Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
JUNE 29,
|
|
DECEMBER 31,
|
|
2014
|
|
2013
|
ASSETS
|
|
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
$
|
155,843
|
|
|
$
|
209,871
|
|
Current portion of restricted cash and cash equivalents
|
3,822
|
|
|
3,364
|
|
Inventories
|
65,337
|
|
|
80,613
|
|
Deferred income tax assets
|
70,033
|
|
|
70,802
|
|
Other current assets, net
|
132,879
|
|
|
119,381
|
|
Total current assets
|
427,914
|
|
|
484,031
|
|
Restricted cash
|
25,892
|
|
|
25,055
|
|
Property, fixtures and equipment, net
|
1,652,326
|
|
|
1,634,130
|
|
Goodwill
|
353,086
|
|
|
346,253
|
|
Intangible assets, net
|
610,782
|
|
|
617,133
|
|
Deferred income tax assets
|
3,372
|
|
|
2,392
|
|
Other assets, net
|
160,707
|
|
|
165,180
|
|
Total assets
|
$
|
3,234,079
|
|
|
$
|
3,274,174
|
|
|
|
|
|
|
(CONTINUED...)
|
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
JUNE 29,
|
|
DECEMBER 31,
|
|
2014
|
|
2013
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Accounts payable
|
$
|
188,278
|
|
|
$
|
164,619
|
|
Accrued and other current liabilities
|
190,982
|
|
|
194,346
|
|
Current portion of partner deposits and accrued partner obligations
|
9,268
|
|
|
12,548
|
|
Unearned revenue
|
249,322
|
|
|
359,443
|
|
Current portion of long-term debt
|
22,328
|
|
|
13,546
|
|
Total current liabilities
|
660,178
|
|
|
744,502
|
|
Partner deposits and accrued partner obligations
|
75,780
|
|
|
78,116
|
|
Deferred rent
|
114,743
|
|
|
105,963
|
|
Deferred income tax liabilities
|
144,805
|
|
|
150,582
|
|
Long-term debt, net
|
1,382,161
|
|
|
1,405,597
|
|
Other long-term liabilities, net
|
253,896
|
|
|
284,721
|
|
Total liabilities
|
2,631,563
|
|
|
2,769,481
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
Mezzanine Equity
|
|
|
|
Redeemable noncontrolling interests
|
23,043
|
|
|
21,984
|
|
Stockholders’ Equity
|
|
|
|
Bloomin’ Brands Stockholders’ Equity
|
|
|
|
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding at June 29, 2014 and December 31, 2013
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 475,000,000 shares authorized; 125,597,371 and 124,784,124 shares issued and outstanding at June 29, 2014 and December 31, 2013, respectively
|
1,256
|
|
|
1,248
|
|
Additional paid-in capital
|
1,071,389
|
|
|
1,068,705
|
|
Accumulated deficit
|
(485,829
|
)
|
|
(565,154
|
)
|
Accumulated other comprehensive loss
|
(12,695
|
)
|
|
(26,418
|
)
|
Total Bloomin’ Brands stockholders’ equity
|
574,121
|
|
|
478,381
|
|
Noncontrolling interests
|
5,352
|
|
|
4,328
|
|
Total stockholders’ equity
|
579,473
|
|
|
482,709
|
|
Total liabilities, mezzanine equity and stockholders’ equity
|
$
|
3,234,079
|
|
|
$
|
3,274,174
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Revenues
|
|
|
|
|
|
|
|
Restaurant sales
|
$
|
1,104,437
|
|
|
$
|
1,007,991
|
|
|
$
|
2,254,962
|
|
|
$
|
2,090,347
|
|
Other revenues
|
6,475
|
|
|
10,865
|
|
|
13,809
|
|
|
20,759
|
|
Total revenues
|
1,110,912
|
|
|
1,018,856
|
|
|
2,268,771
|
|
|
2,111,106
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
358,856
|
|
|
325,453
|
|
|
732,470
|
|
|
675,442
|
|
Labor and other related
|
302,472
|
|
|
284,028
|
|
|
613,890
|
|
|
583,895
|
|
Other restaurant operating
|
265,279
|
|
|
237,440
|
|
|
521,797
|
|
|
471,249
|
|
Depreciation and amortization
|
48,627
|
|
|
40,889
|
|
|
94,792
|
|
|
81,085
|
|
General and administrative
|
72,262
|
|
|
65,094
|
|
|
146,316
|
|
|
137,585
|
|
Provision for impaired assets and restaurant closings
|
1,025
|
|
|
689
|
|
|
7,089
|
|
|
2,585
|
|
Income from operations of unconsolidated affiliates
|
—
|
|
|
(2,623
|
)
|
|
—
|
|
|
(5,481
|
)
|
Total costs and expenses
|
1,048,521
|
|
|
950,970
|
|
|
2,116,354
|
|
|
1,946,360
|
|
Income from operations
|
62,391
|
|
|
67,886
|
|
|
152,417
|
|
|
164,746
|
|
Loss on extinguishment and modification of debt
|
(11,092
|
)
|
|
(14,586
|
)
|
|
(11,092
|
)
|
|
(14,586
|
)
|
Other income (expense), net
|
317
|
|
|
(133
|
)
|
|
153
|
|
|
(350
|
)
|
Interest expense, net
|
(15,109
|
)
|
|
(18,015
|
)
|
|
(31,707
|
)
|
|
(38,895
|
)
|
Income before provision (benefit) for income taxes
|
36,507
|
|
|
35,152
|
|
|
109,771
|
|
|
110,915
|
|
Provision (benefit) for income taxes
|
8,785
|
|
|
(41,312
|
)
|
|
26,949
|
|
|
(30,605
|
)
|
Net income
|
27,722
|
|
|
76,464
|
|
|
82,822
|
|
|
141,520
|
|
Less: net income attributable to noncontrolling interests
|
1,331
|
|
|
1,596
|
|
|
2,698
|
|
|
3,429
|
|
Net income attributable to Bloomin’ Brands
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
80,124
|
|
|
$
|
138,091
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
27,722
|
|
|
$
|
76,464
|
|
|
$
|
82,822
|
|
|
$
|
141,520
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
19,088
|
|
|
(8,144
|
)
|
|
13,723
|
|
|
(12,676
|
)
|
Comprehensive income
|
46,810
|
|
|
68,320
|
|
|
96,545
|
|
|
128,844
|
|
Less: comprehensive income attributable to noncontrolling interests
|
1,331
|
|
|
1,596
|
|
|
2,698
|
|
|
3,429
|
|
Comprehensive income attributable to Bloomin’ Brands
|
$
|
45,479
|
|
|
$
|
66,724
|
|
|
$
|
93,847
|
|
|
$
|
125,415
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.21
|
|
|
$
|
0.61
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
Diluted
|
$
|
0.21
|
|
|
$
|
0.58
|
|
|
$
|
0.63
|
|
|
$
|
1.08
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
125,229
|
|
|
122,858
|
|
|
124,889
|
|
|
122,052
|
|
Diluted
|
128,378
|
|
|
128,338
|
|
|
128,115
|
|
|
127,599
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
|
|
|
|
|
|
COMMON STOCK
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
ACCUM- ULATED
DEFICIT
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
NON-
CONTROLLING
INTERESTS
|
|
TOTAL
|
|
SHARES
|
|
AMOUNT
|
|
|
|
|
|
Balance, December 31, 2013
|
124,784
|
|
|
$
|
1,248
|
|
|
$
|
1,068,705
|
|
|
$
|
(565,154
|
)
|
|
$
|
(26,418
|
)
|
|
$
|
4,328
|
|
|
$
|
482,709
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
80,124
|
|
|
—
|
|
|
2,258
|
|
|
82,382
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,723
|
|
|
—
|
|
|
13,723
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
8,032
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,032
|
|
Excess tax benefit on stock-based compensation
|
—
|
|
|
—
|
|
|
1,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,095
|
|
Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
|
813
|
|
|
8
|
|
|
5,485
|
|
|
(799
|
)
|
|
—
|
|
|
—
|
|
|
4,694
|
|
Purchase of limited partnership interests, net of tax of $6,519
|
—
|
|
|
—
|
|
|
(11,928
|
)
|
|
—
|
|
|
—
|
|
|
1,236
|
|
|
(10,692
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,470
|
)
|
|
(2,470
|
)
|
Balance, June 29, 2014
|
125,597
|
|
|
$
|
1,256
|
|
|
$
|
1,071,389
|
|
|
$
|
(485,829
|
)
|
|
$
|
(12,695
|
)
|
|
$
|
5,352
|
|
|
$
|
579,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(CONTINUED...)
|
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
|
|
|
|
|
|
COMMON STOCK
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
ACCUM- ULATED
DEFICIT
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
NON-
CONTROLLING
INTERESTS
|
|
TOTAL
|
|
SHARES
|
|
AMOUNT
|
|
|
|
|
|
Balance, December 31, 2012
|
121,148
|
|
|
$
|
1,211
|
|
|
$
|
1,000,963
|
|
|
$
|
(773,085
|
)
|
|
$
|
(14,801
|
)
|
|
$
|
5,917
|
|
|
$
|
220,205
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
138,091
|
|
|
—
|
|
|
3,429
|
|
|
141,520
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,676
|
)
|
|
—
|
|
|
(12,676
|
)
|
Release of valuation allowance related to purchases of limited partnerships and joint venture interests
|
—
|
|
|
—
|
|
|
15,669
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,669
|
|
Stock-based compensation
|
—
|
|
|
|
|
|
7,612
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,612
|
|
Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
|
2,857
|
|
|
29
|
|
|
22,182
|
|
|
(370
|
)
|
|
—
|
|
|
—
|
|
|
21,841
|
|
Repayments of notes receivable due from stockholders
|
—
|
|
|
—
|
|
|
5,829
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,829
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,526
|
)
|
|
(4,526
|
)
|
Balance, June 30, 2013
|
124,005
|
|
|
$
|
1,240
|
|
|
$
|
1,052,255
|
|
|
$
|
(635,364
|
)
|
|
$
|
(27,477
|
)
|
|
$
|
4,820
|
|
|
$
|
395,474
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Cash flows provided by operating activities:
|
|
|
|
Net income
|
$
|
82,822
|
|
|
$
|
141,520
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
94,792
|
|
|
81,085
|
|
Amortization of deferred financing fees
|
1,640
|
|
|
1,800
|
|
Amortization of capitalized gift card sales commissions
|
14,829
|
|
|
12,664
|
|
Provision for impaired assets and restaurant closings
|
7,089
|
|
|
2,585
|
|
Accretion on debt discounts
|
1,097
|
|
|
1,248
|
|
Stock-based and other non-cash compensation expense
|
9,672
|
|
|
10,328
|
|
Income from operations of unconsolidated affiliates
|
—
|
|
|
(5,481
|
)
|
Deferred income tax benefit
|
(372
|
)
|
|
(40,127
|
)
|
Loss on disposal of property, fixtures and equipment
|
1,077
|
|
|
279
|
|
Gain on life insurance and restricted cash investments
|
(1,732
|
)
|
|
(2,602
|
)
|
Loss on extinguishment and modification of debt
|
11,092
|
|
|
14,586
|
|
Recognition of deferred gain on sale-leaseback transaction
|
(1,070
|
)
|
|
(1,065
|
)
|
Excess tax benefits from stock-based compensation
|
(1,095
|
)
|
|
—
|
|
Change in assets and liabilities:
|
|
|
|
|
|
Decrease in inventories
|
15,724
|
|
|
12,952
|
|
Increase in other current assets
|
(25,212
|
)
|
|
(10,757
|
)
|
Decrease in other assets
|
5,320
|
|
|
4,468
|
|
Decrease in accounts payable and accrued and other current liabilities
|
(11,440
|
)
|
|
(28,776
|
)
|
Increase in deferred rent
|
8,482
|
|
|
9,698
|
|
Decrease in unearned revenue
|
(110,392
|
)
|
|
(108,832
|
)
|
Decrease in other long-term liabilities
|
(5,077
|
)
|
|
(853
|
)
|
Net cash provided by operating activities
|
97,246
|
|
|
94,720
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
Purchases of life insurance policies
|
(1,040
|
)
|
|
(759
|
)
|
Proceeds from sale of life insurance policies
|
627
|
|
|
1,059
|
|
Proceeds from disposal of property, fixtures and equipment
|
562
|
|
|
2,939
|
|
Acquisition of business, net of cash acquired
|
(3,063
|
)
|
|
—
|
|
Capital expenditures
|
(97,619
|
)
|
|
(97,150
|
)
|
Decrease in restricted cash
|
13,556
|
|
|
13,267
|
|
Increase in restricted cash
|
(14,192
|
)
|
|
(12,460
|
)
|
Net cash used in investing activities
|
$
|
(101,169
|
)
|
|
$
|
(93,104
|
)
|
|
|
|
|
|
(CONTINUED...)
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Cash flows used in financing activities:
|
|
|
|
Proceeds from issuance of senior secured Term loan A
|
$
|
297,088
|
|
|
$
|
—
|
|
Extinguishment and modification of senior secured term loan
|
(700,000
|
)
|
|
—
|
|
Repayments of long-term debt
|
(18,090
|
)
|
|
(33,859
|
)
|
Proceeds from borrowings on revolving credit facilities
|
415,000
|
|
|
—
|
|
Repayments of borrowings on revolving credit facilities
|
(15,000
|
)
|
|
—
|
|
Financing fees
|
(4,492
|
)
|
|
(12,519
|
)
|
Proceeds from the exercise of stock options
|
6,476
|
|
|
22,222
|
|
Distributions to noncontrolling interests
|
(2,470
|
)
|
|
(4,526
|
)
|
Purchase of limited partnership interests
|
(17,211
|
)
|
|
—
|
|
Repayments of partner deposits and accrued partner obligations
|
(13,909
|
)
|
|
(12,477
|
)
|
Repayments of notes receivable due from stockholders
|
—
|
|
|
5,829
|
|
Repurchase of common stock
|
(799
|
)
|
|
(370
|
)
|
Excess tax benefits from stock-based compensation
|
1,095
|
|
|
—
|
|
Tax withholding on performance-based share units
|
(364
|
)
|
|
—
|
|
Net cash used in financing activities
|
(52,676
|
)
|
|
(35,700
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
2,571
|
|
|
(5,165
|
)
|
Net decrease in cash and cash equivalents
|
(54,028
|
)
|
|
(39,249
|
)
|
Cash and cash equivalents at the beginning of the period
|
209,871
|
|
|
261,690
|
|
Cash and cash equivalents at the end of the period
|
$
|
155,843
|
|
|
$
|
222,441
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
30,790
|
|
|
$
|
37,338
|
|
Cash paid for income taxes, net of refunds
|
29,941
|
|
|
8,897
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
Conversion of partner deposits and accrued partner obligations to notes payable
|
$
|
323
|
|
|
$
|
755
|
|
Acquisition of property, fixtures and equipment through accounts payable or capital lease liabilities
|
9,858
|
|
|
5,690
|
|
Release of valuation allowance through additional paid-in capital related to purchases of limited partnerships and joint venture interests
|
—
|
|
|
15,669
|
|
Deferred tax effect of purchase of noncontrolling interests
|
6,519
|
|
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
Bloomin’ Brands, Inc. (“Bloomin’ Brands” or the “Company”) was formed by an investor group comprised of funds advised by Bain Capital Partners, LLC and Catterton Management Company, LLC, Chris T. Sullivan, Robert D. Basham, J. Timothy Gannon and certain members of management. Bloomin’ Brands is a holding company and conducts its operations through OSI Restaurant Partners, LLC (“OSI”), the Company’s primary operating entity, and New Private Restaurant Properties, LLC, an indirect wholly-owned subsidiary of the Company that leases certain Company-owned restaurant properties to a subsidiary of OSI.
The Company owns and operates casual, polished casual and fine dining restaurants primarily in the United States. The Company’s restaurant portfolio has
five
concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements.
The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Change in Fiscal Year End -
On January 3, 2014, the Board of Directors approved a change in the Company’s fiscal year end from a calendar year ending on December 31 to a
52
-
53
week year ending on the last Sunday in December, effective beginning with fiscal year 2014. The Company believes the change in fiscal year provides numerous benefits, including aligning the Company’s reporting periods to be more consistent with peer restaurant companies and improving comparability between periods by removing the effect of trading day on Restaurant sales and operating margins. The Company will continue reporting its Brazilian operations on a calendar-based one-month lag. All other international operations will be reported on a
52
-
53
week reporting period contemporaneously with the domestic operations.
The Company made the fiscal year change on a prospective basis and has not adjusted operating results for prior periods. The change impacts the prior year comparability of the Company’s fiscal quarters in 2014 and will result in shifts in the quarterly periods, which will have an impact on quarterly financial results. The
twenty-six weeks ended June 29, 2014
included
one
less operating day than the comparable prior year period and the Company estimates that the associated impact was
$7.5 million
and
$1.5 million
on Total revenues and Net income attributable to Bloomin’ Brands, respectively. There was no impact to the quarterly financial results for the thirteen weeks ended June 29, 2014.
Reclassifications -
The Company has reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the
thirteen and twenty-six weeks ended June 29, 2014
. These reclassifications had no effect on previously reported net income.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
2
. Acquisitions
Acquisition of Controlling Interest in the Company’s Brazilian Operations -
Prior to November 1, 2013, the Company held a
50%
ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”) through a joint venture arrangement with PGS Participações Ltda, which operated Outback Steakhouse restaurants in Brazil. Effective November 1, 2013, the Company completed the acquisition of a controlling interest in the Brazilian Joint Venture, resulting in the consolidation of this entity.
Prior to the acquisition, the Company accounted for the Brazilian Joint Venture under the equity method of accounting. The Company’s share of earnings of
$2.6 million
and
$5.5 million
for the
three and six months ended June 30, 2013
, respectively, was recorded in Income from operations of unconsolidated affiliates in the Company’s Consolidated Statement of Operations and Comprehensive Income. The Brazilian Joint Venture’s results of operations for the
thirteen and twenty-six weeks ended June 29, 2014
are reflected in the respective line items in the Company’s Consolidated Statement of Operations and Comprehensive Income.
Acquisition of Limited Partnership Interests -
Effective January 1, 2014, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships that either owned or had a contractual right to varying percentages of cash flows in
37
Bonefish Grill restaurants for an aggregate purchase price of
$17.2 million
. These transactions resulted in a reduction of approximately
$11.9 million
in Additional paid-in capital in the Company’s Consolidated Balance Sheet at
June 29, 2014
.
The following table sets forth the effect of these transactions on stockholders’ equity attributable to Bloomin’ Brands (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Net income attributable to Bloomin’ Brands
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
80,124
|
|
|
$
|
138,091
|
|
Transfers to noncontrolling interests:
|
|
|
|
|
|
|
|
Net decrease in Bloomin’ Brands additional paid-in capital for purchase of limited partnership interests
|
—
|
|
|
—
|
|
|
(11,928
|
)
|
|
—
|
|
Change from net income attributable to Bloomin’ Brands and transfers to noncontrolling
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
68,196
|
|
|
$
|
138,091
|
|
Acquisition of Franchised Restaurants -
Effective March 1, 2014, the Company acquired
two
Bonefish Gill restaurants from
a
franchisee for a purchase price of approximately
$3.2 million
, including customary escrow amounts. The Consolidated Statement of Operations and Comprehensive Income includes the results of operations for these restaurants from the date of acquisition. The pro forma impact of the acquisition on prior periods is not presented as the impact was not material to reported results.
The Company allocated the purchase price to the assets acquired less the liabilities assumed based on their estimated fair value on the date of acquisition with the remaining
$2.5 million
of the purchase price allocated to goodwill.
All
goodwill recognized is expected to be deductible for tax purposes.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
3. Earnings Per Share
The computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Net income attributable to Bloomin’ Brands
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
80,124
|
|
|
$
|
138,091
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
125,229
|
|
|
122,858
|
|
|
124,889
|
|
|
122,052
|
|
|
|
|
|
|
|
|
|
Effect of diluted securities:
|
|
|
|
|
|
|
|
Stock options
|
3,051
|
|
|
5,342
|
|
|
3,121
|
|
|
5,204
|
|
Nonvested restricted stock and restricted stock units
|
98
|
|
|
138
|
|
|
105
|
|
|
343
|
|
Diluted weighted average common shares outstanding
|
128,378
|
|
|
128,338
|
|
|
128,115
|
|
|
127,599
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.21
|
|
|
$
|
0.61
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
Diluted earnings per share
|
$
|
0.21
|
|
|
$
|
0.58
|
|
|
$
|
0.63
|
|
|
$
|
1.08
|
|
Potential common shares are excluded from the computation of diluted earnings per share when the effect would be anti-dilutive. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company’s common stock for the period. Following are the weighted-average potential common shares excluded from diluted earnings per share as their effect is anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Stock options
|
2,688
|
|
|
1,276
|
|
|
2,307
|
|
|
1,673
|
|
Nonvested restricted stock and restricted stock units
|
174
|
|
|
—
|
|
|
197
|
|
|
—
|
|
4. Stock-based Compensation
The Company’s 2012 Incentive Award Plan permits the grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards to Company management and other key employees. The Company accounts for its stock-based employee compensation using a fair value-based method of accounting. The Company recognized stock-based compensation expense as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Stock options
|
$
|
3,098
|
|
|
$
|
2,321
|
|
|
$
|
5,566
|
|
|
$
|
6,306
|
|
Restricted stock and restricted stock units
|
989
|
|
|
501
|
|
|
1,738
|
|
|
876
|
|
Performance-based share units
|
177
|
|
|
196
|
|
|
535
|
|
|
265
|
|
|
$
|
4,264
|
|
|
$
|
3,018
|
|
|
$
|
7,839
|
|
|
$
|
7,447
|
|
During the
twenty-six weeks ended June 29, 2014
, the Company made grants to its employees of
1.3 million
stock options,
0.3 million
time-based restricted stock units and
0.1 million
performance-based share units. The weighted-average grant date fair value per stock option was
$11.88
.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period at
June 29, 2014
:
|
|
|
|
|
|
|
|
UNRECOGNIZED
COMPENSATION EXPENSE
(in thousands)
|
|
REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years)
|
Stock options
|
$
|
29,851
|
|
|
3.0
|
Restricted stock and restricted stock units
|
$
|
12,395
|
|
|
3.0
|
Performance-based share units
|
$
|
843
|
|
|
0.7
|
5. Other Current Assets, Net
Other current assets, net, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
JUNE 29,
|
|
DECEMBER 31,
|
|
2014
|
|
2013
|
Prepaid expenses
|
$
|
31,191
|
|
|
$
|
28,287
|
|
Accounts receivable - vendors, net
|
25,192
|
|
|
23,218
|
|
Accounts receivable - franchisees, net
|
1,448
|
|
|
1,394
|
|
Accounts receivable - other, net
|
37,795
|
|
|
33,086
|
|
Other current assets, net
|
37,253
|
|
|
33,396
|
|
|
$
|
132,879
|
|
|
$
|
119,381
|
|
6
. Goodwill and Intangible Assets, Net
Goodwill -
The following table presents a rollforward of goodwill for the
twenty-six weeks ended June 29, 2014
(in thousands):
|
|
|
|
|
|
Balance at December 31, 2013
|
|
$
|
346,253
|
|
Additions for purchases of franchised locations
|
|
2,461
|
|
Foreign currency translation adjustments
|
|
4,372
|
|
Balance at June 29, 2014
|
|
$
|
353,086
|
|
The Company performed an annual assessment of goodwill and other indefinite-lived intangible assets during the second quarters of 2014 and 2013. In connection with the annual assessment,
no
goodwill or indefinite-lived intangible asset impairments were recorded in the thirteen weeks and twenty-six weeks ended June 29, 2014 and the three and six months ended June 30, 2013.
Intangible Assets, net -
Effective June 1, 2014, OSI and Carrabba’s Italian Grill, LLC (“Carrabba’s”), a wholly owned subsidiary of OSI, entered into a Third Amendment to the Royalty Agreement with the founders of Carrabba’s Italian Grill and their affiliated entities (collectively, the “Carrabba’s Founders”). The amendment provides that no continuing royalty fee will be paid to the Carrabba’s Founders for Carrabba’s restaurants located outside the United States. Each Carrabba’s restaurant located outside the United States will pay a one-time lump sum royalty fee, which varies depending on the size of the restaurant. The one-time fee is
$100,000
for restaurants
5,000
square feet or larger,
$75,000
for restaurants
3,500
square feet or larger but less than
5,000
square feet and
$50,000
for restaurants less than
3,500
square
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
feet. In connection with the amendment, the Company made a non-refundable payment of
$1.0 million
to the Carrabba’s Founders for the first
ten
restaurants of
5,000
square feet or more to be located outside the United States.
In addition, new Carrabba’s restaurants in the U.S. that first open on or after June 1, 2014 will pay a fixed royalty of
0.5
percent on sales occurring prior to 4 pm local time Monday through Saturday. Existing Carrabba’s restaurants in the U.S. that begin serving weekday lunch on or after June 1, 2014 will pay a fixed royalty of
0.5
percent on sales occurring prior to 4 pm local time Monday through Friday. In each case, these sales will be excluded in calculating the volume based royalty percentage on sales after 4 pm.
The payment to the Carrabba’s Founders was recorded as a Trade name in Intangible Assets, net, in the Consolidated Balance Sheet at June 29, 2014.
7
. Long-term Debt, Net
Following is a summary of outstanding long-term debt, (in thousands, except interest rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 29, 2014
|
|
DECEMBER 31, 2013
|
|
OUTSTANDING BALANCE
|
|
INTEREST RATE
|
|
OUTSTANDING BALANCE
|
|
INTEREST RATE
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
Term loan A
|
$
|
300,000
|
|
|
2.12
|
%
|
|
$
|
—
|
|
|
—
|
|
Term loan B
|
225,000
|
|
|
3.50
|
%
|
|
935,000
|
|
|
3.50
|
%
|
Revolving credit facility
|
400,000
|
|
|
2.12
|
%
|
|
—
|
|
|
—
|
|
Total senior secured credit facility
|
925,000
|
|
|
|
|
935,000
|
|
|
|
2012 CMBS loan:
|
|
|
|
|
|
|
|
Mortgage loan (1)
|
307,559
|
|
|
4.05
|
%
|
|
311,644
|
|
|
4.02
|
%
|
First mezzanine loan
|
85,630
|
|
|
9.00
|
%
|
|
86,131
|
|
|
9.00
|
%
|
Second mezzanine loan
|
86,381
|
|
|
11.25
|
%
|
|
86,704
|
|
|
11.25
|
%
|
Total 2012 CMBS loan
|
479,570
|
|
|
|
|
484,479
|
|
|
|
Other notes payable
|
3,652
|
|
|
0.52% to 7.00%
|
|
|
6,186
|
|
|
0.58% to 7.00%
|
|
Sale-leaseback obligations
|
2,375
|
|
|
|
|
|
2,375
|
|
|
|
|
Capital lease obligations
|
946
|
|
|
|
|
|
1,255
|
|
|
|
|
|
$
|
1,411,543
|
|
|
|
|
$
|
1,429,295
|
|
|
|
Less: current portion of long-term debt
|
(22,328
|
)
|
|
|
|
(13,546
|
)
|
|
|
Less: unamortized debt discount
|
(7,054
|
)
|
|
|
|
(10,152
|
)
|
|
|
Long-term debt, net
|
$
|
1,382,161
|
|
|
|
|
$
|
1,405,597
|
|
|
|
________________
|
|
(1)
|
Represents the weighted-average interest rate for the respective period.
|
Bloomin’ Brands, Inc. is a holding company and conducts its operations through its subsidiaries, certain of which have incurred indebtedness as described below.
Credit Agreement -
On October 26, 2012, OSI entered into a credit agreement (“Credit Agreement”) with a syndicate of institutional lenders and financial institutions for a senior secured credit facility (the “Senior Secured Credit Facility”) of
$1.225 billion
. The Credit Agreement was comprised of a
$1.0 billion
Term loan B and a
$225.0 million
revolving credit facility, including letter of credit and swing-line loan sub-facilities. The Term loan B was issued with an original issue discount of
$10.0 million
.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
OSI amended the Credit Agreement in April 2013 in connection with a repricing of the Term loan B. In January 2014, the Credit Agreement was amended to align to the change in the Company’s fiscal year.
Amended Credit Agreement -
OSI completed a refinancing of its Senior Secured Credit Facility and entered into an amendment to the Credit Agreement (“Amended Credit Agreement”) on May 16, 2014. The Amended Credit Agreement provides for senior secured financing of up to
$1.125 billion
, consisting of a new
$300.0 million
Term loan A, a
$225.0 million
Term loan B and a
$600.0 million
revolving credit facility, including letter of credit and swing-line loan sub-facilities. The Term loan A and
revolving credit facility
mature
May 16, 2019
, and the Term loan B matures on
October 26, 2019
. The Term loan A was issued with a discount of
$2.9 million
.
At closing,
$400.0 million
was drawn under the revolving credit facility. The proceeds of the Term loan A and the loans made at closing under the revolving credit facility were used to pay down a portion of OSI’s Term loan B under the Credit Agreement. The total indebtedness of the Company remained unchanged as a result of the refinancing.
The Company may elect an interest rate for the Amended Credit Agreement at each reset period based on the Base Rate or the Eurocurrency Rate. The Base Rate option is the highest of (i) the prime rate of Wells Fargo Bank, National Association, (ii) the federal funds effective rate plus
0.5
of
1.0%
or (iii) the Eurocurrency rate with a one-month interest period plus
1.0%
(the “Base Rate”). The Eurocurrency Rate option is the
seven
,
30
,
60
,
90
or
180-day
Eurocurrency rate (“Eurocurrency Rate”). The interest rates are as follows:
|
|
|
|
|
|
|
|
BASE RATE ELECTION
|
|
EUROCURRENCY RATE ELECTION
|
Term loan A and revolving credit facility
|
|
75 to 125 basis points over Base Rate
|
|
175 to 225 basis points over the Eurocurrency Rate
|
Term loan B
|
|
150 basis points over Base Rate
|
|
250 basis points over the Eurocurrency Rate
|
Since the effective date of the Amended Credit Agreement, the Company has elected the Eurocurrency rate as its primary interest rate. Under the terms of the Amended Credit Agreement, the Term loan B interest rate determined using the Base Rate and Eurocurrency rate has minimum rates of
2.00%
and
1.00%
, respectively.
Fees on letters of credit and the daily unused availability under the revolving credit facility are
2.13%
and
0.30%
, respectively. At
June 29, 2014
,
$29.6 million
of the revolving credit facility was committed for the issuance of letters of credit and not available for borrowing.
Substantially all of the assets of the Company’s domestic subsidiaries collateralize the Senior Secured Credit Facility.
Commercial Mortgage-Backed Securities Loan -
Effective March 27, 2012, New Private Restaurant Properties, LLC and
two
of the Company’s other indirect wholly-owned subsidiaries (collectively, “New PRP”) entered into a commercial mortgage-backed securities loan (the “2012 CMBS Loan”) with German American Capital Corporation and Bank of America, N.A. The 2012 CMBS Loan totaled
$500.0 million
at origination and was originally comprised of
a
first mortgage loan in the amount of
$324.8 million
, collateralized by
261
of the Company’s properties, and
two
mezzanine loans totaling
$175.2 million
. The loans have a maturity date of
April 10, 2017
.
The first mortgage loan has
five
fixed-rate components and
a
floating rate component. The fixed-rate components bear interest at rates ranging from
2.37%
to
6.81%
per annum. The floating rate component bears interest at a rate per annum equal to the 30-day London Interbank Offered Rate (“
30-day LIBOR
”) (with a floor of
1%
) plus
2.37%
. The first mezzanine loan bears interest at a rate of
9.00%
per annum, and the second mezzanine loan bears interest at a rate of
11.25%
per annum.
Debt Covenants and Other Restrictions -
Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; acquire certain assets; effect mergers and similar transactions; and effect
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
certain other transactions with affiliates. The Amended Credit Agreement also has a financial covenant to maintain a specified quarterly Total Net Leverage Ratio (“TNLR”). TNLR is the ratio of Consolidated Total Debt (Current portion of long-term debt and Long-term debt, net) to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments). The TNLR may not exceed a level set at
5.00
to 1.00 through fiscal 2017, with a step down to a maximum level of
4.75
:1.00 in fiscal 2018 and thereafter.
The 2012 CMBS Loan also requires the Company to maintain an interest rate cap (“Rate Cap”) to limit the volatility of the floating rate component of the first mortgage loan within the 2012 CMBS loan. In April 2014, the Company’s Rate Cap expired. In connection with the expiration of the Rate Cap, the Company entered into a replacement rate cap (“Replacement Rate Cap”), with a notional amount of
$48.7 million
. Under the Replacement Rate Cap, if the
30-day LIBOR
rate exceeds
7.00%
per annum, the counterparty must pay to the Company such excess on the notional amount of the floating rate component. The Replacement Rate Cap had a nominal fair market value on June 29, 2014. The Replacement Rate Cap expires in April 2016.
Loss on Extinguishment and Modification of Debt -
In connection with the second quarter refinancing of the Credit Agreement, the Company recognized loss on extinguishment and modification of debt of
$11.1 million
for the
thirteen and twenty-six weeks ended June 29, 2014
. The loss was comprised of the write-off of
$5.5 million
of deferred financing fees, the write-off of
$4.9 million
of unamortized debt discount and a prepayment penalty of
$0.7 million
.
Deferred financing fees -
The Company deferred
$3.8 million
of financing costs incurred to complete the refinancing of the Senior Secured Credit Facility, all of which was capitalized during the second quarter of 2014. These deferred financing costs are included in the line item, “Other assets, net” in the Consolidated Balance Sheets.
Maturities -
Following is a summary of principal payments of the Company’s total consolidated debt outstanding at
June 29, 2014
(in thousands):
|
|
|
|
|
|
JUNE 29, 2014
|
Year 1
|
$
|
23,968
|
|
Year 2
|
27,174
|
|
Year 3
|
485,500
|
|
Year 4
|
22,526
|
|
Year 5
|
625,000
|
|
Thereafter
|
227,375
|
|
Total
|
$
|
1,411,543
|
|
The following is a summary of required amortization payments for Term loan A (in thousands):
|
|
|
|
|
|
SCHEDULED QUARTERLY PAYMENT PERIOD
|
|
QUARTERLY PAYMENT
|
September 30, 2014 through June 30, 2016
|
|
$
|
3,750
|
|
September 30, 2016 through June 30, 2018
|
|
$
|
5,625
|
|
September 30, 2018 through March 30, 2019
|
|
$
|
7,500
|
|
Since the inception of the Term loan B, OSI has made sufficient voluntary prepayments in excess of the remaining required amortization payments and, as a result, will not be required to make any further required amortization payments until the remaining balance of the loan reaches maturity in October 2019.
The Amended Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan B. Beginning with the fiscal year ended December 28, 2014, the Company is required to prepay outstanding amounts under its term loans with
50%
of its annual excess cash flow, as defined in the Amended Credit Agreement. The amount
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
of outstanding term loans required to be prepaid in accordance with the debt covenants may vary based on the Company’s leverage ratio and year-end results.
8. Other Long-term Liabilities, Net
The Company maintains an endorsement split-dollar insurance policy with a death benefit of
$5.0 million
for
one
of its current executive officers. The Company is the beneficiary of the policy to the extent of premiums paid or the cash value, whichever is greater, with the remaining death benefit being paid to personal beneficiaries designated by the executive officer.
During the
twenty-six weeks ended June 29, 2014
and the
six months ended June 30, 2013
, the Company terminated the split-dollar agreements with certain of its former executive officers in exchange for aggregate payments of
$2.0 million
and
$4.2 million
, respectively, in cash. Upon termination, the release of the death benefit and related liabilities, net of the associated cash termination payment, resulted in net gains of
$1.9 million
during the
twenty-six weeks ended June 29, 2014
and
$1.5 million
and
$3.7 million
during the
three and six months ended June 30, 2013
, respectively. The net gains were recorded in General and administrative in the Consolidated Statements of Operations and Comprehensive Income.
At
June 29, 2014
and
December 31, 2013
, the Company had
$1.1 million
and
$5.0 million
, respectively, recorded in Other long-term liabilities, net in its Consolidated Balance Sheets for the outstanding obligations under th
e
endorsement split-dollar insurance policies.
9
. Fair Value Measurements
Restaurant Closure Initiative -
In the fourth quarter of 2013, the Company completed an assessment of its restaurant base and decided to close
22
underperforming locations (“Restaurant Closure Initiative”). Following is a summary of Restaurant Closure Initiative expenses recognized in the Consolidated Statement of Operations and Comprehensive Income during the
twenty-six weeks ended June 29, 2014
(in thousands):
|
|
|
|
|
|
|
|
DESCRIPTION
|
|
LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
AMOUNT
|
Restaurant closure expenses
|
|
Provision for impaired assets and restaurant closings
|
|
$
|
5,972
|
|
Severance and other liabilities
|
|
General and administrative
|
|
1,035
|
|
Deferred rent liability write-off
|
|
Other restaurant operating
|
|
(2,078
|
)
|
|
|
|
|
$
|
4,929
|
|
Fair Value Measurements on a Recurring Basis -
The Company invested
$14.5 million
and
$11.9 million
of its excess cash in fixed income and money market funds classified as Cash and cash equivalents or Restricted cash in its Consolidated Balance Sheets as of
June 29, 2014
and
December 31, 2013
, respectively, at a net value of
1
:1 for each dollar invested. The fair value of the investments in these funds is determined by using quoted prices for identical assets in an active market. As a result, the Company has determined that the inputs used to value these investments fall within Level 1 of the fair value hierarchy.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following table presents the Company’s fixed income and money market funds measured at fair value on a recurring basis at
June 29, 2014
and
December 31, 2013
, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 29, 2014
|
|
DECEMBER 31, 2013
|
|
TOTAL
|
|
LEVEL 1
|
|
TOTAL
|
|
LEVEL 1
|
Assets:
|
|
|
|
|
|
|
|
Fixed income funds - cash equivalents
|
$
|
6,329
|
|
|
$
|
6,329
|
|
|
$
|
9,849
|
|
|
$
|
9,849
|
|
Money market funds - cash equivalents
|
7,938
|
|
|
7,938
|
|
|
1,988
|
|
|
1,988
|
|
Money market funds - restricted cash equivalents
|
240
|
|
|
240
|
|
|
68
|
|
|
68
|
|
Total recurring fair value measurements
|
$
|
14,507
|
|
|
$
|
14,507
|
|
|
$
|
11,905
|
|
|
$
|
11,905
|
|
In connection with the 2012 CMBS Loan, New PRP is required to maintain a Rate Cap. This interest rate cap had a nominal fair market value at
June 29, 2014
and
December 31, 2013
, respectively and therefore was excluded from the applicable tables within this footnote.
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 tables summarize the fair value remeasurements for property, fixtures and equipment for the
thirteen and twenty-six weeks ended June 29, 2014
aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 29, 2014
|
|
|
|
|
|
REMAINING FAIR VALUE
|
|
THIRTEEN WEEKS ENDED JUNE 29, 2014
|
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL
IMPAIRMENT
|
Property, fixtures and equipment
|
$
|
2,351
|
|
|
$
|
1,735
|
|
|
$
|
616
|
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 29, 2014
|
|
|
|
|
|
REMAINING FAIR VALUE
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL
IMPAIRMENT
|
Property, fixtures and equipment
|
$
|
2,951
|
|
|
$
|
2,335
|
|
|
$
|
616
|
|
|
$
|
483
|
|
Impairment losses for property, fixtures and equipment and restaurant closure expenses are recognized in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income.
During the
thirteen and twenty-six weeks ended June 29, 2014
, the Company incurred restaurant closing expenses of
$0.6 million
and
$6.6 million
, respectively. For the twenty-six weeks ended June 29, 2014, restaurant closing costs primarily related to the Restaurant Closure Initiative. The Company did not record material impairment charges of its property, fixtures and equipment during the
three and six months ended June 30, 2013
.
The Company used a third-party market appraisal (Level 2) and discounted cash flow models (Level 3) to estimate the fair value of the long-lived assets included in the table above. Projected future cash flows, including discount rate and growth rate assumptions, are derived from current economic conditions, expectations of management and projected trends of current operating results.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
Interim Disclosures about Fair Value of Financial Instruments -
The Company’s non-derivative financial instruments at
June 29, 2014
and
December 31, 2013
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 at
June 29, 2014
and
December 31, 2013
aggregated by the level in the fair value hierarchy in which those measurements fall (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE 29, 2014
|
|
DECEMBER 31, 2013
|
|
|
|
FAIR VALUE
|
|
|
|
FAIR VALUE
|
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
Term loan A
|
$
|
300,000
|
|
|
$
|
299,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Term loan B
|
225,000
|
|
|
225,000
|
|
|
—
|
|
|
935,000
|
|
|
936,169
|
|
|
—
|
|
Revolving credit facility
|
400,000
|
|
|
398,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
CMBS loan:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
|
307,559
|
|
|
—
|
|
|
319,696
|
|
|
311,644
|
|
|
—
|
|
|
318,787
|
|
First mezzanine loan
|
85,630
|
|
|
—
|
|
|
85,630
|
|
|
86,131
|
|
|
—
|
|
|
86,131
|
|
Second mezzanine loan
|
86,381
|
|
|
—
|
|
|
87,245
|
|
|
86,704
|
|
|
—
|
|
|
87,571
|
|
Other notes payable
|
3,652
|
|
|
—
|
|
|
3,477
|
|
|
6,186
|
|
|
—
|
|
|
5,912
|
|
Fair value of debt is determined based on the following:
|
|
|
|
DEBT FACILITY
|
|
METHODS AND ASSUMPTIONS
|
Senior Secured Credit Facility
|
|
Quoted market prices in inactive markets.
|
CMBS loan
|
|
Assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management.
|
Other notes payable
|
|
Discounted cash flow approach. Discounted cash flow inputs primarily include cost of debt rates which are used to derive the present value factors for the determination of fair value.
|
10. Taxes
Income Taxes -
The effective income tax rates for the
thirteen and twenty-six weeks ended June 29, 2014
were
24.1%
and
24.6%
, respectively, compared to
(117.5)%
and
(27.6)%
for the
three and six months ended June 30, 2013
, respectively. The net increase in the effective income tax rates for the
thirteen and twenty-six weeks ended June 29, 2014
was due to the following: (i) the release of the U.S. valuation allowance in the second quarter of 2013, (ii) a change in the blend of taxable income and tax rates across the Company’s domestic and international subsidiaries and (iii) the acquisition of limited partnership interests in 2013 and 2014, which resulted in increased income allocations.
The effective income tax rates for the
thirteen and twenty-six weeks ended June 29, 2014
were lower than the blended federal and state statutory rate of
39.0%
primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips and the foreign tax rate differential. The effective income tax rates for the
three and six months ended June 30, 2013
were lower than the blended federal and state statutory rate of
38.7%
primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips, the release of the valuation allowance, the elimination of noncontrolling interest and the foreign rate differential, together being such a large percentage of projected annual pretax income.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
At
June 29, 2014
and
December 31, 2013
, the Company had
$15.4 million
and
$17.1 million
, respectively, of unrecognized tax benefits. Additionally, the Company had
$1.0 million
and
$2.1 million
, respectively, of interest and penalties related to uncertain tax positions at
June 29, 2014
and
December 31, 2013
. Of the total amount of unrecognized tax benefits, including accrued interest and penalties,
$15.2 million
and
$17.2 million
as of
June 29, 2014
and
December 31, 2013
, respectively, if recognized, would impact the Company’s effective income tax rate. The difference between the total amount of unrecognized tax benefits and the amount that would impact the effective income tax rate consists of items that are offset by deferred income tax assets and the federal income tax benefit of state income tax items.
The Company is currently under income tax examination by the Internal Revenue Service (“IRS”) for the year ended December 31,
2011
. The Company is currently open to audit under the statute of limitations for the years ended December 31,
2007
through
2013
. The Company and its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the years ended December 31,
2001
through
2012
. The Company and its subsidiaries’ foreign income tax returns are open to audit under the statute of limitations for the years ended December 31,
2007
through
2013
.
Payroll Taxes -
The Company is currently under payroll tax examination by the IRS. In 2013, the IRS informed the Company that it proposed to issue an audit adjustment for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by the Company’s tipped employees during calendar year 2010. The cash tips allegedly unreported by the tipped employees were based on an IRS estimate of the aggregate amount of tips directly received by tipped employees from the Company’s customers.
In March 2014, the IRS issued an audit adjustment of
$5.0 million
to the Company for the employer’s share of FICA taxes related to cash tips unreported by the Company’s employees during calendar year 2010. The Company remitted payment to the IRS in April 2014 to settle the calendar year 2010 audit adjustment.
Subsequently, the IRS indicated that the scope of the proposed adjustment would expand to include the
2011
and
2012
periods. In July 2014, the Company received a notice from the IRS regarding commencement of the 2011 payroll tax audit. At
June 29, 2014
, the Company had
$12.0 million
recorded in Accrued and other current liabilities in the Company’s Consolidated Balance Sheet for the payroll tax audits.
11. Redeemable Noncontrolling Interests
The Company consolidates subsidiaries in Brazil and China, each of which have noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. Redeemable noncontrolling interests are classified in Mezzanine equity in the Company’s Consolidated Balance Sheet.
The following table presents a rollforward of Redeemable noncontrolling interests for the
twenty-six weeks ended June 29, 2014
(in thousands):
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
Balance, beginning of period
|
$
|
21,984
|
|
Net income attributable to redeemable noncontrolling interests
|
1,059
|
|
Balance, end of period
|
$
|
23,043
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
12
. Commitments and Contingencies
On October 4, 2013,
two
then current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI, and two of its subsidiaries in the U.S. District Court for the District of Nevada (Cardoza, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 2:13-cv-01820-JAD-NJK). The complaint alleges violations of the Fair Labor Standards Act by requiring employees to work off the clock, complete on-line training without pay, and attend meetings in the restaurant without pay. The suit seeks to certify a nationwide collective action that all hourly employees in all Outback Steakhouse restaurants would be permitted to join. The suit seeks an unspecified amount in back pay for the employees that join the lawsuit, an equal amount in liquidated damages, costs, expenses, and attorney’s fees. The Nevada Plaintiffs also filed a companion lawsuit in Nevada state court alleging that the Company violated the state break time rules. The Company believes these lawsuits are without merit, and is vigorously defending all allegations. However, the Company is unable to predict the outcome of this case.
On November 8, 2013,
three
employees of the Company’s franchisee (collectively, the “California Plaintiffs”) filed a purported class action lawsuit against the Company, OSI and OS Restaurant Services, LLC,
two
of its subsidiaries, and T-Bird Restaurant Group, Inc. (“T-Bird”),
one
of its franchisees in the California Superior Court, County of Alameda. The defendants removed the matter to the U.S. District Court for the Northern District of California in December 2013 (Holly Gehl, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 4:13-cv-05961-KAW). The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation, and violations of California’s Business and Professions Code. The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, costs and expenses, including attorney’s fees, and such other relief as the Court determines to be appropriate. The Company does not believe the California Plaintiffs have any standing to bring claims against the Company or its subsidiaries as all were employed by the Company’s franchisee. The Company intends to request that the court dismiss it and the Company’s subsidiaries from this action. Should the court deny the Company’s request for dismissal it will vigorously defend the lawsuit. However, the Company is unable to predict the outcome of this case.
13
. Recently Issued Financial Accounting Standards
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 will be effective for the Company on December 26, 2016 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption. The Company has not selected a transition method and is evaluating the impact this guidance will have on its financial position, results of operations and cash flows.
In April 2014, the FASB issued ASU No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU No. 2014-08”). ASU No. 2014-08 changes the criteria for reporting and revises the definition of discontinued operations while enhancing disclosures in this area. Additional disclosure requirements for discontinued operations and new disclosures for individually material disposal transactions that do not meet the revised definition of a discontinued operation will be applicable. ASU No. 2014-08 will be effective for the Company on December 29, 2014 with early adoption permitted. The impact of ASU No. 2014-08 on the Company’s financial position, results of operations and cash flows is dependent on the occurrence of future transactions or events.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries.
Cautionary Statement
This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following:
|
|
(i)
|
The restaurant industry is a highly competitive industry with many well-established competitors;
|
|
|
(ii)
|
Our results can be impacted by patterns of customer traffic and our ability to effectively respond in a timely manner to changes in patterns of customer traffic; changes in consumer tastes and the level of consumer acceptance of our restaurant concepts (including consumer tolerance of our prices); local, regional, national and international economic and political conditions; the seasonality of our business; demographic trends; changes in consumer dietary habits; product mix; employee availability; the cost of advertising and media; the timing of restaurant operating expenses; government actions and policies; inflation or deflation; unemployment rates; interest rates; foreign exchange rates; and increases in various costs, including construction, real estate and health insurance costs;
|
|
|
(iii)
|
Commodities, including but not limited to, beef, chicken, shrimp, pork, seafood, dairy, produce, potatoes, onions and energy supplies, are subject to fluctuation in price and availability, and prices and other costs of our operations
could increase more than we expect;
|
|
|
(iv)
|
Challenging economic conditions may affect our liquidity by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending; the availability of credit presently
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
arranged from our revolving credit facilities; the future cost and availability of credit; interest rates; foreign currency exchange rates; and the liquidity or operations of our third-party vendors and other service providers;
|
|
(v)
|
Our ability to expand is dependent upon various factors such as the availability of attractive sites for new restaurants; our ability to obtain appropriate real estate sites at acceptable prices; our ability to obtain all required governmental permits including zoning approvals and liquor licenses on a timely basis; the impact of government moratoriums or approval processes, which could result in significant delays; our ability to obtain all necessary contractors and subcontractors; union activities such as picketing and hand billing that could delay construction; our ability to generate or borrow funds; our ability to negotiate suitable lease terms; our ability to recruit and train skilled management and restaurant employees; and our ability to receive the premises from the landlord’s developer without any delays;
|
|
|
(vi)
|
Weather, natural disasters and other disasters could result in construction delays or slower customer traffic and could adversely affect the results of one or more restaurants for an indeterminate amount of time;
|
|
|
(vii)
|
Our results can be negatively impacted by the effects of acts of war; periods of widespread civil unrest; actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, or other military action affecting countries in which we do business and by the effects of heightened security requirements on local, regional, national, or international economies or consumer confidence;
|
|
|
(viii)
|
Our results can be impacted by tax and other legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements;
|
|
|
(ix)
|
Our results can be impacted by anticipated or unanticipated changes in our tax rates, exposure to additional income tax liabilities and a change in our ability to realize deferred tax benefits;
|
|
|
(x)
|
Minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs;
|
|
|
(xi)
|
Our results can be impacted by consumer reaction to public health issues and perception of food safety;
|
|
|
(xii)
|
We could face liabilities if we are unable to protect our information technology systems or experience an interruption or breach of security that could prevent us from effectively operating our business, protecting customer credit and debit card data or personal employee information; and
|
|
|
(xiii)
|
Our substantial leverage and significant restrictive covenants in our various credit facilities could adversely affect our ability to raise additional capital to fund our operations, limit our ability to make capital expenditures to invest in new or renovate restaurants, limit our ability to react to changes in the economy or our industry, and expose us to interest rate risk in connection with our variable-rate debt.
|
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.
Note: Numerical figures included in this Report have been subject to rounding adjustments.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Overview
We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of
June 29, 2014
, we owned and operated
1,341
restaurants and franchised
161
restaurants across
48
states, Puerto Rico, Guam and
21
countries. We have five founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Our concepts seek to provide a compelling customer experience combining great food, highly attentive service and lively and contemporary ambience at attractive prices. Our restaurants attract customers across a variety of occasions, including everyday dining, celebrations and business entertainment. Each of our concepts maintains a unique, founder-inspired brand identity and entrepreneurial culture, while leveraging our scale and enhanced operating model. We consider Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar to be our core concepts.
We are evaluating a plan to exit our Roy’s concept, but have not established a timeframe or committed to a specific plan to do so.
The restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality (customer traffic patterns at restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year) and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies, labor and fluctuations in prices of commodities, including beef, chicken, seafood, butter, cheese and produce, and other costs to operate a restaurant, such as rent, natural gas or utilities. Restaurant companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Competitive pressure for market share, commodity inflation, foreign currency exchange rates and other market conditions have had and could continue to have an adverse impact on our business.
Our industry is characterized by high initial capital investment, coupled with high labor costs. The combination of these factors underscores our initiative to drive increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have not focused on growth in the number of restaurants just to generate additional sales. Our expansion and operating strategies have balanced investment and operating cost considerations in order to generate reasonable, sustainable margins and achieve acceptable returns on investment from our restaurant concepts.
Our strategic plan and operating model entails maintaining an experienced executive management team and adapting practices from the consumer products and retail industries to complement our restaurant acumen and enhance our brand management, analytics and innovation. This model keeps the customer at the center of our decision-making and focuses on continuous innovation and productivity to drive sustainable sales and profit growth. In addition, we believe that substantial development opportunities remain for our concepts in the U.S. and internationally.
We continue to balance near-term growth in market share with investments to achieve sustainable growth. In 2014, our key growth strategies, which are enabled by continued improvements in infrastructure and organizational effectiveness include:
|
|
•
|
Grow Comparable Restaurant Sales.
We plan to continue to remodel our restaurants, use limited-time offers and multimedia marketing campaigns to drive traffic, selectively expand the lunch daypart and introduce innovative menu items, including through extensive menu refresh initiatives at Carrabba’s Italian Grill and Bonefish Grill, that match evolving consumer preferences.
|
|
|
•
|
Pursue New Domestic Development Opportunities with Strong Unit Level Economics.
We believe that a substantial development opportunity remains for our concepts in the U.S.
Our top domestic development priority is Bonefish Grill unit growth. We expect to open between 55 and 60 system-wide locations in 2014 of which we expect that approximately 50% will be domestic opportunities.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
|
|
•
|
Pursue New Strategic International Development in Selected Markets.
We believe the international business represents a significant growth opportunity and that we are well-positioned to continue to expand outside the U.S. We continue to focus on existing geographic regions in Latin America and Asia, with strategic expansion in selected emerging and high growth developed markets. We are focusing our existing market growth in Brazil and new market growth in China. We expect that approximately 50% of our new units in 2014 will be international opportunities, but will shift to a higher weight of international units as we continue to implement our international expansion plans.
|
To further development opportunities outside the U.S., we amended our royalty agreement with the Carrabba’s Founders. The amendment is effective June 1, 2014 and provides that no continuing royalty fee will be paid to the founders for Carrabba’s restaurants located outside the United States. Each Carrabba’s restaurant located outside the United States will pay a one-time lump sum royalty fee, which varies depending on the size of the restaurant. We plan to expand Carrabba’s Italian Grill in Brazil, with the first opening expected in 2015.
The combination of macro-economic and other factors have put considerable pressure on sales in the casual dining industry both domestically and in our South Korean market.
|
|
•
|
Domestically, the ongoing impacts of high unemployment, continued reduced access to credit, governmental spending and budget matters, other national, regional and local regulatory and economic conditions, gasoline prices, reduced disposable consumer income and consumer confidence have had a negative effect on discretionary consumer spending.
|
|
|
•
|
In our South Korean market, higher levels of household debt have impacted discretionary consumer spending, particularly in the casual dining environment. We expect an increasingly competitive market and reduced discretionary spending in South Korea to affect our comparable restaurant sales at least through the next 12 months.
|
As the macro-economic and other conditions persist domestically and in our South Korean market, we will continue to face increased pressure with respect to our pricing, traffic levels and commodity costs. We believe that in this environment, we will need to maintain our focus on value and innovation as well as refreshing our restaurant base to continue to drive sales.
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 domestic, 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 and, in historical periods, unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands;
|
|
|
•
|
Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income, Adjusted diluted earnings per share, EBITDA and Adjusted EBITDA
—non-GAAP financial measures utilized to evaluate
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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 attributes.
|
Change in Fiscal Year End
On January 3, 2014, our Board of Directors approved a change in our fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending on the last Sunday in December, effective beginning with fiscal year 2014. We believe the change in our fiscal year end provides numerous benefits, including aligning our reporting periods to be more consistent with peer restaurant companies and improving comparability between periods by removing the trading day effect on Restaurant sales and operating margins. We will continue reporting our Brazilian operations, on a calendar-based one-month lag. All other international operations will be reported on a 52-53 week reporting period contemporaneously with the domestic operations.
We made the fiscal year change on a prospective basis and have not adjusted operating results for prior periods. The change impacts the prior year comparability of our fiscal quarters and annual period in 2014 and will result in shifts in the quarterly periods, which will have an impact on our quarterly financial results. The
twenty-six weeks ended June 29, 2014
included
one
less operating day than the comparable prior year period and we estimate that the impact is approximately
$7.5 million
and
$1.5 million
on Total revenues and Net income attributable to Bloomin’ Brands, respectively. There was no impact to the quarterly financial results for the thirteen weeks ended June 29, 2014.
The impact of the change in the reporting periods for fiscal year 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
FISCAL PERIOD
|
|
2014 REPORTING PERIOD
|
|
2014 FISCAL
PERIOD DAYS
|
|
COMPARABLE
2013 FISCAL
PERIOD DAYS
|
|
FISCAL YEAR CHANGE IMPACT
(in operating days)
|
First fiscal quarter
|
|
January 1, 2014 to March 30, 2014
|
|
89
|
|
90
|
|
(1)
|
Second fiscal quarter
|
|
March 31, 2014 to June 29, 2014
|
|
91
|
|
91
|
|
—
|
Third fiscal quarter
|
|
June 30, 2014 to September 28, 2014
|
|
91
|
|
92
|
|
(1)
|
Fourth fiscal quarter
|
|
September 29, 2014 to December 28, 2014
|
|
91
|
|
92
|
|
(1)
|
Fiscal year
|
|
January 1, 2014 to December 28, 2014
|
|
362
|
|
365
|
|
(3)
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Selected Operating Data
The table below presents the number of our restaurants in operation at the end of the periods indicated:
|
|
|
|
|
|
|
|
JUNE 29,
|
|
JUNE 30,
|
|
2014
|
|
2013
|
Number of restaurants (at end of the period):
|
|
|
|
Outback Steakhouse
|
|
|
|
Company-owned—domestic
|
650
|
|
|
663
|
|
Company-owned—international (1) (2)
|
172
|
|
|
117
|
|
Franchised—domestic
|
104
|
|
|
106
|
|
Franchised and joint venture—international (1)
|
51
|
|
|
93
|
|
Total
|
977
|
|
|
979
|
|
Carrabba’s Italian Grill
|
|
|
|
Company-owned
|
240
|
|
|
234
|
|
Franchised
|
1
|
|
|
1
|
|
Total
|
241
|
|
|
235
|
|
Bonefish Grill
|
|
|
|
Company-owned
|
193
|
|
|
175
|
|
Franchised
|
5
|
|
|
7
|
|
Total
|
198
|
|
|
182
|
|
Fleming’s Prime Steakhouse and Wine Bar
|
|
|
|
Company-owned
|
66
|
|
|
65
|
|
Roy’s
|
|
|
|
Company-owned
|
20
|
|
|
22
|
|
System-wide total
|
1,502
|
|
|
1,483
|
|
____________________
|
|
(1)
|
Effective November 1, 2013, we acquired a controlling interest in the Brazilian Joint Venture resulting in the consolidation and reporting of 47 restaurants (as of the acquisition date) as Company-owned locations, which are reported as unconsolidated joint venture locations in the historical period presented.
|
|
|
(2)
|
The restaurant count for Brazil is reported as of May 31,
2014
to correspond with the balance sheet date of this subsidiary and, therefore, excludes
two
restaurants that opened in
June 2014
. Restaurant counts for our Brazilian operations were reported as of June 30
th
in the historical period presented.
|
We operate restaurants under brands that have similar economic characteristics, nature of products and services, class of customer and distribution methods, and as a result, aggregate our operating segments into a single reporting segment.
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, percentages that items in our Consolidated Statements of Operations and Comprehensive Income are in relation to Total revenues or Restaurant sales, as indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Revenues
|
|
|
|
|
|
|
|
|
Restaurant sales
|
99.4
|
%
|
|
98.9
|
%
|
|
99.4
|
%
|
|
99.0
|
%
|
Other revenues
|
0.6
|
|
|
1.1
|
|
|
0.6
|
|
|
1.0
|
|
Total revenues
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (1)
|
32.5
|
|
|
32.3
|
|
|
32.5
|
|
|
32.3
|
|
Labor and other related (1)
|
27.4
|
|
|
28.2
|
|
|
27.2
|
|
|
27.9
|
|
Other restaurant operating (1)
|
24.0
|
|
|
23.6
|
|
|
23.1
|
|
|
22.5
|
|
Depreciation and amortization
|
4.4
|
|
|
4.0
|
|
|
4.2
|
|
|
3.8
|
|
General and administrative
|
6.5
|
|
|
6.4
|
|
|
6.4
|
|
|
6.5
|
|
Provision for impaired assets and restaurant closings
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.1
|
|
Income from operations of unconsolidated affiliates
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Total costs and expenses
|
94.4
|
|
|
93.3
|
|
|
93.3
|
|
|
92.2
|
|
Income from operations
|
5.6
|
|
|
6.7
|
|
|
6.7
|
|
|
7.8
|
|
Loss on extinguishment and modification of debt
|
(1.0
|
)
|
|
(1.4
|
)
|
|
(0.5
|
)
|
|
(0.7
|
)
|
Other income (expense), net
|
*
|
|
|
(*)
|
|
|
*
|
|
|
(*)
|
|
Interest expense, net
|
(1.3
|
)
|
|
(1.8
|
)
|
|
(1.4
|
)
|
|
(1.8
|
)
|
Income before provision (benefit) for income taxes
|
3.3
|
|
|
3.5
|
|
|
4.8
|
|
|
5.3
|
|
Provision (benefit) for income taxes
|
0.8
|
|
|
(4.0
|
)
|
|
1.1
|
|
|
(1.4
|
)
|
Net income
|
2.5
|
|
|
7.5
|
|
|
3.7
|
|
|
6.7
|
|
Less: net income attributable to noncontrolling interests
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
Net income attributable to Bloomin’ Brands
|
2.4
|
%
|
|
7.3
|
%
|
|
3.5
|
%
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
Net income
|
2.5
|
%
|
|
7.5
|
%
|
|
3.7
|
%
|
|
6.7
|
%
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
1.7
|
|
|
(0.8
|
)
|
|
0.6
|
|
|
(0.6
|
)
|
Comprehensive income
|
4.2
|
|
|
6.7
|
|
|
4.3
|
|
|
6.1
|
|
Less: comprehensive income attributable to noncontrolling interests
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
Comprehensive income attributable to Bloomin’ Brands
|
4.1
|
%
|
|
6.5
|
%
|
|
4.1
|
%
|
|
5.9
|
%
|
________________
|
|
(1)
|
As a percentage of Restaurant sales.
|
|
|
*
|
Less than 1/10
th
of one percent of Total revenues.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
RESTAURANT SALES
Following is a summary of the changes in restaurants sales for the thirteen and twenty-six weeks ended June 29, 2014:
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN WEEKS ENDED
|
|
TWENTY-SIX WEEKS ENDED
|
For the period ended June 30, 2013
|
$
|
1,008.0
|
|
|
$
|
2,090.3
|
|
Change from:
|
|
|
|
Brazil acquisition (1)
|
71.6
|
|
|
139.5
|
|
Restaurant openings
|
34.6
|
|
|
66.2
|
|
Comparable restaurant sales
|
4.5
|
|
|
(10.3
|
)
|
Restaurant closings
|
(14.3
|
)
|
|
(23.2
|
)
|
Change in fiscal year
|
—
|
|
|
(7.5
|
)
|
For the period ended June 29, 2014
|
$
|
1,104.4
|
|
|
$
|
2,255.0
|
|
____________________
|
|
(1)
|
Includes restaurant sales for the 47 formerly unconsolidated joint venture restaurants in Brazil that were acquired November 1, 2013. Sales for restaurants opened in Brazil after November 1, 2013, are included in restaurant openings.
|
The increase in Restaurant sales in the
thirteen weeks ended June 29, 2014
was primarily attributable to: (i) the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013, (ii) the opening of 65 new restaurants not included in our comparable restaurant sales base and (iii) an increase in domestic comparable restaurant sales at our domestic existing restaurants. The increase in restaurant sales was partially offset by the closing of 29 restaurants since March 31, 2013, and lower comparable restaurant sales in South Korea.
For the
twenty-six weeks ended June 29, 2014
, the increase in Restaurant sales was primarily attributable to the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013 and the opening of 73 new restaurants not included in our comparable restaurant sales base. The increase in restaurant sales was partially offset by: (i) the closing of 32 restaurants since December 31, 2012, (ii) a decrease in comparable restaurant sales at our existing restaurants, primarily in South Korea and (iii)
one
less operating day due to a change in our fiscal year-end.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparable Domestic Restaurant Sales and Menu Price Increases
Following is a summary of comparable domestic restaurant sales and domestic general menu price increases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Comparable restaurant sales (stores open 18 months or more):
|
|
|
|
|
|
|
|
|
Outback Steakhouse
|
0.9
|
%
|
|
2.8
|
%
|
|
0.8
|
%
|
|
2.6
|
%
|
Carrabba’s Italian Grill
|
(1.2
|
)%
|
|
0.3
|
%
|
|
(1.5
|
)%
|
|
(0.7
|
)%
|
Bonefish Grill
|
0.3
|
%
|
|
0.2
|
%
|
|
(0.6
|
)%
|
|
0.4
|
%
|
Fleming’s Prime Steakhouse and Wine Bar
|
3.6
|
%
|
|
3.8
|
%
|
|
2.6
|
%
|
|
4.5
|
%
|
Combined (concepts above)
|
0.6
|
%
|
|
2.0
|
%
|
|
0.3
|
%
|
|
1.8
|
%
|
Year over year percentage change:
|
|
|
|
|
|
|
|
|
Menu price increases: (1)
|
|
|
|
|
|
|
|
|
Outback Steakhouse
|
2.1
|
%
|
|
2.7
|
%
|
|
2.3
|
%
|
|
2.4
|
%
|
Carrabba’s Italian Grill
|
2.6
|
%
|
|
2.2
|
%
|
|
2.7
|
%
|
|
1.8
|
%
|
Bonefish Grill
|
2.8
|
%
|
|
1.9
|
%
|
|
2.7
|
%
|
|
1.9
|
%
|
Fleming’s Prime Steakhouse and Wine Bar
|
3.4
|
%
|
|
3.3
|
%
|
|
3.6
|
%
|
|
2.7
|
%
|
____________________
|
|
(1)
|
The stated menu price changes exclude the impact of product mix shifts to new menu offerings.
|
Our comparable domestic restaurant sales represent the growth from restaurants opened 18 months or more. For the thirteen weeks ended June 29, 2014, blended domestic comparable restaurant sales increased due to increases in general menu prices offset by changes in the mix in our product sales. Changes in our product mix were driven primarily by lunch expansion and promotions. Traffic for the thirteen weeks ended June 29, 2014 was flat compared to the three months ended June 30, 2013.
For the
twenty-six weeks ended June 29, 2014
, blended domestic comparable restaurant sales increased due to increases in general menu prices offset by changes in the mix in our product sales and decreases in customer traffic. Changes in product mix were due to lunch expansion and promotions. Customer traffic decreased primarily due to unfavorable winter weather conditions and continuing macro-economic conditions that have had a negative effect on discretionary consumer spending, partially offset by lunch expansion across certain concepts.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Average Domestic Restaurant Unit Volumes and Operating Weeks
Following is a summary of the domestic average restaurant unit volumes and operating weeks for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Average restaurant unit volumes (weekly):
|
|
|
|
|
|
|
|
Outback Steakhouse
|
$
|
63,836
|
|
|
$
|
62,552
|
|
|
$
|
65,769
|
|
|
$
|
64,739
|
|
Carrabba’s Italian Grill
|
$
|
57,655
|
|
|
$
|
58,116
|
|
|
$
|
59,489
|
|
|
$
|
60,114
|
|
Bonefish Grill
|
$
|
62,679
|
|
|
$
|
61,815
|
|
|
$
|
63,959
|
|
|
$
|
63,678
|
|
Fleming’s Prime Steakhouse and Wine Bar
|
$
|
78,478
|
|
|
$
|
75,531
|
|
|
$
|
82,576
|
|
|
$
|
80,223
|
|
Operating weeks:
|
|
|
|
|
|
|
|
|
Outback Steakhouse
|
8,457
|
|
|
8,619
|
|
|
16,830
|
|
|
17,161
|
|
Carrabba’s Italian Grill
|
3,120
|
|
|
3,042
|
|
|
6,175
|
|
|
6,051
|
|
Bonefish Grill
|
2,499
|
|
|
2,268
|
|
|
4,926
|
|
|
4,460
|
|
Fleming’s Prime Steakhouse and Wine Bar
|
858
|
|
|
845
|
|
|
1,695
|
|
|
1,681
|
|
COSTS AND EXPENSES
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Cost of sales
|
$
|
358.9
|
|
|
$
|
325.5
|
|
|
|
|
$
|
732.5
|
|
|
$
|
675.4
|
|
|
|
% of Restaurant sales
|
32.5
|
%
|
|
32.3
|
%
|
|
0.2
|
%
|
|
32.5
|
%
|
|
32.3
|
%
|
|
0.2
|
%
|
Cost of sales, consisting of food and beverage costs, increased as a percentage of Restaurant sales in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
. The increase as a percentage of Restaurant sales was primarily due to the following: (i) 0.8% from higher seafood and beef costs and (ii) 0.7% related to lunch, changes in our product mix and promotions. These increases were partially offset by decreases
as a percentage of Restaurant sales of 0.8% from the impact of certain cost savings initiatives and 0.4% from menu price increases.
Cost of sales increased as a percentage of Restaurant sales in the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
. The increase as a percentage of Restaurant sales was primarily due to the following: (i) 0.9% from higher seafood, beef and other commodity costs and (ii) 0.7% related to lunch, changes in our product mix and promotions. These increases were partially offset by decreases
as a percentage of Restaurant sales of 0.8% from the impact of certain cost savings initiatives and 0.6% from menu price increases.
Labor and other related expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Labor and other related
|
$
|
302.5
|
|
|
$
|
284.0
|
|
|
|
|
$
|
613.9
|
|
|
$
|
583.9
|
|
|
|
% of Restaurant sales
|
27.4
|
%
|
|
28.2
|
%
|
|
(0.8
|
)%
|
|
27.2
|
%
|
|
27.9
|
%
|
|
(0.7
|
)%
|
Labor and other related expenses include all direct and indirect labor costs incurred in operations, including distribution expense to managing partners, costs related to deferred compensation plans and other incentive compensation expenses.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Labor and other related expenses decreased as a percentage of Restaurant sales in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
. Decreases as a percentage of Restaurant sales were primarily attributable to the following: (i) 0.8% from our acquired Brazilian restaurants, primarily due to higher volumes, (ii) 0.4% from the impact of certain cost savings initiatives, (iii) 0.2% lower field management bonuses based on individual restaurant performance, (iv) 0.2% from lower health insurance due to favorable claim experience and (v) 0.1% higher domestic average unit volumes. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.7% of higher kitchen and service labor costs due to lunch expansion across certain concepts and promotional training and (ii) 0.2% lower average unit volumes in South Korea.
Labor and other related expenses decreased as a percentage of Restaurant sales in the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
. Decreases as a percentage of Restaurant sales were due to: (i) 0.6% from our acquired Brazilian restaurants, primarily due to higher volumes, (ii) 0.4% from the impact of certain cost savings initiatives, (iii) 0.2% lower field management bonuses based on individual restaurant performance, (iv) 0.2% from lower health insurance and workers compensation claims due to favorable claim experience and (v) 0.2% higher domestic average unit volumes. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.7% of higher kitchen and service labor costs due to lunch expansion across certain concepts and the addition of new restaurant locations and (ii) 0.3% lower average unit volumes in South Korea.
Other restaurant operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Other restaurant operating
|
$
|
265.3
|
|
|
$
|
237.4
|
|
|
|
|
$
|
521.8
|
|
|
$
|
471.2
|
|
|
|
% of Restaurant sales
|
24.0
|
%
|
|
23.6
|
%
|
|
0.4
|
%
|
|
23.1
|
%
|
|
22.5
|
%
|
|
0.6
|
%
|
Other restaurant operating expenses include certain unit-level operating costs such as operating supplies, rent, repairs and maintenance, advertising expenses, utilities, pre-opening costs and other occupancy costs. The increase as a percentage of Restaurant sales in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
was primarily due to the following: (i) 0.3% increase in operating supplies primarily due to lunch expansion and promotions, (ii) 0.2% from a net decrease in average unit volumes, mainly due to restaurants in South Korea, (iii) 0.2% of higher restaurant utilities associated with new restaurant locations and lunch expansion across certain concepts and (iv) 0.2 % of higher restaurant occupancy costs mainly related to rent escalations from existing leases. The increases were partially offset by decreases as a percentage of Restaurant sales primarily due to 0.5% from our acquired Brazilian restaurants, primarily due to higher volumes.
The increase as a percentage of Restaurant sales in the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
was primarily due to the following: (i) 0.3% from a net decrease in average unit volumes, mainly due to restaurants in South Korea, (ii) 0.2% of higher advertising expense, (iii) 0.2% of higher restaurant occupancy costs mainly related to rent escalations from existing leases, (iv) 0.2% of higher restaurant utilities associated with new restaurant locations and lunch expansion across certain concepts and (v) 0.2% increase in operating supplies primarily due to lunch expansion and promotions. The increases were partially offset by decreases as a percentage of Restaurant sales primarily due to 0.5% from our acquired Brazilian restaurants, primarily due to higher volumes.
We anticipate higher Other restaurant operating expenses in the thirteen weeks ended September 28, 2014 compared to the three months ended September 30, 2013 due to the timing of marketing expenditures and costs associated with the Bonefish Grill menu rollout in July 2014.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Depreciation and amortization
|
$
|
48.6
|
|
|
$
|
40.9
|
|
|
|
|
$
|
94.8
|
|
|
$
|
81.1
|
|
|
|
|
% of Total revenues
|
4.4
|
%
|
|
4.0
|
%
|
|
0.4
|
%
|
|
4.2
|
%
|
|
3.8
|
%
|
|
0.4
|
%
|
Depreciation and amortization expense increased as a percentage of Total revenues in the
thirteen and twenty-six weeks ended June 29, 2014
as compared to the
three and six months ended June 30, 2013
. These increases as a percentage of Total revenues were primarily due to depreciation expense related to the opening of new restaurants and the completion of internally developed technology projects combined with amortization associated with our acquired Brazilian operations.
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
General and administrative
|
$
|
72.3
|
|
|
$
|
65.1
|
|
|
$
|
7.2
|
|
|
$
|
146.3
|
|
|
$
|
137.6
|
|
|
$
|
8.7
|
|
General and administrative costs increased in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
primarily due to to the following: (i) $5.8 million of costs associated with our Brazilian operations, which were acquired in November 2013, (ii) $3.9 million due to the timing of our annual managing partner conference, (iii) $2.2 million of increased legal and other professional fees and (iv) $1.7 million of additional compensation primarily for new positions to support growth and initiatives. These increases were partially offset by $6.8 million of lower incentive compensation due to performance against current year objectives.
In the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
,
General and administrative costs increased primarily due to the following: (i) $9.8 million of costs associated with our Brazilian operations, (ii) $2.7 million additional compensation primarily due to new positions to support growth and initiatives and (iii) $2.3 million of increased legal and other professional fees. These increases were partially offset by $6.3 million of lower incentive compensation due to performance against current year objectives.
During the thirteen weeks ended September 28, 2014, we expect to incur additional general and administrative expenses due to the development of Carrabba’s in Brazil.
Provision for impaired assets and restaurant closings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Provision for impaired assets and restaurant closings
|
$
|
1.0
|
|
|
$
|
0.7
|
|
|
$
|
0.3
|
|
|
$
|
7.1
|
|
|
$
|
2.6
|
|
|
$
|
4.5
|
|
Restaurant closing charges of
$6.0 million
relating the Restaurant Closure Initiative were recognized during the
twenty-six weeks ended June 29, 2014
. See Note
9
-
Fair Value Measurements
of the Notes to Consolidated Financial Statements for further information. All other restaurant impairment charges resulted from the carrying value of a restaurant’s assets exceeding its estimated fair market value, mainly due to declining future cash flows from lower projected sales at existing locations and locations identified for relocation or renovation.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Income from operations of unconsolidated affiliates
Effective November 1, 2013, we completed the acquisition of a controlling interest in the Brazilian Joint Venture resulting in the consolidation of this entity. Prior to the acquisition, we accounted for the Brazilian Joint Venture under the equity method of accounting and our share of earnings was recorded in Income from operations of unconsolidated affiliates in our Consolidated Statements of Operations and Comprehensive Income. The Brazilian Joint Venture’s results of operations for the
thirteen and twenty-six weeks ended June 29, 2014
are reflected in the respective line items in our Consolidated Statements of Operations and Comprehensive Income.
Income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Income from operations
|
$
|
62.4
|
|
|
$
|
67.9
|
|
|
|
|
|
$
|
152.4
|
|
|
$
|
164.7
|
|
|
|
% of Total revenues
|
5.6
|
%
|
|
6.7
|
%
|
|
(1.1
|
)%
|
|
6.7
|
%
|
|
7.8
|
%
|
|
(1.1
|
)%
|
The decrease in income from operations generated in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
was primarily due to: (i) lower average unit volumes at dinner domestically, (ii) lower average unit volumes at our South Korea restaurants, (iii) higher General and administrative costs and (iv) increased Depreciation and amortization expense as a percentage of revenue.
Income from operations decreased in the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
due to: (i) lower average unit volumes at dinner domestically, (ii) lower average unit volumes at our South Korea restaurants, (iii) higher General and administrative costs, (iv) higher depreciation and amortization as a percentage of revenue and (v) expenses related to the Restaurant Closure Initiative.
Loss on extinguishment and modification of debt
In connection with the refinancing of the Credit Agreement, we recognized loss on extinguishment and modification of debt of
$11.1 million
for the
thirteen and twenty-six weeks ended June 29, 2014
. The loss was comprised of the write-off of
$5.5 million
of deferred financing fees, the write-off of
$4.9 million
of unamortized debt discount and a prepayment penalty of
$0.7 million
.
During the second quarter of 2013, we recorded a $14.6 million loss in connection with a repricing amendment to OSI’s senior secured Term loan B facility, which included a prepayment penalty of approximately $9.8 million, $2.4 million of third-party financing costs and a write-off of $1.2 million each for deferred financing fees and unamortized debt discount.
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions):
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Interest expense, net
|
$
|
15.1
|
|
|
$
|
18.0
|
|
|
$
|
(2.9
|
)
|
|
$
|
31.7
|
|
|
$
|
38.9
|
|
|
$
|
(7.2
|
)
|
The decrease in net interest expense in the
thirteen weeks ended June 29, 2014
as compared to the
three months ended June 30, 2013
was primarily attributable to the refinancing of the senior secured credit facilities in May 2014.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Net interest expense in the
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
decreased primarily due to the repricing and refinancing of the senior secured credit facilities in April 2013 and May 2014, respectively.
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
Change
|
Effective income tax rate
|
24.1
|
%
|
|
(117.5
|
)%
|
|
NM
|
|
24.6
|
%
|
|
(27.6
|
)%
|
|
NM
|
________________
The net increase in the effective income tax rate in the
thirteen and twenty-six weeks ended June 29, 2014
as compared to the same period in the prior year was due to the following: (i) the release of the valuation allowance in the second quarter of 2013, (ii) a change in the blend of taxable income and tax rates across our domestic and international subsidiaries and (iii) the acquisition of limited partnership interests in 2013 and 2014, which resulted in increased income allocations.
The effective income tax rate for the
thirteen and twenty-six weeks ended June 29, 2014
was lower than the blended federal and state statutory rate of
39.0%
primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips and the foreign tax differential. The effective income tax rate for the
three and six months ended June 30, 2013
were lower than the blended federal and state statutory rate of
38.7%
primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips, the release of valuation allowance, the elimination of noncontrolling interest and the foreign rate differential, together being such a large percentage of projected annual pretax income.
Non-GAAP Financial Measures
In addition to the results provided in accordance with U.S. GAAP, we provide non-GAAP measures which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: (i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted income from operations and the corresponding margins, (iv) Adjusted net income, (v) Adjusted diluted earnings per share and (vi) Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA.
Although we believe these non-GAAP measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures are not intended to replace accompanying U.S. GAAP financial measures. These metrics are not necessarily comparable to similarly titled measures used by other companies.
System-Wide Sales
System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations.
System-wide sales comprise sales of Company-owned and franchised restaurants and, in historical periods, sales of unconsolidated joint venture restaurants. Prior to November 1, 2013, sales from the acquired 47 restaurants in Brazil were reported as income from unconsolidated joint ventures. Subsequent to November 1, 2013, the sales of these restaurants are reported as Company-owned.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Following is a summary of sales of Company-owned restaurants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
COMPANY-OWNED RESTAURANT SALES
(in millions):
|
|
|
|
|
|
|
|
Outback Steakhouse
|
|
|
|
|
|
|
|
Domestic
|
$
|
539
|
|
|
$
|
538
|
|
|
$
|
1,106
|
|
|
$
|
1,110
|
|
International
|
143
|
|
|
69
|
|
|
289
|
|
|
157
|
|
Total
|
682
|
|
|
607
|
|
|
1,395
|
|
|
1,267
|
|
Carrabba’s Italian Grill
|
180
|
|
|
177
|
|
|
367
|
|
|
364
|
|
Bonefish Grill
|
157
|
|
|
141
|
|
|
315
|
|
|
284
|
|
Fleming’s Prime Steakhouse and Wine Bar
|
67
|
|
|
64
|
|
|
140
|
|
|
135
|
|
Other
|
18
|
|
|
19
|
|
|
38
|
|
|
40
|
|
Total Company-owned restaurant sales
|
$
|
1,104
|
|
|
$
|
1,008
|
|
|
$
|
2,255
|
|
|
$
|
2,090
|
|
The following table provides a summary of sales of franchised and unconsolidated joint venture restaurants, which are not included in our consolidated financial results, and our income from the royalties and/or service fees that franchisees and affiliates pay us based generally on a percentage of sales. The following table does not represent our sales and is presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
FRANCHISE AND UNCONSOLIDATED JOINT VENTURE SALES (in millions) (1):
|
|
|
|
|
|
|
|
Outback Steakhouse
|
|
|
|
|
|
|
|
Domestic
|
$
|
81
|
|
|
$
|
80
|
|
|
$
|
165
|
|
|
$
|
163
|
|
International (1)
|
30
|
|
|
94
|
|
|
59
|
|
|
188
|
|
Total
|
111
|
|
|
174
|
|
|
224
|
|
|
351
|
|
Carrabba’s Italian Grill
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
Bonefish Grill
|
3
|
|
|
4
|
|
|
7
|
|
|
9
|
|
Total franchise and unconsolidated joint venture sales (2)
|
$
|
115
|
|
|
$
|
179
|
|
|
$
|
233
|
|
|
$
|
362
|
|
Income from franchise and unconsolidated joint ventures (3) (4)
|
$
|
5
|
|
|
$
|
12
|
|
|
$
|
10
|
|
|
$
|
23
|
|
_____________________
|
|
(1)
|
Unconsolidated joint ventures sales for the
three and six months ended June 30, 2013
included sales from the Brazilian Joint Venture.
|
|
|
(2)
|
Franchise and unconsolidated joint venture sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income.
|
|
|
(3)
|
Represents the franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations and Comprehensive Income in Other revenues and Income from operations of unconsolidated affiliates, respectively.
|
|
|
(4)
|
Income from franchise and unconsolidated joint ventures for the
three and six months ended June 30, 2013
included our share of earnings from the Brazilian Joint Venture, which was acquired November 1, 2013.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other Non-GAAP Financial Measures
The use of other non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent. We believe that the disclosure of these non-GAAP measures is useful to investors as they form the basis for how our management team and Board of Directors evaluate our performance, allocate resources and establish employee incentive plans. EBITDA and Adjusted EBITDA are also frequently used by investors, analysts and credit agencies in evaluating and comparing companies. In addition, our debt agreements require compliance of certain ratios that are based on financial measures similar to Adjusted EBITDA.
Restaurant-level operating margin
Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Cost of sales, Labor and other related and Other restaurant operating. Adjusted restaurant-level operating margin is Restaurant-level operating margin adjusted for certain items, as noted below.
The following table shows the percentages of certain operating cost financial statement line items in relation to Restaurant sales on both a U.S. GAAP basis and an adjusted basis, as indicated, for the
thirteen and twenty-six weeks ended June 29, 2014
and the
three and six months ended June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
|
U.S. GAAP AND
ADJUSTED (1)
|
|
U.S. GAAP AND
ADJUSTED (1)
|
|
U.S. GAAP
|
|
ADJUSTED (2)
|
|
U.S. GAAP AND
ADJUSTED (1)
|
Restaurant sales
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
32.5
|
%
|
|
32.3
|
%
|
|
32.5
|
%
|
|
32.5
|
%
|
|
32.3
|
%
|
Labor and other related
|
27.4
|
%
|
|
28.2
|
%
|
|
27.2
|
%
|
|
27.2
|
%
|
|
27.9
|
%
|
Other restaurant operating
|
24.0
|
%
|
|
23.6
|
%
|
|
23.1
|
%
|
|
23.2
|
%
|
|
22.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Restaurant-level operating margin
|
16.1
|
%
|
|
16.0
|
%
|
|
17.2
|
%
|
|
17.1
|
%
|
|
17.2
|
%
|
_________________
|
|
(1)
|
No adjustments impacted Restaurant-level operating margins during the
thirteen weeks ended June 29, 2014
and
three and six months ended June 30, 2013
.
|
|
|
(2)
|
Adjusted restaurant-level operating margins include the adjustment for the deferred rent liability write-off associated with the fourth quarter of 2013 decision to close
22
underperforming locations. The write-off of the deferred rent liability was recorded in Other restaurant operating during the
twenty-six weeks ended June 29, 2014
.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share
The following table reconciles Adjusted income from operations and the corresponding margins, Adjusted net income and Adjusted diluted earnings per share to their respective most comparable U.S. GAAP measures for the
thirteen and twenty-six weeks ended June 29, 2014
and the
three and six months ended June 30, 2013
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Income from operations
|
$
|
62,391
|
|
|
$
|
67,886
|
|
|
$
|
152,417
|
|
|
$
|
164,746
|
|
Operating income margin
|
5.6
|
%
|
|
6.7
|
%
|
|
6.7
|
%
|
|
7.8
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
Transaction-related expenses (1)
|
—
|
|
|
704
|
|
|
1,118
|
|
|
704
|
|
Restaurant closing costs (2)
|
—
|
|
|
—
|
|
|
4,929
|
|
|
—
|
|
Purchased intangibles amortization (3)
|
1,532
|
|
|
—
|
|
|
2,990
|
|
|
—
|
|
Adjusted income from operations
|
$
|
63,923
|
|
|
$
|
68,590
|
|
|
$
|
161,454
|
|
|
$
|
165,450
|
|
Adjusted operating income margin
|
5.8
|
%
|
|
6.7
|
%
|
|
7.1
|
%
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
Net income attributable to Bloomin’ Brands
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
80,124
|
|
|
$
|
138,091
|
|
Adjustments:
|
|
|
|
|
|
|
|
Transaction-related expenses (1)
|
—
|
|
|
704
|
|
|
1,118
|
|
|
704
|
|
Restaurant closing costs (2)
|
—
|
|
|
—
|
|
|
4,929
|
|
|
—
|
|
Purchased intangibles amortization (3)
|
1,532
|
|
|
—
|
|
|
2,990
|
|
|
—
|
|
Loss on extinguishment and modification of debt (4)
|
11,092
|
|
|
14,586
|
|
|
11,092
|
|
|
14,586
|
|
Total adjustments, before income taxes
|
12,624
|
|
|
15,290
|
|
|
20,129
|
|
|
15,290
|
|
Adjustment to provision (benefit) for income taxes (5)
|
(4,847
|
)
|
|
(58,370
|
)
|
|
(7,542
|
)
|
|
(58,370
|
)
|
Net adjustments
|
7,777
|
|
|
(43,080
|
)
|
|
12,587
|
|
|
(43,080
|
)
|
Adjusted net income
|
$
|
34,168
|
|
|
$
|
31,788
|
|
|
$
|
92,711
|
|
|
$
|
95,011
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.21
|
|
|
$
|
0.58
|
|
|
$
|
0.63
|
|
|
$
|
1.08
|
|
Adjusted diluted earnings per share
|
$
|
0.27
|
|
|
$
|
0.25
|
|
|
$
|
0.72
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding
|
128,378
|
|
|
128,338
|
|
|
128,115
|
|
|
127,599
|
|
_________________
|
|
(1)
|
Relates primarily to costs incurred with the secondary offering of our common stock in March 2014 and May 2013, respectively.
|
|
|
(2)
|
Represents expenses associated with the fourth quarter of 2013 decision to close
22
underperforming locations.
|
|
|
(3)
|
Represents non-cash intangible amortization recorded as a result of the
acquisition of our Brazilian operations.
|
|
|
(4)
|
Relates to the refinancing in May 2014 and the repricing in April 2013 of our Senior Secured Credit Facility.
|
|
|
(5)
|
Includes the release of the U.S. valuation allowance for the three and six months ended June 30, 2013. Income tax effect of adjustments for the
thirteen and twenty-six weeks ended June 29, 2014
was calculated based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. For the three and six months ended June 30, 2013, we utilized a normalized annual effective tax rate of 22%.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA (EBITDA adjusted for certain significant items, as noted below) are supplemental measures of operating performance. The following table reconciles Net income attributable to Bloomin’ Brands to EBITDA and Adjusted EBITDA for the
thirteen and twenty-six weeks ended June 29, 2014
and the
three and six months ended June 30, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Net income attributable to Bloomin’ Brands
|
$
|
26,391
|
|
|
$
|
74,868
|
|
|
$
|
80,124
|
|
|
$
|
138,091
|
|
Provision (benefit) for income taxes
|
8,785
|
|
|
(41,312
|
)
|
|
26,949
|
|
|
(30,605
|
)
|
Interest expense, net
|
15,109
|
|
|
18,015
|
|
|
31,707
|
|
|
38,895
|
|
Depreciation and amortization
|
48,627
|
|
|
40,889
|
|
|
94,792
|
|
|
81,085
|
|
EBITDA
|
98,912
|
|
|
92,460
|
|
|
233,572
|
|
|
227,466
|
|
Impairments and disposals (1)
|
979
|
|
|
605
|
|
|
1,378
|
|
|
1,481
|
|
Transaction-related expenses (2)
|
—
|
|
|
704
|
|
|
1,118
|
|
|
704
|
|
Stock-based compensation expense
|
4,264
|
|
|
3,018
|
|
|
7,839
|
|
|
7,447
|
|
Other losses (gains) (3)
|
326
|
|
|
(34
|
)
|
|
(986
|
)
|
|
548
|
|
Restaurant closing costs (4)
|
—
|
|
|
—
|
|
|
4,929
|
|
|
—
|
|
Loss on extinguishment and modification of debt (5)
|
11,092
|
|
|
14,586
|
|
|
11,092
|
|
|
14,586
|
|
Adjusted EBITDA
|
$
|
115,573
|
|
|
$
|
111,339
|
|
|
$
|
258,942
|
|
|
$
|
252,232
|
|
_________________
|
|
(1)
|
Represents non-cash impairment charges for fixed assets and intangible assets and net gains or losses on the disposal of fixed assets.
|
|
|
(2)
|
Relates primarily to costs incurred with the secondary offering of our common stock in March 2014 and May 2013, respectively.
|
|
|
(3)
|
Represents expenses incurred as a result of net (losses) gains on partner deferred compensation participant investment accounts, foreign currency loss (gain) and the loss (gain) on the cash surrender value of executive life insurance.
|
|
|
(4)
|
Represents expenses associated with the fourth quarter of 2013 decision to close
22
underperforming locations.
|
|
|
(5)
|
Relates to the refinancing in May 2014 and the repricing in April 2013 of our Senior Secured Credit Facility.
|
Liquidity and Capital Resources
TRANSACTIONS
Effective January 1, 2014, we purchased the remaining partnership interests in certain of our limited partnerships that either owned or had a contractual right to varying percentages of cash flows in
37
Bonefish Grill restaurants for an aggregate purchase price of
$17.2 million
. Effective March 1, 2014, we acquired
two
Bonefish Gill restaurants from
a
franchisee for a purchase price of approximately
$3.2 million
, including customary escrow amounts. See Note
2
-
Acquisitions
of the Notes to Consolidated Financial Statements for further information.
We completed a refinancing of our senior secured credit facilities and entered into the Amended Credit Agreement on May 16, 2014. See Note
7
-
Long-term Debt, Net
of the Notes to Consolidated Financial Statements for further information.
To facilitate development opportunities outside the U.S., we amended our royalty agreement with the founders of Carrabba’s effective June 1, 2014. See Note
6
-
Goodwill and Intangible Assets, Net
of the Notes to Consolidated Financial Statements for further information.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
LIQUIDITY
Our liquidity sources consist of cash flow from our operations, cash and cash equivalents and credit capacity under our credit facilities. We expect to use cash primarily for principal and interest payments on our debt, prepayment requirements under our credit facilities, obligations related to our deferred compensation plans, the development of new restaurants and new markets, remodeling or relocating older restaurants, investments in technology, acquisitions of franchisees and general operating expenses.
We believe that our expected liquidity sources are adequate to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations for the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.
Cash and Cash Equivalents
- At
June 29, 2014
and
December 31, 2013
, we had
$155.8 million
and
$209.9 million
, respectively, in cash and cash equivalents, of which
$107.5 million
at both periods was held by foreign affiliates, a portion of which would be subject to additional taxes if repatriated to the United States. We consider the undistributed earnings related to our foreign affiliates at
June 29, 2014
to be permanently reinvested and are expected to continue to be permanently reinvested. Accordingly, no provision for United States income and additional foreign taxes has been recorded on aggregate undistributed earnings of
$158.4 million
at
June 29, 2014
. If we identify an exception to our general reinvestment policy of undistributed earnings, additional tax liabilities will be recorded. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit the repatriation of cash and cash equivalents.
Capital Expenditures
- We estimate that our capital expenditures will total between approximately $250.0 million and $270.0 million in 2014. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements. We expect to continue to review the level of capital expenditures throughout 2014.
Credit Facilities
- Our Credit Facilities consist of the Senior Secured Credit Facility and the CMBS Loan. See Note
7
-
Long-term Debt, Net
of the Notes to Consolidated Financial Statements for further information. Following is a summary of principal payments and debt issuance from
December 31, 2012
to
June 29, 2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SENIOR SECURED CREDIT FACILITY
|
|
2012 CMBS LOAN
|
|
|
|
TERM LOAN A
|
|
TERM LOAN B
|
|
REVOLVING FACILITY
|
|
FIRST MORTGAGE LOAN
|
|
FIRST MEZZANINE LOAN
|
|
SECOND MEZZANINE LOAN
|
|
TOTAL CREDIT FACILITIES
|
Balance at December 31, 2012
|
$
|
—
|
|
|
$
|
1,000,000
|
|
|
$
|
—
|
|
|
$
|
319,574
|
|
|
$
|
87,048
|
|
|
$
|
87,273
|
|
|
$
|
1,493,895
|
|
2013 payments
|
—
|
|
|
(65,000
|
)
|
|
—
|
|
|
(7,930
|
)
|
|
(917
|
)
|
|
(569
|
)
|
|
(74,416
|
)
|
Balance at December 31, 2013
|
—
|
|
|
935,000
|
|
|
—
|
|
|
311,644
|
|
|
86,131
|
|
|
86,704
|
|
|
1,419,479
|
|
2014 new debt issued (1) (2)
|
300,000
|
|
|
—
|
|
|
400,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
700,000
|
|
2014 payments (1)
|
—
|
|
|
(710,000
|
)
|
|
—
|
|
|
(4,085
|
)
|
|
(501
|
)
|
|
(323
|
)
|
|
(714,909
|
)
|
Balance at
June 29, 2014
|
$
|
300,000
|
|
|
$
|
225,000
|
|
|
$
|
400,000
|
|
|
$
|
307,559
|
|
|
$
|
85,630
|
|
|
$
|
86,381
|
|
|
$
|
1,404,570
|
|
________________
|
|
(1)
|
$700.0 million
relates to the refinancing of our Senior Secured Credit Facility, which did not increase total indebtedness.
|
|
|
(2)
|
Term Loan A was issued with a discount of
$2.9 million
.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
We have paid down
$89.3 million
of outstanding debt related to our credit facilities since
December 31, 2012
. We continue to evaluate whether we will make further payments of our outstanding debt ahead of scheduled maturities. Following is a summary of our outstanding credit facilities at
June 29, 2014
(in thousands, except interest rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING
|
|
INTEREST RATE
JUNE 29, 2014
|
|
ORIGINAL FACILITY
|
|
PRINCIPAL MATURITY DATE
|
|
JUNE 29, 2014
|
|
DECEMBER 31, 2013
|
Term loan A, net of discount of $2.9 million
|
2.12
|
%
|
|
$
|
300,000
|
|
|
May 2019
|
|
$
|
300,000
|
|
|
$
|
—
|
|
Term loan B, net of discount of $10.0 million
|
3.50
|
%
|
|
225,000
|
|
|
October 2019
|
|
225,000
|
|
|
935,000
|
|
Revolving credit facility
|
2.12
|
%
|
|
600,000
|
|
|
May 2019
|
|
400,000
|
|
|
—
|
|
Total Senior Secured Credit Facility
|
|
|
1,125,000
|
|
|
|
|
925,000
|
|
|
935,000
|
|
First mortgage loan (1)
|
4.05
|
%
|
|
324,800
|
|
|
April 2017
|
|
307,559
|
|
|
311,644
|
|
First mezzanine loan
|
9.00
|
%
|
|
87,600
|
|
|
April 2017
|
|
85,630
|
|
|
86,131
|
|
Second mezzanine loan
|
11.25
|
%
|
|
87,600
|
|
|
April 2017
|
|
86,381
|
|
|
86,704
|
|
Total 2012 CMBS loan
|
|
|
500,000
|
|
|
|
|
479,570
|
|
|
484,479
|
|
Total credit facilities
|
|
|
$
|
1,625,000
|
|
|
|
|
$
|
1,404,570
|
|
|
$
|
1,419,479
|
|
________________
|
|
(1)
|
Represents the weighted-average interest rate for the respective period.
|
At
June 29, 2014
, we had
$170.4 million
in available unused borrowing capacity under our revolving credit facility, net of letters of credit of
$29.6 million
.
The Amended Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan B. Beginning with the fiscal year ended December 28, 2014, we are required to prepay outstanding amounts under our term loans with
50%
of our annual excess cash flow, as defined in the Amended Credit Agreement. The amount of outstanding term loans required to be prepaid may vary based on our leverage ratio and year-end results. Other than the required minimum amortization premiums of
$11.3 million
, we do not anticipate any other payments will be required through June 28, 2015.
The 2012 CMBS Loan requires annual amortization payments ranging from approximately
$9.9 million
to
$10.9 million
, payable in scheduled monthly installments through March 2017, with the remaining balance due upon maturity in April 2017.
Our Amended Credit Agreement and 2012 CMBS Loan contain various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note
7
-
Long-term Debt, Net
of the Notes to Consolidated Financial Statements for further information.
At
June 29, 2014
and
December 31, 2013
, we were in compliance with these debt covenants.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
SUMMARY OF CASH FLOWS
The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
SIX
MONTHS ENDED
JUNE 30, 2013
|
Net cash provided by operating activities
|
$
|
97,246
|
|
|
$
|
94,720
|
|
Net cash used in investing activities
|
(101,169
|
)
|
|
(93,104
|
)
|
Net cash used in financing activities
|
(52,676
|
)
|
|
(35,700
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
2,571
|
|
|
(5,165
|
)
|
Net decrease in cash and cash equivalents
|
$
|
(54,028
|
)
|
|
$
|
(39,249
|
)
|
Operating activities
- Net cash provided by operating activities increased during
twenty-six weeks ended June 29, 2014
as compared to the
six months ended June 30, 2013
primarily due to a change in the amount and timing of certain accrual payments and lower cash interest payments. These increases were partially offset by higher income tax payments and the timing of payments on accounts payable.
Investing activities
|
|
|
|
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
(in thousands):
|
|
Capital expenditures
|
$
|
(97,619
|
)
|
|
$
|
(97,150
|
)
|
Acquisition of business, net of cash acquired
|
(3,063
|
)
|
|
—
|
|
Purchases of life insurance policies
|
(1,040
|
)
|
|
(759
|
)
|
Net change in restricted cash, net
|
(636
|
)
|
|
807
|
|
Proceeds from sale of life insurance policies
|
627
|
|
|
1,059
|
|
Proceeds from disposal of property, fixtures and equipment
|
562
|
|
|
2,939
|
|
Net cash used in investing activities
|
$
|
(101,169
|
)
|
|
$
|
(93,104
|
)
|
Net cash used in investing activities for the
twenty-six weeks ended June 29, 2014
consisted primarily of capital expenditures and net cash paid to acquire certain franchise restaurants. Net cash used in investing activities for the
six months ended June 30, 2013
consisted primarily of capital expenditures partially offset by proceeds from the disposal of property, fixtures and equipment.
Financing activities
|
|
|
|
|
|
|
|
|
|
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
|
|
THREE
MONTHS ENDED
JUNE 30, 2013
|
(in thousands):
|
|
Repayments of debt
|
$
|
(733,090
|
)
|
|
$
|
(33,859
|
)
|
Purchase of limited partnership interests
|
(17,211
|
)
|
|
—
|
|
Repayments of partner deposits and accrued partner obligations
|
(13,909
|
)
|
|
(12,477
|
)
|
Financing fees
|
(4,492
|
)
|
|
(12,519
|
)
|
Distributions to noncontrolling interests
|
(2,470
|
)
|
|
(4,526
|
)
|
Proceeds from borrowings
|
712,088
|
|
|
—
|
|
Proceeds from exercise of stock options, net of shares withheld for employee taxes
|
5,313
|
|
|
21,852
|
|
Excess tax benefits from stock-based compensation
|
1,095
|
|
|
—
|
|
Repayments of notes receivable due from stockholders
|
—
|
|
|
5,829
|
|
Net cash used in financing activities
|
$
|
(52,676
|
)
|
|
$
|
(35,700
|
)
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash used in financing activities for the
twenty-six weeks ended June 29, 2014
was primarily attributable to the following: (i) repayments of the Term loan B due to the Senior Secured Credit Facility refinancing in May 2014 and voluntary prepayments, (ii) the purchase of outstanding limited partnership interests in certain restaurants, (iii) repayments of partner deposits and accrued partner obligations and (iv) financing fees related to the Senior Secured Credit Facility refinancing. Net cash used in financing activities was partially offset by proceeds from the refinancing of the Senior Secured Credit Facility and proceeds from stock based compensation plans, net of shares withheld for employee taxes.
Net cash used in financing activities for the
six months ended June 30, 2013
was primarily attributable to the following: (i) repayments of long-term debt, (ii) repayments of partner deposits and accrued partner obligations, (iii) payments of financing fees for the amended Term loan B repricing transaction completed in April 2013 and (iv) distributions to noncontrolling interests. Net cash used in financing activities was partially offset by the receipt of proceeds from stock based compensation plans, net of shares withheld for employee taxes and repayments of notes receivable due from stockholders.
FINANCIAL CONDITION
Following is a summary of our current assets, current liabilities and working capital (in thousands):
|
|
|
|
|
|
|
|
|
|
JUNE 29,
|
|
DECEMBER 31,
|
|
2014
|
|
2013
|
Current assets
|
$
|
427,914
|
|
|
$
|
484,031
|
|
Current liabilities
|
660,178
|
|
|
744,502
|
|
Working capital (deficit)
|
$
|
(232,264
|
)
|
|
$
|
(260,471
|
)
|
Current assets decreased primarily due to a
$54.0 million
decrease in Cash and cash equivalents and a
$15.3 million
decrease in Inventories primarily due to the utilization of inventory on hand. Current liabilities decreased primarily due to a
$110.1 million
decrease in Unearned revenue as a result of the seasonal pattern of gift card and promotional sales and redemptions. These decreases were partially offset by an increase in Accounts payable of
$23.7 million
primarily due to timing of payments and an increase in the Current portion of long-term debt of
$8.8 million
due to the refinancing of the Senior Secured Credit Facility in May 2014.
Working capital (deficit) included Unearned revenue from unredeemed gift cards of
$249.3 million
and
$359.4 million
at
June 29, 2014
and
December 31, 2013
, respectively. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
In Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K for the year ended
December 31, 2013
, we disclosed that we had
$3.4 billion
in total contractual obligations. At
June 29, 2014
, other than the timing of long-term debt payments, there are no material changes outside of the ordinary course of business to our total contractual obligations. Timing of long-term debt payments changed as a result of the May 2014 refinancing of our Senior Secured Credit Facility.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS DUE BY PERIOD AS OF JUNE 29, 2014
|
|
|
|
|
LESS THAN
|
|
1-3
|
|
3-5
|
|
MORE THAN
|
(in thousands):
|
|
TOTAL
|
|
1 YEAR
|
|
YEARS
|
|
YEARS
|
|
5 YEARS
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion)
|
|
$
|
1,411,543
|
|
|
$
|
23,968
|
|
|
$
|
512,674
|
|
|
$
|
647,526
|
|
|
$
|
227,375
|
|
Deferred Compensation Programs
Managing and chef partners that are eligible to participate in our deferred compensation programs receive commitments for cash contributions, which are our unsecured obligations. We use current and historical restaurant performance information to estimate the deferred obligations to managing and chef partners. The deferred compensation obligation due managing and chef partners was
$148.6 million
and
$148.3 million
at
June 29, 2014
and
December 31, 2013
, respectively.
We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. We are the sole owner of any assets within the rabbi trust and participants are considered our general creditors. At
June 29, 2014
and
December 31, 2013
, the rabbi trust was
$73.3 million
and
$71.8 million
, respectively. The unfunded obligation for managing and chef partners’ deferred compensation is
$75.3 million
at
June 29, 2014
.
We use capital to fund the deferred compensation plans and currently expect cash funding of $29.0 million to $33.0 million through June 28, 2015. Actual funding of the deferred compensation obligations and future funding requirements may vary significantly depending on the actual performance compared to targets, timing of deferred payments of partner contracts, forfeiture rates, number of partner participants, growth of partner investments and our funding strategy. Actual funding may differ materially from estimates.
DIVIDENDS
We did not declare or pay any dividends on our common stock during 2013 or during the
twenty-six weeks ended June 29, 2014
. Our Board of Directors does not intend to pay regular dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis and may, subject to compliance with the covenants contained in the Credit Facilities and other considerations, determine to pay dividends in the future.
Our ability to pay dividends is dependent on our ability to obtain funds from our subsidiaries. Payment of dividends by our subsidiaries to Bloomin’ Brands is restricted under the Credit Facilities to dividends for the purpose of paying Bloomin’ Brands’ franchise and income taxes and ordinary course operating expenses; dividends for certain other limited purposes; and other dividends subject to an aggregate cap over the term of the agreement.
Recently Issued Financial Accounting Standards
For a description of recently issued Financial Accounting Standards, see Note
13
,
Recently Issued Financial Accounting Standards
, of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates on debt, changes in foreign currency exchange rates and changes in commodity prices. We have not experienced a material change in market risk from changes in interest rates on debt, changes in foreign currency exchange rates and changes in commodity prices since December 31, 2013. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our 2013 Form 10-K for further information about market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of
June 29, 2014
.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent thirteen weeks ended
June 29, 2014
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.