Brinker International Announces First Quarter Fiscal 2009 Results

In August 2008, the company announced that it entered into an agreement to sell Romano's Macaroni Grill for $131.5 million in cash while retaining a 19.9% continuing ownership interest. The transaction is expected to close by the end of the calendar year upon completion of customary closing conditions. The information presented below includes Macaroni Grill unless otherwise noted.

"While we anticipated difficult year-over-year comparisons for the quarter, operating performance was worse than expected. The sequential pressures on our guests as the quarter unfolded further reduced revenues to an extent that could not be offset through cost efficiencies. Our management team remains focused on strategies which we are confident will strengthen our brands' positioning, allowing Brinker to sustain above industry sales performance and strong free cash flow for the short term and accelerating profitability over the longer term," stated Chuck Sonsteby, Chief Financial Officer.

Quarterly Revenues

Brinker reported revenues for the 13-week period of $984.4 million, a decrease of 6.7 percent compared with $1,054.7 million reported for the same period of fiscal 2008. The company experienced a 4.0 percent decrease in comparable restaurant sales (see Table 1) in the first quarter of fiscal 2009 due to decreases across all brands. Revenues were also negatively impacted by a net decline in capacity of 4.1 percent due to the sale of 76 restaurants to franchisees and 49 restaurant closures (27 of which are Macaroni Grill) since the first quarter of fiscal 2008. Royalty revenues from franchisees increased over 30 percent to $16.6 million from $12.7 million in the prior year.

  Table 1: Q1 comparable restaurant sales

  Q1 09 and Q1 08, company and four reported brands, percentage



                                    Q1 09       Q1 08     Q1 09

                                  Comparable  Comparable  Pricing   Q1 09

                                    Sales       Sales     Impact   Mix-Shift

  Brinker Excluding Macaroni Grill  (3.0)        0.0       3.3      (0.9)

  Brinker International             (4.0)       (0.9)      3.2      (1.0)

    Chili's                         (3.0)        0.7       3.3      (0.8)

    On The Border                   (3.3)       (5.3)      4.0      (0.7)

    Maggiano's                      (3.3)        0.5       2.4      (2.3)

    Macaroni Grill                  (9.0)       (4.8)      2.9      (1.2)

Quarterly Operating Performance

Cost of sales, as a percent of revenues, increased from 27.7 percent in the prior year to 28.4 percent in the first quarter of fiscal 2009. During the quarter, cost of sales was negatively impacted by unfavorable commodity prices, primarily beef, ribs, chicken, produce, oils and sauces, partially offset by favorable menu price changes.

Restaurant expenses, as a percent of revenues, increased to 58.8 percent from 57.1 percent in the prior year primarily driven by sales deleverage on fixed costs and increased utility, repair and maintenance and labor costs, partially offset by lower pre-opening expenses.

Depreciation and amortization decreased $3.8 million primarily driven by the classification of assets held for sale related to Macaroni Grill and restaurant closures, partially offset by additional depreciation on new restaurants and investments in Chili's reimage program.

Compared to the prior year, general and administrative expense decreased $3.3 million for the quarter due to reduced salary and team member related expenses, including lower performance-based compensation expenses.

Other gains and charges resulted in a charge of $5.0 million in the first quarter of fiscal 2009 primarily due to lease termination charges, uninsured hurricane costs and expenses associated with the pending sale of Macaroni Grill.

Interest expense decreased $3.5 million primarily due to lower interest rates and lower average borrowings as compared to the same quarter last year.

The effective income tax rate decreased to 26.5 percent for the current quarter as compared to 28.9 percent for the same quarter last year. The decrease in the tax rate was primarily due to leverage from FICA tip credits and a decrease in required tax reserves.

Cash Flow and Capital Allocation

Cash flow from operations for the first quarter of fiscal 2009 decreased to approximately $53.4 million compared to $92.9 million in the prior year due to lower income (adjusted for non-cash items) driven by a reduction in revenues and incremental margin pressures as well as the timing of operational payments. This year-over-year decrease in cash flow from operations was more than offset by a reduction in capital expenditures, which totaled $31.3 million for the quarter. The decline of $45.6 million was primarily due to a decrease in new company-owned restaurant development.

  Special Items

  Table 2: Reconciliation of net income, before special items(1)

  Q1 09 and Q1 08, $ millions and $ per diluted share after-tax



                                                   EPS               EPS

  Item                                    Q1 09    Q1 09    Q1 08    Q1 08

  Net Income                               23.8     0.23     37.6     0.34

    Other (Gains) and Charges               3.1     0.03      5.4     0.05

  Net Income before Special Items          26.9     0.26     43.0     0.39

    Macaroni Grill before Special Items    (6.3)   (0.06)    (4.2)   (0.04)

  Adjusted Net Income before Special Items 20.6     0.20     38.8     0.35



  (1) The company believes excluding other gains and charges and Macaroni

      Grill from its financial results provides investors with a clearer

      perspective of the company's ongoing operating performance and a more

      relevant comparison to prior period results.  Additional

      reconciliation details are available on the company's website under

      the Financial Information section of the Investor tab.

Fiscal 2009 Guidance

The company expects fiscal 2009 earnings per diluted share, before special items and excluding the operating results of Macaroni Grill, to decline between 15 percent and 25 percent as compared to fiscal 2008. This compares to the company's previous guidance of eight to 10 percent growth from fiscal 2008. The revised guidance is based on a full year fiscal 2009 decrease in comparable restaurant sales of approximately two to four percent. The company also expects to spend approximately $135 to $145 million on capital expenditures in fiscal 2009, a reduction of $40 million from previous guidance, and will continue to evaluate capital spending throughout the remainder of the year.

The company does not believe that providing fiscal 2009 earnings per diluted share guidance on a GAAP basis provides a clear perspective for investors into the company's ongoing operating performance due to the significant special charges that the company incurred in fiscal 2008 as well as the company's inability to forecast special charges for fiscal 2009. In addition, the company is unable to provide specific guidance for fiscal 2009 including Macaroni Grill due to the inability of the company to forecast the expected results of an entity which will not be under the management and control of the company for the entire fiscal year.

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