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Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected]: SELLQuantitative Highlights: Overvalued according to the DCF analysiswith assumptions by 27%.o Slower growth rate due to saturationo Margin compression due to increasingCOGS Profitability decreasing due to compressedmargins. Decreasing revenue growth due to marketsaturation. Projected earnings seem out of reach. ROE and ROA low compared to topcompetitors meaning lower efficiency.Exhibit: EAT vs 2 yr S&P ReturnFinancial HighlightsPrice as of 11/29/2004SymbolExchange52 - Week RangeShares OutstandingMarket Cap ( B)Beta (ValueLine)5 yr Projected EPSGrowthCFY P/E04 P/E to 04-05 EPSGrowth RateROAROECurrent RatioDebt/Equity (Book)Fiscal Year EndsQualitative Highlights: There has been a 6% increase in wholesalefood prices in the last year causing COGS toincrease and profits to decrease. Market saturation leading to a decrease inrevenue growth. Recent change in top management signalsinstability. Struggles in 2004:o Rockfish underperformso On The Border halts developmento Announcement of the sale of BigBowl Such factors as staggering economy, low carbdiets and high gas prices have a negativeimpact. 34.75EATNYSE 28.92 - 39.803.0 B86.40.915%16.551.166.10%11.60%0.710.756/30/2004

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] ThesisAt this time we feel that we should sell BrinkerInternational Inc. Even though the numbers showBrinker to be relatively healthy, the growth potentialin the casual dining sector is extremely limited as itbecomes mature. We believe that Brinker will fail tomeet the forecasted EPS estimates for its currentfiscal year and the next fiscal year. The casualdining industry has become saturated and customershave become bored with the existing fare. Brinkerhas struggled throughout 2004, with Rockfishunderperforming, On The Border slowingdevelopment, and a recent divesting of Big Bowl inOctober. In November alone, the Vice President andChief Strategic Officer and the Chairman of theBoard of Directors both resigned. This may be anearly indication that managers lack confidence inBrinker’s future growth. Growth in same store saleshas slacked with the slowing economy in Brinker’slargest and most important dining concepts, Chili’sand Macaroni Grill. In order to compensate for itsother division, Brinker plans to open 110 new Chili’sby 2005 and increase advertising. Success in theindustry continues to become more difficult due tothe lackluster economy and a 6% increase inwholesale food prices.Company ProfileBrinker International, Inc., incorporated inSeptember 1983, is principally engaged in theownership, operation, development and franchisingrestaurant concepts. The Company's restaurantconcepts include Chili's Grill & Bar (Chili's),Romano's Macaroni Grill (Macaroni Grill),Maggiano's Little Italy (Maggiano's), On The BorderMexican Grill & Cantina (On The Border), CornerBakery Cafe (Corner Bakery), Big Bowl AsianKitchen (Big Bowl) and Rockfish Seafood Grill(Rockfish) restaurantconcepts.Chili's Grill & BarChili's is a full-service restaurant, featuring a casualatmosphere and a varied menu of chicken, beef andseafood entrees, steaks, fajitas, sandwiches, salads,appetizers, desserts, as well as big mouth burgersand baby back ribs. The full-service Margarita Bar isavailable at each Chili's restaurant that serves avariety of specialty margaritas, including thePresidente Margarita, offered as the concept'ssignature drink. Service personnel are dressedcasually in jeans, knit shirts, t-shirts and aprons. Thedecor of a Chili's restaurant consists of booth seating,tile-top tables, hanging plants and wood and brickwalls covered with memorabilia. During the fiscalyear ended June 30, 2004 (fiscal 2004), food andnon-alcoholic beverage sales constitutedapproximately 86.6% of the concept's total restaurantrevenues, with alcoholic beverage sales accountingfor the remaining 13.4%.Romano's Macaroni GrillMacaroni Grill is a casualItalian restaurant with sights,sounds and aromas of Italy. Guests can taste Italianculinary from regions all over Italy, as well as a fewAmerican Italian foods. These selections includepastas, grilled features, seafood, salads and pizzafrom Rome, Sicily, Portofino, Milan, Bologna andNaples. Macaroni Grill features ovens, lights,flowers, a broad selection of wine and displaycooking. During fiscal 2004, food and non-alcoholicbeverage sales constituted approximately 87.2% of

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] concept's total restaurant revenues, with alcoholicbeverage sales accounting for the remaining 12.8%.beverage sales accounting forthe remaining 19.5%.Maggiano's Little ItalyCorner Bakery CaféMaggiano's restaurants are re-creations of dinnerhouses found in New York's Little Italy in the 1940s.Each of the Maggiano's restaurants is a casual, fullservice Italian restaurant with a family-style menu,as well as a full lunch and dinner menu. Therestaurants offer Southern Italian appetizers,homemade bread, pasta, chicken, seafood, veal andprime steaks, as well as a full range of alcoholicbeverages. A majority of Maggiano's restaurants alsofeature banquet facilities. During fiscal 2004, foodand non-alcoholic beverage sales constitutedapproximately 79.4% of the concept's total restaurantrevenues, with alcoholic beverage sales accountingfor the remaining 20.6%.On The Border MexicanGrill & CantinaOn The Border is a full-service, national, casualdining Mexican restaurant chain. On The Border'smenu offers a wide variety of Mexican food,including fajitas and margaritas. On The Border alsooffers a variety of menu items that allow guests toexplore Mexico. As a full-service restaurant, On TheBorder offers full bar service, in-restaurant diningand patio dining in all locations. On The Border alsooffers the convenience of a To-Go menu and To-Goentrance to expedite take-out service in all locations.In addition, On The Border offers catering service,from simple drop-off delivery to full-service eventplanning. During fiscal 2004, food and non-alcoholicbeverage sales constituted approximately 80.5% ofthe concept's total restaurant revenues, with alcoholicCorner Bakery Cafe is aquick-casual bakery cafe. Beneath black and whiteawnings, Corner Bakery Cafe serves breakfast, lunchand dinner. Breakfast choices include eggscramblers, breakfast pastries and mixed-berryparfaits. Lunch and dinner feature soups, salads,sandwiches, panini and desserts. Corner BakeryCafe's have both indoor seating and inviting outdoorpatios. During fiscal 2004, food and non-alcoholicbeverage sales constituted over 99% of the concept'stotal restaurant revenues.Big Bowl Asian KitchenBig Bowl Asian Kitchen isa full-service, casual dining concept with a menufeaturing appetizers and entrees influenced by thevaried cuisines and flavor profiles of Asia, includingChinese, Japanese, Thai and Vietnamese. Big Bowloffers an assortment of non-alcoholic beverages,such as ginger soda, as well as cocktails and Asianbeers. Big Bowl's atmosphere is casual andevocative, with decor elements built on the colorpalette and icons of the Far East. During fiscal 2004,food and non-alcoholic beverage sales constitutedapproximately 90.2% of the concept's total restaurantrevenues, with alcoholic beverage sales accountingfor the remaining 9.8%.

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] equity and return on assets are lower indicating alower rate of efficiency.Rockfish Seafood GrillRockfish offers seafooddishes. The Rockfish decorfeatures piney wood tables, river rock fireplaces andan open kitchen with chefs preparing the catch of theday. The restaurant serves a wide variety of seafood,such as catfish, shrimp and crab. Daily chalkboardspecials featuring various items, including, when inseason, Copper River salmon, are also served withdiners. All locations feature full-service bars andpatio seating availability. During fiscal 2004, foodand non-alcoholic beverage sales constitutedapproximately 86.7% of the concept's total revenues,with alcoholic beverage sales accounting for theremaining 13.3%.Comparable AnalysisGross marginsEPSROEROAEV/EBITDA2003 P/E2004 P/E2005 P/E2004 PEGEAT17.65% 1.2911.60%6.10%8.2226.9416.5514.581.16DRI22.14% 1.4118.54%8.37%8.2819.4416.5115.141.83We chose to compare Brinker International to theirmain rival, Darden Restaurants who owns eateriessuch as Red Lobster and Olive Garden. Brinker’sgross margins are lower than Darden’s, meaningthey have a lower percent of net income compared totheir sales. This also means that Brinker has lowerprofitability. Compared to Darden, Brinker’s returnDiscounted Cash Flow AnalysisThe DCF analysis revealed an average value acrossthe models of 25.32 which is 27% lower than itsmarket price of 34.75. When completing thisanalysis we modeled in two assumptions that wederived from current industry trends. Since thecasual dining industry is on its way to saturation weassumed a slower growth rate for the up comingyears. Another factor is the increasing costs ofwholesale food prices. This should cause margincompression since Brinker’s costs of goods sold areincreasing at a higher rate than their revenue over thenext two years. If these two assumptions wereexcluded from the DCF then their market value isonly approx 2.00 over their intrinsic value. Webelieve that these assumptions are key to thederivation of Brinker’s true intrinsic value. Our betis that Brinker will suffer from slower top linegrowth and more margin compression than historicalprojections would imply.Key Assumptions for the models:Date of valuationRisk Free Rate:Equity Market Risk Premium:11/30/20043.60%7.00%Long term inflation:2.50%Terminal Growth:5.00%Equity beta based on VL:No. of shares (diluted):Current Market Price per share:0.996.70 34.75

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] ANALYSISCompany ’sOutbackCheesecakeAPPBOSICAKE(LFY Income Statement):Latest Fiscal Year End Date (as if we are at Dec. 2003)30-Jun-04Revenue 3,707.49Gross Profit 654.19EBITDA 436.04 9,511.7 1,253.230-May-04 5,003.36 1,107.64 601.2628-Dec-0331-Dec-0330-Dec-03 990.14 2,744.37 773.84 249.72 519.16 339.08 194.87 346.37 110.68 1.41 1.66 1.81 1.30 2.13 1.19 1.32 2.17 1.32 1.50 2.54 1.68 34.65(Per Share Income Statement Data)LTM EPS DateLTM EPS* 1.29CFY EPS Estimate 2.10NFY EPS Estimate 2.40*Excl. extra. Items, write-offs, & one time charges(Balance Sheet Data - Most Recent Quarter):Cash and Cash Equivalents 50.72 148.2Total Debt (incl. ST Debt and leases) 658.45 894.4Total Common Equity (Book Value) 883.54 3,361.7 38.60 670.47 1,272.38 0.77 74.19 43.74 180.18 0.00 484.47 1,082.39 522.49 26.13 43.24 49.0081.0873.7751.86 2,118.62 3,189.81 2,541.14 2,162.36 3,369.99 .660.611.1615.2%13.00%16.60%7.90%21.80%(Stock Data):Stock PriceCommon Shares Outstanding 34.7586.4Market Capitalization (MV of Equity) 3,003.79 12,159.0Total Mkt. Capitalization (Tot. Net Debt MV of Equity) 3,662.24 13,053.4 27.41157.22 4,309.40 4,979.87(Financial Ratios excl. debt ratios-see Risk Section)LFY Gross Margin17.65%LFY EBITDA Margin11.76%ROE11.6%17.7%ROA6.1%29.4%Receivable Turnover97.17Inventory TurnoverCurrent Ratio101.03(Growth/Return):Historical 3 Year Revenue Growth RateHistorical 5 Year EPS Growth Rate

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] ROE (CFY)20.55%CFY - NFY EPS Growth Rate14.29%14.1%Proj. Growth in EPS 5 Years15.0%14.5%Dividend 4%17.05%27.27%15.00%15.00%22.00%0.181.20naVL Timeliness(Risk):Beta0.520.610.450.300.780.95VL SafetyLT Debt / Market Capitalization (MV ofEquity)0.220.070.060.000.750.260.160.530.02LT Debt / Common Equity (BV of Equity)0.090.170.00(Valuation):MV of Equity / Book Value3.403.62LTM Price / EPS Ratio ("P/E")26.9422.27CFY Price / EPS Ratio ("P/E")16.5520.38NFY Price / EPS Ratio ("P/E")14.4817.868.4010.42CFY P/E to CFY-NFY EPS Growth Rate1.161.45CFY P/E to Proj. Growth in EPS 5 .314.378.280.971.4112905.15 841.215.3410.301.36Total Market Capitalization / 53.24Relative P/E (CFY)1.831.384941.2692 340.014.538.220.99

Brinker International Inc.NYSE: EATConsumer SectorHotels, Restaurants, & Leisure12/1/2004Elaine Hansford (214-929-4898)[email protected] Redmond (281-794-5231)[email protected] Lo (972-489-5239)[email protected] CASH FLOW ANALYSISValuation model usedSummaryEquity M Per Share 2,288 23.66 2,485 25.70 2,036 21.06 2,588 26.76 2,683 27.75 2,448 25.32 3131.8%Unlevered valueAdjusted Present ValueFlow to EquityWACC with FCFAT-WACC with UFCFAverage across modelsPrice deviation across modelsKey Assumptions for themodels:Date of valuationWithout APV:11/30/2004Risk Free Rate:3.60%Equity Market Risk Premium:7.00%Long term inflation:2.50%Terminal Growth:5.00%Equity beta based on VL:No. of shares (diluted):Current Market Price per share:0.996.70 34.7531.8%

Maggiano's Little Italy Maggiano's restaurants are re-creations of dinner houses found in New York's Little Italy in the 1940s. Each of the Maggiano's restaurants is a casual, full-service Italian restaurant with a family-style menu, as well as a full lunch and dinner menu. The restaurants offer Southern Italian appetizers,