S-1/A 1 d319863ds1a.htm AMENDMENT NO.1 TO FORM S-1 Amendment No.1 to Form S-1
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As filed with the Securities and Exchange Commission on May 16, 2012

Registration No. 333-180615

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

To

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

BLOOMIN’ BRANDS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   5812   20-8023465
(State or Other Jurisdiction of Incorporation or Organization)  

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

 

2202 North West Shore Boulevard, Suite 500

Tampa, Florida 33607

(813) 282-1225

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

Joseph J. Kadow

Executive Vice President and Chief Legal Officer

Bloomin’ Brands, Inc.

2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607

(813) 282-1225

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

John M. Gherlein

Janet A. Spreen

Baker & Hostetler LLP

PNC Center

1900 East 9th Street

Cleveland, Ohio 44114

Telephone: (216) 621-0200

Facsimile: (216) 696-0740

 

Keith F. Higgins

Marko S. Zatylny

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, Massachusetts 02199-3600

Telephone: (617) 951-7000

Facsimile: (617) 951-7050

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462 under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer    ¨   Accelerated filer    ¨   Non-accelerated filer    x   Smaller reporting company    ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered   Proposed Maximum
Aggregate Offering
Price (1)(2)
  Amount of
Registration Fee (3)

Common Stock, $.01 par value per share

  $345,000,000  

$39,537

 

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act.
(2) Includes shares of common stock that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters.
(3) $34,380 of this amount was previously paid.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated May 16, 2012

P R O S P E C T U S

Shares

 

 

LOGO

Common Stock

 

 

This is Bloomin’ Brands, Inc.’s initial public offering. We are selling         shares of our common stock and the selling stockholders identified in this prospectus are selling          shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders.

We expect the public offering price to be between $         and $        per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on              the Nasdaq Global Select Market under the symbol “BLMN.”

Investing in the common stock involves risks that are described in the “Risk Factors” section beginning on page 12 of this prospectus.

 

 

 

    

Per Share

         

Total

 

Public offering price

   $            $     

Underwriting discount

   $            $     

Proceeds, before expenses, to us

   $            $     

Proceeds, before expenses, to selling stockholders

   $            $     

The underwriters may also exercise their option to purchase up to an additional              shares from the selling stockholders at the public offering price, on the same terms and conditions as set forth above, for 30 days after the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The shares will be ready for delivery on or about                 , 2012.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch            Morgan Stanley   J.P. Morgan
Deutsche Bank Securities   Goldman, Sachs & Co.

Co-Lead Manager

Jefferies

Co-Managers

 

William Blair

 

Raymond James

 

Wells Fargo Securities

  The Williams Capital Group, L.P.

 

 

The date of this prospectus is             , 2012.


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LOGO


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PROSPECTUS SUMMARY

     1   

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

     9   

RISK FACTORS

     12   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     31   

USE OF PROCEEDS

     33   

DIVIDEND POLICY

     34   

CAPITALIZATION

     35   

DILUTION

     36   

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     37   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

     40   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     52   

BUSINESS

     95   

MANAGEMENT

     123   

COMPENSATION DISCUSSION AND ANALYSIS

     128   

EXECUTIVE COMPENSATION

     136   

RELATED PARTY TRANSACTIONS

     153   

DESCRIPTION OF INDEBTEDNESS

     157   

PRINCIPAL AND SELLING STOCKHOLDERS

     166   

DESCRIPTION OF CAPITAL STOCK

     169   

SHARES ELIGIBLE FOR FUTURE SALE

     172   

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     174   

UNDERWRITING

     178   

LEGAL MATTERS

     186   

EXPERTS

     186   

WHERE YOU CAN FIND MORE INFORMATION

     186   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

 

 

You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize be distributed to you. We have not, and the underwriters have not, authorized anyone to provide you with additional or different information. This document may only be used where it is legal to sell these securities. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of the prospectus applicable to that jurisdiction.

 

 

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MARKET AND OTHER INDUSTRY DATA

In this prospectus, we rely on and refer to information regarding the restaurant industry, sectors within the restaurant industry, such as full-service restaurants, and categories within the full-service sector that are generally defined by price point (e.g., casual or fine dining) and menu type (e.g., steak or Italian), based on information published by industry research firms Technomic, Inc., The NPD Group, Inc. (which prepares and disseminates Consumer Reported Eating Share Trends (“CREST®”) data), Euromonitor International and Knapp-Track, or compiled from market research reports, analyst reports and other publicly available information. Delineations of our competitors by price or menu categories may vary by data source.

Unless otherwise indicated in this prospectus:

 

   

market data relating to (i) the U.S. market positions of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill or Fleming’s Prime Steakhouse and Wine Bar and (ii) the size of the U.S. full-service restaurant sector’s markets in the menu categories of steak, Italian and seafood was taken from Technomic, Inc.’s 2012 Top 500 Chain Restaurant Report and is based on 2011 calendar year sales;

 

   

market data relating to the U.S. full-service restaurant sector’s casual dining category was published as CREST® data and is based on sales for the 12 months ended November 30, 2011, as reported by The NPD Group, Inc. as of January 5, 2012;

 

   

market data relating to a foreign country’s full-service restaurant sector or the market position of Outback Steakhouse restaurants in a particular foreign market was published by, or was derived by us from, Euromonitor International, and such data is as of December 31, 2010, which is the most recent available data; and

 

   

market data relating to traffic growth of U.S. full-service restaurants tracked by Knapp-Track was derived by us from Malcolm M. Knapp, Inc.’s Knapp-Track reports dated December 2011. Knapp-Track Casual Dining is a monthly sales and guest count tracking service for the full-service restaurant sector in the United States that tracks a competitive set of participants by aggregating 10,400 full-service casual restaurants with over $32.1 billion in total sales. Knapp-Track High End is a similar tracking service that tracks a competitive set of U.S. participants by aggregating approximately 287 full-service high end restaurants with an estimated $1.5 billion in total sales.

All other industry and market data included in this prospectus are from internal analyses based upon publicly available data or other proprietary research and analysis. We believe this information to be true and accurate; however, this information cannot always be verified with complete certainty because of the limitations on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties.

TRADEMARKS, SERVICE MARKS AND COPYRIGHTS

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent permissible under applicable law, our rights to our copyrights, trademarks, service marks and trade names. All brand names or other trademarks appearing in this prospectus are the property of their respective owners, and their use or display should not be construed to imply a relationship with, or an endorsement or a sponsorship of us by, these other parties.

 

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PROSPECTUS SUMMARY

This summary highlights information appearing elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including the financial data and related notes and the section entitled “Risk Factors” before deciding whether to invest in our common stock. Unless otherwise indicated or the context otherwise requires, references in this prospectus to the “company,” “Bloomin’ Brands,” “we,” “us” and “our” refer to Bloomin’ Brands, Inc. and its consolidated subsidiaries.

Our Company

We are one of the largest casual dining restaurant companies in the world, with a portfolio of leading, differentiated restaurant concepts. We own and operate 1,247 restaurants and have 195 restaurants operating under franchise or joint venture arrangements across 49 states and 21 countries and territories internationally. We have five founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Outback Steakhouse holds the #1 U.S. market position in the steak category, and Carrabba’s and Bonefish Grill each holds the #2 U.S. market position in its respective full-service restaurant category (Italian and seafood). Fleming’s is the fourth largest fine dining steakhouse brand in the U.S. The full-service restaurant sector is highly fragmented, and even the largest companies have a relatively small market share.

In 2010, we launched a new strategic plan and operating model, strengthened our management team and adapted practices from the consumer products and retail industries to complement our restaurant acumen and enhance our brand management, analytics and innovation. This new model keeps the customer at the center of our decision-making and focuses on continuous innovation and productivity to drive sustainable sales and profit growth. We have made these changes while preserving our entrepreneurial culture at the operating level. Our restaurant managing partners are a key element of this culture, each of whom shares in the cash flows of his or her restaurant after making a required initial cash investment.

We believe our new strategic plan and operating model have driven our recent market share gains and improved margins while providing a solid foundation for continuing sales and profit growth. For the three months ended March 31, 2012 and the year ended December 31, 2011, we had $1.1 billion and $3.8 billion of revenue, $50.0 million and $100.0 million of net income and $140.3 million and $361.5 million of Adjusted EBITDA, respectively. In the U.S., each of our four core concepts generated positive comparable restaurant sales over the last eight consecutive quarters, and in 2011 and 2010, our combined comparable restaurant sales at our core concepts grew 4.9% and 2.7%, respectively. Additionally, over the last two years, Outback Steakhouse, Carrabba’s, Bonefish Grill and Fleming’s have significantly outperformed their applicable Knapp-Track index on traffic growth by 8.5%, 11.2%, 20.2% and 16.5%, respectively. Over the three years ended December 31, 2011, our net income increased from a net loss of $64.5 million to net income of $100.0 million, and Adjusted EBITDA increased from $319.9 million to $361.5 million. Our Adjusted EBITDA margin grew from 8.9% to 9.4% over the same period and was 13.3% for the three months ended March 31, 2012.

Our concepts seek to provide a compelling customer experience combining great food, highly attentive service and lively and contemporary ambience at attractive prices. We believe each of our concepts maintains a unique, founder-inspired brand identity and entrepreneurial culture, while leveraging our scale and enhanced operating model. Below is an overview of our four core concepts:

 

LOGO    A casual dining steakhouse featuring high quality, freshly prepared food, attentive service and Australian décor. As of March 31, 2012, we owned and operated 669 restaurants and franchised 106 restaurants across 49 states, and we owned and operated 111 restaurants, franchised 47 restaurants and operated 34 restaurants through a joint venture across 21 countries and territories internationally. The average check per person at our domestic Outback Steakhouse restaurants was approximately $20 in 2011.

 

 

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LOGO    An authentic Italian casual dining restaurant featuring high quality handcrafted dishes, an exhibition kitchen and a welcoming atmosphere. As of March 31, 2012, we owned and operated 230 restaurants and had one franchised restaurant across 32 states. The average check per person at Carrabba’s was approximately $21 in 2011.

LOGO

   An upscale casual seafood restaurant featuring market fresh grilled fish, high-end yet approachable service and a lively bar. Bonefish Grill’s bar provides an energetic setting for drinks, dining and socializing with a bar menu featuring a large selection of specialty cocktails, wine and beer. As of March 31, 2012, we owned and operated 151 restaurants and franchised seven restaurants across 28 states. The average check per person at Bonefish Grill was approximately $23 in 2011.
LOGO    An upscale, contemporary prime steakhouse for food and wine lovers seeking a stylish and lively dining experience. Fleming’s features a large selection of wines, including 100 quality wines available by the glass. As of March 31, 2012, we owned and operated 64 restaurants across 28 states. The average check per person at Fleming’s was approximately $68 in 2011.

We also hold a 50% interest in a joint venture that owns and operates 22 Roy’s restaurants. Roy’s provides an upscale dining experience featuring Pacific Rim cuisine.

Recent Evolution of Our Business

In November 2009, we hired Elizabeth A. Smith as Chief Executive Officer. Ms. Smith brought close to 20 years of consumer products experience, including five years as a senior executive at Avon Products, Inc. and 14 years at Kraft Foods Inc. Under Ms. Smith’s leadership, we launched our new strategic plan and operating model. The key initiatives we implemented as part of this plan and model, many of which are ongoing, are summarized below:

 

   

Enhanced Our Brand / Concept Competitiveness. Based on consumer research, we have undertaken the following initiatives to enhance our brand relevance and competitiveness:

 

   

Evolved our menus by supplementing our classic items with a greater variety of lighter dishes and lower priced items and enhanced bar and happy hour offerings to broaden appeal, improve our value perception and increase traffic.

 

   

Shifted our marketing strategy away from principally using brand awareness messages to traffic-generating messages focused on quality, value and limited-time offers.

 

   

Initiated a remodel program focused on Outback Steakhouse and Carrabba’s to refresh the restaurant base.

 

   

Refocused our service to improve execution on aspects of the dining experience that matter most to our customers as indicated through ongoing customer surveys.

 

 

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Strengthened Management Team and Organizational Capabilities. We added senior executives with experience from leading consumer products and retail companies and added resources in key functional support areas to build an organization that maintains deep restaurant industry expertise at the operating level, coupled with a functional corporate support team that drives innovation, productivity and scale efficiencies.

 

   

Accelerated Innovation. We believe we have strengthened our innovation capability by increasing our resources focused on a collaborative process to develop, test and roll out new menu, service and marketing initiatives, allowing us to introduce these initiatives faster than we have in the past.

 

   

Improved Analytics and Information Flow. In order to provide our management team with improved visibility regarding consumer trends and a better basis for making product, pricing and marketing decisions, we instituted an enterprise-wide, analytical approach that relies on consumer research and feedback, product testing and data analysis.

 

   

Increased Productivity and Generated Significant Cost Savings. From 2008 through 2011, we implemented a number of productivity and cost management initiatives. We estimate that these initiatives allowed us to save over $200 million in the aggregate, while improving our customer ratings on quality and service, although we faced rising commodity prices.

 

   

Invested in Information Technology Infrastructure. In 2010, we launched a multi-year upgrade of our technology infrastructure to support our analytical focus and growth opportunities.

Competitive Strengths

We believe the following competitive strengths, when combined with our strategic plan and operating model, provide a platform to deliver sustainable sales and profit growth:

Strong Market Position With Highly Recognizable Brands. We have market leadership positions in each of our core concepts domestically, as well as in our core international markets. Based on 2011 sales in the U.S., Outback Steakhouse ranked #1 in the full-service steak restaurant category, Carrabba’s ranked #2 in the full-service Italian restaurant category, Bonefish Grill ranked #2 in the full-service seafood restaurant category and Fleming’s is the fourth largest fine dining steakhouse brand. In 2010 Outback Steakhouse ranked #1 in market share in Brazil among full-service restaurants and in South Korea among western full-service restaurant concepts. We believe our market leadership positions and scale will allow us to continue to gain market share in the fragmented restaurant industry.

Compelling Customer Experience. We believe we offer a compelling customer experience with superior value by providing great food, highly attentive service and lively and contemporary ambience at attractive prices. We believe our customer experience and value perception, based on the following elements, drive strong customer loyalty:

 

   

Great Food. We deliver consistently executed, freshly prepared meals using high quality ingredients. Our customers have validated our food quality at several of our concepts through recent recognition in Zagat’s surveys.

 

   

Highly Attentive Service. We offer customers prompt, friendly and efficient service, keep wait staff-to-table ratios high and staff each restaurant with managing partners to ensure consistent and attentive customer service.

 

   

Lively and Contemporary Ambience. We believe each of our restaurant concepts offers a distinct, energetic atmosphere. We are committed to maintaining a contemporary look and feel at each of our concepts that is consistent with its individual brand positioning.

 

 

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Attractive Prices. Since 2009, to broaden appeal and increase traffic, we have increased the number of lower priced menu items and limited-time offers of menu specials in order to offer price points that we believe deliver superior value to customers without sacrificing profit margin.

Diversified Portfolio With Global Presence. Our diversified portfolio of distinct concepts and global presence provide us with a broad growth platform to capture additional market share domestically and internationally. We are diversified by concept, category and geography as follows:

 

   

By Concept and Category. We believe our concepts are differentiated relative to each other by category and to their respective key competitors. Our core concepts target three separate, large and highly fragmented menu categories of the full-service restaurant sector: steak, Italian and seafood. Outback Steakhouse, Carrabba’s and Bonefish Grill target the casual dining price category, and Fleming’s targets the fine dining category.

 

   

By Geography. The system-wide sales of our international Outback Steakhouse restaurants represented 15% of our total system-wide sales for 2011. Our restaurants are located across 49 states and 21 countries and territories around the world, and a majority of our international restaurants are company-owned or operated through a joint venture.

Business Model Focused on Continuous Innovation and Productivity. Our business model keeps the customer at the center of our decision-making and focuses on innovation and productivity to drive sustainable sales and profit growth.

 

   

Innovation. We have established an enterprise-wide innovation process to enhance every dimension of the customer experience. Cross-functional innovation teams collaborate to manage a pipeline of new menu, service and marketing ideas.

 

   

Productivity. Without compromising the customer experience, we continuously explore opportunities to increase productivity and reduce costs. Our cost-savings allow us to reinvest in innovation initiatives, offset commodity inflation and increase margins. We have a dedicated team that coordinates all productivity initiatives and actively manages a pipeline of ideas from testing through implementation.

Experienced Executive and Field Management Teams. Our management team is led by our Chairman and Chief Executive Officer, Elizabeth A. Smith. Since she joined us in November 2009, we have further enhanced our senior leadership team by adding executives from consumer and retail companies with experience in brand management, innovation and analytics. This complements our field operating and management teams, who have deep experience operating our restaurants and in the restaurant industry. Our core concept presidents have been with us for an average of 20 years and have an average of 30 years of industry experience.

Our Growth Strategy

We believe there are significant opportunities to continue to drive sustainable sales and profit growth through the following three strategies:

Grow Comparable Restaurant Sales. Building on the strong momentum of the business, we believe we have the following opportunities to continue to grow comparable restaurant sales:

 

   

Remodel Our Restaurants. In the near term, we are focused on continuing our remodel program at Outback Steakhouse and applying this knowledge as we implement a similar program to update our

 

 

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Carrabba’s restaurants. For Outback Steakhouse, we plan to complete 160 remodels in 2012 and a cumulative total of approximately 450 remodels by the end of 2013.

 

   

Continue to Improve Promotional Marketing to Drive Traffic. We plan to continue to improve our limited-time offers and multimedia marketing campaigns. By promoting continuously evolving menu items at attractive prices, we seek to drive traffic and maintain brand relevance without sacrificing margins.

 

   

Expand Share of Occasions and Increase Frequency. We believe we have a strong market share of weekend dinner occasions and a significant opportunity to grow our share of other dining occasions across all concepts. In 2012, we are planning to roll out Saturday lunch at most of our Outback Steakhouse locations. We are also evaluating the selective expansion of weekday lunch in markets where demographics support doing so.

 

   

Continue Innovating New Menu Items and Categories. Our research and development, or R&D, team will seek to continue to introduce innovative menu items that we believe match evolving consumer preferences and broaden appeal.

Pursue New Domestic and International Development With Strong Unit Level Economics. We believe that a substantial development opportunity remains for our concepts in the U.S. and internationally. We expect to open 30 company-owned and five joint venture units in 2012 and increase the pace of development thereafter.

 

   

Pursue Domestic Development Focused on Bonefish Grill and Carrabba’s. We believe we have the potential to double the Bonefish Grill concept over the next five to seven years. Bonefish Grill unit growth will be our top domestic development priority in 2012, with 20 or more new restaurants planned. We also see significant opportunities to expand Carrabba’s. We are developing an updated restaurant design for Carrabba’s, and we plan to test this model in ten to 15 units over the next two years. Based on the results of this test, we plan to accelerate new unit development.

 

   

Accelerate International Growth Focused on Outback Steakhouse. We believe we are well-positioned to expand internationally beyond our 192 restaurants located across 21 countries and territories. In 2011, the system-wide sales of our international Outback Steakhouse restaurants represented 15% of our total system-wide sales. We believe the international business represents a significant growth opportunity. In 2012, we plan to open six or more company-owned or joint venture units in existing markets. We will approach growth in a disciplined manner, focusing on existing markets such as South Korea, Brazil and Hong Kong, while expanding in strategically selected emerging and high growth developed markets. We are focusing our new market growth in China, Mexico and South America.

Drive Margin Improvement. We believe that we have the opportunity to increase our margins through continued productivity and increased fixed-cost leverage as we grow comparable restaurant sales. We have developed a multi-year productivity plan that focuses on high value initiatives across four categories: labor, food cost, supply chain and restaurant facilities. This strategy is expected to yield productivity and cost savings of approximately $50 million in 2012 and additional savings in future years. Our actual savings will depend on various economic factors, including commodity and labor costs, and other circumstances that impact our supply chain.

 

 

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Risk Factors

We continue to have a significant amount of debt (approximately $1.8 billion as of March 31, 2012) and have pledged substantially all of our assets under certain of our loan arrangements. We believe that our leverage, as well as competition in our industry and economic conditions that impact customer spending and our costs, are among the challenges we face in continuing to implement our strategic plan.

Before you invest in our common stock, you should carefully consider all of the information in this prospectus, including matters set forth under the heading “Risk Factors.” Risks relating to our business include the following, among others:

 

   

we face significant competition for customers, real estate and employees that could affect our profit margins;

 

   

general economic factors and changes in consumer preference may adversely affect our performance;

 

   

our plans depend on initiatives designed to increase sales, reduce costs and improve the efficiency and effectiveness of our operations, and failure to achieve or sustain these plans could affect our performance adversely;

 

   

damage to our reputation or infringement of our intellectual property could harm our business; and

 

   

our substantial leverage could adversely affect our ability to raise additional capital to fund our operations.

Our History

Our predecessor, OSI Restaurant Partners, Inc., was incorporated in August 1987, and we opened our first Outback Steakhouse restaurant in 1988. We became a Delaware corporation in 1991 as part of a corporate reorganization completed in connection with our predecessor’s initial public offering.

Bloomin’ Brands, Inc., formerly known as Kangaroo Holdings, Inc., was incorporated in Delaware in October 2006 by an investor group comprised of funds advised by Bain Capital Partners, LLC, Catterton Management Company, LLC, and Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon, who we collectively refer to as our Founders, and members of our management. On June 14, 2007, we acquired OSI Restaurant Partners, Inc. by means of a merger and related transactions, referred to in this prospectus as the Merger. At the time of the Merger, OSI Restaurant Partners, Inc. was converted into a Delaware limited liability company named OSI Restaurant Partners, LLC, or OSI. In connection with the Merger, we implemented a new ownership and financing arrangement for our owned restaurant properties, pursuant to which Private Restaurant Properties, LLC, or PRP, our indirect wholly-owned subsidiary, acquired 343 restaurant properties then owned by OSI and leased them back to subsidiaries of OSI. In March 2012, we refinanced the commercial mortgage-backed securities loan that we entered into in 2007 in connection with the Merger with a new $500.0 million commercial mortgage-backed loan. See Note 20 of our Notes to Consolidated Financial Statements for the year ended December 31, 2011. Following the refinancing, OSI remains our primary operating entity and New Private Restaurant Properties, LLC, another indirect wholly-owned subsidiary of ours, continues to lease 261 of our owned restaurant properties to OSI subsidiaries.

Our Sponsors

Upon completion of this offering, Bain Capital, LLC and Catterton Management Company, LLC, which we refer to as our Sponsors, will continue to hold a controlling interest in us and will continue to have significant influence over us and decisions made by stockholders and may have interests that differ from yours. Certain of our directors are affiliated with our Sponsors, which could result in conflicts of interest arising from the fiduciary

 

 

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duties owed to these various entities, business opportunities that may arise and the time and attention needed to fulfill these commitments. See “Risk Factors—Risks Related to this Offering and Our Common Stock.”

Bain Capital Partners, LLC

Bain Capital, LLC, whose affiliates include Bain Capital Partners, LLC, or Bain Capital, is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity, credit products and absolute return investments with approximately $60 billion in assets under management. Headquartered in Boston, Bain Capital has offices in New York, Palo Alto, Chicago, London, Munich, Hong Kong, Shanghai, Tokyo, and Mumbai.

Catterton Management Company, LLC

Catterton Management Company, LLC, or Catterton, is a leading private equity firm with a focus on providing equity capital in support of small to middle-market consumer companies. Presently, Catterton is actively managing more than $2.5 billion of equity capital focused on all sectors of the consumer industry.

Company Information

Our principal executive offices are located at 2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607, and our telephone number at that address is (813) 282-1225.

 

 

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The Offering

 

Common stock offered by us

             shares

 

Common stock offered by the

             shares

selling stockholders

 

Common stock to be outstanding

             shares

immediately after completion of this offering

 

Option to purchase additional shares

The selling stockholders have granted the underwriters a 30-day option to purchase up to an additional          shares.

 

Use of proceeds

We expect to receive net proceeds, after deducting estimated offering expenses and underwriting discounts and commissions, of approximately $          million, based on an assumed offering price of $          per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use the net proceeds from this offering, together with cash on hand, to retire all of our outstanding 10% notes due 2015, or Senior Notes. There were approximately $248.1 million in aggregate principal amount of Senior Notes outstanding as of March 31, 2012. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See “Use of Proceeds,” “Description of Indebtedness” and “Principal and Selling Stockholders.”

 

Dividend policy

We do not currently pay cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our board of directors and will depend on various factors. See “Dividend Policy.”

 

Principal stockholders

Upon completion of this offering, investment funds affiliated with our Sponsors will beneficially own a controlling interest in us. As a result, we currently intend to avail ourselves of the controlled company exemption under the corporate governance rules of the Nasdaq Stock Market. See “Management—Board Structure and Committee Composition.”

 

Risk factors

You should read carefully the “Risk Factors” section of this prospectus for a discussion of factors that you should consider before deciding to invest in shares of our common stock.

 

Proposed Nasdaq Global Select Market symbol

“BLMN”

The number of shares of our common stock to be outstanding after this offering excludes (1) outstanding options to purchase 11,794,250 shares of our common stock at a weighted average exercise price of $7.53 per share, of which options to purchase 5,657,289 shares were exercisable as of May 15, 2012, and (2) an additional 3,000,000 shares of our common stock issuable pursuant to future awards under our 2012 Incentive Award Plan.

 

 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our summary consolidated financial and other data as of the dates and for the periods indicated. The summary consolidated financial data as of December 31, 2011 and December 31, 2010 and for each of the three years in the period ended December 31, 2011 presented in this table have been derived from the audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2009 have been derived from our historical unaudited consolidated financial statements for that year, which are not included in this prospectus. The summary consolidated financial data as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 have been derived from the unaudited interim consolidated financial statements included in this prospectus. The summary consolidated balance sheet data as of March 31, 2011 have been derived from our historical unaudited interim consolidated financial statements that are not included in this prospectus. The total number of system-wide restaurants in the following table is unaudited for all periods presented. Historical results are not necessarily indicative of the results to be expected for future periods.

This summary consolidated financial and other data should be read in conjunction with the disclosures set forth under “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Consolidated Financial Statements” and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

     Years Ended December 31,     Three Months Ended March 31,  
     2011     2010     2009     2012     2011  
                       (unaudited)     (unaudited)  
    

($ in thousands, except per share amounts)

 

Statements of Operations Data:

          

Revenues

          

Restaurant sales

   $ 3,803,252      $ 3,594,681      $ 3,573,760      $ 1,045,466      $ 993,109   

Other revenues

     38,012        33,606        27,896        10,160        8,740   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     3,841,264        3,628,287        3,601,656        1,055,626        1,001,849   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

          

Cost of sales

     1,226,098        1,152,028        1,184,074        335,859        317,764   

Labor and other related

     1,094,117        1,034,393        1,024,063        293,501        282,807   

Other restaurant operating

     890,004        864,183        849,696        218,965        214,157   

Depreciation and amortization

     153,689        156,267        186,074        38,860        38,288   

General and administrative (1)

     291,124        252,793        252,298        76,002        61,578   

Recovery of note receivable from affiliated entity (2)

     (33,150     —          —          —          —     

Loss on contingent debt guarantee

     —          —          24,500        —          —     

Goodwill impairment

     —          —          58,149        —          —     

Provision for impaired assets and restaurant closings (3)

     14,039        5,204        134,285       
4,435
  
    208   

Income from operations of unconsolidated affiliates

     (8,109     (5,492     (2,196     (2,404     (3,646
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     3,627,812        3,459,376        3,710,943       
965,218
  
    911,156   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     213,452        168,911        (109,287    
90,408
  
    90,693   

Gain (loss) on extinguishment of debt (4)

     —          —          158,061        (2,851     —     

Other income (expense), net

     830        2,993        (199     54        (303

Interest expense, net

     (83,387     (91,428     (115,880     (20,974     (21,193
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     130,895        80,476        (67,305    
66,637
  
    69,197   

Provision (benefit) for income taxes

     21,716        21,300        (2,462     12,805        11,082   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     109,179        59,176        (64,843     53,832        58,115   

Less: net income (loss) attributable to noncontrolling interests

     9,174        6,208        (380     3,833        3,223   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Bloomin’ Brands, Inc.

   $ 100,005      $ 52,968      $ (64,463   $ 49,999      $ 54,892   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) attributable to Bloomin’ Brands, Inc. per share

   $ 0.94      $ 0.50      $ (0.62   $ 0.47      $ 0.52   

Diluted net income (loss) attributable to Bloomin’ Brands, Inc. per share

   $ 0.94      $ 0.50      $ (0.62   $ 0.47      $ 0.52   

Weighted average shares outstanding

          

Basic

     106,224        105,968        104,442        106,332        106,093   

Diluted

     106,689        105,968        104,442        107,058        106,526   

 

 

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     Years Ended December 31,     Three Months Ended March 31,  
     2011      2010      2009     2012     2011  
                         (unaudited)     (unaudited)  
    

($ in thousands)

 

Statement of Cash Flows Data:

            

Net cash provided by (used in):

            

Operating activities

   $ 322,450       $ 275,154       $ 195,537      $ 2,096      $ 41,644   

Investing activities

     (113,142      (71,721      (39,171     155,820        (18,927

Financing activities

     (89,300      (167,315      (137,397     (306,404     (23,025

Other Financial and Operating Data:

            

Number of system-wide restaurants at end of period

     1,443         1,439         1,477        1,442        1,438   

Comparable domestic restaurant sales (5)

     4.9      2.7      (8.6 )%      5.2     5.4

Capital expenditures

   $ 120,906       $ 60,476       $ 57,528      $ 34,019      $ 20,480   

Adjusted EBITDA (6)

     361,478         338,898         319,925        140,269        129,943   

Adjusted EBITDA margin (6)

     9.4      9.3      8.9     13.3     13.0

Balance Sheet Data (at period end; December 31, 2009 and March 31, 2012 and 2011 are unaudited):

            

Cash and cash equivalents

   $ 482,084       $ 365,536       $ 330,957      $ 335,059      $ 366,742   

Net working capital (deficit) (7)(8)

     (248,145      (120,135      (187,648     (29,981     (53,017

Total assets

     3,353,936         3,243,411         3,340,708        3,037,222        3,221,765   

Total debt, net (4)(8)

     2,109,290         2,171,524         2,302,233        1,825,153        2,169,086   

Total shareholders’ equity (deficit)

     40,297         (55,911      (116,625     95,124        1,827   

Pro Forma Balance Sheet Data (9):

            

Cash and cash equivalents

           $       

Net working capital (deficit)

           $       

Total assets

           $       

Total debt

           $       

Total shareholders’ equity

           $       

 

(1) Includes management fees and out-of-pocket and other reimbursable expenses paid to a management company owned by our Sponsors and Founders of $9.4 million, $11.6 million and $10.7 million for the years ended December 31, 2011, 2010 and 2009, respectively, and $2.3 million for each of the three months ended March 31, 2012 and 2011 under a management agreement that will terminate upon the completion of this offering. In connection with such termination, we will pay an $8.0 million termination fee to the management company within 60 days of completion of the offering, but no later than December 31, 2012, plus the pro-rated periodic fee. See “Related Party Transactions—Arrangements With Our Investors.”
(2) In November 2011, we received a settlement payment from T-Bird Nevada, LLC (together with its affiliates, “T-Bird”), a limited liability company affiliated with our California franchisees of Outback Steakhouse restaurants, in connection with a settlement agreement that satisfied all outstanding litigation with T-Bird.
(3) During 2009, our Provision for impaired assets and restaurant closings primarily included: (i) $46.0 million of impairment charges to reduce the carrying value of the assets of Cheeseburger in Paradise to their estimated fair market value due to our sale of the concept in the third quarter of 2009, (ii) $47.6 million of impairment charges and restaurant closing expense for certain of our other restaurants and (iii) $36.0 million of impairment charges for the domestic Outback Steakhouse and Carrabba’s Italian Grill trade names.
(4) In March 2009, we repurchased $240.1 million of our outstanding Senior Notes for $73.0 million. This resulted in a gain on extinguishment of debt, after the pro rata reduction of unamortized deferred financing fees and other related costs, of $158.1 million in 2009.
(5) Represents combined comparable restaurant sales of our domestic company-owned restaurants open 18 months or more.
(6) EBITDA (earnings before interest, taxes, depreciation and amortization), Adjusted EBITDA (calculated by adjusting EBITDA to exclude stock-based compensation expense, certain non–cash expenses and other significant, unusual items) and Adjusted EBITDA margin (Adjusted EBITDA as a percentage of total revenues) are supplemental measures of profitability that are not required by or presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). They are not measurements of our financial performance under U.S. GAAP and should not be considered as alternatives to our Net income (loss) or any other performance measures derived in accordance with U.S. GAAP.

 

     Adjusted EBITDA is presented because: (i) we believe it is a useful measure for investors to assess the operating performance of our business without the effect of non-cash charges such as depreciation and amortization expenses and asset impairment expenses and (ii) we use Adjusted EBITDA internally as a benchmark for certain of our cash incentive plans and to evaluate our operating performance or compare our performance to that of our competitors. The use of Adjusted EBITDA as a performance measure permits a comparative assessment of our operating performance relative to our performance based on our GAAP results, while isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. Companies within our industry exhibit significant variations with respect to capital structures and cost of capital (which affect interest expense and income tax rates) and differences in book depreciation of property, plant and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Our management believes that Adjusted EBITDA facilitates company-to-company comparisons within our industry by eliminating some of these foregoing variations. Adjusted EBITDA as presented may not be comparable to other similarly-titled measures of other companies, and our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by excluded or unusual items.

 

 

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     Our management recognizes that Adjusted EBITDA has limitations as an analytical financial measure, including the following:

 

   

Adjusted EBITDA does not reflect our capital expenditures or future requirements for capital expenditures;

 

   

Adjusted EBITDA does not reflect the cost of stock-based compensation;

 

   

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, associated with our indebtedness;

 

   

Adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, and it does not reflect cash requirements for such replacements; and

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs.

 

     A reconciliation of EBITDA and Adjusted EBITDA to Net income (loss) attributable to Bloomin’ Brands, Inc. is provided below:

 

     Years Ended December 31,     Three months ended
March 31,
 
     2011     2010     2009     2012      2011  
    

(in thousands)

 

Net income (loss) attributable to Bloomin’ Brands, Inc.

   $ 100,005      $ 52,968      $ (64,463   $ 49,999       $ 54,892   

Provision (benefit) for income taxes

     21,716        21,300        (2,462     12,805         11,082   

Interest expense, net

     83,387        91,428        115,880        20,974         21,193   

Depreciation and amortization

     153,689        156,267        186,074        38,860         38,288   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

EBITDA

   $ 358,797      $ 321,963      $ 235,029      $ 122,638       $ 125,455   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Impairments and disposals

     15,062        4,915        192,572        4,643         1,120   

Stock-based compensation expense

     3,907        3,146        15,215        706         676   

Other (gains) losses

     (90     (1,833     884        344         428   

Deal-related expenses (a)

     7,582        1,157               6,761         12   

Management fees and expenses

     9,370        9,550        9,786        2,326         2,252   

(Gain) loss on extinguishment of debt

                   (158,061     2,851           

Unusual (gain) loss (b)

     (33,150            24,500                  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Adjusted EBITDA

   $ 361,478      $ 338,898      $ 319,925      $ 140,269       $ 129,943   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

  (a) Deal-related expenses incurred in 2011 primarily include costs associated with the sale of our restaurants in Japan and the sale of properties in the sale-leaseback transaction completed on March 14, 2012 in which we sold 67 restaurant properties to two third-party real estate institutional investors then simultaneously leased them back under nine master leases (the “Sale-Leaseback Transaction”). Deal-related expenses incurred in the three months ended March 31, 2012 primarily include legal and other professional fees resulting from the amendment and restatement of a lease between OSI and PRP.
  (b) In November 2011, we received a settlement payment from T-Bird, a limited liability company affiliated with our California franchisees of Outback Steakhouse restaurants, in connection with a settlement agreement that satisfied all outstanding litigation with T-Bird. This litigation began in early 2009, and therefore, we had recorded an allowance for the note receivable for the year ended December 31, 2008. In March 2009, we recorded a loss related to our guarantee of an uncollateralized line of credit that permits borrowing of up to a maximum of $24.5 million for our joint venture partner in Roy’s. We recorded this loss based on our determination that our performance under the guarantee was probable. See note (2) above.

 

(7) We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and for capital expenditures.
(8) On June 14, 2007, PRP entered into a commercial mortgage-backed securities loan (the “CMBS Loan”) totaling $790.0 million, which had a maturity date of June 9, 2012. Effective March 27, 2012, New Private Restaurant Properties, LLC and two of our other indirect wholly-owned subsidiaries (collectively, “New PRP”) entered into a new commercial mortgage-backed securities loan (the “2012 CMBS Loan”) totaling $500.0 million and used the proceeds, together with the proceeds of the Sale-Leaseback Transaction and existing cash, to repay the CMBS Loan. The 2012 CMBS Loan and the repayment of the CMBS Loan are collectively referred to as the “CMBS Refinancing.” The 2012 CMBS Loan is a five-year loan maturing on April 10, 2017. See “Description of Indebtedness” and Note 20 of our Notes to Consolidated Financial Statements for the year ended December 31, 2011. As a result of the CMBS Refinancing, the net amount repaid along with scheduled maturities within one year, $281.3 million, was classified as current at December 31, 2011.
(9) The unaudited pro forma consolidated balance sheet data at March 31, 2012 gives effect to (a) the issuance of common stock in this offering and the retirement of all of our Senior Notes as described in “Use of Proceeds” and (b) the termination of the management agreement with our Sponsors and our Founders in connection with this offering and the payment by us of an $8.0 million termination fee in connection therewith, as if each had occurred on March 31, 2012. See “Unaudited Pro Forma Consolidated Financial Statements.”

 

 

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RISK FACTORS

An investment in our common stock involves various risks. You should carefully consider the following risks and all of the other information contained in this prospectus before investing in our common stock. The risks described below are those that we believe are the material risks that we face. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment in our common stock.

Risks Related to Our Business and Industry

We face significant competition for customers, real estate and employees and competitive pressure to adapt to changes in conditions driving customer traffic. Our inability to compete effectively may affect our traffic, sales and profit margins, which could adversely affect our business, financial condition and results of operations.

The restaurant industry is intensely competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. There is also active competition for management personnel as well as attractive suitable real estate sites. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to those conditions. Further, we face growing competition from the supermarket industry, with the improvement of their “convenient meals” in the deli section, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings by those restaurants. If we are unable to continue to compete effectively, our traffic, sales and margins could decline and our business, financial condition and results of operations would be adversely affected.

Challenging economic conditions may have a negative effect on our cash flows through lower consumer confidence and discretionary spending, availability and cost of credit, foreign currency exchange rates and other items.

Challenging economic conditions may negatively impact consumer confidence and discretionary spending and thus cause a decline in our cash flow from operations. For example, during the economic downturn starting in 2008, continuing disruptions in the overall economy, including the ongoing impacts of the housing crisis, high unemployment, and financial market volatility and unpredictability, caused a related reduction in consumer confidence, which negatively affected customer traffic and sales throughout our industry. These factors, as well as national, regional and local regulatory and economic conditions, gasoline prices, disposable consumer income and consumer confidence, affect discretionary consumer spending. If challenging economic conditions persist for an extended period of time or worsen, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently. The ability of the U.S. economy to continue to recover from these challenging economic conditions is likely to be affected by many national and international factors that are beyond our control, including current economic trends in Europe. Continued weakness in or a further worsening of the economy, generally or in a number of our markets, and our customers’ reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants or delay remodeling of our existing restaurant locations.

In addition, as noted in our other risk factors, our high degree of leverage could increase our vulnerability to general economic and industry conditions and require that a substantial portion of cash flow from operations be dedicated to the payment of principal and interest on our indebtedness. Further, the availability of credit already arranged for under our revolving credit facilities and the cost and availability of future credit may be adversely impacted by economic challenges. Foreign currency exchange rates for the countries in which we operate may decline. In addition, we may experience interruptions in supplies and other services from our third-party vendors as a result of market conditions. These disruptions in the economy are beyond our control, and there is no guarantee that any government response will restore consumer confidence, stabilize the economy or increase the availability of credit.

 

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Loss of key management personnel could hurt our business and inhibit our ability to operate and grow successfully.

Our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. If we are unable to attract and retain sufficiently experienced and capable management personnel, our business and financial results may suffer. If members of our leadership team or other key management personnel leave, we may have difficulty replacing them, and our business may suffer. There can be no assurance that we will be able to successfully attract and retain our leadership team and other key management personnel that we need.

We could face labor shortages that could slow our growth and adversely impact our ability to operate our restaurants.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including managing partners, restaurant managers, kitchen staff and servers, necessary to keep pace with our anticipated expansion schedule and meet the needs of our existing restaurants. A sufficient number of qualified individuals of the requisite caliber to fill these positions may be in short supply in some communities. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations.

Risks associated with our expansion plans may have adverse effects on our ability to increase revenues.

As part of our business strategy, we intend to continue to expand our current portfolio of restaurants. Current development schedules call for the construction of approximately 30 or more new restaurants in 2012. A variety of factors could cause the actual results and outcome of those expansion plans to differ from the anticipated results, including among other things:

 

   

the availability of attractive sites for new restaurants and the ability to obtain appropriate real estate at those sites at acceptable prices;

 

   

the ability to obtain all required governmental permits, including zoning approvals and liquor licenses, on a timely basis;

 

   

the impact of moratoriums or approval processes of state, local or foreign governments, which could result in significant delays;

 

   

the ability to obtain all necessary contractors and sub-contractors;

 

   

union activities such as picketing and hand billing, which could delay construction;

 

   

the ability to negotiate suitable lease terms;

 

   

the ability to recruit and train skilled management and restaurant employees;

 

   

the ability to receive the premises from the landlord’s developer without any delays; and

 

   

weather, natural disasters and disasters beyond our control resulting in construction delays.

Some of our new restaurants may take several months to reach planned operating levels due to lack of market awareness, start-up costs and other factors typically associated with new restaurants. There is also the possibility that new restaurants may attract customers away from other restaurants we own, thereby reducing the revenues of those existing restaurants.

 

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Development rates for each concept may differ significantly. The development of each concept may not be as successful as our experience in the past. It is difficult to estimate the performance of newly opened restaurants. Earnings achieved to date by restaurants open for less than two years may not be indicative of future operating results. Should enough of these new restaurants not meet targeted performance, it could have a material adverse effect on our operating results.

Our business is subject to seasonal fluctuations and past results are not indicative of future results.

Historically, customer spending patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. Additionally, holidays may affect sales volumes seasonally in some of the markets in which we operate. Our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as restaurant closures and exit-related costs and impairments of goodwill, intangible assets and property, fixtures and equipment. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.

Significant adverse weather conditions and other disasters could negatively impact our results of operations.

Adverse weather conditions and natural disasters, such as regional winter storms, floods, major hurricanes and earthquakes, severe thunderstorms and other disasters, such as oil spills, could negatively impact our results of operations. Temporary and prolonged restaurant closures may occur and customer traffic may decline due to the actual or perceived effects from these events.

We may be required to use cash to pay one of our franchisees in connection with a put right under a settlement agreement, which could have an adverse impact on our development plans and operating results.

In connection with the settlement of litigation with T-Bird, which include the franchisees of 56 Outback Steakhouse restaurants in California, we entered into an agreement with T-Bird pursuant to which T-Bird has the right, referred to as the Put Right, to require us to purchase for cash all of the ownership interests in the T-Bird entities (which include general and limited partnership interests in such entities) that own 56 restaurants. The Put Right will become exercisable by T-Bird for a one-year period beginning on the date of closing of this offering. The Put Right is also exercisable if we sell our Outback Steakhouse concept. If the Put Right is exercised, we will pay a purchase price equal to a multiple of the T-Bird entities’ adjusted EBITDA, net of liabilities, for the trailing 12 months as of the closing of the purchase from T-Bird. The multiple will be equal to 75% of the multiple of our adjusted EBITDA for the same trailing 12-month period as reflected in our stock price in the case of this offering or, in a sale of our Outback Steakhouse concept, 75% of the multiple of adjusted EBITDA that we are receiving in the sale. We have a one-time right to reject the exercise of the Put Right if the transaction would be dilutive to our consolidated earnings per share. In that event, the Put Right is extended until the first anniversary of our notice to the T-Bird entities of that rejection. We have agreed to waive all rights of first refusal in our franchise arrangements with the T-Bird entities in connection with a sale of all, and not less than all, of the assets, or at least 75% of the ownership, of the T-Bird entities. If the Put Right is exercised, we will have to use cash to pay the purchase price that could have been allocated to more profitable development initiatives or other business needs, and we will then own restaurants that may not fit our current expansion criteria. This could have an adverse impact on our operating results.

We have limited control with respect to the operations of our franchisees and joint venture partners, which could have a negative impact on our business.

Our franchisees and joint venture partners are obligated to operate their restaurants according to the specific guidelines we set forth. We provide training opportunities to these franchisees and joint venture partners to fully integrate them into our operating strategy. However, since we do not have control over these restaurants, we cannot give assurance that there will not be differences in product quality or that there will be adherence to all

 

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of our guidelines at these restaurants. The failure of these restaurants to operate effectively could adversely affect our cash flows from those operations or have a negative impact on our reputation or our business.

Our failure to comply with government regulation, and the costs of compliance or non-compliance, could adversely affect our business.

We are subject to various federal, state, local and foreign laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located. Difficulty in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. Additionally, difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants.

Approximately 15% of our consolidated restaurant sales are attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, training, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant’s operations. Additionally, we are subject in certain states to “dramshop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

Our restaurant operations are also subject to federal and state labor laws, including the Fair Labor Standards Act, governing such matters as minimum wages, overtime, tip credits and worker conditions. Our employees who receive tips as part of their compensation, such as servers, are paid at a minimum wage rate, after giving effect to applicable tip credits. We rely on our employees to accurately disclose the full amount of their tip income, and we base our FICA tax reporting on the disclosures provided to us by such tipped employees. Our other personnel, such as our kitchen staff, are typically paid in excess of minimum wage. As significant numbers of our food service and preparation personnel are paid at rates related to the applicable minimum wage, further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and customers. Further, we are continuing to assess the impact of federal health care legislation on our health care benefit costs. The imposition of any requirement that we provide health insurance benefits to employees that are more extensive than the health insurance benefits we currently provide, or the imposition of additional employer paid employment taxes on income earned by our employees, could have an adverse effect on our results of operations and financial position. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us.

The Patient Protection and Affordability Act of 2010 (the “PPACA”) enacted in March 2010 requires chain restaurants with 20 or more locations in the United States to comply with federal nutritional disclosure requirements. The FDA has indicated that it intends to issue final regulations by the middle of 2012 and begin enforcing the regulations by the end of 2012. A number of states, counties and cities have also enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants. Although the federal legislation is intended to preempt conflicting state or local laws on nutrition labeling, until we are required to comply with the federal law we will be subject to a patchwork of state and local laws and regulations regarding nutritional content disclosure requirements. Many of these requirements are inconsistent or are interpreted

 

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differently from one jurisdiction to another. The effect of such labeling requirements on consumer choices, if any, is unclear at this time.

There is also a potential for increased regulation of food in the United States under the recent changes in the HACCP system requirements. HACCP refers to a management system in which food safety is addressed through the analysis and control of potential hazards from production, procurement and handling, to manufacturing, distribution and consumption of the finished product. Many states have required restaurants to develop and implement HACCP Systems and the United States government continues to expand the sectors of the food industry that must adopt and implement HACCP programs. For example, the Food Safety Modernization Act (the “FSMA”), signed into law in January 2011, granted the FDA new authority regarding the safety of the entire food system, including through increased inspections and mandatory food recalls. Although restaurants are specifically exempted from or not directly implicated by some of these new requirements, we anticipate that the new requirements may impact our industry. Additionally, our suppliers may initiate or otherwise be subject to food recalls that may impact the availability of certain products, result in adverse publicity or require us to take actions that could be costly for us or otherwise harm our business.

We are subject to the Americans with Disabilities Act, or the ADA, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled. The ADA prohibits discrimination in employment and public accommodations on the basis of disability. Under the ADA, we could be required to expend funds to modify our restaurants to provide service to, or make reasonable accommodations for the employment of, disabled persons. In addition, our employment practices are subject to the requirements of the Immigration and Naturalization Service relating to citizenship and residency. Government regulations could affect and change the items we procure for resale such as commodities. We may also become subject to legislation or regulation seeking to tax or regulate high fat and high sodium foods, particularly in the United States, which could be costly to comply with. Our results can be impacted by tax legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements.

We are also subject to laws and regulations relating to information security, privacy, cashless payments, gift cards and consumer credit, protection and fraud, and any failure or perceived failure to comply with these laws and regulations could harm our reputation or lead to litigation, which could adversely affect our financial condition.

We face a variety of risks associated with doing business in foreign markets that could have a negative impact on our financial performance.

We have a significant number of franchised, joint venture and company-owned Outback Steakhouse restaurants outside the United States, and we intend to continue our efforts to grow internationally. Although we believe we have developed the support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will continue.

Our foreign operations are subject to all of the same risks as our domestic restaurants, as well as additional risks including, among others, international economic and political conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, the ability to source high quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees and area operating partners.

Currency regulations and fluctuations in exchange rates could also affect our performance. We have direct investments in restaurants in South Korea, Hong Kong and Brazil, as well as international franchises, in a total of 21 countries and territories. As a result, we may experience losses from foreign currency translation, and such losses could adversely affect our overall sales and earnings.

 

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We are subject to governmental regulation throughout the world, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.

Increased commodity, energy and other costs could decrease our profit margins or cause us to limit or otherwise modify our menus, which could adversely affect our business.

The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities, including among other things beef, chicken, seafood, butter, cheese and produce. Prices may be affected due to market changes, increased competition, the general risk of inflation, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons. Increased prices or shortages could affect the cost and quality of the items we buy or require us to raise prices or limit our menu options. For example, in 2011, commodity costs increased by approximately 5% and, as a result, we increased our prices at each of our concepts in the range of 1.5% to 3.0%. These events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our sales and profit margins.

The performance of our restaurants is also adversely affected by increases in the price of utilities, such as natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. We use derivative instruments to mitigate some of our overall exposure to material increases in natural gas prices. We do not apply hedge accounting to these instruments, and any changes in the fair value of the derivative instruments are marked-to-market through earnings in the period of change. To date, effects of these derivative instruments have been immaterial to our financial statements for all periods presented.

Our business also incurs significant costs for insurance, labor, marketing, taxes, real estate, borrowing and litigation, all of which could increase due to inflation, changes in laws, competition or other events beyond our control.

Our ability to respond to increased costs by increasing menu prices or by implementing alternative processes or products will depend on our ability to anticipate and react to such increases and other more general economic and demographic conditions, as well as the responses of our competitors and customers. All of these things may be difficult to predict and beyond our control. In this manner, increased costs could adversely affect our performance.

Infringement of our intellectual property could diminish the value of our restaurant concepts and harm our business.

We regard our service marks, including “Outback Steakhouse,” “Carrabba’s Italian Grill,” “Bonefish Grill” and “Fleming’s Prime Steakhouse and Wine Bar,” and our “Bloomin’ Onion” trademark as having significant value and as being important factors in the marketing of our restaurants. We have also obtained trademarks for several of our other menu items and for various advertising slogans. In addition, the overall layout, appearance and designs of our restaurants are valuable assets. We believe that these and other intellectual property are valuable assets that are critical to our success. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, and other common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from infringement. We have registered certain trademarks and service marks and have other registration applications pending in the United States and foreign jurisdictions. However, not all of the trademarks or service marks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of these countries. There may not be adequate protection for certain intellectual property such as the overall appearance of our restaurants. We are aware of names and marks similar to our service marks being used by other persons in certain geographic

 

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areas in which we have restaurants. Although we believe such uses will not adversely affect us, further or currently unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and restaurant concepts and may adversely affect our business. We may be unable to detect such unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.

Effective intellectual property protection may not be available in every country in which we have or intend to open or franchise a restaurant. Failure to adequately protect our intellectual property rights could damage or even destroy our brands and impair our ability to compete effectively. Even where we have effectively secured statutory protection for intellectual property, our competitors may misappropriate our intellectual property and our employees, consultants and suppliers may breach their obligations not to reveal our confidential information, including trade secrets. Although we have taken appropriate measures to protect our intellectual property, there can be no assurance that these protections will be adequate or that our competitors will not independently develop products or concepts that are substantially similar to our restaurants and services. Despite our efforts, it may be possible for third-parties to reverse-engineer, otherwise obtain, copy, and use information that we regard as proprietary. Furthermore, defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking injunctions against and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources.

Restaurant companies, including ours, have been the target of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws. Proceedings of this nature are costly, divert management attention and, if successful, could result in our payment of substantial damages or settlement costs.

Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. In recent years, we and other restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips among certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked. If we are required to pay substantial damages and expenses as a result of these or other types of lawsuits our business and results of operations would be adversely affected.

Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food borne illness and relating to notices with respect to chemicals contained in food products required under state law. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. In addition, our restaurants are subject to state “dram shop” or similar laws which generally allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. For example, in December 2009, we entered into a Consent Decree in settlement of certain litigation brought by the U.S. Equal Employment Opportunity Commission alleging gender discrimination in promotions to management within the Outback Steakhouse organization, which required us to make a settlement payment of $19.0 million. In addition, during the four-year term of the Consent Decree, we are required to fulfill certain training, record-keeping and reporting requirements and maintain an open access system for restaurant employees to express interest in promotions within the Outback Steakhouse organization, and employ a human resources executive.

 

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Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business and results of operations.

Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.

We are self-insured, or carry insurance programs with specific retention levels or deductibles, for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, liquor liability, employment practices liability, property, health benefits and other insurable risks. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, health insurance costs in general have risen significantly over the past few years and are expected to continue to increase. These increases could have a negative impact on our profitability, and there can be no assurance that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our customers or employees.

Conflict or terrorism could negatively affect our business.

We cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on local, regional, national, or international economies or consumer confidence. Such events could negatively affect our business, including by reducing customer traffic or the availability of commodities.

If our advertising and marketing programs are unsuccessful in maintaining or driving increased customer traffic or are ineffective in comparison to those of our competitors, our results of operations could be adversely affected.

We conduct ongoing promotion-based brand awareness advertising campaigns and customer loyalty programs. If these programs are not successful or conflict with evolving customer preferences, we may not increase or maintain our customer traffic and will incur expenses without the benefit of higher revenues. In addition, if our competitors increase their spending on marketing and advertising programs, or develop more effective campaigns, this could have a negative effect on our brand relevance, customer traffic and results of operations.

Unfavorable publicity could harm our business by reducing demand for our concepts or specific menu offerings.

Our business could be negatively affected by publicity resulting from complaints or litigation, either against us or other restaurant companies, alleging poor food quality, food-borne illness, personal injury, adverse health effects (including obesity) or other concerns. Regardless of the validity of any such allegations, unfavorable publicity relating to any number of restaurants or even a single restaurant could adversely affect public perception of the entire brand.

Additionally, unfavorable publicity towards a food product generally could negatively impact our business. For example, publicity regarding health concerns or outbreaks of disease in a food product, such as bovine spongiform encephalopathy (also known as “mad cow” disease), which, according to the USDA, has recently been found in a dairy cow in California, could reduce demand for our menu offerings. These factors could have a material adverse effect on our business.

 

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Consumer reaction to public health issues, such as an outbreak of flu viruses or other diseases, could have an adverse effect on our business.

Our business could be harmed if the United States or other countries in which we operate experience an outbreak of flu viruses or other diseases. If a virus is transmitted by human contact, our employees or customers could become infected or could choose or be advised to avoid gathering in public places. This could adversely affect our restaurant traffic, our ability to adequately staff our restaurants, our ability to receive deliveries on a timely basis or our ability to perform functions at the corporate level. Our business could also be negatively affected if mandatory closures, voluntary closures or restrictions on operations are imposed in the jurisdictions in which we operate. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may have a material adverse effect on our business.

Food safety and food-borne illness concerns throughout the supply chain may have an adverse effect on our business by reducing demand and increasing costs.

Food safety issues could be caused by food suppliers or distributors and, as a result, be out of our control. In addition, regardless of the source or cause, any report of food-borne illnesses and other food safety issues including food tampering or contamination at one of our restaurants could adversely affect the reputation of our brands and have a negative impact on our sales. Even instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.

The food service industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.

Food service businesses are affected by changes in consumer tastes and demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid steak and other products we offer in favor of foods that are perceived as more healthy, our business and operating results would be harmed.

We have a limited number of suppliers for our major products and rely on one custom distribution company for our national distribution program in the U.S. If our suppliers or custom distributor are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.

We have a limited number of suppliers for our major products, such as beef. In 2011, we purchased more than 90% of our beef raw materials from four beef suppliers who represent approximately 75% of the total beef marketplace in the U.S. Due to the nature of our industry, we expect to continue to purchase a substantial amount of our beef from a small number of suppliers. In addition, we use one distribution company to provide distribution services in the U.S. Although we have not experienced significant problems with our suppliers or distributor, if our suppliers or distributor are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.

Shortages or interruptions in the supply or delivery of fresh food products could adversely affect our operating results.

We are dependent on frequent deliveries of fresh food products that meet our specifications. Shortages or interruptions in the supply of fresh food products caused by unanticipated demand, problems in production or distribution, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating results.

 

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We outsource certain accounting processes to a third-party vendor, which subjects us to many risks that could disrupt our business, increase our costs and negatively impact our internal control processes.

In early 2011, we began to outsource certain accounting processes to a third-party vendor. The third-party vendor may not be able to handle the volume of activity or perform the quality of service that we have currently achieved at a cost-effective rate, which could adversely affect our business. The decision to outsource was made based on cost savings initiatives; however, we may not achieve these savings because of unidentified intangible costs and legal and regulatory matters, which could adversely affect our results of operations or financial condition. In addition, the transition of certain business processes to outsourcing could negatively impact our internal control processes.

We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.

We rely heavily on information systems across our operations, including for point-of-sale processing in our restaurants, management of our supply chain, payment of obligations, collection of cash, data warehousing to support analytics and other various processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result delays in customer service and reduce efficiency in our operations. Remediation of such problems could result in significant unplanned capital investments.

Security breaches of confidential customer information in connection with our electronic processing of credit and debit card transactions may adversely affect our business.

The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen. We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers’ credit or debit card information. Any such claim or proceeding, or any adverse publicity resulting from these allegations, may have a material adverse effect on our business.

An impairment in the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and results of operations.

We test goodwill for impairment in the second quarter of each fiscal year and whenever events or changes in circumstances indicate that impairment may have occurred. A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others:

 

   

a significant decline in our expected future cash flows;

 

   

a significant adverse change in legal factors or in the business climate;

 

   

unanticipated competition;

 

   

the testing for recoverability of a significant asset group within a reporting unit; and

 

   

slower growth rates.

Any adverse change in these factors would have a significant impact on the recoverability of these assets and negatively affect our financial condition and results of operations. We compare the carrying value of a reporting unit, including goodwill, to the fair value of the reporting unit. Carrying value is based on the assets and

 

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liabilities associated with the operations of that reporting unit. If the carrying value is less than the fair value, no impairment exists. If the carrying value is higher than the fair value, there is an indication of impairment and a second step is required to measure a goodwill impairment loss, if any. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.

We evaluate our other intangible assets, primarily the Outback Steakhouse (domestic and international), Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s trademarks or trade names, to determine if they are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

As with goodwill, we test our indefinite-lived intangible assets for impairment in the second quarter of each fiscal year and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We estimate the fair value of these indefinite-lived intangible assets based on an income valuation model using the relief from royalty method, which requires assumptions related to projected revenues from our annual long-range plan, assumed royalty rates that could be payable if we did not own the assets and a discount rate.

During the years ended December 31, 2011 and 2010, we did not record any goodwill or material intangible asset impairment charges. During the year ended December 31, 2009, we recorded goodwill and intangible asset impairment charges of $58.1 million and $43.7 million, respectively. We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become further impaired, there could be an adverse effect on our financial condition and results of operations.

Changes to estimates related to our property, fixtures and equipment and definite-lived intangible assets or operating results that are lower than our current estimates at certain restaurant locations may cause us to incur impairment charges on certain long-lived assets, which may adversely affect our results of operations.

In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to individual restaurant operations, as well as our overall performance, in connection with our impairment analyses for long-lived assets. When impairment triggers are deemed to exist for any location, the estimated undiscounted future cash flows are compared to its carrying value. If the carrying value exceeds the undiscounted cash flows, an impairment charge equal to the difference between the carrying value and the sum of the discounted cash flows is recorded. The projections of future cash flows used in these analyses require the use of judgment and a number of estimates and projections of future operating results. If actual results differ from our estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, our results of operations could be adversely affected.

The possibility of future misstatement exists due to inherent limitations in our control systems, which could adversely affect our business.

We cannot be certain that our internal control over financial reporting and disclosure controls and procedures will prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake, which could have an adverse impact on our business.

 

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Our reported financial results may be adversely affected by changes in accounting principles applicable to us.

Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change, such as standards relating to leasing. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to fund our operations, which could prevent us from meeting our obligations.

We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions to fund our operations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us.

Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk in connection with our variable-rate debt.

We are highly leveraged. As of March 31, 2012, our total indebtedness was approximately $1.8 billion. See “Description of Indebtedness.” As of March 31, 2012, we also had approximately $83.2 million in available unused borrowing capacity under our working capital revolving credit facility (after giving effect to undrawn letters of credit of approximately $66.8 million) and $67.0 million in available unused borrowing capacity under our pre-funded revolving credit facility that provides financing for capital expenditures only.

Our high degree of leverage could have important consequences, including:

 

   

making it more difficult for us to make payments on indebtedness;

 

   

increasing our vulnerability to general economic, industry and competitive conditions;

 

   

increasing our cost of borrowing;

 

   

requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

 

   

exposing us to the risk of increased interest rates because certain of our borrowings under our senior secured credit facilities and commercial mortgage-backed securities loans are at variable rates of interest;

 

   

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

   

limiting our ability to obtain additional financing for working capital, capital expenditures, restaurant development, debt service requirements, acquisitions and general corporate or other purposes; and

 

   

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may not be as highly leveraged.

 

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We may incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities, the 2012 CMBS Loan and the indenture governing our Senior Notes. If new indebtedness is added to our current debt levels, the related risks that we now face could increase.

Approximately $1.0 billion of debt outstanding under our senior secured credit facilities and approximately $49.0 million of our 2012 CMBS Loan bears interest based on a floating rate index. An increase in these floating rates could cause a material increase in our interest expense.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

We are a holding company and conduct our operations through our subsidiaries, certain of which have incurred their own indebtedness. Our subsidiaries’ debt agreements contain various covenants that limit our ability to obtain funds from our subsidiaries through dividends, loans or advances. In addition, certain of our debt agreements limit our and our subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, redeem or repurchase our capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, merge or consolidate with or into, another company. Our debt agreements require us to satisfy certain financial tests and ratios and limit our ability to make capital expenditures. Our ability to satisfy such tests and ratios may be affected by events outside of our control.

Upon a breach of the covenants under our debt agreements, the lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders under the senior secured credit facilities and the 2012 CMBS Loan could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under our senior secured credit facilities and the 2012 CMBS Loan. If the lenders under the senior secured credit facilities and the 2012 CMBS Loan accelerate the repayment of borrowings, we cannot be certain that we will have sufficient assets to repay them and our unsecured indebtedness.

We may not be able to generate sufficient cash to service all of our indebtedness and operating lease obligations, and we may be forced to take other actions to satisfy our obligations under our indebtedness and operating lease obligations, which may not be successful. If we fail to meet these obligations, we would be in default under our debt agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.

Our ability to make scheduled payments on or to refinance our debt obligations and to satisfy our operating lease obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, or to pay our operating lease obligations. If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations or take other actions to meet our debt service and other obligations. Our debt agreements restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due. The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our debt agreements would constitute an event of default under those agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.

 

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All of the proceeds received by us from this offering will be used to pay our existing debt, and will therefore not be available to help us grow as a business.

We expect to receive net proceeds, after deducting estimated offering expenses and underwriting discounts and commissions, of approximately $         million, based on an assumed offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to apply the net proceeds from this offering, together with cash on hand, to retire all of our outstanding Senior Notes. These proceeds will therefore not be available to us to help us grow our business. See “Use of Proceeds” and “Description of Indebtedness.”

Risks Related to this Offering and Our Common Stock

We are a “controlled company” within the meaning of Nasdaq Stock Market rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After completion of this offering our Sponsors will continue to control a majority of the voting power of our outstanding common stock. As a result, we qualify as a “controlled company” within the meaning of the corporate governance rules of the Nasdaq Stock Market (“Nasdaq”). Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the board of directors consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our compensation committee and nominating and corporate governance committee will not consist entirely of independent directors and the board committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to the Nasdaq corporate governance requirements.

Our Sponsors, however, are not subject to any contractual obligation to retain their controlling interest, except that they have agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of our common stock or other capital stock or other securities exercisable or convertible therefor for a period of at least 180 days after the date of this prospectus without the prior written consent of the underwriters for this offering. Except for this brief period, there can be no assurance as to the period of time during which any of our Sponsors will maintain their ownership of our common stock following the offering.

 

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Our stock price could be extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for them.

Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile. You may experience a decrease, which could be substantial, in the value of your stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of your investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this prospectus and others such as:

 

   

actual or anticipated fluctuations in our quarterly or annual operating results and the performance of our competitors;

 

   

publication of research reports by securities analysts about us, our competitors or our industry;

 

   

our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

 

   

additions and departures of key personnel;

 

   

sales, or anticipated sales, of large blocks of our stock or of shares held by our directors or executive officers;

 

   

strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

the passage of legislation or other regulatory developments affecting us or our industry;

 

   

speculation in the press or investment community, whether or not correct, involving us, our suppliers or our competitors;

 

   

changes in accounting principles;

 

   

litigation and governmental investigations;

 

   

terrorist acts, acts of war or periods of widespread civil unrest;

 

   

a food borne illness outbreak;

 

   

natural disasters and other calamities; and

 

   

changes in general market and economic conditions.

As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

 

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There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.

Prior to this offering, there has not been a public market for our common stock. An active market for our common stock may not develop following the completion of this offering, or if it does develop, may not be maintained. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the shares of our common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price you paid in this offering.

There may be sales of a substantial amount of our common stock after this offering by our current stockholders, and these sales could cause the price of our common stock to fall.

After this offering, there will be                      shares of common stock outstanding. Of our issued and outstanding shares, all the common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Following completion of this offering, approximately     % of our outstanding common stock will be held by investment funds affiliated with our Sponsors and members of our management and employees (or     % if the underwriters exercise their option to purchase additional shares from the selling stockholders in full).

Each of our directors and executive officers and substantially all of our stockholders have entered into a lock-up agreement with the representatives of the underwriters which regulates their sales of our common stock for a period of at least 180 days after the date of this prospectus, subject to certain exceptions and automatic extensions in certain circumstances. See “Related Party Transactions—Arrangements With Our Investors.”

Sales of substantial amounts of our common stock in the public market after this offering, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. Of the shares to be outstanding after the offering, the shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. Our remaining outstanding shares will become available for resale in the public market as shown in the chart below, subject to the provisions of Rule 144 and Rule 701.

 

Number of Shares

  

Date Available for Resale

   On the date of this offering (                )
   180 days after this offering (                ), subject to certain exceptions and automatic extensions in certain circumstances

Beginning 180 days after this offering, subject to certain exceptions and automatic extensions in certain circumstances, holders of shares of our common stock may require us to register their shares for resale under the federal securities laws, and holders of additional shares of our common stock would be entitled to have their shares included in any such registration statement, all subject to reduction upon the request of the underwriter of the offering, if any. See “Related Party Transactions—Arrangements With Our Investors.” Registration of those shares would allow the holders to immediately resell their shares in the public market. Any such sales or anticipation thereof could cause the market price of our common stock to decline.

In addition, after this offering, we intend to register shares of common stock that are reserved for issuance under our stock incentive plans. See “Executive Compensation—Equity Incentive Plans.”

 

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Provisions in our certificate of incorporation and bylaws, our 2012 CMBS Loan documents and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.

Our certificate of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our company or changes in our management, including, among other things:

 

   

our board is classified into three classes of directors with only one class subject to election each year;

 

   

restrictions on the ability of our stockholders to fill a vacancy on the board of directors;

 

   

our ability to issue preferred stock with terms that the board of directors may determine, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the inability of our stockholders to call a special meeting of stockholders;

 

   

our directors may only be removed from the board of directors for cause by the affirmative vote of the holders of at least 75% of the voting power of outstanding shares of our capital stock entitled to vote generally in the election of directors;

 

   

the absence of cumulative voting in the election of directors, which may limit the ability of minority stockholders to elect directors; and

 

   

advance notice requirements for stockholder proposals and nominations, which may discourage or deter a potential acquirer from soliciting proxies to elect a particular slate of directors or otherwise attempting to obtain control of us.

In addition, the mortgage loan agreement for the 2012 CMBS Loan requires that, following this offering, our Sponsors, our Founders and our management stockholders or other permitted holders either own no less than 51% of our common stock or if they do not, that certain other conditions are satisfied. These provisions in our certificate of incorporation and bylaws and the 2012 CMBS Loan documents may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interests of our minority stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. We have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law. However, our certificate of incorporation will contain provisions that have the same effect as Section 203, except that they provide that our Sponsors and their respective affiliates will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.

If you purchase shares in this offering, you will suffer immediate and substantial dilution.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the book value of your stock of $         per share as of                     , 2012, because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. You will

 

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experience additional dilution upon the exercise of options and warrants to purchase our common stock, including those options currently outstanding and possibly those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial additional dilution. See “Dilution.”

If securities analysts or industry analysts downgrade our stock, publish negative research or reports, or do not publish reports about our business, our stock price and trading volume could decline.

We expect that the trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business and our industry. If one or more analysts adversely change their recommendation regarding our stock or our competitors’ stock, our stock price would likely decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our Sponsors will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.

We are currently controlled, and after this offering is completed will continue to be controlled, by our Sponsors. Upon completion of this offering, investment funds affiliated with our Sponsors will beneficially own approximately     % of our outstanding common stock (or    % if the underwriters exercise their option to purchase additional shares from the selling stockholders in full). For as long as our Sponsors continue to beneficially own shares of common stock representing more than 50% of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors and could exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, these entities will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent or approve a change in our control and could take other actions that might be favorable to them. Even if their ownership falls below 50%, our Sponsors will continue to be able to strongly influence or effectively control our decisions.

Additionally, certain of our directors are also officers or control persons of our Sponsors. Although these directors owe a fiduciary duty to manage us in a manner beneficial to us and our stockholders, these individuals also owe fiduciary duties to these other entities and their stockholders, members and limited partners. Because our Sponsors have such interests in other companies and engage in other business activities, certain of our directors may experience conflicts of interest in allocating their time and resources among our business and these other activities. Our Founders also serve as our directors and, due to their interests in certain transactions with us and our affiliates, they may also experience such conflicts of interest. Furthermore, these individuals could make substantial profits as a result of investment opportunities allocated to entities other than us. As a result, these individuals could pursue transactions that may not be in our best interest, which could have a material adverse effect on our operations and your investment.

Because we have no plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of

 

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any existing and future outstanding indebtedness we or our subsidiaries incur, including our senior credit facility. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. See “Dividend Policy.”

Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this prospectus, which include, but are not limited to, the following:

 

   

the restaurant industry is a highly competitive industry with many well-established competitors;

 

   

challenging economic conditions may affect our liquidity by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending; the availability of credit presently arranged from our revolving credit facilities; the future cost and availability of credit; interest rates; foreign currency exchange rates; and the liquidity or operations of our third-party vendors and other service providers;

 

   

our ability to expand is dependent upon various factors such as the availability of attractive sites for new restaurants; ability to obtain appropriate real estate sites at acceptable prices; our ability to obtain all required governmental permits including zoning approvals and liquor licenses on a timely basis; the impact of government moratoriums or approval processes, which could result in significant delays; our ability to obtain all necessary contractors and subcontractors; union activities such as picketing and hand billing that could delay construction; our ability to generate or borrow funds; our ability to negotiate suitable lease terms; our ability to recruit and train skilled management and restaurant employees; and our ability to receive the premises from the landlord’s developer without any delays;

 

   

our results can be impacted by changes in consumer tastes and the level of consumer acceptance of our restaurant concepts (including consumer tolerance of our prices); local, regional, national and international economic and political conditions; the seasonality of our business; demographic trends; traffic patterns and our ability to effectively respond in a timely manner to changes in traffic patterns; changes in consumer dietary habits; employee availability; the cost of advertising and media; government actions and policies; inflation or deflation; unemployment rates; interest rates; exchange rates; and increases in various costs, including construction, real estate and health insurance costs;

 

   

weather, natural disasters and other disasters could result in construction delays and also adversely affect the results of one or more restaurants for an indeterminate amount of time;

 

   

our results can be impacted by tax and other legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements;

 

   

minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs;

 

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commodities, including but not limited to such items as beef, chicken, shrimp, pork, seafood, dairy, potatoes, onions and energy supplies, are subject to fluctuation in price and availability and price could increase or decrease more than we expect;

 

   

our results can be affected by consumer reaction to public health issues;

 

   

our results can be affected by consumer perception of food safety;

 

   

inability to protect customer credit and debit card data; and

 

   

our substantial leverage and significant restrictive covenants in our various credit facilities could adversely affect our ability to raise additional capital to fund our operations, limit our ability to make capital expenditures to invest in new or renovate restaurants, limit our ability to react to changes in the economy or our industry, and expose us to interest rate risk in connection with our variable-rate debt.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of          shares of our common stock in this offering, after deducting underwriter discounts and commissions and estimated expenses payable by us, will be approximately $         million. This estimate assumes an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus.

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

We intend to use the net proceeds from this offering, together with cash on hand, to retire all of our outstanding Senior Notes. The Senior Notes bear interest at 10% per annum and mature on June 15, 2015. There was outstanding approximately $248.1 million in aggregate principal amount of Senior Notes as of March 31, 2012. See “Description of Indebtedness—Senior Notes.”

We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. See “Principal and Selling Stockholders.”

 

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DIVIDEND POLICY

We do not currently pay cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determinations relating to our dividend policies will be made at the discretion of our board of directors and will depend on conditions then existing, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, our ability to obtain funds from our subsidiaries and therefore to declare and pay dividends is restricted by covenants in our debt agreements. For an explanation of these restrictions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities and Other Indebtedness” and “Description of Indebtedness.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our consolidated capitalization as of March 31, 2012 on (i) an actual basis and (ii) an as adjusted basis to give effect to the issuance of common stock in this offering and the retirement of all outstanding Senior Notes as described in “Use of Proceeds.”

This table should be read in conjunction with “Use of Proceeds,” “Selected Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

     As of
March 31, 2012
 
     Actual     As
Adjusted
 
     ($ in thousands)  

Cash and cash equivalents (1)

   $ 335,059      $                    
  

 

 

   

 

 

 

Total debt, net:

    

Senior secured term loan facility

   $ 1,011,125      $     

Senior secured working capital revolving credit facility (2)

     —       

Senior secured pre-funded revolving credit facility

     33,000     

2012 CMBS Loan

     495,186     

Senior notes, interest rate of 10.00%

     248,075     

Guaranteed debt, sale-leaseback and capital lease obligations and other notes
payable

     37,767     
  

 

 

   

 

 

 

Total debt, net

     1,825,153     
  

 

 

   

 

 

 

Shareholders’ equity:

    

Preferred stock, $.01 par value; no shares authorized, issued and outstanding on an actual basis; 25,000,000 shares authorized and no shares issued and outstanding on an as adjusted basis

     —       

Common stock $.01 par value; 120,000,000 shares authorized and 106,516,725 shares issued and outstanding on an actual basis; 475,000,000 shares authorized and              shares issued and outstanding on an as adjusted basis

     1,065     

Additional paid-in capital

     877,191     

Accumulated deficit

     (773,057  

Accumulated other comprehensive loss

     (19,195  
  

 

 

   

 

 

 

Total Bloomin’ Brands, Inc. shareholders’ equity

     86,004     

Noncontrolling interests

     9,120     
  

 

 

   

 

 

 

Total shareholders’ equity

     95,124     
  

 

 

   

 

 

 

Total capitalization

   $ 1,920,277      $     
  

 

 

   

 

 

 

 

(1) Excludes $27.5 million of restricted cash.
(2) There were no loans outstanding under the revolving credit facility at March 31, 2012; however, $66.8 million of the credit facility was not available for borrowing. See “Description of Indebtedness” and Note 9 of our Notes to Unaudited Consolidated Financial Statements for the three months ended March 31, 2012.

 

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DILUTION

If you invest in our common stock, your ownership interest will experience immediate book value dilution to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of the common stock is substantially in excess of the net tangible book value per share of common stock attributable to the existing stockholders for the presently outstanding shares of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding.

Our net tangible book value deficiency at              was approximately $            , or $             per share of our common stock before giving effect to this offering. Dilution in net tangible book value deficiency per share represents the difference between the amount per share that you pay in this offering and the net tangible book value deficiency per share immediately after this offering.

After giving effect to our sale of shares in this offering, assuming an initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus), and the application of the estimated net proceeds as described under “Use of Proceeds,” our as adjusted net tangible book value deficiency at              would have been approximately $            , or $             per share of common stock. This represents an immediate decrease in net tangible book value deficiency per share of $             to existing stockholders and an immediate increase in net tangible book value deficiency per share of $(            ) to you. The following table illustrates this dilution per share.

 

Assumed initial public offering price per share of common stock

      $                    

Net tangible book value per share at March 31, 2012

   $                       

Increase per share attributable to new investors in this offering

     
  

 

 

    

Pro forma net tangible book value per share of common stock after this offering

     
     

 

 

 

Dilution per share to new investors

      $     
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share of our common stock would decrease (increase) our pro forma net tangible book value deficiency after giving effect to the offering by $             million, or by $             per share of our common stock, assuming no change to the number of shares of our common stock offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and estimated expenses payable by us.

The following table sets forth, as of         , 2012, the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and to be paid by new investors purchasing shares of common stock in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration        
      Number    Percent     Amount      Percent     Average
Price
Per Share
 

Existing stockholders

        %      $                      %      $                

New investors

             $     
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100   $           100   $     
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

If the underwriters were to exercise in full their option to purchase additional shares of our common stock from the selling stockholders, the percentage of shares of our common stock held by existing stockholders would be         %, and the percentage of shares of our common stock held by new investors would be         %.

To the extent any outstanding options or other equity awards are exercised or become vested or any additional options or other equity awards are granted and exercised or become vested or other issuances of shares of our common stock are made, there may be further economic dilution to new investors.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our selected consolidated financial and other data as of the dates and for the periods indicated. The selected consolidated financial data as of December 31, 2011 and December 31, 2010 and for each of the three years in the period ended December 31, 2011 presented in this table have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2009, December 31, 2008 and December 31, 2007 and for the year ended December 31, 2008 and for the periods from June 15 to December 31, 2007 and from January 1 to June 14, 2007 have been derived from our unaudited consolidated financial statements for such years and periods, which are not included in this prospectus. The selected consolidated financial data as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 have been derived from the unaudited interim consolidated financial statements included in this prospectus. The selected consolidated balance sheet data as of March 31, 2011 have been derived from our historical unaudited interim consolidated financial statements that are not included in this prospectus. Historical results are not necessarily indicative of future results.

This selected consolidated financial and other data should be read in conjunction with the disclosure set forth under “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the related notes thereto appearing elsewhere in this prospectus.

 

    Successor (1)         Predecessor (1)         Successor (1)  
    Years Ended December 31,     Period
From
June 15 to
December 31,
   

 

  Period
From
January 1 to
June 14,
   

 

      Three Months Ended March 31,      

(in thousands, except per share amounts)

  2011     2010     2009     2008     2007          2007          2012     2011  
                      (unaudited)     (unaudited)          (unaudited)          (unaudited)     (unaudited)  

Statements of Operations Data:

                       

Revenues

                       

Restaurant sales

  $ 3,803,252      $ 3,594,681      $ 3,573,760      $ 3,937,894      $ 2,229,468          $ 1,916,689          $ 1,045,466      $ 993,109   

Other revenues

    38,012        33,606        27,896        23,262        12,015            9,948            10,160        8,740   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Total revenues

    3,841,264        3,628,287        3,601,656        3,961,156        2,241,483            1,926,637            1,055,626        1,001,849   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Costs and expenses

                       

Cost of sales

    1,226,098        1,152,028        1,184,074        1,389,365        790,749            681,455            335,859        317,764   

Labor and other related

    1,094,117        1,034,393        1,024,063        1,094,907        623,158            540,281            293,501        282,807   

Other restaurant operating

    890,004        864,183        849,696        938,374        512,236            440,545            218,965        214,157   

Depreciation and amortization

    153,689        156,267        186,074        205,492        112,693            74,846            38,860        38,288   

General and administrative (2)

    291,124        252,793        252,298        264,021        141,246            158,147            76,002        61,578   

(Recovery) allowance of note receivable from affiliated
entity (3)

    (33,150     —          —          33,150        —              —              —          —     

Loss on contingent debt guarantee

    —          —          24,500        —          —              —              —          —     

Goodwill impairment

    —          —          58,149        726,486        —              —              —          —     

Provision for impaired assets and restaurant closings (4)

    14,039        5,204        134,285        117,699        23,023            8,530            4,435        208   

(Income) loss from operations of unconsolidated affiliates

    (8,109     (5,492     (2,196     (2,343     (1,260         692            (2,404     (3,646
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Total costs and expenses

    3,627,812        3,459,376        3,710,943        4,767,151        2,201,845            1,904,496            965,218        911,156   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Income (loss) from operations

    213,452        168,911        (109,287     (805,995     39,638            22,141            90,408        90,693   

Gain (loss) on extinguishment of
debt (5)

                  158,061        48,409        —              —              (2,851     —     

Other income (expense), net

    830        2,993        (199     (11,122     —              —              54        (303

Interest expense, net (5)

    (83,387     (91,428     (115,880     (197,041     (132,339         (4,651         (20,974     (21,193
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

    130,895        80,476        (67,305     (965,749     (92,701         17,490            66,637        69,197   

Provision (benefit) for income taxes

    21,716        21,300        (2,462     (99,416     (49,427         (1,656         12,805        11,082   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Net income (loss)

    109,179        59,176        (64,843     (866,333     (43,274         19,146            53,832        58,115   

Less: net income (loss) attributable to noncontrolling interests

    9,174        6,208        (380     (3,041     871            1,685            3,833        3,223   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

Net income (loss) attributable to Bloomin’ Brands, Inc.

  $ 100,005      $ 52,968      $ (64,463   $ (863,292   $ (44,145       $ 17,461          $ 49,999      $ 54,892   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

       

 

 

   

 

 

 

 

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    Successor(1)         Predecessor(1)        Successor(1)  
    Years Ended December 31,     Period
From
June 15 to
December 31,
         Period
From
January 1 to
June 14,
        Three Months Ended March 31,  

(in thousands, except Share and per share amounts)

  2011     2010     2009     2008     2007          2007         2012     2011  
                      (unaudited)     (unaudited)          (unaudited)         (unaudited)     (unaudited)  

Basic net income (loss) attributable to Bloomin’ Brands, Inc. per share (6)

  $ 0.94      $ 0.50      $ (0.62   $ (8.43   $ (0.43              $ 0.47      $ 0.52   

Diluted net income (loss) attributable to Bloomin’ Brands, Inc. per share (6)

  $ 0.94      $ 0.50      $ (0.62   $ (8.43   $ (0.43              $ 0.47      $ 0.52   

Weighted average shares outstanding

                        

Basic

    106,224        105,968        104,442        102,383        101,896                   106,332        106,093   

Diluted

    106,689        105,968        104,442        102,383        101,896                   107,058        106,526   

 

    Successor(1)  
    December 31,     March 31,     March 31,  

(in thousands)

  2011     2010     2009     2008     2007     2012     2011  
                 (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  

Balance Sheet Data:

             

Cash and cash equivalents (7)

    482,084        365,536        330,957        311,118        174,406        335,059        366,742   

Net working capital (deficit) (8)(9)

    (248,145     (120,135     (187,648     (171,095     (197,870     (29,981     (53,017

Total assets

    3,353,936        3,243,411        3,340,708        3,695,696        4,672,969        3,037,222        3,221,765   

Total debt, net (5)(9)

    2,109,290        2,171,524        2,302,233        2,562,889        2,648,027        1,825,153        2,169,086   

Total Bloomin’ Brands, Inc. shareholders’ equity (deficit)

    30,850        (69,234     (135,597     (93,521     807,957        86,004        (10,724

Total shareholders’ equity (deficit)

    40,297        (55,911     (116,625     (66,814     842,819        95,124        1,827   

 

(1) On June 14, 2007, an investor group formed Bloomin’ Brands, Inc., formerly known as Kangaroo Holdings, Inc., and acquired OSI by means of the Merger. Therefore, the selected historical consolidated financial data is presented for two periods: Predecessor and Successor, which relate to the period preceding the Merger and the period succeeding the Merger, respectively. As a result of the Merger, there are several factors that affect the comparability of the selected historical consolidated financial data for the two periods including, but not limited to: (i) depreciation and amortization are higher in the Successor periods through 2009 due to fair value assessments completed at the time of the Merger, (ii) annual interest expense increased substantially in the Successor period in connection with our financing agreements and (iii) certain professional service costs incurred in connection with the Merger and the management services provided by our management company are included in General and administrative expenses in our Consolidated Statements of Operations in the Successor period.
(2) Includes management fees and out-of-pocket and other reimbursable expenses paid to a management company owned by our Sponsors and Founders of $9.4 million, $11.6 million, $10.7 million, $9.9 million and $5.2 million for the years ended December 31, 2011, 2010, 2009 and 2008 and the period from June 15 to December 31, 2007, respectively, and $2.3 million for each of the three months ended March 31, 2012 and 2011 under a management agreement that will terminate upon the completion of this offering. In connection with such termination, we will pay an $8.0 million termination fee to the management company within 60 days of completion of the offering, but no later than December 31, 2012, plus the pro-rated periodic fee. See “Related Party Transactions—Arrangements With Our Investors.”
(3) In November 2011, we received a settlement payment from T-Bird, a limited liability company affiliated with our California franchisees of Outback Steakhouse restaurants, in connection with a settlement agreement that satisfied all outstanding litigation with T-Bird. This litigation began in early 2009 and therefore, we had recorded an allowance for the note receivable for the year ended December 31, 2008.
(4) During 2009, our Provision for impaired assets and restaurant closings primarily included: (i) $46.0 million of impairment charges to reduce the carrying value of the assets of Cheeseburger in Paradise to their estimated fair market value due to our sale of the concept in the third quarter of 2009, (ii) $47.6 million of impairment charges and restaurant closing expense for certain of our other restaurants and (iii) $36.0 million of impairment charges for the domestic Outback Steakhouse and Carrabba’s Italian Grill trade names. During 2008, our Provision for impaired assets and restaurant closings primarily included: (i) $49.0 million of impairment charges for the domestic and international Outback Steakhouse and Carrabba’s Italian Grill trade names, (ii) $3.5 million of impairment charges for the Blue Coral Seafood and Spirits trademark and (iii) $63.9 million of impairment charges and restaurant closing expense for certain of our restaurants.

 

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(5) In March 2009 and November 2008, we repurchased $240.1 million and $61.8 million, respectively, of our outstanding Senior Notes for $73.0 million and $11.7 million, respectively. These repurchases resulted in gains on extinguishment of debt, after the pro rata reduction of unamortized deferred financing fees and other related costs, of $158.1 million in 2009 and $48.4 million in 2008. Annualized interest expense savings from these debt extinguishments approximates $30.2 million per year.
(6) As a result of the Merger, our capital structures for periods before and after the Merger are not comparable, and therefore we are presenting our net income (loss) attributable to Bloomin’ Brands, Inc. per share and weighted average share information only for periods subsequent to the Merger.
(7) Excludes restricted cash.
(8) We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and for capital expenditures.
(9) On June 14, 2007, PRP entered into the CMBS Loan totaling $790.0 million, which had a maturity date of June 9, 2012. Effective March 27, 2012, New PRP entered into the 2012 CMBS Loan totaling $500.0 million and repaid the CMBS Loan. The 2012 CMBS Loan is a five-year loan maturing on April 10, 2017. See “Description of Indebtedness” and Note 20 of our Notes to Consolidated Financial Statements for the year ended December 31, 2011. As a result of the CMBS Refinancing, the net amount repaid along with scheduled maturities within one year, $281.3 million, was classified as current at December 31, 2011.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated financial statements of Bloomin’ Brands, Inc. for the year ended December 31, 2011, and as of and for the three months ended March 31, 2012, are based on historical consolidated financial statements of Bloomin’ Brands, Inc. included elsewhere in this prospectus and give effect to the following transactions (collectively, the “Transactions”) as if they had occurred on January 1, 2011 or March 31, 2012, as indicated below.

 

   

Sale-Leaseback Transaction. Effective March 14, 2012, we entered into the Sale-Leaseback Transaction with two third-party real estate institutional investors in which we sold 67 restaurant properties at fair market value for net proceeds of $192.9 million and then simultaneously leased these properties back under nine master leases. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Transactions” and Note 7 of our Notes to Consolidated Financial Statements for the three months ended March 31, 2012 for a further description of the Sale-Leaseback Transaction.

 

   

CMBS Refinancing. Effective March 27, 2012, New PRP entered into the 2012 CMBS Loan, which totals $500.0 million and comprises a first mortgage loan in the amount of $324.8 million, collateralized by 261 of our properties, and two mezzanine loans totaling $175.2 million. The proceeds from the 2012 CMBS Loan, together with the proceeds from the Sale-Leaseback Transaction and excess cash, were used to repay our existing CMBS Loan. See “Description of Indebtedness” and Note 9 of our Notes to Consolidated Financial Statements for the three months ended March 31, 2012 for a further description of the 2012 CMBS Loan.

 

   

Initial Public Offering. We expect to issue and sell          shares of common stock in this offering and receive net proceeds, after deducting estimated offering expenses payable by us and underwriting discounts and commissions of approximately $          million, assuming an initial public offering price of $          per share (the mid-point of the price range set forth on the cover page of this prospectus). We intend to use these proceeds, together with cash on hand, to retire all of our outstanding Senior Notes, of which an aggregate principal amount of $248.1 million was outstanding as of March 31, 2012. Upon completion of this offering, we will incur one-time compensation expense with respect to certain stock options held by our Chief Executive Officer and the time vested portion of certain employee stock option containing a management call option. In addition, we will incur compensation expense associated with the retention bonus (the “Retention Bonus”) and performance-based bonus (the “Incentive Bonus”) payable to our Chief Executive Officer within 60 days of completion of the offering, but no later than December 31, 2012.

 

   

Termination of Management Agreement. Upon completion of the Merger, we entered into a management agreement with a management company, whose members are entities affiliated with the Sponsors and our Founders. The management company receives annual management fees and reimbursement for out-of-pocket and other reimbursable expenses incurred by it in connection with the provision of services pursuant to the agreement. Upon the completion of this offering, the management agreement will terminate, and we will pay an $8.0 million termination fee to the management company within 60 days of completion of the offering, but no later than December 31, 2012.

The unaudited pro forma consolidated balance sheet at March 31, 2012 gives effect to the initial public offering and the termination of the management agreement, as if each had occurred on March 31, 2012. The CMBS Refinancing and the Sale-Leaseback Transaction both occurred prior to March 31, 2012 and are therefore reflected in the historical as reported consolidated balance sheet.

The unaudited pro forma consolidated statements of operations and comprehensive income for the year ended December 31, 2011, and for the three months ended March 31, 2012, give effect to the Transactions, as if

 

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each had occurred on January 1, 2011. The unaudited pro forma consolidated statements of operations and comprehensive income do not reflect the following charges that will be or were incurred by us: (1) professional fees associated with the CMBS Refinancing; (2) impairment expense and selling costs associated with the Sale-Leaseback Transaction; (3) loss on debt extinguishment related to the CMBS Refinancing and repayment of the Senior Notes; (4) one-time compensation expense recorded upon completion of this offering with respect to certain stock options held by our Chief Executive Officer and the time vested portion of certain employee stock options containing a management call option because the call option automatically terminates upon completion of this offering; (5) compensation expense associated with the Retention Bonus and the Incentive Bonus payable to our Chief Executive Officer as a result of this offering; and (6) fee associated with the termination of the management agreement upon completion of this offering. We expect these charges will be approximately $         million in the aggregate and were or will be recorded by us in the period in which these transactions are completed.

The unaudited pro forma consolidated financial statements are presented for informational purposes only and do not purport to represent what the actual financial condition or results of operations of Bloomin’ Brands, Inc. would have been if the Transactions had been completed as of the date or for the periods indicated above or that may be achieved as of any future date or for any future period. The unaudited pro forma consolidated financial statements should be read in conjunction with the accompanying notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our historical consolidated financial statements and accompanying notes included elsewhere in this prospectus.

 

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Bloomin’ Brands, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

March 31, 2012

 

           Pro Forma
Adjustments
       

(in thousands)

   Historical As
Reported
March 31,
2012
    Initial Public
Offering/
Termination of
Management
Agreement
    Pro Forma  

Assets

      

Current Assets

      

Cash

   $ 335,059          (a)    $                        

Current portion of restricted cash

     7,076       

Inventories

     68,394       

Deferred income tax assets

     27,656          (b)   

Other current assets, net

     87,798       
  

 

 

   

 

 

   

 

 

 

Total current assets

     525,983       

Restricted cash

     20,415       

Property, fixtures and equipment, net

     1,478,356       

Investments in and advances to unconsolidated affiliates, net

     37,681       

Goodwill

     269,414       

Intangible assets, net

     562,208       

Other assets, net

     143,165          (c)   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,037,222        $     
  

 

 

   

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

      

Current Liabilities

      

Accounts payable

   $ 106,835        $     

Accrued and other current liabilities

     171,439          (d)   

Current portion of accrued buyout liability

     16,999       

Unearned revenue

     202,201       

Current portion of long-term debt

     58,490       
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     555,964       

Partner deposit and accrued buyout liability

     94,633       

Deferred rent

     73,056       

Deferred income tax liabilities

     188,550          (e)   

Long-term debt, net

     1,742,163          (f)   

Guaranteed debt

     24,500       

Other long-term liabilities, net

     263,232       
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,942,098       
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Shareholders’ Equity

      

Bloomin’ Brands, Inc. Shareholders’ Equity

      

Common stock

     1,065       

Additional paid-in capital

     877,191          (g)   

Accumulated deficit

     (773,057       (h)   

Accumulated other comprehensive loss

     (19,195    
  

 

 

   

 

 

   

 

 

 

Total Bloomin’ Brands, Inc. shareholders’ equity

     86,004       

Noncontrolling interests

     9,120       
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     95,124       
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 3,037,222        $     
  

 

 

   

 

 

   

 

 

 

 

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Adjustments Related to the Offering

 

(a) To reflect adjustments made to cash for the following:

 

Proceeds to us from this offering

   $     

Less: estimated offering fees and expenses payable by us

  

Less: repayment of the Senior Notes

     (248,075

Less: redemption premium resulting from early repayment of the Senior Notes

  

Less: payment of accrued interest on the Senior Notes

     (7,304

Less: payment of management agreement termination fee

     (8,000
  

 

 

 
   $     

 

(b) To adjust deferred income tax assets, net, at an estimated statutory rate of 38.7% to reflect income tax benefits of $         million and $         million related to the share-based compensation expense, as calculated in note (h)(2) below, and bonus expense as calculated in note (h)(3) below, respectively.

 

(c) To reflect the write-off of deferred financing fees of $2.7 million associated with the repayment of the Senior Notes.

 

(d) To reflect adjustments made to accrued and other current liabilities for the following:

 

Chief Executive Officer’s Incentive Bonus (1)

   $     

Chief Executive Officer’s Retention Bonus (2)

  

Payment of accrued interest on the Senior Notes

     (7,304
  

 

 

 
   $     

 

  (1) Our Chief Executive Officer is entitled to the Incentive Bonus divided into four tranches (A-D) of $3.8 million each. Tranche A vests 20% over 5 years and is payable within 10 days of a Qualifying Liquidity Event, or (“QLE”), as defined in her bonus agreement, or the tenth anniversary of her hire date, whichever is earlier. Tranches B-D also vest 20% over five years, but are generally only payable in the event of a QLE meeting applicable performance targets for each tranche, and following this offering, if the volume-weighted average trading price, as defined in the bonus agreement, exceeds specified performance targets over a rolling six-month measurement period until it is otherwise forfeited. On May 10, 2012, the Incentive Bonus was modified to require payment under all four tranches in the aggregate amount of $15.2 million within 60 days of the completion of this offering, but no later than December 31, 2012, provided she is employed as Chief Executive Officer through completion of this offering. This adjustment represents the additional bonus expense, net of $0.9 million accrued in historical as reported amounts, giving effect to the offering as if it was completed on March 31, 2012, to reflect the vesting of the Incentive Bonus.

 

  (2) Our Chief Executive Officer is entitled to remaining aggregate Retention Bonus payments of $7.2 million in November 2012 and 2013. On May 10, 2012, the Retention Bonus was modified to require payment of the $7.2 million within 60 days of the completion of this offering, but no later than December 31, 2012, provided she is employed as Chief Executive Officer through completion of this offering. This adjustment represents the unpaid Retention Bonus payments due, giving effect to the offering as if it was completed on March 31, 2012.

 

(e) To adjust deferred income tax liabilities, net, at an estimated statutory rate of 38.7% to reflect income tax benefits of $         million and $         million related to the loss on debt extinguishment to be recorded in connection with the redemption of the Senior Notes, as calculated in note (h)(1), and the fee to be paid upon termination of our management agreement, as calculated in note (h)(4), respectively.

 

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(f) To reflect the decrease in long-term debt resulting from the repayment of the Senior Notes.

 

(g) Adjustments to additional paid-in capital are as follows:

 

Proceeds to us from this offering (1)

   $                

Less: estimated offering fees and expenses payable by us

  
  

 

 

 

Net proceeds from this offering

  

Less: Par value of common stock issued in this offering (2)

  
  

 

 

 

Additional paid-in capital on shares of common stock issued in this offering

  

Incremental share-based compensation expense (3)

  
  

 

 

 

Total adjustment to additional paid-in capital

   $     

 

  (1) To reflect the issuance and sale by us of         shares of our common stock offered hereby at an assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover page of this prospectus).

 

  (2) To reflect common stock at par value of $.01 per share for the shares issued in this offering.

 

  (3) To reflect the following:

 

  (i) approximately $         million of share-based compensation expense expected to be recorded upon completion of this offering relating to the vested portion of approximately         million employee stock options. Shares acquired upon the exercise of stock options that are subject to a management call option may be repurchased by us upon termination of employment at any time prior to the earlier of an initial public offering or a change of control. As a result of certain transfer restrictions and the management call option, we have not recorded compensation expense for stock options that contain the management call option since an employee cannot realize monetary benefit from the stock options or any shares acquired upon the exercise of the stock options unless the employee is employed at the time of an initial public offering or change of control. The management call option automatically terminates upon completion of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation.” The weighted average grant date fair value of these stock options is approximately $         per share.

 

  (ii) approximately $         million of share-based compensation expense expected to be recorded upon completion of this offering relating to stock options held by our Chief Executive Officer, who has options to purchase an aggregate of         million shares of our common stock that vest over a five-year period and become exercisable (to the extent then vested) if following this offering and until the expiration of the option, the volume-weighted average trading price of our common stock, as defined in the agreement, is equal to or greater than specified performance targets over a rolling six-month period. The weighted average grant date fair value of these stock options is approximately $         per share.

 

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(h) To reflect the following:

 

  (1) $         million after-tax loss on debt extinguishment to be recorded in connection with the redemption of the Senior Notes, determined as follows:

 

Write-off of deferred financing costs associated with the Senior Notes

   $ (2,731

Redemption premium resulting from early repayment of the Senior Notes

  
  

 

 

 

Loss on debt extinguishment before income taxes

  

Income tax benefit at an estimated statutory tax rate of 38.7%

  
  

 

 

 

Loss on debt extinguishment after income taxes

   $     

 

  (2) $         million after-tax share-based compensation expense consists of $         million of aggregate pre-tax share-based compensation expense as discussed in notes (g)(3)(i) and (ii), net of a deferred tax benefit of $         million calculated at an estimated statutory tax rate of 38.7%.

 

  (3) $         million after-tax bonus expense consists of $         million of pre-tax bonus expense as discussed in notes (d)(1) and (2), net of a deferred tax benefit of $         million calculated at an estimated statutory tax rate of 38.7%.

 

  (4) $4.9 million after-tax management agreement termination fee consists of $8.0 million of pre-tax management agreement termination fee, net of a deferred tax benefit of $3.1 million calculated at an estimated statutory tax rate of 38.7%.

 

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Bloomin’ Brands, Inc.

Unaudited Pro Forma Statement of Operations and Comprehensive Income

Year Ended December 31, 2011

 

           Pro Forma Adjustments        

(in thousands)

   Historical As
Reported
Year Ended
December 31,
2011
    CMBS
Refinancing/
Sale-Leaseback
Transaction
    Initial Public
Offering
    Pro Forma  

Revenues

        

Restaurant sales

   $ 3,803,252      $ —          $                    

Other revenues

     38,012        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     3,841,264        —         

Costs and expenses

        

Cost of sales

     1,226,098        —         

Labor and other related

     1,094,117        —         

Other restaurant operating

     890,004        16,123  (a)     

Depreciation and amortization

     153,689        (3,641 )(b)     

General and administrative

     291,124        (2,208 )(c)        (f)   

Recovery of note receivable from affiliated entity

     (33,150     —         

Provision for impaired assets and restaurant closings

     14,039        (6,289 )(b)     

Income from operations of unconsolidated affiliates

     (8,109     —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     3,627,812        3,985       
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     213,452        (3,985    

Other income, net

     830        —         

Interest expense, net

     (83,387     (11,888 )(d)        (g)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     130,895        (15,873    

Provision (benefit) for income taxes

     21,716        (6,149 )(e)        (h)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     109,179        (9,724    

Less: net income attributable to noncontrolling interests

     9,174        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Bloomin’ Brands, Inc.

   $ 100,005        (9,724     $     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 109,179        (9,724     $     

Other comprehensive income (loss):

        

Foreign currency translation adjustment

     (2,711     —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     106,468        (9,724    

Less: comprehensive income attributable to noncontrolling interests

     9,174        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Bloomin’ Brands, Inc.

   $ 97,294      $ (9,724     $     
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income (loss) attributable to Bloomin’ Brands, Inc. per share:

        

Basic

        

Diluted

        

Pro forma weighted average shares outstanding:

        

Basic

        

Diluted

        

 

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Adjustments Related to the CMBS Refinancing and the Sale-Leaseback Transaction

 

(a) To reflect (1) rent expense on the 67 properties associated with the Sale-Leaseback Transaction, which includes $2.8 million of deferred rent expense associated with the difference between straight-line rent expense and rent paid due to escalating rental amounts; and (2) one year of annual amortization of deferred lease related costs and recognition of the deferred gain over the 20-year lease term for the properties associated with the Sale-Leaseback Transaction. The adjustments consist of the following:

 

Rent expense on properties associated with the Sale-Leaseback Transaction, including deferred rent expense

   $ 18,130   

Amortization of deferred lease related costs associated with the Sale-Leaseback Transaction

     140   

Recognition of deferred gain associated with the Sale-Leaseback Transaction (1)

     (2,147
  

 

 

 
   $ 16,123   

 

  (1) The recognition of the deferred gain on sale of properties associated with the Sale-Leaseback Transaction is determined as follows:

 

Net proceeds from properties sold at a gain .

   $ 161,602   

Less: Net book value of properties sold at a gain

     (118,663
  

 

 

 

Total deferred gain

     42,939   

Divided by: Lease term (in years)

     20   
  

 

 

 

Annual gain recognition

   $ 2,147   

 

(b) To reflect a reduction of depreciation expense of $3.6 million and a reduction of impairment expense of $6.3 million associated with the 67 properties as if the Sale-Leaseback Transaction occurred on January 1, 2011. We recorded impairment expense in the historical as reported amounts for the properties that resulted in a loss upon sale based on expected sales proceeds as compared with remaining net book value at December 31, 2011.

 

(c) To reflect the reversal of professional fees of $2.2 million associated with the CMBS Refinancing and Sale-Leaseback Transaction that are included in historical as reported December 31, 2011 results that are not our ongoing expenses.

 

(d) The adjustment to historical as reported interest expense consists of the following:

 

CMBS Loan (1)

   $ (15,041

Deferred financing fees (2)

     3,490   

Debt discount (2)

     (337
  

 

 

 
   $ (11,888

 

  (1) Elimination of historical as reported interest expense on the CMBS Loan that was incurred during the year ended December 31, 2011 in the amount of $15.6 million, offset by pro forma interest expense on the 2012 CMBS Loan in the amount of $30.6 million, using a weighted average interest rate of 6.1%.

 

  (2) Elimination of historical as reported deferred financing fee amortization of $5.1 million and debt discount amortization on the CMBS Loan of $0.7 million that were incurred during the year ended December 31, 2011, offset by pro forma amortization of deferred financing fees and debt discount on the 2012 CMBS Loan in the amount of $1.6 million, and $1.0 million, respectively.

 

(e) To reflect the tax effect of the pro forma adjustments at an estimated statutory tax rate of 38.7%.

 

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Adjustments Related to the Initial Public Offering

 

(f) To reflect the following:

 

  (1) On-going share-based compensation expense in the aggregate amount of $         million resulting from employee stock options due to (i) termination of the management call option upon completion of this offering and (ii) in the case of our Chief Executive Officer, stock options that vest over a five-year period and become exercisable (to the extent then vested) if following this offering and until the expiration of the options, the volume-weighted average trading price of our common stock, as defined in the agreement, is equal to or greater than specified performance targets over a rolling six-month period.

 

  (2) Elimination of historical as reported recurring annual management fee of $9.1 million and reimbursement for out-of-pocket and other reimbursable expenses upon the termination of the management agreement upon completion of this offering.

 

(g) To reflect the elimination of historical as reported interest expense of $24.8 million and deferred financing fee amortization of $1.1 million incurred during the year ended December 31, 2011 on the Senior Notes. The pro forma adjustment reflects the use of proceeds of the offering to repay $248.1 million of Senior Notes as if the offering occurred on, and the Senior Notes were repaid, on January 1, 2011. The adjustment to interest expense is calculated at an annual interest rate of 10%.

 

(h) To reflect the tax effect of the pro forma adjustments at an estimated statutory tax rate of 38.7%.

 

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Bloomin’ Brands, Inc.

Unaudited Pro Forma Consolidated Statement of Operations and Comprehensive Income

Three Months Ended March 31, 2012

 

           Pro Forma Adjustments        

(in thousands)

   Historical As
Reported
Three Months
Ended
March 31, 2012
    CMBS
Refinancing/
Sale-Leaseback
Transaction
    Initial Public
Offering
    Pro
Forma
 

Revenues

        

Restaurant sales

   $ 1,045,466      $ —          $     

Other revenues

     10,160        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,055,626        —         

Costs and expenses

        

Cost of sales

     335,859        —         

Labor and other related

     293,501        —         

Other restaurant operating

     218,965        4,219 (a)     

Depreciation and amortization

     38,860        (734 )(b)     

General and administrative

     76,002        (6,752 )(c)        (g)   

Provision for impaired assets and restaurant closings

     4,435        —         

Income from operations of unconsolidated affiliates

     (2,404     —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     965,218        (3,267    
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     90,408        3,267       

Gain (loss) on extinguishment of debt

     (2,851     2,851 (d)     

Other income, net

     54        —         

Interest expense, net

     (20,974     (2,464 )(e)        (h)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     66,637        3,654       

Provision for income taxes

     12,805        1,416 (f)        (i)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     53,832        2,238       

Less: net income attributable to noncontrolling interests

     3,833        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Bloomin’ Brands, Inc.

   $ 49,999        2,238        $     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 53,832        2,238        $     

Other comprehensive income:

        

Foreign currency translation adjustment

     3,149        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     56,981        2,238       

Less: comprehensive income attributable to noncontrolling interests

     3,833        —         
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Bloomin’ Brands, Inc.

   $ 53,148      $ 2,238        $            
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income attributable to Bloomin’ Brands, Inc.
per share:

        

Basic

        

Diluted

        

Pro forma weighted average shares outstanding:

        

Basic

        

Diluted

        

 

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Adjustments Related to the CMBS Refinancing and the Sale-Leaseback Transaction

 

(a) To reflect (1) rent expense on the 67 properties associated with the Sale-Leaseback Transaction, which includes $0.5 million of deferred rent expense associated with the difference between straight-line rent expense and rent paid due to escalating rental amounts; and (2) three months of amortization of deferred lease related costs and recognition of the deferred gain over the 20-year lease term for the properties associated with the Sale-Leaseback Transaction. The adjustments consist of the following:

 

Rent expense on properties associated with the Sale-Leaseback Transaction, including deferred rent expense

   $ 3,647   

Amortization of deferred lease related costs associated with the Sale-Leaseback Transaction

     35   

Recognition of deferred gain associated with the Sale-Leaseback Transaction (1)

     537   
  

 

 

 
   $ 4,219   

 

  (1) The recognition of the deferred gain on sale of properties associated with the Sale-Leaseback Transaction is determined as follows:

 

Net proceeds from properties sold at a gain

   $ 161,602   

Less: Net book value of properties sold at a gain

     (118,663
  

 

 

 

Total deferred gain

     42,939   

Divided by: Lease term (in years)

     20   
  

 

 

 

Annual gain recognition

   $ 2,147   

Quarterly gain recognition

   $ 537   

 

(b) To reflect a reduction of depreciation expense of $0.7 million associated with the 67 properties as if the Sale-Leaseback Transaction occurred on January 1, 2011.

 

(c) To reflect the reversal of professional fees of $6.8 million associated with the CMBS Refinancing that are included in the historical as reported three months ended March 31, 2012 results that are not our ongoing expenses.

 

(d) To reflect the elimination of the historical as reported loss on debt extinguishment of $2.9 million related to the CMBS Refinancing.

 

(e) The adjustment to historical as reported interest expense consists of the following:

 

CMBS Loan (1)

   $ (3,201

Deferred financing fees (2)

     811   

Debt discount (2)

     (74
  

 

 

 
   $ (2,464

 

  (1) Elimination of historical as reported interest expense on the CMBS Loan that was incurred during the three months ended March 31, 2012 in the amount of $4.0 million, offset by pro forma interest expense on the 2012 CMBS Loan in the amount of $7.2 million, using a weighted average interest rate of 6.1%.

 

  (2) Elimination of historical as reported deferred financing fee amortization of $1.2 million and debt discount amortization on the CMBS Loan of $0.2 million that were incurred during the three months ended March 31, 2012, offset by pro forma amortization of deferred financing fees and debt discount on the 2012 CMBS Loan in the amount of $0.4 million and $0.2 million, respectively.

 

(f) To reflect the tax effect of the pro forma adjustments at an estimated statutory tax rate of 38.7%.

 

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Adjustments Related to the Initial Public Offering

 

(g) To reflect the following:

 

  (1) On-going share-based compensation expense in the aggregate amount of $         million resulting from employee stock options due to (i) termination of the management call option upon completion of this offering and (ii) in the case of our Chief Executive Officer, stock options that vest over a five-year period and become exercisable (to the extent then vested) if following this offering, and until the expiration of the options, the volume-weighted average trading price, as defined in the agreement, is equal to or greater than specified performance targets over a rolling six-month period.

 

  (2) Elimination of historical as reported recurring annual management fee and reimbursement for out-of-pocket and other reimbursable expenses upon the termination of the management agreement upon completion of this offering.

 

(h) To reflect the elimination of historical as reported interest expense of $6.2 million and deferred financing fee amortization of $0.3 million incurred during the three months ended March 31, 2012 on the Senior Notes. The pro forma adjustment reflects the use of proceeds of the offering to repay $248.1 million of Senior Notes as if the offering occurred on, and the Senior Notes were repaid, on January 1, 2011. The adjustment to interest expense is calculated at an annual interest rate of 10%.

 

(i) To reflect the tax effect of the pro forma adjustments at an estimated statutory tax rate of 38.7%.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the “Selected Historical Consolidated Financial and Other Data” and the audited and unaudited historical consolidated financial statements and related notes. This discussion contains forward-looking statements about our markets, the demand for our products and services and our future results and involves numerous risks and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and generally contain words such as “believes,” expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied by the forward-looking statement. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements.

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. We own and operate 1,247 restaurants and have 195 restaurants operating under a franchise or joint venture arrangement across 49 states and 21 countries and territories internationally. We have five founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Our concepts seek to provide a compelling customer experience combining great food, highly attentive service and lively and contemporary ambience at attractive prices. Our restaurants attract customers across a variety of occasions, including everyday dining, celebrations and business entertainment. Each of our concepts maintains a unique, founder-inspired brand identity and entrepreneurial culture, while leveraging our scale and enhanced operating model. We consider Outback Steakhouse, Carrabba’s, Bonefish Grill and Fleming’s to be our core concepts.

The restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality (customer spending patterns at restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year) and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies and fluctuations in prices of commodities, including beef, chicken, seafood, butter, cheese, produce and other necessities to operate a restaurant, such as natural gas or other energy supplies. The pace of new unit growth has slowed in the casual dining category over the last few years. Given this dynamic, companies tend to be more focused on increasing market share and comparable restaurant sales growth. Competitive pressure for market share, inflation, foreign currency exchange rates and other market conditions have had and could continue to have an adverse impact on our business.

Our industry is characterized by high initial capital investment, coupled with high labor costs, and chain restaurants have been increasingly taking share from independent restaurants over the past several years. We believe that this trend will continue due to increasing barriers that may prevent independent restaurants and/or start-up chains from building scale operations, including menu labeling, burdensome labor regulations and healthcare reforms that will be enforced once chains grow past a certain number of restaurants or number of employees. The combination of these factors underscores our initiative to drive increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have not focused on growth in the number of restaurants just to generate additional sales. Our expansion and operating strategies have balanced investment and operating cost considerations in order to generate reasonable, sustainable margins and achieve acceptable returns on investment from our restaurant concepts.

 

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In 2010, we launched a new strategic plan and operating model, strengthened our management team and adapted practices from the consumer products and retail industries to complement our restaurant acumen and enhance our brand management, analytics and innovation. This new model keeps the customer at the center of our decision-making and focuses on continuous innovation and productivity to drive sustainable sales and profit growth. As a result of these initiatives, we are recommitted to new unit development after curtailing expansion from 2009 to 2011. We believe that a substantial development opportunity remains for our concepts in the U.S. and internationally.

In 2011, we continued to balance near-term growth in share gains with investments to achieve sustainable growth. Our key objectives for 2011 and some of the steps we took to achieve those objectives included:

Continuation of Share Growth by Enhancing Brand Competitiveness in a Challenging Environment. In order to drive market share growth, we continued to develop unique promotions throughout our concepts that fit our brand positioning and focus on delivering a superior dining experience. We identified additional opportunities to increase innovation in our menu, service and operations across all of our concepts, such as broadening our Outback Steakhouse menu by adding more salads, seafood and side items and offering the choice between our traditional seared steak and one prepared on a wood-fired grill. In addition, Carrabba’s introduced a Cucina Casuale section to its menu during the third quarter of 2011 to offer consumers a more casual dining experience with salads, sandwiches and other smaller or lighter offerings.

Acceleration of Brand Investment, Including Renovations and New Unit Development. Our brand investments have focused on accelerating our multi-year Outback Steakhouse renovation plan and increasing unit development in higher return, high growth concepts with a focus on Bonefish Grill. We renovated 194 Outback Steakhouse locations and opened six Bonefish Grill restaurants in 2011.

Improvement of Organizational Effectiveness and Infrastructure for Sustainable Growth. We focused on building our competencies in human resources, information technology and real estate, design and construction to support accelerated growth. This is a multi-year effort that includes the implementation of a human resource information system, expanded data warehousing capability, and increased resources and tools to accelerate renovations and new unit site selection. We also implemented a modified managing and chef partner compensation structure that seeks to drive sustainable growth by aligning field incentives and paying higher amounts for growth in restaurant sales and cash flow on an annual basis. See “—Liquidity and Capital Resources—Stock-Based and Deferred Compensation Plans.”

Effective Cost Management by Mitigating Commodity Risk and Accelerating Continuous Productivity Improvement. We leveraged our scale and long-term supply agreements when they were attractive relative to market trends, accelerated productivity improvements and took modest pricing action to maintain value perceptions among consumers.

Key Performance Indicators

Key measures that we use in evaluating our restaurants and assessing our business include the following:

 

   

Average restaurant unit volumes—average sales per restaurant to measure changes in customer traffic, pricing and development of the brand;

 

   

System-wide sales—total restaurant sales volume for all company-owned, franchise and unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands;

 

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Comparable restaurant sales—year-over-year comparison of sales volumes for domestic, company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants;

 

   

Adjusted EBITDA—calculated by adjusting EBITDA (earnings before interest, taxes, depreciation and amortization) to exclude certain stock-based compensation expenses, non-cash expenses and significant, unusual items; and

 

   

Customer satisfaction scores—measurement of our customers’ experiences in a variety of key attributes.

Recent Highlights

Our recent financial results include:

 

   

In the first quarter of 2012 as compared to the same period in 2011, an increase in consolidated revenues of 5.4% to $1.1 billion, driven primarily by 5.2% growth in combined comparable restaurant sales at existing domestic company-owned core restaurants;

 

   

In 2011 as compared to 2010, an increase in consolidated revenues of 5.9% to $3.8 billion, driven primarily by 4.9% growth in combined comparable restaurant sales at existing domestic company-owned core restaurants;

 

   

15 system-wide restaurant openings across most brands (of which seven were company-owned, five were joint ventures and three were franchises), and 194 Outback Steakhouse renovations in 2011;

 

   

Successfully implemented productivity and cost management initiatives that we estimate allowed us to save over $50 million in the aggregate in 2011, while our costs increased due to rising commodity prices; and

 

   

Generation of income from operations of $213.5 million in 2011 compared to $168.9 million in 2010, primarily attributable to the increase in consolidated revenues described above and the T-Bird settlement described in “—Costs and Expenses—Recovery of Notes Receivable from Affiliated Entity.”

Our Growth Strategies and Outlook

For the remainder of 2012, our key growth strategies, which are enabled by continued improvements in infrastructure and organizational effectiveness, are:

 

   

Grow Comparable Restaurant Sales. We plan to continue our efforts to remodel our Outback Steakhouse and Carrabba’s restaurants, use limited-time offers and multimedia marketing campaigns to drive traffic, grow beyond our traditional weekend dinner traffic and introduce innovative menu items that match evolving consumer preferences.

 

   

Pursue New Domestic and International Development With Strong Unit Level Economics. We believe that a substantial development opportunity remains for our concepts in the U.S. and internationally. We added significant resources in site selection, construction and design in 2010 and 2011 to support the opening of new restaurants. We expect to open 30 or more restaurants in 2012 and increase the pace thereafter.

 

   

Drive Margin Improvement. We believe we have the opportunity to increase our margins through cost reductions in labor, food cost, supply chain and restaurant facilities.

 

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Ownership Structures

Our restaurants are predominantly company-owned or controlled, including through joint ventures, and otherwise operated under franchise arrangements. We generate our revenues primarily from our company-owned or controlled restaurants and secondarily through ongoing royalties from our franchised restaurants and sales of franchise rights.

Company-owned or controlled restaurants include restaurants owned directly by us, by limited partnerships in which we are the general partner and our managing partners and chef partners are limited partners and by joint ventures in which we are a member. Our legal ownership interests as a general partner in these partnerships and joint ventures generally range from 50% to 90%. Our cash flows from these entities are limited to the relative portion of our ownership. In the future, we do not expect to use limited partnerships for domestic company-owned restaurants. Instead, new restaurants will be wholly-owned by us and we are transitioning our compensation structure so that the area operating, managing and chef partners will receive their distributions of restaurant cash flow as employee compensation rather than partnership distributions. Company-owned restaurants also include restaurants owned by our Roy’s joint venture and our consolidated financial statements include the accounts and operations of our Roy’s joint venture even though we have less than majority ownership. See Note 18 of our Notes to Consolidated Financial Statements for the year ended December 31, 2011, for additional information.

Through a joint venture arrangement with PGS Participacoes Ltda., we hold a 50% ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”). The Brazilian Joint Venture was formed in 1998 for the purpose of operating Outback Steakhouse franchise restaurants in Brazil. We account for the Brazilian Joint Venture under the equity method of accounting. We are responsible for 50% of the costs of new restaurants operated by the Brazilian Joint Venture and our joint venture partner is responsible for the other 50% and has operating control. Income and loss derived from the Brazilian Joint Venture is presented in the line item “Income from operations of unconsolidated affiliates” in our Consolidated Statements of Operations and Comprehensive Income. We do not consider restaurants owned by the Brazilian Joint Venture as “company-owned” restaurants.

We derive no direct income from operations of franchised restaurants other than initial and developmental franchise fees and ongoing royalties, which are included in “Other revenues” in our Consolidated Statements of Operations and Comprehensive Income.

Factors Impacting Financial Results

As discussed in more detail below and in addition to the other factors discussed above, under “Risk Factors” and elsewhere in this prospectus, the following factors have impacted our financial results and will impact our future financial results.

Effective March 14, 2012, we entered into the Sale-Leaseback Transaction with two third-party real estate institutional investors in which we sold 67 restaurant properties at fair market value for net proceeds of $192.9 million and then simultaneously leased these properties back under nine master leases. We will defer the recognition of the $42.9 million gain on the sale of certain of the properties over the initial term of the lease. See “—Liquidity and Capital Resources—Transactions” and Note 7 of our Notes to Unaudited Consolidated Financial Statements for the three months ended March 31, 2012 for a further description of the Sale-Leaseback Transaction.

Effective March 27, 2012, New PRP entered into the 2012 CMBS Loan, which totals $500.0 million and comprises a first mortgage loan in the amount of $324.8 million, collateralized by 261 of our properties, and two mezzanine loans totaling $175.2 million. The loans have a maturity date of April 10, 2017, and a weighted average interest rate as of the closing of 6.1%. The proceeds from the 2012 CMBS Loan, together with the

 

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proceeds from the Sale-Leaseback Transaction and excess cash, were used to repay the existing CMBS Loan. As a result of the CMBS Refinancing, the net amount repaid along with scheduled maturities within one year, $281.3 million, was classified as current at December 31, 2011. During the first quarter of 2012, we recorded a $2.9 million loss on extinguishment of debt. See “Description of Indebtedness” and Note 9 of our Notes to Unaudited Consolidated Financial Statements for the three months ended March 31, 2012 for a further description of the 2012 CMBS Loan.

Upon completion of this offering, we expect to immediately record approximately $         of aggregate non-cash compensation expense with respect to (i) certain stock options held by our Chief Executive Officer that become exercisable (to the extent then vested) if following this offering and until expiration of the option, the volume-weighted average trading price of our common stock is equal to or greater than specified performance targets over a six-month period and (ii) the time vested portion of stock options containing a management call option due to the automatic termination of the call option upon completion of the offering. In addition to these amounts expected to be recorded upon completion of the offering, we expect to record an additional $             million in stock-based compensation expense through 2017 related to the portion of these same stock options that will continue to vest following this offering. These amounts are only for the stock options in (i) and (ii) above and are in addition to stock-based compensation expense we will recognize related to other outstanding equity awards and other equity awards that may be granted in the future. See “—Critical Accounting Policies and Estimates—Stock-Based Compensation” for a further description of the call option. Additionally, this offering will trigger payment of $22.4 million for the Retention Bonus and Incentive Bonus due to our Chief Executive Officer. We will also pay the management company an $8.0 million fee in connection with the termination of the management agreement within 60 days of the completion of this offering, but no later than December 31, 2012.

As our net income increases, we expect our effective income tax rate to increase due to the benefit of U.S. income tax credits becoming a smaller percentage of net income and the fact that the substantial majority of our earnings are generated in the U.S., where we have higher statutory rates. We expect our effective income tax rate for 2012 to range between 20% and 30%. We expect to maintain a full valuation allowance on our net U.S. deferred income tax assets, excluding deferred income tax liabilities related to indefinite-lived assets, until we sustain an appropriate level of profitability that generates taxable income that would enable us to conclude that it is more likely than not that a portion of our deferred income tax assets will be realized. Such a decrease in the valuation allowance could result in a significant decrease in our effective income tax rate for the period in which it occurs.

 

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Results of Operations

The following tables set forth, for the periods indicated, (1) percentages that items in our Consolidated Statements of Operations and Comprehensive Income bear to total revenues or restaurant sales, as indicated, and (2) selected operating data:

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2011     2010     2009         2012             2011      

Revenues

          

Restaurant sales

     99.0     99.1     99.2     99.0     99.1

Other revenues

     1.0        0.9        0.8        1.0        0.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100.0        100.0        100.0        100.0        100.0   

Costs and expenses

          

Cost of sales (1)

     32.2        32.0        33.1        32.1        32.0   

Labor and other related (1)

     28.8        28.8        28.7        28.1        28.5   

Other restaurant operating (1)

     23.4        24.0        23.8        20.9        21.6   

Depreciation and amortization

     4.0        4.3        5.2        3.7        3.8   

General and administrative

     7.6        7.0        7.0        7.2        6.1   

Recovery of note receivable from affiliated entity

     (0.9     —          —          —          —     

Loss on contingent debt guarantee

     —          —          0.7        —          —     

Goodwill impairment

     —          —          1.6        —          —     

Provision for impaired assets and restaurant closings

     0.4        0.1        3.7        0.4        *   

Income from operations of unconsolidated affiliates

     (0.2     (0.2     (0.1     (0.2     (0.4

Total costs and expenses

     94.4        95.3        103.0        91.4        90.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     5.6        4.7        (3.0     8.6        9.1   

Gain (loss) on extinguishment of debt

     —          —          4.4        (0.3     —     

Other income (expense), net

     *        0.1        (*     *        (*

Interest expense, net

     (2.2     (2.5     (3.3     (2.0     (2.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     3.4        2.3        (1.9     6.3        6.9   

Provision (benefit) for income taxes

     0.6        0.6        (0.1     1.2        1.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2.8        1.7        (1.8     5.1        5.8   

Less: net income (loss) attributable to noncontrolling interests

     0.2        0.2        (*     0.4        0.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Bloomin’ Brands, Inc.

     2.6     1.5     (1.8 )%      4.7     5.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) As a percentage of restaurant sales.
*

Less than 1/10th of one percent of total revenues.

 

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The table below presents the number of our restaurants in operation at the end of the periods indicated:

 

     December 31,      March 31,  
     2011      2010      2009      2012      2011  

Number of restaurants (at end of the period):

              

Outback Steakhouse

              

Company-owned—domestic

     669         670         680         669         670   

Company-owned—international

     111         120         119         111         120   

Franchised—domestic

     106         108         108         106         107   

Franchised and joint venture—international

     81         70         63         81         70   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     967         968         970         967         967   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Carrabba’s Italian Grill

              

Company-owned

     231         232         232         230         232   

Franchised

     1         1         1         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     232         233         233         231         233   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Bonefish Grill

              

Company-owned

     151         145         145         151         145   

Franchised

     7         7         7         7         7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     158         152         152         158         152   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fleming’s Prime Steakhouse and Wine Bar

              

Company-owned

     64         64         64         64         64   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

              

Company-owned (1)

     22         22         58         22         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

System-wide total

     1,443         1,439         1,477         1,442         1,438   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to Paradise Restaurant Group, LLC (“PRG”). Based on the terms of the purchase and sale agreement, we consolidated PRG after the sale transaction. Upon adoption of new accounting guidance for variable interest entities, we deconsolidated PRG on January 1, 2010. As a result, subsequent to 2009 this category includes only our Roy’s concept.

We operate restaurants under brands that have similar economic characteristics, nature of products and services, class of customer and distribution methods, and as a result, aggregate our operating segments into a single reporting segment.

System-Wide Sales

System-wide sales increased 7.0% in 2011 and 2.2% in 2010 and increased 6.4% for the three months ended March 31, 2012 as compared with the corresponding period in 2011. System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. System-wide sales comprises sales of company-owned restaurants and sales of franchised and

 

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unconsolidated joint venture restaurants. The table below presents the first component of system-wide sales, which is sales of company-owned restaurants:

 

     Years Ended
December 31,
       Three Months Ended
March 31,
 
     2011        2010        2009        2012        2011  

Company-Owned Restaurant Sales (in millions):

                      

Outback Steakhouse

                      

Domestic

   $ 2,027         $ 1,960         $ 1,954         $ 560         $ 532   

International

     336           281           260           83           83   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

     2,363           2,241           2,214           643           615   

Carrabba’s Italian Grill

     682           653           633           187           180   

Bonefish Grill

     441           403           375           127           114   

Fleming’s Prime Steakhouse and Wine Bar

     239           223           199           67           63   

Other (1)

     78           75           153           21           21   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total company-owned restaurant sales

   $ 3,803         $ 3,595         $ 3,574         $ 1,045         $ 993   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to PRG. Based on the terms of the purchase and sale agreement, we consolidated PRG after the sale transaction. Upon adoption of new accounting guidance for variable interest entities, we deconsolidated PRG on January 1, 2010. As a result, subsequent to 2009 this category includes primarily our Roy’s concept.

The following information presents the second component of system-wide sales, which is sales of franchised and unconsolidated joint venture restaurants. These are restaurants that are not consolidated and from which we only receive a franchise royalty or a portion of their total income. Management believes that franchise and unconsolidated joint venture sales information is useful in analyzing our revenues because franchisees and affiliates pay royalties and/or service fees that generally are based on a percentage 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.

The following do not represent our sales and are presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts.

 

     Years Ended
December 31,
       Three Months Ended
March 31,
 
     2011        2010        2009        2012        2011  

Franchise and Unconsolidated Joint Venture Sales (in millions) (1):

                      

Outback Steakhouse

                      

Domestic

   $ 300         $ 296         $ 294         $ 82         $ 80   

International

     311           234           170           87           69   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

     611           530           464           169           149   

Carrabba’s Italian Grill

     4           4           3           1           1   

Bonefish Grill

     18           16           16           5           4   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total franchise and unconsolidated joint venture sales (1)

   $ 633         $ 550         $ 483         $ 175         $ 154   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Income from franchise and unconsolidated joint ventures (2)

   $ 36         $ 31         $ 26         $ 11         $ 10   
  

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

(1) Franchise and unconsolidated joint venture sales are not included in revenues in the Consolidated Statements of Operations and Comprehensive Income.
(2) Represents the franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations and Comprehensive Income in the line items “Other revenues” and “Income from operations of unconsolidated affiliates,” respectively.

 

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Results of Operations—Three Months Ended March 31, 2012 and 2011

Revenues

Restaurant Sales

 

     Three Months Ended
March  31,
               
(dollars in millions):    2012      2011      $ Change      % Change  

Restaurant sales

   $ 1,045.5       $ 993.1       $ 52.4         5.3

The increase in restaurant sales in the three months ended March 31, 2012 as compared to the same period in 2011 was primarily attributable to (i) a $53.8 million increase in comparable restaurant sales at our existing restaurants (including a 5.2% combined comparable restaurant sales increase in the first quarter of 2012 at our core domestic concepts) which was primarily due to increases in customer traffic and general menu prices and (ii) a $7.0 million increase in sales from nine restaurants not included in our comparable restaurant sales base. We believe the increase in customer traffic was primarily a result of promotions throughout our concepts, innovations in our menu, service and operations, mild winter weather conditions, the additional day in February due to the leap year and renovations at additional Outback Steakhouse locations. The increase in restaurant sales in the three months ended March 31, 2012 as compared to the same period in 2011 was partially offset by a $6.0 million decrease from the sale (and franchise conversion) of nine of our company-owned Outback Steakhouse restaurants in Japan in October 2011 and a $2.4 million decrease from the closing of five restaurants since March 31, 2011.

The following table includes additional information about changes in restaurant sales at domestic company-owned restaurants for our core brands:

 

     Three Months Ended
March 31,
 
     2012     2011  

Average restaurant unit volumes (weekly):

    

Outback Steakhouse

   $ 64,437      $ 61,785   

Carrabba’s Italian Grill

   $ 62,510      $ 60,423   

Bonefish Grill

   $ 64,869      $ 60,977   

Fleming’s Prime Steakhouse and Wine Bar

   $ 80,511      $ 77,171   

Operating weeks:

    

Outback Steakhouse

     8,693        8,614   

Carrabba’s Italian Grill

     2,991        2,983   

Bonefish Grill

     1,957        1,864   

Fleming’s Prime Steakhouse and Wine Bar

     832