Document
 
 
 
 
 

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 26, 2016
 
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 29, 2016, 111,940,924 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 26, 2016
(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 26, 2016
 
DECEMBER 27, 2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
102,074

 
$
132,337

Current portion of restricted cash and cash equivalents
802

 
6,772

Inventories
67,682

 
80,704

Current portion of assets held for sale
29,943

 
784

Other current assets, net
95,647

 
198,047

Total current assets
296,148

 
418,644

Restricted cash

 
16,265

Long-term portion of assets held for sale
16,884

 

Property, fixtures and equipment, net
1,498,342

 
1,594,460

Goodwill
304,613

 
300,861

Intangible assets, net
541,690

 
546,837

Deferred income tax assets
342

 
7,631

Other assets, net
126,360

 
147,871

Total assets
$
2,784,379

 
$
3,032,569

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
JUNE 26, 2016
 
DECEMBER 27, 2015
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
202,953

 
$
193,116

Accrued and other current liabilities
210,313

 
206,611

Unearned revenue
264,941

 
382,586

Current portion of liabilities held for sale
18,350

 

Current portion of long-term debt, net
28,288

 
31,853

Total current liabilities
724,845

 
814,166

Deferred rent
147,004

 
139,758

Deferred income tax liabilities
38,259

 
53,546

Long-term liabilities held for sale
4,077

 

Long-term debt, net
1,210,370

 
1,285,011

Other long-term liabilities, net
326,425

 
294,662

Total liabilities
2,450,980

 
2,587,143

Commitments and contingencies (Note 16)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
24,134

 
23,526

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 26, 2016 and December 27, 2015

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 111,865,247 and 119,214,522 shares issued and outstanding as of June 26, 2016 and December 27, 2015, respectively
1,119

 
1,192

Additional paid-in capital
1,068,757

 
1,072,861

Accumulated deficit
(633,205
)
 
(518,360
)
Accumulated other comprehensive loss
(140,060
)
 
(147,367
)
Total Bloomin’ Brands stockholders’ equity
296,611

 
408,326

Noncontrolling interests
12,654

 
13,574

Total stockholders’ equity
309,265

 
421,900

Total liabilities, mezzanine equity and stockholders’ equity
$
2,784,379

 
$
3,032,569

 
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 26, 2016

JUNE 28, 2015

JUNE 26, 2016

JUNE 28, 2015
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,072,519

 
$
1,092,759

 
$
2,230,571

 
$
2,287,569

Other revenues
6,069

 
6,838

 
12,205

 
14,087

Total revenues
1,078,588

 
1,099,597

 
2,242,776

 
2,301,656

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
346,811

 
357,455

 
722,099

 
744,923

Labor and other related
309,155

 
301,039

 
631,960

 
625,025

Other restaurant operating
250,443

 
254,281

 
504,014

 
518,319

Depreciation and amortization
49,004

 
47,375

 
96,655

 
93,861

General and administrative
68,566

 
75,962

 
143,591

 
149,209

Provision for impaired assets and restaurant closings
41,276

 
900

 
44,440

 
10,033

Total costs and expenses
1,065,255

 
1,037,012

 
2,142,759

 
2,141,370

Income from operations
13,333

 
62,585

 
100,017

 
160,286

Loss on defeasance, extinguishment and modification of debt

 
(2,638
)
 
(26,580
)
 
(2,638
)
Other (expense) income, net
(1
)
 
57

 
(20
)
 
(1,090
)
Interest expense, net
(10,302
)
 
(12,867
)
 
(23,177
)
 
(26,065
)
Income before provision for income taxes
3,030

 
47,137

 
50,240

 
130,493

Provision for income taxes
11,095

 
14,081

 
22,422

 
35,355

Net (loss) income
(8,065
)
 
33,056

 
27,818

 
95,138

Less: net income attributable to noncontrolling interests
1,112

 
830

 
2,520

 
2,324

Net (loss) income attributable to Bloomin’ Brands
$
(9,177
)
 
$
32,226

 
$
25,298

 
$
92,814

 
 
 
 
 
 
 
 
Net (loss) income
$
(8,065
)
 
$
33,056

 
$
27,818

 
$
95,138

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
19,965

 
(26,182
)
 
12,680

 
(51,644
)
Unrealized (losses) gains on derivatives, net of tax
(2,187
)
 
844

 
(4,922
)
 
(3,168
)
Reclassification of adjustment for loss on derivatives included in net income, net of tax
967

 

 
1,955

 

Comprehensive income
10,680

 
7,718

 
37,531

 
40,326

Less: comprehensive income attributable to noncontrolling interests
2,820

 
830

 
4,926

 
2,324

Comprehensive income attributable to Bloomin’ Brands
$
7,860

 
$
6,888

 
$
32,605

 
$
38,002

 
 
 
 
 
 
 
 
(Loss) earnings per share:
 
 
 
 
 
 
 
Basic
$
(0.08
)
 
$
0.26

 
$
0.22

 
$
0.75

Diluted
$
(0.08
)
 
$
0.26

 
$
0.21

 
$
0.73

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
113,330

 
123,046

 
115,630

 
124,174

Diluted
113,330

 
126,242

 
118,560

 
127,501

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.07

 
$
0.06

 
$
0.14

 
$
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, EXCEPT PER SHARE DATA, 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 27, 2015
119,215

 
$
1,192

 
$
1,072,861

 
$
(518,360
)
 
$
(147,367
)
 
$
13,574

 
$
421,900

Net income

 

 

 
25,298

 

 
2,139

 
27,437

Other comprehensive income (loss), net of tax

 

 

 

 
7,307

 
(24
)
 
7,283

Cash dividends declared, $0.14 per common share

 

 
(16,216
)
 

 

 

 
(16,216
)
Repurchase and retirement of common stock
(7,775
)
 
(78
)
 

 
(139,814
)
 

 

 
(139,892
)
Stock-based compensation

 

 
12,854

 

 

 

 
12,854

Tax shortfall from stock-based compensation

 

 
(594
)
 

 

 

 
(594
)
Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
425

 
5

 
632

 
(329
)
 

 

 
308

Change in the redemption value of redeemable interests

 

 
(1,349
)
 

 

 

 
(1,349
)
Purchase of noncontrolling interests, net of tax of $522

 

 
569

 

 

 
164

 
733

Distributions to noncontrolling interests

 

 

 

 

 
(3,652
)
 
(3,652
)
Contributions from noncontrolling interests

 

 

 

 

 
453

 
453

Balance, June 26, 2016
111,865

 
$
1,119

 
$
1,068,757

 
$
(633,205
)
 
$
(140,060
)
 
$
12,654

 
$
309,265

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


6

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA, 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 from 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 limited partnership interests, net of tax

 

 
(229
)
 

 

 

 
(229
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,729
)
 
(2,729
)
Contributions from noncontrolling interests

 

 

 

 

 
167

 
167

Balance, June 28, 2015
122,625

 
$
1,226

 
$
1,088,075

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

 
$
495,948


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 26, 2016
 
JUNE 28, 2015
Cash flows provided by operating activities:
 
 
 
Net income
$
27,818

 
$
95,138

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

 
 

Depreciation and amortization
96,655

 
93,861

Amortization of deferred discounts and issuance costs
2,542

 
2,439

Amortization of deferred gift card sales commissions
15,832

 
15,548

Provision for impaired assets and restaurant closings
44,440

 
10,033

Stock-based and other non-cash compensation expense
11,454

 
11,810

Deferred income tax expense
3,187

 
1,931

Loss on defeasance, extinguishment and modification of debt
26,580

 
2,638

Excess tax benefit from stock-based compensation
(378
)
 
(1,272
)
Other non-cash items, net
(2,408
)
 
(1,051
)
Change in assets and liabilities:
 

 
 

Decrease in inventories
12,085

 
6,352

Decrease in other current assets
81,652

 
66,321

Decrease in other assets
4,418

 
7,291

Decrease in accounts payable and accrued and other current liabilities
(3,458
)
 
(6,505
)
Increase in deferred rent
8,377

 
13,063

Decrease in unearned revenue
(115,507
)
 
(118,257
)
Decrease in other long-term liabilities
(7,873
)
 
(1,913
)
Net cash provided by operating activities
205,416

 
197,427

Cash flows provided by (used in) investing activities:
 

 
 

Proceeds from disposal of property, fixtures and equipment
527

 
3,104

Proceeds from sale-leaseback transactions, net
160,597

 

Proceeds from sale of a business

 
7,798

Capital expenditures
(109,319
)
 
(114,251
)
Decrease in restricted cash
35,238

 
31,694

Increase in restricted cash
(12,999
)
 
(29,216
)
Other investments, net
(3,910
)
 
11,550

Net cash provided by (used in) investing activities
$
70,134

 
$
(89,321
)
 
 
 
 
 
(CONTINUED...)
 

8

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$
294,699

 
$

Defeasance, extinguishment and modification of debt
(478,906
)
 
(215,000
)
Repayments of long-term debt
(103,728
)
 
(29,419
)
Proceeds from borrowings on revolving credit facilities, net
414,000

 
396,101

Repayments of borrowings on revolving credit facilities
(233,000
)
 
(152,300
)
Proceeds from the exercise of share-based compensation
637

 
6,012

Distributions to noncontrolling interests
(3,652
)
 
(2,729
)
Contributions from noncontrolling interests
539

 
167

Purchase of limited partnership and noncontrolling interests
(8,983
)
 
(652
)
Repayments of partner deposits and accrued partner obligations
(10,018
)
 
(27,231
)
Repurchase of common stock
(140,221
)
 
(100,525
)
Excess tax benefit from stock-based compensation
378

 
1,272

Cash dividends paid on common stock
(16,216
)
 
(14,814
)
Net cash used in financing activities
(284,471
)
 
(139,118
)
Effect of exchange rate changes on cash and cash equivalents
853

 
(1,960
)
Transfers of cash and cash equivalents to assets held for sale
(22,195
)
 

Net decrease in cash and cash equivalents
(30,263
)
 
(32,972
)
Cash and cash equivalents as of the beginning of the period
132,337

 
165,744

Cash and cash equivalents as of the end of the period
$
102,074

 
$
132,772

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
23,031

 
$
25,730

Cash paid for income taxes, net of refunds
15,087

 
10,883

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities
$
15,721

 
$
(3,015
)

 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., through its subsidiaries (“Bloomin’ Brands” or the “Company”), owns and operates casual, upscale casual and fine dining restaurants. 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.

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 27, 2015.

Recently Issued Financial Accounting Standards Not Yet Adopted - In March 2016, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU No. 2016-09 will be effective for the Company in fiscal year 2017. While reducing the complexity of the accounting for share based-payments, ASU No. 2016-09 is expected to impact net income, earnings per share and cash flows.

In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU No. 2016-02 is effective for the Company in fiscal year 2019 and must be adopted using a modified retrospective approach. The Company is currently evaluating the impact the adoption of ASU No. 2016-02 will have 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’s fiscal year 2016 annual reporting period. 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. ASU No. 2014-09, as amended by ASU No. 2015-14 “Revenue from Contracts with Customers (Topic 606)—Deferral of the Effective Date”, ASU No. 2016-08 “Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing” and ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients”, will be effective for

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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.

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 (loss) income.

2.    Impairments, Disposals and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Impairment losses
 
 
 
 
 
 
 
U.S.
$
81

 
$
111

 
$
81

 
$
1,406

International
39,636

 

 
39,636

 

Corporate

 
746

 

 
746

Total impairment losses
$
39,717

 
$
857

 
$
39,717

 
$
2,152

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
1,221

 
$
340

 
$
4,849

 
$
1,774

International
338

 
(297
)
 
(126
)
 
6,107

Total restaurant closure expenses
$
1,559

 
$
43

 
$
4,723

 
$
7,881

Provision for impaired assets and restaurant closings
$
41,276

 
$
900

 
$
44,440

 
$
10,033


Outback South Korea - On July 7, 2016, the Company entered into an agreement to sell its Outback Steakhouse subsidiary in South Korea (“Outback South Korea”) for a purchase price of $50.0 million, in cash. In connection with the decision to sell Outback South Korea, the Company recognized an impairment charge of $39.6 million, including estimated costs to sell of $3.3 million, within the International segment during the thirteen and twenty-six weeks ended June 26, 2016. After completion of the sale on July 25, 2016, the Company’s restaurant locations in South Korea are operated as franchises under an agreement with the buyer.

As of June 26, 2016, in connection with the sale, the Company recognized deferred tax liabilities of $3.5 million to reflect management’s change in assertion of permanent reinvestment of undistributed earnings in South Korea.


11

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following are the assets and liabilities of Outback South Korea as of June 26, 2016:
(dollars in thousands)
JUNE 26, 2016
Assets
 
Cash and cash equivalents
$
22,195

Other current assets, net
6,907

Property, fixtures and equipment, net
26,922

Goodwill
1,901

Deferred income tax assets
7,252

Other assets, net
20,445

Total assets (1)
85,622

Impairment on carrying value of assets held for sale (2)
(39,636
)
Total assets, net of impairment
$
45,986

 
 
Liabilities
 
Accrued and other current liabilities
$
16,201

Unearned revenue
2,149

Deferred rent
1,175

Other long-term liabilities, net
2,902

Total liabilities (1)
$
22,427

________________
(1)
Certain assets and liabilities of Outback South Korea are classified as non-current in the Consolidated Balance Sheet as of June 26, 2016, since net proceeds from the sale will be used to make a payment on the revolving credit facility, which is classified as a non-current liability.
(2)
After considering the effect of foreign currency translation adjustments of $20.6 million included in Accumulated other comprehensive loss, the Company recognized an impairment charge of $39.6 million.

Following are the components of Outback South Korea included in the Consolidated Statements of Operations and Comprehensive Income for the following periods:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Restaurant sales
$
36,690

 
$
36,232

 
$
78,702

 
$
86,367

Loss before income taxes (1)
$
(38,601
)
 
$
(151
)
 
$
(34,594
)
 
$
(3,174
)
________________
(1)
Includes impairment charges of $39.6 million for Assets held for sale during the thirteen and twenty-six weeks ended June 26, 2016.

Bonefish Restructuring - On February 12, 2016, the Company decided to close 14 Bonefish restaurants (“Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the first quarter of 2019. In connection with the Bonefish Restructuring, the Company recognized pre-tax restaurant and other closing costs of approximately $0.8 million and $4.4 million during the thirteen and twenty-six weeks ended June 26, 2016, respectively, which were recorded within the U.S. segment.

The Company currently expects to incur additional charges of approximately $2.3 million to $4.9 million over the next five years, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of estimated pre-tax expense by type:
 
ESTIMATED EXPENSE
(dollars in millions)
Lease-related liabilities, net of subleases
$
2.0

to
$
4.0

Employee severance and other obligations
$
0.3

to
$
0.9



12

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Total future cash expenditures of $11.1 million to $13.3 million, primarily related to lease liabilities, are expected to occur through October 2024.

Restaurant Closure Initiatives - During 2014, the Company decided to close 36 underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”). In 2013, the Company decided to close 22 underperforming domestic locations (the “Domestic Restaurant Closure Initiative”).

Following is a summary of expenses related to the Bonefish Restructuring and International and Domestic Restaurant Closure Initiatives recognized in Provision for impaired assets and restaurant closings in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated (dollars in thousands):
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Property, fixtures and equipment impairments
 
 
 
 
 
 
 
Domestic Restaurant Closure Initiative
$
81

 
$

 
$
81

 
$

Facility closure and other expenses
 
 
 
 
 
 
 
Bonefish Restructuring
807

 

 
4,380

 

International Restaurant Closure Initiative
338

 
(309
)
 
(124
)
 
6,095

Domestic Restaurant Closure Initiative

 

 

 
1,337

 
$
1,226

 
$
(309
)
 
$
4,337

 
$
7,432


Following is a summary of expenses related to the Domestic and International Restaurant Closure Initiatives and the Bonefish Restructuring recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income (dollars in thousands):
DESCRIPTION
 
LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
 
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Impairments, facility closure and other expenses
 
Provision for impaired assets and restaurant closings
 
$
1,226

 
$
(309
)
 
$
4,337

 
$
7,432

Severance and other expenses
 
General and administrative
 
26

 
246

 
624

 
1,573

Reversal of deferred rent liability
 
Other restaurant operating
 
(876
)
 

 
(2,801
)
 
(198
)
 
 
 
 
$
376

 
$
(63
)
 
$
2,160

 
$
8,807



13

Table of Contents
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 Bonefish Restructuring and Domestic and International Restaurant Closure Initiatives, during the twenty-six weeks ended June 26, 2016:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
Beginning of the period
$
5,699

Charges
4,863

Cash payments
(3,584
)
Adjustments
(140
)
End of the period (1)
$
6,838

________________
(1)
As of June 26, 2016, the Company had exit-related accruals of $2.2 million recorded in Accrued and other current liabilities and $4.6 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.

3.    (Loss) Earnings Per Share

The following table presents the computation of basic and diluted (loss) earnings per share:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands, except per share data)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Net (loss) income attributable to Bloomin’ Brands
$
(9,177
)
 
$
32,226

 
$
25,298

 
$
92,814

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
113,330

 
123,046

 
115,630

 
124,174

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options

 
3,025

 
2,719

 
3,123

Nonvested restricted stock and restricted stock units

 
171

 
208

 
201

Nonvested performance-based share units

 

 
3

 
3

Diluted weighted average common shares outstanding
113,330

 
126,242

 
118,560

 
127,501

 
 
 
 
 
 
 
 
Basic (loss) earnings per share
$
(0.08
)
 
$
0.26

 
$
0.22

 
$
0.75

Diluted (loss) earnings per share
$
(0.08
)
 
$
0.26

 
$
0.21

 
$
0.73


Dilutive securities outstanding not included in the computation of (loss) earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Stock options
8,269

 
2,899

 
4,854

 
2,510

Nonvested restricted stock and restricted stock units
587

 
26

 
376

 
43

Nonvested performance-based share units
77

 

 
83

 


4.    Stock-based and Deferred Compensation Plans

Stock-based Compensation Plans

Equity Compensation Plans - On April 22, 2016, the Company’s shareholders approved the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Incentive Plan”). Following approval of the 2016 Incentive

14

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Plan, no further awards have been granted under the Company’s previous equity compensation plans. Existing awards under previous plans continue to vest in accordance with the original vesting schedule and will expire at the end of their original term. The 2016 Incentive Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other cash-based or stock-based awards to Company management, other key employees, consultants and directors.

As of June 26, 2016, the maximum number of shares of common stock available for issuance pursuant to the 2016 Incentive Plan was 5,297,128.

Performance-based Share Units - During the twenty-six weeks ended June 26, 2016, the Company granted performance-based share units that vest after three years based on the achievement of certain Company performance criteria as set forth in the award agreement and may range from zero to 200% of the target grant.

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Stock options
$
3,301

 
$
2,552

 
$
6,019

 
$
4,979

Restricted stock and restricted stock units
2,518

 
1,741

 
4,562

 
3,150

Performance-based share units
867

 
940

 
1,752

 
1,689

 
$
6,686

 
$
5,233

 
$
12,333

 
$
9,818


During the twenty-six weeks ended June 26, 2016, the Company made grants to its employees of 2.9 million stock options, 1.0 million time-based restricted stock units and 0.4 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 26, 2016
Assumptions:
 
Weighted-average risk-free interest rate (1)
1.3
%
Dividend yield (2)
1.6
%
Expected term (3)
6.1 years

Weighted-average volatility (4)
35.2
%
 
 
Weighted-average grant date fair value per option
$
5.27

________________
(1)
Risk-free interest 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 to 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 is based on the historical volatilities of the Company’s stock and the stock of comparable peer companies.


15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of June 26, 2016:
 
UNRECOGNIZED
COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
28,092

 
2.6
Restricted stock and restricted stock units
$
27,615

 
3.0
Performance-based share units
$
4,607

 
1.9

5.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
Prepaid expenses
$
25,568

 
$
30,373

Accounts receivable - gift cards, net
23,372

 
115,926

Accounts receivable - vendors, net
9,306

 
10,310

Accounts receivable - franchisees, net
1,811

 
1,149

Accounts receivable - other, net
20,299

 
21,158

Other current assets, net
15,291

 
19,131

 
$
95,647

 
$
198,047


6.     Property, Fixtures and Equipment, Net

During the twenty-six weeks ended June 26, 2016, the Company entered into sale-leaseback transactions with third-parties in which it sold 46 restaurant properties at fair market value for gross proceeds of $163.5 million. The Company recorded a deferred gain on the sale of certain of the properties of $53.8 million, primarily in Other long-term liabilities, net in its Consolidated Balance Sheet. Deferred gains from these sale-leaseback transactions are amortized to General and administrative expense in the Consolidated Statements of Operations and Comprehensive Income over the initial term of each lease, ranging from 15 to 20 years.

7.     Goodwill, Net

Goodwill - The following table is a rollforward of goodwill:
(dollars in thousands)
U.S.
 
INTERNATIONAL
 
CONSOLIDATED
Balance as of December 27, 2015
$
172,711

 
$
128,150

 
$
300,861

Translation adjustments

 
5,653

 
5,653

Transfer to Assets held for sale (1)

 
(1,901
)
 
(1,901
)
Balance as of June 26, 2016
$
172,711

 
$
131,902

 
$
304,613

_______________
(1)
During the twenty-six weeks ended June 26, 2016, the Company reclassified Goodwill associated with Outback South Korea to assets held for sale. Refer to Note 2 - Impairments, Disposals and Exit Costs for further discussion.

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets during the fiscal second quarters of 2016 and 2015. In connection with these assessments, the Company did not record any goodwill or indefinite-lived intangible impairment charges.


16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

8.    Other Assets, Net

Other assets, net, consisted of the following:
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
Company-owned life insurance
$
71,697

 
$
68,950

Deferred financing fees (1)
3,181

 
3,730

Liquor licenses
27,865

 
27,869

Other assets
23,617

 
47,322

 
$
126,360

 
$
147,871

________________
(1)
Net of accumulated amortization of $2.7 million and $2.2 million as of June 26, 2016 and December 27, 2015, respectively.

9.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
JUNE 26, 2016
 
DECEMBER 27, 2015
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
270,000

 
2.44
%
 
$
277,500

 
2.26
%
Term loan A-1
146,250

 
2.41
%
 
150,000

 
2.34
%
Revolving credit facility (1)
613,000

 
2.43
%
 
432,000

 
2.29
%
Total Senior Secured Credit Facility
$
1,029,250

 
 
 
$
859,500

 
 
PRP Mortgage Loan (2)
$
212,153

 
2.91
%
 
$

 
%
2012 CMBS loan:
 
 
 
 
 
 
 
First mortgage loan (1)
$

 
%
 
$
289,588

 
4.13
%
First mezzanine loan

 
%
 
84,028

 
9.00
%
Second mezzanine loan

 
%
 
85,353

 
11.25
%
Total 2012 CMBS loan
$

 
 
 
$
458,969

 
 
Capital lease obligations
$
2,541

 
 
 
$
2,632

 
 
Other long-term debt
1,785

 
0.73% to 7.60%

 
2,292

 
0.73% to 7.60%

Less: unamortized debt discount and issuance costs
(7,071
)
 
 
 
(6,529
)
 
 
 
$
1,238,658

 
 
 
$
1,316,864

 
 
Less: current portion of long-term debt, net (2)
(28,288
)
 
 
 
(31,853
)
 
 
Long-term debt, net
$
1,210,370

 
 
 
$
1,285,011

 
 
________________
(1)
Represents the weighted-average interest rate for the respective period.
(2)
Subsequent to June 26, 2016, PRP entered into an amendment to its existing PRP Mortgage Loan. See Note 18 - Subsequent Events for further discussion.

PRP Mortgage Loan - On February 11, 2016, New Private Restaurant Partners, LLC, an indirect wholly-owned subsidiary of the Company (“PRP”), as borrower, and Wells Fargo Bank, National Association, as lender (the “Lender”), entered into a loan agreement (the “PRP Mortgage Loan”), pursuant to which PRP borrowed $300.0 million. The PRP Mortgage Loan has an initial maturity date of February 11, 2018 (the “Initial Maturity”) with an option to extend the Initial Maturity for one twelve-month extension period (the “Extension”) provided that certain conditions are satisfied. The PRP Mortgage Loan is collateralized by certain properties owned by PRP (“Collateral Properties”). PRP has also made negative pledges with respect to certain properties (“Unencumbered Properties”).

17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The proceeds of the PRP Mortgage Loan were used, together with borrowings under the Company’s revolving credit facility, to prepay a portion, and fully defease the remainder, of the 2012 CMBS loan. In connection with the defeasance, the Company recognized a loss of $26.6 million during the thirteen weeks ended March 27, 2016. Following the defeasance of the 2012 CMBS loan, $19.3 million of restricted cash was released.
The PRP Mortgage Loan bears interest, payable monthly, at a variable rate equal to 250 basis points above the seven-day LIBOR, subject to adjustment in certain circumstances.
Deferred Financing Fees - During the first quarter of 2016, the Company deferred $5.3 million of financing costs incurred in connection with the PRP Mortgage Loan. The deferred financing costs are included in Long-term debt, net in the Consolidated Balance Sheet.

Debt Covenants - As of June 26, 2016 and December 27, 2015, the Company was in compliance with its debt covenants.
10.    Other Long-term Liabilities, Net

Other long-term liabilities, net, consisted of the following:
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
Accrued insurance liability
$
39,200

 
$
40,649

Unfavorable leases, net of accumulated amortization
43,568

 
45,375

Chef and Restaurant Managing Partner deferred compensation obligations and deposits
116,347

 
134,470

Deferred gain on sale-leaseback transactions, net of accumulated amortization (1)
82,330

 
33,154

Other long-term liabilities
44,980

 
41,014

 
$
326,425

 
$
294,662

_______________
(1)
Refer to Note 6 - Property, Fixtures and Equipment, Net for discussion of the sale-leaseback transactions.

11.    Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in Brazil and China, each of which have noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. The following table presents a rollforward of Redeemable noncontrolling interests during the twenty-six weeks ended June 26, 2016 and June 28, 2015:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
Balance, beginning of period
$
23,526

 
$
24,733

Change in redemption value of Redeemable noncontrolling interests
1,349

 

Foreign currency translation attributable to Redeemable noncontrolling interests
2,430

 

Net income attributable to Redeemable noncontrolling interests
381

 
196

Purchase of and contributions by Redeemable noncontrolling interests
(3,552
)
 
(459
)
Balance, end of period
$
24,134

 
$
24,470


Brazil Redeemable Noncontrolling Interests - During the twenty-six weeks ended June 26, 2016, certain former equity holders of PGS Consultoria e Serviços Ltda. (the “Brazil Joint Venture”) exercised options to sell their remaining interests to the Company for $2.2 million. This transaction resulted in a reduction of $3.6 million of Mezzanine equity and an increase of $1.4 million of Additional paid-in capital during the twenty-six weeks ended June 26, 2016. As a result of the option exercise, the Company now owns 91.29% of the Brazil Joint Venture. Various call and put options related to the Brazil Joint Venture remain through 2018, subject to acceleration in certain circumstances.


18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

12.
Stockholders’ Equity

Share Repurchases - In August 2015, the Board of Directors (“the Board”) approved a share repurchase program (the “2015 Share Repurchase Program”) under which the Company was authorized to repurchase up to $100.0 million of its outstanding common stock. The Board canceled the remaining $30.0 million of authorization under the 2015 Share Repurchase Program and approved a new $250.0 million authorization (the “2016 Share Repurchase Program”) on February 12, 2016.

On July 26, 2016, the Board canceled the remaining $110.1 million of authorization under the 2016 Share Repurchase Program and approved a new $300.0 million authorization (the “July 2016 Share Repurchase Program”). The July 2016 Share Repurchase Program will expire on January 26, 2018.

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

NUMBER OF SHARES
(in thousands)
 
AVERAGE REPURCHASE PRICE PER SHARE
 
AMOUNT
(dollars in thousands)
Thirteen weeks ended March 27, 2016
4,399

 
$
17.05

 
$
75,000

Thirteen weeks ended June 26, 2016
3,376

 
$
19.22

 
64,892

Total common stock repurchases
7,775

 
$
17.99

 
$
139,892


Dividends - The Company declared and paid dividends per share during the period presented as follows:
 
DIVIDENDS
PER SHARE
 
AMOUNT
(dollars in thousands)
Thirteen weeks ended March 27, 2016
$
0.07

 
$
8,238

Thirteen weeks ended June 26, 2016
0.07

 
7,978

Total cash dividends declared and paid
$
0.14

 
$
16,216


In July 2016, the Board declared a quarterly cash dividend of $0.07 per share, payable on August 25, 2016, to shareholders of record at the close of business on August 10, 2016.

Acquisition of Noncontrolling Interests - During the twenty-six weeks ended June 26, 2016, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships for two Outback Steakhouse restaurants for an aggregate purchase price of $1.2 million. These transactions resulted in a reduction of $0.8 million, net of tax, in Additional paid-in capital in the Company’s Consolidated Statement of Changes in Stockholders’ Equity during the twenty-six weeks ended June 26, 2016.

The following table sets forth the effect of the acquisition of the limited partnership interests on stockholders’ equity attributable to Bloomin’ Brands for the twenty-six weeks ended June 26, 2016:
 
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
Net income attributable to Bloomin’ Brands
$
25,298

Transfers to noncontrolling interests:
 
Decrease in Bloomin’ Brands additional paid-in capital for purchase of limited partnership interests
(820
)
Change from net income attributable to Bloomin’ Brands and transfers to noncontrolling interests
$
24,478


19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued


Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss (“AOCL”):
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
Foreign currency translation adjustment (1)
$
(130,902
)
 
$
(141,176
)
Unrealized losses on derivatives, net of tax
(9,158
)
 
(6,191
)
Accumulated other comprehensive loss
$
(140,060
)
 
$
(147,367
)
________________
(1)
As of June 26, 2016, the Company reclassified the assets and liabilities of Outback South Korea to held for sale. Approximately $20.6 million of the foreign currency translation adjustment in Accumulated other comprehensive loss as of June 26, 2016 was associated with Outback South Korea. Refer to Note 2 - Impairments, Disposals and Exit Costs for further discussion.

Following are the components of Other comprehensive (loss) income during the periods presented:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Bloomin’ Brands:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
18,257

 
$
(26,182
)
 
$
10,274

 
$
(51,644
)
 
 
 
 
 
 
 
 
Unrealized (losses) gains on derivatives, net of tax (1)
$
(2,187
)
 
$
844

 
$
(4,922
)
 
$
(3,168
)
Reclassification of adjustment for loss on derivatives included in Net (loss) income, net of tax (2)
967

 

 
1,955

 

Total unrealized losses on derivatives, net of tax
$
(1,220
)
 
$
844

 
$
(2,967
)
 
$
(3,168
)
Other comprehensive income (loss) attributable to Bloomin’ Brands
$
17,037

 
$
(25,338
)
 
$
7,307

 
$
(54,812
)
 
 
 
 
 
 
 
 
Non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(30
)
 
$

 
$
(24
)
 
$

Other comprehensive loss attributable to Non-controlling interests
$
(30
)
 
$

 
$
(24
)
 
$

 
 
 
 
 
 
 
 
Redeemable non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
1,738

 
$

 
$
2,430

 
$

Other comprehensive income attributable to Redeemable non-controlling interests
$
1,738

 
$

 
$
2,430

 
$

________________
(1)
Amounts attributable to Bloomin’ Brands are net of tax benefit (expense) of $1.4 million and ($0.5) million for the thirteen weeks ended June 26, 2016 and June 28, 2015, respectively and tax benefit of $3.2 million and $2.0 million for the twenty-six weeks ended June 26, 2016 and June 28, 2015, respectively.
(2)
Amounts attributable to Bloomin’ Brands are net of tax benefit of $0.6 million and $1.3 million for the thirteen and twenty-six weeks ended June 26, 2016.

13.    Derivative Instruments and Hedging Activities

Interest Rate Risk - The Company is exposed to certain risks 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.
Currency Exchange Rate Risk - The Company is exposed to foreign currency exchange rate risk arising from transactions and balances denominated in currencies other than the U.S. dollar. The Company may use foreign currency forward contracts to manage certain foreign currency exposures.

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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 start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receives 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 Company’s 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 $6.1 million will be reclassified to interest expense over the next twelve months.

The following table presents the fair value, accrued interest and classification of the Company’s interest rate swaps:
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
5,709

 
$
5,142

 
Accrued and other current liabilities
Interest rate swaps - liability
9,311

 
5,007

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
15,020

 
$
10,149

 
 
 
 
 
 
 
 
Accrued interest
$
470

 
$
556

 
Accrued and other current liabilities
____________________
(1)
See Note 14 - Fair Value Measurements for fair value discussion of the interest rate swaps.

The following table summarizes the effects of the interest rate swap on Net (loss) income for the thirteen and twenty-six weeks ended June 26, 2016:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 26, 2016
Interest rate swap expense recognized in Interest expense, net (1)
$
(1,597
)
 
$
(3,211
)
Income tax benefit recognized in Provision for income taxes
630

 
1,256

Total effects of the interest rate swaps on Net (loss) income
$
(967
)
 
$
(1,955
)
____________________
(1)
During the thirteen and twenty-six weeks ended June 26, 2016 and June 28, 2015, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

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 26, 2016, 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 26, 2016, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness.

As of June 26, 2016 and December 27, 2015, the fair value of the Company’s interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was $15.8 million and $10.9 million, respectively. As of June 26, 2016 and December 27, 2015, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of June 26, 2016 and December 27, 2015, it could have been required to settle its obligations under the agreements at their termination value of $15.8 million and $10.9 million, respectively.

NON-DESIGNATED HEDGES

Non-deliverable Foreign Currency Forward Contracts - From time to time, the Company has entered into non-deliverable foreign currency forward contracts to partially offset the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies. As of June 26, 2016, the Company had $68.9 million of outstanding notional amounts relating to its foreign currency forward contracts. The Company’s foreign currency forward contracts are subject to master netting arrangements.

14.    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


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Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 26, 2016 and December 27, 2015:
 
JUNE 26, 2016
 
DECEMBER 27, 2015
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
206

 
$
206

 
$

 
$
6,333

 
$
6,333

 
$

Money market funds
18,461

 
18,461

 

 
7,168

 
7,168

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
551

 
551

 

 
551

 
551

 

Money market funds
251

 
251

 

 
2,681

 
2,681

 

Other current assets, net:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - foreign currency forward contracts
606

 

 
606

 
59

 

 
59

Total asset recurring fair value measurements
$
20,075

 
$
19,469

 
$
606

 
$
16,792

 
$
16,733

 
$
59

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
5,709

 
$

 
$
5,709

 
$
5,142

 
$

 
$
5,142

Derivative instruments - commodities
371

 

 
371

 
583