FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 27, 1995
Commission File Number 1-10275
BRINKER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1914582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6820 LBJ FREEWAY, DALLAS, TEXAS 75240
(Address of principal executive offices)
(Zip Code)
(214) 980-9917
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Number of shares of common stock of registrant outstanding at December 27,
1995: 76,617,908.
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
December 27, 1995 and June 28, 1995 3-4
Condensed Consolidated Statements of Operations -
Thirteen Weeks and Twenty-Six Weeks
ended December 27, 1995 and December 28, 1994 5
Condensed Consolidated Statements of Cash Flows -
Twenty-Six Weeks ended December 27, 1995 and
December 28, 1994 6
Notes to Condensed Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II Other Information 12
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
DECEMBER 27, 1995 JUNE 28, 1995
ASSETS
Current Assets:
Cash and Cash Equivalents $ 44,492 $ 38,780
Accounts Receivable 14,400 17,952
Assets Held for Sale and Leaseback 93 68
Inventories 10,928 10,312
Prepaid Expenses 23,716 22,485
Deferred Income Taxes 4,345 4,389
Total Current Assets 97,974 93,986
Property and Equipment, at Cost:
Land 146,967 148,123
Buildings and Leasehold Improvements 379,609 358,717
Furniture and Equipment 220,992 214,275
Construction-in-Progress 40,189 49,500
787,757 770,615
Less Accumulated Depreciation 229,880 202,542
Net Property and Equipment 557,877 568,073
Other Assets:
Marketable Securities 33,088 34,696
Goodwill 73,988 9,708
Other 33,738 26,342
Total Other Assets 140,814 70,746
Total Assets $ 796,665 $ 732,805
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
(Unaudited)
DECEMBER 27, 1995 JUNE 28, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-term Debt $ 393 $ 1,593
Accounts Payable 22,404 34,252
Accrued Liabilities 68,073 60,518
Total Current Liabilities 90,870 96,363
Long-term Debt, Less Current Installments 102,784 103,086
Deferred Income Taxes 13,685 13,497
Other Liabilities 22,685 23,062
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; 76,617,908 and 72,073,597
Shares Issued and Outstanding at
December 27, 1995 and June 28, 1995,
Respectively 7,662 7,207
Additional Paid-In Capital 257,921 190,919
Unrealized Loss on Marketable
Securities (1,090) (1,451)
Retained Earnings 302,148 300,122
Total Shareholders' Equity 566,641 496,797
Total Liabilities and
Shareholders' Equity $ 796,665 $ 732,805
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
Dec. 27, 1995 Dec. 28, 1994 Dec. 27, 1995 Dec. 28, 1994
Revenues $ 289,656 $ 246,607 $ 579,116 $ 493,679
Costs and Expenses:
Cost of Sales 83,675 67,097 167,333 133,373
Restaurant Expenses 156,109 128,475 309,014 255,322
Depreciation and
Amortization 16,201 14,163 32,273 27,949
General & Administrative 13,578 12,636 26,575 24,860
Interest Expense 892 --- 1,659 ---
Gain on Sales of Concepts (9,262) --- (9,262) ---
Restructuring Charge 50,000 --- 50,000 ---
Other, Net (687) (492) (1,593) (1,309)
Total Costs and
Expenses 310,506 221,879 575,999 440,195
Income (Loss) Before
Provision for Income
Taxes (20,850) 24,728 3,117 53,484
Provision for Income
Taxes (7,297) 8,655 1,091 18,863
Net Income (Loss) $ (13,553) $ 16,073 $ 2,026 $ 34,621
Primary and Fully
Diluted Net
Income Per Share $ (0.18) $ 0.22 $ 0.03 $ 0.46
Primary Weighted Average
Shares Outstanding 76,626 74,391 76,932 74,584
Fully Diluted Weighted
Average Shares
Outstanding 76,626 74,391 76,987 74,653
See Accompanying Notes to Condensed Consolidated Financial Statements
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Twenty-Six Weeks Ended
December 27, 1995 December 28, 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,026 $ 34,621
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Property and Equipment 27,417 23,041
Amortization of Other Assets 4,856 4,908
Gain on Sales of Concepts (9,262) ---
Restructuring Charge 50,000 ---
Net Loss on Sales of Marketable Securities 597 ---
Changes in Assets and Liabilities, Excluding
Effects of Acquisitions and Dispositions:
Decrease (Increase) in Accounts Receivable 4,457 (5,326)
Increase in Inventories (1,325) (1,152)
Increase in Prepaid Expenses (2,988) (2,063)
Increase in Other Assets (8,000) (8,790)
Decrease in Accounts Payable (28,549) (3,699)
Increase (Decrease) in Accrued Liabilities (7,559) 2,384
Increase in Deferred Income Taxes 48 2,547
Decrease in Other Liabilities (281) (1,843)
Net Cash Provided by Operating Activities 31,437 44,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (100,339) (76,508)
Purchases of Marketable Securities (13,923) (4,923)
Proceeds from Sales of Marketable Securities 15,479 18,594
Proceeds from Sales of Concepts 73,115 ---
Other 350 (38)
Net Cash Used in Investing Activities (25,318) (62,875)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt --- 12,050
Payments of Long-term Debt (1,502) (1,332)
Proceeds from Issuances of Common Stock 1,095 4,895
Net Cash Provided by (Used in)
Financing Activities (407) 15,613
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 5,712 (2,634)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 38,780 3,743
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 44,492 $ 1,109
CASH PAID DURING THE PERIOD:
Income Taxes, Net $ 15,003 $21,107
Interest, Net of Amounts Capitalized $ 1,594 $ ---
NON-CASH INVESTING AND FINANCING ACTIVITY:
Common Stock Issued in Connection
With Acquisitions $ 66,362 $ ---
Notes Received in Connection with Sales
of Concepts $ 9,800 $ ---
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 December 27, 1995 and June 28,
1995 and for the thirteen weeks and twenty-six weeks ended December 27,
1995 and December 28, 1994 have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission.
The Company owns and operates six restaurant concepts 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 - A Very
Mexican Grill ("Cozymel's"), Maggiano's Little Italy ("Maggiano's"), and
Corner Bakery.
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 28, 1995
Form 10-K. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
2. Net Income (Loss) Per Share
Both primary and fully diluted net income (loss) 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. Common equivalent shares for the second
quarter of fiscal 1996 are excluded from the net loss per share
computation because they were anti-dilutive.
3. Restructuring Related Items
The Company recorded a $50 million restructuring charge during the
thirteen weeks ended December 27, 1995 related to the adoption of a
strategic plan which includes the disposition or conversion of 30 to 40
Company-owned restaurants that have not met management's expectations.
The charge resulted in a reduction in net income of approximately $32.5
million ($0.42 per share) and primarily relates to the write-down of
property and equipment to net realizable value, costs to settle lease
obligations, and the write-off of other assets. As of December 27,
1995, the remaining balance of the restructuring reserve was
approximately $10 million and primarily relates to costs to settle lease
obligations which are expected to be settled by the end of fiscal 1996.
The results of operations from restaurants that will be disposed are not
material.
In addition, the Company completed the sales of the Grady's American
Grill, Spageddies Italian Kitchen, and the Kona Ranch Steak House
concepts during the second quarter of fiscal 1996, recognizing a gain of
approximately $9.3 million.
4. Subsequent Event
On January 30, 1996, the Board of Directors of the Company adopted a
Stockholder Protection Rights Plan (the "Plan") and declared a dividend
of one right on each outstanding share of common stock, payable on
February 9, 1996. The rights will be evidenced by the common stock
certificates, will automatically trade with the common stock, and will
not be exercisable until it is announced that a person or group has
become an Acquiring Person, as defined in the Plan. Thereafter,
separate rights certificates will be distributed and each right (other
than rights beneficially owned by any Acquiring Person) will entitle,
among other things, its holder to purchase, for an exercise price of
$60, a number of shares of the Company's common stock having a market
value of twice the exercise price. The rights may be redeemed by the
Board of Directors for $0.01 per right prior to the date of the
announcement that a person or group has become an Acquiring Person.
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.
13 Weeks Ended 26 Weeks Ended
Dec. 27, 1995 Dec. 28, 1994 Dec. 27, 1995 Dec. 28, 1994
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.9% 27.2% 28.9% 27.0%
Restaurant Expenses 53.9% 52.1% 53.4% 51.7%
Depreciation and
Amortization 5.6% 5.7% 5.6% 5.7%
General & Administrative 4.7% 5.1% 4.6% 5.0%
Interest Expense 0.3% --- 0.3% ---
Other, Net (0.2)% (0.1)% (0.3)% (0.2)%
Total Costs & Expenses
Before Restructuring
Related Items 93.2% 90.0% 92.5% 89.2%
Gain on Sales of Concepts (3.2)% --- (1.6)% ---
Restructuring Charge 17.2% --- 8.6% ---
Total Costs & Expenses
After Restructuring
Related Items 107.2% 90.0% 99.5% 89.2%
Income (Loss) Before
Provision for Income
Taxes (7.2)% 10.0% 0.5% 10.8%
Provision for Income Taxes (2.5)% 3.5% 0.2% 3.8%
Net Income (Loss) (4.7)% 6.5% 0.3% 7.0%
The table below details the number of restaurant openings during the second
quarter and year-to-date, as well as total number of 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
1996 1995 1996 1995 1996 1995
Chili's:
Company-owned 11 6 25 22 339 302
Franchised 7 9 15 17 123 95
Total 18 15 40 39 462 397
Macaroni Grill:
Company-owned 7 7 11 11 61 45
Franchised 1 -- 1 -- 2 1
Total 8 7 12 11 63 46
On The Border:
Company-owned 2 1 4 1 19 15
Franchised -- -- -- -- 4 6
Total 2 1 4 1 23 21
Cozymel's:
Company-owned 2 -- 3 -- 6 1
Joint Venture -- -- -- -- -- 1
Total 2 -- 3 -- 6 2
Maggiano's -- -- -- -- 3 --
Corner Bakery 1 -- 2 -- 6 --
Wildfire:
Joint Venture 1 -- 1 -- 1 --
Grady's 1 5 6 6 4 (a) 39
Spageddies:
Company-owned 1 3 4 3 4 (a) 9
Franchised 1 1 2 1 -- 1
Total 2 4 6 4 4 10
Grand Total 35 32 74 61 572 515
(a) Subsequent to the end of the second quarter of fiscal 1996, two Grady's and four Spageddies restaurants were closed.
REVENUES
Revenues for the second quarter of fiscal 1996 increased to $289.7 million,
17.5% over the $246.6 million generated for the same quarter of fiscal 1995.
Revenues for the twenty-six weeks ended December 27, 1995 rose 17.3% to $579.1
million from the $493.7 million generated for the same period of fiscal 1995.
The increase is primarily attributable to the 93 Company-operated restaurants
opened or acquired since December 28, 1994. The Company increased its
capacity (as measured in store weeks) for the second quarter and year-to-date
of fiscal 1996 by 19.1% and 19.8%, respectively, compared to the respective
prior year periods. Average weekly sales declined 1.5% and 2.2% for the
second quarter and year-to-date, respectively, from the same periods of fiscal
1995.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales increased to 28.9% for both the second quarter and year-to-date
of fiscal 1996. Unfavorable commodity prices were experienced for meat,
poultry, alcoholic and nonalcoholic beverages, pasta, and oils. Product mix
shifts toward higher cost menu items and increases in portion sizes on various
Chili's menu items also contributed to the increase.
Restaurant expenses increased on both a comparative second 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 level, hourly labor
costs are up due to increases in the number of floor staff to provide better
customer service as well as wage rate increases in order to meet industry
competition and retain quality employees.
Depreciation and amortization decreased slightly for both the second quarter
and year-to-date of fiscal 1996. A decrease in per-unit depreciation and
amortization due to a declining depreciable asset base for older units and
higher average sales volumes of new restaurants offset increases related to
new unit construction costs and ongoing remodel costs.
General and administrative expenses declined in the second quarter and year-
to-date of fiscal 1996 compared to the respective fiscal 1995 periods due to
decreased profit sharing expenses, the Company's ongoing focus on controlling
corporate overhead, and efficiencies realized from increased investments in
computer hardware and software. The dollar increase in general and
administrative expenses is due to additional staff and support as the Company
expands its restaurant concepts.
Interest expense, net of amounts capitalized, increased due to the issuance of
$100 million of unsecured senior notes by the Company in April 1995.
Other, net, increased slightly for both the second quarter and year-to-date of
fiscal 1996. Increased interest and dividend income as a result of an
increase in the investment portfolio balance was offset partially by the net
loss on sales of marketable securities.
RESTRUCTURING RELATED ITEMS
In October 1995, the Board of Directors of the Company approved a strategic
plan intended to support the Company's long term growth target that focuses on
continued development of those restaurant concepts that have the greatest
return potential for the Company and its shareholders. In conjunction with
this plan, the Company will dispose of or convert 30 to 40 Company-owned
restaurants that have not met management's expectations. The restructuring
actions began during the second quarter and are expected to be substantially
completed by the end of fiscal 1996. The Company recorded a $50.0 million
restructuring charge during the thirteen weeks ended December 27, 1995 to
cover cost related to the execution of this plan, primarily the write-down of
property and equipment to net realizable value, costs to settle lease
obligations, and the write-off of other assets. In addition, the Company
completed the sales of the Grady's American Grill, Spageddies Italian Kitchen,
and the Kona Ranch Steak House concepts during the second quarter of fiscal
1996, recognizing a gain of approximately $9.3 million.
INCOME TAXES
The Company's effective income tax rate was 35.0% for the second quarter and
year-to-date of fiscal 1996 compared to 35.0% and 35.3% for the same periods
of fiscal 1995, respectively. The fiscal 1996 effective income tax rate has
decreased as a result of an increase in federal FICA tip credits.
NET INCOME AND NET INCOME PER SHARE
Operating results before restructuring related items (gain on sales of
concepts and restructuring charge) for the second quarter and year-to-date are
summarized as follows (in millions, except per share amounts):
13 Weeks Ended 26 Weeks Ended
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1995 1994 1995 1994
Income Before Restructuring
Related Items and Income Taxes $ 19.9 $ 24.7 $ 43.8 $ 53.5
Income Taxes Before Restructuring
Related Items 7.0 8.6 15.3 18.9
Net Income Before Restructuring
Related Items $ 12.9 $ 16.1 $ 28.5 $ 34.6
Net Income Per Share Before
Restructuring Related Items $ 0.17 $ 0.22 $ 0.37 $ 0.46
Net income before restructuring related items for the second quarter and year-
to-date declined 19.6% and 17.7%, respectively, compared to fiscal 1995.
Primary net income per share before restructuring related items for the second
quarter and year-to-date declined 22.7% and 19.6%, respectively. The decrease
in net income before restructuring related items in light of the increase in
revenues was due to the decline in average weekly store sales and 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
Working capital increased from a deficit of $2.4 million at June 28, 1995 to
$7.1 million at December 27, 1995, due to proceeds received from the sales of
concepts offset primarily by the recording of the restructuring reserve and
the Company's capital expenditures. Net cash provided by operating activities
decreased to $31.4 million for the first half of fiscal 1996 from $44.6
million during the same period in fiscal 1995 due to timing of operational
receipts and payments.
Long-term debt outstanding at December 27, 1995 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At December 27,
1995, the Company had $238 million in available funds from credit facilities.
During October 1995, The Company announced the approval of a strategic plan
which includes the disposition of certain Company-owned restaurants. The
dispositions are expected to generate net cash proceeds of approximately $15
to $20 million through fiscal 1997. Furthermore, the Company completed the
sales of three of its concepts during the second quarter which resulted in net
cash proceeds of approximately $73 million.
Capital expenditures were $100.3 million for the six months ended December 27,
1995 as compared to $76.5 million last year. Purchases of land for future
restaurant sites, new restaurants under construction, purchases of new and
replacement restaurant furniture and equipment, and the ongoing remodeling
program were responsible for the increased expenditures. The Company
estimates that its capital expenditures during the third quarter will
approximate $60 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 concepts,
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 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Proxy Statement dated September 26, 1995 for the Annual Meeting
of Shareholders held on November 2, 1995, as filed with the Securities and
Exchange Commission on September 25, 1995, is incorporated herein by
reference.
(a) The Annual Meeting of Shareholders of the Company was held on
November 2, 1995.
(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
64,843,019 208,854
(c) The following matters were also voted upon at the meeting and approved
by the shareholders:
(i) approval of an amendment to the Company's 1992 Incentive Stock
Option Plan
Number of Affirmative Votes Cast Number of Negative Votes Cast
46,598,207 18,244,775
Number of Abstain Votes Cast
208,891
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule. Filed with EDGAR version.
(b) A current report on Form 8-K, dated October 18, 1995, was filed with the
Securities and Exchange Commission on November 3, 1995. This Form 8-K
contained the text of two press releases issued by the Company on
October 18, 1995 and November 2, 1995. The October 18, 1995 press
release announced (i) the Company's earnings for the first quarter of
its 1996 fiscal year and (ii) the adoption of a strategic plan to focus
future restaurant development of those restaurant concepts with the
greatest return potential to the Company and to dispose of or convert 30
to 40 restaurants that did not meet management's expectations. The
November 2, 1995 press release announced the execution of agreements
providing for the sale of the Grady's American Grill and Spageddies
Italian Kitchen concepts to Quality Dining, Inc.
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 9, 1996 By: /Ronald A. McDougall
Ronald A. McDougall, President and Chief
Operating Officer
(Duly Authorized Signatory)
Date: February 9, 1996 By: /Debra L. Smithart
Debra L. Smithart, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5
1,000
QTR-2
JUN-26-1996
DEC-27-1995
44,492
33,088
14,637
(237)
10,928
97,974
787,757
(229,880)
796,665
90,870
100,000
7,662
0
0
558,979
796,665
286,655
289,656
83,675
185,828
40,051
60
892
(20,850)
(7,297)
(13,553)
0
0
0
(13,553)
(0.18)
(0.18)
