Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF
1934
For the Quarterly Period Ended March 25, 2009
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
(Registrants 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
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
o
No
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
x
Accelerated filer
o
|
Non-accelerated
filer
o
Smaller reporting company
o
|
(Do not check if a smaller reporting company)
|
|
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
Indicate the number of
shares outstanding of each of the registrants classes of common stock, as of
the latest practicable date.
Class
|
|
Outstanding at April 27, 2009
|
Common Stock, $0.10 par
value
|
|
102,122,568
|
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BRINKER INTERNATIONAL, INC.
Consolidated Balance
Sheets
(In
thousands, except share and per share amounts)
|
|
March 25,
2009
|
|
June 25,
2008
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,727
|
|
$
|
54,714
|
|
Accounts receivable
|
|
43,687
|
|
52,304
|
|
Inventories
|
|
44,736
|
|
35,377
|
|
Prepaid expenses and other
|
|
104,523
|
|
106,183
|
|
Income taxes receivable
|
|
30,005
|
|
|
|
Deferred income taxes
|
|
28,635
|
|
71,595
|
|
Assets held for sale
|
|
|
|
135,850
|
|
Total current assets
|
|
318,313
|
|
456,023
|
|
|
|
|
|
|
|
Property and Equipment at Cost:
|
|
|
|
|
|
Land
|
|
206,389
|
|
198,554
|
|
Buildings and leasehold improvements
|
|
1,586,857
|
|
1,571,601
|
|
Furniture and equipment
|
|
641,221
|
|
665,271
|
|
Construction-in-progress
|
|
24,864
|
|
35,104
|
|
|
|
2,459,331
|
|
2,470,530
|
|
Less accumulated depreciation and amortization
|
|
(1,017,032
|
)
|
(940,815
|
)
|
Net property and equipment
|
|
1,442,299
|
|
1,529,715
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
Goodwill
|
|
137,841
|
|
140,371
|
|
Deferred income taxes
|
|
51,036
|
|
23,160
|
|
Other
|
|
53,314
|
|
43,853
|
|
Total other assets
|
|
242,191
|
|
207,384
|
|
Total assets
|
|
$
|
2,002,803
|
|
$
|
2,193,122
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Current installments of long-term debt
|
|
$
|
1,754
|
|
$
|
1,973
|
|
Accounts payable
|
|
131,606
|
|
168,619
|
|
Accrued liabilities
|
|
310,864
|
|
331,878
|
|
Income taxes payable
|
|
|
|
5,946
|
|
Liabilities associated with assets held for sale
|
|
|
|
18,408
|
|
Total current liabilities
|
|
444,224
|
|
526,824
|
|
|
|
|
|
|
|
Long-term debt, less current installments
|
|
778,546
|
|
901,604
|
|
Other liabilities
|
|
172,540
|
|
169,605
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
Common stock 250,000,000 authorized shares; $0.10 par value;
176,246,649 shares issued and 101,884,284 shares outstanding at
March 25, 2009, and 176,246,649 shares issued and 101,316,461 shares
outstanding at June 25, 2008
|
|
17,625
|
|
17,625
|
|
Additional paid-in capital
|
|
463,640
|
|
464,666
|
|
Accumulated other comprehensive loss
|
|
(2,866
|
)
|
(168
|
)
|
Retained earnings
|
|
1,803,496
|
|
1,800,300
|
|
|
|
2,281,895
|
|
2,282,423
|
|
Less treasury stock, at cost (74,362,365 shares at March 25, 2009 and
74,930,188 shares at June 25, 2008)
|
|
(1,674,402
|
)
|
(1,687,334
|
)
|
Total shareholders equity
|
|
607,493
|
|
595,089
|
|
Total liabilities and shareholders equity
|
|
$
|
2,002,803
|
|
$
|
2,193,122
|
|
See
accompanying notes to consolidated financial statements.
3
Table of
Contents
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
|
|
Thirteen Week Periods Ended
|
|
Thirty-nine Week Periods Ended
|
|
|
|
March 25,
|
|
March 26,
|
|
March 25,
|
|
March 26,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
857,378
|
|
$
|
1,077,183
|
|
$
|
2,791,210
|
|
$
|
3,161,654
|
|
|
|
|
|
|
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
238,946
|
|
311,152
|
|
785,914
|
|
894,229
|
|
Restaurant expenses
|
|
468,238
|
|
611,901
|
|
1,598,061
|
|
1,798,346
|
|
Depreciation and amortization
|
|
39,858
|
|
39,958
|
|
121,661
|
|
123,954
|
|
General and administrative
|
|
36,664
|
|
41,663
|
|
115,516
|
|
126,110
|
|
Other gains and charges
|
|
17,862
|
|
133,235
|
|
107,964
|
|
125,483
|
|
Total operating costs and expenses
|
|
801,568
|
|
1,137,909
|
|
2,729,116
|
|
3,068,122
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
55,810
|
|
(60,726
|
)
|
62,094
|
|
93,532
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
7,452
|
|
10,800
|
|
27,444
|
|
36,191
|
|
Other, net
|
|
(852
|
)
|
(1,368
|
)
|
(2,417
|
)
|
(3,470
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
49,210
|
|
(70,158
|
)
|
37,067
|
|
60,811
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
14,207
|
|
(31,340
|
)
|
47
|
|
7,549
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
35,003
|
|
$
|
(38,818
|
)
|
$
|
37,020
|
|
$
|
53,262
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$
|
0.34
|
|
$
|
(0.38
|
)
|
$
|
0.36
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$
|
0.34
|
|
$
|
(0.38
|
)
|
$
|
0.36
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
101,882
|
|
101,175
|
|
101,784
|
|
103,713
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
102,752
|
|
102,377
|
|
102,598
|
|
105,624
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.11
|
|
$
|
0.11
|
|
$
|
0.33
|
|
$
|
0.31
|
|
See
accompanying notes to consolidated financial statements.
4
Table of
Contents
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash
Flows
(In thousands)
(Unaudited)
|
|
Thirty-nine Week Periods Ended
|
|
|
|
March 25,
|
|
March 26,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net income
|
|
$
|
37,020
|
|
$
|
53,262
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
121,661
|
|
123,954
|
|
Restructure charges and other impairments
|
|
63,693
|
|
148,097
|
|
Loss (gain) on sale of assets
|
|
39,692
|
|
(29,234
|
)
|
Stock-based compensation
|
|
14,254
|
|
12,443
|
|
Deferred income taxes
|
|
14,866
|
|
(29,148
|
)
|
(Earnings) loss on equity investments
|
|
(771
|
)
|
324
|
|
Changes in assets and liabilities, excluding effects of dispositions:
|
|
|
|
|
|
Accounts receivable
|
|
7,036
|
|
9,438
|
|
Inventories
|
|
(10,414
|
)
|
(6,083
|
)
|
Prepaid expenses and other
|
|
5,124
|
|
4,307
|
|
Other assets
|
|
2,091
|
|
(156
|
)
|
Accounts payable
|
|
(31,634
|
)
|
35,439
|
|
Accrued liabilities
|
|
(45,887
|
)
|
(2,946
|
)
|
Income taxes payable
|
|
(36,127
|
)
|
(29,590
|
)
|
Other liabilities
|
|
3,870
|
|
6,689
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
184,474
|
|
296,796
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Payments for property and equipment
|
|
(74,604
|
)
|
(223,105
|
)
|
Proceeds from sale of assets
|
|
81,151
|
|
123,511
|
|
Investment in equity method investee
|
|
(8,171
|
)
|
(6,425
|
)
|
Increase in restricted cash
|
|
(4,752
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(6,376
|
)
|
(106,019
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
399,287
|
|
Net payments on credit facilities
|
|
(129,812
|
)
|
(314,786
|
)
|
Payments of dividends
|
|
(34,119
|
)
|
(31,768
|
)
|
Purchases of treasury stock
|
|
(3,711
|
)
|
(240,783
|
)
|
Payments on long-term debt
|
|
(815
|
)
|
(797
|
)
|
Proceeds from issuances of treasury stock
|
|
2,117
|
|
2,724
|
|
Excess tax benefits from stock-based compensation
|
|
255
|
|
302
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
(166,085
|
)
|
(185,821
|
)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
12,013
|
|
4,956
|
|
Cash and cash equivalents at beginning of period
|
|
54,714
|
|
84,823
|
|
Cash and cash equivalents at end of period
|
|
$
|
66,727
|
|
$
|
89,779
|
|
See
accompanying notes to consolidated financial statements.
5
Table of
Contents
BRINKER
INTERNATIONAL, INC.
Notes to Consolidated Financial
Statements
(Unaudited)
1.
BASIS OF PRESENTATION
References to Brinker, the Company, we, us, and
our in this Form 10-Q are references to Brinker International, Inc.
and its subsidiaries and any predecessor companies of Brinker International, Inc.
Our
consolidated financial statements as of March 25, 2009 and June 25,
2008 and for the thirteen week and thirty-nine week periods ended March 25,
2009 and March 26, 2008 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). We are principally engaged in the ownership,
operation, development, and franchising of the Chilis Grill & Bar (Chilis),
On The Border Mexican Grill & Cantina (On The Border) and Maggianos
Little Italy (Maggianos) restaurant brands. We also hold a minority
investment in Romanos Macaroni Grill (Macaroni Grill) after completion of
the sale of a majority interest in the brand to Mac Acquisition LLC (Mac
Acquisition), an affiliate of San Francisco-based Golden Gate Capital, in December 2008.
See Note 4 for additional disclosures.
The
information furnished herein reflects all adjustments (consisting only of
normal recurring accruals and adjustments) which are, in our opinion, necessary
to fairly state the interim operating results for the respective periods. However, these operating results are not
necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted pursuant to SEC rules and regulations. The notes to the
consolidated financial statements (unaudited) should be read in conjunction
with the notes to the consolidated financial statements contained in the June 25,
2008 Form 10-K. We believe the disclosures are sufficient for interim
financial reporting purposes.
Certain
prior year amounts in the accompanying consolidated financial statements have
been reclassified to conform to fiscal 2009 presentation. These
reclassifications have no effect on our net income or financial position as
previously reported.
2.
EARNINGS (LOSS)
PER SHARE
Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the reporting period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. For the calculation
of diluted earnings per share, the basic weighted average number of shares is
increased by the dilutive effect of stock options and restricted share awards
determined using the treasury stock method. We had approximately 8.3 million
stock options and restricted share awards outstanding
at March 25,
2009 that were not included in the dilutive earnings per share calculation
because the effect would have been anti-dilutive.
Due to the net loss in the third quarter of fiscal
2008, diluted loss per share is calculated using the basic weighted average
number of shares. Using the actual diluted weighted average shares would result
in anti-dilution of earnings per share.
As a result, all
9.4 million of stock options and restricted share
awards outstanding at March 26, 2008 were excluded from the diluted loss
per share calculation.
6
Table
of Contents
3.
OTHER GAINS AND
CHARGES
Other
gains and charges consist of the following (in thousands):
|
|
Thirteen Week Periods Ended
|
|
Thirty-nine Week Periods
Ended
|
|
|
|
March 25,
|
|
March 26,
|
|
March 25,
|
|
March 26,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Restaurant closures and impairments
|
|
$
|
11,619
|
|
$
|
39,574
|
|
$
|
59,745
|
|
$
|
51,816
|
|
Charges related to the sale of Macaroni Grill
|
|
|
|
74,192
|
|
44,548
|
|
83,863
|
|
Development-related costs
|
|
|
|
12,515
|
|
|
|
12,515
|
|
Gains on the sale of assets, net
|
|
|
|
|
|
(3,814
|
)
|
(29,234
|
)
|
Severance and other benefits
|
|
5,441
|
|
7,035
|
|
5,441
|
|
7,035
|
|
Other gains and charges, net
|
|
802
|
|
(81
|
)
|
2,044
|
|
(512
|
)
|
|
|
$
|
17,862
|
|
$
|
133,235
|
|
$
|
107,964
|
|
$
|
125,483
|
|
In the third quarter of
fiscal 2009, we recorded $10.2 million in lease termination charges primarily
related to the closure of the underperforming restaurants announced in the
second quarter of fiscal 2009. During the quarter, we also made some
organizational changes designed to streamline decision making and maximize our
leadership talent while achieving better operational efficiencies across our
brands. As a result, we incurred approximately $6.0 million in severance and
other benefits and recorded income of $0.6 million related to the forfeiture of
stock-based compensation awards resulting from these actions. Approximately $1.0 million in benefit
payments remained to be paid as of March 25, 2009. We also incurred a $1.0
million charge related to the decrease in the estimated sales value of land
associated with previously closed restaurants
.
In the second quarter of fiscal 2009, we recorded a $45.7
million charge primarily related to long-lived asset impairments of $44.2
million resulting from the decision to close or decline lease renewals for 35
underperforming restaurants. The
decision to close the restaurants and decline lease renewals was based on a comprehensive
analysis that examined restaurants not performing at required levels of
return. In December 2008, we
completed the sale of a majority interest in Macaroni Grill to Mac Acquisition
and recorded a loss on the sale of $43.3 million. See Note 4 for additional
disclosures. We also recorded gains of $3.8 million related to the sale of nine
restaurants to a franchisee and other land sales.
In
the first quarter of fiscal 2009, we recorded $2.0 million in lease termination
charges, a $1.7 million charge related to uninsured hurricane damage and a $1.3
million charge for expenses associated with the sale of Macaroni Grill.
In
the third quarter of fiscal 2008, we recorded a $73.1 million impairment charge
to write-down the net assets of Macaroni Grill to their estimated fair value
less costs to sell as well as a $1.1 million charge for expenses associated
with the sale.
See Note 4 for additional disclosures.
Additionally, we recorded a $31.9 million charge related to long-lived asset
impairments and $7.7 million in lease termination charges due to the decision
to close or decline lease renewals for 46 underperforming restaurants based on
the restaurants not performing at required levels of return.
During the third quarter of fiscal 2008,
we also made the decision to reduce future domestic company-owned restaurant
development as well as discontinue certain projects that did not align with our
strategic goals. As a result, we
incurred $12.5 million in charges related to asset write-offs for sites under
development and other discontinued projects.
In addition, we incurred costs of approximately $7.9 million in
severance and other benefits and recorded income of $0.9 million related to the
forfeiture of stock-based compensation awards resulting from these actions.
During
the second quarter of fiscal 2008, we recorded a $29.2 million gain on the sale
of 76 company-owned Chilis restaurants to ERJ Dining IV LLC. The sale was
completed in November 2007. We also recorded $11.4 million in charges
primarily
7
Table of Contents
related to long-lived asset
impairments. The charges include a $5.5 million impairment related to two
restaurants which were impaired based on an analysis of projected operating
performance and operating cash flows as well as a $4.0 million asset impairment
charge associated with restaurant closures. Also included is a $1.0 million
charge related to the decrease in estimated sales value of land associated with
previously closed restaurants.
Additionally, we recorded a $1.9 million charge for expenses associated
with the sale of Macaroni Grill during the second quarter of fiscal 2008.
Additionally,
in the first quarter of fiscal 2008, we incurred a $9.2 million impairment
charge to write-down the net assets of certain Macaroni Grill restaurants to
their fair value less costs to sell to a franchisee.
4.
SALE OF MACARONI GRILL
In August 2008, we entered into an agreement
with Mac Acquisition for the sale of a majority interest in Macaroni Grill. The
assets and liabilities associated with these restaurants were classified as
held for sale in the consolidated balance sheet for the fiscal year ended June 25,
2008. The sale was completed on December 18, 2008. We received cash
proceeds of approximately $88.0 million and recorded a loss of $43.3 million in
other gains and charges in the consolidated statements of income in the second
quarter of fiscal 2009.
The
net assets sold totaled approximately $110 million and consisted primarily of
property and equipment of $105 million. Assets previously held for sale of
$21.3 million were retained by us and are included in property, plant and
equipment as of March 25, 2009. The
land and buildings related to these locations were leased to Mac Acquisition as
part of the sale agreement.
On December 18, 2008, we contributed $6.0
million to Mac Acquisition for an 18.2% ownership interest in the new entity.
We account for
the investment under the equity method of accounting and record our share of
the net income or loss from the investee within operating income since the
operations of Macaroni Grill are similar to our ongoing operations. This amount
is included in restaurant expense in our consolidated statements of income due
to the immaterial nature.
In accordance with the reporting provisions
of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), we have classified the results of Macaroni Grill in
continuing operations for fiscal 2009 and prior years as we will have
involvement in the ongoing operations of Macaroni Grill.
Subsequent to the end of the
third quarter, we received a $6.0 million distribution from Mac Acquisition
that represented substantially all of our equity investment.
As part of the sale, we entered into an agreement
with
Mac Acquisition whereby we have provided a three-year $10.0 million
unsecured standby letter of credit. No amount was outstanding as of March 25,
2009 and subsequent to the end of the third quarter, the letter of credit was
cancelled. We also provide corporate support services for the new entity for
one year following closing with an option for one additional year.
In the third quarter of fiscal 2008, we anticipated
declines in the expected performance of the brand due to lower revenues and
increased commodity and labor costs. As a result, in accordance with SFAS 144,
we recorded an impairment charge of $73.1 million to write-down the net assets
of Macaroni Grill to their estimated fair value less costs to sell at March 26,
2008. Our estimate of fair value was based on the best available information
including values obtained in recent sales of company-owned restaurants to
franchisees and forecasted operating performance of Macaroni Grill.
8
Table of
Contents
5.
LONG-TERM DEBT
Long-term
debt consists of the following (in thousands):
|
|
March 25,
2009
|
|
June 25,
2008
|
|
|
|
|
|
|
|
Term loan
|
|
$
|
400,000
|
|
$
|
400,000
|
|
Revolving credit facility
|
|
30,700
|
|
|
|
Uncommitted credit facilities
|
|
|
|
158,000
|
|
5.75% notes
|
|
299,188
|
|
299,070
|
|
Capital lease obligations
|
|
50,412
|
|
46,507
|
|
|
|
780,300
|
|
903,577
|
|
Less current installments
|
|
(1,754
|
)
|
(1,973
|
)
|
|
|
$
|
778,546
|
|
$
|
901,604
|
|
As of June 25, 2008, we had
credit facilities aggregating $550 million, consisting of a revolving credit
facility of $300 million and uncommitted credit facilities of $250
million.
In February 2009, we
completed the renewal of our revolving credit facility which was set to expire
in October 2009. The new facility
was reduced to $215 million, bears interest at LIBOR plus 3.25% and expires in February 2012.
The decision to downsize our total borrowing capacity under the new revolving
credit facility was a result of the Macaroni Grill divestiture, reduced new
company-owned restaurant development and our focus on debt repayment.
During the second quarter of
fiscal 2009, Standard and Poors (S&P) reaffirmed our debt rating of BBB-
(investment grade) with a stable outlook.
However, Moodys downgraded our corporate family rating to Ba1
(non-investment grade) and our senior unsecured note rating to Ba2
(non-investment grade) with a stable outlook.
Under the terms and conditions of our uncommitted credit facility
agreements, we had to maintain an investment grade rating with both S&P and
Moodys in order to utilize the credit facilities. As a result of our split
rating, our uncommitted credit facilities totaling $250 million are no longer
available and the spread over LIBOR has increased since year-end on our term
loan (LIBOR plus 0.95%). We manage total
borrowings under all of our credit facilities to never exceed total capacity
under the revolving credit facility. As a result, outstanding balances on the
uncommitted credit facilities were repaid in the second quarter with funds
drawn on the revolving credit facility. As of March 25, 2009, we have
$184.3 million available to us under our revolving credit facility.
6.
SHAREHOLDERS EQUITY
The Board of Directors
has authorized a total of $2,060.0 million of share repurchases. As of March 25, 2009, approximately $60
million was available under our share repurchase authorizations. We did not
repurchase any common shares under our share repurchase plan during the first
three quarters of fiscal 2009. Our stock repurchase plan has been and will be
used to return capital to shareholders and to minimize the dilutive impact of
stock options and other share-based awards. We have currently placed a
moratorium on share repurchases but, in the future, we may consider additional
share repurchases under our plan based on several factors, including our cash
position, share price, operational liquidity, and planned investment and
financing needs. During the first three quarters of fiscal 2009, approximately
671,000 restricted share awards vested with a fair value of $12.6 million. Approximately 199,000 of these shares were
repurchased from employees upon vesting for $3.7 million to satisfy minimum tax
withholding obligations. Repurchased
common stock is reflected as a reduction of shareholders equity. We paid dividends of $11.2 million, or $0.11
per share, to common stock shareholders in March 2009 and a total of $34.1
million, or $0.33 per share, to common stock shareholders year-to-date.
9
Table of Contents
7.
SUPPLEMENTAL
CASH FLOW INFORMATION
Cash paid for income taxes and
interest for the first three quarters of fiscal 2009 and 2008 are as follows
(in thousands):
|
|
March 25,
2009
|
|
March 26,
2008
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
19,759
|
|
$
|
62,760
|
|
Interest, net of amounts capitalized
|
|
25,925
|
|
34,835
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities
for the first three quarters of fiscal 2009 and 2008 are as follows (in
thousands):
|
|
March 25,
2009
|
|
March 26,
2008
|
|
|
|
|
|
|
|
Retirement of fully depreciated assets
|
|
$
|
46,305
|
|
$
|
23,889
|
|
|
|
|
|
|
|
|
|
8.
CONTINGENCIES
As of March 25, 2009, we remain secondarily liable for
lease payments totaling $199.5 million as a result of the sale of a majority
interest in Macaroni Grill, the sale of other brands, and the sale of
restaurants to franchisees in previous periods. This amount represents the
maximum potential liability of future payments under the guarantees. These leases have been assigned to the buyers
and expire at the end of the respective lease terms, which range from fiscal
2009 through fiscal 2023. We remain secondarily
liable for the leases. In the event of
default, the indemnity and default clauses in our assignment agreements govern
our ability to pursue and recover damages incurred. No material liabilities have been recorded as
of March 25, 2009.
Certain current and former hourly restaurant employees filed
a lawsuit against us in California Superior Court alleging violations of
California labor laws with respect to meal and rest breaks. The lawsuit seeks penalties and attorneys
fees and was certified as a class action in July 2006. On July 22, 2008, the California Court
of Appeal decertified the class action on all claims with prejudice. On October 22,
2008, the California Supreme Court granted a writ to review the decision of the
Court of Appeal. We intend to vigorously
defend our position. It is not possible at this time to reasonably estimate the
possible loss or range of loss, if any.
We are engaged in various other legal proceedings and have
certain unresolved claims pending. The ultimate liability, if any, for the
aggregate amounts claimed cannot be determined at this time. However,
management, based upon consultation with legal counsel, is of the opinion that
there are no matters pending or threatened which are expected to have a
material adverse effect, individually or in the aggregate, on our consolidated
financial condition or results of operations.
10
Table of
Contents
Item
2. MANAGEMENTS DISCU
SSION 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 consolidated
statements of income.
|
|
Thirteen Week Periods Ended
|
|
Thirty-nine Week Periods
Ended
|
|
|
|
March 25,
|
|
March 26,
|
|
March 25,
|
|
March 26,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
27.9
|
%
|
28.9
|
%
|
28.2
|
%
|
28.3
|
%
|
Restaurant expenses
|
|
54.6
|
%
|
56.8
|
%
|
57.2
|
%
|
56.9
|
%
|
Depreciation and amortization
|
|
4.6
|
%
|
3.7
|
%
|
4.4
|
%
|
3.9
|
%
|
General and administrative
|
|
4.3
|
%
|
3.8
|
%
|
4.1
|
%
|
4.0
|
%
|
Other gains and charges
|
|
2.1
|
%
|
12.4
|
%
|
3.9
|
%
|
3.9
|
%
|
Total operating costs and expenses
|
|
93.5
|
%
|
105.6
|
%
|
97.8
|
%
|
97.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
6.5
|
%
|
(5.6
|
)%
|
2.2
|
%
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
0.9
|
%
|
1.0
|
%
|
1.0
|
%
|
1.1
|
%
|
Other, net
|
|
(0.1
|
)%
|
(0.1
|
)%
|
(0.1
|
)%
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
5.7
|
%
|
(6.5
|
)%
|
1.3
|
%
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
1.6
|
%
|
(2.9
|
)%
|
0.0
|
%
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
4.1
|
%
|
(3.6
|
)%
|
1.3
|
%
|
1.7
|
%
|
11
Table of Contents
The following table details the number
of restaurant openings during the third quarter, year-to-date, total
restaurants open at the end of the third quarter, and total projected openings
in fiscal 2009 (excluding Macaroni Grill).
|
|
Third Quarter
|
|
Year-to-Date
|
|
Total Open at End
|
|
Projected
|
|
|
|
Openings
|
|
Openings
|
|
Of Third Quarter
|
|
Openings
|
|
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
Fiscal
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Chilis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
1
|
|
23
|
|
8
|
|
51
|
|
859
|
|
881
|
|
8-9
|
|
Domestic Franchised
|
|
3
|
|
7
|
|
23
|
|
23
|
|
430
|
|
401
|
|
25-28
|
|
Total
|
|
4
|
|
30
|
|
31
|
|
74
|
|
1,289
|
|
1,282
|
|
33-37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On The Border:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
|
|
|
|
|
5
|
|
122
|
|
133
|
|
|
|
Domestic Franchised
|
|
|
|
|
|
5
|
|
3
|
|
28
|
|
29
|
|
5-7
|
|
Total
|
|
|
|
|
|
5
|
|
8
|
|
150
|
|
162
|
|
5-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maggianos
|
|
1
|
|
1
|
|
2
|
|
1
|
|
44
|
|
42
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International:(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
|
|
|
2
|
|
1
|
|
7
|
|
5
|
|
2
|
|
Franchised
|
|
8
|
|
3
|
|
31
|
|
22
|
|
189
|
|
153
|
|
46-49
|
|
Total
|
|
8
|
|
3
|
|
33
|
|
23
|
|
196
|
|
158
|
|
48-51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total (b)
|
|
13
|
|
34
|
|
71
|
|
106
|
|
1,679
|
|
1,644
|
|
88-97
|
|
(a)
At the end of the third
quarter of fiscal year 2009, international company-owned restaurants by brand
included six Chilis and one Maggianos. International franchise restaurants by
brand included 183 Chilis and six On The Borders.
(b)
As of March 25, 2009, we
continue to own two Macaroni Grill restaurants which have been excluded from
the total restaurants. Per terms of the
sale to Mac Acquisition, we have a limited period of time to close the
restaurants or change to an existing Brinker brand.
At March 25, 2009, we owned the
land and buildings for 224 of the 1,032 company-owned restaurants. The net book values of the land and buildings
associated with these restaurants totaled $179.9 million and $183.8 million,
respectively.
12
Table
of Contents
GENERAL
The following Managements Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) is intended to
help the reader understand Brinker International, our operations, and our
current operating environment. For an understanding of the significant factors
that influenced our performance during the quarters ended March 25, 2009
and March 26, 2008, the MD&A should be read in conjunction with the
consolidated financial statements and related notes included in this quarterly
report.
OVERVIEW
We are principally engaged in the ownership,
operation, development, and franchising of the Chilis Grill & Bar (Chilis),
On The Border Mexican Grill & Cantina (On The Border) and Maggianos
Little Italy (Maggianos) restaurant brands.
At March 25, 2009, we owned, operated, or franchised 1,679
restaurants. We also hold a minority
investment in Romanos Macaroni Grill (Macaroni Grill) after completion of
the sale of a majority interest in the brand to Mac Acquisition LLC (Mac
Acquisition), an affiliate of San Francisco-based Golden Gate Capital, in December 2008.
Our results for the third quarter of fiscal 2009
reflect our commitment to strengthening our business model and improving
profitability despite the significant challenges we currently face. We continued to experience many of the same
external factors that negatively impacted our results in the first six months
of fiscal 2009; however, we have taken steps to neutralize their impact. We are focused on initiatives that will allow
our business to operate as efficiently as possible and will allow us to
maintain our position as an industry leader.
We believe financial market volatility, unemployment and the housing
crisis will continue to put pressure on consumer spending. Our negative traffic trends indicate that our
guests are limiting discretionary spending by reducing the frequency of their
visits to our restaurants or scaling back on check totals. We also experienced a decline in gift card
sales of approximately 15% during the holiday season compared to the prior year
which negatively impacted third quarter revenue. We will continually evaluate how we manage
the business and make necessary changes in response to the economic factors
affecting the restaurant industry.
Our goal is to emerge from this recession in a
position of strength with a strong balance sheet and improved operating
profit. We are exhibiting discipline in
our capital allocation and are taking steps to create sustainable margin
improvements through cost controls and operational efficiencies. These steps will help maintain the health of
our balance sheet and will provide the stable financial base needed to maintain
our business through a depressed operating environment. We are driving profit improvements through a
disciplined approach to operations, company-owned new restaurant development
and the closure of underperforming restaurants.
Effective management of food costs and a focus on labor productivity and
reducing fixed costs helped us realize sustainable margin improvements in the
third quarter. Our emphasis on the
operations of our existing restaurants has resulted in lower turnover which has
positively impacted labor cost and efficiency while providing improved pace at
our restaurants. Additionally,
generating strong cash flows has long been a hallmark of Brinker and we have
taken steps to shore up our cash flows to provide the necessary flexibility to
address current challenges and help drive the business forward. We have completed the closure of 42
underperforming restaurants in fiscal 2009 and have reduced our planned fiscal
2009 capital expenditures by $30 million.
Virtually all company-owned new restaurant development in fiscal 2010
has been curtailed. Enhanced free cash
flows resulting from our financial discipline and Macaroni Grill proceeds have
allowed us to reduce our debt levels and will provide flexibility for further
debt reductions.
13
Table
of Contents
We are committed to our long term strategies and
initiatives centered on our five areas of focus - hospitality; food and
beverage excellence; restaurant atmosphere; pace and convenience; and
international expansion. These strategic priorities are designed to
strengthen Brinker brands and build on the long-term health of the company by
engaging and delighting our guests, differentiating our brands from the
competition, reducing the costs associated with managing our restaurants and
establishing a strong presence in key markets around the world. However,
we will monitor the results closely as well as the current business environment
in order to pace the implementation of our initiatives appropriately.
We strongly believe investments in these five
strategic priorities will strengthen our brands and allow us to emerge from
these tough economic times in a better competitive position to deliver
profitable growth over the long term for our shareholders. For example, with growing economic pressures
in the United States, international expansion allows further diversification of
our portfolio, enabling Brinker to build strength in a variety of markets and
economic conditions. Our growth will be driven by cultivating
relationships with equity investors, joint venture partners and
franchisees. Our growing percentage of franchise operations both
domestically and internationally enable us to improve margins as royalty
payments flow through to the bottom line. Another top area of focus
remains creating a culture of hospitality that will differentiate Brinker
brands from all others in the industry. Through our investments in team member
training and guest measurement programs, we are gaining significant traction in
this area and providing guests a reason to make Brinker brands their preferred
choice when dining out. We also believe that the unique and craveable
food and beverages as well as the new flavors and offerings we continue to
create at each of our brands, the warm, welcoming and revitalized atmospheres,
and technologies and process improvements related to pace and convenience will
give customers new reasons to dine with us more often.
The casual dining industry is a highly competitive
business which is sensitive to changes in economic conditions, trends in
lifestyles and fluctuating costs. Our top priority remains increasing
profitable traffic over time. We believe that this focus, combined with
discipline around the use of capital and efficient management of operating
expenses, will enable Brinker to maintain its position as an industry leader
through the current economic recession. We remain confident in the financial
health of our company, the long-term prospects of the industry as well as in
our ability to perform effectively in an extremely competitive marketplace and
a variety of economic environments.
REVENUES
Revenues
for the third quarter of fiscal 2009 decreased to $857.4 million, a 20.4%
decrease from the $1,077.2 million generated for the same quarter of fiscal
2008. Revenues for the thirty-nine week period ended March 25, 2009 were
$2,791.2 million, an 11.7% decrease from the $3,161.7 million generated for the
same period in fiscal 2008. The decrease in revenue was primarily attributable
to a decrease in comparable restaurant sales across all brands as well as net
declines in capacity at company-owned restaurants primarily due to restaurant
closures and the sale of restaurants since the third quarter of fiscal 2008.
|
|
Thirteen
Week Period Ended March 25, 2009
|
|
|
|
Comparable
Sales
|
|
Price
Increase
|
|
Mix
Shift
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
|
Brinker
International
|
|
(5.6
|
)%
|
3.5
|
%
|
0.6
|
%
|
(17.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Chilis
|
|
(5.2
|
)%
|
3.7
|
%
|
0.7
|
%
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
On The Border
|
|
(5.0
|
)%
|
3.3
|
%
|
2.2
|
%
|
(8.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
Maggianos
|
|
(9.5
|
)%
|
1.7
|
%
|
(2.0
|
)%
|
3.9
|
%
|
14
Table of Contents
|
|
Thirteen
Week Period Ended March 26, 2008
|
|
|
|
Comparable
Sales
|
|
Price
Increase
|
|
Mix
Shift
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
|
Brinker
International
|
|
0.1
|
%
|
2.9
|
%
|
0.5
|
%
|
(6.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
Chilis
|
|
1.6
|
%
|
3.2
|
%
|
0.9
|
%
|
(8.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
On The Border
|
|
(1.8
|
)%
|
2.8
|
%
|
(1.0
|
)%
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Maggianos
|
|
(0.4
|
)%
|
2.9
|
%
|
(2.0
|
)%
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Macaroni Grill
|
|
(4.4
|
)%
|
2.3
|
%
|
1.2
|
%
|
(2.8
|
)%
|
|
|
Thirty-nine
Week Period Ended March 25, 2009
|
|
|
|
Comparable
Sales
|
|
Price
Increase
|
|
Mix
Shift
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
|
Brinker
International
|
|
(5.0
|
)%
|
3.3
|
%
|
(0.7
|
)%
|
(8.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
Chilis
|
|
(4.2
|
)%
|
3.4
|
%
|
(0.5
|
)%
|
(1.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
On The Border
|
|
(3.9
|
)%
|
3.6
|
%
|
(0.3
|
)%
|
(3.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
Maggianos
|
|
(6.7
|
)%
|
1.8
|
%
|
(2.2
|
)%
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Macaroni Grill
(1)
|
|
(9.8
|
)%
|
2.8
|
%
|
(1.1
|
)%
|
(14.6
|
)%
|
|
|
Thirty-nine
Week Period Ended March 26, 2008
|
|
|
|
Comparable
Sales
|
|
Price
Increase
|
|
Mix
Shift
|
|
Capacity
|
|
|
|
|
|
|
|
|
|
|
|
Brinker
International
|
|
(1.1
|
)%
|
2.5
|
%
|
0.7
|
%
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
Chilis
|
|
(0.1
|
)%
|
2.6
|
%
|
1.2
|
%
|
(4.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
On The Border
|
|
(3.8
|
)%
|
2.1
|
%
|
(0.6
|
)%
|
6.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Maggianos
|
|
0.7
|
%
|
2.7
|
%
|
(2.2
|
)%
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Macaroni Grill
|
|
(4.3
|
)%
|
2.2
|
%
|
1.3
|
%
|
(2.9
|
)%
|
(1)
Macaroni Grill comparable restaurant sales and capacity for the
thirty-nine week period ended March 25, 2009 includes the impact in the
first and second quarters only as the sale of Macaroni Grill was completed in December 2008.
Comparable restaurant sales
for the third quarter of fiscal 2009 decreased 5.6% compared to the same
quarter of the prior year. The decrease in comparable restaurant sales resulted
from a decline in customer traffic at all brands and unfavorable product mix
shifts at Maggianos, partially offset by an increase in menu prices at all
brands and favorable product mix shifts at Chilis and On The Border.
Our capacity decreased 17.7%
for the third quarter of fiscal 2009 (as measured by average-weighted sales
weeks) compared to the same quarter of the prior year. The reduction in
capacity is primarily due to the sale of 198 restaurants (189 of which were
Macaroni Grills) and 47 restaurant closures (three of which were Macaroni
Grills) since the third quarter of fiscal 2008, partially offset by the
development
15
Table of Contents
of new company-owned restaurants. Including the impact of Macaroni
Grill and restaurant sales to franchisees, we experienced a net decrease of 221
company-owned restaurants since March 26, 2008.
Royalty revenues from
franchisees decreased approximately 1.7% to $16.1 million in the third quarter
of fiscal 2009 compared to $16.4 million in the prior year primarily due to the
sale of Macaroni Grill. For the year-to-date period, royalty revenues from
franchisees increased 11.6% to $48.5 million compared to $43.5 million in
fiscal 2008. The increase is primarily
due to the net addition of 64 franchise restaurants for Chilis and On The
Border since March 26, 2008, partially offset by the sale of Macaroni
Grill. Franchise and development fee revenue decreased to $0.4 million for the
third quarter of fiscal 2009 as compared to $1.0 million in the prior
year. For the year-to-date period,
franchise and development fee revenue decreased to $2.1 million compared to
$8.9 million in fiscal 2008 primarily due to the sale of 76 restaurants to a
franchisee in the prior year.
COSTS AND EXPENSES
Cost of sales, as a percent
of revenues, decreased to 27.9% for the third quarter of fiscal 2009 from 28.9%
in the prior year. Cost of sales was
positively impacted in the current quarter by decreased commodity usage from
reduced waste and menu item changes, favorable menu price increases and
favorable product mix, partially offset by unfavorable commodity price changes
primarily in beef, poultry, cooking oil and sauces. Cost of sales, as percent of revenues,
decreased to 28.2% for the year-to-date period from 28.3% in the prior year.
Cost of sales was favorably impacted by menu price increases and favorable
product mix shifts, partially offset by unfavorable commodity prices primarily
in beef, poultry, produce and cooking oils.
Restaurant expenses, as a percent of revenues,
decreased to 54.6% for the third quarter of fiscal 2009 as compared to 56.8% in
the same period of the prior year. The decrease was primarily driven by lower
labor costs due to efficiency improvements and reduced pre-opening expenses due
to fewer restaurant openings. Restaurant expenses, as a percent of revenues,
increased to 57.2% for the year-to-date period from 56.9% in the prior year.
The increase was primarily driven by sales deleverage on fixed costs as well as
an increase in utility rates, partially offset by lower pre-opening expenses
due to fewer restaurant openings.
Depreciation and amortization
remained essentially flat on a dollar basis for the third quarter as compared
to the same period of the prior year. Depreciation and amortization decreased
$2.3 million for the year-to-date period of fiscal 2009 compared to the same
period of the prior year primarily driven by restaurant closures and fully
depreciated assets, partially offset by an increase in depreciation due to the
addition of new restaurants and remodel investments.
General and administrative expenses
decreased $5.0 million, or 12.0%, for the third quarter of fiscal 2009 as
compared to the same period of fiscal 2008. General and administrative expenses
decreased $10.6 million, or 8.4%, for the year-to-date period of fiscal 2009 as
compared to the same period of fiscal 2008. The decreases are primarily due to
reduced salary expense from lower headcount driven by overall cost management
and the sale of Macaroni Grill as well as income related to transitional
services provided to Macaroni Grill that offset the internal cost of providing
the services.
In the third quarter of fiscal 2009, we recorded a $10.2
million lease termination charge primarily related to the closure of
underperforming restaurants announced in the second quarter of fiscal
2009. We also made some organizational changes
designed to streamline decision-making across our brands and as a result,
recorded a $5.4 million net charge for severance and other costs. In the second
quarter of fiscal 2009, we recorded a $45.7 million charge primarily related to
long-lived asset impairments of $44.2 million resulting from the decision to
close or decline lease renewals for 35 underperforming restaurants. In December 2008, we completed the sale
16
Table of Contents
of
a majority interest in Macaroni Grill to Mac Acquisition and recorded a loss on
the sale of $43.3 million. We also recorded gains of $3.8 million related to
the sale of nine restaurants to a franchisee and other land sales. In
the first quarter of fiscal 2009, we recorded $2.0 million in lease termination
charges, a $1.7 million charge related to uninsured hurricane damage and a $1.3
million charge for expenses associated with the sale of Macaroni Grill.
In the third quarter of fiscal 2008, we recorded a
$73.1 million impairment charge to write-down the net assets of Macaroni Grill
to their estimated fair value less costs to sell. Additionally, we recorded charges of $39.6
million due to the decision to close or decline lease renewals for 46
underperforming restaurants based on the restaurants not performing at required
levels of return. We also incurred charges of $12.5 million primarily related
to the decision to reduce future domestic company-owned restaurant development
as well as discontinue certain projects.
In addition, we incurred a $7.0 million net charge for severance and
other benefits resulting from these actions. Other gains and charges in the
second quarter of fiscal 2008 include a $29.2 million gain related to the sale
of 76 Chilis restaurants to a franchisee, partially offset by an $11.4 million
charge related to restaurant closures and long-lived asset impairments as well
as a $1.9 million charge for expenses associated with the sale of Macaroni
Grill. In the first quarter of fiscal 2008, we incurred a $9.2 million
impairment charge to write-down the net assets of certain Macaroni Grill
restaurants to their fair value less costs to sell to a franchisee.
Interest
expense was $7.5 million for the third quarter of fiscal 2009 and $27.4 million
for the year-to-date period of fiscal 2009 compared to $10.8 million for the
third quarter and $36.2 million for the year-to-date period of the prior
year. The decrease in interest expense
is primarily due to lower average borrowing balances on our credit facilities
and lower LIBOR interest rates on our debt carrying variable interest rates.
INCOME TAXES
The
effective income tax rate increased to an expense of 28.9% for the third
quarter of fiscal 2009 compared to a benefit of 44.7% for the same quarter of
last year. The change in the tax rate is primarily due to the tax effects of
the impairment of Macaroni Grill long-lived assets in the prior year. For the
year-to-date period, the effective income tax rate decreased to 0.1% from 12.4%
for the same period of last year. The change in the tax rate is primarily due
to the loss on the sale of Macaroni Grill and charges for long-lived asset
impairments as well as lower earnings compared to the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity is cash flows generated from our
restaurant operations. Net cash provided
by operating activities for the first three quarters of fiscal 2009 decreased
to approximately $184.5 million compared to $296.8 million for the first three
quarters in the prior year primarily due to a decline in operating
profitability as well as the timing of operational payments which was primarily
due to the sale of Macaroni Grill, restaurant closures and the reduction of
company-owned new restaurant development in the current year.
This decrease was
partially offset by the cash impact of recognizing the loss on the sale of
Macaroni Grill in fiscal 2009 for tax purposes.
Capital expenditures consist of ongoing
remodel investments, new restaurants under construction, purchases of new and
replacement restaurant furniture and equipment, investments in information
technology infrastructure, and purchases of land for future restaurant sites. Capital expenditures were $74.6 million for
the first three quarters of fiscal 2009 compared to $223.1 million for the same
period of fiscal 2008. The reduction in capital expenditures is primarily due
to a decrease in
17
Table of Contents
company-owned restaurants developed in the first three quarters of
fiscal 2009 compared to the same period of prior year. We estimate that our capital expenditures during fiscal 2009, excluding
Macaroni Grill, will be in the range of $110 million to $115 million and
will be funded entirely by cash from operations.
Excluding the impact of assets held for sale, the working
capital deficit decreased to $125.9 million at March 25, 2009 from $188.2
million at June 25, 2008 primarily due to a decrease in operational
payments related to the sale of Macaroni Grill, a decrease in deferred tax
assets resulting from the tax effects of the loss on the sale of Macaroni Grill
in the second quarter, reduced income taxes payable and the retention of cash
to fund operational needs.
We
paid dividends of $11.2 million, or $0.11 per share, to common stock
shareholders in March 2009 and a total of $34.1 million, or $0.33 per
share, to common stock shareholders year-to-date. We currently plan to keep
future quarterly dividend payouts stable at $0.11 per share.
The Board of Directors has authorized a total of $2,060.0
million in share repurchases, which has been and will be used to return capital
to shareholders and to minimize the dilutive impact of stock options and other
share-based awards. As of March 25, 2009, approximately $60 million was
available under our share repurchase authorizations. We did not repurchase any
common shares under our share repurchase plan during the first three quarters
of fiscal 2009. We have currently placed a moratorium on share repurchases but,
in the future, we may consider additional share repurchases under our plan
based on several factors, including our cash position, share price, operational
liquidity, and planned investment and financing needs. During the first three
quarters of fiscal 2009, approximately 671,000 restricted share awards vested
with a fair value of $12.6 million.
Approximately 199,000 of these shares were repurchased from employees
upon vesting for $3.7 million to satisfy minimum tax withholding
obligations. The repurchased common
stock is reflected as a reduction of shareholders equity.
As of June 25, 2008, we had
credit facilities aggregating $550 million, consisting of a revolving credit
facility of $300 million and uncommitted credit facilities of $250
million.
In February 2009, we
completed the renewal of our revolving credit facility which was set to expire
in October 2009. The new facility
was reduced to $215 million, bears interest at LIBOR plus 3.25% and expires in February 2012.
The decision to downsize our total borrowing capacity under the new revolving
credit facility was a result of the Macaroni Grill divestiture, reduced new
company-owned restaurant development and our focus on debt repayment.
During the second quarter of
fiscal 2009, Standard and Poors (S&P) reaffirmed our debt rating of BBB-
(investment grade) with a stable outlook.
However, Moodys downgraded our corporate family rating to Ba1
(non-investment grade) and our senior unsecured note rating to Ba2
(non-investment grade) with a stable outlook.
Under the terms and conditions of our uncommitted credit facility
agreements, we had to maintain an investment grade rating with both S&P and
Moodys in order to utilize the credit facilities. As a result of our split
rating, our uncommitted credit facilities totaling $250 million are no longer
available and the spread over LIBOR has increased since year-end on our term
loan (LIBOR plus 0.95%). We manage total
borrowings under all of our credit facilities to never exceed total capacity
under the revolving credit facility. As a result, outstanding balances on the
uncommitted credit facilities were repaid in the second quarter with funds
drawn on the revolving credit facility. As of March 25, 2009, we have
$184.3 million available to us under our revolving credit facility and
we are in compliance with all financial debt covenants.
Our balance sheet is a primary focus as we have committed to
reducing our leverage allowing us to retain the investment grade rating from
S&P and ultimately regain our investment grade rating from Moodys. To accomplish this goal, payments of $59.3
million were made on the revolving credit facility during the third quarter of
fiscal 2009 resulting in fiscal year-to-date debt reductions of $123.3
million. Subsequent
18
Table
of Contents
to
the end of the third quarter, the remaining $30.7 million balance on the
revolving credit facility was paid down to zero. Additionally, subsequent to
the end of the third quarter, we received a $6.0 million distribution from Mac
Acquisition that represented substantially all of our equity investment in the
entity and cancelled the three-year $10.0 million unsecured standby letter of
credit agreement. We currently plan to continue utilizing available free cash
flow to pay down debt in fiscal 2009 and 2010. We have also reduced capital
expenditures for fiscal 2009, curtailed virtually all company-owned new restaurant
development in fiscal 2010 and placed a moratorium on all share repurchase
activity to ensure we maintain adequate cash flow to meet our current
obligations and continue to pay down debt.
We believe that our various sources of
capital, including cash flow from operating activities and availability under
our existing credit facility are adequate to finance operations as well as the
repayment of current debt obligations.
We are not aware of any other event or trend that would potentially
affect our liquidity. In the event such a trend develops, we believe that there
are sufficient funds available under our credit facility and from our internal
cash generating capabilities to adequately manage our ongoing business.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2006, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements, (SFAS 157). SFAS
157 clarifies the definition of fair value, describes methods used to
appropriately measure fair value, and expands fair value disclosure
requirements, but does not change existing guidance as to whether or not an
instrument is carried at fair value. For financial assets and liabilities, SFAS
157 is effective for fiscal years beginning after November 15, 2007, which
required that we adopt these provisions in first quarter fiscal 2009. The adoption of SFAS 157 did not have an
impact on our consolidated financial statements. For nonfinancial assets and
liabilities, SFAS 157 is effective for fiscal years beginning after November 15,
2008, which will require us to adopt these provisions in fiscal 2010. We are currently evaluating the impact, if
any, that an adoption of the deferred provisions of this statement will have on
our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, (SFAS 141R).
Under SFAS 141R, all business combinations will be accounted for by
applying the acquisition method. SFAS 141R requires most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at full fair value. SFAS 141R is effective for
annual reporting periods beginning on or after December 15, 2008 and will
be effective for us beginning in the first quarter of fiscal 2010 for business
combinations occurring on or after the effective date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an amendment of ARB No. 51,
(SFAS 160). SFAS 160 will require noncontrolling interests (previously
referred to as minority interests) to be treated as a separate component of
equity, not as a liability or other item outside of permanent equity. The
Statement applies to the accounting for noncontrolling interests and
transactions with noncontrolling interest holders in consolidated financial statements.
SFAS 160 is effective for periods beginning on or after December 15, 2008,
which required that we adopt these provisions beginning in the third quarter of
fiscal 2009. The adoption of SFAS 160 did not have a material impact on
our financial statements.
In June 2008, the FASB issued FASB Staff
Position (FSP) EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1
provides that unvested share-based payment awards that contain nonforfeitable
rights to dividends that are paid or unpaid are participating securities and
shall be included in the computation of earnings per share based on the
two-class method. The two-class method is an earnings allocation method for
19
Table of Contents
computing earnings per share when an entitys capital structure
includes either two or more classes of common stock or common stock and
participating securities. FSP EITF 03-6-1 is effective for fiscal years
beginning after December 15, 2008, which will require us to adopt these
provisions in fiscal 2010. We do not expect that FSP EITF 03-6-1 will have a
material impact on our financial statements.
Item 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in our quantitative and qualitative market risks
since the prior reporting period.
Item 4. CONTROLS AND PROCEDURES
Based
on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15
and 15d-15 under the Securities Exchange Act of 1934 [the Exchange Act]), as
of the end of the period covered by this report, our principal executive
officer and principal financial officer have concluded that our disclosure
controls and procedures are effective.
There were no changes in our internal control
over financial reporting during our third quarter ended March 25, 2009,
that have materially affected or are reasonably likely to materially affect,
our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
We wish to
caution you that our business and operations are subject to a number of risks
and uncertainties. We have identified
certain factors in Part I, Item IA Risk Factors in our Annual Report on Form 10-K
for the year ended June 25, 2008 and below in Part II, Item 1A Risk
Factors in this report on Form 10-Q, that could cause actual results to
differ materially from our historical results and from those projected in
forward-looking statements contained in this report, in our other filings with
the SEC, in our news releases, written or electronic communications, and verbal
statements by our representatives. We
further caution that it is not possible to see all such factors, and you should
not consider the identified factors as a complete list of all risks and
uncertainties.
You should be
aware that forward-looking statements involve risks and uncertainties. These risks and uncertainties may cause our
or our industrys actual results, performance or achievements to be materially
different from any future results, performances or achievements contained in or
implied by these forward-looking statements.
Forward-looking statements are generally accompanied by words like believes,
anticipates, estimates, predicts, expects, and other similar
expressions that convey uncertainty about future events or outcomes.
The risks related to our business include:
·
The effect of competition on our
operations and financial results.
·
The general decrease in sales volumes
during winter months.
20
Table
of Contents
·
The effect of potential changes in
governmental regulation on our ability to open new restaurants and to maintain
our existing and future operations.
·
The
risk inflation may increase our operating expenses.
·
Increases
in energy costs and the impact on our profitability.
·
Increased costs or reduced revenues
from shortages or interruptions in the availability and delivery of food and
other supplies.
·
Our ability to consummate successful
mergers, acquisitions, divestitures and other strategic transactions that are
important to our future growth and profitability.
·
If
we are unable to meet our growth plan, our profitability in the future may be
adversely affected.
·
Disruptions in the financial markets
may adversely impact the availability and cost of credit and consumer spending
patterns.
·
Unfavorable publicity relating to one
or more of our restaurants in a particular brand may taint public perception of
the brand.
·
Identification
of material weakness in internal control may adversely affect our financial
results.
·
Other risk factors may adversely
affect our financial performance, including, pricing, consumer spending and
consumer confidence, changes in economic conditions and financial and credit
markets, credit availability, increased costs of food commodities, increased
fuel costs and availability for our team members, customers and suppliers,
health epidemics or pandemics or the prospects of these events, consumer
perceptions of food safety, changes in consumer tastes and behaviors,
governmental monetary policies, changes in demographic trends, availability of
employees, terrorist acts, energy shortages and rolling blackouts, and weather
and other acts of God.
PART II.
OTHER INFORMATION
Item 1. LEGAL
PROCEEDINGS
Information regarding legal proceedings is incorporated by reference
from Note 8 to our consolidated financial statements set forth in Part I
of this report.
Item 1A. RISK FACTORS
There has been no material change in the risk factors set forth in Part I,
Item 1A, Risk Factors in our Annual Report on Form 10-K for the year
ended June 25, 2008, except the addition of the following risk factors to
read in their entirety as follows:
Disruptions in the financial
markets may adversely impact the availability and cost of credit and consumer
spending patterns.
The subprime mortgage
crisis, subsequent disruptions to the financial markets, and continuing
economic downturn may adversely impact the availability of credit already
21
Table of Contents
arranged
and the availability and cost of credit in the future. The disruptions in the
financial markets may also have an adverse effect on the U.S. and world
economy, which may negatively impact consumer spending patterns. There can be
no assurance that various U.S. and world government responses to the
disruptions in the financial markets in the near future will restore consumer
confidence, stabilize the markets, or increase liquidity or the availability of
credit.
Declines in the market price of
our common stock or changes in other circumstances that may indicate an
impairment of goodwill could adversely affect our financial position and
results of operations.
We perform our annual goodwill impairment test in
the second quarter of each fiscal year in accordance with the Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. Interim goodwill impairment tests are also required when events or
circumstances change between annual tests that would more likely than not
reduce the fair value of our reporting units below their carrying value. It is possible that a change in circumstances
such as the decline in the market price of our common stock or changes in
consumer spending levels, or in the numerous variables associated with the
judgments, assumptions and estimates made in assessing the appropriate
valuation of our goodwill, could negatively impact the valuation of our brands
and create the potential for a non-cash charge to recognize impairment losses
on some or all of our goodwill. If we
were required to write down a portion of our goodwill and record related
non-cash impairment charges, our financial position and results of operations
would be adversely affected.
The above risks and other risks described in this
report and our other filings with the SEC could have a material impact on our
business, financial condition or results of operations. It is not possible to predict or identify all
risk factors. Additional risks and
uncertainties not presently known to us or that we currently believe to be
immaterial may also impair our operations.
Therefore, the risks identified are not intended to be a complete discussion
of all potential risks or uncertainties.
Item 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Shares
repurchased
during the third quarter of fiscal 2009 are as follows (in thousands, except
share and per share amounts):
|
|
Total Number
of Shares
Purchased (a)
|
|
Average
Price
Paid per
Share
|
|
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
|
|
Approximate
Dollar Value
that May Yet
be Purchased
Under the
Program
|
|
December 25, 2008 through
January 28, 2009
|
|
5,401
|
|
$
|
8.65
|
|
|
|
$
|
59,797
|
|
January 29, 2009 through
February 25, 2009
|
|
167
|
|
$
|
10.89
|
|
|
|
$
|
59,797
|
|
February 26, 2009 through March 25,
2009
|
|
2,800
|
|
$
|
11.52
|
|
|
|
$
|
59,797
|
|
|
|
8,368
|
|
$
|
9.66
|
|
|
|
|
|
(a)
These amounts represent shares
owned and tendered by employees to satisfy tax withholding obligations on the
vesting of restricted share awards, which are not deducted from shares
available to be purchased under publicly announced programs. Unless otherwise indicated, shares owned and
tendered by employees to satisfy tax withholding obligations were purchased at
the average of the high and low prices of the Companys shares on the date of
vesting.
22
Table
of Contents
Item 6. EXHIBITS
10(a)
|
$215,000,000 Credit Agreement, dated as of February 27, 2009, by
and among Registrant, as Borrower; Brinker Restaurant Corporation, as
Guarantor; JPMorgan Chase Bank, N.A., as Administrative Agent; J.P. Morgan
Securities, Inc. and Banc of America Securities LLC, as Joint Lead
Arrangers and Bookrunners; Bank of America, N.A., as Sole Syndication Agent;
and Compass Bank and Wells Fargo Bank, National Association, as
Co-Documentation Agents.
|
|
|
31(a)
|
Certification by Douglas H. Brooks, Chairman of the Board, President
and Chief Executive Officer of the Registrant, pursuant to 17 CFR 240.13a
14(a) or 17 CFR 240.15d 14(a).
|
|
|
31(b)
|
Certification by Charles M. Sonsteby, Executive Vice President and
Chief Financial Officer of the Registrant, pursuant to 17 CFR 240.13a
14(a) or 17 CFR 240.15d 14(a).
|
|
|
32(a)
|
Certification by Douglas H. Brooks, Chairman of the Board, President
and Chief Executive Officer of the Registrant, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32(b)
|
Certification by Charles M. Sonsteby, Executive Vice President and
Chief Financial Officer of the Registrant, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
23
Table
of Contents
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, we have duly caused this
report to be signed on our behalf by the undersigned thereunto duly authorized.
|
BRINKER
INTERNATIONAL, INC.
|
|
|
|
|
Date:
May 4, 2009
|
By:
|
/s/
Douglas H. Brooks
|
|
|
Douglas
H. Brooks,
|
|
|
Chairman
of the Board,
|
|
|
President
and Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
Date:
May 4, 2009
|
By:
|
/s/
Charles M. Sonsteby
|
|
|
Charles
M. Sonsteby,
|
|
|
Executive
Vice President and
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial Officer)
|
24
Grafico Azioni Brinker (NYSE:EAT)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Brinker (NYSE:EAT)
Storico
Da Lug 2023 a Lug 2024