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 25, 1997 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 8,
1997 was $1,017,635,913.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Outstanding at
Class September 8, 1997
Common Stock, $0.10 par value 65,367,320 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders
for the fiscal year ended June 25, 1997 are incorporated by
reference into Parts I, II and IV hereof, to the extent indicated
herein. Portions of the registrant's Proxy Statement dated
September 23, 1997, for its annual meeting of shareholders on
November 6, 1997, 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 operation, development and
franchising of the Chili's Grill & Bar ("Chili's"),
Romano's Macaroni Grill ("Macaroni Grill"), On The Border
Mexican Cafe ("On The Border"), Cozymel's Coastal Mexican
Grill ("Cozymel's"), Maggiano's Little Italy
("Maggiano's"), and the Corner Bakery ("Corner Bakery")
restaurant concepts. In addition, the Company is engaged
in the operation and development of the Eatzi's Market and
Bakery concept. 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, and Corner Bakery in
November 1989, May 1994, July 1995, August 1995, and
August 1995, respectively.
Restaurant Concepts and Menus
Chili's Grill & Bar
Chili's establishments are full-service Southwestern-
themed restaurants, featuring a casual atmosphere and a
limited menu of freshly prepared chicken, beef and seafood
entrees, 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
or slacks, 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, quality food at modest prices. Entree selections
range in menu price from $4.99 to $12.99, with the average
revenue per meal, including alcoholic beverages,
approximating $9.39 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 25, 1997, food and
non-alcoholic beverage sales constituted approximately 86%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 14%.
Romano's Macaroni Grill
Macaroni Grill is a casual, country-style Italian
restaurant which specializes in family-style recipes and
features seafood, meat, chicken, pasta, salads, pizza,
appetizers and desserts with a full-service bar in most
restaurants. Exhibition cooking, pizza ovens and
rotisseries provide an enthusiastic and exciting
environment in the restaurants. Macaroni Grill
restaurants also feature white linen-clothed tables,
fireplaces, sous stations and prominent displays of wines.
Service personnel are dressed in white, starched shirts
and aprons, dark slacks, and bright ties.
Entree selections range in menu price from $4.95 to
$17.45 with certain specialty items priced on a daily
basis. The average revenue per meal, including alcoholic
beverages, is approximately $13.14 per person. During the
year ended June 25, 1997, food and non-alcoholic beverage
sales constituted approximately 85% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 15%.
On The Border Mexican Cafe
On The Border restaurants are full-service, casual Tex-
Mex theme restaurants featuring Southwest mesquite-grilled
specialties and traditional Tex-Mex entrees and appetizers
served in generous portions at modest prices. On The
Border restaurants feature an outdoor patio, a full-
service bar, booth and table seating and brick and wood
walls with a Southwest decor. On The Border restaurants
also offer enthusiastic table service intended to minimize
customer waiting time and facilitate table turnover while
simultaneously providing customers with a satisfying
casual dining experience.
Entree selections range in menu price from $4.99 to
$13.49, with the average revenue per meal, including
alcoholic beverages, approximating $10.71 per person.
During the year ended June 25, 1997, food and non-
alcoholic beverage sales constituted approximately 79% of
the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 21%.
Cozymel's Coastal Mexican Grill
Cozymel's restaurants are casual, upscale authentic
Yucatan restaurants featuring fish, chicken, beef and pork
entrees, appetizers, desserts and a full-service bar
featuring a wide variety of specialty frozen beverages.
Cozymel's restaurants offer an authentic "Yucatan
vacation" atmosphere, which includes an outdoor patio.
Service personnel are festively attired featuring colorful
vests and bow ties.
Entree selections range in menu price from $4.99 to
$12.99 with the average revenue per meal, including
alcoholic beverages, approximating $13.12 per person.
During the year ended June 25, 1997, food and non-
alcoholic beverage sales constituted approximately 75% of
the concept's total restaurant revenues, with alcoholic
beverages accounting for the remaining 25%.
Maggiano's Little Italy
Maggiano's restaurants are designed as classic re-
creations of a New York City pre-war "Little Italy" dinner
house. The existing restaurants are located in the
Chicago metropolitan area, McLean, Virginia, and Atlanta,
Georgia. Each of the Maggiano's restaurants is a casual,
full-service Italian restaurant with a full lunch and
dinner menu, a family-style menu, and banquet facilities,
offering southern Italian appetizers, homemade bread,
large portions of pasta, chicken, seafood, veal and steak,
and a full range of alcoholic beverages. Entree
selections range in menu price from $5.99 to $29.95, with
the average revenue per meal, including alcoholic
beverages, approximating $22.76 per person. During the
year ended June 25, 1997, food and non-alcoholic beverage
sales constituted approximately 81% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 19%.
Corner Bakery
The Corner Bakery is designed as a retail bakery in the
traditional, old world bread bakery style. The Corner
Bakery offers handmade hearth-baked loaves, rolls,
muffins, brownies, cookies and specialty items made fresh
daily. The breads offered by the Corner Bakery include
baguettes, country loaves and specialty breads, such as
raisin-nut, olive, chocolate-cherry, multi-grains and
ryes. In addition, the Corner Bakery also offers pizza,
sandwiches, soups and salads. The existing Corner
Bakeries are located in the Chicago metropolitan area,
McLean, Virginia, Atlanta, Georgia and Union Station in
Washington, D.C.
Eatzi's Market and Bakery
Eatzi's is a home meal replacement retail store which
offers customers almost everything in the meal spectrum,
from fresh produce and raw meats and seafood to high-
quality, chef-prepared meals-to-go. Eatzi's also provides
a tremendous variety of "made from scratch" breads and
pastries along with dry groceries, deli meats and cheeses,
made-to-order salads and sandwiches, and fresh cut
flowers. Large selections of non-alcoholic beverages,
wine, and "create your own six-pack" beer are available to
complete the meal.
Eatzi's features an abundance of fresh, high-quality
meals, openly presented in distinctive areas, replicating
an energetic European marketplace with an exhibition
kitchen and bakery. The circular chef's display case is
the focal point of the store designed to channel customer
traffic around to other departments. There is limited
indoor and outdoor seating since the emphasis is on take-
out purchases. The chefs are professionally dressed in
white chef's coats and hats with black and white
houndstooth pants. Retail service personnel wear black
pants, white, banded collar shirts and green aprons.
Emphasis is placed on restaurant-quality cuisine,
prepared fresh daily by highly skilled and culinary-
trained chefs using Eatzi's unique recipes. Certain
designated menu items are rotated periodically to provide
variety and to augment the core menu. Corporate chefs are
constantly developing and testing new recipes to ensure
high-quality and ample variety in addition to keeping
ahead of the customer's changing taste profiles.
Individual meal selections range in price from $3.99 to
$10.99 with the average revenue per purchase, including
alcoholic beverages, approximating $15.00. During the
year ended June 25, 1997, food and non-alcoholic beverage
sales constituted 93% of the concept's total revenues,
with alcoholic beverages accounting for the remaining 7%.
The original Eatzi's is located in Dallas, Texas, with an
additional Eatzi's having opened in Houston, Texas in
August 1997.
Restaurant Locations
At June 25, 1997, the Company's system of company-
operated, joint venture and franchised units included 710
restaurants located in 46 states, Canada, Mexico,
Singapore, Malaysia, Australia, Egypt, Puerto Rico,
France, Indonesia, Great Britain, Korea, Philippines, and
United Arab Emirates. The Company's portfolio of
restaurants is illustrated below:
June 25, 1997
Chili's:
Company-Operated 393
Franchise 144
Macaroni Grill:
Company-Operated 97
Franchise 2
On The Border:
Company-Operated 34
Franchise 7
Cozymel's 12
Maggiano's 5
Corner Bakery 15
Eatzi's 1
TOTAL 710
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 development of
certain identified markets to achieve penetration levels
deemed desirable by the Company in order to improve the
Company's competitive position, marketing potential and
profitability. Expansion efforts will be focused on major
metropolitan areas in the United States and smaller market
areas 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 focuses on a
variety of factors including: trading-area demographics
such as target population density and household income
levels; an evaluation of site characteristics such as
visibility, accessibility and traffic volume; proximity to
activity centers such as shopping malls, hotel/motel
complexes and offices; and an analysis of the potential
competition. Members of senior management inspect 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
criteria, such as return on investment and area
demographic data do not support a relocation. Since
inception, the Company has closed 15 restaurants,
including 5 in fiscal 1997, which were performing below
the Company's standards primarily due to declining trading-
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 1997 and the planned openings
in fiscal 1998:
Fiscal 1997 Fiscal 1998
Openings Projected Openings
Chili's:
Company-Operated 30 18-22
Franchise 23 30-40
Macaroni Grill 28 18-20
On The Border:
Company-Operated 12 15-18
Franchise 5 8-10
Cozymel's 1 0-1
Maggiano's 2 2-3
Corner Bakery 7 10-15
Eatzi's 0 2-3
TOTAL 108 103-132
The Company anticipates that some of the fiscal 1998
projected restaurant openings will be constructed pursuant
to "build-to-suit" agreements, in which the lessor
contributes the land cost and all, or substantially all,
of the building construction costs. In other cases, the
Company either leases the land, and pays for the building,
furniture, fixtures and equipment from its own funds, or
owns the land, building, furniture, fixtures and
equipment.
As of June 25, 1997, the Company has lease or purchase
commitments for 15 Chili's, 11 Macaroni Grill, 15 On The
Border, 1 Maggiano's, 4 Corner Bakery, and 1 Eatzi's
restaurant sites. The Company is currently in the process
of completing the acquisition of sites for fiscal 1998
projected openings and locating sites for fiscal 1999
projected openings.
The following table illustrates the approximate average
capital investment for a typical unit in the Company's
primary restaurant concepts:
<TABLE>
<CAPTION>
Chili's Macaroni Grill Corner Bakery On The Border Cozymel's
<S> <C> <C> <C> <C> <C>
Land $ 650,000 $ 850,000 $ --- $ 730,000 $1,200,000
Building 1,100,000 1,300,000 650,000 1,200,000 1,700,000
Furniture &
Equipment 430,000 510,000 260,000 610,000 700,000
Other 75,000 75,000 50,000 75,000 80,000
TOTAL $2,255,000 $2,735,000 $ 960,000 $2,615,000 $3,680,000
</TABLE>
The Maggiano's capital investment varies based on the
square footage of the restaurant and the "build-to-suit"
lease agreement. The five Maggiano's restaurants
constructed through June 25, 1997, range in cost from
$660,000 to $4,067,000 (excluding land and net of landlord
contributions).
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.
Joint Venture and Franchise Operations
The Company intends to continue its expansion through
joint venture and franchise development, both domestically
and internationally. During the year ended June 25, 1997,
22 new Chili's and 5 On The Border franchised restaurants
were opened.
The Company has entered into international franchise
agreements which will bring Chili's to China, Peru,
Kuwait, Guam, Saudi Arabia, and Colombia in the 1998
fiscal year. In fiscal 1997, the first Chili's
restaurants opened in Philippines (December 1996), United
Arab Emirates (May 1997), and Korea (June 1997).
The Company intends to continue pursuing 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.
The Company has previously entered into agreements for
research and development activities related to the testing
of new restaurant concepts and typically has a 25-50%
interest in such ventures, which interests are accounted
for under the equity method. The Company currently owns a
50% interest in the two Eatzi's stores currently operating
in Dallas and Houston, Texas. In addition, the Company
holds a 25% interest in the legal entities owning the one
Wildfire Restaurant and two Big Bowl Restaurants located
in Chicago, Illinois.
At June 25, 1997, 34 total joint venture or franchise
development agreements existed. The Company anticipates
that an additional 30-40 franchised Chili's and 8-10
franchised On The Border restaurants will be opened during
fiscal 1998.
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 & Beverage
Manuals which provide guidance for preparation of Company
formulated recipes. Routine visitation to the restaurants
by all levels of supervision enforce strict adherence to
Company standards.
The Director of Training for each concept is
responsible for maintaining each concept's operational
training program, which includes a four to five 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 two to three 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 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 18 to 54
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 25, 1997, the Company employed approximately
47,000 persons, of whom approximately 800 were corporate
personnel, 3,200 were restaurant area directors, managers
or trainees and 43,000 were employed in non-management
restaurant positions. The executive officers of the
Company have an average of more than 19 years of
experience in the restaurant industry.
The Company considers its employee relations to be good
and believes that its employee turnover rate is lower than
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, "Brinker
International", "Chili's", "Chili's Texas Grill", "Chili's
Too", "Chili's Bar & Bites", "Chili's Southwest Grill &
Bar", "Corner Bakery", "Cozymel's", "Cozymel's Coastal
Mexican Grill", "Eatzi's", "Romano's Macaroni Grill",
"Macaroni Grill", "Maggiano's Little Italy", "On The
Border", and "On The Border Mexican Cafe" as trademarks
with the United States Patent and Trademark Office. In
addition, the Company has trademark applications pending
for "Chili's - A Roadhouse Grill & Bar", and "Eatzi's
Market and Bakery".
Risk Factors
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 contained
herein regarding cash flow from operations, restaurant
openings, operating margins, capital requirements, the
availability of acceptable real estate locations for new
restaurants, and other matters. Except for historical
information, matters discussed in such statements are
forward-looking statements that involve risks and
uncertainties.
Competition. 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.
Seasonality. The Company's sales volumes fluctuate
seasonally, and are generally higher in the summer months
and lower in the winter months.
Governmental Regulations. 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 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 does not, at this
time, anticipate any.
The Company is subject to federal and state
environmental regulations, but these have not had a
material negative effect on the Company's operations.
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 American With Disabilities Act
and various family leave mandates. The Company does not
expect any further significant increases in payroll
expenses as a result of the recently-mandated increases in
the minimum wage, but is uncertain of the repercussion, if
any, on other expenses as vendors are impacted by higher
minimum wage standards.
Inflation. The Company has not experienced a
significant overall impact from inflation. If operating
expenses increase due to inflation, the Company recovers
increased costs by increasing menu prices. However,
competition may prohibit such increases in menu prices.
Item 2. PROPERTIES.
The following table illustrates the approximate average
dining capacity for each prototypical unit in primary
restaurant concepts:
<TABLE>
<CAPTION>
Chili's Macaroni Grill Corner Bakery On The Border Cozymel's
<S> <C> <C> <C> <C> <C>
Square Feet 5,600-6,000 7,100 4,300 7,800 10,700
Dining Seats 214-230 235-290 100-110 275-305 320-360
Dining Tables 51-60 60-75 50-60 60-70 70-85
</TABLE>
Maggiano's dining capacity varies based upon the square
footage of the restaurant. For the five Maggiano's units
constructed through June 25, 1997, square footage ranged
from 10,900 to 20,600, the number of dining seats ranged
from 470 to 840, and the number of dining tables ranged
from 100 to 200.
Certain of the Company's restaurants are leased for an
initial term of 5 to 30 years, with renewal terms of 1 to
30 years. The leases typically provide for a fixed rental
plus percentage rentals based on sales volume. At June
25, 1997, the Company owned the land and/or building for
423 of the 556 Company-operated restaurants. The Company
considers that its properties are suitable, adequate, well-
maintained and sufficient for the operations contemplated.
The Company leases warehouse space totalling
approximately 26,300 square feet in Dallas, 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 (3) buildings and approximately
198,000 square feet for the expansion of its corporate
headquarters. Approximately 63,500 square feet of this
complex is currently utilized by the Company, with the
remaining 134,500 square feet under lease, listed for
lease to third party tenants, or reserved for future
expansion of the Company headquarters.
Item 3. LEGAL PROCEEDINGS.
None.
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 25, 1997:
First Quarter 17 1/2 13
Second Quarter 18 3/4 16 1/8
Third Quarter 16 5/8 11
Fourth Quarter 14 1/4 11
Fiscal year ended June 26, 1996:
First Quarter 18 7/8 14 7/8
Second Quarter 16 1/8 12
Third Quarter 16 3/4 12 7/8
Fourth Quarter 18 1/2 15 1/2
As of September 8, 1997, there were 1,814 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.
Item 6. SELECTED FINANCIAL DATA.
"Selected Financial Data" on page 33 of the Company's
1997 Annual Report to Shareholders is incorporated herein
by reference.
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" on pages 34 through
38 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS.
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a)(1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Directors and Executive Officers" on pages 4-9 and
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 15
of the Company's Proxy Statement dated September 23, 1997,
for the annual meeting of shareholders on November 6,
1997, are incorporated herein by reference.
Item 11. COMPENSATION INFORMATION.
"Executive Compensation" on pages 10 through 11 and
"Report of the Compensation Committee" on pages 12 through
14 of the Company's Proxy Statement dated September 23,
1997, for the annual meeting of shareholders on November
6, 1997, are incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
"Principal Shareholders" on page 2 and "Security
Ownership of Management and Election of Directors" on
pages 3 through 4 of the Company's Proxy Statement dated
September 23, 1997, for the annual meeting of shareholders
on November 6, 1997, are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Certain Transactions" on page 16 of the Company's
Proxy Statement dated September 23, 1997, for the annual
meeting of shareholders on November 6, 1997, is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements
attached hereto on page 15 for a listing of all financial
statements incorporated herein from the Company's 1997
Annual Report to Shareholders.
(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 three months ended June 25, 1997.
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: /Russell G. Owens
Russell G. Owens, Executive Vice
President, Chief Strategic Officer
and Chief Financial Officer
Dated: September 23, 1997
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 23, 1997.
Name Title
/Ronald A. McDougall President, Chief Executive
Ronald A. McDougall Officer and Director
(Principal Executive Officer)
/Russell G. Owens Executive Vice President, Chief
Russell G. Owens Strategic Officer and Chief
Financial Officer (Principal
Financial and Accounting Officer)
/Norman E. Brinker Chairman of the Board
Norman E. Brinker
/Gerard V. Centioli Director
Gerard V. Centioli
Director
Rae F. Evans
/J.M. Haggar, Jr. Director
J.M. Haggar, Jr.
Director
Frederick S. Humphries
/Ronald Kirk Director
Ronald Kirk
/Jeffrey A. Marcus Director
Jeffrey A. Marcus
/James E. Oesterreicher Director
James E. Oesterreicher
/Roger T. Staubach Director
Roger T. Staubach
INDEX TO FINANCIAL STATEMENTS
The following is a listing of the financial statements which are
incorporated herein by reference. The financial statements of
the Company included in the Company's 1997 Annual Report to
Shareholders are incorporated herein by reference in Item 8.
1997 Annual
Report Page
Consolidated Statements of Income - 39
Years Ended June 25, 1997, June 26, 1996
and June 28, 1995
Consolidated Balance Sheets - 40-41
June 25, 1997 and June 26, 1996
Consolidated Statements of Shareholders' 42
Equity - Years Ended June 25, 1997,
June 26, 1996 and June 28, 1995
Consolidated Statements of Cash Flows - 43
Years Ended June 25, 1997, June 26, 1996
and June 28, 1995
Notes to Consolidated Financial Statements 44-56
Independent Auditors' Report 57
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)
10(a) Registrant's 1983 Incentive Stock Option Plan. (2)
10(b) Registrant's 1991 Stock Option Plan for Non-Employee
Directors and Consultants. (3)
10(c) Registrant's 1992 Incentive Stock Option Plan. (3)
13 1997 Annual Report to Shareholders. (4)
21 Subsidiaries of the registrant. (3)
23 Independent Auditors' Consent. (3)
27 Financial Data Schedule. (5)
99 Proxy Statement of registrant dated September 23, 1997. (4)
(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 annual report on Form 10-K for
year ended June 26, 1996 and incorporated herein by
referenced.
(3) Filed herewith.
(4) Portions filed herewith, to the extent indicated herein.
(5) Filed with EDGAR version.
EXHIBIT 10(b)
BRINKER INTERNATIONAL, INC.
1991 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS AND CONSULTANTS
INTRODUCTION
The Board of Directors and Shareholders of Brinker
International, Inc. (the "Company") adopted a program for
granting non-qualified stock options to non-employee directors
and consultants which is formalized by the following Stock Option
Plan for Non-Employee Directors and Consultants (the "Plan"):
1. PURPOSE. The purpose of the Plan is to provide
directors of the Company who are not employees of the Company or
its subsidiaries and certain consultants and advisors with a
proprietary interest in the Company through the granting of
options which will:
a. increase their interest in the Company's
welfare;
b. furnish them an incentive to continue their
services for the Company; and
c. provide a means through which the Company may
attract able persons to serve on its Board of Directors
and act as consultants or advisors.
2. ADMINISTRATION. The Plan will be administered by the
Committee.
3. PARTICIPANTS. The directors of the Company who are not
employees of the Company or its subsidiaries are to be granted
options under the Plan. In addition, certain Consultants may be
granted options under the Plan. Upon such grant, the optionees
will become participants in the Plan.
4. SHARES SUBJECT TO PLAN. Options may not be granted
under the Plan for more than 587,500 shares of Common Stock of
the Company, but this number may be adjusted to reflect, if
deemed appropriate by the Committee, any stock dividend, stock
split, share combination, recapitalization or the like, of or by
the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or
Common Stock held by the Company in its treasury. Shares that by
reason of the expiration of an option or otherwise are no longer
subject to purchase pursuant to an option granted under the Plan
may be reoffered under the Plan.
5. ALLOTMENT OF SHARES. As part of the overall
compensation for directors of the Company, each eligible
director, upon being elected to the Board of Directors, shall
receive as partial compensation for serving on the Board of
Directors (a) a grant of 20,000 stock options and (b) an annual
cash payment, at least 25% of which must be taken in the form of
stock options. If a director is being nominated for an
additional term on the Board of Directors, each such renominated
director will receive an additional grant of 10,000 stock options
at the beginning of such director's new term. A director's stock
options will be granted as of the 60th day (or if the 60th day is
not a business day, on the first business day thereafter)
following the date of the annual meeting of shareholders at which
such director was elected to the Board of Directors (or, if such
director was elected or appointed to the Board of Directors other
than at an annual meeting of shareholders), such options will be
granted as of the 60th day following the date of election or
appointment to the Board of Directors (or if the 60th day is not
a business day, on the first business day thereafter). Members
of the Board of Directors who have served on the Board of
Directors for four (4) years and are asked by the Nominating
Committee to continue to serve on the Board of Directors shall be
entitled to a grant of 10,000 stock options and the cash
compensation described in clause (b) above. The Committee shall
determine the number of shares of Common Stock to offer from time
to time by grant of options to Consultants. The grant of an
option to a Consultant shall not be deemed either to entitle the
Consultant to, or to disqualify the Consultant from,
participation in any other grant of options under the Plan. The
maximum number of shares with respect to which options may be
granted pursuant to the Plan to any individual director or
consultant during any fiscal year of the Company may in no event
exceed 100,000.
6. GRANT OF OPTIONS. All director options under the Plan
shall be granted as provided in Section 5. All Consultant
options under the Plan shall be granted by the Committee. The
grant of options shall be evidenced by stock option agreements
containing such terms and provisions as are approved by the
Committee, but not inconsistent with the Plan. The Company shall
execute stock option agreements upon instructions from the
Committee.
7. OPTION PRICE. The option price shall be equal to the
closing price of Common Stock on the date the option is granted.
8. OPTION PERIOD. The Option Period will begin on the
effective date of the option grant and will terminate on the 10th
anniversary of that date. A director option will also terminate
at 5:00 p.m. on the date the option holder ceases to be a
director of the Company for reasons of dishonesty, whether in the
course of directorship or otherwise, or for assisting a
competitor of the Company or its subsidiary without permission,
or for interfering with the Company's relationship with a
customer, or for any similar action or willful breach of duty to
the Company (hereinafter collectively referred to as
"disloyalty"). The Committee may provide for the exercise of
director or Consultant options in installments and upon such
terms, conditions, and restrictions as it may determine. The
Committee may provide for termination of a Consultant's option in
the case of termination of Consultant status or any other reason.
9. RIGHTS IN THE EVENT OF DEATH OR DISABILITY. If a
participant dies or becomes disabled prior to termination of his
right to exercise an option in accordance with the provisions of
his stock option agreements without totally having exercised the
option, the unvested portion of the option will become
immediately vested and the option may be exercised subject to the
provisions of Section 11 hereof, (a) in the case of death, by the
participant's estate or by the person who acquired the right to
exercise the option by bequest or inheritance or by reason of
death of the participant or (b) in the case of disability, by the
participant or his personal representative.
10. PAYMENT. Full payment for the shares purchased upon
exercising an option shall be made in cash or by check at the
time of exercise, or on such other terms as are set forth in the
applicable option agreement. No shares may be issued until full
payment of the purchase price therefor has been made, and a
participant will have none of the rights of a stockholder until
shares are issued to him.
11. EXERCISE OF OPTION.
a. Options granted under the Plan to directors
may be exercised during the Option Period, at such
times, in such amounts, in accordance with such terms
and subject to such restrictions as are determined by
the Committee and set forth in the applicable stock
option agreements. Except as provided in the fourth
and fifth sentences of Section 5 and in Section 9,
director options shall be exercisable in the following
cumulative installments:
i. Up to one-third of the total
optioned shares at any time after the second
anniversary of the effective date of grant if
the holder is still a director on such
anniversary date;
ii. Up to an additional one-third
of the total optioned shares at any time
after the third anniversary of the effective
date of grant if the holder is still a
director on such anniversary date; and
iii. Up to an additional one-third
of the total optioned shares at any time
after the fourth anniversary of the effective
date of grant if the holder is still a
director on such anniversary date.
Notwithstanding the foregoing, if a director retires
from the Board of Directors after serving a four year
term, any options granted to such director during his
term on the Board of Directors shall be exercisable on
the previously referenced anniversary dates even though
such director may not be serving on the Board of
Directors as of such anniversary date.
b. Options granted to Consultants under the Plan
may be exercised during the Option Period, at such
times, in such amounts, in accordance with such terms
and subject to such restrictions and vesting
requirements as are determined by the Committee and set
forth in the applicable stock option agreements.
c. The Committee shall provide in stock option
agreements that, notwithstanding the grant of an option
requiring the exercise thereof in periodic
installments, the total number of options granted may
be exercisable, at the election of the holder, upon a
material change in control of the voting securities of
the Company. For purposes hereof, a material change in
control of the voting securities of the Company shall
be deemed to include, but not necessarily be limited
to, the dissolution or liquidation of the Company, a
merger of the Company into, or acquisition of the
Company by, another entity, the sale or conveyance of
all or substantially all of the assets of the Company,
the acquisition of a majority of the voting securities
of the Company by any person or entity or group of
affiliated persons or entities, or any other event as
determined by the Committee.
12. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of
shares of Common Stock covered by each outstanding option granted
under the Plan and the option price may be adjusted to reflect,
as deemed appropriate by the Committee, any stock dividend, stock
split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation,
or the like, of or by the Company.
13. NON-ASSIGNABILITY. Options may not be transferred
other than by will or by the laws of descent and distribution.
During a participant's lifetime, options granted to a participant
may be exercised only by the participant.
14. INTERPRETATION. The Committee shall interpret the Plan
and shall prescribe such rules and regulations in connection with
the operation of the Plan as it determines to be advisable for
the administration of the Plan. The Committee may rescind and
amend its rules and regulations.
15. AMENDMENT OR DISCONTINUANCE. The Plan may be amended
or discontinued by the Board of Directors of the Company without
the approval of the stockholders of the Company, except that any
amendment that would (a) materially increase the benefits
accruing to participants under the Plan, (b) materially increase
the number of securities that may be issued under the Plan, or
(c) materially modify the requirements of eligibility for
participation in the Plan must be approved by the stockholders of
the Company. In addition, to the extent that an amendment would
affect director options, the Plan shall not be amended more than
once every six (6) months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee
Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
16. EFFECT OF PLAN. Neither the adoption of the Plan nor
any action of the Committee shall be deemed to give any director
or Consultant any right to be granted an option to purchase
Common Stock of the Company or any other rights except as may be
evidenced by the stock option agreement, or any amendment
thereto, duly authorized by the Committee and executed on behalf
of the Company and then only to the extent and on the terms and
conditions expressly set forth therein.
17. TERM. Unless sooner terminated by action of the
Committee, this Plan will terminate on May 14, 2001. The
Committee may not grant options under the Plan after that date,
but options granted before that date will continue to be
effective in accordance with their terms.
18. DEFINITIONS. For the purpose of this Plan, unless the
context requires otherwise, the following terms shall have the
meanings indicated:
a. "Committee" means the Executive Committee of
the Board of Directors of the Company;
b. "Common Stock" means the Common Stock which
the Company is currently authorized to issue or may in
the future be authorized to issue (as long as the
common stock varies from that currently authorized, if
at all, only in amount of par value);
c. "Company" means Brinker International, Inc.,
a Delaware corporation;
d. "Consultant" means a consultant or advisor
who is not an officer, director, or ten percent (10%)
stockholder of the Company within the meaning of 16 of
the Securities Exchange Act of 1934 and who renders
bona fide services to the Company or a subsidiary of
the Company otherwise than in connection with the offer
or sale of securities in a capital-raising transaction;
e. "Option Period" means the period during which
an option may be exercised;
f. "Plan" means this Stock Option Plan for Non-
Employee Directors and Consultants, as amended from
time to time; and
g. "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the
Company if, at the time of the granting of this option,
each of the corporations other than the last
corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the
other corporations in the chain, and "Subsidiaries"
means more than one of any such corporations.
EXHIBIT 10(c)
BRINKER INTERNATIONAL, INC.
1992 INCENTIVE STOCK OPTION PLAN
Brinker International, Inc., a Delaware corporation (the
"Company"), hereby adopts the following plan, as approved by the
Company's stockholders:
1. PURPOSE. The purpose of the Plan is to provide
employees with a proprietary interest in the Company through the
granting of options which will
(a) increase the interest of the employees in the
Company's welfare;
(b) furnish an incentive to the employees to
continue their services for the Company; and
(c) provide a means through which the Company may
attract able persons to enter its employ.
2. ADMINISTRATION. The Plan will be administered by the
Committee.
3. PARTICIPANTS. The Committee shall, from time to time,
select the particular employees of the Company and its
Subsidiaries to whom options are to be granted, and who will,
upon such grant, become participants in the Plan.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be
granted to an employee who owns more than 10% of the voting power
of all classes of stock of the Company or its Parent or
Subsidiaries. This limitation will not apply if the option price
is at least 110% of the fair market value of the stock at the
time the Incentive Option is granted and the Incentive Option is
not exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Committee may not grant
options under the Plan for more than 7,875,000 shares of Common
Stock of the Company, but this number may be adjusted to reflect,
if deemed appropriate by the Committee, any stock dividend, stock
split, share combination, recapitalization or the like, of or by
the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or
Common Stock held by the Company in its treasury. Shares that by
reason of the expiration of an option or otherwise are no longer
subject to purchase pursuant to an option granted under the Plan
may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock
which any employee is first eligible to purchase in any calendar
year by exercise of Incentive Options granted under this Plan and
all incentive stock option plans (within the meaning of
Section 422A of the Internal Revenue Code) of the Company or its
Parent or Subsidiaries shall not exceed $100,000. For this
purpose, the fair market value (determined at the respective date
of grant of each option) of the stock purchasable by exercise of
an Incentive Option (or an installment thereof) shall be counted
against the $100,000 annual limitation for an employee only for
the calendar year such stock is first purchasable under the terms
of the option. The maximum number of shares with respect to
which options may be granted pursuant to the Plan to any
individual employee during any fiscal year of the Company may in
no event exceed 500,000.
7. ALLOTMENT OF SHARES. The Committee shall determine the
number of shares of Common Stock to be offered from time to time
by grant of options to employees of the Company or its
Subsidiaries. The grant of an option to an employee shall not be
deemed either to entitle the employee to, or to disqualify the
employee from, participation in any other grant of options under
the Plan. No participant may receive in any calendar year in
excess of twenty percent (20%) of the options granted in such
calendar year.
8. GRANT OF OPTIONS. The Committee is authorized to grant
Incentive Options and Nonqualified Options under the Plan
(additionally, the Board may grant nonqualified options outside
of the Plan as determined in its discretion). The grant of
options shall be evidenced by stock option agreements containing
such terms and provisions as are approved by the Committee, but
not inconsistent with the Plan, including provisions that may be
necessary to assure that any option that is intended to be an
Incentive Option will comply with Section 422A of the Internal
Revenue Code. The Company shall execute stock option agreements
upon instructions from the Committee.
9. OPTION PRICE. The option price for any option granted
pursuant to this Plan shall not be less than one hundred percent
(100%) of the fair market value per share of the Common Stock on
the date the option is granted. The Committee shall determine
the fair market value of the Common Stock on the date of grant,
and shall set forth the determination in its minutes, using any
reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the
date the option is granted, which will be the date the Committee
authorizes the option unless the Committee specifies a later
date. No option may terminate later than ten years from the date
the option is granted. The Committee may provide for the
exercise of options in installments and upon such terms,
conditions and restrictions as it may determine. The Committee
may provide for termination of the option in the case of
termination of employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a
participant dies or becomes disabled (within the meaning of
Section 22(e)(3) of the Internal Revenue Code) prior to
termination of his right to exercise an option in accordance with
the provisions of his stock option agreement without totally
having exercised the option, the option may be exercised subject
to the provisions of Paragraph 13 hereof, by (i) the
participant's estate or by the person who acquired the right to
exercise the option by bequest or inheritance, or (ii) by reason
of death of the participant.
12. PAYMENT. Full payment for shares purchased upon
exercising an option shall be made in cash or by check at the
time of exercise, or on such other terms as are set forth in the
applicable option agreement. No shares may be issued until full
payment of the purchase price therefor has been made, and a
participant will have none of the rights of a stockholder until
shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may
be exercised during the Option Period, at such times, in such
amounts, in accordance with such terms and subject to such
restrictions and vesting requirements as are determined by the
Committee and set forth in the applicable stock option
descriptions. If the employment of an officer of the Company is
terminated for reason other than for cause, such officer will be
permitted to exercise stock options which were fully vested as of
the date of termination in accordance with the following
schedule, but in no event may such options be exercised later
than ten (10) years from the date of the original grant of the
stock option:
Level Exercise Period
President and Executive Vice 36 months from date of
President termination, with no more than
one-third of the total number
of stock options being
exercisable during the first 12
months and no more than two-
thirds of the total number of
stock options being exercisable
during the first 24 months
Senior Vice President 24 months from date of
termination, with no more than
one-third of the total number
of stock options being
exercisable during the first 8
months and no more than two-
thirds of the total number of
stock options being exercisable
during the first 16 months
Vice President 12 months from date of
termination, with no more than
one-third of the total number
of stock options being
exercisable during the first 4
months and no more than two-
thirds of the total number of
stock options being exercisable
during the first 8 months
In the event a key operations employee of the Company leaves the
Company to join a franchisee of the Company, then the Chief
Executive Officer of the Company, in his sole discretion, may
extend the exercise period for stock options that are fully
vested at the time of termination of employment with the Company
from ninety (90) days to a time period not to exceed twenty-four
(24) months (the "Extension"); provided, however, that if the
employment of such key operations employee is subsequently
terminated by such franchisee "for cause" (as defined below),
such options shall immediately terminate and shall not be
exercisable; provided further, however, that if the employment of
such key operations employee with such franchisee is terminated
for any reason other than "for cause", such employee shall have
an additional period of time to exercise all stock options that
were fully vested at the time of termination of employment with
the Company (the "Additional Exercise Period") equal to the
greater of (a) ninety (90) days or (b) one (1) day for each two
(2) days that such employee worked with such franchisee.
Notwithstanding the foregoing, the Additional Exercise Period
shall automatically terminate at the end of the Extension, if
any, granted by the Chief Executive Officer of the Company. For
purposes hereof, "for cause" is intended to include, but not be
limited to, willful and continued failure to perform duties,
conviction of a felony, any crime involving moral turpitude under
federal, state, or local laws, or any crime involving the
Company, engagement in acts which might, beyond reasonable doubt,
bring the Company into disrepute, contempt, scandal and ridicule,
or conviction of fraud, misappropriation or embezzlement in the
performance of duties for the Company.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of
shares of Common Stock covered by each outstanding option granted
under the Plan and the option price may be adjusted to reflect,
as deemed appropriate by the Committee, any stock dividend, stock
split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation or
the like, of or by the Company. Notwithstanding anything in this
Plan to the contrary, all options granted pursuant to the Plan
shall become fully vested and exercisable at the election of the
Participant at any time prior to the expiration date of such
option upon a material change in control of the Company. For
purposes hereof, a "material change in control of the Company"
shall be deemed to include, but not be limited to, the
dissolution or liquidation of the Company, a merger of the
Company into another corporation, partnership, trust or other
business entity, (other than a merger into a subsidiary or parent
of the Company, or a merger the primary purpose of which is
reincorporation), the acquisition of the Company by another
corporation, partnership, trust, or other business entity, the
sale or conveyance of all or substantially all of the assets of
the Company, or change in control of the majority of the voting
securities of the Company, or any other event as determined by
the Committee.
15. NON-ASSIGNABILITY. Options may not be transferred
other than by will or by the laws of descent and distribution.
During a participant's lifetime, options granted to a participant
may be exercised only by the participant.
16. INTERPRETATION. The Committee shall interpret the Plan
and shall prescribe such rules and regulations in connection with
the operation of the Plan as it determines to be advisable for
the administration of the Plan. The Committee may rescind and
amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended
or discontinued by the Committee without the approval of the
stockholders of the Company, except that any amendment that would
(a) materially increase the benefits accruing to participants
under the Plan, (b) materially increase the number of securities
that may be issued under the Plan, or (c) materially modify the
requirements of eligibility for participation in the Plan must be
approved by the stockholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan by
the Board nor any action of the Committee shall be deemed to give
any officer or employee any right to be granted an option to
purchase Common Stock of the Company or any other rights except
as may be evidenced by the stock option agreement, or any
amendment thereto, duly authorized by the Committee and executed
on behalf of the Company and then only to the extent and on the
terms and conditions expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board,
this Plan will terminate on September 7, 2002. The Committee may
not grant options under the Plan after that date, but options
granted before that date will continue to be effective in
accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the
context requires otherwise, the following terms shall have the
meanings indicated:
(a) "Board" means the board of directors of the Company.
(b) "Committee" means the Compensation Committee of the
Board, composed of independent and disinterested members of the
Board qualified to be members of the Committee pursuant to
Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended.
(c) "Common Stock" means the Common Stock which the Company
is currently authorized to issue or may in the future be
authorized to issue.
(d) "Incentive Option" means an option granted under the
Plan which meets the requirements of Section 422A of the Internal
Revenue Code.
(e) "Nonqualified Option" means an option granted under the
Plan which is not intended to be an Incentive Option.
(f) "Option Period" means the period during which an option
may be exercised.
(g) "Parent" means any corporation in an unbroken chain of
corporations ending with the Company if, at the time of granting
of the option, each of the corporations other than the Company
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in
the chain.
(h) "Plan" means this 1992 Incentive Stock Option Plan, as
amended from time to time.
(i) "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain, and
"Subsidiaries" means more than one of any such corporations.
EXHIBIT 13
1997 ANNUAL REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
(In thousands, except per share amounts and number of restaurants)
<TABLE>
Fiscal Years
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $1,335,337 $1,162,951 $1,042,199 $ 886,040 $ 704,984
Costs and Expenses:
Cost of Sales 374,525 330,375 283,417 241,950 195,967
Restaurant Expenses 720,769 620,441 540,986 451,029 358,949
Depreciation and 78,754 64,611 58,570 51,570 38,292
Amortization
General and Administrative 64,404 54,271 50,362 45,659 37,328
Interest Expense 9,453 4,579 595 441 406
Gain on Sales of Concepts - (9,262) - - -
Restructuring Charge - 50,000 - - -
Merger Expenses - - - 1,949 -
Injury Claim Settlement - - - 2,248 -
Other, Net (3,553) (4,201) (3,151) (5,348) (5,129)
Total Costs and Expenses 1,244,352 1,110,814 930,779 789,498 625,813
Income Before Provision
for Income Taxes 90,985 52,137 111,420 96,542 79,171
Provision for Income Taxes 30,480 17,756 38,676 34,223 27,083
Net Income $ 60,505 $ 34,381 $ 72,744 $ 62,319 $ 52,008
Primary Net Income Per $ 0.81 $ 0.44 $ 0.98 $ 0.83 $ 0.71
Share
Primary Weighted Average
Shares Outstanding 74,800 77,902 74,283 74,947 73,286
Balance Sheet Data
(end of period):
Working Capital Deficit $ (43,292) $ (35,035) $ (2,377) $ (54,879) $ (40,579)
Total Assets 996,943 888,834 738,936 558,435 455,070
Long-term Obligations 317,473 157,274 139,645 39,316 31,082
Shareholders' Equity 523,744 608,170 496,797 417,377 344,086
Number of Restaurants
Open at End of Period:
Company-Operated 556 468 439 369 308
Franchised/Joint Venture 154 145 121 89 75
Total 710 613 560 458 383
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR FISCAL YEARS 1997, 1996, AND 1995
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
1997 1996 1995
Revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.1% 28.4% 27.2%
Restaurant Expenses 54.0% 53.3% 51.9%
Depreciation and Amortization 5.9% 5.6% 5.6%
General and Administrative 4.8% 4.7% 4.8%
Interest Expense 0.7% 0.4% 0.1%
Gain on Sales of Concepts - (0.8%) -
Restructuring Charge - 4.3% -
Other, Net (0.3%) (0.4%) (0.3%)
Total Costs and Expenses 93.2% 95.5% 89.3%
Income Before Provision for Income 6.8% 4.5% 10.7%
Taxes
Provision for Income Taxes 2.3% 1.5% 3.7%
Net Income 4.5% 3.0% 7.0%
REVENUES
Increases in revenues of 15% and 12% in fiscal 1997 and 1996,
respectively, primarily relate to the increases in sales weeks
driven by new unit expansion. Revenues for fiscal 1997 increased
due to a 12.2% increase in sales weeks and a 2.3% increase in
average weekly sales. Excluding concepts sold (Grady's American
Grill, Spageddies Italian Kitchen, and Kona Ranch Steak House)
during fiscal 1996, revenues for fiscal 1996 increased 20% due to a
19% increase in sales weeks and a 0.3% increase in average weekly
sales. Menu price increases, which were almost 2% in fiscal 1997
and less than 1% in fiscal 1996, had little impact on the increases
in revenues.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased in fiscal 1997 compared to fiscal 1996 due
to menu price increases which offset unfavorable commodity price
variances and product mix changes to menu items with higher
percentage food costs. Cost of sales increased in fiscal 1996
compared to fiscal 1995 due to increased portion sizes on various
Chili's menu items and product mix shifts toward higher percentage
food cost menu items.
Restaurant expenses increased in fiscal 1997 and fiscal 1996 due
primarily to increases in management and restaurant labor.
Management labor increased in fiscal 1997 and fiscal 1996 as a
result of increases in base salaries, initiated during fiscal 1996,
to remain competitive in the industry. Restaurant labor costs were
up for both fiscal 1997 and fiscal 1996 due to wage rate increases
for non-minimum wage employees in order to meet industry
competition and retain quality employees. In addition, hourly labor
costs increased in fiscal 1997 due to Federal government mandated
increases in the minimum wage and incremental training costs
associated with the roll-out of new menu items and a new inventory
management program. Partially offsetting the labor increases in
fiscal 1997 were reduced insurance costs resulting from an
aggressive safety program and claims management strategies put in
place by the Company over the last two to three years.
Depreciation and amortization increased in fiscal 1997 after
remaining flat in fiscal 1996. The fiscal 1997 increase was
primarily due to new unit additions during the year and in fiscal
1996. In fiscal 1996 a decrease in per-unit depreciation and
amortization due to a declining depreciable asset base for older
units offset increases related to new unit construction costs and
ongoing remodel costs.
General and administrative expenses have remained relatively flat
in the past two fiscal years as a result of Brinker's focus on
controlling corporate expenditures relative to increasing revenues
and number of restaurants. However, total costs increased in fiscal
1997 due to additional staff and support as the Company continues
the expansion of its restaurant concepts, the accrual of profit
sharing, and non-recurring severance costs.
Interest expense, net of capitalized interest, increased in fiscal
1997 due to incremental borrowings on the Company's credit
facilities primarily used to fund the Company's stock repurchase
plan. Interest expense, net of amounts capitalized, increased in
fiscal 1996 due to the issuance of $100 million of unsecured senior
notes in late fiscal 1995.
RESTRUCTURING RELATED ITEMS
In October 1995, the Board of Directors of the Company approved a
strategic plan targeted to support the Company's long-term growth
objectives. The plan focuses on continued development of those
restaurant concepts that have the greatest return potential for the
Company and its shareholders. In conjunction with this plan, the
Company has or will dispose of or convert 30 to 40 Company-owned
restaurants that have not met management's financial return
expectations. The restructuring actions began during the second
quarter of fiscal 1996 and were substantially completed in fiscal
1997. The Company recorded a $50 million restructuring charge
during fiscal 1996 to cover costs related to the execution of this
plan, primarily the write-down of property and equipment to net
realizable value, costs to settle lease obligations, and the write-
off of other assets. In conjunction with the strategic plan, the
Company also completed the sales of the Grady's American Grill,
Spageddies Italian Kitchen, and Kona Ranch Steak House concepts
during the second quarter of fiscal 1996, recognizing a gain of
approximately $9.3 million.
INCOME TAXES
The Company's effective income tax rate was 33.5%, 34.1%, and
34.7%, in fiscal 1997, 1996, and 1995, respectively. The decrease
in fiscal 1997 is primarily a result of a decrease in the rate
effect of state income taxes. The decrease in fiscal 1996 is
primarily a result of an increase in the rate effect of Federal
FICA tax credits for tipped wages.
NET INCOME AND NET INCOME PER SHARE
Operating results before restructuring related items (gain on sales
of concepts and restructuring charge) are summarized as follows (in
millions, except per share amounts):
Fiscal Years
1997 1996 1995
Income Before Restructuring Related Items
and Income Taxes $ 91.0 $ 92.9 $111.4
Income Taxes Before Restructuring Related 30.5 32.0 38.7
Items
Net Income Before Restructuring Related $ 60.5 $ 60.9 $ 72.7
Items
Primary Net Income Per Share Before
Restructuring Related Items $ 0.81 $ 0.78 $ 0.98
Fiscal 1997 net income and primary net income per share before
restructuring related items decreased 0.6% and increased 3.8%,
respectively. The decrease in net income before restructuring
related items in light of the increase in revenues was due to the
increases in costs and expenses mentioned above. Primary net income
per share increased despite the decline in net income due to a
reduction in the weighted average number of shares outstanding as a
result of the stock repurchase plan. Fiscal 1996 net income and
primary net income per share before restructuring related items
declined 16.2% and 20.4%, respectively, compared to fiscal 1995.
The decrease in net income before restructuring related items in
light of the increase in revenues was due to the decline in average
weekly sales associated with concepts sold during fiscal 1996 and
the increase in costs and expenses mentioned above.
IMPACT OF INFLATION
Brinker has not experienced a significant overall impact from
inflation. As operating expenses increase, Brinker, to the extent
permitted by competition, recovers increased costs by increasing
menu prices.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $35.0 million at June
26, 1996 to $43.3 million at June 25, 1997, and net cash provided
by operating activities increased to $138.3 million for fiscal 1997
from $114.9 million for fiscal 1996 due to the timing of
operational receipts and payments.
Long-term debt outstanding at June 25, 1997 consisted of $185
million of borrowings on credit facilities, $100 million of
unsecured senior notes, and obligations under capital leases. On
April 1, 1997, the Company modified and amended its revolving line
of credit. The facility was increased to $260 million in total
commitments, and its maturity was extended until April 2002. No
other significant changes or modifications were made to the terms
or covenants. The Company now has credit facilities totaling $375
million. At June 25, 1997, the Company had $182 million in
available funds from credit facilities.
Subsequent to June 25, 1997, Brinker entered into an equipment
leasing facility totaling $55 million. Pursuant to the agreement,
Brinker executed a $10.2 million sale and leaseback of existing
equipment. The facility balance will be used to lease equipment in
fiscal 1998. Additionally, the Company intends to repay a portion
of the debt outstanding on its credit facilities with the proceeds
from a sale and leaseback of certain real estate assets early in
the second quarter of fiscal 1998.
Capital expenditures were $191.2 million for fiscal 1997. Capital
expenditures consist of purchases of land for future restaurant
sites, new restaurants under construction, purchases of new and
replacement restaurant furniture and equipment, and the ongoing
remodeling program. The Company estimates that its capital
expenditures during fiscal 1998 will approximate $140 million.
These capital expenditures will be funded from internal operations,
cash equivalents, the liquidation of the marketable securities
portfolio, build-to-suit lease agreements with landlords, and
drawdowns on the Company's available lines of credit. The
marketable securities portfolio is classified as a current asset as
of June 25, 1997 based on the Company's intention to liquidate the
portfolio to fund a portion of these capital expenditures.
During 1997, pursuant to a Board of Directors approved plan, the
Company repurchased approximately $150 million (approximately 12.5
million shares) of the Company's common stock in accordance with
applicable securities regulations. The repurchased common stock
will be used by the Company to satisfy obligations under its
savings plans, to meet the needs of its various stock option
plans, and for other corporate purposes. The Company financed the
repurchase program through a combination of cash provided by
operations, partial liquidation of its marketable securities
portfolio, and drawdowns on its available credit facilities.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend
develops, Brinker believes that there are sufficient funds
available under the lines of credit and from strong internal cash
generating capabilities to adequately manage the expansion of the
business.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings Per Share." SFAS No. 128 requires disclosure of
basic and diluted earnings per share. Basic earnings per share
excludes dilution and 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. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997. All
prior periods will be restated upon adoption. The pro forma
earnings per share utilizing the requirements of SFAS No. 128 are
as follows:
Fiscal Years
1997 1996 1995
Basic earnings per share $ 0.82 $ 0.45 $ 1.01
Diluted earnings per share $ 0.81 $ 0.44 $ 0.98
MANAGEMENT OUTLOOK
In fiscal 1997, Brinker realigned its management structure to more
directly support its various restaurant concepts. This realignment
included upgrading certain strategic functions and decentralizing
certain functions that are more effectively performed at the
concept level. In the last six months, Brinker has realized the
benefits of the realignment with increased average weekly sales at
its flagship Chili's. During fiscal 1998, Brinker's concept
management teams will focus on (i) replicating Chili's
revitalization at Macaroni Grill, (ii) expanding its other high
growth concepts of Corner Bakery and On The Border, (iii) extending
its success at Maggiano's Little Italy, and (iv) cultivating its
research and development concepts of Eatzi's, Wildfire, and Big
Bowl. With this strong line-up, Brinker expects to open over 100
new restaurants system-wide and to approach $2 billion in system-
wide sales during fiscal 1998.
In fiscal 1997, Brinker experienced a difficult operating
environment due to intensified competition and increasing labor
costs. Management expects these conditions to continue in fiscal
1998. However, management believes its realignment, coupled with
its focus on quality, value, and customer service, has
strategically positioned Brinker to attain growth and profitability
objectives while creating value for its shareholders.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking regarding
cash flow from operations, restaurant openings, operating margins,
capital requirements, the availability of acceptable real estate
locations for new restaurants, and other matters. These forward-
looking statements involve risks and uncertainties and,
consequently, could be affected by general business conditions, the
impact of competition, the seasonality of the Company's business,
governmental regulations, and inflation.
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In thousands)
1997 1996
ASSETS
Current Assets:
Cash and Cash Equivalents $ 23,194 $ 27,073
Marketable Securities (Note 4) 24,469 -
Accounts Receivable 15,258 12,042
Inventories 13,031 10,839
Prepaid Expenses 30,364 24,648
Deferred Income Taxes (Note 6) 1,050 11,653
Other 5,068 2,100
Total Current Assets 112,434 88,355
Property and Equipment, at Cost (Note 8):
Land 171,551 150,391
Buildings and Leasehold Improvements 533,579 430,037
Furniture and Equipment 294,985 240,880
Construction-in-Progress 42,977 31,923
1,043,092 853,231
Less Accumulated Depreciation and Amortization 293,483 242,001
Net Property and Equipment 749,609 611,230
Other Assets:
Marketable Securities (Note 4) - 70,012
Goodwill, Net of Accumulated Amortization of
$4,311 in 1997 and $2,168 in 1996 (Note 2) 78,291 73,250
Other 56,609 45,987
Total Other Assets 134,900 189,249
Total Assets $ 996,943 $ 888,834
(continued)
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
Current Liabilities:
Current Installments of Long-term Debt $ 280 $ 348
(Notes 7 and 8)
Accounts Payable 76,640 58,902
Accrued Liabilities (Note 5) 78,806 64,140
Total Current Liabilities 155,726 123,390
Long-term Debt, Less Current Installments 287,521 117,801
(Notes 7 and 8)
Deferred Income Taxes (Note 6) 7,426 12,900
Other Liabilities 22,526 26,573
Commitments and Contingencies (Notes 8 and 12)
Shareholders' Equity (Notes 2, 9, and 10):
Preferred Stock - 1,000,000 Authorized Shares;
$1.00 Par Value; No Shares Issued - -
Common Stock - 250,000,000 Authorized Shares;
$.10 Par Value; 77,710,016 Shares Issued
and 65,233,900 Shares Outstanding at
June 25, 1997, and 77,255,783 Shares Issued
and Outstanding at June 26, 1996 7,771 7,726
Additional Paid-In Capital 270,892 266,561
Unrealized Gain (Loss) on Marketable Securities 304 (620)
(Note 4)
Retained Earnings 395,008 334,503
673,975 608,170
Less Treasury Stock, at Cost (12,476,116 (150,231) -
shares)
Total Shareholders' Equity 523,744 608,170
Total Liabilities and Shareholders' Equity $ 996,943 $ 888,834
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
Fiscal Years
1997 1996 1995
Revenues $1,335,337 $1,162,951 $1,042,199
Costs and Expenses:
Cost of Sales 374,525 330,375 283,417
Restaurant Expenses (Note 8) 720,769 620,441 540,986
Depreciation and Amortization 78,754 64,611 58,570
General and Administrative 64,404 54,271 50,362
Interest Expense (Note 7) 9,453 4,579 595
Gain on Sales of Concepts (Note 3) - (9,262) -
Restructuring Charge (Note 3) - 50,000 -
Other, Net (Note 4) (3,553) (4,201) (3,151)
Total Costs and Expenses 1,244,352 1,110,814 930,779
Income Before Provision for
Income Taxes 90,985 52,137 111,420
Provision for Income Taxes 30,480 17,756 38,676
(Note 6)
Net Income $ 60,505 $ 34,381 $ 72,744
Primary and Fully Diluted
Net Income Per Share $ 0.81 $ 0.44 $ 0.98
Primary Weighted Average
Shares Outstanding 74,800 77,902 74,283
Fully Diluted Weighted Average
Shares Outstanding 74,936 78,036 74,345
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss)
Common Stock Paid-in on Marketable Retained Treasury
Shares Amount Capital Securities Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
June 29, 1994 71,405 $7,141 $ 183,299 $ (441) $227,378 $ - $417,377
Net Income - - - - 72,744 - 72,744
Change in Unrealized
Gain (Loss) on
Marketable Securities - - - (1,010) - - (1,010)
Issuances of
Common Stock 668 66 7,620 - - - 7,686
Balances at
June 28, 1995 72,073 7,207 190,919 (1,451) 300,122 - 496,797
Net Income - - - - 34,381 - 34,381
Change in Unrealized
Gain (Loss) on
Marketable Securities - - - 831 - - 831
Issuances of
Common Stock 5,183 519 75,642 - - - 76,161
Balances at
June 26, 1996 77,256 7,726 266,561 (620) 334,503 - 608,170
Net Income - - - - 60,505 - 60,505
Change in Unrealized
Gain (Loss) on
Marketable Securities - - - 924 - - 924
Purchases of
Treasury Stock (12,486) - - - - (150,350) (150,350)
Issuances of
Common Stock 464 45 4,331 - - 119 4,495
Balances at
June 25, 1997 65,234 $7,771 $ 270,892 $ 304 $395,008 $(150,231) $523,744
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Fiscal Years
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 60,505 $ 34,381 $ 72,744
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of
Property and Equipment 63,866 54,138 48,893
Amortization of Goodwill and Other Assets 14,888 10,473 9,677
Gain on Sales of Concepts (Note 3) - (9,262) -
Restructuring Charge (Note 3) - 50,000 -
Changes in Assets and Liabilities, Excluding
Effects of Acquisitions and Dispositions:
Receivables (4,666) 4,783 (5,301)
Inventories (1,944) (1,236) (2,099)
Prepaid Expenses (5,632) (3,920) (4,884)
Other Assets (22,541) (21,883) (13,627)
Accounts Payable 18,953 1,537 (4,140)
Accrued Liabilities 13,985 (1,596) 4,617
Deferred Income Taxes 4,657 (8,313) 2,392
Other Liabilities (4,224) 3,607 1,493
Other 496 2,220 415
Net Cash Provided by Operating Activities 138,343 114,929 110,180
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (191,194) (187,141) (183,913)
Payment for Purchase of Restaurants, Net (Note 2) (15,863) - -
Proceeds from Sales of Concepts (Note 3) - 73,115 -
Purchases of Marketable Securities (38,543) (61,390) (15,988)
Proceeds from Sales of Marketable Securities 80,796 25,137 23,458
Other - 375 1,988
Net Cash Used in Investing Activities (164,804) (149,904) (174,455)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Credit Facilities 170,000 15,000 -
Payments of Long-term Debt (348) (1,530) (1,426)
Proceeds from Issuance of Long-term Debt - - 100,000
Proceeds from Issuances of Common Stock 3,280 3,667 6,869
Purchases of Treasury Stock (150,350) - -
Net Cash Provided by Financing Activities 22,582 17,137 105,443
Net Increase (Decrease) in Cash and Cash (3,879) (17,838) 41,168
Equivalents
Cash and Cash Equivalents at Beginning of Year 27,073 44,911 3,743
Cash and Cash Equivalents at End of Year $ 23,194 $ 27,073 $ 44,911
CASH PAID DURING THE YEAR:
Interest, Net of Amounts Capitalized $ 7,459 $ 4,188 $ -
Income Taxes $ 26,240 $ 24,558 $ 47,838
NON-CASH TRANSACTIONS DURING THE YEAR:
Tax Benefit from Stock Options Exercised $ 1,215 $ 729 $ 817
Common Stock Issued in Connection with $ - $ 71,765 $ -
Acquisitions
Notes Received in Connection with Sales of $ - $ 9,800 $ -
Concepts
</TABLE>
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Brinker
International, Inc. and its wholly-owned subsidiaries ("Brinker"). All
significant intercompany accounts and transactions have been eliminated
in consolidation. Brinker owns and operates, or franchises, various
restaurant concepts principally located in the United States.
Brinker has a 52/53 week fiscal year ending on the last Wednesday in
June. The fiscal years 1997, 1996, and 1995, which ended on June 25,
1997, June 26, 1996, and June 28, 1995, respectively, all contained 52
weeks.
Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform with the current year
presentation.
(b) Financial Instruments
Brinker's policy is to invest cash in excess of operating requirements in
income-producing investments. Cash invested in instruments with
maturities of three months or less at the time of investment is reflected
as cash equivalents. Cash equivalents of $7.4 million and $18.6 million
at June 25, 1997 and June 26, 1996, respectively, consist primarily of
money market funds and commercial paper.
Brinker's financial instruments at June 25, 1997 and June 26, 1996
consist of cash equivalents, marketable securities, short-term debt, 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 short-term debt
approximate their carrying amounts due to the short duration of those
items; marketable securities are based on quoted market prices; and long-
term debt is based on the amount of future cash flows discounted using
Brinker's expected borrowing rate for debt of comparable risk and
maturity.
(c) Inventories
Inventories, which consist of food, beverages, and supplies, are stated
at the lower of cost (weighted average cost method) or market.
(d) 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.
(e) Capitalized Interest
Interest costs capitalized during the construction period of restaurants
were approximately $4.5 million, $4.4 million, and $2.3 million during
fiscal 1997, 1996, and 1995, respectively.
(f) Preopening Costs
Capitalized preopening costs include the direct and incremental costs
typically associated with the opening of a new restaurant which primarily
consist of costs incurred to develop new restaurant management teams,
travel and lodging for both the training and opening unit management
teams, and the food, beverage, and supplies costs incurred to perform
role play testing of all equipment, concept systems, and recipes.
Preopening costs are included in other assets and amortized over a period
of 12 months.
(g) Goodwill
Goodwill is being amortized on a straight-line basis over 30 to 40 years.
Brinker assesses the recoverability of goodwill by determining whether
the asset balance can be recovered over its remaining life through
undiscounted future operating cash flows of the acquired operation. The
amount of impairment, if any, is measured based on projected discounted
future operating cash flows. Management believes that no impairment of
goodwill has occurred and that no reduction of the related estimated
useful life is warranted.
(h) Recoverability of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121
("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," Brinker evaluates long-lived
assets and certain identifiable intangibles to be held and used in the
business for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment is determined by comparing estimated undiscounted future
operating cash flows to the carrying amounts of assets. If an impairment
exists, the amount of impairment is measured as the sum of the estimated
discounted future operating cash flows of such asset and the expected
proceeds upon sale of the asset less its carrying amount. The adoption of
SFAS No. 121 in fiscal 1997 did not have a material effect on Brinker's
financial statements.
(i) 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.
(j) Treasury Stock
During 1997, pursuant to a Board of Directors approved plan, Brinker
repurchased approximately $150 million of Brinker's common stock in
accordance with applicable securities regulations. The repurchased common
stock will be used by Brinker to satisfy obligations under its savings
plans, to meet the needs of its various stock option plans, and for other
corporate purposes. The repurchased common stock is reflected as a
reduction to shareholders' equity.
(k) Derivative Instruments
Brinker's policy prohibits the use of derivative instruments for trading
purposes and Brinker has procedures in place to monitor and control their
use. Brinker's use of derivative instruments is primarily limited to
interest rate swaps and forwards which are entered into with the intent
of managing overall borrowing costs.
Brinker has entered into interest rate forwards to effectively fix the
interest rate of its rental payments in anticipation of a sale and
leaseback of certain real estate assets. The notional amount of the
forwards fixes approximately 95% of the principal associated with the
sale and leaseback at an underlying treasury rate of approximately 6.7%.
Accordingly, any market risk or opportunity associated with the fowards
is offset by the market impact on the related rental payments. These
forwards will settle at maturity which is intended to be at or near the
time of the closing of the sale and leaseback transaction. Brinker's
credit risk related to interest rate forwards is considered minimal due
to strong creditworthy counterparties, settlement on a net basis, and
short durations.
(l) Stock-Based Compensation
In accordance with Accounting Principles Board No. 25, Brinker uses the
intrinsic value-based method for measuring stock-based compensation cost
which measures compensation cost as the excess, if any, of the quoted
market price of Brinker common stock at the grant date over the amount
the employee must pay for the stock. Brinker's policy is to grant stock
options at fair value at the date of grant. Proceeds from the exercise of
common stock options issued to officers, directors, and key employees
under Brinker'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 of Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," are
presented in Note 9.
(m) Net Income Per Share
Both primary and fully diluted net income per share are based on the
weighted average number of shares outstanding during the fiscal year
increased by common equivalent shares (stock options) determined using
the treasury stock method. Primary weighted average equivalent shares are
determined based on the average market price exceeding the exercise price
of the stock options. Fully diluted weighted average equivalent shares
are determined based on the higher of the average or ending market price
exceeding the exercise price of the stock options.
(n) Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles 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. ACQUISITIONS
During the three years ended June 25, 1997, Brinker completed the
acquisitions set forth below. For acquisitions accounted for as
purchases, the excess of cost over the fair values of the net assets
acquired was recorded as goodwill and the operations of the related
restaurants are included in Brinker's consolidated results of operations
from the dates of acquisition. For acquisitions accounted for as poolings
of interests, Brinker's consolidated financial statements have been
restated to include the accounts and operations of the restaurants for
all periods presented. The operations of the restaurants acquired are not
material.
On October 1, 1996, Brinker acquired 13 Chili's restaurants from a
franchisee for approximately $16.2 million in cash. The acquisition was
accounted for as a purchase. Goodwill of approximately $7.3 million is
being amortized on a straight-line basis over 30 years.
On July 19, 1995, Brinker acquired the remaining 50% interest in its
Cozymel's restaurant concept in exchange for 430,769 shares of Brinker
common stock representing a cost of approximately $7.6 million. On August
29, 1995, Brinker acquired the Maggiano's Little Italy and Corner Bakery
concepts in exchange for 4,000,000 shares of Brinker common stock
representing a cost of approximately $57.9 million. These acquisitions
were accounted for as purchases. Goodwill of approximately $7.6 million
and $57.5 million, respectively, is being amortized on a straight-line
basis over 40 years.
In fiscal 1995, Brinker acquired four Chili's restaurants from
franchisees in exchange for 505,930 shares of Brinker common stock. The
acquisition of one of the restaurants was accounted for as a purchase
while the acquisition of the remaining three restaurants was accounted
for as a pooling of interests.
3. RESTRUCTURING RELATED ITEMS
Brinker recorded a $50 million restructuring charge during the second
quarter of fiscal 1996 related to the adoption of a strategic plan which
includes the disposition or conversion of 30 to 40 Company-owned
restaurants that have not met management's financial return expectations.
The charge resulted in a reduction in net income of approximately $32.5
million ($0.42 per share) and primarily relates to the write-down of
property and equipment to net realizable value, costs to settle lease
obligations, and the write-off of other assets. Through fiscal 1997,
$46.0 million of restructuring costs have been incurred, of which $4.5
million were cash payments primarily for lease obligations and $41.5
million were non-cash charges primarily for asset write-downs. The
restructuring actions were substantially completed in fiscal 1997. The
results of operations from restaurants that have been or will be disposed
are not material.
In addition, Brinker completed the sales of the Grady's American Grill,
Spageddies Italian Kitchen, and Kona Ranch Steak House concepts during
the second quarter of fiscal 1996, recognizing a gain of approximately
$9.3 million.
4. MARKETABLE SECURITIES
At June 25, 1997 and June 26, 1996, marketable securities (primarily
investment-grade preferred stock) are classified as available-for-sale.
The cost and fair value of marketable securities at June 25, 1997 and
June 26, 1996 are as follows (in thousands):
1997 1996
Cost $ 24,012 $ 70,951
Gross unrealized holding gains 483 297
Gross unrealized holding losses (26) (1,236)
Fair value $ 24,469 $ 70,012
At June 26, 1996 the marketable securities portfolio was classified as a
long-term asset. The marketable securities portfolio is classified as a
current asset as of June 25, 1997 based on Brinker's intention to
liquidate the portfolio to fund a portion of its capital expenditures in
fiscal 1998.
Realized gains and realized losses are determined on a specific
identification basis. Realized gains and realized losses from investment
transactions were $313,000 and $646,000 during fiscal 1997, $38,000 and
$949,000 during fiscal 1996, and $187,000 and $1,478,000 during fiscal
1995. Interest and dividend income during fiscal 1997, 1996, and 1995 was
$5,016,000, $5,082,000, and $3,368,000, respectively. Realized gains and
realized losses as well as interest and dividend income are included in
other, net in the consolidated statements of income.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
1997 1996
Payroll $ 26,798 $ 18,505
Insurance 15,668 15,141
Property tax 8,944 8,224
Sales tax 7,514 5,724
Restructuring reserve 4,005 5,881
Other 15,877 10,665
$ 78,806 $ 64,140
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1997 1996 1995
Current income tax expense:
Federal $ 22,471 $ 22,222 $ 31,133
State 3,352 3,847 5,151
Total current income tax expense 25,823 26,069 36,284
Deferred income tax expense (benefit):
Federal 4,113 (7,343) 2,113
State 544 (970) 279
Total deferred income tax expense (benefit) 4,657 (8,313)
2,392
$ 30,480 $ 17,756 $ 38,676
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 follows (in thousands):
1997 1996 1995
Income tax expense at statutory rate $ 31,845 $ 18,248 $ 38,997
FICA tax credit (2,925) (2,382) (2,600)
Targeted jobs tax credit - (261) (1,837)
Net investment activities (688) (405) (576)
State income taxes, net of Federal benefit 1,872 1,657 3,451
Other 376 899 1,241
$ 30,480 $ 17,756 $ 38,676
The income tax effects of temporary differences that give rise to
significant portions of deferred income tax assets and liabilities as of
June 25, 1997 and June 26, 1996 are as follows (in thousands):
1997 1996
Deferred income tax assets:
Insurance reserves $ 8,034 $ 10,916
Restructuring reserve 1,517 7,986
Leasing transactions 2,099 2,278
Other, net 9,723 4,899
Total deferred income tax assets 21,373 26,079
Deferred income tax liabilities:
Depreciation and capitalized interest
on property and equipment 12,467 12,972
Preopening costs 10,466 9,022
Prepaid expenses 379 335
Other, net 4,437 4,997
Total deferred income tax liabilities 27,749 27,326
Net deferred income tax liability $ 6,376 $ 1,247
7. DEBT
Brinker has credit facilities aggregating $375 million at June 25, 1997.
A credit facility of $260 million bears interest at LIBOR (5.69% at June
25, 1997) plus a maximum of .50% and expires in fiscal 2002. At June 25,
1997, $185 million was outstanding under this facility. The remaining
credit facilities bear interest based upon the lower of the banks' "Base"
or prime rate plus 1%, certificates of deposit rate, or Eurodollar rate,
and expire during fiscal years 1998 and 2000. Unused credit facilities
available to Brinker were approximately $182 million at June 25, 1997.
Obligations under Brinker's credit facilities, which require short-term
repayments, have been classified as long-term debt, reflecting Brinker's
intent and ability to refinance these borrowings through the existing
credit facilities.
Long-term debt consists of the following (in thousands):
1997 1996
7.8% senior notes $ 100,000 $ 100,000
Credit Facilities 185,000 15,000
Capital lease obligations (see Note 8) 2,801 3,149
287,801 118,149
Less current installments 280 348
$ 287,521 $ 117,801
The $100 million of unsecured senior notes bear interest at an annual
rate of 7.8%. Interest is payable semi-annually and Brinker is required
to pay 14.3% (or $14.3 million) of the original principal balance
annually beginning in fiscal 1999 through fiscal 2004 with the remaining
unpaid balance due in fiscal 2005.
8. LEASES
(a) Capital Leases
Brinker leases certain buildings under capital leases. The asset values
of $6.9 million at June 25, 1997 and June 26, 1996, and the related
accumulated amortization of $5.7 million and $5.5 million at June 25,
1997 and June 26, 1996, respectively, are included in property and
equipment.
(b) Operating Leases
Brinker leases restaurant facilities and certain equipment under
operating leases having terms expiring at various dates through fiscal
2022. The restaurant leases have renewal clauses of 5 to 30 years at the
option of Brinker and have provisions for contingent rent based upon a
percentage of gross sales, as defined in the leases. Rent expense for
fiscal 1997, 1996, and 1995 was $41.0 million, $37.9 million, and $36.2
million, respectively. Contingent rent included in rent expense for
fiscal 1997, 1996, and 1995 was $3.1 million, $3.2 million, and $2.9
million, respectively.
In July 1993, Brinker entered into operating lease agreements with
unaffiliated groups to lease certain restaurant sites. During fiscal 1995
and 1994, Brinker utilized the entire commitment of approximately $30
million for the development of restaurants leased by Brinker. During
fiscal 1996, Brinker retired several properties in the commitment which
thereby reduced the outstanding balance. At the expiration of the lease
term, Brinker has, at its option, the ability to purchase all of the
properties, or to guarantee the residual value related to the remaining
properties, which is currently approximately $21.5 million. Based on the
analysis of the operations of these properties, Brinker believes the
properties support the guaranteed residual value.
Subsequent to June 25, 1997, Brinker entered into an equipment leasing
facility totaling $55 million. Pursuant to the agreement, Brinker
executed a $10.2 million sale and leaseback of existing equipment. The
facility balance will be used to lease equipment in fiscal 1998.
(c) Commitments
At June 25, 1997, future minimum lease payments on capital and operating
leases were as follows (in thousands):
Fiscal Capital Operating
Year Leases Leases
1998 $ 657 $ 37,671
1999 657 36,287
2000 613 35,423
2001 565 34,309
2002 560 33,876
Thereafter 1,144 198,880
Total minimum lease payments 4,196 $376,446
Imputed interest (average rate of 11.5%) 1,395
Present value of minimum payments 2,801
Less current installments 280
Capital lease obligations $2,521
At June 25, 1997, Brinker had entered into other lease agreements for
restaurant facilities currently under construction or yet to be
constructed. In addition to a base rent, the leases also contain
provisions for additional contingent rent based upon gross sales, as
defined in the leases. 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
(a) 1983 and 1992 Employee Incentive Stock Option Plans
In accordance with the Incentive Stock Option Plans adopted in October
1983 and November 1992, options to purchase approximately 20.8 million
shares of Brinker's common stock may be granted to officers, directors,
and key employees. Options are granted at market value on the date of
grant, are exercisable beginning one to two years from the date of grant,
with various vesting periods, and expire ten years from the date of
grant.
In October 1993, the 1983 Incentive Stock Option Plan expired.
Consequently, no options were granted subsequent to fiscal 1993. Options
granted prior to the expiration of this Plan remain exercisable through
April 2003.
Transactions during fiscal 1997, 1996, and 1995 were as follows (in
thousands, except option prices):
<TABLE>
<CAPTION>
Number of Weighted Average Share
Company Options Exercise Price
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 9,049 7,570 6,897 $14.52 $14.79 $14.07
Granted 1,842 2,287 1,290 11.79 12.96 16.50
Exercised (383) (425) (500) 6.83 8.61 8.49
Canceled (1,050) (383) (117) 16.03 17.47 17.72
Options outstanding at
end of year 9,458 9,049 7,570 $14.13 $14.52 $14.79
Options exercisable at
end of year 4,735 4,298 4,044 $14.61 $12.85 $11.16
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
average Weighted Weighted
Range of remaining average average
exercise Number of contractual exercise Number of exercise
price options life (years) price options price
<C> <C> <C> <C> <C> <C>
$ 2.45-$6.12 781 2.03 $4.81 781 $4.81
$10.89-$14.56 4,974 7.49 12.15 1,658 12.65
$15.25-$19.33 2,512 6.82 17.70 1,645 18.51
$20.38-$26.83 1,191 6.97 20.99 651 21.49
9,458 6.80 $14.13 4,735 $14.61
</TABLE>
(b) 1984 Non-Qualified Stock Option Plan
In accordance with the Non-Qualified Stock Option Plan adopted in
December 1984, options to purchase approximately 5 million shares of
Brinker's common stock were authorized for grant. Options were granted at
market value on the date of grant, are exercisable beginning one year
from the date of grant, with various vesting periods, and expire ten
years from the date of grant.
In November 1989, the Non-Qualified Stock Option Plan was terminated.
Consequently, no options were granted subsequent to fiscal 1990. Options
granted prior to the termination of this plan remain exercisable through
June 1999.
Transactions during fiscal 1997, 1996, and 1995 were as follows (in
thousands, except option prices):
Number of Weighted Average Share
Company Options Exercise Price
1997 1996 1995 1997 1996 1995
Options outstanding at
beginning of year 544 548 549 $ 3.66 $ 3.63 $ 3.62
Exercised (61) (4) (1) 2.95 0.35 0.35
Canceled (8) - - 2.45 - -
Options outstanding and
exercisable at end of year 475 544 548 $ 3.77 $ 3.66 $ 3.63
At June 25, 1997, the range of exercise prices for options outstanding was
$2.45 to $5.30 with a weighted average remaining contractual life of 1.13
years.
(c) 1991 Non-Employee Stock Option Plan
In accordance with the Stock Option Plan for Non-Employee Directors and
Consultants adopted in May 1991, options to purchase 337,500 shares of
Brinker's common stock were authorized for grant. Options are granted at
market value on the date of grant, vest one-third each year beginning two
years from the date of grant, and expire ten years from the date of
grant.
Transactions during fiscal 1997, 1996, and 1995 were as follows (in
thousands, except option prices):
Number of Weighted Average Share
Company Options Exercise Price
1997 1996 1995 1997 1996 1995
Options outstanding at
beginning of year 202 204 122 $16.21 $16.07 $13.88
Granted 3 3 82 16.88 17.50 19.26
Canceled (4) (5) - 23.61 11.22 -
Options outstanding at
end of year 201 202 204 $16.10 $16.21 $16.07
Options exercisable at
end of year 155 106 89 $15.25 $13.16 $11.74
At June 25, 1997, the range of exercise prices for options outstanding
was $11.22 to $23.92 with a weighted average remaining contractual life
of 5.85 years.
(d) On The Border 1989 Stock Option Plan
In accordance with the Stock Option Plan for On The Border employees and
consultants, 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 124,000 Brinker stock
options and expire ten years from the date of original grant.
Transactions during fiscal 1997, 1996, and 1995 were as follows (in
thousands, except option prices):
Number of Weighted Average Share
Company Options Exercise Price
1997 1996 1995 1997 1996 1995
Options outstanding at
beginning of year 63 109 114 $19.03 $18.83 $18.83
Exercised (5) (17) - 17.99 18.54 -
Canceled (22) (29) (5) 18.68 18.58 18.78
Options outstanding and
exercisable at end of year 36 63 109 $19.38 $19.03 $18.83
At June 25, 1997, the range of exercise prices for options outstanding
was $18.24 to $19.76 with a weighted average remaining contractual life
of 5.76 years.
Brinker has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for Brinker's stock
option plans. Pursuant to the employee compensation provisions of SFAS
No. 123, Brinker's net income per common and equivalent share would have
been reduced to the pro forma amounts indicated below (in thousands,
except per share data).
1997 1996
Net income - as reported $ 60,505 $ 34,381
Net income - pro forma $ 56,943 $ 32,857
Net income per share - as reported $ 0.81 $ 0.44
Net income per share - pro forma $ 0.76 $ 0.42
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
1997 1996
Expected volatility 39.7% 36.0%
Risk-free interest rate 6.2% 5.7%
Expected lives 5 years 5 years
Dividend yield 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
and the vesting requirements of Brinker's stock option plans.
10. STOCKHOLDER PROTECTION RIGHTS PLAN
On January 30, 1996, the Board of Directors of Brinker adopted a
Stockholder Protection Rights Plan (the "Plan") and declared a dividend
of one right on each outstanding share of common stock, payable on
February 9, 1996. 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 $60, a number of
shares of Brinker 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.
11. SAVINGS PLANS
Brinker sponsors a qualified defined contribution retirement plan ("Plan
I") covering salaried employees who have completed one year or 1,000
hours of service. Plan I allows eligible employees to defer receipt of up
to 20% of their compensation and contribute such amounts to various
investment funds. Brinker matches with Brinker common stock 25% of the
first 5% an employee contributes. Employee contributions vest immediately
while Brinker contributions vest 25% annually beginning in the
participants' second year of eligibility since plan inception. In fiscal
1997, 1996, and 1995, Brinker contributed approximately $432,000
(representing 30,438 shares of Brinker common stock), $362,000
(representing 23,582 shares of Brinker common stock), and $355,000
(representing 18,745 shares of Brinker common stock), respectively.
Brinker 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 20% of
their base compensation and 100% of their eligible bonuses, as defined in
the plan. Brinker matches with Brinker common stock 25% of the first 5% a
non-officer contributes while officers' contributions are matched at the
same rate with cash. Employee contributions vest immediately while
Brinker contributions vest 25% annually beginning in the participants'
second year of employment since plan inception. In fiscal 1997, 1996, and
1995, Brinker contributed approximately $215,000 (of which approximately
$138,000 was used to purchase 9,347 shares of Brinker common stock),
$260,000 (of which approximately $165,000 was used to purchase 10,584
shares of Brinker common stock), and $259,000 (of which approximately
$154,000 was used to purchase 8,175 shares of Brinker common stock),
respectively. At the inception of Plan II, Brinker elected to establish 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. CONTINGENCIES
Brinker 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 Brinker, 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 on Brinker's consolidated
financial condition or results of operations.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly
results of operations for fiscal 1997 and 1996 (in thousands, except per
share amounts):
Fiscal Year 1997
Quarters Ended
Sept. 25 Dec. 25 March 26 June 25
Revenues $308,665 $310,925 $345,510 $370,237
Income Before Provision
for Income Taxes 24,631 17,511 20,048 28,795
Net Income 16,380 11,644 13,332 19,149
Primary Net Income Per Share 0.21 0.15 0.18 0.29
Primary Weighted Average
Shares Outstanding 79,051 79,636 75,704 66,834
Fiscal Year 1996
Quarters Ended
Sept. 27 Dec. 27 March 27 June 26
Revenues $289,460 $289,656 $284,206 $299,629
Income (Loss) Before Provision
for Income Taxes 23,967 (20,850) 21,013 28,007
Net Income (Loss) 15,579 (13,553) 13,869 18,486
Primary Net Income (Loss)
Per Share 0.21 (0.18) 0.18 0.23
Primary Weighted Average
Shares Outstanding 75,721 76,626 78,389 79,295
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 25, 1997 and June 26, 1996,
and the related consolidated statements of income, shareholders' equity
and cash flows for each of the years in the three-year period ended
June 25, 1997. 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 generally accepted auditing
standards. 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 25, 1997 and
June 26, 1996, and the results of their operations and their cash flows
for each of the years in the three-year period ended June 25, 1997 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
August 1, 1997
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 Cafe, Cozymel's Coastal Mexican Grill, Maggiano's Little
Italy, Corner Bakery, and a market store and bakery under the
name Eatzi's Market and Bakery.
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 CONNECTICUT CORPORATION, a Delaware corporation
BRINKER DELAWARE, INC., a Delaware 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 MISSOURI, INC., a Delaware corporation
BRINKER MISSISSIPPI, INC., a Delaware 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 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
BRINKER OF BETHESDA, 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
EATZI'S CORPORATION, a Delaware corporation
EATZI'S INVESTMENT COMPANY, a Delaware corporation
EATZI'S TEXAS HOLDING CORPORATION, a Delaware corporation
EATZI'S TEXAS, L.P., a Texas limited partnership
EATZI'S BEVERAGE COMPANY, a Texas corporation
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Brinker International, Inc.:
We consent to incorporation by reference in the Registration
Statement Nos. 33-61594, 33-56491, and 333-02201 on Form S-8
and Nos. 33-53965, 33-55181, 33-63551, 333-00169, and 333-
07481 on Form S-3, of Brinker International, Inc. of our
report dated August 1, 1997, relating to the consolidated
balance sheets of Brinker International, Inc. and
subsidiaries as of June 25, 1997 and June 26, 1996 and the
related consolidated statements of income, shareholders'
equity and cash flows for each of the years in the three-
year period ended June 25, 1997, which report is
incorporated by reference in the June 25, 1997 annual report
on Form 10-K of Brinker International, Inc.
/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
September 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Fiscal 1997 consolidated financial statements and is qualified in its
entirety by reference to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1000
<C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-25-1997
<PERIOD-START> JUN-26-1996
<PERIOD-END> JUN-25-1997
<CASH> 23,194
<SECURITIES> 24,469
<RECEIVABLES> 20,472
<ALLOWANCES> 146
<INVENTORY> 13,031
<CURRENT-ASSETS> 112,434
<PP&E> 1,043,092
<DEPRECIATION> 293,483
<TOTAL-ASSETS> 996,943
<CURRENT-LIABILITIES> 155,726
<BONDS> 287,521
0
0
<COMMON> 7,771
<OTHER-SE> 515,973
<TOTAL-LIABILITY-AND-EQUITY> 996,943
<SALES> 1,320,881
<TOTAL-REVENUES> 1,335,337
<CGS> 374,525
<TOTAL-COSTS> 1,173,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 313
<INTEREST-EXPENSE> 9,453
<INCOME-PRETAX> 90,985
<INCOME-TAX> 30,480
<INCOME-CONTINUING> 60,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,505
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
EXHIBIT 99
PROXY STATEMENT OF REGISTRANT
DATED SEPTEMBER 23, 1997
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the
number of shares of Common Stock of the Company beneficially
owned by the principal shareholders of the Company.
Beneficial Ownership
Number of
Name and Address Shares (1) Percent
The Capital Group Companies, Inc. 11,281,700 17.26%
333 South Hope Street
Los Angeles, California 90071
(1) As of June 30, 1997. Based on information contained in
Schedule 13G dated as of February 12, 1997, as supplemented via
telephone communication.
SECURITY OWNERSHIP OF MANAGEMENT
AND ELECTION OF DIRECTORS
Eleven (11) directors are to be elected at the meeting.
Each nominee will be elected to hold office until the next annual
meeting of the shareholders or until his or her successor is
elected and qualified. To be elected a director, each nominee
must receive a plurality of all of the votes cast at the meeting
for the election of directors. Should any nominee become unable
or unwilling to accept nomination or election, the proxy holders
may vote the proxies for the election, in his or her stead, of
any other person the Board of Directors may recommend. All
nominees have expressed their intention to serve the entire term
for which election is sought. The following table sets forth
certain information concerning security ownership of management
and nominees for election as directors of the Company:
<TABLE>
<CAPTION>
Number of Shares Number Attributable to
of Common Stock Options Exercisable Percent
Beneficially Owned as Within 60 Days of of
Name as of September 8, 1997 (1)(2) September 8, 1997 Class
<S> <C> <C> <C>
Norman E. Brinker 2,109,009 (3) 1,058,750 3.23%
Douglas H. Brooks 470,350 453,028 *
F. Lane Cardwell, Jr. 266,022 246,000 *
Gerard V. Centioli 334,462 (4) 30,000 *
Ronald A. McDougall 840,022 815,000 1.29%*
Debra L. Smithart 237,910 (5) 203,841 *
Roger F. Thomson 146,000 142,500 *
Daniel W. Cook, III -0- -0- *
Rae F. Evans 22,127 (6) 20,542 *
J.M. Haggar, Jr. 84,354 22,584 *
Frederick S. Humphries 10,317 9,667 *
Ronald Kirk -0- -0- *
Jeffrey A. Marcus -0- -0- *
James E. Oesterreicher 11,500 11,000 *
Roger T. Staubach 23,500 13,000 *
All executive officers
and directors as a
group (20 persons) 4,932,671 3,380,944 7.55%
</TABLE>
* Less than one percent (1%)
(1) Beneficial ownership has been determined in accordance with
the rules of the Securities and Exchange Commission. Except as
noted, and except for any community property interests owned by
spouses, the listed individuals have sole investment power and
sole voting power as to all shares of stock of which they are
identified as being the beneficial owners.
(2) Includes shares of Common Stock which may be acquired by
exercise of exercisable options granted or vesting under the
Company's 1983 Incentive Stock Option Plan, the 1984 Non-
Qualified Stock Option Plan, the 1992 Incentive Stock Option Plan
and the 1991 Stock Option Plan for Non-Employee Directors and
Consultants, as applicable.
(3) Includes 20,250 shares of Common Stock held of record by a
family trust of which Mr. Brinker is trustee.
(4) Includes 2,000 shares of Common Stock held of record by a family
trust of which Mr. Centioli is trustee.
(5) Effective September 1, 1997, Ms. Smithart resigned from the
Board of Directors and from her position as Executive Vice
President and Chief Financial Officer of the Company.
(6) Includes 1,875 shares of Common Stock held of record by a
family trust of which Mrs. Evans is trustee.
The Company has established a guideline that all senior
officers of the Company own stock in the Company, believing that
it is important to further encourage and support an ownership
mentality among the senior officers that will continue to align
their personal financial interests with the long-term interests
of the Company's shareholders. Pursuant to the guideline, the
minimum amount of Company Common Stock that a senior officer will
be required to own will be determined by such officer's position
within the Company as well as annual compensation. The Company
has established a program with a third-party lender pursuant to
which the senior officers will be able to obtain financing for
purposes of attaining the minimum stock ownership levels referred
to above. Any loans obtained by such senior officers to finance
such stock acquisitions are facilitated by the Company pursuant
to an agreement in which the senior officer pledges the
underlying stock and future incentive payments which may be
receivable from the Company as security for the loan.
DIRECTORS AND EXECUTIVE OFFICERS
Directors
A brief description of each person nominated to become a
director of the Company is provided below. Except for Daniel W.
Cook, III, all nominees are currently serving as directors of the
Company. Each of the current directors were elected at the last
annual meeting of the Company's shareholders held on November 7,
1996, except Ronald Kirk and Jeffrey A. Marcus, both of whom were
appointed to the Board of Directors in January 1997.
Norman E. Brinker, 66, served as Chairman of the Board of
Directors and Chief Executive Officer of the Company from
September 1983 to June 1995, with the exception of a brief period
during which Mr. Brinker was incapacitated due to an injury.
Mr. Brinker continues to serve as Chairman of the Board of
Directors. Mr. Brinker is a member of the Nominating Committee
of the Company. He was the founder of S&A Restaurant Corp.,
having served as its President from February 1966 through May
1977 and as its Chairman of the Board of Directors and Chief
Executive Officer from May 1977 through July 1983. From June
1982 through July 1983, Mr. Brinker served as Chairman of the
Board of Directors and Chief Executive Officer of Burger King
Corporation, while simultaneously occupying the position of
President of The Pillsbury Company Restaurant Group. Mr. Brinker
currently serves as a member of the Board of Directors of Haggar
Clothing Company.
Ronald A. McDougall, 55, was elected President and Chief
Executive Officer of the Company in June 1995 having formerly
held the office of President and Chief Operating Officer since
1986. Mr. McDougall joined the Company in 1983 and served as
Executive Vice President - Marketing and Strategic Development
until his promotion to President. Prior to joining the Company,
Mr. McDougall held senior management positions at Proctor and
Gamble, Sara Lee, The Pillsbury Company and S&A Restaurant Corp.
Mr. McDougall has served as a member of the Board of Directors of
the Company since September 1983 and is a member of the Executive
and Nominating Committees of the Company. Mr. McDougall serves on
the Board of Directors of Excel Communications, Inc.
Gerard V. Centioli, 43, was elected Senior Vice President -
Emerging Concepts President in April 1997. Mr. Centioli joined
the Company as Senior Vice President - Maggiano's/Corner Bakery
Concepts President in August 1995 and was named Senior Vice
President - Italian Concepts President in January 1996.
Mr. Centioli previously served as Senior Partner of Lettuce
Entertain You Enterprises, Inc. and President and Chief Executive
Officer of the Maggiano's Little Italy and The Corner Bakery
Divisions. Prior to joining Lettuce Entertain You Enterprises,
Inc. in 1984, Mr. Centioli served as Vice President - Division
President of Collins Foods International, Inc. Mr. Centioli has
served as a member of the Board of Directors of the Company since
November 1995.
Daniel W. Cook, III, 62, is a limited partner with The
Goldman Sachs Group, L.P. Mr. Cook started with The Goldman
Sachs Group, L.P. in 1961 and was a partner when he retired in
1992. Mr. Cook also serves on the Board of Directors for Centex
Corporation. Mr. Cook is a member of the Board of Trustees of
Southern Methodist University as well as Vice-Chair of the Edwin
L. Cox School of Business Executive Board.
Rae F. Evans, 49, is currently President of Rae Evans &
Associates, a firm specializing in Washington corporate
strategies. From 1982 until January 1995, Mrs. Evans held the
title of Vice President, National Affairs of Hallmark Cards, Inc.
Mrs. Evans is a member of the Nominating and Audit Committees of
the Company and has served as a member of the Board of Directors
since January 1990. She is a member of the Business Government
Relations Council and is a past president of that organization.
She is a member of The Board of Directors of the National Women's
Museum, the Meridian International House and a member of the
Economic Club of Washington. Mrs. Evans is also a member of the
Catalyst Board of Advisors and the National Women's Economic
Alliance. Mrs. Evans also serves on the Board of Directors of
Haggar Clothing Company.
J. M. Haggar, Jr., 72, is currently the owner of J.M.
Haggar, Jr. Investments, a business he has operated since
retiring as Chairman of the Board of Directors of Haggar Clothing
Company in February 1995. Mr. Haggar previously held the
positions of President and Chief Executive Officer of Haggar
Clothing Company until 1991. Mr. Haggar is a member of the
Compensation and Audit Committees of the Company and has served
as a member of the Company's Board of Directors since April 1985.
Frederick S. Humphries, 61, is the President of Florida A&M
University in Tallahassee, Florida having held this position
since 1985. Prior to joining Florida A&M University,
Dr. Humphries was President of Tennessee State University in
Nashville for over 10 years. Dr. Humphries serves as Chairman of
the State Board of Education Advisory Committee on the Education
of Blacks in Florida and Chairman of the Board of Regents, Five-
Year Working Group for Agriculture, State University System of
Florida, in addition to being involved in various civic and
community activities. Mr. Humphries has served on the Board of
Directors of the Company since May 1994 and is a member of the
Audit Committee of the Company. He is also a member of the Board
of Directors of Wal-Mart, Inc.
Ronald Kirk, 43, is currently Mayor of the City of Dallas
and a partner in the law firm of Gardere & Wynne. He was elected
Mayor in 1995, and previously served as Secretary of State of the
State of Texas from 1994 to 1995. Mr. Kirk was engaged in the
private practice of law from 1989 to 1994, served as an Assistant
City Attorney for Dallas from 1983 to 1989 and as a legislative
aide to U.S. Senator Lloyd Bentsen from 1983 to 1989. Mayor Kirk
is an honors graduate of Austin College and earned his law degree
from The University of Texas. Mayor Kirk was appointed to the
Board of Directors in January 1997 and is a member of the
Nominating Committee of the Company.
Jeffrey A. Marcus, 50, is currently Chairman, President and
Chief Executive Officer of Marcus Cable, with headquarters in
Dallas. He formed the company in 1990 after spending more than
20 years in the cable television industry, a career Mr. Marcus
embarked upon while a student at the University of California at
Berkeley. Mr. Marcus is one of the owners of the Texas Rangers
Baseball Club and is active in several civic and charitable
organizations. Mr. Marcus was appointed to the Board of
Directors in January 1997 and is a member of the Executive
Committee of the Company.
James E. Oesterreicher, 56, is the Chairman of the Board and
Chief Executive Officer of J.C. Penney Company, Inc., having been
elected to the position of Chairman in January 1997 and to the
position of Chief Executive Officer in January 1995.
Mr. Oesterreicher served as Vice Chairman of the Board from 1995
to 1997, as President of JCPenney Stores and Catalog from 1992 to
1995 and as Director of JCPenney Stores from 1988 to 1992.
Mr. Oesterreicher has been with the J.C. Penney Company since
1964 where he started as a management trainee. He serves as a
Director for various entities, including Texas Utilities Company,
Presbyterian Healthcare Systems, National Retail Federation,
Circle Ten Council--Boy Scouts of America, National 4-H Council,
National Organization on Disability and March of Dimes Birth
Defects Foundation. He also serves as a member of the Policy
Committee of the Business Roundtable. Mr. Oesterreicher has
served as a member of the Board of Directors of the Company since
May 1994 and is a member of the Compensation and Nominating
Committees of the Company.
Roger T. Staubach, 55, has been Chairman of the Board and
Chief Executive Officer of The Staubach Company, a national real
estate company specializing in tenant representation, since 1982.
He has served as a member of the Board of Directors of the
Company since May 1993 and is a member of the Executive and
Compensation Committees of the Company. Mr. Staubach is a 1965
graduate of the U.S. Naval Academy and served four years in the
Navy as an officer. In 1968, he joined the Dallas Cowboys
professional football team as quarterback and was elected to the
National Football League Hall of Fame in 1985. He currently
serves on the Board of Directors of Halliburton Company, American
AAdvantage Funds and Columbus Realty Trust and is active in
numerous civic, charity and professional organizations.
Executive Officers
The following persons are executive officers of the Company
who are not nominated to serve on the Company's Board of
Directors:
Douglas H. Brooks, 45, joined the Company as an Assistant
Manager in February 1978 and was promoted to General Manager in
April 1978. In March 1979, Mr. Brooks was promoted to Area
Supervisor and in May 1982 to Regional Director. He was again
promoted in March 1987 to Senior Vice President-Central Region
Operations and to the position of Concept Head and Senior Vice
President-Chili's Operations in June 1992. Mr. Brooks was
promoted to his current position of Senior Vice President -
Chili's Grill & Bar Concept President in June 1994.
F. Lane Cardwell, Jr., 45, was elected Executive Vice
President - Eatzi's Concept President in June 1996, having
formerly held the positions of Executive Vice President -
Strategic Development from June 1992 until October 1995 and
Executive Vice President and Chief Administrative Officer from
October 1995 until June 1996. Mr. Cardwell joined the Company as
Vice President - Strategic Development in August 1988 and became
Senior Vice President - Strategic Development in December 1990.
Before joining the Company, Mr. Cardwell was employed by S&A
Restaurant Corp. in various capacities from November 1978 to
August 1988. Mr. Cardwell served as a member of the Board of
Directors of the Company from 1991 to 1996.
Leslie Christon, 43, was elected Senior Vice President - On
The Border President in April 1997, having previously served as
Vice President of Operations/On The Border since joining the
Company in July 1996. Prior to this time, Ms. Christon held the
position of Senior Vice President of Operations of Red Lobster
Restaurants from November 1994 to June 1996 and she was with El
Chico from June 1981 to November 1994. Ms. Christon serves on
the Board of Directors of the Women's Foodservice Forum and is
the past president of the Roundtable for Women in Foodservice,
Inc.
Kenneth D. Dennis, 44, joined the Company as a Manager in
November 1976 and was promoted to General Manager in June 1978.
In February 1979, he became Director of Internal Systems and in
September 1983 became Director of Marketing. Mr. Dennis was
promoted to Vice President of Marketing in August 1986 and to
Senior Vice President of Marketing in August 1993. In February
1997, Mr. Dennis became Senior Vice President-Chief Operating
Officer of Cozymel's and was elected to Senior Vice President-
Cozymel's President in September 1997. Mr. Dennis serves on the
Board of Directors of the Marketing Executives Group and is the
past Co-Chairman.
Carol E. Kirkman, 40, was appointed Executive Vice President
of Human Resources in June 1997 after serving as Senior Vice
President of Human Resources since April 1996. Ms. Kirkman
joined the Company as Corporate Counsel in 1990 and was promoted
to Vice President/Assistant General Counsel in 1994. Ms. Kirkman
was an attorney in private practice in Dallas, Texas from 1982
until 1987 and worked as a commercial and retail real estate
broker in southern California from 1987 until 1990.
John C. Miller, 42, joined the Company as Vice President-
Special Concepts in September 1987. In October 1988, he was
elected as Vice President-Joint Venture/Franchise and served in
this capacity until August 1993 when he was promoted to Senior
Vice President-New Concept Development. Mr. Miller was named
Senior Vice President - Mexican Concepts in September 1994 and
was subsequently elected as Senior Vice President - Mexican
Concepts President in October 1995. In April 1997, Mr. Miller
was elected Senior Vice President - Romano's Macaroni Grill
President. Mr. Miller worked in various capacities with the Taco
Bueno Division of Unigate Restaurants prior to joining the
Company.
Russell G. Owens, 38, joined the Company in 1983 as
Controller. He was elected Vice President of Planning in 1986
and Vice President of Operations Analysis in 1991. Mr. Owens was
promoted to Senior Vice President of Operations Analysis in 1993
and was named Senior Vice President of Strategic Development -
Italian Concepts in 1996. Mr. Owens was elected Executive Vice
President and Chief Strategic Officer in June 1997 and assumed
the position of Chief Financial Officer in September 1997. Prior
to joining the Company, Mr. Owens worked for the public
accounting firm Deloitte & Touche.
Roger F. Thomson, 48, joined the Company as Senior Vice
President, General Counsel and Secretary in April 1993 and was
promoted to Executive Vice President, General Counsel and
Secretary in March 1994. In June 1996, Mr. Thomson was promoted
to the position of Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary and was a Director of the
Company from 1993 until 1995. From 1988 until April 1993,
Mr. Thomson served as Senior Vice President, General Counsel and
Secretary for Burger King Corporation. Prior to 1988,
Mr. Thomson spent ten years at S & A Restaurant Corp. where he
was Executive Vice President, General Counsel and Secretary.
Classes of Directors
For purposes of determining whether non-employee directors
will be nominated for reelection to the Board of Directors, the
non-employee directors have been divided into four classes. Each
non-employee director will continue to be subject to reelection
by the shareholders of the Company each year. However, after a
non-employee director has served on the Board of Directors for
four years, such director shall be deemed to have been advised by
the Nominating Committee that he or she will not stand for
reelection at the subsequent annual meeting of shareholders and
shall be considered a "Retiring Director". Notwithstanding this
policy, the Nominating Committee may determine that it is
appropriate to renominate any or all of the Retiring Directors
after first considering the appropriateness of nominating new
candidates for election to the Board of Directors. The four
classes of non-employee directors are as follows: Messrs.
Humphries and Oesterreicher and Mrs. Evans comprise Class 1 and
will be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 1998 fiscal year. There
are no members of Class 2. Messrs. Haggar, Kirk and Marcus
comprise Class 3 and will be considered Retiring Directors as of
the annual meeting of shareholders following the end of the 2000
fiscal year. Messrs. Cook and Staubach comprise Class 4 and will
be considered Retiring Directors as of the annual meeting of
shareholders following the end of the 2001 fiscal year.
Committees of the Board of Directors
The Board of Directors of the Company has established an
Executive Committee, Audit Committee, Compensation Committee, and
Nominating Committee. The Executive Committee (currently
comprised of Messrs. McDougall, Marcus, and Staubach) met four
(4) times during the fiscal year and has authority to act for the
Board on most matters during the intervals between Board
meetings.
All of the members of the Audit and Compensation Committees
are directors independent of management who are not and never
have been officers or employees of the Company. The Audit
Committee is currently comprised of Messrs. Haggar and Humphries
and Mrs. Evans and the Committee met five (5) times during the
fiscal year. Included among the functions performed by the Audit
Committee are: the review with independent auditors of the scope
of the audit and the results of the annual audit by the
independent auditors; consideration and recommendation to the
Board of the selection of the independent auditors for the next
year; the review with management and the independent auditors of
the annual financial statements of the Company; and the review of
the scope and adequacy of internal audit activities.
The Compensation Committee is currently comprised of
Messrs. Haggar, Oesterreicher and Staubach and it met six (6)
times during the fiscal year. Functions performed by the
Compensation Committee include: ensuring the effectiveness of
senior management and management continuity, ensuring the
reasonableness and appropriateness of senior management
compensation arrangements and levels, the adoption, amendment and
administration of stock-based incentive plans (subject to
shareholder approval where required), management of the various
stock option plans of the Company, approval of the total number
of available shares to be used each year in stock-based plans,
approval of the adoption and amendment of significant
compensation plans and approval of all compensation actions for
officers, particularly at and above the level of executive vice
president. The specific nature of the Committee's
responsibilities as it relates to executive officers is set forth
below under "Report of the Compensation Committee."
The purpose of the Nominating Committee is to recommend to
the Board of Directors potential non-employee members to be added
as new or replacement members to the Board of Directors. The
Nominating Committee will consider a shareholder-recommended
nomination for director to be voted upon at the 1998 annual
meeting of shareholders provided that the recommendation must be
in writing, set forth the name and address of the nominee,
contain the consent of the nominee to serve, and be submitted on
or before May 26, 1998. The Nominating Committee is composed of
Messrs. Brinker, Kirk, McDougall and Oesterreicher and Mrs. Evans
and it met four (4) times during the fiscal year.
Directors' Compensation
Directors who are not employees of the Company receive
$1,000 for each meeting of the Board of Directors attended and
$1,000 for each meeting of any committee of the Board of
Directors attended. The Company also reimburses directors for
costs incurred by them in attending meetings of the Board.
Directors who are not employees of the Company receive
grants of stock options under the Company's 1991 Stock Option
Plan for Non-Employee Directors and Consultants. A new director
who is not an employee of the Company will receive as
compensation (a) 20,000 stock options at the beginning of such
director's term, and (b) an annual cash payment of $36,000, at
least 25% of which must be taken in the form of stock options.
If a director is appointed to the Board of Directors at any time
other than at an annual meeting of shareholders, the director
will receive a prorated portion of the annual cash compensation
for the period from the date of election or appointment to the
Board of Directors until the meeting of the Board of Directors
held contemporaneous with the next annual meeting of
shareholders. If a director elects to receive cash, the first
payment will be made at the Board of Directors' meeting held
contemporaneous with the next annual meeting of shareholders.
The stock options will be granted as of the 60th day following
such meeting (or if the 60th day is not a business day, on the
first business day thereafter) at the fair-market value on the
date of grant. One-third (1/3) of the options will vest on each
of the second, third and fourth anniversaries of the date of
grant. If a director is a Retiring Director who is being
nominated for an additional term on the Board of Directors, each
such renominated director will receive an additional grant of
10,000 stock options at the beginning of such director's new
term.
For purposes of applying this compensation program to the
current non-employee directors of the Company, the previous
compensation program was blended with this compensation program
in order to determine annual compensation payable to non-employee
directors until such directors become Retiring Directors and
leave the board or are approved by the Nominating Committee to
serve for an additional four years. Mrs. Evans previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $16,000; Dr. Humphries previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $16,000; Mr. Oesterreicher previously has
received a grant of 15,000 stock options and will receive an
annual cash retainer of $6,000; Mr. Staubach previously has
received a grant of 10,000 stock options and has received an
annual cash retainer of $6,000. If Mr. Cook is elected to the
Board of Directors, he will be compensated according to the new
compensation plan. As Mr. Staubach is currently a Retiring
Director, if he is re-elected to the Board of Directors, he will
be compensated according to the new compensation plan. Messrs.
Haggar, Kirk and Marcus are being compensated according to the
new compensation plan.
During the year ended June 25, 1997, the Board of Directors
held seven (7) meetings; each incumbent director attended 75% of
the aggregate total of meetings of the Board of Directors and
Committees on which he or she served.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the
annual compensation for the Company's five highest compensated
executive officers, including the Chief Executive Officer, whose
salary and bonus exceeded $100,000 in fiscal 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Securities Long-Term
Name and Annual Compensation Underlying Incentive All Other
Principal Position Year Salary Bonus Options Payouts Compensation (1)
<S> <C> <C> <C> <C> <C> <C>
Ronald A. McDougall
President and Chief 1997 $ 825,000 $ 396,000 200,000 $ 67,289 $ 29,194
Executive Officer 1996 $ 744,808 $ -0- 375,000 $ 69,860 $ 18,396
1995 $ 574,038 $ 278,839 125,000 $ 86,565 $ 50,555
Debra L. Smithart
Executive Vice 1997 $ 350,000 $ 115,500 50,000 $ 40,374 $ 11,225
President and Chief 1996 $ 304,423 $ -0- 90,000 $ 46,574 $ 6,828
Financial Officer(2) 1995 $ 264,038 $ 95,714 30,000 $ 63,481 $ 11,805
Douglas H. Brooks
Senior Vice President 1997 $ 333,654 $ 120,462 50,000 $ 33,645 $ 20,818
- Chili's Grill & Bar 1996 $ 311,058 $ -0- 90,000 $ 31,049 $ 12,830
Concept President 1995 $ 266,249 $ 77,212 30,000 $ 40,397 $ 15,636
F. Lane Cardwell, Jr.
Executive Vice 1997 $ 320,000 $ 105,600 3,000 $ 40,374 $ 23,845
President - Eatzi's 1996 $ 290,385 $ -0- 90,000 $ 46,574 $ 15,007
Concept President 1995 $ 224,422 $ 81,353 30,000 $ 63,481 $ 19,236
Roger F. Thomson
Executive Vice 1997 $ 317,231 $ 104,940 50,000 $ 40,374 $ 16,680
President, Chief 1996 $ 256,827 $ -0- 90,000 $ 31,049 $ 6,641
Administrative Officer,1995 $ 227,019 $ 82,294 30,000 $ -0- $ 13,024
General Counsel and
Secretary
</TABLE>
(1) All other compensation represents Company match on deferred compensation.
(2) Ms. Smithart resigned from her position as Executive Vice President and
Chief Financial Officer effective September 1, 1997.
Option Grants During 1997 Fiscal Year
The following table contains certain information concerning
the grant of stock options pursuant to the Company's 1992
Incentive Stock Option Plan to the executive officers named in
the above compensation table during the Company's last fiscal
year:
<TABLE>
<CAPTION>
% of Total Realizable Value of
Options Assumed Annual Rates of
Granted to Stock Price Appreciation
Options Employees in Exercise or Expiration for Option Term (1)
Name Granted Fiscal Year Base Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Ronald A. McDougall 200,000 10.85% $11.125 2/6/07 $1,399,291 $3,546,077
Debra L. Smithart 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
Douglas H. Brooks 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
F. Lane Cardwell, Jr. 3,000 0.16% $11.125 2/6/07 $ 20,989 $ 53,191
Roger F. Thomson 50,000 2.71% $11.125 2/6/07 $ 349,823 $ 886,519
</TABLE>
(1) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the Securities and Exchange
Commission and, therefore, are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
Stock Option Exercises and Fiscal Year-End Value Table
The following table shows stock option exercises by the
named officers during the last fiscal year, including the
aggregate value of gains on the date of exercise. In addition,
this table includes the number of shares covered by both
exercisable and non-exercisable stock options at fiscal year-end.
Also reported are the values for "in-the-money" options which
represent the position spread between the exercise price of any
such existing options and the $14.00 fiscal year-end price of the
Company's Common Stock.
<TABLE>
<CAPTION>
Shares Value of Unexercised
Acquired Number of Unexercised In-the-Money Options at
On Value Options at Fiscal Year End Fiscal Year End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Ronald A. McDougall -0- -0- 658,750 731,250 $ 396,653 $1,075,000
Debra L. Smithart -0- -0- 166,341 177,500 $ 15,838 $ 263,750
Douglas H. Brooks 5,700 $78,643 419,278 173,750 $2,673,559 $ 263,750
F. Lane Cardwell, Jr. -0- -0- 208,500 130,500 $ 245,005 $ 128,625
Roger F. Thomson -0- -0- 105,000 177,500 $ -0- $ 263,750
</TABLE>
Long-Term Executive Profit Sharing Plan and Awards
Executives of the Company participate in the Long-Term
Executive Profit Sharing Plan. See "Report of the Compensation
Committee -- Long-Term Incentives" for more information regarding
this plan. The following table represents awards granted in the
last fiscal year under the Long-Term Executive Profit Sharing
Plan.
<TABLE>
<CAPTION>
Number of Estimated Future Payouts
Name Units Awarded Under Non-Stock Based Plans
(Dollars)
Threshold Target Maximum
<S> <C> <C> <C> <C>
Ronald A. McDougall 1,000 $66,667 $100,000 *
Debra L. Smithart 750 $50,000 $ 75,000 *
Douglas H. Brooks 600 $40,000 $ 60,000 *
F. Lane Cardwell, Jr. 750 $50,000 $ 75,000 *
Roger F. Thomson 750 $50,000 $ 75,000 *
</TABLE>
* There is no maximum future payout under the Long-Term
Executive Profit Sharing Plan.
REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy
The executive compensation program is designed as a tool to
reinforce the Company's strategic principles -- to be a premier
and progressive growth company with a balanced approach towards
people, quality and profitability and to enhance long-term
shareholder value. To this end, the following principles have
guided the development of the executive compensation program:
Provide competitive levels of compensation to attract and
retain the best qualified executive talent. The Committee
strongly believes that the caliber of the Company's
management group makes a significant difference in the
Company's sustained success over the long term.
Embrace a pay-for-performance philosophy by placing
significant amounts of compensation "at risk" -- that is,
compensation payouts to executives must vary according to
the overall performance of the Company.
Directly link executives' interests with those of
shareholders by providing opportunities for long-term
incentive compensation based on changes in shareholder
value.
The executive compensation program is intended to
appropriately balance the Company's short-term operating goals
with its long-term strategy through a careful mix of base salary,
annual cash incentives and long-term performance compensation
including cash incentives and incentive stock options.
Base Salaries
Executives' base salaries and total compensation are
targeted to be competitive at the 75th percentile of the market
for positions of similar responsibility and scope at the Vice
President and Senior Vice President levels and, to reflect the
exceptionally high level of executive talent required to execute
the growth plans of the Company, between the 75th and 90th
percentile of the market for the Chief Executive Officer,
Executive Vice Presidents, and Concept Heads. Positioning
executives' base salaries at these levels is needed for
attracting, retaining and motivating executives with the
essential qualifications for managing the Company's growth. The
Company defines the relevant labor market for such executive
talent through the use of reliable executive salary surveys that
reflect both the chain restaurant industry as well as a broader
cross-section of high growth companies from many industries.
Individual base salary levels are determined by considering each
officer's level of responsibility, performance, experience, and
tenure. The overall amount of base salary increases awarded to
executives reflects the financial performance of the Company,
individual performance and potential, and/or changes in an
officer's duties and responsibilities.
Annual Incentives
The Company's Profit Sharing Plan is a non-qualified annual
incentive arrangement in which all Dallas-based corporate
employees, including executives, participate. The program is
designed to reflect employees' contribution to the growth of the
Company's common stock value by increasing the earnings of the
Company. The plan reinforces a strong teamwork ethic by making
the basis for payouts to executives the same as for all other
Company employees.
At the beginning of a fiscal year, each executive is
assigned an Individual Participation Percentage ("IPP") which is
tied to the base salary for such executive and targets overall
total cash compensation for executives between the 75th and 90th
percentiles of the market. The IPPs reflect the Committee's
desire that a significant percentage of executives' total
compensation be derived from variable pay programs.
401(k) Savings Plan and Savings Plan II
On January 1, 1993, the Company implemented the 401(k)
Savings Plan ("Plan I") and Savings Plan II ("Plan II"). These
Plans are designed to provide the Company's salaried employees
with a tax-deferred long-term savings vehicle. The Company
provides a matching contribution equal to 25% of a participant's
contribution, up to a maximum of 5% of such participant's
compensation.
Plan I is a qualified 401(k) plan. Participants in Plan I
elect the percentage of pay they wish to contribute as well as
the investment alternatives in which their contributions are to
be invested. The Company's matching contribution for all Plan I
participants is made in Company common stock. All participants
in Plan I are considered non-highly compensated employees as
defined by the Internal Revenue Service. Participants'
contributions vest immediately while Company contributions vest
25% annually, beginning in the participant's second year of
eligibility since Plan I inception.
Plan II is a non-qualified deferred compensation plan.
Plan II participants elect the percentage of pay they wish to
defer into their Plan II account. They also elect the percentage
of their deferral account to be allocated among various
investment options. The Company's matching contribution for all
non-officer Plan II participants is made in Company common stock,
with corporate officers receiving a Company match in cash.
Participants in Plan II are considered highly compensated
employees according to the Internal Revenue Service. A
participant's contributions vest immediately while Company
contributions vest 25% annually, beginning in the participant's
second year of eligibility since Plan II inception.
Long-Term Incentives
All salaried employees of the Company, including executives,
are eligible for annual grants of tax-qualified stock options.
By tying a significant portion of executives' total opportunity
for financial gain to increases in shareholder wealth as
reflected by the market price of the Company's common stock,
executives' interests are closely aligned with shareholders' long-
term interests. In addition, because the Company does not
maintain any qualified retirement programs for executives, the
stock option plan is intended to provide executives with
opportunities to accumulate wealth for later retirement.
Stock options are rights to purchase shares of the Company's
Common Stock at the fair market value on the date of grant.
Grantees do not receive a benefit from stock options unless and
until the market price of the Company's common stock increases.
Fifty percent (50%) of a stock option grant becomes exercisable
two years after the grant date; the remaining 50% of a grant
becomes exercisable three years after the grant date.
The number of stock options granted to an executive is based
on grant guidelines that reflect an officer's position within the
Company. The Compensation Committee reviews and approves grant
amounts for executives.
Executives also participate in the Long-Term Executive
Profit Sharing Plan, a non-qualified long-term performance cash
plan. This plan provides an additional mechanism for focusing
executives on the sustained improvement in operating results over
the long term. This is a performance-related plan using
overlapping three-year cycles paid annually. Performance units
(valued at $100 each) are granted to individuals and paid in cash
based upon the Company's attainment of predetermined performance
objectives. Long-term operating results are measured by
evaluating both pre-tax net income (weighted 70%) and changes in
shareholders' equity (weighted 30%) over three-year cycles. The
Long-Term Executive Profit Sharing Plan has been replaced by the
Long-Term Performance Share Plan commencing with the cycle which
includes fiscal years 1998, 1999, and 2000. The Long-Term
Performance Share Plan is based on the Company's total
shareholder return in comparison to the S&P 500 Index and the S&P
Restaurant Industry Index. For executives to receive the target
payout, the Company must perform at the 75th percentile of each
index over the three-year cycle and must average at least 90% of
its planned annual profit before taxes over the same three-year
cycle.
Pay/Performance Nexus
The Company's executive compensation program has resulted in
a direct relationship between the compensation paid to executive
officers and the Company's performance. See "Five-Year Total
Shareholder Return Comparison" below.
CEO Compensation
The Compensation Committee made decisions regarding Mr.
McDougall's compensation package according to the guidelines
discussed in the preceding sections. Mr. McDougall was awarded a
salary increase in the amount of 3%, effective June 26, 1997, to
recognize his vast experience in the restaurant industry, the
Company's performance under his leadership and his significant
contributions to the Company's continued success. Mr. McDougall
was granted 1,000 units under the Long-Term Executive Profit
Sharing Plan for the cycle which includes fiscal years 1997,
1998, and 1999. Mr. McDougall was also awarded 200,000 stock
options under the Company's stock option plan. Approximately
30.1% of Mr. McDougall's compensation for 1997 was incentive pay
pursuant to the Company's Profit Sharing Plan. Like all Company
executives, Mr. McDougall's compensation is significantly
affected by the Company's performance. In the 1997 fiscal year,
Mr. McDougall's total compensation increased 58.1% from its level
in the 1996 fiscal year.
Federal Income Tax Considerations
The Compensation Committee has considered the impact of
Section 162(m) of the Internal Revenue Code adopted under the
Omnibus Budget Reconciliation Act of 1993. This section
disallows a tax deduction for any publicly-held corporation for
individual compensation to certain executives of such corporation
exceeding $1,000,000 in any taxable year, unless compensation is
performance-based. It is the intent of the Company and the
Compensation Committee to qualify to the maximum extent possible
its executives' compensation for deductibility under applicable
tax laws. The Compensation Committee believes that the Company's
compensation programs provide the necessary incentives and
flexibility to promote the Company's performance-based
compensation philosophy while being consistent with Company
objectives.
The Compensation Committee's administration of the executive
compensation program is in accordance with the principles
outlined at the beginning of this report. The Company's
financial performance supports the compensation practices
employed during the past year.
Respectfully submitted,
COMPENSATION COMMITTEE
J.M. HAGGAR, JR.
JAMES E. OESTERREICHER
ROGER T. STAUBACH
