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 December 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
December 24, 1997: 65,660,240
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
December 24, 1997 and June 25, 1997 3 - 4
Condensed Consolidated Statements of Income -
Thirteen week and twenty-six week periods ended
December 24, 1997 and December 25, 1996 5
Condensed Consolidated Statements of Cash Flows -
Twenty-six week periods ended December 24, 1997
and December 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)
December 24, June 25,
1997 1997
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 24,715 $ 23,194
Marketable Securities 6,921 24,469
Accounts Receivable 21,445 15,258
Inventories 14,296 13,031
Prepaid Expenses 34,036 30,364
Deferred Income Taxes 933 1,050
Other 1,329 5,068
Total Current Assets 103,675 112,434
Property and Equipment, at Cost:
Land 140,041 171,551
Buildings and Leasehold Improvements 501,062 533,579
Furniture and Equipment 296,225 294,985
Construction-in-Progress 44,564 42,977
981,892 1,043,092
Less Accumulated Depreciation
and Amortization 310,167 293,483
Net Property and Equipment 671,725 749,609
Other Assets:
Goodwill 77,442 78,291
Other 76,282 56,609
Total Other Assets 153,724 134,900
Total Assets $ 929,124 $ 996,943
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 24, June 25,
1997 1997
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-term Debt $ 298 $ 280
Accounts Payable 67,209 76,640
Accrued Liabilities 79,497 72,213
Total Current Liabilities 147,004 149,133
Long-term Debt, Less Current Installments 172,252 287,521
Deferred Income Taxes 9,429 7,426
Other Liabilities 45,147 29,119
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; 78,150,054
Shares Issued and 65,660,240 Shares
Outstanding at December 24, 1997, and
77,710,016 Shares Issued and 65,233,900
Shares Outstanding at June 25, 1997 7,815 7,771
Additional Paid-In Capital 272,890 270,892
Unrealized Gain on Marketable Securities 279 304
Retained Earnings 424,890 395,008
705,874 673,975
Less Treasury Stock, at Cost (12,489,814 shares
at December 24, 1997 and 12,476,116 shares at
June 25, 1997) (150,582) (150,231)
Total Shareholders' Equity 555,292 523,744
Total Liabilities and Shareholders'
Equity $ 929,124 996,943
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
13 Week Periods Ended 26 Week Periods Ended
Dec. 24, 1997 Dec. 25, 1996 Dec. 24, 1997 Dec. 25, 1996
Revenues $ 374,502 $ 310,925 $ 750,465 $ 619,590
Costs and Expenses:
Cost of Sales 101,843 88,898 204,536 176,363
Restaurant Expenses 208,890 169,906 415,010 332,428
Depreciation and
Amortization 21,967 18,716 43,682 36,450
General and
Administrative 18,353 15,975 34,920 31,517
Interest Expense 3,114 1,669 6,853 3,205
Other, Net (63) (1,750) (157) (2,515)
Total Costs and
Expenses 354,104 293,414 704,844 577,448
Income Before Provision
for Income Taxes 20,398 17,511 45,621 42,142
Provision for Income Taxes 7,037 5,866 15,739 14,117
Net Income $ 13,361 $ 11,645 $ 29,882 $ 28,025
Basic Net Income Per
Share $ 0.20 $ 0.15 $ 0.46 $ 0.36
Diluted Net Income Per
Share $ 0.20 $ 0.15 $ 0.45 $ 0.36
Basic Weighted Average
Shares Outstanding 65,593 77,460 65,460 77,370
Diluted Weighted
Average Shares
Outstanding 66,925 78,948 66,807 78,707
See accompanying notes to condensed consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-Six Week Periods Ended
December 24, December 25,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 29,882 $ 28,025
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization of
Property and Equipment 35,348 29,801
Amortization of Goodwill and Other
Assets 8,334 6,649
Deferred Income Taxes 2,123 1,907
Changes in Assets and Liabilities:
Receivables (2,448) (5,576)
Inventories (1,265) (516)
Prepaid Expenses (3,672) (2,804)
Other Assets (6,254) (8,206)
Accounts Payable (9,431) 9,605
Accrued Liabilities 7,284 2,798
Other Liabilities 7,328 (6,242)
Other 151 (181)
Net Cash Provided by Operating Activities 67,380 55,260
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (82,964) (104,863)
Payments for Purchase of Restaurants (2,700) (15,863)
Net Proceeds from Sale-Leasebacks 125,995 -
Proceeds from Sales of Marketable
Securities 17,369 24,226
Purchases of Marketable Securities - (18,489)
Net Advances to Affiliates (4,824) (1,979)
Additions to Other Assets (5,175) -
Net Cash Provided by (Used in)
Investing Activities 47,701 (116,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Payments) Borrowings on Credit
Facilities (115,000) 52,000
Payments of Long-term debt (251) (174)
Proceeds from Issuances of Common Stock 2,285 2,429
Other (594) -
Net Cash Provided by (Used in)
Financing Activities (113,560) 54,255
Net Increase (Decrease) in Cash and
Cash Equivalents 1,521 (7,453)
Cash and Cash Equivalents at Beginning
of Period 23,194 27,073
Cash and Cash Equivalents at End
of Period $ 24,715 $ 19,620
CASH PAID DURING THE PERIOD:
Income Taxes, Net $ 18,418 $ 14,055
Interest, Net of Amounts Capitalized $ 8,552 $ 3,035
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 December 24, 1997 and June 25, 1997 and for the
thirteen week and twenty-six week periods ended December 24, 1997 and
December 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 760 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.
Certain prior year amounts in the accompanying condensed consolidated
financial statements have been reclassified to conform with current
year presentation.
2. Sale Leaseback
In November 1997, the Company executed a $124.0 million sale and
leaseback of certain real estate assets. The $8.7 million gain
resulting from the sale, along with certain transaction costs, was
deferred and will be amortized over the 20-year term of the operating
lease. The net proceeds from the sale were used to retire $115.0
million of debt under the Company's credit facilities.
3. Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," which requires presentation of basic and
diluted earnings per share. Basic earnings per share 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. As required, the Company
adopted the provisions of SFAS No. 128 in the quarter ended December
24, 1997. All prior year weighted average and per share information
has been restated in accordance with SFAS No. 128. Outstanding stock
options issued by the Company represent the only dilutive effect
reflected in diluted weighted average shares.
4. Subsequent Event
On January 22, 1998, the Board of Directors approved a plan to
repurchase up to $50 million of the Company's common stock.
Repurchases will be made from time to time in open market
transactions. All repurchases will be made in accordance with
applicable securities regulations, and the timing of the repurchases
will be dependent upon market conditions, share price, and other
factors. The repurchased common stock may be used by the Company to
satisfy obligations under its savings plans, to meet the needs of its
various stock option plans, or for other corporate purposes.
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 unaudited condensed consolidated statements of income.
13 Week Periods Ended 26 Week Periods Ended
Dec. 24, 1997 Dec. 25, 1996 Dec. 24, 1997 Dec. 25, 1996
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.2% 28.6% 27.2% 28.4%
Restaurant Expenses 55.7% 54.7% 55.3% 53.7%
Depreciation and Amortization 5.9% 6.0% 5.8% 5.9%
General and Administrative 4.9% 5.1% 4.7% 5.1%
Interest Expense 0.8% 0.5% 0.9% 0.5%
Other, Net (0.0)% (0.5)% (0.0)% (0.4)%
Total Costs and Expenses 94.5% 94.4% 93.9% 93.2%
Income Before Provision
for Income Taxes 5.5% 5.6% 6.1% 6.8%
Provision for Income
Taxes 1.9% 1.9% 2.1% 2.3%
Net Income 3.6% 3.7% 4.0% 4.5%
The following table details the number of restaurant openings during the second
quarter and year-to-date, as well as total restaurants open at the end of the
second quarter.
Total Open at End
2nd Quarter Openings Year-to-Date Openings of Second Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1998 1997 1998 1997 1998 1997
Chili's:
Company-owned 6 9 13 19 406 383
Franchised 4 6 12 12 153 135
Total 10 15 25 31 559 518
Macaroni Grill:
Company-owned 5 7 8 13 105 82
Franchised -- -- -- -- 2 2
Total 5 7 8 13 107 84
On The Border:
Company-owned 5 1 10 3 44 26
Franchised 2 1 3 2 10 4
Total 7 2 13 5 54 30
Cozymel's -- 1 -- 1 12 12
Maggiano's 1 -- 2 1 7 4
Corner Bakery 6 1 7 3 22 11
Eatzi's -- -- 1 -- 2 1
Grand total 29 26 56 54 763 660
REVENUES
Revenues for the second quarter of fiscal 1998 increased to $374.5
million, 20.5% over the $310.9 million generated for the same
quarter of fiscal 1997. Revenues for the twenty-six week period
ended December 24, 1997 rose 21.1% to $750.5 million from the
$619.6 million generated for the same period of fiscal 1997. These
increases are attributable to the addition of one day to the
current fiscal periods as discussed below and a net increase of 78
Company-operated restaurants opened or acquired since December 25,
1996. The Company increased its capacity (as measured in sales
weeks) for the second quarter and year-to-date of fiscal 1998 by
14.5% and 16.4%, respectively, compared to the respective prior
year periods. Average weekly sales at Company-owned stores
increased 5.3% and 4.2% for the second quarter and year-to-date,
respectively, from the same periods of fiscal 1997. On a concept
basis, average weekly sales increased for the quarter and year-to-
date compared to the same periods of fiscal 1997 by 4.8% and 3.9%
at Chili's and 9.0% and 7.6% at On The Border and declined by 3.4%
and 4.6% at Macaroni Grill, respectively.
Overall, revenues and average weekly sales benefited from the
addition of one day, during which the Company's stores were open
for business, to the current quarter and year-to-date fiscal
periods compared to the respective prior year periods. During the
current fiscal year, Christmas Day (a day on which the Company's
stores are closed) fell in the Company's third quarter. In the
prior fiscal year, Christmas Day fell in the second quarter. The
current quarter positive impact of this change will be offset by a
negative impact on the third quarter.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased for the second quarter and year-to-date of
fiscal 1998 as compared to the respective periods for fiscal 1997.
Favorable commodity prices for meat, poultry, and dairy as well as
menu price increases were somewhat offset by unfavorable commodity
prices for seafood, produce, and alcoholic beverages.
Restaurant expenses increased on both a comparative second quarter
and year-to-date basis, primarily as a result of increases in
management and restaurant labor, as well as increased rent expense
due to sale-leaseback transactions and an equipment leasing
facility entered into in the current fiscal year. Management labor
increased as a result of continuing efforts to remain competitive
with the industry and increases in monthly performance bonuses due
to Chili's positive performance in fiscal 1998. Restaurant labor
increased due to continuing effects of the minimum wage increase in
fiscal 1998. These increases were partially offset by menu price
increases.
Depreciation and amortization decreased for both the second quarter
and year-to-date of fiscal 1998. Depreciation and amortization
decreases resulted from the impact of sale-leaseback transactions
and an equipment leasing facility, as well as a declining
depreciable asset base for older units. Offsetting these decreases
were increases in depreciation and amortization related to new unit
construction costs and ongoing remodel costs.
General and administrative expenses decreased for both the second
quarter and year-to-date of fiscal 1998 compared to the respective
periods in fiscal 1997. The decreases were mainly a result of the
Company's continued focus on controlling corporate expenditures
relative to increasing revenues and number of restaurants.
However, total costs increased during the periods due to additional
staff and support as the Company continues the expansion of its
restaurant concepts. Additionally, expenses for the quarter and
year-to-date increased due to the increased accrual for fiscal 1998
profit sharing.
Interest expense increased in the second quarter and year-to-date
of fiscal 1998 compared to the respective fiscal 1997 periods due
to a higher average level of outstanding borrowings on the
Company's credit facilities combined with a decline in the
construction-in-progress balances subject to interest
capitalization.
Other, net, decreased for both the second quarter and year-to-date
of fiscal 1998 compared to the respective periods in fiscal 1997.
Other, net, was negatively impacted by the partial liquidation of
the marketable securities portfolio initiated 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. The prior year balances also
include gains on sales of land.
INCOME TAXES
The Company's effective income tax rate was 34.5% for the second
quarter and year-to-date of fiscal 1998 compared to 33.5% for the
same periods 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 0.1% and 0.5%,
respectively, for the second quarter and year-to-date periods of
fiscal 1998 compared to the respective periods of fiscal 1997. The
decreases in net income in light of the increases in revenues and
decreases in cost of sales were due to the increases in restaurant
expense and interest expense mentioned above. Diluted net income
per share was $0.20 and $0.45, respectively, for the second quarter
and year-to-date periods of fiscal 1998 compared to $0.15 and
$0.36, respectively, for the respective periods of fiscal 1997.
Diluted weighted average shares outstanding for the second quarter
decreased 15.2% compared to the prior year period due to a $150
million stock repurchase program which was 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 $36.7 million at June
25, 1997 to $43.3 million at December 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 increased to $67.4 million for the first half
of fiscal 1998 from $55.3 million during the same period in fiscal
1997 due to increased profitability and the timing of operational
receipts and payments.
During the second quarter, the Company executed a $124.0 million
sale-leaseback of certain real estate assets. The proceeds of the
transaction were used to retire borrowings under existing credit
facilities.
Long-term debt outstanding at December 24, 1997 consisted of $70.0
million of borrowings on credit facilities, $100 million of
unsecured senior notes and obligations under capital leases. At
December 24, 1997, the Company had $296.9 million in available
funds from its $375 million credit facilities. Long-term
liabilities increased in the first half of fiscal 1998 due to the
deferred gain on the sale leaseback transaction and increased
insurance reserves resulting from Company growth.
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. As of December 24,
1997, $22.8 million of the leasing facility had been utilized. The
remaining facility balance will be used to lease equipment for new
unit openings.
Capital expenditures were $83.0 million for the first half of
fiscal 1998 as compared to $104.9 million in the first half 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 half 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 third quarter will approximate $49 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, the
equipment leasing facility, 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.
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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated September 23, 1997 for the
Annual Meeting of Shareholders held on November 6, 1997, as filed
with the Securities and Exchange Commission on September 23, 1997,
is incorporated herein by reference.
(a) The Annual Meeting of Shareholders of the Company was held on
November 6, 1997.
(b) Each of the management's nominees, as described in the Proxy
Statement referenced above, was elected a director to hold office
until the next annual meeting of shareholders or until his or her
successor is elected and qualified.
Number of Affirmative Votes Cast Number of Withhold Authority Votes Cast
59,339,711 828,860
(c) The following matter was also voted upon at the meeting and approved
by the shareholders:
(i) approval of the Company's Long-Term Performance Share Plan
Number of Affirmative Votes Cast Number of Negative Votes Cast
58,518,617 1,325,542
Number of Abstain Votes Cast
324,412
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: February 9, 1998 By:___________________________________________
Ronald A. McDougall, President and
Chief Executive Officer
(Duly Authorized Signatory)
Date: February 9, 1998 By:____________________________________________
Russell G. Owens, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)