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 March 26, 2017
 
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

https://cdn.kscope.io/f05ce81de24f40aad545f26462fd1ddc-blmnlogov3.jpg

BLOOMIN’ BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8023465
(State or other jurisdiction of incorporation or organization)
 
(IRS 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 April 27, 2017, 100,232,042 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 March 26, 2017
(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)
 
MARCH 26, 2017
 
DECEMBER 25, 2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
98,383

 
$
127,176

Current portion of restricted cash and cash equivalents
805

 
7,886

Inventories
52,262

 
65,231

Other current assets, net
89,850

 
190,226

Total current assets
241,300

 
390,519

Restricted cash

 
1,124

Long-term portion of assets held for sale
36,402

 
803

Property, fixtures and equipment, net
1,194,969

 
1,237,148

Goodwill
316,498

 
310,055

Intangible assets, net
535,313

 
535,523

Deferred income tax assets
56,104

 
38,764

Other assets, net
130,390

 
128,343

Total assets
$
2,510,976

 
$
2,642,279

 
 
 
 
 
(CONTINUED...)
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
MARCH 26, 2017
 
DECEMBER 25, 2016
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
197,629

 
$
195,371

Accrued and other current liabilities
216,322

 
204,415

Unearned revenue
284,081

 
388,543

Current portion of long-term debt
48,756

 
35,079

Total current liabilities
746,788

 
823,408

Deferred rent
146,882

 
151,130

Deferred income tax liabilities
17,407

 
16,709

Long-term liabilities held for sale
12,792

 

Long-term debt, net
953,620

 
1,054,406

Deferred gain on sale-leaseback transactions, net
186,131

 
181,696

Other long-term liabilities, net
227,711

 
219,030

Total liabilities
2,291,331

 
2,446,379

Commitments and contingencies (Note 15)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
497

 
547

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of March 26, 2017 and December 25, 2016

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 101,480,260 and 103,922,110 shares issued and outstanding as of March 26, 2017 and December 25, 2016, respectively
1,015

 
1,039

Additional paid-in capital
1,077,473

 
1,079,583

Accumulated deficit
(781,673
)
 
(786,780
)
Accumulated other comprehensive loss
(89,681
)
 
(111,143
)
Total Bloomin’ Brands stockholders’ equity
207,134

 
182,699

Noncontrolling interests
12,014

 
12,654

Total stockholders’ equity
219,148

 
195,353

Total liabilities, mezzanine equity and stockholders’ equity
$
2,510,976

 
$
2,642,279

 
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
 
MARCH 26, 2017

MARCH 27, 2016
Revenues
 
 
 
Restaurant sales
$
1,135,488

 
$
1,158,052

Franchise and other revenues
8,335

 
6,136

Total revenues
1,143,823

 
1,164,188

Costs and expenses
 

 
 
Cost of sales
364,748

 
375,288

Labor and other related
324,398

 
322,805

Other restaurant operating
247,940

 
253,571

Depreciation and amortization
46,590

 
47,651

General and administrative
71,941

 
75,025

Provision for impaired assets and restaurant closings
19,076

 
3,164

Total costs and expenses
1,074,693

 
1,077,504

Income from operations
69,130

 
86,684

Loss on defeasance, extinguishment and modification of debt

 
(26,580
)
Other expense, net
(51
)
 
(19
)
Interest expense, net
(9,141
)
 
(12,875
)
Income before provision for income taxes
59,938

 
47,210

Provision for income taxes
15,015

 
11,327

Net income
44,923

 
35,883

Less: net income attributable to noncontrolling interests
1,013

 
1,408

Net income attributable to Bloomin’ Brands
$
43,910

 
$
34,475

 
 
 
 
Net income
$
44,923

 
$
35,883

Other comprehensive income:
 
 
 
Foreign currency translation adjustment
20,489

 
(7,285
)
Unrealized gain (loss) on derivatives, net of tax
101

 
(2,735
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
784

 
988

Comprehensive income
66,297

 
26,851

Less: comprehensive income attributable to noncontrolling interests
925

 
2,106

Comprehensive income attributable to Bloomin’ Brands
$
65,372

 
$
24,745

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.43

 
$
0.29

Diluted
$
0.41

 
$
0.29

Weighted average common shares outstanding:
 
 
 
Basic
103,074

 
117,930

Diluted
106,413

 
120,776

 
 
 
 
Cash dividends declared per common share
$
0.08

 
$
0.07

 
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 25, 2016
103,922

 
$
1,039

 
$
1,079,583

 
$
(786,780
)
 
$
(111,143
)
 
$
12,654

 
$
195,353

Net income

 

 

 
43,910

 

 
1,068

 
44,978

Other comprehensive income (loss), net of tax

 

 

 

 
21,462

 
(93
)
 
21,369

Cash dividends declared, $0.08 per common share

 

 
(8,254
)
 

 

 

 
(8,254
)
Repurchase and retirement of common stock
(2,887
)
 
(29
)
 

 
(53,024
)
 

 

 
(53,053
)
Stock-based compensation

 

 
5,990

 

 

 

 
5,990

Common stock issued under stock plans (1)
445

 
5

 
225

 
(143
)
 

 

 
87

Purchase of noncontrolling interests, net of tax of $45

 

 
(71
)
 

 

 
59

 
(12
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,013
)
 
(2,013
)
Contributions from noncontrolling interests

 

 

 

 

 
339

 
339

Cumulative-effect from a change in accounting principle

 

 

 
14,364

 

 

 
14,364

Balance, March 26, 2017
101,480

 
$
1,015

 
$
1,077,473

 
$
(781,673
)
 
$
(89,681
)
 
$
12,014

 
$
219,148

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


6

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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

 

 

 
34,475

 

 
1,097

 
35,572

Other comprehensive (loss) income, net of tax

 

 

 

 
(9,730
)
 
6

 
(9,724
)
Cash dividends declared, $0.07 per common share

 

 
(8,238
)
 

 

 

 
(8,238
)
Repurchase and retirement of common stock
(4,399
)
 
(44
)
 

 
(74,956
)
 

 

 
(75,000
)
Stock-based compensation

 


 
5,890

 

 

 

 
5,890

Tax shortfall from stock-based compensation

 

 
(838
)
 

 

 

 
(838
)
Common stock issued under stock plans (1)
209

 
2

 
(1,103
)
 
(176
)
 

 

 
(1,277
)
Purchase of noncontrolling interests, net of tax of $522

 

 
538

 

 

 
164

 
702

Distributions to noncontrolling interests

 

 

 

 

 
(2,025
)
 
(2,025
)
Contributions from noncontrolling interests

 

 

 

 

 
240

 
240

Balance, March 27, 2016
115,025

 
$
1,150

 
$
1,069,110

 
$
(559,017
)
 
$
(157,097
)
 
$
13,056

 
$
367,202

________________
(1)
Net of forfeitures and shares withheld for employee taxes.

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)


 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
 
MARCH 27, 2016
Cash flows provided by operating activities:
 
 
 
Net income
$
44,923

 
$
35,883

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

 
 

Depreciation and amortization
46,590

 
47,651

Amortization of deferred discounts and issuance costs
1,004

 
1,315

Amortization of deferred gift card sales commissions
7,902

 
9,633

Provision for impaired assets and restaurant closings
19,076

 
3,164

Stock-based and other non-cash compensation expense
6,672

 
4,561

Deferred income tax (benefit) expense
(794
)
 
234

Loss on defeasance, extinguishment and modification of debt

 
26,580

Recognition of deferred gain on sale-leaseback transactions
(2,897
)
 
(551
)
Excess tax benefit from stock-based compensation

 
(81
)
Other non-cash items, net
683

 
(1,659
)
Change in assets and liabilities:
 

 
 

Decrease in inventories
11,747

 
5,806

Decrease in other current assets
96,930

 
95,746

(Increase) decrease in other assets
(1,328
)
 
2,424

Increase in accounts payable and accrued and other current liabilities
10,493

 
1,818

(Decrease) increase in deferred rent
(1,150
)
 
6,452

Decrease in unearned revenue
(104,519
)
 
(102,963
)
Increase (decrease) in other long-term liabilities
865

 
(5,288
)
Net cash provided by operating activities
136,197

 
130,725

Cash flows used in investing activities:
 

 
 

Proceeds from disposal of property, fixtures and equipment
3

 
2

Proceeds from sale-leaseback transactions, net
38,776

 
8,459

Capital expenditures
(58,237
)
 
(43,566
)
Decrease in restricted cash
14,079

 
29,457

Increase in restricted cash
(5,873
)
 
(10,128
)
Other investments, net
(1,123
)
 
(2,777
)
Net cash used in investing activities
$
(12,375
)
 
$
(18,553
)
 
 
 
 
 
(CONTINUED...)
 

8

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BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
 
MARCH 27, 2016
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$

 
$
294,699

Defeasance, extinguishment and modification of debt

 
(478,906
)
Repayments of long-term debt
(42,878
)
 
(9,991
)
Proceeds from borrowings on revolving credit facilities, net
115,500

 
308,500

Repayments of borrowings on revolving credit facilities
(160,500
)
 
(133,000
)
Proceeds from failed sale-leaseback transactions, net
5,942

 

Proceeds (payment of taxes) from the exercise of share-based compensation
230

 
(1,101
)
Distributions to noncontrolling interests
(2,013
)
 
(2,025
)
Contributions from noncontrolling interests
339

 
326

Purchase of limited partnership and noncontrolling interests
(3,158
)
 
(4,828
)
Repayments of partner deposits and accrued partner obligations
(6,367
)
 
(4,975
)
Repurchase of common stock
(53,196
)
 
(75,176
)
Excess tax benefit from stock-based compensation

 
81

Cash dividends paid on common stock
(8,254
)
 
(8,238
)
Net cash used in financing activities
(154,355
)
 
(114,634
)
Effect of exchange rate changes on cash and cash equivalents
1,740

 
(1,041
)
Net decrease in cash and cash equivalents
(28,793
)
 
(3,503
)
Cash and cash equivalents as of the beginning of the period
127,176

 
132,337

Cash and cash equivalents as of the end of the period
$
98,383

 
$
128,834

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
8,334

 
$
13,050

Cash paid for income taxes, net of refunds
4,906

 
3,551

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
$
(4,139
)
 
$
7,669

Purchase of noncontrolling interest included in accrued and other current liabilities

 
(2,249
)

 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. Each of the Company’s concepts has additional restaurants in which it has no direct investment and 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 fair financial statement presentation 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 25, 2016.

Recently Adopted Financial Accounting Standards - Effective December 26, 2016, the Company adopted 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. Upon adoption, the Company made an accounting policy election to recognize forfeitures as they occur. Using the modified retrospective transition method required under the standard, the Company recorded a cumulative-effect adjustment for the adoption of ASU 2016-09 of $14.4 million for previously unrecognized excess tax benefits, which increased Deferred tax assets and reduced Accumulated deficit. The recognition of excess tax benefits and tax shortfalls in the income statement and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. The remaining provisions of ASU 2016-09 did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Financial Accounting Standards Not Yet Adopted - In January 2017, the Financial Accounting Standards Board (“the FASB”) issued ASU No. 2017-04, “ Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU No. 2017-04”). ASU No. 2017-04 eliminates the second step of goodwill impairment, which requires a hypothetical purchase price allocation. Under ASU No. 2017-04, goodwill impairment will be calculated as the amount a reporting unit’s carrying value exceeds its calculated fair value. ASU No. 2017-04 will be applied prospectively and is effective for the Company in fiscal year 2020, with early adoption permitted. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations - Clarifying the Definition of a Business,” (“ASU No. 2017-01”). ASU No. 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects various areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU No. 2017-01 is effective for the Company in fiscal year 2018 and is not expected to have an impact on the Company’s Consolidated Financial Statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash” (“ASU No. 2016-18”). ASU No. 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents, which should now be included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the Statements of Cash Flows. ASU No. 2016-18 will be effective for the Company in fiscal

10

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

year 2018, with early adoption permitted. Other than the change in presentation of restricted cash within the Statement of Cash Flows, the adoption of ASU No. 2016-18 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”) which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. ASU No. 2016-15 will be effective for the Company in fiscal year 2018, and early adoption is permitted. The Company does not expect ASU No. 2016-15 to have a material impact on its Consolidated Financial Statements.

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 Consolidated Financial Statements.

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, 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.

While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to accounting for breakage and advertising fees charged to franchisees. Under the new standard, the Company expects to recognize breakage proportional to actual gift card redemptions. Advertising fees charged to franchisees, which are currently recorded as a reduction to Other restaurant operating expenses, will be recognized as Franchise and other revenues. In addition, initial franchise fees will be recognized over the term of the franchise agreement, which is not expected to have a material impact on the Consolidated Financial Statements.

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 income.

2.    Disposals

Assets Held for Sale - In February 2017, the Company signed purchase agreements with multiple buyers to sell 54 of its existing U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations for $37.6 million. The Company completed the sale of these restaurants in the second quarter of 2017. After the completion of the sale, these restaurant locations are operated as franchises under agreements with the buyers.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following are the assets and liabilities related to the 54 Outback Steakhouse and Carrabba’s Italian Grill locations classified as held for sale as of March 26, 2017:
(dollars in thousands)
MARCH 26, 2017
Assets
 
Current assets, net
$
1,704

Property, fixtures and equipment, net
31,774

Goodwill
1,677

Other assets, net
2,143

Total assets (1)
$
37,298

 
 
Liabilities
 
Accrued and other current liabilities
$
217

Deferred rent
3,230

Long-term debt, net (2)
5,942

Other long-term liabilities, net
3,620

Total liabilities (1)
$
13,009

________________
(1)
Certain assets and liabilities are classified as non-current in the Consolidated Balance Sheet as of March 26, 2017, 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)
Includes a financing obligation related to the sale of a restaurant property that does not qualify for sale-leaseback accounting. See Footnote 7 - Property, Fixtures and Equipment, Net for additional details regarding the sale-leaseback transactions.

Following are the components of the Consolidated Statements of Operations and Comprehensive Income for the Outback Steakhouse and Carrabba’s Italian Grill locations classified as held for sale as of March 26, 2017:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Income before income taxes
$
3,495

 
$
3,797


Outback Steakhouse South Korea - In 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”). Following are the components of Outback Steakhouse South Korea included in the Consolidated Statements of Operations and Comprehensive Income for the following period:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 27, 2016
Income before income taxes
$
4,007



12

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

3.    Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Impairment losses
 
 
 
U.S.
$
920

 
$

Total impairment losses
$
920

 
$

Restaurant closure expenses
 
 
 
U.S.
$
18,156

 
$
3,628

International

 
(464
)
Total restaurant closure expenses
$
18,156

 
$
3,164

Provision for impaired assets and restaurant closings
$
19,076

 
$
3,164


Closure Initiative and Restructuring Costs - Following is a summary of expenses, related to the 2017 Closure Initiative, Bonefish Restructuring and International Restaurant Closure Initiative (“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:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Impairment, facility closure and other expenses
 
 
 
2017 Closure Initiative (1)
$
17,447

 
$

Bonefish Restructuring (2)
809

 
3,573

International Restaurant Closure Initiative (3)

 
(462
)
Provision for impaired assets and restaurant closings
$
18,256

 
$
3,111

Severance and other expenses
 
 
 
2017 Closure Initiative (1)
$
2,182

 
$

Bonefish Restructuring (2)

 
575

International Restaurant Closure Initiative (3)

 
23

General and administrative
$
2,182

 
$
598

Reversal of deferred rent liability
 
 
 
2017 Closure Initiative (1)
$
(4,941
)
 
$

Bonefish Restructuring (2)

 
(1,925
)
Other restaurant operating
$
(4,941
)
 
$
(1,925
)
 
$
15,497

 
$
1,784

________________
(1)
On February 15, 2017, the Company decided to close 43 underperforming restaurants (the “2017 Closure Initiative”). Most of these restaurants will close in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. Expenses related to the 2017 Closure Initiative for the thirteen weeks ended March 26, 2017, are recognized within the U.S. segment.
(2)
On February 12, 2016, the Company decided to close 14 Bonefish Grill restaurants (“Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the first quarter of 2019. Expenses related to the Bonefish Restructuring are recognized within the U.S. segment.
(3)
During 2014, the Company decided to close 36 underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”).

The remaining restaurant impairment and closing charges resulted from the carrying value of a restaurant’s assets exceeding its estimated fair market value, primarily due to locations identified for relocation.


13

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Projected Future Expenses and Cash Expenditures - The Company currently expects to incur additional charges for the 2017 Closure Initiative and Bonefish Restructuring over the next two to three 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 future expense (dollars in millions)
2017 CLOSURE INITIATIVE
 
BONEFISH RESTRUCTURING
Lease related liabilities, net of subleases
$
4.0

to
$
5.7

 
$
2.0

to
$
5.1

Employee severance and other obligations
0.5

to
0.8

 
0.3

to
0.6

Total estimated future expense
$
4.5

to
$
6.5

 
$
2.3

to
$
5.7

 
 
 
 
 
 
 
 
Total estimated future cash expenditures (dollars in millions)
$
30.4

 
$
34.6

 
$
10.1

to
$
12.3


Total future undiscounted cash expenditures for the 2017 Closure Initiative and Bonefish Restructuring, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029 and October 2024, respectively.

Accrued Facility Closure and Other Costs Rollforward - The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the 2017 Closure Initiative, Bonefish Restructuring and Domestic and International Restaurant Closure Initiatives, during the thirteen weeks ended March 26, 2017:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
Beginning of the period
$
6,557

Charges
18,467

Cash payments
(2,338
)
Adjustments
(311
)
End of the period (1)
$
22,375

________________
(1)
As of March 26, 2017, the Company had exit-related accruals of $7.2 million recorded in Accrued and other current liabilities and $15.2 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.


14

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

4.    Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
(in thousands, except per share data)
MARCH 26, 2017
 
MARCH 27, 2016
Net income attributable to Bloomin’ Brands
$
43,910

 
$
34,475

 
 
 
 
Basic weighted average common shares outstanding
103,074

 
117,930

 
 
 
 
Effect of diluted securities:
 
 
 
Stock options
2,933

 
2,653

Nonvested restricted stock and restricted stock units
354

 
188

Nonvested performance-based share units
52

 
5

Diluted weighted average common shares outstanding
106,413

 
120,776

 
 
 
 
Basic earnings per share
$
0.43

 
$
0.29

Diluted earnings per share
$
0.41

 
$
0.29


Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
(in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Stock options
5,566

 
4,224

Nonvested restricted stock and restricted stock units
191

 
393

Nonvested performance-based share units
371

 


5.    Stock-based Compensation Plans

The Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan (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 March 26, 2017, the maximum number of shares of common stock available for issuance pursuant to the 2016 Incentive Plan was 4,046,425.

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Stock options
$
2,755

 
$
2,718

Restricted stock and restricted stock units
2,553

 
2,044

Performance-based share units
416

 
885

 
$
5,724

 
$
5,647


During the thirteen weeks ended March 26, 2017, the Company made grants to its employees of 1.1 million stock options, 0.5 million time-based restricted stock units and 0.3 million performance-based share units.


15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
 
MARCH 27, 2016
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
1.93
%
 
1.31
%
Dividend yield (2)
1.85
%
 
1.61
%
Expected term (3)
6.3 years

 
6.1 years

Weighted-average volatility (4)
33.74
%
 
35.21
%
 
 
 
 
Weighted-average grant date fair value per option
$
5.05

 
$
5.21

________________
(1)
Risk-free interest rate is the U.S. Treasury yield curve in effect as of the grant date for periods within the expected term 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.

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of March 26, 2017:
 
UNRECOGNIZED
COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
23,176

 
2.6
Restricted stock and restricted stock units
$
27,308

 
2.9
Performance-based share units
$
7,278

 
2.0

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
MARCH 26, 2017
 
DECEMBER 25, 2016
Prepaid expenses
$
20,669

 
$
35,298

Accounts receivable - gift cards, net
11,534

 
102,664

Accounts receivable - vendors, net
5,402

 
10,107

Accounts receivable - franchisees, net
2,242

 
1,677

Accounts receivable - other, net
27,679

 
20,497

Assets held for sale
3,732

 
1,331

Other current assets, net
18,592

 
18,652

 
$
89,850

 
$
190,226


7.     Property, Fixtures and Equipment, Net

During the thirteen weeks ended March 26, 2017, the Company entered into sale-leaseback transactions with third-parties in which it sold 11 restaurant properties at fair market value for gross proceeds of $40.1 million. In connection with the sale-leaseback transactions, the Company recorded deferred gains of $10.7 million, which are amortized to Other restaurant operating expense in the Consolidated Statements of Operations and Comprehensive Income over the initial term of each lease, ranging from 10 to 15 years.

16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued


During the thirteen weeks ended March 26, 2017, the Company sold one restaurant property to a third party for gross proceeds of $6.0 million. The sale of this property does not qualify for sale-leaseback accounting and the book value of the building and land was not removed from the Company’s Consolidated Balance Sheet. See Note 2 - Disposals for additional details regarding the financing obligation.

8.     Goodwill, Net

The following table is a rollforward of goodwill:
(dollars in thousands)
U.S.
 
INTERNATIONAL
 
CONSOLIDATED
Balance as of December 25, 2016
$
172,424

 
$
137,631

 
$
310,055

Translation adjustments

 
8,120

 
8,120

Transfer to Assets held for sale
(1,677
)
 

 
(1,677
)
Balance as of March 26, 2017
$
170,747

 
$
145,751

 
$
316,498


9.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
MARCH 26, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
253,125

 
2.82
%
 
$
258,750

 
2.63
%
Term loan A-1
137,813

 
2.95
%
 
140,625

 
2.70
%
Revolving credit facility (1)
577,000

 
2.89
%
 
622,000

 
2.67
%
Total Senior Secured Credit Facility
$
967,938

 
 
 
$
1,021,375

 
 
PRP Mortgage Loan (2)
13,670

 
3.45
%
 
47,202

 
3.21
%
Financing obligations
19,591

 
7.45% to 7.60%

 
19,595

 
7.45% to 7.60%

Capital lease obligations
2,276

 
 
 
2,364

 
 
Other notes payable
1,000

 
0.00% to 2.18%

 
1,776

 
0.00% to 7.00%

Less: unamortized debt discount and issuance costs
(2,099
)
 
 
 
(2,827
)
 
 
 
$
1,002,376

 
 
 
$
1,089,485

 
 
Less: current portion of long-term debt, net
(48,756
)
 
 
 
(35,079
)
 
 
Long-term debt, net
$
953,620

 
 
 
$
1,054,406

 
 
________________
(1)
Represents the weighted-average interest rate for the respective period.
(2)
In April 2017, the Company paid the remaining balance on its PRP Mortgage Loan.

Debt Covenants - As of March 26, 2017 and December 25, 2016, the Company was in compliance with its debt covenants.

17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

10.    Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in which it has 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 thirteen weeks ended March 26, 2017 and March 27, 2016:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Balance, beginning of period
$
547

 
$
23,526

Foreign currency translation attributable to Redeemable noncontrolling interests
5

 
692

Net (loss) income attributable to Redeemable noncontrolling interests
(55
)
 
311

Purchase of Redeemable noncontrolling interests

 
(3,522
)
Balance, end of period
$
497

 
$
21,007


11.
Stockholders’ Equity

Share Repurchases - Following is a summary of the shares repurchased under the Company’s share repurchase program during fiscal year 2017:

NUMBER OF SHARES
(in thousands)
 
AVERAGE REPURCHASE PRICE PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter (1)(2)
2,887

 
$
18.37

 
$
53,053

________________
(1)
On July 26, 2016, the Board of Directors (“the Board”) approved a new $300.0 million authorization (the “July 2016 Share Repurchase Program”).
(2)
Excludes the repurchase of 1.3 million shares for $24.7 million pursuant to trades executed in, but not settled until after, the thirteen weeks ended March 26, 2017.

On April 21, 2017, the Board canceled the remaining $52.3 million of authorization under the July 2016 Share Repurchase Program and approved a new $250.0 million authorization (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program will expire on October 21, 2018.

Dividends - The Company declared and paid dividends per share during fiscal year 2017 as follows:
 
DIVIDENDS
PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
$
0.08

 
$
8,254


In April 2017, the Board declared a quarterly cash dividend of $0.08 per share, payable on May 19, 2017, to shareholders of record at the close of business on May 8, 2017.

Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss (“AOCL”):
(dollars in thousands)
MARCH 26, 2017
 
DECEMBER 25, 2016
Foreign currency translation adjustment
$
(86,932
)
 
$
(107,509
)
Unrealized losses on derivatives, net of tax
(2,749
)
 
(3,634
)
Accumulated other comprehensive loss
$
(89,681
)
 
$
(111,143
)
 

18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following are the components of Other comprehensive income (loss) during the periods presented:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Bloomin’ Brands:
 
 
 
Foreign currency translation adjustment
$
20,577

 
$
(7,983
)
 
 
 
 
Unrealized gain (loss) on derivatives, net of tax (1)
$
101

 
$
(2,735
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (2)
784

 
988

Total unrealized gain (loss) on derivatives, net of tax
$
885

 
$
(1,747
)
Other comprehensive income (loss) attributable to Bloomin’ Brands
$
21,462

 
$
(9,730
)
 
 
 
 
Non-controlling interests:
 
 
 
Foreign currency translation adjustment
$
(93
)
 
$
6

Other comprehensive (loss) income attributable to Non-controlling interests
$
(93
)
 
$
6

 
 
 
 
Redeemable non-controlling interests:
 
 
 
Foreign currency translation adjustment
$
5

 
$
692

Other comprehensive income attributable to Redeemable non-controlling interests
$
5

 
$
692

________________
(1)
Unrealized loss on derivatives is net of tax of ($0.1) million and $1.7 million for the thirteen weeks ended March 26, 2017 and March 27, 2016, respectively.
(2)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.5 million and $0.6 million for the thirteen weeks ended March 26, 2017 and March 27, 2016, respectively.

12.    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.
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 $3.3 million will be reclassified to interest expense over the next twelve months.

19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued


The following table presents the fair value, accrued interest and classification of the Company’s interest rate swaps:
(dollars in thousands)
MARCH 26, 2017
 
DECEMBER 25, 2016
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
3,081

 
$
3,968

 
Accrued and other current liabilities
Interest rate swaps - liability
1,457

 
1,999

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
4,538

 
$
5,967

 
 
 
 
 
 
 
 
Accrued interest
$
372

 
$
408

 
Accrued and other current liabilities
____________________
(1)
See Note 13 - 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 income for the thirteen weeks ended March 26, 2017 and March 27, 2016:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Interest rate swap expense recognized in Interest expense, net (1)
$
(1,265
)
 
$
(1,614
)
Income tax benefit recognized in Provision for income taxes
481

 
626

Total effects of the interest rate swaps on Net income
$
(784
)
 
$
(988
)
____________________
(1)
During the thirteen weeks ended March 26, 2017 and March 27, 2016, 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 March 26, 2017, 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 March 26, 2017, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.

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 March 26, 2017 and December 25, 2016, the fair value of the Company’s interest rate swaps in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, was $4.9 million and $6.4 million, respectively. As of March 26, 2017 and December 25, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 26, 2017 and December 25, 2016, it could have been required to settle its obligations under the agreements at their termination value of $4.9 million and $6.4 million, respectively.


20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

13.    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 the 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 March 26, 2017 and December 25, 2016:
 
MARCH 26, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
88

 
$
88

 
$

 
$
90

 
$
90

 
$

Money market funds
15,946

 
15,946

 

 
18,607

 
18,607

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
553

 
553

 

 
552

 
552

 

Money market funds
252

 
252

 

 
2,518

 
2,518

 

Total asset recurring fair value measurements
$
16,839

 
$
16,839

 
$

 
$
21,767

 
$
21,767

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
3,081

 
$

 
$
3,081

 
$
3,968

 
$

 
$
3,968

Derivative instruments - commodities
171

 

 
171

 
157

 

 
157

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
1,457

 

 
1,457

 
1,999

 

 
1,999

Total liability recurring fair value measurements
$
4,709

 
$

 
$
4,709

 
$
6,124

 
$

 
$
6,124


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
 
The Company’s derivative instruments include interest rate swaps and commodities. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable 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 March 26, 2017 and December 25, 2016, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.


21

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:
 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$
400

 
$
70

Property, fixtures and equipment
1,067

 
850

 
$
1,467

 
$
920

________________
(1)
Carrying value approximates fair value with all assets measured using third-party market appraisals (Level 2).

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments as of March 26, 2017 and December 25, 2016 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 March 26, 2017 and December 25, 2016:
 
MARCH 26, 2017
 
DECEMBER 25, 2016
 
 
 
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
$
253,125

 
$
252,176

 
$

 
$
258,750

 
$
257,780

 
$

Term loan A-1
137,813

 
137,296

 

 
140,625

 
140,098

 

Revolving credit facility
577,000

 
572,673

 

 
622,000

 
617,335

 

PRP Mortgage Loan
13,670

 

 
13,670

 
47,202

 

 
47,202

Other notes payable
1,000

 

 
981

 
1,776

 

 
1,659


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.
PRP Mortgage 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.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

14.    Income Taxes

 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
 
MARCH 27, 2016
Effective income tax rate
25.1
%
 
24.0
%

The net increase in the effective income tax rate for the thirteen weeks ended March 26, 2017, was primarily due to the change in the blend of taxable income across the Company’s U.S. and international subsidiaries and the change in employment related credits as a percentage of income.

15.    Commitments and Contingencies

Litigation and Other Matters - The Company had $5.9 million and $3.5 million of liabilities recorded for various legal matters as of March 26, 2017 and December 25, 2016, respectively.

In November 2015, David Sears and Elizabeth Thomas, two former Outback Steakhouse managers (“Manager Plaintiffs”), sent a demand letter seeking unpaid overtime compensation on behalf of all managers and kitchen managers employed at Outback Steakhouse restaurants from November 2012 to present. The Manager Plaintiffs claim that managers were not assigned sufficient management duties to qualify as exempt from overtime. In December 2016, the Company agreed to a tentative class settlement for eligible kitchen managers and has accrued a settlement, inclusive of legal fees, of $2.4 million.

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.

16.    Segment Reporting

The Company has two reportable segments, U.S. and International, which reflects 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. 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 (“CODM”). Following is a summary of reporting segments:
SEGMENT
 
CONCEPT
 
GEOGRAPHIC LOCATION
U.S.
 
Outback Steakhouse
 
United States of America
 
Carrabba’s Italian Grill
 
 
Bonefish Grill
 
 
Fleming’s Prime Steakhouse & Wine Bar
 
International
 
Outback Steakhouse
 
Brazil, Hong Kong, China
 
Carrabba’s Italian Grill (Abbraccio)
 
Brazil

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 25, 2016. 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 certain legal and corporate costs not directly related to the performance of the segments, stock-based compensation expenses and certain bonus expenses.

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued


The following table is a summary of Total revenue by segment:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Total revenues
 
 
 
U.S.
$
1,032,618

 
$
1,043,779

International
111,205

 
120,409

Total revenues
$
1,143,823

 
$
1,164,188


The following table is a reconciliation of Segment income from operations to Income before provision for income taxes:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Segment income from operations
 
 
 
U.S.
$
100,946

 
$
117,839

International
8,802

 
11,349

Total segment income from operations
109,748

 
129,188

Unallocated corporate operating expense
(40,618
)
 
(42,504
)
Total income from operations
69,130

 
86,684

Loss on defeasance, extinguishment and modification of debt

 
(26,580
)
Other expense, net
(51
)
 
(19
)
Interest expense, net
(9,141
)
 
(12,875
)
Income before provision for income taxes
$
59,938

 
$
47,210


The following table is a summary of Depreciation and amortization expense by segment:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
MARCH 26, 2017
 
MARCH 27, 2016
Depreciation and amortization
 
 
 
U.S.
$
36,600

 
$
38,202

International
6,500

 
6,547

Corporate
3,490

 
2,902

Total depreciation and amortization
$
46,590

 
$
47,651



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 are accompanied by such terms. 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)
Consumer reactions to public health and food safety issues;

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

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

(iv)
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, including tax laws and unanticipated liabilities;

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

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

(vii)
Our ability to implement our expansion, remodeling and relocation plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training

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Table of Contents
BLOOMIN’ BRANDS, INC.

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

necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants;

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

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

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

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

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

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

(xiv)
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;

(xv)
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; and

(xvi)
Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 25, 2016.

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 March 26, 2017, we owned and operated 1,242 restaurants and franchised 244 restaurants across 48 states, Puerto Rico, Guam and 20 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
Executive Summary

Our financial results for the thirteen weeks ended March 26, 2017 (“first quarter of 2017”) include the following:

A decrease in total revenues of 1.7% to $1.1 billion in the first quarter of 2017, as compared to the first quarter of 2016, was primarily due to the sale of Outback Steakhouse South Korea in 2016, partially offset by the effect of foreign currency translation and the net benefit of new restaurant openings and closings.

Income from operations of $69.1 million in the first quarter of 2017, as compared to $86.7 million in the first quarter of 2016, decreased primarily due to restaurant closing costs related to the 2017 Closure Initiative and lower operating margin at the restaurant-level, partially offset by lower general and administrative expense.

Following is a summary of significant actions we have taken and other factors that impacted our operating results and liquidity to date in 2017:

Sale-leaseback Transactions - During the thirteen weeks ended March 26, 2017, we entered into sale-leaseback transactions with third-parties in which we sold 12 restaurant properties at fair market value for gross proceeds of $46.1 million.

Share Repurchase Programs - We repurchased 4.2 million shares of common stock year-to-date for a total of $77.7 million. On April 21, 2017, the Board canceled the remaining $52.3 million of authorization under the July 2016 Share Repurchase Program and approved a new $250.0 million authorization. The 2017 Share Repurchase Program will expire on October 21, 2018.

2017 Closure Initiative - On February 15, 2017, we decided to close 43 underperforming restaurants. Most of these restaurants will close in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. See Note 3 - Impairments and Exit Costs of our Notes to Consolidated Financial Statements for additional details regarding the 2017 Closure Initiative.

Key Performance Indicators

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

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

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

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


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Table of Contents
BLOOMIN’ BRANDS, INC.

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

Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share—non-GAAP financial measures utilized to evaluate our operating performance, and for which definitions, usefulness and reconciliations are described in more detail in the “Non-GAAP Financial Measures” section below; and

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

Selected Operating Data

The table below presents the number of our restaurants in operation at the end of the periods indicated:
Number of restaurants (at end of the period):
MARCH 26, 2017
 
MARCH 27, 2016
U.S.
 
 
 
Outback Steakhouse
 
 
 
Company-owned
637

 
649

Franchised
105

 
105

Total
742

 
754

Carrabba’s Italian Grill
 
 
 
Company-owned
228

 
244

Franchised
2

 
3

Total
230

 
247

Bonefish Grill
 
 
 
Company-owned
196

 
205

Franchised
7

 
6

Total
203

 
211

Fleming’s Prime Steakhouse & Wine Bar
 
 
 
Company-owned
67

 
66

International
 
 
 
Company-owned
 
 
 
Outback Steakhouse - Brazil (1)
83

 
76

Outback Steakhouse - South Korea

 
74

Other
31

 
17

Franchised


 


Outback Steakhouse - South Korea
75

 

Other
55

 
57

Total
244

 
224

System-wide total
1,486

 
1,502

____________________
(1)
The restaurant counts for Brazil are reported as of February 28, 2017 and February 29, 2016, respectively, to correspond with the balance sheet dates of this subsidiary.


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Table of Contents
BLOOMIN’ BRANDS, INC.

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

Results of Operations

The following table sets forth, for the periods indicated, the percentages of certain items in our Consolidated Statements of Operations and Comprehensive Income in relation to Total revenues or Restaurant sales, as indicated:
 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
 
MARCH 27, 2016
Revenues
 
 
 
Restaurant sales
99.3
 %
 
99.5
 %
Other revenues
0.7

 
0.5

Total revenues
100.0

 
100.0

Costs and expenses
 

 
 
Cost of sales (1)
32.1

 
32.4

Labor and other related (1)
28.6

 
27.9

Other restaurant operating (1)
21.8

 
21.9

Depreciation and amortization
4.1

 
4.1