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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 24, 1998 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 1,
1998 was $1,149,450,489.
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 1, 1998
Common Stock, $0.10 par value 65,859,510 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders
for the fiscal year ended June 24, 1998 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 18, 1998, for its annual meeting of shareholders on
October 29, 1998, are incorporated by reference into Part III
hereof, to the extent indicated herein.
PART I
Item 1. BUSINESS.
General
Brinker International, Inc. (the "Company") is
principally engaged in the operation, development and
franchising of the Chili's Grill & Bar ("Chili's"),
Romano's Macaroni Grill ("Macaroni Grill"), On The Border
Mexican Cafe ("On The Border"), Cozymel's Coastal Mexican
Grill ("Cozymel's"), Maggiano's Little Italy
("Maggiano's"), and the Corner Bakery ("Corner Bakery")
restaurant concepts. In addition, the Company is involved
in the operation and development of the Eatzi's Market and
Bakery ("Eatzi's"), Big Bowl ("Big Bowl"), and Wildfire
("Wildfire") concepts. 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 is a full-service Southwestern-themed
restaurant, featuring a casual atmosphere and a varied
menu of chicken, beef and seafood entrees, steaks,
hamburgers, ribs, fajitas, sandwiches, salads, appetizers
and desserts, all of which are prepared fresh daily
according to special Chili's recipes.
Chili's restaurants feature quick, efficient and
friendly table service designed to minimize customer
waiting time and facilitate table turnover, with an
average turnover time per table of approximately 45
minutes. Service personnel are dressed casually in jeans,
knit shirts and aprons to reinforce the casual, informal
environment. The decor of a Chili's restaurant consists of
booth seating, tile-top tables, hanging plants and wood
and brick walls covered with interesting memorabilia.
Emphasis is placed on serving substantial portions of
fresh, high quality food at modest prices. Entree
selections range in menu price from $4.99 to $12.99, with
the average revenue per meal, including alcoholic
beverages, approximating $9.87 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 24, 1998, food and
non-alcoholic beverage sales constituted approximately
86.7% of the concept's total restaurant revenues, with
alcoholic beverage sales accounting for the remaining
13.3%.
Romano's Macaroni Grill
Macaroni Grill is a casual, country-style Italian
restaurant which specializes in family-style recipes and
features seafood, meat, chicken, pasta, salads, pizza,
appetizers and desserts with a full-service bar in most
restaurants. Exhibition cooking, pizza ovens and
rotisseries provide an enthusiastic and exciting
environment in the restaurants. Macaroni Grill
restaurants also feature white linen-clothed tables,
fireplaces, sous stations and prominent displays of wines.
Service personnel are dressed in white, starched shirts
and aprons, dark slacks, and bright ties.
Entree selections range in menu price from $5.29 to
$16.99 with certain specialty items priced on a daily
basis. The average revenue per meal, including alcoholic
beverages, is approximately $13.65 per person. During the
year ended June 24, 1998, food and non-alcoholic beverage
sales constituted approximately 85.6% of the concept's
total restaurant revenues, with alcoholic beverage sales
accounting for the remaining 14.4%.
On The Border Mexican Cafe
On The Border restaurants are full-service, casual Tex-
Mex theme restaurants featuring 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 $5.55 to
$12.99, with the average revenue per meal, including
alcoholic beverages, approximating $11.36 per person.
During the year ended June 24, 1998, food and non-
alcoholic beverage sales constituted approximately 78.3%
of the concept's total restaurant revenues, with alcoholic
beverage sales accounting for the remaining 21.7%.
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.
Entree selections range in menu price from $5.49 to
$12.99 with the average revenue per meal, including
alcoholic beverages, approximating $13.36 per person.
During the year ended June 24, 1998, food and non-
alcoholic beverage sales constituted approximately 74.8%
of the concept's total restaurant revenues, with alcoholic
beverages accounting for the remaining 25.2%.
Maggiano's Little Italy
Maggiano's restaurants are designed as classic re-
creations of a New York City pre-war "Little Italy" dinner
house. Each of the Maggiano's restaurants is a casual,
full-service Italian restaurant with a full lunch and
dinner menu, a family-style menu, and banquet facilities,
offering southern Italian appetizers, homemade bread,
large portions of pasta, chicken, seafood, veal and steak,
and a full range of alcoholic beverages. Entree
selections range in menu price from $6.95 to $29.95, with
the average revenue per meal, including alcoholic
beverages, approximating $23.23 per person. During the
year ended June 24, 1998, food and non-alcoholic beverage
sales constituted approximately 79.3% of the concept's
total restaurant revenues, with alcoholic beverage sales
accounting for the remaining 20.7%.
Corner Bakery
The Corner Bakery is designed as a retail bakery in the
traditional, Old World bread bakery style. The Corner
Bakery offers handmade hearth-baked loaves, rolls,
muffins, brownies, cookies and specialty items all of
which are created fresh daily by artisan bakers. The
breads offered by the Corner Bakery include baguettes,
crusty country breads, country and specialty breads such
as raisin-pecan, Kalamata olive, chocolate sour-cherry,
cranberry-orange, multi-grain harvest, and ryes. In
addition, the Corner Bakery also offers pizza, sandwiches,
soups and salads.
While retaining an atmosphere of a working Old World
bakery, the Corner Bakery exemplifies casual elegance,
with most bakeries having both indoor and outdoor seating.
In addition to breads, breakfast and dessert sweets,
featured in the restaurants are chef-prepared fresh
salads, soups, sandwiches and pizzas. New savory foods,
breads and sweets are created seasonally to take advantage
of the highest quality ingredients available. The Corner
Bakery's catering group offers a wide range of gift
baskets, trays and lunch boxes for any scale from large
corporate events to a small, personal brunch or catered
dinner. Prices for menu items range from $1.00 to $7.95
with the average revenue per meal, including alcoholic
beverages, approximating $7.07 per person. During the
year ended June 24, 1998, food and non-alcoholic beverage
sales constituted approximately 99.9% of the concept's
total restaurant revenues, with alcoholic beverages
accounting for the remaining .1%.
Eatzi's Market and Bakery
Eatzi's is a home meal replacement retail store which
offers customers almost everything in the meal spectrum,
from fresh produce and raw meats and seafood to high-
quality, chef-prepared meals-to-go. Eatzi's also provides
a tremendous variety of "made from scratch" breads and
pastries along with dry groceries, deli meats and cheeses,
made-to-order salads and sandwiches, and fresh cut
flowers. Large selections of non-alcoholic beverages,
wine, and "create your own six-pack" beer are available to
complete the meal.
Eatzi's features an abundance of fresh, high-quality
meals, openly presented in distinctive areas, replicating
an energetic European marketplace with an exhibition
kitchen and bakery. The circular chef's display case is
the focal point of the store designed to channel customer
traffic around to other departments. There is limited
indoor and outdoor seating since the emphasis is on take-
out purchases. The chefs are professionally dressed in
white chef's coats and hats with black and white
houndstooth pants. Retail service personnel wear black
pants, white, banded collar shirts and green aprons.
Emphasis is placed on restaurant-quality cuisine,
prepared fresh daily by highly skilled and culinary-
trained chefs using Eatzi's unique recipes. Certain
designated menu items are rotated periodically to provide
variety and to augment the core menu. Corporate chefs are
constantly developing and testing new recipes to ensure
high-quality and ample variety in addition to keeping
ahead of the customer's changing taste profiles.
Individual meal selections range in price from $3.99 to
$10.99 with the average revenue per purchase, including
alcoholic beverages, approximating $15.00. During the
year ended June 24, 1998, food and non-alcoholic beverage
sales constituted 94.7% of the concept's total revenues,
with alcoholic beverages accounting for the remaining
5.3%.
Big Bowl
Big Bowl features contemporary Asian cuisine prepared
with fresh ingredients in a casual, vibrant atmosphere.
Big Bowl is distinguished by its authentic, full-flavored
menu that features five kinds of fresh noodles, chicken
pot stickers and dumplings, hand-rolled summer rolls,
seasonal stir-fry dishes featuring local produce, wok-
seared fish, and signature beverages, such as "homemade"
fresh ginger ale and tropical cocktails. Big Bowl's focus
on quality means garlic, ginger and lemon grass are
chopped daily, lemon juice is hand squeezed, and peanut
sauce is prepared with home-roasted peanuts. Big Bowl's
flavorful broths, curry pastes, dip sauces and condiments
are made from scratch. Big Bowl's interactive stir-fry
bar allows the guests to help themselves to a "Farmers'
Market" array of vegetables to be wok-cooked with their
own choice of sauces and meats with noodles or rice.
While honoring its Asian culinary tradition, Big Bowl
strives to deliver fine quality at great value, assisted
by a service team carefully trained to guide guests
through this new culinary experience. Entree selections
range in menu price from $6.95 to $12.95, with the average
revenue per meal, including alcoholic beverages,
approximating $16.46 per person. During the year ended
June 24, 1998, food and non-alcoholic beverage sales
constituted approximately 87.5% of the concept's total
restaurant revenues, with alcoholic beverage sales
accounting for the remaining 12.5%.
Wildfire
Wildfire restaurants are authentic 1940's style steak
houses featuring an open kitchen consisting of a hardwood
burning oven and rotisserie. Each of the Wildfire
restaurants is a casual, full-service restaurant offering
broiled steaks, chops, fresh seafood, barbecued ribs,
pizza, spit-roasted chicken, salads to share, and a full
line of cocktails with a complete wine list to complement
the menu. Entree selections range from $12.95 to $26.95,
with the average revenue per meal, including alcoholic
beverages, approximating $28.84 per person. During the
year ended June 24, 1998, food and non-alcoholic beverage
sales constituted approximately 77.5% of the concept's
total restaurant revenues, with alcoholic beverages
accounting for the remaining 22.5%.
Restaurant Locations
At June 24, 1998, the Company's system of company-
operated, joint venture and franchised units included 806
restaurants located in 46 states, Washington, D.C.,
Australia, Canada, China, Egypt, Great Britain, France,
Indonesia, Kuwait, Malaysia, Mexico, Peru, Philippines,
Puerto Rico, Singapore, South Korea, and United Arab
Emirates. The Company's portfolio of restaurants is
illustrated below:
Chili's:
Company-Operated 414
Franchise 159
Macaroni Grill:
Company-Operated 111
Franchise 2
On The Border:
Company-Operated 50
Franchise 15
Cozymel's 12
Maggiano's 7
Corner Bakery 30
Eatzi's 3
Big Bowl 2
Wildfire 1
TOTAL 806
The 573 Chili's restaurants include domestic locations
in 46 states and Washington, D.C. and foreign
locations in 16 countries. The 113 Macaroni Grill
restaurants include domestic locations in 33 states and
foreign locations in Canada. The On The Border, Cozymel's,
Maggiano's, Corner Bakery, Big Bowl, and Wildfire
restaurants, and Eatzi's markets, are located exclusively
within the United States in 23, 8, 4, 7, 1, 1, and 2
states, respectively.
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 not only
on major metropolitan areas in the United States but also
on smaller market areas and nontraditional locations (such
as airports, kiosks, and food courts) which can adequately
support any of the Company's restaurant concepts.
The Company considers the restaurant site selection
process critical to its long-term success and devotes
significant effort to the investigation of new locations
utilizing a variety of sophisticated analytical techniques.
The site selection process 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 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 19
restaurants, including 4 in fiscal 1998, which were
performing below the Company's standards primarily due to
declining trading-area demographics. The Company operates
pursuant to a strategic plan targeted to support the
Company's long-term growth objectives, with a focus on
continued development of those restaurant concepts that
have the greatest return potential for the Company and its
shareholders.
The following table illustrates the system-wide
restaurants opened in fiscal 1998 and the planned openings
in fiscal 1999:
Fiscal 1998 Fiscal 1999
Openings Projected Openings
Chili's:
Company-Operated 22 30
Franchise 15 34
Macaroni Grill:
Company-Operated 14 18
Franchise 0 2
On The Border:
Company-Operated 16 18
Franchise 8 8
Cozymel's 0 1
Maggiano's 2 2
Corner Bakery 15 25
Eatzi's 2 3
Big Bowl 0 2
Wildfire 0 2
TOTAL 94 145
The Company anticipates that some of the fiscal 1999
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 may either lease or own the land (paying for any
owned land from its own funds) and either lease or own the
building, furniture, fixtures and equipment (paying for any
owned items from its own funds).
The following table illustrates the approximate average
capital investment for a typical unit in the Company's
primary restaurant concepts:
Chili's Macaroni Grill Corner Bakery On The Border Cozymel's Maggiano's
Land $ 650,000 $ 900,000 $ 800,000 $ 800,000 $1,000,000 $3,500,000
Building 1,050,000 1,300,000 750,000 1,300,000 1,300,000 3,000,000
Furniture &
Equipment 430,000 525,000 350,000 600,000 600,000 1,000,000
Other 80,000 100,000 70,000 90,000 100,000 350,000
TOTAL $2,210,000 $2,825,000 $1,970,000 $2,790,000 $3,000,000 $7,850,000
The specific rate at which the Company is able to open
new restaurants is determined by its success in locating
satisfactory sites, negotiating acceptable lease or
purchase terms, securing appropriate local governmental
permits and approvals, and by its capacity to supervise
construction and recruit and train management personnel.
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 24, 1998,
15 new Chili's and 8 On The Border franchised restaurants
were opened.
The Company has entered into international franchise
agreements which will bring Chili's to Bahrain, Venezuela,
Saudi Arabia, Lebanon, Guam, and Austria and Macaroni Grill
to the United Kingdom and Mexico in the 1999 fiscal year.
In fiscal 1998, the first Chili's restaurants opened in
China (July 1997), Peru (July 1997), and Kuwait (January
1998).
The Company intends to selectively pursue international
expansion and is currently contemplating development in
other countries. A typical franchise development agreement
provides for payment of area development and initial
franchise fees in addition to subsequent royalty and
advertising fees based on the gross sales of each
restaurant. Future franchise development agreements are
expected to remain limited to enterprises having
significant experience as restaurant operators and proven
financial ability to develop multi-unit operations.
The Company has previously entered into agreements for
research and development activities related to the testing
of new restaurant concepts and has a significant equity
interest in such ventures, which interests are typically
accounted for under the equity method. The Company
currently owns a 50% interest in the four Eatzi's stores
currently operating in Dallas and Houston, Texas, Atlanta,
Georgia and Westbury, New York. In addition, the Company
holds a 50% interest in the legal entity owning the two Big
Bowl restaurants located in Chicago, Illinois and a 13%
interest in the legal entity owning the two Wildfire
restaurants (one of which was opened subsequent to the end
of the fiscal year in August 1998) located in Chicago,
Illinois.
At June 24, 1998, 41 total joint venture or franchise
development agreements existed. The Company anticipates
that an additional 34 franchised Chili's, two franchised
Macaroni Grill, and eight franchised On The Border
restaurants will be opened during fiscal 1999. In
addition, the Company anticipates that three Eatzi's
stores, two Big Bowl restaurants, and two Wildfire
restaurants will be opened during fiscal 1999.
Restaurant Management
The Company's philosophy to maintain and operate each
concept as a distinct and separate entity ensures that the
culture, recruitment and training programs and unique
operating environments are preserved. These factors are
critical to the viability of each concept. Each concept is
directed by a president and one or more concept vice
presidents and senior vice presidents.
The Company's restaurant management structure varies by
concept. The individual restaurants themselves are led by
a management team including a general manager and between
two to five additional managers. The level of restaurant
supervision depends upon the operating complexity and sales
volume of each concept. An area director/supervisor is
responsible for the supervision of, on average, three to
seven restaurants. For those concepts with a significant
number of units within a geographical region, additional
levels of management may be provided.
The Company believes that there is a high correlation
between the quality of restaurant management and the long-
term success of a concept. In that regard, the Company
encourages increased tenure at all management positions
through various short and long-term incentive programs,
including equity ownership. These programs, coupled with a
general management philosophy emphasizing quality of life,
have enabled the Company to attract and retain management
employees at levels above the industry norm.
The Company ensures consistent quality standards in all
concepts through the issuance of operations manuals
covering all elements of operations and food and beverage
manuals which provide guidance for preparation of Company
formulated recipes. Routine visitation to the restaurants
by all levels of supervision enforce strict adherence to
Company standards.
The director of training for each concept is
responsible for maintaining each concept's operational
training program. The training program includes a four to
five month training period for restaurant management
trainees, a continuing management training process for
managers and supervisors, and training teams consisting of
groups of employees experienced in all facets of restaurant
operations that train employees to open new restaurants.
The training teams typically begin on-site training at a
new restaurant seven to ten days prior to opening and
remain on location two to three weeks following the opening
to ensure the smooth transition to operating personnel.
Purchasing
The Company's ability to maintain consistent quality of
products throughout each of its restaurant concepts depends
upon acquiring food products and related items from
reliable sources. Suppliers are pre-approved by the
Company and are required along with the restaurants to
adhere to strict product specifications established through
the Company's quality assurance program to ensure that high
quality, wholesome food and beverage products are served in
the restaurants. The Company negotiates directly with the
major suppliers to obtain competitive prices and uses
purchase commitment contracts to stabilize the potentially
volatile pricing associated with certain commodity items.
All essential food and beverage products are available, or
upon short notice can be made available, from alternative
qualified suppliers in all cities in which the Company's
restaurants are located. Because of the relatively rapid
turnover of perishable food products, inventories in the
restaurants, consisting primarily of food, beverages and
supplies, have a modest aggregate dollar value in relation
to revenues.
Advertising and Marketing
The Company's concepts generally focus on the 18 to 54
year old age group, which constitutes approximately half of
the United States population. Members of this population
segment grew up on fast food, but the Company believes
that, with increasing maturity, they prefer a more adult,
upscale dining experience. To attract this target group,
the Company relies primarily on television, radio, direct
mail advertising and word-of-mouth information communicated
by customers.
The Company's franchise agreements require advertising
contributions to the Company to be used exclusively for the
purpose of maintaining, directly administering and
preparing standardized advertising and promotional
activities. Franchisees spend additional amounts on local
advertising when approved by the Company.
Employees
At June 24, 1998, the Company employed approximately
53,000 persons, of whom approximately 830 were corporate
personnel, 3,200 were restaurant area directors, managers
or trainees and 49,000 were employed in non-management
restaurant positions. The executive officers of the
Company have an average of approximately 19 years of
experience in the restaurant industry.
The Company considers its employee relations to be good
and believes that its employee turnover rate is
commensurate with the industry average. Most employees,
other than restaurant management and corporate personnel,
are paid on an hourly basis. The Company believes that it
provides working conditions and wages that compare
favorably with those of its competition. The Company's
employees are not covered by any collective bargaining
agreements.
Trademarks
The Company has registered, among other marks, "Big
Bowl", "Brinker International", "Chili's", "Chili's Too",
"Chili's Bar & Bites", "Chili's Southwest Grill & Bar",
"Corner Bakery", "Cozymel's", "Cozymel's Coastal Mexican
Grill", "Eatzi's", "Eatzi's Market & Bakery", "Romano's
Macaroni Grill", "Macaroni Grill", "Maggiano's Little
Italy", "On The Border", "On The Border Mexican Cafe", and
"Wildfire" as trademarks with the United States Patent and
Trademark Office.
Risk Factors/Forward-Looking Statements
The Company wishes to caution readers that the
following important factors, among others, could cause the
actual results of the Company to differ materially from
those indicated by forward-looking statements contained
herein regarding future economic performance, restaurant
openings, operating margins, the availability of acceptable
real estate locations for new restaurants, the sufficiency
of the Company's cash balances and cash generated from
operating and financing activities for the Company's future
liquidity and capital resource needs, and other matters.
Except for historical information, matters discussed in
such statements are forward-looking statements that involve
risks and uncertainties.
Competition. The restaurant business is highly competitive
with respect to price, service, restaurant location and
food quality, and is often affected by changes in consumer
tastes, economic conditions, population and traffic
patterns. The Company competes within each market with
locally-owned restaurants as well as national and regional
restaurant chains, some of which operate more restaurants
and have greater financial resources and longer operating
histories than the Company. There is active competition
for management personnel and for attractive commercial real
estate sites suitable for restaurants. In addition,
factors such as inflation, increased food, labor and
benefits costs, and difficulty in attracting hourly
employees may adversely affect the restaurant industry in
general and the Company's restaurants in particular.
Seasonality. The Company's sales volumes fluctuate
seasonally, and are generally higher in the summer months
and lower in the winter months.
Governmental Regulations. Each of the Company's
restaurants is subject to licensing and regulation by
alcoholic beverage control, health, sanitation, safety and
fire agencies in the state and/or municipality in which the
restaurant is located. The Company has not encountered any
difficulties or failures in obtaining the required licenses
or approvals that could delay or prevent the opening of a
new restaurant and does not, at this time, anticipate any.
The Company is subject to federal and state
environmental regulations, but these have not had a
material negative effect on the Company's operations. More
stringent and varied requirements of local and state
governmental bodies with respect to zoning, land use and
environmental factors could delay or prevent development of
new restaurants in particular locations. The Company is
subject to the Fair Labor Standards Act which governs such
matters as minimum wages, overtime and other working
conditions, along with the American With Disabilities Act
and various family leave mandates. The Company does not
expect any further significant increases in payroll
expenses as a result of the recently-mandated increases in
the minimum wage, but is uncertain of the repercussion, if
any, on other expenses as vendors are impacted by higher
minimum wage standards.
Inflation. The Company has not experienced a
significant overall impact from inflation. If operating
expenses increase due to inflation, the Company recovers
increased costs by increasing menu prices. However,
competition may prohibit such increases in menu prices.
Year 2000. The Year 2000 will have a broad impact on the
business environment in which the Company operates due to
the possibility that many computerized systems across all
industries will be unable to process information containing
dates beginning in the Year 2000. The Company has
established an enterprise-wide program to prepare its
computer systems and applications for the Year 2000 and is
utilizing both internal and external resources to identify,
correct and test the systems for Year 2000 compliance. The
Company anticipates that the majority of its domestic
reprogramming will be completed by December 31, 1998 and
testing efforts will be substantially concluded by March
31, 1999. Further validation through testing will be
conducted throughout calendar year 1999. The Company
expects that all mission-critical systems will be Year 2000
compliant prior to the end of the 1999 calendar year.
The nature of the Company's business is such that the
business risks associated with the Year 2000 can be reduced
by closely assessing the vendors supplying the Company's
restaurants with food and related products and with the
Company's franchise business partners to ensure that they
are aware of the Year 2000 business risks and are
appropriately assessing and addressing them.
Because third party failures could have a material
impact on the Company's ability to conduct business,
questionnaires have been sent to substantially all of the
Company's vendors to obtain reasonable assurance that plans
are being developed to address the Year 2000 issue. The
returned questionnaires are currently being assessed by the
Company, and are being categorized based upon readiness for
the Year 2000 issues and prioritized in order of
significance to the business of the Company. To the extent
that vendors do not provide the Company with satisfactory
evidence of their readiness to handle Year 2000 issues,
contingency plans will be developed. Furthermore,
information has been provided to all franchise business
partners regarding the potential business risks associated
with the Year 2000 issue. The Company intends to make
every reasonable effort to assess the Year 2000 readiness
of these business partners and to create action plans to
address the identified risks.
The Company anticipates that it will have substantially
completed an inventory of all information technology and
non-information technology equipment by December 31, 1998,
and will then address the Year 2000 compliance of such
equipment.
Testing and remediation of all of the Company's systems
and applications is expected to cost approximately $6
million from inception in calendar year 1997 through
completion in calendar year 1999. Of these costs,
approximately $750,000 was incurred through June 24, 1998.
Approximately $3.5 million is expected to be incurred in
fiscal 1999 with the remaining $1.75 million to be incurred
in fiscal 2000. All estimated costs have been budgeted and
are expected to be funded by cash flows from operations.
The Company does not believe the costs related to the
Year 2000 compliance project will be material to its
financial position or results of operations. However, the
cost of the project and the date on which the Company plans
to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing
numerous assumptions of future events including the
continued availability of certain resources, third party
modification plans, and other factors. Unanticipated
failures by critical vendors and franchise partners, as
well as the failure by the Company to execute its own
remediation efforts, could have a material adverse effect
on the cost of the project and its completion date. As a
result, there can be no assurance that these forward-
looking estimates will be achieved and the actual cost and
vendor compliance could differ materially from those plans,
resulting in material financial risk.
Other Risk Factors. Other risk factors that could
cause the Company's actual results to differ material from
those indicated in the forward-looking statements include,
without limitation, changes in economic conditions,
consumer perceptions of food safety, changes in consumer
tastes, governmental monetary policies, changes in
demographic trends, availability of employees, and weather
and other acts of God.
Item 2. PROPERTIES.
The following table illustrates the approximate average
dining capacity for each current prototypical unit in
primary restaurant concepts:
Chili's Macaroni Grill On The Border Cozymel's Maggiano's
Square Feet 5,547-5,612 6,702-8,679 7,175-8,034 9,429 13,300-19,306
Dining Seats 203-214 244-300 222-262 422 571-742
Dining Tables 45-51 54-69 55-62 94 100-164
Corner Bakery's size and dining capacity varies based
upon whether it is an in-line or kiosk location. For a
Corner Bakery located in a kiosk, the square footage ranges
from 150 to 2000 square feet, the number of dining seats
range from 0 to 50, and the number of dining tables range
from 0 to 15. For in-line Corner Bakery locations, the
square footage ranges from 3,500 to 4,500, the number of
dining seats range from 80 to 130, and the number of dining
tables range from 30 to 50.
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 24,
1998, the Company owned the land and/or building for 424 of
the 624 Company-operated restaurants. The Company
considers that its properties are suitable, adequate, well-
maintained and sufficient for the operations contemplated.
The Company leases warehouse space totalling
approximately 26,300 square feet in Dallas, Texas, which it
uses for storage of equipment and supplies. The Company
purchased an office building containing approximately
105,000 square feet for its corporate headquarters in July
1989. This office building was expanded in May 1997 by the
addition of a 2,470 square foot facility used for menu
development activities. In January 1996, the Company
purchased an additional office complex containing three (3)
buildings and approximately 198,000 square feet for the
expansion of its corporate headquarters. Approximately
68,400 square feet of this complex is currently utilized by
the Company, with the remaining 129,600 square feet under
lease, listed for lease to third party tenants, or reserved
for future expansion of the Company headquarters. In
November 1997, the Company sold the office complex and is
leasing it back under a 20-year operating lease.
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 24, 1998:
First Quarter 17 1/2 13 13/16
Second Quarter 17 13/16 13 15/16
Third Quarter 21 5/8 15 1/16
Fourth Quarter 24 5/16 18 9/16
Fiscal year ended June 25, 1997:
First Quarter 17 1/2 13
Second Quarter 18 3/4 16 1/8
Third Quarter 16 5/8 11
Fourth Quarter 14 1/4 11
As of September 1, 1998, there were 1,553 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.
During the three-year period ending on September 1,
1998, the Company issued no securities which were not
registered under the Securities Act of 1933, as amended.
Item 6. SELECTED FINANCIAL DATA.
"Selected Financial Data" on page 31 of the Company's
1998 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 39
of the Company's 1998 Annual Report to Shareholders is
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS.
"Quantitative and Qualitative Disclosures About Market
Risks" contained within "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
on page 37 of the Company's 1998 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.
"Directors and Executive Officers" on pages 4 through 9
and "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 15 of the Company's Proxy Statement
dated September 18, 1998, for the annual meeting of
shareholders on October 29, 1998, are incorporated herein
by reference.
Item 11. COMPENSATION INFORMATION.
"Executive Compensation" on pages 9 through 11 and
"Report of the Compensation Committee" on pages 11 through
14 of the Company's Proxy Statement dated September 18,
1998, for the annual meeting of shareholders on October
29, 1998, 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 18, 1998, for the annual meeting of shareholders
on October 29, 1998, are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Certain Transactions" on page 15 of the Company's
Proxy Statement dated September 18, 1998, for the annual
meeting of shareholders on October 29, 1998, is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the Index to Financial Statements
attached hereto on page 18 for a listing of all financial
statements incorporated herein from the Company's 1998
Annual Report to Shareholders.
(a) (2) Financial Statement Schedules.
None.
(a) (3) Exhibits.
Reference is made to the Exhibit Index preceding the
exhibits attached hereto on page E-1 for a list of all
exhibits filed as a part of this Report.
(b) Reports on Form 8-K
The Company was not required to file a current report
on Form 8-K during the three months ended June 24, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BRINKER INTERNATIONAL, INC.,
a Delaware corporation
By:
Russell G. Owens, Executive Vice
President and Chief Financial
and Strategic Officer
Dated: September 18, 1998
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 18, 1998.
Name Title
___________________ President, Chief Executive
Ronald A. McDougall Officer and Director
(Principal Executive Officer)
_________________ Executive Vice President,
Russell G. Owens and Chief Financial and
Strategic Officer
(Principal Financial and
Accounting Officer)
___________________ Chairman of the Board
Norman E. Brinker
___________________ Director
Donald J. Carty
___________________ Director
Gerard V. Centioli
___________________ Director
Dan W. Cook, III
___________________ Director
Rae F. Evans
_____________________ Director
Marvin J. Girouard
_____________________ Director
J.M. Haggar, Jr.
_____________________ Director
Frederick S. Humphries
______________________ Director
Ronald Kirk
_______________________ Director
Jeffrey A. Marcus
_______________________ Director
James E. Oesterreicher
_______________________ 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 1998 Annual Report to
Shareholders are incorporated herein by reference in Item 8.
1998 Annual
Report Page
Consolidated Balance Sheets - 40-41
June 24, 1998 and June 25, 1997
Consolidated Statements of Income - 42
Years Ended June 24, 1998, June 25, 1997
and June 26, 1996
Consolidated Statements of Shareholders' 43
Equity - Years Ended June 24, 1998,
June 25, 1997 and June 26, 1996
Consolidated Statements of Cash Flows - 44
Years Ended June 24, 1998, June 25, 1997
and June 26, 1996
Notes to Consolidated Financial Statements 45-58
Independent Auditors' Report 59
All schedules are omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
INDEX TO EXHIBITS
Exhibit
3(a) Certificate of Incorporation of the registrant, as
amended. (1)
3(b) Bylaws of the registrant. (1)
10(a) Registrant's 1983 Incentive Stock Option Plan. (2)
10(b) Registrant's 1991 Stock Option Plan for Non-Employee
Directors and Consultants. (3)
10(c) Registrant's 1992 Incentive Stock Option Plan. (3)
13 1998 Annual Report to Shareholders. (5)
21 Subsidiaries of the registrant. (4)
23 Independent Auditors' Consent. (4)
27(a) Financial Data Schedule. (6)
27(b) Restated Financial Data Schedule as of and for the year
ended June 25, 1997. (6)
27(c) Restated Financial Data Schedule as of and for the year
ended June 26, 1996. (6)
99 Proxy Statement of registrant dated September 18, 1998. (5)
(1) Filed as an exhibit to annual report on Form 10-K for
year ended June 28, 1995 and incorporated herein by
reference.
(2) Filed as an exhibit to annual report on Form 10-K for
year ended June 26, 1996 and incorporated herein by
referenced.
(3) Filed as an exhibit to annual report on Form 10-K for
year ended June 25, 1997 and incorporated herein by
reference.
(4) Filed herewith.
(5) Portions filed herewith, to the extent indicated herein.
(6) Filed with EDGAR version.