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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, 1996 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, 1996 was $1,094,120,523.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class September 9, 1996
Common Stock, $0.10 par value 77,282,328 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended June 26, 1996 are incorporated by reference into Parts I, II
and IV hereof, to the extent indicated herein. Portions of the registrant's
Proxy Statement dated September 24, 1996, for its annual meeting of
shareholders on November 7, 1996, are incorporated by reference into Part III
hereof, to the extent indicated herein.
PART I
Item 1. BUSINESS.
General
Brinker International, Inc. (the "Company") is principally engaged
in the operation and development of the Chili's Grill & Bar
("Chili's"), Romano's Macaroni Grill ("Macaroni Grill"), On The
Border Mexican Cafe ("On The Border"), Cozymel's Coastal Mexican
Grill ("Cozymel's"), Maggiano's Little Italy ("Maggiano's"), and
the Corner Bakery ("Corner Bakery") restaurant concepts. In
addition, the Company is engaged in the operation and development
of a market store and bakery concept using the trade name Eatzi's
Market and Bakery ("Eatzi's"). The Company was organized under
the laws of the State of Delaware in September 1983 to succeed to
the business operated by Chili's, Inc., a Texas corporation,
organized in August 1977. The Company completed the acquisitions
of Macaroni Grill, On The Border, Cozymel's, Maggiano's, and
Corner Bakery in November 1989, May 1994, July 1995, August 1995,
and August 1995, respectively.
Restaurant Concepts and Menus
Chili's Grill & Bar
Chili's establishments are full-service Southwestern-themed
restaurants, featuring a casual atmosphere and a limited menu of
freshly prepared chicken, beef and seafood entrees, hamburgers,
ribs, fajitas, sandwiches, salads, appetizers and desserts, all of
which are prepared fresh daily according to special Chili's
recipes.
Chili's restaurants feature quick, efficient and friendly table
service designed to minimize customer waiting time and facilitate
table turnover, with an average turnover time per table of
approximately 45 minutes. Service personnel are dressed casually
in jeans or slacks, knit shirts and aprons to reinforce the
casual, informal environment. The decor of a Chili's restaurant
consists of booth seating, tile-top tables, hanging plants and
wood and brick walls covered with interesting memorabilia.
Emphasis is placed on serving substantial portions of fresh,
quality food at modest prices. Entree selections range in menu
price from $4.99 to $10.99, with the average revenue per meal,
including alcoholic beverages, approximating $9.10 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, 1996, food and non-alcoholic
beverage sales constituted approximately 87% of the concept's
total restaurant revenues, with alcoholic beverage sales
accounting for the remaining 13%.
Romano's Macaroni Grill
Macaroni Grill is an upscale Italian theme restaurant which
specializes in family-style recipes and features seafood, meat,
chicken and pasta entrees, salads, pizza, appetizers and desserts
with a full-service bar in most restaurants. Exhibition cooking,
pizza ovens and rotisseries provide an enthusiastic and exciting
environment in the restaurants. Macaroni Grill restaurants also
feature white linen-clothed tables, fireplaces, sous stations and
prominent displays of wines. Service personnel are dressed in
white, starched shirts and aprons, dark slacks, and bright ties.
Entree selections range in menu price from $5.95 to $16.95 with
certain specialty items priced on a daily basis. The average
revenue per meal, including alcoholic beverages, is approximately
$12.75 per person. During the year ended June 26, 1996, food and
non-alcoholic beverage sales constituted approximately 84% of the
concept's total restaurant revenues, with alcoholic beverage sales
accounting for the remaining 16%.
On The Border Mexican Cafe
On The Border restaurants are full-service, casual Tex-Mex theme
restaurants featuring Southwest mesquite-grilled specialties and
traditional Tex-Mex entrees and appetizers served in generous
portions at modest prices. On The Border restaurants feature an
outdoor patio, a full-service bar, booth and table seating and
brick and wood walls with a Southwest decor. On The Border
restaurants also offer enthusiastic table service intended to
minimize customer waiting time and facilitate table turnover while
simultaneously providing customers with a satisfying casual dining
experience.
Entree selections range in menu price from $4.99 to $11.45, with
the average revenue per meal, including alcoholic beverages,
approximating $10.50 per person. During the year ended June 26,
1996, food and non-alcoholic beverage sales constituted
approximately 78% of the concept's total restaurant revenues, with
alcoholic beverage sales accounting for the remaining 22%.
Cozymel's Coastal Mexican Grill
Cozymel's restaurants are casual, upscale authentic Yucatan
restaurants featuring fish, chicken, beef and pork entrees,
appetizers, desserts and a full-service bar featuring a wide
variety of specialty frozen beverages. Cozymel's restaurants
offer an authentic "Yucatan vacation" atmosphere, which includes
an outdoor patio. Service personnel are festively attired
featuring colorful vests and bow ties.
Entree selections range in menu price from $4.99 to $13.50 with
the average revenue per meal, including alcoholic beverages,
approximating $13.25 per person. During the year ended June 26,
1996, food and non-alcoholic beverage sales constituted
approximately 75% of the concept's total restaurant revenues, with
alcoholic beverages accounting for the remaining 25%.
Maggiano's Little Italy
Maggiano's restaurants are designed as classic re-creations of a
New York City pre-war "Little Italy" dinner house. The existing
restaurants are located in the Chicago metropolitan area with an
additional restaurant having opened in August 1996 in Tyson's
Corner, Virginia. Each of the Maggiano's restaurants is a casual,
full-service Italian restaurant with a full lunch and dinner menu
as well as a family-style menu, offering southern Italian
appetizers, homemade bread, large portions of pasta, chicken,
seafood, veal and steak, and a full range of alcoholic beverages.
Entree selections range in menu price from $10.95 to $29.95, with
the average revenue per meal, including alcoholic beverages,
approximating $18.50 per person. During the year ended June 26,
1996, food and non-alcoholic beverage sales constituted
approximately 75% of the concept's total restaurant revenues, with
alcoholic beverage sales accounting for the remaining 25%.
Corner Bakery
The Corner Bakery is designed as a retail bakery in the
traditional, old world bread bakery style. The Corner Bakery
offers homemade hearth-cooked loaves, rolls, muffins, brownies,
cookies and specialty items made fresh daily. The breads offered
by the Corner Bakery include baguettes, country loaves and
specialty breads, such as raisin-nut, olive, chocolate-cherry,
multi-grains and ryes. In addition, the Corner Bakery also offers
pizza, sandwiches, soups and salads. The existing Corner Bakeries
are located in the Chicago metropolitan area with an additional
Corner Bakery having opened in Tyson's Corner, Virginia, in
August, 1996.
Eatzi's Market and Bakery
Eatzi's is a home meal replacement retail store which offers
customers almost everything on the meal spectrum, from fresh
produce and raw meats and seafood to high-quality, chef-prepared
meals-to-go. Eatzi's also provides a tremendous variety of "made
from scratch" breads and pastries along with dry groceries, deli
meats and cheeses, made-to-order salads and sandwiches, and fresh
cut flowers. Large selections of non-alcoholic beverages, wine,
and "create your own six-pack" beer are available to complete the
meal.
Eatzi's features an abundance of fresh, high-quality meals, openly
presented in distinctive areas, replicating an energetic European
marketplace with an exhibition kitchen and bakery. The circular
chef's display case is the focal point of the store designed to
channel customer traffic around to other departments. There is
limited indoor and outdoor seating since the emphasis is on take-
out purchases. The chefs are professionally dressed in white
chef's coats and hats with black and white houndstooth pants.
Retail service personnel wear black pants, white, banded collar
shirts and green aprons.
Individual meal selections range in price from $3.99 to $10.95,
with the average revenue per purchase, including alcoholic
beverages, approximating $14.50. During the year ended June 26,
1996, food and non-alcoholic beverage sales constituted 94% of the
concept's total revenues, with alcoholic beverages accounting for
the remaining 6%.
Restaurant Locations
At June 26, 1996, the Company's system of company-operated, joint
venture and franchised units included 613 restaurants located in
46 states, Canada, Mexico, Singapore, Malaysia, Australia, Egypt,
Puerto Rico, France, Indonesia, and Great Britain. The Company's
portfolio of restaurants is illustrated below:
June 26, 1996
Chili's:
Company-Operated 352
Franchise 137
Macaroni Grill:
Company-Operated 69
Franchise 2
On The Border:
Company-Operated 23
Franchise 5
Cozymel's 13
Maggiano's 3
Corner Bakery 8
Eatzi's 1
TOTAL 613
Business Development
The Company's long-term objective is to continue expansion of its
restaurant concepts by opening Company-operated units in
strategically desirable markets. The Company intends to
concentrate on development of certain identified markets to
achieve penetration levels deemed desirable by the Company in
order to improve the Company's competitive position, marketing
potential and profitability. Expansion efforts will be focused on
major metropolitan areas in the United States and smaller market
areas which can adequately support any of the Company's restaurant
concepts.
The Company considers the restaurant site selection process
critical to its long-term success and devotes significant effort
to the investigation of new locations utilizing a variety of
sophisticated analytical techniques. The site selection process
focuses on a variety of factors including: trading-area
demographics such as target population density and household
income levels; an evaluation of site characteristics such as
visibility, accessibility and traffic volume; proximity to
activity centers such as shopping malls, hotel/motel complexes and
offices; and an analysis of the potential competition. Members of
senior management inspect and approve each restaurant site prior
to its acquisition.
The Company periodically reevaluates restaurant sites to ensure
that site selection attributes have not deteriorated below minimum
standards. In the event site deterioration were to occur, the
Company makes a concerted effort to improve the restaurant's
performance by providing physical, operating and marketing
enhancements unique to each restaurant's situation. If efforts to
restore the restaurant's performance to acceptable minimum
standards are unsuccessful, the Company considers relocation to a
proximate, more desirable site, or evaluates closing the
restaurant if the Company's criteria, such as return on investment
and area demographic data do not support a relocation. Since
inception, the Company has closed 11 restaurants, including 6 in
fiscal 1996, which were performing below the Company's standards
primarily due to declining trading-area demographics. In
addition, the Board of Directors of the Company in fiscal 1996
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, three concepts (Grady's American Grill, Spageddies
Italian Kitchen, and Kona Ranch Steak House) and related
restaurants were sold, closed or otherwise disposed of. These and
future closings will be key to a successful reallocation of
resources to the stronger performing concepts.
The following table illustrates the system-wide restaurants opened
in fiscal 1996 and the planned openings in fiscal 1997:
Fiscal 1996 Fiscal 1997
Openings Projected Openings
Chili's:
Company-Operated 38 30-35
Franchise 29 30-35
Macaroni Grill:
Company-Operated 19 18-24
Franchise 1 2-3
On The Border:
Company-Operated 11 12-16
Franchise 1 4-6
Cozymel's 10 1
Maggiano's -- 2-3
Corner Bakery 4 8-10
Eatzi's 1 --
TOTAL 114 107-133
In July 1995, the Company acquired the remaining fifty percent
(50%) interest in its Cozymel's restaurant concept in exchange for
430,769 shares of the Company's common stock. These Cozymel's
restaurants were opened by a joint venture in which an affiliate
of the Company owned a fifty percent (50%) interest. The Company
acquired the Maggiano's and Corner Bakery concepts in exchange for
4,000,000 shares of the Company's Common Stock in August 1995.
The Company anticipates that some of the fiscal 1997 projected
restaurant openings will be constructed pursuant to
"build-to-suit" agreements, in which the lessor contributes the
land cost and all, or substantially all, of the building
construction costs. In other cases, the Company either leases the
land, and pays for the building, furniture, fixtures and equipment
from its own funds, or owns the land, building, furniture,
fixtures and equipment.
As of June 26, 1996, the Company has lease or purchase commitments
for future construction of 29 Chili's, 36 Macaroni Grill, 9 On The
Border, 1 Cozymel's, 2 Maggiano's, and 4 Corner Bakery restaurant
sites. The Company is currently in the process of completing the
acquisition of sites for fiscal 1997 projected openings and
locating sites for fiscal 1998 projected openings.
The following table illustrates the approximate average capital
investment for a typical unit in the Company's primary restaurant
concepts:
Chili's Macaroni Grill Corner Bakery On The Border Cozymel's
Land $ 650,000 $ 850,000 $ --- $ 730,000 $1,200,000
Building 1,100,000 1,300,000 650,000 1,200,000 1,500,000
Furniture &
Equipment 430,000 510,000 260,000 610,000 600,000
Other 75,000 75,000 50,000 75,000 80,000
TOTAL $2,255,000 $2,735,000 $ 960,000 $2,615,000 $3,380,000
The Maggiano's capital investment varies based on the square
footage of the restaurant and the "build-to-suit" lease agreement.
The three Maggiano's restaurants constructed through June 26,
1996, range in cost from $660,000 to $3,350,000 (excluding land
and net of landlord contributions).
The specific rate at which the Company is able to open new
restaurants is determined by its success in locating satisfactory
sites, negotiating acceptable lease or purchase terms, securing
appropriate local governmental permits and approvals, and by its
capacity to supervise construction and recruit and train
management personnel.
Joint Venture and Franchise Operations
The Company intends to continue its expansion through joint
venture and franchise development, both domestically and
internationally. During the year ended June 26, 1996, 29 new
Chili's, one Macaroni Grill, and one On The Border franchised
restaurants were opened.
During the past year, the Company entered into international
franchise agreements which will bring Chili's to Spain and Peru in
the next 12 months. In fiscal 1996, the first Chili's restaurants
opened in Great Britain (October 1995).
The Company intends to continue pursuing international expansion
and is currently contemplating development in other countries.
The Company has previously entered into joint venture agreements
for research and development activities related to the testing of
new restaurant concepts and typically has a 50% interest in such
joint ventures, which interests are accounted for under the equity
method. 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 annual
gross sales of each restaurant. Future joint venture or 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.
At June 26, 1996, 34 total joint venture or franchise development
agreements existed. The Company anticipates that an additional 35
franchised Chili's, 3 franchised Macaroni Grill, and 5 franchised
On The Border restaurants will be opened during fiscal 1997.
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.
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 three 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. Each concept is
directed by a President and one or more concept Vice Presidents
and Senior Vice Presidents.
The Company believes that there is a high correlation between the
quality of restaurant management and the long-term success of a
concept. In that regard, the Company encourages increased tenure
at all management positions through various short and long-term
incentive programs, including equity ownership. These programs,
coupled with a general management philosophy emphasizing quality
of life, have enabled the Company to attract and retain management
employees at levels above the industry norm.
The Company ensures consistent quality standards in all concepts
through the issuance of Operations Manuals covering all elements
of operations and Food & Beverage Manuals which provide guidance
for preparation of Company formulated recipes. Routine visitation
to the restaurants by all levels of supervision enforce strict
adherence to Company standards.
The Director of Training for each concept is responsible for
maintaining each concept's operational training program, which
includes a four to five month training period for restaurant
management trainees, a continuing management training process for
managers and supervisors, and training teams consisting of groups
of employees experienced in all facets of restaurant operations
that train employees to open new restaurants. The training teams
typically begin on-site training at a new restaurant seven to ten
days prior to opening and remain on location two to three weeks
following the opening to ensure the smooth transition to operating
personnel.
Purchasing
The Company's ability to maintain consistent quality of products
throughout each of its restaurant concepts depends upon acquiring
food products and related items from reliable sources. Suppliers
are pre-approved by the Company and are required along with the
restaurants to adhere to strict product specifications established
through the Company's quality assurance program to ensure that
high quality, wholesome food and beverage products are served in
the restaurants. The Company negotiates directly with the major
suppliers to obtain competitive prices and uses purchase
commitment contracts to stabilize the potentially volatile pricing
associated with certain commodity items. All essential food and
beverage products are available, or upon short notice can be made
available, from alternative qualified suppliers in all cities in
which the Company's restaurants are located. Because of the
relatively rapid turnover of perishable food products, inventories
in the restaurants, consisting primarily of food, beverages and
supplies, have a modest aggregate dollar value in relation to
revenues.
Advertising and Marketing
The Company's concepts generally focus on the 18 to 54 year old
age group, which constitutes approximately half of the United
States population. Members of this population segment grew up on
fast food, but the Company believes that, with increasing
maturity, they prefer a more adult, upscale dining experience. To
attract this target group, the Company relies primarily on
television, radio, direct mail advertising and word-of-mouth
information communicated by customers. In addition, the Company
has added a new dimension to in-store marketing with our Frequent
Diner Program. Currently offered at Chili's restaurants, the
program rewards customer loyalty by issuing points with each
purchase that are redeemable for meals, hotel stays and travel.
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, 1996, the Company employed approximately 39,900
persons, of whom approximately 800 were corporate personnel, 2,400
were restaurant managers or trainees and 36,700 were employed in
non-management restaurant positions. The executive officers of
the Company have an average of more than 15 years of experience in
the restaurant industry.
The Company considers its employee relations to be good and
believes that its employee turnover rate is lower than the
industry average. Most employees, other than restaurant
management and corporate personnel, are paid on an hourly basis.
The Company believes that it provides working conditions and wages
that compare favorably with those of its competition. The
Company's employees are not covered by any collective bargaining
agreements.
Service Marks
The Company has registered, among other marks, "Brinker
International", "Chili's", "Chili's Texas Grill", "Chili's Too",
"Cozymel's", "Macaroni Grill", "Maggiano's Little Italy", "On The
Border", "On The Border Mexican Cafe", and "Romano's Macaroni
Grill" as service marks with the United States Patent and
Trademark Office. In addition, the Company has service mark
applications pending for "Chili's Bar & Bites", "Corner Bakery
Pizzaahhh!", "Cozymel's Coastal Mexican Grill", and "Eatzi's
Market and Bakery".
Risk Factors
The Company wishes to caution readers that the following important
factors, among others, could cause the actual results of the
Company to differ materially from those indicated by forward-
looking statements made 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. Except
for historical information, matters discussed in such oral and
written communications are forward-looking statements that involve
risks and uncertainties, including but not limited to general
business conditions, the impact of competition, the seasonality of
the Company's business, and governmental regulations.
Competition. The restaurant business is highly competitive with
respect to price, service, restaurant location and food quality,
and is often affected by changes in consumer tastes, economic
conditions, population and traffic patterns. The Company competes
within each market with locally-owned restaurants as well as
national and regional restaurant chains, some of which operate
more restaurants and have greater financial resources and longer
operating histories than the Company. There is active competition
for management personnel and for attractive commercial real estate
sites suitable for restaurants.
Seasonality. The Company's sales volumes fluctuate seasonally,
and are generally higher in the summer months and lower in the
winter months.
Governmental Regulations. Each of the Company's restaurants is
subject to licensing and regulation by alcoholic beverage control,
health, sanitation, safety and fire agencies in the state and/or
municipality in which the restaurant is located. The Company has
not encountered any difficulties or failures in obtaining the
required licenses or approvals that could delay or prevent the
opening of a new restaurant and does not, at this time, anticipate
any.
The Company is subject to federal and state environmental
regulations, but these have not had a material negative effect on
the Company's operations. More stringent and varied requirements
of local and state governmental bodies with respect to zoning,
land use and environmental factors could delay or prevent
development of new restaurants in particular locations. The
Company is subject to the Fair Labor Standards Act which governs
such matters as minimum wages, overtime and other working
conditions, along with the American With Disabilities Act and
various family leave mandates.
Item 2. PROPERTIES.
The following table illustrates the approximate average dining
capacity for each prototypical unit in primary restaurant
concepts:
Chili's Macaroni Grill Corner Bakery On The Border Cozymel's
Square Feet 6,000 7,300 2,100 7,800 10,700
Dining Seats 215-230 235-290 85-90 275-305 320-360
Dining Tables 55-65 65-75 15-20 60-70 70-85
Maggiano's dining capacity varies based upon the square footage of
the restaurant. For the three Maggiano's units constructed
through June 26, 1996, square footage ranged from 10,900 to
20,600, the number of dining seats ranged from 470 to 840, and the
number of dining tables ranged from 100 to 200.
Certain of the Company's restaurants are leased for an initial
term of 5 to 30 years, with renewal terms of 1 to 30 years. The
leases typically provide for a fixed rental plus percentage
rentals based on sales volume. At June 26, 1996, the Company
owned the land and/or building for 335 of the 468 Company-operated
restaurants. The Company considers that its properties are
suitable, adequate, well-maintained and sufficient for the
operations contemplated.
The Company leases warehouse space totalling approximately 39,100
square feet in Dallas, Texas, which it uses for menu development
activity and 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. In
January 1996, the Company purchased an additional office complex
containing three (3) buildings and approximately 198,000 square
feet for the expansion of its corporate headquarters.
Approximately 48,000 square feet of this complex is currently
utilized by the Company, with the remaining 150,000 square feet
under lease, listed for lease to third party tenants, or reserved
for future expansion of the Company headquarters.
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "EAT". Bid prices quoted
represent interdealer prices without adjustment for retail markup,
markdown and/or commissions, and may not necessarily represent
actual transactions. The following table sets forth the quarterly
high and low closing sales prices of the Common Stock, as reported
by the NYSE.
Fiscal year ended June 26, 1996:
First Quarter 18 7/8 14 7/8
Second Quarter 16 1/8 12
Third Quarter 16 3/4 12 7/8
Fourth Quarter 18 1/2 15 1/2
Fiscal year ended June 28, 1995:
First Quarter 25 7/8 20 1/2
Second Quarter 24 3/8 16 1/2
Third Quarter 20 5/8 16 1/8
Fourth Quarter 17 1/2 14 7/8
As of September 9, 1996, there were 2,059 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.
On January 30, 1996, the Board of Directors of the Company 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 the Company's
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.
Item 6. SELECTED FINANCIAL DATA.
"Selected Financial Data" on page 31 of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 32 through 35 of the Company's
1996 Annual Report to Shareholders is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a)(1).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to the Company's directors (including those
officers who are directors) is incorporated herein by reference from
pages 4 through 8 of the Company's Proxy Statement dated September
24, 1996, for the annual meeting of shareholders on November 7, 1996.
Item 11. COMPENSATION INFORMATION.
"Executive Compensation" on pages 8 through 10 and "Report of the
Compensation Committee" on pages 10 through 13 of the Company's Proxy
Statement dated September 24, 1996, for the annual meeting of
shareholders on November 7, 1996, are incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
"Principal Shareholders" on page 2 and "Security Ownership of
Management and Election of Directors" on pages 3 through 4 of the
Company's Proxy Statement dated September 24, 1996, for the annual
meeting of shareholders on November 7, 1996, are incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements attached
hereto on page 16 for a listing of all financial statements
incorporated herein from the Company's 1996 Annual Report to
Shareholders.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the exhibits
attached hereto on page E-1 for a list of all exhibits filed as a
part of this Report.
(b) Reports on Form 8-K
The Company was not required to file a current report on Form 8-K
during the three months ended June 26, 1996.
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: /Debra L. Smithart
Debra L. Smithart, Executive Vice
President - Chief Financial Officer
Dated: September 24, 1996
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, 1996
Name Title
/Ronald A. McDougall President, Chief Executive
Ronald A. McDougall Officer and Director
(Principal Executive Officer)
/Debra L. Smithart Executive Vice President - Chief
Debra L. Smithart Financial Officer and Director
(Principal Financial and Accounting
Officer)
/Norman E. Brinker Chairman of the Board
Norman E. Brinker
/Creed L. Ford, III Director
Creed L. Ford, III
/F. Lane Cardwell, Jr. Director
F. Lane Cardwell, Jr.
Director
Gerard V. Centioli
/Jack W. Evans, Sr. Director
Jack W. Evans, Sr.
Director
Rae F. Evans
/J.M. Haggar, Jr. Director
J.M. Haggar, Jr.
Director
J. Ira Harris
Director
Frederick S. Humphries
Director
James E. Oesterreicher
/Roger T. Staubach Director
Roger T. Staubach
INDEX TO FINANCIAL STATEMENTS
The following is a listing of the financial statements which are incorporated
herein by reference. The financial statements of the Company included in the
Company's 1996 Annual Report to Shareholders are incorporated herein by
reference in Item 8.
1996 Annual
Report Page
Independent Auditors' Report 48
Consolidated Balance Sheets - 36-37
June 26, 1996 and June 28, 1995
Consolidated Statements of Income - 38
Years Ended June 26, 1996, June 28, 1995
and June 29, 1994
Consolidated Statements of Shareholders' 39
Equity - Years Ended June 26, 1996,
June 28, 1995 and June 29, 1994
Consolidated Statements of Cash Flows - 40
Years Ended June 26, 1996, June 28, 1995
and June 29, 1994
Notes to Consolidated Financial Statements 41-47
All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related
notes.
INDEX TO EXHIBITS
Exhibit
3(a) Certificate of Incorporation of the registrant, as amended. (1)
3(b) Bylaws of the registrant. (1)
10(a) Registrant's 1983 Incentive Stock Option Plan. (2)
10(b) Registrant's 1991 Stock Option Plan for Non-Employee Directors and
Consultants. (1)
10(c) Registrant's 1992 Incentive Stock Option Plan. (1)
13 1996 Annual Report to Shareholders. (3)
21 Subsidiaries of the registrant. (2)
23 Independent Auditors' Consent. (2)
27 Financial Data Schedule. (4)
99 Proxy Statement of registrant dated September 24, 1996. (3)
(1) Filed as an exhibit to report on Form 10-K for year ended June 28,
1995 and incorporated herein by reference.
(2) Filed herewith.
(3) Portions filed herewith, to the extent indicated herein.
(4) Filed with EDGAR version.
EXHIBIT 10(a)
REGISTRANT'S 1983 INCENTIVE STOCK OPTION PLAN
On May 12, 1982, the Board of Directors of Chili's, Inc., a Texas
corporation ("Chili's Texas") adopted the Chili's, Inc. Key Employees'
Incentive Stock Option Plan ("Prior Plan"). On October 28, 1983 the Board of
Directors of Chili's Texas approved the termination of the Prior Plan
effective as of the closing of the public offering of the Common Stock of the
Company pursuant to the provisions of Section 15 of such Prior Plan, and the
Board of Directors of the Company adopted the following 1983 Incentive Stock
Option Plan ("Plan"):
1. PURPOSE. The purpose of the Plan is to provide employees with a
proprietary interest in the Company through the granting of options which will
(a) increase the interest of the employees in the Company's welfare;
(b) furnish an incentive to the employees to continue their services
for the Company; and
(c) provide a means through which the Company may attract able persons
to enter its employ.
2. ADMINISTRATION. The Plan will be administered by the Board.
3. PARTICIPANTS. The Board shall, from time to time, select the
particular employees of the Company and its Subsidiaries to whom options are
to be granted, and who will, upon such grant, become participants in the Plan.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted to
an employee who owns more than 10% of the voting power of all classes of stock
of the Company or its Parent or Subsidiaries. This limitation will not apply
if the option price is at least 110% of the fair market value of the stock at
the time the Incentive Option is granted and the Incentive Option expires not
later than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Board may not grant options under the
Plan for more than 3,825,000 shares of Common Stock of the Company, but this
number may be adjusted to reflect, if deemed appropriate by the Board, any
stock dividend, stock split, share combination, recapitalization or the like,
of or by the Company. Shares to be optioned and sold may be made available
from either authorized but unissued Common Stock or Common Stock held by the
Company in its treasury. Shares that by reason of the expiration of an option
or otherwise are no longer subject to purchase pursuant to an option granted
under the Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value (determined
at the time of grant) of the stock which any employee is first eligible to
purchase in any calendar year by exercise of Incentive Options granted after
December 31, 1986 under the Plan and all incentive stock option plans (within
the meaning of Section 422A of the Internal Revenue Code) of the Company or
its Parent, if any, or Subsidiaries shall not exceed $100,000 per annum. For
this purpose, the fair market value (determined at the respective date of
grant of each option) of the stock purchasable by exercise of an Incentive
Option (or an installment thereof) shall be counted against the $100,000
annual limitation for an optionee only for the calendar year such stock is
first purchasable under the terms of the option.
7. ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Common Stock to be offered from time to time by grant of options to
employees of the Company or its Subsidiaries. The grant of an option to an
employee shall not be deemed either to entitle the employee to, or to
disqualify the employee from, participation in any other grant of options
under the Plan. Effective February 1, 1993, no participant may receive in
excess of 175,000 shares in any calendar year.
8. GRANT OF OPTIONS. The Board is authorized to grant Incentive
Options and Nonqualified Options under the Plan. The grant of options shall
be evidenced by stock option agreements containing such terms and provisions
as are approved by the Board, but not inconsistent with the Plan, including
provisions that may be necessary to assure that any option that intended to be
an Incentive Option will comply with Section 422A of the Internal Revenue
Code. A stock option agreement may provide that the participant may exercise
an option or a portion thereof by tendering shares of Common Stock at the fair
market value per share on the date of exercise in lieu of cash payment of the
exercise price. The Company shall execute stock option agreements upon
instructions from the Board.
9. OPTION PRICE. The option price shall not be less than 100% of the
fair market value per share of the Common Stock on the date the option is
granted. The Board shall determine the fair market value of the Common Stock
on the date of grant, and shall set forth the determination in its minutes,
using any reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Board authorizes the option
unless the Board specifies a later date. No option may terminate later than
ten years from the date the option is granted. The Board may provide for the
exercise of options in installments and upon such terms, conditions and
restrictions as it may determine. The Board may provide for termination of
the option in the case of termination of employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies or
becomes disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code) prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without totally
having exercised the option, the option may be exercised subject to the
provisions of Paragraph 13 hereof, by (i) the participant's estate or by the
person who acquired the right to exercise the option by bequest or inheritance
or by reason of death of the participant, or (ii) the participant or his
personal representative in the event of the participant's disability, provided
the option is exercised prior to the date of its expiration or not more than
one year from the date of participant's death or disability, whichever comes
first.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check, or on such other terms as are set
forth in the applicable option agreement. Payment may be made by tendering
shares of Common Stock at the fair market value per share at the time of
exercise; if such method of payment is expressly approved by the Executive
Committee of the Board of Directors prior to the exercise of the option. No
shares may be issued until full payment of the purchase price therefor has
been made, and a participant will have none of the rights of a stockholder
until shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth
in the applicable stock option agreements. In no event may an option be
exercised or shares be issued pursuant to an option if any necessary listing
of the shares on a stock exchange has not been accomplished. The Board may
provide in stock option agreements executed by the Company that,
notwithstanding the grant of an option to an employee requiring the exercise
thereof in periodic installments, the total number of options granted may be
exercisable, at the election of such employee, upon a material change in
control of the voting securities of the Company. For purposes hereof, a
material change in control of the voting securities of the Company shall be
deemed to include, but not necessarily be limited to, a merger of the Company
into, or acquisition of the Company by, another corporation, partnership,
trust or other business entity, or a change in control of the voting
securities of the Company such that Norman Brinker is no longer the individual
owning or controlling the largest percentage of the Company's voting
securities.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and the
option price may be adjusted to reflect, as deemed appropriate by the Board,
any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules in connection with the operation of the Plan as it
determines to be advisable for the administration of the Plan. The Board may
rescind and amend its rules.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase the
number of securities that may be issued under the Plan, or (c) materially
modify the requirements of eligibility for participation in the Plan must be
approved by the stockholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any officer or employee any right to be
granted an option to purchase Common Stock of the Company or any other rights
except as may be evidenced by the stock option agreement, or any amendment
thereto, duly authorized by the Board and executed on behalf of the Company
and then only to the extent and on the terms and conditions expressly set
forth therein.
19. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on October 15, 1993. The Board may not grant options under the
Plan after that date, but options granted before that date will continue to be
effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Plan" means this 1983 Incentive Stock Option Plan as amended from
time to time.
(b) "Company" means Chili's, Inc., a Delaware corporation.
(c) "Board" means the board of directors of the Company, or the
Compensation Committee, if any.
(d) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized to issue (as
long as the common stock varies from that currently authorized, if at all,
only in amount of par value).
(e) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of the
option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain,
and "Subsidiaries" means more than one of any such corporations.
(f) "Parent" means any corporation in an unbroken chain of
corporations ending with the Company if, at the time of granting of the
option, each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
(g) "Option Period" means the period during which an option may be
exercised.
(h) "Incentive Option" means an option granted under the Incentive
Plan which meets the requirements of Section 422A of the Internal Revenue
Code.
(i) "Nonqualified Option" means an option granted under the Plan which
is not intended to be an Incentive Option.
EXHIBIT 13
1996 ANNUAL REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
(In thousands, except per share amounts and number of restaurants)
Fiscal Years
1996 1995 1994 1993 1992
Income Statement Data:
Revenues $1,162,951 $1,042,199 $ 886,040 $ 704,984 $ 569,795
Costs and Expenses:
Cost of Sales 330,375 283,417 241,950 195,967 158,401
Restaurant Expenses 620,441 540,986 451,029 358,949 297,941
Depreciation and Amortization 64,611 58,570 51,570 38,292 29,203
General and Administrative 54,271 50,362 45,659 37,328 30,917
Interest Expense 4,579 595 441 406 636
Gain on Sales of Concepts (9,262) - - - -
Restructuring Charge 50,000 - - - -
Merger Expenses - - 1,949 - -
Injury Claim Settlement - - 2,248 - -
Other, Net (4,201) (3,151) (5,348) (5,129) (3,148)
Total Costs and Expenses 1,110,814 930,779 789,498 625,813 513,950
Income Before Provision
for Income Taxes 52,137 111,420 96,542 79,171 55,845
Provision for Income Taxes 17,756 38,676 34,223 27,083 18,836
Net Income $ 34,381 $ 72,744 $ 62,319 $ 52,088 $ 37,009
Primary Net Income Per Share $ 0.44 $ 0.98 $ 0.83 $ 0.71 $ 0.52
Primary Weighted Average
Shares Outstanding 77,902 74,283 74,947 73,286 71,829
Balance Sheet Data
(end of period):
Working Capital Deficit $ (50,035) $ (2,377) $ (54,879) $ (40,579) $ (25,009)
Total Assets 888,834 738,936 558,435 455,070 355,595
Long-term Obligations 142,274 139,645 39,316 31,082 26,725
Shareholders Equity 608,170 496,797 417,377 344,086 261,593
Number of Restaurants
Open at End of Period:
Company-Operated 468 439 369 308 258
Franchised/Joint Venture 145 121 89 75 57
Total 613 560 458 383 315
MANAGEMENT S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR FISCAL YEARS 1996, 1995, AND 1994
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
1996 1995 1994
Revenues 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.4% 27.2% 27.3%
Restaurant Expenses 53.3% 51.9% 50.9%
Depreciation and Amortization 5.6% 5.6% 5.8%
General and Administrative 4.7% 4.8% 5.2%
Interest Expense 0.4% 0.1% -
Gain on Sales of Concepts (0.8%) - -
Restructuring Charge 4.3% - -
Merger Expenses - - 0.2%
Injury Claim Settlement - - 0.3%
Other, Net (0.4%) (0.3%) (0.6%)
Total Costs and Expenses 95.5% 89.3% 89.1%
Income Before Provision for Income Taxes 4.5% 10.7% 10.9%
Provision for Income Taxes 1.5% 3.7% 3.9%
Net Income 3.0% 7.0% 7.0%
REVENUES
Increases in revenues of 12% and 18% in fiscal 1996 and 1995, respectively,
primarily relate to the increases in Company-owned store weeks driven by new
unit expansion. 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 store weeks and a 0.3%
increase in average weekly sales. Menu price increases had little impact on
the increases in revenues as weighted average price increases over the past
two years averaged less than 1% per year. Sales levels were impacted by
increased competition within the casual-dining sector coupled with a decline
in consumer spending. Brinker continues to focus on providing quality food and
service at an exceptional value.
COSTS AND EXPENSES (as a percent of Revenues)
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. Cost of sales decreased
slightly in fiscal 1995 compared to fiscal 1994 due to favorable commodity
price variances and increased purchasing leverage, which offset product mix
changes to menu items with higher percentage food costs.
Restaurant expenses increased in fiscal 1996 and fiscal 1995 due primarily to
increases in management and restaurant labor. Management labor increased in
fiscal 1996 as a result of increases in base salaries to remain competitive in
the industry and increased in fiscal 1995 from additional staffing in
anticipation of new restaurant openings. Restaurant labor costs were up for
both fiscal 1996 and fiscal 1995 due to increases in the number of waitstaff
to enhance customer service as well as increased wage rates to meet industry
competition and retain quality hourly employees.
Depreciation and amortization has remained flat for fiscal 1996 and fiscal
1995. 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 decreased 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.
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.
Merger expenses are one-time charges such as consulting fees, legal fees, and
severance costs related to the acquisition of On The Border in fiscal 1994.
Injury claim settlement represents a one-time charge in fiscal 1994 to settle
an injury claim arising from an airplane accident in March 1993 involving
several former officers of On The Border.
Other, net increased in fiscal 1996 primarily due to additional interest and
dividend income associated with an increased marketable securities position.
Other, net decreased in fiscal 1995 primarily as a result of a decrease in net
realized gains on sales of marketable securities as well as a decrease in
interest and dividend income due to the declining balance in marketable
securities.
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 are expected to be completed in fiscal 1997. The Company
recorded a $50.0 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 34.1%, 34.7%, and 35.4% in fiscal
1996, 1995, and 1994, respectively. The fiscal 1996 and 1995 decreases are 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
1996 1995 1994
Income Before Restructuring Related Items
and Income Taxes $ 92.9 $111.4 $ 96.5
Income Taxes Before Restructuring Related Items 32.0 38.7 34.2
Net Income Before Restructuring Related Items $ 60.9 $ 72.7 $ 62.3
Primary Net Income Per Share Before
Restructuring Related Items $ 0.78 $ 0.98 $ 0.83
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. The increase in fiscal 1995 net income and primary net income
per share compared to fiscal 1994 is attributable to an increase in revenues
and one-time charges incurred in fiscal 1994, including the $2.2 million
injury claim settlement and $1.9 million of On The Border merger costs. The
increase in weighted average number of shares outstanding arose primarily from
common stock issued in connection with acquisitions during fiscal 1996.
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
Working capital decreased from a deficit of $2.4 million at June 28, 1995 to a
deficit of $50.0 million at June 26, 1996, due to borrowings of short-term
debt, recording of the restructuring reserve, and the Company s capital
expenditures offset by proceeds from the sales of concepts. Net cash provided
by operating activities increased to $114.9 million for fiscal 1996 from
$110.2 million for fiscal 1995 due to the timing of operational receipts and
payments.
During October 1995, the Company announced the approval of a strategic plan
which included the disposition of certain Company-owned restaurants. The
dispositions are expected to generate net cash proceeds of approximately $15
to $20 million through fiscal 1997. Furthermore, the Company completed the
sales of three of its concepts during the second quarter which resulted in net
cash proceeds of approximately $73 million.
Long-term debt outstanding at June 26, 1996 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At June 26, 1996,
the Company had $235 million in available funds from credit facilities. The
Company estimates that its capital expenditures during fiscal 1997 will
approximate $200 million. These capital expenditures, which will primarily
relate to the planned expansion of each restaurant concept and the ongoing
remodeling program, will be funded from internal operations, cash equivalents,
income earned from investments, build-to-suit lease agreements with landlords,
proceeds from the sales of restaurants, and drawdowns on the Company s
available lines of credit.
Brinker 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 March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ( SFAS 121 ), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of.
SFAS 121 sets forth standards for recognition and measurement of impairment
of long-lived assets. SFAS 121 is effective for Brinker in fiscal 1997.
Brinker does not believe the adoption of SFAS 121 will have a material impact
on its consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ( SFAS 123 ), Accounting for Stock-
Based Compensation, which permits stock compensation costs to be measured
using either the intrinsic value-based method or the fair value-based method.
When adopted in fiscal 1997, Brinker intends to continue to use the intrinsic
value-based method and will provide the expanded disclosure required by SFAS
123.
MANAGEMENT OUTLOOK
Brinker s strategy is to aggressively grow concepts that exceed its high
expectations for return on invested capital, reposition or divest those
concepts which fail to meet those expectations, and continuously explore and
develop new concepts with high return capabilities. In fiscal 1996, Brinker
sold three concepts and acquired three high potential concepts (Cozymel s
Coastal Mexican Grill, Maggiano s Little Italy, and the Corner Bakery). For
fiscal 1997, Brinker has six proven, expandable concepts, as well as several
new concepts in the early research and development phases. With this strong
line-up, Brinker expects to open approximately 120 new restaurants system-wide
during fiscal 1997.
In fiscal 1996 and fiscal 1995, Brinker experienced a difficult operating
environment due to intensified competition, weakened consumer confidence, and
continued pressure on consumer discretionary income. Management expects these
conditions to continue in fiscal 1997. However, management believes that its
concept realignment, together with its focus on price value and customer
service, will strategically position Brinker to attain growth and
profitability objectives while creating value for its shareholders.
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
1996 1995
ASSETS
Current Assets:
Cash and Cash Equivalents $ 27,073 $ 44,911
Accounts Receivable, Net 14,142 18,020
Inventories 10,839 10,312
Prepaid Expenses 24,648 22,485
Deferred Income Taxes (Note 6) 11,653 4,389
Total Current Assets 88,355 100,117
Property and Equipment, at Cost (Note 8):
Land 150,391 148,123
Buildings and Leasehold Improvements 430,037 358,717
Furniture and Equipment 240,880 214,275
Construction-in-Progress 31,923 49,500
853,231 770,615
Less Accumulated Depreciation and Amortization 242,001 202,542
Net Property and Equipment 611,230 568,073
Other Assets:
Marketable Securities (Note 4) 70,012 34,696
Goodwill (Note 2) 73,250 9,708
Other 45,987 26,342
Total Other Assets 189,249 70,746
Total Assets $888,834 $738,936
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Short-term Debt (Note 7) $ 15,000 $ -
Current Installments of Long-term Debt
(Notes 7 and 8) 348 1,593
Accounts Payable 58,902 40,383
Accrued Liabilities (Note 5) 64,140 60,518
Total Current Liabilities 138,390 102,494
Long-term Debt, Less Current Installments
(Notes 7 and 8) 102,801 103,086
Deferred Income Taxes (Note 6) 12,900 13,497
Other Liabilities 26,573 23,062
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; 77,255,783 and 72,073,597 Shares Issued
and Outstanding in 1996 and 1995, Respectively 7,726 7,207
Additional Paid-In Capital 266,561 190,919
Unrealized Loss on Marketable Securities (Note 4) (620) (1,451)
Retained Earnings 334,503 300,122
Total Shareholders Equity 608,170 496,797
Total Liabilities and Shareholders Equity $888,834 $738,936
See accompanying notes to consolidated financial statements
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
Fiscal Years
1996 1995 1994
Revenues $1,162,951 $1,042,199 $ 886,040
Costs and Expenses:
Cost of Sales 330,375 283,417 241,950
Restaurant Expenses (Note 8) 620,441 540,986 451,029
Depreciation and Amortization 64,611 58,570 51,570
General and Administrative 54,271 50,362 45,659
Interest Expense (Note 7) 4,579 595 441
Gain on Sales of Concepts (Note 3) (9,262) - -
Restructuring Charge (Note 3) 50,000 - -
Merger Expenses (Note 2) - - 1,949
Injury Claim Settlement (Note 12) - - 2,248
Other, Net (Note 4) (4,201) (3,151) (5,348)
Total Costs and Expenses 1,110,814 930,779 789,498
Income Before Provision for
Income Taxes 52,137 111,420 96,542
Provision for Income Taxes (Note 6) 17,756 38,676 34,223
Net Income $ 34,381 $ 72,744 $ 62,319
Primary and Fully Diluted
Net Income Per Share $ 0.44 $ 0.98 $ 0.83
Primary Weighted Average
Shares Outstanding 77,902 74,283 74,947
Fully Diluted Weighted Average
Shares Outstanding 78,036 74,345 75,043
See accompanying notes to consolidated financial statements
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Shareholders Equity
(In thousands)
Unrealized
Additional Loss on
Common Stock Paid-in Marketable Retained
Shares Amount Capital Securities Earnings Total
Balances at June 30, 1993 70,323 $ 7,033 $171,994 $ - $165,059 $344,086
Net Income - - - - 62,319 62,319
Change in Unrealized Loss
on Marketable Securities - - - (441) - (441)
Issuances of Common Stock 1,082 108 11,305 - - 11,413
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 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 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
See accompanying notes to consolidated financial statements
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Years
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,381 $ 72,744 $ 62,319
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization of
Property and Equipment 54,138 48,893 41,653
Amortization of Goodwill and Other Assets 10,473 9,677 9,917
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:
Decrease (Increase) in Accounts
Receivable 4,783 (5,301) (6,601)
Increase in Inventories (1,236) (2,099) (1,244)
Increase in Prepaid Expenses (3,920) (4,884) (4,929)
Increase in Other Assets (21,883) (13,627) (11,070)
Increase (Decrease) in Accounts Payable 1,537 (4,140) 21,612
Increase (Decrease) in Accrued
Liabilities (1,596) 4,617 9,919
Increase (Decrease) in Deferred
Income Taxes (8,313) 2,392 (2,268)
Increase in Other Liabilities 3,607 1,493 8,520
Other 2,220 415 (1,471)
Net Cash Provided by Operating
Activities 114,929 110,180 126,357
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (187,141) (183,913) (114,794)
Payment for Purchase of Restaurants
(Note 2) - - (8,165)
Proceeds from Sales of Concepts (Note 3) 73,115 - -
Purchases of Marketable Securities (61,390) (15,988) (58,986)
Proceeds from Sales of Marketable
Securities 25,137 23,458 42,470
Other 375 1,988 5,335
Net Cash Used in Investing Activities (149,904) (174,455) (134,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 15,000 - -
Payments of Long-term Debt (1,530) (1,426) (3,977)
Proceeds from Issuances of Long-term Debt - 100,000 -
Proceeds from Issuances of Common Stock 3,667 6,869 3,026
Net Cash Provided (Used) by
Financing Activities 17,137 105,443 (951)
Net Increase (Decrease) in Cash
and Cash Equivalents (17,838) 41,168 (8,734)
Cash and Cash Equivalents at Beginning
of Year 44,911 3,743 12,477
Cash and Cash Equivalents at End of Year $ 27,073 $ 44,911 $ 3,743
CASH PAID DURING THE YEAR:
Interest, Net of Amounts Capitalized $ 4,188 $ - $ 430
Income Taxes $ 24,558 $ 47,838 $ 26,579
NON-CASH TRANSACTIONS DURING THE YEAR:
Tax Benefit from Stock Options Exercised $ 729 $ 817 $ 8,387
Common Stock Issued in Connection with
Acquisitions $ 71,765 $ - $ -
Notes Received in Connection with Sales
of Concepts $ 9,800 $ - $ -
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 various restaurant concepts
principally located in the United States.
Brinker has a 52 week fiscal year ending on the last Wednesday in June. Fiscal
years 1996, 1995, and 1994 ended June 26, 1996, June 28, 1995, and June 29,
1994, respectively.
Certain amounts in the fiscal 1995 consolidated financial statements have been
reclassified to conform with the fiscal 1996 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 $18.6 million and $38.0 million at June 26,
1996 and June 28, 1995, respectively, consist primarily of money market funds,
commercial paper, and auction-rate preferred stocks.
Brinker s financial instruments at June 26, 1996 and June 28, 1995 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 $4.4 million, $2.3 million, and $0.7 million during fiscal 1996,
1995, and 1994, 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) 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.
(i) Stock-Based Compensation
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.
(j) 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.
(k) 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 26, 1996, 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 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. 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.
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 a franchisee 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.
In fiscal 1994, Brinker acquired the On The Border restaurant concept. Under
the terms of the merger agreement, 3,767,711 fully diluted shares of On The
Border common stock were converted to 1,239,130 shares of Brinker common stock
(approximately 0.3 for 1 exchange). The acquisition was accounted for as a
pooling of interests. Merger expenses of $1.9 million incurred in fiscal 1994
related to the acquisition of On The Border are reported separately to reflect
the impact of nonrecurring charges. These costs primarily relate to consulting
fees, legal fees, and severance costs.
Also in fiscal 1994, Brinker acquired 13 Chili s restaurants from franchisees.
The acquisition of nine of the restaurants in exchange for 256,576 shares of
Brinker common stock was accounted for as a pooling of interests. The
acquisition of the remaining four restaurants for $8.2 million in cash was
accounted as a purchase. Goodwill of approximately $6.9 million is being
amortized on a straight-line basis over 30 years.
3. RESTRUCTURING RELATED ITEMS
Brinker recorded a $50.0 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 1996, $44.1 million of restructuring costs
have been incurred, of which $2.1 million were cash payments primarily for
lease obligations and $42.0 million were non-cash charges primarily for asset
write-downs. The restructuring actions are expected to be 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 concepts during the second quarter
of fiscal 1996, recognizing a gain of approximately $9.3 million.
4. MARKETABLE SECURITIES
Brinker adopted Statement of Financial Accounting Standards No. 115 ("SFAS No.
115"), Accounting for Certain Investments in Debt and Equity Securities ,
effective June 29, 1994. Under SFAS No. 115, debt and equity securities are
classified into three categories: trading, available-for-sale, and held-to-
maturity.
At June 26, 1996 and June 28, 1995, marketable securities (primarily
investment-grade preferred stock) are classified as available-for-sale. SFAS
No. 115 requires available-for-sale securities to be carried at fair value
with unrealized gains and unrealized losses reported as a separate component
of shareholders' equity. A decline in market value of any available-for-sale
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
The cost and fair value of marketable securities at June 26, 1996 and June 28,
1995 are as follows (in thousands):
1996 1995
Cost $ 70,951 $ 36,918
Gross unrealized holding gains 297 260
Gross unrealized holding losses (1,236) (2,482)
Fair value $ 70,012 $ 34,696
Realized gains and realized losses are determined on a specific identification
basis. Realized gains and realized losses from investment transactions were
$38,000 and $949,000 during fiscal 1996, $187,000 and $1,478,000 during fiscal
1995, and $1,871,000 and $1,400,000 (including $1,072,000 of realized losses
resulting from recognition of a permanent decline in market value for certain
securities) during fiscal 1994. Interest and dividend income during fiscal
1996, 1995, and 1994 was $5,082,000, $3,368,000, and $3,624,000, respectively.
Realized gains and realized losses as well as interest and dividend income are
included in other, net.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
1996 1995
Payroll $18,505 $19,371
Insurance 15,141 14,900
Property tax 8,224 7,906
Sales tax 5,724 5,693
Restructuring reserve 5,881 -
Other 10,665 12,648
$64,140 $60,518
6.INCOME TAXES
The provision for income taxes consists of the following (in thousands):
1996 1995 1994
Current income tax expense:
Federal $ 22,222 $ 31,133 $ 32,511
State 3,847 5,151 3,980
Total current income tax expense 26,069 36,284 36,491
Deferred income tax expense (benefit):
Federal $ (7,343) $ 2,113 $ (1,935)
State (970) 279 (333)
Total deferred income tax expense
(benefit) (8,313) 2,392 (2,268)
$ 17,756 $ 38,676 $ 34,223
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):
1996 1995 1994
Income tax expense at statutory rate $ 18,248 $ 38,997 $ 33,790
FICA tax credit (2,382) (2,600) (1,097)
Targeted jobs tax credit (261) (1,837) (709)
Net investment activities (405) (576) (870)
State income taxes 1,657 3,451 2,228
Other 899 1,241 881
$ 17,756 $ 38,676 $ 34,223
The income tax effects of temporary differences that give rise to significant
portions of deferred income tax assets and liabilities as of June 26, 1996 and
June 28, 1995 are as follows (in thousands):
1996 1995
Deferred income tax assets:
Insurance reserves $ 10,916 $ 9,420
Restructuring reserve 7,986 -
Leasing transactions 2,278 2,126
Unrealized loss on marketable securities 320 771
Other, net 4,579 4,932
Total deferred income tax assets 26,079 17,249
Deferred income tax liabilities:
Depreciation and capitalized interest
on property and equipment 12,972 13,711
Preopening costs 9,022 7,518
Prepaid expenses 335 412
Other, net 4,997 4,716
Total deferred income tax liabilities 27,326 26,357
Net deferred income tax liability $ 1,247 $ 9,108
7. DEBT
Brinker has credit facilities aggregating $250 million at June 26, 1996. A
credit facility of $200 million bears interest at LIBOR (5.57% at June 26,
1996) plus a maximum of .40% and expires in fiscal 2000. At June 26, 1996, $15
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 through fiscal
1998.
Long-term debt consists of the following (in thousands):
1996 1995
7.8% senior notes $100,000 $100,000
Capital lease obligations (see Note 8) 3,149 3,479
Other - 1,200
103,149 104,679
Less current installments 348 1,593
$102,801 $103,086
On April 12, 1995, Brinker issued $100 million of unsecured senior notes
bearing 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 26, 1996 and June 28, 1995, and the related accumulated
amortization of $5.5 million and $5.2 million at June 26, 1996 and June 28,
1995, 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 1996, 1995, and
1994 was $37.9 million, $36.2 million, and $32.2 million, respectively.
Contingent rent included in rent expense for fiscal 1996, 1995, and 1994 was
$3.2 million, $2.9 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, the Company utilized the entire commitment of approximately $30.0
million for the development of restaurants leased by Brinker for up to 5
years. During fiscal 1996, Brinker retired several properties in the
commitment reducing the outstanding balance to approximately $25.3 million. At
June 26, 1996, Brinker had guaranteed residual value related to the remaining
properties of approximately $21.5 million.
(c) Commitments
At June 26, 1996, future minimum lease payments on capital and operating
leases were as follows (in thousands):
Fiscal Year Capital Leases Operating Leases
1997 $ 718 $ 32,573
1998 657 31,107
1999 657 29,795
2000 613 28,931
2001 565 27,840
Thereafter 1,704 180,410
Total minimum lease payments 4,914 $330,656
Imputed interest (average rate of 11.5%) 1,765
Present value of minimum payments 3,149
Less current installments 348
Capital lease obligations $ 2,801
At June 26, 1996, 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 18.3 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. Option prices
under these plans range from $2.45 to $26.83.
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 February 2003.
Transactions during fiscal 1996, 1995, and 1994 were as follows (in thousands,
except option prices):
1996 1995 1994
Options outstanding at beginning of year 7,570 6,897 6,284
Granted 2,287 1,290 1,474
Exercised (425) (500) (771)
Canceled (383) (117) (90)
Options outstanding at end of year 9,049 7,570 6,897
Option price range for options
granted during the year $12.00 $16.50 $20.38
to to to
$16.13 $16.75 $26.83
Options exercisable at end of year 4,298 4,044 3,282
Options available for grant at end of year 561 618 1,791
(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. Option
prices under this plan range from $0.35 to $5.30.
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 1996, 1995, and 1994 were as follows (in
thousands):
1996 1995 1994
Options outstanding at beginning of year 548 549 858
Exercised (4) (1) (309)
Options outstanding and exercisable
at end of year 544 548 549
(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.
Option prices under this plan range from $11.22 to $23.92.
Transactions during fiscal 1996, 1995, and 1994 were as follows (in thousands,
except option prices):
1996 1995 1994
Options outstanding at beginning of year 204 122 107
Granted 3 82 18
Exercised - - (3)
Canceled (5) - -
Options outstanding at end of year 202 204 122
Option price range for options
granted during the year $17.50 $18.12 $23.92
to
$23.37
Options exercisable at end of year 106 89 36
Options available for grant at end of year 132 131 213
(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. Options were granted at
market value on the date of grant, were exercisable in installments, and
expired three to five years from date of 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. Options outstanding at June
26, 1996 and June 28, 1995 were 63,000 and 109,000 stock options,
respectively, and are exercisable at prices ranging from $17.48 to $19.76.
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 1996, 1995, and 1994, Brinker
contributed approximately $362,000 (representing 23,582 shares of Brinker
common stock), $355,000 (representing 18,745 shares of Brinker common stock),
and $345,000 (representing 11,666 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 1996, 1995, and 1994, Brinker contributed
approximately $260,000 (of which approximately $165,000 was used to purchase
10,584 shares of Brinker common stock), $259,000 (of which approximately
$154,000 was used to purchase 8,175 shares of Brinker common stock), and
$231,000 (of which approximately $175,000 was used to purchase 7,096 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. INJURY CLAIM SETTLEMENT AND CONTINGENCIES
In March 1993, certain officers of On The Border and various family members
were involved in an airplane accident. In fiscal 1994, a related injury claim
was settled for approximately $2.2 million and On The Border was released from
further liability.
Brinker is engaged in various other 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 1996 and 1995 (in thousands, except per share amounts):
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
Fiscal Year 1995
Quarters Ended
Sept. 28 Dec. 28 March 29 June 28
Revenues $247,072 $246,607 $268,487 $280,033
Income Before Provision
for Income Taxes 28,756 24,728 27,722 30,214
Net Income 18,548 16,073 18,241 19,882
Primary Net Income Per Share 0.25 0.22 0.25 0.27
Primary Weighted Average
Shares Outstanding 74,799 74,391 74,110 73,928
INDEPENDENT AUDITORS REPORT
The Board of Directors
Brinker International, Inc.:
We have audited the accompanying consolidated balance sheets of Brinker
International, Inc. and subsidiaries as of June 26, 1996 and June 28, 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the years in the three-year period ended June 26, 1996.
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 26, 1996 and June 28, 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended June 26, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
August 2, 1996
EXHIBIT 21
BRINKER INTERNATIONAL, INC., A DELAWARE CORPORATION
SUBSIDIARIES
REGISTRANT'S subsidiaries operate full-service restaurants in various
locations throughout the United States under the names Chili's Grill & Bar,
Romano's Macaroni Grill, On The Border Mexican Cafe, Cozymel's Coastal Mexican
Grill, Maggiano's Little Italy, Corner Bakery, and a market store and bakery
under the name Eatzi's Market and Bakery.
BRINKER RESTAURANT CORPORATION, a Delaware corporation
MAGGIANO'S/CORNER BAKERY, INC., an Illinois corporation
BRINKER ALABAMA, INC., a Delaware corporation
BRINKER ARKANSAS, INC., a Delaware corporation
BRINKER CONNECTICUT CORPORATION, a Delaware corporation
BRINKER DELAWARE, INC., a Delaware corporation
BRINKER FLORIDA, INC., a Delaware corporation
BRINKER GEORGIA, INC., a Delaware corporation
BRINKER IDAHO CORPORATION, a Delaware corporation
BRINKER INDIANA, INC., a Delaware corporation
BRINKER IOWA, INC., a Delaware corporation
BRINKER KENTUCKY, INC., a Delaware corporation
BRINKER LOUISIANA, INC., a Delaware corporation
BRINKER MASSACHUSETTS CORPORATION, a Delaware corporation
BRINKER MISSOURI, INC., a Delaware corporation
BRINKER MISSISSIPPI, INC., a Delaware corporation
BRINKER NEVADA, INC., a Nevada corporation
BRINKER NEW JERSEY, INC., a Delaware corporation
BRINKER NORTH CAROLINA, INC., a Delaware corporation
BRINKER OHIO, INC., a Delaware corporation
BRINKER OKLAHOMA, INC., a Delaware corporation
BRINKER SOUTH CAROLINA, INC., a Delaware corporation
BRINKER VIRGINIA, INC., a Delaware corporation
BRINKER TEXAS, L.P., a Texas limited partnership
CHILI'S BEVERAGE COMPANY, INC., a Texas corporation
CHILI'S, INC., a Tennessee corporation
EATZI'S CORPORATION, a Delaware corporation
CHILI'S OF MINNESOTA, INC., a Minnesota corporation
CHILI'S OF KANSAS, INC., a Kansas corporation
BRINKER PENN TRUST, a Pennsylvania business trust
CHILI'S OF WEST VIRGINIA, INC., a West Virginia corporation
CHILI'S OF WISCONSIN, INC., a Wisconsin corporation
BRINKER FREEHOLD, INC., a New Jersey corporation
MAGGIANO'S OF TYSON'S INC., a Virginia corporation
ROMANO'S OF ANNAPOLIS, INC., a Maryland corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Brinker International, Inc.:
We consent to incorporation by reference in the Registration Statement
Nos. 33-61594, 33-56491, and 333-02201 on Form S-8 and Nos. 33-53965, 33-
55181, 33-63551, 333-00169, and 333-07481 on Form S-3, of Brinker
International, Inc. of our report dated August 2, 1996, relating to the
consolidated balance sheets of Brinker International, Inc. and subsidiaries as
of June 26, 1996 and June 28, 1995 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended June 26, 1996, which report is incorporated by
reference in the June 26, 1996 annual report on Form 10-K of Brinker
International, Inc.
/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Dallas, Texas
September 23, 1996
EXHIBIT 27
FINANCIAL DATA SCHEDULE
[Filed With EDGAR Version]
EXHIBIT 99
PROXY STATEMENT OF REGISTRANT
DATED SEPTEMBER 24, 1996
DIRECTORS AND EXECUTIVE OFFICERS
Directors
A brief description of each person nominated to become a director of the
Company is provided below. All nominees are currently serving as directors of
the Company, each having been elected at the last annual meeting of the
Company's shareholders held on November 2, 1995.
Norman E. Brinker, 65, served as Chairman of the Board of Directors and
Chief Executive Officer of the Company from September 1983 to June 1995, with
the exception of a brief period during which Mr. Brinker was incapacitated due
to an injury. Mr. Brinker continues to serve as Chairman of the Board of
Directors. Mr. Brinker is a member of the Executive and Nominating Committees
of the Company. He was the founder of S&A Restaurant Corp., having served as
its President from February 1966 through May 1977 and as its Chairman of the
Board of Directors and Chief Executive Officer from May 1977 through July
1983. From June 1982 through July 1983, Mr. Brinker served as Chairman of the
Board of Directors and Chief Executive Officer of Burger King Corporation,
while simultaneously occupying the position of President of The Pillsbury
Company Restaurant Group. Mr. Brinker currently serves as a member of the
Board of Directors of Haggar Apparel Company.
Gerard V. Centioli, 42, was elected Senior Vice President -
Maggiano's/Corner Bakery Concepts President in August 1995 and Senior Vice
President - Italian Concepts President in January 1996. Mr. Centioli
previously served as Senior Partner of Lettuce Entertain You Enterprises, Inc.
and President and Chief Executive Officer of the Maggiano's Little Italy and
The Corner Bakery Divisions. Prior to joining Lettuce Entertain You in 1984,
Mr. Centioli served as Vice President - Division President of Collins Foods
International, Inc. Mr. Centioli has served as a member of the Board of
Directors of the Company since November 1995.
Creed L. Ford, III, 43, elected Executive Vice President and Chief
Operating Officer in October 1995, joined the Company's predecessor in
September 1976 as an Assistant Manager and was promoted to the position of
Restaurant General Manager in March 1977. In September 1978, Mr. Ford became
Director of Operations of the Company. He was elected Vice President -
Operations of the Company in October 1983, Senior Vice President - Operations
in November 1984, and Executive Vice President - Operations in April 1986.
Mr. Ford has served as a member of the Board of Directors of the Company since
April 1985. Mr. Ford also is a director of Howard Wolf, Inc.
Ronald A. McDougall, 54, was elected President and Chief Executive
Officer of the Company in June 1995 having formerly held the office of
President and Chief Operating Officer since 1986. Mr. McDougall joined the
Company in 1983 and served as Executive Vice President - Marketing and
Strategic Development until his promotion to President. Prior to joining the
Company, Mr. McDougall held senior management positions at Proctor and Gamble,
Sara Lee, The Pillsbury Company and S&A Restaurant Corp. Mr. McDougall has
served as a member of the Board of Directors of the Company since September
1983 and is a member of the Executive and Nominating Committees of the
Company. Mr. McDougall is also a director of Excel Communications, Inc.
Debra L. Smithart, 42, was elected Executive Vice President - Chief
Financial Officer of the Company in September 1991. Ms. Smithart joined the
Company as Assistant Controller in June 1985. In February 1986 she was
promoted to the position of Controller and served in this capacity until
December 1988 when she was elected Vice President - Controller. In March
1991, Ms. Smithart was promoted to Vice President - Finance and held this
position until September 1991. Prior to joining the Company, Ms. Smithart
worked in various financial/accounting capacities in the public accounting,
oil & gas, real estate, and manufacturing industries. Ms. Smithart has served
as a member of the Board of Directors of the Company since September 1991.
Jack W. Evans, 74, is currently President of Jack Evans Investments,
Inc. and Chairman of the Board of American Title Company. Mr. Evans is a
member of the Executive, Nominating and Compensation Committees of the Company
and has served as a member of the Company's Board of Directors since September
1983. He served as Chairman, Chief Executive Officer and President of Cullum
Companies, Inc., a retail food and drugstore chain from 1977 to 1990. He
served as Mayor of the City of Dallas from May 1981 to May 1983. He is also a
director of Randall's-Tom Thumb, Morning Star Group, and Ray Acquisitions,
Inc.
Rae F. Evans, 48, is currently President of Rae Evans & Associates, a
firm specializing in Washington corporate strategies. From 1982 until January
1995, Mrs. Evans was the Vice President, National Affairs of Hallmark Cards,
Inc. Mrs. Evans is a member of the Nominating Committee of the Company and
has served as a member of the Board of Directors since January 1990. She is a
member of the Business-Government Relations Council and is a past president of
the organization. She is President of the Capitol Forum and a member of the
Economic Club of Washington. Mrs. Evans is also a member of the Catalyst
Board of Advisors and the National Women's Economic Alliance. Mrs. Evans
serves on the Board of Directors of Haggar Apparel Company.
J. M. Haggar, Jr., 71, is currently the owner of J.M. Haggar, Jr.
Investments, a business he has operated since retiring as Chairman of the
Board of Directors of Haggar Apparel Company, in February 1995. Mr. Haggar
previously held the positions of President and Chief Executive Officer of
Haggar Apparel Company until 1991. He is also a director of ENSERCH
Corporation. Mr. Haggar is a member of the Executive, Compensation, and Audit
Committees of the Company and has served as a member of the Company's Board of
Directors since April 1985.
Frederick S. Humphries, 60, is the President of Florida A&M University
in Tallahassee, Florida having held this position since 1985. Prior to
joining Florida A&M University, Dr. Humphries was President of Tennessee State
University in Nashville for over 11 years. Dr. Humphries serves as Chairman
of the State Board of Education Advisory Committee on the Education of Blacks
in Florida and is Chairman of the Board of Regents, Five-Year Working Group
for Agriculture, State University System of Florida in addition to being
involved in various civic and community activities. Mr. Humphries has served
on the Board of Directors of the Company since May 1994 and is a member of the
Audit Committee of the Company. He is also a member of the Board of Directors
of Pride of Florida and Wal-Mart, Inc.
James E. Oesterreicher, 55, is the Vice Chairman and Chief Executive
Officer of J.C. Penney Company, Inc., having been elected to this position in
January 1995. Mr. Oesterreicher served as President of JCPenney Stores and
Catalog from 1992 to 1995 and as Executive Vice President of JCPenney Stores
and Catalog from 1988 to 1992. Mr. Oesterreicher has been with the J.C.
Penney Company since 1964 where he started as a management trainee. He serves
as a Director for various entities, including Presbyterian Healthcare Systems,
Presbyterian Hospital of Plano, Circle Ten Council--Boy Scouts of America,
National 4-H Council, National Organization on Disabilities, Texas Utilities
Company, and March of Dimes Birth Defects Foundation. He also serves as an
advisory board member for the Center for Retailing, Education and Research at
the University of Florida. Mr. Oesterreicher has served as a member of the
Board of Directors of the Company since May 1994 and is a member of the Audit
and Nominating Committees of the Company.
Roger T. Staubach, 54, has been Chairman of the Board and Chief
Executive Officer of The Staubach Company, a national real estate company
specializing in tenant representation, since 1982. He has served as a member
of the Board of Directors of the Company since May 1993 and is a member of the
Executive and Compensation Committees of the Company. Mr. Staubach is a 1965
graduate of the U.S. Naval Academy and served four years in the Navy as an
officer. In 1968, he joined the Dallas Cowboys professional football team as
quarterback and was elected to the National Football League Hall of Fame in
1985. He currently serves on the Board of Directors of Halliburton Company,
First USA, Inc., Life Partners Group, American AAdvantage Funds and Columbus
Realty Trust and is active in numerous civic, charity and professional
organizations.
Executive Officers
The following persons are executive officers of the Company who are not
nominated to serve on the Company's Board of Directors:
Douglas H. Brooks, 44, joined the Company as an Assistant Manager in
February 1978 and was promoted to General Manager in April 1978. In March
1979, Mr. Brooks was promoted to Area Supervisor and in May 1982 to Regional
Director. He was again promoted in March 1987 to Senior Vice President-
Central Region Operations and to the position of Concept Head and Senior Vice
President-Chili's Operations in June 1992. Mr. Brooks was promoted to his
current position of Senior Vice President - Chili's Grill & Bar Concept
President in June 1994. Prior to joining the Company, Mr. Brooks helped
manage the first two Luther's Barbecue units.
F. Lane Cardwell, Jr., 44, was elected Executive Vice President -
Eatzi's Concept President in June 1996, having formerly held the positions of
Executive Vice President - Strategic Development from June 1992 until October
1995 and Executive Vice President and Chief Administrative Officer from
October 1995 until June 1996. Prior to this time, Mr. Cardwell held the
position of Senior Vice President - Strategic Development since December 1990.
Mr. Cardwell joined the Company as Vice President - Strategic Development in
August 1988, having been previously employed by S&A Restaurant Corp. from
November 1978 to August 1988, during which time he served as Vice President -
Strategic Planning and Senior Vice President - Strategic Planning.
Mr. Cardwell served as a member of the Board of Directors of the Company from
1991 to 1996.
John C. Miller, 41, joined the Company as Vice President-Special
Concepts in September 1987. In October 1988, he was elected as Vice
President-Joint Venture/Franchise and served in this capacity until August
1993 when he was promoted to Senior Vice President-New Concept Development.
Mr. Miller was named Senior Vice President - Mexican Concepts in September
1994 and was subsequently elected as Senior Vice President - Mexican Concepts
President in October 1995. Mr. Miller worked in various capacities with the
Taco Bueno Division of Unigate Restaurants prior to joining the Company.
Roger F. Thomson, 47, joined the Company as Senior Vice President,
General Counsel and Secretary in April 1993 and was promoted to Executive Vice
President, General Counsel and Secretary in March 1994. In June 1996,
Mr. Thomson was promoted to the position of Executive Vice President, Chief
Administrative Officer, General Counsel and Secretary and was a Director of
the Company from 1993 until 1995. From 1988 until April 1993, Mr. Thomson
served as Senior Vice President, General Counsel and Secretary for Burger King
Corporation. Prior to 1988, Mr. Thomson spent ten years at S & A Restaurant
Corp. where he was Executive Vice President, General Counsel and Secretary.
Classes of Directors
For purposes of determining whether non-employee directors will be
nominated for reelection to the Board of Directors, the non-employee directors
have been divided into four classes. Each non-employee director will continue
to be subject to reelection by the shareholders of the Company each year.
However, after a non-employee director has served on the Board of Directors
for four years, such director shall be deemed to have been advised by the
Nominating Committee that he or she will not stand for reelection at the
subsequent annual meeting of shareholders and shall be considered a "Retiring
Director". Notwithstanding this policy, the Nominating Committee may
determine that it is appropriate to renominate any or all of the Retiring
Directors after first considering the appropriateness of nominating new
candidates for election to the Board of Directors. The four classes of non-
employee directors are as follows: Mr. Staubach comprises Class 4 and will be
considered a Retiring Director as of the annual meeting of shareholders
following the end of the 1997 fiscal year. Messrs. Evans, Humphries, and
Oesterreicher and Mrs. Evans comprise Class 1 and will be considered Retiring
Directors as of the annual meeting of shareholders following the end of the
1998 fiscal year. There are no members of Class 2. Mr. Haggar comprises
Class 3 and will be considered a Retiring Director as of the annual meeting of
shareholders following the end of the 2000 fiscal year. Although not a
Retiring Director, Mr. J. Ira Harris has chosen not to seek reelection to the
Board of Directors.
Committees of the Board of Directors
The Board of Directors of the Company has established an Executive
Committee, Audit Committee, Compensation Committee, and Nominating Committee.
The Executive Committee (currently comprised of Messrs. Brinker, McDougall,
Evans, Haggar and Staubach) met seven (7) times during the fiscal year and has
authority to act for the Board on most matters during the intervals between
Board meetings.
All of the members of the Audit and Compensation Committees are
directors independent of management who are not and never have been officers
or employees of the Company. The Audit Committee is currently comprised of
Messrs. Haggar, Harris, Humphries and Oesterreicher and the Committee met two
(2) times during the fiscal year. Included among the functions performed by
the Audit Committee are: the review with independent auditors of the scope of
the audit and the results of the annual audit by the independent auditors;
consideration and recommendation to the Board of the selection of the
independent auditors for the next year; the review with management and the
independent auditors of the annual financial statements of the Company; and
the review of the scope and adequacy of internal audit activities.
The Compensation Committee is currently comprised of Messrs. Evans,
Haggar, Harris and Staubach and it met six (6) times during the fiscal year.
Functions performed by the Compensation Committee include: ensuring the
effectiveness of senior management and management continuity, ensuring the
reasonableness and appropriateness of senior management compensation
arrangements and levels, the adoption, amendment and administration of stock-
based incentive plans (subject to shareholder approval where required),
management of the various stock option plans of the Company, approval of the
total number of available shares to be used each year in stock-based plans,
approval of the adoption and amendment of significant compensation plans and
approval of all compensation actions for officers, particularly at and above
the level of executive vice president. The specific nature of the Committee's
responsibilities as it relates to executive officers are set forth below under
"Report of the Compensation Committee."
The purpose of the Nominating Committee is to recommend to the Board of
Directors potential non-employee members to be added as new or replacement
members to the Board of Directors. The Nominating Committee is composed of
Messrs. Brinker, Evans, McDougall and Oesterreicher and Mrs. Evans and did not
meet during the fiscal year.
Directors' Compensation
Directors who are not employees of the Company receive $1,000 for each
meeting of the Board of Directors attended and $1,000 for each meeting of any
committee of the Board of Directors attended. The Company also reimburses
directors for costs incurred by them in attending meetings of the Board.
Directors who are not employees of the Company receive grants of stock
options under the Company's 1991 Stock Option Plan for Non-Employee Directors
and Consultants. New directors who are not employees of the Company have the
option at the beginning of each Director term to receive as additional
compensation for serving on the Board of Directors either an annual cash
payment of $30,000 during the term such non-employee serves as a director, a
one-time grant of 12,000 stock options under the Company's 1991 Stock Option
Plan for Non-Employee Directors and Consultants, or a combination of cash and
stock options. If the director is appointed to the Board of Directors at any
time other than at an annual meeting of shareholders, the director will
receive a prorated portion of the annual cash compensation for the period from
the date of election or appointment to the Board of Directors until the
meeting of the Board of Directors held contemporaneous with the next annual
meeting of shareholders. If the director elects to receive cash, the first
payment will be made at such Board of Directors meeting and the following
payments will be made on the date of each annual meeting of shareholders
thereafter. If the director elects to receive stock options, they will be
granted as of the 60th day following such meeting (or if the 60th day is not a
business day, on the first business day thereafter). The stock options will
be granted at the fair market value on the date of grant. One-third of the
options will vest on each of the second, third and fourth anniversaries of the
date of grant.
If a Retiring Director is renominated to serve on the Board of Directors
for an additional four-year period, such Retiring Director will be treated as
a new director for purposes of determining compensation during such additional
four-year period.
If the shareholders of the Company approve the amendment described under
"Amendment of 1991 Stock Option Plan for Non-Employee Directors and
Consultants," a new director who is not an employee of the Company will
receive as compensation (a) 20,000 stock options at the beginning of such
director's term, and (b) an annual cash payment of $36,000, at least 25% of
which must be taken in the form of stock options. If a director is appointed
to the Board of Directors at any time other than at an annual meeting of
shareholders, the director will receive a prorated portion of the annual cash
compensation for the period from the date of election or appointment to the
Board of Directors until the meeting of the Board of Directors held
contemporaneous with the next annual meeting of shareholders. If a director
elects to receive cash, the first payment will be made at the Board of
Directors' meeting held contemporaneous with the next annual meeting of
shareholders. The stock options will be granted as of the 60th day following
such meeting (or if the 60th day is not a business day, on the first business
day thereafter) at the fair-market value on the date of grant. One-third
(1/3rd) of the options will vest on each of the second, third and fourth
anniversaries of the date of grant. If a director is being nominated for an
additional term on the Board of Directors, each such renominated director will
receive an additional grant of 10,000 stock options at the beginning of such
director's new term.
Current directors who are not employees of the Company are also eligible
for additional compensation under this compensation program. Each of the
current non-employee directors will receive for each year remaining in such
director's term on the Board of Directors (i) an additional $6,000 in annual
cash compensation and (ii) a grant of 5,000 stock options.
For purposes of applying this new compensation program to the current
non-employee directors of the Company, Mrs. Evans would receive an annual cash
retainer of $16,000 and a grant of 15,000 stock options; Mr. Evans would
receive an annual cash retainer of $6,000 and a grant of 15,000 stock options;
Mr. Haggar would receive an annual cash retainer of $16,000 and a grant of
5,000 stock options; Dr. Humphries would receive an annual cash retainer of
$16,000 and a grant of 15,000 stock options; Mr. Oesterreicher would receive
an annual cash retainer of $6,000 and a grant of 15,000 stock options; and Mr.
Staubach would receive an annual cash retainer of $6,000 and a grant of 10,000
stock options.
During the year ended June 26, 1996, the Board of Directors held seven
(7) meetings; each incumbent director attended 75% of the aggregate total of
meetings of the Board of Directors and Committees on which he or she served.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the annual
compensation for the Company's five highest compensated executive officers,
including the Chief Executive Officer, whose salary and bonus exceeded
$100,000 in fiscal 1996.
Summary Compensation Table
Long-Term Compensation
Awards Payouts
Securities Long-Term
Name and Annual Compensation Underlying Incentive All Other
Principal Position Year Salary Bonus Options Payouts Compensation (1)
Ronald A. McDougall
President and Chief 1996 $ 744,808 $ --- 375,000 $ 69,860 $ 18,396
Executive Officer 1995 $ 574,038 $ 278,839 125,000 $ 86,565 $ 50,555
1994 $ 529,327 $ 567,439 202,500 $ 93,940 $ 22,547
Creed L. Ford, III
Executive Vice 1996 $ 409,038 $ --- 90,000 $ 46,574 $ 8,271
President and Chief 1995 $ 359,615 $ 130,361 30,000 $ 63,481 $ 8,795
Operating Officer 1994 $ 343,942 $ 275,154 56,250 $ 68,889 $ 7,305
Debra L. Smithart
Executive Vice 1996 $ 304,423 $ --- 90,000 $ 46,574 $ 6,828
President and Chief 1995 $ 264,038 $ 95,714 30,000 $ 63,481 $ 11,805
Financial Officer 1994 $ 232,500 $ 186,000 56,250 $ 50,101 $ 5,471
Douglas H. Brooks
Senior Vice President 1996 $ 311,058 $ --- 90,000 $ 31,049 $ 12,830
- Chili's Grill & Bar 1995 $ 266,249 $ 77,212 30,000 $ 40,397 $ 15,636
Concept President 1994 $ 232,884 $ 135,772 45,000 $ 43,839 $ 12,582
F. Lane Cardwell, Jr.
Executive Vice 1996 $ 290,385 $ --- 90,000 $ 46,574 $ 15,007
President - Eatzi's 1995 $ 224,422 $ 81,353 30,000 $ 63,481 $ 19,236
Concept President 1994 $ 201,346 $ 161,077 56,250 $ 43,839 $ 9,760
(1) All other compensation represents Company match on deferred compensation.
Option Grants During 1996 Fiscal Year
The following table contains certain information concerning the grant of
stock options to the executive officers named in the above compensation table
during the Company's last fiscal year:
% of Total Realizable Value of
Options Assumed Annual Rates of
Granted to Stock Price Appreciation
Options Employees in Exercise or Expiration for Option Term (1)
Name Granted Fiscal Year Base Price Date 5% 10%
Ronald A. McDougall 125,000 $12.00 10/25/05 $ 943,342 $2,390,614
250,000 $13.00 1/30/06 $2,043,908 $5,179,663
375,000 17.90% $2,987,250 $7,570,277
Creed L. Ford, III 30,000 $12.00 10/25/05 $ 226,402 $ 573,747
60,000 $13.00 1/30/06 $ 490,538 $1,243,119
90,000 4.30% $ 716,940 $1,816,866
Debra L. Smithart 30,000 $12.00 10/25/05 $ 226,402 $ 573,747
60,000 $13.00 1/30/06 $ 490,538 $1,243,119
90,000 4.30% $ 716,940 $1,816,866
Douglas H. Brooks 30,000 $12.00 10/25/05 $ 226,402 $ 573,747
60,000 $13.00 1/30/06 $ 490,538 $1,243,119
90,000 4.30% $ 716,940 $1,816,866
F. Lane Cardwell, Jr. 30,000 $12.00 10/25/05 $ 226,402 $ 573,747
60,000 $13.00 1/30/06 $ 490,538 $1,243,119
90,000 4.30% $ 716,940 $1,816,866
(1) The dollar amounts under these columns are the result of calculations at the 5% and 10%
rates set by the Securities and Exchange Commission and, therefore, are not intended to
forecast possible future appreciation, if any, of the Company's stock price.
Stock Option Exercises and Fiscal Year-End Value Table
The following table shows stock option exercises by the named officers
during the last fiscal year, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options at fiscal year-
end. Also reported are the values for "in-the-money" options which represent
the position spread between the exercise price of any such existing options
and the $15.50 fiscal year-end price of the Company's Common Stock.
Shares Value of Unexercised
Acquired Number of Unexercised In-the-Money Options at
On Value Options at Fiscal Year End Fiscal Year End
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Ronald A. McDougall -0- -0- 588,750 601,250 $ 715,478 $1,062,500
Creed L. Ford, III -0- -0- 852,519 148,125 $7,196,672 $ 255,000
Debra L. Smithart 11,509 $38,682 145,716 148,125 $ 66,000 $ 255,000
Douglas H. Brooks 6,000 $79,032 406,228 142,500 $3,236,365 $ 255,000
F. Lane Cardwell, Jr. -0- -0- 187,875 148,125 $ 358,405 $ 255,000
Long-Term Executive Profit Sharing Plan and Awards
Executives of the Company participate in the Long-Term Executive Profit
Sharing Plan. See "Report of the Compensation Committee -- Long-Term
Incentives" for more information regarding this plan. The following table
represents awards granted in the last fiscal year under the Long-Term
Executive Profit Sharing Plan.
Number of Estimated Future Payouts
Name Units Awarded Under Non-Stock Based Plans
(Dollars)
Threshold Target Maximum
Ronald A. McDougall 1,000 $66,667 $100,000 *
Creed L. Ford, III 600 $40,000 $ 60,000 *
Debra L. Smithart 600 $40,000 $ 60,000 *
Douglas H. Brooks 500 $33,333 $ 50,000 *
F. Lane Cardwell, Jr. 600 $40,000 $ 60,000 *
* There is no maximum future payout under the Long-Term Executive Profit Sharing Plan.
REPORT OF THE COMPENSATION COMMITTEE
Compensation Philosophy
The executive compensation program is designed as a tool to reinforce
the Company's strategic principles -- to be a premier and progressive growth
company with a balanced approach towards people, quality and profitability and
to enhance long-term shareholder value. To this end, the following principles
have guided the development of the executive compensation program:
Provide competitive levels of compensation to attract and retain the
best qualified executive talent. The Committee strongly believes that
the caliber of the Company's management group makes a significant
difference in the Company's sustained success over the long term.
Embrace a pay-for-performance philosophy by placing significant amounts
of compensation "at risk" -- that is, compensation payouts to executives
must vary according to the overall performance of the Company.
Directly link executives' interests with those of shareholders by
providing opportunities for long-term incentive compensation based on
changes in shareholder value.
The executive compensation program is intended to appropriately balance
the Company's short-term operating goals with its long-term strategy through a
careful mix of base salary, annual cash incentives and long-term performance
compensation including cash incentives and incentive stock options.
Base Salaries
Executives' base salaries are targeted to be competitive at the 75th
percentile of the market for positions of similar responsibility and scope at
the Vice President and Senior Vice President levels and, to reflect the
exceptionally high level of executive talent required to execute the growth
plans of the Company, at the 90th percentile of the market for the President
and Chief Executive Officer and for the Executive Vice Presidents.
Positioning executives' base salaries at these levels is needed for
attracting, retaining and motivating executives with the essential
qualifications for managing the Company's growth. The Company defines the
relevant labor market for such executive talent through the use of reliable
executive salary surveys that reflect both the chain restaurant industry as
well as a broader cross-section of high growth companies from many industries.
Individual base salary levels are determined by considering each officer's
level of responsibility, performance, experience, and tenure. The overall
amount of base salary increases awarded to executives reflects the financial
performance of the Company, individual performance and potential, and/or
changes in an officer's duties and responsibilities.
Annual Incentives
The Company's Profit Sharing Plan is a non-qualified annual incentive
arrangement in which all Dallas-based corporate employees, including
executives, participate. The program is designed to reflect employees'
contribution to the growth of the Company's common stock value by increasing
the earnings of the Company. The plan reinforces a strong teamwork ethic by
making the basis for payouts to executives the same as for all other Company
employees.
At the beginning of a fiscal year, each executive is assigned an
Individual Participation Percentage ("IPP") which is tied to the base salary
for such executive and targets overall total cash compensation for executives
between the 75th and 90th percentiles of the market. The IPPs reflect the
Committee's desire that a significant percentage of executives total
compensation be derived from variable pay programs.
401(k) Savings Plan and Savings Plan II
On January 1, 1993, the Company implemented the 401(k) Savings Plan
("Plan I") and Savings Plan II ("Plan II"). These Plans are designed to
provide the Company's salaried employees with a tax-deferred long-term savings
vehicle. The Company provides a matching contribution equal to 25% of a
participant's contribution, up to a maximum of 5% of such participant's
compensation.
Plan I is a qualified 401(k) plan. Participants in Plan I elect the
percentage of pay they wish to contribute as well as the investment
alternatives in which their contributions are to be invested. The Company's
matching contribution for all Plan I participants is made in Company common
stock. All participants in Plan I are considered non-highly compensated
employees as defined by the Internal Revenue Service. Participants'
contributions vest immediately while Company contributions vest 25% annually,
beginning in the participant's second year of eligibility since Plan I
inception.
Plan II is a non-qualified deferred compensation plan. Plan II
participants elect the percentage of pay they wish to defer into their Plan II
account. They also elect the percentage of their deferral account to be
allocated among various investment options. The Company's matching
contribution for all non-officer Plan II participants is made in Company
common stock, with corporate officers receiving a Company match in cash.
Participants in Plan II are considered highly compensated employees according
to the Internal Revenue Service. A participant's contributions vest
immediately while Company contributions vest 25% annually, beginning in the
participant's second year of eligibility since Plan II inception.
Long-Term Incentives
All salaried employees of the Company, including executives, are
eligible for annual grants of tax-qualified stock options. By tying a
significant portion of executives' total opportunity for financial gain to
increases in shareholder wealth as reflected by the market price of the
Company's common stock, executives' interests are closely aligned with
shareholders' long-term interests. In addition, because the Company does not
maintain any qualified retirement programs for executives, the stock option
plan is intended to provide executives with opportunities to accumulate wealth
for later retirement.
Stock options are rights to purchase shares of the Company's Common
Stock at the fair market value on the date of grant. Grantees do not receive
a benefit from stock options unless and until the market price of the
Company's common stock increases. Fifty-percent (50%) of a stock option grant
becomes exercisable two years after the grant date; the remaining 50% of a
grant becomes exercisable three years after the grant date.
The number of stock options granted to an executive is based on grant
guidelines that reflect an officer's position within the Company. The
Compensation Committee reviews and approves grant amounts for executives.
Executives also participate in the Long-Term Executive Profit Sharing
Plan, a non-qualified long-term performance cash plan. This plan provides an
additional mechanism for focusing executives on the sustained improvement in
operating results over the long term. This is a performance-related plan
using overlapping three-year cycles paid annually. Performance units (valued
at $100 each) are granted to individuals and paid in cash based upon the
Company's attainment of predetermined performance objectives. Long-term
operating results are measured by evaluating both pre-tax net income (weighted
70%) and changes in shareholders' equity (weighted 30%) over three-year
cycles.
Pay/Performance Nexus
The Company's executive compensation program has resulted in a direct
relationship between the compensation paid to executive officers and the
Company's performance. See "Five-Year Total Shareholder Return Comparison"
below.
CEO Compensation
The Compensation Committee made decisions regarding Mr. McDougall's
compensation package according to the guidelines discussed in the preceding
sections. Mr. McDougall was awarded salary increases in the amount of 9% and
4%, effective January 1, 1996 and June 1, 1996, respectively, to recognize his
vast experience in the restaurant industry, the Company's performance under
his leadership and his significant contributions to the Company's continued
success. Mr. McDougall was granted 1,000 units under the Long-Term Executive
Profit Sharing Plan for the cycle which includes fiscal years 1996, 1997, and
1998. Mr. McDougall was also awarded 375,000 stock options under the
Company's stock option plan. Due to the Company's short-fall from plan, none
of Mr. McDougall's compensation for 1996 was incentive pay pursuant to the
Company's Profit Sharing Plan. Like all Company executives, Mr. McDougall's
compensation is significantly affected by the Company's performance. In the
1996 fiscal year, Mr. McDougall's total compensation declined 16.5% from its
level in the 1995 fiscal year.
Federal Income Tax Considerations
The Compensation Committee has considered the impact of Section 162(m)
of the Internal Revenue Code adopted under the Omnibus Budget Reconciliation
Act of 1993. This section disallows a tax deduction for any publicly-held
corporation for individual compensation to certain executives of such
corporation exceeding $1,000,000 in any taxable year, unless compensation is
performance-based. It is the intent of the Company and the Compensation
Committee to qualify to the maximum extent possible its executives'
compensation for deductibility under applicable tax laws. The Compensation
Committee believes that the Company's compensation programs provide the
necessary incentives and flexibility to promote the Company's performance-
based compensation philosophy while being consistent with Company objectives.
The Compensation Committee's administration of the executive
compensation program is in accordance with the principles outlined at the
beginning of this report. Due to the Company's short-fall from plan during
the past year, none of the Company's executives received incentive pay
pursuant to the Company's Profit Sharing Plan. The Company's financial
performance supports the compensation practices employed during the past year.
Respectfully submitted,
COMPENSATION COMMITTEE
JACK W. EVANS, SR.
J.M. HAGGAR, JR.
J. IRA HARRIS
ROGER T. STAUBACH
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned by the principal
shareholders of the Company.
Beneficial Ownership
Name and Address Number of Shares(1) Percent
Fidelity Management Research 11,494,200 14.9%
82 Devonshire Street
Boston, Massachusetts 02109
The Capital Group Companies, Inc. 11,448,250 14.8%
333 South Hope Street
Los Angeles, California 90071
(1) As of June 30, 1996. Based on information supplied via
direct communication.
SECURITY OWNERSHIP OF MANAGEMENT
AND ELECTION OF DIRECTORS
Eleven (11) directors are to be elected at the meeting. Each nominee
will be elected to hold office until the next annual meeting of the
shareholders or until his or her successor is elected and qualified. To be
elected a director, each nominee must receive a plurality of all of the votes
cast at the meeting for the election of directors. Should any nominee become
unable or unwilling to accept nomination or election, the proxy holders may
vote the proxies for the election, in his or her stead, of any other person
the Board of Directors may recommend. All nominees have expressed their
intention to serve the entire term for which election is sought. The
following table sets forth certain information concerning security ownership
of management and nominees for election as directors of the Company:
Number of Shares Number Attributable to
of Common Stock Options Exercisable
Beneficially Owned as Within 60 Days of Percent of
Name as of September 9, 1996 (1)(2) September 9, 1996 Class
Norman E. Brinker 1,922,759(3) 832,500 2.49%
Douglas H. Brooks 417,850 406,228 *
F. Lane Cardwell, Jr. 207,897 187,875 *
Gerard V. Centioli 300,462(4) -0- *
Creed L. Ford, III 884,729 852,519 1.15%
Ronald A. McDougall 608,772 588,750 *
Debra L. Smithart 179,785 145,716 *
Jack W. Evans, Sr. 83,592 15,250 *
Rae F. Evans 15,335(5) 11,875 *
J.M. Haggar, Jr. 117,520 17,250 *
Frederick S. Humphries 1,150 1,000 *
James E. Oesterreicher 1,500 1,000 *
Roger T. Staubach 17,500 7,000 *
All executive officers
and directors as a
group (15 persons) 4,943,781 3,243,871 6.40%
* Less than one percent (1%)
(1) Beneficial ownership has been determined in accordance with the rules of the Securities and
Exchange Commission. Except as noted, the listed individuals have sole investment power and sole
voting power as to all shares of stock of which they are identified as being the beneficial owners.
(2) Includes shares of Common Stock which may be acquired by exercise of exercisable options
granted or vesting under the Company's 1983 Incentive Stock Option Plan, the 1984 Non-Qualified Stock
Option Plan, the 1992 Incentive Stock Option Plan and the 1991 Stock Option Plan for Non-Employee
Directors and Consultants, as applicable.
(3) Includes 20,250 shares of Common Stock held of record by a family trust of which
Mr. Brinker is trustee.
(4) Includes 2,000 shares of Common Stock held of record by a family trust of which Mr.
Centioli is trustee.
(5) Includes 1,875 shares of Common Stock held of record by a family trust of which Ms. Evans
is trustee.
The Company has established a guideline that all senior officers of the
Company own stock in the Company, believing that it is important to further
encourage and support an ownership mentality among the senior officers that
will continue to align their personal financial interests with the long-term
interests of the Company's shareholders. Pursuant to the guideline, the
minimum amount of Company Common Stock that a senior officer will be required
to own will be determined by such officer's position within the Company as
well as annual compensation. The Company has established a program with a
third-party lender pursuant to which the senior officers will be able to
obtain financing for purposes of attaining the minimum stock ownership levels
referred to above. Any loans obtained by such senior officers to finance such
stock acquisitions are facilitated by the Company pursuant to an agreement in
which the senior officer pledges the underlying stock and future incentive
payments which may be receivable from the Company as security for the loan.