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 28, 2001
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
(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 March
28, 2001: 99,763,057
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Condensed Consolidated Balance Sheets -
March 28, 2001 (Unaudited) and June 28, 2000 3 - 4
Condensed Consolidated Statements of Income
(Unaudited) - Thirteen week and thirty-nine week
periods ended March 28, 2001
and March 29, 2000 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Thirty-nine week periods ended
March 28, 2001 and March 29, 2000 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 15
Part II - Other Information 16
PART I. FINANCIAL INFORMATION
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 28, June 28,
2001 2000
ASSETS (Unaudited)
Current Assets:
Cash and Cash Equivalents $ 15,081 $ 12,343
Accounts Receivable 29,410 20,378
Inventories 19,577 16,448
Prepaid Expenses 51,564 50,327
Deferred Income Taxes 863 2,127
Other 2,000 2,000
Total Current Assets 118,495 103,623
Property and Equipment, at Cost:
Land 193,829 178,025
Buildings and Leasehold Improvements 818,438 739,795
Furniture and Equipment 444,036 396,089
Construction-in-Progress 81,873 57,167
1,538,176 1,371,076
Less Accumulated Depreciation
and Amortization 546,443 482,944
Net Property and Equipment 991,733 888,132
Other Assets:
Goodwill 115,455 71,561
Other 87,549 99,012
Total Other Assets 203,004 170,573
Total Assets $ 1,313,232 $ 1,162,328
(continued)
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
March 28, June 28,
2001 2000
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Current Liabilities:
Current Installments of Long-term Debt $ 14,635 $ 14,635
Accounts Payable 116,925 104,461
Accrued Liabilities 124,113 111,904
Total Current Liabilities 255,673 231,000
Long-term Debt, Less Current Installments 135,506 110,323
Deferred Income Taxes 13,133 7,667
Other Liabilities 57,506 51,130
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; 117,523,051
Shares Issued and 99,763,057 Shares
Outstanding at March 28, 2001 and
117,542,210 Shares Issued and 98,798,342
Shares Outstanding at June 28, 2000 11,752 11,754
Additional Paid-In Capital 295,292 298,172
Retained Earnings 759,111 656,840
1,066,155 966,766
Less:
Treasury Stock, at Cost (17,759,994
shares at March 28, 2001 and
18,743,868 shares at June 28, 2000) 211,411 201,531
Accumulated Other Comprehensive Income 951 -
Unearned Compensation 2,379 3,027
Total Shareholders' Equity 851,414 762,208
Total Liabilities and Shareholders'
Equity $ 1,313,232 $ 1,162,328
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
13 Week Periods Ended 39 Week Periods Ended
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
2001 2000 2001 2000
Revenues $ 626,007 $ 551,191 $1,798,553 $1,583,124
Operating Costs and Expenses:
Cost of Sales 167,604 146,490 480,435 422,219
Restaurant Expenses 348,814 307,730 998,256 883,090
Depreciation and Amortization 25,405 22,432 73,157 67,333
General and Administrative 28,193 26,554 82,102 74,466
Total Operating Costs and Expenses 570,016 503,206 1,633,950 1,447,108
Operating Income 55,991 47,985 164,603 136,016
Interest Expense 1,906 2,882 5,580 8,400
Other, Net 284 828 1,197 2,900
Income Before Provision for
Income Taxes 53,801 44,275 157,826 124,716
Provision for Income Taxes 18,938 15,673 55,555 43,586
Net Income $ 34,863 $ 28,602 $ 102,271 $ 81,130
Basic Net Income Per Share $ 0.35 $ 0.29 $ 1.03 $ 0.83
Diluted Net Income Per Share $ 0.34 $ 0.29 $ 1.00 $ 0.80
Basic Weighted Average
Shares Outstanding 99,450 97,898 98,868 98,235
Diluted Weighted Average
Shares Outstanding 102,498 100,220 101,927 100,809
See accompanying notes to condensed consolidated financial
statements.
BRINKER INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirty-nine Week Periods Ended
March 28, March 29,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $102,271 $ 81,130
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 73,157 67,333
Amortization of Unearned Compensation 1,227 1,450
Deferred Income Taxes 7,498 5,883
Loss on Sale of Affiliate (Note 2) 387 -
Changes in Assets and Liabilities, Excluding
Effects of Acquisition and Disposition:
Receivables (4,529) 872
Inventories (2,815) (390)
Prepaid Expenses 1,210 (105)
Other Assets (6,101) 1,932
Accounts Payable 4,434 17,387
Accrued Liabilities 10,585 9,740
Other Liabilities 6,224 (675)
Net Cash Provided by Operating Activities 193,548 184,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for Property and Equipment (168,073) (138,239)
Payment for Purchase of Affiliate, Net (Note 2) (29,560) -
Proceeds from Sale of Affiliate, Net (Note 2) 1,000 -
Investments in Equity Method Investees (3,443) (953)
Net Repayments from Affiliates 975 -
Net Cash Used in Investing Activities (199,101) (139,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Payments) on Credit Facilities 21,830 (17,152)
Proceeds from Issuances of Treasury Stock 30,595 14,467
Purchases of Treasury Stock (44,134) (45,290)
Net Cash Provided by (Used in)
Financing Activities 8,291 (47,975)
Net Increase (Decrease) in Cash and
Cash Equivalents 2,738 (2,610)
Cash and Cash Equivalents at Beginning
of Period 12,343 12,597
Cash and Cash Equivalents at End
of Period $ 15,081 $ 9,987
CASH PAID DURING THE PERIOD:
Interest, Net of Amounts Capitalized $ 4,694 $ 5,836
Income Taxes, Net of Refunds $ 56,464 $ 41,153
NON-CASH TRANSACTIONS DURING THE PERIOD:
Restricted Treasury Stock Issued $ 800 $ 5,200
Changes in Fair Value of Interest Rate Swaps
and Debt $ 3,353 $ -
Changes in Fair Value of Forward Rate Agreements
Included in Accumulated Other Comprehensive
Income ($ 951) $ -
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. and its wholly-owned subsidiaries
(collectively, the "Company") as of March 28, 2001 and June 28,
2000 and for the thirteen week and thirty-nine week periods ended
March 28, 2001 and March 29, 2000, respectively, have been
prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). The Company owns,
operates, or franchises various restaurant concepts under the
names of Chili's Grill & Bar ("Chili's"), Romano's Macaroni Grill
("Macaroni Grill"), On The Border Mexican Grill & Cantina ("On The
Border"), Cozymel's Coastal Mexican Grill ("Cozymel's"),
Maggiano's Little Italy ("Maggiano's"), Corner Bakery Cafe
("Corner Bakery"), and Big Bowl. In addition, the Company is
involved in the ownership and has been involved in the development
of the Eatzi's Market and Bakery ("Eatzi's") concept.
The information furnished herein reflects all adjustments
(consisting only of normal recurring accruals and adjustments)
which are, in the opinion of management, necessary to fairly state
the 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 generally accepted
accounting principles have been omitted pursuant to SEC 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, 2000
Form 10-K. Company management believes that the disclosures are
sufficient for interim financial reporting purposes.
2. Business Combinations
Effective February 1, 2001, the Company acquired the remaining 50%
interest in the Big Bowl restaurant concept from its joint venture
partner for approximately $38.0 million. The Company originally
invested $16.5 million in the joint venture prior to January 31,
2001. Of the total purchase price, $8.0 million (included in
accounts payable in the Company's condensed consolidated balance
sheet at March 28, 2001) is payable upon satisfaction of certain
contingencies, but no later than June 30, 2001. The acquisition
was accounted for as a purchase. Goodwill of approximately $45.2
million, representing the excess of cost over the fair value of
the assets acquired, was recorded in connection with the
acquisition. The operations of the restaurants are included in the
Company's consolidated results of operations from the date of the
acquisition. Previously, the investment was accounted for under
the equity method. 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.
Effective February 1, 2001, the Company sold its interest in the
Wildfire restaurant concept for $5.0 million, of which $4.0
million (included in accounts receivable in the Company's
condensed consolidated balance sheet at March 28, 2001) is due no
later than June 30, 2001.
3. Stock Split
On December 8, 2000, the Board of Directors declared a three-for-
two stock split, effected in the form of a 50% stock dividend, to
shareholders of record on January 3, 2001, payable on January 16,
2001. As a result of the split, 39.2 million shares of common
stock were issued on January 16, 2001. All references to number
of shares and per share amounts of common stock have been restated
to reflect the stock split. Shareholders' equity accounts have
been restated to reflect the reclassification of an amount equal
to the par value of the increase in issued common shares from the
retained earnings account to the common stock account.
4. Treasury Stock
Pursuant to the Company's $210.0 million stock repurchase plan and
in accordance with applicable securities regulations, the Company
repurchased approximately 416,000 shares of its common stock for
$10.6 million during the third quarter of fiscal 2001, resulting
in a cumulative repurchase total of approximately 10.1 million
shares of its common stock for $170.1 million. The Company's stock
repurchase plan is used by the Company to offset the dilutive
effect of stock option exercises and to increase shareholder
value. The repurchased common stock is reflected as a reduction of
shareholders' equity.
5. Derivative Financial Instruments and Hedging Activities
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, on June 29, 2000. SFAS No. 133
requires that all derivative instruments be recorded in the
statement of financial position at fair value. The accounting for
the gain or loss due to changes in fair value of the derivative
instrument depends on whether the derivative instrument qualifies
as a hedge. If the derivative instrument does not qualify as a
hedge, the gains or losses are reported in earnings when they
occur. However, if the derivative instrument qualifies as a
hedge, the accounting varies based on the type of risk being
hedged.
The Company attempts to maintain a reasonable balance between
fixed and floating rate debt and uses interest rate swaps and
forward rate agreements to accomplish this objective. The swap
and forward rate contracts are entered into in accordance with
guidelines set forth in the Company's hedging policies. The
Company utilizes interest rate swaps and forward rate agreements
to manage overall borrowing costs and reduce exposure to adverse
fluctuations in interest rates, and to protect the fair value of
debt on the financial statements.
The Company assesses interest rate risk by continually identifying
and monitoring changes in interest rates that may adversely impact
expected future cash flows and the fair value of its debt by
evaluating hedging opportunities. The Company maintains risk
management control systems to monitor the risks attributable to
both the Company's outstanding and forecasted transactions as well
as offsetting hedge positions. The risk management control
systems involve the use of analytical techniques to estimate the
expected impact of changes in interest rates on the Company's
future cash flows and the fair value of its debt. The Company
does not use derivative instruments for purposes other than
hedging. The Company utilizes various derivative hedging
instruments, as discussed below, to hedge its interest rate risk
when appropriate.
The Company's financing activities include both fixed (7.8% senior
notes) and variable (credit facilities) rate debt. The fixed-rate
debt is exposed to changes in fair value as market-based interest
rates fluctuate. Variable-rate debt is exposed to cash flow risk
due to the effects of changes in interest rates. These financial
exposures are monitored and managed by the Company as an integral
part of its overall risk management program.
The Company enters into interest rate swaps to manage fluctuations
in interest expense and to maintain the value of fixed-rate debt.
The Company has entered into two interest rate swaps with a total
notional value of $71.4 million at March 28, 2001. This fair
value hedge changes the fixed-rate interest on the entire balance
of the Company's 7.8% senior notes to variable-rate interest.
Under the terms of the hedges (which expire in fiscal 2005), the
Company pays semi-annually a variable interest rate based on
either LIBOR (5.4% at March 28, 2001) plus 0.530% or LIBOR plus
0.535%, in arrears, compounded at three-month intervals. The
Company receives semi-annually the fixed interest rate of 7.8% on
the senior notes. The estimated fair value of these agreements at
March 28, 2001 was approximately $3.4 million, which is included
in other assets in the Company's condensed consolidated balance
sheet at March 28, 2001. The Company's interest rate swap hedges
meet the criteria for the "short-cut method" under SFAS No. 133.
Accordingly, the changes in fair value of the swaps are offset by
a like adjustment to the carrying value of the debt and no hedge
ineffectiveness is assumed. As a result, the adoption of SFAS No.
133 for the fair value hedge had no effect on earnings at adoption
or during fiscal 2001.
The Company enters into forward rate agreements to lock in the
interest cash outflows on its floating rate debt. The Company has
entered into forward rate agreements with varying notional values,
ranging from $27.0 million to $41.0 million, at March 28, 2001.
These cash flow hedges change the variable-rate interest on a
portion of the Company's LIBOR plus 0.5% revolving credit facility
to fixed-rate interest. Under the terms of the hedges (which
expire at various dates beginning April 2001 through April 2002),
the Company pays quarterly a fixed interest rate ranging from
5.97% to 6.65%. The Company receives quarterly the variable
interest rate of LIBOR, based on a three-month interval, on the
forward rate agreements. Interest expense for the quarter ended
March 28, 2001 was not materially affected by any cash flow
hedges' ineffectiveness arising from differences between the
critical terms of the forward rate agreements and the hedged debt
obligation.
The estimated fair value of the forward rate agreements at March
28, 2001 was a liability of approximately $951,000, which is
included in accrued liabilities in the Company's condensed
consolidated balance sheet. Changes in the fair value of forward
rate agreements designated as hedging instruments of the
variability of cash flows associated with floating-rate, long-term
debt obligations are reported in accumulated other comprehensive
income. These amounts subsequently are reclassified into interest
expense as a yield adjustment in the same period in which the
related interest on the floating-rate debt obligations affect
earnings. During the upcoming twelve months, approximately
$951,000 of net losses in accumulated other comprehensive income
related to the forward rate agreements are expected to be
reclassified into interest expense as a yield adjustment of the
hedged debt obligation.
6. Comprehensive Income
Comprehensive income consists of net income and the effective
unrealized portion of changes in the fair value of the Company's
cash flow hedges. Comprehensive income was approximately $34.2
million and $101.7 million for the thirteen and thirty-nine week
periods ended March 28, 2001, respectively. There were no
differences between net income and comprehensive income in fiscal
year 2000.
7. Subsequent Event
In April 2001, the Company acquired from its franchise partner, NE
Restaurant Company, Inc. ("NERCO"), forty Chili's, three Chili's
sites under construction, and seven On The Border locations.
Total consideration, subject to closing adjustments, was
approximately $93.5 million, of which approximately $40.9 million
represented the assumption of debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth selected operating data as a
percentage of total revenues for the periods indicated. All
information is derived from the accompanying condensed consolidated
statements of income.
13 Week Periods Ended 39 Week Periods Ended
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
2001 2000 2001 2000
Revenues 100.0% 100.0% 100.0% 100.0%
Operating Costs and Expenses:
Cost of Sales 26.8% 26.6% 26.7% 26.7%
Restaurant Expenses 55.7% 55.8% 55.5% 55.8%
Depreciation and Amortization 4.1% 4.1% 4.1% 4.3%
General and Administrative 4.5% 4.8% 4.6% 4.7%
Total Operating Costs and Expenses 91.1% 91.3% 90.8% 91.4%
Operating Income 8.9% 8.7% 9.2% 8.6%
Interest Expense 0.3% 0.5% 0.3% 0.5%
Other, Net 0.0% 0.2% 0.1% 0.2%
Income Before Provision for Income Taxes 8.6% 8.0% 8.8% 7.9%
Provision for Income Taxes 3.0% 2.8% 3.1% 2.8%
Net Income 5.6% 5.2% 5.7% 5.1%
The following table details the number of restaurant openings
during the third quarter and year-to-date and total restaurants
open at the end of the third quarter.
Total Open at End
Third Quarter Openings Year-to-Date Openings of Third Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2001 2000 2001 2000 2001 2000
Chili's:
Company-owned 9 8 22 28 487 462
Franchised 9 9 27 25 243 211
Total 18 17 49 53 730 673
Macaroni Grill:
Company-owned 5 2 11 11 156 139
Franchised -- 1 2 1 6 4
Total 5 3 13 12 162 143
On The Border:
Company-owned 4 3 9 13 91 80
Franchised -- 2 2 5 29 28
Total 4 5 11 18 120 108
Cozymel's -- -- -- -- 13 13
Maggiano's -- 1 1 2 13 12
Corner Bakery:
Company-owned 1 -- 3 6 58 55
Franchised -- -- 1 1 2 1
Total 1 -- 4 7 60 56
Big Bowl 1 -- 1 -- 7 4
Eatzi's -- -- -- -- 4 4
Wildfire -- -- -- -- -- 3
Grand total 29 26 79 92 1,109 1,016
REVENUES
Revenues for the third quarter of fiscal 2001 increased to $626.0
million, 13.6% over the $551.2 million generated for the same
quarter of fiscal 2000. Revenues for the thirty-nine week period
ended March 28, 2001 rose 13.6% to $1,798.6 million from the
$1,583.1 million generated for the same period of fiscal 2000. The
increases are primarily attributable to a net increase of 64
company-owned restaurants since March 29, 2000 and an increase in
comparable store sales for the third quarter of fiscal 2001
compared to the same quarter of fiscal 2000. The Company increased
its capacity (as measured in sales weeks) for the third quarter and
year-to-date of fiscal 2001 by 8.1% compared to the respective
prior year periods. Comparable store sales increased 5.2% for the
third quarter and year-to-date from the same periods of fiscal
2000. Menu prices in the aggregate increased 1.9% in fiscal 2001
as compared to fiscal 2000.
COSTS AND EXPENSES (as a percent of Revenues)
Cost of sales increased for the third quarter and remained flat for
year-to-date fiscal 2001 as compared to the respective periods of
fiscal 2000 due to product mix changes to menu items with higher
percentage food costs and unfavorable commodity price variances for
produce and alcohol, which were partially offset during the third
quarter of fiscal 2001 and fully offset during the fiscal year by
menu price increases and favorable commodity price variances for
dairy and cheese.
Restaurant expenses decreased for the third quarter and year-to-
date of fiscal 2001 compared to the respective periods of fiscal
2000. Restaurant labor wage rates and utility costs were higher
than in the prior year, but were more than fully offset by
increased sales leverage, improvements in labor productivity, menu
price increases, and a decrease in preopening costs year-over-year.
Depreciation and amortization remained flat for the third quarter
and decreased year-to-date of fiscal 2001 compared to fiscal 2000.
Depreciation and amortization decreases resulted from increased
sales leverage and a declining depreciable asset base for older
units. Partially offsetting these decreases were increases in
depreciation and amortization related to new unit construction and
ongoing remodel costs.
General and administrative expenses decreased for both the third
quarter and year-to-date of fiscal 2001 compared to the respective
periods of fiscal 2000 as a result of the Company's continued focus
on controlling corporate expenditures relative to increasing
revenues and sales leverage.
Interest expense decreased for both the third quarter and year-to-
date of fiscal 2001 compared with the respective periods of fiscal
2000 as a result of decreased average borrowings on the Company's
credit facilities, increased sales leverage and a decrease in
interest expense on senior notes due to the scheduled repayment
made in April 2000. These decreases were partially offset by a
decrease in interest capitalization year-over-year.
NET INCOME AND NET INCOME PER SHARE
Net income for the third quarter and year-to-date of fiscal 2001
increased 21.9% and 26.1%, respectively, compared to the respective
periods of fiscal 2000. Diluted net income per share for the third
quarter and year-to-date of fiscal 2001 increased 17.2% and 25.0%,
respectively, compared to the respective periods of fiscal 2000.
The increase in both net income and diluted net income per share
was mainly due to an increase in revenues resulting from increases
in capacity (as measured in sales weeks), comparable store sales,
and menu prices and decreases in restaurant and depreciation and
amortization expenses as a percent of revenues.
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 through
a combination of menu price increases and reviewing, then
implementing, alternative products or processes.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $127.4 million at June
28, 2000 to $137.2 million at March 28, 2001. Net cash provided by
operating activities increased to $193.5 million for the first nine
months of fiscal 2001 from $184.6 million during the same period in
fiscal 2000 due to increased profitability, partially offset by the
timing of operational receipts and payments.
Long-term debt outstanding at March 28, 2001 consisted of $74.8
million of unsecured senior notes ($71.4 million principal plus
$3.4 million representing the effect of changes in interest rates
on the fair value of the debt), $75.3 million of borrowings on
credit facilities, and obligations under capital leases. The
Company has credit facilities totaling $325 million. At March 28,
2001, the Company had $251.1 million in available funds from these
facilities.
As of March 28, 2001, $16.2 million of the Company's $25.0 million
equipment leasing facility and $24.5 million of the Company's $50.0
million real estate leasing facility had been utilized. The unused
portion of the real estate leasing facility will be used to lease
real estate through fiscal year 2002.
Capital expenditures consist of purchases of land for future
restaurant sites, new restaurants under construction, purchases of
new and replacement restaurant furniture and equipment, and ongoing
remodeling programs. Capital expenditures, net of amounts funded
under the respective equipment and real estate leasing facilities,
were $168.1 million for the first nine months of fiscal 2001
compared to $138.2 million for the same period of fiscal 2000. The
increase is due primarily to a reduction in the amount of new
restaurant expenditures funded by leasing facilities and the
acquisition of formerly leased equipment in accordance with the
various leasing facilities participated in by the Company,
partially offset by a decrease in the number of new store openings.
The Company estimates that its capital expenditures, net of amounts
expected to be funded under leasing facilities, during the fourth
quarter of fiscal 2001 will approximate $54.8 million. These
capital expenditures will be funded entirely from existing
operations.
The acquisition of the remaining 50% interest in the Big Bowl
restaurant concept on February 1, 2001 was financed through
existing credit facilities and operating cash flow. During April
2001, the Company spent approximately $93.5 million, of which
approximately $40.9 million represented assumption of debt, for the
purchase of forty Chili's, three Chili's sites under construction,
and seven On The Border locations from a franchise partner, NE
Restaurant Company, Inc. The acquisition was financed through
existing credit facilities and operating cash flow.
Pursuant to the Company's $210.0 million stock repurchase plan,
approximately 416,000 shares of its common stock were repurchased
for $10.6 million during the third quarter of fiscal 2001 in
accordance with applicable securities regulations. Currently,
approximately 10.1 million shares have been repurchased for $170.1
million under the stock repurchase plan. The repurchased common
stock was or will be used by the Company to offset the dilutive
effect of stock option exercises and to increase shareholder value.
The repurchased common stock is reflected as a reduction of
shareholders' equity. The Company financed the repurchase program
through a combination of cash provided by operations and borrowings
on its available credit facilities.
The Company is not aware of any other event or trend which would
potentially affect its liquidity. In the event such a trend
develops, the Company believes that there are sufficient funds
available under its lines of credit and that it has strong internal
cash generating capabilities to adequately manage the expansion of
business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates on debt and certain leasing facilities and from changes in
commodity prices. A discussion of the Company's accounting
policies for derivative financial instruments and hedging
activities is included in the Notes to the Condensed Consolidated
Financial Statements.
The Company's net exposure to interest rate risk consists of
floating rate instruments that are benchmarked to U.S. and
European short-term interest rates. The Company may from time to
time utilize interest rate swaps and forwards to manage overall
borrowing costs and reduce exposure to adverse fluctuations in
interest rates. The Company does not use derivative instruments
for trading purposes and the Company has procedures in place to
monitor and control derivative use.
The Company is exposed to interest rate risk on short-term and
long-term financial instruments carrying variable interest rates.
The Company's variable rate financial instruments, including the
outstanding credit facilities and the notional amounts of the
interest rate swaps, totaled $145.3 million at March 28, 2001.
The impact on the Company's results of operations for the quarter
of a one-point interest rate change on the outstanding balance of
the variable rate financial instruments as of March 28, 2001 would
be approximately $363,000.
The Company purchases certain commodities such as beef, chicken,
flour and cooking oil. These commodities are generally purchased
based upon market prices established with vendors. These purchase
arrangements may contain contractual features that limit the price
paid by establishing certain price floors or caps. The Company
does not use financial instruments to hedge commodity prices
because existing purchase arrangements help control the ultimate
cost paid and any commodity price aberrations are generally short
term in nature.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from this discussion based
upon general market conditions and changes in domestic and global
financial markets.
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are based on
assumptions concerning risks and uncertainties that could
significantly affect anticipated results in the future and,
accordingly, could cause the actual results to materially differ
from those expressed in the forward-looking statements. The
Company cautions that the forward-looking statements are qualified
by important factors that could cause actual results to differ
materially from those contained herein including the highly
competitive nature of the restaurant industry, general business
conditions, the seasonality of the Company's business, governmental
regulations, inflation, consumer perceptions of food safety,
changes in consumer tastes, changes in local, regional and national
economic conditions, changes in demographic trends, food, labor,
fuel and utilities costs, future commodity prices, availability of
food products, materials and employees, weather and other acts of
God, and the ability of the Company to meet its growth plan which
is subject to (a) identifying available, suitable and economically
viable locations for new restaurants, (b) obtaining all required
governmental permits (including zoning approvals and liquor
licenses) on a timely basis, (c) hiring all necessary contractors
and subcontractors, and (d) meeting construction schedules.
PART II. OTHER INFORMATION
None.
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: May 10, 2001 By:___________________________________
Ronald A. McDougall, Chairman and
Chief Executive Officer
(Duly Authorized Signatory)
Date: May 10, 2001 By:____________________________________________
Charles M. Sonsteby, Senior Vice President,
Investor Relations and Finance, and
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)