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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 25, 2009

Commission File Number 1-10275

BRINKER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

6820 LBJ FREEWAY, DALLAS, TEXAS  75240

(Address of principal executive offices)

(Zip Code)

(972) 980-9917

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  o    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o    No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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BRINKER INTERNATIONAL, INC.

INDEX

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PART I.         FINANCIAL INFORMATION

Item 1.            FINANCIAL STATEMENTS

BRINKER INTERNATIONAL, INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

See accompanying notes to consolidated financial statements.

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BRINKER INTERNATIONAL, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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BRINKER INTERNATIONAL, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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BRINKER INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(Unaudited)

1.              BASIS OF PRESENTATION

References to “Brinker,” “the Company,” “we,” “us,” and “our” in this Form 10-Q are references to Brinker International, Inc. and its subsidiaries and any predecessor companies of Brinker International, Inc.

Our consolidated financial statements as of March 25, 2009 and June 25, 2008 and for the thirteen week and thirty-nine week periods ended March 25, 2009 and March 26, 2008 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  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”) and Maggiano’s Little Italy (“Maggiano’s”) restaurant brands. We also hold a minority investment in Romano’s Macaroni Grill (“Macaroni Grill”) after completion of the sale of a majority interest in the brand to Mac Acquisition LLC (“Mac Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in December 2008. See Note 4 for additional disclosures.

The information furnished herein reflects all adjustments (consisting only of normal recurring accruals and adjustments) which are, in our opinion, necessary to fairly state the interim operating results for the respective periods.  However, these operating results are not necessarily indicative of the results expected for the full fiscal year.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to SEC rules and regulations. The notes to the consolidated financial statements (unaudited) should be read in conjunction with the notes to the consolidated financial statements contained in the June 25, 2008 Form 10-K. We believe the disclosures are sufficient for interim financial reporting purposes.

Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to fiscal 2009 presentation. These reclassifications have no effect on our net income or financial position as previously reported.

2.              EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the reporting period.  Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options and restricted share awards determined using the treasury stock method. We had approximately 8.3 million stock options and restricted share awards outstanding at March 25, 2009 that were not included in the dilutive earnings per share calculation because the effect would have been anti-dilutive.  Due to the net loss in the third quarter of fiscal 2008, diluted loss per share is calculated using the basic weighted average number of shares. Using the actual diluted weighted average shares would result in anti-dilution of earnings per share.  As a result, all 9.4 million of stock options and restricted share awards outstanding at March 26, 2008 were excluded from the diluted loss per share calculation.

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3.              OTHER GAINS AND CHARGES

Other gains and charges consist of the following (in thousands):

In the third quarter of fiscal 2009, we recorded $10.2 million in lease termination charges primarily related to the closure of the underperforming restaurants announced in the second quarter of fiscal 2009. During the quarter, we also made some organizational changes designed to streamline decision making and maximize our leadership talent while achieving better operational efficiencies across our brands. As a result, we incurred approximately $6.0 million in severance and other benefits and recorded income of $0.6 million related to the forfeiture of stock-based compensation awards resulting from these actions.  Approximately $1.0 million in benefit payments remained to be paid as of March 25, 2009. We also incurred a $1.0 million charge related to the decrease in the estimated sales value of land associated with previously closed restaurants.

In the second quarter of fiscal 2009, we recorded a $45.7 million charge primarily related to long-lived asset impairments of $44.2 million resulting from the decision to close or decline lease renewals for 35 underperforming restaurants.  The decision to close the restaurants and decline lease renewals was based on a comprehensive analysis that examined restaurants not performing at required levels of return.  In December 2008, we completed the sale of a majority interest in Macaroni Grill to Mac Acquisition and recorded a loss on the sale of $43.3 million. See Note 4 for additional disclosures. We also recorded gains of $3.8 million related to the sale of nine restaurants to a franchisee and other land sales.

In the first quarter of fiscal 2009, we recorded $2.0 million in lease termination charges, a $1.7 million charge related to uninsured hurricane damage and a $1.3 million charge for expenses associated with the sale of Macaroni Grill.

In the third quarter of fiscal 2008, we recorded a $73.1 million impairment charge to write-down the net assets of Macaroni Grill to their estimated fair value less costs to sell as well as a $1.1 million charge for expenses associated with the sale. See Note 4 for additional disclosures. Additionally, we recorded a $31.9 million charge related to long-lived asset impairments and $7.7 million in lease termination charges due to the decision to close or decline lease renewals for 46 underperforming restaurants based on the restaurants not performing at required levels of return. During the third quarter of fiscal 2008, we also made the decision to reduce future domestic company-owned restaurant development as well as discontinue certain projects that did not align with our strategic goals.  As a result, we incurred $12.5 million in charges related to asset write-offs for sites under development and other discontinued projects.  In addition, we incurred costs of approximately $7.9 million in severance and other benefits and recorded income of $0.9 million related to the forfeiture of stock-based compensation awards resulting from these actions.

During the second quarter of fiscal 2008, we recorded a $29.2 million gain on the sale of 76 company-owned Chili’s restaurants to ERJ Dining IV LLC. The sale was completed in November 2007. We also recorded $11.4 million in charges primarily

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related to long-lived asset impairments. The charges include a $5.5 million impairment related to two restaurants which were impaired based on an analysis of projected operating performance and operating cash flows as well as a $4.0 million asset impairment charge associated with restaurant closures. Also included is a $1.0 million charge related to the decrease in estimated sales value of land associated with previously closed restaurants.  Additionally, we recorded a $1.9 million charge for expenses associated with the sale of Macaroni Grill during the second quarter of fiscal 2008.

Additionally, in the first quarter of fiscal 2008, we incurred a $9.2 million impairment charge to write-down the net assets of certain Macaroni Grill restaurants to their fair value less costs to sell to a franchisee.

4.              SALE OF MACARONI GRILL

In August 2008, we entered into an agreement with Mac Acquisition for the sale of a majority interest in Macaroni Grill. The assets and liabilities associated with these restaurants were classified as held for sale in the consolidated balance sheet for the fiscal year ended June 25, 2008. The sale was completed on December 18, 2008. We received cash proceeds of approximately $88.0 million and recorded a loss of $43.3 million in other gains and charges in the consolidated statements of income in the second quarter of fiscal 2009. The net assets sold totaled approximately $110 million and consisted primarily of property and equipment of $105 million. Assets previously held for sale of $21.3 million were retained by us and are included in property, plant and equipment as of March 25, 2009.  The land and buildings related to these locations were leased to Mac Acquisition as part of the sale agreement.

On December 18, 2008, we contributed $6.0 million to Mac Acquisition for an 18.2% ownership interest in the new entity. We account for the investment under the equity method of accounting and record our share of the net income or loss from the investee within operating income since the operations of Macaroni Grill are similar to our ongoing operations. This amount is included in restaurant expense in our consolidated statements of income due to the immaterial nature. In accordance with the reporting provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),” we have classified the results of Macaroni Grill in continuing operations for fiscal 2009 and prior years as we will have involvement in the ongoing operations of Macaroni Grill.  Subsequent to the end of the third quarter, we received a $6.0 million distribution from Mac Acquisition that represented substantially all of our equity investment.

As part of the sale, we entered into an agreement with Mac Acquisition whereby we have provided a three-year $10.0 million unsecured standby letter of credit. No amount was outstanding as of March 25, 2009 and subsequent to the end of the third quarter, the letter of credit was cancelled. We also provide corporate support services for the new entity for one year following closing with an option for one additional year.

In the third quarter of fiscal 2008, we anticipated declines in the expected performance of the brand due to lower revenues and increased commodity and labor costs. As a result, in accordance with SFAS 144, we recorded an impairment charge of $73.1 million to write-down the net assets of Macaroni Grill to their estimated fair value less costs to sell at March 26, 2008. Our estimate of fair value was based on the best available information including values obtained in recent sales of company-owned restaurants to franchisees and forecasted operating performance of Macaroni Grill.

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5.              LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

As of June 25, 2008, we had credit facilities aggregating $550 million, consisting of a revolving credit facility of $300 million and uncommitted credit facilities of $250 million.  In February 2009, we completed the renewal of our revolving credit facility which was set to expire in October 2009.  The new facility was reduced to $215 million, bears interest at LIBOR plus 3.25% and expires in February 2012. The decision to downsize our total borrowing capacity under the new revolving credit facility was a result of the Macaroni Grill divestiture, reduced new company-owned restaurant development and our focus on debt repayment.

During the second quarter of fiscal 2009, Standard and Poor’s (“S&P”) reaffirmed our debt rating of BBB- (investment grade) with a stable outlook.  However, Moody’s downgraded our corporate family rating to Ba1 (non-investment grade) and our senior unsecured note rating to Ba2 (non-investment grade) with a stable outlook.  Under the terms and conditions of our uncommitted credit facility agreements, we had to maintain an investment grade rating with both S&P and Moody’s in order to utilize the credit facilities. As a result of our split rating, our uncommitted credit facilities totaling $250 million are no longer available and the spread over LIBOR has increased since year-end on our term loan (LIBOR plus 0.95%).  We manage total borrowings under all of our credit facilities to never exceed total capacity under the revolving credit facility. As a result, outstanding balances on the uncommitted credit facilities were repaid in the second quarter with funds drawn on the revolving credit facility. As of March 25, 2009, we have $184.3 million available to us under our revolving credit facility.

6.              SHAREHOLDERS’ EQUITY

The Board of Directors has authorized a total of $2,060.0 million of share repurchases.  As of March 25, 2009, approximately $60 million was available under our share repurchase authorizations. We did not repurchase any common shares under our share repurchase plan during the first three quarters of fiscal 2009. Our stock repurchase plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We have currently placed a moratorium on share repurchases but, in the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs. During the first three quarters of fiscal 2009, approximately 671,000 restricted share awards vested with a fair value of $12.6 million.  Approximately 199,000 of these shares were repurchased from employees upon vesting for $3.7 million to satisfy minimum tax withholding obligations.  Repurchased common stock is reflected as a reduction of shareholders’ equity.  We paid dividends of $11.2 million, or $0.11 per share, to common stock shareholders in March 2009 and a total of $34.1 million, or $0.33 per share, to common stock shareholders year-to-date.

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7.              SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes and interest for the first three quarters of fiscal 2009 and 2008 are as follows (in thousands):

Non-cash investing activities for the first three quarters of fiscal 2009 and 2008 are as follows (in thousands):

8.              CONTINGENCIES

As of March 25, 2009, we remain secondarily liable for lease payments totaling $199.5 million as a result of the sale of a majority interest in Macaroni Grill, the sale of other brands, and the sale of restaurants to franchisees in previous periods. This amount represents the maximum potential liability of future payments under the guarantees.  These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from fiscal 2009 through fiscal 2023.  We remain secondarily liable for the leases.  In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred.  No material liabilities have been recorded as of March 25, 2009.

Certain current and former hourly restaurant employees filed a lawsuit against us in California Superior Court alleging violations of California labor laws with respect to meal and rest breaks.  The lawsuit seeks penalties and attorney’s fees and was certified as a class action in July 2006.  On July 22, 2008, the California Court of Appeal decertified the class action on all claims with prejudice. On October 22, 2008, the California Supreme Court granted a writ to review the decision of the Court of Appeal.  We intend to vigorously defend our position. It is not possible at this time to reasonably estimate the possible loss or range of loss, if any.

We are engaged in various other legal proceedings and have certain unresolved claims pending. The ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time. However, management, based upon consultation with legal counsel, is of the opinion that there are no matters pending or threatened which are expected to have a material adverse effect, individually or in the aggregate, on our consolidated financial condition or results of operations.

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth selected operating data as a percentage of total revenues for the periods indicated. All information is derived from the accompanying consolidated statements of income.

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The following table details the number of restaurant openings during the third quarter, year-to-date, total restaurants open at the end of the third quarter, and total projected openings in fiscal 2009 (excluding Macaroni Grill).

(a)          At the end of the third quarter of fiscal year 2009, international company-owned restaurants by brand included six Chili’s and one Maggiano’s. International franchise restaurants by brand included 183 Chili’s and six On The Border’s.

(b)         As of March 25, 2009, we continue to own two Macaroni Grill restaurants which have been excluded from the total restaurants.  Per terms of the sale to Mac Acquisition, we have a limited period of time to close the restaurants or change to an existing Brinker brand.

At March 25, 2009, we owned the land and buildings for 224 of the 1,032 company-owned restaurants.  The net book values of the land and buildings associated with these restaurants totaled $179.9 million and $183.8 million, respectively.

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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 quarters ended March 25, 2009 and March 26, 2008, the MD&A should be read in conjunction with the consolidated financial statements and related notes included in this quarterly report.

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”) and Maggiano’s Little Italy (“Maggiano’s”) restaurant brands.  At March 25, 2009, we owned, operated, or franchised 1,679 restaurants.  We also hold a minority investment in Romano’s Macaroni Grill (“Macaroni Grill”) after completion of the sale of a majority interest in the brand to Mac Acquisition LLC (“Mac Acquisition”), an affiliate of San Francisco-based Golden Gate Capital, in December 2008.

Our results for the third quarter of fiscal 2009 reflect our commitment to strengthening our business model and improving profitability despite the significant challenges we currently face.  We continued to experience many of the same external factors that negatively impacted our results in the first six months of fiscal 2009; however, we have taken steps to neutralize their impact.  We are focused on initiatives that will allow our business to operate as efficiently as possible and will allow us to maintain our position as an industry leader.  We believe financial market volatility, unemployment and the housing crisis will continue to put pressure on consumer spending.  Our negative traffic trends indicate that our guests are limiting discretionary spending by reducing the frequency of their visits to our restaurants or scaling back on check totals.  We also experienced a decline in gift card sales of approximately 15% during the holiday season compared to the prior year which negatively impacted third quarter revenue.  We will continually evaluate how we manage the business and make necessary changes in response to the economic factors affecting the restaurant industry.

Our goal is to emerge from this recession in a position of strength with a strong balance sheet and improved operating profit.  We are exhibiting discipline in our capital allocation and are taking steps to create sustainable margin improvements through cost controls and operational efficiencies.  These steps will help maintain the health of our balance sheet and will provide the stable financial base needed to maintain our business through a depressed operating environment.  We are driving profit improvements through a disciplined approach to operations, company-owned new restaurant development and the closure of underperforming restaurants.  Effective management of food costs and a focus on labor productivity and reducing fixed costs helped us realize sustainable margin improvements in the third quarter.  Our emphasis on the operations of our existing restaurants has resulted in lower turnover which has positively impacted labor cost and efficiency while providing improved pace at our restaurants.  Additionally, generating strong cash flows has long been a hallmark of Brinker and we have taken steps to shore up our cash flows to provide the necessary flexibility to address current challenges and help drive the business forward.  We have completed the closure of 42 underperforming restaurants in fiscal 2009 and have reduced our planned fiscal 2009 capital expenditures by $30 million.  Virtually all company-owned new restaurant development in fiscal 2010 has been curtailed.  Enhanced free cash flows resulting from our financial discipline and Macaroni Grill proceeds have allowed us to reduce our debt levels and will provide flexibility for further debt reductions.

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We are committed to our long term strategies and initiatives centered on our five areas of focus - hospitality; food and beverage excellence; restaurant atmosphere; pace and convenience; and international expansion.  These strategic priorities are designed to strengthen Brinker brands and build on the long-term health of the company by engaging and delighting our guests, differentiating our brands from the competition, reducing the costs associated with managing our restaurants and establishing a strong presence in key markets around the world.  However, we will monitor the results closely as well as the current business environment in order to pace the implementation of our initiatives appropriately.

We strongly believe investments in these five strategic priorities will strengthen our brands and allow us to emerge from these tough economic times in a better competitive position to deliver profitable growth over the long term for our shareholders.   For example, with growing economic pressures in the United States, international expansion allows further diversification of our portfolio, enabling Brinker to build strength in a variety of markets and economic conditions.  Our growth will be driven by cultivating relationships with equity investors, joint venture partners and franchisees.  Our growing percentage of franchise operations both domestically and internationally enable us to improve margins as royalty payments flow through to the bottom line.  Another top area of focus remains creating a culture of hospitality that will differentiate Brinker brands from all others in the industry.  Through our investments in team member training and guest measurement programs, we are gaining significant traction in this area and providing guests a reason to make Brinker brands their preferred choice when dining out.  We also believe that the unique and craveable food and beverages as well as the new flavors and offerings we continue to create at each of our brands, the warm, welcoming and revitalized atmospheres, and technologies and process improvements related to pace and convenience will give customers new reasons to dine with us more often.

The casual dining industry is a highly competitive business which is sensitive to changes in economic conditions, trends in lifestyles and fluctuating costs.  Our top priority remains increasing profitable traffic over time.  We believe that this focus, combined with discipline around the use of capital and efficient management of operating expenses, will enable Brinker to maintain its position as an industry leader through the current economic recession.  We remain confident in the financial health of our company, the long-term prospects of the industry as well as in our ability to perform effectively in an extremely competitive marketplace and a variety of economic environments.

REVENUES

Revenues for the third quarter of fiscal 2009 decreased to $857.4 million, a 20.4% decrease from the $1,077.2 million generated for the same quarter of fiscal 2008. Revenues for the thirty-nine week period ended March 25, 2009 were $2,791.2 million, an 11.7% decrease from the $3,161.7 million generated for the same period in fiscal 2008. The decrease in revenue was primarily attributable to a decrease in comparable restaurant sales across all brands as well as net declines in capacity at company-owned restaurants primarily due to restaurant closures and the sale of restaurants since the third quarter of fiscal 2008.

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