UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 26, 2002 Commission 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) (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
Common Stock, $0.10 par value
Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the voting stock held by persons
other than directors and officers of registrant (who might be
deemed to be affiliates of registrant) at September 9, 2002 was
$2,684,885,934.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Class Outstanding at
September 9, 2002
Common Stock, $0.10 par value 97,377,571 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for
the fiscal year ended June 26, 2002, are incorporated by
reference into Part II hereof, to the extent indicated herein.
Portions of the registrant's Proxy Statement for its annual
meeting of shareholders on November 14, 2002, to be dated on or
about September 24, 2002, are incorporated by reference into Part
III hereof, to the extent indicated herein.
PART I
Item 1. BUSINESS.
General
Brinker International, Inc. (the "Company") is
principally engaged in the ownership, operation,
development and franchising of the Chili's Grill & Bar
("Chili's"), Romano's Macaroni Grill ("Macaroni Grill"),
On The Border Mexican Grill & Cantina ("On The Border"),
Cozymel's Coastal Grill ("Cozymel's"), Maggiano's Little
Italy ("Maggiano's"), Corner Bakery Cafe ("Corner
Bakery"), and Big Bowl Asian Kitchen ("Big Bowl")
restaurant concepts. In July 2001, the Company acquired a
40% interest in the legal entities owning and developing
Rockfish Seafood Grill ("Rockfish"). The Company was
organized under the laws of the State of Delaware in
September 1983 to succeed to the business operated by
Chili's, Inc., a Texas corporation, organized in August
1977. The Company completed the acquisitions of Macaroni
Grill, On The Border, Cozymel's, Maggiano's, Corner Bakery
and Big Bowl in November 1989, May 1994, July 1995, August
1995, August 1995, and February 2001, respectively. In
August 2002, the Company entered into a letter of intent
to divest its interest in the Eatzi's Market & Bakery
concept.
Core Restaurant Concepts
Chili's Grill & Bar
Chili's is a full-service Southwestern-themed
restaurant, featuring a casual atmosphere and a varied
menu of chicken, beef and seafood entrees, steaks,
hamburgers, ribs, fajitas, sandwiches, salads, appetizers
and desserts, all of which are prepared fresh daily
according to special Chili's recipes.
Chili's restaurants feature quick, efficient and
friendly table service designed to minimize customer
waiting time and facilitate table turnover, with an
average turnover time per table of approximately 45
minutes. Service personnel are dressed casually in jeans,
knit shirts and aprons to reinforce the casual, informal
environment. The decor of a Chili's restaurant consists of
booth seating, tile-top tables, hanging plants and wood
and brick walls covered with interesting memorabilia.
Emphasis is placed on serving substantial portions of
fresh, high quality food at modest prices. Entree
selections range in menu price from $5.79 to $13.99, with
the average revenue per meal, including alcoholic
beverages, approximating $11.15 per person. A full-
service bar is available at each Chili's restaurant, with
frozen margaritas offered as the concept's specialty
drink. During the year ended June 26, 2002, food and
non-alcoholic beverage sales constituted approximately
86.1% of the concept's total restaurant revenues, with
alcoholic beverage sales accounting for the remaining
13.9%.
Romano's Macaroni Grill
Macaroni Grill is a casual, fun Italian restaurant full
of the sights, sounds and aromas of a traditional Tuscan
kitchen. Enjoyed for any occasion, guests enjoy their
favorite Italian dishes along with special signature
pastas, grilled features, seafood, salads and pizza - all
prepared by talented chefs in open kitchens. The
restaurant has an old world charm with wood burning ovens,
festive string lights, fresh flowers, large selections of
wine, and display cooking. Guests are met with a sincere
welcome at the door and enjoy warm, knowledgeable service.
Additionally, guests enjoy the convenience of Macaroni
Grill's Curbside To Go service where delicious, chef-
prepared meals are delivered right to their cars for them
to share at home with friends and family.
Entree selections range in menu price from $5.99 to
$16.99 with monthly chef features priced separately. The
average revenue per meal, including alcoholic beverages,
is approximately $13.84 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 87.2% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 12.8%.
On The Border Mexican Grill & Cantina
On The Border restaurants are full-service, casual
Mexican restaurants featuring mesquite-grilled favorites
and traditional Tex-Mex appetizers, entrees and desserts
served in generous portions at modest prices. On The
Border restaurants feature a full-service bar, an outdoor
patio, booth and table seating in the dining room, and a
colorful, festive atmosphere. On The Border restaurants
also offer enthusiastic table service to facilitate table
turnover while simultaneously providing customers with a
satisfying casual dining experience. In addition, On The
Border offers To Go service intended to fill the need for
speed and convenience while offering a quality take-out
experience.
Entree selections range in menu price from $5.49 to
$13.99, with the average revenue per meal, including
alcoholic beverages, approximating $13.14 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 77.8%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 22.2%.
Cozymel's Coastal Grill
Cozymel's restaurants are casual, upscale coastal
restaurants featuring a daily fresh fish feature, grilled
chicken and beef entrees, appetizers, desserts and a full-
service bar featuring a wide variety of signature
margaritas and specialty frozen beverages. Cozymel's
restaurants offer a "tropical, not typical" atmosphere,
which includes an outdoor patio, intended to evoke the
atmosphere of a tropical island.
Entree selections range in menu price from $6.49 to
$15.99 with the average revenue per meal, including
alcoholic beverages, approximating $15.70 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 75.5%
of the concept's total restaurant revenues, with alcoholic
beverages accounting for the remaining 24.5%.
Maggiano's Little Italy
Maggiano's restaurants are classic re-creations of
dinner houses found in New York's Little Italy in the
1940s. Each of the Maggiano's restaurants is a casual,
full-service Italian restaurant with a family-style menu
as well as a full lunch and dinner menu offering Southern
Italian appetizers, homemade bread, bountiful portions of
pasta, chicken, seafood, veal and prime steaks, as well as
a full range of alcoholic beverages. Most Maggiano's
restaurants also feature extensive banquet facilities.
Entree selections range in menu price from $6.95 to
$32.95, with the average revenue per meal, including
alcoholic beverages, approximating $25.24 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 78.6%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 21.4%.
Corner Bakery Cafe
Corner Bakery Cafe is a retail bakery cafe serving
breakfast, lunch and dinner in the emerging quick-casual
dining segment. Corner Bakery Cafe is committed to
providing a variety of menu selections. Featured in the
cafes are specialty sandwiches, fresh salads, hot soups,
panini and pastas.
While retaining a relaxed atmosphere, Corner Bakery
Cafe exemplifies casual elegance, with most bakeries
having both indoor and outdoor seating. Savory foods,
breads and sweets are created seasonally to take advantage
of the highest quality ingredients available. Corner
Bakery Catering offers a wide range of gift baskets,
breakfast and sandwich trays and lunch boxes for any size
meeting or social event. Prices for menu items range from
$1.00 to $6.99 with the average revenue per meal,
including alcoholic beverages, approximating $7.41 per
person. During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted over 99% of the
concept's total restaurant revenues. Catering sales
constituted approximately 19.5% of such food and non-
alcoholic beverage sales.
Big Bowl Asian Kitchen
Big Bowl features contemporary Asian cuisine prepared
with fresh ingredients in a casual, vibrant atmosphere.
Big Bowl is distinguished by its authentic, full-flavored
menu that features five kinds of fresh noodles, chicken
pot stickers and dumplings, hand-rolled summer rolls,
seasonal stir-fry dishes featuring local produce, wok-
seared fish, and signature beverages, such as "homemade"
fresh ginger ale and tropical cocktails. Big Bowl's focus
on quality means garlic, ginger and lemon grass are
chopped daily, lemon juice is hand squeezed, and peanut
sauce is prepared with home-roasted peanuts. Big Bowl's
flavorful broths, curry pastes, dip sauces and condiments
are made from scratch. Big Bowl's interactive stir-fry
bar allows the guests to help themselves to a "Farmers'
Market" array of vegetables to be wok-cooked with their
own choice of sauces and meats with noodles or rice.
While honoring its Asian culinary tradition, Big Bowl
strives to deliver fine quality at great value, assisted
by a service team carefully trained to guide guests
through this new culinary experience. Entree selections
range in menu price from $6.95 to $12.95, with the average
revenue per meal, including alcoholic beverages,
approximating $14.00 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 87.8% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 12.2%.
Jointly-Developed Concept
Rockfish Seafood Grill
Rockfish offers its guests fresh, flavorful seafood dishes
served in a lively environment. Reminiscent of a fly-
fishing camp, the Rockfish decor features piney wood
tables, river rock fireplaces and an open kitchen with
chefs preparing the catch of the day. The restaurant
serves a wide variety of reasonably priced seafood ranging
from salmon and trout to catfish, shrimp and crab. Daily
blackboard specials are also very popular with diners.
Friendly, attentive servers clad in hunter green polo
shirts and jeans add to the casual backdrop. All
locations feature full-service bars and most have patio
seating availability.
Entree selections range in menu price from $5.53 to $13.42
with certain specialty items priced on a daily basis. The
average revenue per meal, including alcoholic beverages,
is approximately $14.32 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 85.0% of the concept's total
revenues, with alcoholic beverage sales accounting for the
remaining 15.0%.
Business Development
The Company's long-term objective is to continue
expansion of its restaurant concepts by opening
Company-operated units in strategically desirable markets.
The Company intends to concentrate on the development of
certain identified markets to achieve penetration levels
deemed desirable by the Company, thereby improving the
Company's competitive position, marketing potential and
profitability. Expansion efforts will be focused not only
on major metropolitan areas in the United States but also
on smaller market areas and nontraditional locations (such
as airports, kiosks and food courts) which can adequately
support any of the Company's restaurant concepts.
The Company considers the restaurant site selection
process critical to its long-term success and devotes
significant effort to the investigation of new locations
utilizing a variety of sophisticated analytical
techniques. The site selection process evaluates a
variety of factors: trade area demographics, such as
target population density and household income levels;
physical site characteristics such as visibility,
accessibility and traffic volume; relative proximity to
activity centers such as shopping centers, hotel and motel
complexes and office buildings; and supply and demand
trends, such as proposed infrastructure improvements, new
developments, and potential competition. Members of
management inspect, review and approve each restaurant
site prior to its acquisition.
The Company periodically reevaluates restaurant sites
to ensure that site selection attributes have not
deteriorated below minimum standards. In the event site
deterioration were to occur, the Company makes a concerted
effort to improve the restaurant's performance by
providing physical, operating and marketing enhancements
unique to each restaurant's situation. If efforts to
restore the restaurant's performance to acceptable minimum
standards are unsuccessful, the Company considers
relocation to a proximate, more desirable site, or
evaluates closing the restaurant if the Company's
measurement criteria, such as return on investment and
area demographic trends, do not support relocation. Since
inception, the Company has closed forty-one restaurants,
including four in fiscal 2002, which were performing below
the Company's standards primarily due to declining trade
area demographics. The Company operates pursuant to a
strategic plan targeted to support the Company's long-term
growth objectives, with a focus on continued development
of those restaurant concepts that have the greatest return
potential for the Company and its shareholders.
The following table illustrates the system-wide
restaurants opened in fiscal 2002 and the planned openings
in fiscal 2003:
Fiscal 2002 Fiscal 2003
Openings Projected Openings
Chili's:
Company-Operated 53 62-65
Franchise 23 18-21
Macaroni Grill:
Company-Operated 18 18-20
Franchise 0 2-4
On The Border:
Company-Operated 10 3-5
Franchise 2 1
Corner Bakery 13 10-12
Cozymel's 2 0-1
Maggiano's 6 4-5
Big Bowl 3 5-7
Rockfish 4 6-8
Total 134 129-149
The Company anticipates that some of the fiscal 2003
projected restaurant openings may be constructed pursuant
to "build-to-suit" agreements, in which the lessor
contributes some of the land cost and all, or
substantially all, of the building construction costs. In
other cases, the Company may either lease or own the land
(paying for any owned land from its own funds) and either
lease or own the building, furniture, fixtures and
equipment (paying for any owned items from its own funds).
The following table illustrates the approximate average
capital investment for a typical unit in the Company's
primary restaurant concepts:
Chili's Macaroni On The Cozymel's Maggiano's Corner
Grill Border Bakery
Land $ 690,000 $ 870,000 $ 820,000 $1,100,000 $2,220,000 $ 700,000
Building 1,110,000 1,200,000 1,360,000 1,400,000 2,200,000 450,000
Furniture 440,000 385,000 590,000 665,000 895,000 220,000
& Equipment
Other 60,000 80,000 80,000 160,000 70,000 30,000
Total $2,300,000 $2,535,000 $2,850,000 $3,325,000 $5,385,000 $1,400,000
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 local governmental
permits and approvals, and by its capacity to supervise
construction and recruit and train management personnel.
Franchise Operations
The Company intends to continue its expansion through
franchise development, both domestically and
internationally. At June 26, 2002, thirty-seven total
joint venture or franchise development agreements existed.
During the year ended June 26, 2002, twenty-three Chili's
and two On The Border franchised restaurants were opened.
During the year ended June 26, 2002, the first Chili's
restaurants opened in Qatar (July 2001), Taiwan (November
2001), and Oman (December 2001). Additionally, the first
Chili's restaurant opened in Alaska (May 2002) in the 2002
fiscal year.
The Company intends to selectively pursue international
expansion and is currently contemplating development in
other countries. A typical franchise development agreement
provides for payment of area development and initial
franchise fees in addition to subsequent royalty and
advertising fees based on the gross sales of each
restaurant. 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.
Jointly-Developed Operations
From time to time, the Company enters into agreements
for research and development activities related to the
testing of new restaurant concepts, typically acquiring a
significant equity interest in such ventures. In July
2001, the Company acquired a 40% interest in the legal
entities owning the Rockfish restaurants. At June 26,
2002, twelve Rockfish restaurants were operating, all
located in the state of Texas.
Restaurant Management
The Company's philosophy to maintain and operate each
concept as a distinct and separate entity ensures that the
culture, recruitment and training programs and unique
operating environments are preserved. These factors are
critical to the viability of each concept. Each concept is
directed by a president and one or more concept vice
presidents and senior vice presidents.
The Company's restaurant management structure varies by
concept. The individual restaurants themselves are led by
a management team including a general manager and between
two to five additional managers. The level of restaurant
supervision depends upon the operating complexity and
sales volume of each concept. An area director/supervisor
is responsible for the supervision of, on average, three
to seven restaurants. For those concepts with a
significant number of units within a geographical region,
additional levels of management may be provided.
The Company believes that there is a high correlation
between the quality of restaurant management and the long-
term success of a concept. In that regard, the Company
encourages increased tenure at all management positions
through various short and long-term incentive programs,
including equity ownership. These programs, coupled with
a general management philosophy emphasizing quality of
life, have enabled the Company to attract and retain
management employees at levels above the industry norm.
The Company ensures consistent quality standards in all
concepts through the issuance of operations manuals
covering all elements of operations and food and beverage
manuals, which provide guidance for preparation of Company-
formulated recipes. Routine visitation to the restaurants
by all levels of supervision enforces strict adherence to
Company standards.
The director of training for each concept is
responsible for maintaining each concept's operational
training program. The training program includes a three
to four month training period for restaurant management
trainees, a continuing management training process for
managers and supervisors, and training teams consisting of
groups of employees experienced in all facets of
restaurant operations that train employees to open new
restaurants. The training teams typically begin on-site
training at a new restaurant seven to ten days prior to
opening and remain on location one to two weeks following
the opening to ensure the smooth transition to operating
personnel.
Purchasing
The Company's ability to maintain consistent quality of
products throughout each of its restaurant concepts
depends upon acquiring food and beverage products and
related items from reliable sources. Suppliers are pre-
approved by the Company and are required, along with the
restaurants, to adhere to strict product specifications
established through the Company's quality assurance
program to ensure that high quality, wholesome food and
beverage products are served in the restaurants. The
Company negotiates directly with the major suppliers to
obtain competitive prices and uses purchase commitment
contracts to stabilize the potentially volatile pricing
associated with certain commodity items. All essential
food and beverage products are available, or upon short
notice can be made available, from alternative qualified
suppliers in all cities in which the Company's restaurants
are located. Because of the relatively rapid turnover of
perishable food products, inventories in the restaurants,
consisting primarily of food, beverages and supplies, have
a modest aggregate dollar value in relation to revenues.
Advertising and Marketing
The Company's concepts generally focus on the eighteen
to fifty-four year old age group, which constitutes
approximately half of the United States population.
Members of this population segment grew up on fast food,
but the Company believes that, with increasing maturity,
they prefer a more adult, upscale dining experience. To
attract this target group, the Company relies primarily on
television, radio, direct mail advertising and
word-of-mouth information communicated by customers.
The Company's franchise agreements require advertising
contributions to the Company to be used exclusively for
the purpose of maintaining, directly administering and
preparing standardized advertising and promotional
activities. Franchisees spend additional amounts on local
advertising when approved by the Company.
Employees
At June 26, 2002, the Company employed approximately
90,000 persons, of whom approximately 1,100 were corporate
personnel, 5,300 were restaurant area directors, managers
or trainees and 83,600 were employed in non-management
restaurant positions. The executive officers of the
Company have an average of over twenty-two years of
experience in the restaurant industry.
The Company considers its employee relations to be good
and believes that its employee turnover rate compares
favorably with the industry average. Most employees,
other than restaurant management and corporate personnel,
are paid on an hourly basis. The Company believes that it
provides working conditions and wages that compare
favorably with those of its competition. The Company's
employees are not covered by any collective bargaining
agreements.
Trademarks
The Company has registered, among other marks, "Big
Bowl", "Brinker International", "Chili's", "Chili's Bar &
Bites", "Chili's Grill & Bar", "Chili's Margarita Bar",
"Chili's Southwest Grill & Bar", "Chili's Too", "Corner
Bakery", "Corner Bakery Cafe", "Cozymel's", "Cozymel's
Coastal Mexican Grill", "Romano's Macaroni Grill",
"Macaroni Grill", "Maggiano's Little Italy", "On The
Border", "On The Border Mexican Cafe", and "Pizzaahhh!" as
trademarks with the United States Patent and Trademark
Office.
Risk Factors/Forward-Looking Statements
The Company wishes to caution readers that the
following important factors, among others, could cause the
actual results of the Company to differ materially from
those indicated by forward-looking statements made in this
report and from time to time in news releases, reports,
proxy statements, registration statements and other
written communications, as well as oral forward-looking
statements made from time to time by representatives of
the Company. Such forward-looking statements involve
risks and uncertainties that may cause the Company's or
the restaurant industry's actual results, performance or
achievements to be materially different from any future
results, performance or achievements expressed or implied
by these forward-looking statements. Factors that might
cause actual events or results to differ materially from
those indicated by these forward-looking statements may
include matters such as future economic performance,
restaurant openings, operating margins, the availability
of acceptable real estate locations for new restaurants,
the sufficiency of the Company's cash balances and cash
generated from operating and financing activities for the
Company's future liquidity and capital resource needs, and
other matters, and are generally accompanied by words such
as "believes," "anticipates," "estimates," "predicts,"
"expects" and similar expressions that convey the
uncertainty of future events or outcomes. An expanded
discussion of various risk factors follows.
Competition may adversely affect the Company's operations
and financial results.
The restaurant business is highly competitive with
respect to price, service, restaurant location and food
quality, and is often affected by changes in consumer
tastes, economic conditions, population and traffic
patterns. The Company competes within each market with
locally-owned restaurants as well as national and regional
restaurant chains, some of which operate more restaurants
and have greater financial resources and longer 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 adversely affect the restaurant industry in
general and the Company's restaurants in particular.
The Company's sales volumes generally decrease in
winter months.
The Company's sales volumes fluctuate seasonally, and
are generally higher in the summer months and lower in the
winter months, which may cause seasonal fluctuations in
the Company's operating results.
Changes in governmental regulation may adversely affect
the Company's ability to open new restaurants and the
Company's existing and future operations.
Each of the Company's restaurants is subject to
licensing and regulation by alcoholic beverage control,
health, sanitation, safety and fire agencies in the state,
county and/or municipality in which the restaurant is
located. The Company has not encountered any difficulties
or failures in obtaining the required licenses or
approvals that could delay or prevent the opening of a new
restaurant and although the Company does not, at this
time, anticipate any occurring in the future, there can be
no assurance that the Company will not experience material
difficulties or failures that could delay the opening of
restaurants in the future.
The Company is subject to federal and state
environmental regulations, and although these have not had
a material negative effect on the Company's operations,
there can be no assurance that there will not be a
material negative effect in the future. More stringent
and varied requirements of local and state governmental
bodies with 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 With Disabilities Act
and various family leave mandates. Although the Company
expects increases in payroll expenses as a result of
federal and state mandated increases in the minimum wage,
and although such increases are not expected to be
material, there can be no assurance that there will not be
material increases in the future. However, the Company's
vendors may be affected by higher minimum wage standards,
which may result in increases in the price of goods and
services supplied to the Company.
Inflation may increase the Company's operating
expenses.
The Company has not experienced a significant overall
impact from inflation. As operating expenses increase,
the Company, to the extent permitted by competition,
recovers increased costs by increasing menu prices, by
reviewing, then implementing, alternative products or
processes, or by implementing other cost-reduction
procedures. There can be no assurance, however, that the
Company will be able to continue to recover increases in
operating expenses due to inflation in this manner.
Increased energy costs may adversely affect the Company's
profitability.
The Company's success depends in part on its ability
to absorb increases in utility costs. Various regions of
the United States in which the Company operates multiple
restaurants, particularly California, experienced
significant increases in utility prices during the 2001
fiscal year. If these increases should recur, they will
have an adverse effect on the Company's profitability.
If the Company is unable to meet its growth plan, the
Company's profitability in the future may be adversely
affected.
The Company's ability to meet its growth plan is
dependent upon, among other things, its ability to
identify available, suitable and economically viable
locations for new restaurants, obtain all required
governmental permits (including zoning approvals and
liquor licenses) on a timely basis, hire all necessary
contractors and subcontractors, and meet construction
schedules. The costs related to restaurant and concept
development include purchases and leases of land,
buildings and equipment and facility and equipment
maintenance, repair and replacement. The labor and
materials costs involved vary geographically and are
subject to general price increases. As a result, future
capital expenditure costs of restaurant development may
increase, reducing profitability. There can be no
assurance that the Company will be able to expand its
capacity in accordance with its growth objectives or that
the new restaurants and concepts opened or acquired will
be profitable.
Unfavorable publicity relating to one or more of the
Company's restaurants in a particular brand may taint
public perception of 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 a majority of its revenues,
unfavorable publicity relating to one or more Chili's
restaurants could have a material adverse effect on the
Company's business, results of operations, and financial
condition.
Other risk factors may adversely affect the Company's
financial performance.
Other risk factors that could cause the Company's
actual results to differ materially from those indicated
in the forward-looking statements include, without
limitation, changes in economic conditions, consumer
perceptions of food safety, changes in consumer tastes,
governmental monetary policies, changes in demographic
trends, availability of employees, terrorist acts, and
weather and other acts of God.
Item 2. PROPERTIES.
Restaurant Locations
At June 26, 2002, the Company's system of company-
operated, jointly-developed and franchised units included
1,268 restaurants located in forty-nine states,
Washington, D.C., Australia, Bahrain, Canada, Egypt, Great
Britain, Guatemala, Indonesia, Kuwait, Lebanon, Malaysia,
Mexico, Oman, Panama, Peru, Philippines, Puerto Rico,
Qatar, Saudi Arabia, South Korea, Taiwan, United Arab
Emirates, and Venezuela. The Company's portfolio of
restaurants is illustrated below:
Chili's:
Company-Operated 629
Franchise 191
Macaroni Grill:
Company-Operated 177
Franchise 6
On The Border:
Company-Operated 111
Franchise 18
Corner Bakery:
Company-Operated 74
Franchise 2
Cozymel's 16
Maggiano's 20
Big Bowl 12
Rockfish 12
Total 1,268
The 820 Chili's restaurants include domestic locations
in forty-nine states and foreign locations in 22 countries.
The 183 Macaroni Grill restaurants include domestic
locations in 38 states and foreign locations in Canada,
Great Britain, Mexico and Puerto Rico. The On The Border,
Cozymel's, Maggiano's, Corner Bakery, and Big Bowl
restaurants are located exclusively within the United
States in 30, 9, 10 (and the District of Columbia), 8 (and
the District of Columbia), and 5 states, respectively.
Restaurant Property Information
The following table illustrates the approximate average
dining capacity for each current prototypical unit in the
Company's primary restaurant concepts:
Chili's Macaroni On The Cozymel Maggiano's
Grill Border
Square 4,500-5,500 6,800-7,600 6,500-7,200 9,400 14,000-18,000
Feet
Dining 145-215 250-275 220-240 380 500-725
Seats
Dining 35-50 55-70 55-60 85 100-150
Tables
Corner Bakery's size and dining capacity varies based
upon whether it is an in-line or kiosk location. For a
Corner Bakery located in a kiosk, the square footage ranges
from 80 to 200 square feet, the number of dining seats
varies from 0 to 40, and the number of dining tables varies
from 0 to 15. For in-line Corner Bakery locations, the
square footage ranges from 1,971 to 5,347, the number of
dining seats ranges from 60 to 150, and the number of
dining tables ranges from 20 to 50.
Certain of the Company's restaurants are leased for an
initial term of five to thirty years, with renewal terms of
one to thirty years. The leases typically provide for a
fixed rental plus percentage rentals based on sales volume.
At June 26, 2002, the Company owned the land and/or
building for 728 of the 1,039 Company-operated restaurants.
The Company considers that its properties are suitable,
adequate, well-maintained and sufficient for the operations
contemplated.
Other Properties
The Company leases warehouse space totalling
approximately 39,150 square feet in Carrollton, Texas,
which it uses for storage of equipment and supplies. The
Company purchased an office building containing
approximately 105,000 square feet for its corporate
headquarters in July 1989. This office building was
expanded in May 1997 by the addition of a 2,470 square foot
facility used for menu development activities. In January
1996, the Company purchased an additional office complex
containing three buildings and approximately 198,000 square
feet for the expansion of its corporate headquarters.
Approximately 151,860 square feet of this complex is
currently utilized by the Company, with the remaining
46,140 square feet under lease, listed for lease to third
party tenants, or reserved for future expansion of the
Company headquarters. In November 1997, the Company sold
the office complex and is leasing it back under a twenty
year operating lease. The Company also leases office space
in Arizona, California, Florida, Illinois, Missouri, New
Jersey, North Carolina, Rhode Island and Texas for use as
regional operation or real estate/construction offices.
The size of these office leases range from 144 square feet
to 3,600 square feet. The Company owns or leases warehouse
space in California, Georgia, Illinois and Texas for use as
commissaries for the preparation of bread and other food
products for its Corner Bakery stores. The size of these
commissaries range from 11,383 square feet to 20,000 square
feet.
Item 3. LEGAL PROCEEDINGS.
The Company is engaged in various legal proceedings and
has certain unresolved claims pending. The ultimate
liability, if any, for the aggregate amounts claimed cannot
be determined at this time. However, management of the
Company, based upon consultation with legal counsel, is of
the opinion that there are no matters pending or threatened
which are expected to have a material adverse effect,
individually or in the aggregate, on the Company's
consolidated financial condition or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
The Company's common stock is traded on the New York
Stock Exchange ("NYSE") under the symbol "EAT". Bid prices
quoted represent interdealer prices without adjustment for
retail markup, markdown and/or commissions, 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 26, 2002:
High Low
First Quarter $27.41 $22.45
Second Quarter $30.04 $22.51
Third Quarter $35.45 $29.39
Fourth Quarter $35.10 $30.03
Fiscal year ended June 27, 2001:
High Low
First Quarter $23.08 $19.04
Second Quarter $28.25 $20.08
Third Quarter $31.00 $23.25
Fourth Quarter $29.38 $21.56
On December 8, 2000, the Company declared a stock split,
effected in the form of a 50% stock dividend ("Stock
Dividend") to shareholders of record on January 3, 2001,
payable on January 16, 2001. Stock prices in the preceding
table and share numbers included or incorporated in this
report have been restated to reflect the Stock Dividend.
As of September 9, 2002, there were 1,126 holders of record
of the Company's common stock.
The Company has never paid cash dividends on its common
stock and does not currently intend to do so as profits are
reinvested into the Company to fund expansion of its
restaurant business. Payment of dividends in the future
will depend upon the Company's growth, profitability,
financial condition and other factors, which the Board of
Directors may deem relevant.
In October 2001, the Company issued $431.7 million
aggregate principal amount at maturity of Zero Coupon
Convertible Senior Debentures Due 2021 (the "Debentures").
The Debentures and the common stock issuable upon
conversion of the Debentures were not registered under the
Securities Act of 1933, as amended. Banc of America
Securities LLC and Salomon Smith Barney Inc. served as the
joint book-running managers for the offering. The
Debentures were offered and sold only to "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act of 1933, as amended). The aggregate
offering price for the Debentures was approximately $250.0
million and the aggregate underwriting discount of 2.125%
was approximately $5.3 million. The Debentures are
redeemable at the Company's option on October 10, 2004, and
the holders of the Debentures may require the Company to
redeem the Debentures on October 10, 2003, 2005, 2011 or
2016, and in certain other circumstances. In addition,
each $1,000 Debenture is convertible into 18.08 shares of
the Company's common stock if the stock's market price
exceeds 120% of the accreted conversion price at specified
dates, the Company exercises its option to redeem the
Debentures, a credit rating of the Debentures is reduced
below Baa3 and BBB-, or upon the occurrence of certain
specified corporate transactions. The accreted conversion
price is equal to the issue price of the Debenture plus
accrued original issue discount divided by 18.08 shares.
The proceeds of the offering were used for repayment of
existing indebtedness, restaurant acquisitions, purchases
of outstanding common stock under the Company's stock
repurchase plan, and for general corporate purposes.
Except as described in the immediately preceding
paragraph, during the three-year period ended on September
9, 2002, the Company issued no securities which were not
registered under the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA.
"Selected Financial Data" is incorporated herein by
reference from the 2002 Annual Report to Shareholders and
is presented on page F-1 of Exhibit 13 to this report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein
by reference from the 2002 Annual Report to Shareholders
and is presented on pages F-2 through F-9 of Exhibit 13 to
this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
"Quantitative and Qualitative Disclosures About Market
Risk" contained within "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
is incorporated herein by reference from the 2002 Annual
Report to Shareholders and is presented on page F-5 of
Exhibit 13 to this report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Index to Financial Statements
attached hereto on page 19 for a listing of all financial
statements incorporated by reference from the 2002 Annual
Report to Shareholders attached as part of Exhibit 13 to
this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Election of Directors - Information About Nominees",
"Board Organization", "Executive Officers", and "Section
16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement to be dated on or about
September 24, 2002, for the annual meeting of shareholders
on November 14, 2002, are incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
"Executive Compensation" and "Report of the
Compensation Committee" in the Company's Proxy Statement
to be dated on or about September 24, 2002, for the annual
meeting of shareholders on November 14, 2002, are
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
"Election of Directors - Stock Ownership of Directors",
"Executive Compensation - Equity Compensation Plan
Information", and "Stock Ownership of Certain Persons" in
the Company's Proxy Statement to be dated on or about
September 24, 2002, for the annual meeting of shareholders
on November 14, 2002, are incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement to be
dated on or about September 24, 2002, for the annual
meeting of shareholders on November 14, 2002, is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements
attached hereto on page 19 for a listing of all financial
statements attached as Exhibit 13 to this report.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the
exhibits attached hereto on page E-1 for a list of all
exhibits filed as a part of this report.
(b) Reports on Form 8-K
The Company was not required to file a current report
on Form 8-K during the fiscal quarter ended June 26, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant 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: September 24, 2002
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
of the registrant and in the capacities indicated on
September 24, 2002.
Name Title
/s/ Ronald A. McDougall Chairman of the Board and
Ronald A. McDougall Chief Executive Officer
(Principal Executive Officer)
/s/ Charles M. Sonsteby Executive Vice President and Chief
Charles M. Sonsteby Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Douglas H. Brooks President, Chief Operating Officer
Douglas H. Brooks and Director
/s/ Dan W. Cook, III Director
Dan W. Cook, III
/s/ Marvin G. Girouard Director
Marvin J. Girouard
/s/ Frederick S. Humphries Director
Frederick S. Humphries
/s/ Ronald Kirk Director
Ronald Kirk
/s/ Jeffrey A. Marcus Director
Jeffrey A. Marcus
/s/ James E. Oesterreicher Director
James E. Oesterreicher
/s/ Cece Smith Director
Cece Smith
/s/ Roger T. Staubach Director
Roger T. Staubach
CERTIFICATIONS
I, Ronald A. McDougall, certify that:
1. I have reviewed this annual report on Form 10-K of
Brinker International, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report.
Date: September 24, 2002 /s/ Ronald A. McDougall
Ronald A. McDougall,
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
I, Charles M. Sonsteby, certify that:
1. I have reviewed this annual report on Form 10-K of
Brinker International, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report.
Date: September 24, 2002 /s/ Charles M. Sonsteby
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
INDEX TO FINANCIAL STATEMENTS
The following is a listing of the financial statements which are
attached hereto as part of Exhibit 13.
Page
Selected Financial Data F-1
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-2
Consolidated Statements of Income - F-10
Fiscal Years Ended June 26, 2002, June 27, 2001,
and June 28, 2000
Consolidated Balance Sheets - F-11
June 26, 2002 and June 27, 2001
Consolidated Statements of Shareholders' F-12
Equity - Fiscal Years Ended June 26, 2002,
June 27, 2001, and June 28, 2000
Consolidated Statements of Cash Flows - F-13
Fiscal Years Ended June 26, 2002, June 27, 2001,
and June 28, 2000
Notes to Consolidated Financial Statements F-14
Independent Auditors' Report F-27
Management's Responsibility for Consolidated F-28
Financial Statements
All schedules are omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
INDEX TO EXHIBITS
Exhibit
3(a) Certificate of Incorporation of the Registrant, as
amended. (1)
3(b) Bylaws of the Registrant. (1)
4(a) Form of Zero Coupon Convertible Senior Debenture Due
2021. (2)
4(b) Indenture between the Registrant and SunTrust Bank, as
Trustee. (2)
4(c) Registration Rights Agreement by and among the
Registrant and the initial purchasers of the Debentures. (3)
10(a) Registrant's 1983 Incentive Stock Option Plan. (4)
10(b) Registrant's 1991 Stock Option Plan for Non-Employee
Directors and Consultants. (5)
10(c) Registrant's 1992 Incentive Stock Option Plan. (5)
10(d) Registrant's Stock Option and Incentive Plan. (6)
10(e) Registrant's 1999 Stock Option and Incentive Plan for
Non-Employee Directors and Consultants. (7)
13 2002 Annual Report to Shareholders. (8)
21 Subsidiaries of the Registrant. (9)
23 Independent Auditors' Consent. (9)
99(a) Proxy Statement of Registrant. (10)
99(b) Certification by Ronald A. McDougall, Chairman of the
Board and Chief Executive Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (9)
99(c) Certification by Charles M. Sonsteby, Executive Vice
President and Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (9)
_______________________
(1) Filed as an exhibit to annual report on Form 10-K for
year ended June 28, 1995, and incorporated herein by
reference.
(2) Filed as an exhibit to registration statement on Form S-
3 filed December 11, 2001, SEC File No. 333-74902, and
incorporated herein by reference.
(3) Filed as an exhibit to quarterly report on Form 10-Q
for the quarterly period ended September 26, 2001, and
incorporated herein by reference.
(4) Filed as an exhibit to annual report on Form 10-K for
the year ended June 26, 1996, 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 herein by
reference.
(6) Filed as an exhibit to annual report on Form 10-K for the
year ended June 30, 1999 and incorporated herein by reference.
(7) Filed as an exhibit to annual report on Form 10-K for
the year ended June 28, 2000, and incorporated herein by
reference.
(8) Portions filed herewith, to the extent indicated herein.
(9) Filed herewith.
(10) To be filed on or about September 24, 2002.
EXHIBIT 13
BRINKER INTERNATIONAL, INC. SELECTED FINANCIAL DATA (In thousands, except
per share amounts and number of restaurants)
Fiscal Years
2002 2001 2000 1999(a) 1998
Income Statement Data:
Revenues $2,887,111 $2,406,874 $2,100,496 $1,818,008 $1,528,908
Operating Costs and Expenses:
Cost of sales 796,714 663,357 575,570 507,103 426,558
Restaurant expenses 1,591,367 1,303,349 1,138,487 984,027 820,637
Depreciation and 130,102 100,064 90,647 82,385 86,376
amortization
General and administrative 121,420 109,110 100,123 90,311 77,407
Total operating costs and 2,639,603 2,175,880 1,904,827 1,663,826 1,410,978
expenses
Operating income 247,508 230,994 195,669 154,182 117,930
Interest expense 13,327 8,608 10,746 9,241 11,025
Other, net 2,332 459 3,381 14,402 1,447
Income before provision for 231,849 221,927 181,542 130,539 105,458
income taxes and cumulative
effect of accounting change
Provision for income taxes 79,136 76,779 63,702 45,297 36,383
Income before cumulative 152,713 145,148 117,840 85,242 69,075
effect of accounting change
Cumulative effect of - - - 6,407 -
accounting change
Net income $152,713 $145,148 $117,840 $78,835 $69,075
Basic Earnings Per Share:
Income before cumulative $1.56 $1.46 $1.20 $0.86 $0.70
effect of accounting change
Cumulative effect of - - - 0.06 -
accounting change
Basic net income per share $1.56 $1.46 $1.20 $0.80 $0.70
Diluted Earnings Per Share:
Income before cumulative $1.52 $1.42 $1.17 $0.83 $0.68
effect of accounting change
Cumulative effect of - - - 0.06 -
accounting change
Diluted net income per share $1.52 $1.42 $1.17 $0.77 $0.68
Basic weighted average 97,862 99,101 98,445 98,888 98,648
shares outstanding
Diluted weighted average 100,565 102,098 101,114 102,183 101,174
shares outstanding
Balance Sheet Data (End of
Period):
Working capital deficit $(160,266) $(110,006) $(127,377) $(86,969) $ (92,898)
Total assets 1,783,336 1,445,320 1,162,328 1,093,463 968,848
Long-term obligations 504,020 294,803 169,120 234,086 197,577
Shareholders' equity 977,096 900,287 762,208 661,439 593,739
Number of Restaurants Open
(End of Period):
Company-operated 1,039 899 774 707 624
Franchised/Joint Venture 229 244 264 226 182
Total 1,268 1,143 1,038 933 806
___________
(a) Fiscal year 1999 consisted of 53 weeks while all other periods
presented consisted of 52 weeks.
Note: During fiscal 2002, the Company reclassified sales incentives from
restaurant expenses to revenues (see Note 1(b) to consolidated financial
statements). Prior year balances have been reclassified to conform with the
fiscal 2002 presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For an understanding of the significant factors that influenced the
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 the last Wednesday
in June. Fiscal years 2002, 2001 and 2000, which ended on June 26, 2002,
June 27, 2001 and June 28, 2000, respectively, each contained 52 weeks.
RESULTS OF OPERATIONS FOR FISCAL YEARS 2002, 2001, AND 2000
The following table sets forth expenses as a percentage of total
revenues for the periods indicated for revenue and expense items included
in the consolidated statements of income:
Percentage of Total Revenues
Fiscal Years
2002 2001 2000
Revenues 100.0% 100.0% 100.0%
Operating Costs and Expenses:
Cost of sales 27.6% 27.6% 27.4%
Restaurant expenses 55.1% 54.1% 54.2%
Depreciation and amortization 4.5% 4.2% 4.3%
General and administrative 4.2% 4.5% 4.8%
Total operating costs and expenses 91.4% 90.4% 90.7%
Operating income 8.6% 9.6% 9.3%
Interest expense 0.5% 0.4% 0.5%
Other, net 0.1% - 0.2%
Income before provision for income taxes 8.0% 9.2% 8.6%
Provision for income taxes 2.7% 3.2% 3.0%
Net income 5.3% 6.0% 5.6%
REVENUES
Revenue growth of 20.0% and 14.6% in fiscal 2002 and 2001,
respectively, was attributable primarily to the increases in sales weeks
driven by new unit expansion, acquisitions of units from former franchise
partners and increases in comparable store sales. Revenues for fiscal 2002
increased due to a 19.1% increase in sales weeks and a 1.5% increase in
comparable store sales. Revenues for fiscal 2001 increased due to a 9.9%
increase in sales weeks and a 4.4% increase in comparable store sales. Menu
price increases were 1.8% and 2.2% in fiscal 2002 and 2001, respectively.
COSTS AND EXPENSES (as a Percent of Revenues)
Cost of sales remained flat for fiscal 2002 due to unfavorable
commodity price variances for dairy and cheese and product mix changes to
menu items with higher percentage food costs, offset by menu price
increases and favorable commodity price variances for seafood. Cost of
sales increased for fiscal 2001 due to unfavorable commodity price
variances for beef and seafood, produce, and beverages and product mix
changes to menu items with higher percentage food costs. These unfavorable
variances were partially offset by menu price increases and favorable
commodity price variances for other commodities.
Restaurant expenses increased in fiscal 2002 due primarily to an
approximate $11.0 million expense related to the settlement of certain
California labor law issues, an approximate $8.7 million impairment charge
related to the write-off of a portion of the notes receivable from Eatzi's
Corporation, and increased labor wage rates. These increases were partially
offset by increased sales leverage and menu price increases. Restaurant
expenses decreased in fiscal 2001 due primarily to increased sales
leverage, menu price increases, and labor productivity gains, but were
partially offset by increased labor wage rates and utility costs.
Depreciation and amortization increased in fiscal 2002 due primarily
to new unit construction, ongoing remodel costs, the acquisition of
previously leased equipment and certain real estate assets, and restaurants
acquired during fiscal 2002 and 2001. These increases were partially offset
by increased sales leverage, a declining depreciable asset base for older
units, and the elimination of goodwill and certain other intangibles
amortization in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142. Depreciation and amortization decreased in fiscal 2001
due primarily to increased sales leverage, utilization of equipment leasing
facilities, and a declining depreciable asset base for older units.
Partially offsetting these decreases were increases in depreciation and
amortization related to new unit construction, ongoing remodel costs and
restaurants acquired during fiscal 2001.
General and administrative expenses decreased in fiscal 2002 and
fiscal 2001 as compared to the respective prior fiscal years as a result of
the Company's continued focus on controlling corporate expenditures
relative to increasing revenues and increased sales leverage resulting from
new unit openings and acquisitions.
Interest expense increased for fiscal 2002 as compared to fiscal 2001
as a result of amortization of debt issuance costs and debt discounts on
the Company's $431.7 million convertible debt. These increases were
partially offset by lower interest rates on floating rate debt, a decrease
in interest expense on senior notes due to a scheduled repayment, and an
increase in interest capitalization related to new restaurant construction
activity. Interest expense decreased for fiscal 2001 as compared to fiscal
2000 as a result of decreased average borrowings and interest rates on the
Company's credit facilities, increased sales leverage, and a decrease in
interest expense on senior notes due to a scheduled repayment. These
decreases were partially offset by a decrease in the construction-in-
progress balances subject to interest capitalization and an increase in
borrowings related to restaurants acquired.
Other, net increased in fiscal 2002 as compared to fiscal 2001 due to
a decrease in the market value of the Company's savings plan investments
which are used to offset the savings plan obligation, partially offset by a
reduction in the Company's share of losses in equity method investees.
Other, net decreased in fiscal 2001 as a result of a reduction in the
Company's share of losses in equity method investees, caused in part by the
acquisition of the remaining interest in the Big Bowl restaurant concept,
which is now consolidated in the accompanying financial statements, and the
sale of the Wildfire restaurant concept.
INCOME TAXES
The Company's effective income tax rate was 34.1%, 34.6%, and 35.1% in
fiscal 2002, 2001, and 2000, respectively. The decrease in fiscal 2002 is
primarily due to the elimination of goodwill amortization in accordance
with SFAS No. 142 and a decrease in the effective state tax rates. The
decrease in fiscal 2001 is due to the receipt of a tax credit refund.
NET INCOME AND NET INCOME PER SHARE
Fiscal 2002 net income and diluted net income per share increased 5.2%
and 7.0%, respectively, compared to fiscal 2001. Excluding the after-tax
effects of the California labor law settlement ($7.3 million) and Eatzi's
impairment charge ($5.8 million), net income and diluted net income per
share increased for fiscal 2002 by 14.3% and 16.2%, respectively, compared
to fiscal 2001. The increase in both net income and diluted net income per
share, excluding the one-time charges, was primarily due to increasing
revenues driven by increases in sales weeks and comparable store sales,
decreases in general and administrative expenses and the elimination of
goodwill amortization, partially offset by increases in restaurant expenses
and depreciation and amortization as a percent of revenues.
Fiscal 2001 net income and diluted net income per share increased
23.2% and 21.4%, respectively, compared to fiscal 2000. The increase in
both net income and diluted net income per share was primarily due to
increasing revenues driven by increases in comparable store sales and sales
weeks and decreases in restaurant expenses, depreciation and amortization
expenses, and general and administrative expenses as a percent of revenues.
IMPACT OF INFLATION
The Company has not experienced a significant overall impact from
inflation. As operating expenses increase, the Company, to the extent
permitted by competition, recovers increased costs through a combination of
menu price increases and reviewing, then implementing, alternative products
or processes.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $110.0 million at June 27,
2001 to $160.3 million at June 26, 2002, and net cash provided by operating
activities increased from $246.8 million for fiscal 2001 to $390.0 million
for fiscal 2002 due primarily to the timing of operational receipts and
payments. The Company believes that its various sources of capital,
including availability under existing credit facilities and cash flow from
operating activities, are adequate to finance operations as well as the
repayment of current debt obligations.
Long-term debt outstanding at June 26, 2002 consisted of
$255.0 million of zero coupon convertible senior debentures ($431.7 million
principal less $176.7 million representing an unamortized debt discount),
$46.0 million of unsecured senior notes ($42.8 million principal plus
$3.2 million representing the effect of changes in interest rates on the
fair value of the debt), $43.5 million in assumed debt related to the
acquisition of restaurants from a former franchise partner ($38.8 million
principal plus $4.7 million representing a debt premium), $35.0 million in
assumed capital lease obligations related to the acquisition of restaurants
from a former franchise partner ($19.5 million principal plus $15.5 million
representing a debt premium), $63.5 million of borrowings on credit
facilities, and obligations under other capital leases. The Company has
credit facilities totaling $375.0 million. At June 26, 2002, the Company
had $311.5 million in available funds from these facilities.
In October 2001, the Company issued $431.7 million of zero coupon
convertible senior debentures and received proceeds totaling approximately
$250.0 million. The Company used the proceeds for repayment of existing
indebtedness, restaurant acquisitions, purchases of outstanding common
stock under the Company's stock repurchase plan and for general corporate
purposes.
In July 2001, the Company made a $12.3 million capital contribution to
Rockfish Seafood Grill ("Rockfish") in exchange for an approximate 40%
ownership interest in the legal entities owning and developing Rockfish.
Additionally, in June and November 2001, the Company acquired three On The
Border and thirty-nine Chili's restaurants from its franchise partners Hal
Smith and Sydran, respectively, for $60.5 million. The Company financed
these acquisitions through existing credit facilities, the zero coupon
convertible senior debentures and cash provided by operations.
In February 2002, the Company acquired the remaining assets leased
under its $80.0 million equipment leasing facilities and $75.0 million real
estate leasing facility for $36.2 million and $56.8 million, respectively,
and terminated the leasing arrangements. The acquisitions were primarily
funded by utilizing amounts available under existing credit facilities.
Capital expenditures consist of purchases of land for future
restaurant sites, the cost of new restaurant construction, purchases of new
and replacement restaurant furniture and equipment, the acquisition of
previously leased equipment and real estate assets, and ongoing remodeling
programs. Capital expenditures, net of amounts funded under the respective
equipment and real estate leasing facilities, were $371.1 million for
fiscal 2002 compared to $205.2 million for fiscal 2001. The increase is due
primarily to the acquisition of the remaining assets leased under the
equipment and real estate leasing facilities and an increase in the number
of new store openings. The Company estimates that its fiscal 2003 capital
expenditures will approximate $335.0 million. These capital expenditures
will be funded primarily from operations and existing credit facilities.
The Board of Directors authorized an increase in the stock repurchase
plan of $100.0 million in August 2001 and an additional $100.0 million in
April 2002, bringing the Company's total share repurchase program to
$410.0 million. Pursuant to the Company's stock repurchase plan,
approximately 5.1 million shares of its common stock were repurchased for
$136.1 million during fiscal 2002. As of June 26, 2002, approximately
16.0 million shares had been repurchased for $327.6 million under the stock
repurchase plan. The Company repurchases common stock to offset the
dilutive effect of stock option exercises, satisfy obligations under its
savings plans, and for other corporate purposes. The repurchased common
stock is reflected as a reduction of shareholders' equity. The Company
financed the repurchase program through a combination of cash provided by
operations, drawdowns on its available credit facilities and the issuance
of the zero coupon convertible senior debentures.
In August 2002, the Company entered into a letter of intent with
Philip J. Romano and Eatzi's Corporation to divest its interest in the
Eatzi's concept. As a result, an approximate $8.7 million impairment charge
was recorded reducing the Eatzi's notes receivable to $11.0 million. The
Company expects to collect the remaining balance of the notes in the second
quarter of fiscal 2003.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend develops, the
Company believes that there are sufficient funds available under its credit
facilities and from its strong internal cash generating capabilities to
adequately manage the expansion of the business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on debt and certain leasing facilities and from changes in commodity
prices. A discussion of the Company's accounting policies for derivative
instruments is included in the summary of significant accounting policies
in the notes to the consolidated financial statements.
The Company may from time to time utilize interest rate swaps to
manage overall borrowing costs and reduce exposure to adverse fluctuations
in interest rates. The Company does not use derivative instruments for
trading purposes and has procedures in place to monitor and control
derivative use.
The Company is exposed to interest rate risk on short-term and long-
term financial instruments carrying variable interest rates. The Company's
variable rate financial instruments, including the outstanding borrowings
of credit facilities and notional amounts of interest rate swaps, totaled
$224.1 million at June 26, 2002. The impact on the Company's annual results
of operations of a one-point interest rate change on the outstanding
balance of these variable rate financial instruments as of June 26, 2002
would be approximately $2.2 million.
The Company purchases certain commodities such as beef, chicken,
flour, and cooking oil. These commodities are generally purchased based
upon market prices established with vendors. These purchase arrangements
may contain contractual features that limit the price paid by establishing
certain price floors or caps. The Company does not use financial
instruments to hedge commodity prices because these purchase arrangements
help control the ultimate 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.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 1 to our
consolidated financial statements. The following discussion addresses our
most critical accounting policies, which are those that are most important
to the portrayal of our financial condition and results, and that require
significant judgment. Property and Equipment Property and equipment are
depreciated on a straight-line basis over the estimated useful lives of the
assets. The useful lives of the assets are based upon the Company's
expectations for the period of time that the asset will be used to generate
revenue. The Company periodically reviews the assets for changes in
circumstances which may impact their useful lives. Impairment of Long-Lived
Assets The Company reviews property and equipment for impairment when
events or circumstances indicate it might be impaired. The Company tests
impairment using historical cash flows and other relevant facts and
circumstances as the primary basis for its estimates of future cash flows.
This process requires the use of estimates and assumptions which are
subject to a high degree of judgment. In addition, at least annually the
Company assesses the recoverability of goodwill and other intangible assets
related to its restaurant concepts. These impairment tests require the
Company to estimate fair values of its restaurant concepts by making
assumptions regarding future cash flows and other factors. If these
assumptions change in the future, the Company may be required to record
impairment charges for these assets. Financial Instruments The Company
enters into interest rate swaps to manage fluctuations in interest expense
and to maintain the value of fixed-rate debt. The fair value of these swaps
is estimated using widely accepted valuation methods. The valuation of
derivatives involves considerable judgment, including estimates of future
interest rate curves. Changes in those estimates may materially affect the
value of the Company's derivatives. Self-Insurance The Company is self-
insured for certain losses related to general liability and workers'
compensation. The Company maintains stop loss coverage with third party
insurers to limit its total exposure. The self-insurance liability
represents an estimate of the ultimate cost of claims incurred as of the
balance sheet date. The estimated liability is not discounted and is
established based upon analysis of historical data and actuarial estimates,
and is reviewed by the Company on a quarterly basis to ensure that the
liability is appropriate. If actual trends, including the severity or
frequency of claims, differ from our estimates, our financial results could
be impacted.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and the accounting and reporting provisions of Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." SFAS No. 144 retains
the fundamental provisions of SFAS No. 121, but eliminates the requirement
to allocate goodwill to long-lived assets to be tested for impairment. This
statement also requires discontinued operations to be carried at the lower
of cost or fair value less costs to sell and broadens the presentation of
discontinued operations to include a component of an entity rather than a
segment of a business. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years,
with early application encouraged. The Company will adopt SFAS No. 144 in
the first quarter of fiscal 2003 and does not expect the adoption of this
statement to have a material impact on its results of operations or
financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 supersedes
Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." SFAS No. 146
eliminates the provisions of EITF No. 94-3 that required a liability to be
recognized for certain exit or disposal activities at the date an entity
committed to an exit plan. SFAS No. 146 requires a liability for costs
associated with an exit or disposal activity to be recognized when the
liability is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
expect the adoption of this statement to have a material impact on its
results of operations or financial position.
MANAGEMENT OUTLOOK
During fiscal 2002, the Company delivered another year of strong
financial performance in a difficult economic environment. These results
were achieved by disciplined capacity growth, opportunistic acquisitions,
and diligent fiscal responsibility. Our passionate culinary culture that
keeps the Company's menu offerings on the leading edge and our unwavering
focus on guest satisfaction are key contributors to our continued success.
During fiscal 2003, the Company will continue to leverage many of the
initiatives that drove fiscal 2002 performance. Positive lifestyle,
demographic, and demand trends for food away from home help balance an
uncertain economic environment. Revenue growth will be driven by higher
capacity as a result of the Company's recent acquisitions, continued brand
development and an effective real estate strategy. The Company believes the
ongoing efforts to enhance our guests' experience provide the best avenue
to deliver long-term shareholder value.
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that the following important
factors, among others, could cause the actual results of the Company to
differ materially from those indicated by forward-looking statements made
in this report and from time to time in news releases, reports, proxy
statements, registration statements and other written communications, as
well as oral forward-looking statements made from time to time by
representatives of the Company. Such forward- looking statements involve
risks and uncertainties that may cause the Company's or the restaurant
industry's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. Factors that might cause
actual events or results to differ materially from those indicated by these
forward-looking statements may include matters such as future economic
performance, restaurant openings, operating margins, the availability of
acceptable real estate locations for new restaurants, the sufficiency of
the Company's cash balances and cash generated from operating and financing
activities for the Company's future liquidity and capital resource needs,
and other matters, and are generally accompanied by words such as
"believes," "anticipates," "estimates," "predicts," "expects" and similar
expressions that convey the uncertainty of future events or outcomes. An
expanded discussion of various risk factors follows.
Competition may adversely affect the Company's operations and financial
results.
The restaurant business is highly competitive with respect to price,
service, restaurant location and food quality, and is often affected by
changes in consumer tastes, economic conditions, population and traffic
patterns. The Company competes within each market with locally-owned
restaurants as well as national and regional restaurant chains, some of
which operate more restaurants and have greater financial resources and
longer 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 adversely affect the restaurant industry in general and the
Company's restaurants in particular.
The Company's sales volumes generally decrease in winter months.
The Company's sales volumes fluctuate seasonally, and are generally
higher in the summer months and lower in the winter months, which may cause
seasonal fluctuations in the Company's operating results.
Changes in governmental regulation may adversely affect the Company's
ability to open new restaurants and the Company's existing and future
operations.
Each of the Company's restaurants is subject to licensing and
regulation by alcoholic beverage control, health, sanitation, safety and
fire agencies in the state, county and/or municipality in which the
restaurant is located. The Company has not encountered any difficulties or
failures in obtaining the required licenses or approvals that could delay
or prevent the opening of a new restaurant and although the Company does
not, at this time, anticipate any occurring in the future, there can be no
assurance that the Company will not experience material difficulties or
failures that could delay the opening of restaurants in the future.
The Company is subject to federal and state environmental regulations,
and although these have not had a material negative effect on the Company's
operations, there can be no assurance that there will not be a material
negative effect in the future. More stringent and varied requirements of
local and state governmental bodies with 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 With Disabilities Act, family
leave mandates and a variety of other laws enacted by the states that
govern these and other employment law matters. Although the Company expects
increases in payroll expenses as a result of federal and state mandated
increases in the minimum wage, and although such increases are not expected
to be material, there can be no assurance that there will not be material
increases in the future. However, the Company's vendors may be affected by
higher minimum wage standards, which may result in increases in the price
of goods and services supplied to the Company.
Inflation may increase the Company's operating expenses.
The Company has not experienced a significant overall impact from
inflation. As operating expenses increase, the Company, to the extent
permitted by competition, recovers increased costs by increasing menu
prices, by reviewing, then implementing, alternative products or processes,
or by implementing other cost-reduction procedures. There can be no
assurance, however, that the Company will be able to continue to recover
increases in operating expenses due to inflation in this manner.
Increased energy costs may adversely affect the Company's profitability.
The Company's success depends in part on its ability to absorb
increases in utility costs. Various regions of the United States in which
the Company operates multiple restaurants, particularly California,
experienced significant increases in utility prices during the 2001 fiscal
year. If these increases should recur, they will have an adverse effect on
the Company's profitability.
If the Company is unable to meet its growth plan, the Company's
profitability in the future may be adversely affected.
The Company's ability to meet its growth plan is dependent upon, among
other things, its ability to identify available, suitable and economically
viable locations for new restaurants, obtain all required governmental
permits (including zoning approvals and liquor licenses) on a timely basis,
hire all necessary contractors and subcontractors, and meet construction
schedules. The costs related to restaurant and concept development include
purchases and leases of land, buildings and equipment and facility and
equipment maintenance, repair and replacement. The labor and materials
costs involved vary geographically and are subject to general price
increases. As a result, future capital expenditure costs of restaurant
development may increase, reducing profitability. There can be no assurance
that the Company will be able to expand its capacity in accordance with its
growth objectives or that the new restaurants and concepts opened or
acquired will be profitable.
Unfavorable publicity relating to one or more of the Company's restaurants
in a particular brand may taint public perception of 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 a majority of its revenues, unfavorable publicity
relating to one or more Chili's restaurants could have a material adverse
effect on the Company's business, results of operations and financial
condition.
Other risk factors may adversely affect the Company's financial
performance.
Other risk factors that could cause the Company's actual results to
differ materially from those indicated in the forward-looking statements
include, without limitation, changes in economic conditions, consumer
perceptions of food safety, changes in consumer tastes, governmental
monetary policies, changes in demographic trends, availability of
employees, terrorist acts, and weather and other acts of God.
BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In
thousands, except per share amounts)
Fiscal Years
2002 2001 2000
Revenues $2,887,111 $2,406,874 $2,100,496
Operating Costs and Expenses:
Cost of sales 796,714 663,357 575,570
Restaurant expenses 1,591,367 1,303,349 1,138,487
Depreciation and amortization 130,102 100,064 90,647
General and administrative 121,420 109,110 100,123
Total operating costs and expenses 2,639,603 2,175,880 1,904,827
Operating income 247,508 230,994 195,669
Interest expense 13,327 8,608 10,746
Other, net 2,332 459 3,381
Income before provision for income taxes 231,849 221,927 181,542
Provision for income taxes 79,136 76,779 63,702
Net income $152,713 $145,148 $117,840
Basic net income per share $1.56 $1.46 $1.20
Diluted net income per share $1.52 $1.42 $1.17
Basic weighted average shares outstanding 97,862 99,101 98,445
Diluted weighted average shares outstanding 100,565 102,098 101,114
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands,
except share and per share amounts)
2002 2001
ASSETS
Current Assets:
Cash and cash equivalents $ 10,091 $ 13,312
Accounts receivable 22,613 31,438
Inventories 25,190 27,351
Prepaid expenses and other 66,727 57,809
Income taxes receivable 15,673 3,019
Deferred income taxes 1,660 7,295
Total current assets 141,954 140,224
Property and Equipment, at Cost:
Land 254,000 201,013
Buildings and leasehold improvements 1,091,434 898,133
Furniture and equipment 635,403 478,847
Construction-in-progress 57,015 70,051
2,037,852 1,648,044
Less accumulated depreciation and amortization (682,435) (563,320)
Net property and equipment 1,355,417 1,084,724
Other Assets:
Goodwill 193,899 138,127
Other 92,066 82,245
Total other assets 285,965 220,372
Total assets $1,783,336 $1,445,320
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $17,292 $17,635
Accounts payable 118,418 98,175
Accrued liabilities 166,510 134,420
Total current liabilities 302,220 250,230
Long-term debt, less current installments 426,679 236,060
Deferred income taxes 17,295 6,782
Other liabilities 60,046 51,961
Commitments and Contingencies (Notes 8 and 14)
Shareholders' Equity:
Common stock-250,000,000 authorized shares; $.10 par 11,750 11,750
value; 117,500,054 shares issued and 97,440,391 shares
outstanding at June 26, 2002, and 117,501,080 shares
issued and 99,509,455 shares outstanding at June 27,
2001
Additional paid-in capital 330,191 314,867
Retained earnings 954,701 801,988
1,296,642 1,128,605
Less:
Treasury stock, at cost (20,059,663 shares at June 26, (317,674) (225,334)
2002 and 17,991,625 shares at June 27, 2001)
Accumulated other comprehensive loss - (895)
Unearned compensation (1,872) (2,089)
Total shareholders' equity 977,096 900,287
Total liabilities and shareholders' equity $1,783,336 $1,445,320
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Common Stock
Accumulated
Additional Other
Paid-In Retained Treasury Comprehensive Unearned
Shares Amount Capital Earnings Stock Loss Compensation Total
Balances at June 98,847 $11,722 $285,448 $539,011 $(174,742) $- $- $661,439
30, 1999
Net income - - - 117,840 - - - 117,840
Purchases of (3,668) - - - (60,707) - - (60,707)
treasury stock
Issuances of 3,291 - (3,187) - 33,832 - - 30,645
common stock
Tax benefit from - - 10,837 - - - - 10,837
stock options
exercised
Amortization of - - - - - - 2,124 2,124
unearned
compensation
Issuance of 328 32 5,074 (11) 86 - (5,151) 30
restricted
stock, net of
forfeitures
Balances at June 98,798 11,754 298,172 656,840 (201,531) - (3,027) 762,208
28, 2000
Net income - - - 145,148 - - - 145,148
Change in fair - - - - - (895) - (895)
value of
derivatives, net
of tax
Comprehensive 144,253
income
Purchases of (2,841) - - - (65,578) - - (65,578)
treasury stock
Issuances of 3,541 - (2,529) - 41,194 - - 38,665
common stock
Tax benefit from - - 19,430 - - - - 19,430
stock options
exercised
Amortization of - - - - - - 1,307 1,307
unearned
compensation
Issuance of 11 (4) (206) - 581 - (369) 2
restricted
stock, net of
forfeitures
Balances at June 99,509 11,750 314,867 801,988 (225,334) (895) (2,089) 900,287
27, 2001
Net income - - - 152,713 - - - 152,713
Reclassification - - - - - 895 - 895
adjustment to
earnings, net of
tax
Comprehensive 153,608
income
Purchases of (5,058) - - - (136,069) - - (136,069)
treasury stock
Issuances of 2,890 - (4,602) - 42,394 - - 37,792
common stock
Tax benefit from - - 18,826 - - - - 18,826
stock options
exercised
Amortization of - - - - - - 1,594 1,594
unearned
compensation
Issuance of 99 - 1,100 - 1,335 - (1,377) 1,058
restricted
stock, net of
forfeitures
Balances at June 97,440 $11,750 $330,191 $954,701 $(317,674) $- $(1,872) $977,096
26, 2002
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands)
Fiscal Years
2002 2001 2000
Cash Flows from Operating Activities:
Net income $152,713 $145,148 $117,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 130,102 100,064 90,647
Amortization of deferred costs 8,252 1,307 2,124
Deferred income taxes 24,166 3,213 1,985
Impairment of notes receivable 8,723 - -
Loss on sale of affiliate - 387 -
Changes in assets and liabilities, excluding
effects of acquisitions and disposition:
Receivables 6,138 (7,439) 1,109
Inventories 2,863 (9,732) (1,398)
Prepaid expenses and other (3,467) (2,112) (371)
Other assets 2,965 (5,156) (4,032)
Current income taxes (12,654) (15,154) 14,234
Accounts payable 38,808 16,863 26,964
Accrued liabilities 29,006 18,812 10,520
Other liabilities 2,418 610 9,372
Net cash provided by operating activities 390,033 246,811 268,994
Cash Flows from Investing Activities:
Payments for property and equipment (371,052) (205,160) (165,397)
Payments for purchases of restaurants (60,491) (92,267) -
Proceeds from sale of affiliate 4,000 1,000 -
Investments in equity method investees (12,322) (3,443) (954)
Net repayments from affiliates 708 975 -
Net cash used in investing activities (439,157) (298,895) (166,351)
Cash Flows from Financing Activities:
Net (payments) borrowings on credit facilities (83,200) 94,900 (58,200)
Payments of long-term debt (16,908) (14,934) (14,635)
Net proceeds from issuance of long-term debt 244,288 - -
Proceeds from issuances of treasury stock 37,792 38,665 30,645
Purchases of treasury stock (136,069) (65,578) (60,707)
Net cash provided by (used in) financing 45,903 53,053 (102,897)
activities
Net change in cash and cash equivalents (3,221) 969 (254)
Cash and cash equivalents at beginning of year 13,312 12,343 12,597
Cash and cash equivalents at end of year $10,091 $13,312 $12,343
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Brinker
International, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in
consolidation. The Company owns and operates, or franchises, various
restaurant concepts principally located in the United States. Investments
in unconsolidated affiliates in which the Company exercises significant
influence, but does not control, are accounted for by the equity method,
and the Company's share of the net income or loss of the investee is
included in other, net in the consolidated statements of income.
The Company has a 52/53 week fiscal year ending on the last Wednesday
in June. Fiscal years 2002, 2001 and 2000, which ended on June 26, 2002,
June 27, 2001 and June 28, 2000, respectively, each contained 52 weeks.
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform with fiscal 2002 presentation.
These reclassifications have no effect on the Company's net income or
financial position as previously reported.
(b) Revenue Recognition
The Company records revenue from the sale 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 all of its obligations required to assist the franchisee in
opening a new franchise restaurant, which is generally upon opening of such
restaurant. Continuing royalties, which are a percentage of net sales of
franchised restaurants, are accrued as income when earned. Proceeds from
the sale of gift cards are recorded as deferred revenue and recognized as
income when redeemed by the holder.
The Company adopted EITF 01-9, "Accounting for Consideration Given by
a Vendor to a Customer (Including a Reseller of the Vendor's Products),"
effective March 28, 2002. EITF 01-9 concluded that sales incentives offered
to customers to buy a product should be classified as a reduction of sales.
The Company previously included sales incentives in restaurant expenses.
Sales incentives reclassified from restaurant expenses to revenues totaled
$79.5 million, $66.8 million, and $59.3 million in fiscal 2002, 2001, and
2000, respectively. These reclassifications have no effect on net income.
(c) Financial Instruments
The Company's policy is to invest cash in excess of operating
requirements in income-producing investments. Income-producing investments
with maturities of three months or less at the time of investment are
reflected as cash equivalents.
The Company's financial instruments at June 26, 2002 and June 27, 2001
consist of cash equivalents, accounts receivable, notes receivable, and
long-term debt. The fair value of these financial instruments approximates
the carrying amounts reported in the consolidated balance sheets. The
following methods were used in estimating the fair value of each class of
financial instrument: cash equivalents and accounts receivable approximate
their carrying amounts due to the short duration of those items; notes
receivable are based on the present value of expected future cash flows
discounted at the interest rate currently offered by the Company which
approximates rates currently being offered by local lending institutions
for loans of similar terms to companies with comparable credit risk; and
long-term debt is based on the amount of future cash flows discounted using
the Company's expected borrowing rate for debt of comparable risk and
maturity.
The Company does not use derivative instruments for trading purposes
and the Company has procedures in place to monitor and control their use.
The Company's use of derivative instruments is currently limited to
interest rate swaps, which are entered into with the intent of hedging
exposures to changes in interest rates on the Company's debt and lease
obligations. The Company records all derivative instruments in the
consolidated balance sheet at fair value. The accounting for the gain or
loss due to changes in fair value of the derivative instrument depends on
whether the derivative instrument qualifies as a hedge. If the derivative
instrument does not qualify as a hedge, the gains or losses are reported in
earnings when they occur. However, if the derivative instrument qualifies
as a hedge, the accounting varies based on the type of risk being hedged.
Amounts receivable or payable under interest rate swaps related to the debt
and lease obligations are recorded as adjustments to interest expense and
restaurant expenses, respectively. Cash flows related to derivative
transactions are included in operating activities. See Notes 6 and 7 for
additional discussion of debt-related agreements and derivative financial
instruments and hedging activities.
(d) Inventories
Inventories, which consist of food, beverages, and supplies, are
stated at the lower of cost (weighted average cost method) or market.
(e) Property and Equipment
Buildings and leasehold improvements are amortized using the straight-
line method over the lesser of the life of the lease, including renewal
options, or the estimated useful lives of the assets, which range from 5 to
20 years. Furniture and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets, which range from 3 to
8 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's assets may not be
recoverable. An impairment is determined by comparing estimated
undiscounted future operating cash flows for a restaurant to the carrying
amount of its assets. If an impairment exists, the amount of impairment is
measured as the excess of the carrying amount over the estimated discounted
future operating cash flows of the asset and the expected proceeds upon
sale of the asset. Assets held for sale are reported at the lower of
carrying amount or fair value less costs to sell.
(f) Capitalized Interest
Interest costs capitalized during the construction period of
restaurants were approximately $4.5 million, $2.8 million, and $3.2 million
during fiscal 2002, 2001, and 2000, respectively.
(g) Advertising
Advertising costs are expensed as incurred. Advertising costs were
$116.6 million, $95.4 million, and $80.7 million in fiscal 2002, 2001, and
2000, respectively, and are included in restaurant expenses in the
consolidated statements of income.
(h) Goodwill and Other Intangible Assets
Intangible assets include both goodwill and identifiable intangibles
arising from the allocation of the purchase prices of assets acquired.
Goodwill represents the residual purchase price after allocation to all
other identifiable net assets acquired. Other intangibles consist mainly of
reacquired development rights and intellectual property.
The Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," effective June 28, 2001. SFAS No. 142 eliminates the amortization
for goodwill and other intangible assets with indefinite lives. Intangible
assets with lives restricted by contractual, legal, or other means will
continue to be amortized over their useful lives. Goodwill and other
intangible assets not subject to amortization are tested for impairment
annually or more frequently if events or changes in circumstances indicate
that the asset might be impaired. SFAS No. 142 requires a two-step process
for testing impairment. First, the fair value of each reporting unit is
compared to its carrying value to determine whether an indication of
impairment exists. If an impairment is indicated, then the fair value of
the reporting unit's goodwill is determined by allocating the unit's fair
value to its assets and liabilities (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business
combination. The amount of impairment for goodwill and other intangible
assets is measured as the excess of its carrying value over its fair value.
No such impairment losses were recorded upon the initial adoption of
SFAS 142. Prior to the adoption of SFAS No. 142, goodwill was being
amortized on a straight-line basis over 30 to 40 years.
Intangible assets subject to amortization under SFAS No. 142 consist
primarily of intellectual property rights. Amortization expense is
calculated using the straight-line method over their estimated useful lives
of 15 to 25 years. Intangible assets not subject to amortization consist
primarily of reacquired development rights. See Note 3 for additional
disclosures related to goodwill and other intangibles.
(i) Self-Insurance Program
The Company utilizes a paid loss self-insurance plan for general
liability and workers' compensation coverage. Predetermined loss limits
have been arranged with insurance companies to limit the Company's per
occurrence cash outlay. Additionally, in fiscal 2002 and 2001, the Company
entered into guaranteed cost agreements with an insurance company to
eliminate all future general liability losses for those respective fiscal
years. Accrued expenses and other liabilities include the estimated
incurred but unreported costs to settle unpaid claims and estimated future
claims.
(j) Income Taxes
Deferred tax assets and liabilities are recognized 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 which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(k) Stock-Based Compensation
The Company uses the intrinsic value method for measuring employee
stock-based compensation cost. Under this method, compensation cost is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the grant date over the amount the employee must pay for
the stock. The Company's policy is to grant stock options at the market
value of the underlying stock at the date of grant. Proceeds from the
exercise of common stock options issued to officers, directors, and key
employees under the Company's stock option plans are credited to common
stock to the extent of par value and to additional paid-in capital for the
excess. Required pro forma disclosures of compensation expense determined
under the fair value method prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation," are presented in Note 9.
(l) Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income consists of net
income and the effective unrealized portion of changes in the fair value of
the Company's cash flow hedges.
(m) Net Income Per Share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. For the
calculation of diluted net income per share, the basic weighted average
number of shares is increased by the dilutive effect of stock options
determined using the treasury stock method. For all periods presented,
there were no other securities excluded from the calculation of diluted
earnings per share because their effect on the periods presented was
antidilutive. The Company's contingently convertible debt securities are
not considered for purposes of diluted earnings per share unless the
required conversion criteria have been met as of the end of the reporting
period.
(n) Segment Reporting
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources
and in assessing performance. The Company identifies operating segments
based on management responsibility and believes it meets the criteria for
aggregating its operating segments into a single reporting segment.
(o) Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and costs and expenses
during the reporting period. Actual results could differ from those
estimates.
2. BUSINESS COMBINATIONS AND INVESTMENT IN UNCONSOLIDATED ENTITIES
In November 2001, the Company acquired from its franchise partner,
Sydran Group, LLC and Sydran Food Services III, L.P. (collectively,
"Sydran"), thirty-nine Chili's restaurants for approximately $53.9 million.
As part of the acquisition, the Company assumed $35.5 million in capital
lease obligations ($19.9 million principal plus $15.6 million representing
a debt premium) and recorded goodwill totaling approximately $52.5 million.
The operations of the restaurants are included in the Company's
consolidated results of operations from the date of the acquisition.
In July 2001, the Company formed a partnership with Rockfish, a
privately held Dallas-based restaurant company with twelve locations
currently in operation. The Company made a $12.3 million capital
contribution to Rockfish in exchange for an approximate 40% ownership
interest in the legal entities owning and developing the restaurant
concept.
In June 2001, the Company acquired from its franchise partner, Hal
Smith Restaurant Group, three On The Border restaurants for approximately
$6.6 million. Goodwill of approximately $2.9 million was recorded in
connection with the acquisition. The operations of the restaurants are
included in the Company's consolidated results of operations from the date
of the acquisition.
In April 2001, the Company acquired from its franchise partner, NE
Restaurant Company, Inc. ("NERCO"), forty Chili's, three Chili's sites
under construction, and seven On The Border locations. Total consideration
was approximately $93.5 million, of which approximately $40.9 million
represented the assumption of mortgage loan obligations and approximately
$9.0 million was for certain other liabilities and transaction costs.
Goodwill of approximately $20.5 million was recorded in connection with the
acquisition. The operations of the restaurants are included in the
Company's consolidated results of operations from the date of the
acquisition.
In February 2001, the Company acquired the remaining 50% interest in
the Big Bowl restaurant concept from its joint venture partner for
approximately $38.0 million. The Company originally invested $20.8 million
in the joint venture prior to February 1, 2001 and accounted for the joint
venture under the equity method. Goodwill of approximately $48.9 million
was recorded in connection with the acquisition. The operations of the
restaurants are included in the Company's consolidated results of
operations from the date of the acquisition.
In February 2001, the Company sold its interest in the Wildfire
restaurant concept for $5.0 million, of which $4.0 million was included in
accounts receivable in the Company's consolidated balance sheet at June 27,
2001. During fiscal 2002, the remaining balance of $4.0 million was
collected.
The pro-forma effects of these acquisitions on the Company's
historical results of operations are not material.
3. GOODWILL AND OTHER INTANGIBLES
The gross carrying amount of intellectual property rights subject to
amortization totaled $6.4 million at June 26, 2002 and June 27, 2001.
Accumulated amortization related to these intangible assets totaled
approximately $1.2 million and $960,000 at June 26, 2002 and June 27, 2001,
respectively. The carrying amount of reacquired development rights not
subject to amortization totaled $4.4 million at June 26, 2002 and June 27,
2001.
The changes in the carrying amount of goodwill for the fiscal year
ended June 26, 2002 are as follows (in thousands):
Balance, June 27, 2001 $138,127
Goodwill arising from acquisitions 55,473
Other adjustments 299
Balance, June 26, 2002 $193,899
The pro forma effects of the adoption of SFAS No. 142 on net income is
as follows (in thousands, net of taxes):
2002 2001 2000
Net income, as reported $152,713 $145,148 $117,840
Intangible amortization - 2,349 1,843
Net income, pro forma $152,713 $147,497 $119,683
The pro forma effects of the adoption of SFAS No. 142 on basic and
diluted earnings per share is as follows:
2002 2001 2000
Basic net income per share, as reported $1.56 $1.46 $1.20
Basic net income per share, pro forma 1.56 1.49 1.22
Diluted net income per share, as reported 1.52 1.42 1.17
Diluted net income per share, pro forma 1.52 1.44 1.18
4. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consist of the following (in thousands):
2002 2001
Payroll $70,121 $61,713
Gift cards 27,141 17,425
Sales tax 16,841 14,180
Property tax 13,624 12,149
Other 38,783 28,953
$166,510 $134,420
Other liabilities consist of the following (in thousands):
Retirement plan (see Note 11) $29,869 $27,371
Other 30,177 24,590
$60,046 $51,961
5. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
2002 2001 2000
Current income tax expense:
Federal $47,228 $62,609 $52,958
State 6,819 10,269 8,166
Foreign 923 688 593
Total current income tax expense 54,970 73,566 61,717
Deferred income tax expense:
Federal 22,088 2,989 1,835
State 2,078 224 150
Total deferred income tax expense 24,164 3,213 1,985
$79,136 $76,779 $63,702
A reconciliation between the reported provision for income taxes and
the amount computed by applying the statutory Federal income tax rate of
35% to income before provision for income taxes is as follows (in
thousands):
2002 2001 2000
Income tax expense at statutory rate $81,147 $77,674 $63,540
FICA tax credit (9,002) (7,029) (5,993)
State income taxes, net of Federal 5,783 6,822 5,405
benefit
Other 1,208 (688) 750
$79,136 $76,779 $63,702
The income tax effects of temporary differences that give rise to
significant portions of deferred income tax assets and liabilities as of
June 26, 2002 and June 27, 2001 are as follows (in thousands):
2002 2001
Deferred income tax assets:
Insurance reserves $7,099 $6,665
Employee benefit plans 12,243 10,443
Leasing transactions 8,564 8,479
Other, net 13,077 15,921
Total deferred income tax assets 40,983 41,508
Deferred income tax liabilities:
Depreciation and capitalized interest on 34,326 28,847
property and equipment
Prepaid expenses 7,928 4,792
Goodwill and other amortization 5,371 2,926
Other, net 8,993 4,430
Total deferred income tax liabilities 56,618 40,995
Net deferred income tax liability (asset) $15,635 $(513)
6. DEBT
Long-term debt consists of the following (in thousands):
2002 2001
Convertible debt $254,948 $-
Senior notes 45,953 59,966
Credit facilities 63,500 146,700
Capital lease obligations (see Note 8) 36,047 1,398
Mortgage loan obligations 43,523 45,631
443,971 253,695
Less current installments (17,292) (17,635)
$426,679 $236,060
In October 2001, the Company issued $431.7 million of zero coupon
convertible senior debentures (the "Debentures"), maturing on October 10,
2021, and received proceeds totaling approximately $250.0 million prior to
debt issuance costs. The Debentures require no interest payments and were
issued at a discount representing a yield to maturity of 2.75% per annum.
The Debentures are redeemable at the Company's option on October 10, 2004,
and the holders of the Debentures may require the Company to redeem the
Debentures on October 10, 2003, 2005, 2011 or 2016, and in certain other
circumstances. In addition, each $1,000 Debenture is convertible into 18.08
shares of the Company's common stock if the stock's market price exceeds
120% of the accreted conversion price at specified dates, the Company
exercises its option to redeem the Debentures, the credit rating of the
Debentures is reduced below both Baa3 and BBB-, or upon the occurrence of
certain specified corporate transactions. The accreted conversion price is
equal to the issue price of the Debenture plus accrued original issue
discount divided by 18.08 shares.
The $46.0 million of unsecured senior notes bear interest at an annual
rate of 7.8%. Interest is payable semi-annually and principal of
$14.3 million is due annually through fiscal 2004 with the remaining unpaid
balance due in fiscal 2005.
The Company has credit facilities aggregating $375.0 million at
June 26, 2002. A revolving credit facility of $275.0 million bears interest
at LIBOR (1.855% at June 26, 2002) plus a maximum of 1.375% (0.50% at
June 26, 2002) and expires in fiscal 2006. At June 26, 2002, $60.0 million
was outstanding under this facility. The remaining credit facilities bear
interest based upon the lower of the banks' "Base" rate, certificate of
deposit rate, negotiated rate, or LIBOR rate plus 0.375%, and expire at
various times beginning in fiscal 2003. Unused credit facilities available
to the Company were approximately $311.5 million at June 26, 2002.
Obligations under the Company's credit facilities, which require short-term
repayments, have been classified as long-term debt, reflecting the
Company's intent and ability to refinance these borrowings through the
existing credit facilities.
Pursuant to the acquisition of NERCO (see Note 2), the Company assumed
$43.5 million in mortgage loan obligations. The obligations require monthly
principal and interest payments, mature on various dates from
September 2002 through March 2020, and bear interest at rates ranging from
8.44% to 10.75% per year. The obligations are collateralized by the
acquired restaurant properties.
Excluding capital lease obligations (see Note 8), the Company's long-
term debt maturities for the five years following June 26, 2002 are as
follows (in thousands):
Fiscal Year
2003 $16,456
2004 18,145
2005 18,073
2006 65,890
2007 2,261
Thereafter 287,099
$407,924
7. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company enters into interest rate swaps to manage fluctuations in
interest expense and to maintain the value of fixed-rate debt (senior
notes). The fixed-rate debt is exposed to changes in fair value as
market-based interest rates fluctuate. The Company entered into two
interest rate swaps in April 2000 with a total notional value of
$42.8 million at June 26, 2002. This fair value hedge changes the fixed-
rate interest on the entire balance of the Company's 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 (1.86% at June 26, 2002) plus 0.530% for one of the swaps
and 180-Day LIBOR (1.91% at June 26, 2002) plus 0.395% for the other swap,
in arrears, compounded at three-month intervals. The Company receives semi-
annually the fixed interest rate of 7.8% on the senior notes. The estimated
fair value of these agreements at June 26, 2002 was approximately
$3.2 million, which is included in other assets in the Company's
consolidated balance sheet at June 26, 2002. The Company's interest rate
swap hedges meet the criteria for the "short-cut method" under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Accordingly, the changes in fair value of the swaps are offset by a like
adjustment to the carrying value of the debt and no hedge ineffectiveness
is assumed.
The Company entered into three interest rate swaps in December 2001
with a total notional value of $117.8 million at June 26, 2002. These fair
value hedges change the fixed-rate interest component of an operating lease
commitment for certain real estate properties entered into in November 1997
to variable-rate interest. Under the terms of the hedges (which expire in
fiscal 2018), the Company pays monthly a variable rate based on 30-Day
LIBOR (1.84% at June 26, 2002) plus 1.26%. The Company receives monthly the
fixed interest rate of 7.156% on the lease. The estimated fair value of
these agreements at June 26, 2002 was an asset of approximately
$5.7 million. The fair value hedges were fully effective during the fiscal
year ended June 26, 2002. Accordingly, the change in fair value of the
swaps was recorded in other liabilities.
8. LEASES
(a) Capital Leases
The Company leases certain buildings under capital leases. The asset
values of $26.4 million at June 26, 2002 and $6.5 million at June 27, 2001,
respectively, and the related accumulated amortization of $6.8 million and
$6.1 million at June 26, 2002 and June 27, 2001, respectively, are included
in property and equipment. Amortization of assets under capital lease is
included in depreciation and amortization expense. As part of the Sydran
acquisition in November 2001, the Company recorded $19.9 million in capital
lease assets.
(b) Operating Leases
The Company 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 have provisions for contingent
rent based upon a percentage of gross sales, as defined in the leases. Rent
expense for fiscal 2002, 2001, and 2000 was $100.4 million, $89.2 million,
and $81.8 million, respectively. Contingent rent included in rent expense
for fiscal 2002, 2001, and 2000 was $9.7 million, $8.9 million, and
$7.2 million, respectively.
In fiscal 1998 and 2000, the Company entered into equipment leasing
facilities totaling $55.0 million and $25.0 million, respectively. The
leasing facilities were accounted for as operating leases and had
expiration dates of 2004 and 2006, respectively. The Company guaranteed a
residual value of approximately 87% of the total amount funded under the
leases. The Company had the option to purchase all of the leased equipment
for an amount equal to the unamortized lease balance, which could not
exceed 75% of the total amount funded through the leases. In February 2002,
the Company acquired the remaining assets leased under the equipment
leasing facilities for $36.2 million and terminated the lease arrangements.
In fiscal 2000, the Company entered into a $50.0 million real estate
leasing facility. During fiscal 2001, the Company increased the facility to
$75.0 million. The real estate facility was accounted for as an operating
lease and was to expire in fiscal 2007. The Company guaranteed a residual
value of approximately 87% of the total amount funded under the lease. The
Company had the option to purchase all of the leased real estate for an
amount equal to the unamortized lease balance. In February 2002, the
Company acquired the remaining assets leased under the real estate leasing
facility for $56.8 million and terminated the lease arrangement.
(c) Commitments
At June 26, 2002, future minimum lease payments on capital and
operating leases were as follows (in thousands):
Fiscal Capital Operating
Year Leases Leases
2003 $3,506 $85,656
2004 3,469 83,512
2005 3,200 81,453
2006 3,165 77,618
2007 3,243 72,605
Thereafter 48,436 427,822
Total minimum lease payments 65,019 $828,666
Imputed interest (average rate of 8%) (28,972)
Present value of minimum lease payments 36,047
Less current installments (836)
Capital lease obligations-noncurrent $35,211
At June 26, 2002, the Company had entered into other lease agreements
for restaurant facilities currently under construction or yet to be
constructed. Classification of these leases as capital or operating has not
been determined as construction of the leased properties has not been
completed.
9. STOCK OPTION PLANS
The Company has adopted the disclosure-only provisions of SFAS
No. 123. Had the Company adopted the fair value based accounting method for
stock compensation expense prescribed by SFAS No. 123, the Company's
diluted net income per common and equivalent share would have been reduced
to the pro forma amounts indicated below (in thousands, except per share
data):
2002 2001 2000
Net income-as reported $152,713 $145,148 $117,840
Net income-pro forma 137,803 132,963 108,503
Diluted net income per share-as 1.52 1.42 1.17
reported
Diluted net income per share-pro forma 1.37 1.30 1.07
The weighted average fair value of option grants was $10.66, $10.90,
and $7.25 during fiscal 2002, 2001 and 2000, respectively. The fair value
is estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions:
2002 2001 2000
Expected volatility 35.5% 34.1% 40.8%
Risk-free interest rate 4.1% 5.9% 5.9%
Expected lives 5 years 5 years 5 years
Dividend yield 0.0% 0.0% 0.0%
The pro forma disclosures provided are not likely to be representative
of the effects on reported net income for future years due to future
grants.
(a) 1983, 1992, and 1998 Employee Incentive Stock Option Plans
In accordance 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 underlying common stock on the date of
grant, are exercisable beginning one to two years from the date of grant,
with various vesting periods, and expire 10 years from the date of grant.
In October 1993, the 1983 Incentive Stock Option Plan (the "1983
Plan") expired. Consequently, no options were granted under the 1983 Plan
subsequent to fiscal 1993. Options granted prior to the expiration of the
1983 Plan remain exercisable through April 2003.
In October 1998, the 1998 Stock Option and Incentive Plan (the "1998
Plan") was adopted and no additional options were granted under the 1992
Incentive Stock Option Plan (the "1992 Plan"). Options granted under the
1992 Plan prior to the adoption of the 1998 Plan remain exercisable through
March 2008.
Transactions during fiscal 2002, 2001, and 2000 were as follows (in
thousands, except option prices):
Number of Weighted Average Share
Company Options Exercise Price
2002 2001 2000 2002 2001 2000
Options outstanding at beginning of 10,759 11,997 13,342 $16.91 $13.03 $11.58
year
Granted 2,512 2,808 2,508 27.90 26.96 16.13
Exercised (2,892) (3,373) (3,229) 13.09 11.01 9.28
Forfeited (435) (673) (624) 23.38 19.18 13.79
Options outstanding at end of year 9,944 10,759 11,997 $20.50 $16.91 $13.03
Options exercisable at end of year 4,091 4,788 5,502 $13.38 $11.64 $10.53
Options Outstanding Options Exercisable
Range of exercise prices Number Weighted
of average Weighted Weighted
options remaining average average
contractual exercise Number of exercise
life (years) price options price
$7.42-$11.58 1,733 4.09 $8.71 1,719 $8.69
$12.89-$18.67 3,363 6.41 16.59 2,372 16.78
$25.50-$33.02 4,848 8.88 27.43 - -
9,944 7.21 $20.50 4,091 $13.38
(b) 1991 and 1999 Non-Employee Stock Option Plans
In accordance with the Stock Option Plan for Non-Employee Directors
and Consultants adopted in May 1991, options to purchase 881,250 shares of
Company common stock were authorized for grant. In fiscal 2000, the 1991
Stock Option Plan for Non-Employee Directors and Consultants was replaced
by the 1999 Stock Option and Incentive Plan for Non-Employee Directors and
Consultants which authorized the issuance of up to 450,000 shares of
Company common stock. The authority to issue the remaining stock options
under the 1991 Stock Option Plan for Non-Employee Directors and Consultants
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 expire 10 years from the
date of grant.
Transactions during fiscal 2002, 2001, and 2000 were as follows (in
thousands, except option prices):
Number of Weighted Average Share
Company Options Exercise Price
2002 2001 2000 2002 2001 2000
Options outstanding at beginning of year 351 468 521 $13.96 $11.65 $11.42
Granted 82 38 9 30.06 23.96 15.67
Exercised (70) (155) (62) 11.24 9.44 10.32
Forfeited (10) - - 30.06 - -
Options outstanding at end of year 353 351 468 $17.79 $13.96 $11.65
Options exercisable at end of year 199 208 278 $12.61 $11.71 $10.23
At June 26, 2002, the range of exercise prices for options outstanding
was $8.33 to $30.06 with a weighted average remaining contractual life of
6.63 years.
(c) On The Border 1989 Stock Option Plan
In accordance with the Stock Option Plan for On The Border employees,
options to purchase 550,000 shares of On The Border's preacquisition common
stock were authorized for grant. Effective May 18, 1994, the 376,000
unexercised On The Border stock options became exercisable immediately in
accordance with the provisions of the Stock Option Plan, and were converted
to approximately 186,000 Company stock options and expire 10 years from the
date of original grant. At June 26, 2002, there were approximately 37,000
options exercisable and outstanding at an exercise price of $13.18 with a
weighted average remaining contractual life of 1.21 years.
10. SHAREHOLDERS' EQUITY
(a) Stockholder Protection Rights Plan
The Company maintains a Stockholder Protection Rights Plan (the
"Plan"). Upon implementation of the Plan, the Company declared a dividend
of one right on each outstanding share of common stock. The rights are
evidenced by the common stock certificates, automatically trade with the
common stock, and are not exercisable until it is announced that a person
or group has become an Acquiring Person, as defined in the Plan.
Thereafter, separate rights certificates will be distributed and each right
(other than rights beneficially owned by any 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 announcement that a
person or group has become an Acquiring Person.
(b) Preferred Stock
The Company's Board of Directors is authorized to provide for the
issuance of 1,000,000 preferred shares with a par value of $1.00 per share,
in one or more series, and to fix the voting rights, liquidation
preferences, dividend rates, conversion rights, redemption rights, and
terms, including sinking fund provisions, and certain other rights and
preferences. As of June 26, 2002, no preferred shares were issued.
(c) Treasury Stock
In August 2001 and April 2002, the Board of Directors authorized
increases in the stock repurchase plan of an additional $100.0 million
each, bringing the Company's total share repurchase program to
$410.0 million. Pursuant to the Company's stock repurchase plan, the
Company repurchased approximately 5.1 million shares of its common stock
for $136.1 million during fiscal 2002, resulting in a cumulative repurchase
total of approximately 16.0 million shares of its common stock for
$327.6 million. The Company's stock repurchase plan is used by the Company
to offset the dilutive effect of stock option exercises, satisfy
obligations under its savings plans, and for other corporate purposes. The
repurchased common stock is reflected as a reduction of shareholders'
equity.
(d) Restricted Stock
Pursuant to shareholder approval in November 1999, the Company
implemented the Executive Long-Term Incentive Plan for certain key
employees, one component of which is the award of restricted common stock.
During fiscal 2002 and 2001, respectively, approximately 100,000 and 57,000
shares of restricted common stock were awarded, the majority of which vests
over a three-year period. Unearned compensation was recorded as a separate
component of shareholders' equity at the date of the award based on the
market value of the shares and is being amortized to compensation expense
over the vesting period.
(e) Stock Split
On December 8, 2000, the Board of Directors declared a three-for-two
stock split, effected in the form of a 50% stock dividend, to shareholders
of record on January 3, 2001, payable on January 16, 2001. As a result of
the split, 39.2 million shares of common stock were issued on January 16,
2001. All references to number of shares and per share amounts of common
stock have been restated to reflect the stock split. Shareholders' equity
accounts have been restated to reflect the reclassification of an amount
equal to the par value of the increase in issued common shares from the
retained earnings account to the common stock account.
11. SAVINGS PLANS
The Company sponsors a qualified defined contribution retirement plan
("Plan I") covering salaried and hourly employees who have completed one
year of service and have attained the age of twenty-one. Plan I allows
eligible employees to defer receipt of up to 20% of their compensation and
100% of their eligible bonuses, as defined in the plan, and contribute such
amounts to various investment funds. The Company matches in Company common
stock 25% of the first 5% a salaried employee contributes. Hourly employees
do not receive matching contributions. Employee contributions vest
immediately while Company contributions vest 25% annually beginning on the
participant's second anniversary of employment. In fiscal 2002, 2001, and
2000, the Company contributed approximately $828,000, $788,000, and
$731,000, respectively.
The Company sponsors a non-qualified defined contribution retirement
plan ("Plan II") covering highly compensated employees, as defined in the
plan. Plan II allows eligible employees to defer receipt of up to 50% of
their base compensation and 100% of their eligible bonuses, as defined in
the plan. The Company matches in Company common stock 25% of the first 5%
of non-officer contributions while officers' contributions are matched at
the same rate with cash. Employee contributions vest immediately while
Company contributions vest 25% annually beginning on the participant's
second anniversary of employment. In fiscal 2002, 2001, and 2000, the
Company contributed approximately $657,000, $655,000, and $543,000,
respectively. At the inception of Plan II, the Company established a Rabbi
Trust to fund Plan II obligations. The market value of the trust assets is
included in other assets and the liability to Plan II participants is
included in other liabilities.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows (in thousands):
2002 2001 2000
Interest, net of amounts capitalized $8,229 $8,904 $10,192
Income taxes, net of refunds 48,801 68,597 36,646
Non-cash investing and financing activities are as follows (in
thousands):
2002 2001 2000
Restricted common stock issued, net of $2,435 $371 $5,181
forfeitures
Increase in fair value of interest rate 286 2,867 -
swaps and debt
Decrease in fair value of forward rate - 895 -
agreements included in other
comprehensive income
Increase in fair value of interest rate 5,667 - -
swaps on real estate leasing facility
During 2002, the Company purchased certain assets and assumed certain
liabilities in connection with the acquisition of restaurants. The fair
values of the acquired assets and liabilities recorded at the date of
acquisition are as follows (in thousands):
Property and equipment acquired $36,312
Goodwill 55,473
Other assets acquired 8,585
Capital lease obligations assumed (35,480)
Other liabilities assumed (4,399)
Net cash paid $60,491
13. RELATED PARTY TRANSACTION
The Company has secured notes receivable from Eatzi's Corporation
("Eatzi's") with a carrying value of approximately $11.0 million and
$20.6 million at June 26, 2002 and June 27, 2001, respectively.
Approximately $6.0 million of the notes receivable is convertible into
nonvoting Series A Preferred Stock of Eatzi's at the option of the Company
and matures on December 28, 2006. The remaining note receivable matures on
September 28, 2005.
Interest on the convertible note receivable is 10.5% per year with
payments due on a quarterly basis until the principal balance and all
accrued and unpaid interest have been paid in full. Interest on the
remaining notes receivable balance is prime rate plus 1.5% per year with
payments due on a quarterly basis until the principal balance and all
accrued and unpaid interest have been paid in full. The notes receivable
are included in other assets in the accompanying consolidated balance
sheets.
During fiscal 2002 and 2001, certain scheduled payments were not made
as the Company continued negotiations with Eatzi's to restructure the notes
receivable. A letter of intent was signed on August 6, 2002 to divest the
Company of its interest in the concept. Under the terms of the letter,
Eatzi's has agreed to pay the Company $11.0 million in cash and to execute
a $4.0 million promissory note in consideration for its interest in the
concept. The promissory note will be unsecured and payable only upon the
closing of an initial public offering by Eatzi's. Due to the uncertainty of
collecting the $4.0 million promissory note, the Company will establish a
reserve for the entire principal balance. As a result of the divesture, in
fiscal 2002 an approximate $8.7 million impairment charge was recorded in
restaurant expenses to reduce the notes to their net realizable value.
14. CONTINGENCIES
During fiscal 2002, the Company recorded an approximate $11.0 million
charge to restaurant expenses stemming from an agreement reached with the
California Department of Labor Standards Enforcement ("DLSE"). The DLSE's
primary allegation involved the Company's documentation policies related to
breaks provided to employees. The Company believes it has been in
substantial compliance with the California labor laws related to employee
breaks and other employee related matters, but was unable to document all
issues to the DLSE's satisfaction. The Company agreed to the settlement to
avoid a potentially costly and protracted litigation.
The Company is engaged in various legal proceedings and has certain
unresolved claims pending. The ultimate liability, if any, for the
aggregate amounts claimed cannot be determined at this time. However,
management of the Company, based upon consultation with legal counsel, is
of the opinion that there are no matters pending or threatened which are
expected to have a material adverse effect, individually or in the
aggregate, on the Company's consolidated financial condition or results of
operations.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly
results of operations for fiscal 2002 and 2001 (in thousands, except per
share amounts):
Fiscal Year 2002
Quarters Ended
Sept. Dec. March June
26 26 27 26
Revenues $672,655 $685,752 $745,786 $782,918
Income before provision for 60,695 52,960 51,617 66,577
income taxes
Net income 39,634 34,636 34,170 44,273
Basic net income per share 0.40 0.35 0.35 0.45
Diluted net income per share 0.39 0.35 0.34 0.44
Basic weighted average shares 98,963 97,718 97,694 97,675
outstanding
Diluted weighted average shares 101,572 100,131 100,652 100,491
outstanding
Fiscal Year 2001
Quarters Ended
Sept. Dec. March June
27 27 28 27
Revenues $573,925 $567,546 $608,192 $657,211
Income before provision for 54,311 49,714 53,801 64,101
income taxes
Net income 35,194 32,215 34,863 42,876
Basic net income per share 0.36 0.33 0.35 0.43
Diluted net income per share 0.35 0.32 0.34 0.42
Basic weighted average shares 98,753 98,497 99,450 99,800
outstanding
Diluted weighted average shares 101,570 101,718 102,498 102,577
outstanding
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brinker International, Inc.:
We have audited the accompanying consolidated balance sheets of
Brinker International, Inc. and subsidiaries as of June 26, 2002 and
June 27, 2001, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended June 26, 2002. These 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 auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Brinker International, Inc. and subsidiaries as of June 26, 2002 and
June 27, 2001, and the results of their operations and their cash flows for
each of the years in the three-year period ended June 26, 2002 in
conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Dallas, Texas
July 31, 2002, except for Note 13,
as to which the date is August 6, 2002
MANAGEMENT'S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
To Our Shareholders:
Management is responsible for the reliability of the consolidated
financial statements and related notes, which have been prepared in
conformity with accounting principles generally accepted in the United
States of America and include amounts based upon our estimate and
judgments, as required. The consolidated financial statements have been
audited and reported on by our independent auditors, KPMG LLP, who were
given free access to all financial records and related data, including
minutes of the meetings of the Board of Directors and Committees of the
Board. We believe that the representations made to the independent auditors
were valid and appropriate.
The Company maintains a system of internal controls over financial
reporting designed to provide reasonable assurance of the reliability of
the consolidated financial statements. The Company's internal audit
function monitors and reports on the adequacy of the compliance with the
internal control system and appropriate actions are taken to address
significant control deficiencies and other opportunities for improving the
system as they are identified. The 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 access to the Audit
Committee. Although no cost-effective internal control system will preclude
all errors and irregularities, we believe our controls as of and for the
year ended June 26, 2002 provide reasonable assurance that the consolidated
financial statements are reliable.
RONALD A. MCDOUGALL
Chairman of the Board and Chief Executive Officer
CHARLES M. SONSTEBY
Executive Vice President and Chief Financial Officer
EXHIBIT 21
BRINKER INTERNATIONAL, INC., A DELAWARE CORPORATION
SUBSIDIARIES
REGISTRANT'S subsidiaries operate full-service restaurants in
various locations throughout the United States under the names
Chili's Grill & Bar, Romano's Macaroni Grill, On The Border
Mexican Grill & Cantina, Cozymel's Coastal Grill, Maggiano's
Little Italy, Corner Bakery Cafe, and Big Bowl.
BRINKER RESTAURANT CORPORATION, a Delaware corporation
MAGGIANO'S/CORNER BAKERY, INC., an Illinois corporation
BRINKER ALABAMA, INC., a Delaware corporation
BRINKER ARKANSAS, INC., a Delaware corporation
BRINKER OF CARROLL COUNTY, INC., a Maryland corporation
BRINKER CONNECTICUT CORPORATION, a Delaware corporation
BRINKER DELAWARE, INC., a Delaware corporation
BRINKER OF FREDERICK COUNTY, INC., a Maryland corporation
BRINKER FLORIDA, INC., a Delaware corporation
BRINKER GEORGIA, INC., a Delaware corporation
BRINKER INDIANA, INC., a Delaware corporation
BRINKER IOWA, INC., a Delaware corporation
BRINKER KENTUCKY, INC., a Delaware corporation
BRINKER LOUISIANA, INC., a Delaware corporation
BRINKER MASSACHUSETTS CORPORATION, a Delaware corporation
BRINKER MISSISSIPPI, INC., a Delaware corporation
BRINKER MISSOURI, INC., a Delaware corporation
BRINKER OF MONTGOMERY COUNTY, INC., a Maryland corporation
BRINKER NEVADA, INC., a Nevada corporation
BRINKER NEW JERSEY, INC., a Delaware corporation
BRINKER NORTH CAROLINA, INC., a Delaware corporation
BRINKER OHIO, INC., a Delaware corporation
BRINKER OKLAHOMA, INC., a Delaware corporation
BRINKER SOUTH CAROLINA, INC., a Delaware corporation
BRINKER UK CORPORATION, a Delaware corporation
BRINKER VIRGINIA, INC., a Delaware corporation
BRINKER TEXAS, L.P., a Texas limited partnership
CHILI'S BEVERAGE COMPANY, INC., a Texas corporation
CHILI'S, INC., a Tennessee corporation
CHILI'S OF MINNESOTA, INC., a Minnesota corporation
CHILI'S OF KANSAS, INC., a Kansas corporation
BRINKER PENN TRUST, a Pennsylvania business trust
CHILI'S OF WEST VIRGINIA, INC., a West Virginia corporation
CHILI'S OF WISCONSIN, INC., a Wisconsin corporation
BRINKER FREEHOLD, INC., a New Jersey corporation
MAGGIANO'S OF TYSON'S, INC., a Virginia corporation
ROMANO'S OF ANNAPOLIS, INC., a Maryland corporation
CHILI'S OF BEL AIR, INC., a Maryland corporation
CHILI'S OF MARYLAND, INC., a Maryland corporation
BRINKER OF BALTIMORE COUNTY, INC., a Maryland corporation
BRINKER OF HOWARD COUNTY, INC., a Maryland corporation
BRINKER RHODE ISLAND, INC., a Rhode Island corporation
BRINKER OF D.C., INC., a Delaware corporation
CHILI'S, INC., a Delaware corporation
MAGGIANO'S/CORNER BAKERY BEVERAGE COMPANY, a Texas corporation
MAGGIANO'S/CORNER BAKERY HOLDING CORPORATION, a Delaware
corporation
MAGGIANO'S/CORNER BAKERY, L.P., a Texas limited partnership
BIG BOWL HOLDING CORPORATION, a Delaware corporation
BIG BOWL, INC., an Illinois corporation
BIG BOWL TEXAS, L.P., a Texas limited partnership
BRINKER VERMONT, INC., a Vermont corporation
BRINKER NEW ENGLAND I, LLC, a Delaware limited liability company
BRINKER NEW ENGLAND II, LLC, a Delaware limited liability company
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Brinker International, Inc.:
We consent to incorporation by reference in Registration
Statement Nos. 33-61594, 33-56491, 333-02201, 333-93755, and
333-42224 on Form S-8 and 333-74902 on Form S-3 of Brinker
International, Inc. of our report dated July 31, 2002, except
for Note 13, as to which the date is August 6, 2002, relating
to the consolidated balance sheets of Brinker International,
Inc. and subsidiaries as of June 26, 2002 and June 27, 2001
and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in
the three-year period ended June 26, 2002, which report is
incorporated by reference in the June 26, 2002 annual report
on Form 10-K of Brinker International, Inc.
/KPMG LLP
Dallas, Texas
September 20, 2002
EXHIBIT 99(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 26, 2002 (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 contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Company.
Dated: September 24, 2002 By: /s/ Ronald A. McDougall
Name: Ronald A. McDougall
Title: Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 99(c)
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 26, 2002 (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 contained in the Report fairly presents, in
all material respects, the financial condition and results
of operations of the Company.
Dated: September 24, 2002 By: /s/ Charles M. Sonsteby
Name: Charles M. Sonsteby
Title: Executive Vice President
and Chief Financial Officer
(Principal Executive Officer)
