OSI Restaurant's ability to meet covenants linked to cost efficiencies, working capital

By Jennifer Lanning Drey

Portland, Ore., Feb. 23 - OSI Restaurant Partners, LLC's continued compliance with the financial covenants in its credit agreement will be tied to the company's ability to achieve cost efficiencies and improve working capital management, Dirk Montgomery, OSI's chief financial officer, said Monday during the company's fourth-quarter earnings conference call.

OSI's audit of its financial statements for the fourth quarter is not yet complete; however, the company is not aware of any items that would cause it to not be in compliance with the covenants for the period ended Dec. 31, he said.

OSI is looking to achieve $100 million in efficiency improvements in 2009 in order to offset expected topline softness during the year.

The company's other key strategic priorities include progressing with its brand revitalization and developing more efficient topline strategies, Montgomery said.

OSI ended 2008 with available cash of $271 million, up from $171 million at the end of the prior year, due to growth in gift card sales during the holidays, working capital efficiencies and the impact of a $50 million draw on its working capital revolver earlier in the year.

The cash balance is expected to decline in the first quarter due in part to typical seasonal patterns, as gift cards are redeemed, he said.

During the fourth quarter, OSI repurchased $61.8 million principal amount of its senior notes for $11.7 million.

In addition, the company launched a tender offer on Feb. 18 for its 10% senior notes due 2015. The company plans to spend up to $73 million on the offer, with funding coming from cash on hand and a $47 million contribution from its parent, OSI Holdco, Inc.

OSI has not made any decisions on further debt repurchase activity beyond the tender offer, Montgomery said Monday.

OSI's fourth-quarter revenues decreased by 10.2% during the fourth quarter to $928.3 million, compared with $1.03 billion during the same quarter in the prior year. Adjusted EBITDA for the period was $72.8 million, compared with adjusted EBITDA of $86.5 million in the fourth quarter of 2007.

The company said the decrease in adjusted EBITDA was driven by a decline in sales at company-owned restaurants.

OSI Restaurant is a Tampa, Fla., casual dining restaurant company.

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