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 25, 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)
(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 25, 1996:
77,631,991
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
December 25, 1996 and June 26, 1996 3 - 4
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Twenty-Six Weeks ended
December 25, 1996 and December 27, 1995 5
Condensed Consolidated Statements of Cash Flows -
Twenty-Six Weeks ended December 25, 1996
and December 27, 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
2
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 25, June 26,
1996 1996
ASSETS ------------ --------
- ------
Current Assets:
Cash and Cash Equivalents $ 19,620 $ 27,073
Accounts Receivable, Net 19,521 14,142
Inventories 11,603 10,839
Prepaid Expenses 27,536 24,648
Deferred Income Taxes 11,088 11,653
-------- --------
Total Current Assets 89,368 88,355
-------- --------
Property and Equipment, at Cost:
Land 162,351 150,391
Buildings and Leasehold Improvements 481,421 430,037
Furniture and Equipment 266,413 240,880
Construction-in-Progress 55,367 31,923
-------- --------
965,552 853,231
Less Accumulated Depreciation
and Amortization 268,684 242,001
-------- --------
Net Property and Equipment 696,868 611,230
-------- --------
Other Assets:
Marketable Securities 64,349 70,012
Goodwill 79,559 73,250
Other 50,295 45,987
-------- --------
Total Other Assets 194,203 189,249
-------- --------
Total Assets $980,439 $888,834
-------- --------
-------- --------
(continued)
3
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
December 25, June 26,
1996 1996
------------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term Debt $ 67,000 $ 15,000
Current Installments of Long-term Debt 329 348
Accounts Payable 68,507 58,902
Accrued Liabilities 67,619 64,140
-------- --------
Total Current Liabilities 203,455 138,390
-------- --------
Long-term Debt, Less Current Installments 102,646 102,801
Deferred Income Taxes 14,569 12,900
Other Liabilities 20,508 26,573
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; 77,631,991
and 77,255,783 Shares Issued and
Outstanding at December 25, 1996 and
June 26, 1996, Respectively 7,763 7,726
Additional Paid-In Capital 268,953 266,561
Unrealized Gain (Loss) on Marketable Securities 17 (620)
Retained Earnings 362,528 334,503
-------- --------
Total Shareholders' Equity 639,261 608,170
-------- --------
Total Liabilities and Shareholders' Equity $980,439 $888,834
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements
4
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
Dec. 25, 1996 Dec. 27, 1995 Dec. 25, 1996 Dec. 27, 1995
------------- ------------- ------------- -------------
Revenues $ 310,925 $ 289,656 $ 619,590 $ 579,116
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of Sales 88,898 83,675 176,363 167,333
Restaurant Expenses 169,906 156,109 332,428 309,014
Depreciation and
Amortization 18,716 16,201 36,450 32,273
General and
Administrative 15,975 13,578 31,517 26,575
Interest Expense 1,669 892 3,205 1,659
Gain on Sales of
Concepts - (9,262) - (9,262)
Restructuring Charge - 50,000 - 50,000
Other, Net (1,750) (687) (2,515) (1,593)
---------- ---------- ---------- ---------
Total Costs and
Expenses 293,414 310,506 577,448 575,999
---------- ---------- ---------- ----------
Income (Loss) Before
Provision (Benefit)
for Income Taxes 17,511 (20,850) 42,142 3,117
Provision (Benefit) for
Income Taxes 5,866 (7,297) 14,117 1,091
---------- ---------- ---------- ----------
Net Income (Loss) $ 11,645 $ (13,553) $ 28,025 $ 2,026
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary and Fully Diluted
Net Income (Loss)
Per Share $ 0.15 $ (0.18) $ 0.35 $ 0.03
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary Weighted Average
Shares Outstanding 79,636 76,626 79,343 76,932
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted Weighted
Average Shares
Outstanding 79,636 76,626 79,396 76,987
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements
5
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-Six Weeks Ended
December 25, December 27,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 28,025 $ 2,026
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization of
Property and Equipment 29,801 27,417
Amortization of Goodwill and Other Assets 6,649 4,856
Gain on Sales of Concepts - (9,262)
Restructuring Charge - 50,000
Changes in Assets and Liabilities,
Excluding Effects of Acquisitions
and Dispositions:
(Increase) Decrease in Accounts
Receivable (5,576) 4,432
Increase in Inventories (516) (1,325)
Increase in Prepaid Expenses (2,804) (2,988)
Increase in Other Assets (10,185) (8,000)
Increase (Decrease) in Accounts Payable 9,605 (10,462)
Increase (Decrease) in Accrued
Liabilities 2,798 (7,559)
Increase in Deferred Income Taxes 1,907 48
Decrease in Other Liabilities (6,242) (281)
Other (181) 597
--------- ---------
Net Cash Provided by Operating Activities 53,281 49,499
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (104,863) (100,339)
Payments for Purchase of Restaurants (15,863) -
Purchases of Marketable Securities (18,489) (13,923)
Proceeds from Sales of Marketable Securities 24,226 15,479
Proceeds from Sales of Concepts - 73,115
Other - 375
--------- ---------
Net Cash Used in Investing Activities (114,989) (25,293)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 52,000 -
Payments of Long-term Debt (174) (1,502)
Proceeds from Issuances of Common Stock 2,429 1,095
--------- ---------
Net Cash Provided (Used) by
Financing Activities 54,255 (407)
--------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents (7,453) 23,799
Cash and Cash Equivalents at Beginning
of Period 27,073 44,911
--------- ---------
Cash and Cash Equivalents at End
of Period $ 19,620 $ 68,710
--------- ---------
--------- ---------
CASH PAID DURING THE PERIOD:
Income Taxes $ 14,055 $ 15,003
Interest, Net of Amounts Capitalized $ 3,035 $ 1,594
NON-CASH TRANSACTIONS DURING THE PERIOD:
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
6
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 December 25, 1996 and June 26, 1996 and for the thirteen
weeks and twenty-six weeks ended December 25, 1996 and December 27, 1995 have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company owns or franchises over 650
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 ("Corner Bakery"), and Eatzi's Market & Bakery
("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. 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 26, 1996 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 to the current year
presentation.
2. NET INCOME (LOSS) PER SHARE
Both primary and fully diluted net income (loss) 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. Primary weighted average equivalent shares are determined based on the
average market price exceeding the exercise price of the stock options. Fully
diluted weighted average equivalent shares are determined based on the higher of
the average or ending market price exceeding the exercise price of the stock
options. Common equivalent shares for the second quarter of fiscal 1996 are
excluded from the net loss per share computation because they were anti-
dilutive.
3. SUBSEQUENT EVENT
On January 23, 1997, the Board of Directors approved a plan to repurchase
up to $150 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.
7
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 26 Weeks Ended
Dec. 25, 1996 Dec. 27, 1995 Dec. 25, 1996 Dec. 27, 1995
------------- ------------- ------------- -------------
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
----- ----- ----- -----
Costs and Expenses:
Cost of Sales 28.6 % 28.9 % 28.4 % 28.9 %
Restaurant Expenses 54.7 % 53.9 % 53.7 % 53.4 %
Depreciation and Amortization 6.0 % 5.6 % 5.9 % 5.6 %
General and Administrative 5.1 % 4.7 % 5.1 % 4.6 %
Interest Expense 0.5 % 0.3 % 0.5 % 0.3 %
Gain on Sales of Concepts - % (3.2)% - % (1.6)%
Restructuring Charge - % 17.2 % - % 8.6 %
Other, Net (0.5)% (0.2)% (0.4)% (0.3)%
----- ----- ----- -----
Total Costs and Expenses 94.4 % 107.2 % 93.2 % 99.5 %
----- ----- ----- -----
Income (Loss) Before Provision
(Benefit) for Income Taxes 5.6 % (7.2)% 6.8 % 0.5 %
Provision (Benefit) for Income
Taxes 1.9 % (2.5)% 2.3 % 0.2 %
----- ----- ----- -----
Net Income (Loss) 3.7 % (4.7)% 4.5 % 0.3 %
----- ----- ----- -----
----- ----- ----- -----
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
1997 1996 1997 1996 1997 1996
------ ------ ------ ------ ------ ------
Chili's:
Company-owned 9 11 19 25 383 339
Franchised 6 7 12 15 135 123
--- --- --- --- --- ---
Total 15 18 31 40 518 462
Macaroni Grill:
Company-owned 7 7 13 11 82 61
Franchised -- 1 -- 1 2 2
--- --- --- --- --- ---
Total 7 8 13 12 84 63
On The Border:
Company-owned 1 2 3 4 26 19
Franchised 1 -- 2 -- 4 4
--- --- --- --- --- ---
Total 2 2 5 4 30 23
Cozymel's 1 2 1 3 12 6
Maggiano's -- -- 1 -- 4 3
Corner Bakery 1 1 3 2 11 6
Eatzi's -- -- -- -- 1 --
Concepts sold -- 3 -- 12 -- 8
--- --- --- --- --- ---
Grand total 26 34 54 73 660 571
--- --- --- --- --- ---
--- --- --- --- --- ---
8
REVENUES
Revenues for the second quarter of fiscal 1997 increased to $310.9 million,
7.3% over the $289.7 million generated for the same quarter of fiscal 1996.
Revenues for the twenty-six weeks ended December 25, 1996 rose 7.0% to $619.6
million from the $579.1 million generated for the same period of fiscal 1996.
The increase is primarily attributable to the 76 Company-operated restaurants
opened or acquired since December 27, 1995. The Company increased its
capacity (as measured in sales weeks) for the second quarter and year-to-date
of fiscal 1997 by 7.1% and 5.5%, respectively, compared to the respective
prior year periods. Average weekly sales increased 0.2% and 1.3% for the
second quarter and year-to-date, respectively, from the same periods of
fiscal 1996.
COSTS AND EXPENSES (AS A PERCENT OF REVENUES)
Cost of sales decreased for the second quarter and year-to-date of fiscal
1997 as compared to the respective periods for fiscal 1996. Favorable
commodity prices for seafood and other food items (e.g., shortening, rice,
and ketchup) as well as menu price increases contributed to the decrease.
Cost of sales continued to increase in the second quarter as compared to the
first quarter of fiscal 1997 due to unfavorable commodity prices for dairy,
poultry, produce, and meat.
Restaurant expenses increased on both a comparative second 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 minimum wage as well as wage rate
increases for non-minimum wage employees in order to meet industry
competition and retain quality employees. In addition, hourly labor costs
increased as a result of training costs associated with the second quarter
roll-out of new products and new inventory management programs. Partially
offsetting the labor increases were reduced insurance costs resulting from an
aggressive safety program and claims management strategies put in place by
the Company over the last 18 to 24 months.
Depreciation and amortization increased for both the second quarter and
year-to-date of fiscal 1997. Depreciation and amortization increases related
to fiscal 1996 acquisitions, new unit construction costs, and ongoing remodel
costs were partially offset by a declining depreciable asset base for older
units.
General and administrative expenses increased in the second quarter and
year-to-date of fiscal 1997 compared to the respective fiscal 1996 periods.
Incremental costs in the second quarter and year-to-date are primarily
attributable to additional staff and support as the Company continues the
expansion of its restaurant concepts. Additionally, year-to-date expenses
increased due to the accrual of profit sharing.
Interest expense increased in the second quarter and year-to-date of fiscal
1997 compared to the respective fiscal 1996 periods 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, increased slightly for both the second quarter and year-to-date
of fiscal 1997 primarily due to gains on sales of land in the second quarter.
INCOME TAXES
The Company's effective income tax rate was 33.5% for the second quarter and
year-to-date of fiscal 1997 compared to 35.0% for the same periods of fiscal
1996. The fiscal 1997 effective income tax rate has decreased as a result of
the Congressional enactment of the work opportunity tax credit and an
increase in the Federal FICA tax credits for tipped wages.
9
NET INCOME AND NET INCOME PER SHARE
Operating results before restructuring related items (gain on sales of
concepts and restructuring charge in fiscal 1996) for the second quarter and
year-to-date are summarized as follows (in millions, except per share
amounts):
13 Weeks Ended 26 Weeks Ended
------------------- -------------------
Dec. 25, Dec. 27, Dec. 25, Dec. 27,
1996 1995 1996 1995
------- ------- ------- -------
Income Before Restructuring
Related Items and Income Taxes $ 17.5 $ 19.9 $ 42.1 $ 43.8
Income Taxes Before Restructuring
Related Items 5.9 7.0 14.1 15.3
------ ------ ------ ------
Net Income Before Restructuring
Related Items $ 11.6 $ 12.9 $ 28.0 $ 28.5
------ ------ ------ ------
------ ------ ------ ------
Net Income Per Share Before
Restructuring Related Items $ 0.15 $ 0.17 $ 0.35 $ 0.37
------ ------ ------ ------
------ ------ ------ ------
Net income before restructuring related items for the second quarter and
year-to-date declined 9.9% and 1.7%, respectively, compared to fiscal 1996.
Primary net income per share before restructuring related items for the
second quarter and year-to-date declined 11.8% and 5.4%, respectively. The
decrease in net income before restructuring related items in light of the
increase in revenues was due to 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
The working capital deficit increased from $50.0 million at June 26, 1996 to
$114.1 million at December 25, 1996, due primarily to the Company's capital
expenditures as discussed below. Net cash provided by operating activities
increased to $53.3 million for the first half of fiscal 1997 from $49.5
million during the same period in fiscal 1996 due to timing of operational
receipts and payments.
Long-term debt outstanding at December 25, 1996 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At December 25,
1996, the Company had $209.9 million in available funds from credit
facilities.
Capital expenditures were $104.9 million for the first half of fiscal 1997 as
compared to $100.3 million in the first half of fiscal 1996. 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 Company
estimates that its capital expenditures during the third quarter will
approximate $68 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
restaurants closed in conjunction with the strategic plan approved in fiscal
1996, and drawdowns on the Company's available lines of credit.
10
On January 23, 1997, the Board of Directors approved a plan to repurchase up
to $150 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. The Company intends to
finance the repurchase program through the combination of cash provided by
operations, the liquidation of its marketable securities portfolio, and the
disposition of a portion of its real estate portfolio pursuant to
sale-leaseback transactions.
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.
SUBSEQUENT EVENT
Subsequent to December 25, 1996, the Company announced that it is
implementing a realignment of its management structure to more directly
support its various restaurant concepts. This realignment will include
upgrading certain strategic functions and decentralizing certain functions
that are more efficiently done at the concept level. In conjunction with the
realignment certain positions were eliminated at the corporate offices.
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that various factors could cause the
actual results of the Company to differ materially from those indicated by
forward-looking statements made from time to time in news releases, reports,
proxy statements, registration statements and other written communications
(including the preceding sections of this Management's Discussion and
Analysis), as well as oral statements made from time to time by
representatives of the Company. Except for historical information, matters
discussed in such oral and written communications are forward-looking
statements that involve risks and uncertainties, including but not limited to
general business conditions, the impact of competition, the seasonality of
the Company's business, taxes, inflation, and governmental regulations.
11
PART II. OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated September 24, 1996 for the Annual Meeting
of Shareholders held on November 7, 1996, as filed with the Securities and
Exchange Commission on September 24, 1996, is incorporated herein by
reference.
(a) The Annual Meeting of Shareholders of the Company was held on November 7,
1996.
(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
52,476,106 13,128,435
---------- ----------
(c) The following matters were also voted upon at the meeting and approved by
the shareholders:
(i) approval of an amendment to the Company's 1992 Incentive Stock
Option Plan
Number of Affirmative Votes Cast Number of Negative Votes Cast
48,393,822 16,842,647
---------- ----------
Number of Abstain Votes Cast
153,187
-------
(ii) approval of an amendment to the Company's 1991 Stock Option Plan for
Non-Employee Directors and Consultants
Number of Affirmative Votes Cast Number of Negative Votes Cast
52,868,212 12,345,795
---------- ----------
Number of Abstain Votes Cast
175,649
-------
Item 6: EXHIBITS
Exhibit 27 Financial Data Schedule. Filed with EDGAR version.
12
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 7, 1996 By: /s/ Ronald A. McDougall
--------------------------------------------
Ronald A. McDougall, President and
Chief Executive Officer
(Duly Authorized Signatory)
Date: February 7, 1996 By: /s/ Debra Smithart
--------------------------------------------
Debra Smithart, Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13