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 September 26, 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
September 26, 2001: 98,212,258
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 26, 2001 (Unaudited) and June 27, 2001 3
Consolidated Statements of Income
(Unaudited) - Thirteen-week periods ended
September 26, 2001 and September 27, 2000 4
Consolidated Statements of Cash Flows
(Unaudited) - Thirteen-week periods ended
September 26, 2001 and September 27, 2000 5
Notes to Consolidated
Financial Statements (Unaudited) 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
Part II - Other Information 17
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
September 26, June 27,
2001 2001
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents $ 13,921 $ 13,312
Accounts receivable 29,031 31,438
Inventories 26,130 27,351
Prepaid expenses 58,014 55,809
Deferred income taxes 6,452 7,295
Other - 2,000
Total current assets 133,548 137,205
Property and Equipment, at Cost:
Land 204,612 201,013
Buildings and leasehold improvements 931,900 898,133
Furniture and equipment 502,658 478,847
Construction-in-progress 58,458 70,051
1,697,628 1,648,044
Less accumulated depreciation and
amortization (589,452) (563,320)
Net property and equipment 1,108,176 1,084,724
Other Assets:
Goodwill, net 141,080 138,127
Other 91,472 82,245
Total other assets 232,522 220,372
Total assets $1,474,276 $1,442,301
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 17,635 $ 17,635
Accounts payable 95,548 89,436
Accrued liabilities 124,966 134,420
Total current liabilities 238,149 241,491
Long-term debt, less current installments 264,806 236,060
Deferred income taxes 14,503 12,502
Other liabilities 53,118 51,961
Shareholders' Equity:
Common stock - 250,000,000 authorized shares;
$0.10 par value; 117,500,054 shares issued
and 98,212,258 shares outstanding at
September 26, 2001, and 117,501,080 shares
issued and 99,509,455 shares outstanding
at June 27, 2001 11,750 11,750
Additional paid-in capital 315,363 314,867
Retained earnings 841,622 801,988
1,168,735 1,128,605
Less:
Treasury stock, at cost (19,287,796 shares at
September 26, 2001 and 17,991,625 shares at
June 27, 2001 (261,366) (225,334)
Accumulated other comprehensive loss (551) (895)
Unearned compensation (3,118) (2,089)
Total shareholders' equity 903,700 900,287
Total liabilities and shareholders' equity $1,474,276 $1,442,301
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
Thirteen-Week Periods Ended
September 26, September 27,
2001 2000
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Revenues $ 690,547 $ 589,283
Operating Costs and Expenses:
Cost of sales 185,824 156,407
Restaurant expenses 385,612 326,129
Depreciation and amortization 28,186 23,430
General and administrative 27,559 27,211
Total operating costs and expenses 627,181 533,177
Operating income 63,366 56,106
Interest expense 3,784 1,396
Other, net (1,113) 399
Income before provision for
income taxes 60,695 54,311
Provision for income taxes 21,061 19,117
Net income $ 39,634 $ 35,194
Basic net income per share $ 0.40 $ 0.36
Diluted net income per share $ 0.39 $ 0.35
Basic weighted average
shares outstanding 98,963 98,753
Diluted weighted average
shares outstanding 101,572 101,570
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirteen-Week Periods Ended
September 26, September 27,
2001 2000
<s> <c> <c>
Cash Flows from Operating Activities:
Net income $ 39,634 $ 35,194
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,186 23,430
Amortization of unearned compensation 348 413
Deferred income taxes 2,844 2,579
Changes in assets and liabilities, excluding
effects of acquisitions:
Receivables 4,149 (3,156)
Inventories 1,263 (262)
Prepaid expenses (519) 2,275
Other assets 5,467 96
Accounts payable 6,400 9,671
Accrued liabilities (8,551) (5,921)
Other liabilities 1,157 2,153
Net cash provided by operating activities 80,378 66,472
Cash Flows from Investing Activities:
Payments for property and equipment (49,162) (42,288)
Payment for purchase of restaurants (6,580) -
Investment in equity method investee (12,250) -
Net advances to affiliates (675) -
Net cash used in investing activities (68,667) (42,288)
Cash Flows from Financing Activities:
Net borrowings (payments) on credit facilities 26,788 (4,199)
Proceeds from issuances of treasury stock 1,849 5,377
Purchases of treasury stock (39,739) (25,391)
Net cash used in financing activities (11,102) (24,213)
Net change in cash and cash equivalents 609 (29)
Cash and cash equivalents at beginning of year 13,312 12,343
Cash and cash equivalents at end of year $ 13,921 $ 12,314
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Brinker International,
Inc. and its wholly-owned subsidiaries (collectively, the
"Company") as of September 26, 2001 and June 27, 2001 and for the
thirteen-week periods ended September 26, 2001 and September 27,
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. On July 12, 2001, the Company
acquired an approximately 40% interest in the legal entities
owning and developing Rockfish Seafood Grill ("Rockfish").
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 consolidated financial statements
should be read in conjunction with the notes to the consolidated
financial statements contained in the June 27, 2001 Form 10-K.
Company management believes that the disclosures are sufficient
for interim financial reporting purposes.
Certain prior year amounts in the accompanying consolidated
financial statements have been reclassified to conform with fiscal
2002 classifications. These reclassifications have no effect on
the Company's net income or financial position as previously
reported.
2. Business Combinations
Effective June 28, 2001, the Company acquired from its franchise
partner, Hal Smith Restaurant Group, three On The Border
restaurants for approximately $6.6 million. The acquisition was
accounted for as a purchase. Goodwill of approximately $2.9
million 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. 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.
3. Investment in Unconsolidated Entities
Effective July 12, 2001, the Company formed a partnership with
Rockfish, a privately held Dallas-based restaurant company with
nine locations currently in operation. The Company made a $12.3
million capital contribution to Rockfish in exchange for an
approximately 40% ownership interest in the legal entities owning
and developing the restaurant concept.
4. Goodwill and Other Intangibles
The Company elected early adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 eliminates the amortization for
goodwill and other intangible assets with indefinite lives.
Intangible assets with lives restricted by contractual, legal, or
other means will continue to be amortized over their useful lives.
Goodwill and other intangible assets not subject to amortization
are tested for impairment annually or more frequently if events or
changes in circumstances indicate that the asset might be
impaired. SFAS No. 142 requires a two-step process for testing
impairment. First, the fair value of each reporting unit is
compared to its carrying value to determine whether an indication
of impairment exists. If an impairment is indicated, then the
fair value of the reporting unit's goodwill is determined by
allocating the unit's fair value to its assets and liabilities
(including any unrecognized intangible assets) as if the reporting
unit had been acquired in a business combination. The amount of
impairment for goodwill and other intangible assets is measured as
the excess of its carrying value over its fair value. No such
impairment losses were recorded upon the initial adoption of SFAS
142.
Intangible assets subject to amortization under SFAS No. 142
consist primarily of intellectual property rights. Amortization
expense is calculated using the straight-line method over their
estimated useful lives of 15 to 25 years. Intangible assets not
subject to amortization consist primarily of reacquired
development rights.
The gross carrying amount of intellectual property rights subject
to amortization totaled $6.4 million at September 26, 2001 and
June 27, 2001. Accumulated amortization related to these
intangible assets totaled approximately $1.0 million and $960,000
at September 26, 2001 and June 27, 2001, respectively. The
carrying amount of reacquired development rights not subject to
amortization totaled $4.4 million at September 26, 2001 and June
27, 2001.
The changes in the carrying amount of goodwill for the quarter
ended September 26, 2001 are as follows (in thousands):
Balance, June 27, 2001 $ 138,127
Goodwill acquired during the period 2,953
Balance, September 26, 2001 $ 141,080
The pro forma effects of the adoption of SFAS No. 142 on net
income is as follows (in thousands, net of taxes):
Thirteen-Week Periods Ended
Sept. 26, Sept. 27,
2001 2000
Net income, as reported $ 39,634 $ 35,194
Intangible amortization - 457
Net income, pro forma $ 39,634 $ 35,651
The adoption of SFAS No. 142 did not have a material effect on
basic and diluted earnings per share as of September 27, 2000.
5. Shareholders' Equity
In August 2001, the Board of Directors authorized an increase in
the stock repurchase plan of an additional $100.0 million,
bringing the Company's total share repurchase program to $310.0
million. Pursuant to the Company's stock repurchase plan, the
Company repurchased approximately 1,574,000 shares of its common
stock for $39.7 million during the first quarter of fiscal 2002,
resulting in a cumulative repurchase total of approximately 12.6
million shares of its common stock for $231.2 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.
6. Supplemental Cash Flow Information
Cash paid for interest and income taxes is as follows (in
thousands):
Sept. 26, Sept. 27,
2001 2000
<s> <c> <c>
Interest, net of amounts capitalized $ 2,880 $ 662
Income taxes, net of refunds 1,860 6,853
Non-cash investing and financing activities are as follows (in
thousands):
Sept. 26, Sept. 27,
2001 2000
Restricted common stock issued, net of
forfeitures $ 2,354 $ 1,028
Change in fair value of interest rate swaps
and debt 1,958 -
Change in fair value of forward rate
agreements (344) -
During the first quarter of fiscal 2002, the Company purchased
certain assets and assumed certain liabilities in connection with
the acquisition of restaurants. The fair values of the acquired
assets and liabilities recorded at the date of acquisition are as
follows (in thousands):
Property, plant and equipment acquired $ 3,858
Goodwill 2,953
Liabilities assumed (231)
Net cash paid $ 6,580
7. Subsequent Events
In October 2001, the Company issued $431.7 million of zero coupon
convertible senior debentures ("Debentures"), maturing on October
10, 2021, and received proceeds totaling approximately $250.0
million prior to debt issuance costs. The Debentures require no
interest payments and were issued at a discount representing a
yield to maturity of 2.75% per annum. Each $1,000 face amount
bond is convertible into 18.08 shares of the Company's common
stock contingent upon certain market price conditions and other
circumstances. In addition, the Debentures are redeemable at the
Company's option on October 10, 2004, and the holders of the bonds
may require the Company to repurchase the Debentures on October
10, 2003, 2005, 2011 or 2016, and in certain other circumstances.
The Company intends to use the net proceeds of the offering for
repayment or retirement of existing indebtedness, future
acquisitions, purchases of outstanding common stock under the
Company's stock repurchase plan and for general corporate
purposes.
During October 2001, the Company repurchased approximately 1.6
million shares of common stock under its stock repurchase plan for
approximately $37.4 million.
Item 2. 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 consolidated
statements of income.
Thirteen-Week Periods Ended
Sept. 26, Sept. 27,
2001 2000
<s> <c> <c>
Revenues 100.0 % 100.0 %
Operating Costs and Expenses:
Cost of sales 26.9 % 26.5 %
Restaurant expenses 55.8 % 55.3 %
Depreciation and amortization 4.1 % 4.0 %
General and administrative 4.0 % 4.6 %
Total operating costs and expenses 90.8 % 90.4 %
Operating income 9.2 % 9.6 %
Interest expense 0.5 % 0.2 %
Other, net (0.1)% 0.1 %
Income before provision for income taxes 8.8 % 9.3 %
Provision for income taxes 3.1 % 3.3 %
Net income 5.7 % 6.0 %
The following table details the number of restaurant openings
during the first quarter and total restaurants open at the end of
the first quarter.
Total Open at End of
First Quarter Openings First Quarter
Fiscal Fiscal Fiscal Fiscal
2002 2001 2002 2001
<s> <c> <c> <c> <c>
Chili's:
Company-owned 9 7 551 473
Franchised 6 8 213 226
Total 15 15 764 699
Macaroni Grill:
Company-owned 3 4 162 149
Franchised - - 6 4
Total 3 4 168 153
On The Border:
Company-owned 2 1 104 83
Franchised - 1 20 28
Total 2 2 124 111
Corner Bakery:
Company-owned 4 1 66 57
Franchised - - 2 1
Total 4 1 68 58
Cozymel's - - 14 13
Maggiano's 1 1 15 13
Big Bowl - - 9 6
Eatzi's - - 4 4
Wildfire - - - 3
Rockfish - - 8 -
Grand Total 25 23 1,174 1,060
REVENUES
Revenues for the first quarter of fiscal 2002 increased to $690.5
million, 17.2% over the $589.3 million generated for the same
quarter of fiscal 2001. The increase is primarily attributable to
a net increase of 133 company-owned restaurants since September 27,
2000 and an increase in comparable store sales for the first
quarter of fiscal 2002 compared to the same quarter of fiscal 2001.
The Company increased its capacity (as measured in sales weeks) for
the first quarter of fiscal 2002 by 16.6% compared to the
respective prior year period. Comparable store sales increased 0.5%
for the first quarter compared to the same quarter of fiscal 2001.
Menu prices in the aggregate increased 2.2% in fiscal 2002 as
compared to fiscal 2001.
COSTS AND EXPENSES (as a Percent of Revenues)
Cost of sales increased for the first quarter of fiscal 2002 as
compared to the same quarter of fiscal 2001 due to product mix
changes to menu items with higher percentage food costs and
unfavorable commodity price variances for beef, seafood and dairy
and cheese, which were partially offset by menu price increases and
favorable commodity price variances for beverages and other items.
Restaurant expenses increased for the first quarter of fiscal 2002
compared to the same quarter of fiscal 2001. Utility costs and
preopening costs were higher than in the prior year, but were
partially offset by increased sales leverage, improvements in labor
productivity, and menu price increases year-over-year.
Depreciation and amortization increased for the first quarter of
fiscal 2002 as compared to the first quarter of fiscal 2001.
Depreciation and amortization increases resulted from increases in
depreciation and amortization related to new unit construction,
ongoing remodel costs and restaurants acquired during fiscal 2001.
These increases were partially offset by increased sales leverage,
a declining depreciable asset base for older units, utilization of
equipment leasing facilities, and the elimination of goodwill
amortization in accordance with SFAS 142.
General and administrative expenses decreased for the first quarter
of fiscal 2002 compared to the same quarter of fiscal 2001 as a
result of the Company's continued focus on controlling corporate
expenditures relative to increasing revenues and increased sales
leverage resulting from acquisitions.
Interest expense increased for the first quarter of fiscal 2002
compared with the same quarter of fiscal 2001 as a result of
increased average borrowings on the Company's credit facilities
primarily related to restaurants acquired and the continued
repurchase of the Company's common stock. These increases were
partially offset by a decrease in interest expense on senior notes
due to the scheduled repayment made in April 2001, decreases in the
average interest rates on the credit facilities, and an increase in
interest capitalization.
Other, net decreased for the first quarter of fiscal 2002 as
compared to the same quarter of fiscal 2001 due to reduced equity
losses related to the Company's share in equity method investees
and a gain on the sale of property.
INCOME TAXES
The Company's effective income tax rate decreased to 34.7% from
35.2% for the first quarter of fiscal 2002. The decrease is
primarily due to the elimination of goodwill amortization in
accordance with SFAS 142.
NET INCOME AND NET INCOME PER SHARE
Net income and diluted net income per share for the first quarter
of fiscal 2002 increased 12.6% and 11.4%, respectively, compared to
the respective periods of fiscal 2001. The increase in both net
income and diluted net income per share was primarily due to
increasing revenues driven by increases in comparable store sales,
sales weeks, and menu prices and decreases in general and
administrative expenses, partially offset by increases in cost of
sales and restaurant expenses as a percent of revenues.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $104.3 million at June
27, 2001 to $104.6 million at September 26, 2001. Net cash
provided by operating activities increased to $80.4 million for the
first quarter of fiscal 2002 from $66.5 million during the same
quarter in fiscal 2001 due to increased profitability, partially
offset by the timing of operational receipts and payments.
Long-term debt outstanding at September 26, 2001 consisted of $61.9
million of unsecured senior notes ($57.1 million principal plus
$4.8 million representing the effect of changes in interest rates
on the fair value of the debt), $45.1 million in assumed debt
related to the acquisition of restaurants from a former franchise
partner ($40.1 million principal plus $5.0 million representing a
debt premium), $174.1 million of borrowings on credit facilities,
and obligations under capital leases. The Company has credit
facilities totaling $345.0 million. At September 26, 2001, the
Company had $170.9 million in available funds from these
facilities.
In October 2001, the Company issued $431.7 million of zero coupon
convertible debentures and received proceeds totaling approximately
$250.0 million. The Company intends to use the proceeds for
repayment or retirement of existing indebtedness, future
acquisitions, purchases of outstanding common stock under the
Company's stock repurchase plan and for general corporate purposes.
On July 12, 2001, the Company made a $12.3 million capital
contribution to Rockfish in exchange for an approximately 40%
ownership interest in the legal entities owning and developing
Rockfish. The Company financed this acquisition through existing
credit facilities and cash provided by operations.
As of September 26, 2001, $16.2 million of the Company's $25.0
million equipment leasing facility and $43.5 million of the
Company's $75.0 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 2003.
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 $49.2 million for the first quarter of fiscal 2002 compared to
$42.3 million for the same quarter of fiscal 2001. The increase is
due primarily to an increase 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 second
quarter of fiscal 2002 will approximate $59.0 million. These
capital expenditures will be funded entirely from operations and
existing credit facilities.
In August 2001, the Board of Directors authorized an increase in
the stock repurchase plan of an additional $100.0 million, bringing
the Company's total share repurchase program to $310.0 million.
Pursuant to the Company's stock repurchase plan, approximately
1,574,000 shares of its common stock were repurchased for $39.7
million during the first quarter of fiscal 2002. As of September
26, 2001, approximately 12.6 million shares had been repurchased
for $231.2 million under the stock repurchase plan. During October
2001, the Company repurchased an additional 1.6 million shares of
common stock under the repurchase plan for approximately $37.4
million. The repurchased common stock was or will be used by the
Company to increase shareholder value, offset the dilutive effect
of stock option exercises, satisfy obligations under its savings
plans, and for other corporate purposes. 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, drawdowns on its available credit
facilities and the issuance of the Debentures.
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 from its strong internal
cash generating capabilities to adequately manage the expansion of
business.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-
Lived Assets". This statement supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30 "Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS No. 144 retains the fundamental
provisions of SFAS No. 121 but eliminates the requirement to
allocate goodwill to long-lived assets to be tested for
impairment. This statement also requires discontinued operations
to be carried at the lower of cost or fair value less costs to
sell and broadens the presentation of discontinued operations to
include a component of an entity rather than a segment of a
business. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. The Company does not
expect the adoption of this statement to have a material impact on
its results of operations or financial position.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and
qualitative market risks of the Company since the prior reporting
period.
FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that the following important
factors, among others, could cause the actual results of the
Company to differ materially from those indicated by forward-
looking statements made in this report and from time to time in
news releases, reports, proxy statements, registration statements
and other written communications, as well as oral forward-looking
statements made from time to time by representatives of the
Company. Such forward-looking statements involve risks and
uncertainties that may cause the Company's or the restaurant
industry's actual results, level of activity, performance or
achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied by these forward-looking statements. Factors that might
cause actual events or results to differ materially from those
indicated by these forward-looking statements may include matters
such as future economic performance, restaurant openings, operating
margins, the availability of acceptable real estate locations for
new restaurants, the sufficiency of the Company's cash balances and
cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs, and other
matters, and are generally accompanied by words such as "believes,"
"anticipates," "estimates," "predicts," "expects" and similar
expressions that convey the uncertainty of future events or
outcomes. An expanded discussion of some of these risk factors
follows.
Competition may adversely affect the Company's operations and
financial results.
The restaurant business is highly competitive with respect to
price, service, restaurant location and food quality, and is often
affected by changes in consumer tastes, economic conditions,
population and traffic patterns. The Company competes within each
market with locally-owned restaurants as well as national and
regional restaurant chains, some of which operate more restaurants
and have greater financial resources and longer operating histories
than the Company. There is active competition for management
personnel and for attractive commercial real estate sites suitable
for restaurants. In addition, factors such as inflation, increased
food, labor and benefits costs, and difficulty in attracting hourly
employees may adversely affect the restaurant industry in general
and the Company's restaurants in particular.
The Company's sales volumes generally decrease in winter months.
The Company's sales volumes fluctuate seasonally, and are generally
higher in the summer months and lower in the winter months, which
may cause seasonal fluctuations in the Company's operating results.
Changes in governmental regulation may adversely affect the
Company's ability to open new restaurants and the Company's
existing and future operations.
Each of the Company's restaurants is subject to licensing and
regulation by alcoholic beverage control, health, sanitation,
safety and fire agencies in the state and/or municipality in which
the restaurant is located. The Company has not encountered any
difficulties or failures in obtaining the required licenses or
approvals that could delay or prevent the opening of a new
restaurant and although the Company does not, at this time,
anticipate any occurring in the future, there can be no assurance
that the Company will not experience material difficulties or
failures that could delay the opening of restaurants in the future.
The Company is subject to federal and state environmental
regulations, and although these have not had a material negative
effect on the Company's operations, there can be no assurance that
there will not be a material negative effect in the future. More
stringent and varied requirements of local and state governmental
bodies with respect to zoning, land use and environmental factors
could delay or prevent development of new restaurants in particular
locations. The Company is subject to the Fair Labor Standards Act,
which governs such matters as minimum wages, overtime and other
working conditions, along with the Americans With Disabilities Act
and various family leave mandates. Although the Company expects
increases in payroll expenses as a result of federal and state
mandated increases in the minimum wage, and although such increases
are not expected to be material, there can be no assurance that
there will not be material increases in the future. However, the
Company's vendors may be affected by higher minimum wage standards,
which may result in increases in the price of goods and services
supplied to the Company.
Inflation may increase the Company's operating expenses.
The Company has not experienced a significant overall impact from
inflation. As operating expenses increase, the Company, to the
extent permitted by competition, recovers increased costs by
increasing menu prices, by reviewing, then implementing,
alternative products or processes, or by implementing other cost-
reduction procedures. There can be no assurance, however, that the
Company will be able to continue to recover increases in operating
expenses due to inflation in this manner.
Increased energy costs may adversely affect the Company's
profitability.
The Company's success depends in part on its ability to absorb
increases in utility costs. Various regions of the United States
in which the Company operates multiple restaurants, particularly
California, experienced significant increases in utility prices.
If these increases continue, there will be an adverse effect on the
Company's profitability.
If the Company is unable to meet its growth plan, the Company's
profitability in the future may be adversely affected.
The Company's ability to meet its growth plan is dependent upon,
among other things, its ability to identify available, suitable and
economically viable locations for new restaurants, obtain all
required governmental permits (including zoning approvals and
liquor licenses) on a timely basis, hire all necessary contractors
and subcontractors, and meet construction schedules. The costs
related to restaurant and concept development include purchases and
leases of land, buildings and equipment and facility and equipment
maintenance, repair and replacement. The labor and materials costs
involved vary geographically and are subject to general price
increases. As a result, future capital expenditure costs of
restaurant development may increase, reducing profitability. There
can be no assurance that the Company will be able to expand its
capacity in accordance with its growth objectives or that the new
restaurants and concepts opened or acquired will be profitable.
Other risk factors may adversely affect the Company's financial
performance.
Other risk factors that could cause the Company's actual results to
differ materially from those indicated in the forward-looking
statements include, without limitation, changes in economic
conditions, consumer perceptions of food safety, changes in
consumer tastes, governmental monetary policies, changes in
demographic trends, availability of employees, and weather and
other acts of God.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on FORM 8-K
(a) Exhibits
4. Instruments Defining the Rights of Security Holders, Including
Debentures.
Indenture, dated as of October 10, 2001, between the Company
and SunTrust Bank, as Trustee.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BRINKER INTERNATIONAL, INC.
Date: November 13, 2001 By:_________________________________
Ronald A. McDougall, Chairman and
Chief Executive Officer
Date: November 13, 2001 By:_________________________________
Charles M. Sonsteby,
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)