REVENUE RECOGNITION (Tables)

6 Months Ended

Dec. 26, 2018

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

Changes in 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 fiscal 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

Deferred Development and Franchise Fees Expected Timing of Satisfaction



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

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. The cumulative effect was applied using the modified retrospective approach. Below our Consolidated Balance Sheets reflects the transition to ASC 606 as an adjustment at June 28, 2018 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		)


⁽¹⁾	Deferred income taxes, net adjustment relates to the net change in liabilities and equity as a result of the adoption of ASC 606 described in notes ⁽²⁾ and ⁽³⁾below.

⁽²⁾

Gift card liability is adjusted for the ASC 606 adoption impact of the change to recognize gift card breakage proportionate to the pattern of related gift card redemption. 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 $8.2 million decrease in Gift card liability due to the change in timing of recognition between ASC 606 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.

Reconciliation to Legacy GAAP - Condensed Statement of Comprehensive Income (Unaudited)

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

Reconciliation to Legacy GAAP - Condensed Statement of Comprehensive Income - Condensed Cash Flow Statement (Unaudited)

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

Reconciliation to Legacy GAAP - Condensed Balance Sheet (Unaudited)

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