This summary is based on the second quarter fiscal 2008 earnings call conducted by Brinker International (EAT: chart) on January 23, 2008.

Management:

- Investor Relations: Marie Perry
- Chairman and Chief Executive Officer: Doug Brooks
- Chief Financial Officer: Chuck Sonsteby
- V. P. of Operations Analysis: Guy Constant

Key Investors Issues

- Income rose 23% from $44.2 million or 36 cents a share in 2006 to $54.5 million or 53 cents a share.
- Revenues were down 3.5% to $868 million from $899.6 million in the prior year.
- The firm increased quarterly dividend by 22% to 11 cents per share.

Half Year Highlights:

- Revenues decreased marginally to $1.76 billion from $1.77 billion in 2006.
- Net income rose by 0.3% to $92.1 million or 88 cents a share.
- Cash flow from continuing operations decreased to $214.4 million due to lower adjusted earnings and the timing of operational receipts and payments.

Second Quarter Highlights

Revenues decreased 3.5% to $868 million versus the prior year due to a 3% reduction in capacity and a decline in comparable restaurant sales of 2.1%.

- The capacity reduction is due to the sale of 173 restaurants to franchised partners over the last 12 months, partially offset by new restaurant development.
- The comparable sales decrease of 2.1% was driven by negative traffic, essentially flat mix, and 2.8% price.
- Franchise royalty revenues increased by 57% largely driven by the strategy to diversify portfolio risk by increasing the mix of franchise operated restaurants.
- The firm recognized $6.3 million in franchise and development fee revenue as franchisees continued to demonstrate commitment to the brand by opening 27 restaurants.

Gift card sales increased 13% driven primarily by significant gift card sales by third party retailers, as well as the corporate gift card business.

- Cost of sales increased 20 basis points to 28.2% due to the continued challenge of rising commodity costs, notably in the meat, seafood, dairy, and cheese categories.
- The commodity pressures were mitigated by price and the firm achieved margin leverage due to the increase in franchise revenues.

Income rose 23% from $44.2 million or 36 cents a share in 2007 to $54.5 million or 53 cents a share due to a $29.2 million gain on the sale of 76 restaurants and $7.3 million of charges primarily related to the impairment of long-lived assets.

- Restaurant expenses increased 130 basis points to 56.1% driven by increases in wage rates and salaries, supply costs, and repairs and maintenance, and accelerated by deleverage from lower comparable sales.
- Restaurant expenses continue to benefit from lower pre-opening costs as the firm opened 14 fewer restaurants as compared to a year ago.
- Depreciation and amortization was $39.1 million, a $1.7 million improvement from the prior year, the result of the required suspension of depreciation expense for restaurants held for sale.
- The firm increased quarterly dividend by 22% to 11 cents per share.

Interest expense increased from $6.6 million in 2007 to $12.5 million as a result of the $400 million term loan used to fund the accelerated share repurchase of common stock and for general corporate purposes.

- Cash flow from continuing operations was $214 million, a $42 million decrease over the prior period primarily due to lower adjusted earnings and the timing of operational receipts from items like third party gift cards and payments.
- The firm continued its commitment to an aggressive share repurchase program, using a majority of the proceeds from ERJ Dining transactions to repurchase 4.1 million shares for $100 million.

Portfolio Growth Strategy Evolution:

- The firm has successfully shifted its domestic focus from new restaurant development to increased franchising of corporate restaurants, working with experienced operators who can grow and develop the brands and markets where presence is not as well established.
- As a result, the firm has balanced the system-wide ownership from 80% company owned and 20% franchise locations beyond the stated 70/30 milestone for 2007.
- The majority of the transaction proceeds were used to fund an aggressive share repurchase program.

In contrast to the high-level development of company owned restaurants in fiscal 2007, the firm is significantly reducing domestic development in the near term.

- Focus will be on increasing profitable sales within existing company restaurants and restricting development to a limited number of restaurants in selected high-potential markets.
– The portfolio evaluation also includes actions that underscore commitment to operating profitable restaurants and growing brands.
- In this regard, the firm has been diligent in divesting the enterprise of under-performing restaurant locations and continue to make progress on the sale of Romano’s Macaroni Grill.

An expanding middle class and faster growing economies have made international expansion an ongoing strategic focus for the firm.