Brinker International, Inc. - 10-Q Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the thirteen-week and thirty-nine-week periods ended March 26, 2003. Brinker International, Inc. operates and franchises various restaurant concepts, including Chili's Grill & Bar, Romano's Macaroni Grill, On The Border, Maggiano's Little Italy, Corner Bakery Cafe, Big Bowl Asian Kitchen, and Cozymel's Coastal Grill. The Company also holds an approximate 43% interest in the Rockfish Partnership.
Key Financial Metrics
| Metric | 13 Weeks Ended Mar 26, 2003 | 39 Weeks Ended Mar 26, 2003 | 39 Weeks Ended Mar 27, 2002 |
|---|---|---|---|
| Revenues | $840.8 million | $2,409.2 million | $2,104.2 million |
| Net Income | $46.2 million | $128.4 million | $108.4 million |
| Diluted EPS | $0.47 | $1.30 | $1.08 |
| Operating Cash Flow (39 weeks) | $301.5 million (vs. $275.8 million prior year) | ||
| Capital Expenditures (39 weeks) | $239.8 million (vs. $304.3 million prior year) | ||
| Total Debt (Long-term + Current) | $412.9 million (as of Mar 26, 2003) | ||
| Cash and Equivalents | $9.2 million (as of Mar 26, 2003) | ||
| Working Capital Deficit | $171.2 million (as of Mar 26, 2003) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12.7% for the quarter and 14.5% year-to-date, driven by a net increase of 106 company-owned restaurants and comparable store sales growth of 0.9% (quarter) and 1.3% (year-to-date).
- Profitability: Operating income margin improved to 8.7% for the quarter (from 7.5% prior year) and 8.4% year-to-date. Net income margin rose to 5.5% for the quarter.
- Cost Management: Cost of sales decreased 0.4% as a percentage of revenue due to lower commodity prices and menu price increases. Restaurant expenses decreased 1.1% for the quarter, largely due to the absence of a $11.0 million California labor settlement expense recorded in the prior year.
- Impairment Charges: Year-to-date results included a $5.4 million charge for closing nine restaurants and a $4.1 million impairment charge for the PIZZAAHHH! concept, offsetting some expense reductions.
Guidance, Outlook, and Risks
- Capital Expenditures: The Company estimates Q4 fiscal 2003 capital expenditures will approximate $94 million, funded by operations and credit facilities.
- Stock Repurchases: The Company repurchased 1.9 million shares for $53.3 million year-to-date. Cumulative repurchases total 17.9 million shares for $380.9 million under a $410.0 million program.
- Liquidity: Management believes existing credit facilities and operating cash flow are adequate to finance operations and debt obligations. A working capital deficit of $171.2 million exists but is managed through credit lines.
- Legal Contingencies: In April 2003, the California Attorney General filed a complaint under Proposition 65 regarding methyl mercury notices in restaurants. The Company is in preliminary settlement discussions; loss is not estimable at this time.
- Accounting Changes: The Company is assessing the impact of FASB Interpretation No. 46 regarding the consolidation of variable interest entities.
Investor Verification Checklist
- Verify the sustainability of comparable store sales growth (0.9% - 1.3%) amidst competitive pressures.
- Monitor the outcome of the California Proposition 65 litigation regarding mercury notices.
- Assess the impact of the $9.5 million in impairment charges (restaurant closures and PIZZAAHHH! write-down) on future profitability.
- Review the status of the $4.0 million promissory note from Eatzi's Corporation, which is reserved in full due to collection uncertainty.
- Track the execution of the remaining $29.1 million of the approved stock repurchase program.