Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and Stockholders of Bloomin’ Brands, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, of changes in stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Bloomin’ Brands, Inc. and its subsidiaries at December 25, 2016 and December 27, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2016, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
February 22, 2017
BLOOMIN’ BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
ASSETS
|
|
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
$
|
127,176
|
|
|
$
|
132,337
|
|
Current portion of restricted cash and cash equivalents
|
7,886
|
|
|
6,772
|
|
Inventories
|
65,231
|
|
|
80,704
|
|
Other current assets, net
|
190,226
|
|
|
198,831
|
|
Total current assets
|
390,519
|
|
|
418,644
|
|
Restricted cash
|
1,124
|
|
|
16,265
|
|
Property, fixtures and equipment, net
|
1,237,148
|
|
|
1,594,460
|
|
Goodwill
|
310,055
|
|
|
300,861
|
|
Intangible assets, net
|
535,523
|
|
|
546,837
|
|
Deferred income tax assets
|
38,764
|
|
|
7,631
|
|
Other assets, net
|
129,146
|
|
|
147,871
|
|
Total assets
|
$
|
2,642,279
|
|
|
$
|
3,032,569
|
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current Liabilities
|
|
|
|
Accounts payable
|
$
|
195,371
|
|
|
$
|
193,116
|
|
Accrued and other current liabilities
|
204,415
|
|
|
206,611
|
|
Unearned revenue
|
388,543
|
|
|
382,586
|
|
Current portion of long-term debt, net
|
35,079
|
|
|
31,853
|
|
Total current liabilities
|
823,408
|
|
|
814,166
|
|
Deferred rent
|
151,130
|
|
|
139,758
|
|
Deferred income tax liabilities
|
16,709
|
|
|
53,546
|
|
Long-term debt, net
|
1,054,406
|
|
|
1,285,011
|
|
Deferred gain on sale-leaseback transactions, net
|
181,696
|
|
|
33,154
|
|
Other long-term liabilities, net
|
219,030
|
|
|
261,508
|
|
Total liabilities
|
2,446,379
|
|
|
2,587,143
|
|
Commitments and contingencies (Note 18)
|
|
|
|
Mezzanine Equity
|
|
|
|
Redeemable noncontrolling interests
|
547
|
|
|
23,526
|
|
Stockholders’ Equity
|
|
|
|
Bloomin’ Brands Stockholders’ Equity
|
|
|
|
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of December 25, 2016 and December 27, 2015
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 475,000,000 shares authorized; 103,922,110 and 119,214,522 shares issued and outstanding as of December 25, 2016 and December 27, 2015, respectively
|
1,039
|
|
|
1,192
|
|
Additional paid-in capital
|
1,079,583
|
|
|
1,072,861
|
|
Accumulated deficit
|
(786,780
|
)
|
|
(518,360
|
)
|
Accumulated other comprehensive loss
|
(111,143
|
)
|
|
(147,367
|
)
|
Total Bloomin’ Brands stockholders’ equity
|
182,699
|
|
|
408,326
|
|
Noncontrolling interests
|
12,654
|
|
|
13,574
|
|
Total stockholders’ equity
|
195,353
|
|
|
421,900
|
|
Total liabilities, mezzanine equity and stockholders’ equity
|
$
|
2,642,279
|
|
|
$
|
3,032,569
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
|
2016
|
|
2015
|
|
2014
|
Revenues
|
|
|
|
|
|
Restaurant sales
|
$
|
4,226,057
|
|
|
$
|
4,349,921
|
|
|
$
|
4,415,783
|
|
Franchise and other revenues
|
26,255
|
|
|
27,755
|
|
|
26,928
|
|
Total revenues
|
4,252,312
|
|
|
4,377,676
|
|
|
4,442,711
|
|
Costs and expenses
|
|
|
|
|
|
Cost of sales
|
1,354,853
|
|
|
1,419,689
|
|
|
1,435,359
|
|
Labor and other related
|
1,211,250
|
|
|
1,205,610
|
|
|
1,218,961
|
|
Other restaurant operating
|
992,157
|
|
|
1,006,772
|
|
|
1,049,053
|
|
Depreciation and amortization
|
193,838
|
|
|
190,399
|
|
|
190,911
|
|
General and administrative
|
267,981
|
|
|
287,614
|
|
|
304,382
|
|
Provision for impaired assets and restaurant closings
|
104,627
|
|
|
36,667
|
|
|
52,081
|
|
Total costs and expenses
|
4,124,706
|
|
|
4,146,751
|
|
|
4,250,747
|
|
Income from operations
|
127,606
|
|
|
230,925
|
|
|
191,964
|
|
Loss on defeasance, extinguishment and modification of debt
|
(26,998
|
)
|
|
(2,956
|
)
|
|
(11,092
|
)
|
Other income (expense), net
|
1,609
|
|
|
(939
|
)
|
|
(1,244
|
)
|
Interest expense, net
|
(45,726
|
)
|
|
(56,176
|
)
|
|
(59,658
|
)
|
Income before provision for income taxes
|
56,491
|
|
|
170,854
|
|
|
119,970
|
|
Provision for income taxes
|
10,144
|
|
|
39,294
|
|
|
24,044
|
|
Net income
|
46,347
|
|
|
131,560
|
|
|
95,926
|
|
Less: net income attributable to noncontrolling interests
|
4,599
|
|
|
4,233
|
|
|
4,836
|
|
Net income attributable to Bloomin’ Brands
|
$
|
41,748
|
|
|
$
|
127,327
|
|
|
$
|
91,090
|
|
|
|
|
|
|
|
Net income
|
$
|
46,347
|
|
|
$
|
131,560
|
|
|
$
|
95,926
|
|
Other comprehensive income:
|
|
|
|
|
|
Foreign currency translation adjustment
|
37,075
|
|
|
(96,194
|
)
|
|
(31,731
|
)
|
Unrealized loss on derivatives, net of tax
|
(1,250
|
)
|
|
(6,033
|
)
|
|
(2,393
|
)
|
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
|
3,807
|
|
|
2,235
|
|
|
—
|
|
Comprehensive income
|
85,979
|
|
|
31,568
|
|
|
61,802
|
|
Less: comprehensive income (loss) attributable to noncontrolling interests
|
8,008
|
|
|
(8,934
|
)
|
|
4,836
|
|
Comprehensive income attributable to Bloomin’ Brands
|
$
|
77,971
|
|
|
$
|
40,502
|
|
|
$
|
56,966
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
0.37
|
|
|
$
|
1.04
|
|
|
$
|
0.73
|
|
Diluted
|
$
|
0.37
|
|
|
$
|
1.01
|
|
|
$
|
0.71
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Basic
|
111,381
|
|
|
122,352
|
|
|
125,139
|
|
Diluted
|
114,311
|
|
|
125,585
|
|
|
128,317
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
$
|
0.28
|
|
|
$
|
0.24
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
91,090
|
|
|
—
|
|
|
4,161
|
|
|
95,251
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34,124
|
)
|
|
—
|
|
|
(34,124
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
17,420
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,420
|
|
Excess tax benefit on stock-based compensation
|
—
|
|
|
—
|
|
|
2,732
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,732
|
|
Common stock issued under stock plans (1)
|
1,166
|
|
|
11
|
|
|
9,059
|
|
|
(930
|
)
|
|
—
|
|
|
—
|
|
|
8,140
|
|
Purchase of limited partnership interests, net of tax of $6,785
|
—
|
|
|
—
|
|
|
(11,662
|
)
|
|
—
|
|
|
—
|
|
|
1,236
|
|
|
(10,426
|
)
|
Transfer to redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
(627
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(627
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,062
|
)
|
|
(5,062
|
)
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
436
|
|
|
436
|
|
Balance, December 28, 2014
|
125,950
|
|
|
$
|
1,259
|
|
|
$
|
1,085,627
|
|
|
$
|
(474,994
|
)
|
|
$
|
(60,542
|
)
|
|
$
|
5,099
|
|
|
$
|
556,449
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
127,327
|
|
|
—
|
|
|
3,228
|
|
|
130,555
|
|
Other comprehensive (loss) income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(86,825
|
)
|
|
9
|
|
|
(86,816
|
)
|
Cash dividends declared, $0.24 per common share
|
—
|
|
|
—
|
|
|
(29,332
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,332
|
)
|
Repurchase and retirement of common stock
|
(7,645
|
)
|
|
(76
|
)
|
|
—
|
|
|
(169,923
|
)
|
|
—
|
|
|
—
|
|
|
(169,999
|
)
|
Stock-based compensation
|
—
|
|
|
|
|
|
21,672
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,672
|
|
Excess tax benefit from stock-based compensation
|
—
|
|
|
—
|
|
|
733
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
733
|
|
Common stock issued under stock plans (1)
|
910
|
|
|
9
|
|
|
6,015
|
|
|
(770
|
)
|
|
—
|
|
|
—
|
|
|
5,254
|
|
Purchase of noncontrolling interests
|
—
|
|
|
—
|
|
|
(306
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(306
|
)
|
Change in the redemption value of redeemable interests
|
—
|
|
|
—
|
|
|
(11,548
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,548
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,761
|
)
|
|
(4,761
|
)
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,635
|
|
|
3,635
|
|
Conversion of accrued partner obligations to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,364
|
|
|
6,364
|
|
Balance, December 27, 2015
|
119,215
|
|
|
$
|
1,192
|
|
|
$
|
1,072,861
|
|
|
$
|
(518,360
|
)
|
|
$
|
(147,367
|
)
|
|
$
|
13,574
|
|
|
$
|
421,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(CONTINUED...)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS
|
|
|
|
|
|
COMMON STOCK
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
ACCUM-ULATED
DEFICIT
|
|
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
|
|
NON-
CONTROLLING
INTERESTS
|
|
TOTAL
|
|
SHARES
|
|
AMOUNT
|
|
|
|
|
|
Balance, December 27, 2015
|
119,215
|
|
|
$
|
1,192
|
|
|
$
|
1,072,861
|
|
|
$
|
(518,360
|
)
|
|
$
|
(147,367
|
)
|
|
$
|
13,574
|
|
|
$
|
421,900
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
41,748
|
|
|
—
|
|
|
3,622
|
|
|
45,370
|
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,224
|
|
|
(43
|
)
|
|
36,181
|
|
Cash dividends declared, $0.28 per common share
|
—
|
|
|
—
|
|
|
(31,379
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,379
|
)
|
Repurchase and retirement of common stock
|
(16,647
|
)
|
|
(166
|
)
|
|
—
|
|
|
(309,721
|
)
|
|
—
|
|
|
—
|
|
|
(309,887
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
23,539
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,539
|
|
Excess tax benefit from stock-based compensation
|
—
|
|
|
—
|
|
|
454
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
454
|
|
Common stock issued under stock plans (1)
|
1,354
|
|
|
13
|
|
|
6,831
|
|
|
(447
|
)
|
|
—
|
|
|
—
|
|
|
6,397
|
|
Purchase of noncontrolling interests, net of tax of $1,504
|
—
|
|
|
—
|
|
|
9,301
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
9,882
|
|
Change in the redemption value of redeemable interests
|
—
|
|
|
—
|
|
|
(2,024
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,024
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,818
|
)
|
|
(5,818
|
)
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
738
|
|
|
738
|
|
Balance, December 25, 2016
|
103,922
|
|
|
$
|
1,039
|
|
|
$
|
1,079,583
|
|
|
$
|
(786,780
|
)
|
|
$
|
(111,143
|
)
|
|
$
|
12,654
|
|
|
$
|
195,353
|
|
________________
|
|
(1)
|
Net of forfeitures and shares withheld for employee taxes.
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
|
2016
|
|
2015
|
|
2014
|
Cash flows provided by operating activities:
|
|
|
|
|
|
Net income
|
$
|
46,347
|
|
|
$
|
131,560
|
|
|
$
|
95,926
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
193,838
|
|
|
190,399
|
|
|
190,911
|
|
Amortization of deferred discounts and issuance costs
|
7,857
|
|
|
4,722
|
|
|
5,194
|
|
Amortization of deferred gift card sales commissions
|
28,045
|
|
|
28,205
|
|
|
27,509
|
|
Provision for impaired assets and restaurant closings
|
104,627
|
|
|
36,667
|
|
|
52,081
|
|
Stock-based and other non-cash compensation expense
|
21,522
|
|
|
22,725
|
|
|
19,689
|
|
Deferred income tax (benefit) expense
|
(75,349
|
)
|
|
3,996
|
|
|
(13,623
|
)
|
Loss on defeasance, extinguishment and modification of debt
|
26,998
|
|
|
2,956
|
|
|
11,092
|
|
(Gain) loss on sale of subsidiary or business
|
(1,633
|
)
|
|
1,182
|
|
|
770
|
|
Recognition of deferred gain on sale-leaseback transactions
|
(5,981
|
)
|
|
(2,121
|
)
|
|
(2,140
|
)
|
Excess tax benefit from stock-based compensation
|
(2,252
|
)
|
|
(733
|
)
|
|
(2,732
|
)
|
Other non-cash items, net
|
824
|
|
|
38
|
|
|
1,395
|
|
Change in assets and liabilities:
|
|
|
|
|
|
Decrease (increase) in inventories
|
15,053
|
|
|
(3,831
|
)
|
|
(3,126
|
)
|
Increase in other current assets
|
(22,778
|
)
|
|
(43,727
|
)
|
|
(116,828
|
)
|
Decrease in other assets
|
5,752
|
|
|
16,969
|
|
|
9,459
|
|
(Decrease) increase in accounts payable and accrued and other current liabilities
|
(8,222
|
)
|
|
(9,141
|
)
|
|
32,182
|
|
Increase in deferred rent
|
12,426
|
|
|
17,983
|
|
|
18,746
|
|
Increase in unearned revenue
|
7,812
|
|
|
6,106
|
|
|
21,030
|
|
(Decrease) increase in other long-term liabilities
|
(14,305
|
)
|
|
(6,525
|
)
|
|
4,471
|
|
Net cash provided by operating activities
|
340,581
|
|
|
397,430
|
|
|
352,006
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
Proceeds from disposal of property, fixtures and equipment
|
1,726
|
|
|
5,420
|
|
|
5,745
|
|
Proceeds from sale-leaseback transactions, net
|
530,684
|
|
|
—
|
|
|
—
|
|
Acquisition of business, net of cash acquired
|
—
|
|
|
—
|
|
|
(3,063
|
)
|
Proceeds from sale of a business, net of cash divested
|
28,635
|
|
|
7,798
|
|
|
—
|
|
Capital expenditures
|
(260,578
|
)
|
|
(210,263
|
)
|
|
(237,868
|
)
|
Decrease in restricted cash
|
45,479
|
|
|
54,782
|
|
|
26,075
|
|
Increase in restricted cash
|
(31,446
|
)
|
|
(47,830
|
)
|
|
(30,176
|
)
|
Other investments, net
|
(5,219
|
)
|
|
9,450
|
|
|
(1,055
|
)
|
Net cash provided by (used in) investing activities
|
$
|
309,281
|
|
|
$
|
(180,643
|
)
|
|
$
|
(240,342
|
)
|
|
|
|
|
|
|
|
|
|
(CONTINUED...)
|
|
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
|
2016
|
|
2015
|
|
2014
|
Cash flows used in financing activities:
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net
|
$
|
364,211
|
|
|
$
|
149,250
|
|
|
$
|
292,596
|
|
Defeasance, extinguishment and modification of debt
|
(478,906
|
)
|
|
(215,000
|
)
|
|
(700,000
|
)
|
Repayments of long-term debt
|
(355,616
|
)
|
|
(43,076
|
)
|
|
(31,873
|
)
|
Proceeds from borrowings on revolving credit facilities, net
|
729,500
|
|
|
564,040
|
|
|
519,000
|
|
Repayments of borrowings on revolving credit facilities
|
(539,500
|
)
|
|
(458,300
|
)
|
|
(194,000
|
)
|
Proceeds from failed sale-leaseback transactions, net
|
18,246
|
|
|
—
|
|
|
—
|
|
Proceeds from the exercise of share-based compensation
|
6,843
|
|
|
6,024
|
|
|
9,070
|
|
Distributions to noncontrolling interests
|
(5,818
|
)
|
|
(4,761
|
)
|
|
(5,062
|
)
|
Contributions from noncontrolling interests
|
738
|
|
|
3,635
|
|
|
1,872
|
|
Purchase of limited partnership and noncontrolling interests
|
(39,476
|
)
|
|
(890
|
)
|
|
(17,211
|
)
|
Repayments of partner deposits and accrued partner obligations
|
(18,739
|
)
|
|
(42,555
|
)
|
|
(24,925
|
)
|
Repurchase of common stock
|
(310,334
|
)
|
|
(170,769
|
)
|
|
(930
|
)
|
Excess tax benefit from stock-based compensation
|
2,252
|
|
|
733
|
|
|
2,732
|
|
Cash dividends paid on common stock
|
(31,379
|
)
|
|
(29,332
|
)
|
|
—
|
|
Net cash used in financing activities
|
(657,978
|
)
|
|
(241,001
|
)
|
|
(148,731
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
2,955
|
|
|
(9,193
|
)
|
|
(7,060
|
)
|
Net decrease in cash and cash equivalents
|
(5,161
|
)
|
|
(33,407
|
)
|
|
(44,127
|
)
|
Cash and cash equivalents as of the beginning of the period
|
132,337
|
|
|
165,744
|
|
|
209,871
|
|
Cash and cash equivalents as of the end of the period
|
$
|
127,176
|
|
|
$
|
132,337
|
|
|
$
|
165,744
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
41,645
|
|
|
$
|
53,971
|
|
|
$
|
57,241
|
|
Cash paid for income taxes, net of refunds
|
88,823
|
|
|
31,552
|
|
|
56,216
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
Purchase of noncontrolling interest included in accrued and other current liabilities
|
$
|
1,414
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities
|
9,610
|
|
|
3,396
|
|
|
(1,669
|
)
|
Deferred tax effect of purchase of noncontrolling interests
|
1,504
|
|
|
—
|
|
|
6,785
|
|
Conversion of accrued partner obligations to noncontrolling interests
|
—
|
|
|
6,364
|
|
|
—
|
|
Conversion of partner deposits and accrued partner obligations to notes payable
|
—
|
|
|
—
|
|
|
503
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Bloomin’ Brands, Inc. (“Bloomin’ Brands” or the “Company”) is one of the largest casual dining restaurant companies in the world, with a portfolio of leading, differentiated restaurant concepts. OSI Restaurant Partners, LLC (“OSI”) is the Company’s primary operating entity and New Private Restaurant Properties, LLC (“PRP”), another indirect wholly-owned subsidiary of the Company, leases certain of the Company-owned restaurant properties to OSI’s subsidiaries.
The Company owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has
four
concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements.
2
.
Summary of Significant Accounting Policies
Basis of Presentation -
The Company’s consolidated financial statements include the accounts and operations of Bloomin’ Brands and its subsidiaries.
To ensure timely reporting, the Company consolidates the results of its Brazil operations on a
one
-month calendar lag. In December 2016, the Company made payments of
$24.8 million
to purchase the remaining interests in its Outback Steakhouse operations in Brazil. As these payments were material to the Company’s Consolidated Balance Sheet and Consolidated Statement of Cash Flows, the cash payments and acquisition of the redeemable noncontrolling interest were recognized as of December 25, 2016. See Note
13
-
Redeemable Noncontrolling Interests
for further information.
As of November 30, 2016 and December 25, 2016, the Brazil Real to U.S. dollar foreign exchange rate was
3.39
and
3.27
, respectively. There were no other intervening events that would materially affect the Company’s consolidated financial position, results of operations or cash flows as of and for the fiscal year ended
December 25, 2016
.
Principles of Consolidation -
All intercompany accounts and transactions have been eliminated in consolidation.
The Company consolidates variable interest entities where it has been determined the Company is the primary beneficiary of those entities’ operations. The Company is a franchisor of
240
restaurants as of
December 25, 2016
, but does not possess any ownership interests in its franchisees and does not provide financial support to its franchisees. These franchise relationships are not deemed variable interest entities and are not consolidated.
Investments in entities the Company does not control, but where the Company’s interest is generally between
20%
and
50%
and the Company has the ability to exercise significant influence over the entity are accounted for under the equity method.
Use of Estimates -
The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated.
Cash and Cash Equivalents -
Cash equivalents consist of investments that are readily convertible to cash with an original maturity date of three months or less. Cash and cash equivalents include
$50.0 million
and
$60.7 million
, as of
December 25, 2016
and
December 27, 2015
, respectively, for amounts in transit from credit card companies since settlement is reasonably assured.
Concentrations of Credit and Counterparty Risk -
Financial instruments that potentially subject the Company to a concentration of credit risk are vendor and other receivables. Vendor and other receivables consist primarily of amounts
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
due from vendor rebates and gift card resellers, respectively. The Company considers the concentration of credit risk for vendor and other receivables to be minimal due to the payment histories and general financial condition of its vendors and gift card resellers.
Financial instruments that potentially subject the Company to concentrations of counterparty risk are cash and cash equivalents, restricted cash and derivatives. The Company attempts to limit its counterparty risk by investing in certificates of deposit, money market funds, noninterest-bearing accounts and other highly rated investments. Whenever possible, the Company selects investment grade counterparties and rated money market funds in order mitigate its counterparty risk. At times, cash balances may be in excess of FDIC insurance limits. See Note
15
-
Derivative Instruments and Hedging Activities
for a discussion of the Company’s use of derivative instruments and management of credit risk inherent in derivative instruments.
Fair Value -
Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input:
|
|
|
Level 1
|
Unadjusted quoted market prices in active markets for identical assets or liabilities
|
Level 2
|
Observable inputs available at measurement date other than quoted prices included in Level 1
|
Level 3
|
Unobservable inputs that cannot be corroborated by observable market data
|
Inventories -
Inventories consist of food and beverages and are stated at the lower of cost (first-in, first-out) or market.
Restricted Cash
- The Company has both current and long-term restricted cash balances consisting of amounts: (i) pledged for payment of the PRP Mortgage loan, (ii) pledged for settlement of deferred compensation plan obligations and (iii) held in escrow for certain indemnifications associated with the sale of Roy’s.
Property, Fixtures and Equipment -
Property, fixtures and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful life of the assets. Improvements to leased properties are depreciated over the shorter of their useful life or the lease term, which includes renewal periods that are reasonably assured. Estimated useful lives by major asset category are generally as follows:
|
|
|
Buildings and building improvements
|
20 to 30 years
|
Furniture and fixtures
|
5 to 7 years
|
Equipment
|
2 to 7 years
|
Leasehold improvements
|
5 to 20 years
|
Capitalized software
|
3 to 7 years
|
Repair and maintenance costs that maintain the appearance and functionality of the restaurant, but do not extend the useful life of any restaurant asset are expensed as incurred. The Company suspends depreciation and amortization for assets held for sale. The cost and related accumulated depreciation of assets sold or disposed are removed from the Company’s Consolidated Balance Sheets, and any resulting gain or loss is generally recognized in
Other restaurant operating
expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
The Company capitalizes direct and indirect internal costs associated with the acquisition, development, design and construction of Company-owned restaurant locations as these costs have a future benefit to the Company. Upon restaurant opening, these costs are depreciated and charged to depreciation and amortization expense. Internal costs of
$7.6 million
,
$8.0 million
and
$8.7 million
were capitalized during fiscal years
2016
,
2015
and
2014
, respectively.
For fiscal years
2016
and
2015
, software development costs of
$7.1 million
and
$4.8 million
, respectively, were capitalized. As of
December 25, 2016
and
December 27, 2015
, there was
$24.4 million
and
$27.9 million
, respectively, of unamortized software included in Property, fixtures and equipment in the Company’s
Consolidated Balance Sheets
.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Goodwill and Intangible Assets -
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is assigned to the reporting unit in which the acquired business will operate. The Company’s indefinite-lived intangible assets consist of trade names. Goodwill and indefinite-lived intangible assets are tested for impairment annually, as of the first day of the second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated. The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an indicator of potential impairment, in which case a second step is performed comparing the recorded amount of goodwill or indefinite-lived intangible assets to the implied fair value.
Definite-lived intangible assets, which consist primarily of trademarks, franchise agreements, reacquired franchise rights, favorable leases, and other long-lived assets, are amortized over their estimated useful lives and are tested for impairment, using the discounted cash flow method, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Derivatives -
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
If the derivative qualifies for hedge accounting treatment, then the effective portion of the gain or loss on the derivative instrument is recognized in equity as a change to Accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instrument is immediately recognized in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements, foreign currency exchange rate movements and other identified risks. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company has elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreement.
Deferred Financing Fees
- For fees associated with its revolving credit facility, the Company records deferred financing fees related to the issuance of debt obligations in Other assets, net. For fees associated with all other debt obligations, the Company records deferred financing fees in Long-term debt, net.
The Company amortizes deferred financing fees to interest expense over the term of the respective financing arrangement, primarily using the effective interest method. The Company amortized deferred financing fees of
$7.1 million
,
$2.9 million
and
$3.1 million
to interest expense for fiscal years
2016
,
2015
and
2014
, respectively.
Liquor Licenses -
The costs of obtaining non-transferable liquor licenses directly issued by local government agencies for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in Other assets, net. Annual liquor license renewal fees are expensed over the renewal term.
Insurance Reserves -
The Company carries insurance programs with specific retention levels or high per-claim deductibles for a significant portion of expected losses under its workers’ compensation, general liability/liquor liability,
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
health, property and management liability insurance programs. The Company records a liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost that falls below its specified retention levels or per-claim deductible amounts. In establishing reserves, the Company considers certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims, claim development history and settlement practices. Reserves recorded for workers’ compensation and general liability claims are discounted using the average of the
one
-year and
five
-year risk free rate of monetary assets that have comparable maturities.
Redeemable Noncontrolling Interests -
The Company consolidates its Outback Steakhouse subsidiary in China, which has a noncontrolling interest that is permitted to deliver subsidiary shares in exchange for cash at a future date. The Company believes that it is probable that the noncontrolling interest will become redeemable.
The Redeemable noncontrolling interest is reported at its estimated redemption value measured as the greater of estimated fair value at the end of each reporting period or the historical cost basis of the redeemable noncontrolling interest adjusted for cumulative earnings or loss allocations. The resulting increases or decreases to fair value, if applicable, are recognized as adjustments to Retained earnings, or in the absence of Retained earnings, Additional paid-in capital. The redeemable noncontrolling interest is classified in Mezzanine equity in the Company’s Consolidated Balance Sheets.
Share Repurchase -
Shares repurchased are retired. The par value of the repurchased shares is deducted from common stock and the excess of the purchase price over the par value of the shares is recorded to Accumulated deficit.
Revenue Recognition -
The Company records food and beverage revenues, net of discounts, upon sale. Initial and developmental franchise fees are recognized as income once the Company has substantially performed all of its material obligations under the franchise agreement, which is generally upon the opening of the franchised restaurant. Continuing royalties, which are a percentage of net sales of the franchisee, are recognized as income when earned. Franchise-related revenues are included in Other revenues in the Company’s
Consolidated Statements of Operations and Comprehensive Income
, except for amounts received for national marketing, which are recorded as a reduction of Other restaurant operating expenses.
The Company defers revenue for gift cards, which do not have expiration dates, until redemption by the customer. Gift cards sold at a discount are recorded as revenue upon redemption of the associated gift cards at an amount net of the related discount. The Company also recognizes gift card breakage revenue for gift cards when the likelihood of redemption by the customer is remote, which the Company determined are those gift cards issued on or before three years prior to the balance sheet date. The Company recorded breakage revenue of
$26.0 million
,
$22.9 million
and
$18.8 million
for fiscal years
2016
,
2015
and
2014
, respectively. Breakage revenue is recorded as a component of
Restaurant sales
in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Gift card sales commissions paid to third-party providers are initially capitalized and subsequently recognized as Other restaurant operating expenses upon redemption of the associated gift card. Deferred expenses of
$15.6 million
and
$16.1 million
as of
December 25, 2016
and
December 27, 2015
, respectively, were reflected in Other current assets, net in the Company’s Consolidated Balance Sheets. Gift card sales that are accompanied by a bonus gift card to be used by the customer at a future visit result in a separate deferral of a portion of the original gift card sale. Revenue is recorded when the bonus card is redeemed at the estimated fair market value of the bonus card.
The Company maintains a customer loyalty program, Dine Rewards, in the U.S., where customers have the ability to earn a reward after a number of qualified visits. The Company has developed an estimated value of the partial reward earned from each qualified visit based on historical data. The estimated value of the partial reward is recorded as deferred revenue. Each reward has a maximum value and must be redeemed within three months of earning such reward. The revenue associated with the fair value of the qualified visit is recognized upon the earlier of redemption or expiration of the reward. Deferred revenue related to the loyalty program was
$4.2 million
and
$0.8 million
as of
December 25, 2016
and
December 27, 2015
, respectively.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company collects and remits sales, food and beverage, alcoholic beverage and hospitality taxes on transactions with customers and reports revenue net of taxes in its
Consolidated Statements of Operations and Comprehensive Income
.
Operating Leases -
Rent expense for the Company’s operating leases, which generally have escalating rentals over the term of the lease and may include rent holidays, is recorded on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. The difference between rent expense and rent paid is recorded as deferred rent and is included in the Company’s Consolidated Balance Sheets. Payments received from landlords as incentives for leasehold improvements are recorded as deferred rent and are amortized on a straight-line basis over the term of the lease as a reduction of rent expense. Favorable and unfavorable lease assets and liabilities are amortized on a straight-line basis to rent expense over the remaining lease term.
Pre-Opening Expenses -
Non-capital expenditures associated with opening new restaurants are expensed as incurred and are included in
Other restaurant operating
expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Consideration Received from Vendors -
The Company receives consideration for a variety of vendor-sponsored programs, such as volume rebates, promotions and advertising allowances. Advertising allowances are intended to offset the Company’s costs of promoting and selling menu items in its restaurants. Vendor consideration is recorded as a reduction of Cost of sales or Other restaurant operating expenses when recognized in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Impairment of Long-Lived Assets and Costs Associated with Exit Activities -
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. For long-lived assets deployed at its restaurants, the Company reviews for impairment at the individual restaurant level. When evaluating for impairment, the total future undiscounted cash flows expected to be generated by the asset are compared to the carrying amount. If the total future undiscounted cash flows of the asset are less than its carrying amount, recoverability is measured by comparing the fair value of the assets to the carrying amount. An impairment loss is recognized in earnings when the asset’s carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model.
Generally, restaurant closure costs, including lease termination fees, are expensed as incurred. When the Company ceases using the property rights under a non-cancelable operating lease, it records a liability for the net present value of any remaining lease obligations as a result of lease termination, less the estimated sublease income that can reasonably be obtained for the property.
Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income are recorded in the period incurred.
The associated expense is recorded in Provision for impaired assets and restaurant closings in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Restaurant sites and certain other assets to be sold are included in assets held for sale when certain criteria are met, including the requirement that the likelihood of selling the assets within one year is probable.
Advertising Costs -
Advertising production costs are expensed in the period when the advertising first occurs. All other advertising costs are expensed in the period in which the costs are incurred. Advertising expense of
$160.8 million
,
$161.6 million
and
$191.1 million
for fiscal years
2016
,
2015
and
2014
, respectively, was recorded in
Other restaurant operating
expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Legal Costs -
Settlement costs are accrued when they are deemed probable and reasonably estimable. Legal fees are recognized as incurred and are reported in General and administrative expense in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Research and Development Expenses (“R&D”) -
R&D is expensed as incurred in
General and administrative
expense in the Company’s
Consolidated Statements of Operations and Comprehensive Income
. R&D primarily consists of payroll and benefit costs. R&D was
$5.2 million
,
$6.5 million
and
$5.8 million
for fiscal years
2016
,
2015
and
2014
, respectively.
Partner Compensation -
In additional to salary, the Restaurant Managing Partner of each Company-owned U.S. restaurant and the Chef Partner of each Fleming’s Prime Steakhouse & Wine Bar, as well as Area Operating Partners, generally receive performance-based bonuses for providing management and supervisory services to their restaurants, certain of which may be based on a percentage of their associated restaurants’ monthly operating results or distributable cash flows (“Monthly Payments”). The expense associated with the Monthly Payments for Restaurant Managing Partners and Chef Partners is included in Labor and other related expenses, and the expense associated with the Monthly Payments for Area Operating Partners is included in General and administrative expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Restaurant Managing Partners and Chef Partners in the U.S. that are eligible to participate in a deferred compensation program receive an unsecured promise of a cash contribution to their account (see Note
5
-
Stock-based and Deferred Compensation Plans
). Also, on the fifth anniversary of the opening of each new U.S. Company-owned restaurant, the Area Operating Partner supervising the restaurant during the first
five years
of operation receives an additional performance-based bonus.
The Company estimates future bonuses and deferred compensation obligations to Restaurant Managing, Chef Partners and Area Operating Partners, using current and historical information on restaurant performance and records the long-term portion of partner obligations in
Other long-term liabilities, net
in its Consolidated Balance Sheets. Deferred compensation expenses for Restaurant Managing and Chef partners are included in Labor and other related expenses and bonus expense for Area Operating Partners is included in
General and administrative
expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Stock-based Compensation -
Stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting or service periods. Stock-based compensation expense is recognized only for those awards expected to vest. The expense, net of forfeitures, is recognized using the straight-line method.
Foreign Currency Translation and Transactions -
For non-U.S. operations, the functional currency is the local currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date with the translation adjustments recorded in Accumulated other comprehensive loss in the Company’s Consolidated Statements of Changes in Stockholders’ Equity. Results of operations are translated using the average exchange rates for the reporting period.
The Company recorded foreign currency exchange transaction losses of
$1.3 million
,
$1.2 million
and
$0.7 million
for fiscal years
2016
,
2015
and
2014
, respectively. Foreign currency exchange transaction losses are recorded in
General and administrative
in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
Income Taxes -
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change. A valuation allowance may reduce deferred income tax assets to the amount that is more likely than not to be realized.
The Company records a tax benefit for an uncertain tax position using the highest cumulative tax benefit that is more likely than not to be realized. The Company adjusts its liability for unrecognized tax benefits in the period in which it determines the issue is effectively settled, the statute of limitations expires or when more information becomes available.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Liabilities for unrecognized tax benefits, including penalties and interest, are recorded in Accrued and other current liabilities and Other long-term liabilities on the Company’s Consolidated Balance Sheets.
Recently Adopted Financial Accounting Standards
- In August 2014, the Financial Accounting Standards Board (“the FASB”) issued
Accounting Standards Update (“ASU”)
2014-15: “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU No. 2014-15”). ASU No. 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The adoption of ASU No. 2014-15 on December 25, 2016 did not have an impact on the Company’s financial position, results of operations or cash flows.
Recently Issued Financial Accounting Standards Not Yet Adopted
- In January 2017, the FASB issued ASU No. 2017-04, “ Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU No. 2017-04”).
ASU No. 2017-04 eliminates the second step of goodwill impairment, which requires a hypothetical purchase price allocation. Under ASU No. 2017-14, goodwill impairment will be calculated as the amount a reporting unit’s carrying value exceeds its calculated fair value. ASU No. 2017-04 will be applied prospectively and is effective for the Company in fiscal year 2020, with early adoption permitted. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations - Clarifying the Definition of a Business,” (“ASU No. 2017-01”). ASU No. 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects various areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU No. 2017-01 is effective for the Company in fiscal year 2018 and is not expected to have an impact on the Company’s Consolidated Financial Statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash” (“ASU No. 2016-18”). ASU No. 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents, which should now be included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the Statements of Cash Flows. ASU No. 2016-18 will be effective for the Company in fiscal year 2018, with early adoption permitted. Other than the change in presentation of restricted cash within the Statement of Cash Flows, the adoption of ASU No. 2016-18 is not expected to have an impact on the Company’s Consolidated Financial Statements.
In August 2016, the FASB
issued
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”), which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. ASU No. 2016-15 will be effect
ive for the Company in fiscal year 2018
, and early adoption is permitted. The Company does not expect ASU No. 2016-15 to have a material impact on its
Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09: “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU No. 2016-09 will be effective for the Company in fiscal year 2017.
Currently, the Company recognizes excess tax benefits for stock compensation in the Statement of Stockholder’s Equity when the benefits are realized (on a with and without basis). Upon adoption of ASU No. 2016-09, excess tax benefits related to stock compensation will be recorded through the Statement of Operations and Comprehensive Income. Excess tax benefits of approximately
$14.0 million
to
$15.0 million
will be recorded as a cumulative effect adjustment to equity in fiscal year 2017.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The impact of adopting ASU No. 2016-09 will depend on the difference between the market price of the Company’s stock between the grant dates and subsequent vesting dates of share-based awards, and this impact could be positive or negative depending on how the Company’s stock price fluctuates.
In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU No. 2016-02 is effective for the Company in fiscal year 2019 and must be adopted using a modified retrospective approach. The Company is currently evaluating the impact the adoption of ASU No. 2016-02 will have on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. ASU No. 2014-09, as amended, will be effective for the Company in fiscal year 2018 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption.
While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to accounting for breakage and advertising fees charged to franchisees. Under the new standard, the Company expects to recognize breakage proportional to actual gift card redemptions. Advertising fees charged to franchisees, which are currently recorded as a reduction to Other restaurant operating expenses, will be recognized as Other revenue. In addition, initial franchise fees will be recognized over the term of the franchise agreement, which is not expected to have a material impact on the Consolidated Financial Statements.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Out-of-Period Adjustments -
In the third quarter of 2015, the Company identified and corrected errors in accounting for the allocation of foreign currency translation adjustments (“CTA”) to Redeemable noncontrolling interests and fair value adjustments for Redeemable noncontrolling interests. Management evaluated the materiality of the errors from a qualitative and quantitative perspective and concluded that the errors were immaterial to the current and prior periods. As a result, the Company recorded the cumulative adjustment in its Consolidated Statement of Stockholders’ Equity and Consolidated Statement of Operations and Comprehensive Income for fiscal year 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATMENT LINE ITEM IMPACT
|
|
IMPACT BY PERIOD
|
|
CUMULATIVE ADJUSTMENT
|
|
|
|
FISCAL YEAR
|
|
(dollars in thousands)
|
|
|
2013
|
|
2014
|
|
2015
|
|
Mezzanine equity:
|
|
|
|
|
|
|
|
|
|
|
Allocation of CTA to redeemable noncontrolling interests
|
|
Redeemable noncontrolling interests
|
|
$
|
(1,762
|
)
|
|
$
|
(2,677
|
)
|
|
$
|
(4,793
|
)
|
|
$
|
(9,232
|
)
|
Adjustment for the change in the redemption value of redeemable interests
|
|
Redeemable noncontrolling interests
|
|
1,715
|
|
|
1,824
|
|
|
5,132
|
|
|
8,671
|
|
Net impact to Mezzanine equity
|
|
|
|
$
|
(47
|
)
|
|
$
|
(853
|
)
|
|
$
|
339
|
|
|
$
|
(561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Bloomin’ Brands stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Allocation of CTA to redeemable noncontrolling interests
|
|
Accumulated other comprehensive loss
|
|
$
|
1,762
|
|
|
$
|
2,677
|
|
|
$
|
4,793
|
|
|
$
|
9,232
|
|
Adjustment for the change in the redemption value of redeemable interests
|
|
Additional paid-in capital
|
|
(1,715
|
)
|
|
(1,824
|
)
|
|
(5,132
|
)
|
|
(8,671
|
)
|
Net impact to Bloomin’ Brands stockholders’ equity
|
|
|
|
$
|
47
|
|
|
$
|
853
|
|
|
$
|
(339
|
)
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Allocation of CTA to redeemable noncontrolling interests
|
|
Comprehensive income attributable to Bloomin’ Brands
|
|
$
|
1,762
|
|
|
$
|
2,677
|
|
|
$
|
4,793
|
|
|
$
|
9,232
|
|
Allocation of CTA to redeemable noncontrolling interests
|
|
Comprehensive (loss) income attributable to noncontrolling interests
|
|
(1,762
|
)
|
|
(2,677
|
)
|
|
(4,793
|
)
|
|
(9,232
|
)
|
Net impact to Other comprehensive income
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reclassifications -
The Company reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the current period. These reclassifications had no effect on previously reported net income.
3
.
Impairments, Disposals and Exit Costs
The components of Provision for impaired assets and restaurant closings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Impairment losses
|
|
|
|
|
|
U.S.
|
$
|
57,464
|
|
|
$
|
27,408
|
|
|
$
|
13,822
|
|
International
|
41,599
|
|
|
—
|
|
|
12,690
|
|
Corporate
|
—
|
|
|
746
|
|
|
10,559
|
|
Total impairment losses
|
$
|
99,063
|
|
|
$
|
28,154
|
|
|
$
|
37,071
|
|
Restaurant closure expenses
|
|
|
|
|
|
U.S.
|
$
|
5,596
|
|
|
$
|
2,460
|
|
|
$
|
7,334
|
|
International
|
(32
|
)
|
|
6,053
|
|
|
7,676
|
|
Total restaurant closure expenses
|
$
|
5,564
|
|
|
$
|
8,513
|
|
|
$
|
15,010
|
|
Provision for impaired assets and restaurant closings
|
$
|
104,627
|
|
|
$
|
36,667
|
|
|
$
|
52,081
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Closure Initiative and Restructuring Costs
- Following is a summary of expenses, related to the 2017 Closure Initiative, Bonefish Restructuring and International and Domestic Restaurant Closure Initiatives (“Closure Initiatives”), recognized in
Provision for impaired assets and restaurant closings
in the Company’s
Consolidated Statements of Operations and Comprehensive Income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Impairment, facility closure and other expenses
|
|
|
|
|
|
2017 Closure Initiative (1)
|
$
|
46,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonefish Restructuring
|
4,859
|
|
|
24,204
|
|
|
—
|
|
International Restaurant Closure Initiative (2)
|
—
|
|
|
6,041
|
|
|
19,738
|
|
Domestic Restaurant Closure Initiative (3)
|
—
|
|
|
1,602
|
|
|
5,972
|
|
Provision for impaired assets and restaurant closings
|
$
|
51,359
|
|
|
$
|
31,847
|
|
|
$
|
25,710
|
|
Severance and other expenses
|
|
|
|
|
|
Bonefish Restructuring
|
$
|
601
|
|
|
$
|
143
|
|
|
$
|
—
|
|
International Restaurant Closure Initiative (2)
|
—
|
|
|
1,715
|
|
|
3,007
|
|
Domestic Restaurant Closure Initiative (3)
|
—
|
|
|
—
|
|
|
1,035
|
|
General and administrative
|
$
|
601
|
|
|
$
|
1,858
|
|
|
$
|
4,042
|
|
Reversal of deferred rent liability
|
|
|
|
|
|
2017 Closure Initiative (1)
|
$
|
(3,271
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonefish Restructuring
|
(3,410
|
)
|
|
—
|
|
|
—
|
|
International Restaurant Closure Initiative (2)
|
—
|
|
|
(198
|
)
|
|
(833
|
)
|
Domestic Restaurant Closure Initiative (3)
|
—
|
|
|
—
|
|
|
(2,078
|
)
|
Other restaurant operating
|
$
|
(6,681
|
)
|
|
$
|
(198
|
)
|
|
$
|
(2,911
|
)
|
|
$
|
45,279
|
|
|
$
|
33,507
|
|
|
$
|
26,841
|
|
________________
|
|
(1)
|
Includes pre-tax asset impairments of
$45.6 million
within the U.S. segment and
$0.9 million
within the International segment.
|
|
|
(2)
|
During 2014, the Company decided to close
36
underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”).
|
|
|
(3)
|
During 2013, the Company decided to close
22
underperforming domestic locations (the “Domestic Restaurant Closure Initiative”).
|
2017 Closure Initiative -
On
February 15, 2017
, the Company decided to close
43
underperforming restaurants (the “2017 Closure Initiative”). Most of these restaurants will close in 2017, with the balance closing as leases and certain operating covenants expire or are amended or waived. In connection with the 2017 Closure Initiative, the Company reassessed the future undiscounted cash flows of the impacted restaurants and determined the undiscounted cash flows would not recover the value of the impacted restaurants. As a result, the Company estimated the fair value of the impacted restaurants
and
recognized pre-tax asset impairments of
$46.5 million
during fiscal year 2016, which includes
three
restaurants that closed in the fourth quarter.
Bonefish Restructuring -
On
February 12, 2016
, the Company decided to close
14
Bonefish restaurants (“Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the
first quarter of 2019
. In connection with the Bonefish Restructuring, the Company reassessed the future undiscounted cash flows of the impacted restaurants, and as a result, the Company recognized pre-tax asset impairments during fiscal year 2015, within the U.S. segment.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cumulative Closure Initiative and Restructuring Costs -
Following is a summary of cumulative expenses related to the Closure Initiatives incurred through
December 25, 2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DESCRIPTION
|
|
LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
CLOSURE INITIATIVES AND RESTRUCTURING
|
|
|
2017
|
|
BONEFISH
|
|
INTERNATIONAL
|
|
DOMESTIC
|
|
TOTAL
|
Impairments, facility closure and other expenses
|
|
Provision for impaired assets and restaurant closings
|
|
$
|
46,500
|
|
|
$
|
29,063
|
|
|
$
|
25,779
|
|
|
$
|
26,269
|
|
|
$
|
127,611
|
|
Severance and other expenses
|
|
General and administrative
|
|
—
|
|
|
744
|
|
|
4,722
|
|
|
1,035
|
|
|
6,501
|
|
Reversal of deferred rent liability
|
|
Other restaurant operating
|
|
(3,271
|
)
|
|
(3,410
|
)
|
|
(1,031
|
)
|
|
(2,078
|
)
|
|
(9,790
|
)
|
|
|
|
|
$
|
43,229
|
|
|
$
|
26,397
|
|
|
$
|
29,470
|
|
|
$
|
25,226
|
|
|
$
|
124,322
|
|
Projected Future Expenses and Cash Expenditures
- The Company currently expects to incur additional charges for the 2017 Closure Initiative and Bonefish Grill Restructuring over the next
three years
, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of estimated pre-tax expense by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated future expense
(dollars in millions)
|
2017 CLOSURE INITIATIVE
|
|
BONEFISH GRILL RESTRUCTURING
|
Lease related liabilities, net of subleases
|
$
|
17.0
|
|
to
|
$
|
19.0
|
|
|
$
|
2.2
|
|
to
|
$
|
5.2
|
|
Employee severance and other obligations
|
$
|
2.5
|
|
to
|
$
|
4.5
|
|
|
$
|
0.3
|
|
to
|
$
|
1.0
|
|
Total estimated future expense
|
$
|
19.5
|
|
to
|
$
|
23.5
|
|
|
$
|
2.5
|
|
to
|
$
|
6.2
|
|
|
|
|
|
|
|
|
|
Total estimated future cash expenditures (dollars in millions)
|
$
|
31.5
|
|
|
$
|
37.0
|
|
|
$
|
10.1
|
|
to
|
$
|
12.5
|
|
Total future undiscounted cash expenditures for the 2017 Closures Initiative and Bonefish Grill Restructuring, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in
January 2029
and
October 2024
, respectively.
Accrued Facility Closure and Other Cost Rollforward
- The following table summarizes the Company’s accrual activity related to facility closure and other costs during fiscal years
2016
and
2015
:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
2016
|
|
2015
|
Beginning of the year
|
$
|
5,699
|
|
|
$
|
11,000
|
|
Charges
|
6,845
|
|
|
10,358
|
|
Cash payments
|
(4,706
|
)
|
|
(13,814
|
)
|
Adjustments
|
(1,281
|
)
|
|
(1,845
|
)
|
End of the year (1)
|
$
|
6,557
|
|
|
$
|
5,699
|
|
________________
|
|
(1)
|
The Company had exit-related accruals of
$2.6 million
and
$2.0 million
, recorded in Accrued and other current liabilities and
$4.0 million
and
$3.7 million
, recorded in Other long-term liabilities, net, as of
December 25, 2016
and
December 27, 2015
, respectively.
|
Outback Steakhouse South Korea
- On July 25, 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”) for a purchase price of
$50.0 million
, in cash. In the second quarter of 2016, the Company recognized an impairment charge of
$39.6 million
, including costs to sell of
$3.3 million
, within the International segment. The Company also recognized tax expense of
$2.4 million
for
fiscal year 2016
with respect to undistributed earnings in South Korea that were previously considered to be permanently reinvested.
During the third quarter of 2016, the Company recognized a gain on the sale of Outback Steakhouse South Korea of
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
$2.1 million
within Other income (expense), net in the
Consolidated Statements of Operations and Comprehensive Income
, primarily due to a change in foreign currency exchange rates subsequent to the Company’s second fiscal quarter. After completion of the sale, the Company’s restaurant locations in South Korea are operated as franchises.
Following are the components of Outback Steakhouse South Korea included in the
Consolidated Statements of Operations and Comprehensive Income
for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Restaurant sales
|
$
|
90,455
|
|
|
$
|
171,649
|
|
|
$
|
238,802
|
|
(Loss) income before income taxes (1)
|
$
|
(32,348
|
)
|
|
$
|
3,284
|
|
|
$
|
(12,955
|
)
|
________________
|
|
(1)
|
Includes impairment charges of
$39.6 million
for Assets held for sale and a gain of
$2.1 million
on the sale of Outback Steakhouse South Korea for
fiscal year 2016
.
|
Roy’s
- On January 26, 2015, the Company sold its Roy’s business to United Ohana, LLC (the “Buyer”), for a purchase price of
$10.0 million
, less certain liabilities, and recognized a loss on sale of
$0.9 million
, which was recorded in Other expense, net, during fiscal year 2015.
In connection with the sale of Roy’s, the Company continues to provide lease guarantees for certain of the Roy’s locations. Under the guarantees, the Company will pay the rental expense over the remaining lease term in the event of default by the Buyer. The fair value and maximum value of the lease guarantees is nominal. The maximum amount is calculated as the fair value of the lease payments, net of sublease assumptions, over the remaining lease term.
Following are the components of Roy’s included in the Company’s
Consolidated Statements of Operations and Comprehensive Income
for the following periods:
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2015
|
|
2014
|
Restaurant sales
|
$
|
5,729
|
|
|
$
|
68,575
|
|
Loss before income taxes (1)(2)
|
$
|
(831
|
)
|
|
$
|
(13,612
|
)
|
________________
|
|
(1)
|
Loss before income taxes includes loss on sale of
$0.9 million
in fiscal year 2015.
|
|
|
(2)
|
Loss before income taxes includes impairment charges of
$13.4 million
in fiscal year 2014, which was recorded within the U.S. segment.
|
Other Disposals -
During 2016, the Company recognized impairment charges of
$3.5 million
for its Puerto Rico subsidiary, within the U.S. segment.
During 2014, the Company decided to sell both of its corporate airplanes. In connection with this decision, the Company recognized pre-tax asset impairment charges of
$0.7 million
and
$10.6 million
in fiscal years 2015 and 2014, respectively.
The remaining restaurant impairment and closing charges resulted from the carrying value of a restaurant’s assets exceeding its estimated fair market value, primarily due to locations identified for relocation or closure.
4. Earnings Per Share
The Company computes basic earnings per share based on the weighted average number of common shares that were outstanding during the period. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of restricted stock, restricted stock units, performance-based share units and stock options, using the treasury stock method. Performance-based share units are considered dilutive when the related performance criterion has been met.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(in thousands, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
Net income attributable to Bloomin’ Brands
|
$
|
41,748
|
|
|
$
|
127,327
|
|
|
$
|
91,090
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
111,381
|
|
|
122,352
|
|
|
125,139
|
|
|
|
|
|
|
|
Effect of diluted securities:
|
|
|
|
|
|
Stock options
|
2,659
|
|
|
2,992
|
|
|
3,079
|
|
Nonvested restricted stock and restricted stock units
|
260
|
|
|
216
|
|
|
91
|
|
Nonvested performance-based share units
|
11
|
|
|
25
|
|
|
8
|
|
Diluted weighted average common shares outstanding
|
114,311
|
|
|
125,585
|
|
|
128,317
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.37
|
|
|
$
|
1.04
|
|
|
$
|
0.73
|
|
Diluted earnings per share
|
$
|
0.37
|
|
|
$
|
1.01
|
|
|
$
|
0.71
|
|
Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(shares in thousands)
|
2016
|
|
2015
|
|
2014
|
Stock options
|
5,151
|
|
|
2,670
|
|
|
3,090
|
|
Nonvested restricted stock and restricted stock units
|
219
|
|
|
27
|
|
|
206
|
|
Nonvested performance-based share units
|
92
|
|
|
—
|
|
|
—
|
|
5
.
Stock-based and Deferred Compensation Plans
Stock-based Compensation Plans
Equity Compensation Plans -
On April 22, 2016, the Company’s shareholders approved the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Incentive Plan”). Following approval of the 2016 Incentive Plan, no further awards have been granted under the Company’s previous equity compensation plans. Existing awards under previous plans continue to vest in accordance with the original vesting schedule and will expire at the end of their original term. The 2016 Incentive Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other cash-based or stock-based awards to Company management, other key employees, consultants and directors.
As of
December 25, 2016
, the maximum number of shares of common stock available for issuance pursuant to the 2016 Incentive Plan was
6,127,810
.
The Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Stock options
|
$
|
11,926
|
|
|
$
|
10,041
|
|
|
$
|
11,946
|
|
Restricted stock and restricted stock units
|
9,275
|
|
|
6,758
|
|
|
3,857
|
|
Performance-based share units
|
1,393
|
|
|
3,596
|
|
|
1,190
|
|
|
$
|
22,594
|
|
|
$
|
20,395
|
|
|
$
|
16,993
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock Options -
Beginning in August 2012, stock options generally vest and become exercisable over a period of
four years
in an equal number of shares each year. Stock options have an exercisable life of no more than
ten years
from the date of grant. The Company settles stock option exercises with authorized but unissued shares of the Company’s common stock. Stock options granted prior to August 2012 generally vest and become exercisable over a period of
five years
in an equal number of shares each year.
The following table presents a summary of the Company’s stock option activity for
fiscal year 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except exercise price and contractual life)
|
OPTIONS
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)
|
|
AGGREGATE
INTRINSIC
VALUE
|
Outstanding as of December 27, 2015
|
9,718
|
|
|
$
|
12.99
|
|
|
5.6
|
|
$
|
59,427
|
|
Granted
|
3,164
|
|
|
17.58
|
|
|
|
|
|
Exercised
|
(1,090
|
)
|
|
8.26
|
|
|
|
|
|
Forfeited or expired
|
(808
|
)
|
|
20.32
|
|
|
|
|
|
Outstanding as of December 25, 2016
|
10,984
|
|
|
$
|
14.24
|
|
|
5.8
|
|
$
|
58,231
|
|
Vested and expected to vest as of December 25, 2016
|
10,908
|
|
|
$
|
14.20
|
|
|
5.8
|
|
$
|
58,176
|
|
Exercisable as of December 25, 2016
|
6,640
|
|
|
$
|
10.77
|
|
|
3.9
|
|
$
|
55,659
|
|
Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
|
2016
|
|
2015
|
|
2014
|
Assumptions:
|
|
|
|
|
|
Weighted-average risk-free interest rate (1)
|
1.32
|
%
|
|
1.64
|
%
|
|
1.82
|
%
|
Dividend yield (2)
|
1.59
|
%
|
|
1.00
|
%
|
|
—
|
%
|
Expected term (3)
|
6.1 years
|
|
|
6.3 years
|
|
|
6.3 years
|
|
Weighted-average volatility (4)
|
35.2
|
%
|
|
43.4
|
%
|
|
48.4
|
%
|
|
|
|
|
|
|
Weighted-average grant date fair value per option
|
$
|
5.28
|
|
|
$
|
10.11
|
|
|
$
|
11.37
|
|
________________
|
|
(1)
|
Risk-free rate is the U.S. Treasury yield curve in effect as of the grant date for periods within the expected term of the option.
|
|
|
(2)
|
Dividend yield is the level of dividends expected to be paid on the Company’s common stock over the expected term of the option.
|
|
|
(3)
|
Expected term represents the period of time that the options are expected to be outstanding. The simplified method of estimating the expected term is used since the Company does not have significant historical exercise experience for its stock options.
|
|
|
(4)
|
Volatility is based on the historical volatilities of the Company’s stock and the stock of comparable peer companies.
|
The following represents stock option compensation information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Intrinsic value of options exercised
|
$
|
10,792
|
|
|
$
|
11,843
|
|
|
$
|
19,474
|
|
Excess tax benefits for tax deductions related to the exercise of stock options
|
$
|
2,146
|
|
|
$
|
702
|
|
|
$
|
2,405
|
|
Cash received from option exercises, net of tax withholding
|
$
|
8,998
|
|
|
$
|
7,440
|
|
|
$
|
9,540
|
|
Fair value of stock options vested
|
$
|
19,431
|
|
|
$
|
26,643
|
|
|
$
|
36,614
|
|
Tax benefits for stock option compensation expense
|
$
|
4,177
|
|
|
$
|
4,594
|
|
|
$
|
7,576
|
|
|
|
|
|
|
|
Unrecognized stock option expense
|
$
|
20,684
|
|
|
|
|
|
Remaining weighted-average vesting period
|
2.3 years
|
|
|
|
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Restricted Stock and Restricted Stock Units -
Restricted stock and restricted stock units generally vest and become exercisable in an equal number of shares each year. Restricted stock and restricted stock units issued to members of the Board of Directors (the “Board”) and employees vest over a period of
three years
and
four years
, respectively. Following is a summary of the Company’s restricted stock and restricted stock unit activity for
fiscal year 2016
:
|
|
|
|
|
|
|
|
(shares in thousands)
|
NUMBER OF RESTRICTED STOCK & RESTRICTED STOCK UNIT AWARDS
|
|
WEIGHTED-AVERAGE
GRANT DATE
FAIR VALUE PER AWARD
|
Outstanding as of December 27, 2015
|
1,145
|
|
|
$
|
21.48
|
|
Granted
|
1,058
|
|
|
16.38
|
|
Vested
|
(370
|
)
|
|
20.98
|
|
Forfeited
|
(239
|
)
|
|
19.18
|
|
Outstanding as of December 25, 2016
|
1,594
|
|
|
$
|
18.55
|
|
The following represents restricted stock and restricted stock unit compensation information as of
December 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Fair value of restricted stock vested
|
$
|
7,752
|
|
|
$
|
5,339
|
|
|
$
|
2,680
|
|
Tax benefits for restricted stock compensation expense
|
$
|
2,513
|
|
|
$
|
2,303
|
|
|
$
|
1,298
|
|
|
|
|
|
|
|
Unrecognized restricted stock expense
|
$
|
21,870
|
|
|
|
|
|
Remaining weighted-average vesting period
|
2.7 years
|
|
|
|
|
|
Performance-based Share Units -
Beginning in 2013, the Company granted performance-based share units (“PSUs”) to certain employees. Typically, the PSUs vest in an equal number of shares over
four
years for awards granted prior to 2016, and in fiscal 2016, the Company granted performance-based share units that vest after
three
years. The number of units that vest is determined for each year based on the achievement of certain Company performance criteria as set forth in the award agreement and may range from
zero
to
200%
of the annual target grant. The PSUs are settled in shares of common stock, with holders receiving
one
share of common stock for each performance-based share unit that vests. The fair value of PSUs is based on the closing price of the Company’s common stock on the grant date. Compensation expense for PSUs is recognized over the vesting period when it is probable the performance criteria will be achieved.
As of
December 25, 2016
, the following PSU programs were in progress:
|
|
|
|
|
|
|
|
|
|
|
|
TARGET NO. OF PSUs REMAINING TO GRANT (1)
(shares in thousands)
|
|
MAXIMUM PAYOUT
(AS A % OF TARGET
NO. OF PSUs) (2)
|
AWARD DATE
|
|
PROGRAM
|
|
|
2/27/2014
|
|
2014 Program
|
|
40
|
|
|
200
|
%
|
2/26/2015
|
|
2015 Program
|
|
98
|
|
|
200
|
%
|
10/1/2015
|
|
2015 International Program
|
|
19
|
|
|
100
|
%
|
|
|
|
|
157
|
|
|
|
________________
|
|
(1)
|
Represents target PSUs awarded under each of the identified programs that have not been granted for accounting purposes. The PSUs issued 2015 and prior do not result in the recognition of stock-based compensation expense until the performance target has been set by the Board as of the beginning of each fiscal year. There is no effect of these PSUs on the Company’s basic or diluted shares outstanding.
|
|
|
(2)
|
Assumes achievement of target threshold of the Adjusted EPS goal for the Company for the 2014 Program and 2015 Program.
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents a summary of the Company’s PSU activity for
fiscal year 2016
:
|
|
|
|
|
|
|
|
(shares in thousands)
|
PERFORMANCE-BASED SHARE UNITS
|
|
WEIGHTED-AVERAGE
GRANT DATE
FAIR VALUE PER AWARD
|
Outstanding as of December 27, 2015
|
166
|
|
|
$
|
24.11
|
|
Granted (1)
|
352
|
|
|
16.17
|
|
Vested
|
(145
|
)
|
|
25.05
|
|
Forfeited
|
(61
|
)
|
|
19.48
|
|
Outstanding as of December 25, 2016
|
312
|
|
|
$
|
16.26
|
|
________________
|
|
(1)
|
Share unit amounts include the number of PSUs at the target threshold in the current period grant and additional shares earned above target due to exceeding prior period performance criteria.
|
The following represents PSU compensation information as of
December 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Tax benefits for PSU compensation expense
|
$
|
910
|
|
|
$
|
636
|
|
|
$
|
26
|
|
Unrecognized PSU expense
|
$
|
2,668
|
|
|
|
|
|
Remaining weighted-average vesting period
|
1.5 years
|
|
|
|
|
|
Deferred Compensation Plans
Restaurant Managing Partners and Chef Partners -
Restaurant Managing Partners and Chef Partners are eligible to participate in deferred compensation programs. The Company invests in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of the obligations under the deferred compensation plans. The deferred compensation obligation due to Restaurant Managing and Chef Partners was
$113.0 million
and
$133.2 million
as of
December 25, 2016
and
December 27, 2015
, respectively. The unfunded obligation for Restaurant Managing and Chef Partners’ deferred compensation was
$50.6 million
and
$74.0 million
as of
December 25, 2016
and
December 27, 2015
, respectively.
Other Benefit Plans
401(k) Plan
- The Company has a qualified defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company incurred contribution costs of
$3.2 million
,
$3.7 million
and
$1.1 million
for the 401(k) Plan for fiscal years
2016
,
2015
and
2014
, respectively.
Deferred Compensation Plan
- The Company provides a deferred compensation plan for its highly compensated employees who are not eligible to participate in the 401(k) Plan. The deferred compensation plan allows these employees to contribute a percentage of their base salary and cash bonus on a pre-tax basis. The deferred compensation plan is unfunded and unsecured.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
.
Other Current Assets, Net
Other current assets, net, consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Prepaid expenses
|
$
|
35,298
|
|
|
$
|
30,373
|
|
Accounts receivable - gift cards, net
|
102,664
|
|
|
115,926
|
|
Accounts receivable - vendors, net
|
10,107
|
|
|
10,310
|
|
Accounts receivable - franchisees, net
|
1,677
|
|
|
1,149
|
|
Accounts receivable - other, net
|
20,497
|
|
|
21,158
|
|
Assets held for sale
|
1,331
|
|
|
784
|
|
Other current assets, net
|
18,652
|
|
|
19,131
|
|
|
$
|
190,226
|
|
|
$
|
198,831
|
|
7
.
Property, Fixtures and Equipment, Net
Property, fixtures and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Land
|
$
|
114,375
|
|
|
$
|
256,906
|
|
Buildings and building improvements
|
726,418
|
|
|
1,043,699
|
|
Furniture and fixtures
|
383,758
|
|
|
392,849
|
|
Equipment
|
550,598
|
|
|
543,842
|
|
Leasehold improvements
|
492,465
|
|
|
492,628
|
|
Construction in progress
|
47,332
|
|
|
23,842
|
|
Less: accumulated depreciation
|
(1,077,798
|
)
|
|
(1,159,306
|
)
|
|
$
|
1,237,148
|
|
|
$
|
1,594,460
|
|
Sale-leaseback Transactions
- During 2016, the Company entered into sale-leaseback transactions with third-parties in which it sold
153
restaurant properties at fair market value for gross proceeds of
$541.9 million
. In connection with the sale-leaseback transactions, the Company recorded a deferred gain of
$163.4 million
, which are amortized to Other restaurant operating expense in the
Consolidated Statements of Operations and Comprehensive Income
over the initial term of each lease, ranging from
15
to
20
years.
In the fourth quarter of 2016, the Company sold
six
restaurant properties to third parties for aggregate proceeds of
$18.5 million
. The sale of the properties does not qualify for sale-leaseback accounting and the book value of the buildings and land will remain on the Company’s Consolidated Balance Sheet. See Note
11
-
Long-term Debt, Net
and Note
18
-
Commitments and Contingencies
for additional details regarding the financing obligation.
Leased Properties
- As of
December 25, 2016
, the Company leased
$16.3 million
and
$23.4 million
, respectively, of certain land and buildings to third parties. Accumulated depreciation related to the leased building assets of
$7.5 million
is included in Property, fixtures and equipment as of
December 25, 2016
.
Depreciation and repair and maintenance expense is as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Depreciation expense
|
$
|
183,049
|
|
|
$
|
178,855
|
|
|
$
|
177,504
|
|
Repair and maintenance expense
|
108,940
|
|
|
107,960
|
|
|
108,392
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8
.
Goodwill and Intangible Assets, Net
Goodwill -
The following table is a rollforward of goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
U.S.
|
|
INTERNATIONAL
|
|
CONSOLIDATED
|
Balance as of December 28, 2014
|
$
|
172,711
|
|
|
$
|
168,829
|
|
|
$
|
341,540
|
|
Translation adjustments
|
—
|
|
|
(40,679
|
)
|
|
(40,679
|
)
|
Balance as of December 27, 2015
|
$
|
172,711
|
|
|
$
|
128,150
|
|
|
$
|
300,861
|
|
Translation adjustments
|
—
|
|
|
11,382
|
|
|
11,382
|
|
Divestiture of Outback Steakhouse South Korea
|
—
|
|
|
(1,901
|
)
|
|
(1,901
|
)
|
Transfer to Assets held for sale
|
(287
|
)
|
|
—
|
|
|
(287
|
)
|
Balance as of December 25, 2016
|
$
|
172,424
|
|
|
$
|
137,631
|
|
|
$
|
310,055
|
|
The following table is a summary of the Company’s gross goodwill balances and accumulated impairments as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
|
DECEMBER 28, 2014
|
(dollars in thousands)
|
GROSS CARRYING AMOUNT
|
|
ACCUMULATED IMPAIRMENTS
|
|
GROSS CARRYING AMOUNT
|
|
ACCUMULATED IMPAIRMENTS
|
|
GROSS CARRYING AMOUNT
|
|
ACCUMULATED IMPAIRMENTS
|
U.S.
|
$
|
840,594
|
|
|
$
|
(668,170
|
)
|
|
$
|
840,881
|
|
|
$
|
(668,170
|
)
|
|
$
|
840,881
|
|
|
$
|
(668,170
|
)
|
International
|
254,097
|
|
|
(116,466
|
)
|
|
244,616
|
|
|
(116,466
|
)
|
|
285,295
|
|
|
(116,466
|
)
|
Total goodwill
|
$
|
1,094,691
|
|
|
$
|
(784,636
|
)
|
|
$
|
1,085,497
|
|
|
$
|
(784,636
|
)
|
|
$
|
1,126,176
|
|
|
$
|
(784,636
|
)
|
The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets each year during the second quarter. As a result of this assessment, the Company did not record
any
goodwill asset impairment charges during fiscal years
2016
,
2015
or
2014
.
Intangible Assets, net -
Intangible assets, net, consisted of the following as of
December 25, 2016
and
December 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE AMORTIZATION PERIOD
(IN YEARS)
|
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
(dollars in thousands)
|
|
GROSS CARRYING VALUE
|
|
ACCUMULATED AMORTIZATION
|
|
NET CARRYING VALUE
|
|
GROSS CARRYING VALUE
|
|
ACCUMULATED AMORTIZATION
|
|
NET CARRYING VALUE
|
Trade names
|
Indefinite
|
|
$
|
414,041
|
|
|
|
|
$
|
414,041
|
|
|
$
|
414,000
|
|
|
|
|
$
|
414,000
|
|
Trademarks
|
12
|
|
81,381
|
|
|
$
|
(36,400
|
)
|
|
44,981
|
|
|
82,131
|
|
|
$
|
(32,662
|
)
|
|
49,469
|
|
Favorable leases
|
10
|
|
73,665
|
|
|
(41,258
|
)
|
|
32,407
|
|
|
80,909
|
|
|
(42,882
|
)
|
|
38,027
|
|
Franchise agreements
|
4
|
|
14,881
|
|
|
(10,922
|
)
|
|
3,959
|
|
|
14,881
|
|
|
(9,777
|
)
|
|
5,104
|
|
Reacquired franchise rights
|
11
|
|
53,045
|
|
|
(13,091
|
)
|
|
39,954
|
|
|
46,447
|
|
|
(7,745
|
)
|
|
38,702
|
|
Other intangibles
|
3
|
|
9,099
|
|
|
(8,918
|
)
|
|
181
|
|
|
9,099
|
|
|
(7,564
|
)
|
|
1,535
|
|
Total intangible assets (1)
|
10
|
|
$
|
646,112
|
|
|
$
|
(110,589
|
)
|
|
$
|
535,523
|
|
|
$
|
647,467
|
|
|
$
|
(100,630
|
)
|
|
$
|
546,837
|
|
________________
|
|
(1)
|
The Company recorded
$0.6 million
of intangible asset impairment charges during fiscal year 2016, within the International segment.
|
The Company did not record
any
indefinite-lived intangible asset impairment charges during fiscal years
2016
,
2015
or
2014
.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Definite-lived intangible assets are amortized on a straight-line basis. The following table presents the aggregate expense related to the amortization of the Company’s trademarks, favorable leases, franchise agreements, reacquired franchise rights and other intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Amortization expense (1)
|
$
|
15,666
|
|
|
$
|
16,852
|
|
|
$
|
19,807
|
|
________________
|
|
(1)
|
Amortization expense is recorded in Depreciation and amortization and Other restaurant operating expenses in the Company’s
Consolidated Statements of Operations and Comprehensive Income
.
|
The following table presents expected annual amortization of intangible assets as of
December 25, 2016
:
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
$
|
13,581
|
|
2018
|
13,095
|
|
2019
|
12,763
|
|
2020
|
11,349
|
|
2021
|
10,110
|
|
9. Other Assets, Net
Other assets, net, consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Company-owned life insurance
|
$
|
74,629
|
|
|
$
|
68,950
|
|
Deferred financing fees (1)
|
2,632
|
|
|
3,730
|
|
Liquor licenses
|
27,515
|
|
|
27,869
|
|
Other assets
|
24,370
|
|
|
47,322
|
|
|
$
|
129,146
|
|
|
$
|
147,871
|
|
________________
|
|
(1)
|
Net of accumulated amortization of
$3.3 million
and
$2.2 million
as of
December 25, 2016
and
December 27, 2015
, respectively.
|
10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Accrued payroll and other compensation
|
$
|
81,981
|
|
|
$
|
95,994
|
|
Accrued insurance
|
23,533
|
|
|
20,824
|
|
Other current liabilities
|
98,901
|
|
|
89,793
|
|
|
$
|
204,415
|
|
|
$
|
206,611
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11
.
Long-term Debt, Net
Following is a summary of outstanding long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
(dollars in thousands)
|
OUTSTANDING BALANCE
|
|
INTEREST RATE
|
|
OUTSTANDING BALANCE
|
|
INTEREST RATE
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
Term loan A (1)
|
$
|
258,750
|
|
|
2.63
|
%
|
|
$
|
277,500
|
|
|
2.26
|
%
|
Term loan A-1
|
140,625
|
|
|
2.70
|
%
|
|
150,000
|
|
|
2.34
|
%
|
Revolving credit facility (1) (2)
|
622,000
|
|
|
2.67
|
%
|
|
432,000
|
|
|
2.29
|
%
|
Total Senior Secured Credit Facility
|
1,021,375
|
|
|
|
|
859,500
|
|
|
|
PRP Mortgage Loan (2)
|
47,202
|
|
|
3.21
|
%
|
|
—
|
|
|
—
|
%
|
2012 CMBS loan:
|
|
|
|
|
|
|
|
First mortgage loan (1)
|
—
|
|
|
—
|
%
|
|
289,588
|
|
|
4.13
|
%
|
First mezzanine loan
|
—
|
|
|
—
|
%
|
|
84,028
|
|
|
9.00
|
%
|
Second mezzanine loan
|
—
|
|
|
—
|
%
|
|
85,353
|
|
|
11.25
|
%
|
Total 2012 CMBS loan
|
—
|
|
|
|
|
458,969
|
|
|
|
Financing obligations
|
19,595
|
|
|
7.45% to 7.60%
|
|
|
1,361
|
|
|
7.60
|
%
|
Capital lease obligations
|
2,364
|
|
|
|
|
2,632
|
|
|
|
Other notes payable
|
1,776
|
|
|
0.00% to 7.00%
|
|
|
931
|
|
|
0.73% to 7.00%
|
|
Less: unamortized debt discount and issuance costs
|
(2,827
|
)
|
|
|
|
(6,529
|
)
|
|
|
Total debt, net
|
1,089,485
|
|
|
|
|
1,316,864
|
|
|
|
Less: current portion of long-term debt, net
|
(35,079
|
)
|
|
|
|
(31,853
|
)
|
|
|
Long-term debt, net
|
$
|
1,054,406
|
|
|
|
|
$
|
1,285,011
|
|
|
|
________________
|
|
(1)
|
Represents the weighted-average interest rate for the respective period.
|
|
|
(2)
|
Subsequent to
December 25, 2016
, the Company made payments of
$19.2 million
on its PRP Mortgage Loan.
|
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 Amendments -
On May 16, 2014, OSI completed a refinancing of its senior secured credit facility and entered into the Third Amendment (“Third Amendment”) to its existing credit agreement, dated October 26, 2012 (as amended, the “Credit Agreement”). The Credit Agreement, provided for senior secured financing (the “Senior Secured Credit Facility”) of up to
$1.125 billion
, initially consisting of a
$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
. The Term loan A was issued with a discount of
$2.9 million
.
On March 31, 2015, OSI entered into the Fourth Amendment to its Credit Agreement (the “Fourth Amendment”), to effect an increase of OSI’s existing revolving credit facility from
$600.0 million
to
$825.0 million
in order to fully pay down its existing Term loan B on April 2, 2015.
OSI entered into the Fifth Amendment to its Credit Agreement (the “Fifth Amendment”) on December 11, 2015. The Fifth Amendment provided an incremental Term loan A-1 in an aggregate principal amount of
$150.0 million
, increased certain leverage ratio tests for purposes of restricted payments and mandatory prepayments and made certain other revisions to the terms of the Credit Agreement as discussed below under
Debt Covenants and Other Restrictions
.
The Company may elect an interest rate for the 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
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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, Term loan A-1 and revolving credit facility
|
75 to 125 basis points over Base Rate
|
|
175 to 225 basis points over the Eurocurrency Rate
|
Fees on letters of credit and the daily unused availability under the revolving credit facility as of
December 25, 2016
, were
2.13%
and
0.30%
, respectively. As of
December 25, 2016
,
$27.8 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 OSI subsidiaries collateralize the Senior Secured Credit Facility.
PRP Mortgage Loan
- On
February 11, 2016
, New Private Restaurant Partners, LLC, an indirect wholly-owned subsidiary of the Company (“PRP”), as borrower, and Wells Fargo Bank, National Association, as lender (the “Lender”), entered into a loan agreement (the “PRP Mortgage Loan”), pursuant to which PRP borrowed
$300.0 million
. The PRP Mortgage Loan has an initial maturity date of
February 11, 2018
(the “Initial Maturity”) with an option to extend the Initial Maturity for one
twelve
-month extension period (the “Extension”) provided that certain conditions are satisfied. The PRP Mortgage Loan is collateralized by certain properties owned by PRP (“Collateral Properties”). PRP has also made negative pledges with respect to certain properties (“Unencumbered Properties”).
The proceeds of the PRP Mortgage Loan were used, together with borrowings under the Company’s revolving credit facility, to prepay a portion, and fully defease the remainder, of the 2012 CMBS loan. In connection with the defeasance, the Company recognized a loss of
$26.6 million
during the
fiscal year ended December 25, 2016
. Following the defeasance of the 2012 CMBS loan,
$19.3 million
of restricted cash was released.
The PRP Mortgage Loan bears interest, payable monthly, at a variable rate equal to
250
basis points above the
seven-day LIBOR
, subject to adjustment in certain circumstances.
The PRP Mortgage Loan permits the Company to refinance or sell the Collateral Properties and the Unencumbered Properties, subject to certain terms and conditions, including that specified release proceeds are applied against the outstanding loan balance.
On July 27, 2016, PRP and the Lender, entered into a First Amendment (the “Amendment”) to the PRP Mortgage Loan to provide for additional borrowings of
$69.5 million
.
Financing Obligation -
In the fourth quarter of 2016, the Company sold
six
restaurant properties to third parties for aggregate proceeds of
$18.5 million
and the Company entered into lease agreements under which the Company agreed to lease back each of the properties for an initial term of
20 years
. As the Company had continuing involvement in these restaurant properties, the sale of the properties does not qualify for sale-leaseback accounting. As a result, the aggregate proceeds have been recorded as a financing obligation and the assets related to the sold and leased restaurant properties remain on the Company’s Consolidated Balance Sheet and continue to be depreciated. As such, the lease payments are recognized as interest expense. See Note
18
-
Commitments and Contingencies
for additional details regarding the financing obligation.
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 certain other transactions with affiliates. The 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
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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
to 1.00 in fiscal 2018 and thereafter.
The Fifth Amendment to the Credit Agreement permits regular quarterly dividend payments, subject to certain restrictions.
As of
December 25, 2016
and
December 27, 2015
, the Company was in compliance with its debt covenants.
Loss on Defeasance, Extinguishment and Modification of Debt
- Following is a summary of loss on defeasance, extinguishment and modification of debt recorded in the Company’s
Consolidated Statements of Operations and Comprehensive Income
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Defeasance of 2012 CMBS Loan (1)
|
$
|
26,580
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Modification of PRP Mortgage Loan (2)
|
418
|
|
|
—
|
|
|
—
|
|
Refinancing of Senior Secured Credit Facility (3)
|
—
|
|
|
2,956
|
|
|
11,092
|
|
Loss on defeasance, extinguishment and modification of debt
|
$
|
26,998
|
|
|
$
|
2,956
|
|
|
$
|
11,092
|
|
________________
|
|
(1)
|
The loss was comprised of a penalty of
$23.2 million
, write-offs of
$1.7 million
and
$1.1 million
of deferred financing fees and unamortized debt discount, respectively, and third-party financing costs of
$0.6 million
.
|
|
|
(2)
|
The loss was comprised of third-party financing costs.
|
|
|
(3)
|
Losses were comprised of write-offs of
$1.4 million
and
$5.5 million
of deferred financing fees and
$1.2 million
and
$4.9 million
of unamortized debt discount for fiscal years 2015 and 2014, respectively. Losses also included third-party financing costs of
$0.3 million
in fiscal year 2015 and a prepayment penalty of
$0.7 million
in fiscal year 2014.
|
Deferred financing fees -
The Company deferred
$5.8 million
and
$2.0 million
of financing costs incurred in connection with the PRP Mortgage Loan and related amendment and Credit Agreement amendments in fiscal years 2016 and 2015, respectively. Deferred financing fees of
$1.3 million
incurred in connection with the modification of the revolving credit facility were recorded in Other assets, net in fiscal year 2015.
All other deferred financing fees
were recorded in Long-term debt, net.
Maturities -
Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of
December 25, 2016
:
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
Year 1
|
$
|
35,079
|
|
Year 2
|
76,086
|
|
Year 3
|
957,701
|
|
Year 4
|
484
|
|
Year 5
|
483
|
|
Thereafter
|
19,652
|
|
Total
|
$
|
1,089,485
|
|
The following is a summary of required amortization payments for Term loan A and Term loan A-1 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
SCHEDULED QUARTERLY PAYMENT DATES
|
|
TERM LOAN A
|
|
TERM LOAN A-1
|
March 31, 2017 through June 30, 2018
|
|
$
|
5,625
|
|
|
$
|
2,813
|
|
September 30, 2018 through March 31, 2019
|
|
$
|
7,500
|
|
|
$
|
3,750
|
|
The Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan A-1. The Company
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
is required to prepay outstanding amounts under its Term loan A and Term loan A-1 with
50%
of its annual excess cash flow, as defined in the Credit Agreement. The amount of outstanding Term loan A and Term loan A-1 required to be prepaid in accordance with the debt covenants may vary based on the Company’s leverage ratio and year end results. Other than the required minimum amortization premiums of
$33.8 million
, the Company does not anticipate any other payments will be required through December 31, 2017.
12. Other Long-term Liabilities, Net
Other long-term liabilities, net, consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Accrued insurance liability
|
$
|
39,260
|
|
|
$
|
40,649
|
|
Unfavorable leases (1)
|
41,778
|
|
|
45,375
|
|
Chef and Restaurant Managing Partner deferred compensation obligations and deposits
|
102,768
|
|
|
134,470
|
|
Other long-term liabilities
|
35,224
|
|
|
41,014
|
|
|
$
|
219,030
|
|
|
$
|
261,508
|
|
_______________
|
|
(1)
|
Net of accumulated amortization of
$32.6 million
and
$29.8 million
as of
December 25, 2016
and
December 27, 2015
, respectively.
|
13
.
Redeemable Noncontrolling Interests
Brazil Redeemable Noncontrolling Interests -
In 2013, the Company, through its wholly-owned subsidiary, Outback Steakhouse Restaurantes Brasil S.A. (“OB Brasil”), completed the acquisition of a controlling interest in PGS Consultoria e Serviços Ltda. (the“Brazil Joint Venture”). As a result of the acquisition, the Company had a
90%
interest and the former equity holders of PGS Participações Ltda, the Company’s joint venture partner (“Former Equity Holders”), retained a noncontrolling interest of
10%
in the Brazil Joint Venture. The purchase agreement provided the Former Equity Holders with options to sell their remaining interests to OB Brasil and provided OB Brasil with options to purchase such remaining interests (the “Options”), in various amounts and at various times through 2018, subject to acceleration in certain circumstances. The Options were embedded features within the noncontrolling interest and were classified within the Company’s Consolidated Balance Sheets as Redeemable noncontrolling interests.
In 2016 and 2015, the Former Equity Holders exercised Options to sell their interests in the Brazil Joint Venture to the Company for total cash consideration of
$27.3 million
and
$0.9 million
, respectively. These transactions resulted in a reduction of
$29.4 million
and
$0.6 million
of Mezzanine equity and an increase of
$2.1 million
and
$0.3 million
of Additional paid-in capital during fiscal years 2016 and 2015, respectively. As a result of the exercise of the Options, the Company owns
100%
of the Brazil Joint Venture as of
December 25, 2016
.
In connection with the acquisition of the remaining interests in the Brazil Joint Venture, the Company recognized a cumulative translation adjustment of
$9.6 million
, which resulted in an increase to Additional paid-in capital and a decrease to Accumulated other comprehensive loss during fiscal year 2016.
China Redeemable Noncontrolling Interests -
The Company also consolidates a subsidiary in China, which has noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Rollforward of Redeemable Noncontrolling Interests -
The following table presents a rollforward of Redeemable noncontrolling interests for fiscal years
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
Balance, beginning of period
|
$
|
23,526
|
|
|
$
|
24,733
|
|
Change in redemption value of Redeemable noncontrolling interests
|
2,024
|
|
|
2,877
|
|
Net income attributable to Redeemable noncontrolling interests
|
977
|
|
|
1,005
|
|
Foreign currency translation attributable to Redeemable noncontrolling interests
|
3,451
|
|
|
(3,944
|
)
|
Purchase of Redeemable noncontrolling interests
|
(29,431
|
)
|
|
(584
|
)
|
Out-of period adjustment - foreign currency translation attributable to Redeemable noncontrolling interests (1)
|
—
|
|
|
(9,232
|
)
|
Out-of period adjustment - change in redemption value of Redeemable noncontrolling interests (1)
|
—
|
|
|
8,671
|
|
Balance, end of period
|
$
|
547
|
|
|
$
|
23,526
|
|
________________
|
|
(1)
|
In the third quarter of 2015, the Company identified and corrected errors in accounting for the allocation of foreign currency translation adjustments to Redeemable noncontrolling interests and fair value adjustments for Redeemable noncontrolling interests.
|
14
.
Stockholders’ Equity
Share Repurchases
- The following table presents a summary of the Company’s share repurchase programs for
2014
,
2015
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARE REPURCHASE PROGRAM
|
|
BOARD APPROVAL DATE
|
|
AUTHORIZED
|
|
REPURCHASED
|
|
CANCELED
|
|
REMAINING
|
2014
|
|
December 12, 2014
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2015
|
|
August 3, 2015
|
|
$
|
100,000
|
|
|
$
|
69,999
|
|
|
$
|
30,001
|
|
|
$
|
—
|
|
2016
|
|
February 12, 2016
|
|
$
|
250,000
|
|
|
$
|
139,892
|
|
|
$
|
110,108
|
|
|
$
|
—
|
|
July 2016 (1)
|
|
July 26, 2016
|
|
$
|
300,000
|
|
|
$
|
169,995
|
|
|
$
|
—
|
|
|
$
|
130,005
|
|
________________
|
|
(1)
|
In January 2017, the Company repurchased
1.1 million
shares of its common stock for
$20.0 million
under a Rule 10b5-1 plan. The July 2016 Share Repurchase Program will expire on
January 26, 2018
.
|
Following is a summary of the shares repurchased under the Company’s share repurchase programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF SHARES
(in thousands)
|
|
AVERAGE REPURCHASE PRICE PER SHARE
|
|
AMOUNT
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
First fiscal quarter
|
4,399
|
|
|
2,759
|
|
|
$
|
17.05
|
|
|
$
|
25.37
|
|
|
$
|
75,000
|
|
|
$
|
70,000
|
|
Second fiscal quarter
|
3,376
|
|
|
1,370
|
|
|
$
|
19.22
|
|
|
$
|
21.90
|
|
|
64,892
|
|
|
30,000
|
|
Third fiscal quarter
|
7,056
|
|
|
2,914
|
|
|
$
|
19.13
|
|
|
$
|
20.59
|
|
|
135,000
|
|
|
59,999
|
|
Fourth fiscal quarter
|
1,816
|
|
|
602
|
|
|
$
|
19.27
|
|
|
$
|
16.60
|
|
|
34,995
|
|
|
10,000
|
|
Total common stock repurchases
|
16,647
|
|
|
7,645
|
|
|
$
|
18.62
|
|
|
$
|
22.24
|
|
|
$
|
309,887
|
|
|
$
|
169,999
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Dividends -
The Company declared and paid dividends per share during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS
PER SHARE
|
|
AMOUNT
(dollars in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
First fiscal quarter
|
$
|
0.07
|
|
|
0.06
|
|
|
$
|
8,238
|
|
|
$
|
7,423
|
|
Second fiscal quarter
|
0.07
|
|
|
0.06
|
|
|
7,978
|
|
|
7,391
|
|
Third fiscal quarter
|
0.07
|
|
|
0.06
|
|
|
7,765
|
|
|
7,333
|
|
Fourth fiscal quarter
|
0.07
|
|
|
0.06
|
|
|
7,398
|
|
|
7,185
|
|
Total cash dividends declared and paid
|
$
|
0.28
|
|
|
$
|
0.24
|
|
|
$
|
31,379
|
|
|
$
|
29,332
|
|
In February 2017, the Board declared a quarterly cash dividend of
$0.08
per share, payable on
March 10, 2017
to shareholders of record at the close of business on
February 27, 2017
.
Acquisition of Limited Partnership Interests -
During 2016, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships for
five
Outback Steakhouse restaurants for an aggregate purchase price of
$3.4 million
. These transactions resulted in a reduction of
$2.5 million
, net of tax, in Additional paid-in capital in the Company’s Consolidated Statement of Changes in Stockholders’ Equity during
fiscal year 2016
.
During 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
$11.7 million
, net of tax, in Additional paid-in capital in the Company’s Consolidated Statement of Changes in Stockholders’ Equity during fiscal year 2014.
The following table sets forth the effect of the acquisition of the limited partnership interests on stockholders’ equity attributable to Bloomin’ Brands for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Net income attributable to Bloomin’ Brands
|
$
|
41,748
|
|
|
$
|
127,327
|
|
|
$
|
91,090
|
|
Transfers to noncontrolling interests:
|
|
|
|
|
|
Decrease in Bloomin’ Brands additional paid-in capital for purchase of limited partnership interests
|
(2,475
|
)
|
|
—
|
|
|
(11,662
|
)
|
Change from net income attributable to Bloomin’ Brands and transfers to noncontrolling interests
|
$
|
39,273
|
|
|
$
|
127,327
|
|
|
$
|
79,428
|
|
Accumulated Other Comprehensive Loss -
Following are the components of Accumulated other comprehensive loss (“AOCL”):
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
Foreign currency translation adjustment (1)
|
$
|
(107,509
|
)
|
|
$
|
(141,176
|
)
|
Unrealized losses on derivatives, net of tax
|
(3,634
|
)
|
|
(6,191
|
)
|
Accumulated other comprehensive loss
|
$
|
(111,143
|
)
|
|
$
|
(147,367
|
)
|
________________
|
|
(1)
|
During the fiscal year 2016, approximately
$16.8 million
of the foreign currency translation adjustment in Accumulated other comprehensive loss was disposed of in connection with the sale of Outback Steakhouse South Korea.
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Following are the components of Other comprehensive (loss) income during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Bloomin’ Brands:
|
|
|
|
|
|
Foreign currency translation adjustment
|
$
|
33,667
|
|
|
$
|
(92,259
|
)
|
|
$
|
(31,731
|
)
|
Out-of period adjustment - foreign currency translation (1)
|
—
|
|
|
9,232
|
|
|
—
|
|
Total foreign currency translation adjustment
|
$
|
33,667
|
|
|
$
|
(83,027
|
)
|
|
$
|
(31,731
|
)
|
Unrealized loss on derivatives, net of tax (2)
|
$
|
(1,250
|
)
|
|
$
|
(6,033
|
)
|
|
$
|
(2,393
|
)
|
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (3)
|
3,807
|
|
|
2,235
|
|
|
—
|
|
Total unrealized gain (loss) on derivatives, net of tax
|
$
|
2,557
|
|
|
$
|
(3,798
|
)
|
|
$
|
(2,393
|
)
|
Other comprehensive income (loss) attributable to Bloomin’ Brands
|
$
|
36,224
|
|
|
$
|
(86,825
|
)
|
|
$
|
(34,124
|
)
|
|
|
|
|
|
|
Non-controlling interests:
|
|
|
|
|
|
Foreign currency translation adjustment
|
$
|
(43
|
)
|
|
$
|
9
|
|
|
$
|
—
|
|
Other comprehensive (loss) income attributable to Non-controlling interests
|
$
|
(43
|
)
|
|
$
|
9
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Redeemable non-controlling interests:
|
|
|
|
|
|
Foreign currency translation adjustment
|
$
|
3,451
|
|
|
$
|
(3,944
|
)
|
|
$
|
—
|
|
Out-of period adjustment - foreign currency translation (1)
|
—
|
|
|
(9,232
|
)
|
|
—
|
|
Total foreign currency translation adjustment
|
$
|
3,451
|
|
|
$
|
(13,176
|
)
|
|
$
|
—
|
|
Other comprehensive income (loss) attributable to Redeemable non-controlling interests
|
$
|
3,451
|
|
|
$
|
(13,176
|
)
|
|
$
|
—
|
|
________________
|
|
(1)
|
In the third quarter of 2015, the Company identified and corrected errors in accounting for the allocation of foreign currency translation adjustments to Redeemable noncontrolling interests. See Note
2
-
Summary of Significant Accounting Policies
for further details.
|
|
|
(2)
|
Unrealized loss on derivatives is net of tax benefits of
($0.8) million
,
($3.9) million
and
($1.5) million
for fiscal years
2016
,
2015
and
2014
, respectively.
|
|
|
(3)
|
Reclassifications of adjustments for losses on derivatives are net of tax benefits of
$2.4 million
and
$1.4 million
for fiscal years
2016
and
2015
, respectively.
|
Noncontrolling Interests -
In 2015, certain former equity holders of PGS Par contributed approximately
$3.2 million
to the Company for a noncontrolling interest in a new concept in Brazil (Abbraccio).
15
.
Derivative Instruments and Hedging Activities
Interest Rate Risk
- The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps.
Currency Exchange Rate Risk
- The Company is exposed to foreign currency exchange rate risk arising from transactions and balances denominated in currencies other than the U.S. dollar. The Company may use foreign currency forward contracts to manage certain foreign currency exposures.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
DESIGNATED HEDGES
Cash Flow Hedges of Interest Rate Risk -
On
September 9, 2014
, the Company entered into variable-to-fixed interest rate swap agreements with
eight
counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of
$400.0 million
, a start date of
June 30, 2015
, and mature on
May 16, 2019
. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of
2.02%
on the
$400.0 million
notional amount and receives payments from the counterparty based on the
30-day LIBOR
rate.
The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’
maturity dates. The Company estimates
$4.2 million
will be reclassified to interest expense over the next twelve months.
The following table presents the fair value of the Company’s interest rate swaps as well as their classification on the Company’s Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
|
CONSOLIDATED BALANCE SHEET CLASSIFICATION
|
Interest rate swaps - liability
|
$
|
3,968
|
|
|
$
|
5,142
|
|
|
Accrued and other current liabilities
|
Interest rate swaps - liability
|
1,999
|
|
|
5,007
|
|
|
Other long-term liabilities, net
|
Total fair value of derivative instruments (1)
|
$
|
5,967
|
|
|
$
|
10,149
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
$
|
408
|
|
|
$
|
556
|
|
|
Accrued and other current liabilities
|
____________________
(1)
See Note
16
-
Fair Value Measurements
for fair value discussion of the interest rate swaps.
The following table summarizes the effects of the interest rate swaps on Net income for the period indicated:
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
Interest rate swap expense recognized in Interest expense, net (1)
|
$
|
(6,241
|
)
|
|
$
|
(3,664
|
)
|
Income tax benefit recognized in Provision for income taxes
|
2,434
|
|
|
1,429
|
|
Total effects of the interest rate swaps on Net income
|
$
|
(3,807
|
)
|
|
$
|
(2,235
|
)
|
____________________
|
|
(1)
|
During fiscal years
2016
and
2015
, the Company did
not
recognize
any
gain or loss as a result of hedge ineffectiveness.
|
The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s interest rate swaps are subject to master netting arrangements. As of
December 25, 2016
, the Company did not have more than
one
derivative between the same counterparties and as such, there was no netting.
By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of
December 25, 2016
and
December 27, 2015
, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness.
As of
December 25, 2016
and
December 27, 2015
, the fair value of the Company’s interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was
$6.4 million
and
$10.9 million
, respectively. As of
December 25, 2016
and
December 27, 2015
, the Company has not posted any
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
collateral related to these agreements. If the Company had breached any of these provisions as of
December 25, 2016
and
December 27, 2015
, it could have been required to settle its obligations under the agreements at their termination value of
$6.4 million
and
$10.9 million
, respectively.
NON-DESIGNATED HEDGES
Commodities
- The Company’s restaurants are dependent upon energy to operate and are impacted by changes in energy prices, including natural gas. The Company utilizes derivative instruments with a notional amount of
$0.8 million
to mitigate some of its overall exposure to material increases in natural gas.
16
.
Fair Value Measurements
Fair Value Measurements on a Recurring Basis -
The following table presents the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of
December 25, 2016
and
December 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
(dollars in thousands)
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds
|
$
|
90
|
|
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
6,333
|
|
|
$
|
6,333
|
|
|
$
|
—
|
|
Money market funds
|
18,607
|
|
|
18,607
|
|
|
—
|
|
|
7,168
|
|
|
7,168
|
|
|
—
|
|
Restricted cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds
|
552
|
|
|
552
|
|
|
—
|
|
|
551
|
|
|
551
|
|
|
—
|
|
Money market funds
|
2,518
|
|
|
2,518
|
|
|
—
|
|
|
2,681
|
|
|
2,681
|
|
|
—
|
|
Other current assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - foreign currency forward contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
59
|
|
Total asset recurring fair value measurements
|
$
|
21,767
|
|
|
$
|
21,767
|
|
|
$
|
—
|
|
|
$
|
16,792
|
|
|
$
|
16,733
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - interest rate swaps
|
$
|
3,968
|
|
|
$
|
—
|
|
|
$
|
3,968
|
|
|
$
|
5,142
|
|
|
$
|
—
|
|
|
$
|
5,142
|
|
Derivative instruments - commodities
|
157
|
|
|
—
|
|
|
157
|
|
|
583
|
|
|
—
|
|
|
583
|
|
Derivative instruments - foreign currency forward contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
703
|
|
|
—
|
|
|
703
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments - interest rate swaps
|
1,999
|
|
|
—
|
|
|
1,999
|
|
|
5,007
|
|
|
—
|
|
|
5,007
|
|
Total liability recurring fair value measurements
|
$
|
6,124
|
|
|
$
|
—
|
|
|
$
|
6,124
|
|
|
$
|
11,435
|
|
|
$
|
—
|
|
|
$
|
11,435
|
|
Fair value of each class of financial instrument is determined based on the following:
|
|
|
|
FINANCIAL INSTRUMENT
|
|
METHODS AND ASSUMPTIONS
|
Fixed income funds and
Money market funds
|
|
Carrying value approximates fair value because maturities are less than three months.
|
Derivative instruments
|
|
The Company’s derivative instruments include interest rate swaps, foreign currency forward contracts and commodities. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The foreign currency forwards are valued by comparing the contracted forward exchange rate to the current market exchange rate. Key inputs for the valuation of the foreign currency forwards are spot rates, foreign currency forward rates, and the interest rate curve of the domestic currency. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of December 25, 2016 and December 27, 2015, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fair Value Measurements on a Nonrecurring Basis -
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the fair value remeasurements for Assets held for sale and Property, fixtures and equipment for fiscal years
2016
,
2015
and
2014
aggregated by the level in the fair value hierarchy within which those measurements fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
(dollars in thousands)
|
CARRYING VALUE
|
|
TOTAL IMPAIRMENT
|
|
CARRYING VALUE
|
|
TOTAL IMPAIRMENT
|
|
CARRYING VALUE
|
|
TOTAL IMPAIRMENT
|
Assets held for sale (1)
|
$
|
45,901
|
|
|
$
|
44,729
|
|
|
$
|
4,136
|
|
|
$
|
1,028
|
|
|
$
|
9,613
|
|
|
$
|
23,974
|
|
Property, fixtures and equipment (2)
|
21,450
|
|
|
53,136
|
|
|
3,634
|
|
|
27,126
|
|
|
2,429
|
|
|
13,097
|
|
Other (3)
|
39
|
|
|
1,198
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
67,390
|
|
|
$
|
99,063
|
|
|
$
|
7,770
|
|
|
$
|
28,154
|
|
|
$
|
12,042
|
|
|
$
|
37,071
|
|
________________
|
|
(1)
|
Carrying value approximates fair value with all assets measured using Level 2 inputs (purchase contracts) to estimate the fair value. Refer to Note
3
-
Impairments, Disposals and Exit Costs
for discussion of impairments related to Outback Steakhouse South Korea, corporate airplanes and Roy’s.
|
|
|
(2)
|
Carrying value approximates fair value. Carrying values for assets measured using Level 2 inputs totaled
$20.3 million
,
$2.5 million
and
$1.8 million
for fiscal years
2016
,
2015
and
2014
, respectively. Assets measured using Level 3 inputs, had carrying values of
$1.2 million
,
$1.1 million
and
$0.6 million
for fiscal years
2016
,
2015
and
2014
, respectively. Third-party market appraisals (Level 2) and discounted cash flow models (Level 3) were used to estimate the fair value. Refer to Note
3
-
Impairments, Disposals and Exit Costs
for discussion of impairments related to the 2017 Closure Initiative, Bonefish Restructuring and International and Domestic Restaurant Closure Initiatives.
|
|
|
(3)
|
Other primarily includes investment in unconsolidated affiliates and intangible assets. Carrying value approximates fair value with all assets measured using market appraisals (Level 2) to estimate the fair value.
|
Fair Value of Financial Instruments -
The Company’s non-derivative financial instruments as of
December 25, 2016
and
December 27, 2015
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 Company’s 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 as of
December 25, 2016
and
December 27, 2015
aggregated by the level in the fair value hierarchy in which those measurements fall:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
|
|
|
FAIR VALUE
|
|
|
|
FAIR VALUE
|
(dollars in thousands)
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
|
CARRYING VALUE
|
|
LEVEL 2
|
|
LEVEL 3
|
Senior Secured Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
Term loan A
|
$
|
258,750
|
|
|
$
|
257,780
|
|
|
$
|
—
|
|
|
$
|
277,500
|
|
|
$
|
276,459
|
|
|
$
|
—
|
|
Term loan A-1
|
140,625
|
|
|
140,098
|
|
|
—
|
|
|
150,000
|
|
|
149,438
|
|
|
—
|
|
Revolving credit facility
|
622,000
|
|
|
617,335
|
|
|
—
|
|
|
432,000
|
|
|
429,300
|
|
|
—
|
|
PRP Mortgage Loan
|
47,202
|
|
|
—
|
|
|
47,202
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2012 CMBS loan:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
|
—
|
|
|
—
|
|
|
—
|
|
|
289,588
|
|
|
—
|
|
|
293,222
|
|
First mezzanine loan
|
—
|
|
|
—
|
|
|
—
|
|
|
84,028
|
|
|
—
|
|
|
83,608
|
|
Second mezzanine loan
|
—
|
|
|
—
|
|
|
—
|
|
|
85,353
|
|
|
—
|
|
|
85,780
|
|
Other notes payable
|
1,776
|
|
|
—
|
|
|
1,659
|
|
|
931
|
|
|
—
|
|
|
918
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fair value of debt is determined based on the following:
|
|
|
|
DEBT FACILITY
|
|
METHODS AND ASSUMPTIONS
|
Senior Secured Credit Facility
|
|
Quoted market prices in inactive markets.
|
PRP Mortgage Loan and
2012 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.
|
17. Income Taxes
The following table presents the domestic and foreign components of Income before provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
70,481
|
|
|
$
|
146,331
|
|
|
$
|
124,157
|
|
Foreign
|
(13,990
|
)
|
|
24,523
|
|
|
(4,187
|
)
|
|
$
|
56,491
|
|
|
$
|
170,854
|
|
|
$
|
119,970
|
|
Provision (benefit) for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Current provision:
|
|
|
|
|
|
Federal
|
$
|
43,071
|
|
|
$
|
17,952
|
|
|
$
|
13,364
|
|
State
|
28,033
|
|
|
5,962
|
|
|
7,687
|
|
Foreign
|
14,389
|
|
|
11,384
|
|
|
16,616
|
|
|
85,493
|
|
|
35,298
|
|
|
37,667
|
|
Deferred provision (benefit):
|
|
|
|
|
|
Federal
|
(53,647
|
)
|
|
2,514
|
|
|
(8,842
|
)
|
State
|
(21,316
|
)
|
|
626
|
|
|
688
|
|
Foreign
|
(386
|
)
|
|
856
|
|
|
(5,469
|
)
|
|
(75,349
|
)
|
|
3,996
|
|
|
(13,623
|
)
|
Provision for income taxes
|
$
|
10,144
|
|
|
$
|
39,294
|
|
|
$
|
24,044
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Effective Income Tax Rate
- The reconciliation of income taxes calculated at the United States federal tax statutory rate to the Company’s effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
|
2016
|
|
2015
|
|
2014
|
Income taxes at federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local income taxes, net of federal benefit
|
8.2
|
|
|
2.3
|
|
|
3.2
|
|
Valuation allowance on deferred income tax assets
|
6.1
|
|
|
1.7
|
|
|
1.5
|
|
Employment-related credits, net
|
(53.5
|
)
|
|
(15.8
|
)
|
|
(24.2
|
)
|
Net life insurance expense
|
(2.7
|
)
|
|
(0.3
|
)
|
|
(0.8
|
)
|
Noncontrolling interests
|
(2.8
|
)
|
|
(0.8
|
)
|
|
(1.2
|
)
|
Tax settlements and related adjustments
|
(0.2
|
)
|
|
(0.1
|
)
|
|
1.7
|
|
Sale of Outback Steakhouse South Korea
|
27.4
|
|
|
—
|
|
|
—
|
|
Foreign rate differential
|
0.8
|
|
|
0.6
|
|
|
2.7
|
|
Other, net
|
(0.3
|
)
|
|
0.4
|
|
|
2.1
|
|
Total
|
18.0
|
%
|
|
23.0
|
%
|
|
20.0
|
%
|
The net decrease in the effective income tax rate in
fiscal year 2016
as compared to
fiscal year 2015
was primarily due to benefits from employment-related credits being a higher percentage of net income in 2016 and a change in the amount and mix of income and losses across the Company’s domestic and international subsidiaries, partially offset by the sale of Outback Steakhouse South Korea.
The net increase in the effective income tax rate in
fiscal year 2015
as compared to
fiscal year 2014
was primarily due to a change in the amount and mix of income and losses across the Company’s domestic and international subsidiaries and the payroll tax audit settlements.
Deferred Tax Assets and Liabilities
- The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Deferred income tax assets:
|
|
|
|
Deferred rent
|
$
|
57,783
|
|
|
$
|
53,426
|
|
Insurance reserves
|
23,906
|
|
|
22,716
|
|
Unearned revenue
|
19,566
|
|
|
18,029
|
|
Deferred compensation
|
62,389
|
|
|
65,100
|
|
Net operating loss carryforwards
|
6,036
|
|
|
8,176
|
|
Federal tax credit carryforwards
|
58,963
|
|
|
148,447
|
|
Partner deposits and accrued partner obligations
|
8,245
|
|
|
13,248
|
|
Other, net
|
8,309
|
|
|
11,813
|
|
Gross deferred income tax assets
|
245,197
|
|
|
340,955
|
|
Less: valuation allowance
|
(7,220
|
)
|
|
(4,088
|
)
|
Net deferred income tax assets
|
237,977
|
|
|
336,867
|
|
Deferred income tax liabilities:
|
|
|
|
Less: property, fixtures and equipment basis differences
|
(37,847
|
)
|
|
(197,604
|
)
|
Less: intangible asset basis differences
|
(155,053
|
)
|
|
(150,997
|
)
|
Less: deferred gain on extinguishment of debt
|
(23,022
|
)
|
|
(34,181
|
)
|
Net deferred income tax assets (liabilities)
|
$
|
22,055
|
|
|
$
|
(45,915
|
)
|
Undistributed Earnings
- The Company had aggregate undistributed earnings of
$60.6 million
for foreign subsidiaries, which it considers to be permanently reinvested and are expected to continue to be permanently reinvested. As such,
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
no
deferred tax liability has been recorded as of
December 25, 2016
. If the Company identifies an exception to its reinvestment policy of undistributed earnings, additional tax liabilities will be recorded. It is not practical to determine the amount of unrecognized deferred income tax liabilities on the undistributed earnings the Company considers to be permanently reinvested.
Tax Carryforwards -
The amount and expiration dates of tax loss carryforwards and credit carryforwards as of
December 25, 2016
are as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
EXPIRATION DATE
|
|
AMOUNT
|
United States federal tax credit carryforwards
|
2026
|
-
|
2036
|
|
$
|
71,335
|
|
Foreign loss carryforwards
|
2017
|
-
|
Indefinite
|
|
$
|
22,514
|
|
Unrecognized Tax Benefits -
As of
December 25, 2016
and
December 27, 2015
, the liability for unrecognized tax benefits was
$19.6 million
and
$19.4 million
, respectively. Of the total amount of unrecognized tax benefits, including accrued interest and penalties,
$18.9 million
and
$19.3 million
, respectively, if recognized, would impact the Company’s effective tax rate.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Balance as of beginning of year
|
$
|
19,430
|
|
|
$
|
17,563
|
|
|
$
|
17,068
|
|
Additions for tax positions taken during a prior period
|
476
|
|
|
3,022
|
|
|
2,177
|
|
Reductions for tax positions taken during a prior period
|
(430
|
)
|
|
(848
|
)
|
|
(422
|
)
|
Additions for tax positions taken during the current period
|
2,472
|
|
|
2,305
|
|
|
2,649
|
|
Settlements with taxing authorities
|
(391
|
)
|
|
(1,078
|
)
|
|
(3,935
|
)
|
Lapses in the applicable statutes of limitations
|
(2,230
|
)
|
|
(540
|
)
|
|
(120
|
)
|
Translation adjustments
|
256
|
|
|
(994
|
)
|
|
146
|
|
Balance as of end of year
|
$
|
19,583
|
|
|
$
|
19,430
|
|
|
$
|
17,563
|
|
The Company recognizes interest and penalties related to uncertain tax positions in
Provision for income taxes
. The Company recognized a benefit related to interest and penalties of
$0.4 million
and
$0.6 million
and an expense of
$1.5 million
for fiscal years
2016
,
2015
and
2014
, respectively. The Company had approximately
$1.2 million
and
$1.6 million
accrued for the payment of interest and penalties as of
December 25, 2016
and
December 27, 2015
respectively.
In many cases, the Company’s uncertain tax positions are related to tax years that remain the subject to examination by relevant taxable authorities. Based on the outcome of these examinations, or a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related recorded unrecognized tax benefits for tax positions taken on previously filed tax returns will change by approximately
$1.0 million
to
$2.0 million
within the next twelve months.
Open Tax Years -
Following is a summary of the open audit years by jurisdiction:
|
|
|
|
|
|
OPEN AUDIT YEARS
|
United States federal
|
2007
|
-
|
2015
|
United States states
|
2001
|
-
|
2015
|
Foreign
|
2009
|
-
|
2015
|
The Company was previously under examination by tax authorities in South Korea for the
2008
to
2012
tax years. In connection with the examination, the Company was assessed and paid
$6.7 million
of tax obligations. The Company
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
is currently seeking relief from double taxation through competent authority. Accordingly, the Company has not recorded any tax expense related to the assessment in South Korea.
18
.
Commitments and Contingencies
Operating Leases -
The Company leases restaurant and office facilities and certain equipment under operating leases mainly having initial terms expiring between 2017 and 2036. The restaurant facility leases have renewal clauses primarily from
five
to
30 years
, exercisable at the option of the Company. Certain of these leases require the payment of contingent rentals leased on a percentage of gross revenues, as defined by the terms of the applicable lease agreement.
Total rent expense is as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Rent expense (1)
|
$
|
173,507
|
|
|
$
|
164,754
|
|
|
$
|
169,701
|
|
____________________
|
|
(1)
|
Includes contingent rent expense of
$5.9 million
,
$7.4 million
and
$8.0 million
for fiscal years
2016
,
2015
and
2014
, respectively.
|
As of
December 25, 2016
, future minimum rental payments under non-cancelable operating leases are as follows:
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
$
|
174,019
|
|
2018
|
163,721
|
|
2019
|
149,516
|
|
2020
|
135,998
|
|
2021
|
120,150
|
|
Thereafter
|
905,650
|
|
Total minimum lease payments (1)
|
$
|
1,649,054
|
|
____________________
|
|
(1)
|
Total minimum lease payments have not been reduced by minimum sublease rentals of
$6.3 million
due in future periods under non-cancelable subleases.
|
Financing Obligation -
Following is a summary of the Company’s minimum financing payments during the initial term of the various leases as of
December 25, 2016
:
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
Year 1
|
$
|
1,182
|
|
Year 2
|
1,202
|
|
Year 3
|
1,224
|
|
Year 4
|
1,245
|
|
Year 5
|
1,267
|
|
Thereafter
|
21,519
|
|
Total (1)
|
$
|
27,639
|
|
____________________
|
|
(1)
|
Refer to Note
11
-
Long-term Debt, Net
for additional details regarding the Company’s financing obligation.
|
Purchase Obligations -
Purchase obligations were
$439.4 million
and
$509.7 million
as of
December 25, 2016
and
December 27, 2015
, respectively. These purchase obligations are primarily due within five years, however, commitments with various vendors extend through April 2022. Outstanding commitments consist primarily of food and beverage products related to normal business operations and contracts for restaurant level service contracts, advertising and technology. In
2016
, the Company purchased more than
85%
of its U.S. beef raw materials from
four
beef suppliers that represent approximately
83%
of the total beef marketplace in the U.S.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Litigation and Other Matters -
In relation to the various legal matters discussed below, the Company had
$3.5 million
and
$4.5 million
of liability recorded as of
December 25, 2016
and
December 27, 2015
, respectively. During fiscal years
2016
,
2015
and
2014
, the Company recognized
$4.0 million
,
$4.6 million
and
$1.2 million
, respectively, in
Other restaurant operating
expenses in its
Consolidated Statements of Operations and Comprehensive Income
for legal settlements.
In November 2015, David Sears and Elizabeth Thomas,
two
former Outback Managers (“Manager Plaintiffs”), sent a demand letter seeking unpaid overtime compensation on behalf of all Managers and Kitchen Managers employed at Outback Steakhouse restaurants from November 2012 to present. The Manager Plaintiffs claim that Managers were not assigned sufficient management duties to qualify as exempt from overtime. In December 2016, the Company agreed to a tentative class settlement for eligible Kitchen Managers and has accrued a settlement, inclusive of legal fees, of
$2.4 million
in fiscal year 2016.
On October 4, 2013,
two
then-current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI Restaurant Partners, LLC, 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 nationwide collective action permitted all hourly employees in all Outback Steakhouse restaurants to join. The suit requested an unspecified amount in back pay for the employees that joined 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. In November 2015, the Company reached a tentative settlement agreement resolving all claims and the cost of class administration for
$3.2 million
. The Court issued final approval in November 2016 and the Company subsequently made
payment
during the fourth quarter of 2016.
In addition, the Company is subject to legal proceedings, claims and liabilities, such as liquor liability, sexual harassment and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance if they exceed specified retention or deductible amounts. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows.
Insurance -
As of
December 25, 2016
, the future payments the Company expects for workers’ compensation, general liability and health insurance claims are:
|
|
|
|
|
(dollars in thousands)
|
|
2017
|
$
|
23,652
|
|
2018
|
13,467
|
|
2019
|
8,934
|
|
2020
|
5,066
|
|
2021
|
2,803
|
|
Thereafter
|
11,549
|
|
|
$
|
65,471
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Discount rates of
1.32%
and
1.08%
were used for
December 25, 2016
and
December 27, 2015
, respectively. A reconciliation of the expected aggregate undiscounted reserves to the discounted reserves for insurance claims recognized in the Company’s Consolidated Balance Sheets is as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25,
2016
|
|
DECEMBER 27,
2015
|
Undiscounted reserves
|
$
|
65,471
|
|
|
$
|
63,791
|
|
Discount
|
(2,678
|
)
|
|
(2,318
|
)
|
Discounted reserves
|
$
|
62,793
|
|
|
$
|
61,473
|
|
|
|
|
|
Discounted reserves recognized in the Company
’
s Consolidated Balance Sheets:
|
|
|
|
Accrued and other current liabilities
|
$
|
23,533
|
|
|
$
|
20,824
|
|
Other long-term liabilities, net
|
39,260
|
|
|
40,649
|
|
|
$
|
62,793
|
|
|
$
|
61,473
|
|
19
.
Segment Reporting
The Company has
two
reportable segments, U.S. and International, which reflects how the Company manages its business, reviews operating performance and allocates resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer, whom the Company has determined to be its Chief Operating Decision Maker. Following is a summary of reporting segments as of
December 25, 2016
:
|
|
|
|
|
|
SEGMENT
|
|
CONCEPT
|
|
GEOGRAPHIC LOCATION
|
U.S.
|
|
Outback Steakhouse
|
|
United States of America
|
|
Carrabba’s Italian Grill
|
|
|
Bonefish Grill
|
|
|
Fleming’s Prime Steakhouse & Wine Bar
|
|
International
|
|
Outback Steakhouse
|
|
Brazil, Hong Kong, China
|
|
Carrabba’s Italian Grill (Abbraccio)
|
|
Brazil
|
Segment accounting policies are the same as those described in Note 2 -
Summary of Significant Accounting Policies
.
Revenues for all segments include only transactions with customers and include
no
intersegment revenues. Excluded from income from operations for U.S. and International are certain legal and corporate costs not directly related to the performance of the segments, certain stock-based compensation expenses and certain bonus expense.
Prior to 2016, certain insurance expenses were not allocated to the Company’s concepts as these expenses were reviewed and evaluated on a Company-wide basis and therefore, these costs were excluded from segment restaurant-level operating margin and income from operations. In 2016, the Company’s management changed how insurance expenses related to its restaurants are reviewed and now considers those costs when evaluating the operating performance of the Company’s concepts. Accordingly, the Company has recast all prior period segment information to reflect this change.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table is a summary of Total revenue by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Total revenues
|
|
|
|
|
|
U.S.
|
$
|
3,797,309
|
|
|
$
|
3,879,743
|
|
|
$
|
3,854,279
|
|
International
|
455,003
|
|
|
497,933
|
|
|
588,432
|
|
Total revenues
|
$
|
4,252,312
|
|
|
$
|
4,377,676
|
|
|
$
|
4,442,711
|
|
The following table is a reconciliation of
Segment income (loss) from operations
to
Income before provision for income taxes
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Segment income (loss) from operations
|
|
|
|
|
|
U.S.
|
$
|
286,683
|
|
|
$
|
348,731
|
|
|
$
|
327,693
|
|
International
|
(5,954
|
)
|
|
34,597
|
|
|
25,020
|
|
Total segment income from operations
|
280,729
|
|
|
383,328
|
|
|
352,713
|
|
Unallocated corporate operating expense
|
(153,123
|
)
|
|
(152,403
|
)
|
|
(160,749
|
)
|
Total income from operations
|
127,606
|
|
|
230,925
|
|
|
191,964
|
|
Loss on defeasance, extinguishment and modification of debt
|
(26,998
|
)
|
|
(2,956
|
)
|
|
(11,092
|
)
|
Other income (expense), net
|
1,609
|
|
|
(939
|
)
|
|
(1,244
|
)
|
Interest expense, net
|
(45,726
|
)
|
|
(56,176
|
)
|
|
(59,658
|
)
|
Income before provision for income taxes
|
$
|
56,491
|
|
|
$
|
170,854
|
|
|
$
|
119,970
|
|
The following table is a summary of Depreciation and amortization expense by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization
|
|
|
|
|
|
U.S.
|
$
|
155,434
|
|
|
$
|
151,868
|
|
|
$
|
147,686
|
|
International
|
26,013
|
|
|
26,736
|
|
|
29,705
|
|
Corporate
|
12,391
|
|
|
11,795
|
|
|
13,520
|
|
Total depreciation and amortization
|
$
|
193,838
|
|
|
$
|
190,399
|
|
|
$
|
190,911
|
|
The following table is a summary of capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
(dollars in thousands)
|
2016
|
|
2015
|
|
2014
|
Capital expenditures
|
|
|
|
|
|
U.S.
|
$
|
211,855
|
|
|
$
|
153,445
|
|
|
$
|
174,952
|
|
International
|
40,662
|
|
|
46,803
|
|
|
55,594
|
|
Corporate
|
17,671
|
|
|
10,015
|
|
|
7,322
|
|
Total capital expenditures
|
$
|
270,188
|
|
|
$
|
210,263
|
|
|
$
|
237,868
|
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table sets forth Total assets by segment:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
Assets
|
|
|
|
U.S.
|
$
|
1,995,227
|
|
|
$
|
2,405,196
|
|
International
|
436,024
|
|
|
472,518
|
|
Corporate
|
211,028
|
|
|
154,855
|
|
Total assets
|
$
|
2,642,279
|
|
|
$
|
3,032,569
|
|
International assets are defined as assets residing in a country other than the U.S. The following table details long-lived assets, excluding goodwill, intangible assets and deferred tax assets, by major geographic area:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
DECEMBER 25, 2016
|
|
DECEMBER 27, 2015
|
U.S.
|
$
|
1,231,154
|
|
|
$
|
1,601,691
|
|
International
|
136,264
|
|
|
156,905
|
|
|
$
|
1,367,418
|
|
|
$
|
1,758,596
|
|
20
.
Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 FISCAL QUARTERS
(dollars in thousands, except per share data)
|
FIRST (1)
|
|
SECOND (1)
|
|
THIRD (1)
|
|
FOURTH (1)
|
Total revenues
|
$
|
1,164,188
|
|
|
$
|
1,078,588
|
|
|
$
|
1,005,387
|
|
|
$
|
1,004,149
|
|
Income (loss) from operations
|
86,684
|
|
|
13,333
|
|
|
31,734
|
|
|
(4,145
|
)
|
Net income (loss)
|
35,883
|
|
|
(8,065
|
)
|
|
21,228
|
|
|
(2,699
|
)
|
Net income (loss) attributable to Bloomin’ Brands
|
34,475
|
|
|
(9,177
|
)
|
|
20,733
|
|
|
(4,283
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.29
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.04
|
)
|
Diluted
|
$
|
0.29
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.18
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 FISCAL QUARTERS
(dollars in thousands, except per share data)
|
FIRST (2)
|
|
SECOND (2)
|
|
THIRD (2)
|
|
FOURTH (2)
|
Total revenues
|
$
|
1,202,059
|
|
|
$
|
1,099,597
|
|
|
$
|
1,026,721
|
|
|
$
|
1,049,299
|
|
Income from operations
|
97,701
|
|
|
62,585
|
|
|
38,724
|
|
|
31,915
|
|
Net income
|
62,082
|
|
|
33,056
|
|
|
17,405
|
|
|
19,017
|
|
Net income attributable to Bloomin’ Brands
|
60,588
|
|
|
32,226
|
|
|
16,811
|
|
|
17,702
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.48
|
|
|
$
|
0.26
|
|
|
$
|
0.14
|
|
|
$
|
0.15
|
|
Diluted
|
$
|
0.47
|
|
|
$
|
0.26
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
____________________
|
|
(1)
|
Income from operations in the first quarter includes
$3.6 million
of restaurant closing costs incurred in connection with the Bonefish Restructuring. Income from operations in the second quarter of 2016 includes
$39.6 million
of asset impairment charges and related costs associated with the Company’s decision to sell its Outback South Korea subsidiary. Income from operations in the third quarter of 2016 includes
$3.2 million
of asset impairment charges and related costs for its Puerto Rico subsidiary. Income from operations in the fourth quarter of 2016 includes: (i)
$46.5 million
of pre-tax asset impairments incurred offset by the reversal of
$3.3 million
of deferred rent liabilities in connection with the 2017 Closure Initiative, (ii)
$6.4 million
of asset impairments and closing costs related to the relocation of certain restaurants and (iii)
$3.6 million
of severance related to restructuring of certain functions. Net income for the first quarter of 2016 includes
$26.6 million
related to the defeasance of the 2012 CMBS loan.
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(2)
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Total revenues in the first quarter of 2015 include
$24.3 million
higher restaurant sales due to a change in the Company’s fiscal year end. Income from operations in the first quarter of 2015 includes
$7.7 million
of pre-tax impairments and restaurant closing costs incurred in connection with the Domestic and International Restaurant Closure Initiatives. Income from operations in the fourth quarter includes
$24.2 million
of pre-tax asset impairments incurred in connection with the Bonefish Restructuring. Net income for the second quarter of 2015 includes
$2.6 million
of loss in connection with a refinancing of the Company’s Senior Secured Credit Facility. Net income in the first quarter of 2015 includes
$4.9 million
of less net income due to a change in the Company’s fiscal year end.
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