Brinker International Reports Second Quarter Fiscal 2010 EPS

Brinker reported revenues for the 13-week period of $781.9 million, a decrease of 17.6 percent compared with $949.4 million reported for the same period of fiscal 2009.

Brinker International, Inc. (NYSE:EAT) announced second quarter fiscal 2010 earnings per diluted share of $0.29 compared to $0.27 for the second quarter of fiscal 2009, before special items and excluding Romano’s Macaroni Grill(R) (reconciliation included in Table 2). On a GAAP basis, earnings per diluted share increased to $0.18 from a loss per diluted share of $0.21 for the second quarter in the prior year.

In the second quarter of fiscal 2009, the company completed the sale of Macaroni Grill while retaining a minority ownership interest. The information presented below includes Macaroni Grill unless otherwise noted.

Quarterly Revenues

Brinker reported revenues for the 13-week period of $781.9 million, a decrease of 17.6 percent compared with $949.4 million reported for the same period of fiscal 2009. The company experienced a 3.1 percent decrease in comparable restaurant sales (see Table 1) in the second quarter of fiscal 2010. Revenues were also negatively impacted by a net decline in capacity of 17.7 percent due to the sale of 189 Macaroni Grill restaurants at the end of the second quarter of fiscal 2009. The decline in capacity was also due to 47 restaurant closures and the sale of 21 restaurants to a franchisee since the second quarter of fiscal 2009. Royalty and franchise revenues were $17.3 million for the quarter.

  Table 1: Q2 comparable restaurant sales
  Q2 10 and Q2 09, company and three reported brands; percentage

                                                    Q2 09
                                       Q2 10
                                    Comparable
                                    Sales (2)    Comparable
                                    ----------      Sales
                                                    -----
  Brinker International (1)               (3.1)         (4.5)
    Chili's                               (3.2)         (4.2)
    On The Border                         (4.7)         (3.7)
    Maggiano's                            (1.6)         (6.9)






                                       Q2 10         Q2 10
                                      Pricing      Mix-Shift
                                       Impact      ---------
                                       ------
  Brinker International (1)                  1.2         (1.7)
    Chili's                                  1.2         (1.3)
    On The Border                            2.3         (4.3)
    Maggiano's                               0.5         (2.2)

  (1) Brinker International comparable restaurant sales exclude the
  impact of Macaroni Grill.
  (2) Brinker International comparable restaurant sales by period are
  provided on the company's web site.

Quarterly Operating Performance

Cost of sales, as a percent of revenues, increased from 28.2 percent in the prior year to 28.9 percent in the second quarter of fiscal 2010. During the quarter, cost of sales was negatively impacted by recent promotions and unfavorable commodity prices primarily related to chicken, produce and dairy, partially offset by favorable menu price changes.

Restaurant expenses, as a percent of revenues, decreased to 56.0 percent from 58.0 percent in the prior year primarily due to reduced labor costs, utility expenses and the receipt of a $3.3 million credit card class action lawsuit settlement.

Depreciation and amortization decreased $2.4 million compared to the prior year due to fully depreciated assets and restaurant closures, partially offset by investments in existing restaurants.

General and administrative expense decreased $6.0 million for the quarter primarily due to reduced salary and training expenses as well as income related to transitional services provided to Macaroni Grill.

Other gains and charges primarily includes long-lived asset impairments of $21.4 million related to the closure and impairment of certain underperforming restaurants, partially offset by a $2.8 million gain on the sale of 21 restaurants to a franchisee.

Interest expense decreased $3.7 million due to lower interest rates and lower average borrowings.

The effective income tax rate increased to a provision of 19.6 percent in the current quarter as compared to a benefit of 51.1 percent due to the loss on the sale of Macaroni Grill and long-lived asset impairment charges in the prior year. The effective income tax rate before special items and excluding Macaroni Grill increased to 27.6 percent as compared to 22.4 percent in the second quarter of fiscal 2009, primarily due to increased income and lower tax credits.

  Special Items
  -------------
  Table 2: Reconciliation of net income, before special items (1)
  Q2 10 and Q2 09; $ millions and $ per diluted share after-tax

  Item                                           EPS
                                       Q2 10    Q2 10
  Net Income (Loss)                     $18.3    $0.18
   Other (Gains) and Charges             11.8     0.11
                                         ----     ----
  Net Income before Special Items        30.1     0.29
   Macaroni Grill before Special
    Items                                   -        -
                                          ---      ---
  Adjusted Net Income before Special
   Items  and Macaroni Grill            $30.1    $0.29
                                        =====    =====





  Item                                              EPS
                                                   Q2 09
                                        Q2 09
  Net Income (Loss)                      $(21.8)    $(0.21)
   Other (Gains) and Charges               53.5       0.52
                                           ----       ----
  Net Income before Special Items          31.7       0.31
   Macaroni Grill before Special
    Items                                  (3.8)     (0.04)
                                           ----      -----
  Adjusted Net Income before Special
   Items  and Macaroni Grill              $27.9      $0.27
                                          =====      =====

  (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.

Cash Flow and Capital Allocation

Cash flow from operations for the first six months of fiscal 2010 increased to $156.3 million compared to $94.8 million in the prior year. Capital expenditures totaled $25.0 million, a reduction of $34.6 million compared to the prior year resulting from a decrease in new company-owned restaurant development. Due to strong cash flows, the company made payments of $140.0 million on the outstanding term loan during the quarter which reduced the balance to $250.0 million.