BLMN-6.28.15_10Q
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 28, 2015
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625


BLOOMIN’ BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8023465
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)

(813) 282-1225
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x  NO o

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 x Accelerated filer  o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x

As of July 30, 2015, 122,637,497 shares of common stock of the registrant were outstanding.
 
 
 
 
 


Table of Contents
BLOOMIN’ BRANDS, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended June 28, 2015
(Unaudited)

TABLE OF CONTENTS

 
Page No.
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

2

Table of Contents
BLOOMIN’ BRANDS, INC.


PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) 
 
JUNE 28,
 
DECEMBER 28,
 
2015
 
2014
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
132,772

 
$
165,744

Current portion of restricted cash and cash equivalents
4,356

 
6,829

Inventories
72,068

 
80,817

Deferred income tax assets
126,186

 
123,866

Assets held for sale
2,106

 
16,667

Other current assets, net
108,993

 
206,628

Total current assets
446,481

 
600,551

Restricted cash
24,035

 
25,451

Property, fixtures and equipment, net
1,632,325

 
1,629,311

Goodwill
318,206

 
341,540

Intangible assets, net
563,935

 
585,432

Deferred income tax assets
5,404

 
6,038

Other assets, net
154,349

 
155,963

Total assets
$
3,144,735

 
$
3,344,286

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) 


 
JUNE 28,
 
DECEMBER 28,
 
2015
 
2014
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
202,663

 
$
191,207

Accrued and other current liabilities
208,613

 
237,844

Current portion of partner deposits and accrued partner obligations
7,147

 
8,399

Unearned revenue
258,471

 
376,696

Current portion of long-term debt, net
25,602

 
25,964

Total current liabilities
702,496

 
840,110

Partner deposits and accrued partner obligations
60,011

 
69,766

Deferred rent
135,070

 
121,819

Deferred income tax liabilities
178,631

 
181,125

Long-term debt, net
1,295,315

 
1,289,879

Other long-term liabilities, net
252,794

 
260,405

Total liabilities
2,624,317

 
2,763,104

Commitments and contingencies (Note 14)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
24,470

 
24,733

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of June 28, 2015 and December 28, 2014

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 122,625,374 and 125,949,870 shares issued and outstanding as of June 28, 2015 and December 28, 2014, respectively
1,226

 
1,259

Additional paid-in capital
1,088,075

 
1,085,627

Accumulated deficit
(482,664
)
 
(474,994
)
Accumulated other comprehensive loss
(115,354
)
 
(60,542
)
Total Bloomin’ Brands stockholders’ equity
491,283

 
551,350

Noncontrolling interests
4,665

 
5,099

Total stockholders’ equity
495,948

 
556,449

Total liabilities, mezzanine equity and stockholders’ equity
$
3,144,735

 
$
3,344,286

 
The accompanying notes are an integral part of these consolidated financial statements.


4

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)


 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,092,759

 
$
1,104,437

 
$
2,287,569

 
$
2,254,962

Other revenues
6,838

 
6,475

 
14,087

 
13,809

Total revenues
1,099,597

 
1,110,912

 
2,301,656

 
2,268,771

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
357,455

 
358,856

 
744,923

 
732,470

Labor and other related
301,039

 
302,472

 
625,025

 
613,890

Other restaurant operating
254,281

 
265,279

 
518,319

 
521,797

Depreciation and amortization
47,375

 
48,627

 
93,861

 
94,792

General and administrative
75,962

 
72,262

 
149,209

 
146,316

Provision for impaired assets and restaurant closings
900

 
1,025

 
10,033

 
7,089

Total costs and expenses
1,037,012

 
1,048,521

 
2,141,370

 
2,116,354

Income from operations
62,585

 
62,391

 
160,286

 
152,417

Loss on extinguishment and modification of debt
(2,638
)
 
(11,092
)
 
(2,638
)
 
(11,092
)
Other income (expense), net
57

 
317

 
(1,090
)
 
153

Interest expense, net
(12,867
)
 
(15,109
)
 
(26,065
)
 
(31,707
)
Income before provision for income taxes
47,137

 
36,507

 
130,493

 
109,771

Provision for income taxes
14,081

 
8,785

 
35,355

 
26,949

Net income
33,056

 
27,722

 
95,138

 
82,822

Less: net income attributable to noncontrolling interests
830

 
1,331

 
2,324

 
2,698

Net income attributable to Bloomin’ Brands
$
32,226

 
$
26,391

 
$
92,814

 
$
80,124

 
 
 
 
 
 
 
 
Net income
$
33,056

 
$
27,722

 
$
95,138

 
$
82,822

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(26,182
)
 
19,088

 
(51,644
)
 
13,723

Unrealized gains (losses) on derivatives, net of tax
844

 

 
(3,168
)
 

Comprehensive income
7,718

 
46,810

 
40,326

 
96,545

Less: comprehensive income attributable to noncontrolling interests
830

 
1,331

 
2,324

 
2,698

Comprehensive income attributable to Bloomin’ Brands
$
6,888

 
$
45,479

 
$
38,002

 
$
93,847

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.26

 
$
0.21

 
$
0.75

 
$
0.64

Diluted
$
0.26

 
$
0.21

 
$
0.73

 
$
0.63

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
123,046

 
125,229

 
124,174

 
124,889

Diluted
126,242

 
128,378

 
127,501

 
128,115

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.06

 
$

 
$
0.12

 
$

 
The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, UNAUDITED)

 
BLOOMIN’ BRANDS, INC.
 
 
 
 

COMMON STOCK

ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM- ULATED
DEFICIT

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

NON-
CONTROLLING
INTERESTS

TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 28, 2014
125,950

 
$
1,259

 
$
1,085,627

 
$
(474,994
)
 
$
(60,542
)
 
$
5,099

 
$
556,449

Net income

 

 

 
92,814

 

 
2,128

 
94,942

Other comprehensive loss, net of tax

 

 

 

 
(54,812
)
 

 
(54,812
)
Cash dividends declared, $0.12 per common share

 

 
(14,814
)
 

 

 

 
(14,814
)
Repurchase and retirement of common stock
(4,129
)
 
(41
)
 

 
(99,959
)
 

 

 
(100,000
)
Stock-based compensation

 

 
10,215

 

 

 

 
10,215

Excess tax benefit on stock-based compensation

 

 
1,272

 

 

 

 
1,272

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
804

 
8

 
6,004

 
(525
)
 

 

 
5,487

Purchase of noncontrolling interests

 

 
(229
)
 

 

 

 
(229
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,562
)
 
(2,562
)
Balance, June 28, 2015
122,625

 
$
1,226

 
$
1,088,075

 
$
(482,664
)
 
$
(115,354
)
 
$
4,665

 
$
495,948

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 


6

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, UNAUDITED)

 
BLOOMIN’ BRANDS, INC.
 
 
 
 
 
COMMON STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM- ULATED
DEFICIT
 
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
 
NON-
CONTROLLING
INTERESTS
 
TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 31, 2013
124,784

 
$
1,248

 
$
1,068,705

 
$
(565,154
)
 
$
(26,418
)
 
$
4,328

 
$
482,709

Net income

 

 

 
80,124

 

 
2,258

 
82,382

Other comprehensive income, net of tax

 

 

 

 
13,723

 

 
13,723

Stock-based compensation

 


 
8,032

 

 

 

 
8,032

Excess tax benefit on stock-based compensation

 

 
1,095

 

 

 

 
1,095

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
813

 
8

 
5,485

 
(799
)
 

 

 
4,694

Purchase of limited partnership interests, net of tax of $6,519

 

 
(11,928
)
 

 

 
1,236

 
(10,692
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,470
)
 
(2,470
)
Balance, June 29, 2014
125,597

 
$
1,256

 
$
1,071,389

 
$
(485,829
)
 
$
(12,695
)
 
$
5,352

 
$
579,473


The accompanying notes are an integral part of these consolidated financial statements.

7

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
 
JUNE 29, 2014
Cash flows provided by operating activities:
 
 
 
Net income
$
95,138

 
$
82,822

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation and amortization
93,861

 
94,792

Amortization of deferred financing fees
1,474

 
1,640

Amortization of capitalized gift card sales commissions
15,548

 
14,829

Provision for impaired assets and restaurant closings
10,033

 
7,089

Accretion on debt discounts
965

 
1,097

Stock-based and other non-cash compensation expense
11,810

 
9,672

Deferred income tax expense (benefit)
1,931

 
(372
)
Loss on disposal of property, fixtures and equipment
498

 
1,077

Gain on life insurance and restricted cash investments
(1,582
)
 
(1,732
)
Loss on disposal of business or subsidiary
1,097

 

Loss on extinguishment and modification of debt
2,638

 
11,092

Recognition of deferred gain on sale-leaseback transaction
(1,064
)
 
(1,070
)
Excess tax benefits from stock-based compensation
(1,272
)
 
(1,095
)
Change in assets and liabilities:
 

 
 

Decrease in inventories
6,352

 
15,724

Decrease (increase) in other current assets
66,321

 
(25,212
)
Decrease in other assets
7,291

 
5,320

Decrease in accounts payable and accrued and other current liabilities
(6,505
)
 
(11,440
)
Increase in deferred rent
13,063

 
8,482

Decrease in unearned revenue
(118,257
)
 
(110,392
)
Decrease in other long-term liabilities
(1,913
)
 
(5,077
)
Net cash provided by operating activities
197,427

 
97,246

Cash flows used in investing activities:
 

 
 

Purchases of life insurance policies
(3,392
)
 
(1,040
)
Proceeds received from life insurance policies
14,942

 
627

Proceeds from disposal of property, fixtures and equipment
3,104

 
562

Acquisition of business, net of cash acquired

 
(3,063
)
Proceeds from sale of a business
7,798

 

Capital expenditures
(114,251
)
 
(97,619
)
Decrease in restricted cash
31,694

 
13,556

Increase in restricted cash
(29,216
)
 
(14,192
)
Net cash used in investing activities
$
(89,321
)
 
$
(101,169
)
 
 
 
 
 
(CONTINUED...)
 

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BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
 
JUNE 29, 2014
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of senior secured Term loan A
$

 
$
297,088

Extinguishment and modification of senior secured term loan
(215,000
)
 
(700,000
)
Repayments of long-term debt
(29,419
)
 
(18,090
)
Proceeds from borrowings on revolving credit facilities
397,336

 
415,000

Repayments of borrowings on revolving credit facilities
(152,300
)
 
(15,000
)
Financing fees
(1,235
)
 
(4,492
)
Proceeds from the exercise of stock options, net of tax withholdings
6,012

 
6,112

Distributions to noncontrolling interests
(2,562
)
 
(2,470
)
Purchase of limited partnerships and noncontrolling interests
(652
)
 
(17,211
)
Repayments of partner deposits and accrued partner obligations
(27,231
)
 
(13,909
)
Repurchase of common stock
(100,525
)
 
(799
)
Excess tax benefits from stock-based compensation
1,272

 
1,095

Cash dividends paid on common stock
(14,814
)
 

Net cash used in financing activities
(139,118
)
 
(52,676
)
Effect of exchange rate changes on cash and cash equivalents
(1,960
)
 
2,571

Net decrease in cash and cash equivalents
(32,972
)
 
(54,028
)
Cash and cash equivalents as of the beginning of the period
165,744

 
209,871

Cash and cash equivalents as of the end of the period
$
132,772

 
$
155,843

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
25,730

 
$
30,790

Cash paid for income taxes, net of refunds
10,883

 
29,941

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Conversion of partner deposits and accrued partner obligations to notes payable
$

 
$
323

Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities
(3,015
)
 
9,858

Deferred tax effect of purchase of noncontrolling interests

 
6,519


 The accompanying notes are an integral part of these consolidated financial statements.

9

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.    Description of the Business and Basis of Presentation

Description of the Business - Bloomin’ Brands, Inc. (“Bloomin’ Brands” or the “Company”) owns and operates casual, upscale casual and fine dining restaurants primarily in the United States. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements. In January 2015, the Company sold its Roy’s business.

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2014.

Reclassifications - The Company reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the current period. These reclassifications had no effect on previously reported net income.

Recently Issued Financial Accounting Standards Not Yet Adopted - In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03: “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”). ASU No. 2015-03 will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The update requires retrospective application and represents a change in accounting principle. ASU No. 2015-03 will be effective for the Company in fiscal year 2016, with early adoption permitted. The Company does not expect ASU No. 2015-03 to have a material impact on its financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15: “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU No. 2014-15”). ASU No. 2014-15 will explicitly require management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard is applicable for all entities and will be effective for the Company in fiscal year 2016. The Company does not expect ASU No. 2014-15 to have a material impact on its financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. On July 9, 2015, the FASB agreed to delay the effective date of ASU 2014-09 by one year. As a result, the new guidance will be effective for the Company in fiscal year 2018 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption. The Company has not selected a transition method and is evaluating the impact this guidance will have on its financial position, results of operations and cash flows.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.

10

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

2.    Disposals, Exit Costs and Acquisitions

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Impairment losses
$
857

 
$
407

 
$
2,152

 
$
483

Restaurant closure expenses
43

 
618

 
7,881

 
6,606

Provision for impaired assets and restaurant closings
$
900

 
$
1,025

 
$
10,033

 
$
7,089


Restaurant Closure Initiatives - During 2014, the Company decided to close 36 underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”). As of June 28, 2015, 35 of the 36 locations had been closed. In connection with the International Restaurant Closure Initiative, the Company incurred pre-tax restaurant and other closing costs of ($0.3) million and $6.1 million during the thirteen and twenty-six weeks ended June 28, 2015, respectively, which were recorded within the International segment.

The Company expects to incur additional charges of approximately $1.0 million, including costs associated with lease obligations, employee terminations and other closure related obligations, through the third quarter of 2015. Future cash expenditures of $5.0 million to $7.0 million, primarily related to lease liabilities, are expected to occur through August 2022.

In the fourth quarter of 2013, the Company completed an assessment of its domestic restaurant base and decided to close 22 underperforming domestic locations (the “Domestic Restaurant Closure Initiative”). Pre-tax restaurant and other closing costs of $1.3 million and $6.0 million were incurred during the twenty-six weeks ended June 28, 2015 and June 29, 2014, respectively, in connection with the Domestic Restaurant Closure Initiative, which were recorded within the U.S. segment.

Following is a summary of restaurant closure initiative expenses recognized in the Consolidated Statement of Operations and Comprehensive Income (dollars in thousands):
DESCRIPTION
 
LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
 
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Facility closure and other expenses
 
Provision for impaired assets and restaurant closings
 
$
(309
)
 
$

 
$
7,432

 
$
5,972

Severance and other liabilities
 
General and administrative
 
246

 

 
1,573

 
1,035

Reversal of deferred rent liability
 
Other restaurant operating
 

 

 
(198
)
 
(2,078
)
 
 
 
 
$
(63
)
 
$

 
$
8,807

 
$
4,929


11

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Domestic and International Restaurant Closure Initiatives, during the twenty-six weeks ended June 28, 2015:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
Beginning of the period
$
11,000

Charges
8,634

Cash payments
(10,022
)
Adjustments (1)
(753
)
End of the period (2)
$
8,859

________________
(1)
Adjustments to facility closure and other costs represent changes in sublease assumptions and the impact of lease settlements on the Company’s remaining lease obligations.
(2)
As of June 28, 2015, the Company had exit-related accruals of $2.5 million recorded in Accrued and other current liabilities and $6.4 million recorded in Other long-term liabilities, net.

Roy’s - On January 26, 2015, the Company sold its Roy’s business to United Ohana, LLC (the “Buyer”), for a purchase price of $10.0 million, less certain liabilities, and recorded a (gain) loss on sale of ($0.3) million and $0.8 million, which was recorded in Other expense, net, during the thirteen and twenty-six weeks ended June 28, 2015, respectively. The sale agreement contains a provision obligating the Company to pay the Buyer up to $5.0 million, if certain lease contingencies are not resolved prior to April 2018 and the Buyer is damaged. In July 2015, these lease contingencies were satisfactorily resolved.

In connection with the sale of Roy’s, the Company continues to provide lease guarantees for certain of the Roy’s locations. Under the guarantees, the Company will pay the rental expense over the remaining lease term in the event of default by the Buyer. The fair value and maximum value of the lease guarantees is nominal. The maximum amount is calculated as the fair value of the lease payments over the remaining lease term and assumes that there are subleases.

Following are the components of Roy’s included in the Consolidated Statements of Operations and Comprehensive Income during the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Restaurant sales
$

 
$
17,472

 
$
5,729

 
$
36,401

Income (loss) before income taxes (1)
$
327

 
$
113

 
$
(641
)
 
$
568

________________
(1)
Includes (gain) loss on sale of ($0.3) million and $0.8 million during the thirteen and twenty-six weeks ended June 28, 2015, respectively.
 
Other Disposals - During the second quarter of 2015, the Company recognized additional pre-tax asset impairment charges of $0.7 million for corporate aircraft classified as held for sale. The impairment charges are recorded in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income.

Acquisitions - In 2013, the Company completed the acquisition of a controlling interest in PGS Consultoria e Serviços Ltda. (the “Brazil Joint Venture”) by purchasing 80% of the issued and outstanding capital stock of PGS Participações Ltda (“PGS Par”). As a result of the acquisition, the Company had a 90% interest and the former equity holders of PGS Par (“Former Equity Holders”) retained a noncontrolling interest of 10% in the Brazil Joint Venture.

In April 2015, certain Former Equity Holders exercised options to sell their remaining interests in the Brazil Joint Venture to the Company for total cash consideration of $0.7 million This transaction resulted in a reduction of $0.5

12

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

million and $0.2 million of Mezzanine equity and Additional paid-in capital, respectively, during the twenty-six weeks ended June 28, 2015. As a result of the option exercise, the Company now owns 90.25% of the Brazil Joint Venture.

In connection with the Company’s acquisition of the Brazil Joint Venture in 2013, $7.9 million of the Company’s cash was held in escrow for customary indemnification obligations. The Former Equity Holders had an equal amount of cash held in escrow. The Company’s portion of escrow cash is reflected as restricted cash in the Company’s Consolidated Balance Sheet. In June 2015, the Company and the Former Equity Holders agreed to release all escrow cash.

Certain Former Equity Holders contributed approximately $3.2 million to the Company for a noncontrolling interest in a new concept in Brazil (Abbraccio) in June 2015. As the Company consolidates the results of its Brazil operations on a one-month calendar lag, the release of cash and recognition of the noncontrolling interest will be reflected in the Company’s Consolidated Balance Sheet as of September 27, 2015.

3.    Earnings Per Share

The Company computes basic earnings per share based on the weighted average number of common shares that were outstanding during the period. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of stock options, restricted stock, restricted stock units and performance-based share units, using the treasury stock method. Performance-based share units are considered dilutive when the related performance criterion has been met.

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands, except per share data)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Net income attributable to Bloomin’ Brands
$
32,226

 
$
26,391

 
$
92,814

 
$
80,124

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
123,046

 
125,229

 
124,174

 
124,889

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
3,025

 
3,051

 
3,123

 
3,121

Nonvested restricted stock and restricted stock units
171

 
98

 
201

 
105

Nonvested performance-based share units

 

 
3

 

Diluted weighted average common shares outstanding
126,242

 
128,378

 
127,501

 
128,115

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.26

 
$
0.21

 
$
0.75

 
$
0.64

Diluted earnings per share
$
0.26

 
$
0.21

 
$
0.73

 
$
0.63


Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Stock options
2,899

 
2,688

 
2,510

 
2,307

Nonvested restricted stock and restricted stock units
26

 
174

 
43

 
197



13

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

4.    Stock-based Compensation

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Stock options
$
2,552

 
$
3,098

 
$
4,979

 
$
5,566

Restricted stock and restricted stock units
1,741

 
989

 
3,150

 
1,738

Performance-based share units
940

 
177

 
1,689

 
535

 
$
5,233

 
$
4,264

 
$
9,818

 
$
7,839


During the twenty-six weeks ended June 28, 2015, the Company made grants to its employees of 1.2 million stock options, 0.4 million time-based restricted stock units and 0.2 million performance-based share units.

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
Assumptions:
 
Weighted-average risk-free interest rate (1)
1.64
%
Dividend yield (2)
1.0
%
Expected term (3)
6.3 years

Weighted-average volatility (4)
43.4
%
 
 
Weighted-average grant date fair value per option
$
10.11

________________
(1)
Risk-free rate is the U.S. Treasury yield curve in effect as of the grant date for periods within the contractual life of the option.
(2)
Dividend yield is the level of dividends expected be paid on the Company’s common stock over the expected term of the option.
(3)
Expected term represents the period of time that the options are expected to be outstanding. The simplified method of estimating the expected term is used since the Company does not have significant historical exercise experience for its stock options.
(4)
Volatility for the twenty-six weeks ended June 28, 2015 is based on the historical volatilities of the Company’s stock and the stock of comparable peer companies.

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of June 28, 2015:
 
UNRECOGNIZED
COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years)
Stock options
$
27,808

 
2.9
Restricted stock and restricted stock units
$
20,839

 
3.2
Performance-based share units
$
2,548

 
0.7


14

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

5.    Other Current Assets, Net

Other current assets, net, consisted of the following:
 
JUNE 28,
 
DECEMBER 28,
(dollars in thousands)
2015
 
2014
Prepaid expenses
$
26,856

 
$
30,260

Accounts receivable - vendors, net
23,593

 
27,340

Accounts receivable - franchisees, net
1,865

 
1,159

Accounts receivable - other, net
38,101

 
107,178

Other current assets, net
18,578

 
40,691

 
$
108,993

 
$
206,628


6.    Goodwill and Intangible Assets, Net

(dollars in thousands)
U.S. SEGMENT
 
INTERNATIONAL SEGMENT
 
CONSOLIDATED
Balance as of December 28, 2014
$
172,711

 
$
168,829

 
$
341,540

Translation adjustments

 
(23,334
)
 
(23,334
)
Balance as of June 28, 2015
$
172,711

 
$
145,495

 
$
318,206


The Company performed an annual assessment of goodwill and other indefinite-lived intangible assets during the fiscal second quarters of 2015 and 2014. In connection with the annual assessment, no goodwill or indefinite-lived intangible asset impairments were recorded in the thirteen and twenty-six weeks ended June 28, 2015 and June 29, 2014, respectively.

7.    Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:
 
JUNE 28,
 
DECEMBER 28,
(in thousands)
2015
 
2014
Accrued payroll and other compensation
$
94,690

 
$
121,548

Accrued insurance
22,122

 
19,455

Other current liabilities
91,801

 
96,841

 
$
208,613

 
$
237,844


Accrued Payroll Taxes - In May 2015, the IRS issued an audit adjustment of $3.3 million to the Company for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by the Company’s employees during calendar year 2011. As of June 28, 2015 and December 28, 2014, the Company had $9.3 million and $12.0 million, respectively, recorded in Accrued and other current liabilities in the Company’s Consolidated Balance Sheet for payroll tax audits related to tax years 2011 and 2012.


15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

8.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
JUNE 28, 2015
 
DECEMBER 28, 2014
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
285,000

 
2.17
%
 
$
296,250

 
2.16
%
Term loan B

 
%
 
225,000

 
3.50
%
Revolving credit facility (1)
570,000

 
2.16
%
 
325,000

 
2.16
%
Total Senior Secured Credit Facility
855,000

 
 
 
846,250

 
 
2012 CMBS loan:
 
 
 
 
 
 
 
First mortgage loan (1)
293,921

 
4.11
%
 
299,765

 
4.08
%
First mezzanine loan
84,579

 
9.00
%
 
85,127

 
9.00
%
Second mezzanine loan
85,707

 
11.25
%
 
86,067

 
11.25
%
Total 2012 CMBS Loan
464,207

 
 
 
470,959

 
 
Capital lease obligations
2,716

 
 
 
634

 
 
Other long-term debt (2)
2,868

 
0.73% to 7.60%

 
4,073

 
0.52% to 7.00%

 
$
1,324,791

 
 
 
$
1,321,916

 
 
Less: current portion of long-term debt, net
(25,602
)
 
 
 
(25,964
)
 
 
Less: unamortized debt discount
(3,874
)
 
 
 
(6,073
)
 
 
Long-term debt, net
$
1,295,315

 
 
 
$
1,289,879

 
 
________________
(1)
Represents the weighted-average interest rate for the respective period.
(2)
Balance is comprised of sale-leaseback obligations and uncollateralized notes payable. Interest rates presented relate to the notes payable.

Credit Agreement Amendment - On March 31, 2015, OSI Restaurant Partners, LLC (“OSI”), a wholly-owned subsidiary of the Company, entered into an amendment (the “Amendment”) to its existing credit agreement, dated October 26, 2012 (as previously amended, the “Existing Credit Agreement”), to effect an increase of OSI’s existing revolving credit facility from $600.0 million to $825.0 million in order to fully pay down its existing Term Loan B on April 2, 2015. No other material changes were made to the terms of OSI’s Existing Credit Agreement as a result of the Amendment.

Revolving Credit Facility - Fees on letters of credit and the daily unused availability under the revolving credit facility as of June 28, 2015 were 2.13% and 0.30%, respectively. As of June 28, 2015, $29.6 million of the revolving credit facility was committed for the issuance of letters of credit and not available for borrowing.

Debt Covenants - As of June 28, 2015 and December 28, 2014, the Company was in compliance with its debt covenants.


16

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Loss on Modification and Extinguishment of Debt - Following is a summary of loss on extinguishment and modification of debt recorded in the Company’s Consolidated Statement of Operations and Comprehensive Income:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015 (1)
 
JUNE 29, 2014 (2)
 
JUNE 28, 2015 (1)
 
JUNE 29, 2014 (2)
Refinancing of Senior Secured Credit Facility
$
2,638

 
$
11,092

 
$
2,638

 
$
11,092

________________
(1)
The loss was comprised of the write-off of $1.4 million of deferred financing fees and the write-off of $1.2 million of unamortized debt discount.
(2)
The loss was comprised of the write-off of $5.5 million of deferred financing fees, the write-off of $4.9 million of unamortized debt discount and a prepayment penalty of $0.7 million.

Deferred financing fees - During the second quarter of 2015, the Company deferred $1.2 million of financing costs incurred in connection with the amendment to the Credit Agreement. The deferred financing costs are included in Other assets, net in the Consolidated Balance Sheets.

9.    Redeemable Noncontrolling Interests

 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
Balance, beginning of period
$
24,733

Net income attributable to Redeemable noncontrolling interests
196

Purchase of Redeemable noncontrolling interests (1)
(459
)
Balance, end of period
$
24,470

________________
(1)
In April 2015, certain equity holders of PGS Par exercised options to sell their remaining interests in the Brazil Joint Venture. See Note 2 - Disposals, Exit Costs and Acquisitions for further information.

As of June 28, 2015, the Company allocated Net income attributable to noncontrolling interests and performed a measurement of the redemption amount for Redeemable noncontrolling interests, including a fair value assessment. Based on the fair value assessment, no adjustment was required for the twenty-six weeks ended June 28, 2015.

10.
Stockholders’ Equity

Secondary Public Offering - In March 2015, Bain Capital sold its remaining shares of the Company’s common stock through an underwritten secondary public offering. The selling stockholders received all of the proceeds from the offering. Pursuant to the underwriting agreement for the secondary public offering, the Company repurchased from the underwriters 2,759,164 of the shares sold by Bain Capital at a cost of $70.0 million.

Share Repurchases - In December 2014, the Company’s Board of Directors (the “Board”) approved a share repurchase program (the “2014 Share Repurchase Program”) under which the Company was authorized to repurchase up to $100.0 million of its outstanding common stock. As of June 28, 2015, no shares remained available for purchase under the 2014 Share Repurchase Program.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following is a summary of the shares repurchased under the Company’s share repurchase program:

NUMBER OF SHARES
(in thousands)
 
AVERAGE REPURCHASE PER SHARE
 
AMOUNT
(in thousands)
Thirteen weeks ended March 29, 2015 (1)
2,759

 
$
25.37

 
$
70,000

Thirteen weeks ended June 28, 2015
1,370

 
$
21.90

 
30,000

Total common stock repurchases
4,129

 
$
24.22

 
$
100,000

________________
(1)
Includes the repurchase of $70.0 million of the Company’s common stock in connection with the secondary public offering by Bain Capital in March 2015.

In August 2015, the Board approved a new share repurchase program (the “2015 Share Repurchase Program”) under which the Company is authorized to repurchase up to $100.0 million of its outstanding common stock. The authorization for the 2015 Share Repurchase Program will expire on February 3, 2017. As of the date of this filing, no shares had been repurchased under the 2015 Share Repurchase Program.

Shares repurchased are retired. The par value of the repurchased shares is deducted from common stock and the excess of the purchase price over the par value of the shares is recorded to Accumulated deficit.

Dividends - The Company declared and paid dividends per share during the periods presented as follows:
 
DIVIDENDS
PER SHARE
 
AMOUNT
(in thousands)
Thirteen weeks ended March 29, 2015
$
0.06

 
$
7,423

Thirteen weeks ended June 28, 2015
0.06

 
7,391

Total cash dividends declared and paid
$
0.12

 
$
14,814


In July 2015, the Board declared a quarterly cash dividend of $0.06 per share, payable on August 28, 2015, to shareholders of record at the close of business on August 18, 2015.

Accumulated other comprehensive loss - Following are the components of Accumulated other comprehensive loss (“AOCL”), net of tax:
(dollars in thousands)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
 
UNREALIZED LOSSES ON DERIVATIVES
 
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balances as of December 28, 2014
$
(58,149
)
 
$
(2,393
)
 
$
(60,542
)
Other comprehensive loss, net of tax
(51,644
)
 
(3,168
)
 
(54,812
)
Balances as of June 28, 2015
$
(109,793
)
 
$
(5,561
)
 
$
(115,354
)

11.    Derivative Instruments and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps.

18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

DESIGNATED HEDGES
Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, the Company entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a forward start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company will pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterparty based on the 30-day LIBOR rate.

The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Companys Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. Fair value changes in the interest rate swaps are recognized in AOCL for all effective portions. Balances in AOCL are subsequently reclassified to earnings in the same period that the hedged interest payments affect earnings. The Company estimates $6.4 million will be reclassified to interest expense over the next twelve months.

The following table presents the fair value and classification of the Company’s interest rate swaps:
(dollars in thousands)
JUNE 28, 2015
 
DECEMBER 28, 2014
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
6,052

 
$
2,617

 
Accrued and other current liabilities
Interest rate swaps - liability
3,065

 
1,307

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
9,117

 
$
3,924

 
 
____________________
(1)
See Note 12 - Fair Value Measurements for fair value discussion of the interest rate swaps.

As of June 28, 2015, no interest expense related to the interest rate swaps is accrued in the Consolidated Balance Sheets or recognized in the Consolidated Statements of Operations and Comprehensive Income as the interest rate swaps did not commence until June 30, 2015. During the thirteen and twenty-six weeks ended June 28, 2015, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

The following table summarizes the effects of the interest rate swap on the Consolidated Statements of Operations and Comprehensive Income for the thirteen and twenty-six weeks ended June 28, 2015:
 
AMOUNT OF GAIN (LOSS) RECOGNIZED IN OTHER COMPREHENSIVE INCOME
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 28, 2015
Interest rate swaps
$
1,385

 
$
(5,193
)
Income tax (expense) benefit
(541
)
 
2,025

Net of income taxes
$
844

 
$
(3,168
)
The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of June 28, 2015, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of June 28, 2015, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.

As of June 28, 2015, the fair value of the Company’s derivatives in a net liability position, excluding any adjustment for nonperformance risk, was $9.3 million. As of June 28, 2015, the Company has not posted any collateral related to

19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

these agreements. If the Company had breached any of these provisions as of June 28, 2015, it could have been required to settle its obligations under the agreements at their termination value of $9.3 million.

12.    Fair Value Measurements

Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of following three levels based on the lowest level of significant input:
Level 1
 
Unadjusted quoted market prices in active markets for identical assets or liabilities
Level 2
 
Observable inputs available at measurement date other than quoted prices included in Level 1
Level 3
 
Unobservable inputs that cannot be corroborated by observable market data

Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of June 28, 2015 and December 28, 2014:
 
JUNE 28, 2015
 
DECEMBER 28, 2014
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
61

 
$
61

 
$

 
$
4,602

 
$
4,602

 
$

Money market funds
1,133

 
1,133

 

 
7,842

 
7,842

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
571

 
571

 

 
3,360

 
3,360

 

Total asset recurring fair value measurements
$
1,765

 
$
1,765

 
$

 
$
15,804

 
$
15,804

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
6,052

 
$

 
$
6,052

 
$
2,617

 
$

 
$
2,617

Derivative instruments - commodities
507

 

 
507

 
566

 

 
566

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
3,065

 

 
3,065

 
1,307

 

 
1,307

Total liability recurring fair value measurements
$
9,624

 
$

 
$
9,624

 
$
4,490

 
$

 
$
4,490


Fair value of each class of financial instrument is determined based on the following:
FINANCIAL INSTRUMENT
 
METHODS AND ASSUMPTIONS
Fixed income funds and
Money market funds
 
Carrying value approximates fair value because maturities are less than three months.
Derivative instruments
 
Derivative instruments primarily relate to the interest rate swaps. Fair value measurements are based on a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives and uses observable market-based inputs, including interest rate curves and credit spreads. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of June 28, 2015, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.


20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis for the thirteen and twenty-six weeks ended June 28, 2015:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
 
JUNE 28, 2015
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL
IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL
IMPAIRMENT
Assets held for sale
$
3,353

 
$
857

 
$
3,353

 
$
1,028

Property, fixtures and equipment

 

 
950

 
1,124

 
$
3,353

 
$
857

 
$
4,303

 
$
2,152

 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 29, 2014
 
JUNE 29, 2014
(dollars in thousands)
CARRYING VALUE (2)
 
TOTAL
IMPAIRMENT
 
CARRYING VALUE (2)
 
TOTAL
IMPAIRMENT
Property, fixtures and equipment
$
2,351

 
$
407

 
$
2,951

 
$
483

 
$
2,351

 
$
407

 
$
2,951

 
$
483

________________
(1)
Carrying value approximates fair value with all assets measured using Level 2 inputs for the thirteen and twenty-six weeks ended June 28, 2015. A third-party market appraisal (Level 2) and a purchase contract (Level 2) were used to estimate the fair value.
(2)
Carrying value approximates fair value with $1.7 million and $0.6 million measured using Level 2 and Level 3 inputs, respectively, for the thirteen weeks ended June 29, 2014 and $2.3 million and $0.6 million measured using Level 2 and Level 3 inputs, respectively, for the twenty-six weeks ended June 29, 2014.

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments as of June 28, 2015 and December 28, 2014 consist of cash equivalents, restricted cash, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying amounts reported in the Consolidated Balance Sheets due to their short duration.

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of June 28, 2015 and December 28, 2014:
 
JUNE 28, 2015
 
DECEMBER 28, 2014
 
 
 
FAIR VALUE
 
 
 
FAIR VALUE
(dollars in thousands)
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
 
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Term loan A
$
285,000

 
$
283,931

 
$

 
$
296,250

 
$
294,769

 
$

Term loan B

 

 

 
225,000

 
222,188

 

Revolving credit facility
570,000

 
565,725

 

 
325,000

 
322,563

 

CMBS loan:
 
 
 
 
 
 
 
 
 
 
 
Mortgage loan
293,921

 

 
300,477

 
299,765

 

 
308,563

First mezzanine loan
84,579

 

 
84,639

 
85,127

 

 
85,187

Second mezzanine loan
85,707

 

 
86,624

 
86,067

 

 
86,988

Other notes payable
1,506

 

 
1,468

 
2,722

 

 
2,625



21

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair value of debt is determined based on the following:
DEBT FACILITY
 
METHODS AND ASSUMPTIONS
Senior Secured Credit Facility
 
Quoted market prices in inactive markets.
CMBS loan
 
Assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management.
Other notes payable
 
Discounted cash flow approach. Discounted cash flow inputs primarily include cost of debt rates which are used to derive the present value factors for the determination of fair value.

13.    Income Taxes

The effective income tax rates for the thirteen and twenty-six weeks ended June 28, 2015 were 29.9% and 27.1%, respectively, compared to 24.1% and 24.6% for the thirteen and twenty-six weeks ended June 29, 2014, respectively. The net increase in the effective income tax rate for the thirteen weeks ended June 28, 2015 was due to: (i) the favorable resolution of a payroll tax audit contingency that resulted in a deferred tax adjustment and (ii) a change in the blend of taxable income across the Company’s U.S. and international subsidiaries. The net increase in the effective income tax rate for the twenty-six weeks ended June 28, 2015 was due to: (i) a change in the blend of taxable income across the Company’s U.S. and international subsidiaries and (ii) the favorable resolution of a payroll tax audit contingency that resulted in a deferred tax adjustment.

See Note 7 - Accrued and Other Current Liabilities for additional details regarding the payroll tax audit contingency.

14.    Commitments and Contingencies

Litigation and Other Matters - The matter set forth below is subject to uncertainties and outcomes that are not predictable with certainty. The Company is unable to estimate a range of reasonably possible loss for the matter described below as the proceedings are at stages where significant uncertainty exists as to the legal or factual issues. The Company provides disclosure of matters when management believes it is reasonably possible the impact may be material to the consolidated financial statements.

On October 4, 2013, two then-current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI Restaurant Partners, LLC (“OSI”), and two of its subsidiaries in the U.S. District Court for the District of Nevada (Cardoza, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 2:13-cv-01820-JAD-NJK). The complaint alleges violations of the Fair Labor Standards Act by requiring employees to work off the clock, complete on-line training without pay, and attend meetings in the restaurant without pay. The suit seeks to certify a nationwide collective action that all hourly employees in all Outback Steakhouse restaurants would be permitted to join. The suit seeks an unspecified amount in back pay for the employees that join the lawsuit, an equal amount in liquidated damages, costs, expenses, and attorney’s fees. The Nevada Plaintiffs also filed a companion lawsuit in Nevada state court alleging that the Company violated the state break time rules. On October 27, 2014 the Court conditionally certified a class for notice purposes consisting of all employees that worked at a company-owned Outback Steakhouse between October 27, 2011 and October 27, 2014. The Company subsequently filed a Motion to Reconsider the October 27, 2014 order. On February 5, 2015, the Court denied the Company’s Motion to reconsider the October 27, 2014 order granting conditional certification. The Company believes these lawsuits are without merit, and is vigorously defending all allegations.

In addition, the Company is subject to legal proceedings, claims and liabilities, such as liquor liability, sexual harassment and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance if they exceed specified retention or deductible amounts. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows.


22

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

15.    Segment Reporting

During the first quarter of 2015, the Company recast its segment reporting to include two reportable segments, U.S. and International, which reflects changes made in how the Company manages its business, reviews operating performance and allocates resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. All prior period information was recast to reflect this change.

The Company’s reporting segments are organized based on restaurant concept and geographic location. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker. Following is a summary of reporting segments:
SEGMENT
 
CONCEPT
 
GEOGRAPHIC LOCATION
U.S.
 
Outback Steakhouse
 
United States of America, including Puerto Rico
 
Carrabba’s Italian Grill
 
 
Bonefish Grill
 
 
Fleming’s Prime Steakhouse & Wine Bar
 
International
 
Outback Steakhouse (1)
 
South Korea, Brazil, Hong Kong, China
 
Carrabba’s Italian Grill (Abbraccio)
 
Brazil
________________
(1)
Includes international franchise locations in 18 countries and Guam.

Segment accounting policies are the same as those described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 28, 2014. Revenues for all segments include only transactions with customers and include no intersegment revenues. Excluded from net income from operations for U.S. and International are legal and certain corporate costs not directly related to the performance of the segments, interest and other expenses related to the Company’s credit agreements and derivative instruments, certain stock-based compensation expenses, certain bonus expense and certain insurance expenses managed centrally.

The following table is a summary of Total revenue by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Total revenues
 
 
 
 
 
 
 
U.S.
$
982,978

 
$
967,043

 
$
2,044,992

 
$
1,977,669

International
116,619

 
143,869

 
256,664

 
291,102

Total revenues
$
1,099,597

 
$
1,110,912

 
$
2,301,656

 
$
2,268,771



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Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table is a reconciliation of Segment income from operations to Income before provision for income taxes:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Segment income from operations
 
 
 
 
 
 
 
U.S.
$
93,265

 
$
81,268

 
$
220,673

 
$
188,169

International
5,727

 
8,282

 
14,606

 
24,507

Total segment income from operations
98,992

 
89,550

 
235,279

 
212,676

Unallocated corporate operating expense
(36,407
)
 
(27,159
)
 
(74,993
)
 
(60,259
)
Total income from operations
62,585

 
62,391

 
160,286

 
152,417

Loss on extinguishment and modification of debt
(2,638
)
 
(11,092
)
 
(2,638
)
 
(11,092
)
Other income (expense), net
57

 
317

 
(1,090
)
 
153

Interest expense, net
(12,867
)
 
(15,109
)
 
(26,065
)
 
(31,707
)
Income before provision for income taxes
$
47,137

 
$
36,507

 
$
130,493

 
$
109,771


The following table is a summary of Depreciation and amortization expense by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 28, 2015
 
JUNE 29, 2014
 
JUNE 28, 2015
 
JUNE 29, 2014
Depreciation and amortization
 
 
 
 
 
 
 
U.S.
$
37,670

 
$
37,236

 
$
74,385

 
$
73,009

International
6,690

 
7,430

 
13,526

 
14,273

Corporate
3,015

 
3,961

 
5,950

 
7,510

Total depreciation and amortization
$
47,375

 
$
48,627

 
$
93,861

 
$
94,792



24

Table of Contents
BLOOMIN’ BRANDS, INC.

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


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries.

Cautionary Statement

This Quarterly Report on Form 10-Q (the “Report”) 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” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report 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. 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 Report. 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 Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following:

(i)
Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates;

(ii)
Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants;

(iii)
Our ability to preserve and grow the reputation and value of our brands;

(iv)
Our ability to acquire attractive sites on acceptable terms, obtain required permits and approvals, recruit and train necessary personnel and obtain adequate financing in order to develop new restaurants as planned, and difficulties in estimating the performance of newly opened restaurants;

(v)
The effects of international economic, political, social and legal conditions on our foreign operations and on foreign currency exchange rates;

(vi)
Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits;


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Table of Contents
BLOOMIN’ BRANDS, INC.

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

(vii)
Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events;

(viii)
Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations;

(ix)
Minimum wage increases and additional mandated employee benefits;

(x)
Fluctuations in the price and availability of commodities;

(xi)
Consumer reactions to public health and food safety issues;

(xii)
Our ability to protect our information technology systems from interruption or security breach and to protect consumer data and personal employee information;

(xiii)
The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt;

(xiv)     The adequacy of our cash flow and earnings and other conditions which may affect our ability to pay dividends and repurchase shares of our common stock;

(xv)      Strategic actions, including acquisitions and dispositions and our success in integrating any acquired or newly created businesses; and

(xvi)     Such other factors as discussed throughout the “Risk Factors” section of this Report and in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 28, 2014.

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 Report 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.




26

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of June 28, 2015, we owned and operated 1,323 restaurants and franchised 169 restaurants across 48 states, Puerto Rico, Guam and 22 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
The casual dining restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies, labor costs and fluctuations in prices of commodities and other necessities to operate a restaurant, such as natural gas or other energy supplies. Restaurant companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Our industry is characterized by high initial capital investment, coupled with high labor costs. As a result, we focus on driving 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 focused on restaurant growth with strong unit level economics.

Executive Summary

Our financial results for the thirteen weeks ended June 28, 2015 (“second quarter 2015”) include the following:

U.S. comparable restaurant sales were 2.0% higher, primarily due to growth at Outback and Flemings, partially offset by a decline at Bonefish Grill.

A decrease in total revenues of 1.0% to $1.1 billion in the second quarter of 2015, as compared to the second quarter of 2014, primarily due to: (i) the effect of foreign currency translation, primarily due to the depreciation of the Brazilian Real, (ii) the closing of 55 restaurants since March 30, 2014, (iii) the sale of 20 Roy’s restaurants and (iv) lower comparable restaurant sales at Bonefish Grill and Outback Steakhouse in South Korea. The decrease in revenues was partially offset by: (i) the opening of 89 new restaurants not included in our comparable restaurant sales base and (ii) an increase in comparable restaurant sales at our existing restaurants, primarily at Outback Steakhouse in the U.S. and Brazil.

Income from operations of $62.6 million in the second quarter of 2015 as compared to $62.4 million in the second quarter of 2014, which was primarily due to an increase in operating margin at the restaurant-level, partially offset by higher general and administrative expense. Operating margin at the restaurant-level increased primarily due to productivity savings, higher U.S. average unit volumes and the favorable resolution of a payroll tax audit contingency. These increases were offset by commodity and wage rate inflation.

Following is a summary of significant actions we have taken and other factors that impacted our operating results and liquidity to date in 2015:

Dividend and Share Repurchase Programs - In December 2014, the Board adopted a dividend policy under which it intends to declare quarterly cash dividends on shares of our common stock. See Liquidity - Dividends and Share Repurchases.

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