Josh Moore, Brad Bolte, James Hall, Tanner Swaringen, Tim Meyer 4/1/2014

BRINKER INTERNATIONAL Financial Analysis Draft 3 Josh Moore, Brad Bolte, James Hall, Tanner Swaringen, Tim Meyer 4/1/2014

Table of Contents Liquidity Ratios... 3 Introduction... 3 Current Ratio... 3 Quick Ratio... 4 Inventory Turnover... 5 Inventory Days... 7 Accounts Receivable Turnover... 8 Accounts Receivable Days... 9 Cash to Cash Cycle... 10 Working Capital Turnover... 11 Conclusion... 12 Profitability Ratios... 12 Introduction... 12 Sales Growth... 12 Gross Profit Margin... 13 Operating Profit Margin... 14 Net Profit Margin... 16 Asset Turnover... 17 Return on Assets ( ROA )... 18 Return on Equity ( ROE )... 19 Conclusion... 20 Capital Structure Ratios... 20 Introduction... 20 Debt to Equity... 21 Times Interest Earned... 22 Altman s Z-Score... 23 Conclusion... 25 Growth Rates... 25 Introduction... 25 Internal Growth Rate... 25 Sustainable Growth Rate... 26 Page 1

Industry-Specific Ratios... 27 Introduction... 27 Company-Owned Locations... 28 Financial Analysis Conclusion... 29 Financial Forecasting... 29 Income Statement... 30... 32... 33 Dividends Forecasting... 34 Balance Sheet... 34 Statement of Cash Flows... 40... 41 Restated Financial Statements... 42 Cost of Capital Estimation... 42 Cost of Debt... 42 Cost of Equity... 44 Backdoor Cost of Equity... 47 Weighted Average Cost of Capital (WACC)... 48 Appendix... 53 Appendix (1)... 53 Page 2

Liquidity Ratios Introduction Liquidity is the ability or quality of an asset that makes it easily convertible to cash. In general, liquidity represents more safety to companies and investors alike because it is easier for the holder of the asset to collect the cash value associated with the asset. On a company balance sheet, marketable securities and accounts payable are two examples of relatively liquid assets. In this analysis of liquidity ratios, we will looks at the current and quick ratios, inventory turnover, inventory days, accounts receivable turnover, accounts receivable days, cash to cash cycle, and working capital turnover. Current Ratio The current ratio, also known as the liquidity or cash asset ratio, is defined and calculated as the current assets divided by current liabilities. It is used to measure the firm s ability to pay current liabilities with current assets. A higher number is generally better. As evidenced below, Brinker s yearly current ratio was higher than the average of its peers until 2011, but it has since slumped below the mean. We believe this is due primarily to the firm selling its On The Border segment in 2010. The segment s efficient financials helped bolster the holding company s current ratio as a whole. Page 3

Current Ratio 2009 2010 2011 2012 2013 Average Brinker 0.90 1.11 0.55 0.48 0.51 0.71 Brinker Restated 1.26 1.18 1.24 0.55 0.50 0.95 Dine Equity 1.31 1.32 1.07 1.10 1.17 1.19 Darden 0.51 0.54 0.52 0.43 0.54 0.51 Buffalo Wild Wings 1.48 1.70 1.22 0.89 1.10 1.28 Industry 1.09 1.17 0.92 0.69 0.76 0.93 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 Current Ratio 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 1. Quick Ratio The quick ratio, or quick asset ratio, is a measure of the firm s short-term liquidity. It is calculated as cash plus accounts receivable plus marketable securities, all divided by current liabilities. In contrast to the current ratio, the quick ratio measures the firm s ability to cover short-term obligations without using certain, less-liquid current assets, such as inventory. As you can below, Brinker has a very undesirable quick asset ratio over the past five years. Anything over 1 is what a company or analyst might consider as desirable. Since this ratio is far below 1 it is telling us that Brinker would be unable to cover its short term obligations. With a quick ratio as low as this one, there is increased risk involved in investing into this company. Page 4

Quick Ratio 2009 2010 2011 2012 2013 Average Brinker 0.35 0.87 0.31 0.27 0.25 0.41 Brinker Restated 0.12 0.10 0.11 0.11 0.10 0.11 Dine Equity 0.72 0.76 0.68 0.72 0.88 0.75 Darden 0.06 0.24 0.11 0.08 0.12 0.12 Buffalo Wild Wings 0.83 0.93 0.64 0.36 0.52 0.66 Industry 0.42 0.58 0.37 0.31 0.37 0.41 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 Quick Ratio 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 2. Inventory Turnover Inventory turnover represents the number of times each company s inventory currently on hand is sold during a specified period. In general, a higher number is better, because the ratio is calculated as cost of goods sold divided by inventory. A higher number is better because it implies a higher amount of sales, whereas a lower number implies excess inventories. It should be noted that companies in this industry have higher than average inventory turnover levels because their food is perishable, and they move their inventory much faster than other companies in industries such as retail or technology. Brinker has been slightly increasing its inventory turnover each year for the past five years. When comparing Brinker to its peers it is maintaining a relatively consistent pattern matching its peers. As stated previously, the inventory Page 5

turnover in this industry is much higher than other industries due to the perishable inventory. In this industry it is common to see this ratio exceeding 100, which Brinker and its peers have done so over the past five years. In the last two years, Dine Equity has shrunk its inventory to zero, while its percent of franchised restaurants has risen to one hundred. That is why there are no inventory turnover statistics for Dine Equity over the past two years. Inventory Turnover 2009 2010 2011 2012 2013 Average Brinker 98.63 106.90 108.87 111.23 115.56 108.24 Brinker Restated 106.98 106.92 108.87 111.23 115.56 109.91 Dine Equity 115.56 123.98 89.37 109.64 Darden 29.22 32.22 24.99 19.79 23.96 26.04 Buffalo Wild Wings 147.89 147.49 124.30 133.06 133.45 137.24 Industry 99.65 103.50 91.28 93.83 97.13 98.21 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 Inventory Turnover 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 3. Page 6

Inventory Days Inventory days, or days sales of inventory, takes inventory turnover one step further by taking the number of days in the period, usually 365 or 360, and dividing that by the inventory turnover. This new ratio measures the amount of time it takes the company to turn its inventory into sales. In general, a lower number is better because it means they are taking less time to turn their inventory into sales. Brinker is averaging an inventory day s ratio of 3.38 over the past five years. This tells us that Brinker is converting its inventory into sales every 3.38 days. This ratio shows a strong and short turnover rate which is needed in this industry due to the perishable inventory. If this ratio was to much higher for Brinker or its peers it would result in wasting inventory. Inventory Days 2009 2010 2011 2012 2013 Average Brinker 3.70 3.41 3.35 3.28 3.16 3.38 Brinker Restated 3.41 3.41 3.35 3.28 3.16 3.32 Dine Equity 3.16 2.94 4.08 3.40 Darden 12.49 11.33 14.60 18.44 15.23 14.42 Buffalo Wild Wings 2.47 2.47 2.94 2.74 2.74 2.67 Industry 5.05 4.72 5.67 6.94 6.07 5.44 Inventory Days 20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 4. Page 7

Accounts Receivable Turnover Accounts Receivable Turnover, or A/R Turnover, measures the company s efficiency in collecting credit revenue. It is calculated as net credit sales or total sales divided by average accounts receivable for a period. A higher number implies that the company s offered credit terms are leading to efficient accounts receivable collections. Comparing Brinker to its peer group has revealed fairly average accounts receivable turnover of 68.24. While Brinker shows a healthy ratio, Buffalo Wild Wings has mastered their accounts receivable ratio resulting in very high efficiency. AR Turnover 2009 2010 2011 2012 2013 Average Brinker 73.13 63.33 64.54 65.01 75.21 68.24 Brinker Restated 74.56 63.33 64.54 65.01 75.21 68.53 Dine Equity 13.51 13.50 9.30 6.61 4.44 9.47 Darden 133.70 114.68 112.03 100.14 115.14 Buffalo Wild Wings 254.45 564.69 64.49 51.50 57.99 198.62 Industry 103.91 167.71 63.51 60.03 62.60 92.00 600.00 Accounts Receivable Turnover 500.00 400.00 300.00 200.00 100.00 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 5. Page 8

Accounts Receivable Days Accounts Receivable Days, A/R Days or Days Sales Outstanding represents the average number of days between a sale and the associated collection of revenue. In all cases, a lower number is better because it implies that the company is receiving cash faster, which means its accounts receivable account is a more liquid current asset. Brinker has obtained an accounts receivable days of 0.21 in 2013, and an average over the past five years of 0.19. Compared to Brinker s peer group they are sitting comfortably in the middle of the pack. In this industry many of its sales are transacted in cash making this ratio relatively low. AR Days 2009 2010 2011 2012 2013 Average Brinker 4.99 5.76 5.66 5.61 4.85 5.38 Brinker Restated 4.90 5.76 5.66 5.61 4.85 5.36 Dine Equity 27.02 27.03 39.27 55.23 82.14 46.14 Darden 2.73 3.18 3.26 3.64 3.20 Buffalo Wild Wings 1.43 0.65 5.66 7.09 6.29 4.22 Industry 9.59 8.39 11.88 15.36 20.36 12.86 Accounts Receivable Days 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 6. Page 9

Cash to Cash Cycle The Cash to Cash Cycle, sometimes referred to as the Cash Conversion Cycle, is the aggregate number of days in the Accounts Receivable Days and Inventory Days ratios. It represents the number of days required for cash spent on inventory and other inputs to become cash gained from sales revenue. For the last five years, Brinker has maintained a relatively average number of days for its cash to cash cycle; however, the number has begun to fall below the average and is exhibiting a favorable downward trend. Cash to Cash Cycle 2009 2010 2011 2012 2013 Average Brinker 8.69 9.18 9.01 8.90 8.01 8.76 Brinker Restated 8.31 9.18 9.01 8.90 8.01 8.68 Dine Equity 30.18 29.98 43.35 55.23 82.14 48.18 Darden 12.49 14.06 17.79 21.70 18.88 16.98 Buffalo Wild Wings 3.90 3.12 8.60 9.83 9.03 6.90 Industry 12.72 13.10 17.55 20.91 25.21 17.90 Cash to Cash Cycle 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 7. Page 10

Working Capital Turnover Working Capital Turnover represents the company s ability to fund its sales using its working capital. To clarify, working capital is current assets minus current liabilities. Working capital turnover is calculated similar to accounts receivable turnover and inventory turnover: it is sales divided by working capital. It is a relative ratio that should be compared to prior year s data. Based on Brinker s working capital turnover over the past five years it is steadily becoming worse. This unhealthy ratio of -12.03 in 2013 represents that Brinker is unable to fund its sales using working capital. Working Capital Turnover 2009 2010 2011 2012 2013 Average Brinker - 25.47 15.94-12.40-11.17-12.03-9.03 Dine Equity 8.34 10.27 7.78-4.27-3.88 3.65 Darden 10.98 9.36 29.50 13.52 5.72 13.81 Bloomin' Brands -10.41-9.52-9.15-6.06-10.22-9.07 Buffalo Wild Wings 12.66 8.23 22.93-51.50 59.38 10.34 Industry -0.78 6.86 7.73-11.90 7.79 1.94 Table. 8 80.00 Working Capital Turnover 60.00 40.00 20.00 0.00-20.00-40.00-60.00 2008 2009 2010 2011 2012 2013 2014 Brinker Dine Equity Darden Bloomin' Brands Buffalo Wild Wings Industry Page 11

Figure 8. Conclusion After rigorous analysis of Brinker s liquidity ratios many of their ratios are undesirable, representing an increased amount of risk involved in investing in this company. Given these low liquidity ratios, representing Brinker we can come to the conclusion that the margin for safety if significantly lower than the industry average. We will discuss Brinker s likelihood of going bankrupt with the Altman s Z-score later in this ration analysis section. Profitability Ratios Introduction Profitability ratios assess the extent to which a company s revenues exceed various measures of their cost. As a rule of thumb the higher this ratio is compared to its competitors the better shape the company is in. Profitability ratios are the most commonly analyzed ratios when an investor is doing a financial analysis. These ratios by themselves may not make sense at certain times. It is important to have a good overall understanding of the industry from where these ratios are being taken in order to complete the entire story that this analysis will provide. Sales Growth Sales Growth is the percentage change of sales from one year to the next. A higher number is considered to be the most desirable figure for this ratio. While it does not factor in the associated cost of revenue, it can be a useful statistic in measuring the firms growth or accumulation of the market share compared to its peer. Brinker s sales decreased from 2009 to 2011, but have since displayed an upward trend. The sales numbers are very volatile within this peer group, but Brinker s numbers are generally lower than the average. Page 12

Sales Growth 2009 2010 2011 2012 2013 Average Brinker - 15.1% - 12.8% - 3.4% 2.1% 0.9% -7.3% Brinker Restated -21.0% -12.4% 2.1% 0.9% 2.2% -7.6% - - Dine Equity 19.0% 8.9% 21.0% 24.6% 6.7% -4.4% Darden -5.0% -9.1% 6.6% 6.9% 3.8% -0.1% Buffalo Wild Wings 28.1% 27.6% 32.6% 21.7% 32.6% 27.5% Industry 1.2% 0.4% 3.4% 1.4% 9.2% 1.6% 40.0% Sales Growth 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 9. Gross Profit Margin Gross profit margin, also known as gross margin, is used to measure the profitability of a company. It is calculated as revenue minus cost of goods sold all divided by total revenue. Gross margins can vary greatly between industries. It is most useful when comparing profitability relative to the firm itself in prior years, or to its industry peers. The gross profit margin numbers are much more consistent than the sales growth percentages. Brinker s gross profit margin has remained consistent around Page 13

twenty percent higher than the industry average over the last five years. However, because Brinker s restated cost of goods sold is much lower than the original numbers and total revenue is unchanged, the gross profit margin becomes much higher over the past three years. Brinker s restated numbers are thirty percent higher, on average than their peers. Gross Profit Margin 2009 2010 2011 2012 2013 Average Brinker 72.1% 71.5% 17.3% 18.1% 19.0% 44.7% Brinker Restated 74.5% 71.5% 73.1% 72.7% 73.4% 72.9% Dine Equity 38.5% 39.7% 47.0% 57.5% 57.7% 45.7% Darden 21.9% 22.9% 24.0% 22.9% 22.1% 22.9% Buffalo Wild Wings 25.2% 26.1% 27.0% 24.2% 23.7% 25.6% Industry 46.4% 46.3% 37.7% 39.1% 39.2% 42.4% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% Gross Profit Margin 0.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 10. Operating Profit Margin Operating profit margin is the amount of earnings generated by each dollar of sales. This measure is calculated by dividing operating income by total revenue. The operating profit margin is especially informative when used in conjunction with the sales Page 14

growth. It is important to analyze and note the company s changes in efficiency relative to the changes in the sales growth. In 2009, many of these operating profit margins clustered in the ten to twenty percent range; however, as Dine Equity began restructuring its franchising model, the company generated much higher operating profits. The other firms within this peer group have maintained steady operating profit margins centers around thirteen percent. Operating Profit Margin 2009 2010 2011 2012 2013 Average Brinker 7.8% 10.4% 12.3% 12.8% 13.7% 10.8% Brinker Restated 2.4% 5.0% 7.0% 8.0% 5.4% 5.6% Dine Equity 20.4% 16.6% 26.8% 41.0% 38.4% 26.2% Darden 12.5% 13.2% 14.1% 13.7% 12.2% 13.4% Buffalo Wild Wings 14.3% 15.6% 15.6% 14.4% 14.7% 15.0% Industry 11.5% 12.1% 15.2% 18.0% 16.9% 14.2% Operating Profit Margin 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 11. Page 15

Net Profit Margin The net profit margin, in contrast to the operating profit margin, is the firm s net income divided by sales. It represents the percentage of a company s bottom line, or net income that comprises total revenue. Similar to operating and gross profit margin, net profit margin best serves the financial analysis when compared to prior years or the margins of its peers. Brinker s net profit margin has remained about 1.2% below the industry average for the last five years. The only company to report a loss in net income during this time was Dine Equity in 2010, but they have since improved their business and posted the highest numbers within the sample set for the last two years. Net Profit Margin 2009 2010 2011 2012 2013 Average Brinker 2.2% 3.6% 5.1% 5.4% 5.7% 4.1% Brinker Restated 2.4% 5.2% 5.5% 6.0% 3.1% 4.8% Dine Equity 2.2% -0.2% 7.0% 15.0% 11.2% 6.0% Darden 5.2% 5.8% 6.4% 6.0% 4.8% 5.8% Buffalo Wild Wings 5.7% 6.3% 6.4% 5.5% 5.6% 6.0% Industry 3.5% 4.1% 6.1% 7.6% 6.1% 5.3% Net Profit Margin 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 12. Page 16

Asset Turnover Asset turnover represents the dollar amount of revenue accumulated for every dollar of sales. In all cases a higher asset turnover ratio indicates that a firm is utilizing its assets more efficiently. Asset turnover is calculated by dividing sales by total assets. Generally, it is best when the asset turnover becomes larger because that means the company is generating more sales per dollar of assets. In essence, its assets are becoming more efficient. Within this group, Brinker, before the restatements, had the highest asset turnover levels, with a value thirty percent higher than the industry average in 2013. Most of these firms regressed slightly in 2010, but have since followed a very gradual increase of the last three years. Only Dine Equity s assets have become less-efficient relative to its total revenue. Asset Turnover 2009 2010 2011 2012 2013 Average Brinker 1.9 1.5 1.9 2.0 2.0 1.8 Brinker Restated 1.5 1.3 1.5 1.6 1.6 1.5 Dine Equity 0.5 0.5 0.4 0.4 0.3 0.4 Darden 1.4 1.4 1.4 1.3 1.2 1.4 Buffalo Wild Wings 1.7 1.6 1.6 1.8 1.8 1.7 Industry 1.4 1.2 1.3 1.4 1.4 1.3 2.5 Asset Turnover 2.0 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 13. Page 17

Return on Assets ( ROA ) Return on Assets ( ROA ) indicates the percentage profit gained generated by a firm s total assets. It is calculated as the proportion of net income to the total assets. When firms increase their revenues, it is important to observe the relative changes to ROA. If sales are increasing but the ROA is decreasing then it may behoove the managers to slow down growth as they are becoming less profitable. In general, a higher ROA is best. Brinker s ROA was below the industry average before 2011, but it has since risen above the average at an increasing rate. Within this group, Buffalo Wild Wings emerged again as a clear front-runner with an average ROA over the five-year time period of 10.0%. Return on Assets (ROA) 2009 2010 2011 2012 2013 Average Brinker 4.1% 5.6% 9.5% 10.5% 11.2% 7.4% Brinker Restated 3.6% 6.6% 8.1% 9.5% 4.9% 7.0% Dine Equity 1.0% -0.1% 2.9% 5.3% 3.0% 2.3% Darden 7.4% 7.8% 8.8% 8.0% 5.9% 8.0% Buffalo Wild Wings 9.9% 10.1% 10.2% 9.7% 10.1% 10.0% Industry 5.2% 6.0% 7.9% 8.6% 7.0% 6.9% 12.0% Return on Assets 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 2009 2010 2011 2012 2013 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 14. Page 18

Return on Equity ( ROE ) Return on equity, most commonly abbreviated as ROE, is the amount of profit comprised from the shareholder s equity. This ratio can be found by dividing net income by owner s equity. Return on equity best utilized when comparing the profitability of firms within the same industry. Shareholders equity is on facet of the firms funding of operations. If the net income is increasing while the stockholder s equity is remaining relatively constant, this will represent a firm best utilizing their equity invested. An increasing ROE represents increased the effectiveness of the shareholders equity. As evidenced below, all of the firm s within this group have exhibited drastic volatility in ROE. Brinker, for example mustered a 71.1% Return on Equity in 2012 due to a variety of factors including a $4B stock repurchase plan which greatly reduced the shares outstanding. The firm was showing a significant, nearly exponential growth in ROE until 2013, when the firm only a 0.9%. Dine Equity exhibited the most volatility from 2009 to 2011 as their ROE climbed from -83.5% in 2010, to 92.9% in 2011. 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% -100.0% Return on Equity 2009 2010 2011 2012 2013 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Figure 15. Page 19

80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Return on Equity (without Dine Equity) 2009 2010 2011 2012 2013 Brinker Darden Buffalo Wild Wings Industry Figure 16. Conclusion Brinker s profitability ratios indicate that they are below the industry average for ROA, ROE, sales growth, gross margin, operating margin, and net profit margin. The only time Brinker exceeds the industry average is in asset turnover, which has increased steadily over the last five years. Capital Structure Ratios Introduction The capital structure of a firm describes the way in which its operations are being financed. Properly analyzing the capital structure ratios allows the analyst to understand where a firm is currently obtaining their funds. Firms will utilize different methods of funding depending on their current needs, and the cost of said funding. The most commonly analyzed capital structure ratio is the debt to equity, because this will demonstrate the extent to which a company is leveraged. There are three main capital structure ratios that will be analyzed in this section. These three ratios consist of debt Page 20

to equity, times interest earned, and the Altman s Z-score, which will be discussed in further detail below. Debt to Equity The Debt to Equity Ratio is a capital structure ratio that measures the firm s debt, or total liabilities, in proportion to total shareholders equity. In order to confirm the most universal truth of accounting, assets must always equal liabilities plus shareholders equity. The Debt to Equity Ratio describes the amount of leverage or debt that comprises that latter part of the equation. Analyst opinions vary regarding an ideal number for this ratio. For instance, a higher number indicates that the firm has been aggressive in financing its assets with debt, which has trade-offs. If the growth rate of the company is less than the cost of debt, then creditors benefit. Relative to its peer group Brinker is doing very well about not financing a majority of its assets with debt. Brinker has been able to obtain a debt to equity ratio of 0.34 while its peer group average is 0.66. It is also important to point out that Buffalo Wild Wings has been able to finance all of its assets without seeking debt. Debt to Equity 2009 2010 2011 2012 2013 Average Brinker 0.37 0.33 0.36 0.30 0.36 0.34 Brinker Restated 0.37 0.32 0.34 0.29 0.34 0.33 Dine Equity 4.98 2.25 2.27 1.08 0.76 2.27 Darden 0.3 0.27 0.31 0.40 0.36 0.33 Buffalo Wild Wings 0.00 0.00 0.00 0.00 0.00 0.00 Industry 1.21 0.64 0.66 0.41 0.36 0.66 Debt to Equity 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Buffalo Wild Wings Industry Page 21

Figure 17. Times Interest Earned Times interest earned is useful when analyzing the proportion of interest that comprises operating income. It is the number of times a company can pay its interest expenses out of the earnings before interest and taxes account. Anything below one is considered to be undesirable and risky to potential investors. This ratio is attained by dividing earnings before interest and taxed by total interest payable. Over the past three years, all of the firms in this group, except Darden, have exhibited a strong upward trend in times interest earned. Their total revenues are beginning to cover a larger amount of the interest owed on outstanding debt. Because Buffalo Wild Wings is debt-free, it does not need to pay interest on any debt. Thus, the times interest earned ratio is undefined. Page 22

Times Interest Earned 2009 2010 2011 2012 2013 Average Brinker 7.10 7.70 9.20 9.00 10.40 8.68 Brinker Restated 7.10 7.70 9.20 9.00 10.40 8.68 Dine Equity 6.21 4.98 6.19 7.42 6.94 6.35 Darden 6.20 7.40 6.90 5.00 6.38 Industry 6.65 6.95 7.87 7.61 9.25 7.52 12.00 10.00 8.00 6.00 4.00 2.00 Times Interest Earned 0.00 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Figure 18. Altman s Z-Score Altman s Z-score is a measure how likely a firm is to going to declare bankruptcy; it can also be thought of as the credit risk of the company itself. The standard rule to follow is: if the score is below 1.8 the company is expectedly heading toward bankruptcy, but if the score is above 3.0 the firm does not expect to go bankrupt at any time in the near future. The formula to calculate Altman s Z-score is below: Page 23

Source: supplychainshaman.com According to our calculations in the data below, only Dine Equity can be marked as nearing bankruptcy. Over the past five years, the Z-score has grown from 1.0 to 1.6, demonstrating a significant upward trend. The other firms in the industry have exhibited a similar trend, but they do not appear to be nearing bankruptcy. Altman's Z-Score 2009 2010 2011 2012 2013 Average Brinker 5.3 5.4 6.0 6.6 6.5 6.0 Brinker Restated 4.4 4.6 5.2 5.7 5.3 5.0 Dine Equity 1.0 1.1 1.2 1.6 1.6 1.3 Darden 4.4 4.7 4.6 4.0 3.5 4.2 Industry 3.8 3.9 4.2 4.5 4.2 4.1 7.0 Altman's Z-Score 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2008 2009 2010 2011 2012 2013 2014 Brinker Brinker Restated Dine Equity Darden Figure 19. Page 24

Conclusion As evidenced by the debt to equity ratio, the percentage of invested capital allocated to debt is generally lower in this industry, with the exception of Dine Equity, whom has seven times the amount of debt as they do equity, which may be negative affects their bankruptcy risk in the Altman s Z-score. For the most part, Brinker s capital structure numbers are on par with many of the statistics of the casual dining sector as a whole, despite the volatility within this small peer group. Growth Rates Introduction In this section, there are two relevant growth rates to be analyzed: internal growth rate and sustainable growth rate. The sustainable growth rate measures the level of growth attainable while receiving no outside additional funding. The internal growth rate is used to assess the ability to which a firm can grow by keeping its capital structure constant. Internal Growth Rate Internal growth rate is the level of a firm s growth rate without obtaining financing from outside sources. This ratio is very important for smaller firms and startup firms. If a firm is able to obtain a healthy internal growth rate is represents the ability of a company to grow with only its available assets. After analyzing Brinker s IGR over the past five years, there has not been a noticeable trend associated with this information. Brinker s five year average is consistent with its peer group average, which shows it is similar to the rest of its competitors. Page 25

Internal Growth Rate 2009 2010 2011 2012 2013 Average Brinker 8.6% 16.1 % 25.2 % 47.5 % 0.6% 19.6% Dine Equity 12.0% 92.9% 58.4% 4.6% 42.0% Darden 16.3% 16.4% 16.0% 11.2% 6.8% 13.3% Buffalo Wild Wings 16.1% 16.5% 17.5% 16.3% 32.6% 19.8% Industry 13.2 % 16.3 % 37.9 % 33.4 % 11.2 % 23.7% 100.0% Internal Growth Rate 80.0% 60.0% 40.0% 20.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Dine Equity Darden Buffalo Wild Wings Industry Figure 20. Sustainable Growth Rate Sustainable growth rate is the rate at which a company can grow while keeping its capital structure constant. This is also the growth rate of a firm without increasing or decreasing its current financing leverage. This rate will represent the ability of a firm to grow without borrowing more money. You could also consider this to be a rate of how efficient a company is operating. Brinker showed healthy growth rates from 2009 to 2012. In 2013 Brinker had a large decrease in their SGR which put them below the peer group average for 2013. For the purpose of displaying a graph with legible information, Page 26

we have capped the y-axis at 100% because only Dine Equity has shown a SGR with a rate higher than 100%, which was 304% in 2010. Sustainable Growth Rate 2009 2010 2011 2012 2013 Average Brinker 11.7% 21.5% 34.2% 61.9% 0.8% 26.0% Dine Equity 71.8% 0.0% 303.7% 121.6% 8.1% 101.1% Darden 21.6% 20.9% 20.9% 15.6% 9.3% 17.7% Buffalo Wild Wings 16.1% 16.5% 17.5% 16.3% 32.6% 19.8% Industry 30.3% 14.7% 94.1% 53.9% 12.7% 41.1% Sustainable Growth Rate 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Dine Equity Darden Buffalo Wild Wings Industry Figure 21. Industry-Specific Ratios Introduction In many cases, there are certain characteristics about specific industries that make traditional liquidity, profitability, and capital structure ratios helpful, but incomplete. In this analysis, it is also important to analyze a firm s Company Owned Location ratio. This ratio helps to measure and diagnose certain differences between the structure of industry peers financial statements. Page 27

Company-Owned Locations The Company Owned Locations ratio is important in this industry because a restaurant holding company s franchising structure can have a significant impact on the financial statements. For example, Dine Equity is structured in such a way that they hold no inventory on their balance sheet, which means their current assets are, proportionally, much more liquid that their peers. Brinker s franchising structure is essentially the average of this peer group; however, the range within this group is so large considering Darden owns and operates 100% of their restaurants and Dine Equity is entirely franchised. The average percentage of company owned locations for the entire casual dining sector is 88.9% as of 2013 Q4. Compared to the entire casual dining sector, Brinker s company owned location percentage is relatively low. Company-Owned Locations 2009 2010 2011 2012 2013 Averag e Brinker 60.6 % 56.2 % 55.0 % 54.7 % 55.1 % 56.3% Dine Equity 12.3% 11.9% 9.1% 5.4% 1.0% 7.9% Darden 98.3% 100.0 % 100.0 % 100.0 % 100.0 % 99.7% Buffalo Wild Wings 35.2% 35.6% 35.4% 39.0% 42.8% 37.6% Industry 51.6 % 50.9 % 49.9 % 49.8 % 49.7 % 50.4% Page 28

120.0% Company Owned Locations 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 Brinker Dine Equity Darden Buffalo Wild Wings Industry Figure 22. Financial Analysis Conclusion Brinker s current financial statements have shown us that, compared to its peers, is generally less liquid, less profitable, able to sustain less growth moving forward without adapting. Financial Forecasting Financial forecasting is essential to the valuation process. It is important to make educated assumptions using historical trends, ratios, the current economic environment, and industry related patterns. Using these methods will help us define the intrinsic value of the firm. Of course, the longer the forecasted period, the more unreliable the estimated numbers will become. Using the income statement, balance sheet, and statement of cash flows of Brinker International, we will forecast out the next 10 years of financial information. Page 29

Income Statement The first financial statement to be forecasted is the income statement. The income statement is important to forecast with logical assumptions because the numbers used in the balance sheet and statement of cash flows are pulled directly from it. The most important factor in forecasting the income statement is the sales growth figure. Future revenues are used in multiple ratios, including liquidity and profitability. As always, the current economic conditions must also me taken into consideration. Since we are slowly coming out of the housing recession, the sales growth rate has been adjusted to take this into account. Brinker International has been showing an increasing trend in sales over the past 5 years. We have continued this trend, but on a cautious basis, since the average consumer still seems hesitant about the economic future. We started with a sales growth of 2.4% in 2014 and continued the upward trend to a max of 17% in 2018 and finally settling down to 15% in 2019 and on. After the sales growth is projected, a common sized income statement can be created. A common size income statement reports line items as a percentage of revenues. Using this method, trends and patterns are easier to see and easier to forecast. We have continued Brinker International s upward trend and have forecasted their gross profit margin to rise steadily from 73% in 2014 to a maintenance amount of 75% in 2018 and on. This gives us a cost of goods sold of 27% in 2014 and a final number of 25% in 2018 and thereafter. We have also noticed a trend of Brinker lowering their restaurant expenses. We have continued this trend by forecasting these expenses as 23.5% in 2014 and slowly decreasing to 21.5% in 2019 and thereafter. Following the trend of lower expenses and increasing sales growth, we have naturally forecasted the operating income, earnings before taxes, and the net income, to continue this favorable trend. We started with an operating income of 10% in 2014 and gradually increased it to 13% in 2018 and thereafter. The earnings before taxes number was forecasted at 9% in 2014 and reached a max of 13% in 2019 and remaining at that rate. And finally we show net income increasing from 6% in 2014 to 7.3% in 2018 and maintaining at that rate. Again, with a long forecast period of 10 Page 30

years, unexpected factors could affect our projections. Using these forecasted income statement numbers, we can now forecast the balance sheet, statement of cash flows, and look at dividends. Page 31

As-Stated Income Statement (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Revenues 3,860,921.00 3,276,362.00 2,858,498.00 2,761,386.00 2,820,722.00 2,846,098.00 2,914,404 3,022,237 3,294,239 3,722,490 4,355,313 5,008,610 5,759,901 6,623,887 7,617,470 8,760,090 Cost of Sales 1,101,125.00 923,668.00 816,015.00 742,283.00 769,729.00 758,377.00 786,889 816,004 856,502 967,847 1,088,828 1,252,152 1,439,975 1,655,972 1,904,367 2,190,023 Gross Profit 2,759,796.00 2,352,694.00 2,042,483.00 2,019,103.00 2,050,993.00 2,087,721.00 2,127,515 2,206,233 2,437,737 2,754,642 3,266,485 3,756,457 4,319,926 4,967,915 5,713,102 6,570,068 Operating Costs and Expenses: - - - - - - - - - - Restaurant Labor 1,239,604.00 1,054,078.00 926,474.00 886,559.00 891,910.00 892,413.00 932,609 967,116 1,054,156 1,191,197 1,393,700 1,602,755 1,843,168 2,119,644 2,437,590 2,803,229 Restaurant Expenses 922,382.00 784,657.00 660,922.00 655,060.00 649,830.00 655,214.00 684,885 710,226 757,675 856,173 958,169 1,101,894 1,267,178 1,457,255 1,675,843 1,927,220 Depreciation and Amortization 147,393.00 145,220.00 135,832.00 128,447.00 125,054.00 131,481.00 116,576 120,889 131,770 148,900 174,213 200,344 230,396 264,955 304,699 350,404 General and Administrative 163,996.00 147,372.00 136,270.00 132,834.00 143,388.00 134,538.00 131,148 136,001 148,241 167,512 195,989 225,387 259,196 298,075 342,786 394,204 Other gains and charges 196,364.00 118,612.00 28,485.00 10,783.00 8,974.00 17,300.00 - - - - - - - - - - Total operating costs and expenses 2,669,739.00 2,249,939.00 1,887,983.00 1,813,683.00 1,819,156.00 1,830,946.00 1,865,219 1,934,232 2,075,370 2,345,169 2,700,294 3,105,338 3,571,139 4,106,810 4,722,831 5,431,256 Operating Income or Loss 90,057.00 102,755.00 154,500.00 205,420.00 231,837.00 256,775.00 291,440 317,335 372,249 446,699 566,191 651,119 748,787 861,105 990,271 1,138,812 Interest Expenses 45,862.00 33,330.00 28,515.00 28,311.00 26,800.00 29,118.00 29,144 30,222 32,942 37,225 43,553 50,086 57,599 66,239 76,175 87,601 Other, net (4,046.00) (9,430.00) (6,001.00) (6,220.00) (3,772.00) (2,658.00) - - - - - - - - - - Earnings Before Taxes 48,241.00 78,855.00 131,986.00 183,329.00 208,809.00 230,315.00 262,296 302,224 355,778 428,086 535,703 651,119 748,787 861,105 990,271 1,138,812 Income Taxes Expense 2,644.00 6,734.00 28,264.00 42,269.00 57,577.00 66,956.00 - - - - - - - - - - Income from continueing operations 45,597.00 72,121.00 103,722.00 141,060.00 151,232.00 163,359.00 180,693 208,534 243,774 290,354 361,491 415,715 478,072 549,783 632,250 727,087 Income from discountinued operations, net of taxes 6,125.00 7,045.00 33,982.00 - - - - - - - - - - - - - Net Income 51,722.00 79,166.00 137,704.00 141,060.00 151,232.00 163,359.00 174,864 190,401 217,420 256,852 317,938 365,629 420,473 483,544 556,075 639,487 Income Summary Common Shares Outstanding 101,320 102,120 101,570 82,940 74,340 67,444 59,500 51,750 44,000 35,000 35,000 35,000 35,000 35,000 35,000 35,000 Dividends per Share 0.42 0.44 0.47 0.56 0.64 0.80 0.88 0.99 1.09 1.17 1.25 1.25 1.25 1.25 1.25 1.30 Annual Dividends 42,554 44,933 47,738 46,446 47,578 53,955 52,360 51,233 47,960 40,950 43,750 43,750 43,750 43,750 43,750 45,500 Common Sized Sales Growth -15.14% -12.75% -3.40% 2.15% 0.90% 2.4% 3.7% 9.0% 13.0% 17.0% 15.0% 15.0% 15.0% 15.0% 15.0% Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of Sales 28.5% 28.2% 28.5% 26.9% 27.3% 26.6% 27% 27% 26% 26% 25% 25% 25% 25% 25% 25% Gross Profit 71.5% 71.8% 71.5% 73.1% 72.7% 73.4% 73% 73% 74% 74% 75% 75% 75% 75% 75% 75% Operating Costs and Expenses: Restaurant Labor 32.1% 32.2% 32.4% 32.1% 31.6% 31.4% 32% 32% 32% 32% 32% 32% 32% 32% 32% 32% Restaurant Expenses 23.9% 23.9% 23.1% 23.7% 23.0% 23.0% 23.5% 23.5% 23.0% 23.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.00% Depreciation and Amortization 3.8% 4.4% 4.8% 4.7% 4.4% 4.6% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% General and Administrative 4.2% 4.5% 4.8% 4.8% 5.1% 4.7% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Other gains and charges 5.1% 3.6% 1.0% 0.4% 0.3% 0.6% Total operating costs and expenses 69.1% 68.7% 66.0% 65.7% 64.5% 64.3% 64% 64% 63% 63% 62% 62% 62% 62% 62% 62% Operating Income 2.3% 3.1% 5.4% 7.4% 8.2% 9.0% 10.0% 10.5% 11.3% 12.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% Interest Expenses 1.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Other, net -0.1% -0.3% -0.2% -0.2% -0.1% -0.1% Earnings Before Taxes 1.2% 2.4% 4.6% 6.6% 7.4% 8.1% 9.0% 10.0% 10.8% 11.5% 12.3% 13.0% 13.0% 13.0% 13.0% 13.0% Income Taxes Expense 0.1% 0.2% 1.0% 1.5% 2.0% 2.4% Income from continuing operations 1.2% 2.2% 3.6% 5.1% 5.4% 5.7% 6.2% 6.9% 7.4% 7.8% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% Income from discountinued operations, net of taxes 0.2% 0.2% 1.2% 0.0% 0.0% 0.0% Net Income 1.3% 2.4% 4.8% 5.1% 5.4% 5.7% 6.0% 6.3% 6.6% 6.9% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% Page 32

Restated Income Statement (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Revenues 3,860,921.00 3,276,362.00 2,858,498.00 2,761,386.00 2,820,722.00 2,846,098.00 2,914,404 3,022,237 3,196,016 3,451,697 3,831,384 4,252,836 4,720,648 5,239,919 5,816,311 6,456,105 Cost of Sales 1,101,125.00 923,668.00 816,015.00 742,283.00 769,729.00 758,377.00 786,889 816,004 830,964 897,441 957,846 1,063,209 1,180,162 1,309,980 1,454,078 1,614,026 Gross Profit 2,759,796.00 2,352,694.00 2,042,483.00 2,019,103.00 2,050,993.00 2,087,721.00 2,127,515 2,206,233 2,365,052 2,554,256 2,873,538 3,189,627 3,540,486 3,929,940 4,362,233 4,842,079 Operating Costs and Expenses: - - - - - - - - - - - - - - - Restaurant Labor 1,239,604.00 1,054,078.00 926,474.00 886,559.00 891,910.00 892,413.00 932,609 967,116 1,022,725 1,104,543 1,226,043 1,360,908 1,510,607 1,676,774 1,861,219 2,065,954 Restaurant Expenses 922,382.00 784,657.00 660,922.00 655,060.00 649,830.00 655,214.00 684,885 710,226 735,084 793,890 842,904 935,624 1,038,543 1,152,782 1,279,588 1,420,343 Goodwill Impairment Charge - - - - - - - - - - - - - - - - Amortization of Capital Lease Rights - 65,530.27 61,999.30 57,947.77 52,880.10 48,343.35 43,716 39,289 31,960 34,517 38,314 42,528 47,206 52,399 58,163 64,561 Depreciation and Amortization 147,393.00 145,220.00 135,832.00 128,447.00 125,054.00 131,481.00 116,576 120,889 127,841 138,068 153,255 170,113 188,826 209,597 232,652 258,244 General and Administrative 163,996.00 147,372.00 136,270.00 132,834.00 143,388.00 134,538.00 131,148 136,001 143,821 155,326 172,412 191,378 212,429 235,796 261,734 290,525 Other gains and charges 196,364.00 12,302.00 (75,029.00) (89,369.00) (91,467.00) 17,300.00 - - - - - - - - - - Total operating costs and expenses 2,669,739.00 2,209,159.27 1,846,468.30 1,771,478.77 1,771,595.10 1,879,289.35 1,865,219 1,934,232 2,013,490 2,174,569 2,375,458 2,636,758 2,926,802 3,248,750 3,606,113 4,002,785 Operating Income 90,057.00 143,534.73 196,014.70 247,624.23 279,397.90 208,431.65 291,440 317,335 361,150 414,204 498,080 552,869 613,684 681,190 756,120 839,294 Interest Expenses 45,862.00 64,617.54 59,025.72 60,851.87 56,812.06 56,888.46 29,144 30,222 31,960 34,517 38,314 42,528 47,206 52,399 58,163 64,561 Other, net (4,046.00) (9,430.00) (6,001.00) (6,220.00) (3,772.00) (2,658.00) - - - - - - - - - - Earnings Before Taxes 48,241.00 88,347.19 142,989.98 192,992.36 226,357.84 154,201.19 262,296 302,224 345,170 396,945 471,260 552,869 613,684 681,190 756,120 839,294 Income Taxes Expense 2,644.00 6,734.00 28,264.00 42,269.00 57,577.00 66,956.00 - - - - - - - - - - Income from continueing operations 45,597.00 81,613.19 114,725.98 150,723.36 168,780.84 87,245.19 180,693 208,534 236,505 269,232 318,005 352,985 391,814 434,913 482,754 535,857 Income from discountinued operations, net of taxes 6,125.00 7,045.00 33,982.00 - - - - - - - - - - - - - Net Income 51,722.00 88,658.19 148,707.98 150,723.36 168,780.84 87,245.19 174,864 190,401 210,937 238,167 279,691 310,457 344,607 382,514 424,591 471,296 Common Sized Sales Growth -15.14% -12.75% -3.40% 2.15% 0.90% 2.4% 3.7% 5.8% 8.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of Sales 28.5% 28.2% 28.5% 26.9% 27.3% 26.6% 27% 27% 26% 26% 25% 25% 25% 25% 25% 25% Gross Profit 71.5% 71.8% 71.5% 73.1% 72.7% 73.4% 73% 73% 74% 74% 75% 75% 75% 75% 75% 75% Operating Costs and Expenses: Restaurant Labor 32.1% 32.2% 32.4% 32.1% 31.6% 31.4% 32% 32% 32% 32% 32% 32% 32% 32% 32% 32% Restaurant Expenses 23.9% 23.9% 23.1% 23.7% 23.0% 23.0% 23.5% 23.5% 23.0% 23.0% 22.0% 22.0% 22.0% 22.0% 22.0% 22.00% Goodwill Impairment Charge 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Amortization of Capital Lease Rights 0.0% 2.0% 2.2% 2.1% 1.9% 1.7% 1.5% 1.3% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Depreciation and Amortization 3.8% 4.4% 4.8% 4.7% 4.4% 4.6% 4% 4% 4% 4% 4% 4% 4% 4% 4% 4% General and Administrative 4.2% 4.5% 4.8% 4.8% 5.1% 4.7% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% Other gains and charges 5.1% 0.4% -2.6% -3.2% -3.2% 0.6% Total operating costs and expenses 69.1% 67.4% 64.6% 64.2% 62.8% 66.0% 64% 64% 63% 63% 62% 62% 62% 62% 62% 62% Operating Income 2.3% 4.4% 6.9% 9.0% 9.9% 7.3% 10.0% 10.5% 11.3% 12.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% Interest Expenses 1.2% 2.0% 2.1% 2.2% 2.0% 2.0% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% Other, net -0.1% -0.3% -0.2% -0.2% -0.1% -0.1% Earnings Before Taxes 1.2% 2.7% 5.0% 7.0% 8.0% 5.4% 9.0% 10.0% 10.8% 11.5% 12.3% 13.0% 13.0% 13.0% 13.0% 13.0% Income Taxes Expense 0.1% 0.2% 1.0% 1.5% 2.0% 2.4% Income from continueing operations 1.2% 2.5% 4.0% 5.5% 6.0% 3.1% 6.2% 6.9% 7.4% 7.8% 8.3% 8.3% 8.3% 8.3% 8.3% 8.3% Income from discountinued operations, net of taxes 0.2% 0.2% 1.2% 0.0% 0.0% 0.0% Net Income 1.3% 2.7% 5.2% 5.5% 6.0% 3.1% 6.0% 6.3% 6.6% 6.9% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% Page 33

Dividends Forecasting The valuation of a firm is heavily dependent on future expectations of dividend growth and value. Brinker International announced plans to spend $4 billion on a share repurchase plan in 2012. As a result, the dividends paid out have been steadily increasing while share outstanding have been decreasing. We have forecasted this trend to continue starting with a dividend of $0.88 per share in 2014 and reaching a max of $1.25 per share in 2018. Balance Sheet After forecasting the income statement, the next step is to forecast the balance sheet. There are many ratios and methods used to do this, but we find the asset turnover ratio is the best at tying the income statement to the balance sheet. Just like the favorable trend in sales, we have found an increasing trend in the asset turnover ratio from 1.6 in 2008 to 2.0 in 2013. Using this trend, we have forecasted the asset turnover ratio in 2014 to be 2.1. With this ratio, we then backed into the total assets figure. The total assets figure is the basis for forecasting the balance sheet. With the use of Liquidity ratios we also forecasted the current assets and current liabilities. Now that we have the total assets figure, the next step was to create a common size balance sheet to help indentify patterns and trends. Using the common size balance sheet we found a trend of decreasing current assets and an increase in long term assets. We forecasted the current assets in 2014 at 13.1% of total assets and slowly decreased it to 11% in 2018 where it remained constant. The long term assets were forecasted at 86.9% in 2014 and slowly increased to 89% in 2018 and stayed constant as well. This same trend was found in the current and long term liabilities of Brinker. Again, we continued this trend in our forecasts. We started with 27% in current liabilities in 2014 and decreased it to 20% in 2016 where it stayed constant. The long term liabilities increased from 73% in 2014 to 80% in 2016. Page 34

The trends we are finding in Brinker match the trends of the casual dining industry, as well as, the slowly improving economy. Page 35

As- Stated Balance Sheet (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Assets Current Assets: Cash and cash equivalents 54,714.00 94,156.00 344,624.00 81,988.00 59,103.00 59,367.00 Accounts Receivale 52,304.00 48,557.00 45,140.00 42,785.00 43,387.00 37,842.00 Inventories 35,534.00 33,845.00 26,735.00 25,365.00 25,360.00 24,628.00 Prepaid Expense and Other 106,472.00 90,218.00 63,961.00 59,698.00 63,023.00 71,824.00 Income Taxes Receivable - 41,620.00 - - 1,055.00 4,930.00 Deferred Income Tax 71,595.00 50,785.00 20,607.00 11,524.00 2,918.00 - Assets held for sale 134,102.00 170,133.00 - - Total Current Assets 454,721.00 529,314.00 501,067.00 221,360.00 194,846.00 198,591.00 188,530 181,334 174,139 168,382 158,308 158,308 158,308 158,308 158,308 158,309 Non-Current Assets: Property and Equipment Land 198,554.00 173,758.00 163,018.00 156,731.00 152,382.00 147,581.00 Building and leasehold improvements 1,573,305.00 1,399,843.00 1,367,646.00 1,383,311.00 1,399,905.00 1,435,426.00 Furniture and equipment 669,201.00 579,290.00 556,815.00 543,682.00 556,304.00 580,115.00 Construction-in-Progress 35,106.00 9,031.00 11,870.00 6,425.00 11,211.00 20,588.00 Less accumulated depreciation and amort. (945,150.00) (914,142.00) (970,272.00) (1,033,870.00) (1,076,238.00) (1,147,895.00) Net Property and Equipment 1,531,016.00 1,247,780.00 1,129,077.00 1,056,279.00 1,043,564.00 1,035,815.00 Other Assets: Goodwill 140,371.00 124,932.00 124,089.00 124,089.00 125,604.00 142,103.00 Deferred income taxes 23,160.00-44,213.00 30,365.00 20,231.00 24,064.00 Other Assets: 43,854.00 46,921.00 53,658.00 52,475.00 51,827.00 52,030.00 Total other assets 207,385.00 171,853.00 221,960.00 206,929.00 197,662.00 218,197.00 Total Non-Current Assets 1,738,401.00 1,419,633.00 1,351,037.00 1,263,208.00 1,241,226.00 1,254,012.00 1,250,630 1,257,827 1,265,023 1,270,781 1,280,856 1,280,857 1,280,858 1,280,859 1,280,860 1,280,860 Total Assets 2,193,122.00 1,948,947.00 1,852,104.00 1,484,568.00 1,436,072.00 1,452,603.00 1,439,160 1,439,161 1,439,162 1,439,163 1,439,164 1,439,165 1,439,166 1,439,167 1,439,168 1,439,169 Liabilities and Shareholders' Equity Current Liabilities: Current installments of long-term debt 1,973.00 1,815.00 16,866.00 22,091.00 27,334.00 27,596.00 Accounts Payable 168,619.00 121,483.00 112,824.00 87,549.00 100,531.00 93,326.00 Accrued Liabilities 331,943.00 285,406.00 300,540.00 287,365.00 273,884.00 268,444.00 Income Taxes Payable 5,946.00-19,647.00 8,596.00-845.00 Liabilities associated with assets held for sale 17,688.00 9,798.00 - - Total current liabilities 526,169.00 418,502.00 449,877.00 405,601.00 401,749.00 390,211.00 1,167,299 1,299,993 997,841 1,084,093 723,655 762,216 346,934 322,425 (165,389) (271,560) Long-term debt, less current installments 901,604.00 727,447.00 524,511.00 502,572.00 587,890.00 780,121 Deferred Income Taxes - 4,295.00 - - - - Other liabilities 170,260.00 151,779.00 148,968.00 137,485.00 136,560.00 132,914.00 Total Long-Term Liabilities 1,071,864.00 883,521.00 673,479.00 640,057.00 724,450.00 913,035.00 852,128 994,494 798,273 867,274 578,924 609,773 277,547 257,940 (132,311) (217,248) Total Liabilities 1,598,033.00 1,302,023.00 1,123,356.00 1,045,658.00 1,126,199.00 1,303,246.00 1,167,299 1,299,993 997,841 1,084,093 723,655 762,216 346,934 322,425 (165,389) (271,560) Commitments and Contingencies Shareholders' Equity Common Stock 17,625.00 17,625.00 17,625.00 17,625.00 17,625.00 17,625.00 Additional Paid-in capital 464,666.00 463,980.00 465,721.00 463,688.00 466,781.00 477,420.00 Accumulated other comprehensive loss (168.00) - - - - - Retained Earnings 1,800,300.00 1,834,307.00 1,923,561.00 2,013,189.00 2,112,858.00 2,217,623.00 2,282,423.00 2,315,912.00 2,406,907.00 2,494,502.00 2,597,264.00 2,712,668.00 Less Treasury Stock (1,687,334.00) (1,668,988.00) (1,678,159.00) (2,055,592.00) (2,287,391.00) (2,563,311.00) Total shareholders' equity 595,089.00 646,924.00 728,748.00 438,910.00 309,873.00 149,357.00 271,861 139,168 441,321 355,070 715,509 676,949 1,092,232 1,116,742 1,604,557 1,710,729 Total Liabilities and shareholders' equity 2,193,122.00 1,948,947.00 1,852,104.00 1,484,568.00 1,436,072.00 1,452,603.00 1,439,160 1,439,161 1,439,162 1,439,163 1,439,164 1,439,165 1,439,166 1,439,167 1,439,168 1,439,169 Page 36

Common Sized (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 Assets Current Assets: Cash and cash equivalents 2.49% 4.8% 18.6% 5.5% 4.1% 4.1% Accounts Receivale 2.38% 2.5% 2.4% 2.9% 3.0% 2.6% Inventories 1.62% 1.7% 1.4% 1.7% 1.8% 1.7% Prepaid Expense and Other 4.85% 4.6% 3.5% 4.0% 4.4% 4.9% Income Taxes Receivable 0.00% 2.1% 0.0% 0.0% 0.1% 0.3% Deferred Income Tax 3.26% 2.6% 1.1% 0.8% 0.2% 0.0% Assets held for sale 6.11% 8.7% 0.0% 0.0% 0.0% 0.0% Total Current Assets 20.73% 27.2% 27.1% 14.9% 13.6% 13.7% 13.1% 12.6% 12.1% 11.7% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Non-Current Assets: Property and Equipment Land 9.05% 8.9% 8.8% 10.6% 10.6% 10.2% Building and leasehold improvements 71.74% 71.8% 73.8% 93.2% 97.5% 98.8% Furniture and equipment 30.51% 29.7% 30.1% 36.6% 38.7% 39.9% Construction-in-Progress 1.60% 0.5% 0.6% 0.4% 0.8% 1.4% Less accumulated depreciation and amort. -43.10% -46.9% -52.4% -69.6% -74.9% -79.0% Net Property and Equipment 69.81% 64.0% 61.0% 71.2% 72.7% 71.3% 72.0% 72.6% 74.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% Other Assets: 0.00% 0.0% 0.0% 0.0% 0.0% 0.0% Goodwill 6.40% 6.4% 6.7% 8.4% 8.7% 9.8% 10.4% 10.9% 11.5% 12.0% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% Deferred income taxes 1.06% 0.0% 2.4% 2.0% 1.4% 1.7% Other Assets: 2.00% 2.4% 2.9% 3.5% 3.6% 3.6% Total other assets 9.46% 8.8% 12.0% 13.9% 13.8% 15.0% Total Non-Current Assets 79.27% 72.8% 72.9% 85.1% 86.4% 86.3% 86.9% 87.4% 87.9% 88.3% 89.0% 89.0% 89.0% 89.0% 89.0% 89.0% Total Assets 100.00% 100.0% 100.0% 100.0% 100.0% 100.0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Liabilities and Shareholders' Equity Current Liabilities: Current installments of long-term debt 0.12% 0.14% 1.50% 2.11% 2.43% 2.12% Accounts Payable 10.55% 9.33% 10.04% 8.37% 8.93% 7.16% Accrued Liabilities 20.77% 21.92% 26.75% 27.48% 24.32% 20.60% Income Taxes Payable 0.37% 0.00% 1.75% 0.82% 0.00% 0.06% Liabilities associated with assets held for sale 1.11% 0.75% 0.00% 0.00% 0.00% 0.00% Total current liabilities 32.93% 32.14% 40.05% 38.79% 35.67% 29.94% 27.0% 23.5% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Long-term debt, less current installments 56.42% 55.87% 46.69% 48.06% 52.20% 59.86% Deferred Income Taxes 0.00% 0.33% 0.00% 0.00% 0.00% 0.00% Other liabilities 10.65% 11.66% 13.26% 13.15% 12.13% 10.20% Total Long-Term Liabilities 67.07% 67.86% 59.95% 61.21% 64.33% 70.06% 73.0% 76.5% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Total Liabilities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Liabilities to Total L&E 72.87% 66.81% 60.65% 70.44% 78.42% 89.72% 90.0% 88.0% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7% 89.7% Commitments and Contingencies Shareholders' Equity Common Stock 2.96% 2.72% 2.42% 4.02% 5.69% 11.80% Additional Paid-in capital 78.08% 71.72% 63.91% 105.65% 150.64% 319.65% Accumulated other comprehensive loss -0.03% 0.00% 0.00% 0.00% 0.00% 0.00% Retained Earnings 302.53% 283.54% 263.95% 458.68% 681.85% 1484.78% 383.54% 357.99% 330.28% 568.34% 838.17% 1816.23% Less Treasury Stock -283.54% -257.99% -230.28% -468.34% -738.17% -1716.23% Total shareholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Equity to Total L&E 27.13% 33.19% 39.35% 29.56% 21.58% 10.28% 10% 12% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% Total Liabilities and shareholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Page 37

Restated Balance Sheet (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Assets Current Assets: Cash and cash equivalents 54,714.00 94,156.00 344,624.00 81,988.00 59,103.00 59,367.00 Accounts Receivale 52,304.00 48,557.00 45,140.00 42,785.00 43,387.00 37,842.00 Inventories 35,534.00 33,845.00 26,735.00 25,365.00 25,360.00 24,628.00 Prepaid Expense and Other 106,472.00 90,218.00 63,961.00 59,698.00 63,023.00 71,824.00 Income Taxes Receivable - 41,620.00 - - 1,055.00 4,930.00 Deferred Income Tax 71,595.00 50,785.00 20,607.00 11,524.00 2,918.00 - Assets held for sale 134,102.00 170,133.00 - - - - Total Current Assets 454,721.00 529,314.00 501,067.00 221,360.00 194,846.00 198,591.00 188,530 181,334 174,139 168,382 158,308 158,308 158,308 158,308 158,308 158,309 Non-Current Assets: Property and Equipment Land 198,554.00 173,758.00 163,018.00 156,731.00 152,382.00 147,581.00 Building and leasehold improvements 1,573,305.00 1,399,843.00 1,367,646.00 1,383,311.00 1,399,905.00 1,435,426.00 Furniture and equipment 669,201.00 579,290.00 556,815.00 543,682.00 556,304.00 580,115.00 Construction-in-Progress 35,106.00 9,031.00 11,870.00 6,425.00 11,211.00 20,588.00 Less accumulated depreciation and amort. (945,150.00) (914,142.00) (970,272.00) (1,033,870.00) (1,076,238.00) (1,147,895.00) Net Property and Equipment 1,531,016.00 1,247,780.00 1,129,077.00 1,056,279.00 1,043,564.00 1,035,815.00 818,882 826,078 833,275 839,032 849,107 849,107 849,108 849,109 849,109 849,110 Other Assets: Goodwill 140,371.00 124,932.00 124,089.00 124,089.00 125,604.00 142,103.00 Capitalized Operating Lease Rights 655,302.66 557,993.69 463,582.19 423,040.76 386,746.78 376,857.91 Accumulated Impairment of Lease - (65,530.27) (61,999.30) (57,947.77) (52,880.10) (48,343.35) Deferred income taxes 23,160.00-44,213.00 30,365.00 20,231.00 24,064.00 Other Assets: 43,854.00 46,921.00 53,658.00 52,475.00 51,827.00 52,030.00 Total other assets 862,687.66 664,316.43 623,542.89 572,021.99 531,528.69 546,711.56 Total Non-Current Assets 2,393,703.66 1,912,096.43 1,752,619.89 1,628,300.99 1,575,092.69 1,582,526.56 1,250,630 1,257,827 1,265,023 1,270,781 1,280,856 1,280,857 1,280,858 1,280,859 1,280,860 1,280,860 Total Assets 2,848,424.66 2,441,410.43 2,253,686.89 1,849,660.99 1,769,938.69 1,781,117.56 1,439,160 1,439,161 1,439,162 1,439,163 1,439,164 1,439,165 1,439,166 1,439,167 1,439,168 1,439,169 Liabilities and Shareholders' Equity Current Liabilities: Current installments of long-term debt 1,973.00 1,815.00 16,866.00 22,091.00 27,334.00 27,596.00 Accounts Payable 168,619.00 121,483.00 112,824.00 87,549.00 100,531.00 93,326.00 Accrued Liabilities 331,943.00 285,406.00 300,540.00 287,365.00 273,884.00 268,444.00 Income Taxes Payable 5,946.00-19,647.00 8,596.00-845.00 Liabilities associated with assets held for sale 17,688.00 9,798.00 - - - - Total current liabilities 526,169.00 418,502.00 449,877.00 405,601.00 401,749.00 390,211.00 1,172,059 1,306,720 1,008,321 1,095,370 735,885 775,244 360,914 337,202 (149,659) (256,783) Long-term debt, less current installments 901,604.00 727,447.00 524,511.00 502,572.00 587,890.00 780,121.00 Capitalized Op. Lease Liability 655,302.66 557,993.69 463,582.19 423,040.76 386,746.78 376,857.91 Accu,. Reduction in Principal on Cap. Op. Lease Liab. - (75,022.46) (73,003.28) (67,611.13) (70,428.94) (72,516.54) Deferred Income Taxes - 4,295.00 - - - - Other liabilities 170,260.00 151,779.00 148,968.00 137,485.00 136,560.00 132,914.00 Total Long-Term Liabilities 1,727,166.66 1,366,492.23 1,064,057.91 995,486.63 1,040,767.85 1,217,376.37 855,603 999,641 806,657 876,296 588,708 620,195 288,731 269,762 (119,727) (205,426) Total Liabilities 2,253,335.66 1,784,994.23 1,513,934.91 1,401,087.63 1,442,516.85 1,607,587.37 1,172,059 1,306,720 1,008,321 1,095,370 735,885 775,244 360,914 337,202 (149,659) (256,783) Commitments and Contingencies Shareholders' Equity Common Stock 17,625.00 17,625.00 17,625.00 17,625.00 17,625.00 17,625.00 Additional Paid-in capital 464,666.00 463,980.00 465,721.00 463,688.00 466,781.00 477,420.00 Accumulated other comprehensive loss (168.00) - - - - - Retained Earnings 1,800,300.00 1,843,799.19 1,934,564.98 2,022,852.36 2,130,406.84 2,241,796.19 2,282,423.00 2,325,404.19 2,417,910.98 2,504,165.36 2,614,812.84 2,736,841.19 Less Treasury Stock (1,687,334.00) (1,668,988.00) (1,678,159.00) (2,055,592.00) (2,287,391.00) (2,563,311.00) Total shareholders' equity 595,089.00 656,416.19 739,751.98 448,573.36 327,421.84 173,530.19 267,101 132,441 430,841 343,793 703,279 663,921 1,078,252 1,101,965 1,588,827 1,695,952 Total Liabilities and shareholders' equity 2,848,424.66 2,441,410.43 2,253,686.89 1,849,660.99 1,769,938.69 1,781,117.56 1,439,160 1,439,161 1,439,162 1,439,163 1,439,164 1,439,165 1,439,166 1,439,167 1,439,168 1,439,169 Page 38

Common Sized (in thousands) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 Assets Current Assets: Cash and cash equivalents 1.92% 3.86% 15.29% 4.43% 3.34% 3.33% Accounts Receivale 1.84% 1.99% 2.00% 2.31% 2.45% 2.12% Inventories 1.25% 1.39% 1.19% 1.37% 1.43% 1.38% Prepaid Expense and Other 3.74% 3.70% 2.84% 3.23% 3.56% 4.03% Income Taxes Receivable 0.00% 1.70% 0.00% 0.00% 0.06% 0.28% Deferred Income Tax 2.51% 2.08% 0.91% 0.62% 0.16% 0.00% Assets held for sale 4.71% 6.97% 0.00% 0.00% 0.00% 0.00% Total Current Assets 15.96% 21.68% 22.23% 11.97% 11.01% 11.15% 13.1% 12.6% 12.1% 11.7% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Non-Current Assets: Property and Equipment Land 6.97% 7.12% 7.23% 8.47% 8.61% 8.29% Building and leasehold improvements 55.23% 57.34% 60.68% 74.79% 79.09% 80.59% Furniture and equipment 23.49% 23.73% 24.71% 29.39% 31.43% 32.57% Construction-in-Progress 1.23% 0.37% 0.53% 0.35% 0.63% 1.16% Less accumulated depreciation and amort. -33.18% -37.44% -43.05% -55.90% -60.81% -64.45% Net Property and Equipment 53.75% 51.11% 50.10% 57.11% 58.96% 58.16% 56.9% 57.4% 57.9% 58.3% 59.0% 59.0% 59.0% 59.0% 59.0% 59.0% Other Assets: Goodwill 4.93% 5.12% 5.51% 6.71% 7.10% 7.98% Capitalized Operating Lease Rights 23.01% 22.86% 20.57% 22.87% 21.85% 21.16% 21.96% Accumulated Impairment of Lease 0.00% -2.68% -2.75% -3.13% -2.99% -2.71% Deferred income taxes 0.81% 0.00% 1.96% 1.64% 1.14% 1.35% Other Assets: 1.54% 1.92% 2.38% 2.84% 2.93% 2.92% Total other assets 30.29% 27.21% 27.67% 30.93% 30.03% 30.69% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% Total Non-Current Assets 84.04% 78.32% 77.77% 88.03% 88.99% 88.85% 86.9% 87.4% 87.9% 88.3% 89.0% 89.0% 89.0% 89.0% 89.0% 89.0% Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Liabilities and Shareholders' Equity Current Liabilities: Current installments of long-term debt 0.09% 0.10% 1.11% 1.58% 1.89% 1.72% Accounts Payable 7.48% 6.81% 7.45% 6.25% 6.97% 5.81% Accrued Liabilities 14.73% 15.99% 19.85% 20.51% 18.99% 16.70% Income Taxes Payable 0.26% 0.00% 1.30% 0.61% 0.00% 0.05% Liabilities associated with assets held for sale 0.78% 0.55% 0.00% 0.00% 0.00% 0.00% Total current liabilities 23.35% 23.45% 29.72% 28.95% 27.85% 24.27% 27.0% 23.5% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Long-term debt, less current installments 40.01% 40.75% 34.65% 35.87% 40.75% 48.53% Capitalized Op. Lease Liability 29.08% 31.26% 30.62% 30.19% 26.81% 23.44% 22.0% 20.7% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Accu,. Reduction in Principal on Cap. Op. Lease Liab. 0.00% -4.20% -4.82% -4.83% -4.88% -4.51% Deferred Income Taxes 0.00% 0.24% 0.00% 0.00% 0.00% 0.00% Other liabilities 7.56% 8.50% 9.84% 9.81% 9.47% 8.27% Total Long-Term Liabilities 76.65% 76.55% 70.28% 71.05% 72.15% 75.73% 78.0% 79.3% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Total Liabilities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Liabilities to Total L&E 79.11% 73.11% 67.18% 75.75% 81.50% 90.26% 90.0% 88.0% 90.3% 90.3% 90.3% 90.3% 90.3% 90.3% 90.3% 90.3% Commitments and Contingencies Shareholders' Equity Common Stock 2.96% 2.69% 2.38% 3.93% 5.38% 10.16% Additional Paid-in capital 78.08% 70.68% 62.96% 103.37% 142.56% 275.12% Accumulated other comprehensive loss -0.03% 0.00% 0.00% 0.00% 0.00% 0.00% Retained Earnings 302.53% 280.89% 261.52% 450.95% 650.66% 1291.88% 383.54% 354.26% 326.85% 558.25% 798.61% 1577.16% Less Treasury Stock -283.54% -254.26% -226.85% -458.25% -698.61% -1477.16% Total shareholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Equity to Total L&E 20.89% 26.89% 32.82% 24.25% 18.50% 9.74% 10% 12% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% 9.7% Total Liabilities and shareholders' equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Page 39

Statement of Cash Flows The final part of financial forecasting is calculating the statement of cash flows. The statement of cash flows is made up of three sections: cash flows from operating activities-cffo, cash flows from investing activities-cffi, and cash flows from financing activities-cfff. Forecasting the statement of cash flows is the hardest financial to predict. This is due to the volatile nature of cash flows. Cash flows from operations are usually forecast using three different ratios: the CFFO/sales, the CFFO/operating income, and the CFFO/net income. We have chosen the CFFO/net income method since it was the least volatile. This gives us a CFFO of $117,741,000.00 in 2014 and maxing out at $430,585,000.00 in 2023. Page 40

As-Stated Cashflow Statement (in thousandths) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Net Income 51,722 79,166 137,704 141,060 151,232 163,359 Accrual Adjustments to compute CFFO 274,987 154,841 159,698 118,928 152,206 127,329 Total Cash Flow From Operating Activities 326,709 234,007 297,402 259,988 303,438 290,688 Op Method 110,194 119,984 140,748 168,897 214,077 246,189 283,117 325,584 374,422 430,585 NI Method 117,741 128,203 146,395 172,946 214,077 246,189 283,117 325,584 374,422 430,585 Average Sales/CFFO 10.08 15.91 14.64 19.26 18.98 22.79 20.34 OP Inc/CFFO 1.14 1.91 1.90 2.50 2.47 2.96 2.64 Net Inc/CFFO 0.67 1.10 1.07 1.41 1.39 1.66 1.49 Investing Activities Cashflows Capital Expenditures -259356-88152 -60879-70361 -128346-156153 Investments -8711-4612 0-2896 -3170 0 Other Cashflows from Investing Activities 93345 86553 56352 8696 8112 18309 Total Cash Flows from Investing Activities -174722-6211 -4527-64,561-123,404-137,844 Financing Activities Cash Flows Dividends Paid -42914-45355 -34448-53185 -50,081-56343 Sale of Stock 5277 4650 2396 33057 43416 41190 Purchase of Stock -240784-3739 -22868-422099 -287291-333384 Net Borrowings -323586-160757 0 0 40000-40000 Other Cashflows from Financing Activities 398555-19184 -194518-15,836 51,037 235,957 Total Cash Flows From Financing Activities -203452-224385 -249438-458,063-202,919-152,580 Net Chang in Cash & Cash Equivalents -30,109 39,442 250,468-262,636-22,885 264 Cash & Cash Equivalents Beginning Balance 84823 54,714 94,156 344,624 81,988 59,103 Cash & Cash Equivalents Ending Balance 54,714 94,156 344,624 81,988 59,103 59,367 Common Size Cashflow Statement (in thousandths) Period Ending 30-Jun-08 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 Net Income 15.83% 33.83% 46.30% 54.26% 49.84% 56.20% Accrual Adjustments to compute CFFO 84.17% 66.17% 53.70% 45.74% 50.16% 43.80% Total Cash Flow From Operating Activities 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Investing Activities Cashflows Capital Expenditures -79.38% -37.67% -20.47% -27.06% -42.30% -53.72% Investments -2.67% -1.97% 0.00% -1.11% -1.04% 0.00% Other Cashflows from Investing Activities 28.57% 36.99% 18.95% 3.34% 2.67% 6.30% Total Cash Flows from Investing Activities -53.48% -2.65% -1.52% -24.83% -40.67% -47.42% Financing Activities Cash Flows Dividends Paid -13.14% -19.38% -11.58% -20.46% -16.50% -19.38% Sale of Stock 1.62% 1.99% 0.81% 12.71% 14.31% 14.17% Purchase of Stock -73.70% -1.60% -7.69% -162.35% -94.68% -114.69% Net Borrowings -99.04% -68.70% 0.00% 0.00% 13.18% -13.76% Other Cashflows from Financing Activities 121.99% -8.20% -65.41% -6.09% 16.82% 81.17% Total Cash Flows From Financing Activities -62.27% -95.89% -83.87% -176.19% -66.87% -52.49% Net Chang in Cash & Cash Equivalents -9.22% 16.86% 84.22% -101.02% -7.54% 0.09% Cash & Cash Equivalents Beginning Balance 25.96% 23.38% 31.66% 132.55% 27.02% 20.33% Cash & Cash Equivalents Ending Balance 16.75% 40.24% 115.88% 31.54% 19.48% 20.42% Page 41

Restated Financial Statements After restating the financial statements of Brinker International, we have found there to be no significant changes to the income statement or balance sheet. Both goodwill and capitalization of operating leases were immaterial amounts. Cost of Capital Estimation In order to determine a relative value of a firm, the discount rate for debt and equity holders must be calculated to discount the firm s financials. The weighted average cost of capital (WACC) is the discount rate that will be used. The WACC illustrates two ways companies can obtain funding from debt and equity. To calculate the WACC, both the cost of debt and the cost of equity need to be estimated. In the following section(s) Brinker s cost of debt and cost of equity will be estimated, and then used to calculate the company s WACC. If in the event that the cost of capital is relatively high or low, the firm is relatively understated or overstated respectfully. Cost of Debt The cost of debt refers to the overall effective interest rate a company is paying on their debt financing. Generally, the higher the cost of debt results in a higher risk associated with the firm. Due to the fact that debt holders have a superior claim on assets and a lower associated risk, the cost of debt is typically lower than the cost of equity. To calculate the weighted average cost of debt for Brinker, all current and noncurrent interest bearing liabilities are taken into account. Non-interest bearing debts are considered to be non-financial liabilities, as a result we adjusted the balance sheet to reflect the removal of non-interest bearing accounts from both the left- and righthand side of the balance sheet. Next, we had to find the associated interest rates for the current and non-current liabilities. Page 42

Interest bearing Liabilities Amount Interest Rate Weight Source Weight * Rate Kd Current installments of long-term debt 27,596.00 3.42% 0.00% 3.88% Notes 299,707.00 3.88% 37.11% Brinker 10-K 1.44% 2.6% Notes 249,829.00 2.60% 30.93% Brinker 10-K 0.80% Term Loan 212,500.00 1.83% 26.31% LIBOR + 1.63% (Brinker 10-K) 0.48% Capital Lease Obligations 45,681.00 6.99% 5.66% Appendix (#) 0.40% Less Current Installments (27,596.00) -3.42% 0.00% Total Interest Bearing Liabilities 807,717.00 100% 3.12% = Weighted Cost of Debt Table (22) Interest bearing Liabilities (Restated) Amount Interest Rate Weight Source Weight * Rate Kd Current installments of long-term debt 27,596.00 2.48% 0.00% 3.88% Notes 299,707.00 3.88% 26.95% Brinker 10-K 1.05% 2.6% Notes 249,829.00 2.60% 22.47% Brinker 10-K 0.58% Term Loan 212,500.00 1.83% 19.11% LIBOR + 1.63% (Brinker 10-K) 0.35% Capital Lease Obligations 45,681.00 6.99% 4.11% Appendix (#) 0.29% Capitalized Op. Lease Liability 304,341.37 6.99% 27.37% Appendix (#) 1.91% Less Current Installments (27,596.00) -2.48% 0.00% Total Interest Bearing Liabilities 1,112,058.37 100.00% 4.18% = Weighted Cost of Debt Table (23) According to the Brinker 10-K, total long-term liabilities are equal to $807,717. Within this line item, Brinker contained: $299,707 in 3.88% notes, $249,829 in 2.60% notes, a term loan based on LIBOR plus 1.63%, and capital lease obligations that we calculated to have an interest rate of 6.99%. The line item also took into account the subtraction of current installments or current portion of long-term debt in the amount of $27,596. In calculating the cost of debt (k d ), we found that the interest rate for the current portion of long-term debt was not disclosed in the 2013 Brinker 10-K. However, because current installments are subtracted out of long-term debt, we can conclude that they have a net zero effect in calculating the cost of debt. The resulting amount is equal to $807,717. From here, we calculated the weights related to each interest bearing liability to the sum of the total interest bearing liabilities. Finally, the cost of debt is the weighted average of the interest bearing liabilities and resulted in a discount rate of 3.12%. Page 43

When looking at the restated balance sheet for 2013, it is evident that the capitalization of operating leases does not have a large impact of cost of debt. The increase in capitalized operating leases increased cost of debt from 3.12% to 4.18% by changing the relative weights of the other interest bearing debt. This means that Brinker is expected to pay on average 4.18% in interest for every dollar of debt instead of 3.12%. Cost of Equity The cost of equity (k e ) can also be stated as the return on equity that shareholders require. For a firm, the cost of equity represents the return that the market warrants for the risk taken in an ownership stake of a company. The cost of equity is computed using the Capital Asset Pricing Model (CAPM). The CAPM formula is: ( ) This formula takes into account the risk free rate (R f ), systematic risk (beta), the market risk premium (R m -R f ), and a size adjusted beta (B size ). To find the risk free rate, we found the yields for 3-month, 1-year, 2-year, 7-year, and 10-year treasury bonds via the St. Louis Federal Reserve website. However, because these yields are provided in an annual basis, we had to convert this annual rate to a monthly rate. For this analysis, the most recent 10-year treasury rate was used, and was found to be 2.71%. The market return is the rate of return that has been realized in the overall market. For this analysis, the market return was taken from the historical returns of the S&P 500. The market risk premium is the additional benefit that an investor expects to earn when taking on the added risk of the market. To calculate the market risk premium, we subtracted the risk free rate from the historical S&P 500 returns. However, because of recent governmental influence over interest rates, the market risk premium is understated. For this reason, we use an 8% market risk premium as a realistic estimate based on the historical long-run market risk premiums. Beta, also known as the beta coefficient, is a measure of systematic (market) risk. In order to estimate beta, we conducted multiple regressions utilizing the Page 44

historical company returns and the market risk premiums associated with the relative treasury yields. Appendix (1) provides the regression table information for the year 2013. From the regression tables we are able to obtain a beta of 1.40 with a lower and upper bound for 72 months of 0.89 and 1.92 for the 10-year regression with a 95% confidence level. According to YahooFinance.com, Brinker has a beta of 0.69. This beta is not within the realm of our 95% confidence level, but it shows that the analysts believe that Brinker has a systematic risk at the very low end of the spectrum. The regression tables also show the adjusted R 2, which is the percentage of systematic risk associated with a company. The following table shows the regression table results: Page 45

Table (24) 3-Month Regression Months Beta Beta LB Beta UB R^2 MRP Rf Ke Size pr 2 fact Ke Ke LB Ke UB 72 1.40 0.88 1.92 28.30% 8.00% 0.05% 11.25% 1.10% 12.35% 8.21% 16.50% 60 1.09 0.59 1.59 23.38% 8.00% 0.05% 8.77% 1.10% 9.87% 5.86% 13.87% 48 0.90 0.46 1.35 25.05% 8.00% 0.05% 7.26% 1.10% 8.36% 4.81% 11.91% 36 0.69 0.15 1.22 14.27% 8.00% 0.05% 5.56% 1.10% 6.66% 2.37% 10.95% 24 0.60-0.23 1.43 5.04% 8.00% 0.05% 4.84% 1.10% 5.94% -0.73% 12.61% 1-Year Regression Months Beta Beta LB Beta UB R^2 MRP Rf Ke Size pr 2 fact Ke Ke LB Ke UB 72 1.40 0.88 1.92 28.31% 8.00% 0.12% 11.31% 1.10% 12.41% 8.27% 16.56% 60 1.09 0.59 1.59 23.38% 8.00% 0.12% 8.84% 1.10% 9.94% 5.94% 13.95% 48 0.90 0.46 1.35 25.07% 8.00% 0.12% 7.33% 1.10% 8.43% 4.88% 11.99% 36 0.69 0.15 1.22 14.27% 8.00% 0.12% 5.63% 1.10% 6.73% 2.45% 11.02% 24 0.60-0.23 1.43 5.04% 8.00% 0.12% 4.91% 1.10% 6.01% -0.66% 12.68% 2-Year Regression Months Beta Beta LB Beta UB R^2 MRP Rf Ke Size pr 2 fact Ke Ke LB Ke UB 72 1.40 0.88 1.92 28.32% 8.00% 0.33% 11.53% 1.10% 12.63% 8.48% 16.77% 60 1.09 0.59 1.59 23.43% 8.00% 0.33% 9.06% 1.10% 10.16% 6.16% 14.17% 48 0.90 0.46 1.35 25.10% 8.00% 0.33% 7.55% 1.10% 8.65% 5.10% 12.20% 36 0.69 0.15 1.22 14.27% 8.00% 0.33% 5.84% 1.10% 6.94% 2.65% 11.23% 24 0.60-0.23 1.43 5.03% 8.00% 0.33% 5.12% 1.10% 6.22% -0.45% 12.88% 7-Year Regression Months Beta Beta LB Beta UB R^2 MRP Rf Ke Size pr 2 fact Ke Ke LB Ke UB 72 1.40 0.89 1.92 28.43% 8.00% 2.15% 13.38% 1.10% 14.48% 10.33% 18.62% 60 1.09 0.59 1.59 23.49% 8.00% 2.15% 10.90% 1.10% 12.00% 7.99% 16.00% 48 0.90 0.46 1.35 25.11% 8.00% 2.15% 9.37% 1.10% 10.47% 6.92% 14.02% 36 0.69 0.15 1.22 14.22% 8.00% 2.15% 7.65% 1.10% 8.75% 4.46% 13.03% 24 0.59-0.24 1.43 4.89% 8.00% 2.15% 6.91% 1.10% 8.01% 1.33% 14.68% 10-Year Regression Months Beta Beta LB Beta UB R^2 MRP Rf Ke Size pr 2 fact Ke Ke LB Ke UB 72 1.40 0.89 1.92 28.43% 8.00% 2.71% 13.94% 1.10% 15.04% 10.89% 19.18% 60 1.09 0.59 1.59 23.48% 8.00% 2.71% 11.45% 1.10% 12.55% 8.55% 16.55% 48 0.90 0.46 1.35 25.10% 8.00% 2.71% 9.93% 1.10% 11.03% 7.48% 14.58% 36 0.69 0.15 1.22 14.22% 8.00% 2.71% 8.21% 1.10% 9.31% 5.02% 13.59% 24 0.59-0.24 1.43 4.88% 8.00% 2.71% 7.47% 1.10% 8.57% 1.89% 15.24% From the table above, we see that the 10-year regression has the largest adjusted R 2 at 72 months. The estimated adjusted R 2 from the 10-year regression is 28.43%. This means that 28.43% of the risk associated with Brinker can be explained by the risk of the market. We use this R 2 as a proxy for cost of equity (k e ) in calculating cost of capital. The CAPM gives us a cost of equity (k e ) of 13.94%, which means that an ownership stake in Brinker is expected to earn 13.94%. However, according to the 2006 Ibbotson and Associates, Stocks, Bonds, Bills, and Inflation, companies earn on Page 46

average a different return than their theoretical CAPM return based on the size of the company. Market Value of largest company in decile in 2005 ($ millions) Fraction of total market value represented by decile in 2005 (%) Average annual stock return, 1926-2005 (%) Beta, 1926-2005 Size premium (return in excess of CAPM - %) Size Decile 1 - smallest 265.0 0.8 21.6 1.41 6.4 2 586.4 1.0 17.5 1.34 2.7 3 872.1 1.3 16.6 1.28 2.3 4 1,281.0 1.7 15.6 1.23 1.7 5 1,728.9 2.4 15.3 1.18 1.7 6 2,519.3 3.2 14.9 1.16 1.5 7 3,961.4 4.7 14.3 1.13 1.1 8 7,187.2 7.6 13.8 1.10 0.9 9 16,016.5 14.0 13.2 1.04 0.7 10 - largest 367,495.1 63.3 11.1 0.91-0.4 Table (25) Table (25) shows that Brinker is in the seventh decile and has a size premium of 1.10%. This results in the company having a 15.04% two factor cost of equity with a lower and upper bound cost of equity of 10.89% and 19.18%, respectfully. This means that Brinker is expected to earn anywhere from 10.89% to 19.18% with a 95% confidence level on their equity. The cost of debt and cost of equity estimates will be used to estimate the weighted average cost of capital. Backdoor Cost of Equity The backdoor cost of equity is an alternative method for obtaining the cost of equity. Rather than using historical information through CAPM for its approximations, the backdoor method applies the price to book ratio, return on equity, and growth to give a reasonably accurate estimation. The backdoor cost of equity formula is found below: Page 47

In this formula, Price/Book is the current market price to book ratio, ROE is the average forecasted return on equity over the next ten years, and g is the firm s average growth rate over the next ten years. Because this valuation is subject to a restatement of the balance sheet and income statement, we will show the backdoor cost of equity estimations on an as-stated and restated basis to reflect operating lease adjustments. Brinker International Backdoor Cost of Equity ROE P/B g Ke Stated 0.74 28.24 12% 14.26% As seen from above, the backdoor cost of equity is 14.26%. When you compare this to our estimated cost of equity this is very comparable with a 15.04% estimate. The backdoor cost of equity is also within our upper and lower bound estimates with a 95% confidence interval. Weighted Average Cost of Capital (WACC) According to the Pool of Funds theory, the Weighted Average Cost of Capital (WACC) represents a firm s average cost of asset financing, in terms of debt or equity. It is also the weighted average return that a company is expected to make in order to satisfy all capital investors. The WACC takes the weights of the market value of liabilities and the market value of equity to the total market value of the firm, and multiplies the weights by the cost of debt and cost of equity, respectfully. These figures are then added to estimate the weighted average cost of capital. WACC Amount Weight Rate Weight * Rate WACC BT/AT Market Value Liab. 807,717.00 19.03% 3.12% 0.59% Market Value Equity 3,436,276.84 80.97% 15.04% 12.18% Market Value of Firm 4,243,993.84 12.77% = WACC before tax Tax Rate = 35% 12.56% = WACC after tax Table (26) Page 48

WACC Restated Amount Weight Rate Weight * Rate WACC BT/AT Market Value Liab. 1,112,058.37 24.45% 4.18% 1.02% Market Value Equity 3,436,276.84 75.55% 15.04% 11.36% Market Value of Firm 4,548,335.22 12.38% = WACC before tax Tax Rate 35% 12.02% = WACC after tax Table (27) In order to calculate the weight of equity, the market value of equity must first be calculated. This is equal to the number of shares outstanding multiplied by the closing price on that respective day. According to the 2013 Brinker 10-K, the firm had 69,444,099 shares outstanding as of June 26, 2013 and on March 26, 2014 their stock closed at $50.95. This implies Brinker s market value of equity is approximately $3,436,276.84. The market value of interest bearing debt stated on Brinker s 2013 balance sheet was $807,717 (in thousands). Now, the market value of the firm can be determined by adding the market value of liabilities and the market value of equity. Brinker has a market value of approximately $4,548,335.22. On an as-stated basis, the weight of total liabilities is 19.03% and the weight of total equity is 80.97%. The inclusion of operating lease obligations changes the weights of total liabilities to 24.45% and the weights of total equity to 75.55%. This indicates that the company s value is primarily held in the value of its equity. Once the relative weights are determined, the weight for total liabilities is multiplied by the cost of debt and the weight for total equity is multiplied by the cost of equity to find the weighted average cost of capital. As stated in the cost of debt section, Brinker has an estimated cost of debt of 3.12%. The cost of equity (k e ) used for the WACC was taken from the 10-year 2-factor k e that was estimated from the regression analysis to be 15.04%. According to Table (26), Brinker has a weighted average cost of capital of 12.77% before taxes. However, because earnings are influenced by federal, state, and local taxes, a weighted average cost of capital after taxes should be calculated. This will reflect a more realistic expected return for capital investors. A corporate tax rate of 35% is used in the after tax calculations and results in the company to have an estimated after tax weighted average cost of capital of 12.56%. This means that on average Brinker is able to finance the company s obligations at approximately 13%. It Page 49

is also evident from the restated weighted average cost of capital that the relevance of operating leases is minimal in calculating the weighted average cost of capital. Calculating the weighted average cost of capital using only the two-factor cost of capital is considered highly unrealistic due to unforeseen circumstances. For this reason, we solve for the cost of capital using a confidence level of 95% and obtain an upper and lower bound that the cost of capital is likely to encompass. WACC (Upper Bound) Amount Weight Rate UB Weight * Rate UB WACC BT/AT Market Value Liab. 807,717.00 19.03% 3.12% 0.59% Market Value Equity 3,436,276.84 80.97% 19.18% 15.53% Market Value of Firm 4,243,993.84 16.12% = WACC before tax Tax Rate = 35% 15.92% = WACC after tax Table (28) WACC (Lower Bound) Amount Weight Rate LB Weight * Rate LB WACC BT/AT Market Value Liab. 807,717.00 19.03% 3.12% 0.59% Market Value Equity 3,436,276.84 80.97% 10.89% 8.82% Market Value of Firm 4,243,993.84 9.41% = WACC before tax Tax Rate = 35% 9.21% = WACC after tax Table (29) WACC Restated (Upper Bound) Amount Weight Rate UB Weight * Rate UB WACC BT/AT Market Value Liab. 1,112,058.37 24.45% 4.18% 1.02% Market Value Equity 3,436,276.84 75.55% 19.18% 14.49% Market Value of Firm 4,548,335.22 15.51% = WACC before tax Tax Rate 35% 15.16% = WACC after tax Table (30) WACC Restated (Lower Bound) Amount Weight Rate LB Weight * Rate LB WACC BT/AT Market Value Liab. 1,112,058.37 24.45% 4.18% 1.02% Market Value Equity 3,436,276.84 75.55% 10.89% 8.23% Market Value of Firm 4,548,335.22 9.25% = WACC before tax Tax Rate 35% 8.89% = WACC after tax Table (31) Page 50

By utilizing the 95% confidence level of the cost of equity, we are able to estimate a range of the upper and lower bounds for the weighted average cost of capital. We can then assume that the true weighted average cost of capital for Brinker lies within this range. The above charts show a range of 9.21% to 15.92% for the after-tax weight average cost of capital on an as stated basis. On a restated basis, this range falls to 8.89% to 15.16%. From this information we can conclude that the restatement has a marginal effect on the cost of capital. As a result of this analysis, the most appropriate discount to be used lies within our upper and lower bound restated after-tax cost of capital. Page 51

Page 52

Appendix Appendix (1) 3-Month Regressions SUMMARY OUTPUT Regression Statistics Multiple R 0.54 R Square 0.29 Adjusted R Square 0.28 Standard Error 0.11 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.37 0.37 29.02 0.00 Residual 70 0.89 0.01 Total 71 1.25 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.37 0.18-0.01 0.04-0.01 0.04 X Variable 1 1.40 0.26 5.39 0.00 0.88 1.92 0.88 1.92 1-Year Regression SUMMARY OUTPUT Regression Statistics Multiple R 0.54 R Square 0.29 Adjusted R Square 0.28 Standard Error 0.11 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.37 0.37 29.03 0.00 Residual 70 0.89 0.01 Total 71 1.25 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.39 0.17-0.01 0.05-0.01 0.05 X Variable 1 1.40 0.26 5.39 0.00 0.88 1.92 0.88 1.92 Page 53

2_Year Regression SUMMARY OUTPUT Regression Statistics Multiple R 0.54 R Square 0.29 Adjusted R Square 0.28 Standard Error 0.11 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.37 0.37 29.05 0.00 Residual 70 0.89 0.01 Total 71 1.25 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.41 0.16-0.01 0.05-0.01 0.05 X Variable 1 1.40 0.26 5.39 0.00 0.88 1.92 0.88 1.92 7-Year Regression SUMMARY OUTPUT Regression Statistics Multiple R 0.54 R Square 0.29 Adjusted R Square 0.28 Standard Error 0.11 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.37 0.37 29.20 0.00 Residual 70 0.89 0.01 Total 71 1.25 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.55 0.13-0.01 0.05-0.01 0.05 X Variable 1 1.40 0.26 5.40 0.00 0.89 1.92 0.89 1.92 Page 54

10-Year Regression SUMMARY OUTPUT Regression Statistics Multiple R 0.54 R Square 0.29 Adjusted R Square 0.28 Standard Error 0.11 Observations 72 ANOVA df SS MS F Significance F Regression 1 0.37 0.37 29.20 0.00 Residual 70 0.89 0.01 Total 71 1.25 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.60 0.11-0.01 0.05-0.01 0.05 X Variable 1 1.40 0.26 5.40 0.00 0.89 1.92 0.89 1.92 SUMMARY OUTPUT Regression Statistics Multiple R 0.50 R Square 0.25 Adjusted R Square 0.23 Standard Error 0.08 Observations 60 ANOVA df SS MS F Significance F Regression 1 0.12 0.12 19.10 0.00 Residual 58 0.37 0.01 Total 59 0.49 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 1.63 0.11 0.00 0.04 0.00 0.04 X Variable 1 1.09 0.25 4.37 0.00 0.59 1.59 0.59 1.59 Page 55

SUMMARY OUTPUT Regression Statistics Multiple R 0.52 R Square 0.27 Adjusted R Square 0.25 Standard Error 0.06 Observations 48 ANOVA df SS MS F Significance F Regression 1 0.06 0.06 16.75 0.00 Residual 46 0.17 0.00 Total 47 0.24 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 2.11 0.04 0.00 0.04 0.00 0.04 X Variable 1 0.90 0.22 4.09 0.00 0.46 1.35 0.46 1.35 SUMMARY OUTPUT Regression Statistics Multiple R 0.41 R Square 0.17 Adjusted R Square 0.14 Standard Error 0.06 Observations 36 ANOVA df SS MS F Significance F Regression 1 0.02 0.02 6.80 0.01 Residual 34 0.11 0.00 Total 35 0.13 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.02 0.01 2.27 0.03 0.00 0.04 0.00 0.04 X Variable 1 0.69 0.26 2.61 0.01 0.15 1.22 0.15 1.22 Page 56

SUMMARY OUTPUT Regression Statistics Multiple R 0.30 R Square 0.09 Adjusted R Square 0.05 Standard Error 0.06 Observations 24 ANOVA df SS MS F Significance F Regression 1 0.01 0.01 2.18 0.15 Residual 22 0.07 0.00 Total 23 0.08 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 0.03 0.01 2.08 0.05 0.00 0.05 0.00 0.05 X Variable 1 0.59 0.40 1.48 0.15-0.24 1.43-0.24 1.43 Page 57

Page 58