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 September 24, 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/e7c94dd13f27cdb9f1639f16ac06b5fd-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 October 31, 2017, 91,269,593 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 September 24, 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)
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
98,697

 
$
127,176

Current portion of restricted cash and cash equivalents
3,735

 
7,886

Inventories
51,017

 
65,231

Other current assets, net
105,261

 
190,226

Total current assets
258,710

 
390,519

Restricted cash

 
1,124

Property, fixtures and equipment, net
1,184,251

 
1,237,148

Goodwill
315,264

 
310,055

Intangible assets, net
527,743

 
535,523

Deferred income tax assets
59,801

 
38,764

Other assets, net
127,185

 
129,146

Total assets
$
2,472,954

 
$
2,642,279

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
183,439

 
$
195,371

Accrued and other current liabilities
225,870

 
204,415

Unearned revenue
248,627

 
388,543

Current portion of long-term debt
58,826

 
35,079

Total current liabilities
716,762

 
823,408

Deferred rent
156,962

 
151,130

Deferred income tax liabilities
17,764

 
16,709

Long-term debt, net
1,141,866

 
1,054,406

Deferred gain on sale-leaseback transactions, net
188,363

 
181,696

Other long-term liabilities, net
214,026

 
219,030

Total liabilities
2,435,743

 
2,446,379

Commitments and contingencies (Note 15)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
577

 
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 September 24, 2017 and December 25, 2016

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 91,164,470 and 103,922,110 shares issued and outstanding as of September 24, 2017 and December 25, 2016, respectively
912

 
1,039

Additional paid-in capital
1,077,607

 
1,079,583

Accumulated deficit
(961,318
)
 
(786,780
)
Accumulated other comprehensive loss
(91,547
)
 
(111,143
)
Total Bloomin’ Brands stockholders’ equity
25,654

 
182,699

Noncontrolling interests
10,980

 
12,654

Total stockholders’ equity
36,634

 
195,353

Total liabilities, mezzanine equity and stockholders’ equity
$
2,472,954

 
$
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
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017

SEPTEMBER 25, 2016

SEPTEMBER 24, 2017

SEPTEMBER 25, 2016
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
937,852

 
$
998,806

 
$
3,093,297

 
$
3,229,377

Franchise and other revenues
11,047

 
6,581

 
32,407

 
18,786

Total revenues
948,899

 
1,005,387

 
3,125,704

 
3,248,163

Costs and expenses
 

 
 

 
 

 
 

Cost of sales
296,632

 
322,080

 
984,510

 
1,044,179

Labor and other related
285,325

 
290,032

 
907,580

 
921,992

Other restaurant operating
231,293

 
243,175

 
723,357

 
747,189

Depreciation and amortization
47,826

 
48,551

 
142,479

 
145,206

General and administrative
66,063

 
65,072

 
215,059

 
208,663

Provision for impaired assets and restaurant closings
18,578

 
4,743

 
38,253

 
49,183

Total costs and expenses
945,717

 
973,653

 
3,011,238

 
3,116,412

Income from operations
3,182

 
31,734

 
114,466

 
131,751

Loss on defeasance, extinguishment and modification of debt

 
(418
)
 
(260
)
 
(26,998
)
Other income, net
7,531

 
2,079

 
14,761

 
2,059

Interest expense, net
(10,705
)
 
(10,217
)
 
(29,389
)
 
(33,394
)
Income before (benefit) provision for income taxes
8

 
23,178

 
99,578

 
73,418

(Benefit) provision for income taxes
(4,038
)
 
1,950

 
14,280

 
24,372

Net income
4,046

 
21,228

 
85,298

 
49,046

Less: net (loss) income attributable to noncontrolling interests
(290
)
 
495

 
1,422

 
3,015

Net income attributable to Bloomin’ Brands
$
4,336

 
$
20,733

 
$
83,876

 
$
46,031

 
 
 
 
 
 
 
 
Net income
$
4,046

 
$
21,228

 
$
85,298

 
$
49,046

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
6,399

 
45,471

 
17,770

 
58,151

Unrealized gain (loss) on derivatives, net of tax
370

 
672

 
(139
)
 
(4,250
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
492

 
947

 
1,919

 
2,902

Comprehensive income
11,307

 
68,318

 
104,848

 
105,849

Less: comprehensive (loss) income attributable to noncontrolling interests
(306
)
 
2,509

 
1,376

 
7,435

Comprehensive income attributable to Bloomin’ Brands
$
11,613

 
$
65,809

 
$
103,472

 
$
98,414

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.05

 
$
0.19

 
$
0.85

 
$
0.41

Diluted
$
0.05

 
$
0.18

 
$
0.83

 
$
0.40

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
92,485

 
109,399

 
98,137

 
113,553

Diluted
95,655

 
112,430

 
101,497

 
116,516

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.08

 
$
0.07

 
$
0.24

 
$
0.21

 
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

 

 

 
83,876

 

 
1,594

 
85,470

Other comprehensive income (loss), net of tax

 

 

 

 
19,596

 
(76
)
 
19,520

Cash dividends declared, $0.24 per common share

 

 
(23,677
)
 

 

 

 
(23,677
)
Repurchase and retirement of common stock
(13,807
)
 
(138
)
 

 
(272,598
)
 

 

 
(272,736
)
Stock-based compensation

 

 
17,969

 

 

 

 
17,969

Common stock issued under stock plans (1)
1,049

 
11

 
4,617

 
(180
)
 

 

 
4,448

Change in the redemption value of redeemable interests

 

 
(172
)
 

 

 

 
(172
)
Purchase of noncontrolling interests, net of tax of $45

 

 
(713
)
 

 

 
(180
)
 
(893
)
Distributions to noncontrolling interests

 

 

 

 

 
(4,158
)
 
(4,158
)
Contributions from noncontrolling interests

 

 

 

 

 
727

 
727

Cumulative-effect from a change in accounting principle

 

 

 
14,364

 

 

 
14,364

Other

 

 

 

 

 
419

 
419

Balance, September 24, 2017
91,164

 
$
912

 
$
1,077,607

 
$
(961,318
)
 
$
(91,547
)
 
$
10,980

 
$
36,634

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 27, 2015
119,215

 
$
1,192

 
$
1,072,861

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

 
$
421,900

Net income

 

 

 
46,031

 

 
2,420

 
48,451

Other comprehensive income (loss), net of tax

 

 

 

 
52,383

 
(89
)
 
52,294

Cash dividends declared, $0.21 per common share

 

 
(23,981
)
 

 

 

 
(23,981
)
Repurchase and retirement of common stock
(14,831
)
 
(148
)
 

 
(274,744
)
 

 

 
(274,892
)
Stock-based compensation

 


 
18,390

 

 

 

 
18,390

Tax shortfall from stock-based compensation

 

 
(410
)
 

 

 

 
(410
)
Common stock issued under stock plans (1)
811

 
8

 
3,654

 
(399
)
 

 

 
3,263

Change in the redemption value of redeemable interests

 

 
(1,349
)
 

 

 

 
(1,349
)
Purchase of noncontrolling interests, net of tax of $1,504

 

 
(1,000
)
 

 

 
581

 
(419
)
Distributions to noncontrolling interests

 

 

 

 

 
(4,245
)
 
(4,245
)
Contributions from noncontrolling interests

 

 

 

 

 
556

 
556

Balance, September 25, 2016
105,195

 
$
1,052

 
$
1,068,165

 
$
(747,472
)
 
$
(94,984
)
 
$
12,797

 
$
239,558

________________
(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.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, UNAUDITED)


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Cash flows provided by operating activities:
 
 
 
Net income
$
85,298

 
$
49,046

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

 
 

Depreciation and amortization
142,479

 
145,206

Amortization of deferred discounts and issuance costs
2,240

 
3,862

Amortization of deferred gift card sales commissions
18,530

 
21,146

Provision for impaired assets and restaurant closings
38,253

 
49,183

Stock-based and other non-cash compensation expense
19,775

 
17,646

Deferred income tax (benefit) expense
(212
)
 
1,764

Gain on sale of a business or subsidiary
(15,787
)
 
(2,084
)
Loss on defeasance, extinguishment and modification of debt
260

 
26,998

Recognition of deferred gain on sale-leaseback transactions
(8,836
)
 
(3,353
)
Excess tax benefit from stock-based compensation

 
(1,214
)
Other non-cash items, net
4,690

 
(1,516
)
Change in assets and liabilities
(63,675
)
 
(83,124
)
Net cash provided by operating activities
223,015

 
223,560

Cash flows (used in) provided by investing activities:
 

 
 

Proceeds from sale-leaseback transactions, net
83,866

 
320,287

Proceeds from sale of a business, net of cash divested
38,980

 
23,009

Capital expenditures
(183,820
)
 
(185,581
)
Other investments, net
(1,561
)
 
(3,813
)
Net cash (used in) provided by investing activities
$
(62,535
)
 
$
153,902

 
 
 
 
 
(CONTINUED...)
 

8

Table of Contents
BLOOMIN’ BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, UNAUDITED)


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$
124,443

 
$
364,211

Defeasance, extinguishment and modification of debt

 
(478,906
)
Repayments of long-term debt
(64,578
)
 
(221,266
)
Proceeds from borrowings on revolving credit facilities, net
467,500

 
591,500

Repayments of borrowings on revolving credit facilities
(417,000
)
 
(377,500
)
Proceeds from failed sale-leaseback transactions, net
5,942

 

Proceeds from the exercise of share-based compensation
4,628

 
3,662

Distributions to noncontrolling interests
(4,158
)
 
(4,245
)
Contributions from noncontrolling interests
727

 
556

Purchase of limited partnership and noncontrolling interests
(5,354
)
 
(10,778
)
Repayments of partner deposits and accrued partner obligations
(11,763
)
 
(14,985
)
Repurchase of common stock
(272,916
)
 
(275,291
)
Excess tax benefit from stock-based compensation

 
1,214

Cash dividends paid on common stock
(23,677
)
 
(23,981
)
Net cash used in financing activities
(196,206
)
 
(445,809
)
Effect of exchange rate changes on cash and cash equivalents
1,972

 
5,250

Net decrease in cash, cash equivalents and restricted cash
(33,754
)
 
(63,097
)
Cash, cash equivalents and restricted cash as of the beginning of the period
136,186

 
155,374

Cash, cash equivalents and restricted cash as of the end of the period
$
102,432

 
$
92,277

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
27,897

 
$
32,726

Cash paid for income taxes, net of refunds
28,134

 
51,833

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
$
6,375

 
$
17,174

Purchase of noncontrolling interest included in accrued and other current liabilities

 
1,414


 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 No. 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 No. 2016-09 did not have a material impact on the Company’s Consolidated Financial Statements.

Effective June 26, 2017, the Company adopted 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 are now included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the statements of cash flows. Using the retrospective transition method required under the standard, the Company has adjusted the presentation of its Condensed Consolidated Statements of Cash Flows for all periods presented. The adoption of ASU No. 2016-18 did not have any other impact on the Company’s Consolidated Financial Statements.

10

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table provides additional details by financial statement line item of the adjusted presentation in the Company’s Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended September 25, 2016:
 
THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2016
(dollars in thousands)
AS REPORTED
 
2016-18 IMPACT
 
ADJUSTED
Cash flows provided by investing activities:
 
 
 
 
 
Decrease in restricted cash
$
40,977

 
$
(40,977
)
 
$

Increase in restricted cash
(18,739
)
 
18,739

 

Net cash provided by investing activities
$
176,140

 
$
(22,238
)
 
$
153,902

 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
$
(40,863
)
 
$
(22,234
)
 
$
(63,097
)
Cash, cash equivalents and restricted cash as of the beginning of the period
132,337

 
23,037

 
155,374

Cash, cash equivalents and restricted cash as of the end of the period
$
91,474

 
$
803

 
$
92,277


Recently Issued Financial Accounting Standards Not Yet Adopted - In May 2014, the Financial Accounting Standards Board (“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. The standard also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company continues to assess the overall impact of the adoption of ASU No. 2014-09 on its Consolidated Financial Statements and related disclosures, and anticipates testing new controls and processes designed to comply with ASU No. 2014-09 throughout the remainder of 2017 to permit adoption on January 1, 2018.

While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to accounting for gift card breakage and advertising fees charged to franchisees. Under the new standard, the Company expects to recognize gift card 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 revenue. 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 Company’s Consolidated Financial Statements.

The Company intends to adopt ASU No. 2014-09 using the full retrospective transition method, which will result in restating each prior reporting period presented in the year of adoption. Additionally, a cumulative effect adjustment will be recorded to the opening balance of accumulated deficit as of the first day of fiscal year 2016, the earliest period presented. Adoption of ASU No. 2014-09 will also have a significant impact on the Company’s disclosures.

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 that the adoption of ASU No. 2016-02 will have on its 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.

11

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

In January 2017, 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 August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU No. 2017-12”) which provides guidance for reporting the economic results of hedging activities and to simplify the disclosures of risk exposures and hedging strategies. ASU No. 2017-12 will be effective for the Company in fiscal year 2019, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2017-12 on its Consolidated Financial Statements.

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

Refranchising - During the thirteen weeks ended June 25, 2017, the Company completed the sale of 54 of its existing U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations to two of its existing franchisees (the “Buyers”) for aggregate cash proceeds of $36.2 million, net of certain closing adjustments. The transactions resulted in an aggregate net gain of $7.4 million, recorded within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income, and is net of an impairment of $1.7 million related to certain Company-owned assets leased to the Buyers. Included in the cash proceeds are initial franchise fees of $2.2 million that are recorded within Franchise and other revenues in the Consolidated Statements of Operations and Other Comprehensive Income.

These restaurants are now operated as franchises by the Buyers and the Company remains contingently liable on certain real estate lease agreements assigned to the Buyers. See Note 15 - Commitments and Contingencies for additional details regarding lease guarantees.

Other - During the thirteen weeks ended September 24, 2017, the Company closed and completed the sale of one U.S. Company-owned Carrabba’s Italian Grill location for a purchase price of $9.9 million, net of closing costs. The sale resulted in a net gain of $8.4 million, recorded within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income.

Outback Steakhouse South Korea - In 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”). Following is the Income (loss) before income taxes of Outback Steakhouse South Korea included in the Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 25, 2016
Income (loss) before income taxes (1)
$
2,246

 
$
(32,348
)
________________
(1)
Includes impairment charges of $39.6 million for Assets held for sale during the thirty-nine weeks ended September 25, 2016. Includes a gain of $2.1 million on the sale of Outback Steakhouse South Korea for the thirteen and thirty-nine weeks ended September 25, 2016.


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
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Impairment losses
 
 
 
 
 
 
 
U.S.
$
12,339

 
$
5,267

 
$
13,272

 
$
5,348

International
1,903

 

 
1,903

 
39,636

Total impairment losses
$
14,242

 
$
5,267

 
$
15,175

 
$
44,984

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
4,336

 
$
(524
)
 
$
23,078

 
$
4,325

International

 

 

 
(126
)
Total restaurant closure expenses
$
4,336

 
$
(524
)
 
$
23,078

 
$
4,199

Provision for impaired assets and restaurant closings
$
18,578

 
$
4,743

 
$
38,253

 
$
49,183


Closure Initiative and Restructuring Costs - Following is a summary of expenses related to the 2017 Closure Initiative and Bonefish Restructuring (the “Closure Initiatives”) recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Impairment, facility closure and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
1,848

 
$

 
$
19,051

 
$

Bonefish Restructuring (2)
1,924

 
(685
)
 
2,733

 
3,695

Provision for impaired assets and restaurant closings
$
3,772

 
$
(685
)
 
$
21,784

 
$
3,695

Severance and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$

 
$

 
$
2,948

 
$

Bonefish Restructuring (2)

 

 

 
601

General and administrative
$

 
$

 
$
2,948

 
$
601

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

 
$

 
$
(4,761
)
 
$

Bonefish Restructuring (2)

 
(609
)
 

 
(3,410
)
Other restaurant operating
$

 
$
(609
)
 
$
(4,761
)
 
$
(3,410
)
 
$
3,772

 
$
(1,294
)
 
$
19,971

 
$
886

________________
(1)
On February 15, 2017 and August 28, 2017, the Company decided to close 43 underperforming restaurants in the U.S. and two Abbraccio restaurants outside of the core markets of São Paulo and Rio de Janeiro in Brazil (the “2017 Closure Initiative”). Most of these restaurants were closed in 2017 to date, with the balance mostly closing as leases and certain operating covenants expire or are amended or waived. Expenses of $1.9 million related to the 2017 Closure Initiative for the thirteen and thirty-nine weeks ended September 24, 2017 were recognized within the International segment, with all other expenses recognized within the U.S. segment.
(2)
On February 12, 2016, the Company decided to close 14 Bonefish Grill restaurants (the “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.


13

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Surplus Properties - The Company owns certain U.S. restaurant properties and assets that are no longer utilized to operate its restaurant concepts (“surplus properties”). Surplus properties primarily consist of closed properties which include land and a building, and liquor licenses not needed for operations. Surplus properties may be classified in the Consolidated Balance Sheets as assets held for sale or as assets held and used when the Company does not expect to sell these assets within the next 12 months. Following is a summary of the carrying value and number of surplus properties as of the dates indicated:
(dollars in thousands)
CONSOLIDATED BALANCE SHEET CLASSIFICATION
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Surplus properties - assets held for sale
Other current assets, net
 
$
3,690

 
$
676

Surplus properties - assets held and used
Property, fixtures and equipment, net
 
23,599

 
34,501

Total surplus properties
 
 
$
27,289

 
$
35,177

 
 
 
 
 
 
Number of surplus properties owned
 
 
21

 
18


During the thirteen and thirty-nine weeks ended September 24, 2017, the Company recognized impairment charges of $9.5 million in connection with the remeasurement of certain held and used surplus properties currently leased to the owners of its former restaurant concepts.

Other Impairments - During the thirteen and thirty-nine weeks ended September 25, 2016, the Company recognized impairment charges of $3.2 million for its Puerto Rico subsidiary, within the U.S. segment.

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

Projected Future Expenses and Cash Expenditures - The Company currently expects to incur additional charges for the Closure Initiatives over the next two years, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of remaining estimated pre-tax expense by type as of September 24, 2017:
Estimated future expense (dollars in millions)
2017 CLOSURE INITIATIVE
 
BONEFISH RESTRUCTURING
Lease related liabilities, net of subleases
$
3.2

to
$
4.1

 
$
2.2

to
$
5.1

Employee severance and other obligations
0.4

to
0.8

 
0.3

to
0.5

Total estimated future expense
$
3.6

to
$
4.9

 
$
2.5

to
$
5.6

 
 
 
 
 
 
 
 
Total estimated future cash expenditures (dollars in millions)
$
25.3

to
$
29.5

 
$
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.


14

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 Closure Initiatives, during the thirty-nine weeks ended September 24, 2017:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
Beginning of the period
$
6,557

Charges
24,426

Cash payments
(7,963
)
Adjustments
(1,348
)
End of the period (1)
$
21,672

________________
(1)
As of September 24, 2017, the Company had exit-related accruals of $6.4 million recorded in Accrued and other current liabilities and $15.3 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.

4.    Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(in thousands, except per share data)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Net income attributable to Bloomin’ Brands
$
4,336

 
$
20,733

 
$
83,876

 
$
46,031

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
92,485

 
109,399

 
98,137

 
113,553

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
2,781

 
2,720

 
2,948

 
2,719

Nonvested restricted stock and restricted stock units
389

 
311

 
392

 
242

Nonvested performance-based share units

 

 
20

 
2

Diluted weighted average common shares outstanding
95,655

 
112,430

 
101,497

 
116,516

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.05

 
$
0.19

 
$
0.85

 
$
0.41

Diluted earnings per share
$
0.05

 
$
0.18

 
$
0.83

 
$
0.40


Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(shares in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Stock options
6,065

 
5,530

 
5,663

 
5,079

Nonvested restricted stock and restricted stock units
179

 
103

 
174

 
285

Nonvested performance-based share units
134

 
130

 
256

 
99



15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

5.    Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Stock options
$
2,705

 
$
2,929

 
$
8,404

 
$
8,971

Restricted stock and restricted stock units
2,527

 
2,322

 
7,769

 
6,901

Performance-based share units
(235
)
 
21

 
1,001

 
1,773

 
$
4,997

 
$
5,272

 
$
17,174

 
$
17,645


During the thirty-nine weeks ended September 24, 2017, the Company made grants to its employees of 1.3 million stock options, 0.6 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:
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
1.92
%
 
1.32
%
Dividend yield (2)
1.84
%
 
1.59
%
Expected term (3)
6.3 years

 
6.1 years

Weighted-average volatility (4)
33.72
%
 
35.18
%
 
 
 
 
Weighted-average grant date fair value per option
$
5.09

 
$
5.28

________________
(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.

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of September 24, 2017:
 
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
17,189

 
2.4
Restricted stock and restricted stock units
$
22,588

 
2.6
Performance-based share units
$
1,733

 
1.9

As of September 24, 2017, the maximum number of shares of common stock available for issuance pursuant to the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan was 3,991,216.


16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Prepaid expenses
$
36,481

 
$
35,298

Accounts receivable - gift cards, net
11,588

 
102,664

Accounts receivable - vendors, net
4,677

 
10,107

Accounts receivable - franchisees, net
3,345

 
1,677

Accounts receivable - other, net
32,274

 
20,497

Assets held for sale
4,055

 
1,331

Other current assets, net
12,841

 
18,652

 
$
105,261

 
$
190,226


7.     Property, Fixtures and Equipment, Net

During the thirty-nine weeks ended September 24, 2017, the Company entered into sale-leaseback transactions with third-parties in which it sold 26 restaurant properties at fair market value for gross proceeds of $92.5 million. In connection with the sale-leaseback transactions, the Company recorded deferred gains of $19.4 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 20 years.

8.     Goodwill and Intangible Assets, 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

 
6,866

 
6,866

Divestitures (1)
(1,657
)
 

 
(1,657
)
Balance as of September 24, 2017
$
170,767

 
$
144,497

 
$
315,264

________________
(1)
During the thirty-nine weeks ended September 24, 2017, the Company disposed of Goodwill in connection with the sale of 54 of its U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations to existing franchisees.

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets during the fiscal second quarters of 2017 and 2016. In connection with these assessments, the Company did not record any goodwill or indefinite-lived intangible impairment charges.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

9.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
247,500

 
3.23
%
 
$
258,750

 
2.63
%
Term loan A-1
135,000

 
3.20
%
 
140,625

 
2.70
%
Term loan A-2
125,000

 
3.20
%
 

 
%
Revolving credit facility (1)
672,500

 
3.21
%
 
622,000

 
2.67
%
Total Senior Secured Credit Facility
$
1,180,000

 
 
 
$
1,021,375

 
 
PRP Mortgage Loan

 
%
 
47,202

 
3.21
%
Financing obligations
19,583

 
7.45% to 7.60%

 
19,595

 
7.45% to 7.60%

Capital lease obligations
2,138

 
 
 
2,364

 
 
Other notes payable
944

 
0.00% to 2.18%

 
1,776

 
0.00% to 7.00%

Less: unamortized debt discount and issuance costs
(1,973
)
 
 
 
(2,827
)
 
 
 
$
1,200,692

 
 
 
$
1,089,485

 
 
Less: current portion of long-term debt
(58,826
)
 
 
 
(35,079
)
 
 
Long-term debt, net
$
1,141,866

 
 
 
$
1,054,406

 
 
________________
(1)
Represents the weighted-average interest rate for the respective period.

Credit Agreement Amendment - On May 22, 2017, OSI Restaurant Partners, LLC (“OSI”), a wholly-owned subsidiary of the Company, entered into an amendment (the “Amendment”) to its existing credit agreement, dated October 26, 2012 (as previously amended, the “Credit Agreement”). The Amendment provided an incremental Term loan A-2 in an aggregate principal amount of $125.0 million. No other material changes were made to the terms of OSI’s Credit Agreement as a result of the Amendment.

The following is a summary of required principal payments for the Amendment (dollars in thousands):
SCHEDULED QUARTERLY PAYMENT DATES
 
TERM LOAN A-2
September 30, 2017 through June 30, 2018
 
$
2,344

September 30, 2018 through March 31, 2019
 
$
3,125


Maturities - Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of September 24, 2017:
(dollars in thousands)
SEPTEMBER 24, 2017
Year 1
$
58,826

Year 2
1,121,102

Year 3
519

Year 4
458

Year 5
310

Thereafter
19,477

Total
$
1,200,692


18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Debt Covenants - As of September 24, 2017 and December 25, 2016, the Company was in compliance with its debt covenants.

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 periods indicated:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Balance, beginning of period
$
547

 
$
23,526

Change in redemption value of Redeemable noncontrolling interests
172

 
1,349

Foreign currency translation attributable to Redeemable noncontrolling interests
30

 
4,509

Net (loss) income attributable to Redeemable noncontrolling interests
(172
)
 
595

Purchase of Redeemable noncontrolling interests

 
(3,887
)
Balance, end of period
$
577

 
$
26,092


11.
Stockholders’ Equity

Share Repurchases - On July 26, 2016, the Company’s Board of Directors (“the Board”) approved a $300.0 million authorization (the “July 2016 Share Repurchase Program”). 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. As of September 24, 2017, $55.0 million remained available for repurchase under the 2017 Share Repurchase Program. Following is a summary of the shares repurchased under the Company’s share repurchase programs during fiscal year 2017:

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

 
$
18.37

 
$
53,053

Second fiscal quarter
7,030

 
$
20.72

 
145,675

Third fiscal quarter
3,890

 
$
19.03

 
74,008

Total common stock repurchases
13,807

 
$
19.75

 
$
272,736


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

Second fiscal quarter
0.08

 
8,054

Third fiscal quarter
0.08

 
7,369

Total cash dividends declared and paid
$
0.24

 
$
23,677


In October 2017, the Board declared a quarterly cash dividend of $0.08 per share, payable on November 22, 2017, to shareholders of record at the close of business on November 13, 2017.


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)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Foreign currency translation adjustment
$
(89,693
)
 
$
(107,509
)
Unrealized losses on derivatives, net of tax
(1,854
)
 
(3,634
)
Accumulated other comprehensive loss
$
(91,547
)
 
$
(111,143
)
 
Following are the components of Other comprehensive income (loss) during the periods presented:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Bloomin’ Brands:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
6,415

 
$
43,457

 
$
17,816

 
$
53,731

 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives, net of tax (1)
$
370

 
$
672

 
$
(139
)
 
$
(4,250
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (2)
492

 
947

 
1,919

 
2,902

Total unrealized gain (loss) on derivatives, net of tax
$
862

 
$
1,619

 
$
1,780

 
$
(1,348
)
Other comprehensive income attributable to Bloomin’ Brands
$
7,277

 
$
45,076

 
$
19,596

 
$
52,383

 
 
 
 
 
 
 
 
Non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(38
)
 
$
(65
)
 
$
(76
)
 
$
(89
)
Other comprehensive loss attributable to Non-controlling interests
$
(38
)
 
$
(65
)
 
$
(76
)
 
$
(89
)
 
 
 
 
 
 
 
 
Redeemable non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
22

 
$
2,079

 
$
30

 
$
4,509

Other comprehensive income attributable to Redeemable non-controlling interests
$
22

 
$
2,079

 
$
30

 
$
4,509

________________
(1)
Unrealized gain (loss) on derivatives is net of tax (benefit) of $0.2 million and $0.4 million for the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively, and ($0.1) million and ($2.7) million for the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively.
(2)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.3 million and $0.6 million for the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively, and $1.2 million and $1.9 million for the thirty-nine weeks ended September 24, 2017 and September 25, 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, primarily interest rate swaps, are to add stability to interest expense and to manage its exposure to interest rate movements.
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.

20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

DESIGNATED HEDGES
Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, the Company entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a 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 $2.3 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)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
2,127

 
$
3,968

 
Accrued and other current liabilities
Interest rate swaps - liability
951

 
1,999

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
3,078

 
$
5,967

 
 
 
 
 
 
 
 
Accrued interest
$
217

 
$
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 swaps on Net income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Interest rate swap expense recognized in Interest expense, net (1)
$
(804
)
 
$
(1,545
)
 
$
(3,105
)
 
$
(4,756
)
Income tax benefit recognized in (Benefit) provision for income taxes
312

 
598

 
1,186

 
1,854

Total effects of the interest rate swaps on Net income
$
(492
)
 
$
(947
)
 
$
(1,919
)
 
$
(2,902
)
____________________
(1)
During the thirteen and thirty-nine weeks ended September 24, 2017 and September 25, 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 September 24, 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 September 24, 2017, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.


21

Table of Contents
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 September 24, 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 $3.3 million and $6.4 million, respectively. As of September 24, 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 September 24, 2017 and December 25, 2016, it could have been required to settle its obligations under the agreements at their termination value of $3.3 million and $6.4 million, respectively.

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 the dates indicated:
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
42

 
$
42

 
$

 
$
90

 
$
90

 
$

Money market funds
20,751

 
20,751

 

 
18,607

 
18,607

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds

 

 

 
552

 
552

 

Money market funds
3,735

 
3,735

 

 
2,518

 
2,518

 

Total asset recurring fair value measurements
$
24,528

 
$
24,528

 
$

 
$
21,767

 
$
21,767

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
2,127

 
$

 
$
2,127

 
$
3,968

 
$

 
$
3,968

Derivative instruments - commodities
52

 

 
52

 
157

 

 
157

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
951

 

 
951

 
1,999

 

 
1,999

Total liability recurring fair value measurements
$
3,130

 
$

 
$
3,130

 
$
6,124

 
$

 
$
6,124



22

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 also considers its own nonperformance risk and the respective counterparty’s nonperformance risk when performing fair value measurements. As of September 24, 2017 and December 25, 2016, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

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
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 24, 2017
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$
470

 
$
249

 
$
470

 
$