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 March 26, 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 March
26, 1997: 67,470,737
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
March 26, 1997 and June 26, 1996 3 - 4
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Thirty-Nine Weeks ended
March 26, 1997 and March 27, 1996 5
Condensed Consolidated Statements of Cash Flows -
Thirty-Nine Weeks ended March 26, 1997
and March 27, 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
<TABLE>
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
<CAPTION>
March 26, June 26,
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 11,168 $ 27,073
Marketable Securities 46,412 -
Accounts Receivable 18,940 14,142
Inventories 12,037 10,839
Prepaid Expenses 28,352 24,648
Deferred Income Taxes 10,818 11,653
Total Current Assets 127,727 88,355
Property and Equipment, at Cost:
Land 168,551 150,391
Buildings and Leasehold Improvements 511,147 430,037
Furniture and Equipment 283,120 240,880
Construction-in-Progress 49,770 31,923
1,012,588 853,231
Less Accumulated Depreciation
and Amortization 283,616 242,001
Net Property and Equipment 728,972 611,230
Other Assets:
Marketable Securities - 70,012
Goodwill 79,003 73,250
Other 56,158 45,987
Total Other Assets 135,161 189,249
Total Assets $ 991,860 $888,834
(continued)
</TABLE>
<TABLE>
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
<CAPTION>
March 26, June 26,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Short-term Debt $182,400 $ 15,000
Current Installments of Long-term Debt 321 348
Accounts Payable 69,393 58,902
Accrued Liabilities 69,731 64,140
Total Current Liabilities 321,845 138,390
Long-term Debt, Less Current Installments 102,567 102,801
Deferred Income Taxes 15,396 12,900
Other Liabilities 21,356 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; 77,684,237
Shares Issued and 67,470,737 Shares
Outstanding at March 26, 1997, and
77,255,783 Shares Issued and Outstanding
at June 26, 1996 7,768 7,726
Additional Paid-In Capital 269,444 266,561
Unrealized Gain (Loss) on Marketable
Securities 392 (620)
Retained Earnings 375,859 334,503
653,463 608,170
Less: Treasury Stock, at cost
(10,213,500 shares) (122,767) -
Total Shareholders' Equity 530,696 608,170
Total Liabilities and Shareholders'
Equity $991,860 $888,834
</TABLE>
See accompanying notes to condensed consolidated financial
statements
<TABLE>
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Mar. 26, 1997 Mar. 27, 1996 Mar. 26, 1997 Mar. 27, 1996
<S> <C> <C> <C> <C>
Revenues $ 345,510 $ 284,206 $ 965,099 $ 863,322
Costs and Expenses:
Cost of Sales 96,450 79,521 272,812 246,854
Restaurant Expenses 189,596 154,075 522,023 463,089
Depreciation and
Amortization 20,608 15,734 57,059 48,007
General and
Administrative 17,381 13,623 48,899 40,198
Interest Expense 2,289 1,356 5,494 3,015
Gain on Sales of
Concepts - - - (9,262)
Restructuring Charge - - - 50,000
Other, Net (862) (1,116) (3,377) (2,709)
Total Costs and
Expenses 325,462 263,193 902,910 839,192
Income Before
Provision
for Income Taxes 20,048 21,013 62,189 24,130
Provision for
Income Taxes 6,716 7,144 20,833 8,235
Net Income $ 13,332 $ 13,869 $ 41,356 $ 15,895
Primary Net Income
Per Share $ 0.18 $ 0.18 $ 0.53 $ 0.21
Fully Diluted Net Income
Per Share $ 0.18 $ 0.18 $ 0.53 $ 0.20
Primary Weighted Average
Shares Outstanding 75,704 78,389 78,163 77,421
Fully Diluted Weighted
Average Shares
Outstanding 75,704 78,816 78,315 77,822
</TABLE>
See accompanying notes to condensed consolidated financial statements
<TABLE>
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Thirty-Nine Weeks Ended
March 26, 1997 March 27, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 41,356 $ 15,895
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities:
Depreciation and Amortization of
Property and Equipment 46,842 40,458
Amortization of Goodwill and Other
Assets 10,217 7,549
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 (4,995) 2,039
Increase in Inventories (950) (900)
Increase in Prepaid Expenses (3,620) (3,491)
Increase in Other Assets (16,163) (10,748)
Increase (Decrease) in Accounts
Payable 10,491 (16,847)
Increase (Decrease) in Accrued
Liabilities 4,910 (2,173)
Increase in Deferred Income Taxes 2,814 1,011
Decrease in Other Liabilities (5,394) (408)
Other 481 1,604
Net Cash Provided by Operating Activities 85,989 74,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (153,536) (150,127)
Payments for Purchase of Restaurants (15,863) -
Purchases of Marketable Securities (38,795) (48,772)
Proceeds from Sales of Marketable
Securities 59,003 17,327
Proceeds from Sales of Concepts - 73,115
Other - 375
Net Cash Used in Investing Activities (149,191) (108,082)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt 167,373 15,000
Payments of Long-term Debt (234) (1,494)
Proceeds from Issuances of Common Stock 2,925 2,930
Purchases of Treasury Stock (122,767) -
Net Cash Provided by
Financing Activities 47,297 16,436
Net Decrease in Cash and Cash
Equivalents (15,905) (16,919)
Cash and Cash Equivalents at Beginning
of Period 27,073 44,911
Cash and Cash Equivalents at End
of Period $ 11,168 $ 27,992
CASH PAID DURING THE PERIOD:
Income Taxes $ 22,359 $ 16,423
Interest, Net of Amounts Capitalized $ 3,035 $ 873
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
</TABLE>
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. ("Company") as of March 26, 1997 and June 26,
1996 and for the thirteen weeks and thirty-nine weeks ended March 26,
1997 and March 27, 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 690 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 Company's 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 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. 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.
3.Debt
On January 23, 1997, the Board of Directors approved a plan to
repurchase up to $150 million of the Company's common stock. During
the quarter, the Company repurchased $122.8 million of the $150
million in accordance with applicable securities regulations. The
repurchased common stock will 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 has
financed the repurchase program through a combination of cash
provided by operations, partial liquidation of its marketable
securities portfolio, and drawdowns on its available credit
facilities. As a result of the repurchase program and projected capital
expenditures in the fourth quarter and fiscal 1998, the Company has
classified its available-for-sale marketable securities portfolio as a
current asset.
On March 27, 1997, the Company increased a short-term credit facility
to $75 million. On April 1, 1997, the Company modified and amended
its revolving line of credit. The facility was increased to $260
million in total commitments, and its maturity was extended until
April, 2002. No other significant changes or modifications were made
to the terms or covenants. The Company now has credit facilities
totaling $375 million.
<TABLE>
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.
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Mar. 26, 1997 Mar. 27, 1996 Mar. 26, 1997 Mar. 27, 1996
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.9% 28.0% 28.3% 28.6%
Restaurant Expenses 54.9% 54.2% 54.1% 53.6%
Depreciation and
Amortization 6.0% 5.5% 5.9% 5.6%
General and Administrative 5.0% 4.8% 5.1% 4.7%
Interest Expense 0.7% 0.5% 0.6% 0.3%
Gain on Sales of Concepts -% -% -% (1.1)%
Restructuring Charge -% -% -% 5.8%
Other, Net (0.3)% (0.4)% (0.4)% (0.3)%
Total Costs and Expenses 94.2% 92.6% 93.6% 97.2%
Income Before Provision
for Income Taxes 5.8% 7.4% 6.4% 2.8%
Provision for Income Taxes 1.9% 2.5% 2.2% 1.0%
Net Income 3.9% 4.9% 4.3% 1.8%
</TABLE>
The following table details the number of restaurant openings during the third
quarter and year-to-date, as well as total restaurants open at the end of the
third quarter.
<TABLE>
<CAPTION>
Total Open at End
3rd Quarter Openings Year-to-Date Openings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Chili's:
Company-owned 6 8 25 33 389 347
Franchised 7 4 19 19 141 127
Total 13 12 44 52 530 474
Macaroni Grill:
Company-owned 10 2 23 13 92 63
Franchised -- -- -- 1 2 2
Total 10 2 23 14 94 65
On The Border:
Company-owned 6 2 9 6 31 20
Franchised 1 -- 3 -- 5 4
Total 7 2 12 6 36 24
Cozymel's -- 5 1 8 12 11
Maggiano's 1 -- 2 -- 5 3
Corner Bakery 2 1 5 3 13 7
Eatzi's -- 1 -- 1 1 1
Concepts sold -- -- -- 12 -- 1
Grand total 33 23 87 96 691 586
</TABLE>
REVENUES
Revenues for the third quarter of fiscal 1997 increased to $345.5
million, 21.6% over the $284.2 million generated for the same
quarter of fiscal 1996. Revenues for the thirty-nine weeks ended
March 26, 1997 rose 11.8% to $965.1 million from the $863.3 million
generated for the same period of fiscal 1996. The increase is
primarily attributable to the 90 Company-operated restaurants
opened or acquired since March 27, 1996. The Company increased its
capacity (as measured in sales weeks) for the third quarter and
year-to-date of fiscal 1997 by 19.3% and 10.3%, respectively,
compared to the respective prior year periods. Average weekly sales
increased 2.0% 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 third quarter and year-to-date of
fiscal 1997 as compared to the respective periods for fiscal 1996.
The decrease was due to favorable commodity prices for seafood and
other food items, as well as menu price increases partially offset
by unfavorable commodity prices for meat, poultry, and dairy.
Restaurant expenses increased on both a comparative third 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 operating level, hourly labor costs are up due to
regulatory 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. 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 two to three years.
Depreciation and amortization increased for both the third quarter
and year-to-date of fiscal 1997. Depreciation and amortization
increased due to fiscal 1996 acquisitions, new unit construction
costs, and ongoing remodel costs.
General and administrative expenses increased in the third quarter
and year-to-date of fiscal 1997 compared to the respective fiscal
1996 periods. Incremental costs are primarily attributable to
additional staff and support as the Company continues the expansion
of its restaurant concepts, the accrual of profit sharing, and non-
recurring severance costs.
Interest expense increased in the third quarter and year-to-date of
fiscal 1997 compared to the respective fiscal 1996 periods
primarily due to incremental borrowings on the Company's credit
facilities in the third quarter to fund the Company's stock
repurchase plan.
Other, net, decreased for the third quarter and increased for the
year-to-date of fiscal 1997. Other, net, was negatively impacted in
the third quarter of fiscal 1997 due to a partial liquidation of
the marketable securities portfolio resulting in a reduction of
income earned as well as the realization of losses on marketable
securities sales. The proceeds from liquidation were used to fund
a portion of the Company's stock repurchase plan. Year-to-date
increased 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 third
quarter and year-to-date of fiscal 1997 compared to 34.0% and 34.1%
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.
NET INCOME AND NET INCOME PER SHARE
Operating results before restructuring related items (gain on sales
of concepts and restructuring charge in fiscal 1996) are summarized
as follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
39 Weeks Ended
Mar. 26, Mar. 27,
1997 1996
<S> <C> <C>
Income Before Restructuring Related Items
and Income Taxes $ 62.2 $ 64.9
Income Taxes Before Restructuring Related Items 20.8 22.5
Net Income Before Restructuring Related Items $ 41.4 $ 42.4
Net Income Per Share Before Restructuring
Related Items $ 0.53 $ 0.55
</TABLE>
Year-to-date net income and primary net income per share before
restructuring related items declined 2.4% and 3.6%, respectively,
compared to fiscal 1996. 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 $194.1 million at March 26, 1997, due primarily to the
Company's capital expenditures and stock repurchase plan discussed
below. Net cash provided by operating activities increased to $86.0
million for the first thirty-nine weeks of fiscal 1997 from $74.7
million during the same period in fiscal 1996 due to timing of
operational receipts and payments.
Long-term debt outstanding at March 26, 1997 consisted of $100
million of unsecured senior notes and obligations under capital
leases.
Capital expenditures were $153.5 million for the first thirty-nine
weeks of fiscal 1997 as compared to $150.1 million in the first
thirty-nine weeks 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 fourth
quarter will approximate $57 million. These capital expenditures
will be funded from internal operations, cash equivalents, income
earned from investments, the partial liquidation of the marketable
securities portfolio, build-to-suit lease agreements with
landlords, and drawdowns on the Company's available lines of
credit.
On January 23, 1997, the Board of Directors approved a plan to
repurchase up to $150 million of the Company's common stock. During
the quarter, the Company repurchased $122.8 million of the $150
million in accordance with applicable securities regulations. The
repurchased common stock will 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 has
financed the repurchase program through a combination of cash
provided by operations, partial liquidation of its marketable
securities portfolio, and drawdowns on its available credit
facilities. The timing of the remaining repurchases will be dependent
upon market conditions, share price and other factors. The Company
intends to finance the remaining repurchases in a manner consistent
with the repurchases to date. As a result of the repurchase program
and projected capital expenditures in the fourth quarter and fiscal
1998, the Company has classified its available-for-sale marketable
securities portfolio as a current asset.
The Company intends to repay a portion of the short-term debt
outstanding on its credit facilities with the proceeds from a sale
and leaseback of a portion of its real estate locations in the
first quarter of fiscal 1998.
On March 27, 1997, the Company increased a short-term credit
facility to $75 million. On April 1, 1997, the Company modified and
amended its revolving line of credit. The facility was increased to
$260 million in total commitments, and its maturity was extended
until April, 2002. No other significant changes or modifications
were made to the terms or covenants. The Company now has credit
facilities totaling $375 million. At March 26, 1997, the Company
had $183.0 million in available funds from credit facilities,
adjusted for such amendments.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend would
develop, the Company believes that there are sufficient funds
available to it under the lines of credit and strong internal cash
generating capabilities to adequately manage the expansion of
business.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share", which is required to be adopted after
December 15, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock
options will be excluded. The impact of Statement 128 on the
calculation of primary earnings per share and fully diluted
earnings per share for the periods presented in the accompanying
Condensed Consolidated Statements of Operations is not material.
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.
PART II. OTHER INFORMATION
Item 6: EXHIBITS
Exhibit 27 Financial Data Schedule. Filed with EDGAR version.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BRINKER INTERNATIONAL, INC.
Date: May 12, 1997
By:__________________________
Ronald A. McDougall, President and
Chief Executive Officer
(Duly Authorized Signatory)
Date: May 12, 1997
By:___________________________
Debra Smithart, Executive Vice
President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-25-1997
<PERIOD-START> JUN-27-1996
<PERIOD-END> MAR-26-1997
<CASH> 11,168
<SECURITIES> 46,412
<RECEIVABLES> 19,146
<ALLOWANCES> 206
<INVENTORY> 12,037
<CURRENT-ASSETS> 127,727
<PP&E> 1,012,588
<DEPRECIATION> 283,616
<TOTAL-ASSETS> 991,860
<CURRENT-LIABILITIES> 321,845
<BONDS> 102,567
0
0
<COMMON> 7,768
<OTHER-SE> 645,695
<TOTAL-LIABILITY-AND-EQUITY> 991,860
<SALES> 954,557
<TOTAL-REVENUES> 965,099
<CGS> 272,812
<TOTAL-COSTS> 851,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 280
<INTEREST-EXPENSE> 5,494
<INCOME-PRETAX> 62,189
<INCOME-TAX> 20,833
<INCOME-CONTINUING> 41,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,356
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
