Brinker International Inc (EAT) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Brinker International fourth-quarter earnings release. At this time, all lines have been placed on 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, Marie Perry, Vice President, Investor Relations and Treasurer. Marie, the floor is yours.

Thank you, Kate. Good morning, everyone, and welcome to the Brinker International fourth-quarter fiscal 2008 earnings call, which is also being broadcast live on the Internet. Today, with us from management are Doug Brooks, Chairman and Chief Executive Officer; Chuck Sonsteby, Chief Financial Officer; and Guy Constant, Senior Vice President of Finance.

Before turning the call, let me quickly remind you of the Safe Harbor regarding forward-looking statements. During our management comments and our responses to your questions, certain items may be discussed which are not entirely based on historical facts. Any such items should be considered forward-looking statements with the meaning of the Private Security Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the Company's filings with the Securities and Exchange Commission.

In addition, Brinker disclaims any intent or obligation to update these forward-looking statements. On this call we may refer to certain non-GAAP financial measures used in its review of the business and believed to provide insight into the Company's ongoing operations. Reconciliations are provided in the tables in the earnings release and on Brinker's website under the financial section of the investor tab for your review.

On the call today, Doug will begin with an update on the Company's long-term areas of focus. He will turn the call over to Chuck to provide a financial recap of the quarter's operating results and the fiscal 2009 outlook. Following these comments, we will open up the call to questions. Now I will turn the call over to Doug.

Thank you, Marie. Good morning, everyone. Fiscal 2008 was a transitional year for Brinker International as we continued to weather a tough macroeconomic environment while taking significant steps to focus our organization on five strategic priorities that build on and complement the Brinker strategy.

As you may remember from our last call, these five areas of focus are designed to grow our base business by engaging and delighting our guests; differentiating our brands from competitors throughout the industry; reducing the costs associated with managing our restaurants; and establishing a strong presence in key markets around the world. We have come to think of these five priorities as part of our aspiration to transform the guest experience, focusing all of our actions on improvements within the four walls of our existing restaurants. This morning I will provide an update on each of these five priorities.

Perhaps our most exciting area of focus is our attention to customizing pace and convenience for the guest. Using a combination of hospitality, process improvements, and cutting-edge technologies, Brinker brands will be able to deliver a dining experience that is tailored to our guests' individual pacing preferences. Whether they are in a hurry or want to relax over a leisurely meal, we will deliver an experience like none other in the industry. With cutting-edge improvements in place, we can deliver an exceptional dining experience that could be 15 minutes shorter than the typical 45-minute meal, if desired by the guest. We also can be flexible to provide an outstanding experience in a more relaxed pace, as the guest and the occasion requires.

Our activities around this focus consist of several interrelated initiatives that transform the guest experience both in and outside the restaurant. Our intention is to design a fully-integrated restaurant technology system that dramatically changes the casual dining experience at every guest touchpoint.

Now in June, we began using new kitchen equipment designed to expedite cooking processes and retain or improve food quality at 20 Chili's restaurants. We are evaluating the equipment's ability to deliver a reduction in cook times for selected menu items, getting hot, fresh food to the guest table faster than our traditional kitchens have. At restaurants where the technology is in place, guests are responding favorably to the prompt delivery of meals to their tables.

Two selected On The Border and Chili's restaurants are currently piloting a fully-integrated technology system which includes enabling technologies in both the front and the back of the house. A second Chili's location will be added during the first quarter of fiscal 2009. Guests at these lead restaurants tell us they enjoy being able to order quickly and determine the pace of service appropriate to their individual occasions.

As far as completion dates and investment cost, we expect a full rollout of the new kitchen by the end of fiscal 2009 and expect implementation of the integrated technology system to be well underway by the close of the year. As mentioned previously, Brinker has dedicated $25 million to $30 million in our capital expenditure projections for fiscal 2009 for these initiatives.

While technology enables better customization of the dining experience, it can't stand alone. Attentive, responsive team members are crucial to reading each guest and delivering the overall experience that they crave. While we investigate enabling technologies, we are also preparing our restaurant teams for a significant change with comprehensive training programs.

In addition, our brands continue to explore service practices and menu offerings that customize the dining experience for guests. For example, all four brands are experimenting with behavioral changes that can transform the payment process. With low or no cost invested, our servers can quickly process payment for the guest who has completed a meal and is ready to be on their way.

New menu options targeting the busy guest, specifically Chili's new Bottomless Express Lunch featuring unlimited soup, salad, chips and salsa, deliver a quick and satisfying meal priced for value. In April, we supported this new offering along with our popular new Big Mouth Bites with national TV advertising and experienced mid-single-digit lift in comp lunch sales.

Our focus on pace and convenience is not limited to the dine-in experience. We are also building on our strength and innovation in ToGo by implementing significant improvements that help us deliver hot, fresh orders that are on time and accurate for our guest. These improvements include new technology as well as new packaging and new processes designed to offer a superior ToGo experience.

At Chili's these improvements have been supported by spot media in key markets. In the fourth quarter, Chili's rolled out ToGo improvements in Dallas, Los Angeles, Tampa, Houston, Orlando, and Miami, and supported the implementation with spot media. In these key markets for the brand, we experienced an average ToGo sales lift of 5% to 10%. Because ToGo sales represent approximately 10% of total Chili's sales, we're encouraged by the growth potential of these results and are moving with urgency to roll out the improvements to the entire Chili's system by the end of the fiscal year 2009.

Our next area of focus is ensuring our restaurant atmosphere represents the vibrant and relevant personalities of our brands and offers a warm and welcoming atmosphere for guests. The current reimage program at Chili's has demonstrated progress in driving incremental traffic, as guests return to the brand in the fully remodeled and updated restaurants. This new, more contemporary take on our well-known brand is bringing guests back to Chili's and proving successful in enhancing the overall dining atmosphere.

In fiscal 2008, we completed re-images at 73 older, solid-performing restaurants; and results show mid-single-digit growth in guest count. Using guest feedback gleaned from the first phase, the Chili's team refined the scope of re-image components to reduce the total investment cost while preserving the redesign elements that clearly resonate with guests. In the fourth quarter, we completed two modified re-images at a cost $100,000 less than those in the first phase, while still experiencing impressive lifts in sales and traffic. The program will continue into fiscal 2009 as we re-image 80 to 90 additional domestic restaurants at that lower cost.

An ongoing area of focus for Brinker International's brands is food and beverage excellence. In an environment where guests are more selective about where they spend their dining dollars, we will differentiate Brinker brands by delivering against high standards of execution in food and beverage quality.

Across all brands, manager conferences were held throughout this summer emphasizing messages of hospitality and flawless food and beverage execution. In addition, ongoing training and development initiatives at the hourly level focus on reviewing core menu specifications to ensure our food is properly prepared and served. All our development efforts are designed with the goal of having the best-trained restaurant teams in the industry.

On The Border has implemented new management roles in the kitchen to oversee preparation and quality checks. Chili's also implemented quarterly all-team-member meetings where the entire restaurant reviews hospitality principles, learns about new menu items, and reviews specs for core menu items.

To deliver on its promise to serve picture-perfect food, On The Border began the process of re-certifying all heart of the house or kitchen team members in culinary execution. At Maggiano's Little Italy, daily shift meetings reinforce the brand's priority to develop knowledgeable servers by recognizing outstanding service and educating team members on menu items and drink pairings.

Culinary innovation was a key focus for all Brinker brands throughout fiscal 2008. Our flagship brand, Chili's, continues to differentiate from others in the grill and bar segment by capitalizing on the vibrant bold personality of the brand's iconic chili pepper. In 2008, Chili's built on its competitive strength by introducing new menu items that tap into the guest preference for kicked up layers of flavor. In the fourth quarter, new Big Mouth Bites became the brand's number-one selling burger on the menu. Chili's will continue to build promotions around punched up favorites and value messages in fiscal year 2009.

Chili's received praise by Parents Magazine in July as one of the Top 10 Best Family Restaurants. In addition to the brand's growing array of menu options for kids, the magazine recognize Chili's for its efforts to fight childhood cancer by raising more than $8.2 million for St. Jude Children's Research Hospital in 2007.

On The Border brand is proudly serving the world's favorite Mexican food with compelling menu options that include guest favorites, exciting new features, healthier choices, and value offerings. In the fourth quarter, the brand introduced Tres Favoritos, a three-course value offering that includes a starter, an entree, and a dessert, as well as its take on a popular summer beverage, the new Mexican Mojito. On The Border will continue to innovate in fiscal year 2009 with its current promotion of grilled enchiladas which began July 24.

Maggiano's continues its legacy of chef-created dishes by updating its award-winning Little Italy's Favorite menu, with new lobster fettuccine, beef braciole, and chicken francaise. During its annual Eat a Dish for Make a Wish promotion, teammates and guests nationwide donated more than $200,000 to grant the wishes of children with life-threatening conditions.

Fulfilling the guest need for convenient value-priced options at lunch, Maggiano's has begun testing a new lighter menu in four locations in July. This special menu features combo meals, seasonal dishes, and salads that appeal to those wanting smaller portions and more value for the midday meal. The brand is also focused on improvements to its beverage menu with an updated wine list and a planned redesign of its happy hour program, including some new drink specials and expanded menu offerings.

Tying all of these areas of focus together, Brinker and its brands are creating a culture of hospitality that establishes emotional connections with our guests and engages our team members. In fiscal 2008, all four Brinker brands implemented fully-integrated hospitality platforms. In addition to comprehensive training delivered to all levels of our restaurant teams, the brands also implemented ongoing communication and education to continually reinforce hospitality best practices. Benefiting from regular storytelling, recognition, and enhanced incentive programs, our team members are taking the hospitality message to heart.

Better yet, our guests have taken notice, and satisfaction scores at all four brands far exceeded our goals for the fiscal year.

As mentioned previously, Chili's quarterly all-team-member meetings utilizing satellite TV technology deliver a consistent message to all restaurant teams on the same day. It's been highly effective in educating, engaging, and energizing our restaurant team members.

The hospitality recertification program at On The Border is reinforcing best practices. At Maggiano's daily shift meetings, new service systems and manager training have enhanced the overall hospitality platform.

Each Brinker brand continues to benefit from our hourly hiring process, which enables restaurant management to identify potential team members with the natural affinity to connect with our guests. As a result, we have not only seen improvement in guest satisfaction but also in team member loyalty and engagement. Chili's hourly turnover decreased 26% from 2007.

In addition, our decision to slow domestic development has resulted in increased manager retention, effectiveness, and less management churn. As a result, our managers can devote more time to optimizing existing restaurants, coaching longer-tenured team members, and taking advantage of leadership development opportunities. These achievements are significant when you consider that providing hospitality is about cultivating relationships. With loyal team members and managers in place, we are better equipped to establish stronger relationships with our guests.

Another exciting new way we are reinforcing hospitality and improving team member engagement and retention is with the national rollout of the team members' Rewards Card by the end of calendar year 2008. This generous benefit not only enables hourly team members to enjoy discounted meals at corporate restaurants, but also builds knowledge of our brands and encourages dining out with families and friends. A further benefit to the program is its advantage in recruiting skilled talent in an increasingly competitive labor market.

We gauge our progress with hospitality through our guest experience measurement program, which measures guest satisfaction according to a unique set of key attributes for each one of our brands. On a year-over-year basis, Brinker experienced double-digit growth across all four brands, driven primarily by hospitality and culinary excellence. We believe this improvement in scores should be a leading indicator for improved sales and traffic.

Our final area of focus is to continue disciplined and aggressive international expansion, with the goal of establishing 300 restaurants outside of the United States by the end of our calendar year 2010. During fiscal 2008, our fiscal year, we furthered this goal by adding 32 new international restaurants in key markets around the world.

Fourth-quarter openings included new Chili's restaurants in Canada, Mexico, and Abu Dhabi; new On The Border restaurants in Egypt and the United Arab Emirates; as well as a new Macaroni Grill in Egypt. To date, 178 Brinker restaurants operate internationally in 24 countries and one territory outside the United States. In fiscal year 2009, our plan is to build 33 to 38 additional restaurants, further strengthening our presence around the globe.

Throughout the year, our global development team took steps to enter new and emerging international markets by signing 11 new agreements and franchise partners. These deals enable Brinker to extend our presence with 106 new restaurants in new markets such as India, Morocco, El Salvador, and Singapore, while leveraging our positions of strength in the Middle East and Mexico. With current high interest in our brands and a number of active agreements in place, we are well on our way to achieving our goals for international expansion.

Focusing on markets where there is high demand for Western dining brands as well as the potential to build a significant number of restaurants, Brinker will build out its presence in regions such as Latin America. Fiscal year 2008 marked a considerable joint venture agreement with our partner CMR in Mexico, which will effectively double our presence in the country -- more than 100 restaurants over the next few years. To date, CMR has developed eight Chili's restaurant as a result of the agreement, one of which happened in the fourth quarter. Development will continue into fiscal 2009, when CMR will build an additional 13 restaurants, bringing the total to 21 of the 50 planned.

In both Mexico and the Middle East, where the presence of Brinker brands is strongest, our franchise partners are leveraging the power of the portfolio to increase traffic and sales by forming a marketing coalition. By partnering with other franchisees, all business owners can benefit from advertising opportunities that build guest awareness and drive traffic to the restaurant.

While we aggressively pursue our goals for international expansion, we also grew strategically in key domestic markets with the help of our franchise partners. In fiscal year 2008, we built 114 new domestic restaurants through combined development of 43 new franchise locations and 70 Company-owned, 26 net of closures. Although Brinker continues to be challenged by a highly competitive environment, increased fuel and commodity costs, and an uncertain economy, we are more focused and more motivated than ever to produce results for our shareholders.

Our attention and progress on the five areas of focus are evidence that our foundational strategy is sound. While we continue to optimize the use of capital by being disciplined about new restaurant development, closing underperforming locations, selling Company restaurants to strong franchisees, optimizing our debt levels, and increasing capital directly to the shareholders in the form of increasing dividends or stock buybacks. This is important in our efforts to run the business efficiently by managing operating expenses, including G&A.

Our top priority as an organization remains increasing profitable traffic over time and maintaining overall margins. We're encouraged by the early progress on our strategic priorities, but realize there is much more to be achieved over the long term.

With that, I will now turn the call over to Chuck to provide further detail and commentary on our fourth-quarter business.

Well, thanks, Doug. We are encouraged with the progress we have made on our five areas of focus and the related impact of the fourth-quarter fiscal 2008 results. As I am sure you saw in the press release today, in accordance with accounting principles, Macaroni Grill has been removed from discontinued operations for all periods previously presented and included in our results from continuing operations. Brinker is in negotiations with a qualified buyer, and the contemplated deal will be structured to include a continuing minority ownership interest in Macaroni Grill by Brinker and the lease of certain Brinker-owned properties to the buyer.

As part of the announcement of a deal, Brinker will provide the financial terms and other details of the agreement. Currently, a pretax impairment ranging from $45 million to $60 million is expected to be reflected in the fiscal 2008 Form 10-K filing.

Fiscal 2008 proved to be challenging, but certainly included some key financial accomplishments while cementing the financial foundation needed for fiscal 2009 and beyond. First, comparable restaurant sales increased 1% for the fourth quarter, driven by an increase at Chili's of 3.4%. More specifically, the sales trends at Chili's for the second half of the year were solid. Excluding the impact of California, Nevada, Florida, and Arizona, which are the states most hardest hit by the subprime crisis, sales at Chili's increased to 5.3% in the fourth quarter.

In looking at the traffic trends for these states, we continue to see sequential improvement through the end of the fourth quarter compared to earlier in the year, with the exception of Florida which had some mixed trends.

So additionally, for the fourth consecutive quarter, Chili's comp sales handily outpaced the KNAPP-TRACK casual dining industry benchmark. This gap demonstrates the initiatives in place at Chili's are delivering a differentiated experience.

The domestic franchise system comparable restaurant sales as a whole are more similar to those seen at Chili's outside of those subprime states. International franchise performance is even stronger, in the high single digits. So as a result, Brinker's systemwide sales for the quarter increased 7% over the same quarter in prior year, a testament to the strength of the brands.

In addition, we laid out a clear goal of moving our franchise mix, and large strides were made. During the year, we sold 76 Company-owned restaurants to franchisees and opened a net 60 franchise locations, including eight under our joint venture agreement with CMR in Mexico. At year-end, our franchise mix is 33%; and excluding Macaroni Grill, it is 36%.

Credit markets have extended the deal cycle. As such, certain contemplated transactions have moved to fiscal year 2009, but still appear likely.

The Company's rigor around financial discipline continued to yield returns to the business in fiscal 2008. Our discipline towards capital expenditure resulted in a dramatic decrease in new restaurant development in fiscal year 2008. We expect our fiscal 2009 CapEx to be approximately $175 million to $185 million.

During the year, we will open approximately 15 new Company-owned restaurants, and we expect new Company-owned restaurant openings to be even lower in 2010.

Even with these successes, fiscal year 2008 proved to be one of the most challenging years in our 33-year history. Commodity price increases were at almost unheard-of highs. With crude oil prices reaching historical levels during the year, it took its toll on consumer confidence and the overall financial health of the economy. More than ever, these events have sharpened our focus toward building a business model capable of operating in a variety of economic environments.

Doug outlined how we have responded by laying out a path to what we believe will transform the guest experience. Every aspect of our business has answered this call to action, from exploring ways for technology to help manage our key costs of labor and cost of sales, to training our employees how to deliver a customized experience to each guest based on their unique needs. Pacing convenience, restaurant atmosphere, food and beverage excellence, hospitality, and international expansion serve as filters to ensure we continue to focus on the operations of our business imperatives.

We are intensely focused on the specific initiatives outlined by Doug that are driving these strategies. None of us are satisfied with our EPS performance, a decrease of 5.4% on a year-over-year basis for fiscal 2008, excluding special items and Macaroni Grill.

However, we have made the necessary investments and business changes in 2008 to respond in fiscal 2009 and beyond with improved performance in meeting the needs of our customers and shareholders. So let's turn our focus to the fourth-quarter results. Remember these results now fully incorporate impact from Macaroni Grill, except where specifically noted.

Starting with the top line, revenues decreased by 6.1%; or by 4.8% excluding the impact of Mac Grill. Capacity is the primary driver of declines in both measures, with comparable restaurant sales declines at brands other than Chili's also playing a role in the decline. Consistent with recent quarters, capacity is negatively impacted by the sale of 171 Company-owned restaurants to franchisees over the last 12 months, as well as 44 restaurant closures, most of which occurred at Mac Grill.

Excluding the impact of re-franchising the 171 restaurants, revenues would have increased to 4.6% versus the reported decrease of 6.1%. These impacts were partially offset by a 67.3% increase in franchise royalty revenues and an increase in comp sales at Chili's.

Cost of sales continues to be challenging. On a year-over-year basis, cost of sales for the fourth quarter increased 70 basis points to 28.6%. Commodity prices took a toll, representing a 180 basis point increase over the fourth-quarter of the prior-year period. But yesterday continued a month-long trend in lower commodity prices, which is welcome news for the industry. There have been dramatic decreases in corn and natural gas in the last 30 days.

So in addition to rising commodity costs, our focus on value offerings such as Bottomless Express Lunch, our increase in the ToGo business, and a renewed focus on burgers, while being important drivers of sales and traffic trends at Chili's, have negatively affected our cost of sales. Overall, the business has benefited from these decisions, with traffic increases in excess of the change in mix. But a side effect is an uptick in our cost of sales margin.

Price leverage helped to reduce the increase of cost of sales in the quarter. Price offset 130 basis points of the commodity headwinds during the quarter.

But more than ever, a focus on the four walls is essential. Operations, purchasing, and culinary continue to work together to ensure the menu delivers on our guest needs with the appropriate base ingredients and back of the house processes. These groups are continually challenging the entire culinary cycle to maximize the guest experience and will work to continue to explore and where appropriate implement various kitchen technologies that will help us continue to manage this key expense line.

Restaurant expense increased 90 basis points to 55.8%; or 50 basis points to 54.8% excluding Mac Grill. For the quarter, just about every component in this expense line has increased from the prior year, with the exception of pre-opening expense, which decreased by 50 basis points as a result of opening 32 less restaurants.

As for the increases, labor cost increased 20 basis points from wage increases and training investments to help drive our hospitality and food and beverage strategic priorities. Utilities and healthcare costs are also on the rise, which resulted in a 20 basis point increase. More significantly, advertising increased 50 basis points in the quarter, but was relatively flat for the year.

As key initiative supporting our areas of focus have been put into place, we have supported these rollouts with incremental advertising. When we complete Chili's reimages, these are supported by local marketing to invite guests to see what is new at their neighborhood Chili's. In addition, when our ToGo guest enhancements were rolled out to new markets, we supported our right and bright on-time initiative with supplemental spot advertising. Return on this advertising investment at Chili's supports the continued communication of new news around our key areas of focus.

Additionally, to ensure we deliver on our restaurant atmosphere strategies, investment in the restaurants is critical. So we have taken a hard look at the fleet of our restaurants to ensure we are delivering the experience our guests demand. For the quarter, repairs and maintenance have increased by 40 basis points. Throughout fiscal 2000 we have seen repairs and maintenance per restaurant increase by about $2,250 per restaurant due to our commitment to keeping our restaurants in the condition our guests have come to expect at Brinker restaurants. And that is a luxury many restaurants today can't afford.

The current inflationary pressures are certainly some of the strongest we've seen in recent history, well in excess of what we have been able to pass through to the guest via price increase of 4%, which further drives home the need to be innovative in how we manage key line items such as labor, utilities, and supplies. We've accepted the challenge and believe the initiatives in place will help us maximize our resources to respond in a varying economic environment.

Depreciation and amortization expense decreased from $46.1 million to $41.3 million in the fourth quarter of fiscal 2008. The decrease is attributable to depreciation ceasing at Mac Grill when it was placed into the assets held for sale category. So excluding Macaroni Grill, the depreciation of $41.3 million was a $2.5 million increase from the prior-year expense of $38.8 million due to, in part, Chili's reimage program.

General and administrative expenses were $44.6 million or 4.2% of revenue for the fourth quarter of fiscal 2008. This represents an $8.1 million decrease from the prior year. The significant change in G&A for the quarter compared to the prior year is really attributable to a few key items.

First, approximately $3.6 million of the reduction stems from the strategic changes made at our Restaurant Support Center in the third quarter to better align the Center with our goals. Additionally, other major factors include lower stock and performance-based compensation expense.

Interest expense decreased $2 million on a year-over-year basis for the fourth quarter to $9.7 million. Improvement of interest expense was primarily driven by lower interest rate on floating rate debt as a result of the actions by the Federal Reserve, partially offset by increased average borrowings from the prior year.

The effective income tax rate was 33.8%, up from 21.7% the prior year, due primarily to a cumulative adjustment in the fourth quarter of fiscal 2008 related to taxes for prior years, as well as the favorable settlement of certain tax audits and benefits from state income tax planning in the fourth quarter of fiscal 2007. This prior-year adjustment reduced current-year earnings by $0.04.

Cash flow from operations for the fiscal year was $361.5 million, a $123 million increase from the prior year due to lower income, adjusted for non-cash items, resulting from incremental margin pressures and, of course, the sale of 171 Company-owned restaurants to franchisees, as well as the various timing of operational payments and receipts.

This was partially offset by a $160 million savings from lower capital expenditures, largely due to opening approximately 78 fewer restaurants in a year-over-year basis.

So now let's look into fiscal 2009. We expect to generate EPS growth in the range of 8% to 10%. Additionally, we expect our free cash flow yield to benefit from stronger operating cash flows from the business, reduced capital investment, and proceeds of the anticipated sale of Macaroni Grill, resulting in our free cash flow yield almost doubling, with a yield up to 8% in fiscal 2009.

Our EPS growth will start slow in fiscal 2009. First, we are lapping a very successful Honey Chipotle Chicken Crisper promotion in the first quarter, as well as a stronger economy last year. Additionally, fourth quarter of fiscal 2008 includes a benefit from a variety of items. We had the Easter holiday flip. We had the economic stimulus checks. And we had a favorable advertising match that will not provide the same level of momentum to the first quarter.

Also, we began to see the dramatic commodity increases in the second quarter of fiscal 2008, and as such we would expect a significant increase in cost of sales during the first quarter of fiscal 2009, compared to the prior-year quarter. Since the second-quarter increase in 2008, the cost of sales as a percent of revenue trends have been relatively constant for the remaining quarters.

Additionally, we saw sequential increases in our depreciation expense in fiscal 2008 due to re-franchise transaction, Chili's reimages, higher costs of new restaurants, and new kitchen technology. As we continue to shift our capital deployment from building new restaurants to remodel and technology investments with shorter depreciable lives, we expect to see continued uptick in our depreciation expense. So it will be important to consider our current trends as we think about the early part of fiscal 2009.

Last, there are two important calendar shifts to consider. First, Christmas day will trade from the second quarter into the third quarter, which benefits the second quarter. Also, Easter will trade from the third quarter into the fourth quarter of fiscal 2009; and that benefits the third quarter.

While work on our five areas of focus has been started in fiscal 2008, as Doug mentioned, there is still a great deal to be completed in fiscal 2009 and beyond. We remain confident of the Company's financial health and long-term growth prospects.

Our initiatives are specifically designed to drive growth inside our four walls and solidify a dynamic business model that can succeed in a variety of economic conditions. Brinker has strong brands, a strong balance sheet, and is able to weather an environment weaker players may not.

Our strategies are clearly defined. The path forward is well communicated with the Company, aligning and uniting us behind common goals. Successes recognized in fiscal 2008 have been encouraging and provide further motivation to execute these initiatives effectively and efficiently.

The current environment has provided clarity on what we need to deliver -- a superior dining experience through hospitality, food and beverage excellence, restaurant atmosphere, pacing convenience, and international expansion. With that, I would like to turn the call over to Kate to facilitate the question-and-answer period.

(Operator Instructions) Jeffrey Bernstein at Lehman Brothers.

Great, thank you very much. A couple of questions. First, just clarification on your fiscal '09 guidance. You said the 8% to 10% earnings growth. Just wonder if you could talk about the assumptions for potential share repurchase in that guidance. I know it doesn't look like you did any in 4Q.

I am just wondering what you assume the normalized rate of share purchase is for fiscal '09, with or without the Macaroni Grill proceeds. Then I had a follow-up question.

Hey, Jeff. It's Guy. As we have talked about in the past, we are not yet ready to make a commitment when it comes to using any potential proceeds that might come from a Mac Grill transaction, in terms of whether we would use it to pay down debt or buy back shares. So, what we have got in out guidance, we are not really prepared to comment which of those approaches we have used in terms of determining the guidance.

But in terms of --

The most conservative approach would be just to use it to pay down debt.

Right. But, so ex the Macaroni Grill, what is kind of the assumption for share repurchase in fiscal '09 that is in the 8% to 10%?

It is minimal. We are looking at share repurchase -- or excuse me, share count being flat to slightly down.

Okay, and then --

Jeff, one thing I want to say is that just gives us the opportunity to look at where the environment is in terms of cash flows. It doesn't mean that we don't believe that we are going to return that cash to shareholders. It just means that in our guidance we have not built in a lot of share repurchase (multiple speakers) upside as we go forward.

No, that's good to hear. Then in terms of -- you mention obviously the cost commodity cost concerns, and we talked about pricing. But can you talk a little bit in more detail specific to fiscal '09 in terms of your contract lengths? I know you periodically say you have 75% to 80% contracted. Just wondering where we stand on that in terms of specific commodities, and whether more broadly speaking you are seeing changes from suppliers in terms of the terms of the agreements, the length of the terms, and perhaps how much pricing you are comfortable carrying in fiscal '09. I know you are running just north of 4% now; whether we should assume that going forward. Thanks.

Well, I think first of all, I will talk about pricing. We obviously prefer not to take price. We prefer to get guests in and get more traffic and get higher mix, as what we prefer to see. Certainly the commodity environment has been tough, and Marie has been looking at that. So Marie, you want to talk a little bit more about commodities?

Absolutely. Jeff, as you mentioned, we are highly contracted in our commodities. We have mentioned in the past the contract we have with chicken that goes out to 2011. Then our beef ranges around six to 18 months.

Now those are multiyear staggered contracts. So as last quarter, I just wanted to give you a little bit of guidance in terms of what would likely roll out within the next quarter.

So within Q1, we are looking at about 7% of our contracts to be up for renewal. That is going to be mainly beef and produce. Now when you kind of look out a little bit further to Q2, approximately 34% will roll off and up for renewal. That is just really there's quite a few commodities that we contract that have a calendar year. So that Q2 gets us out to December, so we will expect to be in the market negotiating those new contracts.

Okay. Otherwise, pricing we should assume kind of continues in the 4%, 4.5% range for all the brands?

I wouldn't make that a given. We rolled over about 120 basis points of price at Chili's in July, and we didn't reinstitute anything. So we are continuing to just take a look and see where the markets are.

Certainly hopeful that some of the trends that have happened over the last 30 days mean that some of the commodity inflation is starting to dampen down. As I talked about, there seems that corn has come way off some of its peaks. We are starting to see pricing -- while I wouldn't say it is good, it is certainly better than it was.

We are hoping that maybe there is a light at the end of the tunnel here on some of these commodity and inflationary pressures. So we will have to evaluate that as we go through the year.

But you mentioned the lapping of the 120 basis points in pricing. Can you give an update in terms of the actual comp trends through July? They continue the momentum at Chili's?

You know, we didn't see the exact same momentum continuing at Chili's. It sort of flattened out a little bit as we got through the first part of July. We think some of it was related to the way the holiday was and calendar shifts there.

But I would say that we went in and made some changes to our advertising and promotion schedule. We were doing Create Your Own Fajitas, which had a much higher price point; and we didn't see the same kind of response from consumers that we had in the past.

I think the other issue we were facing in July was we were lapping over a highly successful promotion from last year where we had some of the best same-store sales performance in Q1. So we made some changes as I said to be advertising and promotion schedule. We went to the Bottomless Express Lunch again, and back with our Big Mouth Burger Bites, which have done very well. And we started seeing a bounce back again. So I would say that the environment is pretty choppy out there right now.

Thank you.

Bryan Elliott at Raymond James.

Thank you. Good morning. A couple clarifications. First, Chuck, you mentioned in your prepared remarks a free cash flow yield doubling. I assume that you were referring to dollars? Free cash flow dollars doubling '09 versus '08?

Yes.

Okay. You mentioned stock comp is down in Q4. Do you happen to have that number handy?

No, we can get that for you.

No problem. My question, just sort of thinking about the accounting and reporting for the Mac Grill situation. So --

Yes, sorry about all the confusion.

So, did I interpret your remarks correctly that you expect to take the asset valuation adjustment before you file the 10-Q? I would assume that that would be in conjunction with a firm transaction.

That's right. When we reach a firm transaction we will send out a press release that will quantify the exact amount of charge that we would take, and also give other financial details around the transaction.

Okay. It sounds like if you have a continuing minority interest, is there any reason to assume that that would not be accounted for and shown on the income statement as sort of an unconsolidated equity line item?

Yes, we will try to get equity accounting; so that means that we will have an interest of less than 20%.

Okay. If that happens then, are we forced -- given that we have reconsolidated Mac Grill here at this moment in time -- if it then flips to an unconsolidated line item on the income statement, will we have a full year of sort of apples to oranges? Where we restate '08 and reconsolidate and then unconsolidate again beginning in Q1 '09? Or can you sort of hold your as-reported prior years?

We will hold the as-reported prior years; and then we will have the new entity comment as a line -- an equity line.

Okay, all right. Very good, thank you.

Bryan, I know you started down the path. Let me talk a little bit about the Mac Grill transaction. I think for us, we're trying to do the best thing for everyone. We know it is a tough credit environment out there. We believe that holding a minority interest is a good thing for our current shareholders in that, while the price that we are considering selling Mac Grill for, it might be a price less than what others have assumed, we think this gets us immediate cash. It takes away just the uncertainty that has existed both in the restaurants and also out on the Street as to what we were going to do with Macaroni Grill.

It also allows us to participate with the brand in any upside that might come at some point in time from the brand being revived. So we think it is a good win-win, first for Macaroni Grill, second for us too. So we think it is a very good solution.

One final question, if I am still live. Can you hear me?

Yes, we can.

It looks like the full-year EPS contribution from Mac Grill was $0.34. Which is essentially the difference between, I guess, the $1.75 and the -- I came up with $0.08 in the quarter and $0.34 for the year. If you don't have that handy, that is fine.

That sounds high. We will have to maybe get in touch later and talk about that.

Okay. It is actually in Table 4 is where I got that. It shows $0.34 for Mac Grill before special items '08 EPS contribution.

Okay, before special items related to Mac Grill; that might be (multiple speakers).

So that is kind of an operating number?

Yes, that would kind of an operating number, not counting closures and a few other things.

Yes, yes. Could you I guess sort of looking at that number and thinking about that as an operating EPS number, is that kind of a clean number? I think there was no depreciation against it for a while. Is that the case?

There is no depreciation in there and they are not attributed to any G&A for shared services. So that would not necessarily be a clean number.

Okay, so that is more akin then to a store level cash flow number?

Yes.

Okay, very helpful. Thank you.

John Ivankoe at JPMorgan.

Thank you, a couple if I may. On Mac Grill, obviously you said that you are going to maintain a majority interest.

No, a minority interest.

Excuse me, exactly. I was just reading majority in the press release. You're going to maintain a minority interest; and what was interesting is that you said you may have act as landlord for certain properties that you are going to sell.

Yes.

In your prepared remarks. So I guess I am just trying to understand. What would actually be -- just give us a round number maybe consistent with the $45 million to $60 million charge that you are going to take that. What would be the expected cash proceeds that you could get out of this transaction?

Just because you are keeping minority interest and acting as landlord for some properties, I just don't know what kind of number to use.

Well, John, I don't want to get too much into details. I think in terms of the property, that is important because our [accountant] stated if we were going to remain landlord that means we had a continuing interest and that would disallow discontinued operations. So that is why that sentence is in there.

The assumption of leasing the property would be on a handful of restaurants. This is not a wholesale, hold the restaurants and lease them.

Okay. So what we don't need to worry about is someone buying a majority interest in Macaroni Grill for very little cash, in other words. I mean, that it is going to be -- in other words, maybe keep 10% or 15% or 20% of it. But of -- okay, I understand.

I just want to actually follow up on the first question. You mention that in your 8% to 10% EPS guidance that you had very little share repurchase assumed. Just following your guidance, which I think said 2.5% to 3% revenue growth and operating margins of flat to down 20 basis points, which suggests obviously an operating income number of very low single digits, I mean less than 2.5% by definition. I guess, I mean what is the difference there, therefore, between operating income growth and EPS growth if you are not buying back stock? I mean, did you mean to say that?

We would buy back about $150 million worth of stock. So the share count is going to go down on a year-over-year basis.

Okay, and to that -- maybe I didn't understand how you answered the question. But certainly that makes sense to us as well.

Then finally if you could discuss your attitude on pricing right now. Something that -- I mean we are being given a lot of mixed signals about some companies saying, especially in quick service, kind of mid-single-digit pricing. Other companies in casual dining that are talking about no pricing.

Do you think that consumers' attitude is that they expect pricing to be taken and that is why you feel comfortable kind of running 3% to 4%? I mean just what is it right now that you think the consumer can absorb without getting in a position where you in fact are driving negative traffic at your brand?

John, that is the question that we are all working on. You know, if you go back to a year ago, Chili's was only running 70 basis points. So in essence, in some respects, our pricing currently is a little bit of catch-up pricing from prior years. We went almost six months without taking any price; and then we took a relatively small amount, to lead us to 70 basis points.

But -- so, Doug, I don't know if you want to make some comments too about that.

Well, John, I don't know if our attitude about price is any different today than it has ever been. We never want to take it unless we think there is long-term cost built into the operation of the business. Certainly the commodity inflationary environment this past year is sort of unprecedented. But we have seen increases on a lot of other lines across the P&L.

So how much the consumer -- I think you asked, how much do we think the consumer can stomach? They certainly see the price increases at grocery stores and across all other food products.

But again taking price today is a little bit maybe more of a science as much as an art, because we are also adding in some of these value propositions for the guests. I mean, the menu is made up of products like Bottomless soup, salad, and chips. Portion sizes are changing; you see more and more restaurants including ourselves at Maggiano's creating items that are smaller portions and more value oriented. So the whole idea of food cost and food cost increase is a little bit trickier and more challenging.

But our position hasn't changed in that we are going to continue to watch the market and try to take price increases as low as possible; but we will take it if we see increases in the cost of running the business that we think are built in for the long term.

4% is higher than I would like to be right now, I can tell you that. So the price that just got lapped at Chili's, we're not considering an aggressive increase back to that number. We are sitting and watching the market -- and are excited by the last 30 days, as many of the commodity prices have started to get back to levels closer to what we are used to.

Great, thank you very much.

Steven Kron at Goldman Sachs.

Great, thanks. Good morning, guys. Just a couple follow-ups on the Mac Grill to begin with, and then I have another question.

The potential sale here that you are presumably going to announce in the next couple weeks or so, is the financing on that transaction already locked in? Or is that something that we are still waiting for?

It is not completely locked in, but we have been given assurances that the buyer does have it.

All right. Clearly your initial intent was to sell the brand in its entirety. So I guess, what would you attribute the selling of the majority stake to? Is it more the current credit environment? Or does it represent more of a deterioration in the brand?

Is it your intent that going forward down the road you will sell the remaining piece?

Well, I think a lot of things tie into that. You know, the brand has not performed as well as we would have liked; and I think that certainly brought values down.

I would say the values in the restaurant industry as a whole have come down. So when we look at the price that we would potentially be selling the brand for, I don't know that it makes sense to sell the whole thing.

So I think for us it is a good win-win. It gives us some cash today, and allows us to work with our balance sheet, put that cash on our balance sheet, and do the best thing for shareholders. It also allows us to participate if there is any upside.

And it helps get a deal done. Because certainly having us in there at equity -- that equity makes the transaction easier to finance in a very tough credit environment. So I think it is a little bit of everything that you mentioned, Steven.

All right. Then on the refranchising front, I think on the last call you talked about maybe discussing in a little bit more detail what the next hurdle might be from a business mix perspective. You mentioned, Chuck, that some of the units that were maybe earmarked for the end of fiscal '08 kind of got pushed out, or some of the transactions, small transactions, got pushed out into 2009.

Can you talk about -- I would imagine that has to do with the credit environment as well. But can you talk about your level of confidence, where you see this ratio going?

I would also be curious if you have any kind of anecdotal evidence that the performance of the 171 stores that you did sell the franchisees this year, have those shown improvement under different ownership such that you can present a compelling case to would-be buyers down the road?

Well, a couple things. I think the credit environment has slowed those to maybe the first part of 2009. We still think that a couple of those are going to get done. So we have a high degree of confidence.

I think the best thing has been we brought very, very talented franchise partners into the system and also have brought some or utilized some existing partners in the sales of 171 restaurants. They've had very good success. They have been able to improve the financial performance of those restaurants.

Some of it is due to the fact of where they lie. They have been less in subprime affected markets. But I think they have taken the best ideas we have and then added some of their own great ideas.

The nice thing about having a higher franchise mix, as I know Todd and his team have been meeting with franchisees, talking to them, finding out what their best ideas are, so we can bring them back and put them into the Company-owned system. Again, we are a learning organization. If someone has a better idea, we want that better idea so we can improve the profitability of our Company-owned restaurants too. I know Todd's team is well down that path.

So ex-Macaroni Grill, you're currently at a 36%, I think you said, franchise mix?

Yes, we are.

Where do you see that going over the next year?

Well, I know just because of the change in our Company development schedule we are certainly opening less Company restaurants. Our franchise partners still have plans for aggressive development. So we will continue to have a higher franchise mix than we do today, higher franchise to Company mix than we do today.

But I don't want to get too far out in front of myself, announcing deals until the credit market starts to get a little bit better. I think I am certainly glad that we got the deals done that we did when we did. The credit markets today are certainly tough for people to get large scale refranchising done.

Then lastly, Chuck, there is some G&A that was still kind of on the P&L, even though you had the Macaroni Grill business as a discontinued ops, that upon sale would be able to be kind of unwound, so to speak. If you still have a minority interest on the P&L, will that extra layer of G&A, will that still be something that you guys can remove? Or is that then stuck with you?

Well, it wouldn't be stuck with us. I think the question is, how are we going to operate the business on an ongoing basis? Generally when we sold a brand or parts of a brand, we have had transition services agreements where we are reimbursed for costs over time to do back-office reporting and that, while the purchaser either creates their own accounting systems and creates their own back-office systems. Or in the case of some of them, we continue to provide that for a fee.

So I think that is going to be dependent upon how the negotiations go, whether the purchaser wants to continue using Brinker services, or wants to peel out and go on their own.

Certainly in the short period of time, a transition services agreement would be in place. So I think as we go through '09, we will have that figured out, but it won't affect our P&L until much later in the year, if at all.

Okay, thanks.

Does that make sense, Steven?

Yes, thank you.

Joe Buckley of Banc of America.

Thank you. First, just a numerical question. Could you give us the franchise revenues for the quarter and for the year?

Yes. Marie, have you got those numbers?

I do. Just as reference, we have actually put those on the website as well. Let me grab the numbers. We actually have it broken out -- onetime fees and the royalty fees year over year. (inaudible) find my sheet of paper. Hold on one second, Joe.

While she is looking, if you have --?

Sure, I will keep firing away here. You mention the first quarter having -- or maybe it was the fourth quarter having a favorable advertising variance and the first quarter not. How do you think about advertising for the full year '09 versus '08? Are there any other big quarterly variances we should be aware of?

Not that I am aware of today. Certainly we look at match-up of advertising schedules, this year I think it is much closer to '09 and certainly much closer to '08.

Okay. You had on the air significantly more off the air, significantly more looking at the year as a whole?

It is very comparable as we go through the year.

Okay. Then, with Chili's you mention the remodel cost coming down $100,000. Where are you removing that cost as you do those lower-cost remodels?

Really nothing that the guest would see. I mean some of it is benches, roofing changes, some archways, different use of stone. We had some raised platforms in the interior; we had some new liquor niches; the lighting is a little bit more simplified. I don't think it is really anything that the guests would notice.

And in fact, they haven't, because performance has remained pretty similar and very good, even though the cost came down. So it's a real win-win and a nice job by folks at ops and facility.

Joe, I would add from maybe a consumer standpoint and a non-construction expert, which is how myself and my wife would classify me, I was very familiar with all the pieces of the original reimages and actually went on an onsite trip to one of the two that was done at $100,000 less. I almost was -- I had a very hard time finding out what the elements were.

They are so subtle and there were so many pieces, and of course the sales and the guest commentary speaks to that. But even if you had seen an earlier one, it was very difficult to even list what the changes were. The naked eye, you didn't really pick up on what they were.

Which makes it very exciting, and our sales results at those two new ones I think speak to the fact the impact is just as great, saving $100,000 each. Pretty amazing.

That's encouraging. Another Chili's question. You talked a lot about technology changes and I guess there are 20 units that have some new back of the house kitchen equipment. Can that alone get you from that 45-minute meal service time down to 30 minutes if that is what the customer is looking for?

No, it is really a holistic, integrated, hospitality and technology piece, Joe, from front door to back, from server in the restaurant to ToGo cashier. Honestly it really is an opportunity, as I think Chuck mentioned in his comments, for us to look at the business model of our casual dining restaurants.

We think we can upgrade the quality, speed up the experience, but also challenge some of the processes, some of the scheduling. Honestly the way we run the whole business.

So there are integrated technology pieces. The part in the kitchen can probably get you five minutes or slightly more than that. But the other nice tangent to that is the fact that this is higher-quality food and smaller pieces of equipment. There's just been some remarkable improvements in some of the equipment and technology.

But it doesn't stand alone. Those pieces of equipment get tied into handhelds that the server has, get tied into a guest management system the host has at the front door. They are tied into the real-time calculator on the cash [register] ToGo station, so that you know not just how long it takes to prepare an item but how many items are actually being prepared at one time in the kitchen. So you can predict how long it will take up pick up the ToGo order.

So we are taking -- we are looking at this as a real opportunity to figure out how to make Brinker restaurants not just deliver on a time or a pace but also manage how we operate the business, how we spend money, what a server does, and try to figure out a way to make more money in the building as well.

Hey, Joe. This is Marie. Would you like the numbers including Mac Grill or excluding Mac Grill for the franchise revenues?

Can we get them both ways?

You can get them both ways.

Okay.

Start with including Macaroni Grill, the one-time items fiscal '07 fourth quarter was $5 million. As you recall in the fourth quarter of last year is when we closed Pepper Dining, and so we received $4.1 million of franchise and development fees. In this year, fourth-quarter fiscal '08, we are -- recorded $1.5 million.

For the one-time fees, excluding Macaroni Grill, fiscal '07 fourth quarter, $4.8 million; and fiscal '08 fourth quarter $1.5 million.

Okay, thank you.

John Glass at Morgan Stanley.

Thanks. Have you yet begun to see the benefits from the Bennigan's closures? Maybe do you expect to, and is there anything you can do to capture your disproportionate or a disproportionate share from those closings?

Well, John, I know places, locations where we are located right next to where Bennigan's was we have seen an uptick in sales and traffic at those locations. It is pretty hard to go out and target specifically those customers. Anything we might do would also be taken advantage of by existing customers. So it's pretty hard to go out and say, gee, if you have a Bennigan's receipt we will give you $5 off or something like that. I'm just kidding.

So I think it is tough to go target them. They were heavy in Texas. That is certainly good for us. But we are just seeing a small bump.

I think bigger than that, John, is the transformation that you are seeing in the industry, in that it used to be situations like that companies went from some kind of financial straits to Chapter 11 and just never stopped opening their doors. But certainly changes in debtor in possession or DIP financing has made it much better for brands like ours in that these brands are going away. That is a positive, because that takes supply out of the industry.

I think everybody has been looking for a correction in supply, and I don't think this is the first. We have seen a lot of restaurants here in Dallas, some at the higher end, some at the lower end, go away. I am sure if you look around the city you are in, you are seeing the same kinds of situations.

So supply is starting to rationalize itself, which is a good thing for us in the grill and bar segment, but I think it's a good thing for restaurants overall, especially if you're well capitalized and have a good balance sheet.

That's great. Doug, is there any way to put numbers around or sales benefits around some of the things you talked about with respect to the kitchen equipment and meal pacing? Have you seen lifts in comps? Or has it simply been a an indirect lift in terms of better customer satisfaction? How do you measure quantitatively the success of those programs?

What we have seen, John, on a couple of very busy nights in both the On The Border and Chili's that have all the pieces in place are more sales per hour. We have seen shorter waits.

So what it does, it potentially gives you the opportunity during your busiest times to get more people through the door. We have also seen on a Valentines night one of the restaurants back in February had the ToGo technology in place; and again, their ToGo sales were much higher per hour and for the whole night than they had ever been before.

So it gives us the ability in the busy restaurants to add more capacity. But it also certainly gives us the ability to get people that might not be coming now because they have picked a fast casual restaurant or a fast food restaurant to add us to their list of potential lunch guests. A lot of these opportunities are upside sales business besides what we are getting today.

And yes, we are also seeing some improvements in some of the hospitality scores or the guest measurement scores. In some cases, just because you have given people time, they interpret that as better hospitality or service. There is a direct correlation between how happy you are based on how long it may take, especially if you are in a hurry or particularly during a lunch visit.

So we are tracking it every way we can slice it and are optimistic and positive about the way it impacts a lot of different -- not just guest satisfaction, but also potential sales for the restaurants.

Thanks.

Paul Westra at Cowen and Company.

Just a couple of follow-up questions, most were already asked. The $204 million of assets held for sale in today's disclosure; I assume that is all Macaroni Grill. So am I safe to assume with the pending writedown that that number will drop to about $150 million?

Yes.

Okay. Second question also with Macaroni Grill clarity, you will be obviously reporting an ongoing minority interest line; and that I know is not included in guidance. You mentioned also that if Mac was fully included it would be dilutive to guidance. But my question goes to going forward, when we see this line, is it going to be a positive for negative absolute number?

It will depend on the performance of the business, Paul. That is the toughest thing for us to try and outline.

No matter what, we still don't have a deal. We also would not have -- it is not going to happen immediately. I would think that any transaction we enter into would still take three or four months at the fastest, and perhaps as long as six months or five months to get fully put in place.

So we will have time to cover all of that, Paul. I think it is pretty tough to assume today what that number will be.

Okay. But we are looking at a prospect for the fiscal first quarter and maybe the second quarter to have a [real effect] today where it has fully included the Mac numbers? (multiple speakers)

Yes. We will still have Mac fully included for at a minimum the first quarter.

Okay, I think that helps a little bit. Then second and sort of related, if the proposed transaction goes as expected with the majority -- or minority ownership [on year at] the half, how are you sort of tactically doing the Support Center G&A?

And it's a related question, because your outlook is for flattish for fiscal '09, and I am sure that is why if you were able to sell the majority of Mac, and I assume you would outsource some of the services, and why would we see some leverage on the line?

So what is the question, Paul? I'm sorry.

How is the Support Center going to deal with servicing Mac going forward, if at all, once it is potentially majority-owned?

That will be up to the negotiations between ourselves and the buyer. If we can provide services that work for the purchaser and at a cost that we think -- at a price that we think is reasonable, then perhaps we could continue. But we certainly do it in the interim, and then we will have discussions about how long that would last.

Paul, it's Guy. Just keep in mind that our guidance is flattish as a percent of revenues, not flat on an absolute dollar basis. Right? So if the Mac Grill revenues come out of the P&L, then we would expect to see a corresponding adjustment in G&A.

Right, okay, okay, thanks. Most of my other questions were asked. Thanks.

Brad Ludington at KeyBanc Capital Markets.

Thank you. I just wanted to follow up on the earnings guidance, the 8% to 10% for fiscal '09. That excludes Macaroni Grill. What number is that based off of, from fiscal '08?

It is the excluding Macaroni Grill number for fiscal '08 as well, Brad.

Okay, just wanted to make sure, so -- okay. Then, on the reimage, the $100,000 off, does that take you to about $300,000 to $350,000 per unit?

Actually, the cost of the reimage would go down to $260,000.

$260,000? (multiple speakers) I was off on that. Okay, and last thing. In the impairment charges that the adjustments are made for, are there impairment charges related to the re-models included in that for fourth quarter and fiscal year?

The thing that we would be doing to -- any capital expenditures we would have for Macaroni Grill would certainly increase the asset value of Mac Grill and therefore would be a higher difference. So yes, it would increase the impairment charges.

Okay, thank you very much.

David Palmer at UBS.

Thanks. On the June quarter, I think Chili's beat KNAPP-TRACK by 4.5 points or something some big number like that.

We did.

So congrats on that. That is the first comment. The second part is really the worry going forward, which is, of course, you have the casual dining industry, the same-store sales declined I think about 1% during that quarter. I think folks would be concerned that that would deteriorate from there. It's probably hard for you to comment on that.

But the second part is that you really had some super promotions that really drove traffic that are compelling, they offered that price point that seemed to really move people. Basically those two burger promotions.

You touched on how the higher-price promotion perhaps didn't work as well as it might have in tests and it didn't stack up well against your Chipotle Crispers last year.

So I am wondering if there is any comfort you can give us around Chili's not being sort of a one-hit wonder with regard to the innovation pipeline and marketing. Do you have stuff in the pipeline that you think in this environment will give you that combination of price point and branded appeal that you got with that last quarter? Thanks.

Well, David, you know, we certainly do feel like we have some great product introductions. I was talking to Todd this morning and he is pretty excited about some of the things that are coming out in the September time frame. So we don't feel like it is just a one-hit wonder.

We do believe that getting back to where consumers are today, hitting the value message is certainly important to them. And then we think we have got some new items that are priced in a value perspective that does give a great value and great perception at a lower price. And those items are coming out in the second quarter -- rather, September.

Okay, that's it. Thanks, I will leave it there.

Howard Penney at Research Edge

Thanks, I actually had a similar question. I guess you could make the case that Chili's or Brinker International sort of led us or was a leading indicator into the downturn in casual dining. Your traffic fell off before everybody else, and I guess we would like to make the case that it is a leading indicator on the way out as well with the improvement in Chili's comps.

My question sort of revolves around the cycle and where we are -- where you think we are in this current downturn in the cycle, with Chili's doing a little bit better relative to the industry.

Obviously the numbers that KNAPP-TRACK is throwing out is an average, so there's a lot of other companies that are doing a lot worse than that, and you are doing much better. So maybe if you can put into perspective where we are in the cycle, given Bennigan's and some of the others that are falling off (multiple speakers).

I don't know if -- predicting what is going to happen in the financial markets wasn't something I took in college. I can tell you that for sure. The crystal ball we have here is probably more focused on the brand differentiation. I mean, there still are plenty of consumer trends about dining out, and what we own most at Brinker is providing the right products -- back to David's question and your comment; having brands that are differentiated.

The brands that are going to go away are probably the ones that are not as strong on the balance sheet but also don't provide products or experiences that the guests see as different and providing the needs they have.

So, we were very excited by what Chili's did in May and June. Part of it is products, part of it we think is our focus on hospitality and the building itself. If you go into a reimaged Chili's it does feel rejuvenated. It feels relevant. It feels contemporary. It feels exciting.

On The Border, Maggiano's, and Mac Grill, we've got some of the things happening there too. But where the marketplace is I think as Chuck already said there will be a lot more private, single mom-and-pop entrepreneurial restaurants go away. And there will be some more chains probably going away as well, because the cost side is just too onerous right now.

That is why the things we are doing in our restaurants -- this technology hospitality -- part of it is trying to figure out how to make the P&L better as well. Part of it is trying to figure out how to make more money and provide faster food experiences and better guest experiences.

But, Chuck, you may have more commentary on the financial markets. It's a tough market right now, that is for sure.

Yes, I think, Howard, you were asking where we are in the cycle. I think the cycle is still tough for the industry. I do think individually that we have improved our position within the cycle. I think some of the things Doug has talked about has helped us differentiate ourselves from the grill and bar segment.

I think on the supply side, we are certainly heading toward more of a trough in terms of -- even ourselves, we are slowing up our development as we go into 2010. I think you're starting to see some of those weaker competitors go away. And they are going to go away for good. That is the best news of all.

So, I think the supply cycle is getting better. I think we are improving ourselves in the sales cycle of casual dining. But I wouldn't say that it is getting ready to take off.

Can I just ask one other question? Your comment, Chuck, earlier about back to burger basics, this is I guess the second time since I have been following this Company that you have lost the focus on burgers. I was just curious as to why that happens?

Well, I think some of it is consumer driven. Certainly over the last few years people have felt very rich and felt like spending more money. Certainly if we can (technical difficulty) on a check average that is a good thing for us and a good thing for shareholders. I think we have had some exciting products around fajitas and ribs. But burgers are our mainstay, you're right. That is back to the core of what Chili's is and one thing we do really, really well.

In a time like today where people are looking for value, burgers score well. So, yes, maybe somewhat back to the past or using the same road map to find our way out of the woods could be an analogy. But I think some of it is just where the consumer is today. We have certainly come up with some highly creative ways to remake burgers and the guest is responding. Doug, I don't know if -- you were around both times. So?

Well, burgers were the first product that Chili's 33 years ago cut its teeth on. But man cannot live by bread alone, so we probably get intrigued by always expanding that menu to give guests more options. Guests do get tired of eating the same thing over and over again.

So yes, if you were to go backwards -- and I think this is what you are doing, Howard, is challenge, did we get too far off that primary burger road map? Maybe so.

But part of that was to build other reasons for the same or other guests to show up as well. You don't ever want to have a veto vote. If you only have burgers, people would use that as a reason not to come.

But they're our core equity and strength of the Chili brand, no question. So we have to keep that in mind, that creating great new burgers has been part of our past and will be part of our future.

Thomas Forte at TAG.

Great. Thank you very much. I wanted to know if you could provide a few more details on your comments regarding California and Florida. In particular, your strength or improving results in California, I wanted to know if you thought that was a reflection of the ToGo initiatives or the reimaging or changes in year-over-year marketing spending, for example?

Well, we do know that California was one of the markets where we did the improved ToGo, and we did see nice bumps in ToGo. That was certainly part of what drove it.

Guy, I don't know if you have anything else you want to add, or Marie? Know any more details about California?

No, I mean the numbers, as Chuck had said, they have gotten much better and they became sequentially better within the quarter as well in California. So we certainly saw some improvements late in the quarter in what we have done in California.

Now, I don't know if that is a reflection that the issues are over with the subprime market or what (technical difficulty) going on within those economies. I wouldn't want to say it's an indication of that. But certainly we have seen some sequential improvement in those markets.

Yes, and I would say that that has been brand-specific for Chili's in that we have not seen KNAPP-TRACK numbers necessarily getting much, much better in those markets.

So I think some of it is what we have been doing in the restaurants, some of the initiatives and marketing programs that we have had have really helped.

Great. Then if you could quickly compare that with Florida. In Florida you said it sounds like the trends got a little weaker than they were last quarter. Is there a difference what you are doing there as far as ToGo or reimaging or marketing?

No, I know we did have one market in for ToGo in Florida. But I think Florida is tougher to see -- two markets, I'm sorry. Thanks, Todd.

I think it is a little tougher to look at Florida because there is some seasonality with vacations and that. So we are not sure how much of it is base business versus how much of it might be people delaying or not going on vacation or what impact that might have.

Great. Well, thank you very much.

Thank you. There are no further questions.

We just want to thank everyone for joining us on the call today. This concludes our fourth-quarter earnings call and Q&A session. We look forward to talking to everybody on August 21 for our first-quarter fiscal '09 results. Thank you.

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