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) <TABLE> September 26, June 27, 2001 2001 (Unaudited) <s> <c> <c> 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. </TABLE> BRINKER INTERNATIONAL, INC. Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) <TABLE> Thirteen-Week Periods Ended September 26, September 27, 2001 2000 <s> <c> <c> 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. </TABLE> BRINKER INTERNATIONAL, INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) <TABLE> 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. </TABLE> 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): <TABLE> 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) - </TABLE> 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. <TABLE> 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 % </TABLE> The following table details the number of restaurant openings during the first quarter and total restaurants open at the end of the first quarter. <TABLE> 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 </TABLE> 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)