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 December 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
December 26, 2001: 97,222,792
BRINKER INTERNATIONAL, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
December 26, 2001 (Unaudited) and June 27, 2001 3
Consolidated Statements of Income
(Unaudited) - Thirteen-week and twenty-six week
periods ended December 26, 2001 and
December 27, 2000 4
Consolidated Statements of Cash Flows
(Unaudited) - Twenty-six week periods ended
December 26, 2001 and December 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 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BRINKER INTERNATIONAL, INC.
Consolidated Balance Sheets
(In thousands, except per share amounts)
December 26, June 27,
2001 2001
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 40,757 $ 13,312
Accounts receivable 33,328 31,438
Inventories 27,070 27,351
Prepaid expenses 61,201 55,809
Deferred income taxes 12,812 7,295
Other - 2,000
Total current assets 175,168 137,205
Property and Equipment, at Cost:
Land 209,381 201,013
Buildings and leasehold improvements 987,350 898,133
Furniture and equipment 541,924 478,847
Construction-in-progress 53,030 70,051
1,791,685 1,648,044
Less accumulated depreciation and (617,098) (563,320)
amortization
Net property and equipment 1,174,587 1,084,724
Other Assets:
Goodwill, net 193,899 138,127
Other 95,066 82,245
Total other assets 288,965 220,372
Total assets $1,638,720 $1,442,301
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 17,635 $ 17,635
Accounts payable 103,828 89,436
Accrued liabilities 167,875 134,420
Total current liabilities 289,338 241,491
Long-term debt, less current installments 375,458 236,060
Deferred income taxes 16,244 12,502
Other liabilities 53,477 51,961
Shareholders' Equity:
Common stock - 250,000,000 authorized shares; $0.10
par value; 117,500,054 shares issued and
97,222,792 shares outstanding at December 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 313,754 314,867
Retained earnings 876,258 801,988
1,201,762 1,128,605
Less:
Treasury stock, at cost (20,277,262 shares at
December 26, 2001 and 17,991,625 shares at
June 27, 2001) (294,850) (225,334)
Accumulated other comprehensive loss - (895)
Unearned compensation (2,709) (2,089)
Total shareholders' equity 904,203 900,287
Total liabilities and shareholders' equity $1,638,720 $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 Twenty-Six Week Periods Ended
December 26, December 27, December 26, December 27,
2001 2000 2001 2000
Revenues $ 704,682 $ 583,263 $ 1,395,229 $ 1,172,546
Operating Costs and
Expenses:
Cost of sales 190,834 156,424 376,658 312,831
Restaurant expenses 396,191 323,313 780,903 649,442
Depreciation and 30,151 24,322 58,337 47,752
amortization
General and administrative 30,688 26,698 58,247 53,909
Total operating costs and
expenses 647,864 530,757 1,274,145 1,063,934
Operating income 56,818 52,506 121,084 108,612
Interest expense 2,837 2,278 6,621 3,674
Other, net 1,021 514 808 913
Income before provision for
income taxes 52,960 49,714 113,655 104,025
Provision for income taxes 18,324 17,499 39,385 36,617
Net income $ 34,636 $ 32,215 $ 74,270 $ 67,408
Basic net income per share $ 0.35 $ 0.33 $ 0.76 $ 0.68
Diluted net income per share $ 0.35 $ 0.32 $ 0.74 $ 0.66
Basic weighted average
shares outstanding 97,718 98,497 98,366 98,571
Diluted weighted average
shares outstanding 100,131 101,718 100,875 101,638
See accompanying notes to consolidated financial statements.
BRINKER INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-Six Week Periods Ended
December 26, December 27,
2001 2000
Cash Flows from Operating Activities:
Net income $ 74,270 $ 67,408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 58,337 47,752
Amortization of deferred costs 2,516 773
Deferred income taxes 5,318 4,942
Changes in assets and liabilities, excluding
effects of acquisitions:
Receivables (4,426) (5,769)
Inventories 983 (264)
Prepaid expenses (1,052) 1,202
Other assets 5,789 (3,354)
Accounts payable 15,056 (2,875)
Accrued liabilities 30,365 22,143
Other liabilities 1,516 6,705
Net cash provided by operating activities 188,672 138,663
Cash Flows from Investing Activities:
Payments for property and equipment (115,220) (116,857)
Payments for purchases of restaurants (60,491) -
Proceeds from sale of affiliate 4,000 -
Investment in equity method investees (12,322) (3,026)
Net advances to affiliates (675) 325
Net cash used in investing activities (184,708) (119,558)
Cash Flows from Financing Activities:
Net (payments) borrowings on credit facilities (147,779) 18,020
Net proceeds from issuance of debt 244,243 -
Proceeds from issuances of treasury stock 14,520 19,759
Purchases of treasury stock (87,503) (33,558)
Net cash provided by financing activities 23,481 4,221
Net change in cash and cash equivalents 27,445 23,326
Cash and cash equivalents at beginning of year 13,312 12,343
Cash and cash equivalents at end of year $ 40,757 $ 35,669
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 December 26, 2001 and June 27, 2001 and for the thirteen-week and
twenty-six week periods ended December 26, 2001 and December 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
and owns 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
In June 2001, the Company acquired from its franchise partner, Hal
Smith Restaurant Group ("Hal Smith"), three On The Border
restaurants for approximately $6.6 million. 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.
In November 2001, the Company acquired from its franchise partner,
Sydran Group, LLC, and Sydran Food Services III, L.P. (collectively,
"Sydran") 39 Chili's restaurants for approximately $53.9 million.
As part of the acquisition, the Company assumed $35.5 million in
capital lease obligations ($19.9 million principal plus $15.6
million representing a debt premium) and recorded goodwill totaling
approximately $52.5 million. 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 ten
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 adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" effective
June 28, 2001. 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 December 26, 2001 and June 27,
2001. Accumulated amortization related to these intangible assets
totaled approximately $1.1 million and $960,000 at December 26, 2001
and June 27, 2001, respectively. The carrying amount of reacquired
development rights not subject to amortization totaled $4.4 million
at December 26, 2001 and June 27, 2001.
The changes in the carrying amount of goodwill for the twenty-six
week period ended December 26, 2001 are as follows (in thousands):
Balance, June 27, 2001 $ 138,127
Goodwill arising from acquisitions 55,473
Other adjustments 299
Balance, December 26, 2001 $ 193,899
The pro forma effects of the adoption of SFAS No. 142 on net income
is as follows (in thousands, net of taxes):
13-Week Periods Ended 26-Week Periods Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
2001 2000 2001 2000
Net income, as reported $ 34,636 $ 32,215 $ 74,270 $ 67,408
Intangible amortization - 457 - 915
Net income, pro forma $ 34,636 $ 32,672 $ 74,270 $ 68,323
The adoption of SFAS No. 142 had no effect on basic and diluted
earnings per share for the quarter ended December 27, 2000. Pro
forma basic and diluted earnings per share for the twenty-six week
period ended December 27, 2000 would have been $0.69 and $0.67,
respectively, upon the adoption of SFAS No. 142.
5. Debt
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. The Debentures are redeemable at the
Company's option on October 10, 2004, and the holders of the
Debentures may require the Company to redeem the Debentures on
October 10, 2003, 2005, 2011 or 2016, and in certain other
circumstances. In addition, each Debenture is convertible into 18.08
shares of the Company's common stock if the stock's market price
exceeds 120% of the carrying value of the Debentures at specified
dates, the credit rating of the Debentures is reduced below certain
levels, the Company exercises its option to redeem the Debentures or
upon the occurrence of certain specified corporate transactions.
6. Derivative Financial Instruments and Hedging Activities
The Company entered into three additional interest rate swaps in the
second quarter with a total notional value of $119.0 million at
December 26, 2001. These fair value hedges change the fixed-rate
interest on one of its real estate leasing facilities to variable-
rate interest. Under the terms of the hedges (which expire in fiscal
2018), the Company pays monthly a variable rate based on LIBOR (1.93%
at December 26, 2001) plus 1.26%. The Company receives monthly the
fixed interest rate of 7.156% on the lease. The estimated fair value
of these agreements at December 26, 2001 was a liability of
approximately $1.4 million. The fair value hedges were fully
effective during the twenty-six week period ended December 26, 2001.
Accordingly, the change in fair value of the swaps was recorded in
other liabilities.
7. 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 3,555,000 shares of its common stock for
$87.5 million during the first and second quarters of fiscal 2002,
resulting in a cumulative repurchase total of approximately 14.5
million shares of its common stock for $279.0 million. The Company's
stock repurchase plan is 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.
8. Supplemental Cash Flow Information
Cash paid for interest and income taxes is as follows (in
thousands):
Dec. 26, Dec. 27,
2001 2000
Interest, net of amounts capitalized $ 6,170 $ 4,650
Income taxes, net of refunds 22,595 43,974
Non-cash investing and financing activities are as follows (in
thousands):
Dec. 26, Dec. 27,
2001 2000
Restricted common stock issued, net of
forfeitures $ 2,354 $ 800
Increase in fair value of interest rate
swaps and debt 409 2,177
Decrease in fair value of interest rate
swaps on real estate leasing facility (1,441) -
During the first and second quarters of fiscal 2002, the Company
purchased certain assets and assumed certain liabilities in
connection with the acquisition of restaurants. The fair values of
the assets acquired and liabilities assumed at the date of
acquisition are as follows (in thousands):
Property, plant and equipment acquired $ 36,312
Other assets acquired 8,585
Goodwill 55,473
Capital lease obligations assumed (35,480)
Other liabilities assumed (4,399)
Net cash paid $ 60,491
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.
13 Week Periods Ended 26 Week Periods Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
2001 2000 2001 2000
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating Costs and Expenses:
Cost of sales 27.1 % 26.8 % 27.0 % 26.7 %
Restaurant expenses 56.2 % 55.4 % 56.0 % 55.4 %
Depreciation and amortization 4.3 % 4.2 % 4.2 % 4.1 %
General and administrative 4.4 % 4.6 % 4.2 % 4.6 %
Total operating costs and expenses 92.0 % 91.0 % 91.4 % 90.8 %
Operating income 8.0 % 9.0 % 8.6 % 9.2 %
Interest expense 0.4 % 0.4 % 0.5 % 0.3 %
Other, net 0.1 % 0.1 % - % 0.1 %
Income before provision for income taxes 7.5 % 8.5 % 8.1 % 8.8 %
Provision for income taxes 2.6 % 3.0 % 2.8 % 3.1 %
Net income 4.9 % 5.5 % 5.3 % 5.7 %
The following table details the number of restaurant openings
during the second quarter and year-to-date and total restaurants
open at the end of the second quarter.
Second Quarter Year-to-Date Total Open at End
Openings Openings Of Second Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
2002 2001 2002 2001 2002 2001
Chili's:
Company-owned 16 6 25 13 606 479
Franchised 8 10 14 18 182 235
Total 24 16 39 31 788 714
Macaroni Grill:
Company-owned 4 2 7 6 166 151
Franchised - 2 - 2 6 6
Total 4 4 7 8 172 157
On The Border:
Company-owned 1 4 3 5 105 87
Franchised 1 1 1 2 20 29
Total 2 5 4 7 125 116
Corner Bakery:
Company-owned 2 1 6 2 67 58
Franchised - 1 - 1 2 2
Total 2 2 6 3 69 60
Cozymel's - - - - 14 13
Maggiano's 2 - 3 1 17 13
Big Bowl - - - - 9 6
Rockfish 2 - 2 - 10 -
Eatzi's - - - - 4 4
Wildfire - - - - - 3
Grand Total 36 27 61 50 1,208 1,086
REVENUES
Revenues for the second quarter of fiscal 2002 increased to $704.7
million, 20.8% over the $583.3 million generated for the same
quarter of fiscal 2001. Revenues for the twenty-six week period
ended December 26, 2001 rose 19.0% to $1,395.2 million from the
$1,172.5 million generated for the same period of fiscal 2001. The
increases are primarily attributable to a net increase of 183
company-owned restaurants since December 27, 2000 and an increase
in comparable store sales for the second quarter of fiscal 2002
compared to the same quarter of fiscal 2001. The Company increased
its capacity (as measured in sales weeks) for the second quarter
and year-to-date of fiscal 2002 by 19.9% and 18.3%, respectively,
compared to the respective prior year periods. Comparable store
sales increased 1.6% and 1.0% for the second quarter and year-to-
date, respectively, from the same periods of fiscal 2001. Menu
prices in the aggregate increased 2.0% in fiscal 2002 as compared
to fiscal 2001.
COSTS AND EXPENSES (as a Percent of Revenues)
Cost of sales increased for the second quarter and year-to-date of
fiscal 2002 as compared to the respective periods of fiscal 2001
due to product mix changes to menu items with higher percentage
food costs, unfavorable commodity price variances for beef and
dairy and cheese, and unfavorable purchase contracts for reacquired
franchise restaurants, which were partially offset by menu price
increases and favorable commodity price variances for seafood,
produce and beverages.
Restaurant expenses increased for the second quarter and year-to-
date of fiscal 2002 compared to the respective periods 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 second quarter and
year-to-date of fiscal 2002 as compared to the respective periods
of fiscal 2001. Depreciation and amortization increases resulted
from new unit construction, ongoing remodel costs and restaurants
acquired during fiscal 2001 and 2002. 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 second
quarter and year-to-date of fiscal 2002 compared to the respective
periods 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 new unit
openings and acquisitions.
Interest expense remained flat for the second quarter and increased
for the first six months of fiscal 2002 compared with the
respective periods of fiscal 2001 as a result of amortization of
debt issuance costs and debt discounts on the Company's $431.7
million convertible debt. These increases were partially offset
by a decrease in interest expense on senior notes due to the
scheduled repayment made in April 2001, repayments on the credit
facilities, and an increase in interest capitalization related to
new restaurant construction activity.
Other, net remained flat for the second quarter and decreased for
the first six months of fiscal 2002 as compared to the respective
periods of fiscal 2001 due to reduced equity losses related to the
Company's share in equity method investees, partially offset by a
decrease in the market value of the Company's savings plan
investments.
INCOME TAXES
The Company's effective income tax rate decreased to 34.6% from
35.2% for the second quarter of fiscal 2002 and to 34.7% from 35.2%
year-to-date 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 for the second quarter and year-to-date of fiscal 2002
increased 7.5% and 10.2%, respectively, compared to the respective
periods of fiscal 2001. Diluted net income per share increased for
the second quarter and year-to-date of fiscal 2002 9.4% and 12.1%,
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
sales weeks, comparable store sales, 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 $114.2 million at December 26, 2001. Net cash provided
by operating activities increased to $188.7 million for the first
six months of fiscal 2002 from $138.7 million during the same
period in fiscal 2001 due to increased profitability and the timing
of operational receipts and payments. The Company believes that
its various sources of capital, including availability under
existing credit facilities and cash flow from operating activities,
are adequate to finance operations as well as the repayment of
current debt obligations.
Long-term debt outstanding at December 26, 2001 consisted of $251.5
million of zero coupon convertible debentures ($431.7 million
principal less $180.2 million representing an unamortized debt
discount), $60.4 million of unsecured senior notes ($57.1 million
principal plus $3.3 million representing the effect of changes in
interest rates on the fair value of the debt), $44.6 million in
assumed debt related to the acquisition of restaurants from a
former franchise partner ($39.7 million principal plus $4.9 million
representing a debt premium), $35.5 million in assumed capital
lease obligations related to the acquisition of restaurants from a
former franchise partner ($19.9 million principal plus $15.6
million representing a debt premium), and other obligations under
capital leases. The Company has credit facilities totaling $345.0
million. At December 26, 2001, the Company had no amounts
outstanding on 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 used the proceeds for repayment of
existing indebtedness, restaurant 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. Additionally, in June and November 2001, the Company
acquired three On the Border and 39 Chili's restaurants from its
franchise partners Hal Smith and Sydran, respectively, for $60.5
million. The Company financed these acquisitions through existing
credit facilities, the Debentures and cash provided by operations.
As of December 26, 2001, $16.2 million of the Company's $25.0
million equipment leasing facility and $51.8 million of the
Company's $75.0 million real estate leasing facility had been
utilized. The Company plans to utilize the unused portion of the
real estate leasing facility to lease real estate through June
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 $115.2 million for the first six months of fiscal 2002
compared to $116.9 million for the same period of fiscal 2001. The
decrease is due primarily to an increase in the amount of new
restaurant expenditures funded by leasing facilities, partially
offset by 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 third
quarter of fiscal 2002 will approximate $57.0 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
3,555,000 shares of its common stock were repurchased for $87.5
million during the first and second quarters of fiscal 2002. As of
December 26, 2001, approximately 14.5 million shares had been
repurchased for $279.0 million under the stock repurchase plan.
The Company repurchases common stock 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
during the 2001 fiscal year. If these increases should recur, they
will have 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.
Unfavorable publicity relating to one or more of the Company's
restaurants in a particular brand can taint public perception of
the brand.
Multi-unit restaurant businesses can be adversely affected by
publicity resulting from poor food quality, illness or other health
concerns or operating issues stemming from one or a limited number
of restaurants. In particular, since the Company depends heavily
on the "Chili's" brand for a majority of its revenues, unfavorable
publicity relating to one or more Chili's restaurants could have a
material adverse effect on the Company's business, results of
operations and financial condition.
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, terrorist acts, and
weather and other acts of God.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Proxy Statement dated September 25, 2001 for the Annual
Meeting of Shareholders held on November 15, 2001, as filed with
the Securities and Exchange Commission on September 25, 2001, is
incorporated herein by reference.
(a) The Annual Meeting of Shareholders of the Company was held on
November 15, 2001.
(b) Each of the management's nominees, as described in the Proxy
Statement referenced above, was elected a director to hold office
until the next Annual Meeting of Shareholders or until his or her
successor is elected and qualified.
Votes Against or
Votes For Withheld
Ronald A. McDougall 87,761,850 176,117
Douglas H. Brooks 87,761,135 176,832
Donald J. Carty 87,758,237 179,730
Dan W. Cook, III 87,759,606 178,361
Marvin J. Girouard 87,759,288 178,679
Frederick S. Humphries 87,749,714 188,253
Ronald Kirk 87,760,076 177,891
Jeffrey A. Marcus 87,757,492 180,475
James E. Oesterreicher 87,753,149 184,818
Roger T. Staubach 87,762,903 175,064
(c) The following matter was also voted upon at the meeting and
rejected by the shareholders:
(i) proposal regarding genetically engineered ingredients in food
products
Votes For 7,780,470
Votes Against 71,424,434
Votes Abstained 3,059,953
Broker Non-Votes 5,673,110
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, was filed as an exhibit to the
quarterly report on Form 10-Q for the period ended September
26, 2001 and is incorporated herein by reference.
(b) Reports
A current report on Form 8-K, dated October 22, 2001, was filed with
the Securities and Exchange Commission on October 22, 2001. This
Form 8-K contained the text of a press release, dated September 10,
2001, announcing the Company's intent to issue $225,000,000 in
senior convertible debentures.
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: February 11, 2002 By:_________________________________
Ronald A. McDougall, Chairman and
Chief Executive Officer
Date: February 11, 2002 By:__________________________________
Charles M. Sonsteby,
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
