Chili's 2011 Annual Report Download

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Annual Report 2011

Table of contents

  • Page 1
    Annual Report 2011

  • Page 2

  • Page 3
    ... to our business model delivered strong results last fiscal year; and it's an exciting time to be at Brinker. From the boardroom to the heart of our restaurants, Brinker brands are buzzing about the positive results we are delivering to our shareholders, guests, team members, franchise partners and...

  • Page 4
    ... special emphasis on the bar area and the happy hour daypart, as well as implementing new technology to grow Chili's To Go business and revitalizing our brand presence by reimaging select restaurants. Menu innovations from our culinary team will ensure every menu item delivers our brand's bold...

  • Page 5
    ..."Give Back" night for a local charity, an exclusive wine dinner or a "Kids Eat Free" offer. Maggiano's more than doubled their brand's fan base last year, and the brand continues to leverage the largest per restaurant database in the industry to target loyal customers and new guests. Chili's focused...

  • Page 6
    ... executive team, working with our newly augmented board of directors well-versed in franchise, public company finance and global expansion, are well-positioned to continue delivering the results our shareholders have to come to expect-and earned-from our 36-year-young restaurant company. The future...

  • Page 7

  • Page 8

  • Page 9
    ... File No. 1-10275 BRINKER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 75-1914582 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 6820 LBJ Freeway, Dallas, Texas 75240 (Address of principal executive offices...

  • Page 10

  • Page 11
    ...-made Chips and Salsa. The all-day menu offers our guests a generous selection of appetizers, entrees and desserts at affordable prices. A special lunch section is available on weekdays. In addition to our flavorful food, Chili's offers a full selection of alcoholic beverages available from the bar...

  • Page 12
    ... pace to drive our lunch daypart sales. Additionally, we have introduced new items and promotions to enhance our dinner and happy hour business. We will continue to utilize promotional activities as a tool to drive incremental sales; however, this is only one aspect of our overall sales strategy. We...

  • Page 13
    ...guests a great value with classic pasta, new menu items and direct marketing. We believe our unique food and signature drinks, improved service and updated atmospheres will result in stronger brands and sustainable sales and profit growth through increased guest loyalty and traffic. Global expansion...

  • Page 14
    ... in the United States but also on smaller 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 29, 2011, not including any restaurants we sold to our franchisees, our...

  • Page 15
    .... These programs, coupled with a general management philosophy emphasizing quality of life, have enabled us to attract and retain key team members. We ensure consistent quality standards in all brands through the issuance of operations manuals covering all elements of operations and food and...

  • Page 16
    ... international restaurant locations. Advertising and Marketing Our brands generally focus on the eighteen to fifty-four year-old age group, which constitutes approximately half of the United States population. Though members of this target segment grew up on fast food, we believe that for many meal...

  • Page 17
    ... 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 18
    ...to spend discretionary dollars as a result of job losses, home foreclosures, significantly reduced 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. While sales and traffic gains...

  • Page 19
    ... consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and therefore have an adverse effect on our results of operations...

  • Page 20
    ...impact our guests discretionary funds and ability to patron our restaurants or guests' menu choices. Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues. Possible shortages or interruptions in the supply of food items and other...

  • Page 21
    ... 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 and results of operations. We are dependent...

  • Page 22
    ... 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 of each fiscal year...

  • Page 23
    ...STAFF COMMENTS. None. Item 2. PROPERTIES. Restaurant Locations At June 29, 2011, our system of company-owned and franchised restaurants included 1,579 restaurants located in 50 states, and Washington, D.C. We also have restaurants in the U.S. territories of Guam and Puerto Rico and the countries of...

  • Page 24
    ... 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 25
    ..., and may not necessarily represent actual 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 29, 2011: High Low First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter...

  • Page 26
    ... in our stock and each of the indexes on June 28, 2006 and its relative performance is tracked through June 29, 2011. The values shown are neither indicative nor determinative of future performance. 2006 2007 2008 2009 2010 2011 Brinker International ...S&P 500 ...S&P Restaurants(1) ... $100.00...

  • Page 27
    ...the Company's shares on the date of vesting. During the fourth quarter of fiscal 2011, 7,035 shares were tendered by team members at an average price of $25.02. Item 6. SELECTED FINANCIAL DATA. The information set forth in that section entitled "Selected Financial Data" in our 2011 Annual Report to...

  • Page 28
    ...3, 2011. 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 29
    ... and "Committees of the Board of Directors" in our Proxy Statement to be dated on or about September 15, 2011, for the annual meeting of shareholders on November 3, 2011. We incorporate that information in this document by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. If you would like...

  • Page 30
    ...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/ GUY J. CONSTANT Guy J. Constant, Executive Vice President and Chief Financial Officer Dated: August 29, 2011 Pursuant to the requirements...

  • Page 31
    ... 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-14 F-15 F-16 F-17 F-18 F-35 F-37 F-37 All schedules are...

  • Page 32

  • Page 33
    ... 1, dated as of August 9, 2011.(9) 2011 Annual Report to Shareholders.(10) Subsidiaries of the Registrant.(11) Consent of Independent Registered Public Accounting Firm.(11) Certification by Douglas H. Brooks, Chairman of the Board, President and Chief Executive Officer of the Registrant, pursuant to...

  • Page 34
    ... 30, 2004, and incorporated herein by reference. (4) Filed as an exhibit to registration statement on Form S-4 filed June 25, 2004, SEC File No. 333-116879, and incorporated herein by reference. (5) Filed as an exhibit to annual report on Form 10-K for the year ended June 25, 1997, and incorporated...

  • Page 35
    EXHIBIT 13 BRINKER INTERNATIONAL, INC. SELECTED FINANCIAL DATA (In thousands, except per share amounts and number of restaurants) 2011 2010(a) Fiscal Years 2009 2008 2007 Income Statement Data: Revenues ...Operating Costs and Expenses: Cost of sales ...Restaurant labor ...Restaurant expenses ......

  • Page 36
    ... years, the MD&A should be read in conjunction with the consolidated financial statements and related notes included in this annual report. Our MD&A consists of the following sections Overview-a general description of our business and the casual dining segment of the restaurant industry Results...

  • Page 37
    ...guests a great value with classic pasta, new menu items and direct marketing. We believe our unique food and signature drinks, improved service and updated atmospheres will result in stronger brands and sustainable sales and profit growth through increased guest loyalty and traffic. Global expansion...

  • Page 38
    ...week in fiscal 2010, the decrease in revenue was primarily due to the change in comparable restaurant sales resulting from a decline in guest traffic, partially offset by favorable menu pricing, as well as a decline in capacity at company-owned restaurants as follows: Fiscal Year Ended June 29, 2011...

  • Page 39
    ... domestic and 23 international franchised restaurants during fiscal 2011. Royalty revenues are recognized based on the sales generated by our franchisees and reported to us. Our franchisees generated approximately $1,559 million in sales, an increase of 1.1% over prior year. Revenues for fiscal 2010...

  • Page 40
    ...benefits and incentive compensation, for restaurant team members at the general manager level and below. Restaurant expenses, as a percent of revenues, increased 0.6% in fiscal 2011 primarily driven by sales deleverage on fixed costs from the additional operating week in fiscal 2010 and current year...

  • Page 41
    ...$7.7 million goodwill impairment charge as a result of the international restaurant closings and organizational changes resulted in charges of $5.5 million for severance and other costs. In December 2008, we sold Macaroni Grill to Mac Acquisition and recorded a loss on the sale of $40.4 million. The...

  • Page 42
    ...the On The Border brand and cash paid for taxes in the current year negatively impacted operating cash flow in comparison to the prior year. Cash paid for taxes in the prior year was positively impacted by the recognition of losses related to the Macaroni Grill divestiture. Working capital decreased...

  • Page 43
    ... rating at such time, but is subject to a maximum of LIBOR plus 3.25%. Based on our current credit rating, the revolving credit facility carries an interest rate of LIBOR plus 2.75% (2.94% as of June 29, 2011). We are in compliance with all financial debt covenants. On August 9, 2011, we executed...

  • Page 44
    .... Inflation has caused increased food, labor and benefits costs and has increased our operating expenses. To the extent permitted by competition, increased costs are recovered through a combination of menu price increases and reviewing, then implementing, alternative products or processes, or by...

  • Page 45
    ...use an estimate of our annual effective tax rate at each interim period based on the facts and circumstances available at that time while the actual effective tax rate is calculated at year-end. We record a liability for unrecognized tax benefits resulting from tax positions taken, or expected to be...

  • Page 46
    ... value based on projected discounted future operating cash flows of the restaurant brands using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. We make assumptions regarding future profits and cash flows, expected growth rates, terminal values...

  • Page 47
    ... cost paid and any commodity price aberrations are generally short-term in nature. This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in domestic and global financial markets...

  • Page 48
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) 2011 Fiscal Years 2010 2009 Revenues ...Operating Costs and Expenses: Cost of sales ...Restaurant labor ...Restaurant expenses ...Depreciation and amortization ...General and administrative ......

  • Page 49
    BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2011 2010 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable ...Inventories ...Prepaid expenses and other ...Deferred income taxes ...Total current assets ...Property and ...

  • Page 50
    ......0 Stock-based compensation ...0 Purchases of treasury stock ...(20,585) Issuances of common stock ...1,951 Tax benefit from stock options exercised ...0 Balances at June 29, 2011 ... 82,938 $17,625 $463,688 $2,013,189 $(2,055,592) See accompanying notes to consolidated financial statements. F-16

  • Page 51
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2011 Fiscal Years 2010 2009 Cash Flows from Operating Activities: Net income ...$ 141,060 $ 137,704 $ 79,166 Income from discontinued operations, net of taxes ...0 (33,982) (7,045) Adjustments to reconcile net income ...

  • Page 52
    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 ...

  • Page 53
    ... amount over the fair value. We determine fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. Impairment charges are...

  • Page 54
    ... fair value based on a combination of market based values and projected discounted future operating cash flows of the restaurant brands using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. If the carrying value of a reporting unit exceeds...

  • Page 55
    ...for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in...

  • Page 56
    .... The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: 2011 2010 2009 Expected volatility ...Risk-free interest rate ...Expected lives ...Dividend yield ... 55.6% 1.6% 5 years 3.1% 53.7% 2.5% 5 years 3.1% 37...

  • Page 57
    ...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 58
    ... of $3.9 million related to the sale of nine restaurants to a franchisee and other land sales. (c) Joint Venture Investments In fiscal 2011, we entered into an agreement with BTTO Participacoes Ltda for a joint venture investment in a new company to develop five Chili's restaurants in Brazil. We...

  • Page 59
    ...support our strategic goals and evolving business model. We incurred $5.0 million, $1.9 million and $5.5 million in severance and other benefits resulting from these actions in fiscal 2011, 2010, and 2009, respectively. The severance charges are net of income related to the forfeiture of stock-based...

  • Page 60
    ... brands that we no longer own. (b) Disposals and other, net primarily reflects goodwill write-offs associated with refranchising transactions. 6. ACCRUED AND OTHER LIABILITIES Accrued liabilities consist of the following (in thousands): 2011 2010 Payroll ...Gift cards ...Insurance ...Sales tax...

  • Page 61
    ... (in thousands): 2011 2010 Deferred income tax assets: Leasing transactions ...Stock-based compensation ...Restructure charges and impairments ...Insurance reserves ...Employee benefit plans ...Gift cards ...Other, net ...Total deferred income tax assets ...Deferred income tax liabilities: Prepaid...

  • Page 62
    ... benefits for the fiscal years ended June 29, 2011 and June 30, 2010 are as follows (in thousands): 2011 2010 Balance at beginning of year ...Additions based on tax positions related to the current year ...Additions (Reductions) based on tax positions related to prior years ...Settlements with tax...

  • Page 63
    ... bear interest at 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 2.5%. Based on our current credit rating, we anticipate paying interest at a rate of LIBOR plus 1.625% (1.82% as of June 29, 2011) on the term loan and...

  • Page 64
    ... consolidated statement of income for the period. We determined fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. The...

  • Page 65
    ... related to stock options totaled approximately $4.0 million and will be recognized over a weighted average period of 2.1 years. The intrinsic value of options exercised totaled approximately $5.5 million, $0.7 million and $3.3 million during fiscal 2011, 2010 and 2009, respectively. The tax benefit...

  • Page 66
    ... 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 of...

  • Page 67
    ...June 29, 2011. 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 68
    ..., respectively. Lease termination charges of $2.2 million and $4.0 million were also incurred in the first and third quarters, 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...

  • Page 69
    ... consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board...

  • Page 70
    ... Registered Public Accounting Firm The Board of Directors and Shareholders Brinker International, Inc.: We have audited Brinker International, Inc. and subsidiaries' ("the Company") internal control over financial reporting as of June 29, 2011, based on criteria established in Internal Control...

  • Page 71
    ... degree of compliance with the policies and procedures may deteriorate. The effectiveness of our internal control over financial reporting as of June 29, 2011 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its attestation report which is included herein...

  • Page 72
    ... BRINKER SERVICES CORPORATION, a Florida corporation BRINKER TEXAS, INC., a Delaware corporation BRINKER VIRGINIA, INC., a Delaware corporation CHILI'S BEVERAGE COMPANY, INC., a Texas corporation CHILI'S, INC., a Delaware corporation CHILI'S, INC., a Tennessee corporation CHILI'S INTERNATIONAL BASES...

  • Page 73
    ..., and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended June 29, 2011, and the effectiveness of internal control over financial reporting as of June 29, 2011, which reports appear in the 2011 Annual Report to...

  • Page 74
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 29, 2011 /S/ DOUGLAS H. BROOKS Douglas H. Brooks Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

  • Page 75
    ... 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 29, 2011 /S/ GUY J. CONSTANT Guy J. Constant Executive Vice President and Chief Financial Officer (Principal Financial Officer)

  • Page 76
    ... 1350, the undersigned officer of Brinker International, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended June 29, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange...

  • Page 77
    ... 1350, the undersigned officer of Brinker International, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended June 29, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange...

  • Page 78

  • Page 79
    ... Brinker International, Incc The Play Room in Building C 6700 LBJ Freeway Dallas,TX 75240 Independent Public Accountants KPMG LLP 717 Nc Harwood, Suite 3100 Dallas, TX 75201 NYSE Symbol: EAT Stock Transfer Agent And Registrar BNY Mellon Shareowner Services 480 Washington Boulevard Jersey City, NJ...

  • Page 80
    6820 LBJ Freeway, Dallas, TX 75240 • wwwcbrinkerccom