Chili's 2012 Annual Report Download - page 54

BRINKER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
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 June 27, 2012, we owned,
operated, or franchised 1,581 restaurants in the United States and 31 countries and two territories outside of the
United States.
We sold On The Border Mexican Grill & Cantina (“On The Border”) to OTB Acquisition LLC (“OTB
Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in June 2010. On The Border has been
presented as discontinued operations in the consolidated financial statements. See Note 2 for additional
disclosures.
(b) Basis of Presentation
Our consolidated financial statements include the accounts of Brinker International, Inc. and our wholly-
owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
We have a 52/53 week fiscal year ending on the last Wednesday in June. Fiscal years 2012 and 2011, which
ended on June 27, 2012 and June 29, 2011, respectively, each contained 52 weeks. Fiscal year 2010 ended on
June 30, 2010 and contained 53 weeks.
We report certain labor and related expenses in a separate caption on the consolidated statements of income
titled restaurant labor. Restaurant labor includes all compensation-related expenses, including benefits and
incentive compensation, for restaurant team members at the general manager level and below. Labor-related
expenses attributable to multi-restaurant (or above-restaurant) supervision is included in restaurant expenses.
(c) Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and costs and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Revenue Recognition
We record revenue from the sale of food, beverages and alcohol as products are sold. Initial fees received
from a franchisee to establish a new franchise are recognized as income when we have performed our obligations
required to assist the franchisee in opening a new franchise restaurant, which is generally upon the opening of
such restaurant. Fees received for development arrangements are recognized as income upon payment of the fees.
Continuing royalties, which are a percentage of net sales of franchised restaurants, are accrued as income when
earned. Proceeds from the sale of gift cards are recorded as deferred revenue and recognized as revenue when the
gift card is redeemed by the holder. Breakage income represents the value associated with the portion of gift
cards sold that will most likely never be redeemed. Based on our historical gift card redemption patterns and
considering our gift cards have no expiration dates or dormancy fees, we can reasonably estimate the amount of
gift cards for which redemption is remote and record breakage income based on this estimate. We recognize
breakage income within Revenues in the consolidated statements of income. We update our estimate of our
breakage rate periodically and, if necessary, adjust the deferred revenue balance accordingly.
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