Brinker International, Inc. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended December 26, 2001, and the twenty-six week period ended on the same date. Brinker International, Inc. operates and franchises restaurant concepts including Chili's Grill & Bar, Romano's Macaroni Grill, On The Border, Maggiano's Little Italy, and Corner Bakery Cafe. The company reported 1,208 total restaurants open at the end of the second quarter of fiscal 2002.
Key Financial Metrics
| Metric | 13-Week Period Ended Dec 26, 2001 | 26-Week Period Ended Dec 26, 2001 |
|---|---|---|
| Revenues | $704.7 million | $1,395.2 million |
| Net Income | $34.6 million | $74.3 million |
| Diluted EPS | $0.35 | $0.74 |
| Operating Margin | 8.0% | 8.6% |
| Net Cash from Operating Activities | N/A | $188.7 million |
| Cash and Equivalents (Ending) | $40.8 million | |
| Long-Term Debt (Less Current) | $375.5 million | |
| Working Capital Deficit | $114.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 20.8% for the quarter and 19.0% year-to-date compared to the prior year, driven by a net increase of 183 company-owned restaurants and a 1.6% increase in comparable store sales.
- Profitability: Net income rose 7.5% for the quarter and 10.2% year-to-date. Diluted earnings per share increased 9.4% and 12.1%, respectively.
- Acquisitions: The company acquired 39 Chili's restaurants from Sydran Group for approximately $53.9 million and three On The Border restaurants for $6.6 million, recording $55.5 million in new goodwill.
- Debt Structure: In October 2001, the company issued $431.7 million of zero-coupon convertible senior debentures, receiving approximately $250.0 million in proceeds. This increased long-term debt significantly.
- Accounting Changes: Adoption of SFAS No. 142 eliminated goodwill amortization, contributing to a decrease in the effective income tax rate to 34.6% from 35.2%.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates capital expenditures for the third quarter of fiscal 2002 will approximate $57.0 million, funded by operations and credit facilities.
- Liquidity: The company maintains a working capital deficit of $114.2 million but asserts that cash flow from operations and credit facilities are adequate to finance operations and debt obligations.
- Stock Repurchases: The company repurchased 3.6 million shares for $87.5 million during the first half of fiscal 2002. The total repurchase program is authorized at $310.0 million.
- Risks: Key risks include intense competition, seasonal sales fluctuations (lower in winter), rising commodity and labor costs, and the potential for unfavorable publicity affecting the Chili's brand.
Investor Verification Checklist
- Verify the sustainability of the 1.6% comparable store sales growth amidst rising food costs (beef, dairy, cheese).
- Confirm the impact of the new $431.7 million convertible debentures on future interest expense and potential dilution.
- Monitor the integration and performance of the 39 acquired Chili's restaurants and 3 On The Border locations.
- Assess the company's ability to maintain liquidity given the $114.2 million working capital deficit and high capital expenditure requirements.
- Review the effectiveness of cost controls on restaurant expenses, which rose to 56.2% of revenue for the quarter.