FORM 10-Q
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 September 24, 1997
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 24, 1997: 65,404,747
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
September 24, 1997 and June 25, 1997 3 - 4
Condensed Consolidated Statements of Income -
Thirteen week periods ended September 24, 1997
and September 25, 1996 5
Condensed Consolidated Statements of Cash Flows -
Thirteen week periods ended September 24, 1997
and September 25, 1996 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
PART I. FINANCIAL INFORMATION
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
September 24, June 25,
1997 1997
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 13,604 $ 23,194
Marketable Securities 17,020 24,469
Accounts Receivable 23,182 15,258
Inventories 12,991 13,031
Prepaid Expenses 30,723 30,364
Deferred Income Taxes 715 1,050
Other 1,354 5,068
Total Current Assets 99,589 112,434
Property and Equipment, at Cost:
Land 177,916 171,551
Buildings and Leasehold Improvements 559,909 533,579
Furniture and Equipment 288,271 294,985
Construction-in-Progress 36,467 42,977
1,062,563 1,043,092
Less Accumulated Depreciation
and Amortization 305,220 293,483
Net Property and Equipment 757,343 749,609
Other Assets:
Goodwill 77,702 78,291
Other 59,490 56,609
Total Other Assets 137,192 134,900
Total Assets $ 994,124 $ 996,943
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
September 24, June 25,
1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Current Installments of Long-term Debt $ 280 $ 280
Accounts Payable 76,859 76,640
Accrued Liabilities 78,957 78,806
Total Current Liabilities 156,096 155,726
Long-term Debt, Less Current Installments 265,662 287,521
Deferred Income Taxes 8,310 7,426
Other Liabilities 23,074 22,526
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; 77,869,583
Shares Issued and 65,404,747 Shares
Outstanding at September 24, 1997, and
77,710,016 Shares Issued and 65,233,900
Shares Outstanding at June 25, 1997 7,787 7,771
Additional Paid-In Capital 271,395 270,892
Unrealized Gain on Marketable Securities 366 304
Retained Earnings 411,529 395,008
691,077 673,975
Less Treasury Stock, at Cost (12,464,836 shares
at September 24, 1997 and 12,476,116 shares at
June 25, 1997) (150,095) (150,231)
Total Shareholders' Equity 540,982 523,744
Total Liabilities and Shareholders'
Equity $ 994,124 $ 996,943
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 24, September 25,
1997 1996
Revenues $ 375,963 $ 308,665
Costs and Expenses:
Cost of Sales 102,693 87,465
Restaurant Expenses 206,120 162,522
Depreciation and Amortization 21,715 17,734
General and Administrative 16,567 15,542
Interest Expense 3,739 1,536
Other, Net (94) (765)
Total Costs and Expenses 350,740 284,034
Income Before Provision for
Income Taxes 25,223 24,631
Provision for Income Taxes 8,702 8,251
Net Income $ 16,521 $ 16,380
Primary and Fully Diluted
Net Income Per Share $ 0.25 $ 0.21
Primary Weighted Average
Shares Outstanding 66,625 79,051
Fully Diluted Weighted Average
Shares Outstanding 66,905 79,505
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 24, September 25,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,521 $ 16,380
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization of
Property and Equipment 17,476 14,440
Amortization of Goodwill and Other
Assets 4,239 3,294
Changes in Assets and Liabilities:
Receivables (4,210) (723)
Inventories 40 (323)
Prepaid Expenses (359) (692)
Other Assets (6,531) (6,873)
Accounts Payable 219 9,816
Accrued Liabilities 151 (4,081)
Deferred Income Taxes 1,174 1,115
Other Liabilities 548 (1,478)
Other 98 438
Net Cash Provided by Operating
Activities 29,366 31,313
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (25,210) (46,574)
Proceeds from Sales of Marketable
Securities 7,458 10,598
Purchases of Marketable Securities - (12,901)
Net Cash Used in Investing Activities (17,752) (48,877)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Credit Facilities - 10,000
Payments of Long-term debt (21,859) (87)
Proceeds from Issuances of Common Stock 655 443
Net Cash (Used) Provided by
Financing Activities (21,204) 10,356
Net Decrease in Cash and Cash Equivalents (9,590) (7,208)
Cash and Cash Equivalents at Beginning
of Period 23,194 27,073
Cash and Cash Equivalents at End
of Period $ 13,604 $ 19,856
CASH PAID (RECEIVED) DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ 3,231 $ (349)
Income Taxes $ (48) $ 1,073
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 24, 1997 and for the thirteen week
periods ended September 24, 1997 and September 25, 1996 have been
prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company owns or franchises
over 730 restaurants 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"), Corner Bakery,
and Eatzi's Market & Bakery ("Eatzi's"). The Company owns a 50%
interest in Eatzi's.
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. 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 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 25, 1997 Form 10-K. Company management believes that the
disclosures are sufficient for interim financial reporting purposes.
2. Commitments
In July 1997, the Company entered into an equipment leasing facility
pursuant to which the Company may lease up to $55 million of
equipment. Of this amount, the Company has received commitments to
fund up to $47.5 million of the facility. During the first quarter
of fiscal 1998 the Company utilized $10.2 million of the $47.5
million of commitments through a sale and leaseback of existing
equipment. The facility, which will be accounted for as an operating
lease, expires in fiscal 2003 and does not provide for a renewal. At
the end of the lease term the Company has the option to purchase all
of the leased equipment for an amount equal to the unamortized lease
balance, which amount will be approximately 75% of the total amount
funded through the facility. The Company believes that the future
cash flows related to the equipment support the unamortized lease
balance.
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 24, September 25,
1997 1996
Revenues 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.3% 28.3%
Restaurant Expenses 54.8% 52.7%
Depreciation and Amortization 5.8% 5.8%
General and Administrative 4.4% 5.0%
Interest Expense 1.0% 0.5%
Other, Net 0.0% (0.3%)
Total Costs and Expenses 93.3% 92.0%
Income Before Provision
for Income Taxes 6.7% 8.0%
Provision for Income Taxes 2.3% 2.7%
Net Income 4.4% 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
1998 1997 1998 1997
Chili's:
Company-owned 7 10 398 362
Franchised 8 6 152 143
Total 15 16 550 505
Macaroni Grill:
Company-owned 3 6 100 75
Franchised -- -- 2 2
Total 3 6 102 77
On The Border:
Company-owned 5 2 39 25
Franchised 1 1 8 3
Total 6 3 47 28
Cozymel's -- -- 12 13
Maggiano's 1 1 6 4
Corner Bakery 1 2 16 10
Eatzi's 1 -- 2 1
Grand total 27 28 735 638
REVENUES
Revenues for the first quarter of fiscal 1998 increased to $376.0
million, 21.8% over the $308.7 million generated for the same
quarter of fiscal 1997. The increase is primarily attributable to a
net increase of 82 Company-owned restaurants since September 25,
1996. The Company increased its capacity (as measured in sales
weeks) by 18.3% in the first quarter of fiscal 1998, as compared to
the same quarter in fiscal 1997. Average weekly sales at Company-
owned stores increased 3.1% in the first quarter of fiscal 1998, as
compared to the first quarter of fiscal 1997, including increases
of 2.8% at Chili's and 6.8% at On The Border and a decline of 5.9%
at Macaroni Grill.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased from 28.3% in fiscal 1997 to 27.3% in
fiscal 1998. Favorable commodity prices for poultry, dairy, and non-
alcoholic beverages as well as menu price increases were somewhat
offset by unfavorable commodity prices for produce and alcoholic
beverages.
Restaurant expenses increased from 52.7% in fiscal 1997 to 54.8% in
fiscal 1998 primarily due to an increase in hourly and management
labor as well as higher costs of services and facility related
expenses. Management labor increased as a result of increases in
salary in an effort to remain competitive with the industry while
hourly labor was impacted by Federal government mandated increases
in the minimum wage. These increases were partially offset by menu
price increases.
Depreciation and amortization remained flat at 5.8% compared to the
first quarter of fiscal 1997. Depreciation and amortization
increases related to new unit construction costs and ongoing
remodel costs were offset by a declining depreciable asset base for
older units.
General and administrative expenses decreased in the first quarter
of fiscal 1998 compared to fiscal 1997 as a result of the Company's
focus on controlling corporate expenditures relative to increasing
revenues and number of restaurants. However, total costs increased
in the quarter due to additional staff and support as the Company
continues the expansion of its restaurant concepts.
Interest expense increased due to incremental borrowings on the
Company's credit facilities combined with a decline in the
construction-in-progress balances subject to interest
capitalization.
Other, net, decreased compared to the first quarter of fiscal 1997.
Other, net was negatively impacted by the partial liquidation of
the marketable securities portfolio in the last half of fiscal 1997
resulting in a reduction of income earned. The proceeds from
liquidation were used to fund a portion of the Company's stock
repurchase plan.
INCOME TAXES
The Company's effective income tax rate was 34.5% for the first
quarter of fiscal 1998 compared to 33.5% for the same period of
fiscal 1997. The fiscal 1998 effective income tax rate has
increased primarily as a result of a decreased dividends received
deduction resulting from the partial liquidation of the Company's
marketable securities portfolio.
NET INCOME AND NET INCOME PER SHARE
Net income, as a percent of revenues, declined 0.9% compared to the
first quarter of fiscal 1997. The decrease in net income in light
of the increase in revenues and decrease in cost of sales was due
to the increases in restaurant expense and interest expense
mentioned above. Primary net income per share was $0.25 for the
first quarter of fiscal 1998 and $0.21 for the first quarter of
1997. Primary weighted average shares outstanding for the first
quarter decreased 15.7% compared to the prior year period. The
decrease in weighted average shares outstanding was due to the
stock repurchase program completed in fiscal 1997.
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
The working capital deficit increased from $43.3 million at June
25, 1997 to $56.5 million at September 24, 1997, due primarily to
the Company's capital expenditures. In the current quarter, the
Company was able to fund more capital expenditures with current
assets as compared to the prior year. Net cash provided by
operating activities decreased to $29.4 million for the first
quarter of fiscal 1998 from $31.3 million during the same period in
fiscal 1997 due to timing of operational receipts and payments.
Long-term debt outstanding at September 24, 1997 consisted of
$163.1 million of borrowings on credit facilities, $100 million of
unsecured senior notes and obligations under capital leases. The
Company now has credit facilities totaling $375 million. At
September 24, 1997, the Company had $204.6 million in available
funds from credit facilities.
Subsequent to June 25, 1997, the Company entered into an equipment
leasing facility for up to $55.0 million, of which funding
commitments of $47.5 million have been obtained. Pursuant to the
facility, the Company executed a $10.2 million sale and leaseback
of existing equipment. The facility balance will be used to lease
new equipment in fiscal 1998. Additionally, the Company intends to
repay a portion of the debt outstanding on its credit facilities
with proceeds of approximately $125 million from a sale and
leaseback of certain real estate assets expected to be executed in
the second quarter of fiscal 1998.
Capital expenditures were $25.2 million for the first quarter of
fiscal 1998 as compared to $46.6 million in the first quarter of
fiscal 1997. 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 the ongoing remodeling program. The decrease in
capital expenditures compared to the first quarter of 1997 is due
mainly to the utilization of the equipment leasing facility during
fiscal 1998 to fund purchases of new restaurant furniture and
equipment. The Company estimates that its capital expenditures
during the second quarter will approximate $45.4 million. These
capital expenditures will be funded from internal operations, cash
equivalents, the liquidation of the marketable securities
portfolio, build-to-suit lease agreements with landlords, proceeds
from the sale and leaseback of certain real estate, and drawdowns
on the Company's available lines of credit.
The Year 2000 will have a broad impact on the business environment
in which the Company operates due to the inability of many computer
systems across all industries to process information containing
dates beginning in the Year 2000. The Company is currently
assessing the impact of the Year 2000 on its accounting, finance,
and other systems, as well as the impact on its external business
partners, in order to identify and address all potential business
issues relating to the Year 2000.
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.
NEW ACCOUNTING PRONOUNCMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share." SFAS 128 requires disclosure of basic and
diluted earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997. All prior
periods will be restated upon adoption. Proforma earnings per share
utilizing the requirements of SFAS 128 does not differ materially
from primary earnings per share and fully diluted earnings per
share for the periods presented in the accompanying Condensed
Consolidated Statements of Income.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking regarding
cash flow from operations, restaurant openings, operating margins,
capital requirements, the availability of acceptable real estate
locations for new restaurants, and other matters. These forward-
looking statements involve risks and uncertainties and,
consequently, could be affected by general business conditions, the
impact of competition, the seasonality of the Company's business,
governmental regulations, and inflation.
PART II. OTHER INFORMATION
Item 6: EXHIBITS
Exhibit 27 Financial Data Schedule. Filed with EDGAR version.
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 10, 1997
By:___________________________________________
Ronald A. McDougall, President and
Chief Executive Officer
(Duly Authorized Signatory)
Date: November 10, 1997
By:___________________________________________
Russell G. Owens, Executive Vice President,
Chief Strategic Officer and Interim Chief
Financial Officer (Principal Financial and
Accounting Officer)