses related to restaurant properties or General and administrative for our corporate headquarters, respectively, in the Consolidated Statements of Comprehensive ~~Income. Company sales include revenues generated by~~Income (Unaudited), and are not included in lease liabilities in the ~~operation~~Consolidated Balance Sheets (Unaudited). Contingent rent represents payment of ~~company-owned restaurants including gift card redemptions. Franchise and other revenues~~ include royalties, advertising fees (effective first quarter of fiscal 2019), Maggiano’s banquet service charge income, gift card breakage, service fees and discount costs from third-party gift card sales, digital entertainment revenues, delivery fee income, franchise fees, development fees and retail royalty revenues.

~~Company Sales~~

~~The adoption of ASC 606 did not impact revenue recognition related to Company sales. We will continue to record revenues from the sale of food, beverages and alcohol as products are sold.~~

~~Franchise and Other Revenues~~

~~Royalties~~ ~~- Franchise royalties are~~variable lease obligations based on a percentage of sales, as defined by the terms of the applicable lease, for certain restaurant facilities and is recorded at the point in time we determine that it is probable that such sales ~~generated by~~levels will be achieved. Additionally, we have certain leases which periodically reset to a specified index, such leases are initially recorded using the index that existed at lease commencement. Subsequent index changes are recorded as variable rental payments. Maintenance and property tax expenses are accounted for on an accrual basis as variable lease costs.

Operating lease expenses are recognized on a straight-line basis over the lease term in Restaurant expenses for restaurant properties, or General and administrative for our ~~franchised restaurants. The provisions~~corporate headquarters, in the Consolidated Statements of ~~ASC 606 did not impact~~Comprehensive Income (Unaudited), respectively.

Finance lease expenses arerecognized on a straight-line basis over the ~~recognition~~lesser of ~~these royalties, as~~ the ~~performance obligation related to franchise sales is considered complete upon~~useful life of the ~~sale of food, beverages~~leased asset or the lease term and ~~alcohol. Royalty revenues attributable to franchise restaurants will continue to be~~the expenses are recognized in Depreciation and amortization in the ~~same period the sales are generated at the franchise restaurants.~~

~~Advertising Fees~~ ~~Franchise and other revenues~~Consolidated Statements of Comprehensive Income (Unaudited). ~~Under Legacy GAAP, the advertising funds received from franchisees were considered a reimbursement of advertising expenses and were presented~~Interest on ~~a net basis as a reduction~~each finance lease liability is recorded to ~~advertising expenses in~~ ~~Restaurant~~Interest expenses in the Consolidated Statements of Comprehensive ~~Income.~~Income (Unaudited).

~~- Domestic franchisees are contractually obligated to contribute into certain advertising and marketing funds.~~ Table of Contents

Financial Statement Impact of ASC 842 Adoption

The adoption of ASC ~~606~~842 represents a change in accounting principle. The adoption did not ~~impact the timing of revenue recognition of the advertising fees received; however, effective first quarter of fiscal 2019, advertising fees are now presented on~~have a ~~gross basis within~~ ~~Franchise and other revenues. Under Legacy GAAP, the advertising funds received from franchisees were considered a reimbursement of~~

~~advertising expenses and were presented on a net basis as a reduction to advertising expenses in~~ ~~Restaurant expenses in the Consolidated Statements of Comprehensive Income.~~

~~Initial Development and Franchise Fees~~ - We receive development fees from franchisees for territory development arrangements and franchise fees for a new restaurant opening. Under ASC 606 these arrangements will be collectively deferred as a contract liability and recognized on a straight-line basis into ~~Franchise and other revenues~~significant impact in the Consolidated Statements of Comprehensive Income ~~over the term~~(Unaudited) or Consolidated Statements of ~~the underlying agreements.~~ ~~Deferred franchise~~Cash Flows (Unaudited). Upon adoption, there was a material increase in Total assets and ~~development fees~~ ~~are classified within~~ ~~Other accrued~~Total liabilities ~~for the current portion expected to be recognized within the next 12 months, and~~ ~~Other liabilities~~ ~~for the long-term portion in the~~ ~~Consolidated Balance Sheets.~~ Under Legacy GAAP, development fees were recognized as income upon the execution of the agreement, when development rights were conveyed to the franchisee. Franchise fees were recognized as income when the obligations under the franchise agreement were satisfied, generally upon the opening of the new franchise restaurant.

~~Gift Card Breakage Income -~~ Breakage revenues represent the monetary value associated with outstanding gift card balances for which redemption is considered remote. We estimate this amount based on our historical gift card redemption patterns and update the breakage rate estimate periodically and if necessary, adjust the deferred revenues balance accordingly. In accordance with ASC 606, breakage revenues will be recognized proportionate to the pattern of related gift card redemptions. Under Legacy GAAP, breakage revenues were recognized when redemption was considered remote. We do not charge dormancy or any other fees related to monitoring or administering the gift card program.

~~Additionally, proceeds from the sale of gift cards will continue to be recorded as deferred revenues in the Gift card liability~~ in the Consolidated Balance Sheets (Unaudited) primarily due to the recognition of operating lease assets and ~~recognized as Company sales when~~related lease liabilities where we are the ~~gift card is redeemed by~~lessee. The table below reflects the ~~holder.~~

~~Gift card Service Fees and Discount Costs -~~ Our gift cards are sold through various outlets such as in-store, Chili’s and Maggiano’s websites, directly to other businesses, and through third party distributors that sell our gift cards at various retail locations. We incur incremental direct costsbalance sheet adoption impact related to ~~gift card sales, such~~ASC 842 as commissions and activation fees, for gift cards sold by third party businesses and distributors. These initial direct costs are deferred and amortized against revenues proportionate to the pattern of related gift card redemption.

~~Other Revenues~~ - Other revenues not described above, such as Maggiano’s banquet service charge income, digital entertainment revenues, retail royalty revenues and delivery fee income had no change in recognition from the adoption of ASC 606.

~~Sales Taxes~~

Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue transactions and collected from a customer have been excluded from revenues under both Legacy GAAP and ASC 606.

~~Disaggregation of Total Revenues~~

~~The following tables disaggregate revenues by operating segment and major source:~~

Thirteen Weeks Ended December 26, 2018
Chili’s Maggiano’s Total
Company sales $ 640.6
$ 120.9
$ 761.5
Royalties 13.2
—
13.2
Franchise fees and other revenues 8.5
7.5
16.0
Total revenues $ 662.3
$ 128.4
$ 790.7

Twenty Six Weeks Ended December 26, 2018
Chili’s Maggiano’s Total
Company sales $ 1,280.9
$ 208.9
$ 1,489.8
Royalties 26.1
—
26.1
Franchise fees and other revenues 17.1
11.5
28.6
Total revenues $ 1,324.1
$ 220.4
$ 1,544.5

Franchise fees and other revenues primarily includes advertising fees, gift card breakage income, Maggiano’s banquet service charge income, digital entertainment revenues, delivery fee income, initial development and franchise fees from franchisees, service fees and discount costs from third-party gift card sales, and other revenues.

~~Deferred Development and Franchise Fees~~

Our deferred development and franchise fees consist of the unrecognized fees received from franchisees. A summary of significant changes to the related deferred balance during the first two quarters of fiscalan adjustment at June 27, 2019, ~~is presented below, along with the revenues to be recognized in the subsequent periods.~~

Deferred Development and Franchise Fees
Balance at June 27, 2018 $ —
Cumulative effect adjustment from adoption of ASC 606 18.1
Additions 0.4
Amount recognized to Franchise and other revenue (1.3 )
Balance at December 26, 2018 $ 17.2

Fiscal Year Development and Franchise Fees Revenue Recognition
2019 $ 0.7
2020 1.4
2021 1.4
2022 1.4
2023 1.4
Thereafter 10.9
$ 17.2

The development and franchise fees that will be recognized in future years are based on active contracts with franchisees. These amounts represent the amount that will be recognized pursuant to the satisfaction of the contractual performance obligations. We also expect to have future year royalties and advertising fees related to our franchise contracts, however under ASC 606, these future year revenues are not yet determinable due to unsatisfied performance obligations based upon a sales-based royalty.

~~Financial Statement Impact of Transition to ASC 606~~

~~ASC 606 was applied to all contracts with customers as of~~ the first day of fiscal ~~2019, June 28, 2018.~~ 2020 (condensed, unaudited):



	Legacy GAAP		ASC 842 Cumulative Adjustments			ASC 842
	June 26, 2019					June 27, 2019
ASSETS
Current assets⁽¹⁾	$	177.0	$	0.3		$	177.3
Other assets
Operating lease assets⁽²⁾	—		1,034.3			1,034.3
Deferred income taxes, net⁽³⁾	112.0		(65.1		)	46.9
Intangibles, net⁽¹⁾	22.3		(4.1		)	18.2
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Operating lease liabilities⁽⁴⁾	—		110.8			110.8
Other accrued liabilities⁽¹⁾⁽⁵⁾	141.1		(38.3		)	102.8
Long-term operating lease liabilities, less current portion⁽⁴⁾	—		1,044.9			1,044.9
Deferred gain on sale leaseback transactions⁽⁵⁾	255.3		(255.3		)	—
Other liabilities⁽¹⁾	153.0		(92.6		)	60.4
Retained earnings	2,771.2		195.9			2,967.1


⁽¹⁾	The following prior lease balances were reclassified into Operating lease assets upon adoption of ASC 842:


–	Current assets adjustment related to the prepaid rent.


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


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

Additionally, Other accrued liabilities included $19.3 million of deferred gain on sale leaseback transactions that was eliminated as a cumulative effect ~~was applied~~adjustment to Retained earnings upon adoption, refer to ⁽⁵⁾ below for more details. Refer to Note 10 - Accrued and Other Liabilities for June 26, 2019 balance details.

⁽²⁾

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


⁽³⁾	Deferred income taxes, net was reduced by $68.6 million related to the elimination of the deferred gain on sale leaseback transactions as described in ⁽⁵⁾below, partially offset by $3.5 million related to the impact of adopting ASC 842 and recording the operating lease assets and liabilities.


⁽⁴⁾	Operating lease liabilities, both current and long-term, represents the liabilities based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term upon date of adoption.

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⁽⁵⁾

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

Lease Amounts Included in the ~~modified retrospective approach. Below our~~Thirteen and Twenty-Six Week Periods Ended December 25, 2019

Consolidated Balance Sheet Disclosure of Lease Amounts

The following table includes a detail of lease asset and liabilities included in the Consolidated Balance Sheets ~~reflects~~(Unaudited):



	December 25, 2019
	Finance Leases⁽¹⁾		Operating Leases⁽²⁾		Total Leases
Lease assets	$	66.7	$	1,175.9	$	1,242.6

Current lease liabilities	10.5		119.9		130.4
Long-term lease liabilities	74.8		1,172.1		1,246.9
Total lease liabilities	$	85.3	$	1,292.0	$	1,377.3


⁽¹⁾	Finance lease assets are recorded in Property and equipment, at cost, and the related current and long-term lease liabilities are recorded within Other accrued liabilities and Long-term debt and finance leases, less current installments, respectively.


⁽²⁾	Operating lease assets are recorded in Operating lease assets and the related current and long-term lease liabilities are recorded within Operating lease liabilities and Long-term operating lease liabilities, less current portion, respectively.

Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts

The components of lease expense, including variable lease costs primarily consisting of rent based on a percentage of sales, common area maintenance and real estate tax charges, and short-term lease expenses for leases with lease terms less than twelve months are included in the ~~transition~~Consolidated Statements of Comprehensive Income (Unaudited) as follows:



	Thirteen Week Period Ended December 25, 2019			Twenty-Six Week Period Ended December 25, 2019
Operating lease cost	$	41.9		$	79.2
Finance lease amortization	3.1			5.7
Finance lease interest	1.1			2.0
Short-term lease cost	0.5			0.7
Variable lease cost	15.1			28.3
Sublease (income)	(1.2		)	(2.3		)
Total lease costs, net	$	60.5		$	113.6

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Consolidated Statement of Cash Flows Disclosure of Lease Amounts

Supplemental cash flow information related to ~~ASC 606 as an adjustment at June 28, 2018~~leases recorded in the Consolidated Statements of Cash Flows (Unaudited) is as follows:

June 27,
2018 ASC 606 Cumulative Effect Adjustments June 28,
2018
ASSETS
Other assets
Deferred income taxes, net ⁽¹⁾
$ 33.6
$ 2.5
$ 36.1
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Gift card liability ⁽²⁾
119.1
(8.2 ) 110.9
Other accrued liabilities ⁽³⁾
127.2
1.5
128.7
Other liabilities ⁽³⁾
131.7
16.6
148.3
Shareholders’ deficit ^{(2) (3)}
(718.3 ) (7.4 ) (725.7 )



	Twenty-Six Week Period Ended December 25, 2019
Cash flows from operating activities
Cash paid related to lease liabilities
Operating leases	$	83.2
Finance leases	2.0
Cash flows from financing activities
Cash paid related to lease liabilities
Finance leases	5.0
Non-cash lease assets obtained in exchange for lease liabilities
Operating leases⁽¹⁾	203.2
Finance leases⁽¹⁾	41.9


⁽¹⁾	~~Deferred income taxes,~~New lease assets obtained, net ~~adjustment relates~~of lease liabilities primarily related to the ~~net change~~new and assumed operating and finance leases from the Chili’s restaurant acquisition. Refer to Note 2 - Chili’s Restaurant Acquisition and “Significant Changes in ~~liabilities~~Leases during the Period” section below for more information.

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:



	December 25, 2019
	Finance Leases		Operating Leases
Weighted average remaining lease term	11.3 years		11.9 years
Weighted average discount rate	5.4	%	4.3	%

Lease Maturity Analysis

As of December 25, 2019, accounted for and presented under ASC 842 guidance, the discounted future minimum lease payments on finance and operating leases, as well as sublease income were as follows:



	December 25, 2019
Fiscal Year	Finance Leases		Operating Leases		Sublease Income
Remainder of 2020	$	7.3	$	86.8	$	(1.6	)
2021	14.0		170.0		(3.3		)
2022	12.4		163.5		(3.2		)
2023	10.8		152.6		(2.5		)
2024	9.7		142.6		(1.8		)
Thereafter	60.8		978.4		(6.3		)
Total minimum lease payments	115.0		1,693.9		$	(18.7	)
Less: Imputed interest	29.7		401.9
Present value of lease liability	$	85.3	$	1,292.0

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As of June 26, 2019, as previously disclosed in our fiscal 2019 Form 10-K under Legacy GAAP, undiscounted future minimum lease payments on both capital and operating leases were as follows:



	June 26, 2019
Fiscal Year	Capital Leases			Operating Leases⁽²⁾
2020	$	12.3		$	156.8
2021	10.1			154.5
2022	8.2			148.6
2023	6.7			137.7
2024	6.0			127.6
Thereafter	17.4			771.7
Total minimum lease payments⁽¹⁾	60.7			$	1,496.9
Imputed interest (average rate of 6.18%)	(12.3		)
Present value of minimum lease payments	48.4
Less current capital lease obligations	(9.7		)
Long-term capital lease obligations	$	38.7

⁽¹⁾

Total minimum lease payments were not reduced by minimum sublease rentals to be received in the future under non-cancelable subleases. The total of undiscounted future sublease rentals was approximately $22.0 million and ~~equity~~$14.6 million for capital and operating subleases, respectively, as ~~a result~~ of ~~the adoption of ASC 606 described in notes~~ ⁽²⁾ ~~and~~ ⁽³⁾~~below.~~June 26, 2019.

⁽²⁾

~~Gift card liability is adjusted~~Operating lease expenses for the ~~ASC 606 adoption impact of the change to recognize gift card breakage proportionate to the pattern of related gift card redemption. Under~~fifty-two weeks ended June 26, 2019, recorded under Legacy GAAP, gift card breakage was recognized when the likelihood of redemption was deemed remote. The cumulative effect of applying ASC 606 accounting to gift card balances outstanding at June 28, 2018 resulted in an $8.2totaled $158.6 million, ~~decrease in Gift card liability due to the change in timing of recognition between ASC 606~~which included $141.7 million for straight-lined minimum rent, $3.3 million for contingent rent, and ~~Legacy GAAP, and a corresponding $2.0 million decrease in Deferred income taxes, net, and a $6.2 million decrease in Shareholders’ deficit.~~


⁽³⁾	Other liabilities $16.6 million and Other accrued liabilities $1.5 million adjustments relate to the deferral of previously recognized franchise and development fees received from franchisees, with a corresponding $4.5 million increase in Deferred income taxes, and a $13.6 million ~~increase to Shareholders’ deficit at June 28, 2018.~~of other rent-related expenses.

~~Comparison~~Significant Changes in Leases during the Period

As part of ~~Fiscal 2019 Periods if Legacy GAAP Had Been~~the Chili’s restaurant acquisition in ~~Effect~~

~~The following tables reflect~~ the ~~impact to our~~ ~~Condensed Consolidated Statement~~first quarter of ~~Income (Unaudited)~~fiscal 2020, we assumed and ~~for~~entered into 90 new operating leases included in the ~~thirteen and twenty-six week periods ended December 26, 2018, Cash flows from operating activities for the twenty-six week period ended December 26, 2018, and the unaudited~~ ~~Condensed Consolidated Balance Sheet~~balances at December ~~26, 2018 as if the Legacy GAAP was still in effect.~~

25, 2019. The ~~adjustments presented below in the~~ ~~Condensed Consolidated Statement of Income (Unaudited)~~ ~~include under ASC 606, advertising fees now presented on a gross basis as a component of Franchise and other revenues. Under Legacy GAAP, the advertising fees~~leases were recorded ~~as a reduction to advertising expenses within Restaurant expenses~~net of preliminary purchase price accounting adjustments and prepaid rent. At December 25, 2019, the balances associated with these new leases in the Consolidated ~~Statements~~Balance Sheets (Unaudited) include Operating lease assets of ~~Comprehensive Income.~~ $168.8 million, Operating lease liabilities of $5.1 million, and Long-term operating lease liabilities, less current portion of $161.4 million.

Additionally related to this transaction, we entered into 12 new finance leases with the ~~recognition timing change~~initial terms of approximately 11 years, plus renewal options. At December 25, 2019, the balances associated with these finance leases in the Consolidated Balance Sheets (Unaudited) include Buildings and leasehold improvements of $25.4 million, Other accrued liabilities of $0.6 million, and Long-term debt and finance leases, less current installments of $24.8 million. Refer to Note 2 - Chili’s Restaurant Acquisition for ~~franchise~~information about the acquisition.

Pre-Commencement Leases

In the first quarter of fiscal 2020, we executed 1 finance lease for Chili’s table-top devices with an initial term of 3 years beginning once all devices have been received, plus one 3-year renewal option. We began receiving the table-top devices in the second quarter of fiscal 2020 and will continue over the remaining course of fiscal 2020. The lease balances at December 25, 2019 related ~~fees and gift card breakage~~to the devices received through end of the second quarter of fiscal 2020 are included ~~within Franchise and other revenues.~~

~~The adjustments presented below~~ in the ~~Condensed~~finance lease balances in the Consolidated Balance ~~Sheet~~ ~~relate~~Sheets (Unaudited). The undiscounted fixed payments over the initial term of the lease, net of lease incentives for the remaining devices not received by December 25, 2019 is $23.6 million.

Additionally, we have executed 2 leases for new Chili’s locations with undiscounted fixed payments over the initial term of $7.2 million. These leases are expected to commence during the ~~cumulative effect impact described above in~~next 12 months and are expected to have an economic lease term of 20 years. These leases will commence when the ~~“Financial Statement Impact of Transition~~landlords make the property available to ~~ASC 606” section, as well as~~us for new restaurant construction. We will assess the ~~impact from~~reasonably certain lease term at the ~~change in the gift card breakage, deferred development and franchise fees, and corresponding deferred tax and retained earnings balances as of December 26, 2018.~~

~~Condensed Consolidated Statement of Income (Unaudited)~~

Thirteen Week Period Ended December 26, 2018 Twenty-Six Week Period Ended December 26, 2018
As Reported
ASC 606
Amounts Adjustments Legacy GAAP Amounts
As Reported
ASC 606
Amounts
Adjustments Legacy GAAP Amounts
Revenues
Company sales $ 761.5
$ —
$ 761.5
$ 1,489.8
$ —
$ 1,489.8
Franchise and other revenues 29.2
(5.8 ) 23.4
54.7
(10.6 ) 44.1
Total revenues 790.7
(5.8 ) 784.9
1,544.5
(10.6 ) 1,533.9
Operating costs and expenses
Company restaurants (excluding depreciation and amortization)
Cost of sales 200.9
—
200.9
392.8
—
392.8
Restaurant labor 260.8
—
260.8
517.1
—
517.1
Restaurant expenses 205.7
(5.2 ) 200.5
404.7
(10.3 ) 394.4
Company restaurant expenses 667.4
(5.2 ) 662.2
1,314.6
(10.3 ) 1,304.3
Depreciation and amortization 36.1
—
36.1
73.1
—
73.1
General and administrative 35.4
—
35.4
69.2
—
69.2
Other (gains) and charges 2.2
—
2.2
(8.9 ) —
(8.9 )
Total operating costs and expenses 741.1
(5.2 ) 735.9
1,448.0
(10.3 ) 1,437.7
Operating income 49.6
(0.6 ) 49.0
96.5
(0.3 ) 96.2
Interest expense 15.4
—
15.4
31.0
—
31.0
Other (income), net (0.8 ) —
(0.8 ) (1.6 ) —
(1.6 )
Income before provision for income taxes 35.0
(0.6 ) 34.4
67.1
(0.3 ) 66.8
Provision for income taxes 3.0
(0.1 ) 2.9
8.7
—
8.7
Net income $ 32.0
$ (0.5 ) $ 31.5
$ 58.4
$ (0.3 ) $ 58.1

Basic net income per share $ 0.84
$ (0.01 ) $ 0.83
$ 1.49
$ (0.01 ) $ 1.48

Diluted net income per share $ 0.83
$ (0.02 ) $ 0.81
$ 1.46
$ 0.00
$ 1.46

~~Cash flows from operating activities (Unaudited)~~

Twenty-Six Week Period Ended December 26, 2018
As Reported
ASC 606
Amounts Adjustments Legacy GAAP Amounts
Net income $ 58.4
$ (0.3 ) $ 58.1
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation and amortization 73.1
—
73.1
Stock-based compensation 7.2
—
7.2
Restructure charges and other impairments 8.4
—
8.4
Net (gain) loss on disposal of assets (18.3 ) —
(18.3 )
Other 1.3
—
1.3
Changes in assets and liabilities:

Accounts receivable, net (32.3 ) —
(32.3 )
Inventories 0.1
—
0.1
Restaurant supplies (0.2 ) —
(0.2 )
Prepaid expenses (2.4 ) —
(2.4 )
Deferred income taxes, net (77.8 ) —
(77.8 )
Other assets (0.2 ) —
(0.2 )
Accounts payable 4.7
—
4.7
Gift card liability 42.1
(0.3 ) 41.8
Accrued payroll (8.0 ) —
(8.0 )
Other accrued liabilities (2.6 ) 0.6
(2.0 )
Current income taxes 3.4
—
3.4
Other liabilities (0.7 ) —
(0.7 )
Net cash provided by operating activities $ 56.2
$ —
$ 56.2

~~Condensed Consolidated Balance Sheet (Unaudited)~~

December 26, 2018
As Reported
ASC 606
Amounts Adjustments Legacy GAAP Amounts
ASSETS
Current assets
Total current assets $ 196.0
$ —
$ 196.0
Property and equipment, at cost
Net property and equipment 769.3
—
769.3
Other assets
Goodwill 163.7
—
163.7
Deferred income taxes, net 113.9
(2.5 ) 111.4
Intangibles, net 23.0
—
23.0
Other 28.9
—
28.9
Total other assets 329.5
(2.5 ) 327.0
Total assets $ 1,294.8
$ (2.5 ) $ 1,292.3
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Current installments of long-term debt $ 8.1
$ —
$ 8.1
Accounts payable 112.2
—
112.2
Gift card liability 153.0
7.9
160.9
Accrued payroll 66.5
—
66.5
Other accrued liabilities 148.2
(0.9 ) 147.3
Total current liabilities 488.0
7.0
495.0
Long-term debt, less current installments 1,263.9
—
1,263.9
Deferred gain on sale leaseback transactions 252.2
—
252.2
Other liabilities 145.9
(16.6 ) 129.3
Shareholders’ deficit
Common stock 17.6
—
17.6
Additional paid-in capital 514.2
—
514.2
Accumulated other comprehensive loss (6.1 ) —
(6.1 )
Retained earnings 2,704.0
7.1
2,711.1
Less treasury stock, at cost (4,084.9 ) —
(4,084.9 )
Total shareholders’ deficit (855.2 ) 7.1
(848.1 )
Total liabilities and shareholders’ deficit $ 1,294.8
$ (2.5 ) $ 1,292.3

lease commencement date.

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~~3. SALE LEASEBACK TRANSACTIONS~~

Fiscal 2019 Sale Leaseback Transactions

Restaurant Properties Sale Leaseback Transactions

In the ~~first quarter of fiscal 2019,~~thirteen week period ended December 26, 2018, we completed sale leaseback transactions of ~~141~~4 restaurant properties ~~for aggregate consideration of~~ $455.7 million. The balances attributable to the restaurant assets sold include Land of $103.6 million, Buildings and leasehold improvements of $217.6 million, certain fixtures included in Furniture and equipment of $9.3 million, and Accumulated depreciation of $163.9 million. The total gain was $289.1 million and the net proceeds from these sale leaseback transactionswhich were ~~used to repay borrowings on our revolving credit facility.~~

~~In the~~ ~~second quarter of fiscal 2019, we completed sale leaseback transactions of an additional four restaurant properties~~ sold for aggregate consideration of $10.6 million. The balances attributable to the restaurant assets sold ~~include~~included Land of $2.9 million, Buildings and leasehold improvements of $6.8 million, certain fixtures included in Furniture and equipment of $0.3 million, and Accumulated depreciation of $5.7 million. The total gain was $6.3 million ~~and~~and the net proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility.

In the twenty-six week period ended December 26, 2018, we completed sale leaseback transactions of 145 restaurant properties which were sold for aggregate consideration of $466.3 million. The balances attributable to the restaurant assets sold included Land of $106.5 million, Buildings and leasehold improvements of $224.4 million, certain fixtures included in Furniture and equipment of $9.6 million, and Accumulated depreciation of $169.6 million. The total gain was $295.4 million and the net proceeds from these sale leaseback transactions were used to repay borrowings on our revolving credit facility.

Lease Details

The initial terms of all leases ~~are~~included in the sale leaseback transactions were for 15 years, plus renewal options at our ~~discretion, which contain scheduled rent increases~~, ~~all~~discretion. All of ~~the~~these leases were determined to be operating ~~leases~~.leases. Rent expenses associated with these operating leases ~~are being~~were recognized on a straight-line basis over the lease ~~terms.~~terms under Legacy GAAP during fiscal 2019. As of ~~December~~June 26, ~~2018, $1.2 million of~~2019, the straight-line rent accrual ~~has been recorded for these operating leases~~balance of $62.3 million was included in Other accrued liabilities (current portion) and Other liabilities (long-term portion) in the Consolidated Balance ~~Sheets.~~Sheets (Unaudited) which included $2.8 million associated with these operating leases that were reclassified into the Operating lease assets balance upon adoption of ASC 842 effective June 27, 2019, the first day of fiscal 2020.

Gain and Deferred Gain Recognition

In ~~line with the applicable accounting guidance,~~fiscal 2019, we ~~immediately~~ recognized the portion of the gross gain in excess of the present value of the future minimum lease payments, and deferred the remainder of the gain to be recognized straight-line in proportion to the operating lease terms. During the thirteen and twenty-six week periods ended December 26, 2018, $4.4 million and ~~$17.7~~$17.7 million of the ~~net~~ gain was recognized to Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited), respectively. ~~The~~As of June 26, 2019, the remaining balance of the deferred gain of ~~$270.6~~$274.6 million ~~as of December 26, 2018~~ was recorded in Other accrued liabilities (current portion) and Deferred gain on sale leaseback transactions (long-term portion) in the Consolidated Balance ~~Sheets.~~

~~Corporate Headquarters Relocation~~

~~During~~Sheets (Unaudited). The deferred gain balance was eliminated through the ~~third quarter~~cumulative effect adjustment to Retained earnings effective June 27, 2019, the first day of fiscal ~~2018, we sold~~2020, upon the ~~portion~~adoption of ASC 842. Refer above for ASC 842 adoption details. For any future sale leaseback transactions under the ASC 842 guidance, the gain, adjusted for any off-market terms, will be recognized immediately in most cases.

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4. REVENUE RECOGNITION

Deferred Development and Franchise Fees

Our deferred development and franchise fees consist of the unrecognized fees received from franchisees. Recognition of these fees in subsequent periods is based on satisfaction of the contractual performance obligations of the active contracts with franchisees. We also expect to earn subsequent period royalties and advertising fees related to our ~~current headquarters property that we owned for net proceeds of $13.7 million that have been deferred in~~franchise contracts; however, these future revenues are not yet determinable due to unsatisfied performance obligations based upon a sales-based measure.

The unrecognized fees received from franchisees are classified within Other accrued liabilities (current portion) and Other liabilities (long-term portion) in the Consolidated Balance Sheets ~~until we have fully relinquished possession~~(Unaudited). A summary of significant changes to the ~~sold property and our involvement has been terminated. We plan to relocate~~related deferred balance during the ~~third quarter~~twenty-six week period ended December 25, 2019 is presented below, followed by the revenues expected to be recognized in the subsequent periods based on current information.



	Deferred Development and Franchise Fees
Balance at June 26, 2019	$	16.2
Additions	0.5
Amount recognized for Chili’s restaurant acquisition⁽¹⁾	(2.6		)
Amount recognized to Franchise and other revenues	(0.8		)
Balance at December 25, 2019	$	13.3


⁽¹⁾	Deferred development and franchise fees remaining balances associated with the 116 Chili’s restaurants acquired from a franchisee at the September 5, 2019 acquisition date were recognized in Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited).



Fiscal Year	Development and Franchise Fees Revenue Recognition
Remainder of 2020	$	0.6
2021	1.1
2022	1.0
2023	1.0
2024	1.0
Thereafter	8.6
	$	13.3

Table of ~~fiscal 2019, and once our possession of the existing headquarters has terminated, we will recognize the sale, and record a gain related to the transaction.~~Contents

~~Accelerated depreciation for certain leasehold improvements associated with our current corporate headquarters was recorded to~~

5. OTHER GAINS AND CHARGES

Other (gains) and charges in the Consolidated Statements of Comprehensive Income (Unaudited) consist of ~~$0.5 million~~the following:



	Thirteen Week Periods Ended						Twenty-Six Week Periods Ended
	December 25, 2019			December 26, 2018			December 25, 2019			December 26, 2018
Restaurant impairment charges	$	4.6		$	1.0		$	4.6		$	1.0
Restaurant closure charges	2.9			2.1			3.1			3.8
Acquisition of franchise restaurants costs, net of (gains)	2.0			—			1.5			—
Remodel-related costs	0.8			2.6			1.5			3.1
Corporate headquarters relocation charges	0.3			0.5			0.7			1.0
Severance and other benefit charges	0.3			—			0.5			—
Foreign currency transaction (gain) loss	(0.3		)	0.7			(0.1		)	(0.1		)
(Gain) on sale of assets, net	(0.1		)	(0.8		)	(0.1		)	(0.8		)
Property damages, net of (insurance recoveries)	—			0.2			0.3			(0.6		)
Sale leaseback (gain), net of transaction charges	—			(4.4		)	—			(17.7		)
Lease modification net charge (gain)	—			—			(3.1		)	—
Cyber security incident charges	—			—			—			0.4
Other	1.8			0.3			2.5			1.0
	$	12.3		$	2.2		$	11.4		$	(8.9	)

Fiscal 2020

Restaurant impairment charges during the thirteen and ~~$1.0 million~~twenty-six week periods ended December 25, 2019 primarily related to the long-lived and operating lease assets of 10 underperforming Chili’s restaurants.

Restaurant closure charges during the thirteen and twenty-six week periods ended December 25, 2019 primarily related to leases on certain closed Chili’s restaurant locations.

Acquisition of franchise restaurants costs, net of (gains) during the thirteen and twenty-six week periods ended December 25, 2019 related to the 116 restaurants acquired from a franchisee, refer to Note 2 - Chili’s Restaurant Acquisition for details.

Remodel-related costs during the thirteen and twenty-six week periods ended December 25, 2019 were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

Corporate headquarters relocation charges during the thirteen and twenty-six week periods ended December 25, 2019 related to costs associated with the previous corporate headquarters location.

Severance and other benefit charges during the thirteen and twenty-six week periods ended December 25, 2019 related to the elimination of certain corporate and Chili’s roles.

Foreign currency transaction (gain) loss related to the CMR note denominated in pesos received from the sale of our equity interest in our Chili’s joint venture in Mexico in the second quarter of fiscal 2018. During the thirteen and twenty-six week periods ended December 25, 2019, the value of the peso increased as compared to the United States dollar resulting in a foreign currency transaction gain.

Property damages, net of (insurance recoveries) during the twenty-six week period ended December 25, 2019 consisted primarily of costs incurred for damages from Tropical Storm Imelda.

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Lease modification net charge (gain) during the twenty-six week period ended December 25, 2019 included the first quarter of fiscal 2020 gain related to the lease termination of a previously impaired Chili’s operating lease.

(Gain) on sale of assets, net during the thirteen and twenty-six week periods ended December 25, 2019 included gain recognized on the sale of liquor license.

Fiscal 2019

Sale leaseback (gain), net of transaction charges during the thirteen and twenty-six week periods ended December 26, 2018 ~~respectively, and $0.5~~included gains of $4.6 million and ~~$1.0~~$24.7 million, respectively, associated with the transactions, less transaction costs incurred of $0.2 million and $7.0 million, respectively, related to professional services, legal and accounting fees. Refer to Note 3 - Leases for further details on this transaction.

(Gain) on sale of assets, net during the thirteen and twenty-six week periods ended December ~~27, 2017, respectively. As~~26, 2018 included $0.8 million of gain recognized on the sale of land in Scottsdale, AZ and Pensacola, FL.

Remodel-related costs during the thirteen and twenty-six week periods ended December 26, 2018 ~~Land~~were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

Restaurant closure charges during the thirteen and twenty-six week periods ended December 26, 2018 were primarily related to Chili’s lease termination charges and certain Chili’s restaurant closure costs.

Restaurant impairment charges during the thirteen and twenty-six week periods ended December 26, 2018 were primarily related to the long-lived assets of ~~$5.9~~2 underperforming Chili’s restaurants.

Foreign currency transaction (gain) loss during the thirteen and twenty-six week periods ended December 26, 2018 included a $0.7 million loss and $0.1 million gain, respectively, resulting from the change in value of the Mexican peso as compared to that of the United States dollar on our Mexican peso denominated note receivable.

Corporate headquarters relocation charges during the thirteen and twenty-six week periods ended December 26, 2018 included $0.5 million and ~~additional Net~~$1.0 million, respectively, of accelerated depreciation on certain leasehold improvements associated with the leased portion of our previous corporate headquarters property ~~and equipment~~which closed in the third quarter of ~~$2.0~~fiscal 2019.

•

Property damages, net of (insurance recoveries) during the thirteen week period ended December 26, 2018 included $0.2 million of expenses incurred associated with storm damages at certain restaurant locations. Property damages, net of (insurance recoveries) during twenty-six week period ended December 26, 2018included $0.6 million of insurance proceeds received related to a previously filed fire claim, partially offset by expenses incurred associated with storm damages at certain restaurant locations.

Cyber security incident charges during the twenty-six week period ended December 26, 2018 of $0.4 million were recorded related to professional services associated with our response to the fourth quarter fiscal 2018 incident that are not believed to be covered by our insurance coverage. Refer to Note 15 - Commitments and Contingencies for more information.

6. INCOME TAXES



	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	December 25, 2019		December 26, 2018		December 25, 2019		December 26, 2018
Effective income tax rate	3.8	%	8.6	%	6.6	%	13.0	%

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

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Fiscal 2020

Our fiscal 2020 effective income tax rates for the thirteen and twenty-six week periods ended December 25, 2019 were lower than the federal statutory rate due to the favorable impact of the FICA tax credit.

Fiscal 2019

Our fiscal 2019 effective income tax rates for the thirteen and twenty-six week periods ended December 26, 2018 were lower than the federal statutory rate due to the favorable impact from the FICA tax credit, partially offset by the impact of the sale leaseback transactions. The sale leaseback transactions gains, as described in Note 3 - Leases, were recognized for tax purposes when each transaction was completed during fiscal 2019.

During the twenty-six week period ended December 26, 2018, the taxes on ~~our Consolidated Balance Sheets~~the gains related to the ~~sold property.~~sale leaseback transactions, as described in Note 3 - Leases, of $75.0 million were recognized for tax purposes when the transactions were completed. Also during the twenty-six week period ended December 26, 2018, we paid $67.1 million of the taxes.

4.7. NET INCOME PER SHARE

Basic net income per share is computed by dividing Net income by the Basic weighted average shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of Diluted net income per share, the Basic weighted average shares outstanding is increased by the dilutive effect of stock options and restricted share awards. Stock options and restricted share awards with an anti-dilutive effect are not included in the Diluted net income per share calculation. Basic weighted average shares outstanding are reconciled to Diluted weighted average shares outstanding as follows:


	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended		Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
	December 26, 2018	December 27, 2017	December 26, 2018	December 27, 2017	December 25, 2019	December 26, 2018	December 25, 2019	December 26, 2018
Basic weighted average shares outstanding	38.1	46.4	39.2	47.4	37.4	38.1	37.4	39.2
Dilutive stock options	0.2	0.1	0.2	0.1	0.1	0.2	0.1	0.2
Dilutive restricted shares	0.5	0.4	0.5	0.3	0.6	0.5	0.6	0.5
	0.7	0.5	0.7	0.4	0.7	0.7	0.7	0.7
Diluted weighted average shares outstanding	38.8	46.9	39.9	47.8	38.1	38.8	38.1	39.9

Awards excluded due to anti-dilutive effect on diluted net income per share	0.8	1.4	0.9	1.4	1.1	0.8	1.2	0.9

~~5. INCOME TAXES~~

~~Fiscal 2019~~8. SEGMENT INFORMATION

~~The effective income tax rate in the~~ ~~thirteen and twenty-six week periods ended December 26, 2018 decreased to 8.6% and 13.0% compared to 38.3% and 37.4% for the thirteen and twenty-six week periods ended December 27, 2017, respectively,~~ primarily due to the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was enacted on December 22, 2017. The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018. Our fiscal 2019 effective income tax rate is further lowered due to an increase in the FICA tax credit benefit, partially offset by the impact of the sale leaseback transactions.

During the twenty-six week period ended December 26, 2018, the taxes on the gains related to the sale leaseback transactions, as described in Note 3 - Sale Leaseback Transactions, of $75.0 million were recognized for tax purposes when the transactions were completed. Also during the twenty-six week period ended December 26, 2018 we paid $67.1 million of the taxes, with a remaining $7.9 million included as a payable net within Income taxes receivable in the Consolidated Balance Sheets as of December 26, 2018. This liability is expected to be paid during the third quarter of fiscal 2019.

~~Fiscal 2018~~

The thirteen and twenty-six week periods ended December 27, 2017 consider the Tax Act that was enacted prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory tax rate changes stipulated by the Tax Act were reflected in the second quarter of fiscal 2018. Our federal statutory tax rate for fiscal 2018 was 28.1% representing a blended tax rate for fiscal 2018 based on the number of days in fiscal 2018 before and after the effective date. In accordance with ASC 740, we re-measured our deferred tax accounts as of the enactment date using the new federal statutory tax rate and recognized the change as a discrete item in the provision for income taxes. The Company’s deferred tax position was a net asset and as a result, the reduction in the federal statutory tax rate resulted in a one-time non-cash adjustment to our net deferred tax balance of $8.7 million with a corresponding increase to the provision for income taxes in the second quarter of fiscal 2018.

~~6. OTHER GAINS AND CHARGES~~

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

Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 26,
2018 December 27,
2017 December 26,
2018 December 27,
2017
Sale leaseback (gain), net of transaction charges $ (4.4 ) $ —
$ (17.7 ) $ —
Gain on sale of assets, net (0.8 ) (0.3 ) (0.8 ) (0.3 )
Remodel-related costs 2.6
—
3.1
—
Restaurant closure charges 2.1
4.3
3.8
4.5
Restaurant impairment charges 1.0
2.0
1.0
9.2
Foreign currency transaction (gain)/loss 0.7
0.9
(0.1 ) 0.9
Accelerated depreciation 0.5
0.5
1.0
1.0
Property damages, net of (insurance recoveries) 0.2
0.5
(0.6 ) 5.1
Lease guarantee charges —
1.4
—
1.4
Cyber security incident charges —
—
0.4
—
Other 0.3
—
1.0
0.7
Total $ 2.2
$ 9.3
$ (8.9 ) $ 22.5

~~Fiscal 2019~~

Sale leaseback (gain), net of transaction charges during the thirteen and twenty-six week periods ended December 26, 2018 includes a gain of $4.6 million and $24.7 million, respectively, associated with the transactions, less transaction costs incurred of $0.2 million and $7.0 million, respectively, related to professional services, legal and accounting fees. Please see Note 3 - Sale Leaseback Transactions for further details on this transaction.

~~Gain on sale of assets, net during the thirteen and twenty-six week periods ended December 26, 2018 includes $0.8 million of gain recognized on the sale of land in Scottsdale, AZ and Pensacola, FL.~~

Remodel-related costs during the thirteen and twenty-six week periods ended December 26, 2018 totaling $2.6 million and $3.1 million, respectively, were recorded related to existing fixed asset write-offs associated with the Chili’s remodel project.

Restaurant closure charges during the thirteen and twenty-six week periods ended December 26, 2018 includes $2.1 million and $3.8 million, respectively, which were primarily related to Chili’s lease termination charges and certain Chili’s restaurant closure costs.

Restaurant impairment charges during the thirteen and twenty-six week periods ended December 26, 2018 includes $1.0 million primarily related to the long-lived assets of two underperforming Chili’s restaurants.

Foreign currency transaction (gain)/loss during the thirteen and twenty-six week periods ended December 26, 2018 includes a $0.7 million loss and $0.1 million gain, respectively, resulting from the change in value of the Mexican peso as compared to that of the U.S. dollar on our Mexican peso denominated note receivable that we received as consideration from the sale of our equity interest in our Mexico joint venture during the second quarter of fiscal 2018.

Accelerated depreciation during the thirteen and twenty-six week periods ended December 26, 2018 includes $0.5 million and $1.0 million, respectively, of depreciation on certain leasehold improvements at the corporate headquarters property. Please see Note 3 - Sale Leaseback Transactions for more details on the corporate headquarters relocation.

Property damages, net of (insurance recoveries) during the thirteen week period ended December 26, 2018 primarily includes of $0.2 million of expenses incurred associated with storm damages at certain restaurant locations. Property damages, net of (insurance recoveries) during the twenty-six week period ended December 26, 2018 includes $0.6 million of insurance proceeds received related to a previously filed fire claim, partially offset by expenses incurred associated with storm damages at certain restaurant locations.

Cyber security incident charges during the twenty-six week period ended December 26, 2018 of $0.4 million was recorded related to professional services associated with our response to the incident. We first reported the incident during the fourth quarter of fiscal 2018. For further details refer to Note 13 - Commitments and Contingencies.

~~Fiscal 2018~~

During the second quarter of fiscal 2018, we recorded restaurant closure charges of $4.3 million primarily related to lease termination charges and other costs associated with the closure of nine underperforming Chili’s restaurants in the second quarter of fiscal 2018 located in Alberta, Canada. Alberta has an oil dependent economy and has experienced an economic recession in recent years related to lower oil production. The slower economy has negatively affected traffic at the restaurants. The decision to close these restaurants was driven by management’s belief that the long-term profitability of these restaurants would not meet our required level of return. During the first quarter of fiscal 2018, we recorded asset impairment charges of $7.2 million primarily related to the long-lived assets and reacquired franchise rights of nine underperforming Chili’s restaurants located in Alberta, Canada. These restaurants were closed in the second quarter of fiscal 2018.

During the second quarter of fiscal 2018, we recorded asset impairment charges of $2.0 million primarily related to the long-lived assets of certain underperforming Maggiano’s and Chili’s restaurants that continue to operate. For further details refer to Note 10 - Fair Value Measurements. We also recorded lease guarantee charges of $1.4 million related to leases that were assigned to a divested brand. For additional lease guarantee disclosures, see Note 13 - Commitments and Contingencies.

In October 2017, we sold our Dutch subsidiary that held our equity interest in our Chili’s joint venture in Mexico to the franchise partner in the joint venture, CMR, S.A.B. de C.V. for $18.0 million. We recorded a gain of $0.2 million which includes the recognition of $5.4 million of foreign currency translation losses reclassified from AOCL consisting of $5.9 million of foreign currency translation losses from previous years, partially offset by $0.5 million of current year foreign currency translation gains. We received a note as consideration for the sale to be paid in 72 equal installments, with one installment payment made at closing and the other payments to be made over 71 months pursuant to the note. The note is denominated in pesos and is re-measured at the end of each period resulting in a gain or loss from foreign currency exchange rate changes. We recorded a $0.9 million foreign currency transaction loss in the second quarter due to the decline in the exchange rate for the Mexican peso relative to the U.S. dollar. The current portion of the note which represents the cash payments to be received over the next 12 months is included within accounts receivable, net while the long-term portion of the note is included within other assets.

Additionally, we incurred $0.5 million of expenses associated with Hurricanes Harvey and Irma primarily related to employee relief payments and inventory spoilage. Our restaurants were closed in the areas affected by these disasters and our team members were unable to work. These payments were made to assist our team members during these crises and to promote retention. We carry insurance coverage for these types of natural disasters.

~~7. SEGMENT INFORMATION~~

Our operating segments are Chili’s and Maggiano’s. The Chili’s segment includes the results of our ~~company-owned~~Company-owned Chili’s restaurants in the United States and Canada as well as the results from our domestic and international franchise ~~business.~~businesses. The Maggiano’s segment includes the results of our ~~company-owned~~Company-owned Maggiano’s ~~restaurants.~~restaurants in the United States as well as the results from our domestic franchise business.

Company sales include revenues generated by the operation of ~~company-owned~~Company-owned restaurants including gift card redemptions. Franchise and other revenues include Royalties and Franchise fees and other revenues. Franchise fees and other revenues include Maggiano’s banquet service charge income, advertising fees, gift card breakage, ~~income, service fees and~~gift card equalization, gift card discount costs from third-party gift card sales, digital entertainment revenues, delivery fee income, franchise and development ~~and franchise~~ fees, ~~and~~ retail royalty ~~revenues.~~revenues, and merchandise income. We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our operating segments are predominantly in the United States. There were no material transactions amongst our operating segments.

~~Effective the first quarter of fiscal 2019, we transitioned to ASC 606, from the previous Legacy GAAP guidance. Our Consolidated Financial Statements~~ ~~for the second quarter and year-to-date periods of fiscal 2019 reflect the application of ASC 606 guidance using the modified retrospective transition method, while our~~ ~~Consolidated Financial Statements~~ ~~for prior periods were prepared under Legacy GAAP.~~ ~~Please see Note 2 - Revenue Recognition for more details on the adoption of ASC 606.~~

Our chief operating decision maker uses ~~operating~~Operating income as the measure for assessing performance of our segments. Operating income includes revenues and expenses directly attributable to segment-level results of operations. Company restaurant expenses include food and beverage costs of sales, restaurant labor costs and restaurant expenses,

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including advertising expenses. The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:


	Thirteen Week Period Ended December 26, 2018
	ASC 606										Thirteen Week Period Ended December 25, 2019
	Chili’s		Maggiano’s		Other			Consolidated			Chili’s⁽¹⁾			Maggiano’s		Other			Consolidated
Company sales	$	640.6	$	120.9	$	—		$	761.5		$	728.4		$	119.1	$	—		$	847.5
Royalties	13.2		—		—			13.2			9.9			—		—			9.9
Franchise fees and other revenues	8.5		7.5		—			16.0			4.8			7.1		—			11.9
Franchise and other revenues											14.7			7.1		—			21.8
Total revenues	662.3		128.4		—			790.7			743.1			126.2		—			869.3

Company restaurant expenses⁽¹⁾	567.1		100.1		0.2			667.4			640.3			99.2		0.1			739.6
Depreciation and amortization	29.5		3.9		2.7			36.1			32.1			4.0		3.2			39.3
General and administrative	9.1		1.5		24.8			35.4			8.5			1.5		24.6			34.6
Other gains and charges	1.4		—		0.8			2.2
Other (gains) and charges											10.6			—		1.7			12.3
Total operating costs and expenses	607.1		105.5		28.5			741.1			691.5			104.7		29.6			825.8

Operating income (loss)	55.2		22.9		(28.5		)	49.6			51.6			21.5		(29.6		)	43.5
Interest expense	0.7		0.1		14.6			15.4
Other, net	—		—		(0.8		)	(0.8		)
Interest expenses											1.1			—		13.9			15.0
Other (income), net											(0.1		)	—		(0.4		)	(0.5		)
Income (loss) before provision for income taxes	$	54.5	$	22.8	$	(42.3	)	$	35.0		$	50.6		$	21.5	$	(43.1	)	$	29.0


	Thirteen Week Period Ended December 27, 2017
	Legacy GAAP										Thirteen Week Period Ended December 26, 2018
	Chili’s		Maggiano’s		Other			Consolidated			Chili’s		Maggiano’s		Other			Consolidated
Company sales	$	623.6	$	119.1	$	—		$	742.7		$	640.6	$	120.9	$	—		$	761.5
Royalties											13.2		—		—			13.2
Franchise fees and other revenues											8.5		7.5		—			16.0
Franchise and other revenues	16.5		7.2		—			23.7			21.7		7.5		—			29.2
Total revenues	640.1		126.3		—			766.4			662.3		128.4		—			790.7

Company restaurant expenses⁽¹⁾	533.9		97.9		0.1			631.9
Company restaurant expenses											567.1		100.1		0.2			667.4
Depreciation and amortization	31.0		4.0		2.7			37.7			29.5		3.9		2.7			36.1
General and administrative	9.3		1.5		22.3			33.1			9.1		1.5		24.8			35.4
Other gains and charges	5.9		1.0		2.4			9.3
Other (gains) and charges											1.4		—		0.8			2.2
Total operating costs and expenses	580.1		104.4		27.5			712.0			607.1		105.5		28.5			741.1

Operating income (loss)	60.0		21.9		(27.5		)	54.4			55.2		22.9		(28.5		)	49.6
Interest expense	—		—		14.3			14.3
Other, net	—		—		(1.0		)	(1.0		)
Interest expenses											0.7		0.1		14.6			15.4
Other (income), net											—		—		(0.8		)	(0.8		)
Income (loss) before provision for income taxes	$	60.0	$	21.9	$	(40.8	)	$	41.1		$	54.5	$	22.8	$	(42.3	)	$	35.0

Twenty-Six Week Period Ended December 26, 2018
ASC 606
Chili’s Maggiano’s Other Consolidated
Company sales $ 1,280.9
$ 208.9
$ —
$ 1,489.8
Royalties 26.1
—
—
26.1
Franchise fees and other revenues 17.1
11.5
—
28.6
Total revenues 1,324.1
220.4
—
1,544.5

Company restaurant expenses ⁽¹⁾
1,130.2
184.0
0.4
1,314.6
Depreciation and amortization 60.0
7.9
5.2
73.1
General and administrative 17.9
3.2
48.1
69.2
Other gains and charges ⁽²⁾
(10.9 ) —
2.0
(8.9 )
Total operating costs and expenses 1,197.2
195.1
55.7
1,448.0

Operating income (loss) 126.9
25.3
(55.7 ) 96.5
Interest expense 1.7
0.2
29.1
31.0
Other, net —
—
(1.6 ) (1.6 )
Income (loss) before provision for income taxes $ 125.2
$ 25.1
$ (83.2 ) $ 67.1

Segment assets ⁽²⁾
$ 1,047.8
$ 148.9
$ 98.1
$ 1,294.8
Segment goodwill $ 125.3
$ 38.4
$ —
$ 163.7
Payments for property and equipment $ 58.8
$ 6.4
$ 13.5
$ 78.7

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Twenty-Six Week Period Ended December 27, 2017
Legacy GAAP
Chili’s Maggiano’s Other Consolidated
Company sales $ 1,251.2
$ 208.4
$ —
$ 1,459.6
Franchise and other revenues 34.8
11.4
—
46.2
Total revenues 1,286.0
219.8
—
1,505.8

Company restaurant expenses⁽¹⁾
1,075.3
183.2
0.2
1,258.7
Depreciation and amortization 62.8
8.0
5.4
76.2
General and administrative 18.9
2.8
43.7
65.4
Other gains and charges 18.0
0.8
3.7
22.5
Total operating costs and expenses 1,175.0
194.8
53.0
1,422.8

Operating income (loss) 111.0
25.0
(53.0 ) 83.0
Interest expense —
—
28.2
28.2
Other, net —
—
(1.5 ) (1.5 )
Income (loss) before provision for income taxes $ 111.0
$ 25.0
$ (79.7 ) $ 56.3

Payments for property and equipment $ 40.8
$ 4.2
$ 3.6
$ 48.6



	Twenty-Six Week Period Ended December 25, 2019
	Chili’s⁽¹⁾			Maggiano’s		Other			Consolidated
Company sales	$	1,405.9		$	205.5	$	—		$	1,611.4
Royalties	21.7			0.1		—			21.8
Franchise fees and other revenues	11.1			11.0		—			22.1
Franchise and other revenues	32.8			11.1		—			43.9
Total revenues	1,438.7			216.6		—			1,655.3

Company restaurant expenses	1,236.6			182.3		0.3			1,419.2
Depreciation and amortization	62.8			8.0		6.6			77.4
General and administrative	17.6			3.2		51.8			72.6
Other (gains) and charges	9.0			0.1		2.3			11.4
Total operating costs and expenses	1,326.0			193.6		61.0			1,580.6
Operating income (loss)	112.7			23.0		(61.0		)	74.7
Interest expenses	2.0			—		27.9			29.9
Other (income), net	(0.3		)	—		(0.7		)	(1.0		)
Income (loss) before provision for income taxes	$	111.0		$	23.0	$	(88.2	)	$	45.8

Segment assets⁽²⁾	$	2,114.1		$	255.9	$	133.7		$	2,503.7
Segment goodwill	151.2			38.4		—			189.6
Payments for property and equipment	42.4			4.2		4.8			51.4



	Twenty-Six Week Period Ended December 26, 2018
	Chili’s			Maggiano’s		Other			Consolidated
Company sales	$	1,280.9		$	208.9	$	—		$	1,489.8
Royalties	26.1			—		—			26.1
Franchise fees and other revenues	17.1			11.5		—			28.6
Franchise and other revenues	43.2			11.5		—			54.7
Total revenues	1,324.1			220.4		—			1,544.5

Company restaurant expenses	1,130.2			184.0		0.4			1,314.6
Depreciation and amortization	60.0			7.9		5.2			73.1
General and administrative	17.9			3.2		48.1			69.2
Other (gains) and charges⁽³⁾	(10.9		)	—		2.0			(8.9		)
Total operating costs and expenses	1,197.2			195.1		55.7			1,448.0
Operating income (loss)	126.9			25.3		(55.7		)	96.5
Interest expenses	1.7			0.2		29.1			31.0
Other (income), net	—			—		(1.6		)	(1.6		)
Income (loss) before provision for income taxes	$	125.2		$	25.1	$	(83.2	)	$	67.1

Payments for property and equipment	$	58.8		$	6.4	$	13.5		$	78.7


⁽¹⁾	~~Company restaurant expenses~~Chili’s segment information for fiscal 2020 includes the results of operations and preliminary fair value of assets related to the 116 restaurants since the September 5, 2019 acquisition date. Refer to Note 2 - Chili’s Restaurant Acquisition for further details.

⁽²⁾

Segment assets for fiscal 2020 are presented in accordance with the newly adopted ASC 842 that now include ~~Cost of sales, Restaurant labor, and Restaurant expenses including advertising expenses. With the adoption of ASC 606,~~Operating lease assets, refer to Note 3 - Leases for the thirteen and twenty-six week periods ended December 26, 2018, advertising contributions received from Chili’s franchisees are recorded as Franchise fees and other revenues within Total revenues, which differs from the thirteen and twenty-six week periodsfurther details.

~~ended December 27, 2017 that includes Chili’s franchise advertising contributions recorded on a net basis within Company restaurant expenses.~~

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⁽²⁾⁽³⁾

During the twenty-six week period ended December 26, 2018, we completed sale leaseback transactions of 145 ~~company-owned~~Company-owned Chili’s restaurant properties. ~~As part of this transaction, we sold the related restaurant fixed assets totaling $170.9 million, net of accumulated depreciation. Additionally,~~ Chili’s recognized a $17.7 million of gain on the sale, including a certain portion of the deferred gain, net of related transaction costs incurred in Other (gains) and charges in the Consolidated Statements of Comprehensive ~~Income. Please see~~Income (Unaudited). Refer to Note 3 - ~~Sale Leaseback Transactions~~Leases for further details.

8.9. DEBT

Long-term debt consists of the following:

December 26,
2018 June 27,
2018
Revolving credit facility $ 586.3
$ 820.3
5.00% notes 350.0
350.0
3.88% notes 300.0
300.0
Capital lease obligations 41.7
43.0
Total long-term debt 1,278.0
1,513.3
Less unamortized debt issuance costs and discounts (6.0 ) (6.6 )
Total long-term debt less unamortized debt issuance costs and discounts 1,272.0
1,506.7
Less current installments (8.1 ) (7.1 )
$ 1,263.9
$ 1,499.6



	December 25, 2019			June 26, 2019
Revolving credit facility	$	570.3		$	523.3
5.000% notes	350.0			350.0
3.875% notes	300.0			300.0
Finance lease obligations (refer to Note 3 - Leases)	85.3			48.4
Total long-term debt	1,305.6			1,221.7
Less unamortized debt issuance costs and discounts	(4.9		)	(5.4		)
Total long-term debt and finance leases, less unamortized debt issuance costs and discounts	1,300.7			1,216.3
Less current installments of long-term debt and finance leases⁽¹⁾	(10.5		)	(9.7		)
Long-term debt and finance leases, less current installments	$	1,290.2		$	1,206.6


⁽¹⁾	Current installments of long-term debt and finance leases consist only of finance leases for the periods presented and are recorded within Other accrued liabilities in the Consolidated Balance Sheets (Unaudited). Refer to Note 10 - Accrued and Other Liabilities for further details.

Revolving Credit Facility

During the twenty-six week period ended December ~~26, 2018,~~25, 2019, net ~~repayments~~borrowings of ~~$234.0~~$47.0 million were ~~made~~drawn on the $1.0 billion revolving credit facility primarily ~~from proceeds received from~~to fund the ~~sale leaseback transactions, partially offset by~~acquisition of Chili’s restaurants (refer to Note 2 - Chili’s Restaurant Acquisition) and share repurchases. As of December ~~26, 2018, $413.7~~25, 2019, $429.7 million of credit was available under the revolving credit facility.

~~Under the amended~~ ~~$1.0 billion~~ ~~revolving credit facility, the maturity date for~~ ~~$890.0 million~~ ~~of the facility was extended from March 12, 2020 toSeptember 12, 2021and the remaining~~ ~~$110.0 million~~ ~~remains due onMarch 12, 2020~~. The ~~amended~~ revolving credit facility generally bears interest of LIBOR plus an applicable margin, which is a function of our credit rating and debt to cash flow ratio, but is subject to a maximum of LIBOR plus ~~2.00%~~2.000%. ~~For a period~~At December 25, 2019 the revolver interest rate was 3.180% that consisted of ~~180 days following~~one month LIBOR of 1.805% plus the ~~third amendment~~related applicable revolver margin of 1.375%. LIBOR is set to terminate in December 2021, however our revolver will expire before this date and we anticipate any new financings will be at the applicable interest rates.

Under the revolving credit facility, ~~that occurred in May 2018, we paid interest at a rate~~the maturity date for $890.0 million of ~~LIBOR plus 1.70%~~the facility is due on September 12, 2021. ~~Effective October 2018,~~In the second quarter of fiscal 2020, we ~~resumed paying interest at a rate~~modified the revolving credit facility to extend the maturity date for the remaining $110.0 million of ~~LIBOR plus~~the facility from March 12, 2020 to ~~1.38%~~September 12, 2021, which correlates with the maturity date for ~~a total~~the $890.0 million. We capitalized debt issuance costs of ~~3.89%. One month LIBOR~~$1.0 million associated with this amendment, which are included in Other assets in the Consolidated Balance Sheets (Unaudited) at December ~~26, 2018 was approximately 2.51%.~~25, 2019.

~~5.00%~~5.000% Notes

In ~~September 2016,~~fiscal 2017, we completed the private offering of $350.0 million of our ~~5.00%~~5.000% senior notes due October 2024 (the “2024 Notes”). We received proceeds of $350.0 million and utilized the proceeds to fund a $300.0 million accelerated share repurchase agreement and to repay $50.0 million on the amended $1.0 billion revolving credit facility. The ~~notes~~2024 Notes require semi-annual interest payments which began on April 1, 2017.

~~3.88%~~

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3.875% Notes

In ~~May~~fiscal 2013, we issued $300.0 million of ~~3.88%~~3.875% notes due in May ~~2023.~~2023 (the “2023 Notes”). The ~~notes~~2023 Notes require semi-annual interest payments which began in the second quarter of fiscal 2014.

Financial Covenants

Our debt agreements contain various financial covenants that, among other things, require the maintenance of certain leverage and fixed charge coverage ratios. As of WeDecember 25, 2019, we are ~~currently~~ in compliance with all financial ~~covenants~~covenants..

9.10. ACCRUED AND OTHER LIABILITIES

Other accrued liabilities consist of the following:

December 26,
2018 June 27,
2018
Deferred liabilities and sale leaseback gains ⁽¹⁾
$ 32.1
$ 15.5
Property tax 19.6
17.4
Insurance 18.3
17.8
Dividends 14.8
16.3
Sales tax 14.4
14.2
Interest 7.5
7.8
Straight-line rent ⁽²⁾
4.9
5.2
Landlord contributions 2.7
2.7
Deferred franchise and development fees ⁽³⁾
1.4
—
Cyber security incident ⁽⁴⁾
1.5
1.4
Other ⁽⁵⁾
31.0
28.9
$ 148.2
$ 127.2



	December 25, 2019		June 26, 2019
Property tax	$	22.7	$	17.3
Insurance	22.1		17.9
Sales tax	17.8		14.6
Dividends⁽¹⁾	15.6		14.9
Current installments of finance leases	10.5		9.7
Interest	6.7		7.5
Deferred franchise and development fees (refer to Note 4 - Revenue Recognition)	1.4		1.4
Deferred sale leaseback gains⁽²⁾	—		19.3
Straight-line rent⁽²⁾	—		5.1
Landlord contributions⁽²⁾	—		2.7
Cyber security incident	—		0.8
Other⁽³⁾	23.7		29.9
	$	120.5	$	141.1

⁽¹⁾

~~Deferred liabilities and sale leaseback gains primarily relate to $18.4 million for~~

Dividendsincluded the current ~~portion of the deferred gain~~dividend payable on shares outstanding and current dividends previously accrued related to restricted share awards that will vest in the ~~sale leaseback transactions executed during~~next year. Other liabilitiescontain the ~~first two quarters of fiscal 2019, and net proceeds of $13.7 million that have been deferred~~dividends accrued related to ~~the sale of our current corporate headquarters property. Please see~~ restricted shares that will vest after one year period. Refer toNote 311 - ~~Sale Leaseback Transactions~~ Shareholders’ Deficitfor further details.

⁽²⁾

Upon the adoption of ASC 842, the Deferred sale leaseback gains were eliminated as a cumulative effect adjustment to Retained earnings. Additionally, Straight-line rent, ~~includes~~and Landlord contributions balances were reclassified as a decrease to Operating lease assets upon the ~~current portion~~adoption of ~~the straight-line rent of operating leases. During the thirteen week periods ended December 26, 2018 and December 27, 2017, $0.4 million of expenses and $0.2 million of credit related~~ASC 842. Refer to straight-line rent expenses were recognized into Restaurant expenses in the Consolidated Statements of Comprehensive Income, respectively. During the twenty-six week periods ended December 26, 2018 and December 27, 2017, $0.5 million of expenses and 0.4 million of credit related to straight-line rent expenses were recognized into Restaurant expenses in the Consolidated Statements of Comprehensive Income, respectively.Note 3 - Leases for further details.


⁽³⁾	~~Deferred franchise and development fees~~ ~~relates to the current portion of upfront initial franchise and development fees recorded as part of adoption of ASC 606, please see Note 2 - Revenue Recognition for further details, and the Other liabilities table below for the long-term accrued amount.~~


⁽⁴⁾	~~Cyber security incident accrual relates to the fiscal 2018 event, please see Note 13 - Contingencies for further details.~~

⁽⁵⁾

Other primarily ~~consists~~consisted of accruals for utilities and services, ~~certain lease reserves, state income tax payable,~~ banquet deposits for Maggiano’s events, certain exit-related lease accruals, rent-related expenses and other various accruals. Accrual balances for certain exit-related lease accruals and rent-related expenses were reclassified as a decrease to Operating lease assets upon the adoption of ASC 842. Refer to Note 3 - Leases for further details.

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Other liabilities consist of the following:

December 26,
2018 June 27,
2018
Straight-line rent ⁽¹⁾
$ 56.6
$ 55.6
Insurance 37.4
40.1
Landlord contributions 24.1
23.3
Deferred franchise and development fees ⁽²⁾
15.8
—
Unfavorable leases 3.1
3.8
Unrecognized tax benefits 2.9
2.9
Other 6.0
6.0
$ 145.9
$ 131.7



	December 25, 2019		June 26, 2019
Insurance	$	37.7	$	36.8
Deferred franchise and development fees (refer to Note 4 - Revenue Recognition)	11.9		14.8
Unrecognized tax benefits	2.2		2.1
Straight-line rent⁽¹⁾	—		57.2
Landlord contributions⁽¹⁾	—		32.9
Unfavorable leases⁽¹⁾	—		2.8
Other	6.1		6.4
	$	57.9	$	153.0

⁽¹⁾

Straight-line rent, isLandlord contributions, and Unfavorable leases balances were reclassified as a decrease to Operating lease assets upon the ~~long-term portion~~adoption of the straight-line rent, and for the second quarter of fiscal 2019 this balance also includes $1.2 million for the straight-line rent accrued for 145 restaurants sold as part of the sale leaseback transactions. Please seeASC 842. Refer to Note 3 - ~~Sale Leaseback Transactions for more details, and the above Other accrued liabilities table for the current portion of straight-line rent recorded to be recognized within the next twelve months.~~


⁽²⁾	Deferred franchise and development fees relates to the long-term portion of upfront initial franchise and development fees recorded as part of adoption of ASC 606, please see Note 2 - Revenue RecognitionLeases for further ~~details, and the Other accrued liabilities table above for the current accrued amount.~~details.

11. SHAREHOLDERS’ DEFICIT

The changes in Total shareholders’ deficit during the twenty-six week periods ended December 25, 2019 and December 26, 2018, respectively, were as follows:



	Twenty-Six Week Period Ended December 25, 2019
	Common Stock			Additional Paid-In Capital			Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total
Balance at June 26, 2019	$	17.6		$	522.0		$	2,771.2		$	(4,083.4	)	$	(5.6	)	$	(778.2	)
Cumulative effect of ASC 842 adoption	—			—			195.9			—			—			195.9
Net income	—			—			14.9			—			—			14.9
Other comprehensive loss	—			—			—			—			(0.2		)	(0.2		)
Dividends ($0.38 per share)	—			—			(14.6		)	—			—			(14.6		)
Stock-based compensation	—			7.1			—			—			—			7.1
Purchases of treasury stock	—			(0.3		)	—			(11.0		)	—			(11.3		)
Issuances of common stock	—			(3.7		)	—			5.0			—			1.3
Balance at September 25, 2019	17.6			525.1			2,967.4			(4,089.4		)	(5.8		)	(585.1		)
Net income	—			—			27.9			—			—			27.9
Other comprehensive income	—			—			—			—			0.1			0.1
Dividends ($0.38 per share)	—			—			(14.6		)	—			—			(14.6		)
Stock-based compensation	—			2.6			—			—			—			2.6
Purchases of treasury stock	—			0.0			—			0.0			—			0.0
Issuances of common stock	—			(0.4		)	—			0.6			—			0.2
Retirement of treasury stock	(11.4		)	—			(3,345.4		)	3,356.8			—			—
Balance at December 25, 2019	$	6.2		$	527.3		$	(364.7	)	$	(732.0	)	$	(5.7	)	$	(568.9	)

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	Twenty-Six Week Period Ended December 26, 2018
	Common Stock		Additional Paid-In Capital			Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total
Balance at June 27, 2018	$	17.6	$	511.6		$	2,683.0		$	(3,924.7	)	$	(5.8	)	$	(718.3	)
Cumulative effect of ASC 606 adoption	—		—			(7.4		)	—			—			(7.4		)
Net income	—		—			26.4			—			—			26.4
Other comprehensive income	—		—			—			—			0.3			0.3
Dividends ($0.38 per share)	—		—			(15.5		)	—			—			(15.5		)
Stock-based compensation	—		3.6			—			—			—			3.6
Purchases of treasury stock	—		(7.5		)	—			(98.0		)	—			(105.5		)
Issuances of common stock	—		(3.8		)	—			4.3			—			0.5
Balance at September 26, 2018	17.6		503.9			2,686.5			(4,018.4		)	(5.5		)	(815.9		)
Net income	—		—			32.0			—			—			32.0
Other comprehensive income	—		—			—			—			(0.6		)	(0.6		)
Dividends ($0.38 per share)	—		—			(14.5		)	—			—			(14.5		)
Stock-based compensation	—		3.6			—			—			—			3.6
Purchases of treasury stock	—		6.9			—			(69.0		)	—			(62.1		)
Issuances of common stock	—		(0.2		)	—			2.5			—			2.3
Balance at December 26, 2018	$	17.6	$	514.2		$	2,704.0		$	(4,084.9	)	$	(6.1	)	$	(855.2	)

Retirement of Treasury Stock

During the thirteen week period ended December 25, 2019, the Board of Directors approved the retirement of 114.0 million shares of Treasury stock for a weighted average price per share of $29.45. As of December 25, 2019, 24.8 million shares remain in treasury.

Effect of Adoption of ASC 842

In the first quarter of fiscal 2020, we adopted the lease accounting standard, ASC 842, and recorded a $195.9 million cumulative effect adjustment increase to Retained (deficit) earnings for the change in accounting principle. Refer to Note 3 - Leases for more details.

Effect of Adoption of ASC 606

In the first quarter of fiscal 2019, we adopted the revenue recognition standard, ASC 606, and recorded a $7.4 million cumulative effect adjustment decrease to Retained (deficit) earnings for the change in accounting principle.

Dividends

During the twenty-six week periods ended December 25, 2019 and December 26, 2018, we paid dividends of $29.0 million and $31.6 million to common stock shareholders, respectively. We also declared a quarterly dividend on October 28, 2019, that was paid subsequent to the second quarter of fiscal 2020, on December 26, 2019, in the amount of $0.38 per share. As of December 25, 2019, we have accrued dividends of $14.2 million for shares outstanding and $0.4 million of dividends related to restricted share awards in Other accrued liabilities and Other liabilities in the Consolidated Balance Sheets (Unaudited), refer to Note 10 - Accrued and Other Liabilities for further details.

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Stock-based Compensation

The following table presents the stock options and restricted share awards granted, and related weighted average exercise price and fair value per share amounts for the twenty-six week periods ended December 25, 2019 and December 26, 2018:



	Twenty-Six Week Periods Ended
	December 25, 2019		December 26, 2018
Stock options
Stock options granted	0.3		0.7
Weighted average exercise price per share	$	38.51	$	43.63
Weighted average fair value per share	$	6.83	$	8.25
Restricted share awards
Restricted share awards granted	0.3		0.3
Weighted average fair value per share	$	38.59	$	43.35

Share Repurchases

Our share 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. The repurchased shares during the twenty-six week periods ended December 25, 2019 and December 26, 2018, respectively, included shares purchased as part of our share repurchase program and shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares.

Twenty-Six Week Period Ended December 25, 2019

During the thirteen week period ended September 25, 2019, we repurchased 0.3 million shares of our common stock for $11.3 million. As of December 25, 2019, approximately $187.8 million was available under our share repurchase authorizations.

Twenty-Six Week Period Ended December 26, 2018

In August 2018, our Board of Directors authorized a $300.0 million increase to our existing share repurchase program resulting in total authorizations of $4.9 billion. During the thirteen week period ended September 26, 2018, we repurchased 2.1 million shares of our common stock for $105.5 million. During the thirteen week period ended December 26, 2018, we repurchased approximately 1.5 million shares of our common stock for $62.1 million.

~~10.~~12. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that we would ~~be received~~receive to sell an asset or ~~paid~~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.

Non-Financial Assets Measured Onon a Non-Recurring Basis

We review the carrying amounts of property and equipment, operating lease assets, reacquired franchise rights and transferable liquor licenses semi-annually or when events or circumstances indicate that the fair value may not

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substantially exceed the carrying amount. We record an impairment charge for the excess of the carrying amount over the fair value. ~~All impairment charges were included in Other (gains) and charges in the Consolidated Statements of Comprehensive Income for the periods presented.~~

During the thirteen and twenty-six week ~~period~~periods ended ~~September 26, 2018, no indicators of impairment existed.~~December 25, 2019, we impaired certain long-lived and lease assets primarily related to 10 underperforming Chili’s restaurants. Additionally, we impaired certain finance and operating lease assets related to previously closed Chili’s restaurants. During the thirteen and twenty-six week ~~period~~periods ended December 26, 2018, we impaired long-lived assets ~~with carrying values of $1.0 million~~ primarily related to ~~two~~2 underperforming Chili’s ~~restaurants that we~~restaurants. We determined the ~~leasehold improvements and other assets associated with the impaired restaurants had no~~ fair value of these assets based on Level 3 fair value measurements.

~~During~~ The table below presents the ~~twenty-six week period ended December 27, 2017, we impaired long-lived assets and reacquired franchise rights with~~ carrying values ~~of $8.3 million~~ and ~~$1.2 million, respectively, primarily~~ related ~~to nine underperforming Chili’s~~impairment expenses recorded on these impaired restaurants ~~located in Alberta, Canada. Please see Note 6 - Other Gains and Charges~~ for ~~further details. We determined~~ the ~~long lived assets associated with the underperforming restaurants had a fair value of $0.3 million, based on Level 3 fair value measurements, resulting in an impairment charge of $9.2 million.~~periods presented.



					Impairment Charges
	Pre-Impairment Carrying Value				Thirteen and Twenty-Six Week Periods Ended
	December 25, 2019		December 26, 2018		December 25, 2019		December 26, 2018
Underperforming restaurants
Long-lived assets	$	4.5	$	1.0	$	4.5	$	1.0
Finance lease assets	0.1		—		0.1		—
Total underperforming restaurants	$	4.6	$	1.0	$	4.6	$	1.0
Closed restaurants
Operating lease assets	$	6.4	$	—	$	1.8	$	—
Finance lease assets	5.8		—		1.4		—
Total closed restaurants	$	12.2	$	—	$	3.2	$	—

We determine the fair value of transferable liquor licenses based on prices in the open market for licenses in the same or similar jurisdictions. During the thirteen week periods ended December 26, 2018 and December 27, 2017, no indicators of impairment were identified.

Intangibles, net in the Consolidated Balance Sheets (Unaudited) includes indefinite-lived intangible assets such as the transferable liquor licenses and definite-lived intangible assets that include reacquired franchise rights and other items such as trademarks. ~~Accumulated amortization of~~ Intangibles, net included accumulated amortization associated with definite-lived intangible assets at December 25, 2019 and June 26, 2019, of $6.7 million and $7.0 million, respectively.

We determine the fair value of transferable liquor licenses based on prices in the open market for licenses in the same or similar jurisdictions that is considered Level 2. During the thirteen and twenty-six week periods ended December 25, 2019 and December 26, 2018, ~~and June 27, 2018, was $6.3 million and $5.7 million, respectively.~~no indicators of impairment were identified.

Goodwill

We review the carrying amounts of goodwill annually or when events or circumstances indicate that the carrying amount may not be recoverable. We may elect to perform a qualitative assessment for our reporting units to determine whether it is more likely than not that the fair value of the reporting unit is greater than its carrying value. If a qualitative assessment is not performed, or if the result of the qualitative assessment indicates a potential impairment, then the reporting unit’s fair value is compared to its carrying value. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the implied fair value of the goodwill.

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

We performed our goodwill impairment tests at the end of the second quarter. During the thirteen and twenty-six week periods ended December ~~26, 2018~~25, 2019 and December ~~27, 2017,~~26, 2018, no indicators of impairment were identified.

Chili’s Restaurant Acquisition

In the first quarter of fiscal 2020, we completed the acquisition of 116 Chili’s restaurants. The preliminary fair value of assets acquired, including goodwill, and liabilities assumed for these restaurants utilized Level 3 inputs. The fair values of intangible assets acquired were primarily based on significant inputs not observable in an active market,

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including estimates of replacement costs, future cash flows, and discount rates. Refer to Note 2 - Chili’s Restaurant Acquisition for details.

Other Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of the short maturity of these items. The carrying amount of debt outstanding related to the amended revolving credit facility approximates fair value as the interest rate on this instrument approximates current market rates (Level 2). The fair values of the ~~3.88%~~3.875% and ~~5.00%~~5.000% notes are based on quoted market prices and are considered Level 2 fair value measurements.

The carrying amounts, which are net of unamortized debt issuance costs and discounts, and fair values of the ~~3.88%~~3.875% notes and ~~5.00%~~5.000% notes are as follows, ~~please see further details at~~refer to Note 89 - ~~Debt:~~Debt for more details:

December 26, 2018 June 27, 2018
Carrying Amount Fair Value Carrying Amount Fair Value
3.88% Notes $ 298.4
$ 283.2
$ 298.2
$ 285.3
5.00% Notes 345.6
326.9
345.2
342.3



	December 25, 2019				June 26, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
3.875% notes	$	298.8	$	304.7	$	298.6	$	296.3
5.000% notes	346.3		370.8		345.9		356.2

Long-Term Note Receivable

During fiscal 2018, we received an $18.0 million long-term note receivable as consideration related to the sale of our equity interest in the Chili’s joint venture in Mexico. We determined the fair value of this note based on an internally developed analysis relying on Level 3 inputs at inception. This analysis was based on a credit rating we assigned to the counterparty and comparable interest rates associated with similar debt instruments observed in the market. As a result of the initial analysis, we determined the fair value of this note was approximately $16.0 million and recorded this fair value as its initial carrying value. We believe the fair value of the note receivable continues to approximate the carrying value, which at December ~~26, 2018~~25, 2019 was ~~$11.9~~$9.9 million. The current portion of the note, which represents the cash payments to be received over the next 12 months, is included within Accounts receivable, net while the long-term portion of the note is included ~~within~~in Other assets in the Consolidated Balance ~~Sheets. Please refer~~Sheets (Unaudited). Refer to Note 65 - Other Gains and Charges for further details about this note receivable.

We have recorded certain lease obligations related to the previously divested Romano’s Macaroni Grill restaurants. These lease obligations are based on Level 3 fair value measurements based on an estimate of the obligation associated with the lease locations, stated rent and other factors such as ability and probability of the landlord to mitigate damages by leasing to new tenants. Please refer to Note 13 - Contingencies for further details.

~~11. SHAREHOLDERS’ DEFICIT~~

~~Changes in Shareholders’ Deficit~~

~~The changes by quarter in Total shareholders’ deficit during the twenty-six week periods ended December 26, 2018 and December 27, 2017, respectively, were as follows:~~

Twenty-Six Week Period Ended December 26, 2018
Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss) Total
Balance at June 27, 2018 $ 17.6
$ 511.6
$ 2,683.0
$ (3,924.7 ) $ (5.8 ) $ (718.3 )
Effect of ASC 606 adoption —
—
(7.4 ) —
—
(7.4 )
Net income —
—
26.4
—
—
26.4
Other comprehensive income —
—
—
—
0.3
0.3
Dividends ($0.38 per share) —
—
(15.5 ) —
—
(15.5 )
Stock-based compensation —
3.6
—
—
—
3.6
Purchases of treasury stock —
(7.5 ) —
(98.0 ) —
(105.5 )
Issuances of common stock —
(3.8 ) —
4.3
—
0.5
Balance at September 26, 2018 17.6
503.9
2,686.5
(4,018.4 ) (5.5 ) (815.9 )
Net income —
—
32.0
—
—
32.0
Other comprehensive income —
—
—
—
(0.6 ) (0.6 )
Dividends ($0.38 per share) —
—
(14.5 ) —
—
(14.5 )
Stock-based compensation —
3.6
—
—
—
3.6
Purchases of treasury stock —
6.9
—
(69.0 ) —
(62.1 )
Issuances of common stock —
(0.2 ) —
2.5
—
2.3
Balance at December 26, 2018 $ 17.6
$ 514.2
$ 2,704.0
$ (4,084.9 ) $ (6.1 ) $ (855.2 )

Twenty-Six Week Period Ended December 27, 2017
Common Stock Additional
Paid-In
Capital Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive
Income (Loss) Total
Balances at June 28, 2017 $ 17.6
$ 502.1
$ 2,627.1
$ (3,628.5 ) $ (11.9 ) $ (493.6 )
Net income —
—
9.9
—
—
9.9
Other comprehensive income —
—
—
—
1.5
1.5
Dividends ($0.38 per share) —
—
(18.8 ) —
—
(18.8 )
Stock-based compensation —
3.5
—
—
—
3.5
Purchases of treasury stock —
(0.1 ) —
(41.6 ) —
(41.7 )
Issuances of common stock —
(2.4 ) —
2.6
—
0.2
Balance at September 27, 2017 17.6
503.1
2,618.2
(3,667.5 ) (10.4 ) (539.0 )
Realized foreign currency translation —
—
—
—
5.4
5.4
Net income —
—
25.3
—
—
25.3
Other comprehensive income —
—
—
—
(0.2 ) (0.2 )
Dividends ($0.38 per share) —
—
(17.9 ) —
—
(17.9 )
Stock-based compensation —
2.8
—
—
—
2.8
Purchases of treasury stock —
—
—
(30.1 ) —
(30.1 )
Issuances of common stock —
(0.8 ) —
1.6
—
0.8
Balance at December 27, 2017 $ 17.6
$ 505.1
$ 2,625.6
$ (3,696.0 ) $ (5.2 ) $ (552.9 )

~~Share Repurchases~~

Our share 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. Shares that have been paid for but not yet delivered are reflected as a reduction of Additional paid in capital while other repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets. The repurchased shares during the twenty-six week periods ended December 26, 2018 and December 27, 2017 included shares purchased as part of our share repurchase program and shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares.

~~Twenty-Six Week Periods Ended December 26, 2018~~

~~In August 2018, our Board of Directors authorized a~~ ~~$300.0 million~~ ~~increase to our existing share repurchase program resulting in total authorizations of~~ ~~$4.9 billion. During the thirteen week period ended September 26, 2018, we repurchased approximately~~ ~~2.1 million~~ ~~shares of our common stock for~~ ~~$105.5 million~~. ~~During the thirteen week period ended December 26, 2018, we repurchased approximately 1.5 million~~ ~~shares of our common stock for~~ ~~$62.1 million~~. ~~As of December 26, 2018, approximately $197.8 million was available under our share repurchase authorizations.~~

~~Twenty-Six Week Periods Ended December 27, 2017~~

During the thirteen week period ended September 27, 2017, we repurchased approximately 1.3 million shares of our common stock for $41.7 million. During the thirteen week period ended December 27, 2017, we repurchased approximately 1.0 million shares of our common stock for $30.1 million.

~~Stock-based Compensation~~

Twenty-Six Week Periods Ended
December 26,
2018 December 27,
2017
Stock options
Stock options granted 0.7
1.2
Weighted average exercise price per share $ 43.63
$ 31.22
Weighted average fair value per share $ 8.25
$ 4.45
Restricted share awards
Restricted share awards granted 0.3
0.4
Weighted average fair value per share $ 43.35
$ 31.23

During the thirteen week period ended December 26, 2018, we modified certain fiscal 2018 performance-based stock option awards and 0.2 million options were canceled. We subsequently granted fiscal 2019 performance-based stock option awards of 0.4 million options with a grant date fair value equivalent to the fair value of the canceled fiscal 2018 options as of the modification date. Vesting of the fiscal 2019 performance-based options is conditioned on achievement of the same performance targets and vest on the same schedule as the fiscal 2018 performance-based stock options. There is no incremental compensation cost as a result of this modification. The fiscal 2019 performance-based stock option awards are included in the above stock options granted table.

~~Dividends~~

~~During the twenty-six week periods ended December 26, 2018 and December 27, 2017, we paid dividends of $31.6 million and $35.4 million to common stock shareholders, respectively.~~ ~~We also declared a quarterly dividend on~~ ~~October 29, 2018, that was paid subsequent to the second quarter of fiscal 2019, on~~ ~~December 27, 2018, in the amount~~

of ~~$0.38~~ ~~per share.~~ ~~As of December 26, 2018, we have accrued $14.2 million for this dividend in Other accrued liabilities on our Consolidated Balance Sheets, see Note 9 - Accrued and Other Liabilities.~~

~~Effect of Adoption of ASC 606~~

During the thirteen week period ended September 26, 2018, we adopted ASC 606 and recorded a $7.4 million cumulative effect adjustment decrease to Retained earnings for the change in accounting principle. Please refer to Note 2 - Revenue Recognition for more details.

~~Realized Foreign Currency Translation~~

During the thirteen week period ended December 27, 2017, we divested our Mexican joint venture and realized $5.4 million of foreign currency translation losses that were reclassified from Accumulated other comprehensive loss into Net income. Please refer to Note 10 - Fair Value Measurements for further details on the divestiture and related consideration received.

~~12.~~13. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes and interest is as follows:


	Twenty-Six Week Periods Ended				Twenty-Six Week Periods Ended
	December 26, 2018		December 27, 2017		December 25, 2019			December 26, 2018
Income taxes, net of refunds ⁽¹⁾	$	83.4	$	30.5	$	(8.1	)	$	83.4
Interest, net of amounts capitalized	28.2		25.3		27.2			28.2

⁽¹⁾

Income taxes, net of refunds ~~increased~~decreased for the twenty-six week period ended December ~~26, 2018~~25, 2019 as compared to the twenty-six week period ended December ~~27, 2017~~26, 2018 primarily due to payments made for income tax liabilities resulting from the sale leaseback transactions completed in the first quarter of fiscal ~~2019. Please refer~~2019 and receipt of a refund in the first quarter of fiscal 2020 from the overpayment of incomes taxes paid in fiscal 2019, partially offset by current year payments. Refer to Note 3 - ~~Sale Leaseback Transactions~~Leases and Note 56 - Income Taxes for further details.

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Non-cash investing and financing activities are as follows:


	Twenty-Six Week Periods Ended				Twenty-Six Week Periods Ended
	December 26, 2018		December 27, 2017		December 25, 2019		December 26, 2018
Retirement of fully depreciated assets	$	16.6	$	22.4	$	9.2	$	16.6
Dividends declared but not paid	14.8		18.2		15.0		14.8
Accrued capital expenditures	14.2		4.7		9.0		14.2
Capital lease additions(1)	2.5		4.3		—		2.5


⁽¹⁾	Capital lease additions for the twenty-six week period ended December 25, 2019 are disclosed as part of the finance lease disclosures in Note 3 - Leases, “Consolidated Statement of Cash Flows Disclosure of Lease Amounts” section.

~~13.~~14. CONTINGENCIES

Lease Commitments

We have, in certain cases, divested brands or sold restaurants to franchisees and have not been released from lease guarantees ~~or lease liability~~ for the related restaurants. As of December ~~26, 2018~~25, 2019 and June ~~27, 2018,~~26, 2019, we have outstanding lease guarantees or are secondarily liable for ~~$57.5~~$40.9 million and ~~$58.2~~$55.3 million, respectively. These amounts represent the maximum potential liability of future payments under the leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal ~~2019~~2020 through fiscal 2028. In the event of default under a lease by a franchisee or owner of a divested brand, the indemnity and default clauses in our agreements with such third parties and applicable laws govern our ability to pursue and recover amounts we may pay on behalf of such parties.

During fiscal 2018, Mac Acquisition LLC, the owner of Romano’s Macaroni Grill restaurants, filed for Chapter 11 bankruptcy protection. We have outstanding lease guarantees or are secondarily liable for certain of its leases rejected Our secondary liability position was reduced approximately $9.3 million in the bankruptcy. As of December 26, 2018 and June 27, 2018, balances of $0.6 million and $1.4 million, respectively, were recorded in Other accrued liabilities in our Consolidated Balance Sheets based on our analysis of the potential obligations and are inclusive of the fiscal 2019 activity detailed below.

~~We paid $0.7 million during~~ the twenty-six week period ended December ~~26, 2018~~25, 2019 due to ~~settle obligations~~certain leases associated with the acquisition of ~~two of the leases rejected in the Mac~~116 restaurants from a franchisee, refer to Note 2 - Chili’s Restaurant Acquisition ~~LLC bankruptcy proceeding. We do not expect additional leases to be rejected because the period~~ for doing so in the bankruptcy proceeding concluded and Mac Acquisition, LLC’s plan for reorganization in the bankruptcy proceeding was confirmed. We will continue to monitor leases for which we have outstanding guarantees or are secondarily liable to assess the likelihood of any incremental losses. We have not been informed by landlords of Mac Acquisition LLC of any lease defaults other than those detailed in the previous bankruptcy filings. No other liabilities related to this matter have been recorded as of December 26, 2018.details.

Letters Ofof Credit

We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of December ~~26, 2018,~~25, 2019, we had ~~$29.0~~$27.2 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable within the next 4 to 10 months.

Cyber Security Incident

On May 12, 2018, we issued a public statement that malware had been discovered at certain Chili’s restaurants that resulted in unauthorized access or acquisition of customer payment card data. We engaged third-party forensic firms and cooperated with law enforcement to investigate the matter. Based on the investigation of our third-party forensic experts, we believe most ~~company-owned~~Company-owned Chili’s restaurants were impacted by the malware during time frames that vary by restaurant, but we believe in each case began no earlier than March 21, 2018 and ended no later than April 22, 2018.

We expect to incur ~~significant~~ legal and professional services expenses associated with the cyber security incident in future ~~periods.~~periods, which could be material. We will recognize these expenses as services are received. Related to this incident, payment card companies and associations may request us to reimburse them for unauthorized card charges and costs to replace cards and may also impose fines or penalties in connection with the cyber security incident, and regulatory authorities may also impose fines or other remedies against us. While we do not acknowledge responsibility to pay any such amounts imposed by any third parties, we may become obligated to pay such amounts or incur significant related settlement costs. We have settled claims from two payment card companies, and the settlement amounts are included in the costs described in the following paragraph. We will record an estimate for any additional losses at the time when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable.

To limit our exposure to cyber security events, we maintain cyber liability insurance coverage. This coverage and certain other insurance coverage may reduce our exposure for this incident. Our cyber liability insurance policy contains

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a $2.0 million ~~retention.~~retention that was fully accrued during fiscal 2018. Since the incident, through December ~~26, 2018,~~25, 2019, we have incurred ~~expenses~~total costs of ~~$3.2~~$4.3 million related to the cyber security ~~incident which~~incident. This includes the $2.0 million retention recorded in fiscal 2018, an additional $0.4 million during fiscal 2019 for expenses not believed to be covered by our insurance coverage recorded to Other (gains) and charges in the Consolidated Statements of Comprehensive Income ~~during the twenty-six week period ended December 26, 2018,~~(Unaudited), $1.0 million in costs that have been reimbursed by our insurance carriers, and ~~$0.8~~$0.9 million of receivable for costs incurred that we believe are reimbursable and probable of recovery under our insurance coverage.

The Company was named as a defendant in a putative class action ~~lawsuits~~lawsuit in the United States District Court for the Middle District of Florida ~~the United States District Court for the District of Nevada, and two in the United States District Court for the Central District of California, filed on~~ styled~~May 24, 2018, May 30, 2018, June 14, 2018, and June 28, 2018, respectively (collectively,~~ In re: Brinker Data Incident Litigation, Case No. 18-cv-00686-TJC-MCR (the “Litigation”) relating to the cyber security incident described above. In the Litigation, plaintiffs assert various claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $5.0 million, injunctive and declaratory relief and attorney’s fees and costs. ~~Since~~On January 4, 2019, we filed a Motion to Dismiss all of plaintiffs’ claims asserting that plaintiffs do not have standing to bring the ~~initial filing~~lawsuit and that plaintiffs have failed to state a claim on which relief can be granted.

Following completion of ~~these cases,~~briefing by the ~~Nevada plaintiff voluntarily dismissed this case~~parties, the court conducted a hearing on our motion on June 24, 2019. On August 1, 2019, the court granted our Motion to Dismiss for lack of standing as to two plaintiffs and ~~joined~~denied the ~~Florida lawsuit. Counsel for all parties subsequently agreed~~motion as to the ~~transfer~~remaining plaintiffs. The court deferred its ruling on our argument that plaintiffs failed to state a claim on which relief could be granted pending further briefing. On August 16, 2019, the parties filed their Joint Notice of Choice of Law Briefing Preference. The Company represented that we are ready to move forward with briefing, but plaintiffs claimed that they require a significant amount of additional discovery before briefing can commence. On November 11, 2019, the ~~California cases~~Company filed a Motion for Protection seeking to ~~Florida,~~limit the scope of some of plaintiffs’ discovery requests. On November 12, 2019, the court issued an order indicating that it would move forward with its ruling on our Motion to Dismiss without further briefing. It also stayed all pending discovery and ~~they have been consolidated into a single matter with~~depositions. Plaintiffs filed their response to our Motion for Protection on December 6, 2019 and we now await the ~~case already pending there.~~Court’s order. We believe we have defenses and intend to ~~defend~~continue defending the Litigation. As such, as of December ~~26, 2018,~~25, 2019, we have

concluded that a loss from this matter is not determinable, therefore, we have not recorded a liability related to the Litigation. We will continue to evaluate this matter based on new information as it becomes available.

Legal Proceedings

Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. Accordingly, we review the adequacy of accruals and disclosures pertaining to litigated matters each quarter in consultation with legal counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the Consolidated Financial Statements.

We are engaged in various legal proceedings and have certain unresolved claims pending. Liabilities have been established based on our best estimates of our potential liability in certain of these matters. Based upon consultation with legal counsel, management is of the opinion that there are no 0 matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on ~~our~~the consolidated financial condition or results of operations.

~~14.~~15. EFFECT OF NEW ACCOUNTING STANDARDS

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract - In August 2018, the FASB issued ASU 2018-15, this update aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update is effective for annual and interim periods in fiscal years beginning after December 15, 2019, which will require us to adopt these provisions in the first quarter of fiscal 2021. Early adoption is permitted and we plan to adopt this guidance during the second half of fiscal 2019, using a prospective approach. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments under ASU 2018-13 add an incremental requirement, among others, for entities to disclose (1) the range and weighted average used to develop significant unobservable inputs and (2) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy. Entities may disclose other quantitative information in lieu of the weighted average if they determine that such information embodies a more reasonable and rational method of reflecting the distribution of significant unobservable inputs used to develop Level 3 fair value measurements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal

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2021. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact ~~on our consolidated financial statements.~~in the Consolidated Financial Statements.

ASU ~~2016-02, Leases (Topic 842)~~No. 2019-12, Simplifying the Accounting for Income Taxes - In ~~February 2016,~~December 2019, the FASB issued ASU ~~2016-02,~~2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and ~~has subsequently amended this update by issuing additional ASU’s that provide clarification~~calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and ~~further~~allocating taxes to members of a consolidated group. The new guidance around areas identified as potential implementation issues. These updates require a lessee to recognize in the balance sheet a liability to make lease payments and a corresponding right-of-use asset for virtually all leases, other than leases with a term of 12 months or less if the short-term lease exclusion expedient is ~~elected. The update also requires additional disclosures about the amount, timing, and uncertainty of cash flows arising from leases. The updates are~~ effective for ~~annual and interim periods~~public entities for fiscal years beginning after December 15, ~~2018,~~2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal ~~2020.~~2022. Early adoption is permitted for financial statements that have not been previously issued. In July 2018, the FASB issued ASU 2018-11 that provided either a modified retrospective transition approach with application in all comparative periods presented, or an alternative transition method, which permits a company to use its effective date as the date of initial application without restating comparative period financial statements (cumulative effect transition method).

We currently expect to implement the standard using the alternative cumulative effect transition method and elect the package of practical expedients under which we will not reassess the classification of our existing leases, reevaluate whether any expired or existing contracts are or contain leases or reassess initial direct costs under the new guidance. Additionally, we expect to elect lessee and lessor practical expedients to not separate non-lease components, such as common area maintenance and property taxes, from lease components. We also anticipate electing the short-term lease exemption from balance sheet recognition for all leases that qualify, and the land easement practical expedient that allows entities to elect not to assess whether existing land easements are, or contain, leases in accordance with ASC 842 when transitioning to the new leasing standard. We do not expect to elect the practical expedient that permits a reassessment of lease terms for existing leases. We are currently evaluating other practical expedients and elections specified in the guidelines.

We have commenced an analysis of the impact of the new lease guidance and developed a comprehensive plan for our implementation of the new guidance. The project plan includes analyzing the impact of the new guidance on our current lease contracts, reviewing the completeness of our existing lease portfolio, comparing our accounting policies under current accounting guidance to the new accounting guidance and identifying potential differences from applying the requirements of the new guidance to our lease contracts, and the evaluation of lease accounting tools to assist with the adoption and ongoing disclosures related to this new standard.

Under current accounting guidance for leases, we do not recognize an asset or liability created by operating leases where we are the lessee. We expect a material increase to our assets and liabilities on our consolidated balance sheet as a result of recognizing assets and liabilities for operating leases where we are the lessee on the date of initial application of the new guidance. The discounted minimum remaining rental payments will be the starting point for determining the right-of-use asset and lease liability. We had operating leases with undiscounted remaining rental payments of approximately $1,025.6 million as of December 26, 2018. Additionally, we expect to derecognize the deferred gain from the sale leaseback transactions through an opening retained earnings adjustment upon adoption using the cumulative effect transition method, and as of December 26, 2018, we had $270.6 million recorded in Other accrued liabilities (current portion) and Deferred gain on sale leaseback transactions (long-term portion) in the Consolidated Balance Sheets.

We are continuing to evaluate the impact of the new guidance on capital leases, as well as the impact of transition provisions under the new guidance on amounts recognized in connection with our previous application of acquisition accounting. We are also continuing to evaluate the impact that adoption of this guidance will have on our consolidated statements of operations.permitted. We do not expect the adoption of this ~~new~~ guidance to have a material impact onin the ~~amount or timing of our cash flows and liquidity.~~Consolidated Financial Statements.

~~15.~~16. SUBSEQUENT EVENTS

Revolver Net ~~Payments~~Borrowings

Net ~~borrowings~~payments of ~~$10.0~~$14.0 million were ~~drawn~~made on the revolving credit facility subsequent to the end of the second quarter of fiscal ~~2019.~~2020.

Dividend Declaration

On January ~~28, 2019~~27, 2020, our Board of Directors declared a quarterly dividend of ~~$0.38~~$0.38 per share to be paid on March ~~28, 2019~~26, 2020 to shareholders of record as of March ~~8, 2019~~6, 2020.

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ITEM 2. 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,~~Company, our operations, and our current operating environment. For an understanding of the significant factors that influenced our performance during the thirteen and twenty-six week periods ended December ~~26, 2018~~25, 2019 and December ~~27, 2017,~~26, 2018, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to the Consolidated Financial Statements (Unaudited) included in this quarterly report. All amounts ~~within the MD&A~~ are presented in millions unless otherwise specified.

OVERVIEW

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s^® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy^® (“Maggiano’s”) restaurant brands. At December ~~26, 2018~~,25, 2019, we owned, operated or franchised ~~1,685~~1,675 restaurants, consisting of ~~995~~ ~~company-owned~~1,117 Company-owned restaurants and ~~690~~558 franchised restaurants, located in the United States, ~~and~~ 3029 countries and two United States territories. Our two restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units. Aligning to our strategy, in the first quarter of fiscal 2020, we acquired 116 Midwest Chili’s restaurants from a franchise partner.

We are committed to strategies and a ~~company~~Company culture that we believe are centered on a guest experience which includes bringing back guests, growing long-term sales and profit ~~enhancing the guest experience~~ and engaging team members. Our strategies and culture 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 regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food. During fiscal 2018, we reduced our menu items by approximately one-third compared to the prior year, and focused on our core equities of burgers, ribs, fajitas and margaritas. This initiative improved kitchen efficiency and allowed our managers and cooks to deliver our food hotter and faster to our guests. We also invested in the quality of our food. As a result, our average delivery time in the dining room improved by approximately one minute during the fiscal year 2018 compared to the year before, and guests responded favorably to the changes. During fiscal 2019, we continue to focus on our core equities and improving guest satisfaction with our food.

We remain competitive with a flexible platform of our value offerings at both lunch and dinner and are committed to offering consistent, quality products at a price point that is compelling ~~every day value. During the latter half of fiscal 2018, we offered a promotional~~to our guests. Our “3 for $10” platform ~~that allowed~~allows guests to combine a starter, a non-alcoholic drink and an entrée for just ~~$10.00. We have evolved this promotion in fiscal 2019, now offering it every day as a~~$10.00 and is part of ~~our~~the every-day base menu. Additionally, we have continued our margarita of the month ~~platform~~promotion that started in fiscal ~~year~~ 2018 that features a ~~new~~premium-liquor margarita every month at an every-day value price of $5.00. We believe these and other value offers are increasing guest frequency and that few of our competitors can match these offers on a consistent basis. We ~~will~~ continue to seek opportunities to reinforce value and create interest for the Chili’s brand with new and varied offerings to further enhance sales and drive incremental traffic.

We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food. During fiscal 2019, we focused on our core equities of burgers, ribs, fajitas and margaritas, and improved guest satisfaction with our food and service by improving execution of our operations standards. In the first half of fiscal 2020 we have upgraded the quality of certain menu items, including the new made-to-order Chicky Chicky Bleu Sandwich, featuring the new upgraded quality chicken breast we have integrated into several of our menu items.

The Chili’s brand continues to leverage technology to improve convenience for our guests, and fiscal 2020 contains two full periods of results from our DoorDash partnership. In partnership with DoorDash, we leveraged technology so that DoorDash orders are sent directly into our point of sale system, creating a seamless guest experience and providing Chili’s a delivery service with an economic advantage over independent restaurants and other franchised casual dining chains. We believe that guests will continue to ~~create~~prefer more convenience and options that allow them to eat off-premise, and we plan to continue investments in our digital guest experience, carryout and delivery capabilities.

We have created a digital guest experience that we believe will help us engage our guests more effectively. Our loyalty database included more than 7.2 million active members as of December 25, 2019. We ~~relaunched~~further improved our My Chili’s Rewards program in fiscal 2018 and moved away from the points system that is characteristic of most retail and restaurant loyalty programs. With our new loyalty program we are able to give our loyalty members customized offersmarketing returns with those guests by offering targeted promotions tied to ~~their~~individual purchase behavior. We ~~anticipate that~~will continue to expand our database and digital marketing impact by making the guest loyalty programs ~~will be~~ a significant part of our marketing strategy going forward. We also have put greater emphasis on improving and advertising our To Go capabilities. In the second quarter of fiscal 2019, Chili’s grew its To Go business by 20.3% compared to the same quarter in the prior year. To Go sales were approximately 12.3% of total Chili’s To Go and dine-in sales by the end of the second quarter of fiscal 2019. We believe that guests will continue to prefer more convenience and options at Chili’s that allow them to eat at home or other off premises locations, and we plan to continue investments in our digital guest experience and To Go capabilities.

strategy.

We believe that improvements at our domestic Chili’s will have a significant impact on the business; however, our results will also benefit through additional contributions from Maggiano’s and our global Chili’s franchise business.

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In fiscal 2019, Maggiano’s opened ~~one~~its first franchise location in the Dallas Fort Worth International Airport, inand we anticipate the opening of our second ~~quarter of~~during fiscal ~~2019. Guests are responding favorably to the new Maggiano’s location, and we~~2020 at Dallas Love Field Airport. We intend to explore other opportunities to franchise Maggiano’s.

Maggiano’s ~~in additional airport locations. During~~continues to leverage technology. In the first half of fiscal ~~2019,~~2020, Maggiano’s has ~~been using technology~~begun testing electronic check presenters that facilitate a pay at the table option to provide convenience and ~~innovation in~~efficiency to guests and to increase digital guest engagement. Maggiano’s entered into an exclusive partnership with DoorDash. Our exclusive partnership creates a more affordable rate structure, making third party delivery more sustainable and efficient for the ~~front of the house~~brand to improve the accuracy of wait-time quotes to customers, and in the back of the house to improve labor efficiencies. Additionally, Maggiano’s has brought additional value to our carry out menu by offering customers the opportunity to “Double the Portion, Not the Price” by taking home a second portion of certain menu items for a reduced price. Guests also continue to show an increased preference for our carry out menu and delivery service.operate. In the second quarter of fiscal ~~2019,~~2020, our guests were given the ability to order directly through our Maggiano’s ~~grew its carry out business by 17.6% compared to~~website, in addition from the ~~same quarter in the prior year.~~DoorDash platforms.

Our global ~~Chili’s business continues~~franchisees continue to grow ~~with locations in 30 countries and two territories outside of~~ the ~~United States. Our international franchisees are expected to open between 26-30 new~~brand around the world, opening five restaurants in the second quarter of fiscal ~~2019,~~2020, including our first Chili’s restaurant in ~~China.~~Vietnam. We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and existing franchise partners.

The following table details the number of restaurant openings ~~and total restaurants open at period end and~~ during the thirteen and twenty-six week periods ended December 25, 2019 and December 26, 2018, ~~and December 27, 2017,~~ respectively, ~~and~~ total full year projected openings in fiscal ~~2019:~~2020, and the total restaurants open at each period end:


	Openings During the		Openings During the				Full Year Projected Openings	Openings During the		Openings During the		Full Year Projected Openings
	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended		Total Open Restaurants at		Full Year Projected Openings	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended				Total Open Restaurants at
	12/26/2018	12/27/2017	12/26/2018	12/27/2017	12/26/2018	12/27/2017	Fiscal 2019	December 25, 2019	December 26, 2018	December 25, 2019	December 26, 2018	Full Year Projected Openings	Fiscal 2020			December 25, 2019		December 26, 2018
Company-owned restaurants
Chili’s domestic	—	3	—	4	938	940	2-4	4	—	5	—	9-11			1,060		938
Chili’s international	—	—	—	—	5	5	—	—	—	—	—	—			5		5
Maggiano’s	—	—	—	1	52	52	—	—	—	—	—	—			52		52
Total company-owned	—	3	—	5	995	997	2-4
Total Company-owned								4	—	5	—	9-11			1,117		995
Franchise restaurants
Chili’s domestic	2	1	3	4	310	316	5	1	2	2	3	2-3			180		310
Chili’s international	6	9	10	19	379	369	26-30	5	6	16	10	27-32			377		379
Maggiano’s	1	—	1	—	1	—	1	—	1	—	1	1			1		1
Total franchise	9	10	14	23	690	685	32-36	6	9	18	14	30-36			558		690
Total restaurants
Chili’s domestic	2	4	3	8	1,248	1,256	7-9	5	2	7	3	11-14			1,240		1,248
Chili’s international	6	9	10	19	384	374	26-30	5	6	16	10	27-32			382		384
Maggiano’s	1	—	1	1	53	52	1	—	1	—	1	1			53		53
Grand total	9	13	14	28	1,685	1,682	34-40	10	9	23	14	39-47			1,675		1,685

~~In fiscal 2019, we plan to relocate a total of five company-owned restaurants. We relocated~~ ~~one company-owned restaurant in the thirteen week period ended December 26, 2018 and three company-owned restaurants in the twenty-six week period ended December 26, 2018. Relocations are not included in the above table.~~During the twenty-six week period ended December ~~26, 2018,~~25, 2019, we ~~sold and subsequently leased back 145~~acquired 116 Chili’s restaurants located in the Midwest United States previously owned by a franchisee. The acquisition of these restaurants is not reflected in Openings During the thirteen and twenty-six week periods ended December 25, 2019 or Full Year Projected Openings total as they are existing restaurant ~~properties.~~ locations transitioning ownership. These acquired restaurants are included in Total Open Restaurants at December 25, 2019 within the total for Company-owned restaurants Chili’s domestic.

Relocations are not included in the table above. During the twenty-six week period ended December 25, 2019 we have not relocated any Company-owned restaurants, however we plan to relocate 0-2 during the remainder of fiscal 2020.

At December ~~26, 2018,~~25, 2019, we ~~owned land and buildings~~own property for 5043 of the ~~995 company-owned~~1,117 Company-owned restaurants. The ~~net~~related book values ~~of the land totaled $41.3 million and the buildings totaled $25.8 million~~ associated with these ~~restaurants.~~restaurants included land of $34.1 million and buildings of $15.8 million.

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RESULTS OF OPERATIONS

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


	Thirteen Week Periods Ended				Twenty-Six Week Periods Ended				Thirteen Week Periods Ended				Twenty-Six Week Periods Ended
	December 26, 2018		December 27, 2017		December 26, 2018		December 27, 2017		December 25, 2019		December 26, 2018		December 25, 2019		December 26, 2018
Revenues
Company sales	96.3	%	96.9	%	96.5	%	96.9	%	97.5	%	96.3	%	97.3	%	96.5	%
Franchise and other revenues	3.7	%	3.1	%	3.5	%	3.1	%	2.5	%	3.7	%	2.7	%	3.5	%
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Operating costs and expenses
Company restaurants (excluding depreciation and amortization)
Cost of sales⁽¹⁾	26.4	%	26.0	%	26.4	%	26.1	%	26.3	%	26.4	%	26.5	%	26.4	%
Restaurant labor⁽¹⁾	34.2	%	33.7	%	34.7	%	34.3	%	34.4	%	34.2	%	34.8	%	34.7	%
Restaurant expenses⁽¹⁾	27.0	%	25.4	%	27.1	%	25.8	%	26.6	%	27.0	%	26.8	%	27.1	%
Company restaurant expenses⁽¹⁾	87.6	%	85.1	%	88.2	%	86.2	%	87.3	%	87.6	%	88.1	%	88.2	%
Depreciation and amortization	4.6	%	4.9	%	4.7	%	5.1	%	4.5	%	4.6	%	4.7	%	4.7	%
General and administrative	4.5	%	4.3	%	4.5	%	4.3	%	4.0	%	4.5	%	4.4	%	4.5	%
Other (gains) and charges	0.3	%	1.2	%	(0.6	)%	1.5	%	1.4	%	0.3	%	0.7	%	(0.6	)%
Total operating costs and expenses	93.7	%	92.9	%	93.8	%	94.5	%	95.0	%	93.7	%	95.5	%	93.8	%
Operating income	6.3	%	7.1	%	6.2	%	5.5	%	5.0	%	6.3	%	4.5	%	6.2	%
Interest expense	2.0	%	1.9	%	2.0	%	1.9	%
Interest expenses									1.8	%	2.0	%	1.8	%	2.0	%
Other (income), net	(0.1	)%	(0.2	)%	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%	(0.1	)%
Income before provision for income taxes	4.4	%	5.4	%	4.3	%	3.7	%	3.3	%	4.4	%	2.8	%	4.3	%
Provision for income taxes	0.4	%	2.1	%	0.5	%	1.4	%	0.1	%	0.4	%	0.2	%	0.5	%
Net income	4.0	%	3.3	%	3.8	%	2.3	%	3.2	%	4.0	%	2.6	%	3.8	%

(1)As a percentage of Company sales.

~~REVENUES~~Revenues

~~Transition~~Thirteen and Twenty-Six Week Periods Ended December 25, 2019 compared to ~~New Revenue Recognition Accounting Standard~~December 26, 2018

~~Effective June 28, 2018, our first quarter of fiscal 2019, we adopted FASB Accounting Standards Codification (“ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”), from the previous guidance ASC Topic 605,~~ ~~Revenue Recognition~~ ~~and ASC Subtopic 952-605, Franchisors - Revenue Recognition (together, “Legacy GAAP”). Our transition to ASC 606 represents a change in accounting principle. Our~~ ~~Consolidated Financial Statements~~ ~~for the second quarter and year-to-date periods of fiscal 2019 reflect the application of ASC 606 guidance using the modified retrospective transition method, while our~~ ~~Consolidated Financial Statements~~ ~~for prior periods were prepared under Legacy GAAP.~~ ~~Please refer to Note 2 - Revenue Recognition for further details of our adoption of ASC 606 and our policies for recognition of revenues from contracts with customers.~~ The most significant effect of the transition to ASC 606 that affect the comparability of our results of operations between fiscal 2019 (reported under ASC 606) and fiscal 2018 (reported under Legacy GAAP) include the following:

•

~~Advertising Fees~~ ~~Franchise and other revenues. Under Legacy GAAP, the advertising funds received from franchisees were considered a reimbursement of advertising expenses and were presented on a net basis as a reduction to advertising expenses in~~ ~~Restaurant expenses in the Consolidated Statements of Comprehensive Income.~~- Domestic franchisees are contractually obligated to contribute into certain advertising and marketing funds. The adoption of ASC 606 did not impact the timing of revenue recognition of the advertising fees received; however, effective first quarter of fiscal 2019, advertising fees are now presented on a gross basis within ~~Franchise and other revenues. Under Legacy GAAP, the advertising funds received from franchisees were~~

~~considered a reimbursement of advertising expenses and were presented on a net basis as a reduction to advertising expenses in~~ ~~Restaurant expenses in the Consolidated Statements of Comprehensive Income.~~

The adoption of ASC 606 changed the recognition timing of our initial development and franchise fees, and gift card breakage income as noted below. The recognition timing change did not have a significant impact to our results of operations during the first two quarters of fiscal 2019:

•

Under Legacy GAAP, development fees were recognized as income upon the execution of the agreement, when development rights were conveyed to the franchisee. Franchise fees were recognized as income when the obligations under the franchise agreement were satisfied, generally upon the opening of the new franchise restaurant.

•

~~Revenue Results~~

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income to provide more clarity around ~~company-owned~~Company-owned restaurant revenues and operating ~~expense trends. Total revenues are further disaggregated as follows:~~ expenses trends:


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

•

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

Table of company-owned restaurants including gift card redemptions. Franchise and other revenues include Royalties from franchisees and Franchise fees and other revenues which contains advertising fees, franchise and development fees, Maggiano’s banquet service charge income, gift card breakage and discounts, digital entertainment revenues, Chili’s retail food product royalties, merchandise and delivery fee income.Contents

The following is a summary of the change in Total ~~revenues for the thirteen and twenty-six week periods ended December 26, 2018 compared to the thirteen and twenty-six week periods ended December 27, 2017, respectively:~~revenues:

Total Revenues
Thirteen Week Period Twenty-Six Week Period
For the period ended December 27, 2017 (Legacy GAAP) $ 766.4
$ 1,505.8
Change from:
Restaurant closings (1.7 ) (6.2 )
Restaurant openings 1.1
4.7
Comparable restaurant sales 19.4
31.7
Company sales 18.8
30.2
Royalties (0.2 ) (0.3 )
Franchise fees and other revenues 5.7
8.8
For the period ended December 26, 2018 (ASC 606) $ 790.7
$ 1,544.5

Total revenues in the thirteen week period ended December 26, 2018 increased 3.2% to $790.7 million from the $766.4 million generated in the thirteen week period ended December 27, 2017 primarily driven by a $19.4 million increase in comparable restaurant sales and a net increase of $5.8 million in Franchise fees and other revenues related to the ASC 606 adoption. Total revenues in the twenty-six week period ended December 26, 2018 increased 2.6% to $1,544.5 million from the $1,505.8 million generated in the twenty-six week period ended December 27, 2017 primarily driven by a $31.7 million increase in comparable restaurant sales and a net increase of $10.6 million in Franchise fees and other revenues related to the impact of ASC 606 adoption.

Royalties decreased 1.5% to $13.2 million in the thirteen week period ended December 26, 2018 compared to $13.4 million in the thirteen week period ended December 27, 2017. Royalties are based on franchise sales, our franchisees generated approximately $325.5 million in sales for the thirteen week period ended December 26, 2018 compared to $324.0 million in sales for the thirteen week period ended December 27, 2017. Royalties decreased 1.1% to $26.1 million in the twenty-six week period ended December 26, 2018 compared to $26.4 million in the twenty-six week period ended December 27, 2017. Our franchisees generated approximately $645.3 million in sales for the twenty-six week period ended December 26, 2018 compared to $640.0 million in sales for the twenty-six week period ended December 27, 2017.

Franchise fees and other revenues increased 55.3% to $16.0 million in the thirteen week period ended December 26, 2018 compared to $10.3 million in the thirteen week period ended December 27, 2017 primarily due $5.2 million of advertising fees presented gross with the adoption of ASC 606, and higher gift card related revenues. Franchise fees and other revenues increased 44.4% to $28.6 million in the twenty-six week period ended December 26, 2018 compared to $19.8 million in the twenty-six week period ended December 27, 2017 primarily due $10.3 million of advertising fees presented gross with the adoption of ASC 606, partially offset by lower retail royalty revenues and digital entertainment revenues. During the thirteen and twenty-six week periods ended December 27, 2017, advertising contributions of $5.5 million and $10.8 million from franchisees were recorded net within Restaurant expenses, respectively.

The tables below present the percent change in Comparable restaurant sales and capacity for the thirteen and twenty-six week periods ended December 26, 2018 compared to the thirteen and twenty-six week periods ended December 27, 2017, respectively:



	Total Revenues
	Chili’s			Maggiano’s			Total Revenues
Thirteen Week Period Ended December 26, 2018	$	662.3		$	128.4		$	790.7
Change from:
Restaurant closings	(2.5		)	—			(2.5		)
Restaurant openings	4.7			—			4.7
Restaurant relocations	0.1			—			0.1
Restaurant acquisition⁽¹⁾	70.9			—			70.9
Comparable restaurant sales	14.6			(1.8		)	12.8
Company sales	87.8			(1.8		)	86.0
Royalties⁽¹⁾⁽²⁾	(3.3		)	0.0			(3.3		)
Franchise fees and other revenues	(3.7		)	(0.4		)	(4.1		)
Franchise and other revenues	(7.0		)	(0.4		)	(7.4		)
Thirteen Week Period Ended December 25, 2019	$	743.1		$	126.2		$	869.3

Percent Change in the Thirteen Weeks Ended December 26, 2018 versus December 27, 2017

Comparable
Sales ⁽¹⁾
Price Impact
Mix-Shift ⁽²⁾
Traffic
Restaurant Capacity ⁽³⁾
Company-owned 2.7 % 1.0 % (1.1 )% 2.8 % (0.3 )%
Chili’s 2.9 % 0.9 % (0.9 )% 2.9 % (0.3 )%
Maggiano’s 1.8 % 1.2 % (0.7 )% 1.3 % 0.0 %
Chili’s Franchise ⁽⁴⁾
(0.8 )%
U.S. 3.4 %
International (6.5 )%
Chili’s Domestic ⁽⁵⁾
3.0 %
System-wide ⁽⁶⁾
1.8 %

Percent Change in the Twenty-Six Weeks Ended December 26, 2018 versus December 27, 2017

Comparable
Sales ⁽¹⁾
Price Impact
Mix-Shift ⁽²⁾
Traffic
Restaurant Capacity ⁽³⁾
Company-owned 2.2 % 0.6 % (1.6 )% 3.2 % (0.4 )%
Chili’s 2.4 % 0.5 % (1.6 )% 3.5 % (0.4 )%
Maggiano’s 1.0 % 1.7 % (0.5 )% (0.2 )% (0.7 )%
Chili’s Franchise ⁽⁴⁾
(0.4 )%
U.S. 2.3 %
International (4.8 )%
Chili’s Domestic ⁽⁵⁾
2.4 %
System-wide ⁽⁶⁾
1.5 %



	Total Revenues
	Chili’s			Maggiano’s			Total Revenues
Twenty-Six Week Period Ended December 26, 2018	$	1,324.1		$	220.4		$	1,544.5
Change from:
Restaurant closings	(3.9		)	—			(3.9		)
Restaurant openings	9.3			—			9.3
Restaurant relocations	0.7			—			0.7
Restaurant acquisition⁽¹⁾	86.2			—			86.2
Comparable restaurant sales	32.7			(3.4		)	29.3
Company sales	125.0			(3.4		)	121.6
Royalties⁽¹⁾⁽²⁾	(4.4		)	0.1			(4.3		)
Franchise fees and other revenues	(6.0		)	(0.5		)	(6.5		)
Franchise and other revenues	(10.4		)	(0.4		)	(10.8		)
Twenty-Six Week Period Ended December 25, 2019	$	1,438.7		$	216.6		$	1,655.3


⁽¹⁾	Effective September 5, 2019, we are no longer receiving royalties on the 116 Midwest Chili’s locations we acquired that were previously franchised. These restaurants are now contributing Company sales for the thirteen week period ended December 25, 2019, and the sixteen week period owned during the twenty-six week period ended December 25, 2019.


⁽²⁾	Royalties are based on franchise sales. Our franchisees generated approximately $247.4 million and $545.8 million in sales for the thirteen and twenty-six week periods ended December 25, 2019, respectively, compared to $325.5 million and $645.3 million in sales for the thirteen and twenty-six week periods ended December 26, 2018, respectively.

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The table below presents the percentage change in Comparable restaurant sales and Restaurant capacity:



	Percentage Change in the Thirteen Week Period Ended December 25, 2019 versus December 26, 2018
	Comparable Restaurant Sales⁽¹⁾		Price Impact		Mix-Shift⁽²⁾		Traffic		Restaurant Capacity⁽³⁾
Company-owned⁽⁴⁾	1.5	%	1.4	%	0.3	%	(0.2	)%	12.5	%
Chili’s⁽⁴⁾	2.0	%	1.4	%	0.5	%	0.1	%	13.2	%
Maggiano’s	(1.4	)%	1.4	%	0.0	%	(2.8	)%	0.0	%
Chili’s Franchise⁽⁴⁾⁽⁵⁾	(0.4	)%
U.S.⁽⁴⁾	0.2	%
International	(0.9	)%
Chili’s Domestic⁽⁴⁾⁽⁶⁾	1.7	%
System-wide⁽⁴⁾⁽⁷⁾	1.0	%



	Percentage Change in the Twenty-Six Week Period Ended December 25, 2019 versus December 26, 2018
	Comparable Restaurant Sales⁽¹⁾		Price Impact		Mix-Shift⁽²⁾		Traffic		Restaurant Capacity⁽³⁾
Company-owned⁽⁴⁾	1.9	%	1.7	%	0.4	%	(0.2	)%	7.8	%
Chili’s⁽⁴⁾	2.4	%	1.8	%	0.5	%	0.1	%	8.3	%
Maggiano’s	(1.6	)%	1.3	%	0.0	%	(2.9	)%	0.0	%
Chili’s Franchise⁽⁴⁾⁽⁵⁾	(0.3	)%
U.S.⁽⁴⁾	0.3	%
International	(1.0	)%
Chili’s Domestic⁽⁴⁾⁽⁶⁾	2.0	%
System-wide⁽⁴⁾⁽⁷⁾	1.3	%


⁽¹⁾	Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months, except restaurants acquired by the Company from franchisees are not included until they have been Company-owned for more than 12 months. Amounts are calculated based on comparable current period ~~verses~~versus same period a year ago.


⁽²⁾	~~Mix-shift~~Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests.


⁽³⁾	Restaurant ~~capacity for restaurants~~Capacity is measured by sales weeks. Amounts are calculated based on comparable current period ~~verses~~versus same period a year ago. Chili’s Company-owned Restaurant Capacity increased in fiscal 2020 primarily related to the addition of the 116 Chili’s restaurants acquired in the first quarter of fiscal 2020.


⁽⁴⁾	Chili’s Company-owned Comparable Restaurant Sales excludes the impact from the 116 Chili’s restaurants acquired in the thirteen week period ended September 25, 2019. Chili’s Franchise U.S. Comparable Restaurant Sales includes sales from these 116 acquired restaurants until the September 5, 2019 acquisition date.

⁽⁵⁾

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


⁽⁵⁾	~~Chili’s domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated Chili’s restaurants in the United States.~~ operations.


⁽⁶⁾	~~System-wide comparable restaurant sales~~Chili’s Domestic Comparable Restaurant Sales percentages are derived from sales generated by ~~company-owned~~Company-owned and franchise-operated Chili’s restaurants in the United States.


⁽⁷⁾	System-wide Comparable Restaurant Sales are derived from sales generated by Company-owned Chili’s and Maggiano’s restaurants in addition to the sales generated at franchise-operated Chili’s restaurants.

~~Please see further discussion~~Table of ~~revenues for our Chili’s and Maggiano’s segments below in~~ Contents~~SEGMENT RESULTS~~.

Costs and Expenses

~~COSTS AND EXPENSES~~

Thirteen Week ~~Periods Ended~~Period December ~~26, 2018~~25, 2019 compared to December ~~27, 2017~~26, 2018

The following is a summary of the change in ~~costs~~Costs and Expenses:



	Thirteen Week Periods Ended										(Favorable) Unfavorable Variance
	December 25, 2019					December 26, 2018					(Favorable) Unfavorable Variance
	Dollars			% of Company sales		Dollars			% of Company sales		Dollars			% of Company sales
Cost of sales	$	223.1		26.3	%	$	200.9		26.4	%	$	22.2		(0.1	)%
Restaurant labor	291.8			34.4	%	260.8			34.2	%	31.0			0.2	%
Restaurant expenses	224.7			26.6	%	205.7			27.0	%	19.0			(0.4	)%
Depreciation and amortization	39.3					36.1					3.2
General and administrative	34.6					35.4					(0.8		)
Other (gains) and charges	12.3					2.2					10.1
Interest expenses	15.0					15.4					(0.4		)
Other (income), net	(0.5		)			(0.8		)			0.3

Cost of sales, as a percentage of Company sales, decreased 0.1% consisting of 0.5% of increased menu pricing, partially offset by 0.2% of unfavorable commodity pricing primarily related to beef and dairy and 0.2% of unfavorable menu item mix.

Restaurant labor, as a percentage of Company sales, increased 0.2%, that primarily consisted of 0.7% of higher hourly labor wages and taxes, partially offset by 0.3% of sales leverage and other, and 0.2% of lower employee health insurance expenses.

Restaurant expenses, as a percentage ofCompany sales, decreased 0.4% that primarily consisted of 0.9% of sales leverage and favorable other net various restaurant expenses, partially offset by 0.5% of expenses related to growth in off-premise.

Depreciation and amortization increased $3.2 million primarily due to $4.5 million in existing and new restaurant additions mostly related to the Chili’s remodel initiative, $2.5 million of additional depreciation and amortization expenses related to the acquisition of 116 Chili’s restaurants, $1.4 million additional depreciation for the new corporate headquarters and $1.2 million in other net depreciation and amortization expenses increases. These increases were partially offset by $6.4 million related to fully depreciated assets and retirements.

General and administrative expenses decreased $0.8 million as follows:



	General and Administrative
Thirteen Week Period Ended December 26, 2018	$	35.4
Change from:
Stock-based compensation⁽¹⁾	(1.1		)
Professional and legal fees	(1.0		)
Rent expenses⁽²⁾	0.9
Performance-based compensation	0.2
Other	0.2
Thirteen Week Period Ended December 25, 2019	$	34.6


⁽¹⁾	Stock-based compensation decreasedprimarily related to the acceleration of stock-based compensation expenses for retirement eligible executives. Retirement eligibility results in the compensation being recognized in full upon grant as there is no vesting period. Our grants typically occur in the first quarter of the fiscal year.

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In fiscal 2019, these expenses were recorded over multiple periods as retirement eligibility requirements were not met until the fourth quarter.


⁽²⁾	Rent expenses increased primarily related to costs associated with the new corporate headquarters.

Other (gains) and charges primarily included the transactions below, for further details, refer to Note 5 - Other Gains and Charges:



	Thirteen Week Periods Ended
	December 25, 2019		December 26, 2018
Restaurant impairment charges	$	4.6	$	1.0
Restaurant closure charges	2.9		2.1
Acquisition of franchise restaurants costs, net of (gains)	2.0		—
Remodel-related costs	0.8		2.6
Sale leaseback (gain), net of transaction charges	—		(4.4		)
Other	2.0		0.9
	$	12.3	$	2.2

Interest expenses decreased $0.4 million consisting of lower average borrowing balances and lower interest rates on our revolving credit facility in the thirteen week period ended December ~~26, 2018~~25, 2019, partially offset by higher interest expenses related to the new real estate leases acquired from the 116 Chili’s restaurant acquisition.

Twenty-Six Week Period Ended December 25, 2019 compared to December 26, 2018

The following is a summary of the ~~thirteen week period ended December 27, 2017:~~change in Costs and Expenses:


	Thirteen Week Periods Ended										(Favorable) Unfavorable Variance					Twenty-Six Week Periods Ended										(Favorable) Unfavorable Variance
	December 26, 2018					December 27, 2017										December 25, 2019					December 26, 2018
	Dollars			% of Company Sales		Dollars			% of Company Sales		Dollars			% of Company Sales		Dollars			% of Company sales		Dollars			% of Company sales		Dollars			% of Company sales
Cost of sales	$	200.9		26.4	%	$	192.9		26.0	%	$	8.0		0.4	%	$	426.9		26.5	%	$	392.8		26.4	%	$	34.1		0.1	%
Restaurant labor	260.8			34.2	%	250.4			33.7	%	10.4			0.5	%	560.3			34.8	%	517.1			34.7	%	43.2			0.1	%
Restaurant expenses	205.7			27.0	%	188.6			25.4	%	17.1			1.6	%	432.0			26.8	%	404.7			27.1	%	27.3			(0.3	)%
Depreciation and amortization	36.1					37.7					(1.6		)			77.4					73.1					4.3
General and administrative	35.4					33.1					2.3					72.6					69.2					3.4
Other (gains) and charges	2.2					9.3					(7.1		)			11.4					(8.9		)			20.3
Interest expense	15.4					14.3					1.1
Interest expenses																29.9					31.0					(1.1		)
Other (income), net	(0.8		)			(1.0		)			0.2					(1.0		)			(1.6		)			0.6

Cost of sales, as a percentage of Company sales, increased ~~0.4%~~0.1%, consisting of ~~0.7%~~0.4% of unfavorable ~~menu mix,~~commodity pricing primarily related to produce and 0.2% of unfavorable ~~commodity pricing related to produce and bakery,~~menu item mix, partially offset by ~~0.4%~~0.5% of increased menu ~~pricing and 0.1% of other favorable cost of sales expenses.~~pricing.

Restaurant labor, as a percentage of Company sales, increased ~~0.5% consisting~~0.1%, that primarily consisted of ~~1.2%~~0.5% of higher hourly labor wage rates and ~~employee health insurance expenses, and 0.3% higher bonus expense,~~taxes, partially offset by ~~0.8%~~0.2% of sales leverage and other, and 0.2% of ~~other favorable restaurant labor~~lower employee health insurance expenses.

Restaurant expenses, as a percentage of Company sales, ~~increased 1.6% consisting~~decreased 0.3% that primarily consisted of ~~1.1%~~0.9% of ~~increased operating lease~~sales leverage and favorable other net various restaurant expenses, partially offset by 0.6% of expenses related to growth in off-premise.

Depreciation and amortization increased$4.3 millionprimarily due to $10.5 million in existing and new restaurant additions mostly related to the ~~sale leaseback transactions, 0.5%~~Chili’s remodel initiative, $3.2 million of ~~higher advertising~~additional depreciation and ~~marketing~~amortization

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expenses related to the acquisition of 116 Chili’s restaurants, $2.8 million related to additional depreciation for the new corporate headquarters and $0.4 million in other net depreciation and amortization expenses ~~primarily from the adoption of ASC 606, 0.5% of higher supplies and offices costs expenses and 0.1% of other unfavorable restaurant expenses.~~increases. These increases were partially offset by ~~0.6% of sales leverage.~~

~~Depreciation and amortization~~ ~~decreased $1.6 million primarily consisting of a decrease of $4.4~~$12.6 million related to fully depreciated assets and restaurant closures, $2.4 million in reduced depreciation from the sale of assets in connection with the sale leaseback transactions, and $0.2 million in other favorable depreciation expenses. These decreases were partially offset by $3.9 million of incremental depreciation for existing restaurants primarily related to the Chili’s remodel initiative, $1.0 million related to the change of estimated useful lives of certain long-lived restaurant assets, and $0.5 million of new restaurants additions.retirements.

General and administrative ~~expenses~~expenses increased ~~$2.3~~$3.4 million asas follows:

General and Administrative
Thirteen Week Period Ended December 27, 2017 $ 33.1
Change from
Stock-based compensation 0.9
Legal and professional fees 0.9
Incentive compensation 0.4
Payroll related expenses 0.4
Other (0.3 )
Thirteen Week Period Ended December 26, 2018 $ 35.4



	General and Administrative
Twenty-Six Week Period Ended December 26, 2018	$	69.2
Change from:
Stock-based compensation⁽¹⁾	2.3
Rent expenses⁽²⁾	1.8
Professional and legal fees	(0.8		)
Performance-based compensation	(0.1		)
Other	0.2
Twenty-Six Week Period Ended December 25, 2019	$	72.6

⁽¹⁾

Stock-based compensation increasedprimarily related to the acceleration of stock-based compensation expenses for retirement eligible executives. Retirement eligibility results in the compensation being recognized in full upon grant as there is no vesting period. Our grants typically occur in the first quarter of the fiscal year. In fiscal 2019, these expenses were recorded over multiple periods as retirement eligibility requirements were not met until the fourth quarter.


⁽²⁾	Rent expenses increased primarily related to costs associated with the new corporate headquarters.

Other (gains) and charges primarily included the transactions below, ~~transactions,~~ for further details, ~~please see~~refer to Note 65 - Other Gains and Charges:

Sale leaseback (gain), net of transaction charges included net gain of $4.4 million recorded in the thirteen week period ended December 26, 2018 net of professional fees for brokers, legal, due diligence, and other professional service firms in connection with the sale leaseback transactions of four Chili’s restaurant properties.

Gain on sale of assets, net included $0.8 million recorded in the thirteen week period ended December 26, 2018 from the sale of land in Scottsdale, AZ and Pensacola, FL. Gain on sale of assets, net included gain of $0.3 million recorded in the thirteen week period ended December 27, 2017 primarily from the sale of the Mexico joint venture.

~~Remodel-related costs included $2.6 million of write-offs in the thirteen week period ended December 26, 2018 associated with the Chili’s remodel project.~~

Restaurant closure charges included $2.1 million and $4.3 million in the thirteen week periods ended December 26, 2018 and December 27, 2017, respectively, for lease termination charges and other costs associated with the closure of certain restaurant locations.

Restaurant impairment charges included $1.0 million and $2.0 million in the thirteen week periods ended December 26, 2018 and December 27, 2017, respectively, related to certain underperforming restaurants.


•	Foreign currency transaction (gain)/loss included expenses of $0.7 million and $0.9 million in the thirteen week periods ended December 26, 2018 and December 27, 2017, respectively, due to the decline ~~in value of the Mexican peso as compared to the U.S. dollar on our CMR Mexican peso denominated note receivable~~ ~~in both respective periods.~~

~~Lease guarantee charges included $1.4 million in the thirteen week period ended December 27, 2017 related to leases that were assigned to a divested brand.~~



	Twenty-Six Week Periods Ended
	December 25, 2019			December 26, 2018
Restaurant impairment charges	$	4.6		$	1.0
Restaurant closure charges	3.1			3.8
Remodel-related costs	1.5			3.1
Acquisition of franchise restaurants costs, net of (gains)	1.5			—
Lease modification net charge (gain)	(3.1		)	—
Sale leaseback (gain), net of transaction charges	—			(17.7		)
Other	3.8			0.9
	$	11.4		$	(8.9	)

Interest ~~expense~~expenses ~~increased~~decreased $1.1 million consisting of ~~higher~~lower average borrowing balances and ~~a higher~~lower interest rate on our revolving credit facility in the thirteen week period ended December 26, 2018, partially offset by the matured $250.0 million 2.60% notes that were repaid during the fourth quarter of fiscal 2018.

~~Twenty-Six Week Periods Ended December 26, 2018 compared to December 27, 2017~~

~~The following is a summary of the change in costs and expenses for the twenty-six week period ended December 26, 2018 compared to the twenty-six week period ended December 27, 2017:~~

Twenty-Six Week Periods Ended (Favorable) Unfavorable Variance
December 26, 2018 December 27, 2017
Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales
Cost of sales $ 392.8
26.4 % $ 380.5
26.1 % $ 12.3
0.3 %
Restaurant labor 517.1
34.7 % 501.5
34.3 % 15.6
0.4 %
Restaurant expenses 404.7
27.1 % 376.7
25.8 % 28.0
1.3 %
Depreciation and amortization 73.1
76.2
(3.1 )
General and administrative 69.2
65.4
3.8

Other (gains) and charges (8.9 ) 22.5
(31.4 )
Interest expense 31.0
28.2
2.8

Other (income), net (1.6 ) (1.5 ) (0.1 )

~~Cost of sales~~ ~~as a percentage of Company sales increased 0.3% consisting of 0.6% of unfavorable menu mix and 0.1% of other, partially offset by 0.4% of increased menu pricing.~~

~~Restaurant labor~~ ~~as a percentage of Company sales increased 0.4% consisting of 1.1% of higher wage~~ rates ~~and employee health insurance expenses, partially offset by 0.7% of sales leverage.~~

~~Restaurant expenses~~ as a percentage of Company sales increased 1.3% consisting of 0.9% of increased operating lease expenses primarily related to the sale leaseback transactions, 0.5% of higher advertising and marketing related expenses primarily from the adoption of ASC 606, 0.3% of higher supplies and offices costs expenses and 0.2% of higher repairs and maintenance expenses. These increases were partially offset by 0.5% of sales leverage and 0.1% of other favorable restaurant expenses.

~~Depreciation and amortization~~ decreased $3.1 million primarily consisting of a decrease of $8.8 million related to fully depreciated assets and restaurant closures, $3.5 million in reduced depreciation from the sale of assets in connection with the sale leaseback transactions, and $0.6 million in other favorable depreciation expenses. These decreases were partially offset by $7.1 million of incremental depreciation for existing restaurants primarily related to the Chili’s remodel initiative, $1.6 million related to the change of estimated useful lives of certain long-lived restaurant assets, and $1.1 million of new restaurants additions.

~~General and administrative expenses~~ ~~increased $3.8 million as follows:~~

General and Administrative
Twenty-Six Week Period Ended December 27, 2017 $ 65.4
Change from
Legal and professional fees 1.5
Payroll related expenses 1.1
Stock-based compensation 0.9
Incentive compensation 0.3
Twenty-Six Week Period Ended December 26, 2018 $ 69.2

~~Other (gains) and charges~~ ~~included the below transactions, for further details, please see Note 6 - Other Gains and Charges:~~

Sale leaseback (gain), net of transaction charges included a net gain of $17.7 million recorded in the twenty-six week period ended December 26, 2018 net of professional fees for brokers, legal, due diligence, and other professional service firms in connection with the sale leaseback transactions of 145 Chili’s restaurant properties.

Gain on sale of assets, net included $0.8 million recorded in the twenty-six week period ended December 26, 2018 from the sale of land in Scottsdale, AZ and Pensacola, FL. Gain on sale of assets, net included gain of $0.3 million recorded in the twenty-six week period ended December 27, 2017 primarily from the sale of the Mexico joint venture.

~~Remodel-related costs included $3.1 million of write-offs in the twenty-six week period ended December 26, 2018 associated with the Chili’s remodel project.~~

Restaurant closure charges included $3.8 million and $4.5 million in the twenty-six week periods ended December 26, 2018 and December 27, 2017, respectively, for lease termination charges and other costs associated with the closure of certain restaurant locations.

Restaurant impairment charges included $1.0 million in the twenty-six week period ended December 26, 2018 related to certain underperforming restaurants. Restaurant impairment charges included expenses of $9.2 million in the twenty-six week period ended December 27, 2017 primarily related to the nine underperforming Chili’s restaurants located in Alberta, Canada.

Foreign currency transaction (gain)/loss included a gain of $0.1 million and expenses of $0.9 million in the twenty-six week periods ended December 26, 2018 and December 27, 2017, respectively, due to the change

~~in value of the Mexican peso as compared to the U.S. dollar on our CMR Mexican peso denominated note receivable~~ ~~in both respective periods.~~

Property damages, net of (insurance recoveries) included a net gain of $0.6 million in the twenty-six week period ended December 26, 2018 related to insurance proceeds received related to a previously filed fire claim, net of expenses associated with storm damages at certain restaurant locations. Property damages, net of (insurance recoveries) included expenses of $5.1 million in the twenty-six week period ended December 27, 2017 due to costs associated with employee relief payments and inventory spoilage from Hurricanes Harvey and Irma.

~~Lease guarantee charges included $1.4 million in the twenty-six week period ended December 27, 2017 related to leases that were assigned to a divested brand.~~

~~Cyber security incident charges included $0.4 million in the twenty-six week period ended December 26, 2018 related to professional service costs associated with the fiscal 2018 incident.~~

~~Interest expense~~ ~~increased $2.8 million consisting of higher average borrowing balances and a higher interest rate~~ on our revolving credit facility in the twenty-six week period ended December ~~26, 2018,~~25, 2019, partially offset by higher interest expenses related to the ~~matured $250.0 million 2.60% notes that were repaid during~~new real estate leases from the ~~fourth quarter~~acquisition of ~~fiscal 2018.~~the 116 Chili’s restaurants on September 5, 2019.

~~SEGMENT RESULTS~~Table of Contents

Segment Results

Chili’s Segment


	Thirteen Week Periods Ended				Favorable (Unfavorable) Variance			Twenty-Six Week Periods Ended					Favorable (Unfavorable) Variance
	December 26, 2018		December 27, 2017					December 26, 2018			December 27, 2017					Thirteen Week Periods Ended						Favorable (Unfavorable) Variance			Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	ASC 606		Legacy GAAP					ASC 606			Legacy GAAP					December 25, 2019			December 26, 2018						December 25, 2019			December 26, 2018
Company sales	$	640.6	$	623.6	$	17.0		$	1,280.9		$	1,251.2	$	29.7		$	728.4		$	640.6		$	87.8		$	1,405.9		$	1,280.9		$	125.0
Royalties	13.2		—		13.2			26.1			—		26.1			9.9			13.2			(3.3		)	21.7			26.1			(4.4		)
Franchise fees and other revenues	8.5		16.5		(8.0		)	17.1			34.8		(17.7		)	4.8			8.5			(3.7		)	11.1			17.1			(6.0		)
Franchise and other revenues																14.7			21.7			(7.0		)	32.8			43.2			(10.4		)
Total revenues	662.3		640.1		22.2			1,324.1			1,286.0		38.1			743.1			662.3			80.8			1,438.7			1,324.1			114.6

Company restaurant expenses ⁽¹⁾	567.1		533.9		(33.2		)	1,130.2			1,075.3		(54.9		)	640.3			567.1			(73.2		)	1,236.6			1,130.2			(106.4		)
Depreciation and amortization	29.5		31.0		1.5			60.0			62.8		2.8			32.1			29.5			(2.6		)	62.8			60.0			(2.8		)
General and administrative	9.1		9.3		0.2			17.9			18.9		1.0			8.5			9.1			0.6			17.6			17.9			0.3
Other gains and charges	1.4		5.9		4.5			(10.9		)	18.0		28.9			10.6			1.4			(9.2		)	9.0			(10.9		)	(19.9		)
Total operating costs and expenses	607.1		580.1		(27.0		)	1,197.2			1,175.0		(22.2		)	691.5			607.1			(84.4		)	1,326.0			1,197.2			(128.8		)

Operating income	$	55.2	$	60.0	$	(4.8	)	$	126.9		$	111.0	$	15.9		$	51.6		$	55.2		$	(3.6	)	$	112.7		$	126.9		$	(14.2	)
Operating income as a percentage of Total revenues																6.9		%	8.3		%	(1.4		)%	7.8		%	9.6		%	(1.8		)%


⁽¹⁾	Company restaurant expenses include Cost of sales, Restaurant labor, and Restaurant expenses, including ~~advertising. With the adoption of ASC 606, for the thirteen and twenty-six week periods ended~~advertising expenses.

Thirteen Week Period Ended December 25, 2019 compared to December 26, 2018 advertising contributions received from franchisees is recorded within Franchise fees and other revenues within Total revenues, which differs from the thirteen and twenty-six week periods ended December 27, 2017 that includes advertising contributions recorded net within Company restaurant expenses.

~~Thirteen Week Periods Ended December 26, 2018 compared to December 27, 2017~~

Chili’s Total revenues increased ~~3.5%~~by 12.2% primarily due to ~~$662.3 million~~increased capacity from the 116 Chili’s restaurants acquired in the ~~thirteen week period ended December 26, 2018 from $640.1 million in the thirteen week period ended December 27, 2017.~~first quarter of fiscal 2020 and increased comparable restaurant sales. Refer to “Revenues” section above for further details about Chili’s ~~Operating income, as a percent of Total~~ revenues ~~was 8.3% in the thirteen week period ended December 26, 2018 compared to 9.4% in the thirteen week~~

~~period ended December 27, 2017, this decrease was primarily driven by an increase in Company restaurant expenses, as a percentage of sales.~~changes.

Company restaurant expenses for Chili’s, as a percentage of Company sales, decreased by 0.6% that primarily consisted of 1.4% of sales leverage and other, 0.5% of increased ~~2.9%~~menu pricing, and 0.3% of lower employee health insurance expenses. These were partially offset by 0.7% of higher hourly labor wage rates and taxes, 0.6% of restaurant expenses related to growth in off-premise, 0.2% of unfavorable commodity pricing, and 0.1% of unfavorable menu item mix.

Other gains and charges for Chili’s in the thirteen week period ended December 25, 2019 consisted primarily of $4.6 million of impairment charges, $2.9 million of restaurant closure charges, and $2.0 million of costs related to the 116 Chili’s restaurants acquired in the first quarter of fiscal 2020. Other gains and charges in the thirteen week period ended December 26, 2018 as compared to the thirteen week period ended December 27, 2017 primarily consisting of 2.2% of higher rent expenses associated with the new operating leases entered into as part of the sale leaseback transactions, 1.8% increase in wage expenses due to higher wage rates, incentive bonus and employee health insurance expenses, 0.8% of unfavorable menu item mix, and 0.4% net increase in advertising and marketing related expenses primarily related to the adoption of ASC 606. These were partially offset by 1.6% of sales leverage, 0.4% of increased menu pricing, and 0.3% of other favorable Company restaurant expenses.

~~Other gains and charges for Chili’s during the thirteen week period ended December 26, 2018 consist~~consisted primarily of $4.4 million of Sale leaseback (gain), net ~~gain from the sale leaseback transactions, and $0.8 million on gain on sale~~ of ~~assets,~~transaction charges, partially offset by $2.6 million of Chili’s remodel write-offs, $2.0 million charge related to lease termination charges, and $1.0 million of impairments related to two underperforming restaurants, and $0.7 million foreign currency loss related to the Mexican peso denominated note receivable. Other gains and charges during the thirteen week period ended December 27, 2017 consists primarily of lease termination charges of $3.8 million related to nine underperforming Chili’s restaurants located in Alberta, Canada, $1.1 million in restaurant impairment charges, $0.9 million foreign currency loss related to the Mexican peso denominated note receivable, and $0.4 million of expenses related to Hurricanes Harvey and Irma.restaurants.

Depreciation and amortization ~~decreased $1.5~~for Chili’s increased $2.6 million primarily due to $4.1 million in ~~the thirteen week period ended December 26, 2018 compared~~existing and new restaurant additions mostly related to the ~~thirteen week period ended December 27, 2017 primarily consisting~~Chili’s remodel initiative, $2.6 million of ~~a decrease~~additional depreciation and amortization expenses related to the acquisition of ~~$3.3~~116 Chili’s restaurants, and $1.0 million in other net depreciation and amortization expenses increases. These increases were partially offset by $5.1 million related to fully depreciated assets and restaurant closures, and $2.4 million in reduced depreciation from the sale of assets in connection with the sale leaseback transactions and other depreciation expenses. These decreases were partially offset by $4.2 million of additions for existing restaurants primarily related to the Chili’s remodels, $1.0 million related to the change of estimated useful lives of certain restaurant-level long-lived assets, and $0.5 million of new restaurants additions.retirements.

General and administrative for Chili’s decreased ~~$0.2~~$0.6 million primarily due to a decrease in ~~the thirteen week period ended~~ payroll-related expenses.

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Twenty-Six Week Period Ended December 25, 2019 compared to December 26, 2018 ~~compared to the thirteen week period ended December 27, 2017 primarily consisting of a $0.2 million decrease in stock-based compensation expenses.~~

~~Twenty-Six Week Periods Ended December 26, 2018 compared to December 27, 2017~~

Chili’s Total revenues increased ~~3.0%~~8.7% primarily due to ~~$1,324.1 million~~increased capacity from the 116 Chili’s restaurants acquired in the ~~twenty-six week period ended December 26, 2018 from $1,286.0 million in the twenty-six week period ended December 27, 2017.~~first quarter of fiscal 2020 and increased comparable restaurant sales. Refer to “Revenues” section above for further details about Chili’s ~~Operating income, as a percent of Total~~ revenues was 9.6% in the twenty-six week period ended December 26, 2018 compared to 8.6% in the twenty-six week period ended December 27, 2017, this increase was primarily driven by a decrease in Other gains and charges that included a net gain from the sale leaseback transactions during the twenty-six week period ended December 26, 2018, and lower impairment charges compared to the twenty-six week period ended December 27, 2017, partially offset by an increase in Company restaurant expenses, as a percentage of sales.changes.

Company restaurant expenses for Chili’s, as a percentage of Company sales, decreased 0.2% that primarily consisted of 1.2% of sales leverage and other, 0.5% of increased ~~2.3%~~menu pricing, and 0.3% of lower employee health insurance expenses. These were offset by 0.6% of restaurant expenses related to growth in ~~the twenty-six week period ended December 26, 2018 as compared to the twenty-six week period ended December 27, 2017 primarily consisting~~off-premise, 0.6% of ~~1.3% increase in wage expenses due to~~ higher hourly labor wage rates and ~~employee health insurance expenses, 0.8% of higher rent expenses associated with the new operating leases entered into as part of the sale leaseback transactions,0.7%~~taxes, 0.5% unfavorable commodity pricing, and 0.1% of unfavorable menu item mix, 0.4% net increase in advertising and marketing related expenses, 0.3% in higher supplies expenses, and 0.6% of other Company restaurant expenses. These were partially offset by 1.4% of sales leverage and 0.4% of increased menu pricing.mix.

Other gains and charges for Chili’s during the twenty-six week period ended December 25, 2019 consisted primarily of $4.6 million related to restaurant impairments, $3.1 million related to restaurant closure expenses, $1.5 million related to the acquisition of 116 franchised restaurants and $1.5 million of Chili’s remodel charges. These were partially offset by a $3.1 million net gain on release of a terminated lease liability. Other gains and charges for Chili’s during the twenty-six week period ended December 26, 2018 ~~consist~~ consisted primarily of $17.7 million net gain from the sale leaseback transactions, ~~gain on sale of assets of $0.8 million, and property damages, net of insurance recoveries primarily from a fire loss claim of $0.6 million,~~ partially offset by $3.5 million charge related to restaurant closure expenses, $3.1 million restaurant remodel charges, and $1.0 million related to restaurant impairments. Other gains and charges during the twenty-six week period ended December 27, 2017 consists primarily of restaurant impairment charges and restaurant closure charges of $7.2 million and $3.8 million related to nine underperforming Chili’s restaurants located in Alberta, Canada, which closed in the second quarter of fiscal 2018.

Additionally, Other gains and charges during the twenty-six week period ended December 27, 2017 consists primarily of property damages, net of insurance recoveries of $4.7 million expenses related to Hurricanes Harvey and Irma, restaurant impairment charges of $1.1 million related to certain underperforming restaurants, restaurant closure charges of $0.9 million and foreign currency loss of $0.9 million related to the Mexican peso denominated note receivable.

Depreciation and amortization ~~decreased~~increased $2.8 million that primarily consisted of $9.6 million in ~~the twenty-six week period ended December 26, 2018 compared~~existing and new restaurant additions mostly related to the ~~twenty-six week period ended December 27, 2017 primarily consisting~~Chili’s remodel initiative, $3.2 million of additional depreciation and amortization expenses related to the acquisition of 116 Chili’s restaurants, and $0.1 million in other net depreciation and amortization expenses increases. These increases were partially offset by a decrease of ~~$7.8~~$10.1 million related to fully depreciated assets and restaurant closures, $3.5 million in reduced depreciation from the sale of assets in connection with the sale leaseback transactions and $0.2 million in other favorable depreciation expenses. These decreases were partially offset by $6.0 million of additions for existing restaurants primarily related to the Chili’s remodels, $1.6 million related to the change of estimated useful lives of certain restaurant-level long-lived assets, and $1.1 million of new restaurants additions.retirements.

General and administrative decreased ~~$1.0~~$0.3 million ~~in the twenty-six week period ended December 26, 2018 compared to the twenty-six week period ended December 27, 2017~~that primarily ~~consisting~~consisted of a ~~$1.0~~decrease of $1.2 million ~~decrease in~~of acceleration of certain stock-based compensation expenses for newly retirement eligible executives and $0.3 million of reduced professional and legal fees, partially offset by an increase of $1.1 million of payroll related expenses.

Maggiano’s Segment


	Thirteen Week Periods Ended				Favorable (Unfavorable) Variance				Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 26, 2018		December 27, 2017					December 26, 2018			December 27, 2017			Thirteen Week Periods Ended								Favorable (Unfavorable) Variance				Twenty-Six Week Periods Ended								Favorable (Unfavorable) Variance
	ASC 606		Legacy GAAP					ASC 606			Legacy GAAP			December 25, 2019				December 26, 2018							December 25, 2019				December 26, 2018					Favorable (Unfavorable) Variance
Company sales	$	120.9	$	119.1		$	1.8			208.9			208.4					0.5		$	119.1	Favorable (Unfavorable) Variance			$	120.9			$	(1.8	)		$	205.5			$	208.9			$	(3.4	)
Royalties																	0.0				0.0				0.0				0.1				0.0				0.1
Franchise fees and other revenues	7.5		7.2			0.3				11.5			11.4					0.1		7.1				7.5				(0.4		)		11.0				11.5				(0.5		)
Franchise and other revenues																	7.1				7.5				(0.4		)		11.1				11.5				(0.4		)
Total revenues	128.4		126.3		2.1				220.4			219.8			0.6		126.2				128.4				(2.2		)		216.6				220.4				(3.8		)

Company restaurant expenses ⁽¹⁾	100.1		97.9		(2.2		)		184.0			183.2			(0.8	)	99.2				100.1				0.9				182.3				184.0				1.7
Depreciation and amortization	3.9		4.0		0.1				7.9			8.0			0.1		4.0				3.9				(0.1		)		8.0				7.9				(0.1		)
General and administrative	1.5		1.5		—				3.2			2.8			(0.4	)	1.5				1.5				0.0				3.2				3.2				0.0
Other gains and charges	—		1.0		1.0				—			0.8			0.8		—				—				—				0.1				—				(0.1		)
Total operating costs and expenses	105.5		104.4		(1.1		)		195.1			194.8			(0.3	)	104.7				105.5				0.8				193.6				195.1				1.5

Operating income	$	22.9	$	21.9	$	1.0			25.3			25.0			0.3		$	21.5			$	22.9			$	(1.4	)		$	23.0			$	25.3			$	(2.3	)
Operating income as a percentage of Total revenues																	17.0		%		17.8		%		(0.8		)%		10.6		%		11.5		%		(0.9		)%


⁽¹⁾	Company restaurant expenses includes Cost of sales, Restaurant labor, and Restaurant expenses, including advertising expenses.

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Thirteen Week ~~Periods~~Period Ended December 25, 2019 compared to December 26, 2018 ~~compared to December 27, 2017~~

Maggiano’s Total revenues ~~increased~~decreased 1.7% due to ~~$128.4 million~~a decrease in ~~the thirteen week period ended December 26, 2018 from $126.3 million in the thirteen week period ended December 27, 2017.~~comparable restaurant sales. Refer to “Revenues” section above for further details about Maggiano’s ~~operating income,~~revenues changes.

Company restaurant expenses, as a ~~percent~~percentage of ~~Total revenues, was 17.8% in the thirteen week period ended December 26, 2018 compared to 17.3% in the thirteen week period ended December 27, 2017, this increase was~~Company sales, increased 0.5% for Maggiano’s primarily driven by ~~an increase~~1.0% of higher hourly labor wage rates and taxes, 0.6% of higher rent expenses due to the sale leaseback of one restaurant in the fourth quarter of fiscal 2019, 0.2% of unfavorable menu item mix, and 0.4% of sales deleverage and unfavorable other net Company restaurant expenses. These increases were partially offset by 0.6% of lower management salaries and taxes and 0.3% of increased menu pricing.

Twenty-Six Week Period Ended December 25, 2019 compared to December 26, 2018

Maggiano’s Total revenues decreased 1.7% due to a decrease in comparable restaurant sales. Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

Company restaurant expenses as a percentage of Company sales increased 0.6%, for Maggiano’s ~~in the thirteen week period ended December 26, 2018 as compared to the thirteen week period ended December 27, 2017~~ primarily ~~consisting~~driven by 0.7% of ~~a 0.4%~~higher hourly labor wage rates and taxes, 0.6% increase in rent and property tax expenses ~~0.3% increase in repairs and maintenance expenses, partially offset by 0.1%~~due to the sale leaseback of ~~net other favorable expenses primarily in~~one restaurant ~~labor and cost of goods sold.~~

~~Twenty-Six Week Periods Ended December 26, 2018 compared to December 27, 2017~~

~~Maggiano’s Total revenues increased 0.3% to $220.4 million~~ in the ~~twenty-six week period ended December 26, 2018 from $219.8 million in the twenty-six week period ended December 27, 2017. Maggiano’s operating income, as a percent~~fourth quarter of ~~Total revenues, was 11.5% in the twenty-six week period ended December 26, 2018 compared to 11.4% in the twenty-six week period ended December 27, 2017, this increase was primarily consisting~~fiscal 2019, 0.3% of an increase in Company sales. Total operating costs and expenses, as a percentage of Total revenues, were flat in the twenty-six week period ended December 26, 2018 compared to the twenty-six week period ended December 27, 2017.

Company restaurant expenses as a percentage of Company sales increased 0.2%, for Maggiano’s in the twenty-six week period ended December 26, 2018 as compared to the twenty-six week period ended December 27, 2017, primarily consisting of 0.3% increase in rent expenses, 0.3% increase in repairs and maintenance expenses, 0.2% increase in supplies, and 0.2% of other unfavorable ~~Company restaurant expenses,~~menu item mix, partially offset by 0.4% of ~~favorable~~lower management salaries and taxes, 0.3% of increased menu ~~item mix primarily in seafood, and 0.4%~~pricing, 0.3% of favorable ~~change in~~other net Company restaurant ~~labor.~~

expenses and sales deleverage.

~~INCOME TAXES~~Income Taxes

Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 26,
2018 December 27,
2017 Change December 26,
2018 December 27,
2017 Change
Effective income tax rate 8.6 % 38.3 % (29.7 )% 13.0 % 37.4 % (24.4 )%



	Thirteen Week Periods Ended						Twenty-Six Week Periods Ended
	December 25, 2019		December 26, 2018		Change		December 25, 2019		December 26, 2018		Change
Effective income tax rate	3.8	%	8.6	%	(4.8	)%	6.6	%	13.0	%	(6.4	)%

The effective income tax ~~rate~~rates in the thirteen and twenty-six week periods ended December 25, 2019 decreased compared to the thirteen and twenty-six week periods ended December 26, 2018 ~~decreased to 8.6% and 13.0%, respectively, compared to 38.3% and 37.4% for the thirteen and twenty-six week periods ended December 27, 2017, respectively,~~primarily due to the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) that was enacted on December 22, 2017. The Tax Act lowered the federal statutory tax rate from 35.0% to 21.0% effective January 1, 2018. Our fiscal 2019 effective income tax rate is further lowered due to an increase in the FICA tax credit benefit, partially offsetdriven by the impact of the fiscal 2019 sale leaseback ~~transactions.~~

The effective income tax rate for the thirteen and twenty-six week periods ended December 27, 2017 included the impact of the revaluation of the Company’s deferred tax accounts pursuant to the Tax Act, partially offset by the positive impact of lowering the federal statutory tax rate and lower profits.

During the twenty-six week period ended December 26, 2018, the tax gains related to the sale leaseback transactions, as described in Note 3 - Sale Leaseback Transactions, of $75.0 million were recognized for tax purposes when the transaction was completed. Also during the twenty-six week period ended December 26, 2018 we paid $67.1 million of the taxes, with a remaining $7.9 million included as a payable net within Income taxes receivable in the Consolidated Balance Sheets as of December 26, 2018. This liability is expected to be paid during the third quarter of fiscal 2019.

gain.

~~LIQUIDITY AND CAPITAL RESOURCES~~Liquidity and Capital Resources

Cash Flows

Cash Flows from Operating Activities

Twenty-Six Week Periods Ended
December 26,
2018 December 27,
2017
Net cash provided by operating activities $ 56.2
$ 119.7



	Twenty-Six Week Periods Ended				Favorable (Unfavorable) Variance
	December 25, 2019		December 26, 2018		Favorable (Unfavorable) Variance
Net cash provided by operating activities	$	142.3	$	56.2	$	86.1

~~During the twenty-six week period ended December 26, 2018, net~~Net cash flow ~~provided by~~from operating activities ~~decreased $63.5 million from the twenty-six week period ended December 27, 2017~~increased primarily ~~consisting of~~due to $67.1 million of tax payments made in fiscal 2019 related to the sale leaseback ~~gain.~~gain and $14.0 million of tax refunds received in fiscal 2020.

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Cash Flows from Investing Activities


	Twenty-Six Week Periods Ended						Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 26, 2018			December 27, 2017			December 25, 2019			December 26, 2018
Cash flows from investing activities
Payments for property and equipment	$	(78.7	)	$	(48.6	)	$	(51.4	)	$	(78.7	)	$	27.3
Payments for franchise restaurant acquisitions							(96.2		)	—			(96.2		)
Proceeds from sale of assets	1.2			0.3			0.3			1.2			(0.9		)
Proceeds from note receivable	1.3			0.5			1.4			1.3			0.1
Insurance recoveries	1.4			1.0			—			1.4			(1.4		)
Proceeds from sale leaseback transactions, net of related expenses	458.0			—			—			458.0			(458.0		)
Net cash provided by (used in) investing activities	$	383.2		$	(46.8	)
Net cash (used in) provided by investing activities							$	(145.9	)	$	383.2		$	(529.1	)

~~During the twenty-six week period ended December 26, 2018, net~~Net cash ~~provided by~~from investing activities ~~increased $430.0~~decreased primarily due to $458.0 million ~~from the twenty-six week period ended December 27, 2017 primarily consisting of $458.0 million~~in net cash proceeds received from the sale leaseback transactions ~~which is net~~during fiscal 2019. Additionally, $96.2 million cash consideration was paid for the purchase of ~~$8.3~~116 Chili’s restaurants from a franchisee during fiscal 2020. These decreases were partially offset by $27.3 million of ~~transaction~~lower Capital expenditures in fiscal 2020 primarily related ~~costs~~to the Chili’s remodel program and fiscal 2019 expenditures for our new corporate headquarters, partially offset by an increase in new restaurant construction during fiscal 2020.

Cash Flows from Financing Activities



	Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 25, 2019			December 26, 2018			Favorable (Unfavorable) Variance
Cash flows from financing activities
Borrowings on revolving credit facility	$	463.0		$	479.0		$	(16.0	)
Payments on revolving credit facility	(416.0		)	(713.0		)	297.0
Purchases of treasury stock	(11.3		)	(167.6		)	156.3
Payments on long-term debt	(5.0		)	(3.7		)	(1.3		)
Payments of dividends	(29.0		)	(31.6		)	2.6
Proceeds from issuances of treasury stock	1.5			2.8			(1.3		)
Payments for debt issuance costs	(1.0		)	—			(1.0		)
Net cash provided by (used in) financing activities	$	2.2		$	(434.1	)	$	436.3

Net cash from financing activities increased primarily due to a $281.0 million increase in net borrowing activity on the revolving credit facility, a decrease of $156.3 million in share repurchases and a $2.6 milliondecrease in dividends paid during the twenty-six week period ended December ~~26, 2018, partially offset by a $30.1~~25, 2019 due to fewer shares outstanding.

Net borrowings of $47.0 million ~~increase of capital expenditures primarily related to the Chili’s remodel program and new corporate headquarters interior build-out, partially offset by a decrease in new restaurant construction.~~

~~Cash Flows from Financing Activities~~

Twenty-Six Week Periods Ended
December 26,
2018 December 27,
2017
Cash flows from financing activities
Borrowings on revolving credit facility $ 479.0
$ 320.0
Payments on revolving credit facility (713.0 ) (276.0 )
Purchases of treasury stock (167.6 ) (71.8 )
Payments on long-term debt (3.7 ) (5.1 )
Payments of dividends (31.6 ) (35.4 )
Proceeds from issuances of treasury stock 2.8
1.0
Net cash used in financing activities $ (434.1 ) $ (67.3 )

During the twenty-six week period ended December 26, 2018, net cash used in financing activities increased $366.8 million from the twenty-six week period ended December 27, 2017 primarily consisting of $278.0 million of net repayment activity on the revolving credit facility and $95.8 million of additional share repurchaseswere drawn during the twenty-six week period ended December ~~26, 2018.~~

~~Net repayments of $234.0 million were made during the twenty-six week period ended December 26, 2018~~25, 2019 on the ~~$1.0~~$1.0 billion revolving credit facility primarily ~~from proceeds received from~~to fund the ~~sale leaseback transactions~~.acquisition of Chili’s restaurants and share repurchases. As of December ~~26, 2018, $586.3~~25, 2019, $429.7 million of credit was ~~outstanding~~available under the revolving credit facility. Subsequent to the end of the quarter, net ~~borrowings~~payments of ~~$10.0~~$14.0 million were ~~drawn~~made on the revolving credit facility.

In the second quarter of fiscal 2020, we modified the revolving credit facility to extend the maturity date for $110.0 million of the facility from March 12, 2020 to September 12, 2021, which correlates with the maturity date for the $890.0 million.

Our ~~$1.0~~$1.0 billionrevolving credit facility generally bears interest of LIBOR plus an applicable margin, ~~which is a function of our credit rating and debt to cash flow ratio,~~ but is subject to a maximum of LIBORplus ~~2.00%~~2.000%. ~~For a period~~At December 25, 2019 the revolver interest rate was 3.180%. LIBOR is set to terminate in December 2021, however our revolver will expire before this date and we anticipate any new financings will be at the applicable interest rates.

Table of ~~180 days following the third amendment to the revolving credit facility that occurred in May 2018, we paid interest at a rate of LIBOR plus 1.38%~~Contents

~~. Effective October 2018, we resumed paying interest at a rate of LIBOR plus~~ ~~1.38%for a total~~As of ~~3.89%. One month LIBOR at~~ December ~~26, 2018 was approximately 2.51%. As of December 26, 2018, $413.7 million~~ ~~of credit was available under the revolving credit facility.~~We25, 2019, we are ~~currently~~ in compliance with all financial ~~covenants~~ ~~as of December 26, 2018.~~covenants. Refer to Note 9 - Debt for further information about our notes and revolving credit facility.

~~In August 2018, our Board of Directors authorized a $300.0 million increase to our existing share repurchase program resulting in total authorizations of $4.9 billion.~~ During the twenty-six week period ended December ~~26, 2018,~~25, 2019, we repurchased ~~approximately 3.6~~0.3 million shares of our common stock for ~~$167.6~~$11.3 million. At December 25, 2019, we had $187.8 million remaining in our existing share repurchase program authorized by the Board of Directors. 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.~~ awards. The repurchased shares during the twenty-six week period ended December 25, 2019 included shares purchased as part of our share repurchase program and shares repurchased to satisfy team member tax withholding obligations on the vesting of restricted shares. Repurchased shares are reflected as an increase in Treasury stock withinShareholders’ deficitin theConsolidated Balance ~~Sheets.~~Sheets (Unaudited).

As of December 26, 2018, our credit rating by Standard and Poor’s (“S&P”) was BB+ with a stable outlook, and our Corporate Family Rating by Moody’s was Ba1 with a negative outlook. Our goal is to maintain strong free cash flow to support leverage that we believe is appropriate to allow ongoing investment in the business and return of capital to shareholders.

During the twenty-six week period ended December ~~26, 2018~~25, 2019, we ~~paid dividends of $31.6 million to common stock shareholders, compared to $35.4 million in the twenty-six week period ended December 27, 2017.~~ ~~We also~~ declared a quarterly dividend on October ~~29, 2018~~,28, 2019, that was paid subsequent to the second quarter of fiscal ~~2019,~~2020, on December ~~27, 2018~~,26, 2019, in the amount of ~~$0.38~~$0.38 per share. ~~A dividend accrual of $14.2 million was included in Other accrued liabilities in our Consolidated Balance Sheets as of December 26, 2018 related to this dividend. Subsequent~~ Also subsequent to the end of the second quarter of fiscal ~~2019,~~2020, on January ~~28, 2019~~,27, 2020, our Board of Directors declared a quarterly dividend of ~~$0.38~~$0.38 per share to be paid on March ~~28, 2019~~26, 2020 to shareholders of record as of March ~~8, 2019.~~6, 2020.

Cash Flow Outlook

We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations. 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. We will continue to periodically evaluate ways to monetize the value of our remaining owned real estate and should alternatives become available that are more cost effective than our financing options currently available, we will consider execution of those alternatives.

OFF-BALANCE SHEET ARRANGEMENTS

We have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 1314 - Contingencies, in ~~our consolidated financial statements~~the Consolidated Financial Statements (Unaudited), and have entered into certain pre-commencement leases as disclosed in Note 3 - Leases included in the Notes to the Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form ~~10-Q.~~10-Q report. Other than these items, we do not have any off-balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

The impact of recent accounting pronouncements can be found at ~~Part I, Item 1,~~ Note 1415 - Effect of New Accounting Standards in the Notes to the Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June ~~27, 2018.~~26, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective.

Changes in Internal Control ~~over~~Over Financial Reporting

Beginning on June ~~28, 2018,~~27, 2019, the first day of fiscal ~~year 2019,~~2020, we integrated certain new controls to ensure the completeness and accuracy of the adoption of FASB Accounting Standards Codification Topic ~~606,~~ ~~Revenue from Contracts~~842, Leases (“ASC 842”). Although this new leasing standard has had an immaterial impact on our ongoing net income, in connection with ~~Customers~~its adoption, we additionally implemented changes to our processes and control activities related to lease accounting. These changes

Table of Contents (“

included the development of new policies based on ASC ~~606”).~~842, utilizing a newly adopted third party lease software, new training, ongoing contract review requirements, and gathering of information provided for disclosures.

Internal Control Over Financial Reporting

Other than changes described above in Changes in Internal Control ~~over~~Over Financial Reporting, there were no changes in our internal control over financial reporting during the thirteen week period ended December ~~26, 2018~~25, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

Information and statements contained in this Form 10-Q, in our other filings with the SEC or in our written and verbal communications that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are generally accompanied by words like “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “plans,” “intends,” “projects,” “continues” and other similar expressions that convey uncertainty about future events or outcomes. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which could cause actual results to differ materially from our historical results or from those projected in forward-looking statements. These risks and uncertainties are, in many instances, beyond our control. We wish to caution you against placing undue reliance on forward-looking statements because of these risks and uncertainties. Except as required by law, we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The forward-looking statements contained in this Form 10-Q report are subject to the risks and uncertainties described in Part I, Item IA “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June ~~27, 2018,~~26, 2019, and below in Part II, Item 1A “Risk Factors” in this report on Form 10-Q, as well as the risks and uncertainties that generally apply to all businesses. We further caution that it is not possible to identify all risks and uncertainties, and you should not consider the identified factors as a complete list of all risks and uncertainties. Among the factors that could cause actual results to differ materially are: the impact of competition, changes in consumer preferences, consumer perception of food safety, reduced disposable income, unfavorable publicity, increased minimum wages, governmental regulations, the impact of mergers, acquisitions, divestitures and other strategic transactions, the Company’s ability to meet its business strategy plan, third party delivery risks, loss of key management personnel, failure to hire and retain high-quality restaurant management, the impact of social media, failure to protect the security of data of our guests and team members, product availability, regional business and economic conditions, litigation, franchisee success, downgrades in our credit ratings, inflation, changes in the retail industry, technology failures, failure to protect our intellectual property, outsourcing, impairment of goodwill or assets, failure to maintain effective internal control over financial reporting, actions of activist shareholders, adverse weather conditions, terrorist acts, health epidemics or pandemics, and tax reform.

Other risk factors may adversely affect our financial performance. These other risk factors could cause our actual results to differ materially from those indicated in the forward-looking statements by affecting, among many things, pricing, consumer spending, consumer confidence, and operating costs. Such risks include, without limitation, changes in financial and credit markets (including rising interest rates); increases in fuel costs and availability for our team members, customers and suppliers; increases in health care costs; the prospects of health epidemics or ~~pandemics or the prospects of these events;~~pandemics; changes in consumer behaviors; changes in demographic trends; labor shortages and availability of employees; union organization; strikes; ~~terrorist acts;~~ energy shortages and rolling blackouts; ~~and weather (including~~

~~major hurricanes and regional winter storms);~~weather; inadequate insurance coverage; and limitations imposed by our credit agreements.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding legal proceedings is incorporated by reference from Note 1314 - Contingencies to ~~our unaudited~~the Notes to the Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.

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ITEM 1A. RISK FACTORS

In addition to the other information in this Form 10-Q report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June ~~27, 2018,~~26, 2019, which could materially affect our business, financial condition or results of operations. It is not possible to predict or identify all risk factors. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business, financial condition or results of operations. Therefore, the risks identified are not intended to be a complete discussion of all potential risks or uncertainties.

~~During the thirteen week period ended December 26, 2018, there~~There have been no material changes in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June ~~27, 2018.~~

26, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the thirteen week period ended December ~~26, 2018,~~25, 2019, we repurchased shares as follows (in millions, except per share amounts, unless otherwise noted):

Total Number of Shares Purchased⁽¹⁾
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value that May Yet be Purchased Under the Program⁽²⁾
September 27, 2018 through October 31, 2018 0.2
$ 46.32
0.2
$ 259.8
November 1, 2018 through November 28, 2018 1.3
$ 47.89
1.3
$ 197.8
November 29, 2018 through December 26, 2018 —
$ 50.91
—
$ 197.8
Total 1.5
$ 47.71
1.5



	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value that May Yet be Purchased Under the Program⁽²⁾
September 26, 2019 through October 30, 2019	0.0	$	41.67	—	$	187.8
October 31, 2019 through November 27, 2019	0.0	44.83		—	187.8
November 28, 2019 through December 25, 2019	0.0	42.27		—	187.8
Total	0.0	42.14		—

⁽¹⁾

These amounts include shares purchased as part of our publicly announced programs and shares owned and tendered by team members to satisfy tax withholding obligations on the vesting of restricted share awards, which are not deducted from shares available to be purchased under publicly announced programs. Unless otherwise indicated, shares owned and tendered by team members to satisfy tax withholding obligations were purchased at the average of the high and low prices of the Company’s shares on the date of vesting. During thethirteen week period ended December ~~26, 2018, 1.4~~25, 2019, 0.9 thousand shares were tendered by team members at an average price of ~~$47.82.~~ $42.14.


⁽²⁾	The final amount shown is as of December ~~26, 2018.~~25, 2019.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit		Description
3.1		Certificate of Incorporation of Registrant, as amended⁽¹⁾
3.2		Bylaws of Registrant⁽²⁾
10		Fourth Amendment to Credit Agreement dated December 5, 2019, by and among the Registrant and its wholly-owned subsidiaries, Brinker Restaurant Corporation, Brinker Texas, Inc., Brinker Florida, Inc., and Brinker International Payroll Company, L.P., Bank of America, N.A., JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., MUFG Bank, Ltd., SunTrust Bank, U.S. Bank National Association, Barclays Bank PLC, Regions Bank, Associated Bank, National Association, and PNC Bank, National Association*
31(a)		Certification by Wyman T. Roberts, President and Chief Executive Officer and President of Chili’s Grill & Bar of the Registrant, pursuant to 17 CFR 240.13a – 14(a) or 17 CFR 240.15d – 14(a).*
31(b)		Certification by Joseph G. Taylor, ~~Senior~~Executive Vice President and Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a – 14(a) or 17 CFR 240.15d – 14(a).*
32(a)		Certification by Wyman T. Roberts, President and Chief Executive Officer and President of Chili’s Grill & Bar of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002*
32(b)		Certification by Joseph G. Taylor, ~~Senior~~Executive Vice President and Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002*
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL ~~document.~~document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase
104		The cover page from the Registrant’s Quarterly Report on Form 10-Q for the thirteen week period ended December 25, 2019 is formatted in Inline XBRL.


^*	Filed herewith.


⁽¹⁾	Filed as an exhibit to ~~annual report~~Annual Report on Form 10-K for fiscal year ended June 28, 1995 and incorporated herein by reference.


⁽²⁾	Filed as an exhibit to ~~annual report~~Annual Report on Form 10-K for fiscal year ended June 27, 2018 and incorporated herein by reference.

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SIGNATURES

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



	BRINKER INTERNATIONAL, INC., a Delaware corporation

Date: ~~February 1, 2019~~January 29, 2020	By:	/s/ WYMAN T. ROBERTS
		Wyman T. Roberts,
		President and Chief Executive Officer
		and President of Chili’s Grill & Bar
		(Principal Executive Officer)

Date: ~~February 1, 2019~~January 29, 2020	By:	/s/ JOSEPH G. TAYLOR
		Joseph G. Taylor,
		~~Senior~~Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)



	Unaudited
	December 26, 2018			June 27, 2018
ASSETS
Current assets
Cash and cash equivalents	$	16.2		$	10.9
Accounts receivable, net	81.5			53.7
Inventories	24.0			24.2
Restaurant supplies	46.8			46.7
Prepaid expenses	23.1			20.8
Income taxes receivable	4.4			—
Total current assets	196.0			156.3
Property and equipment, at cost
Land	47.2			154.0
Buildings and leasehold improvements	1,465.9			1,673.3
Furniture and equipment	725.9			722.0
Construction-in-progress	38.2			22.1
	2,277.2			2,571.4
Less accumulated depreciation and amortization	(1,507.9		)	(1,632.5		)
Net property and equipment	769.3			938.9
Other assets
Goodwill	163.7			163.8
Deferred income taxes, net	113.9			33.6
Intangibles, net	23.0			24.0
Other	28.9			30.7
Total other assets	329.5			252.1
Total assets	$	1,294.8		$	1,347.3
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Current installments of long-term debt	$	8.1		$	7.1
Accounts payable	112.2			104.7
Gift card liability	153.0			119.1
Accrued payroll	66.5			74.5
Other accrued liabilities	148.2			127.2
Income taxes payable	—			1.7
Total current liabilities	488.0			434.3
Long-term debt, less current installments	1,263.9			1,499.6
Deferred gain on sale leaseback transactions	252.2			—
Other liabilities	145.9			131.7
Commitments and contingencies (Note 13)
Shareholders’ deficit
Common stock (250.0 million authorized shares; $0.10 par value; 176.2 million shares issued and 37.4 million shares outstanding at December 26, 2018, and 176.2 million shares issued and 40.8 million shares outstanding at June 27, 2018)	17.6			17.6
Additional paid-in capital	514.2			511.6
Accumulated other comprehensive loss	(6.1		)	(5.8		)
Retained earnings	2,704.0			2,683.0
	3,229.7			3,206.4
Less treasury stock, at cost (138.8 million shares at December 26, 2018, and 135.4 million shares at June 27, 2018)	(4,084.9		)	(3,924.7		)
Total shareholders’ deficit	(855.2		)	(718.3		)
Total liabilities and shareholders’ deficit	$	1,294.8		$	1,347.3



	Thirteen Weeks Ended December 26, 2018
	Chili’s		Maggiano’s		Total
Company sales	$	640.6	$	120.9	$	761.5
Royalties	13.2		—		13.2
Franchise fees and other revenues	8.5		7.5		16.0
Total revenues	$	662.3	$	128.4	$	790.7



	Deferred Development and Franchise Fees
Balance at June 27, 2018	$	—
Cumulative effect adjustment from adoption of ASC 606	18.1
Additions	0.4
Amount recognized to Franchise and other revenue	(1.3		)
Balance at December 26, 2018	$	17.2



Fiscal Year	Development and Franchise Fees Revenue Recognition
2019	$	0.7
2020	1.4
2021	1.4
2022	1.4
2023	1.4
Thereafter	10.9
	$	17.2



	June 27, 2018			ASC 606 Cumulative Effect Adjustments			June 28, 2018
ASSETS
Other assets
Deferred income taxes, net ⁽¹⁾	$	33.6		$	2.5		$	36.1
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Gift card liability ⁽²⁾	119.1			(8.2		)	110.9
Other accrued liabilities ⁽³⁾	127.2			1.5			128.7
Other liabilities ⁽³⁾	131.7			16.6			148.3
Shareholders’ deficit ^{(2) (3)}	(718.3		)	(7.4		)	(725.7		)



	Thirteen Week Period Ended December 26, 2018									Twenty-Six Week Period Ended December 26, 2018
	As Reported ASC 606 Amounts			Adjustments			Legacy GAAP Amounts			As Reported ASC 606 Amounts			Adjustments			Legacy GAAP Amounts
Revenues
Company sales	$	761.5		$	—		$	761.5		$	1,489.8		$	—		$	1,489.8
Franchise and other revenues	29.2			(5.8		)	23.4			54.7			(10.6		)	44.1
Total revenues	790.7			(5.8		)	784.9			1,544.5			(10.6		)	1,533.9
Operating costs and expenses
Company restaurants (excluding depreciation and amortization)
Cost of sales	200.9			—			200.9			392.8			—			392.8
Restaurant labor	260.8			—			260.8			517.1			—			517.1
Restaurant expenses	205.7			(5.2		)	200.5			404.7			(10.3		)	394.4
Company restaurant expenses	667.4			(5.2		)	662.2			1,314.6			(10.3		)	1,304.3
Depreciation and amortization	36.1			—			36.1			73.1			—			73.1
General and administrative	35.4			—			35.4			69.2			—			69.2
Other (gains) and charges	2.2			—			2.2			(8.9		)	—			(8.9		)
Total operating costs and expenses	741.1			(5.2		)	735.9			1,448.0			(10.3		)	1,437.7
Operating income	49.6			(0.6		)	49.0			96.5			(0.3		)	96.2
Interest expense	15.4			—			15.4			31.0			—			31.0
Other (income), net	(0.8		)	—			(0.8		)	(1.6		)	—			(1.6		)
Income before provision for income taxes	35.0			(0.6		)	34.4			67.1			(0.3		)	66.8
Provision for income taxes	3.0			(0.1		)	2.9			8.7			—			8.7
Net income	$	32.0		$	(0.5	)	$	31.5		$	58.4		$	(0.3	)	$	58.1

Basic net income per share	$	0.84		$	(0.01	)	$	0.83		$	1.49		$	(0.01	)	$	1.48

Diluted net income per share	$	0.83		$	(0.02	)	$	0.81		$	1.46		$	0.00		$	1.46



	December 26, 2018		June 27, 2018
Deferred liabilities and sale leaseback gains ⁽¹⁾	$	32.1	$	15.5
Property tax	19.6		17.4
Insurance	18.3		17.8
Dividends	14.8		16.3
Sales tax	14.4		14.2
Interest	7.5		7.8
Straight-line rent ⁽²⁾	4.9		5.2
Landlord contributions	2.7		2.7
Deferred franchise and development fees ⁽³⁾	1.4		—
Cyber security incident ⁽⁴⁾	1.5		1.4
Other ⁽⁵⁾	31.0		28.9
	$	148.2	$	127.2



	December 26, 2018		June 27, 2018
Straight-line rent ⁽¹⁾	$	56.6	$	55.6
Insurance	37.4		40.1
Landlord contributions	24.1		23.3
Deferred franchise and development fees ⁽²⁾	15.8		—
Unfavorable leases	3.1		3.8
Unrecognized tax benefits	2.9		2.9
Other	6.0		6.0
	$	145.9	$	131.7



	December 26, 2018				June 27, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
3.88% Notes	$	298.4	$	283.2	$	298.2	$	285.3
5.00% Notes	345.6		326.9		345.2		342.3



	Total Revenues
	Thirteen Week Period			Twenty-Six Week Period
For the period ended December 27, 2017 (Legacy GAAP)	$	766.4		$	1,505.8
Change from:
Restaurant closings	(1.7		)	(6.2		)
Restaurant openings	1.1			4.7
Comparable restaurant sales	19.4			31.7
Company sales	18.8			30.2
Royalties	(0.2		)	(0.3		)
Franchise fees and other revenues	5.7			8.8
For the period ended December 26, 2018 (ASC 606)	$	790.7		$	1,544.5



	Percent Change in the Thirteen Weeks Ended December 26, 2018 versus December 27, 2017
	Comparable Sales ⁽¹⁾		Price Impact		Mix-Shift ⁽²⁾		Traffic		Restaurant Capacity ⁽³⁾
Company-owned	2.7	%	1.0	%	(1.1	)%	2.8	%	(0.3	)%
Chili’s	2.9	%	0.9	%	(0.9	)%	2.9	%	(0.3	)%
Maggiano’s	1.8	%	1.2	%	(0.7	)%	1.3	%	0.0	%
Chili’s Franchise ⁽⁴⁾	(0.8	)%
U.S.	3.4	%
International	(6.5	)%
Chili’s Domestic ⁽⁵⁾	3.0	%
System-wide ⁽⁶⁾	1.8	%