FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 27, 1996
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)
(214) 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 March 27, 1996:
76,828,336.
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
March 27, 1996 and June 28, 1995 3-4
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Thirty-Nine Weeks
ended March 27, 1996 and March 29, 1995 5
Condensed Consolidated Statements of Cash Flows -
Thirty-Nine Weeks ended March 27, 1996 and
March 29, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II Other Information 12
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
MARCH 27, 1996 JUNE 28, 1995
ASSETS
Current Assets:
Cash and Cash Equivalents $ 27,346 $ 38,780
Accounts Receivable 16,886 18,020
Inventories 10,503 10,312
Prepaid Expenses 24,219 22,485
Deferred Income Taxes 4,059 4,389
Total Current Assets 83,013 93,986
Property and Equipment, at Cost:
Land 151,725 148,123
Buildings and Leasehold Improvements 409,511 358,717
Furniture and Equipment 231,660 214,275
Construction-in-Progress 40,096 49,500
832,992 770,615
Less Accumulated Depreciation 238,368 202,542
Net Property and Equipment 594,624 568,073
Other Assets:
Marketable Securities 65,399 34,696
Goodwill 73,749 9,708
Other 34,283 26,342
Total Other Assets 173,431 70,746
Total Assets $ 851,068 $ 732,805
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
(Unaudited)
MARCH 27, 1996 JUNE 28, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-Term Debt $ 15,000 $ ---
Current Installments of Long-term Debt 393 1,593
Accounts Payable 39,591 34,252
Accrued Liabilities 73,710 60,518
Total Current Liabilities 128,694 96,363
Long-term Debt, Less Current Installments 102,792 103,086
Deferred Income Taxes 14,487 13,497
Other Liabilities 22,558 23,062
Commitments and Contingencies
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; 76,828,336 and 72,073,597
Shares Issued and Outstanding at
March 27, 1996 and June 28, 1995,
Respectively 7,683 7,207
Additional Paid-In Capital 259,735 190,919
Unrealized Loss on Marketable
Securities (898) (1,451)
Retained Earnings 316,017 300,122
Total Shareholders' Equity 582,537 496,797
Total Liabilities and
Shareholders' Equity $ 851,068 $ 732,805
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 39 Weeks Ended
Mar. 27, 1996 Mar. 29, 1995 Mar. 27, 1996 Mar. 29, 1995
Revenues $ 284,206 $ 268,487 $ 863,322 $ 762,167
Costs and Expenses:
Cost of Sales 79,521 71,640 246,854 205,013
Restaurant Expenses 154,075 141,726 463,089 397,048
Depreciation and
Amortization 15,734 15,061 48,007 43,010
General & Administrative 13,623 12,993 40,198 37,855
Interest Expense 1,356 --- 3,015 ---
Gain on Sales of Concepts --- --- (9,262) ---
Restructuring Charge --- --- 50,000 ---
Other, Net (1,116) (655) (2,709) (1,963)
Total Costs and
Expenses 263,193 240,765 839,192 680,963
Income Before Provision
for Income Taxes 21,013 27,722 24,130 81,204
Provision for Income
Taxes 7,144 9,481 8,235 28,344
Net Income $ 13,869 $ 18,241 $ 15,895 $ 52,860
Primary Net Income
Per Share $ 0.18 $ 0.25 $ 0.21 $ 0.71
Fully Diluted Net
Income Per Share $ 0.18 $ 0.25 $ 0.20 $ 0.71
Primary Weighted Average
Shares Outstanding 78,389 74,110 77,421 74,414
Fully Diluted Weighted
Average Shares
Outstanding 78,816 74,110 77,822 74,460
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Thirty-Nine Weeks Ended
March 27, 1996 March 29, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 15,895 $ 52,860
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Property and Equipment 40,458 35,680
Amortization of Other Assets 7,549 7,330
Gain on Sales of Concepts (9,262) ---
Restructuring Charge 50,000 ---
Net Loss on Sales of Marketable Securities 898 ---
Changes in Assets and Liabilities, Excluding
Effects of Acquisitions and Dispositions:
Decrease (Increase) in Accounts Receivable 2,039 (1,640)
Increase in Inventories (900) (1,397)
Increase in Prepaid Expenses (3,491) (3,117)
Increase in Other Assets (10,748) (10,197)
Decrease in Accounts Payable (11,362) (11,134)
Increase (Decrease) in Accrued Liabilities (2,173) 7,347
Increase in Deferred Income Taxes 1,011 3,825
Decrease in Other Liabilities (408) (1,572)
Net Cash Provided by Operating Activities 79,506 77,985
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (150,127) (126,726)
Purchases of Marketable Securities (48,066) (9,345)
Proceeds from Sales of Marketable Securities 17,327 20,862
Proceeds from Sales of Concepts 73,115 ---
Other 375 (26)
Net Cash Used in Investing Activities (107,376) (115,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 15,000 30,700
Payments of Long-term Debt (1,494) (1,348)
Proceeds from Issuances of Common Stock 2,930 5,302
Net Cash Provided by Financing Activities 16,436 34,654
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,434) (2,596)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 38,780 3,743
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 27,346 $ 1,147
CASH PAID DURING THE PERIOD:
Income Taxes, Net $ 16,423 $ 35,887
Interest, Net of Amounts Capitalized $ 873 $ ---
NON-CASH INVESTING AND FINANCING ACTIVITY:
Common Stock Issued in Connection
With Acquisitions $ 66,362 $ ---
Notes Received in Connection with Sales
of Concepts $ 9,800 $ ---
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. ("Company") as of March 27, 1996 and June 28, 1995
and for the thirteen weeks and thirty-nine weeks ended March 27, 1996
and March 29, 1995 have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. The
Company owns and operates six restaurant concepts under the names of
Chili's Grill & Bar ("Chili's"), Romano's Macaroni Grill ("Macaroni
Grill"), On The Border Cafes ("On The Border"), Cozymel's Coastal
Mexican Grill ("Cozymel's"), Maggiano's Little Italy ("Maggiano's"), and
Corner Bakery.
The information furnished herein reflects all adjustments (consisting of
normal recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly state the operating results for the
respective periods. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant
to such 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, 1995
Form 10-K. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
2. 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 period
increased by common equivalent shares (stock options) determined using
the treasury stock method.
3. Restructuring Related Items
The Company recorded a $50 million restructuring charge during the
thirteen weeks ended December 27, 1995 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 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. As of March 27, 1996,
the remaining balance of the restructuring reserve was approximately $8
million and primarily relates to costs to settle lease obligations which
are expected to be completed in fiscal 1997. The results of operations
from restaurants that will be disposed are not material.
In addition, the Company 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.
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 Operations.
13 Weeks Ended 39 Weeks Ended
Mar. 27, 1996 Mar. 29, 1995 Mar. 27, 1996 Mar. 29, 1995
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.0% 26.7% 28.6% 26.9%
Restaurant Expenses 54.2% 52.8% 53.6% 52.1%
Depreciation and
Amortization 5.5% 5.6% 5.6% 5.6%
General & Administrative 4.8% 4.8% 4.7% 5.0%
Interest Expense 0.5% --- 0.3% ---
Gain on Sales of Concepts --- --- (1.1)% ---
Restructuring Charge --- --- 5.8% ---
Other, Net (0.4)% (0.2)% (0.3)% (0.3)%
Total Costs & Expenses 92.6% 89.7% 97.2% 89.3%
Income Before Provision
for Income Taxes 7.4% 10.3% 2.8% 10.7%
Provision for Income Taxes 2.5% 3.5% 1.0% 3.8%
Net Income 4.9% 6.8% 1.8% 6.9%
The table below details the number of restaurant openings during the third
quarter and year-to-date, as well as total number of restaurants open at the
end of the third quarter.
Total Open at End
3rd Quarter Openings Year-to-Date Openings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1996 1995 1996 1995
Chili's:
Company-owned 8 10 33 32 347 312
Franchised 4 7 19 24 127 102
Total 12 17 52 56 474 414
Macaroni Grill:
Company-owned 2 4 13 15 63 49
Franchised -- -- 1 -- 2 1
Total 2 4 14 15 65 50
On The Border:
Company-owned 2 1 6 2 20 16
Franchised -- -- -- -- 4 5
Total 2 1 6 2 24 21
Cozymel's:
Company-owned 5 -- 8 -- 11 1
Joint Venture -- 2 -- 2 -- 3
Total 5 2 8 2 11 4
Maggiano's -- -- -- -- 3 --
Corner Bakery 1 -- 3 -- 7 --
Wildfire:
Joint Venture -- -- 1 -- 1 --
Eatzi's:
Joint Venture 1 -- 1 -- 1 --
Grady's -- 2 6 8 1 41
Spageddies:
Company-owned -- 1 4 4 -- 10
Franchised -- 2 2 3 -- 3
Total -- 3 6 7 -- 13
Grand Total 23 29 97 90 587 543
REVENUES
Revenues for the third quarter of fiscal 1996 increased to $284.2 million,
5.9% over the $268.5 million generated for the same quarter of fiscal 1995.
Revenues for the thirty-nine weeks ended March 27, 1996 rose 13.3% to $863.3
million from the $762.2 million generated for the same period of fiscal 1995.
The increase is primarily attributable to the 93 Company-owned restaurants
opened or acquired since March 29, 1995. Excluding concepts sold during the
second quarter of fiscal 1996, revenues for the third quarter increased 20.7%
due to a 19.6% increase in capacity (as measured in store weeks) and a 0.9%
increase in average weekly sales; year-to-date revenues increased 18.5% due to
18.6% increase in capacity and a 0.1% decrease in average weekly sales.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales increased for both the third quarter and year-to-date of fiscal
1996. Unfavorable commodity prices were experienced for meat, poultry,
alcoholic and nonalcoholic beverages, pasta, and oils. Product mix shifts
toward higher cost menu items and increases in portion sizes on various
Chili's menu items also contributed to the increase.
Restaurant expenses increased on both a comparative third quarter and year-to-
date basis, primarily as a result of increases in management and hourly labor.
The increase in management labor is due to increases in base pay to remain
competitive in the industry. At the restaurant level, hourly labor costs are
up due to increases in the number of floor staff to provide better customer
service as well as wage rate increases in order to meet industry competition
and retain quality employees.
Depreciation and amortization remained relatively flat for both the third
quarter and year-to-date of fiscal 1996. A decrease in per-unit depreciation
and amortization due to a declining depreciable asset base for older units and
higher average sales volumes of new restaurants offset increases related to
new unit construction costs and ongoing remodel costs.
General and administrative expenses remained flat for the third quarter of
fiscal 1996 and experienced a decline for year-to-date due to decreased profit
sharing expenses, the Company's ongoing focus on controlling corporate
overhead, and efficiencies realized from increased investment in computer
hardware and software. The dollar increase in general and administrative
expenses is due to additional staff and support as the Company expands its
restaurant concepts.
Interest expense, net of amounts capitalized, increased due to the issuance of
$100 million of unsecured senior notes by the Company in April 1995.
Other, net, increased slightly for the third quarter of fiscal 1996.
Increased interest and dividend income as a result of an increase in the
investment portfolio balance was offset partially by the net loss on sales of
marketable securities.
RESTRUCTURING RELATED ITEMS
In October 1995, the Board of Directors of the Company approved a strategic
plan intended to support the Company's long term growth target that 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 expectations. The
restructuring actions began during the second quarter and are expected to be
completed in fiscal 1997. The Company recorded a $50.0 million restructuring
charge during the thirteen weeks ended December 27, 1995 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 addition, the Company 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 34.0% and 34.1% for the third
quarter and year-to-date of fiscal 1996 compared to 34.2% and 34.9% for the
same periods of fiscal 1995, respectively. The fiscal 1996 effective income
tax rate has decreased as a result of an increase in federal FICA tip credits.
NET INCOME AND NET INCOME PER SHARE
Year-to-date operating results before restructuring related items (gain on
sales of concepts and restructuring charge) are summarized as follows (in
millions, except per share amounts):
39 Weeks Ended
Mar. 27, Mar. 29,
1996 1995
Income Before Restructuring Related Items
and Income Taxes $ 64.9 $ 81.2
Income Taxes Before Restructuring Related Items 22.5 28.3
Net Income Before Restructuring Related Items $ 42.4 $ 52.9
Primary Net Income Per Share Before
Restructuring Related Items $ 0.55 $ 0.71
Year-to-date net income and primary net income per share before restructuring
related items declined 19.8% and 22.5%, 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 and the
increases in costs and expenses mentioned above.
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 raising menu prices.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased from a deficit of $2.4 million at June 28, 1995 to a
deficit of $45.7 million at March 27, 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 $79.5 million for the first nine months
of fiscal 1996 from $78.0 million during the same period in fiscal 1995 due to
timing of operational receipts and payments.
Long-term debt outstanding at March 27, 1996 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At March 27,
1996, the Company had $222.3 million in available funds from credit
facilities.
During October 1995, the Company announced the approval of a strategic plan
which includes 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.
Capital expenditures were $150.1 million for the nine months ended March 27,
1996 as compared to $126.7 million last year. Purchases of land for future
restaurant sites, new restaurants under construction, purchases of new and
replacement restaurant furniture and equipment, and the ongoing remodeling
program were responsible for the increased expenditures. The Company
estimates that its capital expenditures during the fourth quarter will
approximate $55 million. These capital expenditures will be funded from
internal operations, cash equivalents, income earned from investments, build-
to-suit lease agreements with landlords, proceeds from the sales of concepts,
and drawdowns on the Company's available lines of credit.
The Company is not aware of any other event or trend which would potentially
affect its liquidity. In the event such a trend would develop, the Company
believes that there are sufficient funds available to it under the lines of
credit and strong internal cash generating capabilities to adequately manage
the expansion of business.
PART II. OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule. Filed with EDGAR version.
(b) A current report on Form 8-K, dated January 30, 1996, was filed with the
Securities and Exchange Commission on January 31, 1996. This Form 8-K
disclosed that the Board of Directors of the Company adopted a
Stockholder Protection Rights Plan (the "Plan") on January 30, 1996, 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 of the Company, automatically trade with the
common stock, and will not be 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.
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: May 7, 1996 By: /Ronald A. McDougall
Ronald A. McDougall, President and Chief
Operating Officer
(Duly Authorized Signatory)
Date: May 7, 1996 By: /Debra L. Smithart
Debra L. Smithart, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)