Brinker International Announces Second Quarter Fiscal 2009 Results

On Dec. 18, 2008, the company completed the sale of Romano's Macaroni Grill to Mac Acquisition LLC, an affiliate of San Francisco-based Golden Gate Capital, for $88 million while retaining a 19.9 percent continuing ownership interest. Cash attributable to the transaction of approximately $130 million either has been or will be used to pay down outstanding bank debt. The information presented below includes Macaroni Grill unless otherwise noted.

Quarterly Revenues

Brinker reported revenues for the 13-week period of $949.4 million, a decrease of 7.8 percent compared with $1,029.8 million reported for the same period of fiscal 2008. The company experienced a 5.4 percent decrease in comparable restaurant sales (see Table 1) in the second quarter of fiscal 2009 due to decreases across all brands. Revenues were also negatively impacted by a net decline in capacity of 3.3 percent due to 47 restaurant closures (26 of which were Macaroni Grills) and the sale of 198 restaurants since the second quarter of fiscal 2008 (189 of which were Macaroni Grills). Capacity was also impacted by the sale of 76 restaurants to a franchisee during the second quarter of the prior year. Royalty revenues from franchisees increased 9.7 percent to $15.8 million from $14.4 million in the prior year. Franchise and development fees decreased to $1.3 million in the current year from $6.5 million primarily due to the sale of 76 restaurants to a franchisee in the prior year.

  Table 1: Q2 comparable restaurant sales

  Q2 09 and Q2 08, company and four reported brands, percentage



                                 Q2 09       Q2 08       Q2 09     Q2 09

                               Comparable  Comparable   Pricing    Mix-

                                 Sales       Sales      Impact     Shift

  Brinker Excluding Macaroni

   Grill                         (4.5)       (2.1)        2.9      (1.7)



  Brinker International          (5.4)       (2.4)        2.9      (1.7)

    Chili's                      (4.2)       (2.4)        3.3      (1.7)

    On The Border                (3.7)       (4.3)        2.6      (1.5)

    Maggiano's                   (6.9)        1.7         1.6      (2.3)

    Macaroni Grill              (10.6)       (4.0)        2.7      (1.0)

Quarterly Operating Performance

Cost of sales, as a percent of revenues, decreased from 28.3 percent in the prior year to 28.2 percent in the second quarter of fiscal 2009. During the quarter, favorable menu price changes more than offset the negative impact on cost of sales of unfavorable commodity prices primarily related to chicken, produce and oils and sauces.

Restaurant expenses, as a percent of revenues, increased to 58.0 percent from 56.8 percent in the prior year primarily driven by sales deleverage on fixed costs and increased utility and labor costs, partially offset by lower pre-opening expenses.

Depreciation and amortization increased $1.6 million primarily driven by additional depreciation on new restaurants and investments in Chili's reimage program, partially offset by restaurant closures and fully depreciated assets.

Compared to the prior year, general and administrative expense decreased $2.3 million for the quarter due to reduced salary expense.

Other gains and charges resulted in $85.1 million of charges in the second quarter of fiscal 2009 primarily due to $44.2 million of long-lived asset impairment charges related to the decision to close 35 underperforming restaurants, a $43.3 million loss on the sale of Macaroni Grill and $3.6 million of gains on sales of other assets.

Interest expense decreased $1.9 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 from a provision of 30.2 percent in the second quarter of fiscal 2008 to a benefit of 51.1 percent in the current quarter. The change in the tax rate was primarily due to the loss on the sale of Macaroni Grill and long-lived asset impairment charges.

Cash Flow and Capital Allocation

Cash flow from operations for the first six months of fiscal 2009 decreased to approximately $94.8 million compared to $241.1 million in the prior year due primarily to a decline in operating profitability, a reduction in gift card sales and the timing of income tax payments as well as operational payments and receipts. Capital expenditures for the first six months of fiscal year 2009 totaled $59.6 million, a reduction of $99.6 million compared to the prior year resulting from a decrease in new company-owned restaurant development.

  Special Items

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

  Q2 09 and Q2 08, $ millions and $ per diluted share after-tax



  Item                                        EPS             EPS

                                     Q2 09   Q2 09   Q2 08   Q2 08



  Net Income (Loss)                  (21.8)  (0.21)   54.5    0.52

   Other (Gains) and Charges          53.5    0.52   (10.3)  (0.10)

                                      ----    ----  ------  ------

  Net Income before Special Items     31.7    0.31    44.2    0.42

   Macaroni Grill before Special

    Items                             (3.8)  (0.04)  (11.8)  (0.11)

                                     -----  ------  ------  ------

  Adjusted Net Income before

   Special Items                      27.9    0.27    32.4    0.31

                                      ====    ====    ====    ====





  (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.

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