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Brinker International Reports 22 Percent Increase in Third Quarter Fiscal 2006 EPS From Continuing Operations

Posted on: Tuesday, 25 April 2006, 09:01 CDT

DALLAS, April 25 /PRNewswire-FirstCall/ -- Brinker International, Inc. announced fiscal 2006 third quarter earnings per diluted share from continuing operations increased 22 percent to $0.73 from $0.60 in the prior year. Included in this figure are gains and restructuring charges of $0.08 and incremental equity-based compensation expense of $0.06. Prior to special items, earnings per diluted share from continuing operations increased 20 percent to $0.71 from $0.59 in the prior year (reconciliation included in Table 3.)

Highlights for the quarter included: - Opened 37 new system restaurants; - Grew revenues 12.6 percent over the prior year; - Increased net income 17.4 percent over the prior year; - Closed the sale of Corner Bakery Cafe; - Refranchised six Chili's Grill & Bar and two On The Border Mexican Grill & Cantina restaurants with development commitments to build a total of 24 new restaurants; - Executed additional domestic development commitments to build four Chili's Grill & Bar and six On The Border Mexican Grill & Cantina restaurants; - Signed a development agreement for 10 Chili's restaurants in the United Arab Emirates; - Declared and paid a quarterly dividend of $0.10 per share; - Increased share repurchase authorization by $150 million; and - Repurchased 2.1 million common shares. Revenue Growth

Brinker reported revenues for the 13-week period of $1,092.8 million, an increase of 12.6 percent compared with $970.5 million reported for the same period of fiscal 2005 (1). These revenue gains were primarily driven by a 2.7 percent increase in comparable store sales (see Table 1) and restaurant capacity growth of 7.4 percent. The company and its franchisees opened 37 restaurants in the third quarter, excluding Corner Bakery.

Table 1: Q3 comparable store sales Q3 06 and Q3 05, company and four reported brands; percentage Q3 06 Q3 05 Q3 06 Comp-Store Comp-Store Price Q3 06 Sales Sales Increase Mix-Shift Brinker International 2.7 3.2 3.2 2.1 Chili's 3.4 4.1 3.5 3.1 Macaroni Grill (0.3) (1.1) 2.2 (0.5) On The Border 1.8 4.0 2.8 2.0 Maggiano's 5.0 3.3 2.9 0.0 March 2006 Comparable Store Sales

For the four-week period ending March 29, 2006, comparable store sales decreased 0.3 percent (2,3) (see Table 2).

Table 2: Month of March comparable store sales Mar 06 and Mar 05; Percentage Mar 06 Mar 05 Mar 06 Comp-Store Comp-Store Price Mar 06 Sales Sales Increase Mix-Shift Brinker International (0.3) 3.6 3.0 2.6 Chili's 0.4 4.4 3.3 3.3 Macaroni Grill (3.3) 0.9 2.1 0.6 On The Border (0.6) 2.7 2.9 2.8 Maggiano's 2.6 4.1 2.9 0.4 Operating Performance

Cost of sales, as a percent of revenues, improved from 28.4 percent to 28.1 percent or 30 basis points for the quarter compared to the prior year. The decrease was due primarily to favorable menu price changes, partially offset by product mix shifts and commodity prices.

Restaurant expenses, as a percent of revenues, improved from 54.6 percent to 53.8 percent compared to the prior year, primarily driven by sales leverage, reductions in repair and maintenance costs, and net refranchising gains of $7.0 million, partially offset by incremental equity-based compensation of $2.2 million and higher utility rates.

Depreciation and amortization for the third quarter fiscal 2006 compared to 2005 increased $3.1 million. The change was primarily driven by new restaurants, asset replacements and remodel additions.

General and administrative expense increased $21.2 million for the quarter, which was primarily driven by performance-based compensation that was not paid in the prior year and incremental equity-based compensation in 2006.

The effective income tax rate related to continuing operations decreased to 30.9% for the current quarter as compared to 32.2% for the same quarter last year. The decrease was due to the income tax benefit of $1.6 million related to the final disposition of the company's interest in Rockfish Seafood Grill. This benefit was partially offset by stock-based compensation related to the impact of incentive stock options that are deductible when exercised.

Share Repurchases

The company repurchased 2.1 million shares for approximately $85.4 million during the third quarter. Year-to-date, the company has repurchased 6.4 million shares for approximately $252.5 million. At the end of the quarter, approximately $172.7 million remains available under the company's share authorizations.

Special Items Table 3: Reconciliation of income from continuing operations and description of special items Q3 06 and Q3 05; $ millions and $ per diluted share after-tax Per Per Income Statement $ Share $ Share Item Line Q3 06 Q3 06 Q3 05 Q3 05 Income from Continuing Operations 63.1 0.73 54.9 0.60 Refranchising Gains Restaurant Expenses (4.4) (0.05) (1.3) (0.01) Equity-Based Compensation (4) Restaurant Expenses 1.7 0.02 Equity-Based Compensation (4) General & Administrative 3.4 0.04 Restructuring Gains and Charges (5) Restructure & Other (2.3) (0.03) 0.2 0.00 Total Special Items (1.6) (0.02) (1.1) (0.01) Income from Continuing Operations, before Special Items 61.5 0.71 53.8 0.59 Fourth Quarter and Full Fiscal Year 2006 Forecast

The company's initial estimate for fourth quarter fiscal 2006 earnings per diluted share from continuing operations is $0.65 to $0.68, which includes incremental equity-based compensation expense of approximately $6.6 million ($5.1 million after tax), or earnings per diluted share of $0.06. Excluding incremental equity-based compensation, the estimate is $0.71 to $0.74 per diluted share. This guidance excludes certain gains and charges.

The company anticipates full-year fiscal 2006 earnings per diluted share from continuing operations to be $2.17 to $2.20, which includes incremental equity-based compensation expense for the year of approximately $32 million ($25 million after tax), or earnings per diluted share of approximately $0.28. Excluding incremental equity-based compensation, the estimate is $2.45 to $2.48 per diluted share, representing 16 percent to 18 percent earnings per diluted share growth. This guidance excludes certain gains and charges.

Webcast Information

Investors and interested parties are invited to listen to today's conference call, as management will provide further details of the quarter and an outlook for future periods. The call will be broadcast live on the Brinker Web site (http://www.brinker.com/ ) at 9:30 a.m. CDT today (Apr. 25). 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 May 24, 2006.

Forward Calendar Third Quarter 10-Q Filing on or before May 8, 2006. Period 10 (April) sales on May 10, 2006, after the market closes.

At the end of the third quarter of fiscal 2006, Brinker International either owned, operated, or franchised 1,580 restaurants under the names Chili's Grill & Bar (1,161 units), Romano's Macaroni Grill (240 units), Maggiano's Little Italy (37 units), and On The Border Mexican Grill & Cantina (142 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, 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) Comparable store sales exclude Corner Bakery sales. (3) March 2006 comparable store sales were positively impacted by 1.5% as a result of the shift of the Easter Holiday to third quarter 2006 from the fourth quarter 2005. (4) This incremental expense relates to adopting FAS 123(R) at the beginning of fiscal year 2006. (5) Restructuring gains and charges in fiscal 2006 include a $1.1 million gain associated with the final disposition of Rockfish and related tax benefit of $1.6 million. Restructuring gains and charges also consist of other gains and expenses related to impairments and restaurant closures. BRINKER INTERNATIONAL, INC. Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Thirteen Week Thirty-Nine Week Periods Ended Periods Ended March 29, March 30, March 29, March 30, 2006 2005 2006 2005 Revenues $1,092,790 $ 970,452 $3,077,769 $2,751,138 Operating Costs and Expenses: Cost of sales 307,205 275,699 869,668 778,669 Restaurant expenses (A) 587,950 529,665 1,686,093 1,520,183 Depreciation and amortization 48,357 45,219 142,670 133,790 General and administrative (B) 53,735 32,573 152,540 110,751 Restructure charges and other impairments (529) 350 1,950 51,182 Total operating costs and expenses 996,718 883,506 2,852,921 2,594,575 Operating income 96,072 86,946 224,848 156,563 Interest expense 5,630 5,920 17,195 20,066 Other, net (939) 77 (1,123) 1,612 Income before provision for income taxes 91,381 80,949 208,776 134,885 Provision for income taxes (C) 28,250 26,046 67,833 23,486 Income from continuing operations 63,131 54,903 140,943 111,399 Income (loss) from discontinued operations, net of taxes 1,626 241 (1,555) (943) Net income $64,757 $55,144 $139,388 $110,456 Basic net income per share: Income from continuing operations $0.74 $0.62 $1.63 $1.26 Income (loss) from discontinued operations $0.02 $0.01 $(0.02) $(0.01) Net income per share $0.76 $0.63 $1.61 $1.25 Diluted net income per share: Income from continuing operations $0.73 $0.60 $1.60 $1.19 Income (loss) from discontinued operations $0.02 $0.00 $(0.01) $(0.01) Net income per share $0.75 $0.60 $1.59 $1.18 Basic weighted average shares outstanding 85,245 88,109 86,332 88,458 Diluted weighted average shares outstanding 86,788 91,769 87,852 95,621 (A) Current year restaurant expenses include incremental equity-based compensation of $2.2 million and $7.4 million for the third quarter and year-to-date, respectively, and net refranchising gains of $7.0 million in the third quarter. Prior year restaurant expenses include a refranchising gain totaling $2.0 million recorded in the third quarter, a $17.3 million charge recorded in the second quarter related to the IRS settlement, and a refranchising gain totaling $3.8 million recorded in the first quarter. (B) Current year general and administrative expenses include incremental equity-based compensation of $4.4 million and $17.5 million for the third quarter and year-to-date, respectively. (C) Prior year provision for income taxes includes a $16.9 million benefit recorded in the second quarter related to the IRS settlement. BRINKER INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 29, June 29, 2006 2005 (Unaudited) ASSETS Current assets of continuing operations $234,871 $233,123 Current assets of discontinued operations --- 79,842 Net property and equipment 1,749,566 1,646,466 Total other assets 190,001 196,693 Total assets $2,174,438 $2,156,124 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities of continuing operations $525,197 $419,564 Current liabilities of discontinued operations --- 10,400 Long-term debt, less current installments 437,147 406,505 Other liabilities 163,861 219,373 Total shareholders' equity 1,048,233 1,100,282 Total liabilities and shareholders' equity $2,174,438 $2,156,124 BRINKER INTERNATIONAL, INC. UNITS SUMMARY Third Quarter Third Quarter Openings/ Closings/ Projected Total Units Acquisitions Sales Total Units Openings Dec. 28, Fiscal Fiscal Mar. 29, Fiscal 2005 2006 (D) 2006 (D) 2006 (F) 2006 Company-Owned Units: Chili's 867 25 (8) 884 97-100 Macaroni Grill 224 3 (1) 226 6-7 Maggiano's 37 --- --- 37 4-5 On The Border 122 1 (2) 121 6-8 Corner Bakery (E) 89 2 (91) --- --- 1,339 31 (102) 1,268 113-120 Franchise Units: Chili's 263 14 --- 277 25-30 Macaroni Grill 14 --- --- 14 4-5 On The Border 19 2 --- 21 1-2 Corner Bakery (E) 3 --- (3) --- --- 299 16 (3) 312 30-37 Total Units: Chili's 1,130 39 (8) 1,161 122-130 Macaroni Grill 238 3 (1) 240 10-12 Maggiano's 37 --- --- 37 4-5 On The Border 141 3 (2) 142 7-10 Corner Bakery (E) 92 2 (94) --- --- 1,638 47 (105) 1,580 143-157 (D) During the third quarter of fiscal 2006, the company sold six Chili's restaurants and two On The Border restaurants to franchisees. The company and its franchisees opened a total of thirty-seven new restaurants, excluding Corner Bakery, during the quarter ended March 29, 2006. (E) In September 2005, the company entered into an agreement to sell Corner Bakery. As a result, Corner Bakery is presented as discontinued operations. The sale was completed in February 2006. (F) At March 29, 2006, the Company owned the land and buildings for 311 of the 1,268 company-owned restaurants. The net book values of the land and buildings associated with these restaurants totaled $268.8 million and $271.4 million, respectively.

Brinker International, Inc.

CONTACT: Suzanne Keen, Media Relations, +1-800-775-7290, or LynnSchweinfurth, +1-972-770-7228, or Laura Conn, +1-972-770-5810, InvestorRelations, all of Brinker International, Inc.

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

Source: PRNewswire-FirstCall

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