Document
 
 
 
 
 

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

FORM 10-Q
(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 25, 2017
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625

blmnlogov3.jpg

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer  o Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of July 27, 2017, 93,406,463 shares of common stock of the registrant were outstanding.
 
 
 
 
 

Table of Contents
BLOOMIN’ BRANDS, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended June 25, 2017
(Unaudited)

TABLE OF CONTENTS

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

2
Table of Contents
BLOOMIN’ BRANDS, INC.


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
 
JUNE 25, 2017
 
DECEMBER 25, 2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
103,474

 
$
127,176

Current portion of restricted cash and cash equivalents
—

 
7,886

Inventories
52,633

 
65,231

Other current assets, net
97,047

 
190,226

Total current assets
253,154

 
390,519

Restricted cash
—

 
1,124

Property, fixtures and equipment, net
1,194,467

 
1,237,148

Goodwill
312,890

 
310,055

Intangible assets, net
529,677

 
535,523

Deferred income tax assets
56,552

 
38,764

Other assets, net
134,181

 
129,146

Total assets
$
2,480,921

 
$
2,642,279

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3
Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
JUNE 25, 2017
 
DECEMBER 25, 2016
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
187,839

 
$
195,371

Accrued and other current liabilities
222,041

 
204,415

Unearned revenue
269,854

 
388,543

Current portion of long-term debt
44,497

 
35,079

Total current liabilities
724,231

 
823,408

Deferred rent
150,761

 
151,130

Deferred income tax liabilities
16,568

 
16,709

Long-term debt, net
1,082,041

 
1,054,406

Deferred gain on sale-leaseback transactions, net
186,383

 
181,696

Other long-term liabilities, net
219,153

 
219,030

Total liabilities
2,379,137

 
2,446,379

Commitments and contingencies (Note 15)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
556

 
547

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of June 25, 2017 and December 25, 2016
—

 
—

Common stock, $0.01 par value, 475,000,000 shares authorized; 95,008,173 and 103,922,110 shares issued and outstanding as of June 25, 2017 and December 25, 2016, respectively
950

 
1,039

Additional paid-in capital
1,079,749

 
1,079,583

Accumulated deficit
(891,648
)
 
(786,780
)
Accumulated other comprehensive loss
(98,824
)
 
(111,143
)
Total Bloomin’ Brands stockholders’ equity
90,227

 
182,699

Noncontrolling interests
11,001

 
12,654

Total stockholders’ equity
101,228

 
195,353

Total liabilities, mezzanine equity and stockholders’ equity
$
2,480,921

 
$
2,642,279

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

4
Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017

JUNE 26, 2016

JUNE 25, 2017

JUNE 26, 2016
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,019,957

 
$
1,072,519

 
$
2,155,445

 
$
2,230,571

Franchise and other revenues
13,025

 
6,069

 
21,360

 
12,205

Total revenues
1,032,982

 
1,078,588

 
2,176,805

 
2,242,776

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
323,130

 
346,811

 
687,878

 
722,099

Labor and other related
297,857

 
309,155

 
622,255

 
631,960

Other restaurant operating
244,124

 
250,443

 
492,064

 
504,014

Depreciation and amortization
48,063

 
49,004

 
94,653

 
96,655

General and administrative
77,056

 
68,566

 
148,997

 
143,591

Provision for impaired assets and restaurant closings
598

 
41,276

 
19,674

 
44,440

Total costs and expenses
990,828

 
1,065,255

 
2,065,521

 
2,142,759

Income from operations
42,154

 
13,333

 
111,284

 
100,017

Loss on defeasance, extinguishment and modification of debt
(260
)
 
—

 
(260
)
 
(26,580
)
Other income (expense), net
7,281

 
(1
)
 
7,230

 
(20
)
Interest expense, net
(9,543
)
 
(10,302
)
 
(18,684
)
 
(23,177
)
Income before provision for income taxes
39,632

 
3,030

 
99,570

 
50,240

Provision for income taxes
3,303

 
11,095

 
18,318

 
22,422

Net income (loss)
36,329

 
(8,065
)
 
81,252

 
27,818

Less: net income attributable to noncontrolling interests
699

 
1,112

 
1,712

 
2,520

Net income (loss) attributable to Bloomin’ Brands
$
35,630

 
$
(9,177
)
 
$
79,540

 
$
25,298

 
 
 
 
 
 
 
 
Net income (loss)
$
36,329

 
$
(8,065
)
 
$
81,252

 
$
27,818

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(9,118
)
 
19,965

 
11,371

 
12,680

Unrealized loss on derivatives, net of tax
(610
)
 
(2,187
)
 
(509
)
 
(4,922
)
Reclassification of adjustment for loss on derivatives included in Net income (loss), net of tax
643

 
967

 
1,427

 
1,955

Comprehensive income
27,244

 
10,680

 
93,541

 
37,531

Less: comprehensive income attributable to noncontrolling interests
757

 
2,820

 
1,682

 
4,926

Comprehensive income attributable to Bloomin’ Brands
$
26,487

 
$
7,860

 
$
91,859

 
$
32,605

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
0.36

 
$
(0.08
)
 
$
0.79

 
$
0.22

Diluted
$
0.35

 
$
(0.08
)
 
$
0.76

 
$
0.21

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
98,852

 
113,330

 
100,963

 
115,630

Diluted
102,421

 
113,330

 
104,417

 
118,560

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.08

 
$
0.07

 
$
0.16

 
$
0.14

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

5
Table of Contents
BLOOMIN’ BRANDS, INC.

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

 
BLOOMIN’ BRANDS, INC.
 
 
 
 

COMMON STOCK

ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM-ULATED
DEFICIT

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

NON-
CONTROLLING
INTERESTS

TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 25, 2016
103,922

 
$
1,039

 
$
1,079,583

 
$
(786,780
)
 
$
(111,143
)
 
$
12,654

 
$
195,353

Net income
—

 
—

 
—

 
79,540

 
—

 
1,837

 
81,377

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
12,319

 
(38
)
 
12,281

Cash dividends declared, $0.16 per common share
—

 
—

 
(16,308
)
 
—

 
—

 
—

 
(16,308
)
Repurchase and retirement of common stock
(9,917
)
 
(99
)
 
—

 
(198,629
)
 
—

 
—

 
(198,728
)
Stock-based compensation
—

 
—

 
12,716

 
—

 
—

 
—

 
12,716

Common stock issued under stock plans (1)
1,003

 
10

 
4,597

 
(143
)
 
—

 
—

 
4,464

Change in the redemption value of redeemable interests
—

 
—

 
(126
)
 
—

 
—

 
—

 
(126
)
Purchase of noncontrolling interests, net of tax of $45
—

 
—

 
(713
)
 
—

 
—

 
(179
)
 
(892
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(3,754
)
 
(3,754
)
Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
481

 
481

Cumulative-effect from a change in accounting principle
—

 
—

 
—

 
14,364

 
—

 
—

 
14,364

Balance, June 25, 2017
95,008

 
$
950

 
$
1,079,749

 
$
(891,648
)
 
$
(98,824
)
 
$
11,001

 
$
101,228

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


6
Table of Contents
BLOOMIN’ BRANDS, INC.

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

 
BLOOMIN’ BRANDS, INC.
 
 
 
 
 
COMMON STOCK
 
ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM-ULATED
DEFICIT
 
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
 
NON-
CONTROLLING
INTERESTS
 
TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 27, 2015
119,215

 
$
1,192

 
$
1,072,861

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

 
$
421,900

Net income
—

 
—

 
—

 
25,298

 
—

 
2,139

 
27,437

Other comprehensive income (loss), net of tax
—

 
—

 
—

 
—

 
7,307

 
(24
)
 
7,283

Cash dividends declared, $0.14 per common share
—

 
—

 
(16,216
)
 
—

 
—

 
—

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

 
(139,814
)
 
—

 
—

 
(139,892
)
Stock-based compensation
—

 


 
12,854

 
—

 
—

 
—

 
12,854

Tax shortfall from stock-based compensation
—

 
—

 
(594
)
 
—

 
—

 
—

 
(594
)
Common stock issued under stock plans (1)
425

 
5

 
632

 
(329
)
 
—

 
—

 
308

Change in the redemption value of redeemable interests
—

 
—

 
(1,349
)
 
—

 
—

 
—

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

 
—

 
569

 
—

 
—

 
164

 
733

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
453

 
453

Balance, June 26, 2016
111,865

 
$
1,119

 
$
1,068,757

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

 
$
309,265

________________
(1)
Net of forfeitures and shares withheld for employee taxes.

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

7
Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 26, 2016
Cash flows provided by operating activities:
 
 
 
Net income
$
81,252

 
$
27,818

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

 
 

Depreciation and amortization
94,653

 
96,655

Amortization of deferred discounts and issuance costs
1,637

 
2,542

Amortization of deferred gift card sales commissions
13,756

 
15,832

Provision for impaired assets and restaurant closings
19,674

 
44,440

Stock-based and other non-cash compensation expense
13,901

 
11,454

Deferred income tax (benefit) expense
(989
)
 
3,187

Gain on sale of a business
(7,284
)
 
—

Loss on defeasance, extinguishment and modification of debt
260

 
26,580

Recognition of deferred gain on sale-leaseback transactions
(5,816
)
 
(1,739
)
Excess tax benefit from stock-based compensation
—

 
(378
)
Other non-cash items, net
1,799

 
(669
)
Change in assets and liabilities
(29,708
)
 
(20,306
)
Net cash provided by operating activities
183,135

 
205,416

Cash flows (used in) provided by investing activities:
 

 
 

Proceeds from sale-leaseback transactions, net
49,780

 
160,597

Proceeds from sale of a business
33,994

 
—

Capital expenditures
(116,256
)
 
(109,319
)
Decrease in restricted cash
14,969

 
35,238

Increase in restricted cash
(5,957
)
 
(12,999
)
Other investments, net
(1,119
)
 
(3,383
)
Net cash (used in) provided by investing activities
$
(24,589
)
 
$
70,134

 
 
 
 
 
(CONTINUED...)
 

8
Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 26, 2016
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$
124,438

 
$
294,699

Defeasance, extinguishment and modification of debt
—

 
(478,906
)
Repayments of long-term debt
(64,399
)
 
(103,728
)
Proceeds from borrowings on revolving credit facilities, net
341,000

 
414,000

Repayments of borrowings on revolving credit facilities
(364,500
)
 
(233,000
)
Proceeds from failed sale-leaseback transactions, net
5,942

 
—

Proceeds from the exercise of share-based compensation
4,607

 
637

Distributions to noncontrolling interests
(3,754
)
 
(3,652
)
Contributions from noncontrolling interests
481

 
539

Purchase of limited partnership and noncontrolling interests
(4,024
)
 
(8,983
)
Repayments of partner deposits and accrued partner obligations
(7,862
)
 
(10,018
)
Repurchase of common stock
(198,871
)
 
(140,221
)
Excess tax benefit from stock-based compensation
—

 
378

Cash dividends paid on common stock
(16,308
)
 
(16,216
)
Net cash used in financing activities
(183,250
)
 
(284,471
)
Effect of exchange rate changes on cash and cash equivalents
1,002

 
853

Transfer of cash and cash equivalents to assets held for sale
—

 
(22,195
)
Net decrease in cash and cash equivalents
(23,702
)
 
(30,263
)
Cash and cash equivalents as of the beginning of the period
127,176

 
132,337

Cash and cash equivalents as of the end of the period
$
103,474

 
$
102,074

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
17,393

 
$
23,031

Cash paid for income taxes, net of refunds
22,695

 
15,087

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities
$
(2,564
)
 
$
15,721

Purchase of noncontrolling interest included in accrued and other current liabilities
898

 
—


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

9
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.    Description of the Business and Basis of Presentation

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

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2016.

Recently Adopted Financial Accounting Standards - Effective December 26, 2016, the Company adopted Accounting Standards Update (“ASU”) 2016-09: “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. Upon adoption, the Company made an accounting policy election to recognize forfeitures as they occur. Using the modified retrospective transition method required under the standard, the Company recorded a cumulative-effect adjustment for the adoption of ASU No. 2016-09 of $14.4 million for previously unrecognized excess tax benefits, which increased Deferred tax assets and reduced Accumulated deficit. The recognition of excess tax benefits and tax shortfalls in the income statement and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. The remaining provisions of ASU No. 2016-09 did not have a material impact on the Company’s Consolidated Financial Statements.

Recently Issued Financial Accounting Standards Not Yet Adopted - In January 2017, the Financial Accounting Standards Board (“the FASB”) issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU No. 2017-04”). ASU No. 2017-04 eliminates the second step of goodwill impairment, which requires a hypothetical purchase price allocation. Under ASU No. 2017-04, goodwill impairment will be calculated as the amount a reporting unit’s carrying value exceeds its calculated fair value. ASU No. 2017-04 will be applied prospectively and is effective for the Company in fiscal year 2020, with early adoption permitted. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on its Consolidated Financial Statements.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash” (“ASU No. 2016-18”). ASU No. 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents, which should now be included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the statements of cash flows. ASU No. 2016-18 will be effective for the Company in fiscal year 2018, with early adoption permitted. Other than the change in presentation of restricted cash within the statement of cash flows, the adoption of ASU No. 2016-18 is not expected to have an impact on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”) which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. ASU No. 2016-15 will be effective for the

10
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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Company in fiscal year 2018, and early adoption is permitted. The Company does not expect ASU No. 2016-15 to have a material impact on its Consolidated Financial Statements.

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

In May 2014, the FASB issued ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. The standard also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU No. 2014-09, as amended, will be effective for the Company in fiscal year 2018 and the transition method is applied retrospectively to each period presented or as a cumulative-effect adjustment at the date of adoption.

While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to accounting for gift card breakage and advertising fees charged to franchisees. Under the new standard, the Company expects to recognize gift card breakage proportional to actual gift card redemptions. Advertising fees charged to franchisees, which are currently recorded as a reduction to Other restaurant operating expenses, will be recognized as revenue. In addition, initial franchise fees will be recognized over the term of the franchise agreement, which is not expected to have a material impact on the Consolidated Financial Statements. Additionally, the Company is assessing the impacts of the disclosures required by ASU No. 2014-09. The Company has not yet determined transition methodology as it continues to evaluate materiality and industry best practice.

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

Reclassifications - The Company reclassified certain items in the accompanying Consolidated Financial Statements for prior periods to be comparable with the classification for the current period. These reclassifications had no effect on previously reported net income.

2.    Disposals

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

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


11
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Outback Steakhouse South Korea - In 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”). Following is the Loss before income taxes of Outback Steakhouse South Korea included in the Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 26, 2016
 
JUNE 26, 2016
Loss before income taxes (1)
$
(38,601
)
 
$
(34,594
)
________________
(1)
Includes impairment charges of $39.6 million for Assets held for sale during the thirteen and twenty-six weeks ended June 26, 2016.

3.    Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Impairment losses
 
 
 
 
 
 
 
U.S.
$
12

 
$
81

 
$
932

 
$
81

International
—

 
39,636

 
—

 
39,636

Total impairment losses
$
12

 
$
39,717

 
$
932

 
$
39,717

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
586

 
$
1,221

 
$
18,742

 
$
4,849

International
—

 
338

 
—

 
(126
)
Total restaurant closure expenses
$
586

 
$
1,559

 
$
18,742

 
$
4,723

Provision for impaired assets and restaurant closings
$
598

 
$
41,276

 
$
19,674

 
$
44,440



12
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Closure Initiative and Restructuring Costs - Following is a summary of expenses related to the 2017 Closure Initiative and Bonefish Restructuring (the “Closure Initiatives”) recognized in Provision for impaired assets and restaurant closings in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Impairment, facility closure and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
(244
)
 
$
—

 
$
17,203

 
$
—

Bonefish Restructuring (2)
—

 
807

 
809

 
4,380

Provision for impaired assets and restaurant closings
$
(244
)
 
$
807

 
$
18,012

 
$
4,380

Severance and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
766

 
$
—

 
$
2,948

 
$
—

Bonefish Restructuring (2)
—

 
26

 
—

 
601

General and administrative
$
766

 
$
26

 
$
2,948

 
$
601

Reversal of deferred rent liability
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
180

 
$
—

 
$
(4,761
)
 
$
—

Bonefish Restructuring (2)
—

 
(876
)
 
—

 
(2,801
)
Other restaurant operating
$
180

 
$
(876
)
 
$
(4,761
)
 
$
(2,801
)
 
$
702

 
$
(43
)
 
$
16,199

 
$
2,180

________________
(1)
On February 15, 2017, the Company decided to close 43 underperforming restaurants (the “2017 Closure Initiative”). Most of these restaurants were closed in 2017 to date, with the balance closing as leases and certain operating covenants expire or are amended or waived. Expenses related to the 2017 Closure Initiative for the thirteen and twenty-six weeks ended June 25, 2017 are recognized within the U.S. segment.
(2)
On February 12, 2016, the Company decided to close 14 Bonefish Grill restaurants (“Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the first quarter of 2019. Expenses related to the Bonefish Restructuring are recognized within the U.S. segment.

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

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

to
$
4.1

 
$
2.2

to
$
5.1

Employee severance and other obligations
0.4

to
0.7

 
0.3

to
0.6

Total estimated future expense
$
3.6

to
$
4.8

 
$
2.5

to
$
5.7

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

 
$
29.5

 
$
10.1

to
$
12.3


Total future undiscounted cash expenditures for the 2017 Closure Initiative and Bonefish Restructuring, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029 and October 2024, respectively.


13
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Accrued Facility Closure and Other Costs Rollforward - The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Closure Initiatives, during the twenty-six weeks ended June 25, 2017:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
Beginning of the period
$
6,557

Charges
19,759

Cash payments
(4,850
)
Adjustments
(1,017
)
End of the period (1)
$
20,449

________________
(1)
As of June 25, 2017, the Company had exit-related accruals of $6.5 million recorded in Accrued and other current liabilities and $13.9 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.

4.    Earnings (Loss) Per Share

The following table presents the computation of basic and diluted earnings (loss) per share:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands, except per share data)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Net income (loss) attributable to Bloomin’ Brands
$
35,630

 
$
(9,177
)
 
$
79,540

 
$
25,298

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
98,852

 
113,330

 
100,963

 
115,630

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
3,128

 
—

 
3,030

 
2,719

Nonvested restricted stock and restricted stock units
433

 
—

 
394

 
208

Nonvested performance-based share units
8

 
—

 
30

 
3

Diluted weighted average common shares outstanding
102,421

 
113,330

 
104,417

 
118,560

 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.36

 
$
(0.08
)
 
$
0.79

 
$
0.22

Diluted earnings (loss) per share
$
0.35

 
$
(0.08
)
 
$
0.76

 
$
0.21


Dilutive securities outstanding not included in the computation of earnings (loss) per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(shares in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Stock options
5,359

 
8,269

 
5,462

 
4,854

Nonvested restricted stock and restricted stock units
153

 
587

 
172

 
376

Nonvested performance-based share units
262

 
77

 
317

 
83



14
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

5.    Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Stock options
$
2,944

 
$
3,301

 
$
5,699

 
$
6,019

Restricted stock and restricted stock units
2,689

 
2,518

 
5,242

 
4,562

Performance-based share units
820

 
867

 
1,236

 
1,752

 
$
6,453

 
$
6,686

 
$
12,177

 
$
12,333


During the twenty-six weeks ended June 25, 2017, the Company made grants to its employees of 1.2 million stock options, 0.6 million time-based restricted stock units and 0.4 million performance-based share units.

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 26, 2016
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
1.93
%
 
1.33
%
Dividend yield (2)
1.84
%
 
1.60
%
Expected term (3)
6.3 years

 
6.1 years

Weighted-average volatility (4)
33.73
%
 
35.20
%
 
 
 
 
Weighted-average grant date fair value per option
$
5.09

 
$
5.27

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

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of June 25, 2017:
 
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
20,204

 
2.5
Restricted stock and restricted stock units
$
25,436

 
2.8
Performance-based share units
$
6,017

 
2.1

As of June 25, 2017, the maximum number of shares of common stock available for issuance pursuant to the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan was 3,827,305.


15
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
JUNE 25, 2017
 
DECEMBER 25, 2016
Prepaid expenses
$
26,539

 
$
35,298

Accounts receivable - gift cards, net
18,355

 
102,664

Accounts receivable - vendors, net
7,093

 
10,107

Accounts receivable - franchisees, net
2,739

 
1,677

Accounts receivable - other, net
20,682

 
20,497

Assets held for sale
4,118

 
1,331

Other current assets, net
17,521

 
18,652

 
$
97,047

 
$
190,226


7.     Property, Fixtures and Equipment, Net

During the twenty-six weeks ended June 25, 2017, the Company entered into sale-leaseback transactions with third-parties in which it sold 14 restaurant properties at fair market value for gross proceeds of $51.5 million. In connection with the sale-leaseback transactions, the Company recorded deferred gains of $14.1 million, which are amortized to Other restaurant operating expense in the Consolidated Statements of Operations and Comprehensive Income over the initial term of each lease, ranging from 10 to 20 years. In addition, during the first quarter of 2017, the Company sold one property to a third party for gross proceeds of $6.0 million that did not qualify for sale-leaseback accounting. During the second quarter of 2017, the restaurant was sold and the associated assets and financing obligation were derecognized.

Subsequent to June 25, 2017, the Company entered into sale-leaseback transactions with third-parties in which it sold ten restaurant properties at fair market value for gross proceeds of $32.3 million.

8.     Goodwill and Intangible Assets, Net

The following table is a rollforward of goodwill:
(dollars in thousands)
U.S.
 
INTERNATIONAL
 
CONSOLIDATED
Balance as of December 25, 2016
$
172,424

 
$
137,631

 
$
310,055

Translation adjustments
—

 
4,492

 
4,492

Divestitures (1)
(1,657
)
 
—

 
(1,657
)
Balance as of June 25, 2017
$
170,767

 
$
142,123

 
$
312,890

________________
(1)
During the twenty-six weeks ended June 25, 2017, the Company disposed of Goodwill in connection with the sale of 54 of its U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations to existing franchisees.

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


16
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

9.    Long-term Debt, Net

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

 
3.07
%
 
$
258,750

 
2.63
%
Term loan A-1
135,000

 
3.19
%
 
140,625

 
2.70
%
Term loan A-2
125,000

 
3.19
%
 
—

 
—
%
Revolving credit facility (1)
598,500

 
3.14
%
 
622,000

 
2.67
%
Total Senior Secured Credit Facility
$
1,106,000

 
 
 
$
1,021,375

 
 
PRP Mortgage Loan
—

 
—
%
 
47,202

 
3.21
%
Financing obligations
19,587

 
7.45% to 7.60%

 
19,595

 
7.45% to 7.60%

Capital lease obligations
2,253

 
 
 
2,364

 
 
Other notes payable
1,000

 
0.00% to 2.18%

 
1,776

 
0.00% to 7.00%

Less: unamortized debt discount and issuance costs
(2,302
)
 
 
 
(2,827
)
 
 
 
$
1,126,538

 
 
 
$
1,089,485

 
 
Less: current portion of long-term debt
(44,497
)
 
 
 
(35,079
)
 
 
Long-term debt, net
$
1,082,041

 
 
 
$
1,054,406

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

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

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

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


Maturities - Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of June 25, 2017:
(dollars in thousands)
JUNE 25, 2017
Year 1
$
44,497

Year 2
1,061,176

Year 3
519

Year 4
444

Year 5
416

Thereafter
19,486

Total
$
1,126,538


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

17
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

10.    Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in which it has noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. The following table presents a rollforward of Redeemable noncontrolling interests during the twenty-six weeks ended June 25, 2017 and June 26, 2016:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
Balance, beginning of period
$
547

 
$
23,526

Change in redemption value of Redeemable noncontrolling interests
126

 
1,349

Foreign currency translation attributable to Redeemable noncontrolling interests
8

 
2,430

Net (loss) income attributable to Redeemable noncontrolling interests
(125
)
 
381

Purchase of Redeemable noncontrolling interests
—

 
(3,552
)
Balance, end of period
$
556

 
$
24,134


11.
Stockholders’ Equity

Share Repurchases - On July 26, 2016, the Board of Directors (“the Board”) approved a $300.0 million authorization (the “July 2016 Share Repurchase Program”). On April 21, 2017, the Board canceled the remaining $52.3 million of authorization under the July 2016 Share Repurchase Program and approved a new $250.0 million authorization (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program will expire on October 21, 2018. As of June 25, 2017, $129.0 million remained available for repurchase under the 2017 Share Repurchase Program. Following is a summary of the shares repurchased under the Company’s share repurchase programs during fiscal year 2017:

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

 
$
18.37

 
$
53,053

Second fiscal quarter (1)
7,030

 
$
20.72

 
145,675

Total common stock repurchases
9,917

 
$
20.04

 
$
198,728

________________
(1)
Subsequent to June 25, 2017, the Company repurchased 1.6 million shares of its common stock for $34.0 million under a Rule 10b5-1 plan.

Dividends - The Company declared and paid dividends per share during fiscal year 2017 as follows:
 
DIVIDENDS PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
$
0.08

 
$
8,254

Second fiscal quarter
0.08

 
8,054

Total cash dividends declared and paid
$
0.16

 
$
16,308


In July 2017, the Board declared a quarterly cash dividend of $0.08 per share, payable on August 23, 2017, to shareholders of record at the close of business on August 9, 2017.


18
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss (“AOCL”):
(dollars in thousands)
JUNE 25, 2017
 
DECEMBER 25, 2016
Foreign currency translation adjustment
$
(96,108
)
 
$
(107,509
)
Unrealized losses on derivatives, net of tax
(2,716
)
 
(3,634
)
Accumulated other comprehensive loss
$
(98,824
)
 
$
(111,143
)
 
Following are the components of Other comprehensive income (loss) during the periods presented:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Bloomin’ Brands:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(9,176
)
 
$
18,257

 
$
11,401

 
$
10,274

 
 
 
 
 
 
 
 
Unrealized loss on derivatives, net of tax (1)
$
(610
)
 
$
(2,187
)
 
$
(509
)
 
$
(4,922
)
Reclassification of adjustment for loss on derivatives included in Net income (loss), net of tax (2)
643

 
967

 
1,427

 
1,955

Total unrealized gain (loss) on derivatives, net of tax
$
33

 
$
(1,220
)
 
$
918

 
$
(2,967
)
Other comprehensive (loss) income attributable to Bloomin’ Brands
$
(9,143
)
 
$
17,037

 
$
12,319

 
$
7,307

 
 
 
 
 
 
 
 
Non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
55

 
$
(30
)
 
$
(38
)
 
$
(24
)
Other comprehensive income (loss) attributable to Non-controlling interests
$
55

 
$
(30
)
 
$
(38
)
 
$
(24
)
 
 
 
 
 
 
 
 
Redeemable non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
3

 
$
1,738

 
$
8

 
$
2,430

Other comprehensive income attributable to Redeemable non-controlling interests
$
3

 
$
1,738

 
$
8

 
$
2,430

________________
(1)
Unrealized loss on derivatives is net of tax of $0.4 million and $1.4 million for the thirteen weeks ended June 25, 2017 and June 26, 2016, respectively, and $0.3 million and $3.2 million for the twenty-six weeks ended June 25, 2017 and June 26, 2016, respectively.
(2)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.4 million and $0.6 million for the thirteen weeks ended June 25, 2017 and June 26, 2016, respectively, and $0.9 million and $1.3 million for the twenty-six weeks ended June 25, 2017 and June 26, 2016, respectively.

12.    Derivative Instruments and Hedging Activities

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

19
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. Fair value changes in the interest rate swaps are recognized in AOCL for all effective portions. Balances in AOCL are subsequently reclassified to earnings in the same period that the hedged interest payments affect earnings. The Company estimates $2.8 million will be reclassified to interest expense over the next twelve months.

The following table presents the fair value, accrued interest and classification of the Company’s interest rate swaps:
(dollars in thousands)
JUNE 25, 2017
 
DECEMBER 25, 2016
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
2,641

 
$
3,968

 
Accrued and other current liabilities
Interest rate swaps - liability
1,845

 
1,999

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
4,486

 
$
5,967

 
 
 
 
 
 
 
 
Accrued interest
$
282

 
$
408

 
Accrued and other current liabilities
____________________
(1)
See Note 13 - Fair Value Measurements for fair value discussion of the interest rate swaps.

The following table summarizes the effects of the interest rate swaps on Net income (loss) for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JUNE 25, 2017
 
JUNE 26, 2016
 
JUNE 25, 2017
 
JUNE 26, 2016
Interest rate swap expense recognized in Interest expense, net (1)
$
(1,036
)
 
$
(1,597
)
 
$
(2,301
)
 
$
(3,211
)
Income tax benefit recognized in Provision for income taxes
393

 
630

 
874

 
1,256

Total effects of the interest rate swaps on Net income (loss)
$
(643
)
 
$
(967
)
 
$
(1,427
)
 
$
(1,955
)
____________________
(1)
During the thirteen and twenty-six weeks ended June 25, 2017 and June 26, 2016, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of June 25, 2017, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of June 25, 2017, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.

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


20
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

As of June 25, 2017 and December 25, 2016, the fair value of the Company’s interest rate swaps in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, was $4.8 million and $6.4 million, respectively. As of June 25, 2017 and December 25, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of June 25, 2017 and December 25, 2016, it could have been required to settle its obligations under the agreements at their termination value of $4.8 million and $6.4 million, respectively.

13.    Fair Value Measurements

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

Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of June 25, 2017 and December 25, 2016:
 
JUNE 25, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
86

 
$
86

 
$
—

 
$
90

 
$
90

 
$
—

Money market funds
23,396

 
23,396

 
—

 
18,607

 
18,607

 
—

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
—

 
—

 
—

 
552

 
552

 
—

Money market funds
—

 
—

 
—

 
2,518

 
2,518

 
—

Total asset recurring fair value measurements
$
23,482

 
$
23,482

 
$
—

 
$
21,767

 
$
21,767

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
2,641

 
$
—

 
$
2,641

 
$
3,968

 
$
—

 
$
3,968

Derivative instruments - commodities
105

 
—

 
105

 
157

 
—

 
157

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
1,845

 
—

 
1,845

 
1,999

 
—

 
1,999

Total liability recurring fair value measurements
$
4,591

 
$
—

 
$
4,591

 
$
6,124

 
$
—

 
$
6,124


Fair value of each class of financial instrument is determined based on the following:
FINANCIAL INSTRUMENT
 
METHODS AND ASSUMPTIONS
Fixed income funds and Money market funds
 
Carrying value approximates fair value because maturities are less than three months.
Derivative instruments
 
The Company’s derivative instruments include interest rate swaps and commodities. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company incorporates credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of June 25, 2017 and December 25, 2016, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.


21
Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 25, 2017
(dollars in thousands)
CARRYING VALUE
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$
—

 
$
—

 
$
400

 
$
70

Property, fixtures and equipment
—

 
12

 
1,067

 
862

 
$
—

 
$
12

 
$
1,467

 
$
932

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 26, 2016
 
JUNE 26, 2016
(dollars in thousands)
CARRYING VALUE (2)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (2)
 
TOTAL IMPAIRMENT
Assets held for sale
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

 
$
43,995

 
$
39,717

________________
(1)
Carrying value approximates fair value with all assets measured using third-party market appraisals (Level 2).
(2)
Carrying value approximates fair value with all assets measured using executed sales contracts (Level 2).

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments as of June 25, 2017 and December 25, 2016 consist of cash equivalents, restricted cash, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying amounts reported in the Consolidated Balance Sheets due to their short duration.

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of June 25, 2017 and December 25, 2016:
 
JUNE 25, 2017
 
DECEMBER 25, 2016
 
CARRYING VALUE
 
FAIR VALUE
 
CARRYING VALUE
 
FAIR VALUE
(dollars in thousands)
 
LEVEL 2
 
LEVEL 3
 
 
LEVEL 2
 
LEVEL 3
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Term loan A
$
247,500

 
$
246,572

 
$
—

 
$
258,750

 
$
257,780

 
$
—

Term loan A-1
135,000

 
134,494

 
—

 
140,625

 
140,098

 
—

Term loan A-2
125,000

 
124,531

 
—

 
—

 
—

 
—

Revolving credit facility
598,500

 
594,011