Cover Page About Brinker International Inc. Financial Highlights To Our Shareholders, Employees and Guests Chili's Romano's Macaroni Grill On The Border Mexican Grill & Cantina Maggiano's Little Italy Corner Bakery Cafe Cozymel's Coastal Grill Big Bowl Asian Kitchen Rockfish Seafood Grill Board of Directors Principal Officers Principal Officers in Restaurant Concepts Shareholder Information FINANCIAL INFORMATION    Selected Financial Data    Management's Discussion and Analysis    Consolidated Statements of Income    Consolidated Balance Sheets    Consolidated Statements of Shareholders' Equity    Consolidated Statements of Cash Flows    Notes to Consolidated Financial Statements    Independent Auditors' Report    Management's Responsibility Back Cover

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCK OPTION PLANS

The Company has adopted the disclosure-only provisions of SFAS No. 123. Had the Company adopted the fair value based accounting method for stock compensation expense prescribed by SFAS No. 123, the Company's diluted net income per common and equivalent share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):   2002 2001 2000 Net income—as reported $ 152,713 $ 145,148 $ 117,840 Net income—pro forma 137,803 132,963 108,503 Diluted net income per share—as reported 1.52 1.42 1.17 Diluted net income per share—pro forma 1.37 1.30 1.07     The weighted average fair value of option grants was $10.66, $10.90, and $7.25 during fiscal 2002, 2001 and 2000, respectively. The fair value is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:   2002 2001 2000 Expected volatility 35.5 % 34.1 % 40.8 % Risk-free interest rate 4.1 % 5.9 % 5.9 % Expected lives 5 years 5 years 5 years Dividend yield 0.0 % 0.0 % 0.0 %     The pro forma disclosures provided are not likely to be representative of the effects on reported net income for future years due to future grants. (a) 1983, 1992, and 1998 Employee Incentive Stock Option Plans     In accordance with the Incentive Stock Option Plans adopted in October 1983, November 1992, and October 1998, options to purchase approximately 40.2 million shares of Company common stock may be granted to officers, directors, and eligible employees, as defined. Options are granted at the market value of the underlying common stock on the date of grant, are exercisable beginning one to two years from the date of grant, with various vesting periods, and expire 10 years from the date of grant.     In October 1993, the 1983 Incentive Stock Option Plan (the "1983 Plan") expired. Consequently, no options were granted under the 1983 Plan subsequent to fiscal 1993. Options granted prior to the expiration of the 1983 Plan remain exercisable through April 2003.     In October 1998, the 1998 Stock Option and Incentive Plan (the "1998 Plan") was adopted and no additional options were granted under the 1992 Incentive Stock Option Plan (the "1992 Plan"). Options granted under the 1992 Plan prior to the adoption of the 1998 Plan remain exercisable through March 2008.     Transactions during fiscal 2002, 2001, and 2000 were as follows (in thousands, except option prices): Number of Weighted Average Share Company Options Exercise Price 2002 2001 2000 2002 2001 2000 Options outstanding at beginning of year 10,759 11,997 13,342 $ 16.91 $ 13.03 $ 11.58 Granted 2,512 2,808 2,508 27.90 26.96 16.13 Exercised (2,892 ) (3,373 ) (3,229 ) 13.09 11.01 9.28 Forfeited (435 ) (673 ) (624 ) 23.38 19.18 13.79 Options outstanding at end of year 9,944 10,759 11,997 $ 20.50 $ 16.91 $ 13.03 Options exercisable at end of year 4,091 4,788 5,502 $ 13.38 $ 11.64 $ 10.53 Options Outstanding Options Exercisable Range of exercise prices Number of options Weighted average remaining contractual life (years) Weighted average exercise price Number of options Weighted average exercise price $7.42-$11.58 1,733 4.09 $ 8.71 1,719 $ 8.69 $12.89-$18.67 3,363 6.41 16.59 2,372 16.78 $25.50-$33.02 4,848 8.88 27.43 — — 9,944 7.21 $ 20.50 4,091 $ 13.38 (b) 1991 and 1999 Non-Employee Stock Option Plans     In accordance with the Stock Option Plan for Non-Employee Directors and Consultants adopted in May 1991, options to purchase 881,250 shares of Company common stock were authorized for grant. In fiscal 2000, the 1991 Stock Option Plan for Non-Employee Directors and Consultants was replaced by the 1999 Stock Option and Incentive Plan for Non-Employee Directors and Consultants which authorized the issuance of up to 450,000 shares of Company common stock. The authority to issue the remaining stock options under the 1991 Stock Option Plan for Non-Employee Directors and Consultants has been terminated. Options are granted at the market value of the underlying common stock on the date of grant, vest one-third each year beginning two years from the date of grant, and expire 10 years from the date of grant.     Transactions during fiscal 2002, 2001, and 2000 were as follows (in thousands, except option prices): Number of Weighted Average Share Company Options Exercise Price 2002 2001 2000 2002 2001 2000 Options outstanding at beginning of year 351 468 521 $ 13.96 $ 11.65 $ 11.42 Granted 82 38 9 30.06 23.96 15.67 Exercised (70 ) (155 ) (62 ) 11.24 9.44 10.32 Forfeited (10 ) — — 30.06 — — Options outstanding at end of year 353 351 468 $ 17.79 $ 13.96 $ 11.65 Options exercisable at end of year 199 208 278 $ 12.61 $ 11.71 $ 10.23     At June 26, 2002, the range of exercise prices for options outstanding was $8.33 to $30.06 with a weighted average remaining contractual life of 6.63 years. (c) On The Border 1989 Stock Option Plan     In accordance with the Stock Option Plan for On The Border employees, options to purchase 550,000 shares of On The Border's preacquisition common stock were authorized for grant. Effective May 18, 1994, the 376,000 unexercised On The Border stock options became exercisable immediately in accordance with the provisions of the Stock Option Plan, and were converted to approximately 186,000 Company stock options and expire 10 years from the date of original grant. At June 26, 2002, there were approximately 37,000 options exercisable and outstanding at an exercise price of $13.18 with a weighted average remaining contractual life of 1.21 years.