Bloomin’ Brands, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results; “2012 Q4” is not the reporting period of this 10-K. The company operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s and Roy’s. At year-end, it had 1,268 company-owned restaurants and 203 franchised or joint-venture restaurants.
Financial performance and condition
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $3.988 billion | $3.841 billion |
| Income from operations | $181.1 million | $213.5 million |
| Operating margin | 4.5% | 5.6% |
| Net income attributable to Bloomin’ Brands | $50.0 million | $100.0 million |
| Diluted EPS | $0.44 | $0.94 |
| Net cash from operating activities | $340.1 million | $322.5 million |
| Capital expenditures | $178.7 million | $120.9 million |
| Cash and cash equivalents, year-end | $261.7 million | $482.1 million |
| Total debt, net, year-end | $1.494 billion | $2.109 billion |
- Revenue increased 3.8%; combined comparable sales at domestic company-owned core restaurants rose 3.7%. Average unit volumes increased across the core domestic concepts.
- Restaurant-level operating margins improved 6.1% year over year, according to management. Food and beverage cost rose to 32.5% of restaurant sales from 32.2%, mainly due to commodity and product-mix pressure; labor costs declined to 28.3% from 28.8%.
- Annual operating income and attributable net income fell despite higher sales. The company cited $42.1 million of IPO-related expenses as the principal reason for lower operating income. Net income also reflected $21.0 million of debt-extinguishment and modification losses and higher net interest expense.
- Fourth-quarter 2012 revenue was $998.4 million, operating income $53.6 million, net income attributable to the company $18.4 million and diluted EPS $0.15. In fourth-quarter 2011, the comparable figures were $955.6 million, $61.0 million, $30.5 million and $0.28, respectively.
- Working capital was negative $203.6 million, compared with negative $248.1 million a year earlier. Management says negative working capital is typical for the business, citing cash receipts before many current-liability payments and low inventory needs. Unearned gift-card revenue was $329.5 million.
Material changes, outlook and risks
- Capital structure: The company completed an IPO in August 2012, receiving approximately $142.2 million net, which, together with cash on hand, was used to retire $248.1 million of 10% senior notes. It also refinanced its credit facilities and property-backed debt. Year-end debt included a $1.0 billion term loan and approximately $493.9 million of CMBS debt. About $1.0 billion of debt was variable-rate; management estimated a one-percentage-point rate increase would add approximately $10.5 million in annual cash interest at year-end debt levels.
- Liquidity and obligations: The company reported $183.8 million of available unused revolving-credit capacity after letters of credit. It was in compliance with debt covenants at year-end. Contractual obligations included $873.6 million of operating lease payments and $449.5 million of estimated interest payments. The company has substantial secured debt, restrictive covenants and ongoing lease and deferred-compensation commitments.
- Significant transactions: A March 2012 sale-leaseback of 67 restaurant properties generated $192.9 million net proceeds and added long-term lease commitments. The company acquired remaining interests in Roy’s and in limited partnerships associated with 44 Bonefish Grill and 17 Carrabba’s restaurants.
- Management outlook: The company expected 45–55 system-wide restaurant openings in 2013, with about 30 domestic openings and 20 or more new Bonefish Grill locations planned. Estimated 2013 capital expenditures were $220–$250 million. Management expected first-quarter 2013 comparable-sales growth to slow amid a difficult casual-dining environment and emphasized value, innovation, margin improvement and disciplined development. No full-year revenue or earnings guidance is stated in the supplied filing text.
- Tax outlook: Management expected a 2013 effective tax rate of 10%–20% before any valuation-allowance reversal and anticipated a possible tax benefit of approximately $50 million if some or all of the valuation allowance were released. Timing and realization were uncertain.
- Key risks and contingencies: Competition, economic weakness and consumer traffic, commodity and labor inflation, food safety, supplier concentration, international and currency exposure, weather, regulation and information-security events could affect results. Four suppliers provided more than 75% of beef raw materials purchased in 2012. A franchisee group had a put right, exercisable until August 13, 2013, that could require a cash purchase of entities operating 56 California Outback restaurants; the purchase price was not specified as a fixed amount. Ordinary-course legal matters were not expected by management to have a material adverse effect.
- Unusual items and governance: IPO-related compensation and fees included an $18.1 million accelerated CEO bonus expense, $16.0 million non-cash stock compensation and an $8.0 million management-agreement termination fee. Adjusted diluted EPS, a non-GAAP measure, was $0.99 versus GAAP diluted EPS of $0.44. The company was controlled by sponsors and founders and used Nasdaq controlled-company governance exemptions. The auditor issued an unqualified opinion; management reported effective disclosure controls, while the filing omitted an internal-control assessment under the newly public company transition rules.
Important facts for investors to verify
- Reconcile the decline in GAAP earnings with the IPO and refinancing costs, and assess the comparability and assumptions behind management’s adjusted measures.
- Review debt maturities, variable-rate exposure, covenant headroom and the effect of leases and required debt repayments on cash available for investment.
- Track comparable sales, traffic, unit-level margins and whether planned restaurant openings and remodels meet return targets as the sales environment weakens.
- Confirm the resolution and any cash impact of the T-Bird put right, and monitor unfunded partner compensation obligations and insurance claims.
- Evaluate the basis and timing of any deferred-tax-asset valuation-allowance release, and distinguish any resulting tax benefit from recurring operating performance.