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

FORM 10-K
(Mark One)
 
[X]
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended: December 27, 2015
 
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)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
 
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
 
 
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
 
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
YES ý   NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  o  NO  ý

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 ý   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 ý   NO o


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 ý Accelerated filer  o
Non-accelerated filer o (Do not check if 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 Act).  YES  o  NO  ý

The aggregate market value of common stock held by non-affiliates (based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the Nasdaq Global Select Market) was $2.5 billion.

As of February 19, 2016, 119,328,868 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2016 Annual Meeting of Stockholders, expected to be held on April 22, 2016, are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
 

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BLOOMIN’ BRANDS, INC.


INDEX TO ANNUAL REPORT ON FORM 10-K
For Fiscal Year 2015

TABLE OF CONTENTS

 
PAGE NO.
PART I
 
PART II
 
PART III
 
PART IV
 

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PART I

Cautionary Statement

This Annual Report on Form 10-K (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 (the “Exchange Act”). 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, those described in the “Risk Factors” section of this Report and the following:

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

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

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

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

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

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

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

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

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

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

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

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

(xiii)
Strategic actions, including acquisitions and dispositions, and our success in integrating any 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; and

(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.

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.






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Item 1.    Business

General and History - Bloomin’ Brands, Inc. (“Bloomin’ Brands,” the “Company,” “we,” “us,” and “our” and similar terms mean Bloomin’ Brands, Inc. and its subsidiaries except where the context otherwise requires) is one of the largest casual dining restaurant companies in the world, with a portfolio of leading, differentiated restaurant concepts. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Our restaurant concepts range in price point and degree of formality from casual (Outback Steakhouse and Carrabba’s Italian Grill) to upscale casual (Bonefish Grill) and fine dining (Fleming’s Prime Steakhouse & Wine Bar). During 2015, we sold our Roy’s concept.

As of December 27, 2015, we owned and operated 1,336 restaurants and franchised 171 restaurants across 48 states, Puerto Rico, Guam and 22 countries.

Our predecessor opened the first Outback Steakhouse restaurant in 1988. In 1996, we expanded the Outback Steakhouse concept internationally. OSI Restaurant Partners, LLC (“OSI”) is our primary operating entity. New Private Restaurant Properties, LLC (“PRP”), a wholly-owned subsidiary of Bloomin’ Brands, leases our owned restaurant properties primarily to OSI subsidiaries.

Financial Information About Segments - During the first quarter of 2015, we recast our segment reporting to include two reportable segments, U.S. and International, which reflects changes made in how we manage our business, review operating performance and allocate resources. The U.S. segment includes all brands operating in the U.S. and brands operating outside the U.S. are included in the International segment. All prior period information was recast to reflect this change. Following is a summary of reporting segments as of December 27, 2015:
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 in 18 countries and Guam.

Segment information for fiscal years 2015, 2014 and 2013, which reflects financial information by geographic area, is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 and Note 20 - Segment Reporting of our Notes to Consolidated Financial Statements in Part II, Item 8.

OUR SEGMENTS

U.S. Segment

Outback Steakhouse - Outback Steakhouse is a casual steakhouse restaurant focused on steaks, signature flavors and Australian decor. The Outback Steakhouse menu offers seasoned and seared or wood-fire grilled steaks, chops, chicken, seafood, pasta, salads and seasonal specials. The menu also includes several specialty appetizers, including our signature Bloomin’ Onion®, and desserts, together with full bar service featuring Australian wine and beer.

Carrabba’s Italian Grill - Carrabba’s Italian Grill is a casual authentic Italian restaurant featuring handcrafted dishes. The Carrabba’s Italian Grill menu includes a variety of Italian pasta, chicken, beef and seafood dishes, small plates, salads and wood-fired pizza. Our ingredients are sourced from around the world and our traditional Italian exhibition kitchen allows consumers to watch handmade dishes being prepared.


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Bonefish Grill - Bonefish Grill is an upscale casual seafood restaurant that specializes in market fresh fish from around the world, wood-grilled specialties and hand-crafted cocktails. In addition, Bonefish Grill offers beef, pork and chicken entrées, as well as several specialty appetizers, including our signature Bang Bang Shrimp®, and desserts.

Fleming’s Prime Steakhouse & Wine Bar - Fleming’s Prime Steakhouse & Wine Bar is a contemporary steakhouse featuring prime cuts of beef, chops, fresh fish, seafood and poultry, salads and side dishes. The steak selection features USDA Prime corn-fed beef, both wet- and dry-aged for flavor and texture, in a variety of sizes and cuts. Fleming’s Prime Steakhouse & Wine Bar offers a large selection of domestic and imported wines, with 100 selections available by the glass.

International Segment

We have cross-functional, local management to support and grow restaurants in each of the countries where we have Company-owned operations. Our international operations are integrated with our corporate organization to leverage enterprise-wide capabilities, including marketing, finance, real estate, information technology, legal, human resources, supply chain management and productivity.

Prior to November 1, 2013, our Outback Steakhouse locations in Brazil were operated as an unconsolidated joint venture (“Brazil Joint Venture”). On November 1, 2013, we acquired a controlling interest in the Brazil Joint Venture.

As of December 27, 2015, we owned and operated 166 restaurants and franchised 58 restaurants across 22 countries and Guam.

Outback Steakhouse - International Outback Steakhouse restaurants have a menu similar to the U.S. menu with additional variety to meet local taste preferences. In addition to the traditional Outback Special sirloin, a typical international menu may feature local beef cuts such as the Aussie Grilled Picanha in Brazil.

Carrabba’s Italian Grill (Abbraccio Cucina Italiana) - In 2015, we opened a Carrabba’s Italian Grill concept restaurant in Brazil, known as Abbraccio Cucina Italiana, which offers a blend of traditional modern Italian dishes. The Abbraccio Cucina Italiana menu varies, with additional pasta and pizza menu offerings, to account for local tastes and customs. Abbraccio Cucina Italiana also has a range of beverage options, including classically inspired cocktails and local favorites with an Italian twist.

Restaurant Overview

Selected Sales Data - Following is sales mix by product type and average check per person for Company-owned restaurants during fiscal year 2015:
 
U.S.
 
INTERNATIONAL
 
Outback
Steakhouse
 
Carrabba’s
Italian Grill
 
Bonefish Grill
 
Fleming’s
Prime Steakhouse
& Wine Bar
 
Outback
Steakhouse
Brazil
 
Outback
Steakhouse
South Korea
Food & non-alcoholic beverage
89
%
 
85
%
 
78
%
 
72
%
 
82
%
 
98
%
Alcoholic beverage
11
%
 
15
%
 
22
%
 
28
%
 
18
%
 
2
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
Average check per person ($USD)
$
22

 
$
21

 
$
25

 
$
72

 
$
15

 
$
17

Average check per person (LC)
 
 
 
 
 
 
 
 
R$
48

 
₩
19,589



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Lunch Expansion - All of our U.S. concepts serve dinner every day of the week. Outback Steakhouse and Carrabba’s Italian Grill are open for lunch on Saturday and Sunday (“weekend lunch”), with many locations also open for lunch Monday through Friday (“weekday lunch”). Most international locations serve lunch and dinner. Following is the percentage of U.S. Outback Steakhouse and Carrabba’s Italian Grill locations open for weekday and weekend lunch as of the dates indicated:
 
DECEMBER 27, 2015
 
DECEMBER 28, 2014
 
DECEMBER 31, 2013
 
WEEKEND
 
WEEKDAY
 
WEEKEND
 
WEEKDAY
 
WEEKEND
 
WEEKDAY
Outback Steakhouse
100
%
 
79
%
 
100
%
 
61
%
 
100
%
 
35
%
Carrabba’s Italian Grill
100
%
 
62
%
 
100
%
 
55
%
 
100
%
 
40
%

System-wide Restaurant Summary - Following is a system-wide rollforward of restaurants in operation during fiscal year 2015:
 
DECEMBER 28,
2014
 
2015 ACTIVITY
 
DECEMBER 27,
2015
 
U.S. STATE
 
 
OPENED
 
CLOSED
 
 
COUNT
Number of restaurants:
 
 
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
 
 
Outback Steakhouse
 
 
 
 
 
 
 
 
 
Company-owned
648

 
6

 
(4
)
 
650

 
 
Franchised
105

 
—

 
—

 
105

 
 
Total
753

 
6

 
(4
)
 
755

 
48
Carrabba’s Italian Grill
 
 
 
 
 
 
 
 
 
Company-owned
242

 
2

 
—

 
244

 
 
Franchised
1

 
2

 
—

 
3

 
 
Total
243

 
4

 
—

 
247

 
32
Bonefish Grill
 
 
 
 
 
 
 
 
 
Company-owned
201

 
10

 
(1
)
 
210

 
 
Franchised
5

 
—

 
—

 
5

 
 
Total
206

 
10

 
(1
)
 
215

 
38
Fleming’s Prime Steakhouse & Wine Bar
 
 
 
 
 
 
 
 
 
Company-owned
66

 
—

 
—

 
66

 
28
Roy’s (1)
 
 
 
 
 
 
 
 
 
Company-owned
20

 
—

 
(20
)
 
—

 
 
International
 
 
 
 
 
 
 
 
 
Company-owned
 
 
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (2)
63

 
12

 
—

 
75

 
 
Outback Steakhouse - South Korea (3)
91

 
5

 
(21
)
 
75

 
 
Other
11

 
9

 
(4
)
 
16

 
 
Franchised
55

 
3

 
—

 
58

 
 
Total
220

 
29

 
(25
)
 
224

 
 
System-wide total
1,508

 
49

 
(50
)
 
1,507

 
 
____________________
(1)
On January 26, 2015, we sold our Roy’s concept.
(2)
The restaurant counts for Brazil are reported as of November 30, 2015 and 2014, respectively, to correspond with the balance sheet dates of this subsidiary.
(3)
In the first quarter of 2015, we adopted a policy that relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are considered a closure. Prior periods for South Korea have been revised to conform to the current year presentation.


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RESTAURANT DESIGN AND DEVELOPMENT

Site Design - We generally construct freestanding buildings on leased properties, although certain leased sites are also located in strip shopping centers. Construction of a new restaurant typically takes 60 to 180 days from the date the location is leased or under contract and fully permitted. In the majority of cases, future restaurant development will result from the lease of existing third-party retail space. We typically design the interior of our restaurants in-house, utilizing outside architects when necessary.

Remodel and Relocation Plans - We have an ongoing program across all of our concepts to maintain the relevance of our restaurants’ ambience. We also have an ongoing relocation plan, primarily related to the Outback Steakhouse brand. This multi-year relocation plan is focused on driving additional traffic to our restaurants by moving legacy restaurants from non-prime to prime locations within the same trade area.

Site Selection Process - We have a central site selection team comprised of real estate development, property/lease management and design and construction personnel. This site selection team also utilizes a combination of existing field operations managers, internal development personnel and outside real estate brokers to identify and qualify potential sites.

Restaurant Development

We utilize the ownership structure and market entry strategy that best fits the needs for a particular market, including Company-owned units, joint ventures and franchises. For each market, we determine whether we will focus on Company-owned units, joint ventures or franchises based on demand, cost structure and economic conditions.

U.S. Development - We plan to opportunistically pursue unit growth in Outback Steakhouse locations through existing geography fill-in and market expansion opportunities based on their current location mix. We believe we have the potential to relocate or add 50 Outback Steakhouse units over the next three years and increase Fleming’s Prime Steakhouse & Wine Bar units to 100 over time. In the second quarter of 2015, we made the decision to slow Bonefish Grill restaurant development until there is an improvement in our sales results. We believe long-term growth opportunities remain for Bonefish Grill, as the majority of restaurants are located in the southern and eastern U.S., with significant geographic expansion potential in the top 100 U.S. markets.

International Development - We continue to expand internationally, leveraging established equity and franchise markets in Asia and South America, and in strategically selected emerging and high-growth developed markets, focusing on Brazil and China. In March 2015, we opened our first Abbraccio Cucina Italiana in Brazil. The first Fleming’s Prime Steakhouse & Wine Bar in Brazil (“Fleming’s Brazil”) is expected to open during the first half of fiscal 2016. We will own a 20% interest in Fleming’s Brazil.

New restaurant growth in Brazil will be our top international development priority in 2016, as we continue to develop additional concepts in that market. We see significant potential for growth of Outback Steakhouse in Brazil to 100 restaurants within the next three years.

See Item 2 - Properties for disclosure of our international restaurant count by country.

RESEARCH & DEVELOPMENT / INNOVATION

We utilize a global core menu policy to ensure consistency and quality in our menu offerings. Before we add an item to the core menu, our research and development (“R&D”) team performs a thorough review of the item, including conducting consumer research, in order to assist us in determining the viability of adding the item. Internationally, we have teams in our developed markets that tailor our menus to address the preferences of local consumers.

We continuously evolve our product offerings to improve our efficiency and based on consumer trends and feedback. We have a 12-month pipeline of new menu and promotional items across all concepts that allows us to quickly make adjustments in response to market demands, when necessary. In addition, we have dedicated resources focused on

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productivity across the portfolio. For new menu items and significant product changes, we have a testing process that includes direct consumer feedback on the product and its pricing. R&D expense was $6.5 million, $5.8 million and $6.4 million for fiscal years 2015, 2014 and 2013, respectively.

INFORMATION SYSTEMS

Restaurant-level financial and accounting controls are handled through the point-of-sale (“POS”) system and network in each restaurant that communicates with our corporate headquarters. The POS system is also used to authorize and transmit credit card sales transactions. Our Company-owned restaurants, and most of our franchise restaurants, are connected through data centers and a portal to provide our corporate employees and regional partners with access to business information and tools that allow them to collaborate, communicate, train and share information.

We continue to invest in our infrastructure to provide a better overall consumer experience, reduce our costs, create efficiencies and enhance security. During 2015, we implemented a new facilities management solution to reduce maintenance costs and made improvements to our centralized inventory management system which monitors our commodity costs. We also made infrastructure enhancements to our restaurants to improve customer satisfaction.

ADVERTISING AND MARKETING

We generally advertise through national and spot television and radio media. Our concepts have an active public relations program and also rely on national promotions, site visibility, local marketing, digital marketing, direct mail, billboards and point-of-sale materials to promote our restaurants. In recent years, we have increased the use of digital advertising which has allowed us to be more efficient with our advertising expenditures. Internationally, we have teams in our developed markets that engage local agencies to tailor advertising to each market and develop relevant and timely promotions based on local consumer demand.

To help maintain consumer interest and relevance, each concept leverages limited-time offers featuring seasonal specials. We promote limited-time offers through integrated marketing programs that utilize all of our advertising resources.

RESTAURANT OPERATIONS

Management and Employees - The management staff of our restaurants varies by concept and restaurant size. Our restaurants employ primarily hourly employees, many of whom work part-time. The Restaurant Managing Partner has primary responsibility for the day-to-day operation of the restaurant and is required to abide by Company-established operating standards. Area Operating Partners are responsible for overseeing the operations of typically six to 14 restaurants and Restaurant Managing Partners in a specific region.

Area Operating Partners, Restaurant Managing Partner and Chef Partner Programs - Area Operating Partners, Restaurant Managing Partners and Chef Partners generally receive bonuses for providing management and supervisory services to their restaurants based on a percentage of their restaurants’ monthly distributable cash flow (“Monthly Payments”).

Restaurant Managing Partners and Chef Partners in the U.S. are eligible to participate in deferred compensation programs. Under these deferred compensation programs, the Restaurant Managing Partners and Chef Partners are eligible to receive payments beginning upon completion of their five-year employment agreement. 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.

On the fifth anniversary of the opening of each new U.S. Company-owned restaurant, the Area Operating Partner supervising the restaurant during the first five years of operation receives an additional bonus based upon the average distributable cash flow of the restaurant for the preceding 24 months. In addition to Monthly Payments and deferred compensation, Area Operating Partners, Restaurant Managing Partners and Chef Partners in the U.S. whose restaurants

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and concepts achieve certain targets, including sales, profitability and traffic growth, are eligible to receive an annual bonus.

Many of our international Restaurant Managing Partners enter into employment agreements and purchase participation interests in the cash distributions from the restaurants they manage. The amount and terms vary by country. This interest gives the partners the right to receive a percentage of the restaurant’s annual cash flows for the duration of the agreement.

Supervision and Training - We require our Area Operating Partners and Restaurant Managing Partners to have significant experience in the full-service restaurant industry. All Area Operating Partners and Restaurant Managing Partners are required to complete a comprehensive training program that emphasizes our operating strategy, procedures and standards. The Restaurant Managing Partners and Area Operating Partners, together with our Presidents, Regional Vice Presidents, Vice Presidents of Training and Directors of Training, are responsible for selecting and training the employees for each new restaurant.

Service - In order to better assess and improve our performance, we use a third-party research firm to conduct an ongoing satisfaction measurement program that provides us with industry benchmarking information for our Company-owned and franchise locations in the U.S. We have a similar consumer satisfaction measurement program for our international Company-owned locations. These programs measure satisfaction across a wide range of experience elements.

Food Preparation and Quality Control - We have an R&D facility located in Tampa, Florida that serves as a test kitchen and vendor product qualification site. Our quality assurance team manages internal auditors responsible for supplier evaluations and external third parties who inspect supplier adherence to quality, food safety and product specification. Our suppliers also utilize third-party labs for food safety and quality verification. Suppliers that do not comply with quality, food safety and other specifications are not utilized until they have corrective actions in place and are re-certified for compliance. We develop sourcing strategies for all commodity categories based on the dynamics of each category. In addition, we require our supplier partners to meet or exceed our quality assurance standards.

Our operational teams have multiple touch points in the restaurants ensuring food safety, quality and freshness throughout all phases of the preparation process. In addition, we employ third-party auditors to verify our standards of food safety, training and sanitation.

SOURCING AND SUPPLY

We take a global approach to procurement and supply chain management, with our corporate team serving all U.S. and international concepts. In addition, we have dedicated supply chain management personnel for our international operations in Asia and South America. The supply chain management organization is responsible for all food and operating supply purchases as well as a large percentage of purchases of field and corporate services.

We address the end-to-end costs (from the source to the fork) associated with the products and goods we purchase by utilizing a combination of global, regional and local suppliers to capture efficiencies and economies of scale. This “total cost of ownership” (“TCO”) approach focuses on the initial purchase price, coupled with the cost structure underlying the procurement and order fulfillment process. The TCO approach includes monitoring commodity markets and trends to execute product purchases at the most advantageous times.

We have a national distribution program that includes food, beverage, smallwares and packaging goods in all major markets. This program is managed by a custom distribution company that only provides products approved for our system. This customized relationship also enables our staff to effectively manage and prioritize our supply chain.

Proteins represent 62% of our global commodity procurement composition, with beef representing 53% of purchased proteins. In 2015, we purchased more than 90% of our beef raw materials from four beef suppliers that represent approximately 85% of the total U.S. beef marketplace. Due to the nature of our industry, we expect to continue purchasing a substantial amount of our beef from a small number of suppliers. Other major commodity categories

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purchased include produce, dairy, bread and pasta, and energy sources to operate our restaurants, such as natural gas and electricity.

RESTAURANT OWNERSHIP STRUCTURES

Our restaurants are Company-owned or operated under franchise arrangements. We generate our revenues primarily from our Company-owned restaurants and secondarily through ongoing royalties from our franchised restaurants and sales of franchise rights.

Company-Owned Restaurants - Company-owned restaurants include restaurants wholly-owned by us and restaurants in which we have a majority ownership. Our cash flows from entities in which we have a majority ownership are limited to the portion of our ownership. The results of operations of Company-owned restaurants are included in our consolidated operating results and the portion of income or loss attributable to the noncontrolling interests is eliminated in our Consolidated Statements of Operations and Comprehensive Income.

We pay royalties on the majority of our Carrabba’s Italian Grill restaurants pursuant to agreements we entered into with the Carrabba’s Italian Grill founders (“Carrabba’s Founders”). Following is a summary of Carrabba’s royalties and sales in the U.S. subject to royalties as of December 27, 2015:
 
ROYALTY PERCENTAGE
 
LOCATIONS
AS OF
DECEMBER 27, 2015
U.S. sales, except for qualifying lunch sales, as described below
1.0%
-
1.5%
 
235
U.S. lunch sales for new restaurants opened on or after June 1, 2014 (1)
0.5%
 
6
U.S. lunch sales for existing restaurants that began serving weekday lunch on or after June 1, 2014 (2)
0.5%
 
36
____________________
(1)
Lunch sales for new restaurants are defined as sales occurring prior to 4 pm local time Monday through Saturday.
(2)
Weekday lunch sales for existing restaurants are defined as sales occurring prior to 4 pm local time Monday through Friday.

Each Carrabba’s restaurant located outside the United States pays a one-time lump sum fee to the Carrabba’s Founders, which varies depending on the size of the restaurant. No continuing royalty fee is paid to the Carrabba’s Founders for Carrabba’s restaurants located outside the United States.

Unaffiliated Franchise Program - Our unaffiliated franchise agreements grant third parties rights to establish and operate a restaurant using one of our concepts. Franchised restaurants are required to be operated in accordance with the franchise agreement and in compliance with their respective concept’s standards and specifications.

In recent years, we updated our standard U.S. and international franchise agreements for all new and renewing franchisees. The majority of our existing franchisees continue to operate under previous franchise agreements. As each franchise location renews, we expect that the location will convert to our then-current franchise agreement.


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Under our franchise agreements, each of our franchisees is required to pay an initial franchise fee and pay monthly royalties based on a percentage of gross restaurant sales. Initial franchise fees are $40,000 for U.S. franchisees and range between $40,000 and $75,000 for international franchisees, depending on its market. Some franchisees may also pay administration fees based on a percentage of gross restaurant sales. Following is a summary of franchise fees based on our current existing unaffiliated franchise agreements:
(as a % of gross Restaurant sales)
MONTHLY FEES (1)
ROYALTY
 
ADMIN.
Outback Steakhouse-U.S. (2)
3.00% - 5.00%
 
0.50
%
Outback Steakhouse-international (3)
3.00% - 6.00%
 
n/a

Bonefish Grill
2.50% - 4.00%
 
0.50
%
Carrabba’s Italian Grill (2)
5.75%
 
n/a

_________________
(1)
Under U.S. franchise agreements executed prior to 2013, each U.S. franchisee is generally required to expend or contribute, on a monthly basis, a minimum of 1.5% to 3.5% of each restaurant’s monthly gross sales for local and national advertising. Under U.S. franchise agreements executed in 2013 or after, a U.S. franchisee must contribute a percentage of gross sales for national marketing programs and must also spend a certain amount of gross sales on local advertising, up to a maximum of 8.0% of gross restaurant sales for combined national marketing and local advertising.
(2)
Outback Steakhouse and Carrabba’s Italian Grill franchisees with restaurants located in airports pay royalties on gross restaurant sales of 5.00% and 5.75%, respectively, in exchange for increased operational support at those locations. All non-airport Outback Steakhouse franchisees pay royalties on gross restaurant sales of 3.00% to 3.50%. As of December 27, 2015, two franchised Outback Steakhouse restaurants and all franchised Carrabba’s Italian Grill restaurants were located in airports.
(3)
Royalties under international franchise agreements vary by market.

T-Bird Restaurant Group, Inc. (“T-Bird”) is party to an Outback Steakhouse Master Franchise Agreement. T-Bird, through its affiliates, owns and operates 56 Outback Steakhouse restaurants in California. T-Bird is also party to a separate Outback Steakhouse development agreement, which gives T-Bird the exclusive right to open additional Outback Steakhouse restaurants in California through 2031 and commits T-Bird to opening seven new Outback Steakhouse restaurants in California by January 2022. Each new Outback Steakhouse restaurant that T-Bird opens in California is governed by the Master Franchise Agreement. As of December 27, 2015, no new Outback Steakhouse restaurants have opened under T-Bird’s development agreement.

COMPETITION

The restaurant industry is highly competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. There is also active competition for management personnel, attractive suitable real estate sites, supplies and restaurant employees. In addition, competition is also influenced strongly by marketing and brand reputation. At an aggregate level, all major U.S. casual dining restaurants and casual dining restaurants in the international markets in which we operate would be considered competitors of our concepts. Further, we face growing competition from the supermarket industry and home delivery services, with improved selections of prepared meals, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings. Internationally, we face increasing competition due to an increase in the number of casual dining restaurant options in the markets in which we operate.

GOVERNMENT REGULATION

We are subject to various federal, state, local and international laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located.

U.S. - Alcoholic beverage sales represent 15% of our U.S. restaurant sales. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities

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for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays.

Our restaurant operations are also subject to federal and state laws for such matters as:

•
immigration, employment, minimum wages, overtime, tip credits, worker conditions and health care;

•
nutritional labeling, nutritional content, menu labeling and food safety;

•
the Americans with Disabilities Act, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled; and

•
information security, privacy, cashless payments, gift cards and consumer credit, protection and fraud.

International - Our restaurants outside of the United States are subject to similar local laws and regulations as our U.S. restaurants, including labor, food safety and information security. In addition, we are subject to anti-bribery and anti-corruption laws and regulations.

See Item 1A - Risk Factors for a discussion of risks relating to federal, state, local and international regulation of our business.

EXECUTIVE OFFICERS OF THE REGISTRANT
Below is a list of the names, ages, positions and a brief description of the business experience of each of our executive officers as of February 19, 2016.
NAME
 
AGE
 
POSITION
Elizabeth A. Smith
 
52
 
Chairman of the Board of Directors and Chief Executive Officer
David J. Deno
 
58
 
Executive Vice President and Chief Financial and Administrative Officer
Donagh M. Herlihy
 
52
 
Executive Vice President, Digital and Chief Information Officer
Joseph J. Kadow
 
59
 
Executive Vice President, Chief Legal Officer and Assistant Secretary
Michael Kappitt
 
46
 
Executive Vice President and President of Carrabba’s Italian Grill
Patrick C. Murtha
 
57
 
Executive Vice President and President of Bloomin’ Brands International
Gregg Scarlett
 
54
 
Executive Vice President and President of Bonefish Grill
Sukhdev Singh
 
52
 
Executive Vice President, Chief Development Officer and Franchising
Jeffrey S. Smith
 
53
 
Executive Vice President and President of Outback Steakhouse

Elizabeth A. Smith was appointed Chairman in January 2012. Since November 2009, Ms. Smith has served as Chief Executive Officer and a member of our Board of Directors. Ms. Smith is a member of the Board of Directors of Hilton Worldwide Holdings, Inc.

David J. Deno has served as Executive Vice President and Chief Financial and Administrative Officer since May 2012. From December 2009 to May 2012, Mr. Deno served as Chief Financial Officer of the international division of Best Buy Co. Inc.

Donagh M. Herlihy joined Bloomin’ Brands as Executive Vice President, Digital and Chief Information Officer in September 2014. Prior to joining Bloomin’ Brands, Mr. Herlihy was Senior Vice President, Chief Information Officer and eCommerce of Avon Products, Inc. from March 2008 to August 2014.

Joseph J. Kadow has served as Executive Vice President, Chief Legal Officer and Assistant Secretary since April 2005.


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Michael Kappitt has served as Executive Vice President and President of Carrabba’s Italian Grill since February 2016. Mr. Kappitt served as Senior Vice President and Chief Marketing Officer from January 2014 to February 2016 and Chief Marketing Officer of Outback from March 2011 to December 2013. Prior to joining Bloomin’ Brands, Mr. Kappitt served as Chief Marketing Officer, North America from April 2010 to December 2010 and Senior Vice President Global Business Intelligence & Strategy from July 2007 to April 2010 at Burger King Corporation.

Patrick C. Murtha has served as Executive Vice President and President of Bloomin’ Brands International since November 2013. From January 2006 to March 2013, Mr. Murtha was the Chief Operating Officer of Pizza Hut, Inc.

Gregg Scarlett has served as Executive Vice President and President of Bonefish Grill since March 2015. Mr. Scarlett served as Senior Vice President, Casual Dining Restaurant Operations from January 2013 to March 2015 and Senior Vice President of Operations for Outback Steakhouse from March 2010 to January 2013.

Sukhdev Singh has served as Executive Vice President, Chief Development Officer and Franchising since May 2015. Mr. Singh served as Senior Vice President, Chief Development Officer from January 2014 to May 2015. Prior to joining Bloomin’ Brands, Mr. Singh was Chief Development Officer for Darden Restaurants from July 2006 to January 2014.

Jeffrey S. Smith has served as President of Outback Steakhouse since April 2007 and Executive Vice President since January 2012.

EMPLOYEES

As of December 27, 2015, we employed approximately 100,000 persons, of which approximately 1,100 are corporate personnel. None of our U.S. employees are covered by a collective bargaining agreement. Various national industry-wide labor agreements apply to certain of our employees in Brazil. We consider our employee relations to be good.

TRADEMARKS

We regard our Outback®, Outback Steakhouse®, Carrabba’s Italian Grill®, Bonefish Grill®, and Fleming’s Prime Steakhouse & Wine Bar® service marks and our Bloomin’ Onion® trademark as having significant value and as being important factors in the marketing of our restaurants. We have also obtained trademarks for several of our other menu items and for various advertising slogans. We are aware of names and marks similar to the service marks of ours used by other persons in certain geographic areas in which we have restaurants. However, we believe such uses will not adversely affect us. Our policy is to pursue registration of our marks whenever possible and to oppose vigorously any infringement of our marks.

We license the use of our registered trademarks to franchisees and third parties through franchise arrangements and licenses. The franchise and license arrangements restrict franchisees’ and licensees’ activities with respect to the use of our trademarks, and impose quality control standards in connection with goods and services offered in connection with the trademarks.

SEASONALITY AND QUARTERLY RESULTS

Our business is subject to seasonal fluctuations. Historically, customer traffic patterns for our established U.S. restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. International customer traffic patterns vary by market. For example, Brazil historically experiences minimal seasonal traffic fluctuations, and South Korea restaurant traffic is generally highest in the first quarter of the year and lowest in the second quarter of the year. Additionally, holidays and severe weather may affect sales volumes seasonally in some of our markets.

Quarterly results have been and will continue to be significantly affected by general economic conditions, the timing of new restaurant openings and their associated pre-opening costs, restaurant closures and exit-related costs and impairments of goodwill, definite and indefinite-lived intangible assets and property, fixtures and equipment. In 2014, we changed our fiscal year end, which impacted the comparability of our quarterly and annual results to prior periods.

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As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.

ADDITIONAL INFORMATION

We make available, free of charge, through our internet website www.bloominbrands.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission (“SEC”). You may read and copy any materials filed with the SEC at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports and other materials filed with the SEC are also available at www.sec.gov. The reference to these website addresses does not constitute incorporation by reference of the information contained on the websites and should not be considered part of this Report.


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Item 1A.    Risk Factors

The risk factors set forth below should be carefully considered. The risks described below are those that we believe could materially and adversely affect our business, financial condition or results of operations, however, they are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.

Risks Related to Our Business and Industry

Challenging economic conditions may have a negative effect on our business and financial results.

Challenging economic conditions may negatively impact consumer spending and thus cause a decline in our financial results. For example, international, domestic and regional economic conditions and the impacts of reduced or stagnant disposable consumer income, financial market volatility, social unrest and governmental spending and budget matters and the slow or stagnant pace of economic growth generally have had a negative effect on consumer confidence and discretionary spending. This has affected consumer traffic and comparable restaurant sales for us and throughout our industry in recent periods. We believe these factors and conditions will continue to result in a challenging sales environment in the casual dining sector. Continued weakness in or a further worsening of the economy or the other factors mentioned above, generally or in particular markets in which we operate, and our consumers’ reactions to these trends could result in increased pressure with respect to our pricing, traffic levels, commodity and other costs and the continuation of our innovation and productivity initiatives, which could negatively impact our business and results of operations. These factors could also cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants or delay remodeling of our existing restaurant locations. Further, poor economic conditions may force nearby businesses to shut down, which could cause our restaurant locations to be less attractive.

The restaurant industry is highly competitive. Our inability to compete effectively could adversely affect our business, financial condition and results of operations.

A substantial number of restaurant operators compete directly and indirectly with us with respect to price, service, location and food quality, some of which are well-established with significant resources. There is also active competition for management and other personnel and attractive suitable real estate sites. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently, creatively and effectively to those conditions. In addition, our competitors may generate or better implement business strategies that improve the value and relevance of their brands and reputation, relative to ours. For example, our competitors may better manage pressures from rising commodity prices or implement menu or technology initiatives, such as remote ordering or social media or mobile technology platforms that expedite or enhance the customer experience. Further, we face growing competition from the supermarket industry and home delivery services, with the improvement of their prepared food offerings, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings by those restaurants. If we are unable to continue to compete effectively, our traffic, sales and margins could decline and our business, financial condition and results of operations would be adversely affected.

Food safety and food-borne illness concerns in our restaurants or throughout the industry or supply chain may have an adverse effect on our business by reducing demand and increasing costs.

Regardless of the source or cause, any report of food-borne illnesses and other food safety issues, whether at one of our restaurants or in the industry or supply chain generally, could have a negative impact on our traffic and sales and adversely affect the reputation of our brands. Food safety issues could be caused by suppliers or distributors and, as a result, be out of our control. Health concerns or outbreaks of disease in a food product could also reduce demand for particular menu offerings. Even instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of other companies could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.

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Our failure to comply with government regulation related to our restaurant operations, and the costs of compliance or non-compliance, could adversely affect our business.

We are subject to various federal, state, local and foreign laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, food safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located. Our suppliers are also subject to regulation in some of these areas. Any difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants. Additionally, difficulties in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of new restaurants.

Alcoholic beverage sales represent 14% of our consolidated restaurant sales and are subject to extensive state and local licensing and other regulations. The failure of a restaurant to obtain or retain a liquor license would adversely affect that restaurant’s operations. In addition, we are subject to “dram shop” statutes in certain states. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

The FDA adopted final regulations to implement federal nutritional disclosure requirements in 2014, and we will be required to comply with these regulations by the end of 2016. The regulations will require us to include calorie information on our menus, and provide additional nutritional information upon request. If the costs of implementing or complying with these new requirements exceed our expectations, our results of operations could be adversely affected. Furthermore, the effect of such labeling requirements on consumer choices, if any, is unclear. It is possible that we may also become subject to other regulation in the future seeking to tax or regulate high fat and high sodium foods in certain of our markets. Compliance with these regulations could be costly.

We are subject to various federal and state employment and labor laws and regulations.

Various federal and state employment and labor laws and regulations govern our relationships with our employees and affect operating costs, and similar laws and regulations apply to our operations outside of the U.S. These laws and regulations relate to matters including employment discrimination, minimum wage requirements, overtime, tip credits, unemployment tax rates, workers’ compensation rates, working conditions, immigration status, tax reporting and other wage and benefit requirements. Any significant additional government regulations and new laws governing our relationships with employees, including minimum wage increases, mandated benefits or other requirements that impose additional obligations on us, could increase our costs and adversely affect our business and results of operations.

As a significant number of our food service and preparation personnel are paid at rates related to the applicable minimum wage, federal, state and local proposals related to minimum wage requirements or similar matters could, if implemented, materially increase our labor and other costs. Our ability to respond to minimum wage increases by increasing menu prices would depend on the responses of our competitors and consumers. Our distributors and suppliers could also be affected by higher minimum wage, benefit standards and compliance costs, which could result in higher costs for goods and services supplied to us.

We rely on our employees to accurately disclose the full amount of their tip income, and we base our FICA tax reporting on the disclosures provided to us by such tipped employees. Inaccurate employee FICA tax reporting could subject us to monetary liabilities, which could harm our business, results of operations and financial condition. In 2015, the IRS issued audit adjustments in aggregate of $6.4 million, for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by our employees during calendar years 2011 and 2012.

We are also subject, in the ordinary course of business, to employee claims against us based, among other things, on discrimination, harassment, wrongful termination, or violation of wage and labor laws. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. The ongoing expense of any resulting lawsuits, and any substantial settlement payment or damage award against us, could adversely affect our business and results of operations.

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Changes in tax laws and unanticipated tax liabilities could adversely affect the taxes we pay and our profitability.

We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or other legislative changes, including those that may result from the Base Erosion Profit Shifting, or BEPS, initiative being conducted by the Organization for Economic Co-operation and Development, or OECD, the outcome of income tax audits, and any repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals. The results of a tax audit could have a material effect on our results of operations or cash flows in the period or periods for which that determination is made. In addition, our effective income tax rate and our results may be impacted by our ability to realize deferred tax benefits and by any increases or decreases of our valuation allowances applied to our existing deferred tax assets.

Increased commodity, energy and other costs could decrease our profit margins or cause us to limit or otherwise modify our menus or increase prices, which could adversely affect our business.

The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities. Our business also incurs significant costs for energy, insurance, labor, marketing and real estate. Prices may be affected due to supply, market changes, increased competition, the general risk of inflation, changes in laws, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons. Increased prices or shortages could affect the cost and quality of the items we buy or require us to raise prices, limit our menu options or implement alternative processes or products. For example, in 2015, commodity costs increased by 3.7% and we increased our prices at each of our concepts in the range of 2.1% to 6.4%. We cannot provide any assurance that we would be able to successfully offset increased costs by increasing menu prices at levels that are acceptable to our customers or by other measures, as our ability to do so depends on a variety of factors, many of which are beyond our control. As result, these events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our sales and profit margins.

Risks associated with our expansion, remodeling and relocation plans may have adverse effects on our operating results.

As part of our business strategy, we intend to continue to expand our current portfolio of restaurants. Our current development schedule calls for the construction of between 40 and 50 new system-wide locations in 2016. A variety of factors could cause the actual results and outcome of those expansion plans to differ from the anticipated results, including among other things:

•
the availability of attractive sites for new restaurants;
•
acquiring or leasing those sites at acceptable prices and other terms;
•
funding or financing our development;
•
obtaining all required permits, approvals and licenses on a timely basis;
•
recruiting and training skilled management and restaurant employees and retaining those employees on acceptable terms;
•
weather, natural disasters and other events or factors beyond our control resulting in construction or other delays; and
•
consumer tastes in new geographic regions and acceptance of our restaurant concepts and awareness of our brands in those regions.

It is difficult to estimate the performance of newly opened restaurants. Earnings achieved to date by restaurants open for less than two years may not be indicative of future operating results. If new restaurants do not meet targeted performance, it could have a material adverse effect on our operating results, including as a result of any impairment losses that we may be required to recognize. There is also the possibility that new restaurants may attract consumers

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away from other restaurants we own, thereby reducing the revenues of those existing restaurants, or that we will incur unrecoverable costs in the event a development project is abandoned prior to completion.

In addition, in an effort to increase same-store sales and improve our operating performance, we continue to make improvements to our facilities through our remodeling and relocation programs. We also close underperforming restaurants from time to time in order to improve the performance of our brands. If the expenses associated with remodels, relocations or closures are higher than anticipated, or remodeled or relocated restaurants do not perform as expected, these programs may not yield the desired return on investment, which could have a negative effect on our operating results.

We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.

Our operations and corporate functions rely heavily on information systems, including point-of-sale processing in our restaurants, management of our supply chain, payment of obligations, collection of cash, data warehousing to support analytics, finance and accounting systems, mobile technologies to enhance the customer experience and other various processes and procedures, some of which are handled by third parties. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security relating to these systems could result in delays in consumer service and reduce efficiency in our operations. These problems could adversely affect our results of operations, and remediation could result in significant, unplanned capital investments.

Security breaches of confidential consumer information or personal employee information may adversely affect our business.

The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced significant security breaches in which credit and debit card information or other personal information of their consumers has been stolen. We also maintain certain personal information regarding our employees. All of our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, employee error or malfeasance, denial of service attacks, viruses, worms and other disruptive problems caused by hackers and cyber criminals. A breach in our systems that compromises the information of our consumers or employees could result in widespread negative publicity, damage to the reputation of our brands, a loss of consumers and legal liabilities.

We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’ credit or debit card information or if consumer or employee information is obtained by unauthorized persons or used inappropriately. Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business.

We face a variety of risks associated with doing business in foreign markets that could have a negative impact on our financial performance.

We have a significant number of restaurants outside the United States, and we intend to continue our efforts to grow internationally. Although we believe we have developed an appropriate support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will continue. In addition, if we have a significant concentration of restaurants in a foreign market the impact of any negative local conditions can have a sizable impact on our results.

Our foreign operations are subject to all of the same risks as our U.S. restaurants, as well as additional risks including, among others, international economic, political, social and legal conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, corruption, anti-American sentiment, the ability to source high quality ingredients and other commodities in a cost-effective manner,

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uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and costs of land, construction and financing, and the availability of experienced management, appropriate franchisees and area operating partners.

Currency regulations and fluctuations in exchange rates could also affect our performance. We have foreign operations in a total of 22 countries and Guam, including direct investments in restaurants in South Korea, Brazil, Hong Kong and China, as well as international franchises. As a result, we may experience losses from fluctuations in foreign currency exchange rates or any hedging arrangements we enter into to offset such fluctuations, and such losses could adversely affect our overall sales and earnings.

We are subject to governmental regulation of our foreign operations, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.

Loss of key management personnel could hurt our business and inhibit our ability to operate and grow successfully.

Our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. If we are unable to attract and retain sufficiently experienced and capable management personnel, our business and financial results may suffer.

Our success depends substantially on the value of our brands.

Our success depends on our ability to preserve and grow our brands. Brand value and reputation is based in large part on consumer perceptions, which are driven by both our actions and actions beyond our control, such as new brand strategies or their implementation, business incidents, ineffective advertising or marketing efforts, or unfavorable mainstream or social media publicity involving us, our industry, our franchisees, or our suppliers. Because we have limited control over the operations of our franchisees, we cannot give assurance that there will not be differences in product or service quality at franchised restaurants or that our franchisees will otherwise adhere to all of our operating guidelines and other requirements. Regardless of its basis or validity, any unfavorable publicity could adversely affect public perception of our brands. If customers perceive that we and our franchisees fail to deliver a consistently positive and relevant experience, our brands could suffer and this could have an adverse effect on our business.

Our business is subject to seasonal and periodic fluctuations and past results are not indicative of future results.

Historically, consumer traffic patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. Holidays may also affect sales volumes seasonally in some of the markets in which we operate. In addition, our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated preopening costs, as well as restaurant closures and exit-related costs, debt extinguishment and modification costs and impairments of goodwill, intangible assets and property, fixtures and equipment. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.

Significant adverse weather conditions and other disasters or unforeseen events could negatively impact our results of operations.

Adverse weather conditions and natural disasters and other unforeseen events, such as winter storms, severe temperatures, thunderstorms, floods, hurricanes and earthquakes, terror attacks, war and widespread/pandemic illness, and the effects of such events on economic conditions and consumer spending patterns, could negatively impact our results of operations. Temporary and prolonged restaurant closures may occur and consumer traffic may decline due to the actual or perceived effects from these events. For example, severe winter weather conditions have impacted our traffic and results of operations in the past.

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We have a limited number of suppliers for our major products and rely on one custom distribution company for our national distribution program in the U.S. If our suppliers or custom distributor are unable to fulfill their obligations under their contracts or we are unable to develop or maintain relationships with these or new suppliers or distributors, if needed, we could encounter supply shortages and incur higher costs.

We depend on frequent deliveries of fresh food products that meet our specifications, and we have a limited number of suppliers for our major products, such as beef. In 2015, we purchased more than 90% of our beef raw materials from four beef suppliers that represent approximately 85% of the total beef marketplace in the U.S. Due to the nature of our industry, we expect to continue to purchase a substantial amount of our beef from a small number of suppliers. We also use one supplier in the U.S. to process beef raw materials to our specifications and we use one distribution company to provide distribution services in the U.S. Although we have not experienced significant problems with our suppliers or distributor, if our suppliers or distributor are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.

In addition, if we are unable to maintain current purchasing terms or ensure service availability with our suppliers and distributor, we may lose consumers and experience an increase in costs in seeking alternative supplier or distribution services. The failure to develop and maintain supplier and distributor relationships and any resulting disruptions to the provision of food and other supplies to our restaurant locations could adversely affect our operating results.

Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.

Our trademarks, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Bloomin’ Onion, and other proprietary rights are important to our success and our competitive position. The protective actions that we take may not be sufficient to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position. Furthermore, our ability to protect trademarks and other proprietary rights may be more limited in certain international markets where we operate.

Litigation could have a material adverse impact on our business and our financial performance.

We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business. These matters typically involve claims by consumers, employees and others regarding issues such as food borne illness, food safety, premises liability, “dram shop” statute liability, compliance with wage and hour requirements, work-related injuries, promotional advertising, discrimination, harassment, disability and other operational issues common to the foodservice industry, as well as contract disputes and intellectual property infringement matters. Significant legal fees and costs in complex class action litigation or an adverse judgment or settlement that is not insured or is in excess of insurance coverage could have a material adverse effect on our financial position and results of operations.

Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.

We are self-insured, or carry insurance programs with specific retention levels or high per-claim deductibles, for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, liquor liability, employment practices liability, property, health benefits and other insurable risks. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure, including wage and hour claims. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, if our insurance costs increase, there can be no assurance that we will be able to successfully offset the effect of such increases and our results of operations may be adversely affected.


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The food service industry is affected by consumer preferences and perceptions, including the increasing prevalence of food allergies. Changes in these preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.

Food service businesses are affected by changes in consumer tastes and demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid steak and other products we offer in any of our concepts in favor of foods that are perceived as healthier, our business and operating results would be harmed. If we are unable to anticipate or successfully respond to changes in consumer preferences, our results of operations could be adversely affected, generally or in particular concepts or markets. In addition, the increasing prevalence of food allergies and consumers with vegan and gluten-free diets, for example, may cause consumers to choose to dine out less frequently or choose other restaurants with different menu options.

Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could adversely affect the trading price of our common stock.

Effective internal control over financial reporting is necessary for us to provide accurate financial information. If we are unable to adequately maintain effective internal control over financial reporting, we may not be able to accurately report our financial results, which could cause investors to lose confidence in our reported financial information and negatively affect the trading price of our common stock. Furthermore, we cannot be certain that our internal control over financial reporting and disclosure controls and procedures will prevent all possible error and fraud. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake, which could have an adverse impact on our business.

Failure to achieve our projected cost savings from our efficiency initiatives could adversely affect our results of operations and eliminate potential funding for growth opportunities.

In recent years, we have identified strategies and taken steps to reduce operating costs and free up resources to reinvest in our business. These strategies include improved supply chain management, implementing labor scheduling tools and integrating restaurant information systems across our brands. We continue to evaluate and implement further cost-saving initiatives. However, the ability to reduce our operating costs through these initiatives is subject to risks and uncertainties, such as our ability to obtain improved supply pricing and the reliability of any new suppliers or technology, and we cannot assure that these activities, or any other activities that we may undertake in the future, will achieve the desired cost savings and efficiencies. Failure to achieve such desired savings could adversely affect our results of operations and financial condition and curtail investment in growth opportunities.

There are risks and uncertainties associated with strategic actions and initiatives that we may implement.

From time to time, we consider various strategic actions and initiatives in order to grow and evolve our business and brands and improve our operating results. These actions and initiatives could include, among other things, acquisitions or dispositions of restaurants or brands, new joint ventures, new franchise arrangements and changes to our operating model. There can be no assurance that any such actions or initiatives will be successful or deliver their anticipated benefits. We may be exposed to new and unforeseen risks and challenges, particularly if we enter into markets or engage in activities with which we have no or limited prior experience, and it may be difficult to predict the success of such endeavors. If we incur significant expenses or divert management, financial and other resources to a strategic initiative that is unsuccessful or does not meet our expectations, our results of operations and financial condition would be adversely affected. Regardless of the ultimate success of a strategic initiative, the implementation and integration of new business or operational processes could be disruptive to our current operations. Even if we test and evaluate an initiative on a limited basis, the diversion of management time and resources could have an adverse effect on our business.


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Risks Related to Our Indebtedness

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk in connection with our variable-rate debt.

We are highly leveraged. As of December 27, 2015, our total indebtedness was $1.3 billion. As of December 27, 2015, we also had $363.7 million in available unused borrowing capacity under our revolving credit facility, including undrawn letters of credit of $29.3 million.

Our high degree of leverage could have important consequences, including:

•
making it more difficult for us to make payments on indebtedness;
•
increasing our vulnerability to general economic, industry and competitive conditions and the various risks we face in our business;
•
increasing our cost of borrowing;
•
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, dividend payments, share repurchases and future business opportunities;
•
exposing us to the risk of increased interest rates because certain of our borrowings under our senior secured credit facilities (the “Senior Secured Credit Facility”) and the mortgage loan (the “PRP Mortgage Loan”) are at variable rates of interest;
•
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
•
limiting our ability to obtain additional financing for working capital, capital expenditures, restaurant development, debt service requirements, acquisitions and general corporate or other purposes; and
•
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may not be as highly leveraged.

We may incur substantial additional indebtedness in the future, subject to the restrictions contained in our Senior Secured Credit Facility and PRP Mortgage Loan. If new indebtedness is added to our current debt levels, the related risks that we now face could increase.

We had $859.5 million of variable-rate debt outstanding under our Senior Secured Credit Facility as of December 27, 2015. In September 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 that had a start date of June 30, 2015. The swap agreements have an aggregate notional amount of $400.0 million and mature on May 16, 2019. While these agreements limit our exposure to higher interest rates, an increase in the floating rate could nonetheless cause a material increase in our interest expense due to the total amount of our outstanding variable rate indebtedness.

Our debt agreements contain restrictions that limit our flexibility in operating our business.

We are a holding company and conduct our operations through our subsidiaries, certain of which have incurred their own indebtedness. Our subsidiaries’ debt agreements contain various covenants that limit our ability to obtain funds from our subsidiaries through dividends, loans or advances. In addition, certain of our debt agreements limit our and our subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, redeem or repurchase our capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, merge or consolidate with or into, another company. Our debt agreements require us to satisfy certain financial tests and ratios. Our ability to satisfy such tests and ratios may be affected by events outside of our control.

If we breach the covenants under our debt agreements, the lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders under the Senior Secured Credit Facility and the PRP Mortgage Loan could

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proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under our Senior Secured Credit Facility and the PRP Mortgage Loan. If the lenders under the Senior Secured Credit Facility and the PRP Mortgage Loan accelerate the repayment of borrowings, we cannot be certain that we will have sufficient assets to repay them.

We may not be able to generate sufficient cash to service all of our indebtedness and operating lease obligations, and we may be forced to take other actions to satisfy our obligations under our indebtedness and operating lease obligations, which may not be successful. If we fail to meet these obligations, we would be in default under our debt agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.

Our ability to make scheduled payments on our debt obligations and to satisfy our operating lease obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business and other factors, many of which are beyond our control. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, or to pay our operating lease obligations. If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations or take other actions to meet our debt service and other obligations. Our debt agreements restrict our ability to dispose of assets and how we may use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due. The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our debt agreements would constitute an event of default under those agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.

Our ability to refinance our indebtedness in the future depends on our financial condition, market conditions and other factors.

We cannot be certain that our financial condition or credit and other market conditions will be favorable when our PRP Mortgage Loan matures in 2018 or, if we meet the requirements for extension of a portion thereof, 2019 or when our Credit Facilities mature in 2019, or at any earlier time we may seek to refinance our debt. Although we intend to pay off our PRP Mortgage Loan through proceeds from a sale-leaseback program, we cannot provide any assurance that we will be able to successfully implement such a program or that the terms and conditions of any sale-leaseback transactions will not create additional business and financial risks. Our ability to enter into sale-leaseback transactions on acceptable financial terms is subject to various uncertainties, including economic and real estate market conditions in the relevant markets. If we are unable to paydown the existing balance or refinance our indebtedness on favorable terms, our financial condition and results of operations would be adversely affected.

Risks Related to Our Common Stock

Our stock price is subject to volatility.

The stock market in general is highly volatile. As a result, the market price of our common stock is similarly volatile. The price of our common stock could be subject to wide fluctuations in response to a number of factors, some of which may be beyond our control. These factors include actual or anticipated fluctuations in our operating results, changes in, or our ability to achieve, estimates of our operating results by analysts, investors or management, analysts’ recommendations regarding our stock or our competitors’ stock, sales of substantial amounts of our common stock by our stockholders, actions or announcements by us or our competitors, the maintenance and growth of the value of our

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brands, litigation, legislation or other regulatory developments affecting us or our industry, natural disasters, terrorist acts, war or other calamities and changes in general market and economic conditions.

If we are unable to continue to pay dividends or repurchase our stock, your investment in our common stock may decline in value.

In 2015, we initiated a quarterly dividend program. Our Board of Directors also authorized stock repurchase programs commencing in late 2014. The continuation of these programs will require the generation of sufficient cash flows and the existence of surplus. Any decisions to declare and pay dividends and continue stock repurchase programs in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition, cash requirements, borrowing capacity, contractual restrictions and other factors that our Board of Directors may deem relevant at the time.

Our ability to pay dividends is dependent on our ability to obtain funds from our subsidiaries and to have access to our revolving credit facility. Based on our credit agreement, restricted dividend payments from OSI to Bloomin’ Brands can be made on an unlimited basis provided we are compliant with our debt covenants.

If we discontinue our dividend or stock repurchase programs, or reduce the amount of the dividends we pay or stock that we repurchase, the price of our common stock may fall. As a result, you may not be able to resell your shares at or above the price you paid for them.

Provisions in our certificate of incorporation and bylaws, our Senior Secured Credit Facility and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.

Our certificate of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our company or changes in our management.

In addition, our Senior Secured Credit Facility includes change of control provisions that require that no stockholder or “group” within the meaning of Section 13(d) of the Exchange Act (other than our former private equity sponsors, our founders and our management stockholders or other permitted holders) has obtained more than 40% of our voting power.

These provisions in our certificate of incorporation, bylaws, and Senior Secured Credit Facility may discourage, delay or prevent a transaction involving a change in control of the Company that is in the best interests of our stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. Although we have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law our certificate of incorporation contains provisions that have the same effect as Section 203, except that they provide that our former private equity sponsors will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.


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BLOOMIN’ BRANDS, INC.

Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

Item 1B. Unresolved Staff Comments

Not applicable.


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Item 2.    Properties

As of December 27, 2015, we owned 20% of our restaurant sites and leased the remaining 80% of our restaurant sites from third parties. We had 1,507 system-wide restaurants located across the following states, territories or countries as of December 27, 2015:
U.S.
COMPANY-OWNED
 
FRANCHISE
Alabama
20

 
Louisiana
22

 
Ohio
48

 
Alabama
1

Arizona
29

 
Maryland
42

 
Oklahoma
11

 
Alaska
1

Arkansas
11

 
Massachusetts
22

 
Pennsylvania
47

 
California
63

California
15

 
Michigan
37

 
Puerto Rico
2

 
Florida
2

Colorado
30

 
Minnesota
9

 
Rhode Island
4

 
Georgia
1

Connecticut
15

 
Mississippi
2

 
South Carolina
39

 
Idaho
6

Delaware
3

 
Missouri
16

 
South Dakota
2

 
Mississippi
7

Florida
222

 
Montana
1

 
Tennessee
36

 
Montana
2

Georgia
49

 
Nebraska
7

 
Texas
73

 
Ohio
1

Hawaii
6

 
Nevada
16

 
Utah
6

 
Oregon
7

Illinois
26

 
New Hampshire
3

 
Vermont
1

 
Tennessee
3

Indiana
23

 
New Jersey
44

 
Virginia
61

 
Virginia
1

Iowa
7

 
New Mexico
6

 
West Virginia
8

 
Washington
18

Kansas
7

 
New York
46

 
Wisconsin
12

 
 
 
Kentucky
17

 
North Carolina
65

 
Wyoming
2

 
 
 
Total U.S. company-owned
1,170

 
Total U.S. franchise
113

INTERNATIONAL
COMPANY-OWNED
 
FRANCHISE
Brazil (1)
78

 
Australia
7

 
Guam
1

 
Saudi Arabia
5

China (Mainland)
5

 
Bahamas
1

 
Indonesia
4

 
Singapore
2

Hong Kong
8

 
Canada
3

 
Japan
10

 
Taiwan
5

South Korea
75

 
Chile
1

 
Malaysia
2

 
Thailand
1

 
 
 
Costa Rica
1

 
Mexico
6

 
United Arab Emirates
1

 
 
 
Dominican Republic
2

 
Philippines
4

 
 
 
 
 
 
Ecuador
1

 
Qatar
1

 
 
 
Total International company-owned
166

 
Total International franchise
58

____________________
(1)
The restaurant count for Brazil is reported as of November 2015 to correspond with the balance sheet date of this subsidiary.

Following is a summary of the location and leased square footage for our corporate offices, all of which are leased, as of December 27, 2015:
LOCATION
 
USE
 
SQUARE FEET
 
LEASE EXPIRATION
Tampa, Florida
 
Corporate Headquarters
 
168,000

 
1/31/2025
Newport Beach, California
 
Fleming’s Operations Center
 
3,941

 
2/28/2017
Seoul, Korea
 
Korea Operations Center
 
6,174

 
6/30/2017
São Paulo, Brazil
 
Brazil Operations Center
 
11,722

 
6/30/2019

We also have a number of other smaller office locations regionally in China (mainland) and Hong Kong.

Item 3.    Legal Proceedings

For a description of our legal proceedings, see Note 19 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements of this Report.

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Item 4. Mine Safety Disclosures

Not applicable.


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BLOOMIN’ BRANDS, INC.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION AND DIVIDENDS

Our common stock is listed on the Nasdaq Global Select Market under the symbol “BLMN”.

In December 2014, our Board of Directors adopted a dividend policy under which it intends to declare quarterly cash dividends on shares of our common stock. Future dividend payments will depend on earnings, financial condition, capital expenditure requirements and other factors that our Board considers relevant. The terms of our debt agreements permit regular quarterly dividend payments, subject to certain restrictions. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on Nasdaq and the dividends declared and paid during the periods indicated:
 
SALES PRICE
 
DIVIDENDS DECLARED
AND PAID (1)
 
2015
 
2014
 
 
HIGH
 
LOW
 
HIGH
 
LOW
 
2015
First Quarter
$
26.25

 
$
22.91

 
$
26.45

 
$
21.59

 
$
0.06

Second Quarter
24.53

 
20.86

 
24.96

 
20.16

 
0.06

Third Quarter
23.83

 
18.00

 
22.81

 
15.01

 
0.06

Fourth Quarter
19.44

 
15.90

 
24.05

 
17.45

 
0.06

____________________
(1)
See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - DIVIDENDS AND SHARE REPURCHASES.”

HOLDERS

As of February 19, 2016, there were 119 holders of record of our common stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table presents the securities authorized for issuance under our equity compensation plans as of December 27, 2015:
(dollars in thousands, except exercise price)
 
(a)
 
(b)
 
(c)
PLAN CATEGORY
 
NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
 
WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
 
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) (1)
Equity compensation plans approved by security holders
 
9,718

 
$
12.99

 
2,552

____________________
(1)
The shares remaining available for issuance may be issued in the form of restricted stock, restricted stock units or other stock awards under the 2012 Incentive Plan. On the first business day of each fiscal year, the aggregate number of shares that may be issued pursuant to our 2012 Incentive Plan automatically increases by two percent of the total shares then issued and outstanding.


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STOCK PERFORMANCE GRAPH

The following graph depicts the total return to stockholders from August 8, 2012, the date our common stock became listed on the Nasdaq Global Select Market, through December 27, 2015, relative to the performance of the Standard & Poor’s 500 Index and the Standard & Poor’s 500 Consumer Discretionary Sector, a peer group. The graph assumes an investment of $100 in our common stock and each index on August 8, 2012 and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.


AUGUST 8,
2012

DECEMBER 31,
2012

DECEMBER 31,
2013

DECEMBER 28,
2014

DECEMBER 27,
2015
Bloomin’ Brands, Inc. (BLMN)
$
100.00


$
126.03


$
193.47


$
191.38


$
139.38

Standard & Poor’s 500
100.00


102.72


135.96


156.76


157.94

Standard & Poor’s Consumer Discretionary
100.00


107.53


153.58


168.55


186.16



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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table provides information regarding our purchases of common stock during the thirteen weeks ended December 27, 2015:
PERIOD
 
TOTAL NUMBER OF SHARES PURCHASED (1)
 
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
September 28, 2015 through October 25, 2015
 
—

 
$
—

 
—

 
$
40,001,198

October 26, 2015 through November 22, 2015
 
601,779

 
$
16.60

 
601,779

 
$
30,001,222

November 23, 2015 through December 27, 2015
 
2,651

 
$
16.90

 
—

 
$
30,001,222

Total
 
604,430

 
 
 
601,779

 


____________________
(1)
The Board of Directors authorized the repurchase of $100.0 million of our outstanding common stock as announced publicly in our press release issued on August 4, 2015 (the “2015 Share Repurchase Program”). Common shares repurchased during the thirteen weeks ended December 27, 2015 represented shares repurchased under the 2015 Share Repurchase Program and 2,651 shares withheld for tax payments due upon vesting of employee restricted stock awards. On February 12, 2016, the Company’s Board of Directors canceled the remaining authorization under the 2015 Share Repurchase Program and approved a new $250.0 million authorization (the “2016 Share Repurchase Program”), as announced publicly in our press release issued on February 17, 2016. The 2016 Share Repurchase Program will expire on August 12, 2017.

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Item 6. Selected Financial Data
 
FISCAL YEAR
(dollars in thousands, except per share data)
2015
 
2014
 
2013
 
2012
 
2011
Operating Results:
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
Restaurant sales
$
4,349,921

 
$
4,415,783

 
$
4,089,128

 
$
3,946,116

 
$
3,803,252

Other revenues
27,755

 
26,928

 
40,102

 
41,679

 
38,012

Total revenues (1)
4,377,676

 
4,442,711

 
4,129,230

 
3,987,795

 
3,841,264

Income from operations (2)
230,925

 
191,964

 
225,357

 
181,137

 
213,452

Net income including noncontrolling interests (2) (3)
131,560

 
95,926

 
214,568

 
61,304

 
109,179

Net income attributable to Bloomin’ Brands (2) (3)
$
127,327

 
$
91,090

 
$
208,367

 
$
49,971

 
$
100,005

Basic earnings per share
$
1.04

 
$
0.73

 
$
1.69

 
$
0.45

 
$
0.94

Diluted earnings per share
$
1.01

 
$
0.71

 
$
1.63

 
$
0.44

 
$
0.94

Cash dividends declared per common share
$
0.24

 
$
—

 
$
—

 
$
—

 
$
—

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets (4)
$
3,032,569

 
$
3,338,240

 
$
3,267,421

 
$
3,003,214

 
$
3,337,783

Total debt, net (4)
1,316,864

 
1,309,797

 
1,408,088

 
1,481,101

 
2,093,137

Total stockholders’ equity (5)
421,900

 
556,449

 
482,709

 
220,205

 
40,297

Cash Flow Data:
 
 
 
 
 
 
 
 
 
Capital expenditures
$
210,263

 
$
237,868

 
$
237,214

 
$
178,720

 
$
120,906

Repurchase of common stock
170,769

 
930

 
436

 
—

 
—

____________________
Note: This selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto, included in Item 8 of this Report and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Report.

(1)
Total revenues in fiscal year 2015 include $24.3 million of higher restaurant sales due to a change in our fiscal year end. Total revenues in fiscal 2014 year include $46.0 million of lower restaurant sales due to a change in our fiscal year end.
(2)
Fiscal year 2015 results include $4.9 million of higher income from operations due to a change in our fiscal year end and $31.8 million of asset impairments and restaurant closing costs related to our Bonefish Restructuring and our International and Domestic Restaurant Closure Initiatives (each as defined later). Fiscal year 2014 results include $9.2 million of lower income from operations due to a change in our fiscal year end, $26.8 million of asset impairments and restaurant closing costs related to our International and Domestic Restaurant Closure Initiatives, $24.0 million of asset impairments related to our Roy’s concept and corporate airplanes and $9.0 million of severance related to our organizational realignment. Fiscal year 2013 results include $18.7 million of asset impairments due to our Domestic Restaurant Closure Initiative. Fiscal year 2012 includes $34.1 million of certain executive compensation costs and non-cash stock compensation charges incurred in connection with the completion of our initial public offering (“IPO”) and $7.4 million of legal and other professional fees, primarily related to a lease amendment between OSI and PRP. Fiscal years 2012 and 2011 results include management fees and other reimbursable expenses of $13.8 million and $9.4 million, respectively, related to a management agreement with our sponsors and founders, which terminated at the time of our IPO.
(3)
Fiscal years 2015, 2014, 2013 and 2012 include $3.0 million, $11.1 million, $14.6 million and $21.0 million, respectively, of loss on extinguishment and modification of debt for: (i) the refinancing in 2015 and 2014, the repricing in 2013 and the refinancing in 2012 of our Senior Secured Credit Facility, (ii) the retirement of OSI’s senior notes in 2012 and (iii) the refinancing of the 2012 CMBS loan in 2012. Fiscal year 2013 includes a $36.6 million gain on remeasurement of a previously held equity investment related to our Brazil acquisition. Fiscal year 2013 includes a $52.0 million income tax benefit for a U.S. valuation allowance release. Fiscal year 2011 includes a $33.2 million gain related to the recovery of a note receivable from an affiliated entity.
(4)
Total assets and Total debt, net for fiscal years 2014, 2013, 2012, and 2011 include the reclassification of deferred debt issuance costs due to the adoption of ASU 2015-03 and ASU 2015-15. See Note 2 - Summary of Significant Accounting Policies of our Notes to Consolidated Financial Statements in Part II, Item 8 for more information.
(5)
On August 13, 2012, we completed an IPO in which we issued and sold an aggregate of 14,196,845 shares of common stock at a price to the public of $11.00 per share. We received net proceeds in the offering of $142.2 million after deducting underwriting discounts and commissions and other offering related expenses.

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

Item 7. 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 consolidated financial statements and the related notes.

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of December 27, 2015, we owned and operated 1,336 restaurants and franchised 171 restaurants across 48 states, Puerto Rico, Guam and 22 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 2015 financial results include:

•
A decrease in total revenues of 1.5% to $4.4 billion in 2015 as compared to 2014, driven primarily by the effect of foreign currency translation, partially offset by the net benefit of restaurant openings and closures. The decrease from foreign currency translation was due to the depreciation of the Brazil Real and South Korea Won.

•
An increase in combined U.S. comparable restaurant sales of 0.5% in 2015, primarily due to increases from pricing and product mix, partially offset by decreases in traffic.

•
Outback International in Brazil (“Outback Brazil”) comparable restaurant sales increased by 6.3% in 2015 due to increases in menu prices and traffic, partially offset by decreases from product mix.

•
Operating margin at the restaurant level improved 0.4% in fiscal year 2015 as compared to fiscal year 2014 primarily due to: (i) the impact of certain cost saving initiatives, (ii) higher average unit volumes and (iii) lower marketing expenses. This increase was partially offset by: (i) commodity inflation, (ii) higher kitchen and labor costs due to higher wage rates and lunch expansion across certain concepts and (iii) product mix.

•
Income from operations of $230.9 million in 2015 compared to $192.0 million in 2014, which was primarily due to lower impairments and restaurant closing costs, lower general and administrative expense and an increase in operating margin at the restaurant-level, as described above.

•
Productivity and cost management initiatives provided savings of $70.4 million in 2015.


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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Following is a summary of significant actions we have taken during the year and other factors that impacted our operating results and liquidity in 2015:

Share Repurchase Programs - During fiscal year 2015, we repurchased $170.0 million of our common stock.

On February 12, 2016, our Board of Directors canceled the $30.0 million of remaining authorization available under the 2015 Share Repurchase Program and approved a new $250.0 million authorization (the “2016 Share Repurchase Program”). The 2016 Share Repurchase Program will expire on August 12, 2017.

Dividends - In fiscal year 2015, we implemented a dividend program. During fiscal year 2015, we declared and paid $29.3 million of dividends.

Credit Agreement Amendments - On March 31, 2015, OSI entered into the Fourth Amendment (the “Fourth Amendment”) to its credit agreement (as amended, the “Credit Agreement”), to effect an increase of OSI’s existing revolving credit facility from $600.0 million to $825.0 million in order to fully pay down its existing Term loan B on April 2, 2015. No other material changes were made to the terms of the Credit Agreement as a result of the Fourth Amendment.

OSI entered into the Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement on December 11, 2015. The Fifth Amendment provided an incremental Term loan A-1 in an aggregate principal amount of $150.0 million and increased certain leverage ratio tests for purposes of restricted payments and mandatory prepayment requirements. The Fifth Amendment also permits regular quarterly dividend payments, subject to certain restrictions and permitted loans or advances to repay debt under our 2012 commercial mortgage-backed securities loan (the “2012 CMBS loan”) in an aggregate principal amount of $500.0 million.

Bonefish Restructuring - On February 12, 2016, we decided to close 14 Bonefish restaurants (the “Bonefish Restructuring”). We expect to substantially complete these restaurant closings by the first quarter of 2019. In connection with the Bonefish Restructuring, we reassessed the future undiscounted cash flows of the impacted restaurants, and as a result, we recognized pre-tax asset impairments of approximately $24.2 million during the fiscal year ended December 27, 2015. See Note 4 - Impairments, Disposals and Exit Costs of our Notes to Consolidated Financial Statements in Part II, Item 8 for additional details regarding the Bonefish Restructuring.

Macroeconomic Conditions - The combination of macroeconomic and other factors have put considerable pressure on sales in the casual dining industry both domestically and in our Brazil market.

•
Domestically, the ongoing impacts of reduced or stagnant disposable consumer income, underemployment, national, regional and local regulatory and economic conditions and consumer confidence have had a negative effect on discretionary consumer spending.

•
We have experienced significant foreign currency impact during 2015 due primarily to fluctuations of the Brazil Real and South Korean Won relative to the U.S. dollar. During fiscal year 2015, restaurant sales and operating income were negatively impacted by $119.3 million and $11.0 million, respectively, from changes in foreign currency rates. When the U.S. dollar strengthens compared to other currencies, the effect is a reduction in revenues and expenses denominated in currencies other than the U.S. dollar. We anticipate continued foreign currency volatility in fiscal year 2016, primarily with respect to the Brazil Real.

Should the macro-economic and other conditions persist domestically and in our Brazil market, we will continue to face increased pressure with respect to our pricing, traffic levels and commodity costs. We believe that in this environment, we need to maintain our focus on value and innovation as well as refreshing our restaurant base to continue to drive sales.


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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Growth Strategies

In 2016, our key growth strategies include:

•
Grow U.S. Sales and Profitability. We plan to continue to remodel and relocate restaurants, introduce innovative menu items that match evolving consumer preferences and use limited-time offers and multimedia marketing campaigns to drive traffic and increase awareness of lunch. We will also focus on development opportunities for our concepts in the U.S. by opportunistically investing in new Outback and Fleming’s locations.

•
Accelerate International Growth. We continue to focus on existing geographic regions in Latin America and Asia, with strategic expansion in selected emerging and high growth developed markets. Specifically, we are focusing our existing market growth in Brazil and new market growth in China. We expect to open between 40 and 50 system-wide locations in 2016, with over half expected to be international locations.

•
Drive Long-Term Shareholder Value. We plan to drive long-term shareholder value by reinvesting operational cash flow in our business, improving our credit profile and returning excess cash to shareholders through share repurchases and dividends.

We intend to fund our growth efforts, in part, by utilizing productivity initiatives across our business. Productivity savings will be reinvested in the business to drive revenue growth and margin improvement.

2016 Initiatives

On February 11, 2016, 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 148 properties owned by PRP.
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 extinguishment, we anticipate recognizing a loss of $26.0 million to $29.0 million during the first quarter of 2016.
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.
As a result of these transactions, we anticipate interest savings of approximately $12.0 million in fiscal year 2016.

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 consumer 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;


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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


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

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

•
Consumer satisfaction scores—measurement of our consumers’ experiences in a variety of key areas.

Change in Fiscal Year End

Beginning in 2014, we changed our fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending on the last Sunday in December, effective with fiscal year 2014. In a 52-week fiscal year, each of our quarterly periods comprise 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter, making that quarter consist of 14 weeks. We made the fiscal year change on a prospective basis and did not adjust operating results for prior periods.

Fiscal years 2015 and 2014 consisted of the 52 weeks ended December 27, 2015 and December 28, 2014, respectively, and fiscal year 2013 consisted of the twelve months ended December 31, 2013. The following table presents the impact of the change in our fiscal year on the Consolidated Statements of Operations and Comprehensive Income for the periods ending as indicated:
FISCAL YEAR
 
FISCAL YEAR CHANGE IMPACT
(in operating days)
 
INCREASE/(DECREASE) (dollars in millions)
 
 
RESTAURANT SALES
 
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS
2015
 
2
 
$
24.3

 
$
4.9

2014
 
(3)
 
$
(46.0
)
 
$
(9.2
)


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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 as of the end of the periods indicated:
 
DECEMBER 27,
2015
 
DECEMBER 28,
2014
 
DECEMBER 31,
2013
Number of restaurants (at end of the period):
 
 
 
 
 
U.S.
 
 
 
 
 
Outback Steakhouse
 
 
 
 
 
Company-owned
650

 
648

 
663

Franchised
105

 
105

 
105

Total
755

 
753

 
768

Carrabba’s Italian Grill
 
 
 
 
 
Company-owned
244

 
242

 
239

Franchised
3

 
1

 
1

Total
247

 
243

 
240

Bonefish Grill
 
 
 
 
 
Company-owned
210

 
201

 
187

Franchised
5

 
5

 
7

Total
215

 
206

 
194

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

 
66

 
65

Roy’s (1)
 
 
 
 
 
Company-owned
—

 
20

 
21

International
 
 
 
 
 
Company-owned
 
 
 
 
 
Outback Steakhouse - Brazil (2)
75

 
63

 
48

Outback Steakhouse - South Korea (3)
75

 
91

 
110

Other
16

 
11

 
11

Franchised
58

 
55

 
51

Total
224

 
220

 
220

System-wide total
1,507

 
1,508

 
1,508

____________________
(1)
On January 26, 2015, we sold our Roy’s concept.
(2)
The restaurant counts for Brazil are reported as of November 30, 2015, 2014 and 2013, respectively, to correspond with the balance sheet dates of this subsidiary.
(3)
In the first quarter of 2015, we adopted a policy that relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are considered a closure. Prior periods for South Korea have been revised to conform to the current year presentation.


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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:
 
FISCAL YEAR
 
2015
 
2014
 
2013
Revenues
 
 
 
 
 
Restaurant sales
99.4
 %
 
99.4
 %
 
99.0
 %
Other revenues
0.6

 
0.6

 
1.0

Total revenues
100.0

 
100.0

 
100.0

Costs and expenses
 
 
 
 
 
Cost of sales (1)
32.6

 
32.5

 
32.6

Labor and other related (1)
27.7

 
27.6

 
28.3

Other restaurant operating (1)
23.1

 
23.8

 
23.6

Depreciation and amortization
4.3

 
4.3

 
4.0

General and administrative
6.6

 
6.9

 
6.5

Provision for impaired assets and restaurant closings
0.8

 
1.2

 
0.6

Income from operations of unconsolidated affiliates
—

 
—

 
(0.2
)
Total costs and expenses
94.7

 
95.7

 
94.5

Income from operations
5.3

 
4.3

 
5.5

Loss on extinguishment and modification of debt
(0.1
)
 
(0.3
)
 
(0.4
)
Gain on remeasurement of equity method investment
—

 
—

 
0.9

Other expense, net
(*)

 
(*)

 
(*)

Interest expense, net
(1.3
)
 
(1.3
)
 
(1.8
)
Income before provision (benefit) for income taxes
3.9

 
2.7

 
4.2

Provision (benefit) for income taxes
0.9

 
0.5

 
(1.0
)
Net income
3.0

 
2.2

 
5.2

Less: net income attributable to noncontrolling interests
0.1

 
0.1

 
0.2

Net income attributable to Bloomin’ Brands
2.9
 %
 
2.1
 %
 
5.0
 %
____________________
(1)
As a percentage of Restaurant sales.
*
Less than 1/10th of one percent of Total revenues.


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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 changes in restaurant sales for fiscal years 2015 and 2014:
 
FISCAL YEAR
(dollars in millions):
2015
 
2014 (1)
For fiscal years 2014 and 2013
$
4,415.8

 
$
4,089.1

Change from:
 
 
 
Effect of foreign currency translation
(119.3
)
 
(20.8
)
Restaurant closings (2)
(99.2
)
 
(61.7
)
Divestiture of Roy’s
(63.2
)
 
—

Restaurant openings (3)
153.8

 
144.3

Comparable restaurant sales (2)(3)
37.7

 
31.9

Change in fiscal year
24.3

 
(46.0
)
Brazil acquisition
—

 
279.0

For fiscal years 2015 and 2014
$
4,349.9

 
$
4,415.8

____________________
(1)
Activity for fiscal year 2014 has been recast to separately present the effect of foreign currency translation.
(2)
In the first quarter of 2015, we adopted a policy that relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are considered a closure. Prior period amounts for Restaurant closings and Comparable restaurant sales have been revised to conform to the current year presentation.
(3)
Summation of quarterly changes for restaurant openings and comparable restaurant sales will not total to annual amounts as the restaurants that meet the definition of a comparable restaurant will differ each period based on when the restaurant opened.

The decrease in Restaurant sales in 2015 as compared to 2014 was primarily attributable to: (i) the effect of foreign currency translation, due to the depreciation of the Brazil Real and South Korea Won, (ii) the closing of 84 restaurants since December 31, 2013, (iii) the sale of 20 Roy’s restaurants and (iv) lower comparable restaurant sales for Bonefish Grill and Carrabba’s Italian Grill. The decrease in restaurant sales was partially offset by: (i) the opening of 119 new restaurants not included in our comparable restaurant sales base, (ii) an increase in combined comparable restaurant sales at our existing restaurants, primarily at Outback Steakhouse in the U.S. and Brazil and (iii) two additional operating days due to a change in our fiscal year end.

The increase in Restaurant sales in 2014 as compared to 2013 was primarily attributable to: (i) the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013, (ii) the opening of 100 new restaurants not included in our comparable restaurant sales base and (iii) an increase in U.S. comparable restaurant sales at our existing restaurants. The increase in restaurant sales was partially offset by: (i) the closing of 59 restaurants since December 31, 2012, (ii) lower comparable restaurant sales in South Korea, (iii) three fewer operating days due to a change in our fiscal year end and (iv) the effect of foreign currency translation.


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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Comparable Restaurant Sales and Menu Prices
Following is a summary of comparable restaurant sales and general menu price increases:
 
FISCAL YEAR
 
2015
 
2014
 
2013
Comparable restaurant sales (stores open 18 months or more) (1) (2) (3):
 
 
 
 
 
U.S.
 
 
 
 
 
Outback Steakhouse
1.8
 %
 
3.1
 %
 
1.6
 %
Carrabba’s Italian Grill
(0.7
)%
 
(1.0
)%
 
(0.2
)%
Bonefish Grill
(3.3
)%
 
0.5
 %
 
—
 %
Fleming’s Prime Steakhouse & Wine Bar
1.3
 %
 
3.2
 %
 
4.5
 %
Combined U.S.
0.5
 %
 
2.0
 %
 
1.2
 %
International
 
 
 
 
 
Outback Steakhouse - Brazil (4)
6.3
 %
 
7.6
 %
 
n/a

Outback Steakhouse - South Korea
(2.0
)%
 
(17.7
)%
 
(6.4
)%
 
 
 
 
 
 
Year over year percentage change:
 

 
 
 
 
Menu price increases (5):
 

 
 
 
 
U.S.
 
 
 
 
 
Outback Steakhouse
3.3
 %
 
2.9
 %
 
2.5
 %
Carrabba’s Italian Grill
2.1
 %
 
2.7
 %
 
2.2
 %
Bonefish Grill
2.9
 %
 
2.9
 %
 
2.1
 %
Fleming’s Prime Steakhouse & Wine Bar
2.9
 %
 
3.1
 %
 
3.4
 %
International
 
 
 
 
 
Outback Steakhouse - Brazil (4)
6.4
 %
 
7.1
 %
 
n/a

Outback Steakhouse - South Korea
1.8
 %
 
1.1
 %
 
0.8
 %
____________________
(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)
Fiscal years 2015 and 2014 include $24.3 million higher restaurant sales and $46.0 million lower restaurant sales, respectively, due to a change in our fiscal year end.
(3)
Traffic for the fourth quarter of 2015 was as follows: Outback Steakhouse (4.9%), Carrabba’s Italian Grill (1.9%), Bonefish Grill (8.4%), Fleming’s Prime Steakhouse & Wine Bar (2.6%), Combined U.S. (4.6%), Outback Steakhouse Brazil (0.6%) and Outback Steakhouse South Korea 4.0%.
(4)
Effective November 1, 2013, we acquired a controlling interest in the Brazil Joint Venture resulting in the consolidation of 47 restaurants.
(5)
The stated menu price changes exclude the impact of product mix shifts to new menu offerings and discounts.

Our comparable restaurant sales represent the growth from restaurants opened 18 months or more. For fiscal year 2015, combined U.S. comparable restaurant sales increased due to increases from pricing and product mix, partially offset by decreases in traffic. Customer traffic decreases were primarily due to Bonefish Grill, where we did not continue higher promotional activities from fiscal year 2014. We have slowed Bonefish Grill restaurant development until there is improvement in our sales results.
For fiscal year 2015, comparable restaurant sales for Brazil increased primarily due to increases in pricing and traffic, partially offset by decreases from product mix.
Comparable restaurant sales for South Korea decreased for the fiscal year 2015 due to discounts and decreases from product mix, partially offset by increases from menu pricing and traffic. Customer traffic increased in South Korea due to promotional activities. However, we believe traffic increases were limited by macro-economic conditions and the outbreak of Middle East Respiratory Syndrome (MERS).

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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


For 2014, combined U.S. comparable restaurant sales increased primarily due to increases in general menu prices, partially offset by a shift in the mix in our product sales.
Comparable restaurant sales for Brazil increased for fiscal year 2014 primarily due to increases in general menu prices and traffic, partially offset by a shift in the mix in our product sales.

Comparable restaurant sales for South Korea significantly decreased for fiscal year 2014 due to a decrease in traffic and a shift in the mix in our product sales, partially offset by increases from pricing. Customer traffic decreased in South Korea due to macroeconomic conditions that impacted discretionary consumer spending, particularly in the casual dining environment.

Average Restaurant Unit Volumes and Operating Weeks
Following is a summary of the average restaurant unit volumes and operating weeks:
 
FISCAL YEAR
 
2015
 
2014
 
2013
Average restaurant unit volumes (dollars in thousands):
 
 
 
 
 
U.S.
 
 
 
 
 
Outback Steakhouse
$
3,430

 
$
3,329

 
$
3,230

Carrabba’s Italian Grill
$
2,954

 
$
2,945

 
$
2,998

Bonefish Grill
$
3,019

 
$
3,135

 
$
3,131

Fleming’s Prime Steakhouse & Wine Bar
$
4,247

 
$
4,163

 
$
4,082

International
 
 
 
 
 
Outback Steakhouse - Brazil (1) (2)
$
4,137

 
$
5,659

 
n/a

Outback Steakhouse - South Korea (3)
$
2,266

 
$
2,256

 
$
2,677

Operating weeks:
 

 
 

 
 

U.S.
 
 
 
 
 
Outback Steakhouse
33,758

 
33,687

 
34,600

Carrabba’s Italian Grill
12,678

 
12,467

 
12,284

Bonefish Grill
10,731

 
10,047

 
9,238

Fleming’s Prime Steakhouse & Wine Bar
3,432

 
3,411

 
3,389

International
 
 
 
 
 
Outback Steakhouse - Brazil (2)
3,563

 
2,859

 
n/a

Outback Steakhouse - South Korea
3,939

 
5,474

 
5,641

____________________
(1)
Translated at average exchange rates of 3.19 and 2.33 for fiscal years 2015 and 2014, respectively.
(2)
Effective November 1, 2013, we acquired a controlling interest in the Brazil Joint Venture resulting in the consolidation 47 restaurants.
(3)
Translated at average exchange rates of 1,130.81, 1,053.78 and 1,087.95 for fiscal years 2015, 2014 and 2013, respectively.

 

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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


COSTS AND EXPENSES

Cost of sales
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Cost of sales
$
1,419.7

 
$
1,435.4

 
 
 
$
1,435.4

 
$
1,333.8

 
 
% of Restaurant sales
32.6
%
 
32.5
%
 
0.1
%
 
32.5
%
 
32.6
%
 
(0.1
)%

Cost of sales, consisting of food and beverage costs, increased slightly as a percentage of Restaurant sales in 2015 as compared to 2014. The increase as a percentage of Restaurant sales was primarily due to: (i) 1.2% from higher commodity costs, primarily beef, and (ii) 0.4% from product mix. These increases were largely offset by decreases as a percentage of Restaurant sales due to: (i) 1.0% from the impact of certain cost savings initiatives and (ii) 0.6% from menu price increases.

The decrease as a percentage of Restaurant sales in 2014 as compared to 2013 was primarily due to: (i) 0.9% from the impact of certain cost savings initiatives and (ii) 0.7% from menu price increases. The decrease was partially offset by increases as a percentage of Restaurant sales of: (i) 0.7% from higher commodity costs, primarily seafood and beef, and (ii) 0.7% related to lunch expansion, changes in our product mix and promotions.

In fiscal year 2016, we expect to incur increased commodity costs of approximately 0.5%. During fiscal 2015, we incurred commodity inflation of 3.7%.

Labor and other related expenses
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Labor and other related
$
1,205.6

 
$
1,219.0

 
 
 
$
1,219.0

 
$
1,157.6

 
 
% of Restaurant sales
27.7
%
 
27.6
%
 
0.1
%
 
27.6
%
 
28.3
%
 
(0.7
)%

Labor and other related expenses include all direct and indirect labor costs incurred in operations, including distribution expense to Restaurant Managing Partners, costs related to field deferred compensation plans, and other field incentive compensation expenses. Labor and other related expenses increased as a percentage of Restaurant sales for 2015 as compared to 2014 due to: (i) 0.9% from higher kitchen and service labor costs due to higher wage rates and lunch expansion across certain concepts and (ii) 0.2% from higher field management compensation based on individual restaurant performance. These increases were partially offset by decreases as a percentage of Restaurant sales primarily attributable to: (i) 0.4% from the impact of certain cost savings initiatives, (ii) 0.4% from higher average unit volumes, primarily at Outback Steakhouse and (iii) 0.1% due to the favorable resolution of a payroll tax audit contingency.

Labor and other related expenses decreased as a percentage of Restaurant sales for 2014 as compared to 2013 due to: (i) 0.5% from the acquisition of Brazil, primarily due to higher volumes, (ii) 0.5% from the impact of certain cost savings initiatives; (iii) 0.4% from higher average U.S. unit volumes, primarily at Outback Steakhouse and (iv) 0.4% due to expenses from a payroll tax audit contingency recorded in 2013. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.8% of higher kitchen and service labor costs due to lunch expansion across certain concepts and the addition of new restaurant locations and (ii) 0.3% from lower average unit volumes in South Korea.



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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Other restaurant operating expenses
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Other restaurant operating
$
1,006.8

 
$
1,049.1

 
 
 
$
1,049.1

 
$
964.3

 
 
% of Restaurant sales
23.1
%
 
23.8
%
 
(0.7
)%
 
23.8
%
 
23.6
%
 
0.2
%

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. A substantial portion of these expenses is fixed or indirectly variable. The decrease as a percentage of Restaurant sales for 2015 as compared to 2014 was primarily due to the following: (i) 0.6% from a decrease due to marketing efficiencies with a shift to digital advertising from television and lower marketing spend, (ii) 0.3% from higher average unit volumes, primarily at Outback Steakhouse and (iii) 0.3% from the impact of certain cost savings initiatives. The decreases were partially offset by increases as a percentage of Restaurant sales primarily due to: (i) 0.2% from an increase in operating supplies due to lunch expansion and promotions, (ii) 0.2% from a legal settlement gain in 2014, (iii) 0.1% from higher repairs and maintenance and (iv) 0.1% from higher general liability insurance expense.

The increase as a percentage of Restaurant sales for 2014 as compared to 2013 was primarily due to the following: (i) 0.4% lower average unit volumes in South Korea, (ii) 0.2% increase in operating supplies primarily due to lunch expansion and promotions, (iii) 0.1% of higher restaurant occupancy costs mainly related to rent escalations from existing leases, (iv) 0.1% of higher restaurant utilities associated with new restaurant locations and lunch expansion across certain concepts, (v) 0.1% higher general liability insurance expense and (vi) 0.1% increase in fees due to higher gift card sales. The increases were partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.4% from our acquired Brazil restaurants, primarily due to higher volumes, (ii) 0.2% higher U.S. average unit volumes, primarily at Outback Steakhouse and (iii) 0.2% gain on a legal settlement.

Depreciation and amortization
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Depreciation and amortization
$
190.4

 
$
190.9

 
 
 
$
190.9

 
$
164.1

 
 
% of Total revenues
4.3
%
 
4.3
%
 
—
%
 
4.3
%
 
4.0
%
 
0.3
%

Depreciation and amortization was flat as a percentage of Total revenues for 2015 as compared to 2014 and was negatively impacted by: (i) the sale of Roy’s in the first quarter of 2015, (ii) lower depreciation for certain information technology assets that fully depreciated in the fourth quarter of 2014 and (iii) lower depreciation for South Korea assets due to impairments related to the International Restaurant Closure Initiative. These decreases were offset by increases as a percentage of Total revenues primarily due to additional depreciation expense related to the opening of new restaurants and the remodeling of existing restaurants.

The increase as a percentage of Total revenues for 2014 as compared to 2013 was primarily due to: (i) amortization expense associated with our acquired Brazil operations; (ii) depreciation expense related to new, renovated and relocated restaurants and (iii) the completion of internally developed technology projects.


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Table of Contents
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


General and administrative expenses

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 changes in general and administrative expenses:
 
FISCAL YEAR
(dollars in millions):
2015
 
2014
For fiscal years 2014 and 2013
$
304.4

 
$
268.9

Change from:
 
 
 
Severance
(7.7
)
 
9.2

Compensation, benefits and payroll tax
(7.2
)
 
4.8

Foreign currency exchange
(6.5
)
 
(1.6
)
Life insurance investments
(0.8
)
 
3.2

Deferred compensation
(0.4
)
 
(0.2
)
Legal & professional fees
3.2

 
1.2

Employee stock-based compensation
2.9

 
3.1

Termination of split dollar life insurance policies
1.9

 
2.8

Incentive compensation
0.3

 
(6.1
)
Brazil general and administrative
—

 
20.5

Other
(2.5
)
 
(1.4
)
For fiscal years 2015 and 2014
$
287.6

 
$
304.4


In 2015, general and administrative expense decreased primarily from the following items:

•
Severance expense was lower due to expenses associated with an organizational realignment of certain functions during fiscal 2014, partially offset by severance incurred in fiscal 2015 in connection with the International Restaurant Closure Initiative.
•
Employee compensation, benefits and payroll tax was lower primarily due to lower headcount resulting from our organizational realignment in fiscal 2014 and the International Restaurant Closure Initiative, partially offset by higher costs related to additional plan benefits.
•
The effects of foreign currency exchange, primarily the depreciation of the Brazil Real.
•
Legal and professional fees were higher due to: (i) certain technology projects supporting the growth of our operations, (ii) legal costs primarily associated with a litigation settlement and (iii) certain other professional service fees.
•
Employee stock-based compensation increased due to new grants, partially offset by grants fully vesting and forfeitures.

In 2014, general and administrative expense increased primarily from the following items:

•
Costs associated with our Brazil operations, which we acquired a majority ownership in November 2013.
•
Severance increased primarily due to an organizational realignment of certain corporate functions.
•
Employee compensation, benefits and payroll tax were higher primarily due to higher capitalized costs in fiscal year 2013 due to a financial system project.
•
Employee stock-based compensation increased due to new grants, partially offset by grants fully vesting and forfeitures.

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Table of Contents
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


•
In fiscal year 2014, we recognized $1.9 million of net gains related to the termination of split-dollar agreements with certain of our former executive officers compared to $4.7 million of net gains in fiscal year 2013.
•
A net decrease in the cash surrender value of life insurance investments related to our partner deferred compensation programs.
•
Legal and professional fees increased due to higher legal and tax fees supporting operational activities.
•
Incentive compensation decreased due to performance against current year objectives.

Provision for impaired assets and restaurant closings
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Provision for impaired assets and restaurant closings
$
36.7

 
$
52.1

 
$
(15.4
)
 
$
52.1

 
$
22.8

 
$
29.3


Bonefish Restructuring - On February 12, 2016, we decided to close 14 Bonefish restaurants. In connection with the Bonefish Restructuring, we reassessed the future undiscounted cash flows of the impacted restaurants, and as a result, we recognized pre-tax asset impairments of approximately $24.2 million during the fiscal year ended December 27, 2015. We expect to incur additional charges of approximately $4.5 million to $7.5 million over the next five years, including costs associated with lease obligations, employee terminations and other closure related obligations.

Restaurant Closure Initiatives - In fiscal 2014, we decided to close 36 underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”). In connection with the International Restaurant Closure Initiative, we incurred pre-tax restaurant closing costs of $6.0 million and $19.7 million during fiscal 2015 and 2014, respectively. We expect to incur additional charges of approximately $1.0 million, including costs associated with lease obligations, employee terminations and other closure related obligations, through the first half of 2016.

In the fourth quarter of 2013, we completed an assessment of our domestic restaurant base and decided to close 22 underperforming domestic locations (the “Domestic Restaurant Closure Initiative”). Approximately $1.6 million, $6.0 million and $18.7 million of pre-tax restaurant closing costs were incurred during fiscal 2015, 2014 and 2013, respectively, in connection with the Domestic Restaurant Closure Initiative.

Roy’s - In connection with the decision to sell Roy’s, we recorded pre-tax impairment charges of $13.4 million for Assets held for sale during fiscal year 2014.

Other Disposals - During the third quarter of 2014, we decided to sell both of our corporate airplanes. In connection with the decision, we recognized pre-tax asset impairment charges of $10.6 million during fiscal year 2014. During fiscal 2015, we recognized additional pre-tax asset impairment charges of $0.7 million for corporate aircraft.

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

See Note 4 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.


45
Table of Contents
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


Income from operations
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions):
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Income from operations
$
230.9

 
$
192.0

 
 
 
$
192.0

 
$
225.4

 
 
% of Total revenues
5.3
%
 
4.3
%
 
1.0
%
 
4.3
%
 
5.5
%
 
(1.2
)%

The increase in income from operations during fiscal year 2015 as compared to fiscal year 2014 was primarily due to lower general and administrative expense, lower impairments and restaurant closing costs and an increase in operating margin at the restaurant-level.

Income from operations decreased in 2014 as compared to 2013 primarily due to: (i) impairments, restaurant and other closing costs related to our International and Domestic Restaurant Closure Initiatives, (ii) asset impairments related to Roy’s and the corporate aircraft, (iii) lower average unit volumes at our South Korea restaurants, (iv) higher General and administrative expenses and (v) higher Depreciation and amortization as a percentage of revenue. These decreases were partially offset by an increase in operating margins at the restaurant level.

Loss on extinguishment and modification of debt
 
FISCAL YEAR
 
 
 
FISCAL YEAR
 
 
(dollars in millions)
2015
 
2014
 
Change
 
2014
 
2013
 
Change
Loss on extinguishment and modification of debt
3.0

 
11.1

 
(8.1
)
 
11.1

 
14.6

 
(3.5
)

In connection with the refinancing of our senior secured credit facility, we recognized a loss on extinguishment and modification of debt for fiscal years 2015 and 2014. During fiscal year 2013, we recorded a loss on extinguishment and modification of debt in connection with the repricing of our Term loan B.

See Note 12 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.

Gain on remeasurement of equity method investment

In connection with the Brazil acquisition in fiscal year 2013, we recognized a $36.6 million gain on remeasurement to fair value of the previously held equity investment in the Brazil Joint Venture. See Note 3 - Acquisitions of the Notes to Consolidated Financi