UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 26, 2002 Commission File No. 1-10275
BRINKER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1914582
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6820 LBJ Freeway, Dallas, Texas 75240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (972) 980-9917
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.10 par value
Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
The aggregate market value of the voting stock held by persons
other than directors and officers of registrant (who might be
deemed to be affiliates of registrant) at September 9, 2002 was
$2,684,885,934.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Class Outstanding at
September 9, 2002
Common Stock, $0.10 par value 97,377,571 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for
the fiscal year ended June 26, 2002, are incorporated by
reference into Part II hereof, to the extent indicated herein.
Portions of the registrant's Proxy Statement for its annual
meeting of shareholders on November 14, 2002, to be dated on or
about September 24, 2002, are incorporated by reference into Part
III hereof, to the extent indicated herein.
PART I
Item 1. BUSINESS.
General
Brinker International, Inc. (the "Company") is
principally engaged in the ownership, operation,
development and franchising of the Chili's Grill & Bar
("Chili's"), Romano's Macaroni Grill ("Macaroni Grill"),
On The Border Mexican Grill & Cantina ("On The Border"),
Cozymel's Coastal Grill ("Cozymel's"), Maggiano's Little
Italy ("Maggiano's"), Corner Bakery Cafe ("Corner
Bakery"), and Big Bowl Asian Kitchen ("Big Bowl")
restaurant concepts. In July 2001, the Company acquired a
40% interest in the legal entities owning and developing
Rockfish Seafood Grill ("Rockfish"). The Company was
organized under the laws of the State of Delaware in
September 1983 to succeed to the business operated by
Chili's, Inc., a Texas corporation, organized in August
1977. The Company completed the acquisitions of Macaroni
Grill, On The Border, Cozymel's, Maggiano's, Corner Bakery
and Big Bowl in November 1989, May 1994, July 1995, August
1995, August 1995, and February 2001, respectively. In
August 2002, the Company entered into a letter of intent
to divest its interest in the Eatzi's Market & Bakery
concept.
Core Restaurant Concepts
Chili's Grill & Bar
Chili's is a full-service Southwestern-themed
restaurant, featuring a casual atmosphere and a varied
menu of chicken, beef and seafood entrees, steaks,
hamburgers, ribs, fajitas, sandwiches, salads, appetizers
and desserts, all of which are prepared fresh daily
according to special Chili's recipes.
Chili's restaurants feature quick, efficient and
friendly table service designed to minimize customer
waiting time and facilitate table turnover, with an
average turnover time per table of approximately 45
minutes. Service personnel are dressed casually in jeans,
knit shirts and aprons to reinforce the casual, informal
environment. The decor of a Chili's restaurant consists of
booth seating, tile-top tables, hanging plants and wood
and brick walls covered with interesting memorabilia.
Emphasis is placed on serving substantial portions of
fresh, high quality food at modest prices. Entree
selections range in menu price from $5.79 to $13.99, with
the average revenue per meal, including alcoholic
beverages, approximating $11.15 per person. A full-
service bar is available at each Chili's restaurant, with
frozen margaritas offered as the concept's specialty
drink. During the year ended June 26, 2002, food and
non-alcoholic beverage sales constituted approximately
86.1% of the concept's total restaurant revenues, with
alcoholic beverage sales accounting for the remaining
13.9%.
Romano's Macaroni Grill
Macaroni Grill is a casual, fun Italian restaurant full
of the sights, sounds and aromas of a traditional Tuscan
kitchen. Enjoyed for any occasion, guests enjoy their
favorite Italian dishes along with special signature
pastas, grilled features, seafood, salads and pizza - all
prepared by talented chefs in open kitchens. The
restaurant has an old world charm with wood burning ovens,
festive string lights, fresh flowers, large selections of
wine, and display cooking. Guests are met with a sincere
welcome at the door and enjoy warm, knowledgeable service.
Additionally, guests enjoy the convenience of Macaroni
Grill's Curbside To Go service where delicious, chef-
prepared meals are delivered right to their cars for them
to share at home with friends and family.
Entree selections range in menu price from $5.99 to
$16.99 with monthly chef features priced separately. The
average revenue per meal, including alcoholic beverages,
is approximately $13.84 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 87.2% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 12.8%.
On The Border Mexican Grill & Cantina
On The Border restaurants are full-service, casual
Mexican restaurants featuring mesquite-grilled favorites
and traditional Tex-Mex appetizers, entrees and desserts
served in generous portions at modest prices. On The
Border restaurants feature a full-service bar, an outdoor
patio, booth and table seating in the dining room, and a
colorful, festive atmosphere. On The Border restaurants
also offer enthusiastic table service to facilitate table
turnover while simultaneously providing customers with a
satisfying casual dining experience. In addition, On The
Border offers To Go service intended to fill the need for
speed and convenience while offering a quality take-out
experience.
Entree selections range in menu price from $5.49 to
$13.99, with the average revenue per meal, including
alcoholic beverages, approximating $13.14 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 77.8%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 22.2%.
Cozymel's Coastal Grill
Cozymel's restaurants are casual, upscale coastal
restaurants featuring a daily fresh fish feature, grilled
chicken and beef entrees, appetizers, desserts and a full-
service bar featuring a wide variety of signature
margaritas and specialty frozen beverages. Cozymel's
restaurants offer a "tropical, not typical" atmosphere,
which includes an outdoor patio, intended to evoke the
atmosphere of a tropical island.
Entree selections range in menu price from $6.49 to
$15.99 with the average revenue per meal, including
alcoholic beverages, approximating $15.70 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 75.5%
of the concept's total restaurant revenues, with alcoholic
beverages accounting for the remaining 24.5%.
Maggiano's Little Italy
Maggiano's restaurants are classic re-creations of
dinner houses found in New York's Little Italy in the
1940s. Each of the Maggiano's restaurants is a casual,
full-service Italian restaurant with a family-style menu
as well as a full lunch and dinner menu offering Southern
Italian appetizers, homemade bread, bountiful portions of
pasta, chicken, seafood, veal and prime steaks, as well as
a full range of alcoholic beverages. Most Maggiano's
restaurants also feature extensive banquet facilities.
Entree selections range in menu price from $6.95 to
$32.95, with the average revenue per meal, including
alcoholic beverages, approximating $25.24 per person.
During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted approximately 78.6%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 21.4%.
Corner Bakery Cafe
Corner Bakery Cafe is a retail bakery cafe serving
breakfast, lunch and dinner in the emerging quick-casual
dining segment. Corner Bakery Cafe is committed to
providing a variety of menu selections. Featured in the
cafes are specialty sandwiches, fresh salads, hot soups,
panini and pastas.
While retaining a relaxed atmosphere, Corner Bakery
Cafe exemplifies casual elegance, with most bakeries
having both indoor and outdoor seating. Savory foods,
breads and sweets are created seasonally to take advantage
of the highest quality ingredients available. Corner
Bakery Catering offers a wide range of gift baskets,
breakfast and sandwich trays and lunch boxes for any size
meeting or social event. Prices for menu items range from
$1.00 to $6.99 with the average revenue per meal,
including alcoholic beverages, approximating $7.41 per
person. During the year ended June 26, 2002, food and non-
alcoholic beverage sales constituted over 99% of the
concept's total restaurant revenues. Catering sales
constituted approximately 19.5% of such food and non-
alcoholic beverage sales.
Big Bowl Asian Kitchen
Big Bowl features contemporary Asian cuisine prepared
with fresh ingredients in a casual, vibrant atmosphere.
Big Bowl is distinguished by its authentic, full-flavored
menu that features five kinds of fresh noodles, chicken
pot stickers and dumplings, hand-rolled summer rolls,
seasonal stir-fry dishes featuring local produce, wok-
seared fish, and signature beverages, such as "homemade"
fresh ginger ale and tropical cocktails. Big Bowl's focus
on quality means garlic, ginger and lemon grass are
chopped daily, lemon juice is hand squeezed, and peanut
sauce is prepared with home-roasted peanuts. Big Bowl's
flavorful broths, curry pastes, dip sauces and condiments
are made from scratch. Big Bowl's interactive stir-fry
bar allows the guests to help themselves to a "Farmers'
Market" array of vegetables to be wok-cooked with their
own choice of sauces and meats with noodles or rice.
While honoring its Asian culinary tradition, Big Bowl
strives to deliver fine quality at great value, assisted
by a service team carefully trained to guide guests
through this new culinary experience. Entree selections
range in menu price from $6.95 to $12.95, with the average
revenue per meal, including alcoholic beverages,
approximating $14.00 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 87.8% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 12.2%.
Jointly-Developed Concept
Rockfish Seafood Grill
Rockfish offers its guests fresh, flavorful seafood dishes
served in a lively environment. Reminiscent of a fly-
fishing camp, the Rockfish decor features piney wood
tables, river rock fireplaces and an open kitchen with
chefs preparing the catch of the day. The restaurant
serves a wide variety of reasonably priced seafood ranging
from salmon and trout to catfish, shrimp and crab. Daily
blackboard specials are also very popular with diners.
Friendly, attentive servers clad in hunter green polo
shirts and jeans add to the casual backdrop. All
locations feature full-service bars and most have patio
seating availability.
Entree selections range in menu price from $5.53 to $13.42
with certain specialty items priced on a daily basis. The
average revenue per meal, including alcoholic beverages,
is approximately $14.32 per person. During the year ended
June 26, 2002, food and non-alcoholic beverage sales
constituted approximately 85.0% of the concept's total
revenues, with alcoholic beverage sales accounting for the
remaining 15.0%.
Business Development
The Company's long-term objective is to continue
expansion of its restaurant concepts by opening
Company-operated units in strategically desirable markets.
The Company intends to concentrate on the development of
certain identified markets to achieve penetration levels
deemed desirable by the Company, thereby improving the
Company's competitive position, marketing potential and
profitability. Expansion efforts will be focused not only
on major metropolitan areas in the United States but also
on smaller market areas and nontraditional locations (such
as airports, kiosks and food courts) which can adequately
support any of the Company's restaurant concepts.
The Company considers the restaurant site selection
process critical to its long-term success and devotes
significant effort to the investigation of new locations
utilizing a variety of sophisticated analytical
techniques. The site selection process evaluates a
variety of factors: trade area demographics, such as
target population density and household income levels;
physical site characteristics such as visibility,
accessibility and traffic volume; relative proximity to
activity centers such as shopping centers, hotel and motel
complexes and office buildings; and supply and demand
trends, such as proposed infrastructure improvements, new
developments, and potential competition. Members of
management inspect, review and approve each restaurant
site prior to its acquisition.
The Company periodically reevaluates restaurant sites
to ensure that site selection attributes have not
deteriorated below minimum standards. In the event site
deterioration were to occur, the Company makes a concerted
effort to improve the restaurant's performance by
providing physical, operating and marketing enhancements
unique to each restaurant's situation. If efforts to
restore the restaurant's performance to acceptable minimum
standards are unsuccessful, the Company considers
relocation to a proximate, more desirable site, or
evaluates closing the restaurant if the Company's
measurement criteria, such as return on investment and
area demographic trends, do not support relocation. Since
inception, the Company has closed forty-one restaurants,
including four in fiscal 2002, which were performing below
the Company's standards primarily due to declining trade
area demographics. The Company operates pursuant to a
strategic plan targeted to support the Company's long-term
growth objectives, with a focus on continued development
of those restaurant concepts that have the greatest return
potential for the Company and its shareholders.
The following table illustrates the system-wide
restaurants opened in fiscal 2002 and the planned openings
in fiscal 2003:
Fiscal 2002 Fiscal 2003
Openings Projected Openings
Chili's:
Company-Operated 53 62-65
Franchise 23 18-21
Macaroni Grill:
Company-Operated 18 18-20
Franchise 0 2-4
On The Border:
Company-Operated 10 3-5
Franchise 2 1
Corner Bakery 13 10-12
Cozymel's 2 0-1
Maggiano's 6 4-5
Big Bowl 3 5-7
Rockfish 4 6-8
Total 134 129-149
The Company anticipates that some of the fiscal 2003
projected restaurant openings may be constructed pursuant
to "build-to-suit" agreements, in which the lessor
contributes some of the land cost and all, or
substantially all, of the building construction costs. In
other cases, the Company may either lease or own the land
(paying for any owned land from its own funds) and either
lease or own the building, furniture, fixtures and
equipment (paying for any owned items from its own funds).
The following table illustrates the approximate average
capital investment for a typical unit in the Company's
primary restaurant concepts:
Chili's Macaroni On The Cozymel's Maggiano's Corner
Grill Border Bakery
<s>
Land $ 690,000 $ 870,000 $ 820,000 $1,100,000 $2,220,000 $ 700,000
Building 1,110,000 1,200,000 1,360,000 1,400,000 2,200,000 450,000
Furniture 440,000 385,000 590,000 665,000 895,000 220,000
& Equipment
Other 60,000 80,000 80,000 160,000 70,000 30,000
Total $2,300,000 $2,535,000 $2,850,000 $3,325,000 $5,385,000 $1,400,000
The specific rate at which the Company is able to open
new restaurants is determined by its success in locating
satisfactory sites, negotiating acceptable lease or
purchase terms, securing appropriate local governmental
permits and approvals, and by its capacity to supervise
construction and recruit and train management personnel.
Franchise Operations
The Company intends to continue its expansion through
franchise development, both domestically and
internationally. At June 26, 2002, thirty-seven total
joint venture or franchise development agreements existed.
During the year ended June 26, 2002, twenty-three Chili's
and two On The Border franchised restaurants were opened.
During the year ended June 26, 2002, the first Chili's
restaurants opened in Qatar (July 2001), Taiwan (November
2001), and Oman (December 2001). Additionally, the first
Chili's restaurant opened in Alaska (May 2002) in the 2002
fiscal year.
The Company intends to selectively pursue international
expansion and is currently contemplating development in
other countries. A typical franchise development agreement
provides for payment of area development and initial
franchise fees in addition to subsequent royalty and
advertising fees based on the gross sales of each
restaurant. Future franchise development agreements are
expected to remain limited to enterprises having
significant experience as restaurant operators and proven
financial ability to develop multi-unit operations.
Jointly-Developed Operations
From time to time, the Company enters into agreements
for research and development activities related to the
testing of new restaurant concepts, typically acquiring a
significant equity interest in such ventures. In July
2001, the Company acquired a 40% interest in the legal
entities owning the Rockfish restaurants. At June 26,
2002, twelve Rockfish restaurants were operating, all
located in the state of Texas.
Restaurant Management
The Company's philosophy to maintain and operate each
concept as a distinct and separate entity ensures that the
culture, recruitment and training programs and unique
operating environments are preserved. These factors are
critical to the viability of each concept. Each concept is
directed by a president and one or more concept vice
presidents and senior vice presidents.
The Company's restaurant management structure varies by
concept. The individual restaurants themselves are led by
a management team including a general manager and between
two to five additional managers. The level of restaurant
supervision depends upon the operating complexity and
sales volume of each concept. An area director/supervisor
is responsible for the supervision of, on average, three
to seven restaurants. For those concepts with a
significant number of units within a geographical region,
additional levels of management may be provided.
The Company believes that there is a high correlation
between the quality of restaurant management and the long-
term success of a concept. In that regard, the Company
encourages increased tenure at all management positions
through various short and long-term incentive programs,
including equity ownership. These programs, coupled with
a general management philosophy emphasizing quality of
life, have enabled the Company to attract and retain
management employees at levels above the industry norm.
The Company ensures consistent quality standards in all
concepts through the issuance of operations manuals
covering all elements of operations and food and beverage
manuals, which provide guidance for preparation of Company-
formulated recipes. Routine visitation to the restaurants
by all levels of supervision enforces strict adherence to
Company standards.
The director of training for each concept is
responsible for maintaining each concept's operational
training program. The training program includes a three
to four month training period for restaurant management
trainees, a continuing management training process for
managers and supervisors, and training teams consisting of
groups of employees experienced in all facets of
restaurant operations that train employees to open new
restaurants. The training teams typically begin on-site
training at a new restaurant seven to ten days prior to
opening and remain on location one to two weeks following
the opening to ensure the smooth transition to operating
personnel.
Purchasing
The Company's ability to maintain consistent quality of
products throughout each of its restaurant concepts
depends upon acquiring food and beverage products and
related items from reliable sources. Suppliers are pre-
approved by the Company and are required, along with the
restaurants, to adhere to strict product specifications
established through the Company's quality assurance
program to ensure that high quality, wholesome food and
beverage products are served in the restaurants. The
Company negotiates directly with the major suppliers to
obtain competitive prices and uses purchase commitment
contracts to stabilize the potentially volatile pricing
associated with certain commodity items. All essential
food and beverage products are available, or upon short
notice can be made available, from alternative qualified
suppliers in all cities in which the Company's restaurants
are located. Because of the relatively rapid turnover of
perishable food products, inventories in the restaurants,
consisting primarily of food, beverages and supplies, have
a modest aggregate dollar value in relation to revenues.
Advertising and Marketing
The Company's concepts generally focus on the eighteen
to fifty-four year old age group, which constitutes
approximately half of the United States population.
Members of this population segment grew up on fast food,
but the Company believes that, with increasing maturity,
they prefer a more adult, upscale dining experience. To
attract this target group, the Company relies primarily on
television, radio, direct mail advertising and
word-of-mouth information communicated by customers.
The Company's franchise agreements require advertising
contributions to the Company to be used exclusively for
the purpose of maintaining, directly administering and
preparing standardized advertising and promotional
activities. Franchisees spend additional amounts on local
advertising when approved by the Company.
Employees
At June 26, 2002, the Company employed approximately
90,000 persons, of whom approximately 1,100 were corporate
personnel, 5,300 were restaurant area directors, managers
or trainees and 83,600 were employed in non-management
restaurant positions. The executive officers of the
Company have an average of over twenty-two years of
experience in the restaurant industry.
The Company considers its employee relations to be good
and believes that its employee turnover rate compares
favorably with the industry average. Most employees,
other than restaurant management and corporate personnel,
are paid on an hourly basis. The Company believes that it
provides working conditions and wages that compare
favorably with those of its competition. The Company's
employees are not covered by any collective bargaining
agreements.
Trademarks
The Company has registered, among other marks, "Big
Bowl", "Brinker International", "Chili's", "Chili's Bar &
Bites", "Chili's Grill & Bar", "Chili's Margarita Bar",
"Chili's Southwest Grill & Bar", "Chili's Too", "Corner
Bakery", "Corner Bakery Cafe", "Cozymel's", "Cozymel's
Coastal Mexican Grill", "Romano's Macaroni Grill",
"Macaroni Grill", "Maggiano's Little Italy", "On The
Border", "On The Border Mexican Cafe", and "Pizzaahhh!" as
trademarks with the United States Patent and Trademark
Office.
Risk Factors/Forward-Looking Statements
The Company wishes to caution readers that the
following important factors, among others, could cause the
actual results of the Company to differ materially from
those indicated by forward-looking statements made in this
report and from time to time in news releases, reports,
proxy statements, registration statements and other
written communications, as well as oral forward-looking
statements made from time to time by representatives of
the Company. Such forward-looking statements involve
risks and uncertainties that may cause the Company's or
the restaurant industry's actual results, performance or
achievements to be materially different from any future
results, performance or achievements expressed or implied
by these forward-looking statements. Factors that might
cause actual events or results to differ materially from
those indicated by these forward-looking statements may
include matters such as future economic performance,
restaurant openings, operating margins, the availability
of acceptable real estate locations for new restaurants,
the sufficiency of the Company's cash balances and cash
generated from operating and financing activities for the
Company's future liquidity and capital resource needs, and
other matters, and are generally accompanied by words such
as "believes," "anticipates," "estimates," "predicts,"
"expects" and similar expressions that convey the
uncertainty of future events or outcomes. An expanded
discussion of various risk factors follows.
Competition may adversely affect the Company's operations
and financial results.
The restaurant business is highly competitive with
respect to price, service, restaurant location and food
quality, and is often affected by changes in consumer
tastes, economic conditions, population and traffic
patterns. The Company competes within each market with
locally-owned restaurants as well as national and regional
restaurant chains, some of which operate more restaurants
and have greater financial resources and longer operating
histories than the Company. There is active competition
for management personnel and for attractive commercial
real estate sites suitable for restaurants. In addition,
factors such as inflation, increased food, labor and
benefits costs, and difficulty in attracting hourly
employees may adversely affect the restaurant industry in
general and the Company's restaurants in particular.
The Company's sales volumes generally decrease in
winter months.
The Company's sales volumes fluctuate seasonally, and
are generally higher in the summer months and lower in the
winter months, which may cause seasonal fluctuations in
the Company's operating results.
Changes in governmental regulation may adversely affect
the Company's ability to open new restaurants and the
Company's existing and future operations.
Each of the Company's restaurants is subject to
licensing and regulation by alcoholic beverage control,
health, sanitation, safety and fire agencies in the state,
county and/or municipality in which the restaurant is
located. The Company has not encountered any difficulties
or failures in obtaining the required licenses or
approvals that could delay or prevent the opening of a new
restaurant and although the Company does not, at this
time, anticipate any occurring in the future, there can be
no assurance that the Company will not experience material
difficulties or failures that could delay the opening of
restaurants in the future.
The Company is subject to federal and state
environmental regulations, and although these have not had
a material negative effect on the Company's operations,
there can be no assurance that there will not be a
material negative effect in the future. More stringent
and varied requirements of local and state governmental
bodies with respect to zoning, land use and environmental
factors could delay or prevent development of new
restaurants in particular locations. The Company is
subject to the Fair Labor Standards Act, which governs
such matters as minimum wages, overtime and other working
conditions, along with the Americans With Disabilities Act
and various family leave mandates. Although the Company
expects increases in payroll expenses as a result of
federal and state mandated increases in the minimum wage,
and although such increases are not expected to be
material, there can be no assurance that there will not be
material increases in the future. However, the Company's
vendors may be affected by higher minimum wage standards,
which may result in increases in the price of goods and
services supplied to the Company.
Inflation may increase the Company's operating
expenses.
The Company has not experienced a significant overall
impact from inflation. As operating expenses increase,
the Company, to the extent permitted by competition,
recovers increased costs by increasing menu prices, by
reviewing, then implementing, alternative products or
processes, or by implementing other cost-reduction
procedures. There can be no assurance, however, that the
Company will be able to continue to recover increases in
operating expenses due to inflation in this manner.
Increased energy costs may adversely affect the Company's
profitability.
The Company's success depends in part on its ability
to absorb increases in utility costs. Various regions of
the United States in which the Company operates multiple
restaurants, particularly California, experienced
significant increases in utility prices during the 2001
fiscal year. If these increases should recur, they will
have an adverse effect on the Company's profitability.
If the Company is unable to meet its growth plan, the
Company's profitability in the future may be adversely
affected.
The Company's ability to meet its growth plan is
dependent upon, among other things, its ability to
identify available, suitable and economically viable
locations for new restaurants, obtain all required
governmental permits (including zoning approvals and
liquor licenses) on a timely basis, hire all necessary
contractors and subcontractors, and meet construction
schedules. The costs related to restaurant and concept
development include purchases and leases of land,
buildings and equipment and facility and equipment
maintenance, repair and replacement. The labor and
materials costs involved vary geographically and are
subject to general price increases. As a result, future
capital expenditure costs of restaurant development may
increase, reducing profitability. There can be no
assurance that the Company will be able to expand its
capacity in accordance with its growth objectives or that
the new restaurants and concepts opened or acquired will
be profitable.
Unfavorable publicity relating to one or more of the
Company's restaurants in a particular brand may taint
public perception of the brand.
Multi-unit restaurant businesses can be adversely
affected by publicity resulting from poor food quality,
illness or other health concerns or operating issues
stemming from one or a limited number of restaurants. In
particular, since the Company depends heavily on the
"Chili's" brand for a majority of its revenues,
unfavorable publicity relating to one or more Chili's
restaurants could have a material adverse effect on the
Company's business, results of operations, and financial
condition.
Other risk factors may adversely affect the Company's
financial performance.
Other risk factors that could cause the Company's
actual results to differ materially from those indicated
in the forward-looking statements include, without
limitation, changes in economic conditions, consumer
perceptions of food safety, changes in consumer tastes,
governmental monetary policies, changes in demographic
trends, availability of employees, terrorist acts, and
weather and other acts of God.
Item 2. PROPERTIES.
Restaurant Locations
At June 26, 2002, the Company's system of company-
operated, jointly-developed and franchised units included
1,268 restaurants located in forty-nine states,
Washington, D.C., Australia, Bahrain, Canada, Egypt, Great
Britain, Guatemala, Indonesia, Kuwait, Lebanon, Malaysia,
Mexico, Oman, Panama, Peru, Philippines, Puerto Rico,
Qatar, Saudi Arabia, South Korea, Taiwan, United Arab
Emirates, and Venezuela. The Company's portfolio of
restaurants is illustrated below:
Chili's:
Company-Operated 629
Franchise 191
Macaroni Grill:
Company-Operated 177
Franchise 6
On The Border:
Company-Operated 111
Franchise 18
Corner Bakery:
Company-Operated 74
Franchise 2
Cozymel's 16
Maggiano's 20
Big Bowl 12
Rockfish 12
Total 1,268
The 820 Chili's restaurants include domestic locations
in forty-nine states and foreign locations in 22 countries.
The 183 Macaroni Grill restaurants include domestic
locations in 38 states and foreign locations in Canada,
Great Britain, Mexico and Puerto Rico. The On The Border,
Cozymel's, Maggiano's, Corner Bakery, and Big Bowl
restaurants are located exclusively within the United
States in 30, 9, 10 (and the District of Columbia), 8 (and
the District of Columbia), and 5 states, respectively.
Restaurant Property Information
The following table illustrates the approximate average
dining capacity for each current prototypical unit in the
Company's primary restaurant concepts:
Chili's Macaroni On The Cozymel Maggiano's
Grill Border
Square 4,500-5,500 6,800-7,600 6,500-7,200 9,400 14,000-18,000
Feet
Dining 145-215 250-275 220-240 380 500-725
Seats
Dining 35-50 55-70 55-60 85 100-150
Tables
Corner Bakery's size and dining capacity varies based
upon whether it is an in-line or kiosk location. For a
Corner Bakery located in a kiosk, the square footage ranges
from 80 to 200 square feet, the number of dining seats
varies from 0 to 40, and the number of dining tables varies
from 0 to 15. For in-line Corner Bakery locations, the
square footage ranges from 1,971 to 5,347, the number of
dining seats ranges from 60 to 150, and the number of
dining tables ranges from 20 to 50.
Certain of the Company's restaurants are leased for an
initial term of five to thirty years, with renewal terms of
one to thirty years. The leases typically provide for a
fixed rental plus percentage rentals based on sales volume.
At June 26, 2002, the Company owned the land and/or
building for 728 of the 1,039 Company-operated restaurants.
The Company considers that its properties are suitable,
adequate, well-maintained and sufficient for the operations
contemplated.
Other Properties
The Company leases warehouse space totalling
approximately 39,150 square feet in Carrollton, Texas,
which it uses for storage of equipment and supplies. The
Company purchased an office building containing
approximately 105,000 square feet for its corporate
headquarters in July 1989. This office building was
expanded in May 1997 by the addition of a 2,470 square foot
facility used for menu development activities. In January
1996, the Company purchased an additional office complex
containing three buildings and approximately 198,000 square
feet for the expansion of its corporate headquarters.
Approximately 151,860 square feet of this complex is
currently utilized by the Company, with the remaining
46,140 square feet under lease, listed for lease to third
party tenants, or reserved for future expansion of the
Company headquarters. In November 1997, the Company sold
the office complex and is leasing it back under a twenty
year operating lease. The Company also leases office space
in Arizona, California, Florida, Illinois, Missouri, New
Jersey, North Carolina, Rhode Island and Texas for use as
regional operation or real estate/construction offices.
The size of these office leases range from 144 square feet
to 3,600 square feet. The Company owns or leases warehouse
space in California, Georgia, Illinois and Texas for use as
commissaries for the preparation of bread and other food
products for its Corner Bakery stores. The size of these
commissaries range from 11,383 square feet to 20,000 square
feet.
Item 3. LEGAL PROCEEDINGS.
The Company is engaged in various legal proceedings and
has certain unresolved claims pending. The ultimate
liability, if any, for the aggregate amounts claimed cannot
be determined at this time. However, management of the
Company, based upon consultation with legal counsel, is of
the opinion that there are no matters pending or threatened
which are expected to have a material adverse effect,
individually or in the aggregate, on the Company's
consolidated financial condition or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
The Company's common stock is traded on the New York
Stock Exchange ("NYSE") under the symbol "EAT". Bid prices
quoted represent interdealer prices without adjustment for
retail markup, markdown and/or commissions, and may not
necessarily represent actual transactions. The following
table sets forth the quarterly high and low closing sales
prices of the common stock, as reported by the NYSE.
Fiscal Year ended June 26, 2002:
High Low
First Quarter $27.41 $22.45
Second Quarter $30.04 $22.51
Third Quarter $35.45 $29.39
Fourth Quarter $35.10 $30.03
Fiscal year ended June 27, 2001:
High Low
First Quarter $23.08 $19.04
Second Quarter $28.25 $20.08
Third Quarter $31.00 $23.25
Fourth Quarter $29.38 $21.56
On December 8, 2000, the Company declared a stock split,
effected in the form of a 50% stock dividend ("Stock
Dividend") to shareholders of record on January 3, 2001,
payable on January 16, 2001. Stock prices in the preceding
table and share numbers included or incorporated in this
report have been restated to reflect the Stock Dividend.
As of September 9, 2002, there were 1,126 holders of record
of the Company's common stock.
The Company has never paid cash dividends on its common
stock and does not currently intend to do so as profits are
reinvested into the Company to fund expansion of its
restaurant business. Payment of dividends in the future
will depend upon the Company's growth, profitability,
financial condition and other factors, which the Board of
Directors may deem relevant.
In October 2001, the Company issued $431.7 million
aggregate principal amount at maturity of Zero Coupon
Convertible Senior Debentures Due 2021 (the "Debentures").
The Debentures and the common stock issuable upon
conversion of the Debentures were not registered under the
Securities Act of 1933, as amended. Banc of America
Securities LLC and Salomon Smith Barney Inc. served as the
joint book-running managers for the offering. The
Debentures were offered and sold only to "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act of 1933, as amended). The aggregate
offering price for the Debentures was approximately $250.0
million and the aggregate underwriting discount of 2.125%
was approximately $5.3 million. The Debentures are
redeemable at the Company's option on October 10, 2004, and
the holders of the Debentures may require the Company to
redeem the Debentures on October 10, 2003, 2005, 2011 or
2016, and in certain other circumstances. In addition,
each $1,000 Debenture is convertible into 18.08 shares of
the Company's common stock if the stock's market price
exceeds 120% of the accreted conversion price at specified
dates, the Company exercises its option to redeem the
Debentures, a credit rating of the Debentures is reduced
below Baa3 and BBB-, or upon the occurrence of certain
specified corporate transactions. The accreted conversion
price is equal to the issue price of the Debenture plus
accrued original issue discount divided by 18.08 shares.
The proceeds of the offering were used for repayment of
existing indebtedness, restaurant acquisitions, purchases
of outstanding common stock under the Company's stock
repurchase plan, and for general corporate purposes.
Except as described in the immediately preceding
paragraph, during the three-year period ended on September
9, 2002, the Company issued no securities which were not
registered under the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA.
"Selected Financial Data" is incorporated herein by
reference from the 2002 Annual Report to Shareholders and
is presented on page F-1 of Exhibit 13 to this report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein
by reference from the 2002 Annual Report to Shareholders
and is presented on pages F-2 through F-9 of Exhibit 13 to
this report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
"Quantitative and Qualitative Disclosures About Market
Risk" contained within "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
is incorporated herein by reference from the 2002 Annual
Report to Shareholders and is presented on page F-5 of
Exhibit 13 to this report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Index to Financial Statements
attached hereto on page 19 for a listing of all financial
statements incorporated by reference from the 2002 Annual
Report to Shareholders attached as part of Exhibit 13 to
this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Election of Directors - Information About Nominees",
"Board Organization", "Executive Officers", and "Section
16(a) Beneficial Ownership Reporting Compliance" in the
Company's Proxy Statement to be dated on or about
September 24, 2002, for the annual meeting of shareholders
on November 14, 2002, are incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION.
"Executive Compensation" and "Report of the
Compensation Committee" in the Company's Proxy Statement
to be dated on or about September 24, 2002, for the annual
meeting of shareholders on November 14, 2002, are
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
"Election of Directors - Stock Ownership of Directors",
"Executive Compensation - Equity Compensation Plan
Information", and "Stock Ownership of Certain Persons" in
the Company's Proxy Statement to be dated on or about
September 24, 2002, for the annual meeting of shareholders
on November 14, 2002, are incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement to be
dated on or about September 24, 2002, for the annual
meeting of shareholders on November 14, 2002, is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements
attached hereto on page 19 for a listing of all financial
statements attached as Exhibit 13 to this report.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the
exhibits attached hereto on page E-1 for a list of all
exhibits filed as a part of this report.
(b) Reports on Form 8-K
The Company was not required to file a current report
on Form 8-K during the fiscal quarter ended June 26, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BRINKER INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Charles M. Sonsteby
Charles M. Sonsteby, Executive
Vice President and Chief Financial
Officer
Dated: September 24, 2002
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
of the registrant and in the capacities indicated on
September 24, 2002.
Name Title
/s/ Ronald A. McDougall Chairman of the Board and
Ronald A. McDougall Chief Executive Officer
(Principal Executive Officer)
/s/ Charles M. Sonsteby Executive Vice President and Chief
Charles M. Sonsteby Financial Officer
(Principal Financial and Accounting
Officer)
/s/ Douglas H. Brooks President, Chief Operating Officer
Douglas H. Brooks and Director
/s/ Dan W. Cook, III Director
Dan W. Cook, III
/s/ Marvin G. Girouard Director
Marvin J. Girouard
/s/ Frederick S. Humphries Director
Frederick S. Humphries
/s/ Ronald Kirk Director
Ronald Kirk
/s/ Jeffrey A. Marcus Director
Jeffrey A. Marcus
/s/ James E. Oesterreicher Director
James E. Oesterreicher
/s/ Cece Smith Director
Cece Smith
/s/ Roger T. Staubach Director
Roger T. Staubach
CERTIFICATIONS
I, Ronald A. McDougall, certify that:
1. I have reviewed this annual report on Form 10-K of
Brinker International, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report.
Date: September 24, 2002 /s/ Ronald A. McDougall
Ronald A. McDougall,
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
I, Charles M. Sonsteby, certify that:
1. I have reviewed this annual report on Form 10-K of
Brinker International, Inc.;
2. Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report.
Date: September 24, 2002 /s/ Charles M. Sonsteby
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
INDEX TO FINANCIAL STATEMENTS
The following is a listing of the financial statements which are
attached hereto as part of Exhibit 13.
Page
Selected Financial Data F-1
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-2
Consolidated Statements of Income - F-10
Fiscal Years Ended June 26, 2002, June 27, 2001,
and June 28, 2000
Consolidated Balance Sheets - F-11
June 26, 2002 and June 27, 2001
Consolidated Statements of Shareholders' F-12
Equity - Fiscal Years Ended June 26, 2002,
June 27, 2001, and June 28, 2000
Consolidated Statements of Cash Flows - F-13
Fiscal Years Ended June 26, 2002, June 27, 2001,
and June 28, 2000
Notes to Consolidated Financial Statements F-14
Independent Auditors' Report F-27
Management's Responsibility for Consolidated F-28
Financial Statements
All schedules are omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
INDEX TO EXHIBITS
Exhibit
3(a) Certificate of Incorporation of the Registrant, as
amended. (1)
3(b) Bylaws of the Registrant. (1)
4(a) Form of Zero Coupon Convertible Senior Debenture Due
2021. (2)
4(b) Indenture between the Registrant and SunTrust Bank, as
Trustee. (2)
4(c) Registration Rights Agreement by and among the
Registrant and the initial purchasers of the Debentures. (3)
10(a) Registrant's 1983 Incentive Stock Option Plan. (4)
10(b) Registrant's 1991 Stock Option Plan for Non-Employee
Directors and Consultants. (5)
10(c) Registrant's 1992 Incentive Stock Option Plan. (5)
10(d) Registrant's Stock Option and Incentive Plan. (6)
10(e) Registrant's 1999 Stock Option and Incentive Plan for
Non-Employee Directors and Consultants. (7)
13 2002 Annual Report to Shareholders. (8)
21 Subsidiaries of the Registrant. (9)
23 Independent Auditors' Consent. (9)
99(a) Proxy Statement of Registrant. (10)
99(b) Certification by Ronald A. McDougall, Chairman of the
Board and Chief Executive Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (9)
99(c) Certification by Charles M. Sonsteby, Executive Vice
President and Chief Financial Officer of the Registrant,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (9)
_______________________
(1) Filed as an exhibit to annual report on Form 10-K for
year ended June 28, 1995, and incorporated herein by
reference.
(2) Filed as an exhibit to registration statement on Form S-
3 filed December 11, 2001, SEC File No. 333-74902, and
incorporated herein by reference.
(3) Filed as an exhibit to quarterly report on Form 10-Q
for the quarterly period ended September 26, 2001, and
incorporated herein by reference.
(4) Filed as an exhibit to annual report on Form 10-K for
the year ended June 26, 1996, and incorporated herein by
reference.
(5) Filed as an exhibit to annual report on Form 10-K for
the year ended June 25, 1997, and incorporated herein by
reference.
(6) Filed as an exhibit to annual report on Form 10-K for the
year ended June 30, 1999 and incorporated herein by reference.
(7) Filed as an exhibit to annual report on Form 10-K for
the year ended June 28, 2000, and incorporated herein by
reference.
(8) Portions filed herewith, to the extent indicated herein.
(9) Filed herewith.
(10) To be filed on or about September 24, 2002.