Revenues

Our revenues are derived primarily from two sales channels, which we operate as one segment: company restaurants and franchised and licensed restaurants. The following table disaggregates our revenue by sales channels and types of goods or services.



	Fiscal Year Ended
	December 26, 2018		December 27, 2017 ⁽¹⁾		December 28, 2016 ⁽¹⁾

Company restaurant sales	$	411,932	$	390,352	$	367,310
Franchise and license revenue:
Royalties	101,557		100,631		98,416
Advertising revenue	78,308		—		—
Initial and other fees	6,422		2,466		2,717
Occupancy revenue	31,960		35,720		38,505
Franchise and license revenue	218,247		138,817		139,638
Total operating revenue	$	630,179	$	529,169	$	506,948


(1)	As disclosed in Note 2, prior period amounts have not been adjusted under the modified retrospective method of adoption of Topic 606.

Financial Statement Impact of Adoption

The following tables summarize the impact of adopting Topic 606 on our financial statement line items as of December 26, 2018 and for the quarter and year ended December 26, 2018.



	Year ended December 26, 2018
Consolidated Balance Sheet	As Reported			Adjustments			Amounts without adoption of Topic 606
	(In thousands)
Prepaid and other current assets	$	10,866		$	509		$	11,375
Deferred income taxes	17,333			(4,988		)	12,345
Other current liabilities	61,790			(407		)	61,383
Other noncurrent liabilities	48,087			(18,370		)	29,717
Deficit	(306,414		)	14,298			(292,116		)



	Quarter ended December 26, 2018							Year ended December 26, 2018
Consolidated Statement of Income	As Reported		Adjustments			Amounts without adoption of Topic 606		As Reported		Adjustments			Amounts without adoption of Topic 606
	(In thousands, except per share amounts)
Franchise and license revenue	$	55,160	$	(21,162	)	$	33,998	$	218,247	$	(82,815	)	$	135,432
Costs of franchise and license revenue	28,517		(20,962		)	7,555		114,296		(81,268		)	33,028
Provision for income taxes	1,340		(52		)	1,288		8,557		(400		)	8,157
Net income	11,503		(148		)	11,355		43,693		(1,147		)	42,546
Basic net income per share	$	0.19	$	(0.01	)	$	0.18	$	0.69	$	(0.02	)	$	0.67
Diluted net income per share	$	0.18	$	—		$	0.18	$	0.67	$	(0.02	)	$	0.65



	Quarter ended December 26, 2018							Year ended December 26, 2018
Consolidated Statement of Comprehensive Income	As Reported		Adjustments			Amounts without adoption of Topic 606		As Reported		Adjustments			Amounts without adoption of Topic 606
	(In thousands)
Net income	$	11,503	$	(148	)	$	11,355	$	43,693	$	(1,147	)	$	42,546
Total comprehensive income	4,816		(148		)	4,668		41,863		(1,147		)	40,716



	Year ended December 26, 2018
Consolidated Statement of Cash Flow	As Reported			Adjustments			Amounts without adoption of Topic 606
	(In thousands)
Net income	$	43,693		$	(1,147	)	$	42,546
Deferred income tax expense	6,193			(400		)	5,793
Changes in assets and liabilities:
Other current assets	921			(509		)	412
Other accrued liabilities	(1,676		)	573			(1,103		)
Other noncurrent liabilities	(4,418		)	1,483			(2,935		)
Net cash flows provided by operating activities	73,690			—			73,690

The following significant changes impacted our financial statement line items as of December 26, 2018 and for the quarter and year ended December 26, 2018:

•

Upon adoption of Topic 606, we recorded a cumulative effect adjustment related to previously recognized initial franchise fees resulting in a $21.0 million increase to deferred franchise revenue, a $15.6 million increase to opening deficit and a $5.4 million increase to deferred tax assets. The deferred franchise revenue resulting from the cumulative effect adjustment will be amortized over the remaining lives of the individual franchise agreements. Also upon adoption, we recorded a cumulative effect adjustment to recognize breakage in proportion to redemptions that occurred prior to December 28, 2017 resulting in a decrease of $0.6 million to gift card liability (a component of other current liabilities), a $0.5 million increase to accrued advertising (a component of other current liabilities) and a $0.1 million decrease to opening deficit.


•	We recognized franchise and license revenue and costs of franchise and license revenue of $19.9 million for the quarter and $78.3 million year-to-date resulting from the recording of advertising revenues and expenditures on a gross basis under Topic 606 versus recording these amounts on a net basis under Topic 605.


•	We recognized additional franchise and license revenue of $0.2 million for the quarter and $1.5 million year-to-date under Topic 606 than we would have recognized under Topic 605, resulting from the timing of recognition of initial franchise fees.


•	We recognized franchise and license revenue and costs of franchise and license revenue of $1.0 million for the quarter and $3.0 million year-to-date resulting from the recording of other franchise services fees on a gross basis under Topic 606 versus recording these amount on a net basis under Topic 605.

Contract Balances

Contract balances related to contracts with customers consists of receivables, deferred franchise revenue and deferred gift card revenue. See Note 5 for details on our receivables.

Deferred franchise revenue consists primarily of the unamortized portion of initial franchise fees that are currently being amortized into revenue and amounts related to development agreements and unopened restaurants that will begin amortizing into revenue when the related restaurants are opened. Deferred franchise revenue represents our remaining performance obligations to our franchisees, excluding amounts of variable consideration related to sales-based royalties and advertising. The components of the change in deferred franchise revenue are as follows:



	(In thousands)
Balance, December 27, 2017	$	1,643
Cumulative effect adjustment recognized upon adoption of Topic 606	20,976
Fees received from franchisees	1,256
Revenue recognized ⁽¹⁾	(3,337		)
Balance, December 26, 2018	20,538
Less current portion included in other current liabilities	2,124
Deferred franchise revenue included in other noncurrent liabilities	$	18,414


(1)	Of this amount $3.3 million was included in either the deferred franchise revenue balance as of December 27, 2017 or the cumulative effect adjustment.

As of December 26, 2018, the deferred franchise revenue expected to be recognized in the future is as follows:



	(In thousands)
2019	$	2,124
2020	1,977
2021	1,796
2022	1,687
2023	1,608
Thereafter	11,346
Deferred franchise revenue	$	20,538

Deferred gift card liabilities consist of the unredeemed portion of gift cards sold in company restaurants and at third party locations. The balance of deferred gift card liabilities represents our remaining performance obligations to our customers. The balance of deferred gift card liabilities as of both December 26, 2018 and December 27, 2017 was $6.5 million. During the year ended December 26, 2018, we recognized revenue of $1.9 million from gift card redemptions at company restaurants.