UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 27, 2000
Commission File Number 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)
(972) 980-9917
(Registrant's telephone number, including area code)
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
Number of shares of common stock of registrant outstanding at
September 27, 2000: 65,481,724
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
September 27, 2000 (Unaudited) and June 28, 2000 3 - 4
Condensed Consolidated Statements of Income
(Unaudited) - Thirteen-week periods ended
September 27, 2000 and September 29, 1999 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Thirteen-week periods ended
September 27, 2000 and September 29, 1999 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
Part II - Other Information 14 - 15
PART I. FINANCIAL INFORMATION
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 27, June 28,
2000 2000
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 12,314 $ 12,343
Accounts Receivable 23,534 20,378
Inventories 16,710 16,448
Prepaid Expenses 49,004 50,327
Deferred Income Taxes 1,363 2,127
Other 2,000 2,000
Total Current Assets 104,925 103,623
Property and Equipment, at Cost:
Land 180,074 178,025
Buildings and Leasehold Improvements 763,269 739,795
Furniture and Equipment 413,503 396,089
Construction-in-Progress 54,418 57,167
1,411,264 1,371,076
Less Accumulated Depreciation
and Amortization 504,370 482,944
Net Property and Equipment 906,894 888,132
Other Assets:
Goodwill 71,007 71,561
Other 98,614 99,012
Total Other Assets 169,621 170,573
Total Assets $ 1,181,440 $ 1,162,328
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
September 27, June 28,
2000 2000
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Current Installments of Long-term Debt $ 14,635 $ 14,635
Accounts Payable 114,132 104,461
Accrued Liabilities 105,723 111,904
Total Current Liabilities 234,490 231,000
Long-term Debt, Less Current Installments 106,124 110,323
Deferred Income Taxes 9,482 7,667
Other Liabilities 53,283 51,130
Shareholders' Equity:
Preferred Stock - 1,000,000 Authorized
Shares; $1.00 Par Value; No Shares Issued - -
Common Stock - 250,000,000 Authorized
Shares; $.10 Par Value; 78,362,441
Shares Issued and 65,481,724 Shares
Outstanding at September 27, 2000, and
78,362,441 Shares Issued and 65,866,529
Shares Outstanding at June 28, 2000 7,836 7,836
Additional Paid-In Capital 297,614 298,172
Retained Earnings 695,952 660,758
1,001,402 966,766
Less:
Treasury Stock, at Cost (12,880,717
shares at September 27, 2000 and
12,495,912 shares at June 28, 2000) 219,959 201,531
Unearned Compensation 3,382 3,027
Total Shareholders' Equity 778,061 762,208
Total Liabilities and Shareholders'
Equity $ 1,181,440 $ 1,162,328
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Thirteen-Week Periods Ended
September 27, September 29,
2000 1999
Revenues $ 589,283 $ 511,033
Operating Costs and Expenses:
Cost of Sales 156,407 136,190
Restaurant Expenses 326,129 284,725
Depreciation and Amortization 23,430 22,117
General and Administrative 27,211 23,507
Total Operating Costs and Expenses 533,177 466,539
Operating Income 56,106 44,494
Interest Expense 1,396 2,398
Other, Net 399 586
Income Before Provision for
Income Taxes 54,311 41,510
Provision for Income Taxes 19,117 14,404
Net Income $ 35,194 $ 27,106
Basic Net Income Per Share $ .53 $ .41
Diluted Net Income Per Share $ .52 $ .40
Basic Weighted Average
Shares Outstanding 65,836 65,786
Diluted Weighted Average
Shares Outstanding 67,714 67,772
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirteen-Week Periods Ended
September 27, September 29,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 35,194 $ 27,106
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 23,430 22,117
Amortization of Unearned Compensation 413 -
Deferred Income Taxes 2,579 1,943
Changes in Assets and Liabilities:
Receivables (3,156) 1,255
Inventories (262) (25)
Prepaid Expenses 2,275 3,888
Other Assets 96 (212)
Accounts Payable 9,671 13,323
Accrued Liabilities (5,921) (9,764)
Other Liabilities 2,153 913
Net Cash Provided by Operating Activities 66,472 60,544
CASH FLOWS FROM INVESTING ACTIVITIES - Payments
for Property and Equipment (42,288) (49,722)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Payments) Borrowings on Credit Facilities (4,199) 8,416
Proceeds from Issuances of Treasury Stock 5,377 3,392
Purchases of Treasury Stock (25,391) (17,509)
Net Cash Used in Financing Activities (24,213) (5,701)
Net (Decrease) Increase in Cash and
Cash Equivalents (29) 5,121
Cash and Cash Equivalents at Beginning
of Period 12,343 12,597
Cash and Cash Equivalents at End
of Period $ 12,314 $ 17,718
CASH PAID DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ 662 $ 633
Income Taxes, Net of Refunds $ 6,853 $ (484)
NON-CASH TRANSACTIONS DURING THE PERIOD -
Restricted Treasury Stock Issued $ 1,000 $ -
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Brinker
International, Inc. and its wholly-owned subsidiaries
(collectively, the "Company") as of September 27, 2000 and June
28, 2000 and for the thirteen-week periods ended September 27,
2000 and September 29, 1999, respectively, have been prepared by
the Company pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The Company owns,
operates, or franchises various restaurant concepts under the
names of Chili's Grill & Bar ("Chili's"), Romano's Macaroni Grill
("Macaroni Grill"), On The Border Mexican Grill & Cantina ("On The
Border"), Cozymel's Coastal Mexican Grill ("Cozymel's"),
Maggiano's Little Italy ("Maggiano's"), and Corner Bakery Cafe
("Corner Bakery"). In addition, the Company is involved in the
ownership and is or has been involved in the development of the
Big Bowl, Wildfire, and Eatzi's Market and Bakery ("Eatzi's")
concepts.
The information furnished herein reflects all adjustments
(consisting only of normal recurring accruals and adjustments)
which are, in the opinion of management, necessary to fairly state
the operating results for the respective periods. However, these
operating results are not necessarily indicative of the results
expected for the full fiscal year. Certain information and
footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules and
regulations. The notes to the condensed consolidated financial
statements should be read in conjunction with the notes to the
consolidated financial statements contained in the June 28, 2000
Form 10-K. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
Certain prior year amounts have been reclassified in the
accompanying condensed consolidated financial statements to
conform with current year presentation.
2. Treasury Stock
Pursuant to the Company's $210.0 million stock repurchase plan and
in accordance with applicable securities regulations, the Company
repurchased approximately 807,000 shares of its common stock for
$25.4 million during the first quarter of fiscal 2001, resulting
in a cumulative repurchase total of approximately 6,232,000 shares
of its common stock for $151.3 million. The Company's stock
repurchase plan is used by the Company to offset the dilutive
effect of stock option exercises and to increase shareholder
value. The repurchased common stock is reflected as a reduction of
shareholders' equity.
3. Long Term Incentive Plan
In accordance with the Company's Long Term Incentive Plan (the
"Plan"), approximately 36,000 shares of restricted common stock,
which vest over a three-year period, were awarded in the first
quarter of fiscal 2001, resulting in a cumulative total of
approximately 255,000 shares of restricted common stock (net of
forfeitures) awarded since inception of the Plan. Unearned
compensation was recorded at the date of award based on the market
value of the shares and is being amortized to compensation expense
over the vesting period. Unearned compensation included as a
separate component of shareholders' equity was $3.4 million at
September 27, 2000.
4. Derivative Financial Instruments and Hedging Activities
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, on June 29, 2000. SFAS No. 133 requires
that all derivative instruments be recorded in the statement of
financial position at fair value. The accounting for the gain or
loss due to changes in fair value of the derivative instrument
depends on whether the derivative instrument qualifies as a hedge.
If the derivative instrument does not qualify as a hedge, the gains
or losses are reported in earnings when they occur. However, if the
derivative instrument qualifies as a hedge, the accounting varies
based on the type of risk being hedged.
The Company attempts to maintain a reasonable balance between fixed
and floating rate debt and uses interest rate swaps to accomplish
this objective. The swap contracts are entered into in accordance
with guidelines set forth in the Company's hedging policies. The
Company utilizes interest rate swaps and forwards to manage overall
borrowing costs and reduce exposure to adverse fluctuations in
interest rates, and to protect the fair value of debt on the
financial statements.
The Company assesses interest rate risk by continually identifying
and monitoring changes in interest rates that may adversely impact
expected future cash flows and the fair value of its debt by
evaluating hedging opportunities. The Company maintains risk
management control systems to monitor the risks attributable to both
the Company's outstanding and forecasted transactions as well as
offsetting hedge positions. The risk management control systems
involve the use of analytical techniques to estimate the expected
impact of changes in interest rates on the Company's future cash
flows and the fair value of its debt. The Company does not use
derivative instruments for purposes other than hedging. The Company
utilizes various derivative hedging instruments, as discussed below,
to hedge its interest rate risk when appropriate.
The Company's financing activities include both fixed (7.8% senior
notes) and variable (credit facilities) rate debt. The fixed-rate
debt is exposed to changes in fair value as market-based interest
rates fluctuate. Variable-rate debt is exposed to cash flow risk due
to the effects of changes in interest rates. These financial
exposures are monitored and managed by the Company as an integral
part of its overall risk management program.
The Company enters into interest rate swaps to manage fluctuations in
interest expense and to maintain the value of fixed-rate debt. The
Company has entered into two interest rate swaps with a total
notional value of $71.4 million at September 27, 2000. This fair
value hedge changes the fixed-rate interest on the entire balance of
the Company's 7.8% senior notes to variable-rate interest. Under the
terms of the hedges (which expire in fiscal 2005), the Company pays
semi-annually a variable interest rate based on LIBOR (6.62% at
September 27, 2000) plus 0.530% to LIBOR plus 0.535%, in arrears,
compounded at three-month intervals. The Company receives semi-
annually the fixed interest rate of 7.8% on the senior notes. The
estimated fair value of these agreements at September 27, 2000 was
approximately $891,000, which is included in other assets at
September 27, 2000. The Company's interest rate swap hedges meet the
criteria for the "short-cut method" under SFAS No. 133. Accordingly,
the changes in fair value of the swaps are offset by a like
adjustment to the carrying value of the debt and no hedge
ineffectiveness is assumed. As a result, the adoption of SFAS No.
133 had no effect on earnings at adoption or during the first quarter
of fiscal 2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth selected operating data as a
percentage of total revenues for the periods indicated. All
information is derived from the accompanying condensed consolidated
statements of income.
Thirteen-Week Periods Ended
September 27, September 29,
2000 1999
Revenues 100.0% 100.0%
Operating Costs and Expenses:
Cost of Sales 26.5% 26.6%
Restaurant Expenses 55.3% 55.7%
Depreciation and Amortization 4.0% 4.3%
General and Administrative 4.6% 4.6%
Total Operating Costs and Expenses 90.5% 91.3%
Operating Income 9.5% 8.7%
Interest Expense 0.2% 0.5%
Other, Net 0.1% 0.1%
Income Before Provision for Income Taxes 9.2% 8.1%
Provision for Income Taxes 3.2% 2.8%
Net Income 6.0% 5.3%
The following table details the number of restaurant openings
during the first quarter and total restaurants open at the end of
the first quarter.
First Quarter Openings Total Open at End of First Quarter
Fiscal Fiscal Fiscal Fiscal
2001 2000 2001 2000
Chili's:
Company-owned 7 12 473 448
Franchised 8 7 226 193
Total 15 19 699 641
Macaroni Grill:
Company-owned 4 6 149 134
Franchised -- -- 4 3
Total 4 6 153 137
On The Border:
Company-owned 1 5 83 73
Franchised 1 2 28 25
Total 2 7 111 98
Cozymel's -- -- 13 13
Maggiano's 1 -- 13 10
Corner Bakery:
Company-owned 1 2 57 51
Franchised -- -- 1 --
Total 1 2 58 51
Jointly Developed:
Big Bowl -- -- 6 4
Wildfire -- -- 3 3
Eatzi's -- -- 4 5
Grand Total 23 34 1,060 962
REVENUES
Revenues for the first quarter of fiscal 2001 increased to $589.3
million, 15.3% over the $511.0 million generated for the same
quarter of fiscal 2000. The increase is primarily attributable to
a net increase of 59 company-owned restaurants since September 29,
1999 and an increase in comparable store sales for the first
quarter of fiscal 2001 compared to the same quarter of fiscal 2000.
The Company increased its capacity (as measured in sales weeks) for
the first quarter of fiscal 2001 by 9.0% compared to the same
quarter of fiscal 2000. Comparable store sales increased 5.8% for
the quarter compared to the same quarter of fiscal 2000. Menu
prices in the aggregate increased 1.4% in the first quarter of
fiscal 2001 as compared to the same quarter of fiscal 2000.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased for the first quarter of fiscal 2001 as
compared to the same quarter of fiscal 2000 due to menu price
increases and favorable commodity price variances for poultry and
dairy and cheese, which were partially offset by unfavorable
commodity price variances for meat and produce and product mix
changes to menu items with higher percentage food costs.
Restaurant expenses decreased for the first quarter of fiscal 2001
compared to the same quarter of fiscal 2000. Restaurant labor wage
rates were higher than in the prior year, but were more than fully
offset by increased sales leverage, improvements in labor
productivity, and menu price increases. Additionally, preopening
costs decreased for the quarter due to fewer store openings year-
over-year.
Depreciation and amortization decreased for the first quarter of
fiscal 2001 compared to the same quarter of fiscal 2000.
Depreciation and amortization decreases resulted from the
utilization of the equipment and real estate leasing facilities,
increased sales leverage and a declining depreciable asset base for
older units. Partially offsetting these decreases were increases in
depreciation and amortization related to new unit construction and
ongoing remodel costs.
General and administrative expenses remained flat for the first
quarter of fiscal 2001 compared to the same quarter of fiscal 2000
as a result of the Company's continued focus on controlling
corporate expenditures relative to increasing revenues and number
of restaurants.
Interest expense decreased for the first quarter of fiscal 2001
compared with the same quarter of fiscal 2000 as a result of
decreased borrowings on the Company's credit facilities primarily
used to fund the Company's continuing stock repurchase plan,
increased sales leverage and a decrease in interest expense on
senior notes due to the scheduled repayment made in April 2000.
These decreases were partially offset by a decrease in interest
capitalization due to fewer store openings year-over-year.
NET INCOME AND NET INCOME PER SHARE
Net income and diluted net income per share for the first quarter
of fiscal 2001 increased 29.8% and 30.0%, respectively, compared to
the same quarter of fiscal 2000. The increase in both net income
and diluted net income per share was mainly due to an increase in
revenues resulting from increases in capacity (as measured in sales
weeks), comparable store sales, and menu prices and decreases in
restaurant and depreciation and amortization expenses as a percent
of revenues.
IMPACT OF INFLATION
The Company has not experienced a significant overall impact from
inflation. As operating expenses increase, the Company, to the
extent permitted by competition, recovers increased costs by
either increasing menu prices or reviewing, then implementing,
alternative products or processes.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $127.4 million at June
28, 2000 to $129.6 million at September 27, 2000. Net cash
provided by operating activities increased to $66.5 million for the
first quarter of fiscal 2001 from $60.5 million during the same
period in fiscal 2000 due to increased profitability, partially
offset by the timing of operational receipts and payments.
Long-term debt outstanding at September 27, 2000 consisted of $57.1
million of unsecured senior notes, $46.8 million of borrowings on
credit facilities and obligations under capital leases. The
Company has credit facilities totaling $335.0 million. At
September 27, 2000, the Company had $286.9 million in available
funds from these facilities.
As of September 27, 2000, $16.2 million of the Company's $25.0
million equipment leasing facility and $15.1 million of the
Company's $50.0 million real estate leasing facility had been
utilized. The remaining real estate leasing facility will be used
to lease real estate through fiscal year 2002.
Capital expenditures consist of purchases of land for future
restaurant sites, new restaurants under construction, purchases of
new and replacement restaurant furniture and equipment, and ongoing
remodeling programs. Capital expenditures, net of amounts funded
under the respective equipment and real estate leasing facilities,
were $42.3 million for the first quarter of fiscal 2001 compared to
$49.7 million for the same period of fiscal 2000. The decrease is
due primarily to a decrease in the number of store openings,
partially offset by a reduction in the amount of new restaurant
expenditures funded by leasing facilities. The Company estimates
that its capital expenditures, net of amounts expected to be funded
under leasing facilities, during the second quarter of fiscal 2001
will approximate $48 million. These capital expenditures will be
funded entirely from existing operations.
Pursuant to the Company's $210.0 million stock repurchase plan,
approximately 807,000 shares of its common stock were repurchased
for $25.4 million during the first quarter of fiscal 2001 in
accordance with applicable securities regulations. Currently,
approximately 6,232,000 shares have been repurchased for $151.3
million under the stock repurchase plan. The repurchased common
stock was or will be used by the Company to offset the dilutive
effect of stock option exercises and increase shareholder value.
The repurchased common stock is reflected as a reduction of
shareholders' equity. The Company financed the repurchase program
through a combination of cash provided by operations and drawdowns
on its available credit facilities.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend
develops, the Company believes that there are sufficient funds
available under its lines of credit and that it has strong internal
cash generating capabilities to adequately manage the expansion of
business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on debt and certain leasing facilities and from changes in commodity
prices. A discussion of the Company's accounting policies for
derivative financial instruments and hedging activities is included
in the Notes to the Condensed Consolidated Financial Statements.
The Company's net exposure to interest rate risk consists of variable
rate instruments that are benchmarked to U.S. and European short-term
interest rates. The Company may from time to time utilize interest
rate swaps and forwards to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. The Company does
not use derivative instruments for trading purposes and the Company
has procedures in place to monitor and control derivative use.
The Company is exposed to interest rate risk on short-term and long-
term financial instruments carrying variable interest rates. The
Company's variable rate financial instruments, including the
outstanding credit facilities and interest rate swaps, totaled $118.2
million at September 27, 2000. The impact on the Company's results
of operations of a one-point interest rate change on the outstanding
balance of the variable rate financial instruments as of September
27, 2000 would be approximately $300,000.
The Company purchases certain commodities such as beef, chicken,
flour and cooking oil. These commodities are generally purchased
based upon market prices established with vendors. These purchase
arrangements may contain contractual features that limit the price
paid by establishing certain price floors or caps. The Company does
not use financial instruments to hedge commodity prices because these
purchase arrangements help control the ultimate cost paid and any
commodity price aberrations are generally short term in nature.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from this discussion based upon
general market conditions and changes in domestic and global
financial markets.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on
assumptions concerning risks and uncertainties that could
significantly affect anticipated results in the future and,
accordingly, could cause the actual results to materially differ
from those expressed in the forward-looking statements. The
Company cautions that the forward-looking statements are qualified
by important factors that could cause actual results to differ
materially from those contained herein including the highly
competitive nature of the restaurant industry, general business
conditions, the seasonality of the Company's business, governmental
regulations, inflation, consumer perceptions of food safety,
changes in consumer tastes, changes in local, regional and national
economic conditions, changes in demographic trends, food and labor
costs, availability of materials and employees, weather and other
acts of God, and the ability of the Company to meet its growth plan
which is subject to (a) identifying available, suitable and
economically viable locations for new restaurants, (b) obtaining
all required governmental permits (including zoning approvals and
liquor licenses) on a timely basis, (c) hiring all necessary
contractors and subcontractors, and (d) meeting construction
schedules.
PART II. OTHER INFORMATION
Item 6: EXHIBITS
Exhibit 27 Financial Data Schedules. Filed with EDGAR version.
Financial Data Schedule as of and for the 13-week period ended
September 27, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BRINKER INTERNATIONAL, INC.
Date: November 9, 2000 By:______________________________________
Ronald A. McDougall, Chairman and
Chief Executive Officer
(Duly Authorized Signatory)
Date: November 9, 2000 By:__________________________________________
Russell G. Owens, Executive Vice President
and Chief Financial and Strategic Officer
(Principal Financial and Accounting Officer)