Chili's 2005 Annual Report Download

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ANNUAL REPORT 2OO5
WHERE THE WORLD COMES TO EAT
BRINKER INTERNATIONAL, INC.

Table of contents

  • Page 1
    B R I N K ER I N T ER N AT I ON A L , I N C. WHERE THE WORLD COMES TO EAT AN N U AL REPORT 2 OO5

  • Page 2
    SERVING THE WORLD A GREAT TASTE OF LIFE

  • Page 3
    ... experi ence. » Much l i ke our rest aurant operations, Fiscal Year 2005 involved a lot of planning and prep work on the front end. It took some time, but toward the end of one of Brinker's most challenging years in recent memory, our strategies began to pay off as new opportunities emerged.

  • Page 4
    ..., culminating in an all-time high for our stock price. T Chili's 30th anniversary celebration at Brinker's headquarters in Dallas HELLO 0 2 | p age When we entered Fiscal Year 2005, we knew we had several opportunities to improve. Operating costs were up, sales did not meet our expectations, and...

  • Page 5
    ... personal job satisfaction as well as company performance. A case in point is our People Works department, formerly Human Resources, which is using innovative performance management systems to increase accountability and reward solid performance. Another example is Brinker's employee development...

  • Page 6
    ... world. Chili's Grill & Bar®. Romano's Macaroni Grill®. On The Border Mexican Grill & Cantina®. Maggiano's Little Italy®. Corner Bakery Cafe®. Our portfolio of restaurant concepts gives consumers a broad range of dining options. And as we open more restaurants in new and existing markets across...

  • Page 7
    ...share amounts) 2005 Revenues Operating costs and expenses: Cost of sales Restaurant expenses Depreciation and amortization General...71 1.61 97,096 106,935 Systemwide N U M B ER OF R ES T A U R A N T S Company Operated REV EN U ES ( i n bi l l i ons) 1800 5 1588 1500 1402 1268 1200 1194 1143 1039...

  • Page 8
    ... that has included service in the U.S. Navy, membership on the 1952 U.S. Olympic equestrian team, and of course, many successful entrepreneurial ventures and positions of leadership throughout the restaurant industry. Brinker also returned to his alma mater, San Diego State University, on May 21...

  • Page 9
    ... menu consisted of little more than burgers, chili, and tacos - yet there was a neverending line out the door. Today, our permanent and limited-time menu items are even more exciting and innovative than ever. In addition to Famous and Favorites like our Baby Back Ribs, Big Mouth Burgers®, Fajitas...

  • Page 10
    ...large metropolitan markets, as well as move ahead with nontraditional locations such as military bases, airports, and college campuses. We had 21 of the 82 company openings of Chili's achieve first-week sales in excess of $100,000. Our franchise partners also set several records during our 30th year...

  • Page 11
    CHILI'S GRILL & BAR The 1,000th Chili's opens with a ribbon-cutting ceremony at the Pinnacle Park location in the Dallas area. 30TH NNIVERSARY Kic ked-Up Flavor s from Our Gr ill p age | 0 9

  • Page 12
    ... foreign countries - including the 18 corporate-owned restaurants and six franchise-owned locations that were added this year. Among those new franchise additions are our first Macaroni Grill in an airport - Orlando International in Florida - and our first restaurant in Taiwan. In May, we announced...

  • Page 13
    ROMANO'S MACARONI GRILL Lobster Ravioli Tiramisu Twice-Baked Lasagna with Meatballs MAKING LIFE DELICIOUS Chic ken Scaloppine

  • Page 14
    ... large sales volumes.We've introduced unique new menu items, including DoubleStacked Club Quesadillas, Baja Chicken, and Dos XX Fish Tacos, as well as limited-time offers such as Tour of Mexico, Fiesta Trio, Fajita Favorites, and Queso Chicken & Shrimp Trio to give guests a reason to come in now.We...

  • Page 15
    ON THE BORDER MEXICAN GRILL & CANTINA Double-Stac ked Club Quesadillas Fr uit Swirl Margar itas Chic ken Flautas Ultimate Fajitas ® Guacamole Live! ON THE BORDER. OFF THE MAP.

  • Page 16
    ... our servers are trained in both food and wine, each is an excellent resource for guests looking for a recommendation. Maggiano's also received a number of regional honors during the year, including Most Popular Restaurant in the Milwaukee area in Zagat Survey's 2004-2005 Chicago Restaurant Best...

  • Page 17
    MAGGIANO'S LITTLE ITALY Profiterole Pumpkin Mar tini Spaghetti and Meatballs YOU JUST CAN' T GET MORE ITALIAN. Culinary Journey, a chef 's special consisting of Pancetta Wrapped Shrimp and Pappardelle with Veal and Mushrooms

  • Page 18
    ... full-service approach. Now, guests order from menu boards, pay at the counter, then sit at a table where an attentive server delivers their meals. It's our commitment to quality, freshness, and 1 6 | p age service that sets Corner Bakery Cafe apart. 2005 was an especially strong year for Corner...

  • Page 19
    CORNER BAKERY CAFE Caramel Apple Baby Bundt Cake FEED THE DAY . Summer Tr io Salad Far mer's Scrambler Califor nia Gr ille Panini Oatmeal and Swiss Oatmeal p age | 1 7

  • Page 20
    .... Our offbeat corporate culture is part of what makes Brinker unique. Yet we understand that no amount of fun and games can substitute for a job well done. Hard work and solid performance are critical to the company's success, as well as our employees' personal satisfaction. When Brinker is doing...

  • Page 21
    BRINKER CULTURE | COMMUNITY SERVICE THE SALESMANSHIP CLUB YOUTH AND FAMILY CENTERS (Executive Director of The We choose our employees not only Salesmanship Club), John Thielke, Doug Brooks, Byron Nelson, for the qualifications they have today, but Sandy Thomas, Joe Todora, and also for their ...

  • Page 22
    ... St. Jude Children's Research Hospital Habitat house built by Macaroni Grill employees in Cleveland, Ohio ROMANO'S MACARONI GRILL From April 2 through 11, Macaroni Grill servers sold the ties off their necks to guests to raise money for Habitat for Humanity® International.This was the second year...

  • Page 23
    ...six-week period and included geared toward children with developmental disabilities. Eat-A-Dish for Make-A-Wish, which gave guests the Other examples of local involvement included a food drive option of purchasing a specially priced dessert to benefit benefiting Frisco Family Services, a donation of...

  • Page 24
    BOARD OF DIRECTORS Douglas H. Brooks Chairman of the Board, Chief Executive Officer and President Brinker International, Inc. Ron Kirk Partner Vinson & Elkins LLP Rosendo G. Parra Senior Vice President and General Manager, Dell Americas Dell Inc. George R. Mrkonic Dan W. Cook III Senior Advisor ...

  • Page 25
    ... instructions. Secretary/Investor Relations Brinker International, Inc. 6820 LBJ Freeway Dallas, TX 75240 (972) 980-9917 Auditors KPMG LLP 717 N. Harwood, Suite 3100 Dallas, TX 75201 Chili's Grill & Bar, Romano's Macaroni Grill, On The Border Mexican Grill & Cantina, Maggiano's Little Italy, and...

  • Page 26
    SENIOR MANAGEMENT TEAM OF BRINKER INTERNATIONAL, INC. 1. Doug Brooks 2. Valerie Davisson 3. Roger Thomson 4. Dave Orenstein 5. Wyman Roberts 6. David Doyle 7. Rebeca Johnson 8. Todd Diener 9. Mike Webberman 10. Bill Simon 11. Jean Birch 6 8 ...

  • Page 27
    FINANCIAL INFORMATION

  • Page 28
    ... Cash Flows-Fiscal Years Ended June 29, 2005, June 30, 2004, and June 25, 2003 ...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...

  • Page 29
    ...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/Joint...

  • Page 30
    ...and international franchise expansion. Future franchise development agreements are expected to remain limited to enterprises having significant experience as restaurant operators and proven financial ability to develop multi-unit operations. The specific rate at which the Company is able to open new...

  • Page 31
    ... menu prices. Restaurant expenses, as a percent of revenues, increased 0.9% in fiscal 2005. The increase was primarily due to the $17.3 million FICA tax assessment paid in resolution of the Internal Revenue Service ("IRS") dispute, increases in labor costs related to new product rollouts and service...

  • Page 32
    ... equipment balances. The increase in fiscal 2004 was primarily due to the Big Bowl goodwill impairment charge, which was not deductible for tax purposes until fiscal 2005, partially offset by an increase in the FICA tax credit resulting from increased tip reporting. IMPACT OF INFLATION The Company...

  • Page 33
    ... option not to extend the Company funding. Should any or all of these obligations not be extended, the Company has adequate capacity under the committed facility, which does not expire until October 2009. Capital expenditures consist of purchases of land for future restaurant sites, new restaurants...

  • Page 34
    ... During fiscal 2005, the Company received cash proceeds of $13.0 million from the sale of real estate in connection with restaurant closings and expects to receive an additional $21.0 million in fiscal 2006. In April 2004, the Board of Directors authorized an increase in the stock repurchase plan of...

  • Page 35
    ... of future interest rate curves. Changes in those estimates may materially affect the amounts recognized in the balance sheet for the Company's derivatives and interest costs in future periods. Self-Insurance The Company is self-insured for certain losses related to health, general liability...

  • Page 36
    ... 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 37
    ..., 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 a majority of its revenues, unfavorable publicity relating to one or more Chili's restaurants could have a material...

  • Page 38
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) 2005 Fiscal Years 2004 2003 Revenues ...Operating Costs and Expenses: Cost of sales...Restaurant expenses ...Depreciation and amortization ...General and administrative ...Restructure charges ...

  • Page 39
    BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2005 2004 ASSETS Current Assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable ...Inventories...Prepaid expenses and other ...Deferred income taxes...Total ...

  • Page 40
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Total Balances at June 26, 2002 . . Net income ...Change in fair value of ...

  • Page 41
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2005 Fiscal Years 2004 2003 Cash Flows from Operating Activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Restructure charges ...

  • Page 42
    ...of food, beverage and alcohol as products are sold. Initial fees received from a franchisee to establish a new franchise are recognized as income when the Company has performed its obligations required to assist the franchisee in opening a new franchise restaurant, which is generally upon opening of...

  • Page 43
    ... convertible debt, based on quoted market prices, totaled approximately $318.0 million and $585.4 million at June 29, 2005 and June 30, 2004, respectively. The fair value of all other financial instruments approximates the carrying amounts reported in the consolidated balance sheets. The following...

  • Page 44
    ... additional disclosures related to goodwill. (k) Self-Insurance Program The Company utilizes a paid loss self-insurance plan for health, general liability and workers' compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit the Company's per occurrence...

  • Page 45
    ... in net income for grants of stock options to employees because the Company grants stock options with an exercise price equal to the market value of the stock on the date of grant. Had the Company used the fair value based accounting method for stock compensation expense prescribed by SFAS No...

  • Page 46
    ... one Corner Bakery commissary and fifteen restaurants, including ten Chili's, three Macaroni Grill, and two On The Border restaurants. The decision to close the restaurants was the result of an analysis that examined restaurants not meeting minimum return on investment thresholds and certain other...

  • Page 47
    ... $2.1 million and $5.4 million at June 29, 2005 and June 30, 2004, respectively. As a result of 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...

  • Page 48
    ... that give rise to significant portions of deferred income tax assets and liabilities as of June 29, 2005 and June 30, 2004 are as follows (in thousands): 2005 2004 Deferred income tax assets: Restructuring charges and other impairments ...Employee benefit plans ...Leasing transactions ...Insurance...

  • Page 49
    ...interest payments, mature on various dates through March 2020, and bear interest at rates ranging from 9.00% to 10.75% per year. The obligations are collateralized by the underlying restaurant properties. In October 2001, the Company issued $431.7 million of zero coupon convertible senior debentures...

  • Page 50
    ... leases restaurant facilities, office space, and certain equipment under operating leases having terms expiring at various dates through fiscal 2095. The restaurant leases have renewal clauses of 1 to 35 years at the option of the Company and, in some cases, have provisions for contingent rent based...

  • Page 51
    ... 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 underlying common stock on the date of grant, are exercisable beginning one to two years from the date of grant, with...

  • Page 52
    ...to 450,000 shares of Company common stock. The authority to issue the remaining stock options under the 1991 Plan has been terminated. Options are granted at the market value of the underlying common stock on the date of grant, vest one-third each year beginning two years from the date of grant, and...

  • Page 53
    ... hourly employees who have completed one year of service and have attained the age of twenty-one. Plan I allows eligible employees to contribute, subject to IRS limitations on total annual contributions, up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the plan...

  • Page 54
    ... calendar years for payroll tax purposes. In December 2004, the Company paid an assessment of $17.3 million for employer-only FICA taxes on unreported cash tips for the examination period. The Company recorded the $17.3 million payment in restaurant expenses and recorded a related income tax benefit...

  • Page 55
    ... table summarizes the unaudited consolidated quarterly results of operations for fiscal 2005 and 2004 (in thousands, except per share amounts): Sept. 29 Fiscal Year 2005 Quarters Ended Dec. 29 March 30 June 29 Revenues ...Income before provision for income taxes...Net income ...Basic net income...

  • Page 56
    ... 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 29, 2005 and June 30, 2004, and the related consolidated statements of income...

  • Page 57
    ...on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 58
    ...also have audited, 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 29, 2005 and June 30, 2004, and the related consolidated statements of income, shareholders...

  • Page 59
    ...compliance with the policies and procedures may deteriorate. Our management's assessment of the effectiveness of our internal control over financial reporting as of June 29, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included...

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    Bri nker I nt ernat i onal , Inc. | 6 8 2 0 LBJ Freeway | Dal l as, Te x a s 7 5 2 4 0