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 24, 1999
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
24, 1999: 66,536,029
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
March 24, 1999 (Unaudited) and June 24, 1998 3 - 4
Condensed Consolidated Statements of Income
(Unaudited) - Thirteen week and thirty-nine
week periods ended March 24, 1999
and March 25, 1998 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Thirty-nine week periods ended
March 24, 1999 and March 25, 1998 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 15
Part II - Other Information 16 - 17
PART I. FINANCIAL INFORMATION
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 24, June 24,
1999 1998
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 16,732 $ 9,382
Accounts Receivable 19,092 18,789
Inventories 15,012 13,774
Prepaid Expenses 42,510 36,576
Deferred Income Taxes 1,971 3,250
Other 5,799 2,007
Total Current Assets 101,116 83,778
Property and Equipment, at Cost:
Land 165,675 145,900
Buildings and Leasehold Improvements 630,966 541,403
Furniture and Equipment 336,903 310,849
Construction-in-Progress 41,482 48,245
1,175,026 1,046,397
Less Accumulated Depreciation
and Amortization 388,051 337,825
Net Property and Equipment 786,975 708,572
Other Assets:
Goodwill 74,661 76,330
Other 114,247 98,984
Total Other Assets 188,908 175,314
Total Assets $ 1,076,999 $ 967,664
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
March 24, June 24,
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Current Installments of Long-term Debt $ 14,635 $ 14,618
Accounts Payable 77,135 75,878
Accrued Liabilities 93,280 85,852
Total Current Liabilities 185,050 176,348
Long-term Debt, Less Current Installments 187,537 147,288
Deferred Income Taxes 11,294 8,254
Other Liabilities 41,135 42,035
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock - 1,000,000 Authorized
Shares; $1.00 Par Value; No Shares Issued - -
Common Stock - 250,000,000 Authorized
Shares; $.10 Par Value; 78,150,054
Shares Issued and 66,536,029 Shares
Outstanding at March 24, 1999, and
78,150,054 Shares Issued and 65,926,032
Shares Outstanding at June 24, 1998 7,815 7,815
Additional Paid-In Capital 275,896 276,380
Retained Earnings 524,257 464,083
807,968 748,278
Less Treasury Stock, at Cost (11,614,025
shares at March 24, 1999 and 12,224,022
shares at June 24, 1998) 155,985 154,539
Total Shareholders' Equity 651,983 593,739
Total Liabilities and Shareholders'
Equity $ 1,076,999 $ 967,664
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
13 Week Periods Ended 39 Week Periods Ended
Mar. 24, 1999 Mar. 25, 1998 Mar. 24, 1999 Mar. 25, 1998
<S> <C> <C> <C> <C>
Revenues $ 459,192 $ 401,002 $ 1,335,268 $ 1,151,467
Costs and Expenses:
Cost of Sales 123,901 108,480 363,495 313,016
Restaurant Expenses 253,165 222,318 734,414 637,328
Depreciation and
Amortization 23,083 21,329 67,305 65,011
General and
Administrative 22,890 21,042 66,441 55,962
Interest Expense 2,375 2,100 6,764 8,953
Other, Net 1,396 1,107 4,699 950
Total Costs and
Expenses 426,810 376,376 1,243,118 1,081,220
Income Before Provision
for Income Taxes 32,382 24,626 92,150 70,247
Provision for Income Taxes 11,237 8,496 31,976 24,235
Net Income $ 21,145 $ 16,130 $ 60,174 $ 46,012
Basic Net Income Per
Share $ 0.32 $ 0.24 $ 0.91 $ 0.70
Diluted Net Income Per
Share $ 0.31 $ 0.24 $ 0.88 $ 0.69
Basic Weighted Average
Shares Outstanding 66,316 65,894 65,899 65,694
Diluted Weighted Average
Shares Outstanding 68,852 67,596 68,073 67,160
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
39 Week Periods Ended
March 24, March 25,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 60,174 $ 46,012
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization of
Property and Equipment 55,636 52,607
Amortization of Goodwill and Other Assets 11,669 12,404
Deferred Income Taxes 4,319 3,693
Changes in Assets and Liabilities:
Receivables 354 3,739
Inventories (1,238) (1,107)
Prepaid Expenses (5,981) (4,400)
Other Assets (6,899) (8,284)
Accounts Payable 1,257 (3,348)
Accrued Liabilities 7,428 14,839
Other Liabilities (900) 9,037
Net Cash Provided by Operating Activities 125,819 125,192
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (134,039) (114,569)
Net Proceeds from Sale-Leasebacks - 125,961
Proceeds from Sales of Marketable Securities 51 23,537
Investments in Equity Method Investees (4,479) (23,200)
Net Advances to Affiliate (18,338) (5,710)
Additions to Other Assets - (6,850)
Net Cash Used in Investing Activities (156,805) (831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) on Credit Facilities 40,505 (125,000)
Payments of Long-term debt (239) (320)
Proceeds from Issuances of Common Stock 24,011 7,231
Purchases of Treasury Stock (25,941) (1,257)
Net Cash Provided by (Used in)
Financing Activities 38,336 (119,346)
Net Increase in Cash and Cash Equivalents 7,350 5,015
Cash and Cash Equivalents at Beginning
of Period 9,382 23,194
Cash and Cash Equivalents at End
of Period $ 16,732 $ 28,209
CASH PAID DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ 4,425 $ 9,996
Income Taxes $ 33,764 $ 26,204
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of Brinker
International, Inc. and its wholly-owned subsidiaries (collectively,
the "Company") as of March 24, 1999 and June 24, 1998 and for the
thirteen week and thirty-nine week periods ended March 24, 1999 and
March 25, 1998 have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. The
Company owns and operates or franchises various restaurant concepts
under the names of Chili's Grill & Bar ("Chili's"), Romano's Macaroni
Grill ("Macaroni Grill"), On The Border Mexican Cafe ("On The
Border"), Cozymel's Coastal Mexican Grill ("Cozymel's"), Maggiano's
Little Italy ("Maggiano's"), Corner Bakery, Eatzi's Market & Bakery
("Eatzi's"), Wildfire, and Big Bowl. The Company owns an equity
interest in the Eatzi's, Big Bowl, and Wildfire restaurant concepts.
The information furnished herein reflects all adjustments (consisting
only of normal recurring accruals and adjustments) which are, in the
opinion of management, necessary to fairly state the operating
results for the respective periods. However, these operating results
are not necessarily indicative of the results expected for the full
fiscal year. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant
to such rules and regulations. The notes to the condensed
consolidated financial statements should be read in conjunction with
the notes to the consolidated financial statements contained in the
June 24, 1998 Form 10-K. Company management believes that the
disclosures are sufficient for interim financial reporting purposes.
Certain prior year amounts have been reclassified in the accompanying
condensed consolidated financial statements to conform with current
year presentation.
2. Shareholders' Equity
On January 27, 1998, the Board of Directors approved a plan to
repurchase up to $50.0 million of the Company's common stock. On
January 21, 1999, the Board of Directors authorized an increase in
the share repurchase program by an additional $35.0 million.
Repurchases will be made from time to time whenever market conditions
warrant. Under this plan, the Company repurchased $43.0 million
(2,105,592 shares) of its common stock in accordance with applicable
securities regulations. The repurchased common stock may be used by
the Company to satisfy obligations under its savings and stock option
plans and for other corporate purposes.
3. Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), "Reporting Comprehensive Income." SFAS No. 130, which is
effective for fiscal 1999, establishes standards for the reporting
and display of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive
income for the thirteen week and thirty-nine week periods ended
March 24, 1999 is equal to net income as reported. Comprehensive
income for the thirteen week and thirty-nine week periods ended
March 25, 1998 is substantially equal to net income as reported.
4. Related Party Transaction
The Company has notes receivable from Eatzi's Corporation of
approximately $20.6 million at March 24, 1999 and $2.2 million at
June 24, 1998. Approximately $4.5 million of the notes receivable
balance is convertible into voting common stock of Eatzi's
Corporation at the option of the Company and matures on May 14, 1999.
The remaining notes receivable balance matures on the earlier of
October 31, 2000 or on the date of an initial public offering by
Eatzi's. Interest income earned on these notes during both year-to-
date fiscal 1999 and 1998 was $.9 million. The investment and notes
receivable are included in other assets in the accompanying condensed
consolidated balance sheets, excluding the convertible note
receivable which is included in other current assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percentage of
total revenues for the periods indicated. All information is derived from
the accompanying unaudited condensed consolidated statements of income.
<TABLE>
13 Week Periods Ended 39 Week Periods Ended
Mar. 24, 1999 Mar. 25, 1998 Mar. 24, 1999 Mar. 25,1998
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.0% 27.1% 27.2% 27.2%
Restaurant Expenses 55.1% 55.4% 55.0% 55.3%
Depreciation and Amortization 5.0% 5.3% 5.0% 5.6%
General and Administrative 5.0% 5.2% 5.0% 4.9%
Interest Expense 0.5% 0.6% 0.5% 0.8%
Other, Net 0.3% 0.3% 0.4% 0.1%
Total Costs and Expenses 92.9% 93.9% 93.1% 93.9%
Income Before Provision
for Income Taxes 7.1% 6.1% 6.9% 6.1%
Provision for Income
Taxes 2.5% 2.1% 2.4% 2.1%
Net Income 4.6% 4.0% 4.5% 4.0%
</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>
Total Open at End
3rd Quarter Openings Year-to-Date Openings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Chili's:
Company-owned 5 3 20 16 433 408
Franchised 7 3 22 15 181 155
Total 12 6 42 31 614 563
Macaroni Grill:
Company-owned 5 6 13 14 124 111
Franchised 1 -- 1 -- 3 2
Total 6 6 14 14 127 113
On The Border:
Company-owned 8 4 15 14 65 48
Franchised 1 3 6 6 21 13
Total 9 7 21 20 86 61
Cozymel's -- -- 1 -- 13 12
Maggiano's -- -- 3 2 10 7
Corner Bakery 4 -- 19 7 49 22
Eatzi's 1 -- 3 1 6 2
Big Bowl -- -- 2 -- 4 2
Wildfire -- -- 1 -- 2 1
Grand total 32 19 106 75 911 783
</TABLE>
REVENUES
Revenues for the third quarter of fiscal 1999 increased to $459.2
million, 14.5% over the $401.0 million generated for the same
quarter of fiscal 1998. Revenues for year-to-date fiscal 1999 rose
16.0% to $1,335.3 million from the $1,151.5 million generated for
the same period of fiscal 1998. The increases are primarily
attributable to a net increase of 86 Company-owned restaurants
since March 25, 1998 and an increase in average weekly sales for
both the third quarter and year-to-date of fiscal 1999 compared to
fiscal 1998. The Company increased its capacity (as measured in
sales weeks) for the third quarter and year-to-date of fiscal 1999
by 12.9% and 12.4%, respectively, compared to the respective prior
year periods. Average weekly sales increased for the quarter and
year-to-date compared to the same periods of fiscal 1998 by 3.1%
and 4.3% at Chili's and 1.4% and 3.7% at Macaroni Grill and
declined by 1.6% and 1.7% at On The Border, respectively.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased for the third quarter and remained flat for
year-to-date of fiscal 1999 as compared to the respective periods
for fiscal 1998. Improved purchasing leverage, product mix changes
as well as favorable commodity prices for meat and seafood drove
the decrease in cost of sales for the quarter. These favorable
variances were partially offset by unfavorable commodity prices for
poultry and dairy in both the third quarter and year-to-date.
Restaurant expenses decreased on both a comparative third quarter
and year-to-date basis primarily due to leverage from average
weekly sales increases on fixed costs. In addition, labor cost
improved slightly due to lower management turnover and increased
productivity which helped to offset higher wage costs.
Depreciation and amortization decreased for both the third quarter
and year-to-date of fiscal 1999. Depreciation and amortization
decreases resulted from the continued utilization of the equipment
leasing facility, as well as a declining depreciable asset base for
older units. Partially offsetting these decreases were increases in
depreciation and amortization related to new unit construction
costs and ongoing remodel costs. Depreciation and amortization
decreases for year-to-date fiscal 1999 also resulted from the
impact of sale-leaseback transactions which occurred in the second
quarter of fiscal 1998.
General and administrative expenses decreased for the third quarter
and increased for year-to-date of fiscal 1999 compared to the
respective periods in fiscal 1998. Third quarter expenses were
positively affected by the leverage generated from the increase in
total revenues, partially offset by increased costs related to Year
2000 initiatives, additional staff and support as the Company
continues the expansion of its restaurant concepts, and increased
fiscal 1999 profit sharing accruals based on the Company's
continued strong performance. The year-to-date increase was
affected by increased costs related to additional staff and support
and increased fiscal 1999 profit sharing accruals.
Interest expense decreased in both the third quarter and year-to-
date of fiscal 1999 due to a favorable interest rate environment
for the Company's credit facility borrowings compared with fiscal
1998 and an increase in the construction-in-progress balances
subject to interest capitalization.
Other, net remained flat for the third quarter and increased for
year-to-date of fiscal 1999 as compared to the respective periods
in fiscal 1998. Other, net for year-to-date fiscal 1999 was
negatively impacted by the almost complete liquidation of the
marketable securities portfolio in the last half of fiscal 1998 to
fund a portion of the Company's share repurchase plan. This
liquidation resulted in a reduction of income earned, which in
fiscal 1998 was partially offset by the Company's share of net
losses in equity method investees. As of March 24, 1999, the
marketable securities portfolio has been fully liquidated. Other,
net for the third quarter of fiscal 1999 remained flat resulting
from the increase in the Company's share of net losses in equity
method investees in the third quarter of fiscal 1999 being offset
by the third quarter fiscal 1998 write-off of its equity investment
in a joint venture which operates Chili's franchises in Southeast
Asia.
In addition, other, net was negatively impacted on both a third
quarter and year-to-date basis by the Company's share of net loss
in Eatzi's. During the second quarter of fiscal 1999, the Company
recorded approximately $1.1 million related to the decision made by
Eatzi's management to abandon development on two restaurant sites.
This decision was made in conjunction with a strategic plan which
included slowing development in order to refine and strengthen the
concept. The types of costs recorded primarily included site
specific development costs and costs to exit lease obligations.
INCOME TAXES
The Company's effective income tax rate was 34.7% for the third
quarter and year-to-date of fiscal 1999 compared to 34.5% for the
same periods of fiscal 1998. The fiscal 1999 effective income tax
rate has increased primarily as a result of a decreased dividends
received deduction resulting from the liquidation of the Company's
marketable securities portfolio.
NET INCOME AND NET INCOME PER SHARE
Net income increased 31.1% and 30.8%, respectively, for the third
quarter and year-to-date of fiscal 1999 compared to the respective
periods of fiscal 1998. The increase in net income for the third
quarter was due to an increase in revenues as a result of increases
in average weekly sales and sales weeks and decreases in cost of
sales, restaurant expenses, depreciation and amortization, general
and administrative, and interest expense mentioned above. The
increase in net income for year-to-date was due to an increase in
revenues as a result of increases in average weekly sales and sales
weeks and a decrease in restaurant expenses, depreciation and
amortization, and interest expense mentioned above. Diluted net
income per share was $0.31 and $0.88, respectively, for the third
quarter and year-to-date periods of fiscal 1999 compared to $0.24
and $0.69, respectively, for the same periods of fiscal 1998.
Diluted weighted average shares outstanding for the third quarter
and year-to-date of fiscal 1999 increased 1.9% and 1.4%,
respectively, compared to the respective periods of fiscal 1998 due
to the effect of stock option exercises, partially offset by
treasury stock repurchases.
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 decreased from $92.6 million at June
24, 1998 to $83.9 million at March 24, 1999, and net cash provided
by operating activities increased to $125.8 million for the first
three quarters of fiscal 1999 from $125.2 million during the same
period in fiscal 1998 due to increased profitability partially
offset by the timing of operational receipts and payments.
Long-term debt outstanding at March 24, 1999 consisted of $85.7
million of unsecured senior notes, $100.0 million of borrowings on
credit facilities, and obligations under capital leases. The
Company has credit facilities totaling $363.1 million. At March
24, 1999, the Company had $253.3 million in available funds from
credit facilities.
During fiscal 1998, the Company entered into an equipment leasing
facility for up to $55.0 million. As of March 24, 1999, $47.5
million of the leasing facility has been utilized, including a net
funding of $23.1 million in fiscal 1999. The Company does not
intend to further utilize this facility.
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 ongoing
remodeling programs. Capital expenditures were $134.0 million for
the first three quarters of fiscal 1999 as compared to $114.6
million for the same period of fiscal 1998. The increase in capital
expenditures compared to the first three quarters of fiscal 1998 is
due mainly to an increase in the number of stores being constructed
or opened during the first three quarters of fiscal 1999 as
compared to the respective period in fiscal 1998. The Company
estimates that its capital expenditures during the fourth quarter
will approximate $50 million. These capital expenditures will be
funded from internal operations, build-to-suit lease agreements
with landlords, and drawdowns on the Company's available lines of
credit.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend
develops, the Company believes that there are sufficient funds
available under its lines of credit and strong internal cash
generating capabilities to adequately manage the expansion of
business.
YEAR 2000
The Year 2000 will have a broad impact on the business environment
in which the Company operates due to the possibility that many
computerized systems across all industries will be unable to
process information containing dates beginning in the Year 2000.
The Company has established an enterprise-wide program to prepare
its computer systems and applications for the Year 2000 and is
utilizing both internal and external resources to identify,
correct and test the systems for Year 2000 compliance. The
Company's domestic reprogramming has been substantially completed
and testing efforts will be substantially concluded by June 30,
1999. The Company expects that all mission-critical systems will
be Year 2000 ready prior to September 30, 1999.
The nature of the Company's business is such that the business
risks associated with the Year 2000 can be reduced by assessing
the vendors supplying the Company's restaurants with food and
related products and also assessing the Company's franchise and
joint venture business partners to ensure that they are aware of
the Year 2000 business risks and are appropriately addressing
them.
Because third party failures could have a material impact on the
Company's ability to conduct business, questionnaires have been
sent to substantially all of the Company's critical vendors to
obtain reasonable assurance that plans are being developed to
address the Year 2000 issue. The returned questionnaires have been
assessed by the Company, categorized based upon readiness for the
Year 2000 issues, and prioritized in order of significance to the
business of the Company. To the extent that vendors have not
provided the Company with satisfactory evidence of their readiness
to handle Year 2000 issues, contingency plans (including continued
efforts to evaluate Year 2000 readiness of existing vendors or
identification of alternative vendors) are being developed. By
August 31, 1999, the Company will have established contingency
plans responding to those high risk, critical vendors which have
not provided the Company with satisfactory evidence of their
readiness to handle Year 2000 issues. Furthermore, the Company
will continue to monitor all critical vendors to ensure their Year
2000 readiness.
Based upon questionnaires returned by the Company's franchise
business partners and direct communications with the Company's
joint venture business partners, the Company has assessed the Year
2000 readiness of these business partners and has implemented an
action plan involving direct communication and the sharing of
information associated with the Year 2000 issue.
The Company has completed the inventory and assessment phases of
its evaluation of all information technology and non-information
technology equipment. Based upon results of the assessment, all
mission-critical equipment that is not Year 2000 ready will be
fixed or upgraded by October 31, 1999.
The enterprise-wide program, including testing and remediation of
all of the Company's systems and applications, the cost of
external consultants, the purchase of software and hardware, and
the compensation of internal employees working on Year 2000
projects, is expected to cost approximately $5.0 to $6.0 million
(except for fringe benefits of internal employees, which are not
separately tracked) from inception in calendar year 1997 through
completion in calendar year 1999. Of these costs, approximately
$750,000 was incurred during fiscal 1998, and approximately $1.3
million was incurred through the first three quarters of fiscal
1999. Approximately $1.2 to $1.8 million is expected to be
incurred in the remainder of fiscal 1999, with the remaining $1.75
to $2.15 million to be incurred in fiscal 2000. All estimated
costs have been budgeted and are expected to be funded by cash
flows from operations.
The Company anticipates timely completion of the internal Year
2000 readiness efforts and does not believe the costs related to
the Year 2000 readiness project will be material to its financial
position or results of operations. However, if unanticipated
problems arise from systems or equipment, there could be material
adverse effects on the Company's consolidated financial position,
results of operations and cash flows. As part of the Year 2000
readiness efforts, the Company is developing contingency plans
which will need to be activated in the event of internal systems
failures. The contingency plans are expected to be completed by
July 31, 1999, but will be modified as additional information
becomes available. Although the questionnaires and other
communications received by the Company from its significant
vendors have not disclosed any material Year 2000 issues, there is
no assurance that these vendors will be Year 2000 ready on a
timely basis. Unanticipated failures or significant delays in
furnishing products or services by significant vendors could have
a material adverse effect on the Company's consolidated financial
position, results of operations and cash flows. Where predictable,
the Company is assessing and attempting to mitigate its risks with
respect to the failure of its significant vendors to be Year 2000
ready as part of its ongoing contingency planning.
Despite the Company's diligent preparation, some of the Company's
internal systems or equipment may fail to operate properly, and
some of its significant vendors may fail to perform effectively or
may fail to timely or completely deliver products. In those
circumstances, the Company expects to be able to conduct necessary
business operations and to obtain necessary products from
alternative vendors, and business operations would generally
continue; however, there would be some disruption which could have
a material adverse effect on the Company's consolidated financial
position, results of operations and cash flows. Similarly, if the
Company's franchise and joint venture business partners sustain
disruptions in their business operations or there are any
unanticipated general public infrastructure failures, there could
be a material adverse effect on the Company's consolidated
financial position, results of operations and cash flows. The
Company has no basis upon which to reasonably analyze the direct
or indirect effects on its guests from Year 2000 issues or
experiences.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates on debt and changes in commodity prices.
The Company's net exposure to interest rate risk consists of
floating rate instruments that are benchmarked to U.S. and
European short-term interest rates. The Company may from time to
time utilize interest rate swaps and forwards to manage overall
borrowing costs and reduce exposure to adverse fluctuations in
interest rates. The Company does not use derivative instruments
for trading purposes and the Company has procedures in place to
monitor and control derivative use. The impact on the Company's
results of operations of a one-point interest rate change on the
outstanding balance of the variable rate debt as of March 24, 1999
would be immaterial.
The Company purchases certain commodities such as beef, chicken,
flour and cooking oil. These commodities are generally purchased
based upon market prices established with vendors. The purchase
arrangements may contain contractual features that limit the price
paid by establishing certain price floors or caps. The Company
does not use financial instruments to hedge commodity prices
because these purchase arrangements help control the ultimate cost
paid and any commodity price aberrations that are not covered by
contracts are generally short term in nature.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from this discussion based
upon general market conditions and changes in domestic and global
financial markets.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way public business enterprises report
information about operating segments in annual financial
statements and requires those enterprises to report selected
information about operating segments in interim financial reports.
SFAS No. 131 is effective for the Company's fiscal 1999 annual
financial statements. The adoption of this standard will have no
impact on the Company's consolidated results of operations,
financial position, or cash flow.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting of the Costs of Start-up Activities." SOP 98-5 is
effective for financial statements issued for years beginning
after December 15, 1998; therefore, the Company will be required
to implement its provisions by the first quarter of fiscal 2000.
At that time, the Company will be required to change the method
currently used to account for preopening costs. The application
of SOP 98-5 will result in deferred preopening costs on the
Company's consolidated balance sheet as of the date of adoption,
net of related tax effects, being charged to operations as the
cumulative effect of a change in accounting principle. Under the
new requirements for accounting for preopening costs, the
subsequent costs of start-up activities will be expensed as
incurred. A resulting benefit of this change is the discontinuance
of amortization expense in subsequent periods. As of March 24,
1999, the balance of deferred preopening costs, net of related tax
effects, is approximately $6.9 million. However, the ultimate
impact of adopting SOP 98-5 on the accounting for preopening costs
is contingent upon the number of future restaurant openings and
thus, cannot be reasonably estimated at this time.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 is effective for the Company's
first quarter financial statements in fiscal 2000. The Company is
currently not involved in derivative instruments or hedging
activities, and therefore, will measure the impact of this
statement as it becomes necessary.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking regarding
future economic performance, restaurant openings, operating
margins, the availability of acceptable real estate locations for
new restaurants, the sufficiency of cash balances and cash
generated from operating and financing activities for future
liquidity and capital resource needs, and other matters. These
forward-looking statements involve risks and uncertainties and,
consequently, could be affected by general business conditions,
the impact of competition, the seasonality of the Company's
business, governmental regulations, inflation, changes in economic
conditions, consumer perceptions of food safety, changes in
consumer tastes, governmental monetary policies, changes in
demographic trends, impact of the Year 2000, availability of
employees, or weather and other acts of God.
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 4, 1999 By:________________________________________
Ronald A. McDougall, Vice Chairman
and Chief Executive Officer
(Duly Authorized Signatory)
Date: May 4, 1999 By:__________________________________________
Russell G. Owens, Executive Vice President
and Chief Financial and Strategic Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED
STATEMENT OF INCOME OF BRINKER INTERNATIONAL, INC. AS OF AND FOR THE 39-WEEK
PERIOD ENDED MARCH 24, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-24-1999
<CASH> 16,732
<SECURITIES> 0
<RECEIVABLES> 25,146
<ALLOWANCES> (255)
<INVENTORY> 15,012
<CURRENT-ASSETS> 101,116
<PP&E> 1,175,026
<DEPRECIATION> (388,051)
<TOTAL-ASSETS> 1,076,999
<CURRENT-LIABILITIES> 185,050
<BONDS> 187,537
0
0
<COMMON> 7,815
<OTHER-SE> 644,168
<TOTAL-LIABILITY-AND-EQUITY> 1,076,999
<SALES> 1,321,828
<TOTAL-REVENUES> 1,335,268
<CGS> 363,495
<TOTAL-COSTS> 1,165,214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 488
<INTEREST-EXPENSE> 6,764
<INCOME-PRETAX> 92,150
<INCOME-TAX> 31,976
<INCOME-CONTINUING> 60,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,174
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.88
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