Table of ~~fiscal~~ ~~2018~~ ~~and~~ ~~2017~~ ~~are as follows (in thousands):~~

December 27,
2017 December 28,
2016
Income taxes, net of refunds $ 30,520
$ 41,605
Interest, net of amounts capitalized 25,271
15,117

Non-cash investing and financing activities ~~for the first two quarters of fiscal 2018 and 2017~~ are as ~~follows (in thousands):~~

follows:



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

December 27,
2017 December 28,
2016
Retirement of fully depreciated assets $ 22,414
$ 13,157
Dividends declared but not paid 18,245
17,527
Accrued capital expenditures 4,672
4,311
Capital lease additions 4,281
1,147


⁽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.

~~11.~~14. CONTINGENCIES

~~In connection with the sale of~~Lease Commitments

We have, in certain cases, divested brands or sold restaurants to franchisees and ~~brand divestitures, we~~ have ~~in certain cases, guaranteed~~not been released from lease ~~payments.~~guarantees for the related restaurants. As of December ~~27, 2017~~25, 2019 and June ~~28, 2017,~~26, 2019, we have outstanding lease guarantees or are secondarily liable for ~~$65.0~~$40.9 million and ~~$69.0~~$55.3 million, respectively. These amounts represent the maximum potential liability of future payments under the ~~guarantees.~~leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal ~~2018~~2020 through fiscal ~~2027.~~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 ~~assignment~~ agreements with such third parties and applicable laws govern our ability to pursue and recover ~~damages incurred.~~

~~In July 2017,~~amounts we ~~were notified that Mac Acquisition LLC,~~may pay on behalf of such parties. Our secondary liability position was reduced approximately $9.3 million in the ~~owner of Romano’s Macaroni Grill restaurants, closed~~twenty-six week period ended December 25, 2019 due to certain ~~of its properties for which we are secondarily liable. Based on management’s belief that Mac Acquisition LLC would default on the~~ leases ~~for these closed locations, a liability was established based on an estimate of the obligation~~ associated with ~~these locations~~the acquisition of ~~approximately $1.1 million in fiscal 2017.~~116 restaurants from a franchisee, refer to Note 2 - Chili’s Restaurant Acquisition for details.

In October 2017, Mac Acquisition LLC filed for Chapter 11 bankruptcy protection and we were made aware that additional leases were rejected in the bankruptcy process. Based on the additional information obtained from the bankruptcy proceedings and in discussions with the landlordsLetters of the restaurants, we recorded an incremental charge of $1.4 million to increase our estimated liability pertaining to our obligations under these leases. We paid $0.5 million to settle the remaining obligations of two restaurants and believe our current liability of $2.0 million is appropriate based on our analysis of the potential settlements. We will continue to monitor the bankruptcy proceedings 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 bankruptcy filings. No other liabilities related to this matter have been recorded as of December 27, 2017.

Credit

We provide letters of credit to various insurers to collateralize obligations for outstanding claims. As of December ~~27, 2017,~~25, 2019, we had ~~$31.0~~$27.2 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable ~~annually.~~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 Chili’s restaurants were impacted by the malware during time frames that vary by restaurant, but we believe in each case began no earlier than March 21, 2018 and ended no later than April 22, 2018.

We expect to incur legal and professional services expenses associated with the cyber security incident in future periods, 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 that was fully accrued during fiscal 2018. Since the incident, through December 25, 2019, we have incurred total costs of $4.3 million related to the cyber security 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 (Unaudited), $1.0 million in costs that have been reimbursed by our insurance carriers, and $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 lawsuit in the United States District Court for the Middle District of Florida styled In re: Brinker Data Incident Litigation, Case No. 18-cv-00686-TJC-MCR (the “Litigation”) relating to the cyber security incident described above. In the Litigation, plaintiffs assert various claims stemming from the cyber security incident at the Company’s Chili’s restaurants involving customer payment card information and seek monetary damages in excess of $5.0 million, injunctive and declaratory relief and attorney’s fees and costs. On January 4, 2019, we filed a Motion to Dismiss all of plaintiffs’ claims asserting that plaintiffs do not have standing to bring the lawsuit and that plaintiffs have failed to state a claim on which relief can be granted.

Following completion of briefing by the 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 denied the motion as to the 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 Company filed a Motion for Protection seeking to 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 depositions. Plaintiffs filed their response to our Motion for Protection on December 6, 2019 and we now await the Court’s order. We believe we have defenses and intend to continue defending the Litigation. As such, as of December 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.~~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 no0 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.

~~12. SUBSEQUENT EVENTS~~

Subsequent to the end of the quarter, net borrowings of $5.0 million were drawn on the revolving credit facility. Additionally, we repurchased approximately 500,000 shares of our common stock for $18.0 million. The number of shares is an estimate as settlement has not yet occurred.

~~13.~~15. EFFECT OF NEW ACCOUNTING STANDARDS

ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement - In ~~January 2017,~~August 2018, the FASB issued ASU ~~2017-04, Intangibles - Goodwill~~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 ~~Other (Topic 350): Simplifying~~weighted average used to develop significant unobservable inputs and (2) how the ~~Test~~weighted average was calculated for ~~Goodwill Impairment. This update eliminates step two~~fair value measurements categorized within Level 3 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 hierarchy. Entities may disclose other quantitative information in lieu of the ~~reporting unit not~~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 ~~exceed the carrying amount of goodwill. This update~~develop Level 3 fair value measurements. The new guidance is effective for ~~annual and interim periods~~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 for interim or annual goodwill impairment tests performed with measurement dates after January 1, 2017. The update will be applied on a prospective basis.~~permitted. We do not expect the adoption of this guidance to have ~~any~~a material impact ~~on our consolidated financial statements as~~in the ~~fair value of our reporting units is substantially in excess of~~Consolidated Financial Statements.

ASU No. 2019-12, Simplifying the ~~carrying values.~~

Accounting for Income Taxes - In ~~August 2016,~~December 2019, the FASB issued ASU ~~2016-15, Classification~~2019-12, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of Certain Cash Receipts and Cash Payments (Topic 230). 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 updatea consolidated group. The new guidance is effective for ~~annual and interim periods~~public entities for fiscal years beginning after December 15, ~~2017,~~2020, and interim periods within those fiscal years, which will require us to adopt these provisions in the first quarter of fiscal ~~2019.~~2022. Early adoption is ~~permitted for financial statements that have not been previously issued. The update will be applied on a retrospective basis.~~permitted. We do not expect the adoption of this guidance to have a material impact ~~on our consolidated financial statements or debt covenants.~~in the Consolidated Financial Statements.

~~In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires a lessee to recognize~~

16. SUBSEQUENT EVENTS

Revolver Net Borrowings

Net payments of $14.0 million were made on the ~~balance sheet a liability~~revolving credit facility subsequent to ~~make lease payments and a corresponding right-of-use asset for virtually all leases, other than leases with a term~~the end of ~~12 months or less. The update also requires additional disclosures about~~ the amount, timing, and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods for fiscal years beginning after December 15, 2018, which will require us to adopt these provisions in the firstsecond quarter of fiscal 2020. ~~Early adoption is permitted for financial statements that have not been previously issued. This update will~~

Dividend Declaration

On January 27, 2020, our Board of Directors declared a quarterly dividend of $0.38 per share to be ~~applied~~paid on ~~a modified retrospective basis. We anticipate implementing the standard by taking advantage~~March 26, 2020 to shareholders of the practical expedient option. 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 remaining rental paymentsrecord as of ~~approximately $606.9 million at the end~~March 6, 2020.

Table of fiscal 2017. We expect that adoption of the new guidance will have a material impact on our consolidated balance sheets due to recognition of the right-of-use asset and lease liability related to our current operating leases. The process of evaluating the full impact of the new guidance on our consolidated financial statements and disclosures is ongoing, but we anticipate the initial evaluation of the impact will be completed in fiscal 2018. Contents

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The FASB has 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 a comprehensive new revenue recognition model that requires a company to recognize revenue to depict 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 updates also require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU 2015-14 delaying the effective date of adoption. These updates are now effective for annual and interim periods for fiscal years beginning

after December 15, 2017, which will require us to adopt these provisions in the first quarter of fiscal 2019. Early application in fiscal 2018 is permitted. These updates permit the use of either the retrospective or cumulative effect transition method. We do not believe these updates will impact our recognition of revenue from sales generated at company-owned restaurants or our recognition of royalty fees from franchisees. We are continuing to evaluate the impact the adoption of these updates will have on the recognition of revenue related to our gift card and loyalty programs and our franchise agreements, as well as which adoption method will be used. The process of evaluating the full impact of the new guidance on our consolidated financial statements and disclosures is ongoing, but we anticipate the initial evaluation of the impact will be completed in the third quarter of fiscal 2018.

~~Item~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth selected operating data as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of comprehensive income:

Thirteen Week Periods Ended Twenty-Six Week Periods Ended
December 27,
2017 December 28,
2016 December 27,
2017 December 28,
2016
Revenues:
Company sales 96.9 % 97.1 % 96.9 % 97.2 %
Franchise and other revenues 3.1 % 2.9 % 3.1 % 2.8 %
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Company restaurants (excluding depreciation and amortization)
Cost of sales ⁽¹⁾
26.0 % 25.8 % 26.1 % 26.0 %
Restaurant labor ⁽¹⁾
33.7 % 33.3 % 34.4 % 33.6 %
Restaurant expenses ⁽¹⁾
25.4 % 25.8 % 25.7 % 26.2 %
Company restaurant expenses ⁽¹⁾
85.1 % 84.9 % 86.2 % 85.8 %
Depreciation and amortization 4.9 % 5.1 % 5.1 % 5.1 %
General and administrative 4.3 % 4.4 % 4.3 % 4.3 %
Other gains and charges 1.2 % 0.2 % 1.5 % 0.5 %
Total operating costs and expenses 92.9 % 92.0 % 94.5 % 93.3 %
Operating income 7.1 % 8.0 % 5.5 % 6.7 %
Interest expense 1.9 % 1.8 % 1.8 % 1.4 %
Other, net (0.2 )% (0.1 )% 0.0 % 0.0 %
Income before provision for income taxes 5.4 % 6.3 % 3.7 % 5.3 %
Provision for income taxes 2.1 % 1.8 % 1.4 % 1.5 %
Net income 3.3 % 4.5 % 2.3 % 3.8 %


⁽¹⁾	~~As a percentage of company sales.~~

The following table details the number of restaurant openings during the respective second quarter, year-to-date, total restaurants open at the end of the second quarter, and total projected openings in fiscal 2018:

Second Quarter Openings Year-to-Date Openings Total Open at End Of Second Quarter
Projected
Openings
Fiscal 2018 Fiscal 2017 Fiscal 2018 Fiscal 2017 Fiscal 2018 Fiscal 2017 Fiscal 2018
Company-owned restaurants:
Chili's domestic 3
1
4
3
940
935
5-6
Chili's international —
1
—
1
5
14
—
Maggiano's —
1
1
2
52
52
1
Total company-owned 3
3
5
6
997
1,001
6-7
Franchise restaurants:
Chili's domestic 1
1
4
2
316
316
5-7
Chili's international 9
8
19
12
369
341
38-43
Total franchise 10
9
23
14
685
657
43-50
Total restaurants:
Chili's domestic 4
2
8
5
1,256
1,251
10-13
Chili's international 9
9
19
13
374
355
38-43
Maggiano's —
1
1
2
52
52
1
Grand total 13
12
28
20
1,682
1,658
49-57

At December 27, 2017, we owned the land and buildings for 190 of the 997 company-owned restaurants. The net book value of the land totaled $143.2 million and the buildings totaled $91.7 million associated with these restaurants.

GENERAL

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help ~~the reader~~you understand ~~Brinker International, Inc.,~~our Company, our operations, and our current operating environment. For an understanding of the significant factors that influenced our performance during the ~~quarters~~thirteen and twenty-six week periods ended December ~~27, 2017~~25, 2019 and December ~~28, 2016,~~26, 2018, the MD&A should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements (Unaudited) and related ~~notes~~Notes to the Consolidated Financial Statements (Unaudited) included in this quarterly report.

All amounts 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 ~~27, 2017,~~25, 2019, we owned, operated or franchised ~~1,682 restaurants.~~1,675 restaurants, consisting of 1,117 Company-owned restaurants and 558 franchised restaurants, located in the United States, 29 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 ~~initiatives~~a Company culture that we believe are centered on a guest experience which includes bringing back guests, growing long-term sales and profit ~~growth, enhancing the guest experience~~ and engaging team ~~member engagement. These~~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.

~~Growing sales and traffic continues to be a challenge with increasing competition and heavy discounting in the casual dining industry.~~ We believe casual dining traffic has been negatively impacted by lower retail traffic in general. U.S. economic growth has been steady in recent years, but wage growth has been slow comparative to the post-recession economic recovery. This wage pressure has challenged both casual dining restaurant operators and consumers as discretionary income available for restaurant visits has been limited. More consumers are opting to eat at home as the decline in grocery costs relative to casual dining prices allows consumers to save money. Consumers are also taking advantage of discounted fast food options which has placed additional pressure on the casual dining sector. In response to these economic factors and industry pressures, we have developed both short and long-term strategies that we believe are appropriate for all operating conditions and will provide a solid foundation for future earnings growth.

Our primary focus this year has been improving the guest traffic trend at Chili’s. We have established foundational initiatives which we believe will result in improved traffic and sales. We have simplified our menu and back of house operations by reducing the number of menu items by forty percent. This initiative has improved kitchen efficiency and resulted in meals being delivered hotter and faster to our guests. During the second quarter of fiscal 2018, we continued with our investment in meatier burgers, ribs and fajitas - items Chili's has always been known for. We believe that guests are responding favorably to the new menu.

The Chili’s brand continues to leverage technology initiatives to create a digital guest experience that we believe will help us engage our guests more effectively. Our new online ordering system expands our current capabilities and gives our guests greater control of their to-go experience. Our upgraded Chili’s mobile app provides the capability for digital curbside service so that guests can order, pay and notify us of their arrival through the app. These investments will allow Chili’s to meet the needs of our guests for all occasions. Enhancing the to-go and delivery businesses will allow us to further develop these lines of business and offer our guests more convenience.

We also plan to launch a Chili’s brand-wide reimage initiative which we believe will help us maintain relevance and increase long-term sales and traffic. This reimage initiative will be executed over the next three years. We believe that our reimage programs are vital to maintaining the relevance of the Chili’s brand. Based on our test results, we believe this investment will also result in solid returns.

~~We believe 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 to our guests. Our “3 for $10” platform allows guests to combine a starter, a non-alcoholic drink and an entrée for just $10.00 and is part of the every-day base menu. Additionally, we have continued our margarita of the month promotion that started in fiscal 2018 that features a premium-liquor margarita every ~~day value.~~month at an every-day value price of $5.00. We ~~anticipate further developing the lunch daypart this year through menu development~~believe these and ~~operational changes~~other value offers are increasing guest frequency and that ~~will deliver convenience and value.~~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~~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 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 further improved our marketing returns with those guests by offering targeted promotions tied to individual purchase behavior. We will continue to expand our database and digital marketing impact by making the guest loyalty programs a significant part of our marketing strategy.

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

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In fiscal 2019, Maggiano’s opened ~~a restaurant~~its first franchise location in the Dallas Fort Worth International Airport, and we anticipate the opening of our second during fiscal 2020 at Dallas Love Field Airport. We intend to explore other opportunities to franchise Maggiano’s.

Maggiano’s continues to leverage technology. In the first ~~quarter~~half of fiscal ~~2018 based on our newer prototype, which includes~~2020, Maggiano’s has begun testing electronic check presenters that facilitate a ~~flexible dining area that may be used~~pay at the table option to provide convenience and 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 ~~banquets or opened up for general seating. This prototype allows~~ the brand to enter new markets for which the prior model was not suited, but still accommodate smaller banquets. We believe guests continue to respond well to Maggiano’s brunch menu, introduced earlier in this calendar year. Maggiano's is committed to delivering high quality food and a dining experience in line with this brand's heritage.

Our global Chili's business continues to grow with locations in 31 countries and two territories outside of the United States. Our international franchisees opened 9 new restaurants this quarter with plans to open 38-43 new restaurants this fiscal year.

~~REVENUES~~

~~Total revenues for~~operate. In the second quarter of fiscal ~~2018 decreased~~2020, our guests were given the ability to ~~$766.4 million, a 0.6% decrease~~order directly through our Maggiano’s website, in addition from the ~~$771.0 million generated for~~DoorDash platforms.

Our global franchisees continue to grow the ~~same~~brand around the world, opening five restaurants in the second quarter of fiscal ~~2017 driven by a 0.8% decrease~~2020, including our first Chili’s restaurant in ~~company sales.~~ Vietnam. We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and existing franchise partners.

The ~~decrease~~following table details the number of restaurant openings during the thirteen and twenty-six week periods ended December 25, 2019 and December 26, 2018, respectively, total full year projected openings in ~~company sales for~~fiscal 2020, and the ~~second quarter was driven by a decline in comparable restaurant sales and a slight decrease in restaurant capacity (see table below).~~total restaurants open at each period end:

~~Total revenues for~~



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

During the twenty-six week period ended December ~~27, 2017 were $1,505.8~~25, 2019, we 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 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 25, 2019, we own property for 43 of the 1,117 Company-owned restaurants. The related book values associated with these 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 ~~1.6% decrease~~percentage of Total revenues (unless otherwise noted) for the periods indicated. All information is derived from the $1,529.5 million generated for the same period in fiscal 2017 driven by a 1.8% decrease in company sales. The decrease in company sales for the year-to-date period was driven by a decline in comparable restaurant sales including the impactaccompanying Consolidated Statements of temporary restaurant closures associated with Hurricane Harvey and Hurricane Irma in the first quarter (see table below). We estimate that Hurricanes Harvey and Irma negatively impacted company sales by approximately $5.4 million and net income per diluted share by approximately $0.03 in the first quarter of fiscal 2018.Comprehensive Income (Unaudited):

Thirteen Week Period Ended December 27, 2017

Comparable
Sales (1)

Price
Increase
Mix-Shift (2) Traffic Capacity
Company-owned (1.0 )% 2.3 % 0.8 % (4.1 )% (0.2 )%
Chili’s (1.5 )% 2.3 % 0.6 % (4.4 )% (0.3 )%
Maggiano’s 1.8 % 1.1 % 1.1 % (0.4 )% 0.4 %
Chili's Franchise ⁽³⁾
(1.0 )%
U.S. (1.7 )%
International 0.1 %
Chili's Domestic ⁽⁴⁾
(1.6 )%
System-wide ⁽⁵⁾
(1.0 )%



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

(1)As a percentage of Company sales.

Thirteen Week Period Ended December 28, 2016

Comparable
Sales (1)

Price
Increase
Mix-Shift (2) Traffic Capacity
Company-owned (2.9 )% 2.0 % 0.9 % (5.8 )% 0.4 %
Chili’s (3.3 )% 1.8 % 1.4 % (6.5 )% 0.2 %
Maggiano’s (0.8 )% 2.6 % (0.9 )% (2.5 )% 4.0 %
Chili's Franchise ⁽³⁾
(3.5 )%
U.S. (3.0 )%
International (4.2 )%
Chili's Domestic ⁽⁴⁾
(3.2 )%
System-wide ⁽⁵⁾
(3.1 )%

Revenues

Thirteen and Twenty-Six Week Periods Ended December 25, 2019 compared to December 26, 2018

Twenty-six Week Period Ended December 27, 2017

Comparable
Sales (1)

Price
Increase
Mix-Shift (2) Traffic Capacity
Company-owned (2.1 )% 2.5 % 1.6 % (6.2 )% 0.0 %
Chili’s (2.4 )% 2.6 % 1.6 % (6.6 )% (0.1 )%
Maggiano’s (0.1 )% 0.7 % 0.9 % (1.7 )% 2.5 %
Chili's Franchise ⁽³⁾
(2.5 )%
U.S. (1.7 )%
International (3.9 )%
Chili's Domestic ⁽⁴⁾
(2.3 )%
System-wide ⁽⁵⁾
(2.2 )%

Twenty-six Week Period Ended December 28, 2016

Comparable
Sales (1)

Price
Increase
Mix-Shift (2) Traffic Capacity
Company-owned (2.1 )% 1.7 % 1.0 % (4.8 )% 0.6 %
Chili’s (2.4 )% 1.5 % 1.4 % (5.3 )% 0.4 %
Maggiano’s (0.7 )% 2.5 % (1.1 )% (2.1 )% 3.5 %
Chili's Franchise ⁽³⁾
(2.1 )%
U.S. (2.3 )%
International (1.8 )%
Chili's Domestic ⁽⁴⁾
(2.2 )%
System-wide ⁽⁵⁾
(2.1 )%

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


•	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.

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



	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



	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 includes~~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. ~~Restaurants temporarily closed for 14 days or more~~Amounts are ~~excluded from~~calculated based on comparable ~~restaurant sales.~~current period versus same period a year ago.


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


⁽³⁾	~~Revenues~~Restaurant Capacity is measured by sales weeks. Amounts are calculated based on comparable current period 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 sales generated by franchisees are not included in revenues onin the ~~consolidated statements~~Consolidated Statements of ~~comprehensive income;~~Comprehensive Income; however, we generate royalty ~~revenue~~revenues and advertising fees based on franchisee ~~sales,~~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.~~operations.


~~(4)~~ ⁽⁶⁾	~~Chili's domestic 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~~Chili’s restaurants in the United States.


~~(5)~~ ⁽⁷⁾	System-wide ~~comparable restaurant sales~~Comparable Restaurant Sales are derived from sales generated by ~~company-owned~~Company-owned Chili’s and Maggiano’s restaurants in addition to the sales generated at franchise-operated ~~Chili's~~Chili’s restaurants.

~~Chili’s company~~

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Costs and Expenses

Thirteen Week Period December 25, 2019 compared to December 26, 2018

The following is a summary of the change in 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 ~~1.3%~~0.1% consisting of 0.5% of increased menu pricing, partially offset by 0.2% of unfavorable commodity pricing primarily related to ~~$623.6~~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 ~~in the second quarter of fiscal 2018 from $632.1 million in the second quarter of fiscal 2017~~ 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 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 ~~decline~~summary of the change in ~~comparable restaurant~~Costs and Expenses:



	Twenty-Six 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	$	426.9		26.5	%	$	392.8		26.4	%	$	34.1		0.1	%
Restaurant labor	560.3			34.8	%	517.1			34.7	%	43.2			0.1	%
Restaurant expenses	432.0			26.8	%	404.7			27.1	%	27.3			(0.3	)%
Depreciation and amortization	77.4					73.1					4.3
General and administrative	72.6					69.2					3.4
Other (gains) and charges	11.4					(8.9		)			20.3
Interest expenses	29.9					31.0					(1.1		)
Other (income), net	(1.0		)			(1.6		)			0.6

Cost of sales, as a percentage of Company sales, increased 0.1%, consisting of 0.4% of unfavorable commodity pricing primarily related to produce and ~~restaurant capacity. For the year-to-date period, Chili's company~~0.2% of unfavorable menu item mix, partially offset by 0.5% of increased menu pricing.

Restaurant labor, as a percentage of Company sales, increased 0.1%, that primarily consisted of 0.5% of higher hourly labor wage rates and taxes, partially offset by 0.2% of sales leverage and other, and 0.2% of lower employee health insurance expenses.

Restaurant expenses, as a percentage of Company sales, decreased ~~2.3%~~0.3% that primarily consisted of 0.9% of sales leverage and favorable other net various restaurant expenses, partially offset by 0.6% of expenses related to ~~$1,251.2~~growth in off-premise.

Depreciation and amortization increased$4.3 million ~~in fiscal 2018 from $1,280.7 million in fiscal 2017~~ primarily due to ~~a decline~~$10.5 million in ~~comparable~~existing and new restaurant ~~sales including~~additions mostly related to the ~~impact~~Chili’s remodel initiative, $3.2 million of ~~temporary restaurant closures associated with Hurricanes Harvey~~additional depreciation and ~~Irma~~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 increases. These increases were partially offset by $12.6 million related to fully depreciated assets and retirements.

General and administrative expenses increased $3.4 million as follows:



	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, for further details, refer to Note 5 - Other Gains and Charges:



	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 expenses decreased $1.1 million consisting of lower average borrowing balances and lower interest rates on our revolving credit facility in the twenty-six week period ended December 25, 2019, partially offset by higher interest expenses related to the new real estate leases from the acquisition of the 116 Chili’s restaurants on September 5, 2019.

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Segment Results

Chili’s Segment



	Thirteen Week Periods Ended						Favorable (Unfavorable) Variance			Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 25, 2019			December 26, 2018			Favorable (Unfavorable) Variance			December 25, 2019			December 26, 2018			Favorable (Unfavorable) Variance
Company sales	$	728.4		$	640.6		$	87.8		$	1,405.9		$	1,280.9		$	125.0
Royalties	9.9			13.2			(3.3		)	21.7			26.1			(4.4		)
Franchise fees and other revenues	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	743.1			662.3			80.8			1,438.7			1,324.1			114.6

Company restaurant expenses⁽¹⁾	640.3			567.1			(73.2		)	1,236.6			1,130.2			(106.4		)
Depreciation and amortization	32.1			29.5			(2.6		)	62.8			60.0			(2.8		)
General and administrative	8.5			9.1			0.6			17.6			17.9			0.3
Other gains and charges	10.6			1.4			(9.2		)	9.0			(10.9		)	(19.9		)
Total operating costs and expenses	691.5			607.1			(84.4		)	1,326.0			1,197.2			(128.8		)
Operating income	$	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 expenses.

Thirteen Week Period Ended December 25, 2019 compared to December 26, 2018

Chili’s Total revenues increased by 12.2% primarily due to increased capacity from the 116 Chili’s restaurants acquired in the first quarter of fiscal ~~2018. Chili's~~2020 and increased comparable restaurant sales. Refer to “Revenues” section above for further details about Chili’s revenues changes.

Company restaurant expenses for Chili’s, as a percentage of Company sales, decreased ~~1.5%~~by 0.6% that primarily consisted of 1.4% of sales leverage and ~~2.4% for the second quarter~~other, 0.5% of increased menu pricing, and ~~year-to-date periods~~0.3% of fiscal 2018, respectively, compared to the prior year periods. Company-owned restaurant capacity decreased 0.3% and 0.1% for the second quarter and year-to-date periods of fiscal 2018, respectively, compared to the prior year periods due to four net restaurant closures since the second quarter of fiscal 2017.

Maggiano’s company sales increased 2.1% to $119.1 million in the second quarter of fiscal 2018 from $116.6 million in the second quarter of fiscal 2017 primarily due to an increase in comparable restaurant sales and restaurant capacity. For the year-to-date period, Maggiano’s company sales increased 1.5% to $208.4 million in fiscal 2018 from $205.4 million in fiscal 2017 primarily driven by an increase in restaurant capacity,lower employee health insurance expenses. These were partially offset by ~~a decrease~~0.7% of higher hourly labor wage rates and taxes, 0.6% of restaurant expenses related to growth in ~~comparable~~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 ~~sales including~~closure charges, and $2.0 million of costs related to the ~~impact of temporary restaurant closures associated with Hurricanes Harvey and Irma~~116 Chili’s restaurants acquired in the first quarter of fiscal ~~2018. Maggiano's capacity increased 0.4%~~2020. Other gains and 2.5% for the second quarter and year-to-date periods of fiscal 2018, respectively, compared to the prior year periods due to one net restaurant opening since the second quarter of fiscal 2017. Comparable restaurant sales increased 1.8% for the second quarter and decreased 0.1% for the year-to-date period of fiscal 2018, respectively, compared to the prior year periods.

~~Franchise and other revenues increased 6.3% to $23.7 million~~charges in the ~~second quarter~~thirteen week period ended December 26, 2018 consisted primarily of ~~fiscal 2018 compared to $22.3~~$4.4 million ~~in the second quarter~~ of fiscal 2017. For the year-to-date period, franchise and other revenues increased 6.3% to $46.2 million in fiscal 2018 from $43.4 million in fiscal 2017. The increases were primarily driven by an increase in gift card related revenues. Our franchisees generated approximately $324 million and $640 million in sales for the second quarter and year-to-date periodsSale leaseback (gain), net of ~~fiscal 2018, respectively.~~

~~COSTS AND EXPENSES~~

Cost of sales, as a percent of company sales, increased to 26.0% for the second quarter and 26.1% for the year-to-date period of fiscal 2018 from 25.8% and 26.0% for the respective prior year periods. Cost of sales, as a percent of company sales, was negatively impacted by unfavorable menu item mix and unfavorable commodity pricing related to produce,transaction charges, partially offset by ~~increased menu pricing and favorable commodity pricing related to beef.~~

~~Restaurant labor, as a percent~~$2.6 million of company sales, increased to 33.7% for the second quarter and 34.4% for the year-to-date period of fiscal 2018 from 33.3% and 33.6% for the respective prior year periods primarily due to higher wage rates and sales deleverage, partially offset by lower incentive bonuses.

Restaurant expenses, as a percent of company sales, decreased to 25.4% for the second quarter and 25.7% for the year-to-date period of fiscal 2018 from 25.8% and 26.2% for the respective prior year periods primarily due to lower advertising, repairs and maintenance and workers' compensation insurance expenses, partially offset by sales deleverage.

~~Depreciation and amortization expense decreased $1.7 million and~~Chili’s remodel write-offs, $2.0 million for the second quarter and year-to-date periods of fiscal 2018, respectively, compared to the same periods in the prior year primarily due to an increase in fully depreciated assets and restaurant closures, partially offset by depreciation on asset replacements and new restaurant openings.

General and administrative expense decreased approximately $0.5 million for the second quarter and $0.6 million for the year-to-date period of fiscal 2018 compared to the respective prior year periods primarily due to lower compensation-related expenses.

~~In the second quarter of fiscal 2018, other gains and charges were $9.3 million. We recorded restaurant closure charges of $4.3 million primarily~~charge related to lease termination charges, and ~~other costs associated with the closure~~$1.0 million of ~~nine~~impairments related to two underperforming ~~Chili's restaurants located~~restaurants.

Depreciation and amortization for Chili’s increased $2.6 million primarily due to $4.1 million in ~~Alberta, Canada~~existing and new restaurant ~~impairment charges of $2.0 million primarily~~additions mostly related to the ~~long-lived assets~~Chili’s remodel initiative, $2.6 million of ~~certain underperforming Maggiano's~~additional depreciation and ~~Chili's~~amortization expenses related to the acquisition of 116 Chili’s restaurants, ~~which will continue to operate. In addition, we recorded lease guarantee charges of $1.4~~and $1.0 million in other net depreciation and amortization expenses increases. These increases were partially offset by $5.1 million related to leases that were assigned to a divested brand. In the first quarter of fiscal 2018, other gains and charges were $13.2 million. We recorded asset impairment charges of $7.2 million primarily related to the long-livedfully depreciated assets and reacquired franchise rights of nine underperforming Chili's restaurants located in Canada which were closed in the second quarter of fiscal 2018. Additionally, we incurred expenses associated with Hurricanes Harveyretirements.

General and ~~Irma primarily related to employee relief payments and inventory spoilage.~~

~~In the second quarter of fiscal 2017, other gains and charges were $1.3 million. We recorded a $2.6~~administrative for Chili’s decreased $0.6 million gain on the sale of property, partially offset by restaurant impairment charges of $1.9 million primarily related to the long-lived assets and reacquired franchisee rights of six underperforming Chili's restaurants. In the first quarter of fiscal 2017, other gains and charges were $6.1 million. We recorded restaurant closure charges of $2.5 million primarily related to lease termination charges for restaurants closed during the first quarter. Additionally, we incurred $2.5 million of professional fees and severance associated with our information technology restructuring.

Interest expense increased approximately $0.7 million for the second quarter and $5.8 million for the year-to-date period of fiscal 2018 compared to the respective prior year periods primarily due to higher average borrowing balances and higher interest rates.

~~SEGMENT RESULTS~~

~~Chili's revenues decreased 1.1% to $640.1 million in the second quarter of fiscal 2018 from $647.4 million in the prior year~~ primarily due to a ~~decline~~decrease in ~~comparable restaurant sales and restaurant capacity. Chili's operating income, as a percent~~payroll-related expenses.

Table of ~~total revenues, was 9.4% for the second quarter of fiscal 2018~~Contents

Twenty-Six Week Period Ended December 25, 2019 compared to 10.1% for the prior year period. The decrease was primarily driven by sales deleverage, higher restaurant closure charges, higher restaurant labor wage rates and unfavorable product mix, partially offset byDecember 26, 2018

Chili’s Total revenues increased ~~menu pricing and lower employee health insurance costs and advertising. The decrease was also partially offset by lower incentive bonus and repairs and maintenance expenses.~~

~~For the year-to-date period, Chili's revenues decreased 2.0% to $1,286.0 million from $1,312.9 million in the prior year period. The decrease was~~8.7% primarily due to ~~a decline in comparable restaurant sales including~~increased capacity from the ~~impact of temporary restaurant closures associated with Hurricanes Harvey and Irma~~116 Chili’s restaurants acquired in the first quarter of fiscal ~~2018. Chili's operating income,~~2020 and increased comparable restaurant sales. Refer to “Revenues” section above for further details about Chili’s revenues changes.

Company restaurant expenses for Chili’s, as a ~~percent~~percentage of ~~total revenues, was 8.6%~~Company sales, decreased 0.2% that primarily consisted of 1.2% of sales leverage and other, 0.5% of increased menu pricing, and 0.3% of lower employee health insurance expenses. These were offset by 0.6% of restaurant expenses related to growth in off-premise, 0.6% of higher hourly labor wage rates and taxes, 0.5% unfavorable commodity pricing, and 0.1% of unfavorable menu item mix.

Other gains and charges for Chili’s during the ~~year-to-date~~twenty-six week period ended December 25, 2019 consisted primarily of ~~fiscal~~$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 consisted primarily of $17.7 million net gain from the sale leaseback transactions, 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.

Depreciation and amortization increased $2.8 million that primarily consisted of $9.6 million in existing and new restaurant additions mostly related to the 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 $10.1 million related to fully depreciated assets and retirements.

General and administrative decreased $0.3 million that primarily consisted of a decrease of $1.2 million 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 25, 2019			December 26, 2018			Favorable (Unfavorable) Variance			December 25, 2019			December 26, 2018			Favorable (Unfavorable) Variance
Company sales	$	119.1		$	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	7.1			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	126.2			128.4			(2.2		)	216.6			220.4			(3.8		)

Company restaurant expenses⁽¹⁾	99.2			100.1			0.9			182.3			184.0			1.7
Depreciation and amortization	4.0			3.9			(0.1		)	8.0			7.9			(0.1		)
General and administrative	1.5			1.5			0.0			3.2			3.2			0.0
Other gains and charges	—			—			—			0.1			—			(0.1		)
Total operating costs and expenses	104.7			105.5			0.8			193.6			195.1			1.5
Operating income	$	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.

Table of Contents

Thirteen Week Period Ended December 25, 2019 compared to ~~10.0%~~December 26, 2018

Maggiano’s Total revenues decreased 1.7% due to a decrease in comparable restaurant sales. Refer to “Revenues” section above for ~~the respective prior year period. The decrease was~~further details about Maggiano’s revenues changes.

Company restaurant expenses, as a percentage of Company sales, increased 0.5% for Maggiano’s primarily driven by ~~sales deleverage,~~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 ~~commodity pricing~~0.4% of sales deleverage and ~~higher~~unfavorable other net Company restaurant ~~labor wage rates,~~expenses. These increases were partially offset by ~~increased menu pricing~~0.6% of lower management salaries and ~~lower advertising~~taxes and repairs and maintenance expenses. The decrease in Chili's operating income was also due to impairment charges for underperforming restaurants, restaurant closure charges and hurricane-related expenses.

~~Maggiano's revenues increased 2.1% to $126.3 million in the second quarter~~0.3% of fiscal 2018 from $123.7 million in the prior year primarily due to an increase in comparable restaurant sales. Maggiano's operating income, as a percent of total revenues, was 17.4% for the second quarter of fiscal 2018 compared to 16.0% for the prior year period. The increase was primarily driven by sales leverage, lower incentive bonuses and increased menu pricing. ~~The increase in Maggiano's operating income was also~~

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

Maggiano’s Total revenues decreased 1.7% due to lower property taxes, preopening and workers' compensation insurance expenses, partially offset by an impairment charge for an underperforming restaurant, higher restaurant labor wage rates and unfavorable commodity pricing.

For the year-to-date period, Maggiano's revenues increased 1.5% to $219.8 million from $216.6 million in the prior year. The increase was primarily due to an increase in restaurant capacity in second quarter of fiscal 2018, partially offset by a decrease in comparable restaurant ~~sales in the first quarter of fiscal 2018 including the impact of temporary~~sales. Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

Company restaurant ~~closures associated with Hurricanes Harvey and Irma in the first quarter of fiscal 2018. Maggiano's operating income,~~expenses as a ~~percent~~percentage of ~~total revenues, was 11.4%~~Company sales increased 0.6%, for ~~the year-to-date period of fiscal 2018 compared to 10.6% for the respective prior year period. The increase was~~Maggiano’s primarily driven by sales leverage, lower incentive bonuses and increased menu pricing. The increase in Maggiano's operating income was also due to lower workers' compensation insurance, preopening and repairs and maintenance expenses, partially offset by0.7% of higher ~~restaurant~~hourly labor wage rates and taxes, 0.6% increase in rent and property tax expenses due to the sale leaseback of one restaurant in the fourth quarter of fiscal 2019, 0.3% of unfavorable ~~commodity pricing and~~ menu item ~~mix.~~

mix, partially offset by 0.4% of lower management salaries and taxes, 0.3% of increased menu pricing, 0.3% of favorable other net Company restaurant expenses and sales deleverage.

~~INCOME TAXES~~Income Taxes

The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on December 22, 2017 with an effective date of January 1, 2018. The enactment date occurred prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory tax rate changes stipulated by the Tax Act were reflected in the current quarter. The Tax Act lowered the federal statutory tax rate from 35% to 21% effective January 1, 2018. Brinker’s federal statutory tax rate for fiscal 2018 is now 28% representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date. For subsequent years, our federal statutory tax rate will be 21%. 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 is 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.



	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 increased to 38.3%~~rates in the thirteen and ~~37.4% for the second quarter and year-to-date~~twenty-six week periods ~~of fiscal 2018~~ended December 25, 2019 decreased compared to ~~28.2%~~the thirteen and ~~28.8% in~~twenty-six week periods ended December 26, 2018 primarily driven by the ~~prior year comparable periods. The majority of this increase was due to the re-measurement~~impact of the company’s net deferred tax assets related to the Tax Act. The lower federal statutory tax rate will have a material positive impact on the Company’s effective tax rate and cash paid for income taxes. We expect the annual effective tax rate to range from 20% to 22%.fiscal 2019 sale leaseback gain.

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

Cash Flows

Cash Flows from Operating Activities

~~During the twenty-six week period ended December 27, 2017, net~~



	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

Net cash ~~provided by~~flow from operating activities ~~was $119.7 million compared to $142.8 million in the prior year~~increased primarily due to ~~lower earnings~~$67.1 million of tax payments made in fiscal 2019 related to the sale leaseback gain and ~~gift card sales~~$14.0 million of tax refunds received in ~~the current year, partially offset by lower tax payments.~~fiscal 2020.

Table of Contents

Cash Flows from Investing Activities


	Twenty-Six Week Periods Ended						Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 27, 2017			December 28, 2016			December 25, 2019			December 26, 2018
Net cash used in investing activities (in thousands):
Cash flows from investing activities
Payments for property and equipment	$	(48,559	)	$	(60,055	)	$	(51.4	)	$	(78.7	)	$	27.3
Payments for franchise restaurant acquisitions							(96.2		)	—			(96.2		)
Proceeds from sale of assets	325			3,022			0.3			1.2			(0.9		)
Proceeds from note receivable							1.4			1.3			0.1
Insurance recoveries	1,000			—			—			1.4			(1.4		)
Proceeds from note receivable	480			—
	$	(46,754	)	$	(57,033	)
Proceeds from sale leaseback transactions, net of related expenses							—			458.0			(458.0		)
Net cash (used in) provided by investing activities							$	(145.9	)	$	383.2		$	(529.1	)

~~Capital expenditures~~Net cash from investing activities decreased ~~to approximately $48.6 million for the twenty-six week period ended December 27, 2017 compared to $60.1 million for the prior year~~ primarily due to $458.0 million in net cash proceeds received from the ~~prior year~~sale leaseback transactions during fiscal 2019. Additionally, $96.2 million cash consideration was paid for the purchase of 116 Chili’s restaurants from a franchisee during fiscal 2020. These decreases were partially offset by $27.3 million of lower Capital expenditures in fiscal 2020 primarily related to the Chili’s remodel program and fiscal 2019 expenditures for our new corporate headquarters, partially offset by an increase in ~~purchases for new beer taps for the line of craft beers launched in fiscal 2017 and a decrease in Chili's~~ new restaurant ~~construction.~~construction during fiscal 2020.

Cash Flows from Financing Activities


	Twenty-Six Week Periods Ended						Twenty-Six Week Periods Ended						Favorable (Unfavorable) Variance
	December 27, 2017			December 28, 2016			December 25, 2019			December 26, 2018
Net cash used in financing activities (in thousands):
Cash flows from financing activities
Borrowings on revolving credit facility	$	320,000		$	100,000		$	463.0		$	479.0		$	(16.0	)
Payments on revolving credit facility	(276,000		)	(138,000		)	(416.0		)	(713.0		)	297.0
Purchases of treasury stock	(71,792		)	(349,994		)	(11.3		)	(167.6		)	156.3
Payments on long-term debt							(5.0		)	(3.7		)	(1.3		)
Payments of dividends	(35,445		)	(36,944		)	(29.0		)	(31.6		)	2.6
Payments on long-term debt	(5,091		)	(1,862		)
Proceeds from issuances of treasury stock	1,042			3,837			1.5			2.8			(1.3		)
Proceeds from issuance of long-term debt	—			350,000
Payments for debt issuance costs	—			(10,216		)	(1.0		)	—			(1.0		)
	$	(67,286	)	$	(83,179	)
Net cash provided by (used in) financing activities							$	2.2		$	(434.1	)	$	436.3



~~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)	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



Large ~~accelerated filer~~Accelerated Filer	x☒		Accelerated ~~filer~~Filer	o☐
Non-accelerated ~~filer~~Filer	o☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o☐
			Emerging growth company	o☐



~~Class~~	~~Outstanding at January 29, 2018~~
~~Common Stock, $0.10 par value~~	~~46,347,140 shares~~



	Page
Part I—I. Financial Information

~~Item 1. Financial Statements~~


~~Consolidated Balance Sheets (Unaudited) — December 27, 2017 and June 28, 2017~~	3
Item 1. Financial Statements	3
Consolidated Statements of Comprehensive Income (Unaudited) — Thirteen ~~week~~ and ~~twenty-six week periods ended~~Twenty-Six Week Periods Ended December ~~27, 2017~~25, 2019 and December ~~28, 2016~~26, 2018	3
Consolidated Balance Sheets - December 25, 2019 (Unaudited) and June 26, 2019	4

Consolidated Statements of Cash Flows (Unaudited) — ~~Twenty-six week periods ended~~Twenty-Six Week Periods Ended December ~~27, 2017~~25, 2019 and December ~~28, 2016~~26, 2018	5

Notes to Consolidated Financial Statements (Unaudited) ~~(Unaudited)~~	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1731

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2643

Item 4. Controls and Procedures	2643
Part II. Other Information	44
~~Part II—Other Information~~

Item 1. Legal Proceedings	2944

Item 1A. Risk Factors	2945

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2945
Item 5. Other Information	45
Item 6. Exhibits	3046

Signatures	3147



	December 27, 2017			June 28, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	14,733		$	9,064
Accounts receivable, net	90,777			44,658
Inventories	24,830			24,997
Restaurant supplies	46,829			46,380
Prepaid expenses	17,108			19,226
Income taxes receivable	197			—
Total current assets	194,474			144,325
Property and Equipment, at Cost:
Land	149,110			149,098
Buildings and leasehold improvements	1,665,451			1,655,227
Furniture and equipment	713,504			713,228
Construction-in-progress	10,047			21,767
	2,538,112			2,539,320
Less accumulated depreciation and amortization	(1,580,028		)	(1,538,706		)
Net property and equipment	958,084			1,000,614
Other Assets:
Goodwill	164,148			163,953
Deferred income taxes, net	26,508			37,029
Intangibles, net	25,138			27,512
Other	32,193			30,200
Total other assets	247,987			258,694
Total assets	$	1,400,545		$	1,403,633
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Current installments of long-term debt	$	8,265		$	9,649
Accounts payable	92,163			104,231
Gift card liability	166,819			126,482
Accrued payroll	62,839			70,281
Other accrued liabilities	121,790			111,515
Income taxes payable	—			14,203
Total current liabilities	451,876			436,361
Long-term debt, less current installments	1,365,255			1,319,829
Other liabilities	136,274			141,124
Commitments and Contingencies (Note 11)
Shareholders’ Deficit:
Common stock—250,000,000 authorized shares; $0.10 par value; 176,246,649 shares issued and 46,339,290 shares outstanding at December 27, 2017 and 176,246,649 shares issued and 48,440,721 shares outstanding at June 28, 2017	17,625			17,625
Additional paid-in capital	505,053			502,074
Accumulated other comprehensive loss	(5,202		)	(11,921		)
Retained earnings	2,625,638			2,627,073
	3,143,114			3,134,851
Less treasury stock, at cost (129,907,359 shares at December 27, 2017 and 127,805,928 shares at June 28, 2017)	(3,695,974		)	(3,628,532		)
Total shareholders’ deficit	(552,860		)	(493,681		)
Total liabilities and shareholders’ deficit	$	1,400,545		$	1,403,633



	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



	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.


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


•	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.



	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



	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


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


–	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.


⁽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.



	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.



	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



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



	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 $14.6 million for capital and operating subleases, respectively, as of June 26, 2019.


⁽²⁾	Operating lease expenses for the fifty-two weeks ended June 26, 2019, recorded under Legacy GAAP, totaled $158.6 million, which included $141.7 million for straight-lined minimum rent, $3.3 million for contingent rent, and $13.6 million of other rent-related expenses.



	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



	Thirteen Week Periods Ended		Twenty-Six Week Periods Ended
	December 27, 2017	December 28, 2016	December 27, 2017	December 28, 2016
Basic weighted average shares outstanding	46,432	49,833	47,362	52,339
Dilutive stock options	95	223	89	235
Dilutive restricted shares	353	424	355	454
	448	647	444	689
Diluted weighted average shares outstanding	46,880	50,480	47,806	53,028

Awards excluded due to anti-dilutive effect on diluted net income per share	1,393	890	1,403	959



	Thirteen Week Period Ended December 27, 2017			Twenty-six Week Period Ended December 27, 2017
Income tax expense at statutory rate	$	11,520		$	15,761
FICA tax credit	(4,555		)	(6,232		)
State income taxes, net of federal benefit	1,362			1,863
Stock based compensation excess tax (windfall) shortfall	(400		)	1,170
Revaluation of deferred taxes	8,738			8,738
Other	(889		)	(252		)
	$	15,776		$	21,048


	Thirteen Week Period Ended December 27, 2017									Thirteen Week Period Ended December 25, 2019
	Chili's		Maggiano's		Other			Consolidated		Chili’s⁽¹⁾			Maggiano’s		Other			Consolidated
Company sales	$	623,593	$	119,095	$	—		$	742,688	$	728.4		$	119.1	$	—		$	847.5
Royalties										9.9			—		—			9.9
Franchise fees and other revenues										4.8			7.1		—			11.9
Franchise and other revenues	16,523		7,189		—			23,712		14.7			7.1		—			21.8
Total revenues	640,116		126,284		—			766,400		743.1			126.2		—			869.3

Company restaurant expenses (a)	533,936		97,888		124			631,948
Company restaurant expenses										640.3			99.2		0.1			739.6
Depreciation and amortization	31,003		4,022		2,630			37,655		32.1			4.0		3.2			39.3
General and administrative	9,264		1,469		22,355			33,088		8.5			1.5		24.6			34.6
Other gains and charges	5,920		983		2,358			9,261
Other (gains) and charges										10.6			—		1.7			12.3
Total operating costs and expenses	580,123		104,362		27,467			711,952		691.5			104.7		29.6			825.8

Operating income (loss)	$	59,993	$	21,922	$	(27,467	)	$	54,448	51.6			21.5		(29.6		)	43.5
Interest expenses										1.1			—		13.9			15.0
Other (income), net										(0.1		)	—		(0.4		)	(0.5		)
Income (loss) before provision for income taxes										$	50.6		$	21.5	$	(43.1	)	$	29.0