Chili's 2004 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    W hether you're our guest, employee, vendor, investor, or neighbor, you can always count on Brinker International® to deliver the choices you crave - like dining options to suit almost any appetite and lifestyle; a work environment that rewards initiative and individuality; a diversified portfolio...

  • Page 3
    ... sound of The Closing BellSM of the New York Stock Exchange being rung by members of the Brinker Leadership Team in honor of our 15th anniversary on the Big Board® under the ticker symbol EAT. We also earned our place among the "FORTUNE 500" this year, marking a major milestone for our company. We...

  • Page 4
    ..., formed in January 2004, will be on hand to help us evaluate current menu initiatives and develop a long-term nutrition strategy. The council consists of food and nutrition experts from the Culinary Institute of America, the Cooper Aerobics Center, and ConAgra Foods, and its members are working...

  • Page 5
    ...can eat at a different Brinker restaurant every day of the week without overloading on any one cuisine. Choice is also a common theme within the ranks of our company, both at the restaurant and corporate levels. Our unique company culture encourages individuality and initiative, giving team members...

  • Page 6
    ...except per share amounts) 2004 Revenues Operating costs and expenses: Cost of sales Restaurant expenses Depreciation ...income taxes Provision for income taxes Net income Basic net income per share Diluted net income per share Basic weighted average shares outstanding Diluted weighted average shares ...

  • Page 7
    ...hourly and management diversity. It's just one example of the recognition we've received for our progressive approach to team building. Once on board at Brinker, our employees are free to choose from a menu of benefits that best suit them, along with special privileges that only a restaurant company...

  • Page 8
    ... man-hour shifts covered by BrinkerHeads. All profits from Brinker food and beverage sales are donated to the following charitable organizations: • Texas Scottish Rite Hospital for Children - a leading treatment center for children with orthopedic conditions and certain neurological and learning...

  • Page 9
    ... promotion to benefit the Make-A-Wish Foundation®. With every donation, guests were invited to write their names on star cutouts to be displayed in the restaurant. Guests could also choose to Eat-A-Dish for Make-A-Wish by ordering a special menu item priced $1 higher than usual with proceeds going...

  • Page 10
    ... Chili's, visits with children at St. Jude Children's Research Hospital in Memphis, Tennessee. ON THE BORDER MEXICAN GRILL & CANTINA The Rock Star Rumble, a bartender challenge, benefits the Kenny Can Foundation. CORNER BAKERY CAFE Corner Bakery Cafe team members had a great time serving breakfast...

  • Page 11
    ... of each item. This menu is the perfect follow-up to our popular Guiltless Grill® specialties, providing lower-fat choices since 1993. In addition, we've added healthier choices to our kids menu, including a grilled chicken platter with fresh vegetables and healthier side-order alternatives. Now...

  • Page 12
    Flame-Grilled Ribeye Steak and Portobello Fajitas Boneless Buffalo Chicken Salad Chili's Grill & Bar celebrated a major milestone with the opening of our 1,000th restaurant. } Presidente Margarita® page | 11

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    Mozzarella alla Caprese Filet Katarina Cosmopolitan and Sour Apple Martinis page | 13

  • Page 15
    ... chain restaurant company, On The Border Mexican Grill & Cantina continues to see our sales and guest traffic rise. To keep that momentum going this year, we maintained a value-driven marketing approach that highlights flavorful, crave-able food like our Monterey Ranch Chicken Fajitas. Our menu...

  • Page 16
    Chicken and Shrimp Fajitas Shaken Margarita Shrimp Cocktail Red Chile Ribeye Mercedes Margarita } When our customers pass through our entrance, they are entering The Ga tew a y to the Grea t Fla vors of M ex ico ...a unique blend of Culinary flavors, Cultural flavors, and the exciting flavor of ...

  • Page 17

  • Page 18
    Maggiano's Salad Salmon, Lemon & Herbs Cosmopolitan Martini page | 17

  • Page 19
    ...back for lunch or dinner on the same day. They enjoy everything from breakfast scramblers and pastries to savory soups and salads, delicious sandwiches, and decadent desserts. At Corner Bakery Cafe, you can be as healthy or indulgent as you like. We've introduced a Best Picks feature on our Web site...

  • Page 20
    Mixed Berry Parfait Tropical Salad Chicken Pomodori Panini { For breakfast, lunch, dinner, and everything in between, Corner Bakery Cafe delivers the choices that keep our guests coming back. page | 19

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    Specialty Cocktails Sweet and Sour Chicken Mandarin Chopped Salad Potsticker Combo page | 21

  • Page 23
    Boston Clam Chowder Ahi Tuna Salad Mexican Shrimp Martini page | 23

  • Page 24
    SENIOR MANAGEMENT TEAM OF BRINKER INTERNATIONAL, INC. 13 14 15 1. Doug Brooks 2. Todd Diener 3. Starlette Johnson 4. Roger Thomson 5. Rebeca Johnson 6. Chuck Sonsteby 7. Dave Orenstein 8. John Miller 9. Mark Tormey 10. Wilson Craft ...

  • Page 25
    ..., LLP Cece Smith Managing General Partner, Phillips-Smith-Machens Venture Partners Dan W. Cook, III Senior Advisor, MHT Partners, L.P. George R. Mrkonic Director, Borders Group, Inc. Roger T. Staubach Chairman of the Board and Chief Executive Officer, The Staubach Company Dr. Robert M. Gates...

  • Page 26
    ... of Brinker Restaurant Corporation. Rockfish Seafood Grill is a registered trademark of Rockfish Seafood Grill, L.P. The Closing Bell and The Big Board are registered trademarks of the New York Stock Exchange, Inc. Stock Transfer Agent and Registrar Mellon Investor Services LLC 85 Challenger Road...

  • Page 27
    FINANCIAL INFORMATION hijkl 24JAN200519053583

  • Page 28
    ... Equity ...Consolidated Statements of Cash Flows-Fiscal Years Ended June 30, 2004, June 25, 2003, and June 26, 2002 ...Notes to Consolidated Financial Statements ...Report of Independent Registered Public Accounting Firm ...Management's Responsibility for Consolidated Financial Statements ... 1 2 12...

  • Page 29
    ... net income per share Basic weighted average shares outstanding Diluted weighted average shares outstanding Balance Sheet Data (End of Period): Working capital (deficit) Total assets Long-term obligations Shareholders' equity Number of Restaurants Open (End of Period): Company-operated Franchised...

  • Page 30
    ...performance of Brinker International, Inc. (the "Company") during the past three fiscal years, the following discussion should be read in conjunction with the consolidated financial statements and related notes found elsewhere in this annual report. The Company has a 52/53 week fiscal year ending on...

  • Page 31
    ..., kiosks and food courts) that can adequately support any of the Company's restaurant concepts. The specific rate at which the Company is able to open new restaurants is determined by its success in locating satisfactory sites, negotiating acceptable lease or purchase terms, securing appropriate...

  • Page 32
    ... number of store openings in fiscal 2004 as compared to fiscal 2003, partially offset by higher labor and training costs related to new service initiatives, higher payroll taxes resulting from increased tip reporting, and increases in utility costs, property taxes, and health, workers compensation...

  • Page 33
    ... due primarily to decreased average borrowings and interest rates on the Company's revolving lines-of-credit, a decrease in interest expense on the senior notes due to a scheduled repayment, and an increase in interest capitalization related to increased new restaurant construction activity. These...

  • Page 34
    ..., minimum or variable price provisions; and the approximate timing of the transaction. The Company's purchase obligations primarily consist of long-term obligations for the purchase of telecommunication services and certain non-alcoholic beverages and exclude agreements that are cancellable without...

  • Page 35
    .... In connection with the closing of thirty restaurants in fiscal 2004, the Company expects to generate cash of approximately $13.0 million in fiscal 2005 primarily related to the sale of real estate. In April 2004, the Board of Directors authorized an increase in the stock repurchase plan of $500...

  • Page 36
    ... from time to time utilize interest rate swaps to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. The Company purchases certain commodities such as beef, chicken, flour, and cooking oil. These commodities are generally purchased based upon market prices...

  • Page 37
    ... operating histories than the Company. There is active competition for management personnel and for attractive commercial real estate sites suitable for restaurants. In addition, factors such as inflation, increased food, labor and benefits costs, and difficulty in attracting hourly employees may...

  • Page 38
    ... respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations. The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions, along with the Americans...

  • Page 39
    ... the brand. Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, illness or other health concerns or operating issues stemming from one or a limited number of restaurants. In particular, since the Company depends heavily on the "Chili's" brand for...

  • Page 40
    ..., except per share amounts) Fiscal Years 2003 (as restated) $3,285,394 900,379 1,802,639 158,153 131,763 29,744 3,022,678 262,716 12,449 567 249,700 83,500 $ $ $ 166,200 1.71 1.68 $ $ $ 2004 (as restated) Revenues Operating Costs and Expenses: Cost of sales Restaurant expenses Depreciation and...

  • Page 41
    ... Long-term debt, less current installments Deferred income taxes Other liabilities Commitments and Contingencies (Notes 10 and 16) Shareholders' Equity: Common stock - 250,000,000 authorized shares; $.10 par value; 117,499,541 shares issued and 90,647,745 shares outstanding at June 30, 2004, and...

  • Page 42
    ... in fair value of investments, net of tax Comprehensive income (as restated) Purchases of treasury stock Issuances of common stock Tax benefit from stock options exercised Amortization of unearned compensation Issuance of restricted stock, net of forfeitures Balances at June 30, 2004 (as restated...

  • Page 43
    ... in equity method investee Payments for purchases of restaurants Proceeds from sale of affiliate Net cash used in investing activities Cash Flows from Financing Activities: Net proceeds from issuance of debt Payments of long-term debt Purchases of treasury stock Proceeds from issuances of treasury...

  • Page 44
    ...based on quoted market prices, totaled approximately $287.0 million and $308.3 million at June 30, 2004 and June 25, 2003, respectively. The fair value of all other financial instruments approximates the carrying amounts reported in the consolidated balance sheets. The following methods were used in...

  • Page 45
    ... using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. The Company evaluates property and equipment held and used in the business for impairment whenever events or changes in circumstances indicate that the carrying amount of a restaurant...

  • Page 46
    ...using the straight-line method over their estimated useful lives of 15 to 20 years. See Note 5 for additional disclosures related to goodwill and other intangibles. (i) Self-Insurance Program The Company utilizes a paid loss self-insurance plan for health, general liability and workers' compensation...

  • Page 47
    .... The fair value is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: 2004 Expected volatility Risk-free interest rate Expected lives Dividend yield 33.0% 3.4% 5 years 0.0% 2003 34.0% 3.0% 5 years 0.0% 2002 35.5% 4.1% 5 years 0.0% The pro...

  • Page 48
    ...earnings per share by approximately $0.02, $0.02 and $0.03 for the fiscal years ended 2002, 2003 and 2004, respectively. The restatement does not have any impact on the Company's previously reported cash flows, sales or comparable store sales or compliance with any covenant under its credit facility...

  • Page 49
    ... Income taxes payable Total current liabilities Long-term debt, less current installments Deferred income taxes Other liabilities Shareholders' Equity: Common stock Additional paid-in capital Accumulated other comprehensive income Retained earnings Less: Treasury stock, at cost Unearned compensation...

  • Page 50
    ... Income taxes payable Total current liabilities Long-term debt, less current installments Deferred income taxes Other liabilities Shareholders' Equity: Common stock Additional paid-in capital Accumulated other comprehensive income Retained earnings Less: Treasury stock, at cost Unearned compensation...

  • Page 51
    CONSOLIDATED STATEMENT OF INCOME SUMMARY OF RESTATEMENT IMPACTS FOR THE YEAR ENDED JUNE 30, 2004 (In thousands, except per share amounts) AS REPORTED Revenues Operating Costs and Expenses: Cost of sales Restaurant expenses Depreciation and amortization General and administrative Restructure charges ...

  • Page 52
    ... as of June 27, 2001 by $8.1 million. 3. BUSINESS COMBINATION AND INVESTMENT IN EQUITY METHOD INVESTEE In November 2001, the Company acquired from its franchise partner, Sydran Group, LLC and Sydran Food Services III, L.P., thirty-nine Chili's restaurants for approximately $53.9 million. As part of...

  • Page 53
    ... the seven Big Bowl closings and a review of the brand's competitive positioning and future development plans, the earnings forecast was revised and the Company recorded a goodwill impairment charge of $27.0 million. The fair value of Big Bowl was estimated using the present value of expected future...

  • Page 54
    ... the statutory Federal income tax rate of 35% to income before provision for income taxes is as follows (in thousands): 2004 (as restated) 2003 (as restated) 2002 (as restated) Income tax expense at statutory rate FICA tax credit State income taxes, net of Federal benefit Goodwill impairment...

  • Page 55
    ....08 shares (7.8 million shares in total) of the Company's common stock if the stock's market price exceeds 120% of the accreted conversion price for at least 20 trading days during the first 30 trading days of each quarter, the Company exercises its option to redeem the Debentures, the credit rating...

  • Page 56
    ... at June 30, 2004. These fair value hedges change the fixed-rate interest on the senior notes to variable-rate interest. Under the terms of the hedges (which expire in fiscal 2005), the Company pays semi-annually a variable interest rate based on 90-Day LIBOR (1.61% at June 30, 2004) plus 0.530% for...

  • Page 57
    ... 30, 2004, future non-cancelable minimum lease payments on capital and operating leases were as follows (in thousands): Fiscal Year 2005 2006 2007 2008 2009 Thereafter Total minimum lease payments Imputed interest (average rate of 7%) Present value of minimum lease payments Less current installments...

  • Page 58
    ... with the Incentive Stock Option Plans adopted in October 1983, November 1992, and October 1998, options to purchase approximately 40.2 million shares of Company common stock may be granted to officers, directors, and eligible employees, as defined. Options are granted at the market value of the...

  • Page 59
    ... Acquiring Person) will entitle, among other things, its holder to purchase, for an exercise price of $40, a number of shares of Company common stock having a market value of twice the exercise price. The rights may be redeemed by the Board of Directors for $0.01 per right prior to the date of the...

  • Page 60
    ... to Internal Revenue Service limitations on total annual contributions, up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the plan, to various investment funds. The Company matches in cash at a rate of 25% of the first 5% a salaried employee contributes. Hourly...

  • Page 61
    ... Commitment agreement (the "Contract") with the Internal Revenue Service (the "IRS"). The Contract required the Company, among other things, to implement tip reporting educational programs for its hourly restaurant employees and to establish tip reporting procedures. The IRS has alleged that the...

  • Page 62
    ... Year 2004 Quarters Ended Dec. 24 March 24 June 30 (as reported) (as reported) (as reported) (as reported) Revenues Income before provision for income taxes Net income Basic net income per share Diluted net income per share Basic weighted average shares outstanding Diluted weighted average shares...

  • Page 63
    ... Year 2003 Quarters Ended Dec. 25 March 26 June 25 (as reported) (as reported) (as reported) (as reported) Revenues Income before provision for income taxes Net income Basic net income per share Diluted net income per share Basic weighted average shares outstanding Diluted weighted average shares...

  • Page 64
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Brinker International, Inc.: We have audited the accompanying consolidated balance sheets of Brinker International, Inc. and subsidiaries as of June 30, 2004 and June 25, 2003, and the related consolidated statements of ...

  • Page 65
    ... Audit Committee of the Board of Directors, which is comprised solely of outside directors, provides oversight to the financial reporting process through periodic meetings with our independent auditors, internal auditors, and management. Both our independent auditors and internal auditors have free...

  • Page 66
    Brinker International, Inc. • 6820 LBJ Freeway • Dallas, Texas 7 5 2 4 0