EXHIBIT 13
1997 ANNUAL REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
(In thousands, except per share amounts and number of restaurants)
Fiscal Years
1997 1996 1995 1994 1993
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
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)
Unrealized
Additional Gain (Loss)
Common Stock Paid-in on Marketable Retained Treasury
Shares Amount Capital Securities Earnings Stock Total
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
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Years
1997 1996 1995
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
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):
Number of Weighted Average Share
Company Options Exercise Price
1997 1996 1995 1997 1996 1995
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
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
$ 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
(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