UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported) February 23, 2009
OSI
RESTAURANT PARTNERS, LLC
(Exact
name of registrant as specified in its charter)
|
Delaware
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1-15935
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59-3061413
|
||||
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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2202
North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address
of principal executive offices) (Zip Code)
Registrant's
telephone number, including area code (813) 282-1225
N/A
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written communications pursuant to Rule
425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under
the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
2.02 RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OSI
Restaurant Partners, LLC reported that its net loss for the three months ended
December 31, 2008 was $506,410,000 compared with $23,511,000 for the same period
in 2007. For the year ended December 31, 2008, its net loss was
$739,409,000 compared with $22,594,000 for the same period in
2007. Net loss includes the aggregate goodwill and intangible asset
impairment charges described below of $482,403,000 and $650,491,000 for the
three months and year ended December 31, 2008, respectively. Revenues
for the quarter decreased by 10.2% to $928,332,000 compared with
$1,033,954,000 during the same quarter last year. For the year,
revenues decreased by 4.9% to $3,962,857,000 compared with $4,166,661,000 for
the same period in 2007. Capital expenditures totaled approximately
$121,400,000, $119,359,000 and $77,065,000 for the year ended December 31, 2008,
the period from January 1 to June 14, 2007 and the period from June 15 to
December 31, 2007, respectively.
Basis of
Presentation
On June
14, 2007, OSI Restaurant Partners, Inc. (“Predecessor”), by means of a merger
and related transactions (the “Merger”), was acquired by Kangaroo Holdings,
Inc., which is controlled by an investor group comprised of Bain Capital
Partners, LLC, Catterton Partners, Company founders Chris T. Sullivan, Robert D.
Basham and J. Timothy Gannon and certain members of the Company’s management. In
connection with the Merger, OSI Restaurant Partners, Inc. converted into a
Delaware limited liability company named OSI Restaurant Partners, LLC
(“Successor”). Unless the context otherwise indicates, as used in
this report, the term the “Company” and other similar terms mean
(a) prior to the Merger, OSI Restaurant Partners, Inc. and (b) after
the Merger, OSI Restaurant Partners, LLC.
The
information furnished in this Current Report on Form 8-K provides information
regarding the Company’s results for the fourth quarter and year ended December
31, 2008. Generally accepted accounting principles in the United
States (“U.S. GAAP”) require management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results may vary materially from these estimates and
assumptions. Upon completion of the audit of the Company’s fiscal
year ended December 31, 2008, the final reported results may reflect changes
from the information presented in this Form 8-K and such changes could be
material.
Certain
of this information will be discussed in the Company’s conference call being
held on Monday, February 23, 2009 at 11:00 a.m. EST. This report
includes the reconciliations of non-GAAP financial measures to the most directly
comparable GAAP measure referenced in the conference call.
Certain
of the accompanying financial information is presented for two periods,
Predecessor and Successor, which relate to the periods preceding and succeeding
the Merger, respectively. The three months and year ended December
31, 2008 and the three months ended December 31, 2007 include the
results of operations of the Successor. The year ended December 31,
2007 includes the results of operations for the period from January 1 to June
14, 2007 of the Predecessor and the results of operations for the period from
June 15 to December 31, 2007 of the Successor on a combined
basis. Although the year ended December 31, 2007 presentation does
not comply with U.S. GAAP, the Company believes it provides a meaningful
method of comparing the current period to the prior period that includes both
Predecessor and Successor results. A reconciliation of the combined
results for the year ended December 31, 2007 to the U.S. GAAP results for
Successor and Predecessor included in Amendment No. 3 to the Company’s
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission (“SEC”) on May 29, 2008 (“Form S-4”).
The
Company’s portfolio of brands consists of Outback Steakhouse, Carrabba’s Italian
Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar, Roy’s and
Cheeseburger in Paradise restaurants. The Company’s restaurant system
operates in 49 states and 20 countries internationally.
2
Quarterly
Results
The
following summarizes the Company’s results for the quarter ended December 31,
2008:
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·
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Comparable
store sales for the Company’s significant restaurant brands for the
quarter ended December 31, 2008 compared to the same quarter in 2007
changed by approximately:
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Quarter
ended December 31, 2008
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Company
- owned
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Franchise
and development joint venture (1)
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System-wide
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||
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Domestic
comparable store sales (stores open 18 months or more)
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|||||
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Outback
Steakhouse
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-9.1%
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-12.3%
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-9.5%
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Carrabba’s
Italian Grill
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-7.4%
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n/a
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-7.4%
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Bonefish
Grill
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-13.8%
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-18.3%
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-14.0%
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||
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Fleming’s
Prime Steakhouse and Wine Bar
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-19.6%
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n/a
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-19.6%
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_________________
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(1)
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These
sales do not represent sales of OSI Restaurant Partners, LLC and are
presented only as an indicator of changes in the Company’s restaurant
system, which management believes is important information about the
Company’s restaurant brands.
|
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·
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As
a result of poor overall economic conditions, declining sales at
Company-owned restaurants, reductions in the Company’s projected results
for future periods and a challenging environment for the restaurant
industry, the Company assessed the recoverability of its goodwill and
other indefinite-lived intangible assets and recorded an aggregate
goodwill impairment charge of $442,482,000 for its domestic and
international Outback Steakhouse, Bonefish Grill, and Fleming’s Prime
Steakhouse and Wine Bar concepts for the quarter ended December 31,
2008. The Company also recorded an impairment charge of
$39,921,000 for the domestic and international Outback Steakhouse and
Carrabba’s Italian Grill trade names for the quarter ended December 31,
2008.
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As
previously disclosed, during the second quarter of 2008, in connection with the
Company’s annual assessment for impairment of goodwill and other
indefinite-lived intangible assets, the Company recorded an aggregate goodwill
impairment charge of $161,589,000 for the international Outback Steakhouse,
Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar
concepts. The Company also recorded impairment charges of $3,037,000
for the Carrabba’s Italian Grill trade name and $3,462,000 for the Blue Coral
Seafood and Spirits trademark.
The
Company did not have any goodwill or other indefinite-lived intangible asset
impairment charges in 2007.
The
Company’s review of the recoverability of goodwill was based primarily upon an
analysis of the discounted cash flows of the related reporting units as compared
to the carrying values. The Company also used the discounted cash
flow method to determine the fair value of its intangible assets.
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·
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The
Company is not aware of any items that would cause it not to be in
compliance with its financial covenants related to the Credit Agreement at
December 31, 2008. However, the Company’s continued compliance
with these covenants will depend on its future levels of cash flow, which
will be affected by its ability to successfully reduce its costs,
implement efficiency programs and improve working capital
management. If as a result of the current economic challenges,
the Company’s revenue and resulting cash flow decline to levels that
cannot be offset by reductions in costs, efficiency programs and
improvements in working capital management, the Company may not remain in
compliance with the leverage ratio and free cash flow covenants in
its Credit Agreement.
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3
Quarterly Results
(continued)
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·
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For
the three months ended December 31, 2008, Adjusted EBITDA and Adjusted
EBITDAR were $72,844,000 and $119,031,000, respectively, as compared to
$86,533,000 and $132,315,000, respectively, for the three months ended
December 31, 2007. The decrease in Adjusted EBITDA for the
fourth quarter of 2008 compared with the same period in 2007 primarily
resulted from a decline in sales at Company-owned
restaurants. These adjusted results are non-GAAP financial
measures. A reconciliation of these adjusted results to net
loss is included in the following
tables.
|
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·
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Cost
of sales decreased 0.4% as a percentage of restaurant sales in the fourth
quarter of 2008 compared with the same period in 2007 primarily as a
result of the impact of certain Outback Steakhouse and Carrabba’s Italian
Grill cost savings initiatives and general menu price
increases. This decrease was partially offset by increases in
produce, seafood, dairy and beef
costs.
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·
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Labor
costs decreased 0.3% as a percentage of restaurant sales in the fourth
quarter of 2008 compared with the same period in 2007 due to Outback
Steakhouse and Carrabba’s Italian Grill cost savings initiatives, a
reduction in expenses for the Company’s Partner Equity Program (“PEP”),
reduced deferred compensation expenses, a decrease in worker’s
compensation insurance expense and a reduction in distribution expense to
managing partners. The decrease was partially offset by
declines in average unit volumes, an increase in health insurance costs
and higher kitchen and service labor
costs.
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·
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Other
restaurant operating expenses for the fourth quarter of 2008 increased
0.3% as a percentage of restaurant sales as compared to the same period in
2007. This increase was primarily due to declines in average
unit volumes and increases in advertising expenses. The
increase was partially offset by Outback Steakhouse and Carrabba’s Italian
Grill cost savings initiatives, a reduction in general liability insurance
expense and a decrease in pre-opening
costs.
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·
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General
and administrative expenses for the fourth quarter of 2008 increased by
$6,138,000 to $73,901,000 as compared with $67,763,000 in the same period
in 2007. This increase resulted primarily from losses on the
cash surrender value of life insurance and was partially offset by a
decrease in distribution expense to area operating partners, a reduction
in Merger expenses and a decrease in deferred compensation expense for
corporate employees.
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·
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Provision
for impaired assets and restaurant closings for the fourth quarter of 2008
included $29,397,000 of impairment charges for certain of the Company’s
restaurants, the goodwill and indefinite-lived intangible asset impairment
charges described above and $243,000 of other impairment
charges. Provision for impaired assets and restaurant closings
for the fourth quarter of 2007 included $14,828,000 of impairment charges
for certain of the Company’s restaurants, $3,145,000 of impairment charges
for the Company’s investment in an unconsolidated affiliate, Kentucky
Speedway, LLC, and $573,000 of other impairment
charges.
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·
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The
Company recorded an allowance for notes receivable for a consolidated
affiliate of $33,150,000 during the fourth quarter of 2008 as described
below.
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4
Recent Events and Other
Information
The
Company announced last week the commencement of a cash tender offer to purchase
the maximum aggregate principal amount of the 10% Senior Notes due June 15, 2015
issued by the Company and OSI Co-Issuer, Inc., a wholly owned subsidiary of the
Company, that the Company can purchase for $73,000,000, excluding accrued
interest. The tender offer is being made upon the terms and conditions set forth
in the Offer to Purchase dated February 18, 2009 and the related Letter of
Transmittal and upon the terms and subject to the conditions described
therein. The purpose of the tender offer is to reduce the principal
amount of debt outstanding, reduce the related debt service obligations and
improve the Company’s financial covenant position under its senior secured
credit facilities.
The
Company is funding the tender offer with (i) cash on hand and (ii) proceeds from
a contribution (the “Contribution”) of $47,000,000 from the Company’s parent,
OSI HoldCo, Inc. (“OSI HoldCo”). The Contribution was funded through
distributions to OSI HoldCo by one of its subsidiaries that owns (indirectly
through subsidiaries) approximately 340 restaurant properties that are
sub-leased to the Company.
Between
November 18, 2008 and November 21, 2008, the Company purchased on the open
market and extinguished $61,780,000 in aggregate principal amount of its
senior notes for $11,711,000 of principal, representing an average of 19.0% of
face value, and $2,729,000 of accrued interest. The Company recorded a gain
from the extinguishment of its debt of $48,409,000 for the three months ended
December 31, 2008. The gain was reduced by $1,660,000 for the
pro rata portion of unamortized deferred financing fees that related to the
extinguished senior notes. The principal balance of senior notes
outstanding at December 31, 2008 and 2007 was $488,220,000 and $550,000,000,
respectively.
The
Company was the guarantor of an uncollateralized line of credit that matured
December 31, 2008 and permitted borrowing of up to $35,000,000 by a limited
liability company, T-Bird Nevada, LLC (“T-Bird”), which is owned by the
principal of each of the Company’s California franchisees of Outback Steakhouse
restaurants. T-Bird used proceeds from the line of credit for loans
to its affiliates (“T-Bird Loans”) that serve as general partner of 42
franchisee limited partnerships, which currently own and operate 41 Outback
Steakhouse restaurants. The funds were ultimately used for the purchase of real
estate and construction of buildings to be opened as Outback Steakhouse
restaurants and leased to the franchisees limited partnerships. In
January 2009, the Company received notice that an event of default had occurred
in connection with the line of credit because T-Bird failed to pay the
outstanding balance of $33,283,000 due on the maturity date. On
February 17, 2009, the Company purchased the note and all related rights from
the lender for $33,311,000, which included the principal balance due on maturity
and accrued and unpaid interest. The Company consolidates T-Bird and the
related T-Bird Loans and, given the circumstances surrounding the event of
default, recorded a $33,150,000 allowance for its T-Bird Loan receivables for
the quarter ended December 31, 2008. On February 19, 2009, the Company
filed suit against T-Bird and its affiliates in Florida state court seeking,
among other remedies, to enforce the note and collect on the T-Bird
Loans.
On
February 20, 2009, T-Bird and certain of its affiliates filed suit against the
Company and certain of its officers and affiliates. The suit claims,
among other things, that the Company made various misrepresentations and
breached certain oral promises allegedly made by the Company and certain of its
officers to T-Bird and its affiliates that the Company would acquire the
restaurants owned by T-Bird and its affiliates and until that time the Company
would maintain financing for the restaurants that would be nonrecourse to T-Bird
and its affiliates. The complaint seeks damages in excess of $100
million, exemplary or punitive damages, and other remedies. The
Company and the other defendants believe the suit is without merit, and they
intend to defend the suit vigorously.
The
Company was a partial guarantor of $68,000,000 in bonds issued by Kentucky
Speedway, LLC (“Speedway”). Speedway is an unconsolidated affiliate in
which the Company has a 22.5% equity interest and for which the Company operates
catering and concession facilities. At December 31, 2007, the outstanding
balance on the bonds was approximately $63,300,000, and the Company’s maximum
unconditional guarantee was $17,585,000, of which the Company recognized a
liability of $2,495,000 for the estimated fair value of the
guarantee.
5
Recent Events and Other Information (continued)
As the
Company previously disclosed in its Quarterly Report on Form 10-Q filed with the
SEC on November 14, 2008, Speedway entered into an asset purchase agreement with
Speedway Motorsports, Inc., a Delaware corporation, in May 2008. The sale
of Speedway closed December 31, 2008. In accordance with the terms of the
Bond Purchase Agreement executed and effective December 31, 2008 upon the sale
of Speedway, the Company was released from its $17,585,000
guarantee. The Company recorded a $2,495,000 decrease to its
guarantee liability and recorded a corresponding decrease to its investment in
Speedway at December 31, 2008.
During
the fourth quarter of 2008 and the first quarter of 2009, the Company committed
an additional $16,395,000 of its working capital revolving credit facility for
the issuance of letters of credit. These include increases in the
amount of letters of credit for the insurance companies that underwrite the
Company’s workers’ compensation insurance, a letter of credit for the insurance
company that underwrites the Company’s bonds for liquor licenses, utilities,
liens and construction and letters of credit for energy providers. As
of the date of this report, the Company has total outstanding letters of credit
of $69,435,000, which is $5,565,000 below the maximum of $75,000,000 of letters
of credit permitted to be issued under the Company’s working capital revolving
credit facility.
On
December 29, 2008, an action was filed in the United States District Court for
the Southern District of Florida seeking confirmation of a purported November
26, 2008 arbitration award against Outback Steakhouse International, L.P.
(“Outback International”), an indirect wholly-owned subsidiary of the Company,
in the amount of $97,997,450, plus interest from August 7,
2006. American
Restaurants, Inc. v. Outback Steakhouse Int’l, L.P., Case No.
08-23557-CIV-HOEVELER (S.D. Fla.). The dispute that led to the
purported award involved Outback International’s alleged wrongful termination in
1998 of a Restaurant Franchise Agreement (the “Agreement”) entered into in 1996
concerning one restaurant in Argentina.
Outback
International believes that the purported arbitration award resulted from a
process that materially violated the terms of the Agreement, and that the
arbitrator who issued the purported award violated Outback International’s
rights to due process. On December 9, 2008, in accordance with the
procedure provided under Argentine law, Outback International filed with the
arbitrator a motion seeking leave to file an appeal to nullify the
purported award, which has the effect of staying enforcement of the award in
Argentina pending the arbitrator's action on the motion. Outback
International intends to contest vigorously in the courts of both Argentina and
the United States the validity and enforceability of the purported arbitration
award. Based in part on legal opinions Outback International
has received from Argentine counsel, the Company does not expect the
arbitration award or the petition seeking its confirmation to have a
material adverse effect on the Company’s results of operations, financial
condition or cash flows. However, litigation is inherently uncertain
and the ultimate resolution of this matter cannot be guaranteed.
6
OSI
Restaurant Partners, LLC
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands)
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Three
months ended
|
Years
ended
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|||||||||||||||
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December
31,
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December
31,
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|||||||||||||||
|
2008
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2007
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2008
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2007
(1)
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|||||||||||||
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(Successor,
unaudited)
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(Successor,
unaudited)
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|||||||||||||||
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Revenues
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||||||||||||||||
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Restaurant
sales
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$ | 922,607 | $ | 1,027,812 | $ | 3,939,436 | $ | 4,144,615 | ||||||||
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Other
revenues
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5,725 | 6,142 | 23,421 | 22,046 | ||||||||||||
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Total
revenues
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928,332 | 1,033,954 | 3,962,857 | 4,166,661 | ||||||||||||
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Costs
and expenses
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||||||||||||||||
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Cost
of sales
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320,876 | 361,531 | 1,389,392 | 1,472,047 | ||||||||||||
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Labor
and other related
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252,610 | 284,779 | 1,095,057 | 1,163,440 | ||||||||||||
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Other
restaurant operating
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235,739 | 260,303 | 1,012,724 | 998,004 | ||||||||||||
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Depreciation
and amortization
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44,197 | 49,200 | 185,786 | 177,109 | ||||||||||||
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General
and administrative
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73,901 | 67,763 | 263,204 | 296,523 | ||||||||||||
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Provision
for impaired assets and restaurant closings
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512,043 | 18,546 | 716,501 | 30,296 | ||||||||||||
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Allowance
for notes receivable for consolidated affiliate
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33,150 | - | 33,150 | - | ||||||||||||
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Income
from operations of unconsolidated affiliates
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(464 | ) | (1,122 | ) | (2,343 | ) | (569 | ) | ||||||||
| 1,472,052 | 1,041,000 | 4,693,471 | 4,136,850 | |||||||||||||
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(Loss)
income from operations
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(543,720 | ) | (7,046 | ) | (730,614 | ) | 29,811 | |||||||||
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Gain
on extinguishment of debt
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48,409 | - | 48,409 | - | ||||||||||||
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Other
expense, net
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(926 | ) | - | (11,122 | ) | - | ||||||||||
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Interest
income
|
833 | 1,454 | 4,709 | 6,286 | ||||||||||||
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Interest
expense
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(52,786 | ) | (47,311 | ) | (159,137 | ) | (104,934 | ) | ||||||||
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Loss
before benefit from income taxes and minority
|
||||||||||||||||
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interest
in consolidated entities' (loss) income
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(548,190 | ) | (52,903 | ) | (847,755 | ) | (68,837 | ) | ||||||||
|
Benefit
from income taxes
|
(38,567 | ) | (30,550 | ) | (105,305 | ) | (48,799 | ) | ||||||||
|
Loss
before minority interest in
|
||||||||||||||||
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consolidated
entities' (loss) income
|
(509,623 | ) | (22,353 | ) | (742,450 | ) | (20,038 | ) | ||||||||
|
Minority
interest in consolidated entities' (loss) income
|
(3,213 | ) | 1,158 | (3,041 | ) | 2,556 | ||||||||||
|
Net
loss
|
$ | (506,410 | ) | $ | (23,511 | ) | $ | (739,409 | ) | $ | (22,594 | ) | ||||
_________________
|
(1)
|
The
accompanying financial information has been prepared for two periods,
Predecessor and Successor, which relate to the periods preceding and
succeeding the Merger, respectively. This financial information
has been prepared by mathematically combining the Predecessor and
Successor periods in the year ended December 31, 2007. Although
this presentation does not comply with U.S. GAAP, the Company believes it
provides a meaningful method of comparing the current period to the prior
period that includes both Predecessor and Successor
results.
|
7
|
SUPPLEMENTAL
BALANCE SHEET INFORMATION (in millions):
|
Successor
|
|||||||
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
(unaudited)
|
||||||||
|
Cash
|
$ | 271 | $ | 171 | ||||
|
Restricted
cash (1)
|
6 | 36 | ||||||
|
Working
capital deficit (2)
|
(205 | ) | (222 | ) | ||||
|
Current
portion of long-term debt (3)
|
64 | 68 | ||||||
|
Long-term
debt (4)
|
1,721 | 1,811 | ||||||
_________________
|
(1)
|
Restricted
cash includes $5.9 million that is current at December 31, 2008 and $4.0
million and $32.2 million that is current and long-term, respectively, at
December 31, 2007.
|
|
(2)
|
Working
capital deficit includes all current assets less current
liabilities. However, Consolidated Working Capital as defined
by the Company’s financial covenants excludes Cash and cash equivalents
and certain current debt and tax-related
liabilities.
|
|
(3)
|
The
Company’s $33.3 million and $32.6 million debt guarantee for T-Bird is
included in the Current portion of long-term debt, as the liability was
still outstanding at December 31, 2008 and 2007,
respectively. In February 2009, the Company purchased the note
and all related rights from the lender for $33.3 million, which included
the principal balance due on maturity and accrued and unpaid
interest.
|
|
(4)
|
At
December 31, 2007, Long-term debt includes a $2.5 million fair value debt
guarantee on amounts owed by Speedway (for which the Company provided a
total guarantee of $17.6 million). The Company was released
from its guarantee obligation on December 31,
2008.
|
System-wide
Sales
System-wide
sales declined by 9.9% for the quarter and by 4.5% for the year ended December
31, 2008 compared with the respective periods in 2007. System-wide
sales is a non-GAAP financial measure that includes sales of all restaurants
operating under the Company’s brand names, whether the Company owns them or
not. The two components of system-wide sales - sales of OSI
Restaurant Partners, LLC and sales of franchisees and unconsolidated development
joint ventures - are provided in the following supplemental
tables.
|
Three
months ended
|
Years
ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
(1)
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|||||||||||||
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(Successor)
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(Successor)
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|||||||||||||||
|
COMPANY-OWNED
RESTAURANT SALES
|
||||||||||||||||
|
(in
millions):
|
||||||||||||||||
|
Outback
Steakhouse
|
||||||||||||||||
|
Domestic
|
$ | 505 | $ | 556 | $ | 2,153 | $ | 2,284 | ||||||||
|
International
|
65 | 86 | 298 | 329 | ||||||||||||
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Total
|
570 | 642 | 2,451 | 2,613 | ||||||||||||
|
Carrabba's
Italian Grill
|
162 | 175 | 681 | 705 | ||||||||||||
|
Bonefish
Grill
|
89 | 95 | 384 | 373 | ||||||||||||
|
Fleming's
Prime Steakhouse and Wine Bar
|
56 | 63 | 216 | 221 | ||||||||||||
|
Other
restaurants
|
45 | 53 | 207 | 233 | ||||||||||||
|
Total
Company-owned restaurant sales
|
$ | 922 | $ | 1,028 | $ | 3,939 | $ | 4,145 | ||||||||
The
following information presents sales for franchised and unconsolidated
development joint venture restaurants. These are restaurants that are not owned
by the Company and from which the Company only receives a franchise royalty or a
portion of their total income. Management believes that franchise and
unconsolidated development joint venture sales information is useful in
analyzing Company revenues because franchisees and affiliates pay service fees
and/or royalties that generally are based on a percent of sales. Management also
uses this information to make decisions about future plans for the development
of additional restaurants and new concepts as well as evaluation of current
operations.
8
System-wide Sales
(continued)
These
sales do not represent sales of OSI Restaurant Partners, LLC, and are presented
only as an indicator of the changes in the restaurant system, which management
believes is important information regarding the health of the Company’s
restaurant brands.
|
Three months
ended
|
Years
ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
(1)
|
|||||||||||||
|
(Successor)
|
(Successor)
|
|||||||||||||||
|
FRANCHISE
AND DEVELOPMENT JOINT VENTURE SALES
|
||||||||||||||||
|
(in
millions) (2):
|
||||||||||||||||
|
Outback
Steakhouse
|
||||||||||||||||
|
Domestic
|
$ | 74 | $ | 84 | $ | 325 | $ | 353 | ||||||||
|
International
|
40 | 38 | 159 | 132 | ||||||||||||
|
Total
|
114 | 122 | 484 | 485 | ||||||||||||
|
Bonefish
Grill
|
4 | 4 | 16 | 17 | ||||||||||||
|
Total
franchise and development joint venture sales (2)
|
$ | 118 | $ | 126 | $ | 500 | $ | 502 | ||||||||
|
Income
from franchise and development joint ventures (3)
|
$ | 4 | $ | 7 | $ | 23 | $ | 23 | ||||||||
_________________
|
(1)
|
The
accompanying financial information has been prepared for two periods,
Predecessor and Successor, which relate to the periods preceding and
succeeding the Merger, respectively. This financial information
has been prepared by mathematically combining the Predecessor and
Successor periods in the year ended December 31, 2007. Although
this presentation does not comply with U.S. GAAP, the Company believes it
provides a meaningful method of comparing the current period to the prior
period that includes both Predecessor and Successor
results.
|
|
(2)
|
Franchise
and development joint venture sales are not included in revenues as
reported in the Consolidated Statements of
Operations.
|
|
(3)
|
Represents
the franchise royalty and portion of total income related to restaurant
operations included in the Consolidated Statements of Operations in the
line items “Other revenues” or “Income from operations of unconsolidated
affiliates.”
|
Reconciliation of Net Loss
to EBITDA, Adjusted EBITDA and Adjusted EBITDAR
EBITDA
(earnings before interest, taxes, depreciation and amortization), Adjusted
EBITDA (defined below) and Adjusted EBITDAR (Adjusted EBITDA plus rent) are
supplemental measures of profitability that are not required by or presented in
accordance with U.S. GAAP. They are not measurements of the Company’s
financial performance under U.S. GAAP and should not be considered as
alternatives to net (loss) income or any other performance measures derived in
accordance with U.S. GAAP or as alternatives to cash flow from operating
activities as measures of the Company’s liquidity. The Company
believes that EBITDA, Adjusted EBITDA and Adjusted EBITDAR provide investors
with helpful information about the Company’s operations, cash flows and ability
to meet its future debt service, capital expenditures and working capital
requirements.
Adjusted
EBITDA, which is a measure the Company is required to report to its banks, is
calculated by adjusting EBITDA to exclude certain stock-based compensation
expenses, non–cash expenses, charges associated with becoming a private company
and significant non–recurring items.
9
Reconciliation of Net Loss to EBITDA, Adjusted EBITDA and Adjusted EBITDAR (continued)
The
following table reconciles net loss to EBITDA, Adjusted EBITDA and Adjusted
EBITDAR for the three months and years ended December 31, 2008 and 2007 (in
thousands):
|
Three
months ended
|
Years
ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
(1)
|
|||||||||||||
|
(Successor)
|
(Successor)
|
|||||||||||||||
|
Net
loss
|
$ | (506,410 | ) | $ | (23,511 | ) | $ | (739,409 | ) | $ | (22,594 | ) | ||||
|
Benefit
from income taxes
|
(38,567 | ) | (30,550 | ) | (105,305 | ) | (48,799 | ) | ||||||||
|
Interest
expense, net
|
51,953 | 45,857 | 154,428 | 98,648 | ||||||||||||
|
Depreciation
and amortization
|
44,197 | 49,200 | 185,786 | 177,109 | ||||||||||||
|
EBITDA
|
$ | (448,827 | ) | $ | 40,996 | $ | (504,500 | ) | $ | 204,364 | ||||||
|
Impairments,
closings and disposals (2)
|
510,748 | 20,707 | 712,915 | 37,742 | ||||||||||||
|
Stock-based
and other compensation expense (3)
|
604 | 10,102 | 19,931 | 58,380 | ||||||||||||
|
Non-cash
rent expense (4)
|
4,796 | 7,801 | 25,724 | 25,752 | ||||||||||||
|
Income
from operations of unconsolidated affiliates, net (5)
|
(464 | ) | (1,122 | ) | (2,343 | ) | (569 | ) | ||||||||
|
Accounting
remediation and restatement expenses
|
- | - | - | 2,261 | ||||||||||||
|
Transaction
costs (6)
|
- | 4,766 | 1,461 | 40,115 | ||||||||||||
|
Pre-opening
expense (7)
|
2,366 | 2,810 | 12,675 | 17,988 | ||||||||||||
|
Management
fee (8)
|
2,633 | 2,294 | 9,906 | 5,163 | ||||||||||||
|
Unusual
and non-recurring expenses (9)
|
(7,427 | ) | (1,799 | ) | (2,203 | ) | (1,799 | ) | ||||||||
|
Other,
net (10)
|
8,415 | (22 | ) | 29,066 | (1,489 | ) | ||||||||||
|
Adjusted
EBITDA
|
$ | 72,844 | $ | 86,533 | $ | 302,632 | $ | 387,908 | ||||||||
|
Cash
rent (11)
|
46,187 | 45,782 | 184,697 | 145,523 | ||||||||||||
|
Adjusted
EBITDAR
|
$ | 119,031 | $ | 132,315 | $ | 487,329 | $ | 533,431 | ||||||||
_________________
|
(1)
|
The
accompanying financial information has been prepared for two periods,
Predecessor and Successor, which relate to the periods preceding and
succeeding the Merger, respectively. This financial information
has been prepared by mathematically combining the Predecessor and
Successor periods in the year ended December 31, 2007. Although
this presentation does not comply with U.S. GAAP, the Company believes it
provides a meaningful method of comparing the current period to the prior
period that includes both Predecessor and Successor
results.
|
|
(2)
|
Represents
the elimination of non-cash impairment charges for fixed assets, goodwill
and intangible assets of $707,717,000 and $28,874,000 for the years ended
December 31, 2008 and 2007, respectively, cash and non-cash expense from
restaurant closings and net gains or losses on the sale of fixed
assets.
|
|
(3)
|
Represents
the elimination of expenses for employee service rendered in prior periods
and recognized in 2007 and 2008 in connection with adopting the PEP of
$2,110,000 and $8,002,000, ongoing PEP expense (net of certain PEP
distributions) of $15,035,000 and $16,967,000, expenses associated with
the vesting of restricted stock, options and other non-cash charges
related to compensation programs (net of certain cash distributions)
provided to management, area operating partners and/or restaurant general
managers of $9,391,000 and $32,005,000 and expenses incurred or income
earned as a result of (earnings) losses on PEP deferred compensation
participant investment accounts of ($6,605,000) and $1,405,000 for the
years ended December 31, 2008 and 2007,
respectively.
|
|
(4)
|
Represents
the amortization of favorable and unfavorable leases as well as the
difference between straight-line and cash rent
expenses. Includes approximately $1,431,000 and $6,725,000 of
non-cash rent expense related to the Company’s sister company, Private
Restaurant Properties, LLC (“PRP”), for the three months and year ended
December 31, 2008, respectively, and approximately $1,753,000 and
$8,717,000 of non-cash rent expense related to PRP for the three months
and year ended December 31, 2007,
respectively.
|
|
(5)
|
Represents
the elimination of income from operations of unconsolidated affiliates,
net of dividends and distributions received, if
any.
|
|
(6)
|
Represents
the non-recurring fees incurred as a result of the Merger transaction and
subsequent related filings.
|
|
(7)
|
Reflects
the elimination of employee travel, training, legal and other costs
incurred prior to the opening of new
restaurants.
|
|
(8)
|
Represents
the management fees paid to a management company owned by affiliates of
Bain Capital Partners, LLC, Catterton Partners and Company
founders.
|
|
(9)
|
Includes
a $48,409,000 gain on extinguishment of debt, a $33,150,000 allowance for
T-Bird Loan Receivables and a $3,628,000 loss on the sale of the Lee Roy
Selmon’s concept for the three months and year ended December 31, 2008,
expenses from a non-recurring compensation program, hurricane property and
inventory loss, certain non-cash insurance expenses and gains resulting
from a one-time reversal of an accrual for gift
certificates.
|
|
(10)
|
Includes
foreign currency transaction loss of $10,885,000 and ($343,000) for the
years ended December 31, 2008 and 2007, respectively, loss (gain) on the
cash surrender value of life insurance of $16,005,000 and ($2,116,000) for
the years ended December 31, 2008 and 2007, respectively, loss on natural
gas derivative instrument and franchise tax
expense.
|
|
(11)
|
Includes
cash rent paid to PRP, exclusive of any amounts included in pre-opening
expense above, of approximately $16,748,000 and $70,228,000 for the three
months and year ended December 31, 2008, respectively and approximately
$17,123,000 and $33,348,000 of cash rent paid to PRP for the three months
and year ended December 31, 2007.
|
10
Post-Merger Cost Savings Initiatives
Adjustment to Adjusted EBITDA
The
Company’s Credit Agreement’s definition of Adjusted EBITDA permits the Company
to include the pro forma effects of certain cost savings initiatives, including
those implemented within the first eighteen months after the date of the Merger,
as if those initiatives had been in place for the last four fiscal quarters. The
following table calculates the EBITDA adjustment from the Company’s cost savings
initiatives, net of actual benefits realized, for the year ended December 31,
2008:
|
Pro
Forma
|
||||||||||||
|
Cost
Savings Initiatives
|
||||||||||||
|
Pro
Forma
|
EBITDA
Adjustment
|
|||||||||||
|
Savings
to
|
Twelve-Month
|
Year
Ended
|
||||||||||
|
Cost
Savings Category (in
millions):
|
Date
(4)
|
Run-Rate
(5)
|
December
31, 2008 (6)
|
|||||||||
|
Food
(1)
|
$ | 26.6 | $ | 61.7 | $ | 35.1 | ||||||
|
Labor
(2)
|
19.9 | 48.2 | 28.3 | |||||||||
|
Other
(3)
|
8.9 | 35.7 | 26.8 | |||||||||
|
Total
Cost Savings
|
$ | 55.4 | $ | 145.6 | $ | 90.2 | ||||||
__________________
|
(1)
|
Cost
savings realized and projected from specific menu item changes.
|
|
(2)
|
Cost
savings realized and projected from initiatives to reduce restaurant
labor hours.
|
|
(3)
|
Cost
savings realized and projected from supplier contract negotiations and
other supply chain efficiency
initiatives.
|
|
(4)
|
Realized
savings for the trailing twelve months ended December 31,
2008. Realized savings are not necessarily indicative of the
pro forma twelve-month run-rate since these food, labor and other
initiatives were not in place for the entire trailing twelve months ended
December 31, 2008.
|
|
(5)
|
Pro
forma cost savings from the food, labor and other initiatives as if they
had been in place for the entire twelve-month period ended December 31,
2008.
|
|
(6)
|
Portion
of the pro forma cost savings run-rate not yet realized in the last twelve
months financial statements; EBITDA adjustment is limited to $20,000,000
(see below).
|
Based on
the costs savings initiatives adjustment to Adjusted EBITDA calculated above,
the Company’s pro forma Adjusted EBITDA for purposes of the Credit Agreement is
as follows:
|
Pro
Forma Adjusted EBITDA (in
millions):
|
||||
|
Adjusted
EBITDA, last 12 months
|
$ | 302.6 | ||
|
Cost
savings initiatives adjustment (1)
|
20.0 | |||
|
Pro
forma Adjusted EBITDA
|
$ | 322.6 | ||
_________________
|
(1)
|
Post-Merger
cost savings initiatives adjustment is limited to $20,000,000 per the
Consolidated EBITDA definition in the Company’s Credit
Agreement.
|
11
Comparative Store Information
|
RESTAURANTS
IN OPERATION AS OF DECEMBER 31:
|
2008
|
2007
|
||||||
|
(Successor)
|
||||||||
|
Outback
Steakhouse
|
||||||||
|
Company-owned
- domestic
|
689 | 688 | ||||||
|
Company-owned
- international
|
129 | 129 | ||||||
|
Franchised
and development joint venture - domestic
|
107 | 107 | ||||||
|
Franchised
and development joint venture - international
|
53 | 49 | ||||||
|
Total
|
978 | 973 | ||||||
|
Carrabba's
Italian Grill
|
||||||||
|
Company-owned
|
237 | 238 | ||||||
|
Franchised
and development joint venture
|
1 | - | ||||||
|
Total
|
238 | 238 | ||||||
|
Bonefish
Grill
|
||||||||
|
Company-owned
|
142 | 134 | ||||||
|
Franchised
and development joint venture
|
7 | 6 | ||||||
|
Total
|
149 | 140 | ||||||
|
Fleming’s
Prime Steakhouse and Wine Bar
|
||||||||
|
Company-owned
|
61 | 54 | ||||||
|
Other
|
||||||||
|
Company-owned
|
65 | 75 | ||||||
|
System-wide
total
|
1,491 | 1,480 | ||||||
Cautionary
Statement
This Form
8-K includes statements that do not directly or exclusively relate to historical
facts. Such statements are “forward-looking statements” within the meaning of
Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These statements
are based on the current expectations of management. The Company is
subject to a number of risks and uncertainties that could cause actual results
to differ materially from historical periods and from the forward-looking
statements included in this document, including, but not limited to, price and
availability of commodities, such as beef, chicken, shrimp, pork, seafood,
dairy, potatoes, onions and energy supplies, which are subject to fluctuation
and could increase or decrease more than the Company expects; interest rate
changes, compliance with debt covenants and the Company’s ability to make debt
payments since it is significantly leveraged as a result of the merger
transaction on June 14, 2007; inflation; increased labor and insurance costs;
changes in consumer tastes and the level of acceptance of the Company's
restaurant concepts (including consumer acceptance of price increases); consumer
perception of food safety; local, regional, national and international economic
conditions; the seasonality of the Company’s business; demographic trends; the
cost of advertising and media; government actions and policies; completion of
the audit of the Company’s financial statements for the fiscal year ended
December 31, 2008; and changes to and consummation and timing of the tender
offer discussed in this Form 8-K. Further information on potential
factors that could affect the financial results of the Company is included in
its Form S-4 and in its Quarterly Report on Form 10-Q filed with the SEC on
November 14, 2008. The Company assumes no obligation to update the information
in this Form 8-K, except as required by law.
12
SIGNATURE
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
|
|
|
OSI
RESTAURANT PARTNERS, LLC
|
|
|
(Registrant)
|
|||
|
Date: February
23, 2009
|
By:
|
/s/ Dirk
A. Montgomery
|
|
|
Dirk
A. Montgomery
|
|||
|
Chief
Financial Officer
|
|||
13