<PAGE>
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 December 29, 1993
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 December 29,
1993: 46,128,479.
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BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
December 29, 1993 and June 30, 1993 3-4
Condensed Consolidated Statements of Income -
Thirteen weeks ended December 29, 1993 and
Three months ended December 31, 1992 5
Twenty-six weeks ended December 29, 1993 and
Six months ended December 31, 1992 5
Condensed Consolidated Statements of Cash Flows -
Twenty-six weeks ended December 29, 1993 and
Six months ended December 31, 1992 6
Notes to Condensed Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Part II Other Information
Item 4: Submission of Matters to a Vote of
Security Holders 13
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
DECEMBER 29, 1993 JUNE 30, 1993
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,380 $ 5,472
Accounts Receivable 7,508 5,832
Assets Held for Sale and Leaseback 50 1,155
Inventories 7,467 6,531
Prepaid Expenses 12,966 11,908
Total Current Assets 32,371 30,898
Property and Equipment, at Cost:
Land $ 93,732 $ 86,832
Buildings and Leasehold Improvements 244,928 211,779
Furniture and Equipment 154,170 136,216
Construction-in-Progress 20,881 28,426
513,711 463,253
Less Accumulated Depreciation 129,841 112,889
and Amortization
Net Property and Equipment 383,870 350,364
Other Assets:
Deferred Costs $ 11,946 $ 11,105
Investment in Joint Ventures, at Equity 4,071 5,670
Long-term Marketable Securities 32,075 28,693
Long-term Notes Receivable 3,478 938
Other 16,831 7,591
Total Other Assets 68,401 53,997
Total Assets $ 484,642 $ 435,259
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
DECEMBER 29, 1993 JUNE 30, 1993
(Unaudited)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term Debt $ 2,850 $ ---
Current Installments of Long-term Debt 268 268
Accounts Payable 35,355 30,187
Accrued Liabilities 49,359 43,532
Deferred Income Taxes 1,566 919
Total Current Liabilities 89,398 74,906
Long-term Debt, Less Current Installments 3,655 3,788
Deferred Income Taxes 10,471 8,934
Other Liabilities 14,377 12,900
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock-1,000,000 Authorized Shares;
$1.00 Par Value; No Shares Issued --- ---
Common Stock-100,000,000 Authorized Shares;
$.10 Par Value; 46,128,479 and 45,756,397
Shares Issued and Outstanding at
December 29, 1993 and June 30, 1993,
Respectively 4,613 4,576
Additional Paid-In Capital 165,228 162,663
Retained Earnings 196,900 167,492
Total Shareholders' Equity 366,741 334,731
Total Liabilities and
Shareholders' Equity $ 484,642 $ 435,259
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
</PAGE>
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
13 Weeks Ended 3 Months Ended 26 Weeks Ended 6 Months Ended
12/29/93 12/31/92 12/29/93 12/31/92
<S> <C> <C> <C> <C>
Revenues $ 197,571 $ 151,949 $ 389,968 $ 303,125
Costs and Expenses:
Cost of Sales 54,033 41,910 107,183 83,493
Restaurant Expenses 99,692 77,019 196,948 154,435
Depreciation and
Amortization 12,024 8,728 22,986 17,084
General and
Administrative 10,423 8,701 20,528 16,686
Other, Net (1,889) (679) (3,271) (1,454)
Total Costs
and Expenses 174,283 135,679 334,374 270,244
Income Before
Provision for
Income Taxes 23,288 16,270 45,594 32,881
Provision for
Income Taxes 8,267 5,644 16,186 11,417
Net Income $ 15,021 $ 10,626 $ 29,408 $ 21,464
Primary and Fully
Diluted Net
Income Per Share $ 0.31 $ 0.22 $ 0.60 $ 0.45
Primary Weighted
Average Shares
Outstanding 48,823 47,291 48,644 47,135
Fully Diluted Weighted
Average Shares
Outstanding 48,928 47,525 48,825 47,385
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements
</PAGE>
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
26 Weeks Ended Six Months Ended
December 29, 1993 December 31, 1992
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 29,408 $ 21,464
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization of
Property and Equipment 19,142 14,596
Amortization of Deferred Costs 3,844 2,488
Gain on Sale of Land (1,000) ---
Changes in Assets and Liabilities:
Increase in Accounts Receivable (1,676) (285)
Increase in Inventories (936) (811)
Increase in Prepaid Expenses (1,058) (805)
Increase in Other Assets (9,524) (3,850)
Increase in Accounts Payable 5,168 1,844
Increase in Accrued Liabilities 5,827 1,709
Increase (Decrease) in Deferred
Income Taxes 2,184 (177)
Increase in Other Liabilities 1,477 815
Net Cash Provided by Operating Activities 52,856 36,988
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (54,604) (54,635)
Proceeds from Sale of Land 4,180 ---
Payment for Purchase of Franchisee
Restaurants (8,165) ---
Decrease in Assets Held for Sale and
Leaseback 1,105 661
Decrease (Increase) in Investment in
Joint Ventures 1,599 (322)
Purchase of Long-term Marketable
Securities (29,192) (31,785)
Sales of Long-term Marketable Securities 25,810 29,496
Net Cash Used in Investing Activities (59,267) (56,585)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 2,850 2,990
Payments of Long-term Debt (133) (108)
Proceeds from Stock Options Exercised 2,602 11,557
Net Cash Provided by Financing Activities 5,319 14,439
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,092) (5,158)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5,472 10,079
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 4,380 $ 4,921
Cash Paid During the Six Month Period:
Interest, Net of Amounts Capitalized $ --- $ 19
Income Taxes 15,461 10,089
Non-Cash Transaction During the Six
Month Period:
Tax Benefit from Stock Options
Exercised $ --- $ 17,375
See Accompanying Notes to Condensed Consolidated Financial Statements
</PAGE>
<PAGE>
BRINKER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Effective July 1, 1993, Brinker International, Inc. ("the Company")
adopted a 52 week fiscal year ending on the last Wednesday in June. Most
retailing and restaurant companies operate on an accounting calendar that
is measured in weeks rather than months. Thus, a normal fiscal year only
contains 364 days. Every fifth or sixth year, lost days are recaptured by
having a 53 week fiscal year. This change enhances the Company's ability
to measure comparative operating results. The impact of this change was
not significant.
The Company's consolidated financial statements as of December 29, 1993
and June 30, 1993 and for the thirteen week period ended December 29, 1993
and the three month period ended December 31, 1992, and for the twenty-six
week period ended December 29, 1993 and for the six month period ended
December 31, 1992 have been prepared by the Company, pursuant to the rules
and regulations of the Securities and Exchange Commission. The Company
owns and operates four primary restaurant concepts under the names of
Chili's Grill & Bar ("Chili's"), Grady's American Grill ("Grady's"),
Romano's Macaroni Grill ("Macaroni Grill"), and Spageddies Italian Italian
Food ("Spageddies").
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 30, 1993 Form 10-
K. Company management believes that the disclosures are sufficient for
interim financial reporting purposes.
2. Net Income Per Share
Primary and Fully Diluted Net Income Per Share is 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. Adoption of Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), Accounting for Income Taxes
The Company adopted SFAS No. 109 for its fiscal quarter ended
September 29, 1993, and the impact on the Company's consolidated financial
statements was not material.
4. Deferred Costs
Effective July 1, 1993, the Company prospectively revised its policy for
capitalizing and amortizing pre-opening costs associated with the opening
of new restaurant sites. The amortization period was reduced from 24
months to 12 months. Capitalized pre-opening costs include the direct and
incremental costs typically associated with the opening of a new
restaurant which primarily consist of costs incurred to develop new
restaurant management teams, travel and lodging for both the training and
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opening unit management teams, and the food, beverage, and supplies costs
incurred to perform role play testing of all equipment, concept systems,
and recipes. The impact of the change in accounting policy did not have
a material impact on the Company's consolidated financial statements.
5. Business Combinations
Effective October 7, 1993, the Company acquired the assets of a
franchisee, which operated four Chili's restaurants in Pennsylvania and
Ohio, for approximately $8,165,000 in cash. The acquisition was accounted
for as a purchase. Goodwill of approximately $6,941,000 representing the
excess of cost over the fair value of the assets acquired, was recorded in
connection with the acquisition and is included in Other Assets. Goodwill
is being amortized on a straight-line basis over 30 years.
6. Subsequent Event
Effective January 24, 1994, the Company and On The Border Cafes, Inc.
("OTB") entered into a definitive Agreement and Plan of Merger ("Merger
Agreement"), pursuant to which the Company will acquire a 100% ownership
interest in OTB. Under the terms of the Merger Agreement, a total of
3,735,419 fully diluted shares of OTB common stock will be exchanged for
750,000 (approximately 0.2 for 1) shares of Company common stock upon the
completion of the merger. The merger ratio is subject to certain
adjustments depending upon the trading price of the Company's common stock
at the time of the merger's consummation, anticipated in May 1994. OTB's
operations include fourteen company-operated and seven franchised casual
dining Tex-Mex theme restaurants. The parties intend that the acquisition
will be accounted for as a pooling of interests.
</PAGE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations For The Thirteen Weeks Ended December 29, 1993
Compared to the Three Months Ended December 31, 1992 and for the
Twenty-six Weeks Ended December 29, 1993 Compared to the
Six Months Ended December 31, 1992
The following table sets forth expenses as a percentage of total revenues for
revenue and expense items included in the Consolidated Statements of Income.
</TABLE>
<TABLE>
13 Weeks Ended 3 Months Ended 26 Weeks Ended 6 Months Ended
12/29/93 12/31/92 12/29/93 12/31/92
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.3% 27.6% 27.5% 27.5%
Restaurant Expenses 50.5% 50.7% 50.5% 51.0%
Depreciation and
Amortization 6.1% 5.7% 5.9% 5.6%
General and
Administrative 5.3% 5.7% 5.3% 5.5%
Other, Net (1.0%) (0.4%) (0.9%) (0.4%)
Total Costs
and Expenses 88.2% 89.3% 88.3% 89.2%
Income Before
Provision for
Income Taxes 11.8% 10.7% 11.7% 10.8%
Provision for
Income Taxes 4.2% 3.7% 4.2% 3.7%
Net Income 7.6% 7.0% 7.5% 7.1%
</TABLE>
The following table shows restaurant openings during the second quarter and
year-to-date, and total restaurants open at the end of the second quarter.
<TABLE>
2nd Quarter Openings Year-to-Date Openings Restaurants Open At End
Fiscal Fiscal Fiscal Fiscal of 2nd Quarter
1994 1993 1994 1993 Fiscal 1994 Fiscal 1993
<S> <C> <C> <C> <C> <C> <C>
Chili's:
Company-
operated 10 8 26 13 259 220
Franchised 5 8 6 9 84 77
Total Chili's 15 16 32 22 343 297
Macaroni Grill 2 2 6 2 28 15
Grady's 1 2 5 2 29 19
Spageddies -- -- 1 1 4 1
R&D Concept -- 1 -- 1 1 1
Grand Total 18 21 44 28 405 333
</TABLE>
</PAGE>
<PAGE>
The Company periodically reevaluates restaurant sites to ensure that site
selection attributes have not deteriorated below the Company's minimum
standards. In the event site deterioration were to occur, the Company makes
a concerted effort to improve the restaurant's performance via providing
physical, operating, and marketing enhancements unique to each restaurant's
situation. If internal efforts to restore the restaurant's performance to
acceptable minimum standards are unsuccessful, the Company considers
relocation to a proximate, more desirable site, or evaluates closing the
restaurant if Company criteria such as return on investment and area
demographic data do not support a relocation. In the second quarter of fiscal
1994, the Company closed two Los Angeles area restaurants which were
performing below Company standards primarily due to declining trading-area
demographics. These and future closings will be key to the Company's
successful reallocation of resources to the stronger performing stores.
REVENUES
Revenues for the second quarter of fiscal 1994 increased to $197.6 million, 30%
over the $151.9 million generated for the same quarter of fiscal 1993. Revenues
for the six month period ended December 29, 1993 rose 28.7% to $390 million from
$303.1 million generated from the same period of fiscal 1993. The increase is
primarily attributable to the 67 Company-operated restaurants opened or acquired
since December 31, 1992. Consolidated comparable store sales for the second
quarter and year-to-date of fiscal 1994 rose 3.8% and 3.1%, respectively, which
also contributed to the increase. On a concept basis, Chili's, Macaroni Grill,
and Grady's experienced comparable store sales increases of 4.3%, 1.1%, and
2.0%, respectively, for the second quarter of fiscal 1994, and 3.3%, 2.8%,
and 1.9%, respectively, on a year-to-date basis. The introduction of the
"Guiltless Grill" menu items at Chili's as well as the addition of new
dessert menu items has contributed to the increase in comparable store sales
at the Chili's concept in the second quarter.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of Sales decreased and remained stable for the second quarter and year-to-
date of fiscal 1994, respectively. Favorable commodity prices for produce and
dairy experienced throughout fiscal 1994 were offset by unfavorable commodity
prices for poultry, experienced in the first quarter. In addition, the relative
growth of Macaroni Grill and Grady's offset the impact of favorable commodity
prices as these concepts have higher Cost of Sales ratios than Chili's.
Restaurant Expenses decreased on both a comparative second quarter and year-to-
date basis. The decreases resulted from continued efficiencies achieved in
supervising and managing the restaurants, a decrease in rent expense due to the
increase in percentage of restaurants owned versus leased, a decrease in bad
debt expense due to implementation of an on-line credit card authorization
system, and a decrease in liquor taxes due to the dilutive effect of new
restaurant openings in states with lower tax rates. These favorable trends
were partially offset by increased insurance costs and increases in property
tax rates.
Depreciation and Amortization increased for both the second quarter and year-to-
date of fiscal 1994 compared with the respective period of fiscal 1993. The
increase is primarily the result of investments in new computer hardware and
software which has contributed to operating efficiencies experienced at both the
restaurants and corporate office. In addition, Depreciation and Amortization
related to furniture and equipment and pre-opening costs has increased over last
fiscal year due to the increased number of stores opened in the current fiscal
year compared to last fiscal year. The ongoing restaurant remodeling program as
well as the continued replacement of restaurant furniture and equipment are
other factors contributing to the increase.
</PAGE>
<PAGE>
General and Administrative declined for both the second quarter and year-to-date
of fiscal 1994 compared to fiscal 1993 due to the Company's focus on controlling
corporate expenditures and efficiencies realized from increased investments in
computer hardware and software. The dollar increase in General and
Administrative costs is due to additional staff and support as the Company
accelerates expansion of its restaurant concepts, including international
franchising.
Other, Net, increased substantially for both the second quarter and year-to-date
of fiscal 1994 compared to fiscal 1993. The increase is primarily the result of
a gain of approximately $1,000,000 generated from the sale of land in the second
quarter. In addition, increases in realized gains on sales of marketable
securities contributed to the increase. Interest and dividend income remained
flat on both a comparative second quarter and year-to-date basis.
INCOME BEFORE PROVISION FOR INCOME TAXES
As a result of the relationships between Revenues and Costs and Expenses, Income
Before Provision for Income Taxes increased 43.1% and 38.7%, respectively, over
the second quarter and year-to-date results of fiscal 1993.
INCOME TAXES
The Company's effective income tax rate increased to 35.5% from 34.7% for both
the second quarter and year-to-date of fiscal 1994 compared to the same periods
of fiscal 1993. The Company's effective income tax rate continues to rise as a
result of additional state tax liabilities resulting from continued expansion,
particularly relating to growth in California and Florida.
The Omnibus Budget Reconciliation Act, enacted in August 1993, mandates certain
changes in Federal income tax laws, which among other items, includes an
increase in the statutory Federal corporate income tax rate from 34% to 35% and
reinstatement of the Targeted Jobs Tax Credit. The impact of these changes,
retroactive to January 1993, did not have a material impact on the Company's
effective income tax rate. This act also mandates a tax credit for FICA taxes
paid on tips, effective January 1994. These changes are not expected to have a
material impact on the Company's effective income tax rate as the amounts are
offsetting.
NET INCOME AND NET INCOME PER SHARE
Net Income and Net Income Per Share rose 41.4% and 40.9%, respectively, compared
to the second quarter of fiscal 1993. Year-to-date Net Income and Net Income
Per Share increased 37% and 33.3%, respectively, compared to the same period of
fiscal 1993. The increases exceed the increases in Revenues as the Company
continues to control Costs and Expenses while maintaining the expansion of its
concepts. Primary Weighted Average Shares Outstanding increased 3.2% for both
the comparative second quarter and year-to-date amounts. The increase is
primarily the result of common stock options exercised.
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.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $44 million at June 30, 1993 to $57
million at December 29, 1993, due primarily to the Company's capital
expenditures as discussed below. Net cash provided by operating activities
increased to $52.9 million for the first half of the year from $37 million
during the same period in fiscal 1993 due to the greater number of
restaurants in operation over the prior fiscal year and strong operating
results from existing units.
Long-term debt outstanding at December 29, 1993, consisted of obligations under
capital leases. At December 29, 1993, the Company had drawn $2.9 million from
its lines of credit to fund short-term operational needs, leaving $37.1 million
available funds from lines of credit.
Capital expenditures were $62.8 million for the six months ended December 29,
1993 as compared to $54.6 million last fiscal year. Purchases of land for
future restaurant sites, the acquisition of four restaurants from a
franchisee, 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 third quarter will
approximate $34 million. These capital expenditures will be funded
internally from restaurant operations, build-to-suit lease agreements with
landlords, liquidating investments, and dividend and interest income from
investments.
The Clinton administration continues to analyze and propose new legislation
which could adversely impact the entire business community. Mandated health
care and minimum wage measures, if passed, could increase the Company's
operating costs. The Company would attempt to offset increased costs through
additional improvements in operating efficiencies and menu price increases.
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, investment portfolio, and strong internal cash generating capabilities
to adequately manage the expansion of business.
</PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated September 28, 1993 for the Annual Meeting of
Stockholders held on November 4, 1993, as filed with the Securities and Exchange
Commission on September 28, 1993, is incorporated herein by reference.
a. The Annual Meeting of Stockholders of the Company was held on November 4,
1993.
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 the stockholders or until his successor is elected and
qualified.
Number of affirmative votes cast Number of withhold authority votes cast
38,773,483 34,031
c. The following matters were also voted upon at the meeting and approved by
the stockholders:
(i) approval of an amendment to the Certificate of Incorporation of the
Company to increase the number of shares of Common Stock the Company
is authorized to issue from 50,000,000 to 100,000,000
Number of affirmative votes cast Number of negative votes cast
36,768,740 1,942,065
Number of abstain votes cast
96,709
(ii) ratification of the appointment of KPMG Peat Marwick as the
Company's independent auditors for the fiscal year ending June 29,
1994
Number of affirmative votes cast Number of negative votes cast
36,688,159 53,707
Number of abstain votes cast
65,648
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<PAGE>
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 14, 1994 By: /Ronald A. McDougall
Ronald A. McDougall, President and Chief
Operating Officer
(Duly Authorized Signatory)
Date: February 14, 1994 By: /Debra L. Smithart
Debra L. Smithart, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
</PAGE>
