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 September 25, 1996
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 September 25,
1996: 77,289,234
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
September 25, 1996 and June 26, 1996 3 - 4
Condensed Consolidated Statements of Income -
Thirteen week periods ended September 25, 1996
and September 27, 1995 5
Condensed Consolidated Statements of Cash Flows -
Thirteen week periods ended September 25, 1996
and September 27, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
Part II Other Information 11
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
September 25, June 26,
1996 1996
ASSETS
Current Assets:
Cash and Cash Equivalents $ 19,865 $ 27,073
Accounts Receivable, Net 14,865 14,142
Inventories 11,162 10,839
Prepaid Expenses 25,340 24,648
Deferred Income Taxes 11,321 11,653
Total Current Assets 82,553 88,355
Property and Equipment, at Cost:
Land 159,484 150,391
Buildings and Leasehold Improvements 451,229 430,037
Furniture and Equipment 252,256 240,880
Construction-in-Progress 36,042 31,923
899,011 853,231
Less Accumulated Depreciation
and Amortization 255,647 242,001
Net Property and Equipment 643,364 611,230
Other Assets:
Marketable Securities 72,261 70,012
Goodwill 72,781 73,250
Other 50,035 45,987
Total Other Assets 195,077 189,249
Total Assets $920,994 $888,834
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
September 25, June 26,
1996 1996
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Short-term Debt $ 25,000 $ 15,000
Current Installments of Long-term Debt 348 348
Accounts Payable 68,718 58,902
Accrued Liabilities 60,059 64,140
Total Current Liabilities 154,125 138,390
Long-term Debt, Less Current Installments 102,714 102,801
Deferred Income Taxes 13,816 12,900
Other Liabilities 25,095 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; 77,289,234
and 77,255,783 Shares Issued and
Outstanding at September 25, 1996 and
June 26, 1996, Respectively 7,729 7,726
Additional Paid-In Capital 267,001 266,561
Unrealized Loss on Marketable Securities (369) (620)
Retained Earnings 350,883 334,503
Total Shareholders Equity 625,244 608,170
Total Liabilities and Shareholders Equity $920,994 $888,834
See accompanying notes to condensed consolidated financial statements
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Thirteen Week Periods Ended
September 25, September 27,
1996 1995
Revenues $ 308,665 $ 289,460
Costs and Expenses:
Cost of Sales 87,465 83,658
Restaurant Expenses 162,522 152,905
Depreciation and Amortization 17,734 16,072
General and Administrative 15,542 12,997
Interest Expense 1,536 767
Other, Net (765) (906)
Total Costs and Expenses 284,034 265,493
Income Before Provision for Income Taxes 24,631 23,967
Provision for Income Taxes 8,251 8,388
Net Income $ 16,380 $ 15,579
Primary and Fully Diluted
Net Income Per Share $ 0.21 $ 0.21
Primary Weighted Average
Shares Outstanding 79,051 75,721
Fully Diluted Weighted Average
Shares Outstanding 79,505 75,721
See accompanying notes to condensed consolidated financial statements
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirteen Week Periods Ended
September 25, September 27,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,380 $ 15,579
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization of
Property and Equipment 14,440 13,525
Amortization of Goodwill and
Other Assets 3,294 2,547
Changes in Assets and Liabilities,
Excluding Effects of Acquisitions:
Decrease (Increase) in Accounts
Receivable (723) 9,120
Increase in Inventories (323) (480)
Increase in Prepaid Expenses (692) (1,941)
Increase in Other Assets (6,873) (6,560)
Increase in Accounts Payable 9,816 1,128
Decrease in Accrued Liabilities (4,081) (1,080)
Increase in Deferred Income Taxes 1,115 1,240
Increase (Decrease) in Other Liabilities (1,478) 499
Other 438 (11)
Net Cash Provided by Operating Activities 31,313 33,566
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (46,574) (47,307)
Purchases of Marketable Securities (12,901) (5,533)
Proceeds from Sales of Marketable Securities 10,598 7,661
Other - 375
Net Cash Used in Investing Activities (48,877) (44,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term debt 10,000 -
Payments of Long-term debt (87) (1,298)
Proceeds from Issuances of Common Stock 443 920
Net Cash Provided (Used) by
Financing Activities 10,356 (378)
Net Decrease in Cash and Cash Equivalents (7,208) (11,616)
Cash and Cash Equivalents at Beginning
of Period 27,073 44,911
Cash and Cash Equivalents at End
of Period $ 19,865 $ 33,295
CASH PAID (RECEIVED) DURING THE PERIOD:
Income Taxes $ 1,073 $ (5,648)
Interest, Net of Amounts Capitalized $ (349) $ (1,207)
NON-CASH TRANSACTIONS DURING THE PERIOD:
Common Stock Issued in Connection
with Acquisitions $ - $ 66,362
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 September 25, 1996 and June 26, 1996 and for the
thirteen week periods ended September 25, 1996 and September 27, 1995 have
been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company owns or franchises over 600
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 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. Subsequent Event
On October 1, 1996, the Company acquired 13 Chili s restaurants from a
franchisee for a cash purchase price of approximately $16.2 million. The
acquisition will be accounted for as a purchase.
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 income.
Thirteen Week Periods Ended
September 25, September 27,
1996 1995
Revenues 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.3% 28.9%
Restaurant Expenses 52.7% 52.8%
Depreciation and Amortization 5.8% 5.6%
General and Administrative 5.0% 4.5%
Interest Expense 0.5% 0.2%
Other, Net (0.3%) (0.3%)
Total Costs and Expenses 92.0% 91.7%
Income Before Provision
for Income Taxes 8.0% 8.3%
Provision for Income Taxes 2.7% 2.9%
Net Income 5.3% 5.4%
The following table details the number of restaurant openings during the first
quarter and total restaurants open at the end of the first quarter.
First Quarter Openings Total Open at End of First Quarter
Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996
Chili's:
Company-owned 10 14 362 330
Franchised 6 8 143 116
Total 16 22 505 446
Macaroni Grill:
Company-owned 6 4 75 54
Franchised -- -- 2 1
Total 6 4 77 55
On The Border:
Company-owned 2 2 25 17
Franchised 1 -- 3 4
Total 3 2 28 21
Cozymel's -- 1 13 4
Maggiano's 1 -- 4 3
Corner Bakery 2 -- 10 5
Eatzi's:
Joint venture -- -- 1 --
Concepts sold -- 9 -- 69
Grand total 28 38 638 603
REVENUES
Revenues for the first quarter of fiscal 1997 increased to $308.7 million,
6.6% over the $289.5 million generated for the same quarter of fiscal 1996.
The increase is primarily attributable to a net increase of 12 Company-
operated restaurants since September 27, 1995. The Company increased its
capacity (as measured in store weeks) by 3.8% in the first quarter of fiscal
1997, as compared to the same quarter in fiscal 1996. Average weekly sales at
company-owned stores increased 2.6% in the first quarter of fiscal 1997, as
compared to the first quarter of fiscal 1996, including an increase of 0.4% at
Chili's and a decline of 7.4% at Macaroni Grill.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales decreased from 28.9% in fiscal 1996 to 28.3% in fiscal 1997.
Favorable commodity prices for seafood and menu price increases were somewhat
offset by unfavorable commodity prices for dairy, meat, and poultry.
Restaurant expenses decreased slightly from 52.8% in fiscal 1996 to 52.7% in
fiscal 1997 primarily due to a decrease in restaurant labor. Restaurant labor
decreased due to improvements in utilizing wait-staff while maintaining
customer service.
Depreciation and amortization increased to 5.8% in fiscal 1997 from 5.6% in
fiscal 1996. Depreciation and amortization increases related to fiscal 1996
acquisitions, new unit construction costs, and ongoing remodel costs were
partially offset by a declining depreciable asset base for older units.
General and administrative expenses increased in the first quarter of fiscal
1997 compared to fiscal 1996 due to the accrual of profit sharing in fiscal
1997. A profit sharing accrual was not recorded in fiscal 1996.
Interest expense increased due to incremental borrowings on the Company s
credit facilities combined with a decline in the construction-in-progress
balances subject to interest capitalization.
Other, net, was flat compared to the first quarter of fiscal 1996.
INCOME TAXES
The Company's effective income tax rate was 33.5% for the first quarter of
fiscal 1997 compared to 35.0% for the same period 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
Net income, as a percent of revenues, declined 0.1% compared to the first
quarter of fiscal 1996. The decrease in net income in light of the increase in
revenues and decrease in cost of sales was due to the increases in
depreciation and amortization, general and administrative expenses, and
interest expense mentioned above. Primary net income per share was $0.21 for
both the first quarters of fiscal 1997 and 1996. Primary weighted average
shares outstanding for the first quarter increased 4.4% compared to the prior
year period. The increase in weighted average shares outstanding arose
primarily from common stock issued in connection with acquisitions during
fiscal 1996.
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
$71.6 million at September 25, 1996, due primarily to the Company's capital
expenditures as discussed below. Net cash provided by operating activities
decreased to $31.3 million for the first quarter of fiscal 1997 from $33.6
million during the same period in fiscal 1996 due to timing of operational
receipts and payments.
Long-term debt outstanding at September 25, 1996 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At September 25,
1996, the Company had $212.2 million in available funds from credit
facilities.
Capital expenditures were $46.6 million for the first quarter of fiscal 1997
as compared to $47.3 million in the first quarter 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 second quarter will
approximate $55 million. These capital expenditures will be funded from
internal operations, cash equivalents, income earned from investments, build-
to-suit lease agreements with landlords, proceeds from the sales of
restaurants closed in conjunction with the strategic plan approved in fiscal
1996, 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 would develop, the Company
believes that there are sufficient funds available to it under the lines of
credit and strong internal cash generating capabilities to adequately manage
the expansion of business.
PART II. OTHER INFORMATION
Item 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: November 6, 1996 By: /Ronald A. McDougall
Ronald A. McDougall, President and
Chief Executive Officer
(Duly Authorized Signatory)
Date: November 6, 1996 By: /Debra L. Smithart
Debra Smithart, Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
5
1,000
3-MOS
JUN-25-1997
JUN-27-1996
SEP-25-1996
19,865
0
15,250
(385)
11,162
82,553
899,011
(255,647)
920,994
154,125
102,714
0
0
7,729
617,515
920,994
305,108
308,665
87,465
267,644
0
77
1,536
24,631
8,251
16,380
0
0
0
16,380
.21
.21
