Chili's 2010 Annual Report Download

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Annual Report 2010

Table of contents

  • Page 1
    Annual Report 2010

  • Page 2

  • Page 3
    ... and generate sustained profitability are not easy. But they are the key to a future that provides great returns for our Shareholders, Team Members and all who have a stake in the ongoing success of our business. Team Members and Guests We introduced "Team Service" this year to encourage full...

  • Page 4
    ... provide culinary flexibility, allowing us to create new and exciting menu items that will bring guests in to visit us more often. These kitchen innovations will fundamentally change the kitchen flow and enable the heart-of-the-house to work together as a team. In our test markets, Team Members are

  • Page 5
    ... new guest sign-ups to Maggiano's e-mail club; and guest donations to purchase star-shaped cards displayed in the restaurants. Additionally, many restaurants hosted individualized special events-many donating send-off or welcome home parties for deserving Wish kids. To date, guests and Team Members...

  • Page 6
    ... services, children, diversity, and arts and education. This year, we continued our long-time support of Susan G. Komen for the Cure®, Scottish Rite Hospital for Children® and The North Texas Food Bank among many others. The Brinker Family Fund, funded entirely by Brinker Team Members who donate...

  • Page 7
    ... employer incorporation or organization) identification no.) 6820 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (972) 980-9917 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class...

  • Page 8

  • Page 9
    ... 30, 2010, entrée selections ranged in menu price from $5.79 to $16.99. The average revenue per meal, including alcoholic beverages, was approximately $13.30 per person. During this same year, food and non-alcoholic beverage sales constituted approximately 87.0% of Chili's total restaurant revenues...

  • Page 10
    ..., 2010, entrée selections ranged in menu price from $8.25 to $40.75. The average revenue per meal, including alcoholic beverages, was approximately $25.74 per person. During this same year, food and non-alcoholic beverage sales constituted approximately 82.0% of Maggiano's total restaurant revenues...

  • Page 11
    ... updated atmospheres will drive positive sales growth and guest loyalty. Global expansion allows further diversification which will enable us to build strength in a variety of markets and economic conditions. We expect to achieve this expansion through equity investments and franchise relationships...

  • Page 12
    ... market areas and non-traditional locations (such as airports, college campuses, toll plazas and food courts) that can adequately support our restaurant brands. During the year ended June 30, 2010, not including any restaurants we sold to our franchisees, our domestic franchisees opened 13 Chili...

  • Page 13
    ... ...Franchise(2) ...Maggiano's ...International: Company-operated(3) ...Franchise(3) ...Total ... - 13 1 - 23 37 - 10-13 - - 43-48 53-61 (1) The numbers in this column are the total of new restaurant openings and openings of relocated restaurants during fiscal 2010. (2) The numbers on this line...

  • Page 14
    ...two domestic franchise locations in fiscal 2010. These locations were not prototypical and had average cost for the building of $1,366,000, furniture and equipment of $553,000, and other of $22,000. (4) We opened one company-owned Maggiano's restaurant in fiscal 2010. Restaurant Management Our Chili...

  • Page 15
    ... support center personnel, 4,400 were restaurant area directors, managers or trainees and 63,700 were employed in non-management restaurant positions. Our executive officers have an average of approximately 25 years of experience in the restaurant industry. We consider our team member relations...

  • Page 16
    ... marketing programs. Our restaurants also face competition from the introduction of new products and menu items by competitors, as well as substantial price discounting and other offers, and are likely to face such competition in the future. Although we may implement a number of business strategies...

  • Page 17
    ... home values, investment losses in the financial markets, personal bankruptcies and reduced access to credit, resulting in lower levels of guest traffic in our restaurants. If this current difficult economic situation continues for a prolonged period of time and/or deepens in magnitude, our business...

  • Page 18
    ... member turnover could also increase labor costs. In addition, our vendors may be affected by higher minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us. We are reviewing the health care reform law enacted by Congress in March of 2010...

  • Page 19
    ... and liquor licenses) on a timely basis; hire all necessary contractors and subcontractors, obtain construction materials at suitable prices, and maintain construction schedules; and hire and train or retain qualified managers and team members for existing and new restaurants. The success of our...

  • Page 20
    ... public perception of the brand. Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, illness or health concerns or operating issues stemming from one or a limited number of restaurants. In particular, since we depend heavily on the Chili's brand...

  • Page 21
    ...goodwill and record related non-cash impairment charges, our financial position and results of operations would be adversely affected. Changes to estimates related to our property and equipment, or operating results that are lower than our current estimates at certain restaurant locations, may cause...

  • Page 22
    ... for our team members, customers and suppliers; increased health care costs; health epidemics or pandemics or the prospects of these events (such as reports on swine flu); consumer perceptions of food safety; changes in consumer tastes and behaviors; governmental monetary policies; changes in...

  • Page 23
    ... California, Colorado, Florida, New Jersey and Texas for use as regional operation offices. The size of these office leases range from approximately 100 square feet to approximately 4,000 square feet. Item 3. LEGAL PROCEEDINGS. Certain current and former hourly restaurant employees filed a lawsuit...

  • Page 24
    .... 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 30, 2010: High Low First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...Fiscal year ended June 24, 2009: $18.33 $16.51 $20.48...

  • Page 25
    ... the cumulative five-year total return provided shareholders on Brinker International, Inc.'s common stock relative to the cumulative total returns of the S&P 500 Index and the S&P Restaurants Index. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Brinker International, Inc., the S&P 500...

  • Page 26
    ... the Company's shares on the date of vesting. During the fourth quarter of fiscal 2010, 908 shares were tendered by team members at an average price of $17.66. Item 6. SELECTED FINANCIAL DATA. The information set forth in that section entitled "Selected Financial Data" in our 2010 Annual Report to...

  • Page 27
    ..., 2010. 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 employees, including, the principal executive officer, principal financial officer, principal accounting...

  • Page 28
    ...and "Committees of the Board of Directors" in our Proxy Statement to be dated on or about September 27, 2010, for the annual meeting of shareholders on November 10, 2010. We incorporate that information in this document by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. If you would like...

  • Page 29
    ... has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRINKER INTERNATIONAL, INC., a Delaware corporation By: /S/ CHARLES M. SONSTEBY Charles M. Sonsteby, Executive Vice President and Chief Financial Officer Dated: August 24, 2010 Pursuant to the...

  • Page 30
    ...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-13 F-14 F-15 F-16 F-17 F-36 F-38 F-38 All schedules are omitted as the required information...

  • Page 31
    ... Incentive Plan.(6) Registrant's 1999 Stock Option and Incentive Plan for Non-Employee Directors and Consultants.(7) Registrant's Performance Share Plan Description.(8) $400,000,000 Credit Agreement dated as of June 22, 2010, by and among Registrant, Brinker Restaurant Corporation, Bank of America...

  • Page 32
    ... ended March 29, 2006, and incorporated herein by reference. (9) Filed as an exhibit to current report on Form 8-K dated June 23, 2010, and incorporated herein by reference. (10) Portions filed herewith, to the extent indicated herein. (11) Filed herewith. (12) To be filed on or about September 27...

  • Page 33
    ...47 $ 0.44 $ 0.42 $ 0.34 $ 0.20 Number of Restaurants Open (End of Period): Company-operated ...871 1,024 1,265 1,312 1,290 Franchised/Joint venture ...679 665 623 489 332 Total ...1,550 1,689 1,888 1,801 1,622 (a) Fiscal year 2010 consisted of 53 weeks while all other periods presented consisted of...

  • Page 34
    ... 53rd week, other expenses, such as fixed costs, are incurred on a calendar month basis. OVERVIEW 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 30, 2010...

  • Page 35
    ... our brands and allow us to improve our competitive position and deliver profitable growth over the long term for our shareholders. Our unique food and signature drinks; improved service; and our updated atmospheres will drive positive sales growth and guest loyalty. Global expansion allows...

  • Page 36
    ... was primarily attributable to net declines in capacity at company-owned restaurants as well as a decrease in comparable restaurant sales as follows: Fiscal Year Ended June 30, 2010 Price Comparable Capacity(1) Increase(1) Mix Shift(1) Sales(1) Brinker International ...Chili's ...Maggiano's ... (13...

  • Page 37
    Comparable restaurant sales decreased 4.2% in fiscal 2010 compared to fiscal 2009. The decrease in comparable restaurant sales resulted from a decline in guest traffic and unfavorable product mix shifts at Chili's and Maggiano's, partially offset by an increase in menu prices at both brands. ...

  • Page 38
    ...Macaroni Grill to their estimated fair value, less costs to sell. The charges were partially offset by a $29.7 million gain related to the sale of 76 company-owned Chili's restaurants to ERJ Dining IV, LLC. Interest expense decreased $4.8 million in fiscal 2010 primarily as a result of lower average...

  • Page 39
    ...the prior year primarily due to the timing of income tax payments as well as operational payments and receipts, partially offset by a decline in operating profitability driven by the sale of Macaroni Grill and depressed market conditions. Excluding the impact of assets held for sale, working capital...

  • Page 40
    ... LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%, and expires in June 2015. Based on our current credit rating, we are paying interest at a rate of LIBOR plus 2.75% (3.10% as of June 30, 2010). We paid dividends...

  • Page 41
    ... of unrecognized tax benefits have been recorded as liabilities. The timing and amounts of future cash payments related to these liabilities are uncertain. IMPACT OF INFLATION We have experienced impact from inflation. Inflation has caused increased food, labor and benefits costs and has increased...

  • Page 42
    ... tax positions taken, or expected to be taken, in an income tax return. We recognize any interest and penalties related to unrecognized tax benefits in income tax expense. Significant judgment is required in assessing, among other things, the timing and amounts of deductible and taxable items. Tax...

  • Page 43
    ... 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 44
    ... and no amount was outstanding under the revolving credit facility. The impact on our annual results of operations of a one-point interest rate change on the outstanding balance of these variable rate financial instruments as of June 30, 2010 would be approximately $2.0 million. We purchase certain...

  • Page 45
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) 2010 Fiscal Years 2009 2008 Revenues ...Operating Costs and Expenses: Cost of sales ...Restaurant... ...Basic weighted average shares outstanding ...Diluted weighted average shares outstanding ......

  • Page 46
    BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2010 2009 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable ...Inventories ...Prepaid expenses and other ...Income taxes receivable ...Deferred income taxes ...Assets ...

  • Page 47
    ... ...- Cash dividends ($0.47 per share) ...Stock-based compensation ...Purchases of treasury stock ...Issuances of common stock ...Tax benefit from stock options exercised ...Issuances of restricted stock, net of forfeitures ...- - (1,046) 518 - (25) Balances at June 30, 2010 ...101,572 $17,625 $465...

  • Page 48
    ...on long-term debt ...Net proceeds from issuance of long-term debt ...Payments of dividends ...Purchases of treasury stock ...Proceeds from issuances of treasury stock ...Excess tax benefits from stock-based compensation ...Net payments on credit facilities ... $ 137,704 $ (33,982) 135,832 31,766 (25...

  • Page 49
    ... 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...

  • Page 50
    ... ACCOUNTING POLICIES (Continued) (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 participants on the measurement date. In determining fair value, the accounting standards...

  • Page 51
    ... of impairment testing. Our two restaurant brands, Chili's and Maggiano's, are both reporting units and operating segments. We have established that the appropriate level to evaluate goodwill is at the operating segment level. The menu items, services offered and food preparation are virtually...

  • Page 52
    ... to the date on which retirement eligibility is achieved, if shorter (non-substantive vesting period approach). Certain employees are eligible to receive stock options, performance shares, restricted stock and restricted stock units, while non-employee members of the Board of Directors are eligible...

  • Page 53
    ... OF SIGNIFICANT ACCOUNTING POLICIES (Continued) performance shares is determined on the date of grant based on a Monte Carlo simulation model. The fair value of restricted stock and restricted stock units are based on our closing stock price on the date of grant. Stock-based compensation expense...

  • Page 54
    ...processes Type or class of customer Methods used to distribute products or provide services The nature of the regulatory environment, if applicable Our two brands have similar types of products, contracts, customers, and employees and all operate as fullservice restaurants offering lunch and dinner...

  • Page 55
    ... resulting from the decision to close 12 underperforming restaurants and a $0.7 million charge related to the decrease in the estimated sales value of land associated with previously closed restaurants. 3. OTHER RESTAURANT DISPOSITIONS AND EQUITY METHOD INVESTMENTS (a) Sale of Macaroni Grill...

  • Page 56
    ... investment in a new corporation to develop 50 Chili's and Maggiano's restaurants in Mexico. We made a $4.6 million and an $8.7 million capital contribution to the joint venture in fiscal 2009 and 2008, respectively. We account for the investment under the equity method of accounting and record our...

  • Page 57
    ... and other benefits resulting from these actions in fiscal 2010, 2009, and 2008, respectively. The severance charges are net of income related to the forfeiture of stock-based compensation awards. In fiscal 2008, we made the decision to reduce future domestic company-owned restaurant development as...

  • Page 58
    ...,932 (a) The impairment losses recorded in prior years are related to restaurant brands that we no longer own. (b) We recorded a non-cash goodwill impairment charge of $7.7 million in fiscal 2009 resulting from the closure of eight international restaurants. This charge was included in other gains...

  • Page 59
    BRINKER INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. INCOME TAXES The provision for income taxes from continuing operations consists of the following (in thousands): 2010 2009 2008 Current income tax expense (benefit): Federal ...State ...Foreign ...Total current ...

  • Page 60
    ... tax benefits for the fiscal years ended June 30, 2010 and June 29, 2009 are as follows (in thousands): 2010 2009 Balance at beginning of year ...Additions based on tax positions related to the current year ...Reductions based on tax positions related to prior years ...Settlements with tax...

  • Page 61
    ...LIBOR plus an applicable margin, which is a function of our credit rating at such time, but is subject to a maximum of LIBOR plus 3.25%, and expires in June 2015. Based on our current credit rating, we are paying interest at a rate of LIBOR plus 2.75% (3.10% as of June 30, 2010). In conjunction with...

  • Page 62
    ... at various dates through fiscal 2093. The restaurant leases have renewal clauses of 1 to 35 years at our option and, in some cases, have provisions for contingent rent based upon a percentage of sales in excess of specified levels, as defined in the leases. Rent expense for fiscal 2010, 2009, and...

  • Page 63
    ... fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a discount rate that is commensurate with the risk inherent in our current business model, which reflects our own judgment. Our non-financial assets measured at fair...

  • Page 64
    ...-third per year beginning on the first or third anniversary of the date of grant. Restricted stock and restricted stock units issued to non-employee directors under the Plans generally vest in full on the fourth anniversary of the date of grant or upon each director's retirement from the Board and...

  • Page 65
    ... is no company match, but employee contributions earn interest based on a rate determined and announced in November prior to the start of the plan year. Employee contributions and earnings thereon vest immediately. A Rabbi Trust is used to fund obligations of the non-qualified plan. The market value...

  • Page 66
    ...June 30, 2010. Certain current and former hourly restaurant employees filed a lawsuit against us in California Superior Court alleging violations of California labor laws with respect to meal and rest breaks. The lawsuit seeks penalties and attorney's fees and was certified as a class action in July...

  • Page 67
    ..., respectively. Income from discontinued operations, net of taxes, in the fourth quarter of fiscal 2010 included a pre-tax gain on the sale of On The Border of $16.5 million. Income from continuing operations for fiscal year 2009 included restaurant closure charges of $1.5 million, $35.2 million...

  • Page 68
    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 ("the Company") as of June 30, 2010 and June 24, 2009, and the related consolidated...

  • Page 69
    ... Independent Registered Public Accounting Firm The Board of Directors Brinker International, Inc.: We have audited Brinker International, Inc. and subsidiaries' ("the Company") internal control over financial reporting as of June 30, 2010, based on criteria established in Internal Control-Integrated...

  • Page 70
    ... inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. The effectiveness of our internal control over financial reporting as of June 30, 2010 has been audited by KPMG LLP, an independent registered public accounting firm, as...

  • Page 71
    ... operate full-service restaurants in various locations throughout the United States and internationally under the names Chili's, Chili's Grill & Bar, Maggiano's and Maggiano's Little Italy. BRINKER RESTAURANT CORPORATION, a Delaware corporation BRINKER INTERNATIONAL PAYROLL COMPANY, L.P., a Delaware...

  • Page 72
    ... and cash flows for each of the years in the three-year period ended June 30, 2010, and the effectiveness of internal control over financial reporting as of June 30, 2010, which reports appear in the 2010 Annual Report on Form 10-K of Brinker International, Inc. KPMG LLP Dallas, Texas August 24...

  • Page 73
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 24, 2010 /S/ DOUGLAS H. BROOKS Douglas H. Brooks Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

  • Page 74
    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 24, 2010 /S/ CHARLES M. SONSTEBY Charles M. Sonsteby Executive Vice...

  • Page 75
    ... Brinker International, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended June 30, 2010 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information...

  • Page 76
    ... Brinker International, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended June 30, 2010 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information...

  • Page 77

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  • Page 79
    ... to its Annual Report on Form 10-K for the year ended June 30, 2010. Chili's® Grill & Bar and Maggiano's Little Italy® are registered and/or proprietary trademarks of Brinker International Payroll Company, L.P. PRINCIPAL OFFICERS Douglas H. Brooks Chairman of the Board, Chief Executive Officer...

  • Page 80
    6820 LBJ Freeway, Dallas, TX 75240 • www.brinker.com Cert no. SCS-COC-000648