Document
 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 26, 2016
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625


BLOOMIN’ BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8023465
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)

(813) 282-1225
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x  NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES x  NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer  o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x

As of July 29, 2016, 111,940,924 shares of common stock of the registrant were outstanding.
 
 
 
 
 

Table of Contents
BLOOMIN’ BRANDS, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended June 26, 2016
(Unaudited)

TABLE OF CONTENTS

 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

2
Table of Contents
BLOOMIN’ BRANDS, INC.


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) 
 
JUNE 26, 2016
 
DECEMBER 27, 2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
102,074

 
$
132,337

Current portion of restricted cash and cash equivalents
802

 
6,772

Inventories
67,682

 
80,704

Current portion of assets held for sale
29,943

 
784

Other current assets, net
95,647

 
198,047

Total current assets
296,148

 
418,644

Restricted cash
—

 
16,265

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

 
—

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

 
1,594,460

Goodwill
304,613

 
300,861

Intangible assets, net
541,690

 
546,837

Deferred income tax assets
342

 
7,631

Other assets, net
126,360

 
147,871

Total assets
$
2,784,379

 
$
3,032,569

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3
Table of Contents
BLOOMIN’ BRANDS, INC.

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


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

 
 

Current Liabilities
 

 
 

Accounts payable
$
202,953

 
$
193,116

Accrued and other current liabilities
210,313

 
206,611

Unearned revenue
264,941

 
382,586

Current portion of liabilities held for sale
18,350

 
—

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

 
31,853

Total current liabilities
724,845

 
814,166

Deferred rent
147,004

 
139,758

Deferred income tax liabilities
38,259

 
53,546

Long-term liabilities held for sale
4,077

 
—

Long-term debt, net
1,210,370

 
1,285,011

Other long-term liabilities, net
326,425

 
294,662

Total liabilities
2,450,980

 
2,587,143

Commitments and contingencies (Note 16)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
24,134

 
23,526

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of June 26, 2016 and December 27, 2015
—

 
—

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

 
1,192

Additional paid-in capital
1,068,757

 
1,072,861

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

 
408,326

Noncontrolling interests
12,654

 
13,574

Total stockholders’ equity
309,265

 
421,900

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

 
$
3,032,569

 
The accompanying notes are an integral part of these consolidated financial statements.


4
Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)


 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016

JUNE 28, 2015

JUNE 26, 2016

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

 
$
1,092,759

 
$
2,230,571

 
$
2,287,569

Other revenues
6,069

 
6,838

 
12,205

 
14,087

Total revenues
1,078,588

 
1,099,597

 
2,242,776

 
2,301,656

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
346,811

 
357,455

 
722,099

 
744,923

Labor and other related
309,155

 
301,039

 
631,960

 
625,025

Other restaurant operating
250,443

 
254,281

 
504,014

 
518,319

Depreciation and amortization
49,004

 
47,375

 
96,655

 
93,861

General and administrative
68,566

 
75,962

 
143,591

 
149,209

Provision for impaired assets and restaurant closings
41,276

 
900

 
44,440

 
10,033

Total costs and expenses
1,065,255

 
1,037,012

 
2,142,759

 
2,141,370

Income from operations
13,333

 
62,585

 
100,017

 
160,286

Loss on defeasance, extinguishment and modification of debt
—

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

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

 
47,137

 
50,240

 
130,493

Provision for income taxes
11,095

 
14,081

 
22,422

 
35,355

Net (loss) income
(8,065
)
 
33,056

 
27,818

 
95,138

Less: net income attributable to noncontrolling interests
1,112

 
830

 
2,520

 
2,324

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

 
$
25,298

 
$
92,814

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

 
$
27,818

 
$
95,138

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
19,965

 
(26,182
)
 
12,680

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

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

 
—

 
1,955

 
—

Comprehensive income
10,680

 
7,718

 
37,531

 
40,326

Less: comprehensive income attributable to noncontrolling interests
2,820

 
830

 
4,926

 
2,324

Comprehensive income attributable to Bloomin’ Brands
$
7,860

 
$
6,888

 
$
32,605

 
$
38,002

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

 
$
0.22

 
$
0.75

Diluted
$
(0.08
)
 
$
0.26

 
$
0.21

 
$
0.73

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
113,330

 
123,046

 
115,630

 
124,174

Diluted
113,330

 
126,242

 
118,560

 
127,501

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.07

 
$
0.06

 
$
0.14

 
$
0.12

 
The accompanying notes are an integral part of these consolidated financial statements.

5
Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)

 
BLOOMIN’ BRANDS, INC.
 
 
 
 

COMMON STOCK

ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM-ULATED
DEFICIT

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

NON-
CONTROLLING
INTERESTS

TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 27, 2015
119,215

 
$
1,192

 
$
1,072,861

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

 
$
421,900

Net income
—

 
—

 
—

 
25,298

 
—

 
2,139

 
27,437

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
7,307

 
(24
)
 
7,283

Cash dividends declared, $0.14 per common share
—

 
—

 
(16,216
)
 
—

 
—

 
—

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

 
(139,814
)
 
—

 
—

 
(139,892
)
Stock-based compensation
—

 
—

 
12,854

 
—

 
—

 
—

 
12,854

Tax shortfall from stock-based compensation
—

 
—

 
(594
)
 
—

 
—

 
—

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

 
5

 
632

 
(329
)
 
—

 
—

 
308

Change in the redemption value of redeemable interests
—

 
—

 
(1,349
)
 
—

 
—

 
—

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

 
—

 
569

 
—

 
—

 
164

 
733

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
453

 
453

Balance, June 26, 2016
111,865

 
$
1,119

 
$
1,068,757

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

 
$
309,265

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


6
Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)

 
BLOOMIN’ BRANDS, INC.
 
 
 
 
 
COMMON STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM-ULATED
DEFICIT
 
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
 
NON-
CONTROLLING
INTERESTS
 
TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 28, 2014
125,950

 
$
1,259

 
$
1,085,627

 
$
(474,994
)
 
$
(60,542
)
 
$
5,099

 
$
556,449

Net income
—

 
—

 
—

 
92,814

 
—

 
2,128

 
94,942

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
(54,812
)
 
—

 
(54,812
)
Cash dividends declared, $0.12 per common share
—

 
—

 
(14,814
)
 
—

 
—

 
—

 
(14,814
)
Repurchase and retirement of common stock
(4,129
)
 
(41
)
 
—

 
(99,959
)
 
—

 
—

 
(100,000
)
Stock-based compensation
—

 


 
10,215

 
—

 
—

 
—

 
10,215

Excess tax benefit from stock-based compensation
—

 
—

 
1,272

 
—

 
—

 
—

 
1,272

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
804

 
8

 
6,004

 
(525
)
 
—

 
—

 
5,487

Purchase of limited partnership interests, net of tax
—

 
—

 
(229
)
 
—

 
—

 
—

 
(229
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
167

 
167

Balance, June 28, 2015
122,625

 
$
1,226

 
$
1,088,075

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

 
$
495,948


The accompanying notes are an integral part of these consolidated financial statements.

7
Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
Cash flows provided by operating activities:
 
 
 
Net income
$
27,818

 
$
95,138

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

 
 

Depreciation and amortization
96,655

 
93,861

Amortization of deferred discounts and issuance costs
2,542

 
2,439

Amortization of deferred gift card sales commissions
15,832

 
15,548

Provision for impaired assets and restaurant closings
44,440

 
10,033

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

 
11,810

Deferred income tax expense
3,187

 
1,931

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

 
2,638

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

 
 

Decrease in inventories
12,085

 
6,352

Decrease in other current assets
81,652

 
66,321

Decrease in other assets
4,418

 
7,291

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

 
13,063

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

 
197,427

Cash flows provided by (used in) investing activities:
 

 
 

Proceeds from disposal of property, fixtures and equipment
527

 
3,104

Proceeds from sale-leaseback transactions, net
160,597

 
—

Proceeds from sale of a business
—

 
7,798

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

 
31,694

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

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

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

8
Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


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

 
$
—

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

 
396,101

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

 
6,012

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

 
167

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

 
1,272

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

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

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

 
165,744

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

 
$
132,772

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
23,031

 
$
25,730

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

 
10,883

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

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

 
$
(3,015
)

 The accompanying notes are an integral part of these consolidated financial statements.

9
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.    Description of the Business and Basis of Presentation

Description of the Business - Bloomin’ Brands, Inc., through its subsidiaries (“Bloomin’ Brands” or the “Company”), owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements.

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 27, 2015.

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

In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU No. 2016-02 is effective for the Company in fiscal year 2019 and must be adopted using a modified retrospective approach. The Company is currently evaluating the impact the adoption of ASU No. 2016-02 will have on its financial position, results of operations and cash flows.

In August 2014, the FASB issued ASU No. 2014-15: “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU No. 2014-15”). ASU No. 2014-15 will explicitly require management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard is applicable for all entities and will be effective for the Company’s fiscal year 2016 annual reporting period. The Company does not expect ASU No. 2014-15 to have a material impact on its financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. ASU No. 2014-09, as amended by ASU No. 2015-14 “Revenue from Contracts with Customers (Topic 606)—Deferral of the Effective Date”, ASU No. 2016-08 “Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing” and ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients”, will be effective for

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

the Company in fiscal year 2018 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption. The Company has not selected a transition method and is evaluating the impact this guidance will have on its financial position, results of operations and cash flows.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.

Reclassifications - The Company reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the current period. These reclassifications had no effect on previously reported net (loss) income.

2.    Impairments, Disposals and Exit Costs

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

 
$
111

 
$
81

 
$
1,406

International
39,636

 
—

 
39,636

 
—

Corporate
—

 
746

 
—

 
746

Total impairment losses
$
39,717

 
$
857

 
$
39,717

 
$
2,152

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
1,221

 
$
340

 
$
4,849

 
$
1,774

International
338

 
(297
)
 
(126
)
 
6,107

Total restaurant closure expenses
$
1,559

 
$
43

 
$
4,723

 
$
7,881

Provision for impaired assets and restaurant closings
$
41,276

 
$
900

 
$
44,440

 
$
10,033


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

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


11
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

Other current assets, net
6,907

Property, fixtures and equipment, net
26,922

Goodwill
1,901

Deferred income tax assets
7,252

Other assets, net
20,445

Total assets (1)
85,622

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

 
 
Liabilities
 
Accrued and other current liabilities
$
16,201

Unearned revenue
2,149

Deferred rent
1,175

Other long-term liabilities, net
2,902

Total liabilities (1)
$
22,427

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

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

 
$
36,232

 
$
78,702

 
$
86,367

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

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

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

to
$
4.0

Employee severance and other obligations
$
0.3

to
$
0.9



12
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

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

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

 
$
—

 
$
81

 
$
—

Facility closure and other expenses
 
 
 
 
 
 
 
Bonefish Restructuring
807

 
—

 
4,380

 
—

International Restaurant Closure Initiative
338

 
(309
)
 
(124
)
 
6,095

Domestic Restaurant Closure Initiative
—

 
—

 
—

 
1,337

 
$
1,226

 
$
(309
)
 
$
4,337

 
$
7,432


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

 
$
(309
)
 
$
4,337

 
$
7,432

Severance and other expenses
 
General and administrative
 
26

 
246

 
624

 
1,573

Reversal of deferred rent liability
 
Other restaurant operating
 
(876
)
 
—

 
(2,801
)
 
(198
)
 
 
 
 
$
376

 
$
(63
)
 
$
2,160

 
$
8,807



13
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Bonefish Restructuring and Domestic and International Restaurant Closure Initiatives, during the twenty-six weeks ended June 26, 2016:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
Beginning of the period
$
5,699

Charges
4,863

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

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

3.    (Loss) Earnings Per Share

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

 
$
25,298

 
$
92,814

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
113,330

 
123,046

 
115,630

 
124,174

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
—

 
3,025

 
2,719

 
3,123

Nonvested restricted stock and restricted stock units
—

 
171

 
208

 
201

Nonvested performance-based share units
—

 
—

 
3

 
3

Diluted weighted average common shares outstanding
113,330

 
126,242

 
118,560

 
127,501

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

 
$
0.22

 
$
0.75

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

 
$
0.21

 
$
0.73


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

 
2,899

 
4,854

 
2,510

Nonvested restricted stock and restricted stock units
587

 
26

 
376

 
43

Nonvested performance-based share units
77

 
—

 
83

 
—


4.    Stock-based and Deferred Compensation Plans

Stock-based Compensation Plans

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

14
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

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

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

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

 
$
2,552

 
$
6,019

 
$
4,979

Restricted stock and restricted stock units
2,518

 
1,741

 
4,562

 
3,150

Performance-based share units
867

 
940

 
1,752

 
1,689

 
$
6,686

 
$
5,233

 
$
12,333

 
$
9,818


During the twenty-six weeks ended June 26, 2016, the Company made grants to its employees of 2.9 million stock options, 1.0 million time-based restricted stock units and 0.4 million performance-based share units.

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
Assumptions:
 
Weighted-average risk-free interest rate (1)
1.3
%
Dividend yield (2)
1.6
%
Expected term (3)
6.1 years

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

________________
(1)
Risk-free interest rate is the U.S. Treasury yield curve in effect as of the grant date for periods within the contractual life of the option.
(2)
Dividend yield is the level of dividends expected to be paid on the Company’s common stock over the expected term of the option.
(3)
Expected term represents the period of time that the options are expected to be outstanding. The simplified method of estimating the expected term is used since the Company does not have significant historical exercise experience for its stock options.
(4)
Volatility is based on the historical volatilities of the Company’s stock and the stock of comparable peer companies.


15
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

 
2.6
Restricted stock and restricted stock units
$
27,615

 
3.0
Performance-based share units
$
4,607

 
1.9

5.    Other Current Assets, Net

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

 
$
30,373

Accounts receivable - gift cards, net
23,372

 
115,926

Accounts receivable - vendors, net
9,306

 
10,310

Accounts receivable - franchisees, net
1,811

 
1,149

Accounts receivable - other, net
20,299

 
21,158

Other current assets, net
15,291

 
19,131

 
$
95,647

 
$
198,047


6.     Property, Fixtures and Equipment, Net

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

7.     Goodwill, Net

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

 
$
128,150

 
$
300,861

Translation adjustments
—

 
5,653

 
5,653

Transfer to Assets held for sale (1)
—

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

 
$
131,902

 
$
304,613

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

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


16
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

8.    Other Assets, Net

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

 
$
68,950

Deferred financing fees (1)
3,181

 
3,730

Liquor licenses
27,865

 
27,869

Other assets
23,617

 
47,322

 
$
126,360

 
$
147,871

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

9.    Long-term Debt, Net

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

 
2.44
%
 
$
277,500

 
2.26
%
Term loan A-1
146,250

 
2.41
%
 
150,000

 
2.34
%
Revolving credit facility (1)
613,000

 
2.43
%
 
432,000

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

 
 
 
$
859,500

 
 
PRP Mortgage Loan (2)
$
212,153

 
2.91
%
 
$
—

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

 
—
%
 
$
289,588

 
4.13
%
First mezzanine loan
—

 
—
%
 
84,028

 
9.00
%
Second mezzanine loan
—

 
—
%
 
85,353

 
11.25
%
Total 2012 CMBS loan
$
—

 
 
 
$
458,969

 
 
Capital lease obligations
$
2,541

 
 
 
$
2,632

 
 
Other long-term debt
1,785

 
0.73% to 7.60%

 
2,292

 
0.73% to 7.60%

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

 
 
 
$
1,316,864

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

 
 
 
$
1,285,011

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

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

17
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

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

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

 
$
40,649

Unfavorable leases, net of accumulated amortization
43,568

 
45,375

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

 
134,470

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

 
33,154

Other long-term liabilities
44,980

 
41,014

 
$
326,425

 
$
294,662

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

11.    Redeemable Noncontrolling Interests

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

 
$
24,733

Change in redemption value of Redeemable noncontrolling interests
1,349

 
—

Foreign currency translation attributable to Redeemable noncontrolling interests
2,430

 
—

Net income attributable to Redeemable noncontrolling interests
381

 
196

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

 
$
24,470


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


18
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

12.
Stockholders’ Equity

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

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

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

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

 
$
17.05

 
$
75,000

Thirteen weeks ended June 26, 2016
3,376

 
$
19.22

 
64,892

Total common stock repurchases
7,775

 
$
17.99

 
$
139,892


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

 
$
8,238

Thirteen weeks ended June 26, 2016
0.07

 
7,978

Total cash dividends declared and paid
$
0.14

 
$
16,216


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

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

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

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


19
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued


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

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

 
$
(26,182
)
 
$
10,274

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

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

 
—

 
1,955

 
—

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

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

 
$
(25,338
)
 
$
7,307

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

 
$
(24
)
 
$
—

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

 
$
(24
)
 
$
—

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

 
$
—

 
$
2,430

 
$
—

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

 
$
—

 
$
2,430

 
$
—

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

13.    Derivative Instruments and Hedging Activities

Interest Rate Risk - The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps.
Currency Exchange Rate Risk - The Company is exposed to foreign currency exchange rate risk arising from transactions and balances denominated in currencies other than the U.S. dollar. The Company may use foreign currency forward contracts to manage certain foreign currency exposures.

20
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

DESIGNATED HEDGES
Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, the Company entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receives payments from the counterparty based on the 30-day LIBOR rate.

The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. Fair value changes in the interest rate swaps are recognized in AOCL for all effective portions. Balances in AOCL are subsequently reclassified to earnings in the same period that the hedged interest payments affect earnings. The Company estimates $6.1 million will be reclassified to interest expense over the next twelve months.

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

 
$
5,142

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

 
5,007

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

 
$
10,149

 
 
 
 
 
 
 
 
Accrued interest
$
470

 
$
556

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

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

 
1,256

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

The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of June 26, 2016, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of June 26, 2016, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.


21
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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

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

NON-DESIGNATED HEDGES

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

14.    Fair Value Measurements

Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of following three levels based on the lowest level of significant input:
Level 1
 
Unadjusted quoted market prices in active markets for identical assets or liabilities
Level 2
 
Observable inputs available at measurement date other than quoted prices included in Level 1
Level 3
 
Unobservable inputs that cannot be corroborated by observable market data


22
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of June 26, 2016 and December 27, 2015:
 
JUNE 26, 2016
 
DECEMBER 27, 2015
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
206

 
$
206

 
$
—

 
$
6,333

 
$
6,333

 
$
—

Money market funds
18,461

 
18,461

 
—

 
7,168

 
7,168

 
—

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
551

 
551

 
—

 
551

 
551

 
—

Money market funds
251

 
251

 
—

 
2,681

 
2,681

 
—

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

 
—

 
606

 
59

 
—

 
59

Total asset recurring fair value measurements
$
20,075

 
$
19,469

 
$
606

 
$
16,792

 
$
16,733

 
$
59

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

 
$
—

 
$
5,709

 
$
5,142

 
$
—

 
$
5,142

Derivative instruments - commodities
371

 
—

 
371

 
583

 
—

 
583

Derivative instruments - foreign currency forward contracts
354

 
—

 
354

 
703

 
—

 
703

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
9,311

 
—

 
9,311

 
5,007

 
—

 
5,007

Total liability recurring fair value measurements
$
15,745

 
$
—

 
$
15,745

 
$
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 June 26, 2016 and December 27, 2015, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.


23
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 26, 2016
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL
IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL
IMPAIRMENT
Assets held for sale
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 28, 2015
 
JUNE 28, 2015
(dollars in thousands)
CARRYING VALUE (2)
 
TOTAL
IMPAIRMENT
 
CARRYING VALUE (2)
 
TOTAL
IMPAIRMENT
Assets held for sale
$
3,353

 
$
857

 
$
3,353

 
$
1,028

Property, fixtures and equipment
—

 
—

 
950

 
1,124

 
$
3,353

 
$
857

 
$
4,303

 
$
2,152

________________
(1)
Carrying value approximates fair value with all assets measured using Level 2 inputs for the thirteen and twenty-six weeks ended June 26, 2016. Executed sale contracts (Level 2) were used to estimate the fair value. Refer to Note 2 - Impairments, Disposals and Exit Costs for discussion of impairment related to Outback South Korea.
(2)
Carrying value approximates fair value with all assets measured using Level 2 inputs for the thirteen and twenty-six weeks ended June 28, 2015. A third-party market appraisal (Level 2) and a purchase contract (Level 2) were used to estimate the fair value.

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments as of June 26, 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 Consolidated Balance Sheets due to their short duration.

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of June 26, 2016 and December 27, 2015:
 
JUNE 26, 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
$
270,000

 
$
268,988

 
$
—

 
$
277,500

 
$
276,459

 
$
—

Term loan A-1
146,250

 
145,702

 
—

 
150,000

 
149,438

 
—

Revolving credit facility
613,000

 
609,169

 
—

 
432,000

 
429,300

 
—

PRP Mortgage Loan
212,153

 
—

 
212,153

 
—

 
—

 
—

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
429

 
—

 
421

 
931

 
—

 
918



24
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - 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
 
Assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management.
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.

15.    Income Taxes

 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Income before provision for income taxes
$
3,030

 
$
47,137

 
$
50,240

 
$
130,493

Provision for income taxes
$
11,095

 
$
14,081

 
$
22,422

 
$
35,355

Effective income tax rate
366.2
%
 
29.9
%
 
44.6
%
 
27.1
%

The net increase in the effective income tax rate for the thirteen and twenty-six weeks ended June 26, 2016 was primarily due to impairment and the recording of additional tax liabilities, including incremental taxes on earnings that were previously considered permanently reinvested, in connection with the sale of Outback South Korea.

16.    Commitments and Contingencies

Litigation and Other Matters - The Company had $4.5 million of liabilities recorded for various legal matters as of June 26, 2016 and December 27, 2015. Following is a summary of legal settlement costs the Company recognized in Other restaurant operating in its Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Legal settlements
$
936

 
$
(95
)
 
$
1,247

 
$
132


On October 4, 2013, two then-current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI Restaurant Partners, LLC (“OSI”), and two of its subsidiaries in the U.S. District Court for the District of Nevada (Cardoza, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 2:13-cv-01820-JAD-NJK). The complaint alleges violations of the Fair Labor Standards Act by requiring employees to work off the clock, complete on-line training without pay, and attend meetings in the restaurant without pay. The nationwide collective action permitted all hourly employees in all Outback Steakhouse restaurants to join. The suit seeks 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 parties submitted the settlement to the Court for approval in February 2016 and received conditional approval on April 11, 2016. The parties are proceeding with the class notice and administration process before seeking final approval from the Court.

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

25
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows.

17.    Segment Reporting

The Company has two reportable segments, U.S. and International, which reflects how the Company manages its business, reviews operating performance and allocates resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). Following is a summary of reporting segments:
SEGMENT
 
CONCEPT
 
GEOGRAPHIC LOCATION
U.S.
 
Outback Steakhouse
 
United States of America, including Puerto Rico
 
Carrabba’s Italian Grill
 
 
Bonefish Grill
 
 
Fleming’s Prime Steakhouse & Wine Bar
 
International
 
Outback Steakhouse (1)
 
Brazil, South Korea, Hong Kong, China
 
Carrabba’s Italian Grill (Abbraccio)
 
Brazil
________________
(1)
Includes international franchise locations.

Segment accounting policies are the same as those described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 27, 2015. Revenues for all segments include only transactions with customers and include no intersegment revenues. Excluded from net income from operations for U.S. and International are certain legal and corporate costs not directly related to the performance of the segments, interest and other expenses related to the Company’s credit agreements and derivative instruments, certain stock-based compensation expenses and certain bonus expenses.

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.

The following table is a summary of Total revenue by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Total revenues
 
 
 
 
 
 
 
U.S.
$
958,981

 
$
982,978

 
$
2,002,760

 
$
2,044,992

International
119,607

 
116,619

 
240,016

 
256,664

Total revenues
$
1,078,588

 
$
1,099,597

 
$
2,242,776

 
$
2,301,656



26
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table is a reconciliation of Segment income (loss) from operations to Income before provision for income taxes:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
89,010

 
$
96,192

 
$
206,849

 
$
224,460

International
(34,573
)
 
5,727

 
(23,224
)
 
14,606

Total segment income from operations
54,437

 
101,919

 
183,625

 
239,066

Unallocated corporate operating expense
(41,104
)
 
(39,334
)
 
(83,608
)
 
(78,780
)
Total income from operations
13,333

 
62,585

 
100,017

 
160,286

Loss on defeasance, extinguishment and modification of debt
—

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

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

 
$
47,137

 
$
50,240

 
$
130,493


The following table is a summary of Depreciation and amortization expense by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Depreciation and amortization
 
 
 
 
 
 
 
U.S.
$
38,960

 
$
37,670

 
$
77,162

 
$
74,385

International
6,954

 
6,690

 
13,501

 
13,526

Corporate
3,090

 
3,015

 
5,992

 
5,950

Total depreciation and amortization
$
49,004

 
$
47,375

 
$
96,655

 
$
93,861


18.    Subsequent Events

On July 27, 2016, PRP, as borrower, and Wells Fargo Bank, National Association, as lender (the “Lender”), entered into a First Amendment (the “Amendment”) to PRP’s existing loan agreement dated as of February 11, 2016 to provide for additional borrowings of $69.5 million, increasing the outstanding loan balance as of the date of the Amendment from $189.3 million to $258.8 million. The PRP Mortgage Loan is collateralized by 105 properties owned by PRP.
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. If the PRP Mortgage Loan balance exceeds $219.9 million on March 1, 2017 or $160.0 million on September 1, 2017, PRP’s rental income is required to be applied against the outstanding loan balance.
The PRP Mortgage Loan repayment schedule, including the Extension, is as follows (dollars in thousands):
PAYMENT DATE
 
INITIAL MATURITY
 
EXTENSION
February 28, 2017
 
$
38,813

 
$
38,813

August 31, 2017
 
59,943

 
59,943

February 11, 2018
 
160,000

 
50,000

August 31, 2018
 
—

 
50,000

February 11, 2019
 
—

 
60,000

 
 
$
258,756

 
$
258,756


27
Table of Contents
BLOOMIN’ BRANDS, INC.

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


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries.

Cautionary Statement

This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following:

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

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

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

(iv)
Consumer reactions to public health and food safety issues;

(v)
Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities;

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

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


28
Table of Contents
BLOOMIN’ BRANDS, INC.

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

(viii)
Our ability to implement our expansion, remodeling and relocation plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants;

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

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

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

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

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

(xiv)
The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt;

(xv)
The adequacy of our cash flow and earnings and other conditions which may affect our ability to pay dividends and repurchase shares of our common stock; and

(xvi)
Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 27, 2015.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.




29
Table of Contents
BLOOMIN’ BRANDS, INC.

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

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of June 26, 2016, we owned and operated 1,335 restaurants and franchised 166 restaurants across 48 states, Puerto Rico, Guam and 20 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
The casual dining restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies, labor costs and fluctuations in prices of commodities and other necessities to operate a restaurant, such as natural gas or other energy supplies. Restaurant companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Our industry is characterized by high initial capital investment, coupled with high labor costs. As a result, we focus on driving increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have focused on restaurant growth with strong unit level economics.

Executive Summary

Our financial results for the thirteen weeks ended June 26, 2016 (“second quarter of 2016”) include the following:

•
A decrease in total revenues of 1.9% to $1.1 billion in the second quarter of 2016, as compared to the second quarter of 2015, was primarily due to: (i) a 2.3% decrease in U.S. comparable restaurant sales, primarily due to a decline in customer traffic, (ii) the effect of foreign currency translation, due to the depreciation of the Brazil Real, and (iii) the closing of 23 restaurants since March 29, 2015. The decrease in restaurant sales was partially offset by the opening of 67 new restaurants not included in our comparable restaurant sales base.

•
Income from operations of $13.3 million in the second quarter of 2016, as compared to income from operations of $62.6 million in the second quarter of 2015, decreased primarily due to impairment charges related to the sale of Outback South Korea and lower operating margin at the restaurant-level, partially offset by lower general and administrative expense.

Following is a summary of significant actions we have taken and other factors that impacted our operating results and liquidity to date in 2016:

Sale of Outback South Korea - On July 25, 2016, we sold Outback South Korea for $50.0 million, in cash and recognized an impairment charge of $39.6 million during the thirteen and twenty-six weeks ended June 26, 2016. After completion of the sale, our restaurant locations in South Korea are operated as franchises. See Note 2 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.

Sale-leaseback Transactions - During the twenty-six weeks ended June 26, 2016, we entered into sale-leaseback transactions with third-parties in which we sold 46 restaurant properties at fair market value for gross proceeds of $163.5 million. See Note 6 - Property, Fixtures and Equipment, Net of the Notes to Consolidated Financial Statements for further information.

Dividend and Share Repurchase Programs - On February 12, 2016, the Board canceled the remaining $30.0 million of authorization under the 2015 Share Repurchase Program and approved a $250.0 million authorization (the “2016 Share Repurchase Program”).

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

30
Table of Contents
BLOOMIN’ BRANDS, INC.

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

2016 Share Repurchase Program will expire on January 26, 2018.

PRP Mortgage Loan - On February 11, 2016, PRP entered into the PRP Mortgage Loan, pursuant to which PRP borrowed $300.0 million. The proceeds of the PRP Mortgage Loan were used, together with borrowings under our revolving credit facility, to prepay a portion, and fully defease the remainder, of the 2012 CMBS loan. In connection with the defeasance, we recognized a loss of $26.6 million during the first quarter of 2016.
On July 27, 2016, PRP, as borrower, and Wells Fargo Bank, National Association, as Lender, entered into an Amendment to PRP’s Original Loan Agreement to provide for additional borrowings of $69.5 million, increasing the outstanding loan balance as of the date of the Amendment from $189.3 million to $258.8 million. See Note 18 - Subsequent Events of the Notes to Consolidated Financial Statements for further information.
Bonefish Restructuring - On February 12, 2016, we decided to close 14 Bonefish restaurants. We expect to substantially complete these restaurant closings by the first quarter of 2019. In connection with the Bonefish Restructuring, we recognized pre-tax restaurant and other closing costs of approximately $0.8 million and $4.4 million during the thirteen and twenty-six weeks ended June 26, 2016, respectively. See Note 2 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.

Key Performance Indicators

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

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

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

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

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

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

31
Table of Contents
BLOOMIN’ BRANDS, INC.

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

Selected Operating Data

The table below presents the number of our restaurants in operation at the end of the periods indicated:
Number of restaurants (at end of the period):
JUNE 26, 2016
 
JUNE 28, 2015
U.S.
 
 
 
Outback Steakhouse
 
 
 
Company-owned
650

 
649

Franchised
105

 
105

Total
755

 
754

Carrabba’s Italian Grill
 
 
 
Company-owned
244

 
244

Franchised
3

 
2

Total
247

 
246

Bonefish Grill
 
 
 
Company-owned
204

 
207

Franchised
6

 
5

Total
210

 
212

Fleming’s Prime Steakhouse & Wine Bar
 
 
 
Company-owned
66

 
66

International
 
 
 
Company-owned
 
 
 
Outback Steakhouse - Brazil (1)
78

 
69

Outback Steakhouse - South Korea (2)
74

 
76

Other
19

 
12

Franchised
52

 
57

Total
223

 
214

System-wide total
1,501

 
1,492

____________________
(1)
The restaurant counts for Brazil are reported as of May 31, 2016 and 2015, respectively, to correspond with the balance sheet dates of this subsidiary.
(2)
Subsequent to June 26, 2016, we entered into an agreement to sell our restaurant locations in South Korea, converting all restaurants in that market to franchised locations.


32
Table of Contents
BLOOMIN’ BRANDS, INC.

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

Results of Operations

The following table sets forth, for the periods indicated, the percentages of certain items in our Consolidated Statements of Operations and Comprehensive Income in relation to Total revenues or Restaurant sales, as indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Revenues
 

 
 
 
 
 
 
Restaurant sales
99.4
 %
 
99.4
 %
 
99.5
 %
 
99.4
 %
Other revenues
0.6

 
0.6

 
0.5

 
0.6

Total revenues
100.0

 
100.0

 
100.0

 
100.0

Costs and expenses
 

 
 

 
 

 
 
Cost of sales (1)
32.3

 
32.7

 
32.4

 
32.6

Labor and other related (1)
28.8

 
27.5

 
28.3

 
27.3

Other restaurant operating (1)
23.4

 
23.3

 
22.6

 
22.7

Depreciation and amortization
4.5

 
4.3

 
4.3

 
4.1

General and administrative
6.4

 
6.9

 
6.4

 
6.5

Provision for impaired assets and restaurant closings
3.8

 
0.1

 
2.0

 
0.4

Total costs and expenses
98.8

 
94.3

 
95.5

 
93.0

Income from operations
1.2

 
5.7

 
4.5

 
7.0

Loss on defeasance, extinguishment and modification of debt
—

 
(0.2
)
 
(1.2
)
 
(0.1
)
Other (expense) income, net
(*)

 
*

 
(*)

 
(*)

Interest expense, net
(0.9
)
 
(1.2
)
 
(1.1
)
 
(1.2
)
Income before provision for income taxes
0.3

 
4.3

 
2.2

 
5.7

Provision for income taxes
1.0

 
1.3

 
1.0

 
1.6

Net (loss) income
(0.7
)
 
3.0

 
1.2

 
4.1

Less: net income attributable to noncontrolling interests
0.2

 
0.1

 
0.1

 
0.1

Net (loss) income attributable to Bloomin’ Brands
(0.9
)%
 
2.9
 %
 
1.1
 %
 
4.0
 %
________________
(1)
As a percentage of Restaurant sales.
*
Less than 1/10th of one percent of Total revenues.


33
Table of Contents
BLOOMIN’ BRANDS, INC.

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

RESTAURANT SALES

Following is a summary of the change in Restaurant sales for the thirteen and twenty-six weeks ended June 26, 2016:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the period ending June 28, 2015
$
1,092.8

 
$
2,287.6

Change from:
 
 
 
Comparable restaurant sales
(16.7
)
 
(28.2
)
Effect of foreign currency translation
(14.3
)
 
(50.6
)
Restaurant closings
(12.5
)
 
(25.2
)
Divestiture of Roy’s
—

 
(5.7
)
Restaurant openings
23.2

 
52.7

For the period ending June 26, 2016
$
1,072.5

 
$
2,230.6


The decrease in Restaurant sales in the thirteen weeks ended June 26, 2016 was primarily attributable to: (i) lower U.S. comparable restaurant sales, (ii) the effect of foreign currency translation, due to the depreciation of the Brazil Real, and (iii) the closing of 23 restaurants since March 29, 2015. The decrease in restaurant sales was partially offset by the opening of 67 new restaurants not included in our comparable restaurant sales base.

The decrease in Restaurant sales in the twenty-six weeks ended June 26, 2016 was primarily attributable to: (i) the effect of foreign currency translation, due to the depreciation of the Brazil Real, (ii) lower U.S. comparable restaurant sales and (iii) the closing of 46 restaurants since December 28, 2014. The decrease in restaurant sales was partially offset by the opening of 82 new restaurants not included in our comparable restaurant sales base.


34
Table of Contents
BLOOMIN’ BRANDS, INC.

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

Comparable Restaurant Sales, Traffic and Average Check Per Person Increases (Decreases)
Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases):
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Year over year percentage change:
 
 
 
 
 
 
 
Comparable restaurant sales (stores open 18 months or more) (1):
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
(2.5
)%
 
4.0
 %
 
(1.9
)%
 
4.5
 %
Carrabba’s Italian Grill
(4.8
)%
 
0.9
 %
 
(3.3
)%
 
1.4
 %
Bonefish Grill
0.9
 %
 
(4.6
)%
 
(1.0
)%
 
(1.7
)%
Fleming’s Prime Steakhouse & Wine Bar
(0.8
)%
 
3.2
 %
 
0.3
 %
 
3.1
 %
Combined U.S.
(2.3
)%
 
2.0
 %
 
(1.9
)%
 
2.9
 %
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (2)
3.9
 %
 
3.4
 %
 
6.4
 %
 
4.8
 %
Outback Steakhouse - South Korea
10.8
 %
 
(11.8
)%
 
1.4
 %
 
(7.0
)%
 
 
 
 
 
 
 
 
Traffic:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
(5.9
)%
 
(0.8
)%
 
(4.4
)%
 
(0.1
)%
Carrabba’s Italian Grill
(4.8
)%
 
1.4
 %
 
(1.6
)%
 
2.4
 %
Bonefish Grill
(2.8
)%
 
(7.8
)%
 
(4.0
)%
 
(4.8
)%
Fleming’s Prime Steakhouse & Wine Bar
(3.7
)%
 
3.1
 %
 
(1.2
)%
 
1.9
 %
Combined U.S.
(5.2
)%
 
(1.1
)%
 
(3.7
)%
 
(0.2
)%
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
(1.5
)%
 
(0.7
)%
 
(0.4
)%
 
0.3
 %
Outback Steakhouse - South Korea
20.7
 %
 
(12.6
)%
 
6.8
 %
 
(8.3
)%
 
 
 
 
 
 
 
 
Average check per person increases (decreases) (3):
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
3.4
 %
 
4.8
 %
 
2.5
 %
 
4.6
 %
Carrabba’s Italian Grill
—
 %
 
(0.5
)%
 
(1.7
)%
 
(1.0
)%
Bonefish Grill
3.7
 %
 
3.2
 %
 
3.0
 %
 
3.1
 %
Fleming’s Prime Steakhouse & Wine Bar
2.9
 %
 
0.1
 %
 
1.5
 %
 
1.2
 %
Combined U.S.
2.9
 %
 
3.1
 %
 
1.8
 %
 
3.1
 %
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
6.3
 %
 
4.5
 %
 
6.7
 %
 
4.6
 %
Outback Steakhouse - South Korea
(9.9
)%
 
0.8
 %
 
(5.4
)%
 
1.3
 %
____________________
(1)
Comparable restaurant sales exclude the effect of fluctuations in foreign currency rates. Relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.
(2)
Includes the trading day impact from calendar period reporting of (0.9%) and (0.4%) for the thirteen weeks ended June 26, 2016 and June 28, 2015, respectively and 0.1% and (0.1%) for the twenty-six weeks ended June 26, 2016 and June 28, 2015, respectively.
(3)
Average check per person increases (decreases) includes the impact of menu pricing changes, product mix and discounts.

For the thirteen and twenty-six weeks ended June 26, 2016, combined U.S. comparable restaurant sales decreased due to decreases in traffic, partially offset by increases in pricing and product mix.


35
Table of Contents
BLOOMIN’ BRANDS, INC.

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

For the thirteen and twenty-six weeks ended June 26, 2016, comparable restaurant sales for Brazil increased primarily due to increases in pricing, partially offset by decreases in product mix and customer traffic.
Comparable restaurant sales for South Korea increased for the thirteen and twenty-six weeks ended June 26, 2016 due to increases in traffic, partially offset by decreases from pricing and product mix.
Average Restaurant Unit Volumes and Operating Weeks
Following is a summary of the average restaurant unit volumes and operating weeks:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Average restaurant unit volumes (weekly):
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
$
65,158

 
$
66,794

 
$
67,978

 
$
69,218

Carrabba’s Italian Grill
$
55,396

 
$
58,462

 
$
58,267

 
$
60,684

Bonefish Grill
$
60,136

 
$
59,389

 
$
61,462

 
$
62,034

Fleming’s Prime Steakhouse & Wine Bar
$
80,432

 
$
81,015

 
$
85,171

 
$
84,940

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (1)
$
68,534

 
$
80,312

 
$
68,289

 
$
88,789

Outback Steakhouse - South Korea (2)
$
38,500

 
$
36,961

 
$
41,000

 
$
43,454

Operating weeks:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
8,440

 
8,437

 
16,884

 
16,870

Carrabba’s Italian Grill
3,172

 
3,172

 
6,344

 
6,334

Bonefish Grill
2,653

 
2,668

 
5,362

 
5,305

Fleming’s Prime Steakhouse & Wine Bar
858

 
858

 
1,716

 
1,716

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
1,008

 
869

 
1,984

 
1,692

Outback Steakhouse - South Korea
953

 
981

 
1,920

 
1,988

____________________
(1)
Translated at an average exchange rate of 3.59 and 3.08 for the thirteen weeks ended June 26, 2016 and June 28, 2015, respectively, and 3.77 and 2.87 for the twenty-six weeks ended June 26, 2016 and June 28, 2015, respectively.
(2)
Translated at an average exchange rate of 1,164.12 and 1,095.41 for the thirteen weeks ended June 26, 2016 and June 28, 2015, respectively, and 1,184.00 and 1,097.61 for the twenty-six weeks ended June 26, 2016 and June 28, 2015, respectively.

COSTS AND EXPENSES

Cost of sales
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Cost of sales
$
346.8

 
$
357.5

 
 
 
$
722.1

 
$
744.9

 
 
% of Restaurant sales
32.3
%
 
32.7
%
 
(0.4
)%
 
32.4
%
 
32.6
%
 
(0.2
)%

Cost of sales, consisting of food and beverage costs, decreased as a percentage of Restaurant sales in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015. The decrease as a percentage of Restaurant sales was primarily due to: (i) 0.9% from the impact of certain cost savings initiatives and (ii) 0.6% from menu price increases. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.7% from product mix, (ii) 0.4% from higher commodity costs and (iii) 0.2% from the timing of our managing partner conference.

36
Table of Contents
BLOOMIN’ BRANDS, INC.

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


Cost of sales decreased as a percentage of Restaurant sales in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015. The decrease as a percentage of Restaurant sales was primarily due to: (i) 0.6% from menu price increases and (ii) 0.6% from the impact of certain cost savings initiatives. These decreases were partially offset by increases as a percentage of Restaurant sales primarily due to: (i) 0.6% from product mix and (ii) 0.4% from higher commodity costs.

Labor and other related expenses
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Labor and other related
$
309.2

 
$
301.0

 
 
 
$
632.0

 
$
625.0

 
 
% of Restaurant sales
28.8
%
 
27.5
%
 
1.3
%
 
28.3
%
 
27.3
%
 
1.0
%

Labor and other related expenses include all direct and indirect labor costs incurred in operations, including distribution expense to managing partners, costs related to deferred compensation plans and other restaurant-level incentive compensation expenses. Labor and other related expenses increased as a percentage of Restaurant sales in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015. The increase as a percentage of Restaurant sales was primarily due to: (i) 1.2% from higher kitchen and service labor costs due to higher wage rates and investments in our service model and (ii) 0.3% due to the favorable resolution of a payroll tax audit contingency in the thirteen weeks ended June 28, 2015. These increases were offset by decreases as a percentage of Restaurant sales primarily due to 0.2% from the impact of certain cost savings initiatives.

Labor and other related expenses increased as a percentage of Restaurant sales in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015. The increase as a percentage of Restaurant sales was primarily due to 1.1% from higher kitchen and service labor costs due to higher wage rates and investments in our service model, partially offset by a decrease of 0.2% from the impact of certain cost savings initiatives.

Other restaurant operating expenses
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Other restaurant operating
$
250.4

 
$
254.3

 
 
 
$
504.0

 
$
518.3

 
 
% of Restaurant sales
23.4
%
 
23.3
%
 
0.1
%
 
22.6
%
 
22.7
%
 
(0.1
)%

Other restaurant operating expenses include certain unit-level operating costs such as operating supplies, rent, repairs and maintenance, advertising expenses, utilities, pre-opening costs and other occupancy costs. The increase as a percentage of Restaurant sales in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015, was primarily due to: (i) 0.5% from an increase in operating expenses due to inflation and (ii) 0.3% from higher rent expense due to the sale-leaseback of certain Outback Steakhouse properties. The increases were partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.4% from a decrease in marketing and (ii) 0.3% from the impact of certain cost savings initiatives.

Other restaurant operating expenses decreased as a percentage of Restaurant sales in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015. The decrease as a percentage of Restaurant sales was primarily due to 0.3% from the impact of certain cost savings initiatives. The decrease was partially offset by an increase as a percentage of Restaurant sales primarily due to 0.3% from an increase in operating expenses due to inflation.


37
Table of Contents
BLOOMIN’ BRANDS, INC.

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

Depreciation and amortization
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Depreciation and amortization
$
49.0

 
$
47.4

 
 
 
$
96.7

 
$
93.9

 


% of Total revenues
4.5
%
 
4.3
%
 
0.2
%
 
4.3
%
 
4.1
%
 
0.2
%

Depreciation and amortization expense as a percentage of Total revenues increased in the thirteen and twenty-six weeks ended June 26, 2016 as compared to the thirteen and twenty-six weeks ended June 28, 2015. The increase as a percentage of Total revenues was primarily due to additional depreciation expense related to the opening of new restaurants and the remodel of existing restaurants, partially offset by lower depreciation for assets impaired in connection with the Bonefish Restructuring.

General and administrative

General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in general and administrative expense:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in millions)
JUNE 26, 2016
 
JUNE 26, 2016
For the period ended June 28, 2015
$
76.0

 
$
149.2

Change from:
 
 
 
Conference expense (1)
(4.1
)
 
—

Life insurance and deferred compensation (2)
(3.3
)
 
(4.7
)
Foreign currency exchange (3)
(1.7
)
 
(4.1
)
Legal and professional fees
(1.1
)
 
(3.1
)
Employee stock-based compensation
1.3

 
2.1

Severance
1.1

 
1.3

Incentive compensation
0.7

 
1.3

Other
(0.3
)
 
1.6

For the period ended June 26, 2016
$
68.6

 
$
143.6

________________
(1)
Conference expense was lower due to the timing of our annual managing partner conference.
(2)
Life insurance and deferred compensation decreased primarily due to the acquisition of a managing partner’s interests in certain Outback Steakhouse restaurants
(3)
Foreign exchange primarily includes the depreciation of the Brazil Real.

Provision for impaired assets and restaurant closings
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Provision for impaired assets and restaurant closings
$
41.3

 
$
0.9

 
$
40.4

 
$
44.4

 
$
10.0

 
$
34.4


Sale of Outback South Korea - On July 7, 2016, we entered into an agreement to sell Outback South Korea. In connection with the decision to sell Outback South Korea, we recognized an impairment charge of $39.6 million during the thirteen and twenty-six weeks ended June 26, 2016.

Restructuring and Restaurant Closure Initiatives - On February 12, 2016, we decided to close 14 Bonefish restaurants.

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BLOOMIN’ BRANDS, INC.

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

In connection with the Bonefish Restructuring, we recognized pre-tax restaurant and other closing costs of approximately $0.8 million and $4.4 million during the thirteen and twenty-six weeks ended June 26, 2016, respectively.

Following is a summary of expenses related to the Bonefish Restructuring and International and Domestic Restaurant Closure Initiatives recognized in Provision for impaired assets and restaurant closings in our Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Property, fixtures and equipment impairments
 
 
 
 
 
 
 
Domestic Restaurant Closure Initiative
$
0.1

 
$
—

 
$
0.1

 
$
—

Facility closure and other expenses
 
 
 
 
 
 
 
Bonefish Restructuring
0.8

 
—

 
4.4

 
—

International Restaurant Closure Initiative
0.3

 
(0.3
)
 
(0.1
)
 
6.1

Domestic Restaurant Closure Initiative
—

 
—

 
—

 
1.3


We currently expect to incur additional charges of $2.0 million to $4.0 million for the Bonefish Restructuring over the next five years, including costs associated with lease obligations and other closure related obligations.

Other Disposals - In connection with the decision to sell our corporate airplanes, we recognized pre-tax asset impairment charges of $0.7 million during the thirteen and twenty-six weeks ended June 28, 2015.

The remaining restaurant impairment and closing charges resulted from: (i) the carrying value of a restaurant’s assets exceeding its estimated fair market value, primarily due to locations identified for relocation and closure and (ii) lease liabilities.

See Note 2 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.

Income from operations
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Income from operations
$
13.3

 
$
62.6

 
$
(49.3
)
 
$
100.0

 
$
160.3

 
$
(60.3
)
% of Total revenues
1.2
%
 
5.7
%
 
(4.5
)%
 
4.5
%
 
7.0
%
 
(2.5
)%

The decrease in income from operations generated in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015 was primarily due to impairment charges related to the sale of Outback South Korea and a decrease in operating margin at the restaurant-level, partially offset by lower general and administrative expense.

The decrease in income from operations generated in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015 was primarily due to impairment charges related to the sale of Outback South Korea, a decrease in operating margin at the restaurant-level and higher restaurant closing costs from the Bonefish Restructuring.


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BLOOMIN’ BRANDS, INC.

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

Loss on defeasance, extinguishment and modification of debt

In connection with the defeasance of our 2012 CMBS loan, we recognized a loss on defeasance, extinguishment and modification of debt of $26.6 million for the twenty-six weeks ended June 26, 2016. See Note 9 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.

Interest expense, net
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Interest expense, net
$
10.3

 
$
12.9

 
$
(2.6
)
 
$
23.2

 
$
26.1

 
$
(2.9
)

The decrease in interest expense, net in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015 was primarily due to lower interest expense related to the refinancing of the 2012 CMBS loan in February 2016, partially offset by additional interest expense related to our interest rate swaps and Term Loan A-1.

The decrease in interest expense, net in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015 was primarily due to lower interest expense related to the refinancing of the 2012 CMBS loan in February 2016, partially offset by additional interest expense related to our interest rate swaps and from additional draws on our revolving credit facility.

Provision for income taxes
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
 
JUNE 26, 2016
 
JUNE 28, 2015
 
Change
Effective income tax rate
366.2
%
 
29.9
%
 
336.3
%
 
44.6
%
 
27.1
%
 
17.5
%

The net increase in the effective income tax rate for the thirteen and twenty-six weeks ended June 26, 2016 was primarily due to impairment and additional tax liabilities, including incremental taxes on earnings that were previously considered permanently reinvested, related to the sale of Outback South Korea.

SEGMENT PERFORMANCE

We have two reportable segments, U.S. and International, which reflects how we manage our business, review operating performance and allocate 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 our CEO, whom we have determined to be our CODM. Following is a summary of reporting segments:
SEGMENT
 
CONCEPT
 
GEOGRAPHIC LOCATION
U.S.
 
Outback Steakhouse
 
United States of America, including Puerto Rico
 
Carrabba’s Italian Grill
 
 
Bonefish Grill
 
 
Fleming’s Prime Steakhouse & Wine Bar
 
International
 
Outback Steakhouse (1)
 
Brazil, South Korea, Hong Kong, China
 
Carrabba’s Italian Grill (Abbraccio)
 
Brazil
________________
(1)
Includes international franchise locations.

Revenues for both segments include only transactions with customers and include no intersegment revenues. Excluded from net income from operations for U.S. and International are legal and certain corporate costs not directly related to

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BLOOMIN’ BRANDS, INC.

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

the performance of the segments, interest and other expenses related to our credit agreements and derivative instruments, certain stock-based compensation expenses and certain bonus expenses.

Prior to 2016, certain insurance expenses were not allocated to our 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, management changed how insurance expenses related to our restaurants are reviewed and now considers those costs when evaluating the operating performance of our concepts.  Accordingly, we have recast all prior period segment information to reflect this change.

Following is a reconciliation of segment income (loss) from operations to the consolidated operating results:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
89,010

 
$
96,192

 
$
206,849

 
$
224,460

International
(34,573
)
 
5,727

 
(23,224
)
 
14,606

Total segment income from operations
54,437

 
101,919

 
183,625

 
239,066

Unallocated corporate operating expense
(41,104
)
 
(39,334
)
 
(83,608
)
 
(78,780
)
Total income from operations
13,333

 
62,585

 
100,017

 
160,286

Loss on defeasance, extinguishment and modification of debt
—

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

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

 
$
47,137

 
$
50,240

 
$
130,493

 
U.S. Segment
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
953,992

 
$
977,260

 
$
1,992,741

 
$
2,033,364

Other revenues
4,989

 
5,718

 
10,019

 
11,628

Total revenues
$
958,981

 
$
982,978

 
$
2,002,760

 
$
2,044,992

Restaurant-level operating margin
15.5
%
 
15.9
%
 
16.5
%
 
17.0
%
Income from operations
89,010

 
96,192

 
$
206,849

 
$
224,460

Operating income margin
9.3
%
 
9.8
%
 
10.3
%
 
11.0
%


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BLOOMIN’ BRANDS, INC.

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

Restaurant sales

Following is a summary of the change in U.S. segment Restaurant sales for the thirteen and twenty-six weeks ended June 26, 2016:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the period ending June 28, 2015
$
977.3

 
$
2,033.4

Change from:
 
 
 
Comparable restaurant sales
(21.9
)
 
(36.8
)
Restaurant closings
(7.0
)
 
(12.4
)
Divestiture of Roy’s
—

 
(5.7
)
Restaurant openings
5.6

 
14.3

For the period ending June 26, 2016
$
954.0

 
$
1,992.8


The decrease in U.S. Restaurant sales in the thirteen weeks ended June 26, 2016 was primarily attributable to: (i) a decrease in comparable restaurant sales and (ii) the closing of 13 restaurants since March 29, 2015. The decrease in U.S. Restaurant sales was partially offset by the opening of 25 new restaurants not included in our comparable restaurant sales base.

The decrease in U.S. Restaurant sales in the twenty-six weeks ended June 26, 2016 was primarily attributable to: (i) lower comparable restaurant sales, (ii) the closing of 16 restaurants since December 28, 2014 and (iii) the sale of 20 Roy’s restaurants in January 2015. The decrease in U.S. Restaurant sales was partially offset by the opening of 32 new restaurants not included in our comparable restaurant sales base.

Restaurant-level operating margin

The decrease in U.S. restaurant-level operating margin in the thirteen and twenty-six weeks ended June 26, 2016 as compared to the thirteen and twenty-six weeks ended June 28, 2015, was primarily due to: (i) higher kitchen and labor costs, (ii) product mix and (iii) higher rent expense due to the sale-leaseback of certain Outback Steakhouse properties. The decrease was partially offset by the impact of certain cost savings initiatives and menu price increases.

Income from operations

The decrease in U.S. income from operations generated in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015 was primarily due to a decrease in operating margin at the restaurant-level, partially offset by lower General and administrative expense. General and administrative expense for the U.S. segment decreased primarily from lower deferred compensation expense due to the acquisition of a managing partner’s interests in certain Outback Steakhouse restaurants.

The decrease in U.S. income from operations generated in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015 was primarily due to lower restaurant-level operating income and higher restaurant closing costs from the Bonefish Restructuring, partially offset by lower General and administrative expense. General and administrative expense for the U.S. segment decreased primarily from lower deferred compensation expense due to the acquisition of a managing partner’s interests in certain Outback Steakhouse restaurants.


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BLOOMIN’ BRANDS, INC.

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

International Segment
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
118,527

 
$
115,499

 
$
237,830

 
$
254,205

Other revenues
1,080

 
1,120

 
2,186

 
2,459

Total revenues
$
119,607

 
$
116,619

 
$
240,016

 
$
256,664

Restaurant-level operating margin
16.2
 %
 
16.8
%
 
17.8
 %
 
19.5
%
(Loss) income from operations
$
(34,573
)
 
$
5,727

 
$
(23,224
)
 
$
14,606

Operating (loss) income margin
(28.9
)%
 
4.9
%
 
(9.7
)%
 
5.7
%

Restaurant sales

Following is a summary of the change in International segment Restaurant sales for the thirteen and twenty-six weeks ended June 26, 2016:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the period ending June 28, 2015
$
115.5

 
$
254.2

Change from:
 
 
 
Restaurant openings
17.6

 
38.4

Comparable restaurant sales
5.2

 
8.6

Effect of foreign currency translation
(14.3
)
 
(50.6
)
Restaurant closings
(5.5
)
 
(12.8
)
For the period ending June 26, 2016
$
118.5

 
$
237.8


The increase in Restaurant sales in the thirteen weeks ended June 26, 2016 was primarily attributable to: (i) the opening of 42 new restaurants not included in our comparable restaurant sales base and (ii) an increase in comparable restaurant sales in South Korea and Brazil. The increase in restaurant sales was partially offset by: (i) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar and (ii) the closing of 10 restaurants since March 29, 2015.

The decrease in Restaurant sales in the twenty-six weeks ended June 26, 2016 was primarily attributable to: (i) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar and (ii) the closing of 30 restaurants since December 28, 2014. The decrease in restaurant sales was partially offset by: (i) the opening of 50 new restaurants not included in our comparable restaurant sales base and (ii) an increase in comparable restaurant sales in Brazil.

Restaurant-level operating margin

The decrease in International restaurant-level operating margin in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015 was primarily due to: (i) higher commodity and labor inflation, (ii) product mix and (iii) higher operating expenses due to inflation. The decrease was partially offset by: (i) lower advertising expense, (ii) the impact of certain cost saving initiatives and (iii) menu price increases.

The decrease in International restaurant-level operating margin in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015 was primarily due to: (i) higher commodity and labor inflation, (ii) product mix and (iii) higher operating expenses due to inflation. The decrease was partially offset by: (i) menu price increases and (ii) the impact of certain cost savings initiatives.


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BLOOMIN’ BRANDS, INC.

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

(Loss) income from operations

The decrease in International income from operations in the thirteen weeks ended June 26, 2016 as compared to the thirteen weeks ended June 28, 2015 was primarily due to: (i) impairment charges related to the sale of Outback South Korea and (ii) lower restaurant-level operating margin, partially offset by lower general and administrative expense.

The decrease in International income from operations in the twenty-six weeks ended June 26, 2016 as compared to the twenty-six weeks ended June 28, 2015 was primarily due to: (i) impairment charges related to the sale of Outback South Korea and (ii) lower restaurant-level operating margin, partially offset by the lapping of costs related to the International Restaurant Closure Initiative in 2015.

Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: (i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted income from operations and the corresponding margins, (iv) Adjusted net income and (v) Adjusted diluted earnings per share.

We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and establish employee incentive plans.

These non-GAAP financial measures are not intended to replace U.S. GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. We maintain internal guidelines with respect to the types of adjustments we include in our non-GAAP measures. These guidelines endeavor to differentiate between types of gains and expenses that are reflective of our core operations, and those that vary from period to period without correlation to our core performance in that period. However, implementation of these guidelines necessarily involves the application of judgment, and the treatment of any items not directly addressed by, or changes to, our guidelines will be considered by our disclosure committee. Refer to the reconciliations of non-GAAP measures for descriptions of the actual adjustments made in the current period and the corresponding prior period.


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BLOOMIN’ BRANDS, INC.

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


System-Wide Sales

System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. Following is a summary of sales of Company-owned restaurants:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
COMPANY-OWNED RESTAURANT SALES (dollars in millions)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
$
550

 
$
563

 
$
1,148

 
$
1,167

Carrabba’s Italian Grill
176

 
185

 
370

 
384

Bonefish Grill
159

 
158

 
329

 
329

Fleming’s Prime Steakhouse & Wine Bar
69

 
70

 
146

 
146

Other
—

 
1

 
—

 
7

Total
$
954

 
$
977

 
$
1,993

 
$
2,033

International
 
 
 
 
 
 
 
Outback Steakhouse-Brazil
$
69

 
$
70

 
$
135

 
$
151

Outback Steakhouse-South Korea
37

 
36

 
79

 
86

Other
13

 
10

 
24

 
18

Total
$
119

 
$
116

 
$
238

 
$
255

Total Company-owned restaurant sales
$
1,073

 
$
1,093

 
$
2,231

 
$
2,288


The following table provides a summary of sales of franchised restaurants, which are not included in our consolidated financial results, and our income from the royalties and/or service fees that franchisees pay us based generally on a percentage of sales. The following table does not represent our sales and is presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees.
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
FRANCHISE SALES (dollars in millions) (1)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Outback Steakhouse
 
 
 
 
 
 
 
U.S.
$
83

 
$
86

 
$
175

 
$
174

International
28

 
29

 
56

 
58

Total
111

 
115

 
231

 
232

Carrabba’s Italian Grill
3

 
2

 
6

 
3

Bonefish Grill
4

 
3

 
7

 
6

Total franchise sales (1)
$
118

 
$
120

 
$
244

 
$
241

Income from franchise sales (2)
$
4

 
$
4

 
$
9

 
$
9

_____________________
(1)
Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income.
(2)
Represents the franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations and Comprehensive Income in Other revenues.



45
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BLOOMIN’ BRANDS, INC.

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

Adjusted restaurant-level operating margin

Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Cost of sales, Labor and other related and Other restaurant operating. The following table shows the percentages of certain operating cost financial statement line items in relation to Restaurant sales:

 
THIRTEEN WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
 
U.S. GAAP
 
ADJUSTED (1)
 
U.S. GAAP
 
ADJUSTED (3)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
32.3
%
 
32.3
%
 
32.7
%
 
32.7
%
Labor and other related
28.8
%
 
28.8
%
 
27.5
%
 
27.8
%
Other restaurant operating
23.4
%
 
23.3
%
 
23.3
%
 
23.3
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
15.5
%
 
15.5
%
 
16.5
%
 
16.2
%
 
 
 
 
 
 
 
 
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 28, 2015
 
U.S. GAAP
 
ADJUSTED (2)
 
U.S. GAAP
 
ADJUSTED (3)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
32.4
%
 
32.4
%
 
32.6
%
 
32.6
%
Labor and other related
28.3
%
 
28.3
%
 
27.3
%
 
27.4
%
Other restaurant operating
22.6
%
 
22.7
%
 
22.7
%
 
22.7
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
16.7
%
 
16.6
%
 
17.5
%
 
17.3
%
_________________
(1)
Includes adjustments, primarily for a loss of $0.3 million on the sale of certain properties related to our sale lease-back initiative, recorded in Other restaurant operating for the thirteen and twenty-six weeks ended June 26, 2016.
(2)
Includes adjustments, primarily for the write-off of $1.9 million of deferred rent liabilities associated with the Bonefish Restructuring recorded in Other restaurant operating for the twenty-six weeks ended June 26, 2016.
(3)
Includes a $2.7 million adjustment for payroll tax audit contingencies, which was recorded in Labor and other related for the thirteen and twenty-six weeks ended June 28, 2015.


46
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BLOOMIN’ BRANDS, INC.

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

Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands, except per share data)
JUNE 26, 2016
 
JUNE 28, 2015
 
JUNE 26, 2016
 
JUNE 28, 2015
Income from operations
$
13,333

 
$
62,585

 
$
100,017

 
$
160,286

Operating income margin
1.2
%
 
5.7
%
 
4.5
%
 
7.0
%
Adjustments:
 
 
 
 
 
 
 
Asset impairments and related costs (1)
39,677

 
746

 
40,023

 
746

Restaurant relocations, remodels and related costs (2)
1,124

 
122

 
1,764

 
1,291

Purchased intangibles amortization (3)
949

 
1,123

 
1,809

 
2,406

Severance (4)
737

 
—

 
1,872

 
—

Restaurant impairments and closing costs (5)
335

 
(63
)
 
2,120

 
8,807

Transaction-related expenses (6)
242

 
40

 
814

 
315

Payroll tax audit contingency (7)
—

 
(2,671
)
 
—

 
(2,671
)
Amortization of deferred gains from sale-leaseback transactions (8)
(348
)
 
—

 
(348
)
 
—

Total income from operations adjustments
42,716

 
(703
)
 
48,054

 
10,894

Adjusted income from operations
$
56,049

 
$
61,882

 
$
148,071

 
$
171,180

Adjusted operating income margin
5.2
%
 
5.6
%
 
6.6
%
 
7.4
%
 
 
 
 
 
 
 
 
Net (loss) income attributable to Bloomin’ Brands
$
(9,177
)
 
$
32,226

 
$
25,298

 
$
92,814

Adjustments:
 
 
 
 
 
 
 
Income from operations adjustments
42,716

 
(703
)
 
48,054

 
10,894

Loss on defeasance, extinguishment and modification of debt (9)
—

 
2,638

 
26,580

 
2,638

Loss on disposal of business and disposal of assets (10)
—

 
(121
)
 
—

 
1,030

Total adjustments, before income taxes
42,716

 
1,814

 
74,634

 
14,562

Adjustment to provision for income taxes (11)
1,525

 
1,047

 
(8,177
)
 
(2,580
)
Net adjustments
44,241

 
2,861

 
66,457

 
11,982

Adjusted net income
$
35,064

 
$
35,087

 
$
91,755

 
$
104,796

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

 
$
0.21

 
$
0.73

Adjusted diluted earnings per share
$
0.30

 
$
0.28

 
$
0.77

 
$
0.82

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
113,330

 
123,046

 
115,630

 
124,174

Diluted weighted average common shares outstanding (12)
116,343

 
126,242

 
118,560

 
127,501

_________________
(1)
Represents asset impairment charges and related costs associated with the decision to sell our Outback South Korea subsidiary in 2016 and our corporate aircraft in 2015.
(2)
Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation and remodel programs.
(3)
Represents intangible amortization recorded as a result of the acquisition of our Brazil operations.
(4)
Relates to severance expense incurred primarily as a result of the relocation of our Fleming’s operations center to the corporate home office.
(5)
Represents expenses incurred for the Bonefish Restructuring and the International and Domestic Restaurant Closure Initiatives.
(6)
Relates primarily to the following: (i) costs incurred with our sale-leaseback initiative in 2016 and (ii) costs incurred with the secondary offering of our common stock in March 2015.
(7)
Relates to a payroll tax audit contingency adjustment for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by our employees during calendar year 2011, which is recorded in Labor and other related expenses. In addition, a deferred income tax adjustment has been recorded for the allowable income tax credits for the employer’s share of FICA taxes expected to be paid, which is included in Provision for income taxes and offsets the adjustment to Labor and other related expenses. As a result, there is no impact to Net income from this adjustment.
(8)
Represents amortization of deferred gains related to our sale-leaseback initiative.
(9)
Relates to the defeasance of the 2012 CMBS loan in 2016 and the refinancing of our Senior Secured Credit Facility in 2015.

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BLOOMIN’ BRANDS, INC.

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

(10)
Primarily represents loss on the sale of our Roy’s business in 2015.
(11)
Represents income tax effect of the adjustments, on a jursidiction basis, for the thirteen and twenty-six weeks ended June 26, 2016 and June 28, 2015, respectively. Included in the adjustments for the thirteen weeks and twenty-six weeks ended June 26, 2016 is $3.5 million related to deferred tax liabilities for the Outback South Korea sale.
(12)
Due to the GAAP net loss, the effect of dilutive securities was excluded from the calculation of GAAP diluted (loss) earnings per share for the thirteen weeks ended June 26, 2016. For adjusted diluted earnings per share, the calculation includes dilutive shares of 3,013 for the thirteen weeks ended June 26, 2016.

Liquidity and Capital Resources

LIQUIDITY

Our liquidity sources consist of cash flow from our operations, cash and cash equivalents and credit capacity under our credit facilities. We expect to use cash primarily for general operating expenses, remodeling or relocating older restaurants, the development of new restaurants and new markets, principal and interest payments on our debt, share repurchases and dividend payments, obligations related to our deferred compensation plans and investments in technology.

We believe that our expected liquidity sources are adequate to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations for at least the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.

Cash and Cash Equivalents - As of June 26, 2016, we had $102.1 million in cash and cash equivalents, of which $37.7 million was held by foreign affiliates, primarily in Brazil, a portion of which would be subject to additional taxes if repatriated to the United States. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit the repatriation of cash and cash equivalents.

In connection with the sale of Outback South Korea, we no longer assert that the earnings of our South Korean subsidiary will be permanently reinvested and have, therefore, recognized deferred tax liabilities of $3.5 million during the thirteen and twenty-six weeks ended June 26, 2016. As of June 26, 2016, we had aggregate undistributed earnings for other foreign subsidiaries of $58.0 million, which we consider to be permanently reinvested and are expected to continue to be permanently reinvested. It is not practical to determine the amount of unrecognized deferred income tax liabilities on the undistributed earnings we consider to be permanently reinvested.

Sale of Outback South Korea - On July 7, 2016, we entered into an agreement to sell Outback South Korea for a purchase price of $50.0 million. See Note 2 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.

Sale-Leaseback Transactions - During the twenty-six weeks ended June 26, 2016, we entered into sale-leaseback transactions with third-parties in which we sold 46 restaurant properties at fair market value for gross proceeds of $163.5 million.

Bonefish Restructuring - On February 12, 2016, we decided to close 14 Bonefish restaurants. We expect to substantially complete these restaurant closings through the first quarter of 2019. Total future cash expenditures of $11.1 million to $13.3 million, primarily related to lease liabilities, are expected to occur through October 2024.

Capital Expenditures - We estimate that our capital expenditures will total between $235.0 million and $255.0 million in 2016. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements. We expect to continue to review the level of expected capital expenditures throughout 2016.


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BLOOMIN’ BRANDS, INC.

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

Credit Facilities - Our credit facilities consist of the Senior Secured Credit Facility and the PRP Mortgage Loan. See Note 9 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information. Following is a summary of principal payments and debt issuance from December 27, 2015 to June 26, 2016:
 
SENIOR SECURED CREDIT FACILITY
 
2012 CMBS LOAN
 
PRP MORTGAGE LOAN
 
TOTAL CREDIT FACILITIES
 
TERM LOANS
 
REVOLVING FACILITY
 
FIRST MORTGAGE LOAN
 
MEZZANINE LOANS
 
 
(dollars in thousands)
A
 
A-1
 
 
 
FIRST
 
SECOND
 
 
Balance as of
December 27, 2015
$
277,500

 
$
150,000

 
$
432,000

 
$
289,588

 
$
84,028

 
$
85,353

 
$
—

 
$
1,318,469

2016 new debt
—

 
—

 
414,000

 
—

 
—

 
—

 
300,000

 
714,000

2016 payments
(7,500
)
 
(3,750
)
 
(233,000
)
 
(289,588
)
 
(84,028
)
 
(85,353
)
 
(87,847
)
 
(791,066
)
Balance as of
June 26, 2016
$
270,000

 
$
146,250

 
$
613,000

 
$
—

 
$
—

 
$
—

 
$
212,153

 
$
1,241,403


We continue to evaluate whether we will make further payments of our outstanding debt ahead of scheduled maturities. Following is a summary of our outstanding credit facilities as of June 26, 2016:
 
 
 
 
 
 
 
OUTSTANDING
(dollars in thousands)
INTEREST RATE
JUNE 26, 2016
 
ORIGINAL FACILITY
 
PRINCIPAL MATURITY DATE
 
JUNE 26, 2016
 
DECEMBER 27, 2015
Term loan A, net of discount of $2.9 million (1)
2.44
%
 
$
300,000

 
May 2019
 
$
270,000

 
$
277,500

Term loan A-1
2.41
%
 
150,000

 
May 2019
 
146,250

 
150,000

Revolving credit facility (1)
2.43
%
 
825,000

 
May 2019
 
613,000

 
432,000

Total Senior Secured Credit Facility
 
 
$
1,275,000

 
 
 
$
1,029,250

 
$
859,500

PRP Mortgage Loan (2)
2.91
%
 
$
300,000

 
February 2018
 
$
212,153

 
$
—

First mortgage loan
—
%
 
$
324,800

 

 
$
—

 
$
289,588

First mezzanine loan
—
%
 
87,600

 

 
—

 
84,028

Second mezzanine loan
—
%
 
87,600

 

 
—

 
85,353

Total 2012 CMBS loan
 
 
$
500,000

 
 
 
$
—

 
$
458,969

Total credit facilities
 
 
$
2,075,000

 
 
 
$
1,241,403

 
$
1,318,469

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

Credit Agreement - As of June 26, 2016, we had $182.7 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $29.3 million.

The Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan A-1. We are required to prepay outstanding amounts under Term loan A and Term loan A-1 with 50% of our 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 may vary based on our leverage ratio and year end results. Other than the required minimum amortization premiums of $25.3 million, we do not anticipate any other payments will be required through June 25, 2017.
PRP Mortgage Loan - On February 11, 2016, PRP, as borrower, and Wells Fargo Bank, National Association, as Lender, entered into 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 with an option to extend the Initial Maturity for one twelve-month Extension provided that certain conditions are satisfied. The PRP Mortgage Loan is collateralized by certain properties owned by PRP. PRP has also made negative pledges with respect to certain unencumbered properties.

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BLOOMIN’ BRANDS, INC.

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

The proceeds of the PRP Mortgage Loan were used, together with borrowings under our revolving credit facility, to prepay a portion, and fully defease the remainder, of the 2012 CMBS loan. In connection with the defeasance, we recognized a loss of $26.6 million during the twenty-six weeks ended June 26, 2016. Following the defeasance of the 2012 CMBS loan, $19.3 million of restricted cash was released.
On July 27, 2016, PRP, as borrower, and Wells Fargo Bank, National Association, as lender (the “Lender”), entered into a First Amendment (the “Amendment”) to PRP’s existing loan agreement dated as of February 11, 2016 (the “Original Loan Agreement”) to provide for additional borrowings of $69.5 million, increasing the outstanding loan balance as of the date of the Amendment from $189.3 million to $258.8 million.

The PRP Mortgage Loan permits us 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. If the PRP Mortgage Loan balance exceeds $219.9 million on March 1, 2017 or $160.0 million on September 1, 2017, PRP’s rental income will be required to be applied against the outstanding loan balance.
The PRP Mortgage Loan repayment schedule, including the Extension, is as follows (dollars in thousands):
PAYMENT DATE
 
INITIAL MATURITY
 
EXTENSION
February 28, 2017
 
$
38,813

 
$
38,813

August 31, 2017
 
59,943

 
59,943

February 11, 2018
 
160,000

 
50,000

August 31, 2018
 
—

 
50,000

February 11, 2019
 
—

 
60,000

 
 
$
258,756

 
$
258,756


We intend to fund payment of the PRP Mortgage Loan with proceeds from sale-leaseback transactions of our real estate portfolio.
Debt Covenants - Our Credit Agreement and PRP Mortgage Loan contain various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 12 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 27, 2015 for further information.

As of June 26, 2016 and December 27, 2015, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months.

Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, we entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of our 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, we pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterparty based on the 30-day LIBOR rate. We estimate $6.1 million will be reclassified to interest expense over the next twelve months. See Note 13 - Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements for further information.


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BLOOMIN’ BRANDS, INC.

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

SUMMARY OF CASH FLOWS

The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
Net cash provided by operating activities
$
205,416

 
$
197,427

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

 
(89,321
)
Net cash used in financing activities
(284,471
)
 
(139,118
)
Effect of exchange rate changes on cash and cash equivalents
853

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

Net decrease in cash and cash equivalents
$
(30,263
)
 
$
(32,972
)

Operating activities - Net cash provided by operating activities increased during the twenty-six weeks ended June 26, 2016, as compared to the twenty-six weeks ended June 28, 2015 primarily due to: (i) the timing of collections of gift card receivables, (ii) the timing of accounts payable payments and (iii) utilization of inventory on hand. These increases were partially offset by: (i) the timing of rent payments and (ii) higher income tax payments.

Investing activities
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
Proceeds from sale-leaseback transactions, net
$
160,597

 
$
—

Net change in restricted cash
22,239

 
2,478

Proceeds from disposal of property, fixtures and equipment
527

 
3,104

Proceeds from sale of a business
—

 
7,798

Capital expenditures
(109,319
)
 
(114,251
)
Other investments, net
(3,910
)
 
11,550

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

 
$
(89,321
)

Net cash provided by investing activities for the twenty-six weeks ended June 26, 2016 consisted primarily of proceeds from sale-leaseback transactions and a reduction in restricted cash related to the defeasance of the 2012 CMBS loan, partially offset by capital expenditures. Net cash used in investing activities for the twenty-six weeks ended June 28, 2015 consisted primarily of capital expenditures, partially offset by the following: (i) net proceeds from life insurance policies, (ii) proceeds from the sale of Roy’s and (iii) proceeds from the disposal of property, fixtures and equipment.

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BLOOMIN’ BRANDS, INC.

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


Financing activities
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 28, 2015
Repayments of debt
$
(815,634
)
 
$
(396,719
)
Repurchase of common stock
(140,221
)
 
(100,525
)
Cash dividends paid on common stock
(16,216
)
 
(14,814
)
Repayments of partner deposits and accrued partner obligations
(10,018
)
 
(27,231
)
Purchase of limited partnership and noncontrolling interests
(8,983
)
 
(652
)
Distributions to noncontrolling interests
(3,652
)
 
(2,729
)
Proceeds from borrowings, net
708,699

 
396,101

Proceeds from the exercise of share-based compensation
637

 
6,012

Contributions from noncontrolling interests
539

 
167

Excess tax benefit from stock-based compensation
378

 
1,272

Net cash used in financing activities
$
(284,471
)
 
$
(139,118
)

Net cash used in financing activities for the twenty-six weeks ended June 26, 2016 was primarily attributable to the following: (i) the defeasance of the 2012 CMBS loan and payments on our revolving credit facility, (ii) the repurchase of common stock, (iii) payment of cash dividends on our common stock and (iv) repayments of partner deposits and accrued partner obligations. Net cash used in financing activities was partially offset by proceeds from the PRP Mortgage loan and drawdowns on our revolving credit facility.

Net cash used in financing activities for the twenty-six weeks ended June 28, 2015 was primarily attributable to the following: (i) repayments of the Term loan B due to the Senior Secured Credit Facility refinancing in March 2015 and voluntary prepayments, (ii) the repurchase of common stock, (iii) repayments of partner deposits and accrued partner obligations and (iv) payment of cash dividends on our common stock. Net cash used in financing activities was partially offset by the following: (i) proceeds from the refinancing of the Senior Secured Credit Facility and revolving credit facilities and (ii) proceeds from the exercise of stock options.

FINANCIAL CONDITION

Following is a summary of our current assets, current liabilities and working capital:
(dollars in thousands)
JUNE 26, 2016
 
DECEMBER 27, 2015
Current assets
$
296,148

 
$
418,644

Current liabilities
724,845

 
814,166

Working capital (deficit)
$
(428,697
)
 
$
(395,522
)

Working capital (deficit) totaled ($428.7) million and ($395.5) million as of June 26, 2016 and December 27, 2015, respectively, and included Unearned revenue from unredeemed gift cards of $264.9 million and $382.6 million as of June 26, 2016 and December 27, 2015, respectively. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.


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BLOOMIN’ BRANDS, INC.

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

Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $123.3 million and $133.2 million as of June 26, 2016 and December 27, 2015, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. The unfunded obligation for managing and chef partners’ deferred compensation was $63.6 million as of June 26, 2016.

We use capital to fund the deferred compensation plans and currently expect annual cash funding of $18.0 million to $22.0 million. Actual funding of the deferred compensation obligations and future funding requirements may vary significantly depending on the actual performance compared to targets, timing of deferred payments of partner contracts, forfeiture rates, number of partner participants, growth of partner investments and our funding strategy.

DIVIDENDS AND SHARE REPURCHASES

In August 2015, our Board approved the 2015 Share Repurchase Program under which we were authorized to repurchase up to $100.0 million of our outstanding common stock. Our Board canceled the remaining $30.0 million of authorization under the 2015 Share Repurchase Program and approved a new $250.0 million authorization on February 12, 2016.

On July 26, 2016, the Board canceled the remaining $110.1 million of authorization under the 2016 Share Repurchase Program and approved a new $300.0 million authorization (the “July 2016 Share Repurchase Program”). The July 2016 Share Repurchase Program will expire on January 26, 2018. Under the July 2016 Share Repurchase Program, shares may be repurchased in open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, or privately negotiated transactions, including accelerated repurchase arrangements.

The following table presents our dividends and share repurchases from December 27, 2014 through June 26, 2016:
(dollars in thousands)
DIVIDENDS PAID
 
OPEN MARKET SHARE REPURCHASES
 
TAXES RELATED TO SETTLEMENT OF EQUITY AWARDS
 
TOTAL
Thirteen weeks ended June 26, 2016
$
7,978

 
$
64,892

 
$
153

 
$
73,023

Thirteen weeks ended March 27, 2016
8,238

 
75,000

 
176

 
83,414

Fiscal year 2015
29,332

 
169,999

 
770

 
200,101

Total
$
45,548

 
$
309,891

 
$
1,099

 
$
356,538


Recently Issued Financial Accounting Standards
 
For a description of recently issued Financial Accounting Standards, see Note 1 - Description of the Business and Basis of Presentation of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.


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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, changes in foreign currency exchange rates and changes in commodity prices. We believe that there have been no material changes in our market risk since December 27, 2015. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 27, 2015 for further information regarding market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of June 26, 2016.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the thirteen weeks ended June 26, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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BLOOMIN’ BRANDS, INC.

PART II: OTHER INFORMATION

Item 1.    Legal Proceedings

For a description of our legal proceedings, see Note 16 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information discussed in this report, please consider the factors described in Part I, Item 1A., “Risk Factors” in our 2015 Form 10-K which could materially affect our business, financial condition or future results. There have not been any material changes to the risk factors described in our 2015 Form 10-K, but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of equity securities during the second quarter of 2016 that were not registered under the Securities Act of 1933.

The following table provides information regarding our purchases of common stock during the thirteen weeks ended June 26, 2016:
REPORTING PERIOD
 
TOTAL NUMBER OF SHARES PURCHASED
 
AVERAGE PRICE PAID PER SHARE
 
TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS
 
APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (1)
March 28, 2016 through April 24, 2016
 
8,454

 
$
18.02

 
—

 
$
175,000,004

April 25, 2016 through May 22, 2016
 
3,375,809

 
$
19.22

 
3,375,809

 
$
110,108,046

May 23, 2016 through June 26, 2016
 
—

 
$
—

 
—

 
$
110,108,046

Total
 
3,384,263

 
 
 
3,375,809

 


____________________
(1)
On February 12, 2016, our Board approved a $250.0 million authorization as announced publicly in our press release issued on February 17, 2016 (the “2016 Share Repurchase Program”). The 2016 Share Repurchase Program will expire on August 12, 2017. Common shares repurchased during the thirteen weeks ended June 26, 2016 represented shares repurchased under the 2016 Share Repurchase Program and 8,454 shares withheld for tax payments due upon vesting of employee restricted stock awards. On July 26, 2016, the Board approved a new $300.0 million authorization as announced publicly in our press release issued on July 29, 2016 (the “July 2016 Share Repurchase Program”) and canceled the remaining $110.1 million of authorization under the 2016 Share Repurchase Program. The July 2016 Share Repurchase Program will expire on January 26, 2018.
 


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Item 6. Exhibits

EXHIBIT
NUMBER
 
DESCRIPTION OF EXHIBITS
 
FILINGS REFERENCED FOR
INCORPORATION BY REFERENCE
 
 
 
 
 
10.1*
 
Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan
 
March 11, 2016 Definitive Proxy Statement
 
 
 
 
 
10.2*
 
Form of Nonqualified Stock Option Award Agreement for options granted to executive management under the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan
 
Filed herewith
 
 
 
 
 
10.3*
 
Form of Restricted Stock Unit Award Agreement for restricted stock granted to directors under the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan
 
Filed herewith
 
 
 
 
 
10.4*
 
Form of Restricted Stock Unit Award Agreement for restricted stock granted to executive management under the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan
 
Filed herewith
 
 
 
 
 
10.5*
 
Form of Performance Award Agreement for performance units granted under the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan
 
Filed herewith
 
 
 
 
 
10.6*
 
Employment Offer Letter Agreement, dated as of April 15, 2016, between Bloomin’ Brands, Inc. and Christopher Brandt
 
Filed herewith
 
 
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
 
 
 
 
 
31.2
 
Certification of Chief Financial and Administrative Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith
 
 
 
 
 
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20021
 
Filed herewith
 
 
 
 
 
32.2
 
Certification of Chief Financial and Administrative Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20021
 
Filed herewith
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
Filed herewith
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
Filed herewith
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed herewith
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed herewith
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
Filed herewith
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith
 
* Management contract or compensatory plan or arrangement required to be filed as an exhibit

1 These certifications are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.



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BLOOMIN’ BRANDS, INC.



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:
August 3, 2016
 
BLOOMIN’ BRANDS, INC.
 
 
 
           (Registrant)
 
 
 
 
 
 
 
By: /s/ David J. Deno
 
 
 
David J. Deno
Executive Vice President and Chief Financial and
Administrative Officer
(Principal Financial and Accounting Officer)
 

 
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