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 September 25, 2016
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625

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)
 
(I.R.S. Employer Identification No.)
2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)

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

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

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

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

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

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

As of October 28, 2016, 105,390,926 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 September 25, 2016
(Unaudited)

TABLE OF CONTENTS

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

2

Table of Contents
BLOOMIN’ BRANDS, INC.


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
 
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
91,474

 
$
132,337

Current portion of restricted cash and cash equivalents
803

 
6,772

Inventories
66,514

 
80,704

Other current assets, net
91,563

 
198,831

Total current assets
250,354

 
418,644

Restricted cash

 
16,265

Property, fixtures and equipment, net
1,418,532

 
1,594,460

Goodwill
314,566

 
300,861

Intangible assets, net
542,240

 
546,837

Deferred income tax assets
3,669

 
7,631

Other assets, net
130,663

 
147,871

Total assets
$
2,660,024

 
$
3,032,569

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
189,662

 
$
193,116

Accrued and other current liabilities
202,351

 
206,611

Unearned revenue
242,442

 
382,586

Current portion of long-term debt, net
39,551

 
31,853

Total current liabilities
674,006

 
814,166

Deferred rent
150,991

 
139,758

Deferred income tax liabilities
23,206

 
53,546

Long-term debt, net
1,186,057

 
1,285,011

Other long-term liabilities, net
360,114

 
294,662

Total liabilities
2,394,374

 
2,587,143

Commitments and contingencies (Note 16)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
26,092

 
23,526

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

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 105,194,804 and 119,214,522 shares issued and outstanding as of September 25, 2016 and December 27, 2015, respectively
1,052

 
1,192

Additional paid-in capital
1,068,165

 
1,072,861

Accumulated deficit
(747,472
)
 
(518,360
)
Accumulated other comprehensive loss
(94,984
)
 
(147,367
)
Total Bloomin’ Brands stockholders’ equity
226,761

 
408,326

Noncontrolling interests
12,797

 
13,574

Total stockholders’ equity
239,558

 
421,900

Total liabilities, mezzanine equity and stockholders’ equity
$
2,660,024

 
$
3,032,569

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

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 25, 2016

SEPTEMBER 27, 2015

SEPTEMBER 25, 2016

SEPTEMBER 27, 2015
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
998,806

 
$
1,020,131

 
$
3,229,377

 
$
3,307,700

Other revenues
6,581

 
6,590

 
18,786

 
20,677

Total revenues
1,005,387

 
1,026,721

 
3,248,163

 
3,328,377

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
322,080

 
339,000

 
1,044,179

 
1,083,923

Labor and other related
290,032

 
286,628

 
921,992

 
911,653

Other restaurant operating
243,175

 
243,609

 
747,189

 
761,928

Depreciation and amortization
48,551

 
47,455

 
145,206

 
141,316

General and administrative
65,072

 
69,623

 
208,663

 
218,832

Provision for impaired assets and restaurant closings
4,743

 
1,682

 
49,183

 
11,715

Total costs and expenses
973,653

 
987,997

 
3,116,412

 
3,129,367

Income from operations
31,734

 
38,724

 
131,751

 
199,010

Loss on defeasance, extinguishment and modification of debt
(418
)
 

 
(26,998
)
 
(2,638
)
Other income (expense), net
2,079

 
(266
)
 
2,059

 
(1,356
)
Interest expense, net
(10,217
)
 
(14,851
)
 
(33,394
)
 
(40,916
)
Income before provision for income taxes
23,178

 
23,607

 
73,418

 
154,100

Provision for income taxes
1,950

 
6,202

 
24,372

 
41,557

Net income
21,228

 
17,405

 
49,046

 
112,543

Less: net income attributable to noncontrolling interests
495

 
594

 
3,015

 
2,918

Net income attributable to Bloomin’ Brands
$
20,733

 
$
16,811

 
$
46,031

 
$
109,625

 
 
 
 
 
 
 
 
Net income
$
21,228

 
$
17,405

 
$
49,046

 
$
112,543

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
45,471

 
(34,157
)
 
58,151

 
(85,801
)
Unrealized gain (loss) on derivatives, net of tax
672

 
(3,884
)
 
(4,250
)
 
(7,052
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
947

 
1,115

 
2,902

 
1,115

Comprehensive income (loss)
68,318

 
(19,521
)
 
105,849

 
20,805

Less: comprehensive income (loss) attributable to noncontrolling interests
2,509

 
(11,380
)
 
7,435

 
(9,056
)
Comprehensive income (loss) attributable to Bloomin’ Brands
$
65,809

 
$
(8,141
)
 
$
98,414

 
$
29,861

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.14

 
$
0.41

 
$
0.89

Diluted
$
0.18

 
$
0.13

 
$
0.40

 
$
0.87

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
109,399

 
121,567

 
113,553

 
123,337

Diluted
112,430

 
124,733

 
116,516

 
126,610

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.07

 
$
0.06

 
$
0.21

 
$
0.18

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

4

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

 

 

 
46,031

 

 
2,420

 
48,451

Other comprehensive income (loss), net of tax

 

 

 

 
52,383

 
(89
)
 
52,294

Cash dividends declared, $0.21 per common share

 

 
(23,981
)
 

 

 

 
(23,981
)
Repurchase and retirement of common stock
(14,831
)
 
(148
)
 

 
(274,744
)
 

 

 
(274,892
)
Stock-based compensation

 

 
18,390

 

 

 

 
18,390

Tax shortfall from stock-based compensation

 

 
(410
)
 

 

 

 
(410
)
Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
811

 
8

 
3,654

 
(399
)
 

 

 
3,263

Change in the redemption value of redeemable interests

 

 
(1,349
)
 

 

 

 
(1,349
)
Purchase of noncontrolling interests, net of tax of $1,504

 

 
(1,000
)
 

 

 
581

 
(419
)
Distributions to noncontrolling interests

 

 

 

 

 
(4,245
)
 
(4,245
)
Contributions from noncontrolling interests

 

 

 

 

 
556

 
556

Balance, September 25, 2016
105,195

 
$
1,052

 
$
1,068,165

 
$
(747,472
)
 
$
(94,984
)
 
$
12,797

 
$
239,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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 28, 2014
125,950

 
$
1,259

 
$
1,085,627

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

 
$
556,449

Net income

 

 

 
109,625

 

 
1,984

 
111,609

Other comprehensive (loss) income, net of tax

 

 

 

 
(79,764
)
 
10

 
(79,754
)
Cash dividends declared, $0.18 per common share

 

 
(22,147
)
 

 

 

 
(22,147
)
Repurchase and retirement of common stock
(7,043
)
 
(70
)
 

 
(159,929
)
 

 

 
(159,999
)
Stock-based compensation

 


 
16,276

 

 

 

 
16,276

Excess tax benefit from stock-based compensation

 

 
1,058

 

 

 

 
1,058

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
844

 
9

 
6,387

 
(725
)
 

 

 
5,671

Purchase of limited partnership interests, net of tax

 

 
(229
)
 

 

 

 
(229
)
Change in the redemption value of redeemable interests

 

 
(11,548
)
 

 

 

 
(11,548
)
Distributions to noncontrolling interests

 

 

 

 

 
(3,310
)
 
(3,310
)
Contributions from noncontrolling interests

 

 

 

 

 
3,442

 
3,442

Balance, September 27, 2015
119,751

 
$
1,198

 
$
1,075,424

 
$
(526,023
)
 
$
(140,306
)
 
$
7,225

 
$
417,518


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

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Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Cash flows provided by operating activities:
 
 
 
Net income
$
49,046

 
$
112,543

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

 
 

Depreciation and amortization
145,206

 
141,316

Amortization of deferred discounts and issuance costs
3,862

 
3,583

Amortization of deferred gift card sales commissions
21,146

 
20,381

Provision for impaired assets and restaurant closings
49,183

 
11,715

Stock-based and other non-cash compensation expense
17,646

 
16,797

Deferred income tax expense
1,764

 
6,053

(Gain) loss on sale of subsidiary or business
(2,084
)
 
1,168

Loss on defeasance, extinguishment and modification of debt
26,998

 
2,638

Excess tax benefit from stock-based compensation
(1,214
)
 
(1,058
)
Other non-cash items, net
(4,873
)
 
(2,058
)
Change in assets and liabilities:
 

 
 

Decrease (increase) in inventories
14,291

 
(2,214
)
Decrease in other current assets
82,975

 
71,279

Decrease in other assets
6,021

 
11,414

Decrease in accounts payable and accrued and other current liabilities
(56,910
)
 
(16,932
)
Increase in deferred rent
12,206

 
15,516

Decrease in unearned revenue
(138,300
)
 
(139,672
)
Decrease in other long-term liabilities
(3,407
)
 
(5,175
)
Net cash provided by operating activities
223,556

 
247,294

Cash flows provided by (used in) investing activities:
 

 
 

Proceeds from disposal of property, fixtures and equipment
1,335

 
5,521

Proceeds from sale-leaseback transactions, net
320,287

 

Proceeds from sale of a business, net of cash divested
23,009

 
7,798

Capital expenditures
(185,581
)
 
(166,783
)
Decrease in restricted cash
40,977

 
42,868

Increase in restricted cash
(18,739
)
 
(33,960
)
Other investments, net
(5,148
)
 
9,618

Net cash provided by (used in) investing activities
$
176,140

 
$
(134,938
)
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

7

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$
364,211

 
$

Defeasance, extinguishment and modification of debt
(478,906
)
 
(215,000
)
Repayments of long-term debt
(221,266
)
 
(36,330
)
Proceeds from borrowings on revolving credit facilities, net
591,500

 
522,225

Repayments of borrowings on revolving credit facilities
(377,500
)
 
(193,300
)
Proceeds from the exercise of share-based compensation
3,662

 
6,396

Distributions to noncontrolling interests
(4,245
)
 
(3,310
)
Contributions from noncontrolling interests
556

 
3,442

Purchase of limited partnership and noncontrolling interests
(10,778
)
 
(652
)
Repayments of partner deposits and accrued partner obligations
(14,985
)
 
(35,884
)
Repurchase of common stock
(275,291
)
 
(160,724
)
Excess tax benefit from stock-based compensation
1,214

 
1,058

Cash dividends paid on common stock
(23,981
)
 
(22,147
)
Net cash used in financing activities
(445,809
)
 
(134,226
)
Effect of exchange rate changes on cash and cash equivalents
5,250

 
(8,284
)
Net decrease in cash and cash equivalents
(40,863
)
 
(30,154
)
Cash and cash equivalents as of the beginning of the period
132,337

 
165,744

Cash and cash equivalents as of the end of the period
$
91,474

 
$
135,590

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
32,726

 
$
39,408

Cash paid for income taxes, net of refunds
51,833

 
18,383

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
$
17,174

 
$
17

Purchase of noncontrolling interest included in accrued and other current liabilities
1,414

 


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

8

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 the fair presentation of the Company’s results of operations, financial position and cash flows for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 27, 2015.

Recently Issued Financial Accounting Standards Not Yet Adopted - In August 2016, the Financial Accounting Standards Board (“the FASB”) issued Accounting Standards Update (“ASU”) 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 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 financial position, results of operations and cash flows.

In March 2016, the FASB issued ASU 2016-09: “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. ASU No. 2016-09 will be effective for the Company in fiscal year 2017. While reducing the complexity of the accounting for share based-payments, ASU No. 2016-09 is expected to impact net income, earnings per share and presentation of cash flows.

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

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

In May 2014, the FASB issued ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is

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Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. ASU No. 2014-09, as amended, will be effective for the Company in fiscal year 2018 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption. The Company has not selected a transition method and is evaluating the impact this guidance will have on its financial position, results of operations and cash flows.

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

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

2.    Impairments, Disposals and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Impairment losses
 
 
 
 
 
 
 
U.S.
$
5,267

 
$
1,637

 
$
5,348

 
$
3,043

International

 

 
39,636

 

Corporate

 

 

 
746

Total impairment losses
$
5,267

 
$
1,637

 
$
44,984

 
$
3,789

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
(524
)
 
$
(20
)
 
$
4,325

 
$
1,754

International

 
65

 
(126
)
 
6,172

Total restaurant closure expenses
$
(524
)
 
$
45

 
$
4,199

 
$
7,926

Provision for impaired assets and restaurant closings
$
4,743

 
$
1,682

 
$
49,183

 
$
11,715


Outback Steakhouse South Korea - On July 25, 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”) for a purchase price of $50.0 million, in cash. In the second quarter of 2016, the Company recognized an impairment charge of $39.6 million, including costs to sell of $3.3 million, within the International segment. The Company also recognized tax expense of ($1.1) million and $2.4 million for the thirteen and thirty-nine weeks ended September 25, 2016, respectively, with respect to undistributed earnings in South Korea that were previously considered to be permanently reinvested.

During the thirteen and thirty-nine weeks ended September 25, 2016, the Company recognized a gain on the sale of Outback Steakhouse South Korea of $2.1 million within Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income (Loss), primarily due to a change in foreign currency exchange rates subsequent to the Company’s second fiscal quarter. After completion of the sale, the Company’s restaurant locations in South Korea are operated as franchises under an agreement with the buyer.

10

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following are the components of Outback Steakhouse South Korea included in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the following periods:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Restaurant sales
$
11,753

 
$
41,909

 
$
90,455

 
$
128,276

Income (loss) before income taxes (1)
$
2,246

 
$
2,124

 
$
(32,348
)
 
$
(1,050
)
________________
(1)
Includes impairment charges of $39.6 million for Assets held for sale during the thirty-nine weeks ended September 25, 2016. Includes a gain of $2.1 million on the sale of Outback Steakhouse South Korea for the thirteen and thirty-nine weeks ended September 25, 2016.

Bonefish Restructuring - On February 12, 2016, the Company decided to close 14 Bonefish restaurants (“Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the first quarter of 2019. The Company currently expects to incur additional charges of approximately $3.5 million to $6.1 million over the next five years, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of estimated pre-tax expense by type:
(dollars in millions)
ESTIMATED EXPENSE
Lease-related liabilities, net
$
3.2

to
$
5.2

Employee severance and other obligations
$
0.3

to
$
0.9


Total future cash expenditures of $10.1 million to $12.3 million, primarily related to lease liabilities, are expected to occur through October 2024.

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

Following is a summary of expenses related to the Bonefish Restructuring and International and Domestic Restaurant Closure Initiatives recognized in Provision for impaired assets and restaurant closings in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Impairment, facility closure and other expenses
 
 
 
 
 
 
 
Bonefish Restructuring
$
(685
)
 
$

 
$
3,695

 
$

International Restaurant Closure Initiative

 
65

 
(124
)
 
6,160

Domestic Restaurant Closure Initiative

 
(20
)
 
81

 
1,317

Provision for impaired assets and restaurant closings
$
(685
)
 
$
45

 
$
3,652

 
$
7,477

Severance and other expenses
 
 
 
 
 
 
 
Bonefish Restructuring
$

 
$

 
$
601

 
$

International Restaurant Closure Initiative

 
140

 
23

 
1,713

General and administrative
$

 
$
140

 
$
624

 
$
1,713

Reversal of deferred rent liability
 
 
 
 
 
 
 
Bonefish Restructuring
$
(609
)
 
$

 
$
(3,410
)
 
$

International Restaurant Closure Initiative

 

 

 
(198
)
Other restaurant operating
$
(609
)
 
$

 
$
(3,410
)
 
$
(198
)
 
$
(1,294
)
 
$
185

 
$
866

 
$
8,992



11

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Bonefish Restructuring and Domestic and International Restaurant Closure Initiatives, during the thirty-nine weeks ended September 25, 2016:
(dollars in thousands)
THIRTY-NINE WEEKS ENDED
Beginning of the period
$
5,699

Charges
5,400

Cash payments
(4,284
)
Adjustments
(1,201
)
End of the period (1)
$
5,614

________________
(1)
As of September 25, 2016, the Company had exit-related accruals of $1.9 million recorded in Accrued and other current liabilities and $3.7 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.

Other Impairments - During the thirteen and thirty-nine weeks ended September 25, 2016, the Company recognized impairment charges of $3.2 million for its Puerto Rico subsidiary, within the U.S. segment.

3.    Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(in thousands, except per share data)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Net income attributable to Bloomin’ Brands
$
20,733

 
$
16,811

 
$
46,031

 
$
109,625

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
109,399

 
121,567

 
113,553

 
123,337

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
2,720

 
2,966

 
2,719

 
3,071

Nonvested restricted stock and restricted stock units
311

 
200

 
242

 
200

Nonvested performance-based share units

 

 
2

 
2

Diluted weighted average common shares outstanding
112,430

 
124,733

 
116,516

 
126,610

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.19

 
$
0.14

 
$
0.41

 
$
0.89

Diluted earnings per share
$
0.18

 
$
0.13

 
$
0.40

 
$
0.87


Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Stock options
5,530

 
2,828

 
5,079

 
2,616

Nonvested restricted stock and restricted stock units
103

 
28

 
285

 
38

Nonvested performance-based share units
130

 

 
99

 



12

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

4.    Stock-based and Deferred Compensation Plans

Stock-based Compensation Plans

Equity Compensation Plans - On April 22, 2016, the Company’s shareholders approved the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Incentive Plan”). Following approval of the 2016 Incentive Plan, no further awards have been granted under the Company’s previous equity compensation plans. Existing awards under previous plans continue to vest in accordance with the original vesting schedule and will expire at the end of their original term. The 2016 Incentive Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other cash-based or stock-based awards to Company management, other key employees, consultants and directors.

As of September 25, 2016, the maximum number of shares of common stock available for issuance pursuant to the 2016 Incentive Plan was 5,608,064.

Performance-based Share Units - During the thirty-nine weeks ended September 25, 2016, the Company granted performance-based share units that vest after three years based on the achievement of certain Company performance criteria as set forth in the award agreement and may range from zero to 200% of the target grant.

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Stock options
$
2,929

 
$
2,633

 
$
8,971

 
$
7,612

Restricted stock and restricted stock units
2,322

 
1,823

 
6,901

 
4,973

Performance-based share units
21

 
939

 
1,773

 
2,628

 
$
5,272

 
$
5,395

 
$
17,645

 
$
15,213


During the thirty-nine weeks ended September 25, 2016, the Company made grants to its employees of 3.2 million stock options, 1.0 million time-based restricted stock units and 0.4 million performance-based share units.


13

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 25, 2016
Assumptions:
 
Weighted-average risk-free interest rate (1)
1.3
%
Dividend yield (2)
1.6
%
Expected term (3)
6.1 years

Weighted-average volatility (4)
35.2
%
 
 
Weighted-average grant date fair value per option
$
5.28

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

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of September 25, 2016:
 
UNRECOGNIZED
COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
24,451

 
2.5
Restricted stock and restricted stock units
$
25,241

 
2.9
Performance-based share units
$
2,187

 
1.7

5.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
Prepaid expenses
$
26,787

 
$
30,373

Accounts receivable - gift cards, net
12,864

 
115,926

Accounts receivable - vendors, net
8,693

 
10,310

Accounts receivable - franchisees, net
2,372

 
1,149

Accounts receivable - other, net
22,398

 
21,158

Assets held for sale
469

 
784

Other current assets, net
17,980

 
19,131

 
$
91,563

 
$
198,831


6.     Property, Fixtures and Equipment, Net

During the thirty-nine weeks ended September 25, 2016, the Company entered into sale-leaseback transactions with third-parties in which it sold 88 restaurant properties at fair market value for gross proceeds of $326.5 million. The Company recorded a deferred gain of $97.2 million, primarily in Other long-term liabilities, net in its Consolidated Balance Sheet. Deferred gains from these sale-leaseback transactions are amortized to Other restaurant operating

14

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) over the initial term of each lease, ranging from 15 to 20 years.

7.     Goodwill and Intangible Assets, Net

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

 
$
128,150

 
$
300,861

Translation adjustments

 
15,893

 
15,893

Divestiture of business unit (1)

 
(1,901
)
 
(1,901
)
Transfer to Assets held for sale
(287
)
 

 
(287
)
Balance as of September 25, 2016
$
172,424

 
$
142,142

 
$
314,566

_______________
(1)
During the thirty-nine weeks ended September 25, 2016, the Company disposed of Goodwill in connection with the sale of Outback Steakhouse South Korea.

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

8.    Other Assets, Net

Other assets, net, consisted of the following:
(dollars in thousands)
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
Company-owned life insurance
$
74,373

 
$
68,950

Deferred financing fees (1)
2,906

 
3,730

Liquor licenses
27,806

 
27,869

Assets held for sale
1,546

 

Other assets
24,032

 
47,322

 
$
130,663

 
$
147,871

________________
(1)
Net of accumulated amortization of $3.0 million and $2.2 million as of September 25, 2016 and December 27, 2015, respectively.


15

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:
 
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
264,375

 
2.51
%
 
$
277,500

 
2.26
%
Term loan A-1
143,438

 
2.45
%
 
150,000

 
2.34
%
Revolving credit facility (1)
646,000

 
2.48
%
 
432,000

 
2.29
%
Total Senior Secured Credit Facility
$
1,053,813

 
 
 
$
859,500

 
 
PRP Mortgage Loan (2)
$
172,840

 
2.96
%
 
$

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

 
%
 
$
289,588

 
4.13
%
First mezzanine loan

 
%
 
84,028

 
9.00
%
Second mezzanine loan

 
%
 
85,353

 
11.25
%
Total 2012 CMBS loan
$

 
 
 
$
458,969

 
 
Capital lease obligations
$
2,495

 
 
 
$
2,632

 
 
Other long-term debt
3,006

 
0.00% to 7.60%

 
2,292

 
0.73% to 7.60%

Less: unamortized debt discount and issuance costs
(6,546
)
 
 
 
(6,529
)
 
 
 
$
1,225,608

 
 
 
$
1,316,864

 
 
Less: current portion of long-term debt, net
(39,551
)
 
 
 
(31,853
)
 
 
Long-term debt, net
$
1,186,057

 
 
 
$
1,285,011

 
 
________________
(1)
Represents the weighted-average interest rate for the respective period.
(2)
Subsequent to September 25, 2016, the Company made payments on its PRP Mortgage Loan with proceeds from sale-leaseback transactions. See Note 18 - Subsequent Events for further details.

PRP Mortgage Loan - On February 11, 2016, New Private Restaurant Partners, LLC, an indirect wholly-owned subsidiary of the Company (“PRP”), as borrower, and Wells Fargo Bank, National Association, as lender (the “Lender”), entered into a loan agreement (the “PRP Mortgage Loan”), pursuant to which PRP borrowed $300.0 million. The PRP Mortgage Loan has an initial maturity date of February 11, 2018 (the “Initial Maturity”) with an option to extend the Initial Maturity for one twelve-month extension period (the “Extension”) provided that certain conditions are satisfied. The PRP Mortgage Loan is collateralized by certain properties owned by PRP (“Collateral Properties”). PRP has also made negative pledges with respect to certain properties (“Unencumbered Properties”).
The proceeds of the PRP Mortgage Loan were used, together with borrowings under the Company’s revolving credit facility, to prepay a portion, and fully defease the remainder, of the 2012 CMBS loan. In connection with the defeasance, the Company recognized a loss of $26.6 million during the thirty-nine weeks ended September 25, 2016. Following the defeasance of the 2012 CMBS loan, $19.3 million of restricted cash was released.
The PRP Mortgage Loan bears interest, payable monthly, at a variable rate equal to 250 basis points above the seven-day LIBOR, subject to adjustment in certain circumstances.
At the time of the Amendment, the PRP Mortgage Loan was collateralized by 105 properties owned by PRP. The PRP Mortgage Loan permits the Company to refinance or sell the Collateral Properties and the Unencumbered Properties, subject to certain terms and conditions, including that specified release proceeds are applied against the outstanding loan balance.

16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

On July 27, 2016, PRP and the Lender, entered into a First Amendment (the “Amendment”) to the PRP Mortgage Loan to provide for additional borrowings of $69.5 million, increasing the outstanding loan balance as of the date of the Amendment from $189.3 million to $258.8 million. In connection with the modification, the Company recognized a loss of $0.4 million during the thirteen and thirty-nine weeks ended September 25, 2016.
Deferred Financing Fees - During the first and third quarters of 2016, the Company deferred $5.3 million and $0.5 million of financing costs incurred in connection with the PRP Mortgage Loan and the Amendment, respectively. The deferred financing costs are included in Long-term debt, net in the Consolidated Balance Sheet.

Debt Covenants - As of September 25, 2016 and December 27, 2015, the Company was in compliance with its debt covenants.
10.    Other Long-term Liabilities, Net

Other long-term liabilities, net, consisted of the following:
(dollars in thousands)
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
Accrued insurance liability
$
39,125

 
$
40,649

Unfavorable leases (1)
42,726

 
45,375

Chef and Restaurant Managing Partner deferred compensation obligations and deposits
114,094

 
134,470

Deferred gain on sale-leaseback transactions (2)
121,478

 
33,154

Other long-term liabilities
42,691

 
41,014

 
$
360,114

 
$
294,662

_______________
(1)
Net of accumulated amortization of $32.0 million and $29.8 million as of September 25, 2016 and December 27, 2015, respectively.
(2)
Net of accumulated amortization of $11.4 million and $8.1 million as of September 25, 2016 and December 27, 2015, respectively.

11.    Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in Brazil and China, each of which have noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. The following table presents a rollforward of Redeemable noncontrolling interests during the thirty-nine weeks ended September 25, 2016 and September 27, 2015:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Balance, beginning of period
$
23,526

 
$
24,733

Change in redemption value of Redeemable noncontrolling interests
1,349

 
2,877

Foreign currency translation attributable to Redeemable noncontrolling interests
4,509

 
(2,752
)
Net income attributable to Redeemable noncontrolling interests
595

 
934

Purchase of Redeemable noncontrolling interests
(3,887
)
 
(459
)
Out-of period adjustment - foreign currency translation attributable to Redeemable noncontrolling interests (1)

 
(9,232
)
Out-of period adjustment - change in redemption value of Redeemable noncontrolling interests (1)

 
8,671

Balance, end of period
$
26,092

 
$
24,772

________________
(1)
In the third quarter of 2015, the Company identified and corrected errors in accounting for the allocation of foreign currency translation adjustments to Redeemable noncontrolling interests and fair value adjustments for Redeemable noncontrolling interests.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Brazil Redeemable Noncontrolling Interests - Certain former equity holders (the “Former Equity Holders”) of PGS Consultoria e Serviços Ltda. (the “Brazil Joint Venture”) have options to sell their remaining interests to OB Brasil (the “put options”) and OB Brasil has options to purchase such remaining interests (the “call options” and together with the put options, the “Options”), in various amounts and at various times through 2018, subject to acceleration in certain circumstances. The purchase price under each of the Options is based on a multiple of adjusted earnings before interest, taxes, depreciation and amortization of the business, subject to a possible fair market value adjustment. The Options are embedded features within the noncontrolling interest and are classified within the Company’s Consolidated Balance Sheets as Redeemable noncontrolling interests.

During the thirty-nine weeks ended September 25, 2016, certain Former Equity Holders exercised options to sell their remaining interests to the Company for $2.5 million. These transactions resulted in a reduction of $3.9 million of Mezzanine equity and an increase of $1.4 million of Additional paid-in capital during the thirty-nine weeks ended September 25, 2016. As a result of the option exercise, the Company now owns 91.37% of the Brazil Joint Venture.

12.
Stockholders’ Equity

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

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

Following is a summary of the shares repurchased under the Company’s share repurchase programs during fiscal year 2016:

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

 
$
17.05

 
$
75,000

Thirteen weeks ended June 26, 2016
3,376

 
$
19.22

 
64,892

Thirteen weeks ended September 25, 2016
7,056

 
$
19.13

 
135,000

Total common stock repurchases
14,831

 
$
18.53

 
$
274,892


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

 
$
8,238

Thirteen weeks ended June 26, 2016
0.07

 
7,978

Thirteen weeks ended September 25, 2016
0.07

 
7,765

Total cash dividends declared and paid
$
0.21

 
$
23,981


In October 2016, the Board declared a quarterly cash dividend of $0.07 per share, payable on November 22, 2016, to shareholders of record at the close of business on November 9, 2016.


18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Acquisition of Noncontrolling Interests - During the thirty-nine weeks ended September 25, 2016, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships for five Outback Steakhouse restaurants for an aggregate purchase price of $3.4 million. These transactions resulted in a reduction of $2.5 million, net of tax, in Additional paid-in capital in the Company’s Consolidated Statement of Changes in Stockholders’ Equity during the thirty-nine weeks ended September 25, 2016.

The following table sets forth the effect of the acquisition of the limited partnership interests on stockholders’ equity attributable to Bloomin’ Brands for the thirteen and thirty-nine weeks ended September 25, 2016:
 
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 25, 2016
Net income attributable to Bloomin’ Brands
$
20,733

 
$
46,031

Transfers to noncontrolling interests:
 
 
 
Decrease in Bloomin’ Brands additional paid-in capital for purchase of limited partnership interests
(1,655
)
 
(2,475
)
Change from net income attributable to Bloomin’ Brands and transfers to noncontrolling interests
$
19,078

 
$
43,556


Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss (“AOCL”):
(dollars in thousands)
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
Foreign currency translation adjustment (1)
$
(87,445
)
 
$
(141,176
)
Unrealized losses on derivatives, net of tax
(7,539
)
 
(6,191
)
Accumulated other comprehensive loss
$
(94,984
)
 
$
(147,367
)
________________
(1)
During the thirteen and thirty-nine weeks ended September 25, 2016, approximately $16.8 million of the foreign currency translation adjustment in Accumulated other comprehensive loss was disposed of in connection with the sale of Outback Steakhouse South Korea.

19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Following are the components of Other comprehensive income (loss) during the periods presented:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Bloomin’ Brands:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
43,457

 
$
(31,415
)
 
$
53,731

 
$
(83,059
)
Out-of period adjustment - foreign currency translation (1)

 
9,232

 

 
9,232

Total foreign currency translation adjustment
$
43,457

 
$
(22,183
)
 
$
53,731

 
$
(73,827
)
Unrealized gain (loss) on derivatives, net of tax (2)
$
672

 
$
(3,884
)
 
$
(4,250
)
 
$
(7,052
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (2)
947

 
1,115

 
2,902

 
1,115

Total unrealized gain (loss) on derivatives, net of tax
$
1,619

 
$
(2,769
)
 
$
(1,348
)
 
$
(5,937
)
Other comprehensive income (loss) attributable to Bloomin’ Brands
$
45,076

 
$
(24,952
)
 
$
52,383

 
$
(79,764
)
 
 
 
 
 
 
 
 
Non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(65
)
 
$
10

 
$
(89
)
 
$
10

Other comprehensive (loss) income attributable to Non-controlling interests
$
(65
)
 
$
10

 
$
(89
)
 
$
10

 
 
 
 
 
 
 
 
Redeemable non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
2,079

 
$
(2,752
)
 
$
4,509

 
$
(2,752
)
Out-of period adjustment - foreign currency translation (1)

 
(9,232
)
 

 
(9,232
)
Total foreign currency translation adjustment
$
2,079

 
$
(11,984
)
 
$
4,509

 
$
(11,984
)
Other comprehensive income (loss) attributable to Redeemable non-controlling interests
$
2,079

 
$
(11,984
)
 
$
4,509

 
$
(11,984
)
________________
(1)
In the third quarter of 2015, the Company identified and corrected errors in accounting for the allocation of foreign currency translation adjustments to Redeemable noncontrolling interests.
(2)
Amounts attributable to Bloomin’ Brands are net of tax (expense) benefit during the periods presented:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Tax (expense) benefit from unrealized gain (loss) on derivatives
$
(424
)
 
$
2,483

 
$
2,735

 
$
4,509

Tax benefit from reclassification of adjustments for losses on derivatives included in Net income
$
598

 
$
713

 
$
1,854

 
$
713


13.    Derivative Instruments and Hedging Activities

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

20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. Fair value changes in the interest rate swaps are recognized in AOCL for all effective portions. Balances in AOCL are subsequently reclassified to earnings in the same period that the hedged interest payments affect earnings. The Company estimates $5.4 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)
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
5,021

 
$
5,142

 
Accrued and other current liabilities
Interest rate swaps - liability
7,357

 
5,007

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
12,378

 
$
10,149

 
 
 
 
 
 
 
 
Accrued interest
$
432

 
$
556

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

The following table summarizes the effects of the interest rate swap on Net income for the thirteen and thirty-nine weeks ended September 25, 2016 and September 27, 2015:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
 
SEPTEMBER 25, 2016
 
SEPTEMBER 27, 2015
Interest rate swap expense recognized in Interest expense, net (1)
$
(1,545
)
 
$
(1,828
)
 
$
(4,756
)
 
$
(1,828
)
Income tax benefit recognized in Provision for income taxes
598

 
713

 
1,854

 
713

Total effects of the interest rate swaps on Net income
$
(947
)
 
$
(1,115
)
 
$
(2,902
)
 
$
(1,115
)
____________________
(1)
During the thirteen and thirty-nine weeks ended September 25, 2016 and September 27, 2015, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of September 25, 2016, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of September 25, 2016, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.


21

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

As of September 25, 2016 and December 27, 2015, 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 $13.0 million and $10.9 million, respectively. As of September 25, 2016 and December 27, 2015, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 25, 2016 and December 27, 2015, it could have been required to settle its obligations under the agreements at their termination value of $13.0 million and $10.9 million, respectively.

14.    Fair Value Measurements

Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of 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 September 25, 2016 and December 27, 2015:
 
SEPTEMBER 25, 2016
 
DECEMBER 27, 2015
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
138

 
$
138

 
$

 
$
6,333

 
$
6,333

 
$

Money market funds
18,979

 
18,979

 

 
7,168

 
7,168

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
552

 
552

 

 
551

 
551

 

Money market funds
251

 
251

 

 
2,681

 
2,681

 

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

 

 

 
59

 

 
59

Total asset recurring fair value measurements
$
19,920

 
$
19,920

 
$

 
$
16,792

 
$
16,733

 
$
59

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
5,021

 
$

 
$
5,021

 
$
5,142

 
$

 
$
5,142

Derivative instruments - commodities
264

 

 
264

 
583

 

 
583

Derivative instruments - foreign currency forward contracts

 

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