Chili's 2007 Annual Report Download - page 33

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Domestic Franchise Operations
In addition to our Company-developed restaurants, we continue our domestic expansion by growing
our number of franchised restaurants. We are accomplishing this part of our growth through new or
renewed development obligations with new or existing franchisees. In many cases, we have also sold and
may sell Company-owned restaurants to our franchisees (new or existing). At June 27, 2007, 28 total
domestic development arrangements existed. During the year ended June 27, 2007, not including any
restaurants we sold to our franchisees, our domestic franchisees opened 11 Chili’s restaurants, two
Macaroni Grill restaurants and three On The Border restaurants.
As part of our strategy to expand through our franchisees, we intend to increase our overall
percentage of franchise ownership (domestically and internationally) to approximately 35% by the end of
fiscal year 2008. The following table illustrates the percentages of franchise ownership as of June 27, 2007
for the Company and by restaurant brand:
Percentage of Franchise
Operated Restaurants
(domestic and international)
Brinker ............................... 27%
Chili’s ................................ 32%
Macaroni Grill .......................... 10%
On The Border ......................... 16%
Maggiano’s............................. 0%
During fiscal 2007, we entered into new or renewed development agreements with eight franchisees
for the development of 46-70 Chili’s restaurants, six Macaroni Grill restaurants and 32 On The Border
restaurants. The areas of development for these franchise locations include all or portions of the States of
Arkansas, California, Connecticut, Georgia, Illinois, Maine, Missouri, Michigan, Minnesota, Montana,
Nevada, New Hampshire, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island,
South Carolina, Texas, Utah, Virginia, Vermont, Wisconsin and Wyoming. In connection with several of
these development agreements, we also sold 110 Company-owned Chili’s restaurants and two Company-
owned On The Border restaurants to four different franchisees.
Notably, we completed the sale of 95 Chili’s restaurants to Pepper Dining, Inc. primarily in the
northeastern and mid-Atlantic portions of the United States with the obligation to develop an additional
14-38 Chili’s restaurants during the term of the development agreement. We also entered into an asset
purchase agreement to sell 76 Chili’s restaurants to an affiliate of one of our existing franchisees, ERJ
Dining IV, LLC, primarily in the Midwest region of the United States, which, when completed (estimated
to be in mid-fiscal 2008), would bring the total of Chili’s restaurants franchised by ERJ Dining and its
affiliates to 101.
Our goal is to continue to selectively pursue domestic franchise expansion. A typical domestic
franchise development agreement provides for payment of development and initial franchise fees in
addition to subsequent royalty and advertising fees based on the gross sales of each restaurant. We expect
future domestic franchise development agreements to remain limited to enterprises having significant
experience as restaurant operators and proven financial ability to support and develop multi-unit
operations. In some instances we have and may enter into development agreements for multiple brands
with the same franchisee.
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