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) November 14, 2008
OSI
RESTAURANT PARTNERS, LLC
(Exact
name of registrant as specified in its charter)
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Delaware
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1-15935
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59-3061413
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(State
or other jurisdiction of incorporation)
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(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:
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o
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Written communications pursuant
to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
7.01 REGULATION
FD DISCLOSURE
About OSI Restaurant
Partners, LLC
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
Company’s portfolio of brands consists of Outback Steakhouse, Carrabba’s Italian
Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar, Roy’s, Lee Roy
Selmon’s, Blue Coral Seafood & Spirits and Cheeseburger in Paradise
restaurants. The Company’s restaurant system operates in 49 states
and 20 countries internationally.
Basis of
Presentation
The
information furnished in this Current Report on Form 8-K provides supplemental
information regarding the Company’s results for the three and nine months ended
September 30, 2008 and should be read in conjunction with the financial
statements and notes thereto and the other information included in the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (the
“Form 10-Q”). Certain of this information will be discussed in the
Company’s conference call being held on Friday, November 14, 2008 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 and nine months ended September
30, 2008 and the three months ended September 30, 2007 include the results of
operations of the Successor. The nine months ended September 30, 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 September 30, 2007 of the Successor on a combined
basis. Although the nine months ended September 30, 2007 presentation
does not comply with generally accepted accounting principles in the United
States (“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 nine
months ended September 30, 2007 to the U.S. GAAP results for Successor and
Predecessor is included in the Company’s Form 10-Q.
The
results for the three and nine months ended September 30, 2008 are not
necessarily indicative of a full year’s results. U.S. GAAP requires
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.
Third Quarter – Comparable
Store Sales
Comparable
store sales for the Company’s significant restaurant brands for the quarter
ended September 30, 2008 compared to the same quarter in 2007 changed by
approximately:
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Quarter
ended September 30, 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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Domestic
comparable store sales (stores open 18 months or more)
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Outback
Steakhouses
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-7.9%
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-6.9%
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-7.8%
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Carrabba’s
Italian Grills
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-5.7%
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n/a
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-5.7%
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Bonefish
Grills
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-10.2%
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-9.5%
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-10.2%
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Fleming’s
Prime Steakhouse and Wine Bars
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-9.7%
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n/a
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-9.7%
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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 restaurant system, which
management believes is important information about the Company’s
restaurant brands.
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Reconciliation of Net (Loss) Income to 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. In connection with a recent
review of the financial covenants under its credit agreement, the Company
identified adjustments to EBITDA permitted or prescribed under the credit
agreement for purposes of covenant reporting that it did not make in its
calculation of Adjusted EBITDA for the second quarter of 2008 included in the
Company's Current Report on Form 8-K dated August 14, 2008 (the “Second Quarter
8-K”). As of September 30, 2008, the Company is in compliance
with all of the financial covenants contained in its Credit
Agreement. The Company was also in compliance with those covenants as
of June 30, 2008 and would also have been in compliance as of June 30, 2008 if
these adjustments had been given effect in such quarter. However, due
to these adjustments, Adjusted EBITDA and Adjusted EBITDAR presented for the
quarterly period ended September 30, 2008 and the nine month period then ended
are not comparable to the amounts previously furnished for the quarterly period
ended June 30, 2008 and the six month period then ended. As a result,
readers should not rely on any comparison between the amounts furnished for the
quarterly period ended June 30, 2008 and the amounts included in this current
report on Form 8-K due to the inclusion of these adjustments.
The
following table reconciles net (loss) income to EBITDA, Adjusted EBITDA and
Adjusted EBITDAR for the three and nine months ended September 30, 2008 and 2007
(in thousands):
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Three
months ended
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Nine
months ended
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September
30,
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September
30,
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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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(Successor)
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(Successor)
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Net
(loss) income
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$ | (46,637 | ) | $ | (16,684 | ) | $ | (232,999 | ) | $ | 917 | |||||
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Benefit
from income taxes
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(35,256 | ) | (15,630 | ) | (66,738 | ) | (18,249 | ) | ||||||||
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Interest
expense, net
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35,135 | 41,346 | 102,475 | 52,791 | ||||||||||||
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Depreciation
and amortization
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47,548 | 45,205 | 141,589 | 127,909 | ||||||||||||
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EBITDA
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$ | 790 | $ | 54,237 | $ | (55,673 | ) | $ | 163,368 | |||||||
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Impairments,
closings and disposals (2)
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16,851 | 3,948 | 202,167 | 17,035 | ||||||||||||
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Stock-based
and other compensation expense (3)
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2,901 | 11,067 | 19,327 | 48,278 | ||||||||||||
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Non-cash
rent expense (4)
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6,863 | 8,757 | 20,928 | 17,951 | ||||||||||||
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Loss
(income) from operations of unconsolidated affiliates, net
(5)
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1,366 | 224 | (1,879 | ) | 553 | |||||||||||
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Accounting
remediation and restatement expenses
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- | - | - | 2,261 | ||||||||||||
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Transaction
costs (6)
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196 | 1,779 | 1,461 | 35,349 | ||||||||||||
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Pre-opening
expense (7)
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3,752 | 3,670 | 10,309 | 15,178 | ||||||||||||
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Management
fee (8)
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2,600 | 2,445 | 7,273 | 2,869 | ||||||||||||
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Unusual
and non-recurring expenses (9)
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5,635 | - | 5,224 | - | ||||||||||||
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Other,
net (10)
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12,708 | (2,541 | ) | 20,651 | (1,467 | ) | ||||||||||
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Adjusted
EBITDA
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$ | 53,662 | $ | 83,586 | $ | 229,788 | $ | 301,375 | ||||||||
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Cash
rent (11)
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45,757 | 44,338 | 138,510 | 99,741 | ||||||||||||
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Adjusted
EBITDAR
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$ | 99,419 | $ | 127,924 | $ | 368,298 | $ | 401,116 | ||||||||
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(1)
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The
accompanying financial information has been prepared for two periods,
Predecessor and Successor, which relate to the periods preceding and
succeeding the Merger transaction, respectively. This financial
information has been prepared by mathematically combining the Predecessor
and Successor periods in the nine months ended September 30,
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. A reconciliation combining the Predecessor
and Successor periods in the nine months ended September 30, 2007 is
included in the Form 10-Q.
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(2)
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Represents
the elimination of non-cash impairment charges for fixed assets, goodwill
and intangible assets of $200,696,000 and $11,750,000 for the nine months
ended September 30, 2008 and 2007, respectively, cash and non-cash expense
from restaurant closings and net gains or losses on the sale of fixed
assets.
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(3)
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Represents
the elimination of expenses for employee service rendered in prior periods
and recognized in 2007 and 2008 in connection with adopting the Company’s
Partner Equity Plan (“PEP”) of $1,877,000 and $6,762,000, ongoing PEP
expense (net of certain PEP distributions) of $12,382,000 and $12,185,000,
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 $8,575,000 and $28,059,000 and expenses
incurred or income earned as a result of (earnings) losses on PEP deferred
compensation participant investment accounts of ($3,507,000) and
$1,272,000 for the nine months ended September 30, 2008 and 2007,
respectively.
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(4)
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Represents
the amortization of favorable and unfavorable leases as well as the
difference between straight-line and cash rent
expenses. Includes approximately $1,622,000 and $5,294,000 of
non-cash rent expense related to the Company’s sister company, Private
Restaurant Properties, LLC (“PRP”), for the three and nine months ended
September 30, 2008, respectively, and approximately $3,280,000 and
$6,964,000 of non-cash rent expense related to PRP for the three and nine
months ended September 30, 2007,
respectively.
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(5)
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Represents
the elimination of loss (income) from operations of unconsolidated
affiliates, net of dividends and distributions
received.
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(6)
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Represents
the non-recurring fees incurred as a result of the Merger transaction and
subsequent related filings.
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(7)
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Reflects
the elimination of employee travel, training, legal and other costs
incurred prior to the opening of new
restaurants.
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(8)
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Represents
the management fees paid to a management company owned by affiliates of
Bain Capital Partners, LLC, Catterton Partners and Company
founders.
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(9)
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Includes
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.
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(10)
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Includes
foreign currency transaction loss of $10,172,000 and $138,000 for the nine
months ended September 30, 2008 and 2007, respectively, loss (gain) on the
cash surrender value of life insurance of $8,710,000 and ($2,596,000) for
the nine months ended September 30, 2008 and 2007, respectively, loss on
natural gas derivative instrument and franchise tax
expense.
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(11)
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Includes
cash rent paid to PRP of approximately $18,256,000 and $53,480,000 for the
three and nine months ended September 30, 2008, respectively and
approximately $16,225,000 of cash rent paid to PRP for the three and nine
months ended September 30, 2007.
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Post-Merger Cost Savings Initiatives
Adjustment to Adjusted EBITDA
The
Company’s Credit Agreement’s definition of Adjusted EBITDA permits the Company
to include the pro forma effects of certain cost savings
initiatives, including those
implemented within the first eighteen months after the date of the
Merger, as if those initiatives had been in place for the last four fiscal quarters. The
following table calculates the EBITDA adjustment from the Company’s cost savings
initiatives, net of actual benefits realized, for the twelve months ended
September 30, 2008:
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Pro
Forma
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Cost
Savings Initiatives
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Pro
Forma
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EBITDA
Adjustment
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Savings
to
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Twelve
Month
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Twelve
Months Ended
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Cost
Savings Category (in
millions):
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Date
(4)
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Run-Rate
(5)
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September
30, 2008 (6)
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Food
(1)
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$ | 18.4 | $ | 49.2 | $ | 30.8 | ||||||
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Labor
(2)
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15.3 | 23.7 | 8.4 | |||||||||
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Other
(3)
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5.1 | 19.7 | 14.6 | |||||||||
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Total
Cost Savings
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$ | 38.8 | $ | 92.6 | $ | 53.8 | ||||||
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(1)
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Cost
savings realized and projected from specific menu item changes.
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(2)
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Cost
savings realized and projected from initiatives to reduce restaurant
labor hours.
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(3)
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Cost
savings realized and projected from supplier contract negotiations and
other supply chain efficiency
initiatives.
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(4)
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Realized
savings for the trailing twelve months ended September 30,
2008. Realized savings are not necessarily indicative of the
pro forma 12 month run-rate since these food, labor and other initiatives
were not in place for the entire trailing twelve months ended September
30, 2008.
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(5)
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Pro
forma cost savings from the food, labor and other initiatives as if they
had been in place for the entire 12-month period ended September 30,
2008.
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(6)
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Portion
of the pro forma cost savings run-rate not yet realized in the last 12
months financial statements; EBITDA adjustment is limited to $20,000,000
(see below).
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Based on
the costs savings initiatives adjustment to Adjusted EBITDA calculated above,
the Company’s pro forma Adjusted EBITDA for purposes of the Credit Agreement is
as follows:
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Pro
Forma Adjusted EBITDA (in
millions):
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Adjusted
EBITDA, last 12 months
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$ | 315.0 | ||
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Cost
savings initiatives adjustment (1)
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20.0 | |||
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Pro
forma Adjusted EBITDA
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$ | 335.0 | ||
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(1)
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Post-Merger
cost savings initiatives adjustment is limited to $20,000,000 per the
Consolidated EBITDA definition in the Company’s Credit
Agreement.
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Cautionary
Statement
The
Company is subject to risks and uncertainties that could cause actual results to
differ materially from those reported for historical periods, 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; 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; and government actions and policies. Further
information on potential factors that could affect the financial results of the
Company is included in Amendment No. 3 to its Registration Statement on Form S-4
filed with the SEC on May 29, 2008 and in the Form 10-Q. The Company assumes no
obligation to update the information in this Form 8-K, except as required by
law.
SIGNATURE
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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.
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OSI
RESTAURANT PARTNERS, LLC
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(Registrant)
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Date: November
14, 2008
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By:
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/s/ Dirk
A. Montgomery
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Dirk
A. Montgomery
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Chief
Financial Officer
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