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 September 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 September 27,
1995: 76,566,291.
BRINKER INTERNATIONAL, INC.
INDEX
Part I Financial Information
Condensed Consolidated Balance Sheets -
September 27, 1995 and June 28, 1995 3-4
Condensed Consolidated Statements of Income -
Thirteen week periods ended Sepetmber 27, 1995
and September 28, 1994 5
Condensed Consolidated Statements of Cash Flows -
Thirteen week periods ended September 27, 1995
and September 28, 1994 6
Notes to Condensed Consolidated Financial Statements 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II Other Information 11
BRINKER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
SEPTEMBER 27, 1995 JUNE 28, 1995
ASSETS
Current Assets:
Cash and Cash Equivalents $ 16,524 $ 38,780
Accounts Receivable 9,590 17,952
Assets Held for Sale and Leaseback 71 68
Inventories 11,228 10,312
Prepaid Expenses 24,837 22,485
Deferred Income Taxes 4,053 4,389
Total Current Assets 66,303 93,986
Property and Equipment, at Cost:
Land 157,585 148,123
Buildings and Leasehold Improvements 399,460 358,717
Furniture and Equipment 234,114 214,275
Construction-in-Progress 42,294 49,500
833,453 770,615
Less Accumulated Depreciation 214,797 202,542
Net Property and Equipment 618,656 568,073
Other Assets:
Marketable Securities 32,983 34,696
Goodwill 74,482 9,708
Other 31,295 26,342
Total Other Assets 138,760 70,746
Total Assets $ 823,719 $ 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)
SEPTEMBER 27, 1995 JUNE 28, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-term Debt $ 393 $ 1,593
Accounts Payable 41,441 34,252
Accrued Liabilities 60,873 60,518
Total Current Liabilities 102,707 96,363
Long-term Debt, Less Current Installments 102,988 103,086
Deferred Income Taxes 14,401 13,497
Other Liabilities 23,561 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; 76,566,291 and 72,073,597
Shares Issued and Outstanding at
September 27, 1995 and June 28, 1995,
Respectively 7,657 7,207
Additional Paid-In Capital 257,751 190,919
Unrealized Loss on Marketable
Securities (1,047) (1,451)
Retained Earnings 315,701 300,122
Total Shareholders' Equity 580,062 496,797
Total Liabilities and
Shareholders' Equity $ 823,719 $ 732,805
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 27, 1995 SEPTEMBER 28, 1995
REVENUES $ 289,460 $ 247,072
Cost and Expenses:
Cost of Sales 83,658 66,276
Restaurant Expenses 152,905 126,847
Depreciation and Amortization 16,072 13,786
General and Adminstrative 12,997 12,224
Interest Expense 767 ---
Other, Net (906) (817)
Total Costs and Expenses 265,493 218,316
Income Before Provision for
Income Taxes 23,967 28,756
Provision for Income Taxes 8,388 10,208
Net Income $ 15,579 $ 18,548
Primary and Fully Diluted Net
Income Per Share $ 0.21 $ 0.25
Primary Weighted Average
Shares Outstanding 75,721 74,799
Fully Diluted Weighted Average
Shares Outstanding 75,721 74,936
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 27, 1995 September 28, 1994
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 15,579 $ 18,548
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation of Property and Equipment 13,525 11,263
Amortization of Other Assets 2,547 2,523
Changes in Assets and Liabilities, Net
Effects of Acquisitions:
Decrease (Increase) in Accounts Receivable 9,123 (4,316)
Increase in Inventories (480) (468)
Increase in Prepaid Expenses (1,941) (427)
Increase in Other Assets (6,560) (5,564)
Decrease in Accounts Payable (9,512) (983)
Decrease in Accrued Liabilities (1,080) (844)
Increase in Deferred Income Taxes 1,240 1,378
Increase (Decrease) in Other Liabilities 499 (1,177)
Net Cash Provided by Operating Activities 22,940 19,933
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (47,037) (36,244)
Purchases of Marketable Securities (5,544) (4,411)
Proceeds from Sales of Maketable Securities 7,661 4,298
Other 372 (347)
Net Cash Used in Investing Activities (44,818) (36,704)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of Short-term Debt --- 11,150
Payments of Long-term Debt (1,298) (783)
Proceeds from Issuances of Common Stock 920 3,721
Net Cash (Used in) Provided by
Financing Activities (378) 14,088
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,256) (2,683)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 38,780 3,743
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 16,524 $ 1,060
CASH (RECEIVED) PAID DURING THE PERIOD:
Income Taxes, Net $ (5,648) $ 1,839
NON-CASH INVESTING AND FINANCING ACTIVITY:
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 27, 1995 and June 28,
1995 and for the thirteen week periods ended September 27, 1995 and
September 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 eight restaurant concepts under the names of
Chili's Grill & Bar ("Chili's"), Grady's American Grill ("Grady's"),
Romano's Macaroni Grill ("Macaroni Grill"), Spageddies Italian Kitchen
("Spageddies"), On The Border Cafes ("On The Border"), Cozymel's - A
Very Mexican Grill ("Cozymel's"), Maggiano's Little Italy
("Maggiano's"), and Corner Bakery ("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 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.
3. Goodwill
Goodwill is being amortized on a straight-line basis over 30 to 40
years. The Company assesses the recoverability of goodwill by
determining whether the asset balance can be recovered over its
remaining life through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based
on projected discounted future operating cash flows. The Company
believes that no impairment has occurred and that no reduction of the
estimated useful life is warranted.
4. Business Combinations
Effective July 19, 1995, the Company acquired the remaining 50% interest
in its three unit Cozymel's restaurant concept in exchange for 430,769
shares of the Company's common stock. On August 29, 1995, the Company
acquired the three unit Maggiano's and five unit Corner Bakery concepts
in exchange for 4,000,000 shares of the Company's common stock. These
acquisitions were accounted for as purchases. Goodwill of approximately
$7.6 million and $57.6 million, respectively, representing the excess of
cost over the fair value of the assets acquired, was recorded in
connection with these acquisitions. The operations of the restaurants
are included in the Company's consolidated results of operations from
the dates of their acquisition. The results of operations on a pro
forma basis are not presented separately as the results do not differ
significantly from historical amounts reported herein.
5. Subsequent Events
On October 17, 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. Since September 27, 1995, ten units have ceased
operations under this plan. The remaining restaurants will be disposed
of or converted during the current fiscal year. The Company expects to
record an estimated pre-tax charge of $50 million in the second quarter
of fiscal 1996 to cover the costs related to the execution of this plan.
On October 30, 1995, the Company entered into an agreement providing for
the sale of all rights to the Grady's concept and 37 Grady's
restaurants for a cash purchase price of approximately $70 million. The
sale is subject to due diligence as well as other customary conditions
and is expected to close by December 31, 1995.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For The Thirteen Week Periods Ended
September 27, 1995 and September 28, 1994
The following table sets forth expenses as a percentage of total revenues for
revenue and expense items included in the Condensed Consolidated Statements of
Income.
Thirteen Week Periods Ended
September 27, 1995 September 28, 1994
Revenues 100.0% 100.0%
Costs and Expenses:
Cost of Sales 28.9% 26.8%
Restaurant Expenses 52.8% 51.3%
Depreciation and Amortization 5.6% 5.6%
General and Administrative 4.5% 4.9%
Interest Expense 0.2% 0.0%
Other, Net (0.3%) (0.2%)
Total Costs and Expenses 91.7% 88.4%
Income Before Provision
for Income Taxes 8.3% 11.6%
Provision for Income Taxes 2.9% 4.1%
Net Income 5.4% 7.5%
The following table shows restaurant openings during the first quarter and
year-to-date as well as total restaurants open at the end of the first
quarter.
Total Open at End
1st Quarter Openings of First Quarter
Fiscal Fiscal Fiscal Fiscal
1996 1995 1996 1995
Chili's:
Company-owned 14 16 330 296
Franchised 8 8 116 86
Total 22 24 446 382
Macaroni Grill:
Company-owned 4 4 54 38
Franchised -- -- 1 1
Total 4 4 55 39
Grady's 5 1 49 35
Spageddies:
Company-owned 3 -- 15 6
Franchised 1 -- 5 --
Total 4 -- 20 6
On The Border:
Company-owned 1 -- 4 14
Franchised -- -- -- 6
Total 1 -- 4 20
Maggiano's -- -- 3 --
Corner Bakery -- -- 5 --
R&D Concepts -- -- 1 1
Grand Total 38 29 604 484
REVENUES
Revenues for the first quarter of fiscal 1996 increased to $289.5 million,
17.2% over the $247.1 million generated for the same quarter of fiscal 1995.
The increase is primarily attributable to the 88 Company-operated restaurants
opened or acquired since September 28, 1994. The Company increased its
capacity (as measured in store weeks) by 21.3% in the first quarter of fiscal
1996, as compared to the same quarter in fiscal 1995. Average weekly sales
for the first quarter of fiscal 1996 declined 3.3% compared to the first
quarter of fiscal 1995, including declines of 2.8% and 8.3% at Chili's and
Macaroni Grill, respectively.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales increased from 26.8% in fiscal 1995 to 28.9% in fiscal 1996.
Unfavorable commodity prices were experienced for alcoholic beverages, pasta,
nonalcoholic beverages, sauces and oils. Product mix shifts toward higher cost
menu items and increases in portions on various Chili's menu items also
contributed to the increase. These increases were somewhat offset by favorable
prices for meat, bakery, produce, poultry, and dairy.
Restaurant expenses increased from 51.3% in fiscal 1995 to 52.8% in fiscal
1996, primarily as a result of increases in management and hourly labor and
credit card fees. 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 floor staff to improve
customer service as well as wage rate increases to meet industry competition
and retain quality employees. Credit card fees also increased due to
proportionately higher credit card sales and an increase in the cost of
authorizing credit card transactions. These cost increases were partially
offset by decreases in liquor taxes and contingent rent.
Depreciation and amortization was flat compared to the prior year first
quarter. A decrease in per-unit depreciation and amortization due to a
declining depreciable asset base for older units offset increases related to
new unit construction costs and ongoing remodel costs.
General and administrative expenses declined in the first quarter of fiscal
1996 compared to fiscal 1995 due to 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, was flat compared to the first quarter of fiscal 1995. Income
from the net gains on sales of marketable securities was offset partially by a
decrease in interest and dividend income compared to fiscal 1995 as a result
of a decrease in the investment portfolio balance.
INCOME BEFORE PROVISION FOR INCOME TAXES
As a result of the relationships between revenues and costs and expenses,
income before provision for income taxes decreased 16.7% for the first quarter
of fiscal 1996 as compared to fiscal 1995.
INCOME TAXES
The Company's effective income tax rate was 35.0% for the first quarter of
fiscal 1996 compared to 35.5% for the same period of fiscal 1995. 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
Net income and primary net income per share declined 16.0% compared to the
first quarter of fiscal 1995. The decrease in net income 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. Primary weighted average
shares outstanding for the first quarter increased 1.2% compared to the prior
year period. The number of outstanding shares has increased as a result of the
acquisition of the Cozymel's and Maggiano's/Corner Bakery concepts and common
stock options exercised, offset partially by a decrease in dilutive common
stock equivalents in fiscal 1996 as a result of a decline in the Company's
stock price.
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 $2.4 million at June 28, 1995 to
$36.4 million at September 27, 1995, due primarily to the Company's capital
expenditures as discussed below. Net cash provided by operating activities
increased to $22.9 million for the first quarter of fiscal 1996 from $19.9
million during the same period in fiscal 1995 due to timing of operational
receipts and payments and the increased number of restaurants in operation.
Long-term debt outstanding at September 27, 1995 consisted of $100 million of
unsecured senior notes and obligations under capital leases. At September 27,
1995, the Company had $250 million in available funds from credit facilities.
Capital expenditures were $47.3 million for the first quarter of fiscal 1996
as compared to $36.2 million in the first quarter of fiscal 1995. 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 second 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, and drawdowns on the Company's
available lines of credit.
During October 1995, the Company announced the approval of a strategic plan
calling for the disposition or conversion of 30 to 40 Company-owned
restaurants. The net effect of this plan will be a significant positive cash
flow of approximately $30 million to be realized over the next two years.
Furthermore, the Company entered into an agreement providing for the sale of
the Grady's concept and 37 Grady's restaurants that is expected to result in
approximately $65 to $70 million of additional positive cash flow in fiscal
1996.
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 8, 1995 By: /Ronald A. McDougall
Ronald A. McDougall, President and Chief
Operating Officer
(Duly Authorized Signatory)
Date: November 8, 1995 By: /Debra L. Smithart
Debra L. Smithart, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
5
1,000
3-MOS
JUN-28-1995
JUN-29-1995
SEP-27-1995
16,524
32,983
9,793
(203)
11,228
66,303
833,453
(214,797)
823,719
102,707
100,000
7,657
0
0
572,405
823,719
286,585
289,460
83,658
181,944
(906)
30
767
23,967
8,388
15,579
0
0
0
15,579
.21
.21
