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 28, 1994
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 28,
1994: 71,832,036.
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BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
December 28, 1994 and June 29, 1994 3-4
Condensed Consolidated Statements of Income -
Thirteen week periods and Twenty-Six week periods
ended December 28, 1994 and December 29, 1993 5
Condensed Consolidated Statements of Cash Flows -
Twenty-Six week periods ended December 28, 1994
and December 29, 1993 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II Other Information 11-12
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
DECEMBER 28, 1994 JUNE 29, 1994
<S> <C><C> <C><C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 1,109 $ 3,743
Accounts Receivable 17,977 12,651
Assets Held for Sale and Leaseback 38 ---
Inventories 9,365 8,213
Prepaid Expenses 19,664 17,601
Deferred Income Taxes 3,899 4,655
Total Current Assets 52,052 46,863
Property and Equipment, at Cost:
Land $ 116,203 $ 106,040
Buildings and Leasehold Improvements 321,605 286,437
Furniture and Equipment 197,535 172,403
Construction-in-Progress 36,012 31,300
671,355 596,180
Less Accumulated Depreciation 183,654 161,946
Net Property and Equipment 487,701 434,234
Other Assets:
Preopening Costs $ 8,365 $ 7,927
Marketable Securities 28,421 45,239
Notes Receivable 1,022 2,231
Other 26,594 21,941
Total Other Assets 64,402 77,338
Total Assets $ 604,155 $ 558,435
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)
(Unaudited)
DECEMBER 28, 1994 JUNE 29, 1994
<S> <C><C> <C><C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term Debt $ 12,050 $ ---
Current Installments of Long-term Debt 309 501
Accounts Payable 41,641 45,340
Accrued Liabilities 58,285 55,901
Total Current Liabilities 112,285 101,742
Long-term Debt, Less Current Installments 3,264 4,404
Senior Subordinated Convertible Debentures 1,200 1,200
Deferred Income Taxes 12,667 12,143
Other Liabilities 19,726 21,569
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; 71,832,036 and 71,405,452
Shares Issued and Outstanding at
December 28, 1994 and June 29, 1994,
Respectively 7,183 7,141
Additional Paid-In Capital 188,152 183,299
Unrealized Loss on Marketable Securities (2,321) (441)
Retained Earnings 261,999 227,378
Total Shareholders' Equity 455,013 417,377
Total Liabilities and
Shareholders' Equity $ 604,155 $ 558,435
See Accompanying Notes to Condensed Consolidated Financial Statements
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<CAPTION>
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
13 Week Periods Ended 26 Week Periods Ended
Dec. 28, 1994 Dec. 29, 1993 Dec. 28, 1994 Dec. 29, 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 246,607 $ 214,081 $ 493,679 $ 421,334
Costs and Expenses:
Cost of Sales 67,097 58,835 133,373 116,233
Restaurant Expenses 128,475 109,767 255,322 215,478
Depreciation and
Amortization 14,163 12,912 27,949 24,443
General & Administrative 12,636 11,688 24,860 22,585
Interest Expense --- 127 --- 243
Merger Expenses --- 234 --- 234
Lawsuit Settlement --- 2,248 --- 2,248
Other, Net (492) (2,055) (1,309) (3,471)
Total Costs and
Expenses 221,879 193,756 440,195 377,993
Income Before Provision
for Income Taxes 24,728 20,325 53,484 43,341
Provision for Income
Taxes 8,655 7,136 18,863 15,235
Net Income $ 16,073 $ 13,189 $ 34,621 $ 28,106
Primary Net Income
Per Share $ 0.22 $ 0.18 $ 0.46 $ 0.38
Fully Diluted Net
Income Per Share $ 0.22 $ 0.18 $ 0.46 $ 0.37
Primary Weighted Average
Shares Outstanding 74,391 75,057 74,584 74,787
Fully Diluted Weighted
Average Shares
Outstanding 74,391 75,213 74,653 75,059
See Accompanying Notes to Condensed Consolidated Financial Statements
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BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-Six Week Periods Ended
December 28, 1994 December 29, 1993
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 34,621 $ 28,106
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Property and Equipment 23,041 20,107
Amortization of Preopening Costs 4,908 4,336
Gain on Sale of Land --- (1,000)
Changes in Assets and Liabilities:
Increase in Accounts Receivable (5,326) (5,941)
Increase in Inventories (1,152) (1,031)
Increase in Prepaid Expenses (2,063) (1,298)
Increase in Other Assets (8,790) (9,564)
(Decrease) Increase in Accounts Payable (3,699) 11,871
Increase in Accrued Liabilities 2,384 7,894
Increase in Deferred Income Taxes 2,547 1,385
(Decrease) Increase in Other Liabilities (1,843) 1,328
Net Cash Provided by Operating Activities 44,628 56,193
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (76,508) (58,679)
Proceeds from Sale of Land --- 4,180
Payment for Purchase of Franchisee Restaurants --- (8,165)
(Increase) Decrease in Assets Held for
Sale and Leaseback (38) 1,106
Purchases of Marketable Securities (4,923) (29,192)
Proceeds from Sales of Marketable Securities 18,594 25,810
Net Cash Used in Investing Activities (62,875) (69,940)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 12,050 2,850
(Payments) Borrowings of Long-term Debt (1,332) 138
Proceeds from Issuances of Common Stock 4,895 720
Net Cash Provided by Financing Activities 15,613 3,708
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,634) (5,039)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,743 12,477
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 1,109 $ 7,438
CASH PAID DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ --- $ 243
Income Taxes $ 21,107 $ 15,461
See Accompanying Notes to Condensed Consolidated Financial Statements
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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 28, 1994 and June 29,
1994 and for the thirteen week periods and twenty-six week periods ended
December 28, 1994 and December 29, 1993 have been prepared by the
Company, pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company owns and operates five 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"), Spageddies Italian Kitchen ("Spageddies"), and On The Border
Cafes ("On The Border").
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 29, 1994
Form 10-K. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
2. Net Income Per Share
Both primary and fully diluted net income per share are based on the
weighted average number of shares outstanding during the period
increased by common equivalent shares (stock options) determined using
the treasury stock method.
3. Business Combination
Effective August 3, 1994, the Company acquired four Chili's restaurants
located in Florida and Georgia from a franchisee in exchange for 505,930
shares of Company common stock. The acquisition of one of the
restaurants was accounted for as a purchase. The acquisition of the
remaining three restaurants was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements have been
restated to include the accounts and operations of the three acquired
restaurants for all periods presented.
4. Shareholders' Equity
On November 3, 1994, the shareholders of the Company approved an
amendment to the Company's Certificate of Incorporation which increased
the number of authorized shares of common stock from 100,000,000 to
250,000,000.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
For The Thirteen Week Periods and Twenty-Six Week Periods Ended
December 28, 1994 and December 29, 1993
The following table sets forth expenses as a percentage of total revenues
for revenue and expense items included in the Condensed Consolidated
Statements of Income.
13 Week Periods Ended 26 Week Periods Ended
Dec. 28, 1994 Dec. 29, 1993 Dec. 28, 1994 Dec. 29, 1993
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.2% 27.5% 27.0% 27.6%
Restaurant Expenses 52.1% 51.3% 51.7% 51.1%
Depreciation and
Amortization 5.7% 6.0% 5.7% 5.8%
General & Administrative 5.1% 5.5% 5.0% 5.4%
Interest Expense ---% 0.0% --- 0.0%
Merger Expenses ---% 0.0% --- 0.0%
Lawsuit Settlement ---% 1.1% --- 0.5%
Other, Net (0.1)% (0.9)% (0.2)% (0.7)%
Total Costs & Expenses 90.0% 90.5% 89.2% 89.7%
Income Before Provision
for Income Taxes 10.0% 9.5% 10.8% 10.3%
Provision for Income Taxes 3.5% 3.3% 3.8% 3.6%
Net Income 6.5% 6.2% 7.0% 6.7%
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The following table shows restaurant openings during the second quarter and
year-to-date as well as total restaurants open at the end of the second
quarter.
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Total Open at End
2nd Quarter Openings Year-to-Date Openings of Second Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Chili's:
Company-owned 6 10 22 26 302 271
Franchised 9 5 17 6 95 72
Total 15 15 39 32 397 343
Macaroni Grill:
Company-owned 7 2 11 6 45 28
Franchised -- -- -- -- 1 --
Total 7 2 11 6 46 28
Grady's 5 1 6 5 39 29
Spageddies:
Company-owned 3 -- 3 1 9 4
Franchised 1 -- 1 -- 1 --
Total 4 -- 4 1 10 4
On The Border:
Company-owned 1 3 1 3 15 14
Franchised -- -- -- 2 6 7
Total 1 3 1 5 21 21
R&D Concepts:
Company-owned -- -- -- -- 1 1
Joint Venture -- -- -- -- 1 --
Total -- -- -- -- 2 1
Grand Total 32 21 61 49 515 426
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REVENUES
Revenues for the second quarter of fiscal 1995 increased to $246.6 million,
15.2% over the $214.1 million generated for the same quarter of fiscal 1994.
Revenues for the twenty-six week period ended December 28, 1994 rose 17.2% to
$493.7 million from $421.3 million generated from the same period of fiscal
1994. The increase is primarily attributable to the 66 Company-operated
restaurants opened or acquired since December 29, 1993. Reported comparable
store sales for the second quarter and year-to-date of fiscal 1995 changed
(0.4%) and 0.2%, respectively, compared to the respective prior year periods.
On a concept basis, Chili's, Macaroni Grill, and Grady's experienced
comparable store sales changes of (0.9)%, 2.2%, and 0.3%, respectively, for
the second quarter of fiscal 1995, and 0.1%, 2.1%, and (1.1)%, respectively,
on a year-to-date basis.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased for both the second quarter and year-to-date of fiscal
1995. Due to increased purchasing leverage, favorable commodity prices were
experienced in meat, poultry, and dairy. Other favorable factors include the
impact from meat waste control systems and menu reformulation, such as the
addition of the Guiltless Grill menu items at Chili's. These positive
variances were somewhat offset by unfavorable prices for lettuce and tomatoes
in the second quarter and non-alcoholic beverages and seafood on a year-to-
date basis.
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Restaurant expenses increased on both a comparative second quarter and year-
to-date basis. The increase is primarily the result of increased management
costs due to staffing and training costs associated with future expansion. At
the restaurant level, hourly costs increased slightly due to an increase in
wage rates in certain regions, particularly Florida, and an increase in
restaurant supplies, primarily resulting from new menu items. In addition,
home delivery costs increased as a result of the program's expansion. These
cost increases were partially offset by decreases in rent expense resulting
from an increase in the percentage of owned restaurants versus leased.
Depreciation and amortization decreased for both the second quarter and year-
to-date of fiscal 1995. A decrease in per-unit depreciation and amortization
due to a declining depreciable asset base for older units and higher average
sales volumes in newer restaurants offset increases related to rising
construction costs, remodel costs, and capital expenditures at the corporate
level, such as investments in new computer hardware and software.
General and administrative expenses declined in the second quarter and year-
to-date of fiscal 1995 compared to the respective fiscal 1994 periods due to
the Company's ongoing focus on controlling corporate overhead and efficiencies
realized from increased investments in computer hardware and software. The
dollar increase in general and administrative expenses is due to additional
staff and support as the Company accelerates expansion of its restaurant
concepts, including international franchising.
Merger expenses and lawsuit settlement recognized in the second quarter of
fiscal 1994 are nonrecurring costs associated with On The Border. Merger
expenses are consulting and legal fees incurred in the initial phases of
negotiating On The Border's acquisition. Lawsuit settlement is an injury
claim settlement arising from an airplane accident in March 1993 involving
several former On The Border officers.
Other, net, decreased compared to the first quarter and year-to-date of fiscal
1994. The decrease is primarily the result of a gain of approximately $1
million generated from the sale of land in the second quarter of fiscal 1994,
a decrease in net realized gains on sales of marketable securities due to
significant gains recognized in the first quarter of fiscal 1994, and a
decrease in interest and dividend income compared to fiscal 1994 as a result
of a decrease in the investment portfolio balance.
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 21.7% and 23.4%,
respectively, over the second quarter and year-to-date results of fiscal 1994.
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INCOME TAXES
The Company's effective income tax rate was 35.0% and 35.3% for the second
quarter and year-to-date of fiscal 1995, respectively, compared to 35.1% and
35.2% for the same periods of fiscal 1994. The Company's effective income tax
rate on a year-to-date basis is consistent with the prior year. The fiscal
1995 second quarter effective income tax rate, however, was adjusted downward
from the first quarter as a result of more accurate year-end estimates of
state income tax liabilities and Federal FICA tax credits.
NET INCOME AND NET INCOME PER SHARE
Net income and primary net income per share rose 21.9% and 22.2%,
respectively, compared to the second quarter of fiscal 1994. Year-to-date net
income and primary net income per share increased 23.2% and 21.1%,
respectively, compared to fiscal 1994. The increases exceed the increases in
revenues as the Company continues to control costs and expenses while
maintaining the expansion of its restaurant concepts. Primary weighted
average shares outstanding for the second quarter and year-to-date changed
(0.9)% and 0.3%, respectively, compared to the respective prior year periods.
Although the number of outstanding shares has increased as a result of common
stock options exercised, dilutive common stock equivalents were down in the
second quarter of fiscal 1995 as a result of a decline in the Company's stock
price.
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 $54.9 million at June 29, 1994 to
$60.2 million at December 28, 1994, due primarily to the Company's capital
expenditures as discussed below. Net cash provided by operating activities
decreased to $44.6 million for the first half of the year from $56.2 million
during the same period in fiscal 1994 due to timing of operational receipts
and payments, which offset cash generated from the increased number of
restaurants in operation, strong operating results from existing units, and
the effective containment of costs.
Long-term debt outstanding at December 28, 1994 consisted of obligations under
capital leases. At December 28, 1994, the Company had drawn $12.1 million
from its lines of credit to fund short-term operational needs, leaving $37.9
million in available funds from lines of credit.
Capital expenditures were $76.5 million for the six months ended December 28,
1994 as compared to $66.8 million last fiscal year. Purchases of land for
future restaurant sites, new restaurants under construction, purchases of new
and replacement restaurant furniture and equipment, and the ongoing remodeling
program were responsible for the increased expenditures. The Company
estimates that its capital expenditures during the third quarter will
approximate $53 million. These capital expenditures will be funded from
internal operations, income earned from investments, build-to-suit lease
agreements with landlords, and drawdowns on the Company's available lines of
credit.
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The Clinton administration is likely to continue 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 and strong internal cash generating capabilities to adequately manage
the expansion of business.
PART II. OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated September 29, 1994 for the Annual Meeting
of Stockholders held on November 3, 1994, as filed with the Securities and
Exchange Commission on September 29, 1994, is incorporated herein by
reference.
a. The Annual Meeting of Stockholders of the Company was held on
November 3, 1994.
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 Number of withold auhority
votes cast votes cast
55,881,452 5,943,380
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 100,000,000 to
250,000,000
Number of affirmative votes cast Number of negative votes cast
47,927,822 13,723,221
Number of abstain votes cast
173,789
(ii) approval of an amendment to the Company's 1992 Incentive
Stock Option Plan
Number of affirmative votes cast Number of negative votes cast
49,900,279 11,693,303
Number of abstain votes cast
231,250
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(iii) 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
55,994,152 5,596,214
Number of abstain votes cast
234,466
(iv) approval of the Company's Profit Sharing Plan
Number of affirmative votes cast Number of negative votes cast
56,131,278 5,405,313
Number of abstain votes cast
288,241
(v) approval of the Company's Long-Term Executive Profit Sharing
Plan
Number of affirmative votes cast Number of negative votes cast
55,661,721 5,829,396
Number of abstain votes cast
333,715
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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 8, 1995 By: /Ronald A. McDougall
Ronald A. McDougall, President and Chief
Operating Officer
(Duly Authorized Signatory)
Date: February 8, 1995 By: /Debra L. Smithart
Debra L. Smithart, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
