Chili's 2008 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following Management’s Discussion and Analysis of Financial Condition and Results of
Operations (‘‘MD&A’’) is intended to help the reader understand Brinker International, our operations,
and our current operating environment. For an understanding of the significant factors that influenced our
performance during the past three fiscal years, the MD&A should be read in conjunction with the
consolidated financial statements and related notes included in this annual report. Our MD&A consists of
the following sections:
•Overview—a general description of our business and the casual dining segment of the restaurant
industry
•Results of Operations—an analysis of our consolidated statements of income for the three years
presented in our consolidated financial statements
•Liquidity and Capital Resources—an analysis of cash flows including capital expenditures, aggregate
contractual obligations, share repurchase activity, known trends that may impact liquidity, and the
impact of inflation
•Critical Accounting Estimates—a discussion of accounting policies that require critical judgments
and estimates
OVERVIEW
We are principally engaged in the ownership, operation, development, and franchising of the Chili’s
Grill & Bar (‘‘Chili’s’’), On The Border Mexican Grill & Cantina (‘‘On The Border’’), Maggiano’s Little
Italy (‘‘Maggiano’s’’) and Romano’s Macaroni Grill (‘‘Macaroni Grill’’) restaurant brands. At June 25,
2008, we owned, operated, or franchised 1,888 restaurants. In the first quarter of fiscal 2008 we announced
our intention to sell Macaroni Grill and presented the results of the brand’s operations as discontinued
operations in our quarterly financial statements during fiscal 2008. In August 2008, we entered into an
agreement with Mac Acquisition LLC, an affiliate of Golden Gate Capital, for the sale of a majority
interest in Macaroni Grill. Per terms of the agreement, we will receive proceeds of $131.5 million in cash,
of which $6.0 million will be contributed to the new entity for a 19.9% continuing ownership interest in the
brand. We will also provide corporate support services for the new entity for one year with an option for
one additional year. As a result of this agreement, Macaroni Grill has now been included in our results
from continuing operations for fiscal 2008 and prior years. The transaction is expected to close in the
second quarter of fiscal 2009 subject to customary closing conditions. Once the sale of the brand is
complete, we will account for our interest in the ongoing operations through an equity method investment.
In September 2005, we entered into an agreement to sell Corner Bakery Cafe (‘‘Corner Bakery’’). The sale
of the brand was completed in February 2006. As a result, Corner Bakery is presented as discontinued
operations in the accompanying consolidated financial statements.
Fiscal 2008 was a challenging year for Brinker and the casual dining industry. While we experienced
encouraging trends in comparable restaurant sales in the latter half of the year, our operations continue to
be negatively impacted by higher labor, fuel and commodity costs which have taken a toll on consumer
confidence and the overall health of the economy.
This difficult operating environment highlighted the need to build a dynamic business model that can
achieve sustainable growth in a variety of economic environments in order to create long-term value for
our shareholders. The basis of this model will be grounded in our five areas of focus—hospitality; pace and
convenience; food and beverage excellence; restaurant atmosphere; and international expansion. Our
organization is focused on these five priorities that are designed to grow our base business by engaging and
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