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Brinker International Reports 18 Percent Increase in Fiscal 2006 EPS From Continuing Operations, Before Special Items

Posted on: Thursday, 10 August 2006, 09:00 CDT

DALLAS, Aug. 10 /PRNewswire-FirstCall/ -- Brinker International, Inc. announced fiscal 2006 fourth-quarter earnings per diluted share from continuing operations increased to $0.85 from $0.52 in the prior year. Before special items, earnings per diluted share from continuing operations increased to $0.75 from $0.69 in the prior year (reconciliation included in Table 5). For the full-year fiscal 2006, earnings per diluted share from continuing operations increased to $2.45 from $1.71 in the prior year. Before special items, earnings per diluted share from continuing operations increased to $2.49 from $2.11 in the prior year (reconciliation included in Table 6).

The company reiterated its long-term strategy focused on growing shareholder value through i) expanding profitable restaurants globally while increasing the percentage of franchise restaurants, ii) brand building and exceptional operational performance, and iii) leveraging customers, infrastructure, and casual-dining expertise across the portfolio.

Doug Brooks, Brinker Chairman and CEO, said, "We made excellent progress during the last fiscal year developing and implementing strategic initiatives that will enable the company to achieve our long-term vision of being the dominant, global restaurant portfolio company. The management team continues to be focused on increasing guest loyalty and frequency, by striving to deliver a great guest experience every time. While the current consumer environment may be soft, this strategic approach will result in enhanced value for our shareholders."

Highlights for fiscal year 2006: - Opened 43 new system restaurants during the fourth quarter resulting in a record 159 new system restaurants during the fiscal year; - Grew revenues by 11 percent over the prior year; - Increased income from continuing operations, before special items, 11 percent over the prior year ; - Sold 14 Chili's Grill & Bar, four Romano Macaroni Grill and two On The Border Mexican Grill & Cantina restaurants to franchisees with development commitments to build a total of 56 new restaurants domestically over five to seven years; - Signed 20 new international development agreements for 105 new restaurants over the next several years; - Received gross proceeds of more than $100 million from the divestiture of Corner Bakery Cafe, restaurants sold to franchisees and real estate asset sales; - Initiated and paid quarterly dividends; and - Repurchased 7.8 million common shares for approximately $306 million during the fiscal year.

Chuck Sonsteby, Brinker Chief Financial Officer, said, "Solid revenue growth, improved restaurant-level profitability and new restaurant development drove strong operating performance in fiscal year 2006 and will continue to benefit bottom-line performance in the current fiscal year. The company's ongoing efforts to grow its various brands, both corporately and through strong franchisees, coupled with disciplined capital allocation, will drive improved returns and shareholder value over time."

Quarterly Revenue Growth

Brinker reported revenues for the 13-week period of $1,073.5 million, an increase of 7.5 percent compared with $998.4 million reported for the same period of fiscal 2005(1). These revenue gains were primarily driven by restaurant capacity growth of 7.3 percent, offset by a 2.0 percent decrease in comparable store sales(2) (see Table 1). The company and its franchisees opened 43 restaurants in the fourth quarter.

Table 1: Q4 comparable store sales Q4 06 and Q4 05, company and four reported brands; percentage Q4 06 Q4 05 Q4 06 Comp-Store Comp-Store Price Q4 06 Sales Sales Increase Mix-Shift Brinker International (2.0) 3.7 3.1 1.4 Chili's (1.6) 4.2 3.5 1.8 Macaroni Grill (4.5) 0.9 1.6 0.0 On The Border (2.5) 4.4 3.0 2.8 Maggiano's 1.1 2.8 2.7 (0.2) Table 2: FY comparable store sales FY 06 and FY 05, company and four reported brands; percentage FY 06 FY 05 FY 06 Comp-Store Comp-Store Price FY 06 Sales Sales Increase Mix-Shift Brinker International 1.5 2.5 3.0 1.5 Chili's 2.5 2.9 3.4 2.1 Macaroni Grill (1.5) (1.2) 2.0 0.2 On The Border (0.4) 5.6 2.4 1.1 Maggiano's 2.8 3.2 2.3 0.2 June and July 2006 Comparable Store Sales

For the four-week period ending June 28, 2006, comparable store sales decreased 1.4 percent(3) (see Table 3). For the five-week period ending August 2, 2006, comparable store sales decreased 2.7 percent (see Table 4).

Table 3: Month of June comparable store sales June 06 and June 05; percentage June 06 June 05 June 06 Comp-Store Comp-Store Price June 06 Sales Sales Increase Mix-Shift Brinker International (1.4) 1.6 3.2 0.9 Chili's (1.4) 0.9 3.7 0.8 Macaroni Grill (3.5) 1.2 1.7 (0.1) On The Border (0.2) 2.1 2.9 3.1 Maggiano's 1.1 2.6 2.7 0.7 Table 4: Month of July comparable store sales July 06 and July 05; percentage July 06 July 05 July 06 Comp-Store Comp-Store Price July 06 Sales Sales Increase Mix-Shift Brinker International (2.7) 3.5 3.1 0.5 Chili's (2.8) 5.4 3.6 (0.1) Macaroni Grill (2.7) (1.3) 1.6 1.1 On The Border (2.8) 0.5 2.2 3.4 Maggiano's (0.9) 1.6 3.0 (0.1) Quarterly Operating Performance

Cost of sales, as a percent of revenues, improved from 28.2 percent to 27.1 percent or 110 basis points for the quarter compared to the prior year. The improvement was due primarily to favorable menu price changes and commodity prices, partially offset by product mix shifts.

Restaurant expenses, as a percent of revenues, improved from 55.7 percent to 53.9 percent compared to the prior year, primarily driven by a $23.3 million pre-tax charge associated with the correction of accruals for vacation and utility expense in the prior year and net gains of $8.5 million in the current quarter related to the sale of company restaurants to franchisees, partially offset by incremental equity-based compensation of $2.0 million and higher utility rates.

Depreciation and amortization for the fourth quarter fiscal 2006, compared to the same quarter in fiscal year 2005, increased $1.4 million. The change was primarily driven by new restaurants.

Compared to the prior year, general and administrative expense increased $12.2 million for the quarter, primarily driven by performance-based compensation that was not paid in the prior year and incremental equity-based compensation in fiscal 2006.

The effective income tax rate for continuing operations increased to 24.4 percent for the current quarter as compared to 17.0 percent for the same quarter last year. The lower rate in the fourth quarter of fiscal 2005 was primarily due to the income tax benefit of $6.6 million related to the correction of deferred tax liabilities. The increase in fiscal 2006 was due to equity-based compensation related to the impact of incentive stock options that are deductible when exercised, partially offset by an income tax benefit totaling $8.1 million related to the favorable settlement of certain IRS audits and a decrease in the effective tax rate for state income taxes.

Capital Allocation

Cash flow from operations for fiscal year 2006 was approximately $470.5 million compared to $425.4 million in the prior year or an 11 percent increase. Capital expenditures for the year totaled $354.6 million. Consolidated return on invested capital for fiscal year 2006 improved by 40 basis points to 16.8 percent from the prior fiscal year.

The company repurchased 1.4 million shares for approximately $53.3 million during the fourth quarter. Year-to-date, the company has repurchased 7.8 million shares for approximately $305.7 million. At the end of the quarter, approximately $119.4 million remains available under the company's share authorizations. Weighted average diluted shares outstanding for the fiscal year were reduced seven percent from 94.2 million to 87.3 million.

Special Items

Table 5: Reconciliation of income from continuing operations and description of special items

Q4 06 and Q4 05; $ millions and $ per diluted share after-tax Income Statement $ EPS $ EPS Item Line Q4 06 Q4 06 Q4 05 Q4 05 Income from Continuing Operations 73.0 0.85 47.1 0.52 Franchising Gains Restaurant Expenses (5.2) (0.06) Equity-Based Restaurant Compensation(4) Expenses 1.4 0.02 Equity-Based General & Compensation(4) Administrative 2.9 0.03 Tax Benefit (5) Income Taxes (8.1) (0.09) Restructuring Gains and Restructure & Charges Other 6.6 0.07 Utility and Vacation Restaurant Correction Expenses 14.5 0.16 Utility and Vacation General & Correction Administrative 0.7 .01 Deferred Tax Liability Correction Income Taxes (6.6) (0.07) Total Special Items (9.0) (0.10) 15.2 0.17 Income from Continuing Operations, before Special Items 64.0 0.75 62.3 0.69

Table 6: Reconciliation of income from continuing operations and description of special items

Year-to-date fiscal 2006 and 2005; $ millions and $ per diluted share after-tax

Income Statement $ EPS $ EPS Item Line F 06 F 06 F 05 F 05 Income from Continuing Operations 214.0 2.45 158.5 1.71 Restaurant Franchising Gains Expenses (9.6) (0.11) (1.30) (0.01) Equity-Based Restaurant Compensation (4) Expenses 7.1 0.08 Equity-Based General & Compensation (4) Administrative 16.5 0.19 Tax Benefit (5) Income Taxes (8.1) (0.09) Restructuring Gains and Restructure & Charges Other (0.8) (0.01) 32.8 0.35 Gain on Sale of Real Restaurant Estate Expenses (2.1) (0.02) (2.6) (0.03) Utility and vacation Restaurant correction Expenses 14.5 0.15 Utility and vacation General & correction Administrative 0.7 0.01 Deferred Tax Liability Correction Income Taxes (6.6) (0.07) Total Special Items 3.0 0.04 37.5 0.40 Income from Continuing Operations, before Special Items 217.0 2.49 196.0 2.11 Fiscal 2007 Outlook

The company anticipates earnings per diluted share will grow 15 percent in fiscal year 2007. Key assumptions include: Revenue growth of 10 percent to 12 percent, driven by capacity gains (see Table 7 for brand details); operating income improvement of 20 to 30 basis points; and share repurchases.

As noted in the company's May 2006 sales release, during fiscal year 2007, the company will provide additional annual guidance for these preceding items only when there is a material change and will no longer provide quarterly guidance. The company remains committed to providing the investment community thorough information regarding forward-looking corporate strategy and key drivers of longer-term financial performance, but is reducing focus on short-term forecasts.

Table 7: FY'07 New development summary Ownership type; restaurants; percentage Company Owned Franchise Total Restaurant Restaurants Restaurants Restaurants Growth % Brinker International 145-154 55-66 200-220 12-14% Chili's 125-130 10-15 135-145 12-13% Macaroni Grill 4-5 3-4 7-9 3-4% On The Border 12-14 4-6 16-20 11-14% Maggiano's 4-5 --- 4-5 11-14% International 38-41 38-41 31-33% Web-cast Information

Investors and interested parties are invited to listen to today's conference call, as management will provide further details of the quarter. The call will be broadcast live on the Brinker Web site (http://www.brinker.com/ ) at 9 a.m. CDT today (Aug. 10). For those who are unable to listen to the live broadcast, a replay of the call will be available shortly thereafter and will remain on the Brinker Web site until the end of the day on Aug. 31, 2006.

Forward Calendar SEC Form 10-K for fiscal year 2006 filing on or before Sept. 11, 2006 Period 2 (August) sales on Sept. 7, 2006, after the market closes. First quarter earnings release, before market opens, on Oct. 24, 2006.

At the end of fiscal year 2006, Brinker International either owned, operated, or franchised 1,622 restaurants under the names Chili's Grill & Bar (1,200 units), Romano's Macaroni Grill (241 units), Maggiano's Little Italy (37 units), and On The Border Mexican Grill & Cantina (144 units).

The statements contained in this release that are not historical facts are forward-looking statements. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business and economic conditions, the impact of competition, the impact of acquisitions and divestitures, the seasonality of the company's business, adverse weather conditions, future commodity prices, fuel and utility costs and availability, terrorists acts, consumer perception of food safety, changes in consumer taste, health epidemics or pandemics, changes in demographic trends, availability of employees, unfavorable publicity, the company's ability to meet its growth plan, acts of God, governmental regulations, and inflation.

(1) Revenues exclude Corner Bakery. (2) Fourth quarter comparable store sales were negatively impacted by 0.5% as a result of the shift of the Easter Holiday to the third quarter 2006 from the fourth quarter 2005. (3) Comparable store sales exclude Corner Bakery sales. (4) This incremental expense relates to adopting FAS 123(R), accounting for equity-based compensation at the beginning of fiscal year 2006. (5) Tax expense includes a benefit totaling $8.1 million associated with the favorable settlement of certain IRS audits and a decrease in the effective tax rate for state income taxes. BRINKER INTERNATIONAL, INC. Consolidated Statements of Income (In thousands, except per share amounts) Thirteen Week Periods Fifty-Two Week Periods Ended Ended June 28, June 29, June 28, June 29, 2006 2005 2006 2005 (Unaudited) (Unaudited) (Unaudited) Revenues $1,073,522 $998,401 $4,151,291 $3,749,539 Operating Costs and Expenses: Cost of sales 291,263 281,153 1,160,931 1,059,822 Restaurant expenses (a) 578,432 556,270 2,264,525 2,076,453 Depreciation and amortization 47,536 46,118 190,206 179,908 General and administrative (b) 54,540 42,365 207,080 153,116 Restructure charges and other impairments --- 10,673 1,950 61,855 Total operating costs and expenses 971,771 936,579 3,824,692 3,531,154 Operating income 101,751 61,822 326,599 218,385 Interest expense 5,662 5,194 22,857 25,260 Other, net (533) (86) (1,656) 1,526 Income before provision for income taxes 96,622 56,714 305,398 191,599 Provision for income taxes (c) 23,615 9,658 91,448 33,143 Income from continuing operations 73,007 47,056 213,950 158,456 Income (loss) from discontinued operations, net of taxes --- 2,707 (1,555) 1,763 Net income $73,007 $49,763 $212,395 $160,219 Basic net income per share: Income from continuing operations $0.87 $0.53 $2.49 $1.79 Income (loss) from discontinued Operations $0.00 $0.03 $(0.02) $0.02 Net income per share $0.87 $0.56 $2.47 $1.81 Diluted net income per share: Income from continuing operations $0.85 $0.52 $2.45 $1.71 Income (loss) from discontinued operations $0.00 $0.03 $(0.02) $0.02 Net income per share $0.85 $0.55 $2.43 $1.73 Basic weighted average shares outstanding 84,347 88,746 85,844 88,530 Diluted weighted average shares outstanding 85,568 90,062 87,289 94,229 a) Current year restaurant expenses include: -- Incremental equity-based compensation of $2.0 million and $9.4 million for the fourth quarter and year-to-date, respectively, -- Net franchising gains of $8.5 million and $15.5 million in the fourth quarter and year-to-date, respectively, related to the sale of company-owned restaurants to franchisees, and -- A $3.3 million gain on the sale of real estate. Prior year restaurant expenses include: -- A $23.3 million charge recorded in the fourth quarter as a result of a correction in accounting policies associated with accruals of vacation and utilities, -- A $17.3 million charge recorded in the second quarter related to the IRS FICA tax settlement, and -- Gains totaling $5.8 million year-to-date related to the sale of company-owned restaurants to franchisees. b) Current year general and administrative expenses include incremental equity-based compensation of $4.0 million and $21.5 million for the fourth quarter and year-to-date, respectively. Prior year general and administrative expenses include a $1.1 million charge recorded in the fourth quarter as a result of a correction in accounting policies associated with accruals of vacation and utilities. c) Current year provision for income taxes includes an $8.1 million income tax benefit associated with the favorable settlement of certain IRS audits and a decrease in the effective tax rate for state income taxes in the fourth quarter. Prior year provision for income taxes includes a $16.9 million benefit recorded in the second quarter of fiscal 2005 related to the IRS FICA tax settlement. BRINKER INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 28, June 29, 2006 2005 (Unaudited) ASSETS Current assets of continuing operations $242,310 $233,123 Current assets of discontinued operations --- 79,842 Net property and equipment 1,792,724 1,646,466 Total other assets 186,745 196,693 Total assets $2,221,779 $2,156,124 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities of continuing operations $497,375 $419,564 Current liabilities of discontinued operations --- 10,400 Long-term debt, less current installments 500,515 406,505 Other liabilities 148,057 219,373 Total shareholders' equity 1,075,832 1,100,282 Total liabilities and shareholders' equity $2,221,779 $2,156,124 BRINKER INTERNATIONAL, INC. RESTAURANT SUMMARY Fourth Fourth Quarter Quarter Total Openings/ Closings/ Total Projected Restaurants Acquisitions Sales Restaurants Openings March 29, Fiscal Fiscal June 28, Fiscal 2006 2006 (a) 2006 (a) 2006 (b) 2007 Company-Owned Restaurants: Chili's 880 33 (9) 904 125-130 Macaroni Grill 225 --- (4) 221 4-5 Maggiano's 37 --- --- 37 4-5 On The Border 121 2 --- 123 12-14 International 5 --- --- 5 --- 1,268 35 (13) 1,290 145-154 Franchise Restaurants: Chili's 169 12 --- 181 10-15 Macaroni Grill 7 4 --- 11 3-4 On The Border 21 --- --- 21 4-6 International 115 4 --- 119 38-41 312 20 --- 332 55-66 Total Restaurants: Chili's 1,049 45 (9) 1,085 135-145 Macaroni Grill 232 4 (4) 232 7-9 Maggiano's 37 --- --- 37 4-5 On The Border 142 2 --- 144 16-20 International 120 4 --- 124 38-41 1,580 55 (13) 1,622 200-220 a) During the fourth quarter of fiscal 2006, the company sold eight Chili's restaurants and four Macaroni Grill restaurants to franchisees. The company and its franchisees opened a total of forty-three new restaurants during the quarter ended June 28, 2006. b) At June 28, 2006, the company owned the land and buildings for 314 of the 1,290 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $266.5 million and $271.0 million, respectively.

Brinker International, Inc.

CONTACT: media relations, Suzanne Keen, +1-800-775-7290, or investorrelations, Lynn Schweinfurth, +1-972-770-7228, or Laura Conn, +1-972-770-5810,all of Brinker International, Inc.

Web site: http://www.brinker.com/

Source: PRNewswire-FirstCall

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