Brinker International Inc (EAT) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Brinker International's first quarter fiscal year 2003 earnings conference call. At this time, all participants have been placed on a listen-only mode. We will open the floor for questions and comments following the presentation.

It is my pleasure to turn the floor over to the host, Mr. Jeremy Wilson (ph), Director of Investor Relations for Brinker.

Good morning, and welcome to the October 22, 2002, Brinker International first quarter fiscal 2003 earnings conference call. During our opening remarks, and in response 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 the anticipated. Such risks and uncertainties include business and economic conditions, impact of competition, adverse weather conditions, future commodity prices, seasonality of the company's business, fuel and utility cost, governmental regulations, inflation, consumer perceptions of food safety, changes in consumer taste, changes in demographic trend, availability of employees, terrorists acts and other acts of God, unfavorable publicity, the company's ability to meet its growth plans, and other factors more completely described in the company's filings with the SEC.

With me today are Ron McDougall, Chairman of the Board and Chief Executive Officer, Doug Brooks, President and COO, Chuck Sonsteby, EVP and CFO, and Starlette Johnson, EVP and Chief Strategic Officer.

With that, let me turn it over to Chuck Sonsteby.

Good morning, and thank you for joining us today. The macro environment has been one of high points and low points driven by stock market volatility, global events, and a general concern over trends and consumer confidence, all of which have impacted consumer spending.

However, through it all, despite it all, people are still dining out. Hectic lifestyles and demographic trends incorporate food away from home as an increasingly important and perhaps necessary part of the daily schedules. These trends help provide some insulation against the backdrop of slower consumer spending. You may not need a new computer or pair of pants, but chances are you will be hungry three times per day, and our brands are there to meet that need.

While the quarter was challenging for us, as well as business in general, we are happy to report earnings growth of 15%.

Let's take a closer look at first quarter performance. Total revenue growth was 15%. Franchise revenue was approximately 6.3 million. Capacity, measured in sales weeks, gained 15.2% as we added 27 company-owned restaurants.

As you know, the quarter started slowly. Overall same-store sales were slightly positive, up 1-10th of 1% for the July period and 2-10ths of 1% for August. In September, comparisons eased for some concepts, which created a significant rebound of same-store sales. For the period, we were up 2.4%, producing a quarterly Brinker comp of positive 8-10ths of 1%.

Using calendar year 2000 as a base in order to dial out the effects of last September, our sales began to pick up after Labor Day. Chili's is still on track. That is important because they account for 60% of total revenues and 70% of profit, a testament to their size and efficiency. That strength continues to drive the overall performance of the company.

Our largest brand posted same-store sales gains of 1.9% for the first quarter, performance stronger than it may initially appear. So let's discuss some of the factors behind the September results.

Unlike many other casual dining concepts, Chili's posted positive sales last year as customers used our to-go in record numbers. In addition, a slight rebalancing of advertising schedules created one less week of advertising in the first quarter of this year versus the same time period last year. Development team added 19 company-owned restaurants, including 7 small-town prototypes, bringing the total number of company-owned Chili's to 648. There are now 25 small-town restaurants open and operating and 11 more scheduled to open before the end of the fiscal year.

Our development strategy has been to open more restaurants in the first part of the year. We are accomplishing that goal. During the first quarter, Chili's opened 10 more restaurants year-over-year.

Todd (ph) and the team know it is about more than just building restaurants. Therefore, Chili's remains focused on culinary initiatives as well. The chefs who joined the team last quarter are hard at work reviewing everything on the Chili's menu and developing exciting new products to increase the pace of evolution. This balanced perspective demonstrates they remain the most forward-thinking, creative restaurant team in the grill and bar segment.

Macaroni Grill same-store sales showed substantial improvement for the September period, up 3%, lifting the first quarter to a negative 1.5%. Two important factors drove the results. First, Mac introduced a new feature Create Your Own Pasta during the last week of August. If you haven't tried it yet, here is how it works. The guest creates their entree choosing from four types of pastas, eight sauces, and 12 ingredients. The result - a custom-made dish prepared by a chef for $7.99. If you add proteins, it's $2 or $3 more.

This feature is exciting from the consumer perspective, but it was difficult to implement. Congratulations to the Macaroni Grill operations team for embracing a radical new approach and executing on the vision. This initiative reinforces the brand approachability, giving the guest the ability to choose exactly what they want while leveraging our core strength of chef-driven food.

Second, Macaroni Grill initiated a test of national cable advertising for the first time in the brand's history. The campaign had a big impact on the brand's performance, even though they were only on air for relatively short time, about 2 weeks. The results were favorable, as Create Your Own Pasta and national cable drove strong increases on traffic at Mac Grill, a 3.3% gain for September and the brand's best traffic since January of 2001.

From a big-picture perspective, the results of national cable show Macaroni Grill can turn on media for extended period of time and can impact consumer behavior. However, due to the size of Mac Grill, we still are a couple of years away from being totally media efficient. So remember, changes in consumer perceptions without sustained large media presence takes time. While the September results were a great start, we still have work to do.

On the Border posted a negative 1.6% comp for the quarter. As we mentioned last time, due to the continued success of the Dallas control group, we increased the amount of capital spending allocated to OTB remodel and expanded the program to locations outside the Dallas area.

During the first quarter, we completed 12 additional remodels, bringing the total number to 30. Current plans call for approximately 80% of the company-owned restaurants to be remodeled by year-end.

And since our last call, Dave Warnstein (ph) has been promoted to president of the brand. Dave's (ph)experience and leadership will enable the team to implement Ken Dennis' (ph) vision for On the Border.

Maggiano's posted the best quarterly comp sales of all core brands at 4.1%. Mark Tarme (ph) and his team continue to deliver impressive financial results through a never-ending focus on their guests (ph). through the September period, Maggiano's posted a 9.5% increase in comp sales, with 7.8% coming from gains in customer counts. Way to go.

The exciting same-store performance is apparent. However, our success in second-tier markets such as Raleigh-Durham, Boca Raton, and Tampa are less visible, and that success is an important confirmation of our strategy and demonstrates the bright future of the brand.

The Corner Bakery team is continuing the process of reworking the delivery style in new suburban locations to achieve the same great returns we have seen in urban locations. During the first quarter, the Corner Bakery team opened 2 new company-owned restaurants, both of which incorporate the service style. Our Fresh to the Guest program and focus on limited markets has continued to improve financial performance.

The Big Bowl team is testing whether the brand has broad geographic appeal, and they opened 2 new restaurants, one in Washington, D.C. and one in Denver during the first quarter, bringing the total number of locations to 14. Both restaurants are in existing markets, highlighting the brand strategy of building toward market penetration and media efficiency in a limited number of cities.

Rockfish opened 3 new restaurants in the first quarter, bringing the total to 15. One opening, in Chandler, Arizona, is the first Rockfish outside of the state of Texas. That is a major step for the brand. As you know, the focus for Rockfish is to show the concept has strong, grand potential across the country, and this is the first step.

Let's review the income statement for the quarter. Cost of sales were 27.2%, approximately 40 basis points lower than the first quarter of last year, primarily due to lower commodity prices for baby back ribs, shrimp, and dairy. They were partially offset by slightly higher prices on poultry.

One unapparent benefit to a slower economy has been a positive impact on commodity prices. Restaurant expenses were 54.7% of sales, 20 basis points higher than the same quarter last year. Last year's results included a $900,000 benefit from a land sale, and subsequent franchise acquisition of Sydren have made the comparisons tough. We do see some expenses are moving higher. Employee-related costs and pre-opening are the most prevalent. The strategy of opening more restaurants earlier in the year has created higher total pre-opening costs versus last year.

Despite lower overall wage rate increases, we did see higher labor expenses, particularly at Macaroni Grill, and health insurance premiums continue to increase. Offsetting those increases are slightly lower utility expenses and the benefit from lower performance-based costs. Depreciation and amortization expense was 4.8%, 60 basis points higher than last year, due primarily to the addition of 140 restaurants.

General and administrative costs were 4.2%, a 10 basis point increase over last year and was higher than our target. Health insurance costs and the addition of new employees earlier in the year created the increase. Each department head has been urged to find ways to decrease nonessential spending and the team has responded to the challenge.

Operating income was 9.1%, compared to 9.6% last year. Interest expense increased to $4 million, as lower rates offset higher debt levels. Other net was $1.6 million in income. A receipt of $2.2 million from a Keyman (ph) life insurance policy offset $950,000 in expense related to our joint venture with Rockfish.

The tax rate decreased 33.6% from 34.7% for the same quarter in fiscal 2002 due to a reduction in our effective state income tax rate and the insurance proceeds.

We continued our aggressive share repurchase program during the first quarter, buying back approximately 828,000 shares. At the end of the quarter there were approximately $60 million available in the current repurchase authorization. The result was net income increased 13.5% and diluted earnings per share increased 15.4% to 45 cents -- great results in a tough business environment.

Let's talk about outlook for the second quarter. Top line revenue is anticipated to grow at about 14.5% and will continue to be driven mostly by capacity gains. Our forecast is to open approximately 35 additional company-owned and 10 franchised restaurants in the quarter.

Now, please remember there are some is noteworthy events in Q2 this year and our 544 accounting period don't match up with calendar of last year. Comparing October this year to last year will take a little work. Last year, our same-store sales were higher due to our participation in Dying for America. However, Halloween moves to our November period this year, and that is a benefit for October. We anticipate the net impact to hurt October results by around 40 basis points. But despite this tougher comparison, we still anticipate October comp sales will come in at the high end of the stated flat to 2% range.

Calendar comparisons are also different in November and December. The Thanksgiving holiday moves into our December period this year, which adds a sales day in November and creates one less sales day in December. Estimated impact on same-store sales for both those periods will be 4% -- 4% in each period.

In total, our short-term same-store sales forecast for the second quarter is flat to up 2%. Our purchasing group has done an excellent job of sourcing product and locking in favorable commodity pricing. Therefore, the benefits and cost of sales should continue during the second quarter, and these trends are not expected to change throughout the fiscal year.

Restaurant expense as a percent of sales will be flat to slightly higher year-over-year. The challenge will be to offset health insurance costs and improve labor productivity. However, it will be difficult to gain leverage in restaurant expense without same-store sales gains of about 1%.

Depreciation and amortization on a dollar basis will continue to increase as we operate more restaurants year-over-year. General and administrative expenses as a result of our renewed focus are expected to remain flat to lower than last year as a percent of revenues.

Interest expense should be around $3 million and other net should return to a more normalized run rate of $500,000 expense. The tax rate will be 33.6% for the second quarter. We're continually reviewing tax strategy and there may be some opportunities for a lower rate during the fiscal year. Our share repurchase program will continue, and it is likely to keep the share count flat sequentially and down on a year-over-year basis.

With our cash flow in excess of capital spending needs and an investment grade balance sheet, share repurchase continues to be a tax efficient way to increase shareholders value.

Based on these assumptions, we anticipate the range for second quarter earnings per share to be 40 cents to 42 cents, a growth rate of between 14% and 20%.

Earnings are an important measure of our business and we examine every initiative with earnings growth in mind. We won't spend hollow (ph) dollars to drive top-line sale that don't increase earnings. Another important point -- although same-store sales may be soft on a particular brand, their financial performance still beats our cost of capital plus an appropriate risk premium. Despite the concerns and worry, casual dining is doing quite nicely. Whether other businesses are contracting and earnings are plummeting, our sector continues to be the beneficiary of long-term lifestyle changes.

This doesn't mean consumers may not feel tension to pull back as they did in July and August, but it seems to be a temporary, rather than permanent behavior. This was a tough quarter. The initial sales softness in July and August made it difficult. However, September's results and recent performance give us cautious optimism (ph). Our concepts, each with affordable price point, our reputation for culinary focus and high operational standards are poised to capture an expanding number of occasions.

John, we're ready for questions.

Thank you. Ladies and gentlemen, the floor is open for questions. If you have any questions or comments, press 1, followed by 4 on your touch-tone telephone at this time. Pressing 1, 4 a second time will remove you from the queue should your question be answered. Lastly, while posing the question, please pick up your handset if listening on speakerphone for optimum sound quality.

Please hold while we poll for questions.

The first question is coming from Corley Whitter (ph) of Goldman Sachs. Your line is live.

Corley Whitter (ph): Two questions on Macaroni Grill and On the Border. On Macaroni Grill, given the success you've had with cable TV, how often can you afford to be on the air during the coming year? And then secondly, at On the Border, can you remind us what kind of sales list (ph) you had in the Dallas stores and whether the initial results outside of Dallas are similar to what you are seeing there?

I'm sorry, I had a hard time hearing the question. First one again, please?

Corley Whitter (ph): First one was, at Macaroni Grill, given the success you have had with your cable TV advertising, can you afford to be on the air more frequently this year with more of that?

Starlette, do you want to take that one?

Sure. With Mac Grill, we're still testing the national cable we're running right now in the second two weeks of cable for Mac Grill, so we're reading the results and right now what we see is favorable. We are taking a look and then seeing what might come from there. Still early to talk about when we might see this again.

Corley Whitter (ph): Okay. The second question was at On the Border, can you remind us what the sales list was in Dallas when you remodeled and if you are seeing similar results in other markets you are working on?

When we did the Dallas blitz of On the Border remodels, we saw about a 4.5% lift in Dallas versus the rest of the system. We've also had great customer experience scores and results since then. That reapportions to us that the remodels are a necessary and additive part of the guest experience. The 12 we finished in the first quarter, many have just been completed. There really is no data yet. We will continue to watch that moving forward throughout the year.

Corley Whitter (ph): Great. Thank you.

Thank you. Your next question from Joe Buckley (ph) of Bear Stearns. Mr. Buckley (ph), your line is live.

Joe Buckley (ph): Thank you. Going back to Macaroni Grill, talk little about the September experience - were sales stronger when you were on national cable than when you were off? Share with us, if you would, what the customer count and check experiences were? Then, if you would, on Macaroni Grill, update us on how the new prototypes are doing and whether or not you've figured out a way to apply the aspects of the new prototype to existing units through remodels?

Thanks. I guess, to give you an idea what happened in September, we did see very good results once the cable tests started. We see a lot of folks order Mama's Trio (ph) because we did Mama's Trio (ph) for the first two weeks of the national cable and had Create Your Own Pasta on advertising markets which had already gotten media. So we did see lifts in that particular product.

In terms of where our check average went to, mix was slightly negative in September for Mac Grill, down about 1%. It has been down around that range for August and July. So, really didn't see a big change in check average. We saw people ordering at lunch, which increased their check average at lunch, and maybe decreased it a bit at dinner. The effect was down 1% in mix.

That's a good thing for us -- again, we are trying to build frequency and trying to build traffic. It did exactly that. Doug, do you want to take the prototype?

Joe, we remodeled some restaurants -- let me cover that first. The goal is we're trying to make the building more comfortable, family friendly, warmer colors -- just, again, trying to attract more customers to Mac Grill. We have done a couple of those in Dallas and a few in another market, but haven't been done long enough to see results there. We incorporated those same elements in the new prototypes you're speaking of, and they're actually opening higher than the system average. We think part of the reason is the building is less intimidating, more comfortable, family-friendly, all the things we want to accomplish in the remodels, as well.

There's about 11 of those total so far that opened, the newer prototype with slightly different feel.

Joe Buckley (ph): I think last call it was mentioned that those newer prototypes were doing significantly higher average unit volumes; has continued? I think it was about one-third higher than the system, as I recall.

That has continued. It's still outperforming at a higher rate than -- a higher level than older prototypes when they opened.

Joe Buckley (ph): Okay. Can you share anything on the remodels? I know it is a handful of units, but just curious if you are getting good sales response?

We're getting great customer response. We are getting great response from the employees. Even the folks that work there, just about what they hear from the guests. We are seeing short-term positive sales results. We haven't advertised that fact. It takes a while for guests to show up and see there is something different and have those return visits.

What we have done is we have gone to a market and remodeled half the market as a test to see, are we seeing continuous impacts and be able to measure that against the control group, the rest of the restaurants in the market that have not been remodeled? We are still only about 5 or 6 weeks in from that initial test.

Joe Buckley (ph): Is that in Dallas or somewhere else?

The Dallas restaurants we remodeled back in February. These were done in the end of August.

Joe Buckley (ph): Okay.

One last - again, (inaudible) customer comment and I think people have asked this question. The best news is our core regular customers like the new environment. They are not alienated by it. There are plenty of open tables and those are mixed in with booths and slightly different color treatments. The core customer likes it, as well.

Joe Buckley (ph): Sounds good. Thank you.

Thank you. Next question comes from Janice Meyer (ph) of Credit Suisse First Boston. Ma'am, your line is live.

Janice Meyer (ph): Two things. On Macaroni Grill, given your current expansion rate and where your stores are going, when would you just naturally be at least cable media efficient? And on On the Border, can you go into more detail? You said Dallas was up 4.5. Was Dallas as weak as other markets? Is that something we could expect from other markets? Your traffic is still negative at On the Border. So, could you comment a little more on that, and assuming you do the remodels, again, some parameters for what you are looking for, and if the remodels don't get you to where you need to be, what is plan B after the remodels?

Do you want to talk about national cable?

Sure. With Mac Grill right now, the national cable test, we will learn a whole lot about overall media efficiency from Mac Grill to be able to go full system-wide, media efficient -- total media, not just cable, we are about two years away from that. We are early into the test and want to read and see how it holds over the residual of the next couple of weeks and months. That should give us a better barometer of what it's going to take from cable perspective as well.

Janice Meyer (ph): You're saying two years and you might be network media efficient?

Correct.

Janice Meyer (ph): Great.

Generally speaking about On the Border, it is not where we want it to be. The ultimate goal at some point in time, of course, we would love to see positive traffic. And, you know, currently our return on invested capital is still above our company's cost of capital and still added to shareholder returns. It's not going to be driven just by remodels. I am still excited by the brand evolution going on.

New President Dave Ornstein really is focused on service, food quality, execution that happens every day. They have added 15 new items in the last year on the menu. That's where a lot of the positive mix numbers come from. Customers are trying new appetizers, new fajitas and new desserts.

But the remodels themselves, again, customer experience as well as the initial Dallas sales tell us it is the right thing to do. I think we've said in the past, and we still feel like, in terms of Mexican, Dallas is probably one of the most competitive Mexican markets in the country. But our current traffic numbers tell you we were negative in other places. We will play out the remodels and continue on evolve the brand and we think we see positive scoring (ph) down the road at some point in time.

Janice Meyer (ph): Any quantification of at some point?

The 12 we remodeled this quarter have just been completed. We are back to the same story of no national advertising. That's why I talk about execution as the basic part of the restaurant business. It boils down to getting customers back on the short list, which we think the remodels have a chance of doing. People see a new logo, they see new colors, they see a different image of the building. When they come back in, they're going to find a new On the Border than they did the last time they shopped with us.

Janice Meyer (ph): Thank you.

Thank you. Your next question is coming from Mitch Speiser (ph) of Lehman Brothers. Sir, your line is live.

Jeff Bernstein (ph): Good morning. This is actually Jeff Bernstein (ph) on behalf of Mitch (ph). A couple of questions, first focused specifically on Chili's. Just wondering two things - one, for the upcoming quarter, if we're going to be having the same number of add weeks in the coming quarter versus last year, and just wondering how the smaller Chili's format, I guess on an average weekly sales basis, is doing versus the bigger format? And on Corner Bakery, just wondering, stores in urban areas, are they comping positive and what type of service requirements you will implement in the suburban areas for Corner Bakery?

Starlette, you want to talk a little bit about the advertising piece (ph)?

At Chili's, coming into the second quarter, we are looking at one week additional advertising over the same quarter last year. And otherwise, the schedule covers everything we had in place a year ago of one additional week.

(inaudible) results that we've been seeing at Chili's, again, they hurdle (ph) at a lower rate. They're smaller boxes. Their expected average annual volumes are in the $2 million range. We are exceeding that versus the normal size Chili's box (ph) you see everywhere else that's about $2.9 million in sales.

Then, on Corner Bakery, the service style change we are making is really -- Doug, do you want to cover Corner Bakery on a proto 3 (ph)?

What we've done is - as we (inaudible) -- we did 3 remodels. We've also opened 8 new mostly suburban Corner Bakeries with the new service style. Again, we are encouraged by customer feedback. We're also seeing improved returns at what we call sort of the manager's controllable costs at about 2% with that new service style. So, again, excited about short-term returns, excited about what the customer is telling us. We are still evaluating future remodels to the proto 3 (ph) layout.

Jeff Bernstein (ph): Great. Thank you.

Thank you. Your next question is coming from Jonathan Waite (ph) with McDonald Investments.

Jonathan Waite (ph): I was a little unclear on the question of cable advertising going forward for Macaroni Grill. Are you going to do any -- have any weeks of cable advertising in the second quarter for Macaroni Grill? Also, where do you stand on commodities as far as locking into prices and how far out are we on that? Then, lastly, wondering about Rockfish, that new unit in Arizona and how it's doing versus the Texas market?

I will take the advertising question to clarify on Macaroni Grill. We actually have 2 weeks here in October, which is in our the second quarter, that will be on national cable. Beyond that, we don't have any, at this point, further plans. 2 weeks in the second quarter currently on national cable.

In terms of commodity prices, beef and pork, we're primarily contracted through Q3, which for us would be about February. The outlook is really slightly favorable overall. I think some beef products will be slightly unfavorable, but ribs will still be favorable. Poultry, we're looking at perhaps doing a new contract which may give us opportunity there.

And dairy looks favorable going forward. Wheat and flour were contracted through Q4 of this fiscal year for 70% of our usage. The outlook for us, then, would be about flat.

And the Rockfish is opening in Phoenix, is opening up with very similar sales results as the locations here in the Texas market. Very optimistic and excited about it.

Jonathan Waite (ph): Thank you.

Next question from Bryan Elliott (ph) of Raymond James. Please go ahead, sir.

Bryan Elliott (ph): Good morning. Few clarifications and a question. The clarifications on the comps. You talked about calendar problems. Did I get it right that there will be about a 40 basis point negative hit to October, four full percentage points benefit to November and similar 4% point hit to December?

That is exactly right.

Bryan Elliott (ph): All right. Also, the leverage you mentioned, you feel like you need to get about a point of same-store sales to get leverage. Were you referring to the specific restaurant operating expense line or referring to the whole store level counting the cost of goods?

Specifically to restaurant expense.

Bryan Elliott (ph): Thank you. My questions are, balance sheet data, cash, total borrowings, and ending equity?

Let me see.

I will have to touch base with you on that.

Bryan Elliott (ph): Fair enough. Depreciation fell sequentially. Was there an unusual fourth quarter item or -- help me understand ...

Last year we closed a Corner Bakery in the DC area. With our Fresh to the Guest program, that became excess capacity. We took a small expense in the fourth quarter.

Bryan Elliott (ph): Okay. Thank you.

Thank you. Your next question is coming from Hill Davis (ph) of Thomas Weisel Partners. Mr. Davis, please go ahead.

Hill Davis (ph): Hi. You had mentioned that labor cost was higher at Macaroni Grill. Is that due to the Create Your Own Pasta program?

Hill (ph), the Create Your Own Pasta rollout initially caused some opportunities in the restaurant, no question about it. And honestly, in July and August, when sales were not so good, our management needed to do a better job of controlling the cost of the restaurant. As sales went up in September, we saw some improvement. It is something we are focusing on at Macaroni Grill.

We think we understand the Create Your Own Pasta a bit, but it is managing sales with the number of employees and hours they are scheduled to be there.

Hill Davis (ph): Also, I realize the learnings (ph) might not be similar, but is a create your own dish something you can roll out to Chili's or OTB or Maggiano's along those lines that could also drive traffic and could help differentiate the brand in a cluttered environment?

We have a create your own fajita at On the Border menu. That could help, sure.

Hill Davis (ph): Thank you.

Next question is coming from Scott Waltman (ph) of Merrill Lynch. Your line is live.

Scott Waltman (ph): Chuck, could you update us on your to-go mix trends at Chili's and Macaroni Grill?

Doug has that.

Chili's is about 7.5% of sales. Basically all of the remodels have been done. Macaroni Grill is 5.5% of sales. A year ago it was about 4%. They have pretty much all now been fit for curbside. On the Border, done about 35% of the to-go; that's part of the remodels - you also get the to-go piece. On the Border (inaudible) 3.7% of sales, and a year ago was 2.5.

Scott Waltman (ph): Have you seen the new catchy to-go ads? Is that affecting the mix trends at all?

For Chili's?

Scott Waltman (ph): Yes.

We have seen sales continue to trend positive.

Scott Waltman (ph): Thank you.

Thank you. We have a follow-up question from Bryan Elliott (ph) of Raymond James. Sir, please go ahead.

Bryan Elliott (ph): That was quick. I just got done writing it. Everybody has gone elsewhere.

I assume you have all that balance sheet data, right? That wasn't my question. Wanted to confirm my recollection on the acquisitions - we're basically lapping the last significant acquisition that impacted ratios in November, is that correct?

That is correct.

Bryan Elliott (ph): Thanks.

Thank you. Next question is coming from Paul Westra (ph) of SG Cowen. Sir, please go ahead.

Paul Westra (ph): I was wondering if you could give us a geographic trend against the quarter and sales trends or anything happening geographically that is interesting or different?

One of the benefits of Brinker is the fact that we are broadly based geographically, if you were to look at different areas. Again, same trends we have been seeing for a long time, same space around travel, technology, and telecom. Those are soft markets. The economies that are not revolving around that are doing better.

If you get the specifics, for us, seeing strength in southern California, weakness in Northern California. Strength in mid-Atlantic states and Florida. Dallas has been tough, Chicago has been tough. But overall, we are based in larger cities, and they're the ones that will be more tied to macroeconomic trends.

We really don't see anything, you know, that we can discern from blue collar towns or anything else people are trying to find out. We've looked through that and haven't seen anything.

Paul Westra (ph): Great. Just, any more color on Maggiano's? I know you mentioned the 2 new markets and you recapped again what the strategy there is at Maggiano's in those markets?

The good news is we've opened some restaurants in the second-tier markets - the Boca, the Tampa, and Raleigh-Durham. Sales there are similar or the same to the sales in the large markets. I think we are seeing we are a bigger fish in a smaller pond. No difference in the way the customer uses us. The banquet business is healthy. It is making good selections of real estate locations in those small markets. That just gives us confidence that our current goal of 100 locations will be easy to fit, and we are 20% there.

Paul Westra (ph): The Maggiano's stores are same roughly size, cost, to dining room ...

Size is similar. Good news is the cost is lower getting into lower markets, which follows real estate acquisitions or trends for any of the brands. The square footage has gotten slightly smaller in Maggiano's. Recent openings in Los Angeles and Boca are the same size. We are comfortable with the size prototype now.

Paul Westra (ph): Thank you.

Your next question is coming from Maureen Depp (ph) with State Street Research. Your line is now live.

Maureen Depp (ph): Hello. Can you hear me? I think it cut out for a minute. I had a question about Chili's. My question specifically was if you are doing anything to drive volume through the restaurant -- which is obviously very good and the wait times are long -- in terms of the call-ahead business or any nuances there?

We've been a fan of the call-ahead business. We haven't done advertising, like one of our competitors has done, but it is a way sometimes to help change the consumer's perception about wait. My family uses call-ahead when we go out to eat, especially on the weekend. It is a successful strategy. It is in place in almost all Chili's locations around the country now.

Maureen Depp (ph): Thank you.

Thank you. Next question is coming from Rafael Gross (ph) of Gerard Klauer. Your line is live.

Rafael Gross (ph): I just wanted clarification on the other expenses. I know you mentioned something that there was an offset from insurance premium, but I wanted to get more data on that.

Yeah, we did see sine higher expenses primarily due to health insurance costs, both the fact that premiums continue to increase and also the larger number of employees that have been covered. For us that was about $2.3 million more on a year over year basis.

Rafael Gross (ph): How would that come to the negative 1.6 million in other expenses?

Other, net.

Rafael Gross (ph): That is what you are referring to.

We had a positive $2 million in proceeds from a Keyman (ph) life insurance policy. And that was offset by $900,000 in equity pick-up from Rockfish.

Rafael Gross (ph): Okay. Great. Thank you.

I'm sorry. Am I missing the question?

Rafael Gross (ph): That's what I was looking for.

Those two sort of one-time events really created a net income in that line.

Rafael Gross (ph): Got it.

Next question is coming from Susan Hager (ph) of Schroeder's Investment Management.

Susan Hager (ph): I'm wondering if, with 6 fewer shopping days between Thanksgiving and Christmas, if that makes predicting comps more difficult?

Susan (ph), I think it does. We've heard some things that say people won't wait until close to Christmas to go out shopping, they will get on it with a sense of urgency. We don't know what to think. That is part of why we are seeing flat to 2% sales, even though right now, we know October will be at the high end of the range, we want to give ourselves leeway for a Christmas period that could be up in the air. We don't know how consumers are going to react and with the shorter time frame, it leaves it as a wild card.

Susan Hager (ph): So it's probably in your numbers now. It is probably in your numbers right now, in the guidance you have given us?

We are not anticipating a blockbuster Christmas, no.

Susan Hager (ph): Thank you, Chuck.

Okay. With that, that was our last question in the queue. Do you have closing comments you would like to finish the call off with?

Thanks for calling in today. We will release same-store sales for the October period on November seventh. If you have questions, please feel free to call Jeremy or myself. Thank you.

Thank you. That does conclude Brinker International's first quarter fiscal year 2003 earnings conference call. You may disconnect your phone lines at this time. Have a great day. Thank you, again, for your participation.