EAT » Topics » OVERVIEW

This excerpt taken from the EAT 10-Q filed May 4, 2009.

OVERVIEW

 

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s Grill & Bar (“Chili’s”), On The Border Mexican Grill & Cantina (“On The Border”) and Maggiano’s Little Italy (“Maggiano’s”) restaurant brands.  At March 25, 2009, we owned, operated, or franchised 1,679 restaurants.  We also hold a minority investment in Romano’s Macaroni Grill (“Macaroni Grill”) after completion of the sale of a majority interest in the brand to Mac Acquisition LLC (“Mac Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in December 2008.

 

Our results for the third quarter of fiscal 2009 reflect our commitment to strengthening our business model and improving profitability despite the significant challenges we currently face.  We continued to experience many of the same external factors that negatively impacted our results in the first six months of fiscal 2009; however, we have taken steps to neutralize their impact.  We are focused on initiatives that will allow our business to operate as efficiently as possible and will allow us to maintain our position as an industry leader.  We believe financial market volatility, unemployment and the housing crisis will continue to put pressure on consumer spending.  Our negative traffic trends indicate that our guests are limiting discretionary spending by reducing the frequency of their visits to our restaurants or scaling back on check totals.  We also experienced a decline in gift card sales of approximately 15% during the holiday season compared to the prior year which negatively impacted third quarter revenue.  We will continually evaluate how we manage the business and make necessary changes in response to the economic factors affecting the restaurant industry.

 

Our goal is to emerge from this recession in a position of strength with a strong balance sheet and improved operating profit.  We are exhibiting discipline in our capital allocation and are taking steps to create sustainable margin improvements through cost controls and operational efficiencies.  These steps will help maintain the health of our balance sheet and will provide the stable financial base needed to maintain our business through a depressed operating environment.  We are driving profit improvements through a disciplined approach to operations, company-owned new restaurant development and the closure of underperforming restaurants.  Effective management of food costs and a focus on labor productivity and reducing fixed costs helped us realize sustainable margin improvements in the third quarter.  Our emphasis on the operations of our existing restaurants has resulted in lower turnover which has positively impacted labor cost and efficiency while providing improved pace at our restaurants.  Additionally, generating strong cash flows has long been a hallmark of Brinker and we have taken steps to shore up our cash flows to provide the necessary flexibility to address current challenges and help drive the business forward.  We have completed the closure of 42 underperforming restaurants in fiscal 2009 and have reduced our planned fiscal 2009 capital expenditures by $30 million.  Virtually all company-owned new restaurant development in fiscal 2010 has been curtailed.  Enhanced free cash flows resulting from our financial discipline and Macaroni Grill proceeds have allowed us to reduce our debt levels and will provide flexibility for further debt reductions.

 

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We are committed to our long term strategies and initiatives centered on our five areas of focus - hospitality; food and beverage excellence; restaurant atmosphere; pace and convenience; and international expansion.  These strategic priorities are designed to strengthen Brinker brands and build on the long-term health of the company by engaging and delighting our guests, differentiating our brands from the competition, reducing the costs associated with managing our restaurants and establishing a strong presence in key markets around the world.  However, we will monitor the results closely as well as the current business environment in order to pace the implementation of our initiatives appropriately.

 

We strongly believe investments in these five strategic priorities will strengthen our brands and allow us to emerge from these tough economic times in a better competitive position to deliver profitable growth over the long term for our shareholders.   For example, with growing economic pressures in the United States, international expansion allows further diversification of our portfolio, enabling Brinker to build strength in a variety of markets and economic conditions.  Our growth will be driven by cultivating relationships with equity investors, joint venture partners and franchisees.  Our growing percentage of franchise operations both domestically and internationally enable us to improve margins as royalty payments flow through to the bottom line.  Another top area of focus remains creating a culture of hospitality that will differentiate Brinker brands from all others in the industry.  Through our investments in team member training and guest measurement programs, we are gaining significant traction in this area and providing guests a reason to make Brinker brands their preferred choice when dining out.  We also believe that the unique and craveable food and beverages as well as the new flavors and offerings we continue to create at each of our brands, the warm, welcoming and revitalized atmospheres, and technologies and process improvements related to pace and convenience will give customers new reasons to dine with us more often.

 

The casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs.  Our top priority remains increasing profitable traffic over time.  We believe that this focus, combined with discipline around the use of capital and efficient management of operating expenses, will enable Brinker to maintain its position as an industry leader through the current economic recession.  We remain confident in the financial health of our company, the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

 

This excerpt taken from the EAT 10-Q filed Feb 2, 2009.

OVERVIEW

 

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s Grill & Bar (“Chili’s”), On The Border Mexican Grill & Cantina (“On The Border”) and Maggiano’s Little Italy (“Maggiano’s”) restaurant brands.  At December 24, 2008, we owned, operated, or franchised 1,704 restaurants.  We also hold a minority investment in Romano’s Macaroni Grill (“Macaroni Grill”) after completion of the sale of a majority interest in the brand to Mac Acquisition LLC (“Mac Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in December 2008. We will also provide corporate support services for the new entity for one year with an option for one additional year.  We will account for our interest in the ongoing operations of the brand through an equity method investment.

 

Our second quarter of fiscal 2009 was marked by many of the same challenges we faced in the first three months of the fiscal year.  External factors such as the volatile financial market, rising unemployment and the housing crisis continued to put significant pressure on consumer spending in the U.S and overseas.  The holiday season brought little relief as consumers remained cautious about discretionary spending.  As a result, our traffic trends indicated the guests’ choice to limit restaurant dining occasions or scale back on check totals during their visits.  We also experienced a decline in our gift card sales of approximately 15% compared to the prior year which will negatively impact third quarter revenue when the majority of these cards are expected to be redeemed.

 

Despite these challenging times, we are still committed to our long term strategies and initiatives centered around our five areas of focus - hospitality; food and beverage excellence; restaurant atmosphere; pace and convenience; and international expansion.  These strategic priorities are designed to strengthen Brinker brands and build on the long-term health of the company by engaging and delighting our guests, differentiating our brands from the competition, reducing the costs associated with managing our restaurants and establishing a strong presence in key markets around the world.  However, we will monitor the results closely as well as the current business environment in order to pace the implementation of our initiatives appropriately.

 

We strongly believe investments in these five strategic priorities will strengthen our brands and allow us to emerge from these tough economic times in a better competitive position to deliver profitable growth over the long term for our shareholders.   For example, with growing economic pressures in the United States, international expansion allows further diversification of our portfolio, enabling Brinker to build strength in a variety of markets and economic conditions.  Our growth will be driven by cultivating relationships with equity investors, joint venture partners and franchisees.  Our growing percentage of franchise operations both domestically and internationally enable us to improve margins as royalty payments flow through to the bottom line.  Another top area of focus remains creating a culture of hospitality that will differentiate Brinker brands from all others in the industry.  Through our investments in team member training and guest measurement programs, we are gaining significant traction in this area and providing guests a reason to make Brinker brands their preferred choice when dining out.  We also believe that the unique and craveable food and beverages as well as the new flavors and offerings we continue to create at each of our brands, the warm, welcoming and

 

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revitalized atmospheres, and technologies and process improvements related to pace and convenience will give customers new reasons to dine with us more often.

 

This difficult operating environment highlights the need to be disciplined with our capital allocation and maintain the health of our balance sheet in order to provide a stable financial base to weather these uncertain times.  Generating strong cash flows has long been a hallmark of Brinker and in the second quarter we have taken further steps to shore up our cash flows to provide the necessary flexibility to address current challenges and help drive the business forward.  In the second quarter, we completed an annual evaluation of our restaurant base which led to the decision to close 35 underperforming restaurants.  We also made the decision to further reduce our fiscal 2009 capital expenditures by $30 million, eliminate virtually all company-owned restaurant development in fiscal 2010 and place a moratorium on all share repurchase activity.  This financial discipline designed to improve free cash flow combined with the Macaroni Grill proceeds will allow us to reduce our debt levels and survive in the current economic environment.

 

The casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs.  Our top priority remains increasing profitable traffic over time.  We believe that this focus, combined with discipline around the use of capital and efficient management of operating expenses, will enable Brinker to emerge from the current economic recession as an industry leader.  Despite the disappointing results for the first half of fiscal 2009 and an uncertain outlook for the remainder of fiscal 2009, we remain confident in the financial health of our company, the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

 

This excerpt taken from the EAT 10-Q filed Oct 31, 2008.

OVERVIEW

 

We are principally engaged in the ownership, operation, development, and franchising of the Chili’s Grill & Bar (“Chili’s”), On The Border Mexican Grill & Cantina (“On The Border”), Maggiano’s Little Italy (“Maggiano’s”) and Romano’s Macaroni Grill (“Macaroni Grill”) restaurant brands.  At September 24, 2008, we owned, operated, or franchised 1,911 restaurants.  In August 2008, we entered into an agreement with Mac Acquisition LLC, an affiliate of Golden Gate Capital, for the sale of a majority interest in Macaroni Grill. Per terms of the agreement, we will receive proceeds of $131.5 million in cash, of which $6.0 million will be contributed to the new entity for a 19.9% continuing ownership interest in the brand.  We will also provide corporate support services for the new entity for one year with an option for one additional year. The transaction is expected to close in the second quarter of fiscal 2009 subject to customary closing conditions.  Once the sale of the brand is complete, we will account for our interest in the ongoing operations through an equity method investment.

 

Our first quarter of fiscal 2009 proved to be even more challenging than anticipated with results reflecting disappointing sales and earnings.  We continue to be negatively impacted by cost pressures for commodities, labor and utilities.  Additionally, volatility in the financial markets and high fuel costs have caused consumers to be increasingly more conservative in their discretionary spending which has resulted in decreased traffic and lower average checks at our brands.  This difficult operating environment highlights the need to be disciplined with our capital allocation and maintain the health of our balance sheet in order to provide a stable financial base to weather these uncertain times.  As a result, we have reduced our planned capital expenditures by approximately $40 million for fiscal 2009 and will continue to evaluate capital spending throughout the remainder of the year.  Additionally, we will eliminate virtually all company-owned restaurant development in fiscal 2010.

 

Despite these challenging times, we are still committed to furthering the initiatives in our five areas of focus - hospitality; food and beverage excellence; restaurant atmosphere; pace and convenience; and international expansion.  These strategic priorities are designed to build on the long-term health of the company and to grow our base business by engaging and delighting our guests, differentiating Brinker brands from the competition, reducing the costs associated with managing our restaurants and establishing a strong presence in key markets around the world.  However, we will monitor the results closely as well as the current business environment in order to pace the implementation of our initiatives appropriately.

 

We strongly believe these five strategic priorities will strengthen our brands and allow us to emerge from these tough economic times in a better competitive position to deliver profitable growth over the long term for our shareholders.  For example, with growing economic pressures in the United States, international expansion allows further diversification of our portfolio, enabling Brinker to build strength in a variety of markets and economic conditions.  Our growth will be driven by cultivating relationships with equity investors, joint venture partners and franchisees.  Our growing percentage of franchise operations both domestically and internationally enable us to improve margins as royalty payments flow through to the bottom line.  Another top area of focus remains creating a culture of hospitality that will differentiate Brinker brands from all others in the industry.  Through our investments in team member training and guest measurement programs, we are gaining traction in this area and providing guests a reason to make Brinker brands their preferred choice when dining out.  We also believe that the unique and craveable food and beverages as well as the new flavors and offerings we continue to create at each of our brands, the warm, welcoming and revitalized atmospheres, and technologies and process improvements related to pace and convenience will give customers new reasons to dine with us more often.

 

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The casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs.  Our top priority remains increasing profitable traffic over time and we are encouraged by the progress and traction we have experienced with our five areas of focus.  Despite a slower than expected start to fiscal 2009 and an uncertain outlook for the remainder of fiscal 2009, we remain confident in the financial health of our company, the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

 

This excerpt taken from the EAT DEF 14A filed Sep 11, 2008.

Overview

        The Compensation Committee ("Committee") is comprised entirely of independent directors who are responsible for aligning our compensation programs with our compensation philosophy of rewarding performance. Specifically, the Committee reviews and approves any compensation decisions regarding senior vice presidents and above (with input from the CEO), including the Chairman and CEO. Further information about the duties of the Committee can be found in the Compensation Committee Charter, which can be found on our website at http://brinker.com/corp_gov/comp_committee.asp. To make certain the Committee is able to effectively carry out its responsibilities, it takes the following actions:

    Retains an independent consultant (currently Pearl Meyer & Partners) to advise on executive compensation.

    Benchmarks with an outside, independent third party vendor to determine competitive compensation levels based on a peer group that represents both restaurant companies and those companies with whom we compete for talent. The peer group for each officer may vary depending on the nature and scope of his/her individual responsibilities.

    Reviews annually detailed compensation tally sheets for the named executive officers.

    Submits recommendations to the full Board of Directors for ratification of the CEO's compensation.

    Holds executive sessions (without our management present) at every Committee meeting.
These excerpts taken from the EAT 10-K filed Aug 25, 2008.

OVERVIEW

        We are principally engaged in the ownership, operation, development, and franchising of the Chili's Grill & Bar ("Chili's"), On The Border Mexican Grill & Cantina ("On The Border"), Maggiano's Little Italy ("Maggiano's") and Romano's Macaroni Grill ("Macaroni Grill") restaurant brands. At June 25, 2008, we owned, operated, or franchised 1,888 restaurants. In the first quarter of fiscal 2008 we announced our intention to sell Macaroni Grill and presented the results of the brand's operations as discontinued operations in our quarterly financial statements during fiscal 2008. In August 2008, we entered into an agreement with Mac Acquisition LLC, an affiliate of Golden Gate Capital, for the sale of a majority interest in Macaroni Grill. Per terms of the agreement, we will receive proceeds of $131.5 million in cash, of which $6.0 million will be contributed to the new entity for a 19.9% continuing ownership interest in the brand. We will also provide corporate support services for the new entity for one year with an option for one additional year. As a result of this agreement, Macaroni Grill has now been included in our results from continuing operations for fiscal 2008 and prior years. The transaction is expected to close in the second quarter of fiscal 2009 subject to customary closing conditions. Once the sale of the brand is complete, we will account for our interest in the ongoing operations through an equity method investment. In September 2005, we entered into an agreement to sell Corner Bakery Cafe ("Corner Bakery"). The sale of the brand was completed in February 2006. As a result, Corner Bakery is presented as discontinued operations in the accompanying consolidated financial statements.

        Fiscal 2008 was a challenging year for Brinker and the casual dining industry. While we experienced encouraging trends in comparable restaurant sales in the latter half of the year, our operations continue to be negatively impacted by higher labor, fuel and commodity costs which have taken a toll on consumer confidence and the overall health of the economy.

        This difficult operating environment highlighted the need to build a dynamic business model that can achieve sustainable growth in a variety of economic environments in order to create long-term value for our shareholders. The basis of this model will be grounded in our five areas of focus—hospitality; pace and convenience; food and beverage excellence; restaurant atmosphere; and international expansion. Our organization is focused on these five priorities that are designed to grow our base business by engaging and

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


delighting our guests, differentiating our brands from competitors throughout the industry, reducing costs associated with managing our restaurants and establishing a strong presence in key markets around the world.

        During fiscal 2008, these strategies resulted in the following highlights:

    Introduced successful menu items across our brands as a result of our focus on food and beverage excellence, including Honey Chipotle Chicken Crispers and updates on the classic Big Mouth Burger at Chili's, Border Smart selections at On the Border, and award-winning Little Italy favorites at Maggiano's;

    Innovated ToGo at Chili's through developments in technology and processes with positive results and plans to expand into fiscal year 2009;

    Re-imaged 73 Chili's restaurants, resulting in mid-single digit increases in sales, with plans to continue our re-image program in fiscal year 2009 at a lower level of investment per restaurant;

    Experienced significant growth in favorable guest feedback across the brands as a result of the company's focus on both hospitality and food and beverage excellence;

    Sold 76 Chili's restaurants to our franchisee, ERJ Dining IV, LLC, with a commitment to develop an additional 49 new Chili's restaurants;

    Increased royalty revenues from franchisees by approximately 60% percent;

    Internationally, opened one company-owned restaurant and 31 franchised restaurants, including eight under the company's joint investment with CMR, S.A.B. de C.V. to develop approximately 50 Chili's and Maggiano's restaurants in Mexico, and entered into 10 additional development agreements with franchisees with commitments to build 56 restaurants;

    Domestically, opened 70 company-owned restaurants (26 net of closures) and 43 franchised restaurants and entered into three development agreements with franchisees, with commitments to build 77 restaurants;

    Increased quarterly dividend by 22 percent to $0.11 per share and paid out $42.9 million in dividends; and

    Repurchased 9.1 million shares of our common stock for $240.3 million.

        During fiscal 2008 we also made some decisions that negatively impacted our financial results in order to lay the foundation for achieving profitable long-term growth in fiscal 2009 and beyond. As mentioned above, we committed to a plan to sell the Macaroni Grill brand due to its declining performance. As a result, we incurred impairment charges of $152.7 million to write down the assets of Macaroni Grill to fair value less costs to sell during fiscal 2008. In addition, we evaluated our portfolio of assets and supporting infrastructure as well as refined our projected domestic company-owned restaurant development schedule for fiscal 2009 and 2010. These decisions resulted in $82.1 million of special charges during the year primarily related to restaurant closures, the adjustment of our development strategy and corporate restructuring.

        With our areas of focus clearly defined and our team members aligned and united behind common goals, we are committed to driving growth inside the four walls of our existing restaurants. We will restrict future development to a limited number of new restaurants that meet or exceed our internal hurdle rates to ensure appropriate returns and shift a greater proportion of new restaurant development to our expanding franchise network in the United States and internationally. We expect to open approximately 15

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


company-owned restaurants in fiscal 2009 and even fewer restaurants in fiscal 2010. As a result, our overall revenues will now be driven in a more balanced manner of comparable restaurant sales and increasing franchise royalties. Our fiscal 2009 capital expenditure budget also includes up to $25 million for re-images at Chili's restaurants and up to $30 million in kitchen technology that we believe will dramatically change the casual dining experience for our guests. Finally, we will continue our focus on creating a culture of hospitality through additional team member training as well as utilization of our Guest Experience Measurement program. We expect to realize operating margin improvement from this focus on our existing restaurants and less effort towards opening new restaurants, the removal of underperforming restaurants from our system and a more focused organization.

        As evidenced during fiscal 2008, the casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. We are encouraged by the successes we realized from our initiatives in place during 2008 to address these challenges and remain confident in the financial health of our company, the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

OVERVIEW



        We are principally engaged in the ownership, operation, development, and franchising of the Chili's Grill & Bar ("Chili's"), On
The Border Mexican Grill & Cantina ("On The
Border"), Maggiano's Little Italy ("Maggiano's") and Romano's Macaroni Grill ("Macaroni Grill") restaurant brands. At June 25, 2008, we owned, operated, or franchised 1,888 restaurants. In the
first quarter of fiscal 2008 we announced our intention to sell Macaroni Grill and presented the results of the brand's operations as discontinued operations in our quarterly financial statements
during fiscal 2008. In August 2008, we entered into an agreement with Mac Acquisition LLC, an affiliate of Golden Gate Capital, for the sale of a majority interest in Macaroni Grill. Per terms
of the agreement, we will receive proceeds of $131.5 million in cash, of which $6.0 million will be contributed to the new entity for a 19.9% continuing ownership interest in the brand.
We will also provide corporate support services for the new entity for one year with an option for one additional year. As a result of this agreement, Macaroni Grill has now been included in our
results from continuing operations for fiscal 2008 and prior years. The transaction is expected to close in the second quarter of fiscal 2009 subject to customary closing conditions. Once the sale of
the brand is complete, we will account for our interest in the ongoing operations through an equity method investment. In September 2005, we entered into an agreement to sell Corner Bakery Cafe
("Corner Bakery"). The sale of the brand was completed in February 2006. As a result, Corner Bakery is presented as discontinued operations in the accompanying consolidated financial statements.



        Fiscal
2008 was a challenging year for Brinker and the casual dining industry. While we experienced encouraging trends in comparable restaurant sales in the latter half of the year, our
operations continue to be negatively impacted by higher labor, fuel and commodity costs which have taken a toll on consumer confidence and the overall health of the economy.



        This
difficult operating environment highlighted the need to build a dynamic business model that can achieve sustainable growth in a variety of economic environments in order to create
long-term value for our shareholders. The basis of this model will be grounded in our five areas of focus—hospitality; pace and convenience; food and beverage excellence;
restaurant atmosphere; and international expansion. Our organization is focused on these five priorities that are designed to grow our base business by engaging and



F-2








MANAGEMENT'S DISCUSSION AND ANALYSIS OF



FINANCIAL CONDITION AND RESULTS OF OPERATIONS






delighting
our guests, differentiating our brands from competitors throughout the industry, reducing costs associated with managing our restaurants and establishing a strong presence in key markets
around the world.



        During
fiscal 2008, these strategies resulted in the following highlights:





    Introduced successful menu items across our brands as a result of our focus on food and beverage excellence, including
    Honey Chipotle Chicken Crispers and updates on the classic Big Mouth Burger at Chili's, Border Smart selections at On the Border, and award-winning Little Italy favorites at Maggiano's;


    Innovated ToGo at Chili's through developments in technology and processes with positive results and plans to expand into
    fiscal year 2009;

    Re-imaged 73 Chili's restaurants, resulting in mid-single digit increases in sales, with plans to
    continue our re-image program in fiscal year 2009 at a lower level of investment per restaurant;

    Experienced significant growth in favorable guest feedback across the brands as
    a result of the company's focus on both
    hospitality and food and beverage excellence;

    Sold 76 Chili's restaurants to our franchisee, ERJ Dining IV, LLC, with a commitment to develop an additional 49
    new Chili's restaurants;

    Increased royalty revenues from franchisees by approximately 60% percent;

    SIZE=2>Internationally, opened one company-owned restaurant and 31 franchised restaurants, including eight under the
    company's joint investment with CMR, S.A.B. de C.V. to develop approximately 50 Chili's and Maggiano's restaurants in Mexico, and entered into 10 additional development agreements with franchisees
    with commitments to build 56 restaurants;

    Domestically, opened 70 company-owned restaurants (26 net of closures) and 43 franchised restaurants and entered
    into three development agreements with franchisees, with commitments to build 77 restaurants;

    Increased quarterly dividend by 22 percent to $0.11 per share and paid out
    $42.9 million in dividends; and


    Repurchased 9.1 million shares of our common stock for $240.3 million.



        During
fiscal 2008 we also made some decisions that negatively impacted our financial results in order to lay the foundation for achieving profitable long-term growth in
fiscal 2009 and beyond. As mentioned above, we committed to a plan to sell the Macaroni Grill brand due to its declining performance. As a result, we incurred impairment charges of
$152.7 million to write down the assets of Macaroni Grill to fair value less costs to sell during fiscal 2008. In addition, we evaluated our portfolio of assets and supporting infrastructure as
well as refined our projected domestic company-owned restaurant development schedule for fiscal 2009 and 2010. These decisions resulted in $82.1 million of special charges during the year
primarily related to restaurant closures, the adjustment of our development strategy and corporate restructuring.



        With
our areas of focus clearly defined and our team members aligned and united behind common goals, we are committed to driving growth inside the four walls of our existing restaurants.
We will restrict future development to a limited number of new restaurants that meet or exceed our internal hurdle rates to ensure appropriate returns and shift a greater proportion of new restaurant
development to our expanding franchise network in the United States and internationally. We expect to open approximately 15



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MANAGEMENT'S DISCUSSION AND ANALYSIS OF



FINANCIAL CONDITION AND RESULTS OF OPERATIONS






company-owned
restaurants in fiscal 2009 and even fewer restaurants in fiscal 2010. As a result, our overall revenues will now be driven in a more balanced manner of comparable restaurant sales and
increasing franchise royalties. Our fiscal 2009 capital expenditure budget also includes up to $25 million for re-images at Chili's restaurants and up to $30 million in
kitchen technology that we believe will dramatically change the casual dining experience for our guests. Finally, we will continue our focus on creating a culture of hospitality through additional
team member training as well as utilization of our Guest Experience Measurement program. We expect to realize operating margin improvement from this focus on our existing restaurants and less effort
towards opening new restaurants, the removal of underperforming restaurants from our system and a more focused organization.



        As
evidenced during fiscal 2008, the casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating
costs. We are encouraged by the successes we realized from our initiatives in place during 2008 to address these challenges and remain confident in the financial health of our company, the
long-term
prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.



This excerpt taken from the EAT 10-Q filed May 5, 2008.

OVERVIEW

 

At March 26, 2008, we owned, operated, or franchised 1,868 restaurants through our four brands:  Chili’s, Macaroni Grill, On The Border, and Maggiano’s.

 

Our third quarter of fiscal 2008 proved to be both rewarding and challenging.  While we experienced encouraging trends in comparable restaurant sales, which increased 1.1% for the quarter, our operations continue to be negatively impacted by cost pressures from increased commodities and labor costs.  During the quarter, we also evaluated our portfolio of assets and supporting infrastructure.  As a result, we made decisions that resulted in over $26 million of special charges in continuing operations for the quarter.  These charges, which primarily related to restaurant closures, the adjustment of our development strategy and corporate restructuring, represent the impact of initiatives that will lay the groundwork for achieving profitable long-term growth.

 

Our ultimate goal is to build a business model that will enable us to achieve sustainable growth in a variety of economic environments in order to create long-term value for our shareholders.  We believe the key to reaching this goal resides within our existing restaurants by leveraging the strong positioning and operating strength of our world-class brands to grow profitable ongoing comparable restaurant sales. The basis of this business model will be grounded in our five areas of focus – hospitality; food and beverage excellence; restaurant atmosphere; pace and convenience; and international expansion. Our organization is focused on these five priorities that are designed to grow our base business by engaging and delighting our guests, differentiating our brands from competitors throughout the industry, reducing the costs associated with managing our restaurants and establishing a strong presence in key markets around the world.

 

To support this effort, we have further refined our projected domestic company-owned restaurant development schedule.  We expect to open approximately 70 company-owned restaurants in fiscal 2008, approximately 15 in fiscal 2009 and even fewer restaurants in fiscal 2010. With our focus on existing company-owned restaurants, we will restrict development to a limited number of new restaurants that meet or exceed our internal hurdle rates to ensure appropriate returns and shift a greater proportion of new restaurant development to our expanding franchise network in the United States and internationally.  As a result, our overall revenues will now be driven in a more balanced manner of comparable restaurant sales and increasing franchise royalties.  We expect to realize operating margin improvement from this focus inside the four walls of our existing restaurants and less effort towards opening new restaurants, the removal of underperforming restaurants from our system and a more focused organization.

 

These are challenging times for the casual dining industry.  As evidenced during fiscal 2008, the industry is a highly competitive business, which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. By capitalizing on our previous experiences during other challenging times, our team is responding to the difficult environment and driving results. We remain confident in the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

 

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This excerpt taken from the EAT 10-Q filed Jan 31, 2008.

OVERVIEW

 

At December 26, 2007, we owned, operated, or franchised 1,872 restaurants through our four brands:  Chili’s, Macaroni Grill, On The Border, and Maggiano’s.   The casual dining industry continues to face a challenging operating environment due to various factors such as the continually expanding array of food options in the marketplace.  Consumers have also limited their discretionary spending in response to economic uncertainties and price increases for essential goods and services.  In addition, commodity and labor costs have continued to increase, all of which negatively impacted our results during the second quarter of fiscal 2008.  While our results for the second quarter fell short of expectations, we are fully committed to aggressively pursuing all avenues to enhance shareholder return from both an operational and financial perspective.  We have continued to drive shareholder value by executing several operational and financial strategies over the last eighteen months including selling company-owned restaurants to strong franchisees, closing underperforming locations, divesting of brands, returning capital directly to our shareholders through aggressive share repurchases, growth of our dividend program, reimaging Chili’s restaurants and growing our international presence.  The achievement of these strategies can be seen in the following highlights from the second quarter of fiscal 2008:

 

·                  Sold 76 Chili’s restaurants to ERJ Dining IV, LLC;

·                  Increased royalty revenues from franchisees by 57.4 percent;

·                  Built 18 new company-owned restaurants and saw franchisees build 27 new restaurants;

·                  Entered into an agreement with CMR, S.A.B. de C.V. for the joint investment in a new corporation to develop 50 Chili’s Grill & Bar and Maggiano’s Little Italy restaurants in Mexico, 6 of which have recently opened;

·                  Increased quarterly dividend by 22 percent to $0.11 per share; and

·                  Repurchased 4.1 million common shares.

 

In addition, we have been very focused on managing operating expenses, including general and administrative expenses, which allows us to deliver the best possible value to our guests.  We believe the financial discipline demonstrated during these difficult times gives us the flexibility to make the necessary long-term changes to evolve the business.  Our ultimate goal is to build a business model that will enable us to be successful in all macro-economic environments.  We believe the key to reaching this goal resides within our existing restaurants, which will be our focus in the coming months.  Growing profitable ongoing comparable restaurant sales is a critical component of building this business model, the basis of which will be grounded in our five areas of key focus — hospitality; food and beverage excellence; atmosphere; pace and convenience of the dining experience; and international expansion.

 

In the near-term, we are significantly reducing our domestic development and shifting a greater proportion of new restaurant development to our expanding franchise network in the United States and internationally.  With our focus on existing company-owned restaurants, we will restrict development to a limited number of restaurants in selected high-potential markets.  The restaurant site selection process is critical to our long-term success, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques. Multiple factors are considered when locating satisfactory sites including lease or purchase terms, construction and equipment costs, our ability to secure appropriate local governmental permits and approvals, and our capacity to supervise construction and recruit and train management personnel.  We intend to concentrate on the development of

 

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certain identified markets to achieve penetration levels deemed desirable in order to improve competitive position, marketing potential and profitability. Expansion efforts by us and our franchisees will be focused not only on major metropolitan areas, but also on smaller market areas and non-traditional locations (such as airports and food courts) that can adequately support any of our restaurant brands.

 

        In addition, we intend to pursue domestic and international franchise expansion to achieve our goal of increasing franchise ownership of our brands to at least 35% by the end of fiscal year 2008 through an active program of franchising company-owned Chili’s, On The Border and Maggiano’s restaurants and development commitments from franchisees. Future franchise development agreements are expected to remain limited to enterprises having significant restaurant or enterprise management experience and proven financial ability to develop multi-unit operations.

 

As evidenced during fiscal 2008, the restaurant industry is a highly competitive business, which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. Operating margins for restaurants are susceptible to fluctuations in prices of commodities, which include among other things, beef, pork, chicken, seafood, dairy, cheese, produce, energy, wage rates and other necessities to operate a restaurant.  Additionally, the restaurant industry is characterized by a high initial capital investment, coupled with high labor costs.  Despite these risks, we remain confident in the long-term prospects of the industry and in our ability to perform effectively in an extremely competitive marketplace.

 

This excerpt taken from the EAT 10-Q filed Nov 5, 2007.

OVERVIEW

 

At September 26, 2007, we owned, operated, or franchised 1,827 restaurants through our four brands:  Chili’s, Macaroni Grill, On The Border, and Maggiano’s.  Our results during the first quarter of fiscal 2008 were very solid in light of the challenging operating environment we faced.  We continue to be impacted by soft consumer demand for casual dining and increasing commodity and labor costs. We experienced improving trends during the quarter, including positive comparable restaurant sales at Chili’s and Maggiano’s, which we believe is a result of our focus on new menu items and the overall guest experience.  We are also benefiting from the results of our refranchising program through improving company returns and higher operating income flow-through, while also allowing the system to grow our brands quickly in the global marketplace.  Our continued focus on reducing corporate overhead costs combined with our aggressive share repurchase program also contributed to improved results during the first quarter of fiscal 2008.

 

We remain committed to our company’s strategic initiatives that are designed to build our business for the long-term including development, continuous menu innovation and initiatives to improve processes, service and overall customer satisfaction.  We are investing in the long-term health of our brands and our stakeholders with a number of initiatives that will help us to achieve consistent, long-term shareholder value over time.  Growing profitable ongoing comparable restaurant sales is the number one priority for the company and our franchisees.  Growth will be achieved through exceptional brand management, franchise support, culinary and operations innovation and, most importantly, extraordinary hospitality, at a great value.  During the first quarter of 2008, these goals were evidenced by the following operational highlights:

 

                    Revenues increased 3 percent;

                    Company-owned and franchise restaurants, or system restaurants, increased 12 percent;

                    New company restaurant growth was partially offset by selling company restaurants to franchisees resulting in net capacity growth of 2.6 percent (as measured by average-weighted sales weeks);

                    Revenues from franchisees increased 33 percent;

                    Diluted EPS from continuing operations increased 9 percent;

                    Five million common shares were repurchased by the company for approximately $140.0 million; and

                    We entered into two development agreements with new or existing franchisees with commitments to build 57 restaurants over the next several years.

 

We intend to continue the expansion of our restaurant brands by opening units in strategically desirable markets. The restaurant site selection process is critical to our long-term success, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques. We intend to concentrate on the development of certain identified markets to achieve penetration levels deemed desirable in order to improve competitive position, marketing potential and profitability. Expansion efforts by us and our franchisees will be focused not only on major metropolitan areas, but also on smaller market areas and non-

 

 

 

12



 

traditional locations (such as airports and food courts) that can adequately support any of our restaurant brands.  The specific rate at which we are able to open new company-owned restaurants is determined by our success in locating satisfactory sites, negotiating acceptable lease or purchase terms, construction and equipment costs, securing appropriate local governmental permits and approvals, and by our capacity to supervise construction and recruit and train management personnel.

 

In addition, we intend to pursue domestic and international franchise expansion to achieve our goal of increasing franchise ownership of our brands to at least 35% by the end of fiscal year 2008 through an active program of franchising company-owned Chili’s and On The Border restaurants and accelerated development commitments from franchisees. Future franchise development agreements are expected to remain limited to enterprises having significant restaurant or enterprise management experience and proven financial ability to develop multi-unit operations.

 

As we continue to pursue avenues to expand our business, effectively manage the bottom line and enhance the guest experience, we also remain committed to returning capital to our shareholders in the form of increased dividends or additional share repurchases.  This commitment was demonstrated by the repurchase of approximately 5.0 million shares during the first quarter of fiscal 2008.

 

The restaurant industry is a highly competitive business, which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. Operating margins for restaurants are susceptible to fluctuations in prices of commodities, which include among other things, beef, pork, chicken, seafood, dairy, cheese, produce, energy, wage rates and other necessities to operate a restaurant.  Additionally, the restaurant industry is characterized by a high initial capital investment, coupled with high labor costs.  Despite these risks, we remain confident in the long-term prospects of the industry and in our ability to perform effectively in an extremely competitive marketplace.

 

This excerpt taken from the EAT DEF 14A filed Sep 10, 2007.

Overview

        The Compensation Committee ("Committee") is comprised entirely of independent directors who are responsible for ensuring our compensation programs align with our compensation philosophy of rewarding performance. Specifically, the Committee reviews and approves any compensation decisions regarding senior vice presidents and above (with input from the CEO), including the Chairman and CEO. Further information about the duties of the Committee can be found in the Compensation Committee Charter, which can be found on our website at http://brinker.com/corp_gov/comp_committee.asp. To make certain the Committee is able to effectively carry out its responsibilities, it takes the following actions:

    Retains an independent consultant (currently Pearl Meyer & Partners) to advise on executive compensation.

    Benchmarks with an outside, independent third party vendor to determine competitive compensation levels based on a peer group that represents both restaurant companies and those companies with whom we compete for talent. The peer group for each officer may vary depending on the nature and scope of his/her individual responsibilities.

    Reviews annually detailed compensation tally sheets for the named executive officers.

    Submits recommendations to the full Board of Directors for ratification on matters concerning the CEO and compensation policy changes such as the implementation of stock ownership guidelines.

    Holds executive sessions (without our management present) at every Committee meeting.

This excerpt taken from the EAT 10-K filed Aug 27, 2007.

OVERVIEW

        We are principally engaged in the ownership, operation, development, and franchising of the Chili's Grill & Bar ("Chili's"), Romano's Macaroni Grill ("Macaroni Grill"), On The Border Mexican Grill & Cantina ("On The Border"), and Maggiano's Little Italy ("Maggiano's") restaurant brands. At June 27, 2007, we owned, operated, or franchised 1,801 restaurants. In September 2005, we entered into an agreement to sell Corner Bakery Cafe ("Corner Bakery"). The sale of the brand was completed in February 2006. As a result, Corner Bakery is presented as discontinued operations in the accompanying consolidated financial statements. The casual dining segment of the industry faced a difficult operating environment in fiscal 2007 which prevented our brands from achieving targeted operating results. Negative comparable restaurant sales across all of our brands were due primarily to declines in customer traffic driven by several factors. There continues to be significant competition in casual dining and macroeconomic pressures have decreased consumers' discretionary income. Despite the challenges we faced this year, we remain committed to our company's strategies that are designed to build our business for the long-term and grow shareholder value. Our strategic priorities are focused on achieving our long-term vision of being the dominant, global casual dining restaurant portfolio company, including the following:

    increasing the base business through industry-leading brand building, innovation and operating performance;
    developing, operating and franchising profitable restaurants worldwide; and
    leveraging our customers, business relationships, infrastructure and expertise across the company's portfolio of brands.

        These strategies are designed to grow shareholder value by delivering long-term results and are intended to enable Brinker to perform favorably in a variety of economic environments. During fiscal 2007, these strategies resulted in the following operational highlights:

    Increased net income by 8.3% and earnings per share by 14.2% in fiscal 2007 as compared to fiscal 2006;

F-2


    Increased our quarterly dividend in November 2006 by 35% and paid out $40.9 million in dividends during fiscal 2007;
    Repurchased 18.6 million common shares for approximately $569.3 million;
    Opened 149 company-owned and 46 franchised restaurants, including 30 international restaurants;
    Sold 95 company-owned Chili's restaurants to Pepper Dining, Inc., a new franchisee, with commitments to develop an additional 14-38 new franchised Chili's restaurants;
    Sold 15 company-owned Chili's restaurants and two company-owned On The Border restaurants to franchisees, with commitments to develop an additional 31 new franchised Chili's and 10 On The Border restaurants;
    Signed agreement with an existing franchisee, ERJ Dining IV, LLC ("ERJ Dining") to sell 76 company-owned Chili's restaurants with commitments to develop an additional 49 new franchised Chili's restaurants;
    In total, the company entered into 18 development agreements with new or existing franchisees with commitments to develop 130-154 franchised restaurants over time;
    Increased investment in team members, particularly at the hourly and restaurant management levels, to improve the overall guest experience, increase restaurant employee tenure and reduce future restaurant training and hiring costs;
    Sold a record $254.7 million in gift cards system wide, redeemable across Brinker's portfolio of restaurant brands; and
    Piloted a new customer engagement survey with a planned system wide rollout beginning in fiscal 2008.

        We intend to continue the expansion of our restaurant brands by opening restaurants in strategically desirable markets. The restaurant site selection process is critical to our long-term success, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques. We intend to concentrate on the development of certain identified markets to achieve penetration levels deemed desirable in order to improve competitive position, marketing potential and profitability. Expansion efforts will be focused not only on major metropolitan areas, but also on smaller market areas and non-traditional locations (such as airports and food courts) that can adequately support any of our restaurant brands. The specific rate at which we are able to open new restaurants is determined by our success in locating satisfactory sites, negotiating acceptable lease or purchase terms, construction and equipment costs, securing appropriate local governmental permits and approvals, and by our capacity to supervise construction and recruit and train management personnel.

        In addition, we intend to pursue domestic and international franchise expansion to achieve our goal of increasing franchise ownership of our brands from a current mix of 27% to approximately 35% by the end of fiscal year 2008 through an active program of franchising company-owned Chili's, Macaroni Grill, and On The Border restaurants and increased development commitments from franchisees. Future franchise development agreements are expected to remain limited to enterprises having significant restaurant or enterprise management experience and proven financial ability to support and develop multi-unit operations. As a result of this transition in our business model to improve cash flow returns through our active program to increase franchise ownership of the system by selling company restaurants to franchisees and reduced development goals, we expect lower revenue growth in fiscal 2008.

        As we continue to pursue avenues to expand our business, effectively manage the bottom line and enhance the guest experience, we also remain committed to returning capital to our shareholders. This commitment was demonstrated by the repurchase of approximately 18.6 million shares, on a split adjusted basis, and increased dividends during fiscal 2007.

F-3



        The restaurant industry is a highly competitive business, which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. Operating margins for restaurants are susceptible to fluctuations in prices of commodities, which include among other things, beef, pork, chicken, seafood, dairy, cheese, produce, energy, wage rates and other necessities to operate a restaurant. Additionally, the restaurant industry is characterized by a high initial capital investment, coupled with high labor costs. Despite these risks, we remain confident in the long-term prospects of the industry and in our ability to perform effectively in an extremely competitive marketplace.

This excerpt taken from the EAT 10-Q filed May 7, 2007.

OVERVIEW

At March 28, 2007, we owned, operated, or franchised 1,756 restaurants through our four brands: Chili’s, Macaroni Grill, On The Border, and Maggiano’s. The third quarter of fiscal 2007 represented a difficult operating environment for the casual dining industry and prevented our brands from achieving targeted operating results. Negative comparable restaurant sales across all of our brands were due in part to severe winter weather, increased competition, lower price increases and less advertising this year versus last year. The reduced sales growth for the third quarter did not permit the sales leverage we realized in the first half of fiscal 2007 to continue into the third quarter. Despite the current challenges, we remain committed to our company’s strategic initiatives that are designed to build our business for the long-term. We will continue to focus on our core strategies of developing new profitable restaurants, growing comparable restaurant sales and base-business profitability through sound operations and marketing initiatives and effectively leveraging our infrastructure.

Our focus on our core strategies revolves around development, continuous menu innovation and initiatives to improve processes, service and overall customer satisfaction. These initiatives are designed to deliver long-term results and are intended to enable Brinker to perform favorably in a variety of economic environments.  During the third quarter of fiscal 2007, these goals were evidenced by the following operational highlights:

·                  The opening of 41 company-owned and 14 franchised restaurants, including seven international restaurants.

·                  Continuous culinary innovations and the introduction of new items to the core menus at all four of our brands.

·                  Increased investment in team members, particularly at the hourly and restaurant management levels, to improve the overall guest experience and increase employee tenure at our restaurants.

·                  Expanded our commitment to our brand extensions such as ToGo and catering, which are growing in popularity as busy consumers look for quality meal solutions.

·                  Entered into an agreement to sell 89 company-owned Chili’s restaurants to Pepper Dining, Inc., which is expected to close by the end of fiscal year 2007. This agreement also includes plans to develop an additional 20-44 new franchised Chili’s locations.

We intend to continue the expansion of our restaurant brands by opening units in strategically desirable markets. The restaurant site selection process is critical to our long-term success, and we devote significant effort to the investigation of new locations utilizing a variety of sophisticated analytical techniques. We intend to concentrate on the development of certain identified markets to achieve penetration levels deemed desirable in order to improve competitive position, marketing potential and profitability. Expansion efforts will be focused not only on major metropolitan areas, but also on smaller market areas and non-traditional locations (such as airports and food courts) that can adequately support any of our restaurant brands.  The specific rate at which we are able to open new restaurants is determined by our success in locating satisfactory sites, negotiating acceptable lease or purchase terms, construction and equipment costs, securing appropriate local governmental permits and approvals, and by our capacity to supervise construction and recruit and train management personnel.

In addition, we intend to pursue domestic and international franchise expansion to achieve our goal of increasing franchise ownership of our brands from 20% to approximately 35% by the end of fiscal year 2008 through an active program of franchising company-owned Chili’s, Macaroni Grill, and On The Border restaurants and accelerated development commitments from franchisees. Future franchise development agreements are expected to remain limited to enterprises having significant restaurant or enterprise management experience and proven financial ability to develop multi-unit operations.

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As we continue to pursue avenues to expand our business, effectively manage the bottom line and enhance the guest experience, we also remain committed to returning capital to our shareholders.  This commitment was demonstrated by the repurchase of approximately 3.2 million shares during the third quarter of fiscal 2007 and approximately 7.7 million shares year-to-date.  In addition, in April 2007 we announced an accelerated share repurchase (“ASR”) agreement to purchase $297 million in common stock.

The restaurant industry is a highly competitive business, which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs. Operating margins for restaurants are susceptible to fluctuations in prices of commodities, which include among other things, beef, pork, chicken, seafood, dairy, cheese, produce, energy, wage rates and other necessities to operate a restaurant.  Additionally, the restaurant industry is characterized by a high initial capital investment, coupled with high labor costs.  Despite these risks, we remain confident in the long-term prospects of the industry and in our ability to perform effectively in an extremely competitive marketplace.

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