Brinker International Inc (EAT) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Brinker international fourth quarter 2002 earnings conference call. At this time all participants have been placed in a listen only mode and we will open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Jeremy Wilson. Sir, the floor is yours.

Thanks Michele. Good morning and welcome to the August 7th 2002 Brinker International fourth quarter and fiscal year end earnings conference call. During our opening remarks and then our responses to your questions certain items may be discussed which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such results and uncertainties include business and economic conditions, the impact of competition, adverse weather conditions, future commodity prices, the seasonality of the company's business, fuel and utility costs, governmental regulations, inflation, consumer perception of food safety, changes in consumer taste, changes in demographic trends, availability of employees, terrorist acts, and other acts of God, and favorable publicity, the companies ability to meet its growth plan and other factors more completely described in the company's filings with the SEC. With me today are Ronald McDougall, Chairman of the board and CEO, Charles Sonsteby, Executive Vice President and Chief Financial Officer and Starlette Johnson, Executive Vice President and Chief Strategic Officer. And now let me turn it over to Ron McDougall, Brinker’s Chairman and CEO.

Thanks Jeremy and good morning everyone. Further this week, we lost someone very special in our company. Ken Dennis, the president of our On The Border concept passed away after a courageous 10-month battle with brain cancer. Kenny began his career as a manager of the first Chili’s back in 1976 and subsequently rose through the ranks to head the IT department and then the marketing department and eventually to President of On The Border. Kenny was instrumental in helping creative foster our casual, friendly and fun loving culture along the way. With over 25 years of service, he was our longest 10-year executive. Kenny was a inspiration to all of us and he will be deeply missed. Over to you Charles.

Well thanks Ron and we will miss Kenny. Fiscal 2002 was an exciting year for Brinker. Thanks to the hard work of our 90,000 employees. But before I talk about the year lets cover our adoption of the 01-9. Our prior accounting policy was to record various sales incentives such as meals given to customers and sales and also record the same transaction in restaurant expense. By adopting this policy net sales and restaurant expenses will be lower by the same dollar amount. Therefore, it will not change operating or net income. Our press release contains results consistent with this pronouncement and 2 years our quarterly breakdowns are located in the investor relations section of our website. And now to the results, revenues for fiscal 2002 grew 20 percent; capacity growth was 19.1 percent with the addition of 105 new company owned restaurants to the portfolio. In fact, the Brinker family reached another milestone during the year as we opened our 1000th company owned restaurant. That's quite an accomplishment, but I can assure you the number 1000 was not just the milestone, it was not the end of the journey.

Comparable same store sales showed resilience at most of our core brands for fiscal 2002. Leading the way was Chili's, which increased 3.2 percent and Maggiano's, which increased 2.8 percent. We are also proud of the substantial improvements made by On The Border, posting a slightly negative comp down only 0.2 percent. Same store sales at Macaroni Grill have remained soft at negative 1.7 percent. Overall same store sales for Brinker were 1.5 percent for fiscal 2002. Sales gains were on forecast and with combined effort of our team overall earnings delivered our objective of growth in excess of 15 percent. Our earnings target for the year was a $1.62 to a $1.64, excluding one time charges and I am proud to say that despite an eventful year the team delivered.

Now looking specifically at fourth quarter, Brinker's revenue increased 19.1 percent fueled by 17.3 percent capacity gain and same store sales increases of 1.9 percent. The development group remained busy, as we opened 28 new company owned restaurants. Franchise revenue was approximately 900,000 dollars less than last year, as a result of the acquisition of Sydran's 39 restaurants. Performance for the quarter was lead by Chili's, which posted a comparable same store sales gain of 3.7 percent. The traffic increased substantially during the fourth quarter, once again displaying the appeal of the Chili's brand. The team added 12 company owned restaurants including four small town prototypes, bringing the total company owned Chili's to 629. There are now 21 small town prototypes or proto 12, as we refer them and we plan to open another 15 in fiscal 2003. This smaller lower investment restaurant is ideal for towns of 25,000 or more or to fill in large urban market areas. In addition, the Chili's team has been busy installing the KDS or Kitchen Display System in 100 of the 629 company owned restaurants. That's almost 16 percent of the restaurant base. KDS is a technology that allows the kitchen to better co-ordinate food preparation times. For the guest, it means getting food delivered to your table as it is meant to be, hot food hot, and cold food cold every time. Plans call for the installation process to be complete this fiscal year creating the foundation for smoother, backup house flows and improvement on Chili's already superb consistency in execution.

To ensure the menu is great, 3 new culinary talents recently joined Chili's. Steve , our new director of culinary operation came from Red Lobster, where he served as their development chef. Steve , joins Chili's as senior product development and innovations chef's and comes from Cheesecake Factory where he was chef de cuisine and Doug joined us as corporate chef for franchise culinary operations from Sky Chefs, where he was executive corporate chef. We expect these new team members to bring exciting new food items to Chili's for years to come. And as Todd always says its all about the food. Macaroni Grill's comp results for the quarters did not meet our expectations. The macro economic environment has taken a disproportionate toll on Mac with costs down 2.4 percent for the quarter and down 1.7 percent for the year. The team has continued to work on building the approachability of the restaurants and changing perceptions about the brand, but consumer image changes without *large media presence takes time. However in selected markets our research indicates the beginning of a perceptual shift in the consumers mind. Over the past year the team has added new southern Italian called red soft dishes to the menu added curb side to go to virtually all their restaurants and developed and tested a new prototype, the proto-9 which is smaller and more comfortable with seeding.

We have nine of these buildings open and they are delivering approximately 20,000 dollars more than the system average per week in sale. These results definitely reinforce our research that consumers prefer a warmer looking Macaroni Grill. And just last week, the team has been further strengthened by the addition of Dave , as Chief operating officer. His passion for the guests and lengthy operations experience made a difference in Cozymel’s, where he served as president. Dave and John Miller, the Macro presidents form an incredible leadership team. On The Border posted positive same store sales results in the fourth quarter up to 1 percent. The results of the Dow's split continue to be positive, as the remodeled restaurants posed customer accounts higher than the control group. As a result of the success we have seen with this initiatives, we have allocated the majority of our 2003 capital spending at OTB to accelerating the remodel. Current remodels are underway in five markets, totaling 13 restaurants. Oklahoma city, Pulsa, Kansas city, Denver and Waco College Station. The changes will include to-go entrances, new signage, neon lights, and new exterior and interior paints and also changes in decor. Current plans are to remodel 20 more in the second quarter and 21 in the second half of the year. That means almost 80 percent of the company owned restaurants will be remodeled by year-end, a very ambitious plan. Maggiano’s continues to shine, posting 4.4 percent comp gain in the fourth quarter and 2.8 percent for the year. Concept opened 2 new restaurants during the quarter , bringing the total number of restaurants to 20. The great performance of this concept in smaller markets continues to reinforce the tremendous potential for this brand and as a side note, remember the Maggiano sales can be more volatile than the other brands for few reasons. First, because the comp store base is only 13 restaurants, they may be more susceptible to weather impacts. Also due to Maggiano's banquet sales, counter sales may impact their report numbers more than other brands. Therefore, it is important to concentrate on the trend rather than the actual monthly comp results. During the fourth quarter the Corner Bakery team opened 3 restaurants for the newest prototype. This new design has demonstrated higher guest satisfaction scores and better-margin performance than the old version.

In February, we remodeled 3 existing locations to incorporate the new designed features. While we are encouraged by these results, we are still in the evaluation process and will be for a little while longer. During the quarter Cozymel's added one new restaurant in the Kansas City, Kansas market. It has been producing amazing sales volumes averaging around 90,000 dollars per week. The departure of Dave Schmilly to Mac Grill, John Malone, a 21-year Brinker veteran has taken the reign as the new President. We look forward to his impact on the continued evolution of Cozymel's costal grill. Big Bowl up in two new restaurants in existing markets over the past few months, one location during the quarter in Denver and another on July 8th in Virginia. We will continue to focus in brand development in a limited number of markets, as we build to our penetration and media efficiency. And last but not least our joint venture partner Rock Fish opened two new restaurants in the fourth quarter and both of those were in Houston bringing their total number of restaurants to 12. Now lets take few minutes to review the expense items for the quarter. Cost to sales were 27.1 percent this quarter approximately 70 basis points lower than last year, primarily due to sales leverage and decreases in commodity prices primarily for ribs, shrimp, and dairy. Restaurant expenses increased to 54.9 percent of sale up a 100 basis points versus the same quarter last year. However as you may have noted in our press release we signed a letter of intent to divest of our interest in Eatzi’s and as a result we recorded an after tax charge of 5.8 million dollars for the difference between the sales price and the notes receivable balance. This transaction negatively impacted restaurant expense by 110 basis points. So without that we would have seen positive leverage, as restaurant expenses would have been 10 basis points better than last year. The impact of the Sydran acquisition and higher health-insurance costs negatively impacted restaurant expense, but they were offset by slightly lower pre-opening costs in electric and gas utility costs versus last year. Depreciation and amortization cost of 4.8 percent were 70 basis point higher than last year primarily due to the addition of 140 more restaurants. General and administrative costs were slightly higher, 20 basis points on a year-over-year basis. Operating income excluding the one time event was 10 percent a great achievement by our operations team. Interest expense decreased 2.7 million dollars from just over 3 million dollars last year, as a result of lower average debt levels and lower-interest rates. The tax rate increased to 33.5 percent from 33.1 percent for the same quarter in fiscal 2001. Last year's fourth quarter tax rate was lower due to the receipt of a one and half million-dollar refund for targeted jobs tax credit. The rate decreased on a full year basis to 34.1 percent.

Exclusive of the charge during the fourth quarter our net income was up 16.8 percent and diluted earnings per share increased 19.1 percent. We believe that share repurchase is the most tax efficient way to return excess cash shareholders. Therefore, we continued our aggressive share repurchase program during the fourth quarter buying back approximately 865,000 shares during the period. This brings the total amount repurchased since the inception of the plan to over 327 million dollars. And as a result, we decreased our share count year-over-year delivering on a continued commitment to maximize shareholder returns. At fiscal year-end, we had approximately 80 million dollars left in our repurchase authorization and we will be signing an affidavit supporting our financial statements along with our 10K, when it is filed with the SEC and that's due on or before September 24th 2002. Ron McDougall and I have always taken seriously our signing of the 10Ks prior to these new rules and I see this is no change in our representations that our financial statements are reported accurately. Now let's take a look at our outlook for the first quarter. Top line revenue was anticipated to grow 16 percent driven primarily by capacity gains. We will open up 115 new company restaurants and 34 franchise locations for a total of 149. While the industry has seen some softening and traffic during the last year, we firmly believe that dining out has remained a way of life for consumers today. Our short-term sales forecast for the coming quarter remains at flat 2 percent. Continuing with the favorable commodity pricing we saw in the fourth quarter, the outlook for shrimp, dairy and red meat pricing is still flat despite slightly favorable. So, we expect cost-to-sales to be better than the first quarter of last year. Restaurant expense will be slightly higher year-over-year due to the impact of the Sydran acquisition. Cost pressures such as labor and utilities have subsided and should remain favorable in the first quarter. Health insurance costs on the other hand as with most businesses in this country will be rising in the near term. Depreciation and amortization on a dollar basis will increase in the first quarter, a little more extra. We will leverage G&A expenses and expect them to come in below 4 percent of revenue. Interest expense should be around 4 million dollars a slight rise over the first quarter last year due to increased debt levels and our tax rate should be 34 percent for the first quarter and remain there for the fiscal year.

Our existing share-repurchase program should be sufficient to keep the share count flat-to-down sequentially. So, based on these assumptions, we anticipate earnings per share for the first quarter to be 44 to 45 cents and an estimate of $1.87 to a $1.91 for the fiscal year as we reported in the press release. Consumers may react in the short-term to the latest dip in the Dow or other external events. However, the main drivers of casual dining growth, demographic trends, and lifestyle changes have not changed. Working at Macaroni Grill, it changes the consumer's impression of the brand. The remodel on the borders have shown that they can be successful in one of the most competitive Tex-Mex market in the country. Concepts that do the job of delivering great food and service at reasonable prices will continue to succeed. Our largest core brand Chili's has already gained that reputation and brand image nationwide. Maggiano’s and its markets have gained a total in the consumers' mind at delivering these attributes. We are excited about continued growth opportunities and the tasks for the next year are clear, we are confident our team will again deliver results. Now, I will turn it over for questions.

Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments please press the number 1 followed by 4 on your touchtone phone at this time. Pressing 1-4 a second time will remove you from the queue should your question be answered. After we do ask for posing your question then you please pick up your handset, if it is on speakerphone for optimum sound quality. Please hold till we post your questions. Thank you, your first question is coming from John Glass. Please announce your affiliation then post your question.

Thanks it's CIBC. Two questions, one is just a check on the guidance for 2003. Is there any more detail you can provide in terms of your expected capacity growth? Is there anything that on a full year basis is going on with the margins that might be unusual that we should note now? And then secondly could you speak a little bit about July comp store sales, your trends during the week, trends during the month, we seem to be getting some mixed messages about how the consumer is responding. And I wonder if you can provide any detail on your brand, thanks.

For us next year, you know capacity gains will really be most of that 16 percent top line revenue that we said. In terms of same store sales, we are still looking at 02 percent, John. Cost pressures really seem pretty good throughout the whole income statement, labor costs aren't as high as they have been lately, utilities was down, health insurance is really the only thing moving up and that's maybe 20 basis points, so all in all restaurant expenses should be flat, maybe a little bit slightly worse, primarily just because of the Sydran acquisition. Commodity prices look great. We don't see any big pressures on ribs, red meat, shrimps they all look real good right now. I think the only thing with July, we really haven't seen big changes and through the week everything's remained fairly constant and consistent and don't want to get into really parsing the daily trends too much, I think that you can get misled by looking just at one month's numbers or one month's comps. Again, we believe that the long term fundamentals of casual dining really haven't changed at all. Maybe people got a little spooked here or there because the Dow is down near 400 points today, but I don't think that the underlying driver for revenue growth here is lifestyles and consumer demographics. Those haven't changed at all.

And just in terms of guidance, you're expecting margin expansion in 2003, I presume and by how much just like on an operating margin basis?

On an operating margin basis, we are expecting it to be flat, slightly down, primarily due to the acquisition of the Sydran restaurants, we still have not left that and won't until second quarter.

Got you, thank you.

Thank you. Your next question is coming from Janice Meyer. Please announce your affiliation and then post your question.

Hi this is Janice Meyer with First Boston. Couple of questions, one is July obviously is running flat so your guidance was flat up to kind of you know implies that you don't expect things to slow further. So, I was wondering, you know, were you, know how you would have come up with that conclusion, is there anything that you have seen or heard? On The Border, you indicated that with Macaroni Grill, you are making nice changes, but since you are not media efficient it is hard to get that message across to the consumer. You are spending money behind On The Border, but I don't think On The Border, there is media efficiency either so. Why will the consumers see those changes and then thirdly, for Chili's, the strongest results you have really seen at Chili's this whole decade has been prompted after the mid 90s when you put, you know, money back on the plate, you have raised your food costs, improved your quality, , you know, we thought you were training and you really made a big investment in Chili's and it sort of leaped frogging you over the competition and drove many years of positive same-store sales. Given this low food cost environment, why wouldn't you be thinking of about may be doing the same thing and be leap frogging Chili's again?

On second question, 02, we don't expect to see necessarily same-store sales decelerating, but we don't expect them to see them accelerating in a rapid rate either. We think that 02 has been, something we have been able to produce over the last year and still remain pretty confident that we can do it for the balance of the quarter. With On The Border, you are right, we don't have media efficiency in all markets either, but we have seen such good response in Dallas that we think it is the right thing to do for the brand long-term. So it may take a while for the guests to notice the difference and see the difference when we do those remodels in other markets, but we think it is the right thing to do long term. With Macaroni Grill, we are trying a couple of remodels, but again it has been too early to tell if there has been a substantial change in consumer response. With Chili's, I think, we are set in a stage to see can we raise it to the next level. Certainly the culinary additions that Tod and team have made during the quarter set us up for being able to look at what can we give back to the guests that is new, that is exciting, that offers a great price value. So that's obviously something we are taking a look at.

Can you envision of doing the same thing you did in the 90s where you said, you know, food costs were, you know, going up a point or instead of now being, you know, down half a point you know food costs will be flat to up and we are putting it back on the plate or is there anything you do to you want to not, you want still be able to slow the lower commodities to the margin?

I would rather not comment on that for competitive reason.

Okay okay.

I mean it seems like everything that we do is adopted , I would rather not give anybody a 6-month or one-year head start.

Okay thanks.

Thank you. Your next question is coming from Jeffrey Omohundro, please announce your affiliation and then post your question.

Well thanks. Wachovia Securities. I've got three questions. Wondered if you will expand a little bit on the mixed shift that is On The Border and what the customer is looking forward for concepts on the menu. Also on the Macaroni Grill prototype and the increase in the average weekly sales of about 20,000 per week, I wonder if you could remind us what the system average is and if maybe you could explain a little bit on what might be driving it, you know, what particular attributes of the prototype do you think is working and also on that if the real estate on the site is comparable to the balance of the Macro System and finally you know, we are seeing I guess some companies looking at expensing of stock options of course with option based incentives has been important in that, as disclosing your footnotes would have fairly significant impact on reporting net income if they were expensed. What are your thoughts on that subject as well?

Okay. Let me see if I can remember all those. Number 1 was mixed shift at OTB. Mixed shift at OTB has been positive because of some of the new menu additions we've made. We went a while without adding any new products to the menu and last November added new appetizers and desserts and we've been slowly adding a few new on trays. All of those have had a bit higher price points in terms of the and in the desserts and appetizers were obvious add-ons. Success of those has driven the check average higher. The second question, could you help me out again?

Yeah, the Macro Group Prototype

The average for the system is about 62,000 dollars a week, so that 20,000 dollars increase is pretty substantial.

And is there anything

We think it is due to the fact that it has got more boost. It is a little bit more divided dining room. Some of the old prototypes when you walk in, it's just one big empty room and on a Monday or Tuesday night you feel like you are sitting in the middle of the Basketball quarters if you are sitting there and the restaurant's not full. With this warmer prototype, it is a little bit more divided out, it's bit more intimate, it has booth ceiling, which is more accommodating to families. It just has a better warmer feel. So, we are thinking that these attributes are helping to drive that higher same store sales average. On stock options, we will comply with the expensing of options when it becomes more common place in our industry or else required by FAS. And for us, there is a lot of opportunity for confusion because many of our competitors have franchises. You know, we own and operate most of our restaurants. We grant options very deep into the organization. We give options all the way down to the assistant manager level. So, we think for us, if we expense, it might cause some confusion with investors. If you take all that into account, we are still in the middle of pack, so you know, even though we have got a different business model, we don't necessarily have a much higher cost of options than our competitors. So, we'll take a look at it and when it becomes common place then we will go ahead and expense them.

Thank you

Thank you. Your next question is coming from Bryan Elliott, please announce your affiliation, then post your question.

Thanks. Raymond James and Associates. Couple of clarifications on previous comments. You gave, I believe it is 16 percent capacity forecast for Q1, is that similar, is that also the forecast for fiscal year?

We gave 16 percent of total revenue gain. Capacity would be somewhat less than that and any better than that 16 percent revenue gain would be 0 to 2 in cost.

Okay.

Thanks for allowing me to clarify that one.

And update with fiscal year, either revenue or capacity forecast better than the guidance for the year?

I believe at least half of the, it is going to be somewhere around 14 percent.

Okay. And the EBIT margin, you said, expected flat-to-down slightly, was that a Q1 or a full year or both forecast?

That would be a Q1 forecast.

Okay and full year forecast? or do you cannot do?

I would rather not. It is too early.

That is fine, that is fine.

We have a few more quarters.

Okay, all right, no problem. Commodities, how far forward are you hedged and what do you think for the fiscal year some of the risks or opportunities for further commodity declines might be?

Well, we are hedged on most of our beef prices through the balance of the calendar year and then chicken is obviously much shorter and has the ability to move on your order more frequently, but it is a shorter growing season, so it can't stabilize much quicker, but overall, if we look for commodity prices for the full fiscal year, it could be pretty favorable.

Okay, you don't see any risk at this point? I guess it was always uncertainty that is not a fair question. I would like to take a shot at the global-sales environment and get a little, even just anecdotal or observational comments, from you, it appears to me with much less detail than you all have, that, you know, it looks like maybe the lower end of the consumer as where we are seeing some of the sales declines over the last couple of months and, you know, we are seeing some comments that our retailers and sort of global, you know, consumer softening in and, you know, that is my read at this point, but somewhat stabbing in the dark for an explanation. As you look at your numbers, may be geographically or where there is a little more, middle-to-lower middle income, demographics in your stores, are you seeing anything that could help us better understand what is going on out there from a big picture standpoint?

We really haven't seen any perceptible trends that would forecast theory.....

Okay, so it has been more an across the board geography and type of store, slow down over the last couple of months relative to the previous run rates?

I would say yes.

Okay. Thanks.

Thank you your next question is coming from John Anthony please announce your affiliation and then pose your question.

Yeah, McDonald investments. Good morning.

Good morning.

First half, I was wondering on Eatzi's if you could just kind of remind, remind us about, that it was my understanding that you just had debt outstanding to them. Is this write off and just writing that debt off and I will give you my next question later?

Yes. What we were doing is selling the notes receivables to an investment group headed by . They wanted to grow the brand some for some time and we wanted to continue the focus on our core brand and some of the emerging brands that we have in the portfolio. This allowed them to do that, so we sold the balance of the notes receivables and any claims we had against the assets to them for an 11.0 million dollars. At least we have a letter of intent to do that to, quantify myself.

Okay. So they were on your books for 16,17...

It was on for around 20.0 million dollars at 5.7 million dollars as an after tax number.

Okay got you right. Big Bowl if I remember correct if you could kind of just give us an update on the returns there kind of remember that those are somewhat close Chili's as far as the return on invested capital. Any thoughts on why not to expand that concept a little quicker?

Well first of all on returns, when we talked about them at the investor conference we wanted to not to be tied down to talk about them about them every quarter. We are very happy with the returns at Big Bowl. Let me just leave it at that and again we are trying that they stay consistent with what our position was back in February. I am not trying to dodge the question or anything else John and for the strategy let us bring in Starlette to talk a little bit about that.

Okay, well in terms of the developments involved in the pace, actually I think we are very comfortable with the rate right now. As you heard earlier one of their key development strategies is to develop for media potential and media efficiency. At the same time you want to be sure you have got the time to have the right management talent on board and develop and train and you know such a small base, we think the pace at around eight between 5 and 8 a year is quite a very good pace for them right now to get a firm positioning in the marketplace and to grow on both the markets that we are currently in. So we don't want to expand it any more rapidly than the concept can bear and when the time is right to increase expansion we will.

And at what point would you believe you would have that infrastructure in place to expand more quickly?

Well I think right now, we are looking at about 8 to 10 restaurants per year for the next couple of years and then we will pick up the pace from there.

Okay. And then last question on Maggiano's, it looks like the mix as I guess is the trend hasn't increased as much and it is just over the last two months and I am wondering is that just the volatility that you have been talking about or is there is some other kind of trend as far as consumers, customers trading down?

I don't think two months is enough for what I could say there is an absolute trend at Maggiano's, I think for them because of the banquet business and the very heart of their business model mix is probably not as indicative as it might be at something like Chili's or Macaroni or Eatzi's the same guests coming in for the same experience every day.

Okay. Thank you.

Thank you. Your next question is coming from Andy Barish. Please announce your affiliation then post your questions.

That's Banc of America securities. Couple of questions, the pricing numbers we are seeing I don't recall anything new so is that, can you just give us a quick update I guess that year end pricing calendar, year end pricing that you took in most of the brand. And then secondly on OTB, I guess you are shipping some new unit growth at this point to the remodel side of things on the CAPEX, you are I guess confident in the returning characteristics at this point to roll those out and then finally on Macaroni Grill, any difference in media versus non-media markets in terms of the comp numbers, say anything trend wise that would be different in previous types of results?

Okay on the first one, let me go through what our price increases that we had at the different brands through June. Price increase at Chili's through June was 1.5 percent for Macaroni Grill was 1.8 percent, for On The Border was 1.9 percent, for Maggiano's was 7/10 of 1 percent, which means overall for Brinker it was 1.5 percent. So for July Chili's was the same 1.5 percent and Macaroni Grill was the same, On The Border last 9/10 of price in July, so they are only carrying a 1 percent price increase going forward, Maggiano's took a little bit there at 8/10 of 1 percent in July and so that makes Brinker overall about the same at 1.5 percent on a weighted average.

On Macaroni Grill, in terms of difference on media and non-media markets, we really have not seen a huge difference in media or non-media. They have been right in the past reported below, this last media period and media flight, and same store sales have been pretty much the same everywhere.

And in CAPEX on OTB, is more comfortable on the remodels right now, than opening the stores?

Yeah. I think we have seen great returns from the remodeled locations, we are getting definitely higher RLIC, and we think it's important to get that base of restaurants right. So, we will do a few less here in 2003, we are also developing the new prototype and it will be ready for that, so that the restaurants that we open up in fiscal year 2004, best use of our capital.

Thanks.

Thanks Andy.

Thank you, your next question is coming from Tournier Witter please announce your affiliation and then post your question.

Hi, with Goldman Sachs. I have a couple of questions. I'm just continuing On The Border question. Should I assume that one should analyze the remodel, which just sounds like most of it will be done in 2003, and when your prototype is ready that you can take back your new unit growth back to the historical trend in the following year. Second, if you can remind us on the Sydran acquisition which you had in October, how much of an impact that has?

That's been about 10 basis points on operating margins overall, and I believe, you will have that in November, the first time. So it will be a full 10 basis points in the first quarter and then it would be somewhat limited in the second quarter. That was 39 Chili's restaurant that we bought, really on the western half of the US.

Okay. And then in terms of advertising, or what kind of trends are you seeing with buying media?

Probably trends in terms of media, are you talking about expense or just in the absolute spending?

Those on absolute spending but what kind of pricing are you seeing in the market place?

Okay. Well we are right now as we kind of put together our plans for 2003, we are actually getting more efficient use of our advertising dollars particularly at Chili's but on national media, there in terms of and we are going to extend it a little bit more this coming year basically due to the fact of the territories with regard with Sydran and over the last of couple of years that have taken our total spending up by keeping our percent of spending pretty much the same. On an overall, media inflation prices are up a little bit, but not significant, but we still should be able to add more weeks and more efficient at all three other brands.

Okay and then the final question. If you could tell us what that seems to serve us for the month of June as well as what your promotions are going at the month of August for Chili's and Macaroni Grill?

Okay. The June comps, Chili's was 2.9 percent, Macro Grill was down 3.5 percent, On the Border was 3/10 of a percent, Maggiano's was 5.1 percent, Brinker overall comps for June were up 1.2 percent. For our promotions, Chili's is running now along with the as I said Mac's running chicken quarter and OTB is running the original .

And that's for the month of August?

That's what we are running currently, correct.

Okay. Thank you.

Your next question is coming from Joe Buckely, please announce your affiliation and ............

I am with Bear Stearns and I have a couple of questions as well. First just on the commodity cost outlook, I wonder if could specifically address beef, just what you are hearing on the beef costs going forward and then your questions on Macaroni Grill, yeah, I guess here is what you are seeing in the curbside to go you know whether the out business as a percent of sales is going up given the overall you know what you are concluding in terms of cannibalization of that, curious on the new prototype, how many of those you have opened and you have whether all of the openings in the new fiscal year would be that new prototype and just a little clarification on Dave and this finances last time but am I correct to use the guidance that you gave from the Syndran acquisition and what we just see his responsibilities versus John Millers at Macaroni on an ongoing basis. And lastly, our CAPEX number both for the year that just ended and for the projection for the New Year?

Okay, when you see back you will remember all those. Red meat prices are up slightly but they are still lower than the historical numbers and we have got as I said contracted prices through the balance of the year and the outlook for the beef looks pretty good. On the prototypes, we will be opening both some of the old prototypes, just a couple, and then the new proto-9s will open up mostly through the balance of the year for Mac. I have to check that to make exactly sure of the numbers. If you can call me later or anybody who has that question, call me later and I can give the break down between how many are the new prototypes. In terms of the percentages we are seeing increases at to go at all the brands you know, Chili's is around 7.3 percent of sales, Macaroni Grill is running just under 5 and OTB is around 3 percent and then Dave did join us from the Sydran acquisition and it has been president of Cozymel's here for almost a year and we didn't want him to get comfortable there, it's such a great job at Cozy's, brought him into Mac Grill and he will really be responsible for taking care the operations making sure that things are running well mostly in the restaurants and work really as a team with John and help us out at Macron.

We are really pleased. John had to look more at the strategy side of business doing the . We want Macaroni growth position to be fast and there is a little comment on Dave, Dave is long-term Chili use every on the company. So Dave's got a long term with the company, he was with us before joining Sydran, he is back with us again. He is a tremendous leader and I think with the situation Macaroni grows right now with both John and Dave team mates in the same that is exactly the right move we need to make to strengthen up that team up and get Macaroni grow up position moving ahead of you.

In terms of CAPEX, last year we were just over around 260 million dollars. Our fiscal year 2003 CAPEX will go up with all the additional remodels, we are going to be accelerating our spending during the year and also we have been seeing more land purchases of late. We will be going north of 300 million dollars in total with KDS also as part of the capital spend. We should be somewhere in the 310 to 320, 320 million dollars to spend which is up from what we had expected in February.

Okay. Thanks John.

Thank you. Your next question is coming from Michael Sherrick, please announce your affiliation then post your question.

Thanks. Morgan Stanley. I know you didn't want to dig too much deeper into the July comps but you have given the sales and stock. It's probably fair to take a little bit more of a look at it. Can you give us any color with regard to specific geographic weakness or specific components to the demographics and sort of what actions if any are you taking as you think about your forward promotions to emphasize value and so forth, you know, try and accelerate the comp store sales?

I think for us we really haven't seen huge discrepancies in days of the week or regional preferences. If we had to overall paint the picture, I would say, city is affected by what we call fatigue, mostly from travel technology or telecom, those towns have been softer in general. But that's been an ongoing trend, that didn't change dramatically in July. We got a number of initiatives that we are implementing in all the brands and I don't want to severe ends, list all those mostly for competitive reasons but again we were in our range of flat to 2 although our sales was at the bottom of the range. We still think that '02 is a good forecast going forward.

Is it fair to say that the performance that you saw as part to reaction internally?

Absolutely.

We were disappointed, yes we were but again we are staying focused on what, to balance. The message is actually consumer in terms of value but it is a kind of broad based, again not any similar, specific demographic groups or region of the country other than perhaps some of the largest cities as Chuck said but that certainly got our attention but we remain focused on making sure we have the right messages and the right offers out to the consumer.

Okay and just to follow up on Mac Grill, you talked about, prototype - 9, the cost of that I assume is lower than the traditional prototypes and you are obviously getting greater revenue generation. What's the size and how can the existing prototypes be adjusted and what's the cost to adjust those to make them more like, you know, the friendlier environment prototype 9?

Michael, it is a little cheaper building than we have been building, it's got a few less seats but we seem to be able to get a consistent amount of traffic. And then on the go-forward basis we are doing a couple of remodels. We put those in test back in February and we are looking to see which element are successful and being put into the remodel. We try to get those same elements and get them into the existing prototypes.

Okay, thank you.

Your next question is coming from Peter Oakes. Please announce your affiliation and then post your question.

Hi good morning actually I have one question on Macaroni Grill. I think you are, if I had calculated correctly I think you are 5 straight quarters now of flat negative comps which does suggest there is a trend of not only some softness but even under performing its direct competitors in that category and I know you have taken a look at making the brand more approachable and looking at lunch versus dinner and obviously you know lot of discussion about new prototype but are we at a point now we are starting think a little bit more of execution being one of the shortcomings that is contributing to that underperformance?

Well, Peter we have been looking at that for sometime and trying to make sure that we weren't executing badly and that wasn't why people had gotten soft and our scores, which is something we get on a continued basis is feedback from 800 numbers that gets this call. Those scores really haven't deteriorated at all from Macaroni Grill, they have stayed at very high levels but I will say that we do agree it has been they have been under performing than their competitors and they have been soft and again we think John and Dave together can get this thing turned around and get it back on track.

Okay thanks.

Your next question is coming from please announce your affiliation and then post your question.

I am with Coast Asset Management. Just a quick question sort of mechanical, could you just tell me what is your operating lease payments were for 2002, minimal lease obligations?

I don't have that number, if you could call myself or Jeremy or anybody else answer that, we can get it for you.

Okay thank you.

Sorry about that.

Thanks. That's it.

For us, you know, if we took our total debt-to-cap, then we look at leases as being a dead obligation and we capitalize those at 8 times to run the numbers, for us our debt-to-cap including those leases at 8 times would still be under 50 percent, we will try to keep it under 55 in total and right now we are running right just under 50 percent.

Thank you.

Thank you. Your next question is coming from John Ivankoe, please announce your affiliation and then post your question.

It is JP Morgan and Fleming Investor Management. Welcome questions, what would be the impact on this past years EPS if options have been fully accounted, do you have that from the ?

If we had taken you know if we had adopted the FAS , it would be about 4 cents for existing if we would take the cumulative amount of all years options, it would be close to 15 cents.

Okay, okay and then in terms of beginnings of a perceptual change that you mentioned about Macaroni Grill, is there anything specific you can talk about in that regard to give us some more color?

Well I think what we are seeing from our internal research right now in some of our markets is that we are beginning to see the customer using us a little bit different, a little bit difference customer coming in the door and we are beginning to strike a little bit of frequency again as Charles said it takes a pretty long time, we don't have the power of National Media to communicate changes to brand and to go to bring new guests and whom I have traditionally as seeing a little higher price and higher end and so what we are seeing in store and some of their markets right now is very encouraging we just have to get to to be able to communicate that message a little broader.

And to someone who is to new to your name to some degree, what is that that causes you all to be less media efficient in terms of getting people to know what is going on with the is it just because the are not located I mean this is as wide spread enough in terms of allocation?

It is not in terms of were the stores are actually located but the number of them and the density in the markets development plan itself.

Okay got you.

In the process sales to sales. You mentioned operating leverage and quantity prices. Would that be way to break down what the contributions of those pieces was? Or at least say what are your thoughts?

For us, the primary beneficiary was on rib prices, we improved about 50 basis points this year versus last year, just due to rib pricing last year as there was the hook and mouth disease in Denmark which impacted the supply of ribs into the US, so domestic ribs really ribs and in fact, you can hardly find them at any price, so that was it and we saw a big blip upwards last year in cost of sales, so we blabbed that now and that was 50 basis points of the benefit.

Oh, I see. So I guess that brings you kind of a question, kind of operating methods, when you look at someone Jordan versus yourself, and I know it's not a because in some cases, the formats are very different but when you think about your competition, what is it that is causing them to have you know mid single digits to double digits pretty consistently over the last 12 months ignoring the monitory prices, this is the kind of same-store sales that you folks haven't been putting. How are you all thinking about that issue?

I think same-store sales are dependent on a number of issues, media efficiency, amount of media, price increases, mix shifts, what you've done, they are doing a great job of execution and I think we are doing a great job of execution at some of our brands we would like to get same-store sales stronger at others and we are taking the steps to get there.

Okay. Great. They weren't to take anymore for today. Thank you.

Thank you.

Thank you. Next question is coming from Alan Szydlowski. Please announce your affiliation, then pose your question.

Hi, US Trust. Chuck, could you kind of just detail for me why the charge for the Eatzi's was in the restaurant expenses because I thought Eatzi's was traditionally treated kind of below the line and then second, could you just may be I know there was a management at Cozymel's and bringing him into the fold of another concept but does that the indicative of any kind of change of thinking on the company's part in terms of Cozymel's or development or returns in any way?

First question on the Eatzi's and the orders made us do it, we have always recorded bad debt in restaurant expense, primary most of our bad debt would be you know not receiving a credit card payment, etc. consistent with that treatment, we would require to put that in restaurant expense. I made that same argument as you did Alan, but unfortunately again auditors disagreed and did not want us to get us into hot water with the SEC, so and that's how we reported. Star, you want to take the next piece?

Sure, on Cozymel, we are absolutely still committed to that brand and into the positioning that today when the team have been working on joining Macaroni Grill, I think is going to be a tremendous leader for that concept we are still looking at but the next year opening one, and then getting the development plan pick backup for eventually 2 to 3 a year with the longer term positioning, we feel for Cozymel has gone forward.

Great. Thanks.

Thank you. Your next question is coming from John Ivankoe, please announce your affiliation then post your question.

Hi thanks. JP Morgan hopefully for short questions, first on Chili's it would, you kind of review the advertising campaign may be specifically related to the Nsync campaign, do you think that dirve the rib preference that you would have like to have seen or would have expected to have seen in July, second question if you would please review the economics of the On The Border remodels whether those have changed relatives recently and finally, just I guess it is the number question, what was the operating tax rate that you used to get the 50 cents? Thanks.

First question on the sales, we think it did drive sales during July. However if you look at mix, mix wasn't really up because we also did ribs last year so, we are you know comparable at year-over-year say it would be necessarily a dramatic change and again last year rib sales jumped up because availability finally started to happen because we are allowed to start importing Baby Back Ribs in July of last year. The remodels, we are seeing great pay back on that, we are seeing above our 25 percent rate back substantially above that, so we are confident that it's the right thing to do going forward and then on the last piece operating tax rate, hold on let me look at the, I am sorry I didn't the press release, John should have been...sorry, look a page here. For us the effective tax rate for the current quarter was 33.5 percent. That was tax, that's a normal rate in other words. follow on John?

Yes, I am sorry, so the bad debt was then therefore taxed at the normal rate in the quarter?

Yes, it was.

Okay, that's great. That's all I was asking. Thanks.

Okay. Thank you John.

Thank you. Your next question is coming from Bryan Elliott. Please announce your affiliation, then post your question.

Hi, Raymond James. The Eatzi's, do you have any residual equity interest that is not on the balance sheet or if they hit a home run, you don't participate?

We are not carrying anything else in value. They hit a home run, allow them.

Okay, fair enough. A couple of follow-ups, the land purchase increase, are you....when you talked about the Cap-budget are you seeing more land available, it may be indicative of the economic on capital market environment or do you read anything, you know, give a little flavor into what you will see going on there?

I think that will be fair to say. We are seeing a few more land purchases come through, some of it because we are buying you know multiple parcels to put our brands on and other because I think developers are needing some capital to go ahead and build out developments and are getting that by selling the out parcels versus may be a few years ago, would have been in a lease mode and willing to lease to anybody. Now they're selling off out parcels being capital to go ahead and complete developments.

Is that translating into some downward pressure on actual purchase prices?

A little bit but you know, everybody still wants the corner main and main, so I can't say it has been a bunch, but we are seeing development costs in terms of construction really has stayed soft and continued soft and that's been a good thing because we are paying less than we had anticipated for the sites that we are currently opening and signing contracts for.

Very good. Thank you.

Thank you. Your next question is coming from Paul Westra. Please announce your affiliation, then post your question.

Yeah it's Paul Westra with SG Cowen. Three quick ones here. Can you touch on your technology initiative here again on your kitchen display system You said that's going nation wide as soon as Chili's. Is that company franchised by you and is there an opportunity for the other concepts to adopt it or form of it and also on Chili's your prototype 12 looks like it's 20 percent or so is in mix, is that the same that you would have previously expected, sounds like things are going well there. And last question, just update us on your share repurchase plan, how much is left and your current buying pattern?

Okay. The first question on the kitchen display system, that was just being company -owned restaurants, franchise have and not necessarily adopted that but it is pretty exciting because what it does is if you order a steak, it may have a 20-minute cook time and you order a salad, it may have a 5-minute prep time. It's up to the kitchen now to balance those orders as they both come out the same time. What this technology does, is it holds the salad order in queue, steak comes up immediately, the salad holds in queue for 15 minutes, so that the 5-minute prep time matches up with the last 5-minute cook time for the steak. So for the guest may be given a sizzling steak and cold crisp salad at the same time. If you think that there is opportunity that the other brand, everybody is lining up to try to get that, but we are putting our resources behind getting Chili's rolled out right now, some of the new restaurants and the other brands will be adopted or adapted the KDS to fit their prototype and their concepts and they're putting those in place.

Franchise is the option just what going to be like typical or we will have to wait to see that?

Yeah, franchise partners, I like to make sure, that there is an absolute quick return and for us we have seen better increases in gas better, gets satisfaction for us. Franchise is in general, little bit slower to adopt, think they require capital spending.

Second question on the proto-12, we have been really encouraged by that. 20 restaurants is not actually but the ones we have opened to 20 percent, did not necessarily an acceleration we have been saying it will be 20 to 25 percent going forward. And we'll continue that. We picked up the development rate at Chili's, a little bit next years. Chili's is going good, they have got sites in the pipeline; because of maybe some reduced costs. More restaurants are being approved for Chili's and that's a good thing, that 's definitely cylinders right now. Share repurchase, we had about 80 million available as of the end of the fiscal year. I would typify our buying as `when available`. I mean we don't necessarily stand out and only buy-back stock at certain times. We are only due to such accretive, the earnings, and right now that makes it, we've got a long gap between where the stock price is now and where it is stored accretive.

More longer for your patience. I'm sorry Paul.

Right. Got it . Thanks

Thank you. Your next question is coming from Mathew DiFrisco . Please announce your affiliation, then post your question.

Matt Frisco, Gerard Klauer Mattison just got three questions here. Corner Bakery, if you comment on, what you are seeing in trends in average weekly sales there? And then two questions on the Macaroni Grill. In the first quarter here, you are lapping in Mac Grill, a negative 2.7. Behind your 2002 guidance, are you assuming or, can we feel comfortable assuming that you are looking at a positive quarter from Mac Grill in comps there and then lastly media efficiency for Macro, can you give us a percentage of what of the Macro base is media efficient now and what will become media efficient, given your growth plans for the fist half of 2003.

Okay. We haven't disclosed average weekly sales trends on anything other than core brands and Corner Bakery is not yet in our category. With Mac, we . 2.7, we would not anticipate Mac to be positive or even flat this quarter. We still anticipate it to be negative. We certainly have designs on improving comp store sales at Mac, but don't necessarily have it that 2002 forecast, I would think it is going to remain the same and Star, you want to talk about where we are in the Mac.

Yeah, in 2002, we had about 55 percent of the system covered with some combination of CB radio and we expect to have about that same in 2003, as we move forward in 2003, as the weather development schedule fell. We are going to get about 55, 58 percent of the system covered with media this year.

So,...........

Longer term, we certainly expect to be able to build toward National Media and be able to run National Media for the next two years at the current pace of development. So, at this rate 55 took off 60 percent by the end of 2003 and in another next two years moving to National, National Media.

So, I guess, I was making the assumption that your new growth would be and you get to some markets where you are not been efficient by expanding into there and getting enough density. So that 55, so you are gaining media efficiency by growing 55 to 60. Is that correct? From 2002 to 2003?

Overtime yes, the development, this is the pace of development in the markets that we were going in and close to 18 months in terms of opening a store takes a lot of our impact, given, again I remember our first 100 units around 33, different DMAs that was taking some time to impact that number but 55 to 58 percent by the end of 2003 but it could be around close to 60 in 2004 moving up from there.

Okay. Thank you.

Thank you. Your next question is coming from Mitch Speiser. Please announce your affiliation then post your question.

Lehman Brothers. Few questions, first on unit development just looking back at the February analyst meeting it does look like you have upticked Chili's development. I am wondering if those are smaller units or perhaps in your acquired markets when that incremental unit growth is coming from, then on the side, you didn't mention on the board you did scale down for development in 2003, it looks like Corner Bakery as well, you did slow down, I am just wondering why you did slow down Corner Bakery and then a couple of follow-ups? Thanks.

Yes, you are right. In terms of Chili's they have been on pace again with the success of the brand kind of work where it is going with the proto-12 within the current markets that they are in. They are comfortable in picking up the pace of development at Chili's. At Corner Bakery we have backed up a number a little bit, again as we have been reading the proto-3 and understanding its impact and the impacts on the remodels and felt that was slightly better and don't get a firm understanding and then go back to a more expanded pace for Corner Bakery again keeping in the same markets that it is currently operating and I am sorry, On The Border again that was as Chuck mentioned a reallocation primarily to the remodels and give us time to rework the prototype for going forward and be ready for that in 2004.

Okay and couple of others, your relative G&A expense was up in the fourth quarter, first time in a while, I would imagine bonus accruals were not the reason for that or you can explain while relative G&A was up in the fourth quarter and then lastly just on the KDS system, is that a proprietary type technology or patented coming on that. Thanks.

Yeah. Bonus accruals were up in the fourth quarter. So that was the reason for G&A increase, KDS has some elements of a proprietary technology and certainly it is something that it has developed by an outside firm but it has been modified by us specifically to work for Chili's and the other brands that we have certain a little bit .

Thanks.

Thank you your last question is coming from , please announce your affiliation then post your question.

Yes ....

I am with . I work with Ted and DSN Capital . My question has to do with share repurchases you stock now. Is that the lowest range and absolute terms of PE, and any shares repurchase that at this point would be immediately accretive. Why are you going so slowly with the share repurchase and why is it not expanded and increased on a rapid basis. Thank you.

Well, we feel like it's always great to have some but we have been very aggressive in buying back shares. We bought back, either on 65000 shares, last quarter, I think as you might look, last year we bought back a couple of million shares. We've always been very aggressive.

Given the cash flow, and the balance sheet be positive, buy back substantially more shares that's really the reason for my questions, immediately accredited very substantially if is hardly ever been lower. Fundamental zone or sometimes they are better sometimes they are little worse.

Thanks, thanks for the advertisement, we appreciate that. Yeah, we've been aggressive and I think you can see that continue, I don't think we want to dip our hand as our board has been very supportive and as always are being able to get higher authorizations every time we've gone to it. And I think that, we think share repurchases is the right thing. You know, I agree with it.

Well, thanks for your flexibility today, allowing us to move the conference call. As you know, it's a very tough day here at Brinker. So, as a reminder, sales for the August period on September 5th. If you have any questions, please feel free to call or myself. However I won't be available for after 3' O clock today. Thanks a lot. Bye bye.

Thank you ladies and gentlemen. This does concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.