Chili's 2014 Annual Report Download

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BRINKER
INTERNATIONAL®
Annual Report 2014

Table of contents

  • Page 1
    INTERNATIONAL® BRINKER Annual Report 2014

  • Page 2

  • Page 3
    ...build on the momentum from this year and will continue to strengthen our relevance and further differentiate us from our competitors. Chili's Grill & Bar Fiscal 2014 marked the third consecutive year of positive comp sales for Chili's. While the first half of the year started out softer than planned...

  • Page 4
    ... opened 10 new company-owned Chili's restaurants in the U.S. in fiscal 2014. Collectively, sales volumes at these restaurants are higher than the company average and returns are above our hurdle rate. In the coming year, we will open another 8-10 Chili's in the U.S., including our first location on...

  • Page 5
    ... we've delivered. These new items have the same flavors and generous portions with at least one-third fewer calories. Global Business Development The Chili's brand continues to be strong all around the world. Our international franchise restaurants ended the year with comp sales up 1.6 percent - the...

  • Page 6
    ... program and enhance our guests' experience at the table, online, and on their mobile devices; ƒ Offer consumers a new Chili's experience with more at-home entrees available in the frozen aisle of national grocers; ƒ Continue to build new restaurants within all three divisions of our business...

  • Page 7
    ... (I.R.S. 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...

  • Page 8

  • Page 9
    ... Ribs smoked in-house, Big Mouth Burgers, Signature Sizzling Fajitas, handbattered Chicken Crispers and house-made Chips and Salsa. This year, Chili's introduced our Fresh Mex category with new flavorful baked enchiladas and Fresh Mex bowls. The all-day menu offers our guests a generous selection of...

  • Page 10
    ...restaurant revenues for the year. Our average annual sales volume per Maggiano's restaurant during this same year was $8.81 million. Business Strategy 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 11
    ... global business. Maggiano's continues to deliver sales growth and has opened two restaurants this year based on a new prototype, excluding banquet space. This new prototype will allow the brand to enter new markets that were not suitable for the existing model. Maggiano's offers a compelling menu...

  • Page 12
    ... train management and hourly team members. The following table illustrates the system-wide restaurants opened in fiscal 2014 and the planned openings in fiscal 2015: Fiscal 2014 Openings(1) Fiscal 2015 Projected Openings Chili's: Company-owned ...Franchise(2) ...Maggiano's ...International: Company...

  • Page 13
    ... smaller market areas and non-traditional locations (such as airports, college campuses and food courts) that can adequately support our restaurant brands. During the year ended June 25, 2014, our domestic franchisees opened two Chili's restaurants. International We continue our international growth...

  • Page 14
    ... year ended June 25, 2014, we opened three company-owned Chili's restaurants, two in Mexico City and one in Alberta, Canada. Restaurant Management Our Chili's and Maggiano's brands have separate designated teams who support each brand including operations, finance, franchise, marketing, peopleworks...

  • Page 15
    ... support center personnel in Dallas, and 4,023 were restaurant area directors, managers, or trainees. The remaining 51,949 were employed in non-management restaurant positions. Our executive officers have an average of 22 years of experience in the restaurant industry. We have a positive team member...

  • Page 16
    ... forward-looking statements, whether as a result of new information, future events or otherwise. Risks Related to Our Business Competition may adversely affect our operations and financial results. The restaurant business is highly competitive as to price, service, restaurant location, nutritional...

  • Page 17
    ...success to improve the guest experience within our existing restaurant locations. If this current slow economic recovery continues for a prolonged period of time and/or deepens in magnitude returning to the negative trends of the prior years, our business, results of operations and ability to comply...

  • Page 18
    ...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 19
    ... 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...

  • Page 20
    ... schedules; and hire and train or retain qualified managers and team members for existing and new restaurants. The success of our franchisees is important to our future growth. We have a significant percentage of system-wide restaurants owned and operated by our franchisees. While our franchise...

  • Page 21
    ... business. We rely on information systems across our operations, including, for example, point-of-sale processing in our restaurants, management of our supply chain, collection of cash, payment of obligations and various other processes and procedures. Our ability to efficiently manage our business...

  • Page 22
    ... 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. Interim goodwill...

  • Page 23
    ... ...Total ... 824 14 731 46 1,615 Table 2: Domestic vs. foreign locations (by brand) as of June 25, 2014 (company-owned and franchised): Domestic (No. of States) Foreign (No. of countries and territories) Chili's ...Maggiano's ...Restaurant Property Information 1,262(50) 46(21 & D.C.) 307(31...

  • Page 24
    ... 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 Superior...

  • Page 25
    ... our consolidated financial condition or results of operations. Item 4. MINE SAFETY DISCLOSURES. Not applicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on the New York Stock Exchange...

  • Page 26
    ...'s option at any time, in whole or in part. The proceeds of the offering were and will be 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
    ..., 68 shares were tendered by team members at an average price of $53.56. (b) The final amount shown is as of June 25, 2014. Item 6. SELECTED FINANCIAL DATA. The information set forth in that section entitled "Selected Financial Data" in our 2014 Annual Report to Shareholders is presented on page...

  • 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
    ... Reporting Compliance" in our Proxy Statement to be dated on or about September 15, 2014, for the annual meeting of shareholders on October 30, 2014. 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...

  • Page 30
    Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. If you would like information about principal accountant fees and services, you should read the section entitled "Ratification of Independent Auditors" in our Proxy Statement to be dated on or about September 15, 2014, for the annual meeting of ...

  • Page 31
    ..., we have signed in our indicated capacities on August 25, 2014. Name Title /s/ WYMAN T. ROBERTS Wyman T. Roberts MARIE L. PERRY Marie L. Perry President and Chief Executive Officer of Brinker International, President of Chili's Grill & Bar (Principal Executive Officer) and Director Senior Vice...

  • Page 32

  • Page 33
    ...Cash Flows-Fiscal Years Ended June 25, 2014, June 26, 2013, and June 27, 2012 ...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 34
    ... as of August 9, 2011.(8) 2014 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 Registrant, pursuant to...

  • 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
    ...13 BRINKER INTERNATIONAL, INC. SELECTED FINANCIAL DATA (In thousands, except per share amounts and number of restaurants) 2014 Income Statement Data: Revenues: Company sales ...Franchise and other revenues ...Total revenues ...Operating Costs and Expenses: Company restaurants (excluding depreciation...

  • Page 38
    ...& Bar ("Chili's") and Maggiano's Little Italy ("Maggiano's") restaurant brands. At June 25, 2014, we owned, operated, or franchised 1,615 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
    ... global business. Maggiano's continues to deliver sales growth and has opened two restaurants this year based on a new prototype, excluding banquet space. This new prototype will allow the brand to enter new markets that were not suitable for the existing model. Maggiano's offers a compelling menu...

  • Page 40
    ... profitability of our restaurants and strengthen our competitive position. The effective execution of our financial strategies, including repurchasing shares of our common stock, payment of quarterly dividends, disciplined use of capital and efficient management of operating expenses, will further...

  • Page 41
    ... restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development. (3) Chili's Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated...

  • Page 42
    ... restaurants revenues provides investors information regarding brand performance that is relevant to current operations and may impact future restaurant development. (2) Chili's Domestic comparable restaurant sales percentages are derived from sales generated by company-owned and franchise operated...

  • Page 43
    ... spending, lower utilities expense and sales leverage on fixed costs related to higher company sales. Depreciation and amortization increased $4.6 million in fiscal 2014 primarily due to investments in the Chili's reimage program, fryers and kitchen equipment, new restaurant openings, as well as the...

  • Page 44
    ... earnings, lower tax credits and lower favorable reserve adjustments related to resolved tax positions, partially offset by the increased tax benefit resulting from higher special item charges in the current year. Excluding other gains and charges, the effective income tax rate increased to 29...

  • Page 45
    ... Chili's restaurants located in Alberta, Canada from a franchisee for $24.6 million. Additionally, we received $17.2 million in proceeds from the sale of assets which primarily consisted of $8.4 million related to land sales and $8.3 million from the sale of our remaining interest in Macaroni Grill...

  • Page 46
    ... fiscal year, our Board of Directors authorized an additional $350 million in share repurchases, bringing the total authorization to $3,935.0 million. Our stock repurchase plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other...

  • Page 47
    ... assumptions regarding our future operating performance compared to our plan designated peer group in the future. The simulation is based on a probability model and market-based inputs that are used to predict future stock returns. We use the historical operating performance and correlation...

  • Page 48
    ... 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. This process requires the use of estimates and assumptions, which...

  • Page 49
    ... $80.0 million 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 25, 2014 would be approximately $2.7 million. We purchase certain...

  • Page 50
    ...INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts) Fiscal Years 2013 2014 2012 Revenues: Company sales ...Franchise and other revenues ...Total revenues ...Operating Costs and Expenses: Company restaurants... financial statements. F-14

  • Page 51
    ... INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2014 2013 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable ...Inventories ...Prepaid expenses and other ...Income taxes receivable ...Deferred income taxes ...Total current...

  • Page 52
    ...INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Accumulated Other Comprehensive Loss Additional Common Stock Paid-In Shares Amount Capital Retained Earnings Treasury Stock Total Balances...Balances at June 25, 2014 ...64,559 $17,625 $484,320...

  • Page 53
    ... debt ...(26,521) (316,380) (18,749) Excess tax benefits from stock-based compensation ...18,872 8,778 1,406 Proceeds from issuance of long-term debt ...0 549,528 70,000 Payments for deferred financing costs ...0 (5,969) (1,620) Net cash used in financing activities ...(201,346) (152,580) (202,919...

  • Page 54
    ... by the operation of 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) and Ziosk gaming revenue. We report certain...

  • Page 55
    ... implementing a new restaurant information system for all company-owned restaurants and changed from the weighted average cost method to the first-in, first-out or "FIFO" method. The system implementation process was completed in fiscal 2013 for all Chili's restaurants and in fiscal 2014 for all...

  • Page 56
    ... 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 its fair value...

  • Page 57
    ... excess of the cost of the business acquired over the net amounts assigned to assets acquired, including identifiable intangible assets, primarily reacquired franchise rights. In connection with the sale of restaurants, we will allocate goodwill from the reporting unit, or restaurant brand, to the...

  • Page 58
    .... The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: 2014 2013 2012 Expected volatility ...Risk-free interest rate ...Expected lives ...Dividend yield ... 47.7% 53.4% 56.7% 1.6% 0.7% 0.9% 5 years 5 years 5 years...

  • Page 59
    ... stock repurchase plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational...

  • Page 60
    ... 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 the criteria for aggregating operating segments into a single reporting segment. 2. ACQUISITION OF CHILI'S RESTAURANTS...

  • Page 61
    ...stock-based compensation awards. Furthermore, a $0.6 million gain was recorded primarily related to land sales. In June 2013, we redeemed the 5.75% notes due May 2014, resulting in a charge of $15.8 million representing the remaining interest payments and unamortized debt issuance costs and discount...

  • Page 62
    ...years are related to restaurant brands that we no longer own. (b) Additions for the prior year reflect the preliminary goodwill acquired as a result of the Canada acquisition. (c) The valuation of the reacquired franchise rights associated with the Canada acquisition was finalized during fiscal 2014...

  • Page 63
    ...years. 6. ACCRUED AND OTHER LIABILITIES Accrued liabilities consist of the following (in thousands): 2014 2013 Gift cards ...Payroll ...Litigation reserves ...Sales... (in thousands): 2014 2013 Straight-line rent ...Insurance ...Landlord contributions ...Unrecognized tax benefits ...Other ... $...

  • Page 64
    ... and June 26, 2013 are as follows (in thousands): 2014 2013 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...

  • Page 65
    ... unrecognized tax benefits for the fiscal years ended June 25, 2014 and June 26, 2013 are as follows (in thousands): 2014 2013 Balance at beginning of year ...Additions based on tax positions related to the current year ...Additions based on tax positions related to prior years ...Settlements with...

  • Page 66
    ... issuance costs and utilized the proceeds to redeem the 5.75% notes due in June 2014, pay down the revolver and fund share repurchases. The new notes require semi-annual interest payments which began in the second quarter of fiscal 2014. Our debt agreements contain various financial covenants that...

  • Page 67
    ... 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. In fiscal 2014, we reviewed the transferable liquor licenses during our semi-annual impairment...

  • Page 68
    ... (a) Stock Options Expense related to stock options issued to eligible employees under the Plans is recognized using a gradedvesting schedule over the vesting period or to the date on which retirement eligibility is achieved, if shorter. Stock options generally vest over a period of 1 to 4 years and...

  • Page 69
    ... (as defined in the Plans), or upon an employee's death, disability or involuntary termination. Transactions during fiscal 2014 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 26...

  • Page 70
    ... 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 Superior...

  • Page 71
    ..., respectively. Additionally, net income included lease termination charges of $0.2 million, $0.2 million, $0.9 million and $0.6 million in the four quarters of fiscal 2014 related to restaurants closed in the current year and adjustments for prior year closures. Severance charges of $0.2 million...

  • Page 72
    ... charges related to previously closed restaurants of $0.4 million, $1.1 million and $0.6 million in the first, second and fourth quarters, respectively. These charges were partially offset by an $8.3 million gain on the sale of our remaining interest in Macaroni Grill in the fourth quarter...

  • Page 73
    ... in the three-year period ended June 25, 2014, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June...

  • Page 74
    ...Independent Registered Public Accounting Firm The Board of Directors and Shareholders Brinker International, Inc.: We have audited Brinker International, Inc.'s (the "Company") internal control over financial reporting as of June 25, 2014, based on criteria established in Internal Control-Integrated...

  • Page 75
    ... over financial reporting as of June 25, 2014 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
    ... business trust BRINKER PURCHASING, INC., a Delaware corporation BRINKER SERVICES CORPORATION, a Florida corporation BRINKER TEXAS, INC., a Delaware corporation BRINKER VIRGINIA, INC., a Delaware corporation CGB COMERCIO DE ALIMENTOS E BEBIDAS LTDA., a Brazil limited liability company CHILI...

  • Page 77
    ... for each of the years in the three-year period ended June 25, 2014, and the effectiveness of internal control over financial reporting as of June 25, 2014, which reports appear in the 2014 Annual Report to Shareholders on Form 10-K of Brinker International, Inc. /s/ KPMG LLP Dallas, Texas August 25...

  • Page 78
    ...involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 25, 2014 /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 25, 2014 /s/ MARIE L. PERRY Marie L. Perry Senior Vice President, Treasurer, Controller and Chief Financial Officer (Principal Financial Officer)

  • Page 80
    ...the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 25, 2014 By: /s/ WYMAN T. ROBERTS Name: Wyman T. Roberts Title: Wyman T. Roberts, Chief Executive Officer & President and President of Chili's Grill & Bar (Principal...

  • Page 81
    ... 32(b) CERTIFICATION Pursuant to 18 U.S.C. Section 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 25, 2014 (the "Report") fully complies with the requirements of Section 13(a) or 15...

  • Page 82

  • Page 83
    ... exhibits to its Annual Report on Form 10-K for the year ended June 25, 2014. Chili's® Grill & Bar and Maggiano's Little Italy® are registered and/or proprietary trademarks of Brinker International Payroll Company, L.P. PRINCIPAL OFFICERS Wyman T. Roberts Chief Executive Officer and President and...

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