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BRINKER
INTERNATIONAL®
Annual Report 2015

Table of contents

  • Page 1
     INTERNATIONAL® BRINKER Annual Report 2015

  • Page 2

  • Page 3
    ...Shareholders, Team Members, Guests, Franchise Partners and Supplier Partners: LONG-TERM COMMITMENT For several years now we have been persistently executing against our long-term strategy to deliver top line growth and increased value to you, our shareholders. As we look back at fiscal 2015 and look...

  • Page 4
    ... to our Chili's mobile app which allows guests to add their name to a restaurant's wait list remotely, track their place in line and show up right when their table is ready. Outside of food and technology, we invested back into our business with the acquisition of 103 franchised Chili's restaurants...

  • Page 5
    ... its business model through menu innovation and cost of sales improvement. I'm confident that we will strike that perfect balance of being a scratchkitchen restaurant serving only the highest quality food while becoming smarter about efficiencies. In regards to the top line, it's all about building...

  • Page 6
    ...Great Place to Work® and Fortune. Our more than 100,000 team members worldwide are committed to making people feel special and consistently executing on our promises. It is something they do every day in our more than 1,600 restaurants and will continue to deliver upon in fiscal 2016 and beyond. We...

  • Page 7
    ...Employer Identification No.) 6820 LBJ Freeway, Dallas, Texas (Address of principal executive offices) 75240 (Zip Code) (972) 980-9917 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.10 par value...

  • Page 8
    ... Go menu is available to order online, through the brand's mobile app or by calling the restaurant. In addition to convenience, guests can enjoy the control of on-demand ordering, a number of entertainment offerings and the pay-at-the table feature that is available on the tabletop device located on...

  • Page 9
    ... 2015, entrée selections ranged in menu price from $12.95 to $42.50. The average revenue per meal, including alcoholic beverages, was approximately $27.00 per person. During this same year, food and non-alcoholic beverage sales constituted approximately 83.0% of Maggiano's total restaurant revenues...

  • Page 10
    ... contributions from Maggiano's and our global business. Maggiano's continues to deliver sales growth and has opened three restaurants in fiscal 2015 based on the new prototype, which excludes banquet space. This new prototype will allow the brand to enter new markets for which the existing model was...

  • Page 11
    ... train management and hourly team members. The following table illustrates the system-wide restaurants opened in fiscal 2015 and the planned openings in fiscal 2016: Fiscal 2015 Openings(1) Fiscal 2016 Projected Openings Chili's: Company-owned ...Franchise(2) ...Maggiano's ...International: Company...

  • Page 12
    ... support a multi-unit development agreement, as well as, in some instances, multi-brand operations. During the year ended June 24, 2015, we also opened one company-owned Chili's restaurant in Alberta, Canada. Domestic We remain committed to also growing our number of domestic franchised restaurants...

  • Page 13
    ...Restaurant Management Our Chili's and Maggiano's brands have separate designated teams who support each brand including operations, finance, franchise, marketing, peopleworks and culinary. We believe these strategic, brand-focused teams foster the identities of the individual and uniquely positioned...

  • Page 14
    ...24, 2015, we employed approximately 53,000 team members, of which 615 were restaurant support center personnel in Dallas, and 4,007 were restaurant area directors, managers, or trainees. The remaining 48,394 were employed in non-management restaurant positions. Our executive officers have an average...

  • Page 15
    ... and the effectiveness of advertising and marketing programs. Our restaurants also face competition from the introduction of new products and menu items by competitors, as well as substantial price discounting among other offers, and are likely to continue to face such future competition in light of...

  • Page 16
    ...and future operations and to open new restaurants. We are subject to the Fair Labor Standards Act (which governs such matters as minimum wages, overtime and other working conditions), along with the Americans with Disabilities Act, the Immigration Reform and Control Act of 1986, various family leave...

  • Page 17
    ...bodies with respect to zoning, land use and environmental factors could delay, prevent or make cost prohibitive the continuing operations of an existing restaurant or the development of new restaurants in particular locations. Due to our international franchising, we are also subject to governmental...

  • Page 18
    ...ability to meet our business strategy plan is dependent upon, among other things, our and our franchisees' ability to increase gross sales and operating profits at existing restaurants with food and beverage options and high quality service desired by our guests through successful implementation of...

  • Page 19
    ... number of restaurants. In particular, since we depend heavily on the Chili's brand for a majority of our revenues, unfavorable publicity relating to one or more Chili's restaurants could have a material adverse effect on the Chili's brand, and consequently on our business, financial condition...

  • Page 20
    ...-of-date information. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation. Litigation could have a material adverse impact on our business and our financial performance...

  • Page 21
    ... personal information about our guests and team members in our information technology systems, such as point-of-sale, web and mobile platforms, including our rewards program. Additionally our systems contain proprietary and confidential information related to our business. Use of this information is...

  • Page 22
    ... or the availability of credit. Declines in the market price of our common stock or changes in other circumstances that may indicate an impairment of goodwill could adversely affect our financial position and results of operations. We perform our annual goodwill impairment test in the second quarter...

  • Page 23
    .... We have provided you a breakdown of our portfolio of restaurants in the two tables below: Table 1: Company-owned vs. franchise (by brand) as of June 24, 2015: Chili's Company-owned (domestic) ...Company-owned (international) ...Franchise ...Maggiano's Company-owned ...Total ... 826 13 741 49 1,629...

  • Page 24
    ... counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. In August 2004, certain current and former hourly restaurant team members filed a putative class action lawsuit against us in California...

  • Page 25
    ... transactions. The following table sets forth the quarterly high and low closing sales prices of the common stock, as reported by the NYSE. Fiscal year ended June 24, 2015: High Low First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...Fiscal year ended June 25, 2014: $51.77 $58...

  • Page 26
    ... the Company's option at any time, in whole or in part. The proceeds of the offering were used for general corporate purposes, including the redemption of the 5.75% notes due June 2014, pay down of the revolver and the repurchase of the Company's common stock pursuant to its share repurchase program...

  • Page 27
    ... purchased under publicly announced programs. Unless otherwise indicated, shares owned and tendered by team members to satisfy tax withholding obligations were purchased at the average of the high and low prices of the Company's shares on the date of vesting. During the fourth quarter of fiscal 2015...

  • Page 28
    ... Annual Report on Form 10-K, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective. Management's Report on Internal Control over Financial Reporting "Management's Report on Internal Control over Financial Reporting...

  • Page 29
    ... 29, 2015. We incorporate that information in this document by reference. The Board of Directors has adopted a code of ethics that applies to all of the members of Board of Directors and all of our team members, including, the principal executive officer, principal financial officer, principal...

  • Page 30
    ..." in our Proxy Statement to be dated on or about September 14, 2015, for the annual meeting of shareholders on October 29, 2015. We incorporate that information in this document by reference. PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) Financial Statements. We make reference...

  • Page 31
    ...Jr. President and Chief Executive Officer of Brinker International, President of Chili's Grill & Bar (Principal Executive Officer) and Director Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Chairman of the Board /s/ /s/ JOSEPH M. DEPINTO Joseph...

  • Page 32
    Name Title /s/ ROSENDO G. PARRA Rosendo G. Parra JOSE LUIS PRADO Jose Luis Prado Director /s/ Director 26

  • Page 33
    ..., 2015, June 25, 2014, and June 26, 2013 ...Notes to Consolidated Financial Statements ...Reports of Independent Registered Public Accounting Firm ...Management's Responsibility for Consolidated Financial Statements ...Management's Report on Internal Control over Financial Reporting ... F-1 F-2 F-15...

  • Page 34
    ... Amendment No. 1, dated as of August 9, 2011.(8) 2015 Annual Report to Shareholders.(9) Subsidiaries of the Registrant.(10) Consent of Independent Registered Public Accounting Firm.(10) Certification by Wyman T. Roberts, President, Chief Executive Officer and President of Chili's Grill & Bar of the...

  • Page 35
    ...Filed as an exhibit to current report on Form 8-K dated May 15, 2013, and incorporated herein by reference. (4) Filed as an exhibit to registration statement on Form S-3 filed April 30, 2013, SEC File No. 333-188252, and incorporated herein by reference. (5) Filed as an Appendix A to Proxy Statement...

  • Page 36

  • Page 37
    EXHIBIT 13 BRINKER INTERNATIONAL, INC. SELECTED FINANCIAL DATA (In thousands, except per share amounts and number of restaurants) 2015 Income Statement Data: Revenues: Company sales ...Franchise and other revenues(a) ...Total revenues ...Operating Costs and Expenses: Company restaurants (excluding ...

  • Page 38
    ...& Bar ("Chili's") and Maggiano's Little Italy ("Maggiano's") restaurant brands. At June 24, 2015, we owned, operated, or franchised 1,629 restaurants. We are committed to strategies and initiatives that are centered on long-term sales and profit growth, enhancing the guest experience and team member...

  • Page 39
    ... contributions from Maggiano's and our global business. Maggiano's continues to deliver sales growth and has opened three restaurants in fiscal 2015 based on the new prototype, which excludes banquet space. This new prototype will allow the brand to enter new markets for which the existing model was...

  • Page 40
    ...company-owned restaurants including gift card redemptions. Franchise and other revenues includes royalties, development fees, franchise fees, Maggiano's banquet service charge income, certain gift card activity (breakage and discounts), tabletop gaming revenue, retail food royalties and delivery fee...

  • Page 41
    ...fiscal 2014 driven by the revenues associated with tabletop devices, royalty revenues related to Chili's new retail food products, and higher royalty income primarily driven by international franchise restaurant openings. Our franchisees generated approximately $1,644 million in sales in fiscal 2015...

  • Page 42
    ... in international franchise royalty revenues due to 22 net restaurant openings in fiscal 2014. Our franchisees generated approximately $1,617 million in sales in fiscal 2014. COSTS AND EXPENSES Cost of sales, as a percent of company sales, decreased 0.2% in fiscal 2015 due to favorable menu pricing...

  • Page 43
    ... increased wage rates. Restaurant labor, as a percent of company sales, decreased 0.2% in fiscal 2014 primarily driven by leverage related to higher company sales, decreased employee health insurance expenses resulting from favorable claims experience and decreased employee training costs, partially...

  • Page 44
    ... and favorable changes in working capital. Cash Flow Used In Investing Activities 2015 2014 2013 Net cash used in investing activities (in thousands): Payments for property and equipment ...Proceeds from sale of assets ...Payments for purchase of restaurants ...Insurance recoveries ... $(140,262...

  • Page 45
    ...million related to land sales and $8.3 million from the sale of our remaining interest in Macaroni Grill. Cash Flow Used In Financing Activities 2015 2014 2013 Net cash used in financing activities (in thousands): Borrowings on revolving credit facility ...Purchases of treasury stock ...Payments on...

  • Page 46
    ... the revolving credit facility. As of June 24, 2015, we were in compliance with all financial debt covenants. As of June 24, 2015, our credit rating by both Standard and Poor's ("S&P") and Fitch Ratings ("Fitch") was BBB- (investment grade) with a stable outlook. Our corporate family rating by Moody...

  • Page 47
    ... we believe that there are sufficient funds available under our credit facility and from our internal cash generating capabilities to adequately manage our ongoing business. Payments due under our contractual obligations for outstanding indebtedness, purchase obligations as defined by the Securities...

  • Page 48
    ... and reviewing, then implementing, alternative products or processes, or by implementing other cost reduction procedures. CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements. The following discussion addresses our...

  • Page 49
    ... We assess the recoverability of goodwill related to our restaurant brands on an annual basis or more often if circumstances or events indicate impairment may exist. We consider our restaurants brands, Chili's and Maggiano's, to be both our operating segments and reporting units. The impairment test...

  • Page 50
    ... revenue balance accordingly. If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from the amounts recorded. Recent Accounting Pronouncements In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015...

  • Page 51
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts) 2015 Fiscal Years 2014 2013 Revenues: Company sales ...Franchise and other revenues ...Total revenues ...Operating Costs and Expenses: Company restaurants (excluding depreciation and...

  • Page 52
    BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2015 2014 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable, net ...Inventories ...Prepaid expenses and other ...Deferred income taxes ...Total current assets ...Property...

  • Page 53
    ...0 Other comprehensive loss ...0 0 Dividends ($0.96 per share) ...0 0 Stock-based compensation ...0 0 Purchases of treasury stock ...(5,079) 0 Issuances of common stock ...2,194 0 Excess tax benefit from stockbased compensation ...0 0 Balances at June 25, 2014 ...64,559 17,625 Net income ...0 0 Other...

  • Page 54
    ... and equipment ...Proceeds from sale of assets ...Payments for purchase of restaurants ...Insurance recoveries ...Net cash used in investing activities ...Cash Flows from Financing Activities: Borrowings on revolving credit facility ...Purchases of treasury stock ...Payments on long-term debt...

  • Page 55
    ...company-owned restaurants including gift card redemptions. Franchise and other revenues includes royalties, development fees, franchise fees, Maggiano's banquet service charge income, certain gift card activity (breakage and discounts), tabletop gaming revenue, retail food royalties and delivery fee...

  • Page 56
    .... We update our estimate of our breakage rate periodically and, if necessary, adjust the deferred revenue balance accordingly. (e) Fair Value Measurements Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market...

  • Page 57
    ...operating segment level. The menu items, services offered and food preparation are virtually identical at each restaurant within the reporting unit and our targeted customer is consistent across each brand. We maintain a centralized purchasing department which manages all purchasing and distribution...

  • Page 58
    ... determine fair value based on prices in the open market for licenses in same or similar jurisdictions. Impairment charges are included in other gains and charges in the consolidated statements of comprehensive income. (n) Sales Taxes Sales taxes collected from guests are excluded from revenues. The...

  • Page 59
    ...75 and $12.94 during fiscal 2015, 2014 and 2013, respectively. The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: 2015 2014 2013 Expected volatility ...Risk-free interest rate ...Expected lives ...Dividend yield...

  • Page 60
    ... in assessing performance. Two or more operating segments may be aggregated into a single operating segment if they have similar economic characteristics and are similar in the following areas The nature of products and services Nature of production processes Type or class of customer Methods used...

  • Page 61
    Our two brands have similar types of products, contracts, customers and employees and all operate as fullservice restaurants offering lunch and dinner in the casual-dining segment of the industry. In addition, we have similar long-term average margins across our brands. Therefore, we believe we meet...

  • Page 62
    ... scheduled to close. We also recorded restaurant closure charges of $1.7 million primarily related to lease termination charges and a $1.1 million loss primarily related to the sale of two company owned restaurants located in Mexico. Furthermore, we incurred $1.2 million in severance other benefits...

  • Page 63
    ... awards. In fiscal 2013, we also recognized gains of $11.2 million on the sale of assets, consisting of an $8.3 million gain on the sale of our remaining interest in Macaroni Grill and net gains of $2.9 million related to land sales. The restaurant, liquor license and reacquired franchise...

  • Page 64
    ...-line rent ...Insurance ...Landlord contributions ...Unrecognized tax benefits ...Other ... $ 56,345 30,988 24,785 5,144 7,771 $125,033 $ 57,462 36,352 23,404 5,247 6,633 $129,098 7. INCOME TAXES The provision for income taxes consists of the following (in thousands): 2015 2014 2013 Current...

  • Page 65
    ... as of June 24, 2015 and June 25, 2014 are as follows (in thousands): 2015 2014 Deferred income tax assets: Leasing transactions ...Stock-based compensation ...Restructure charges and impairments ...Insurance reserves ...Employee benefit plans ...Gift cards ...Other, net ...Total deferred...

  • Page 66
    ... plus 2.00%. Based on our current credit rating, we are paying interest at a rate of LIBOR plus 1.38%. One month LIBOR at June 24, 2015 was approximately 0.19%. As of June 24, 2015, $366.2 million of credit is available under the revolving credit facility. In May 2013, we issued $550.0 million of...

  • Page 67
    ... of sales in excess of specified levels, as defined in the leases. We include other rent-related costs in rent expense, such as common area maintenance, taxes and amortization of landlord contributions. Rent expense consists of the following (in thousands): 2015 2014 2013 Straight-lined minimum...

  • Page 68
    ... with the risk inherent in our current business model. Based on our semi-annual review, during fiscal 2015, longlived assets with a carrying value of $2.3 million, primarily related to four underperforming restaurants including one restaurant located in Canada, were determined to have no fair...

  • Page 69
    ...employees and non-employee directors and consultants under the Plans is currently 37.3 million. The Plans provide for grants of options to purchase our common stock, restricted stock, restricted stock units, performance shares and stock appreciation rights. (a) Stock Options Expense related to stock...

  • Page 70
    ... or upon an employee's death, disability or involuntary termination. Transactions during fiscal 2015 were as follows (in thousands, except fair values): Number of Restricted Share Awards Weighted Average Fair Value Per Award Restricted share awards outstanding at June 25, 2014 ...Granted ...Vested...

  • Page 71
    ... counsel and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. In August 2004, certain current and former hourly restaurant team members filed a putative class action lawsuit against us in California...

  • Page 72
    ...of 103 Chili's® Grill & Bar restaurants primarily located in the Northeast and Southeast United States. The purchase price of $106.5 million was funded with availability under our existing credit facility. The results of operations of these restaurants will be included in our consolidated financial...

  • Page 73
    ... Public Accounting Firm The Board of Directors and Shareholders Brinker International, Inc.: We have audited the accompanying consolidated balance sheets of Brinker International, Inc. and subsidiaries (the "Company") as of June 24, 2015 and June 25, 2014, and the related consolidated statements...

  • Page 74
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Brinker International, Inc. and subsidiaries as of June 24, 2015 and June 25, 2014, and the related consolidated statements of comprehensive income, shareholders...

  • Page 75
    ... over financial reporting as of June 24, 2015 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein. /s/ WYMAN T. ROBERTS WYMAN T. ROBERTS Chief Executive Officer, President and President of Chili's Grill & Bar...

  • Page 76
    ... R&R FOOD GROUP, INC., a Delaware corporation BIPC GLOBAL PAYROLL COMPANY, LLC, a Delaware limited liability company BIPC MANAGEMENT, LLC, a Delaware limited liability company BIPC ME DMCC, a Dubai Free-Zone company BIPC INVESTMENTS, LLC, a Delaware limited liability company BRINKER FAMILY FUND, INC...

  • Page 77
    ...116879 on Form S-4 of Brinker International, Inc. of our reports dated August 24, 2015, with respect to the consolidated balance sheets of Brinker International, Inc. and subsidiaries as of June 24, 2015 and June 25, 2014, and the related consolidated statements of comprehensive income, shareholders...

  • Page 78
    ...involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 24, 2015 /S/ WYMAN T. ROBERTS Wyman T. Roberts, Chief Executive Officer & President and President of Chili's Grill & Bar (Principal Executive Officer)

  • Page 79
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 24, 2015 /S/ THOMAS J. EDWARDS, JR. Thomas J. Edwards, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer)

  • Page 80
    ... information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 24, 2015 By: /s/ WYMAN T. ROBERTS Name: Wyman T. Roberts, Title: Chief Executive Officer & President and President of Chili's Grill & Bar...

  • Page 81
    ... information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 24, 2015 By: /s/ THOMAS J. EDWARDS, JR. Name: Thomas J. Edwards, Jr. Title: Executive Vice President and Chief Financial Officer (Principal...

  • Page 82

  • Page 83
    ... New York Stock Exchange. The company also filed the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 with the Securities and Exchange Commission as exhibits to its Annual Report on Form 10-K for the year ended June 24, 2015. Chili's® Grill & Bar and Maggiano...

  • Page 84
    BRINKER INTERN ATION AL® 6820 LBJ Freeway, Dallas, TX 75240 • www.brinker.com