SEGMENT INFORMATION

6 Months Ended

Dec. 26, 2018

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

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 income, service fees and discount costs from third-party gift card sales, digital entertainment revenues, delivery fee income, development and franchise fees, and retail royalty revenues. We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our operating segments are predominantly in the United States. There were no material transactions amongst our operating segments.

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

Our chief operating decision maker uses operating income as the measure for assessing performance of our segments. Operating income includes revenues and expenses directly attributable to segment-level results of operations. Company restaurant expenses include food and beverage costs, restaurant labor costs and restaurant expenses, including advertising expenses. The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP:



	Thirteen Week Period Ended December 26, 2018
	ASC 606
	Chili’s		Maggiano’s		Other			Consolidated
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

Company restaurant expenses⁽¹⁾	567.1		100.1		0.2			667.4
Depreciation and amortization	29.5		3.9		2.7			36.1
General and administrative	9.1		1.5		24.8			35.4
Other gains and charges	1.4		—		0.8			2.2
Total operating costs and expenses	607.1		105.5		28.5			741.1

Operating income (loss)	55.2		22.9		(28.5		)	49.6
Interest expense	0.7		0.1		14.6			15.4
Other, net	—		—		(0.8		)	(0.8		)
Income (loss) before provision for income taxes	$	54.5	$	22.8	$	(42.3	)	$	35.0



	Thirteen Week Period Ended December 27, 2017
	Legacy GAAP
	Chili’s		Maggiano’s		Other			Consolidated
Company sales	$	623.6	$	119.1	$	—		$	742.7
Franchise and other revenues	16.5		7.2		—			23.7
Total revenues	640.1		126.3		—			766.4

Company restaurant expenses⁽¹⁾	533.9		97.9		0.1			631.9
Depreciation and amortization	31.0		4.0		2.7			37.7
General and administrative	9.3		1.5		22.3			33.1
Other gains and charges	5.9		1.0		2.4			9.3
Total operating costs and expenses	580.1		104.4		27.5			712.0

Operating income (loss)	60.0		21.9		(27.5		)	54.4
Interest expense	—		—		14.3			14.3
Other, net	—		—		(1.0		)	(1.0		)
Income (loss) before provision for income taxes	$	60.0	$	21.9	$	(40.8	)	$	41.1



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

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

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

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



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

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

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

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

⁽¹⁾

Company restaurant expenses include Cost of sales, Restaurant labor, and Restaurant expenses including advertising expenses. With the adoption of ASC 606, for the thirteen and twenty-six week periods ended December 26, 2018, advertising contributions received from Chili’s franchisees are recorded as Franchise fees and other revenues within Total revenues, which differs from the thirteen and twenty-six week periods

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

⁽²⁾

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