FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 23, 1998
Commission File Number 1-10275
BRINKER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1914582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6820 LBJ FREEWAY, DALLAS, TEXAS 75240
(Address of principal executive offices)
(Zip Code)
(972) 980-9917
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of common stock of registrant outstanding at
December 23, 1998: 65,932,131
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
December 23, 1998 (Unaudited) and June 24, 1998 3 - 4
Condensed Consolidated Statements of Income
(Unaudited) - Thirteen week and twenty-six week
periods ended December 23, 1998
and December 24, 1997 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Twenty-six week periods ended
December 23, 1998 and December 24, 1997 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 13
Part II - Other Information 14 - 15
PART I. FINANCIAL INFORMATION
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
December 23, June 24,
1998 1998
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 22,629 $ 9,382
Accounts Receivable 19,031 18,789
Inventories 15,291 13,774
Prepaid Expenses 40,280 36,576
Deferred Income Taxes 2,420 3,250
Other 1,949 2,007
Total Current Assets 101,600 83,778
Property and Equipment, at Cost:
Land 160,730 145,900
Buildings and Leasehold Improvements 601,157 541,403
Furniture and Equipment 326,753 310,849
Construction-in-Progress 44,682 48,245
1,133,322 1,046,397
Less Accumulated Depreciation
and Amortization 371,305 337,825
Net Property and Equipment 762,017 708,572
Other Assets:
Goodwill 75,217 76,330
Other 118,588 98,984
Total Other Assets 193,805 175,314
Total Assets $ 1,057,422 $ 967,664
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 23, June 24,
1998 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Current Installments of Long-term Debt $ 14,635 $ 14,618
Accounts Payable 79,895 75,878
Accrued Liabilities 96,759 85,852
Total Current Liabilities 191,289 176,348
Long-term Debt, Less Current Installments 187,616 147,288
Deferred Income Taxes 10,226 8,254
Other Liabilities 41,651 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 65,932,131 Shares
Outstanding at December 23, 1998, and
78,150,054 Shares Issued and 65,926,032
Shares Outstanding at June 24, 1998 7,815 7,815
Additional Paid-In Capital 275,625 276,380
Retained Earnings 503,112 464,083
786,552 748,278
Less Treasury Stock, at Cost (12,217,923
shares at December 23, 1998 and 12,224,022
shares at June 24, 1998) 159,912 154,539
Total Shareholders' Equity 626,640 593,739
Total Liabilities and Shareholders'
Equity $ 1,057,422 $ 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 26 Week Periods Ended
Dec. 23, 1998 Dec. 24, 1997 Dec. 23,1998 Dec. 24, 1997
<S> <C> <C> <C> <C>
Revenues $ 443,975 $ 374,502 $ 876,076 $ 750,465
Costs and Expenses:
Cost of Sales 121,834 101,843 239,594 204,536
Restaurant Expenses 244,904 208,890 481,249 415,010
Depreciation and
Amortization 22,519 21,967 44,222 43,682
General and
Administrative 22,200 18,353 43,551 34,920
Interest Expense 2,327 3,114 4,389 6,853
Other, Net 2,315 (63) 3,303 (157)
Total Costs and
Expenses 416,099 354,104 816,308 704,844
Income Before Provision
for Income Taxes 27,876 20,398 59,768 45,621
Provision for Income Taxes 9,673 7,037 20,739 15,739
Net Income $ 18,203 $ 13,361 $ 39,029 $ 29,882
Basic Net Income Per
Share $ 0.28 $ 0.20 $ 0.59 $ 0.46
Diluted Net Income Per
Share $ 0.27 $ 0.20 $ 0.58 $ 0.45
Basic Weighted Average
Shares Outstanding 65,608 65,593 65,691 65,460
Diluted Weighted Average
Shares Outstanding 67,781 66,925 67,688 66,807
</TABLE>
See accompanying notes to condensed consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
26 Week Periods Ended
December 23, December 24,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 39,029 $ 29,882
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization of
Property and Equipment 36,758 35,348
Amortization of Goodwill and Other Assets 7,464 8,334
Deferred Income Taxes 2,802 2,123
Changes in Assets and Liabilities:
Receivables (235) (2,448)
Inventories (1,517) (1,265)
Prepaid Expenses (3,704) (3,672)
Other Assets (6,568) (6,254)
Accounts Payable 4,017 (9,431)
Accrued Liabilities 10,907 7,284
Other Liabilities (384) 7,526
Other - 151
Net Cash Provided by Operating Activities 88,569 67,578
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (90,203) (83,162)
Payment for Purchase of Restaurants - (2,700)
Net Proceeds from Sale-Leasebacks - 125,995
Proceeds from Sales of Marketable Securities 51 17,369
Investments in Equity Method Investees (3,509) -
Net Advances to Affiliates (15,878) (4,824)
Additions to Other Assets - (5,175)
Net Cash (Used in) Provided by
Investing Activities (109,539) 47,503
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) on Credit
Facilities 40,505 (115,000)
Payments of Long-term debt (160) (251)
Proceeds from Issuances of Common Stock 11,893 2,285
Purchases of Treasury Stock (18,021) (594)
Net Cash Provided by (Used in)
Financing Activities 34,217 (113,560)
Net Increase in Cash and Cash Equivalents 13,247 1,521
Cash and Cash Equivalents at Beginning
of Period 9,382 23,194
Cash and Cash Equivalents at End
of Period $ 22,629 $ 24,715
CASH PAID DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ 3,994 $ 8,552
Income Taxes $ 24,375 $ 18,418
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 December 23, 1998 and June 24, 1998 and for the
thirteen week and twenty-six week periods ended December 23, 1998 and
December 24, 1997 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 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 $35.0 million
(1,803,500 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 twenty-six week periods ended
December 23, 1998 is equal to net income as reported. Comprehensive
income for the thirteen week and twenty-six week periods ended
December 24, 1997 is substantially equal to net income as reported.
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 26 Week Periods Ended
Dec. 23, 1998 Dec. 24, 1997 Dec. 23, 1998 Dec. 24,1997
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 27.4% 27.2% 27.4% 27.2%
Restaurant Expenses 55.2% 55.7% 54.9% 55.3%
Depreciation and Amortization 5.1% 5.9% 5.0% 5.8%
General and Administrative 5.0% 4.9% 5.0% 4.7%
Interest Expense 0.5% 0.8% 0.5% 0.9%
Other, Net 0.5% 0.0% 0.4% 0.0%
Total Costs and Expenses 93.7% 94.5% 93.2% 93.9%
Income Before Provision
for Income Taxes 6.3% 5.5% 6.8% 6.1%
Provision for Income
Taxes 2.2% 1.9% 2.3% 2.1%
Net Income 4.1% 3.6% 4.5% 4.0%
</TABLE>
The following table details the number of restaurant openings
during the second quarter and year-to-date, as well as total
restaurants open at the end of the second quarter.
Total Open at End
2nd Quarter Openings Year-to-Date Openings of Second Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1999 1998 1999 1998 1999 1998
Chili's:
Company-owned 5 6 15 13 429 406
Franchised 11 4 15 12 174 153
Total 16 10 30 25 603 559
Macaroni Grill:
Company-owned 3 5 8 8 119 105
Franchised -- -- -- -- 2 2
Total 3 5 8 8 121 107
On The Border:
Company-owned 2 5 7 10 57 44
Franchised 2 2 5 3 20 10
Total 4 7 12 13 77 54
Cozymel's 1 -- 1 -- 13 12
Maggiano's 2 1 3 2 10 7
Corner Bakery 11 6 15 7 45 22
Eatzi's 1 -- 2 1 5 2
Wildfire -- -- 1 -- 2 1
Big Bowl 2 -- 2 -- 4 2
Grand total 40 29 74 56 880 766
REVENUES
Revenues for the second quarter of fiscal 1999 increased to $444.0
million, 18.6% over the $374.5 million generated for the same
quarter of fiscal 1998. Revenues for the twenty-six week period
ended December 23, 1998 rose 16.7% to $876.1 million from the
$750.5 million generated for the same period of fiscal 1998. The
increase is primarily attributable to a net increase of 77 Company-
owned restaurants since December 24, 1997 and an increase in
average weekly sales for both the second quarter and year-to-date
of fiscal 1999 compared to fiscal 1998. The Company increased its
capacity (as measured in sales weeks) for the second quarter and
year-to-date of fiscal 1999 by 12.6% and 12.2%, respectively,
compared to the respective prior year periods. Average weekly sales
at Company-owned stores increased 5.0% and 3.8% for the second
quarter and year-to-date, respectively, from the same periods of
fiscal 1998. On a concept basis, average weekly sales increased for
the quarter and year-to-date compared to the same periods of fiscal
1998 by 6.6% and 4.9% at Chili's and 5.5% and 5.0% at Macaroni
Grill and declined by 0.4% and 1.8% at On The Border, respectively.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales increased for the second quarter and year-to-date of
fiscal 1999 as compared to the respective periods for fiscal 1998.
Unfavorable commodity prices for poultry and dairy were partially
offset by favorable product mix changes as well as improved
purchasing leverage.
Restaurant expenses decreased on both a comparative second quarter
and year-to-date basis primarily due to leverage from average
weekly sales increases on fixed costs. The decreases were partially
offset by an increase in rent expense due to sale-leaseback
transactions which occurred in fiscal 1998 and the utilization of
the equipment leasing facility.
Depreciation and amortization decreased for both the second quarter
and year-to-date of fiscal 1999. Depreciation and amortization
decreases resulted from the impact of sale-leaseback transactions
which occurred in fiscal 1998 and the 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.
General and administrative expenses increased for both the second
quarter and year-to-date of fiscal 1999 compared to the respective
periods in fiscal 1998 as a result of 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.
Interest expense decreased in both the second quarter and year-to-
date due to reduced borrowings compared with fiscal 1998 on the
Company's credit facilities and an increase in the construction-in-
progress balances subject to interest capitalization.
Other, net increased for both the second quarter and year-to-date
of fiscal 1999 as compared to the respective periods in fiscal
1998. Other, net 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 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 December 23, 1998, the
marketable securities portfolio has been fully liquidated.
In addition, other, net increased on both a second quarter and year-
to-date basis due to 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
includes slowing development in order to refine and strengthen the
concept. The types of costs recorded primarily include site
specific development costs and accrual of costs to exit lease
obligations.
INCOME TAXES
The Company's effective income tax rate was 34.7% for the second
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 36.2% and 30.6%, respectively, for the second
quarter and year-to-date of fiscal 1999 compared to the respective
periods of fiscal 1998. The increase in net income 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 $0.27 and $0.58,
respectively, for the second quarter and year-to-date periods of
fiscal 1999 compared to $0.20 and $0.45, respectively, for the same
periods of fiscal 1998. Diluted weighted average shares
outstanding for the second quarter increased 1.3% compared to the
prior year period 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 $89.7 million at December 23, 1998, and net cash
provided by operating activities increased to $88.6 million for the
first half of fiscal 1999 from $67.6 million during the same period
in fiscal 1998 due to increased profitability and the timing of
operational receipts and payments.
Long-term debt outstanding at December 23, 1998 consisted of $85.7
million of unsecured senior notes, $100 million of borrowings on
credit facilities, and obligations under capital leases. The
Company has credit facilities totaling $363.5 million. At December
23, 1998, 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, of which funding commitments of
$47.5 million have been obtained. As of December 23, 1998, $41.9
million of the leasing facility has been utilized, including a net
funding of $17.5 million in fiscal 1999. The remaining facility
balance will be used to lease new equipment in fiscal 1999.
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 $90.2 million for
the first half of fiscal 1999 as compared to $83.2 million for the
same period of fiscal 1998. The increase in capital expenditures
compared to the first half of fiscal 1998 is due mainly to an
increase in the number of stores being constructed or opened during
the first half of fiscal 1999 as compared to the respective period
in fiscal 1998. The Company estimates that its capital
expenditures during the third quarter will approximate $50.0
million. These capital expenditures will be funded from internal
operations, build-to-suit lease agreements with landlords, the
equipment leasing facility, 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 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.
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 regarding the potential business risks associated with
the Year 2000 issue.
The Company has substantially completed an inventory of all
information technology and non-information technology equipment
and is assessing the Year 2000 readiness of such equipment. This
assessment is expected to be complete by March 31, 1999. Based
upon results of the assessment, all mission-critical equipment
that is not Year 2000 ready will be fixed or upgraded.
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 $6 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 $900,000 was
incurred through the first half of fiscal 1999. Approximately $2.6
million is expected to be incurred in the remainder of fiscal
1999, with the remaining $1.75 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 performed 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
regarding possible internal systems failures 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.
In the worst case reasonably to be expected, 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, 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 December 23,
1998 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 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 December 23,
1998, 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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Proxy Statement dated September 18, 1998 for the
Annual Meeting of Shareholders held on October 29, 1998, as filed
with the Securities and Exchange Commission on September 18, 1998,
is incorporated herein by reference.
(a) The Annual Meeting of Shareholders of the Company was held on
October 29, 1998.
(b) Each of the management's nominees, as described in the Proxy
Statement referenced above, was elected a director to hold office
until the next Annual Meeting of Shareholders or until his or her
successor is elected and qualified.
Number of Affirmative Votes Cast Number of Withhold Authority
Votes Cast
58,718,353 767,767
(c) The following matter was also voted upon at the meeting and approved
by the shareholders:
(i) approval of the Company's Stock Option and Incentive Plan
Number of Affirmative Votes Cast Number of Negative Votes Cast
30,230,177 23,737,941
Number of Abstain Votes Cast
71,924
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: February 4, 1999 By:__________________________________
Ronald A. McDougall, Vice Chairman
and Chief Executive Officer
(Duly Authorized Signatory)
Date: February 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 26-WEEK
PERIOD ENDED DECEMBER 23, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-23-1998
<CASH> 22,629
<SECURITIES> 0
<RECEIVABLES> 21,201
<ALLOWANCES> (221)
<INVENTORY> 15,291
<CURRENT-ASSETS> 101,600
<PP&E> 1,133,322
<DEPRECIATION> (371,305)
<TOTAL-ASSETS> 1,057,422
<CURRENT-LIABILITIES> 191,289
<BONDS> 187,616
0
0
<COMMON> 7,815
<OTHER-SE> 618,825
<TOTAL-LIABILITY-AND-EQUITY> 1,057,422
<SALES> 867,055
<TOTAL-REVENUES> 876,076
<CGS> 239,594
<TOTAL-COSTS> 765,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 313
<INTEREST-EXPENSE> 4,389
<INCOME-PRETAX> 59,768
<INCOME-TAX> 20,739
<INCOME-CONTINUING> 39,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,029
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
</TABLE>
