SECURITIES AND EXCHANGE COMMISSION
10-K/AAmendment No. 1
(Mark One)
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(Mark One) | |
[X]x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended: December 28, 2014
Or
| For the fiscal year ended: December 28, 2014
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[ ]¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from ______ to ______ |
For the transition period fromto
Commission File Number: 001-35625
BLOOMIN’ BRANDS, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | | | 20-8023465 |
(State or other jurisdiction of incorporation or organization) | | | | |
2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | | | Name of each exchange on which registered |
| Common Stock, $0.01 par value | | | | The Nasdaq Stock Market LLC (Nasdaq Global Select Market) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES xý NO ¨o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨o NO xý
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 xý 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 xý NO ¨o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer o
Non-accelerated filer o (Do not check if smaller reporting company) Smaller reporting company o
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| Large accelerated filer | | x | | Accelerated filer | | ¨ |
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| Non-accelerated filer | | ¨ (Do not check if smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨o NO xý
The aggregate market value of common stock held by non-affiliates (based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the Nasdaq Global Select Market) was $1.6 billion. All executive officers and directors of the registrant and all persons filing a Schedule 13G with the Securities and Exchange Commission in respect to registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
As of February 18,24, 2015, 126,386,965 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders on April 29, 2015, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 28, 2014, are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
None.
INDEX TO ANNUAL REPORT ON FORM 10-K
10-K/AFor Fiscal Year
2014
PART I
Cautionary Statement
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-K (this “Amendment”) amends the Annual Report on Form 10-K for the year ended December 28, 2014 filed on February 24, 2015 (the “Report”“Form 10-K”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and thereforeby Bloomin’ Brands, Inc. We are or may be deemedfiling this Amendment to be, “forward-looking statements” withinpresent the meaning of Section 27Ainformation required by Part III of the SecuritiesForm 10-K. Terms previously defined in the Form 10-K have the same meanings in this Amendment.
Also included in this Amendment are (i) the signature page, (ii) certifications required of the principal executive officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 1933, as2002 and (iii) Item 15, which has been amended and Section 21E ofrestated in its entirety as set forth below to include the Securities Exchange Act of 1934,additional certifications.
Except as amended. These forward-looking statements can generally be identified bydescribed above, no other changes have been made to the use of forward-looking terminology, includingForm 10-K. Other than the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, althoughinformation specifically amended and restated herein, this Amendment does not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate toreflect events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, those described in the “Risk Factors” section of this filing and the following:
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(i) | Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; |
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(ii) | Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; |
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(iii) | Our ability to preserve and grow the reputation and value of our brands; |
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(iv) | Our ability to acquire attractive sites on acceptable terms, obtain required permits and approvals, recruit and train necessary personnel and obtain adequate financing in order to develop new restaurants as planned, and difficulties in estimating the performance of newly opened restaurants; |
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(v) | The effects of international economic, political, social and legal conditions on our foreign operations and on foreign currency exchange rates; |
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(vi) | Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits; |
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(vii) | Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; |
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(viii) | Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations; |
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(ix) | Minimum wage increases and additional mandated employee benefits; |
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(x) | Fluctuations in the price and availability of commodities; |
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(xi) | Consumer reactions to public health and food safety issues; |
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(xii) | Our ability to protect our information technology systems from interruption or security breach and to protect consumer data and personal employee information; and |
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(xiii) | The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt. |
In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as ofoccurring after February 24, 2015, the date of
such statement, and we undertake no obligation tothe Form 10-K, or modify or update
any forward-looking statement or to publicly announce the resultsthose disclosures that may have been affected by subsequent events.PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Overview of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
Item 1. Business
General and History - Bloomin’ Brands, Inc. (“Bloomin’ Brands,” the “Company,” “we,” “us,” and “our”) is one of the largest casual dining restaurant companies in the world, with a portfolio of leading, differentiated restaurant concepts. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Our restaurant concepts range in price point and degree of formality from casual (Outback Steakhouse and Carrabba’s Italian Grill) to upscale casual (Bonefish Grill) and fine dining (Fleming’s Prime Steakhouse & Wine Bar). Board StructureIn January 2015, we sold our Roy’s concept.
As of December 28, 2014, we owned and operated 1,344 restaurants and franchised 166 restaurants across 48 states, Puerto Rico, Guam and 21 countries.
Our predecessor, OSI Restaurant Partners, Inc., opened the first Outback Steakhouse restaurant in 1988. In 1991, OSI Restaurant Partners, Inc. completed an initial public offering (“IPO”). In 1996, we expanded the Outback Steakhouse concept internationally.
On June 14, 2007, Bloomin’ Brands which was incorporated in 2006, acquired OSI Restaurant Partners, Inc. by means of a merger and related transactions (the “Merger”). At the time of the Merger, OSI Restaurant Partners, Inc. was converted into a limited liability company namedour wholly-owned subsidiary, OSI Restaurant Partners, LLC (“OSI”). OSI is our primary operating entity. New Private Restaurant Properties, LLC (“PRP”), a wholly-owned subsidiary of Bloomin’ Brands leaseswas formed by an investor group comprised of funds advised by Bain Capital, LLC (“Bain Capital”) and others, who we collectively refer to as our owned restaurant properties to OSI subsidiaries.“Sponsors,” and our “Founders,” who include Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon. In August 2012, we completed an IPOand certain of our common stock.
OUR RESTAURANT CONCEPTS
Outback Steakhouse - U.S. - Outback Steakhouse is a casual steakhouse restaurant focused on steaks, signature flavors and Australian decor. The Outback Steakhouse menu offers seasoned and seared or wood-fire grilled steaks, chops, chicken, seafood, pasta, salads and seasonal specials. The menu also includes several specialty appetizers,stockholders, including our signature Bloomin’ Onion®,Sponsors and desserts, together with full bar service featuring Australian wine and beer.
Carrabba’s Italian Grill - Carrabba’s Italian Grill is a casual authentic Italian restaurant featuring handcrafted dishes. The Carrabba’s Italian Grill menu includes a varietyFounders, sold shares of Italian pasta, chicken, beef and seafood dishes, salads and wood-fired pizza. Our ingredients are sourced from around the worldcommon stock in our initial public offering (the “IPO”) and our traditional Italian exhibition kitchen allows consumers to watch handmade dishes being prepared.
Bonefish Grill - Bonefish Grill is an upscale casual seafood restaurant featuring market fresh grilled fish. The Bonefish Grill menu is anchored by fresh fish, hand-cut and topped with freshly prepared sauces, and seasonal seafood specials. In addition, Bonefish Grill offers beef, pork and chicken entrées, as well as several specialty appetizers, includingcommon stock was listed on the NASDAQ Global Select Market.From the time of our signature Bang Bang Shrimp,
® and desserts.
Fleming’s Prime Steakhouse & Wine Bar - Fleming’s Prime Steakhouse & Wine Bar isIPO until the completion of a contemporary steakhouse featuring prime cutssecondary public offering of beef, fresh seafood and pork and chicken entrées, accompanied by an extensive assortment of freshly prepared salads and side dishes. The steak selection features USDA Prime corn-fed beef, both wet- and dry-aged for flavor and texture, in a selection of sizes and cuts. Fleming’s Prime Steakhouse & Wine Bar offers a large selection of winesshares by the glass, with 100 wines available.
Bloomin’ Brands International - Bloomin’ Brands International is our business unit for developing and operating our restaurants outside ofSponsors on March 10, 2014 (the “March 2014 Secondary Offering”), the U.S. We have cross-functional, local managementSponsors continued to support and grow restaurants in each of the countries where we have Company-owned operations. Our international operations are integrated with our corporate organization to leverage enterprise-wide capabilities, including marketing, finance, real estate, information technology, legal, supply chain management and productivity.
Prior to November 1, 2013, our Outback Steakhouse locations in Brazil were operated as an unconsolidated joint venture (“Brazil Joint Venture”). On November 1, 2013, we acquiredown a controlling interest in the Brazil Joint Venture.
As of December 28, 2014,us and we owned and operated 167 international Outback Steakhouse restaurants and franchised 55 restaurants across 21 countries and Guam. As of December 28, 2014, our other concepts did not operate outsideavailed ourselves of the U.S. See Item 2 - Properties for disclosure of our international Outback Steakhouse restaurant count by country.
Financial information about geographic areas is included in Note 2 - Summary of Significant Accounting Policies of our Notes to Consolidated Financial Statements.
System-wide Restaurant Summary - Following is a system-wide rollforward of restaurants in operation during fiscal year 2014:
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| | DECEMBER 31, | | 2014 ACTIVITY | | DECEMBER 28, | | U.S. STATE |
| | 2013 | | OPENED | | CLOSED | | 2014 | | COUNT |
| Number of restaurants: | | | | | | | | | |
| Outback Steakhouse | | | | | | | | | |
| Company-owned—U.S. | 663 | | 3 |
| | (18 | ) | | 648 | | |
| Company-owned—international (1) (2) (3) | 169 | | 24 |
| | (26 | ) | | 167 | | |
| Franchised—U.S. | 105 | | 1 |
| | (1 | ) | | 105 | | |
| Franchised—international (2) | 51 | | 5 |
| | (1 | ) | | 55 | | |
| Total | 988 | | 33 |
| | (46 | ) | | 975 | | 48 |
| Carrabba’s Italian Grill | | | | | | | | | |
| Company-owned | 239 | | 6 |
| | (3 | ) | | 242 | | |
| Franchised | 1 | | — |
| | — |
| | 1 | | |
| Total | 240 | | 6 |
| | (3 | ) | | 243 | | 32 |
| Bonefish Grill | | | | | | | | | |
| Company-owned (4) | 187 | | 17 |
| | (3 | ) | | 201 | | |
| Franchised (4) | 7 | | — |
| | (2 | ) | | 5 | | |
| Total | 194 | | 17 |
| | (5 | ) | | 206 | | 37 |
| Fleming’s Prime Steakhouse & Wine Bar | | | | | | | | | |
| Company-owned | 65 | | 1 |
| | — |
| | 66 | | 28 |
| Roy’s | | | | | | | | | |
| Company-owned | 21 | | — |
| | (1 | ) | | 20 | | 7 |
| System-wide total | 1,508 | | 57 |
| | (55 | ) | | 1,510 | | |
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(1) | The restaurant count for Brazil is reported as of November 30, 2014 and excludes one restaurant opened in December 2014.
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(2) | Effective December 28, 2014, we sold one Company-owned Outback Steakhouse location in Mexico to an existing franchisee. |
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(3) | The restaurant count as of December 28, 2014 includes 21 locations scheduled to close during 2015, including 20 in South Korea.
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(4) | Effective March 1, 2014, we acquired two Bonefish Grill restaurants from a franchisee. |
Selected sales data - Following is sales mix by product type and average check per person for domestic Company-owned restaurants during fiscal year 2014:
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| | Outback Steakhouse (U.S.) | | Carrabba’s Italian Grill | | Bonefish Grill | | Fleming’s
Prime Steakhouse
& Wine Bar |
| Food & non-alcoholic beverage | 89 | % | | 84 | % | | 77 | % | | 71 | % |
| Alcoholic beverage | 11 | % | | 16 | % | | 23 | % | | 29 | % |
| | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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| Average check per person | $ | 21 |
| | $ | 21 |
| | $ | 24 |
| | $ | 71 |
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Lunch expansion - All of our concepts serve dinner every day“controlled company” exception within the meaning of the week. Outback Steakhouse and Carrabba’s Italian Grill are open for lunch on Saturday and Sunday (“weekend lunch”), with many locations also open for lunch Monday through Friday (“weekday lunch”). Most international locations serve lunch and dinner. Following is the percentage of U.S. Outback Steakhouse and Carrabba’s Italian Grill locations open for weekday and weekend lunch asrules of the dates indicated:
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| | DECEMBER 28, 2014 | | DECEMBER 31, 2013 | | DECEMBER 31, 2012 |
| | WEEKEND | | WEEKDAY | | WEEKEND | | WEEKDAY | | WEEKEND | | WEEKDAY |
| Outback Steakhouse | 100 | % | | 61 | % | | 100 | % | | 35 | % | | 100 | % | | 19 | % |
| Carrabba’s Italian Grill | 100 | % | | 55 | % | | 100 | % | | 40 | % | | 100 | % | | 9 | % |
RESTAURANT DESIGN AND DEVELOPMENT
Site Design - We generally construct freestanding buildings on leased properties, although certain leased sites are also located in strip shopping centers. ConstructionNASDAQ Stock Market (“NASDAQ”). Subsequent to the March 2014 Secondary Offering, we were no longer a “controlled company” within the meaning of the NASDAQ rules. As a result, and following a phase-in period, NASDAQ rules now require that our Board of Directors consist of a new restaurant typically takes 60 to 180 days from the date the location is leased or under contract and fully permitted. In the majority of cases, future restaurant development will result fromdirectors who meet NASDAQ’s independence requirements (“Independent Directors”) and the leaseAudit, Compensation, and Nominating and Corporate Governance Committees must be composed entirely of existing third-party retail space. Independent Directors. See “Independent Directors” under Item 13 of this Annual Report on Form 10-K for additional information regarding these independence requirements and our satisfaction of these requirements.We typically designare parties to a stockholders agreement (“Stockholders Agreement”) with Bain Capital (OSI) IX, L.P., Bain Capital (OSI) IX Coinvestment, L.P., BCIP TCV, LLC, Bain Capital Integral Investors 2006, LLC, and BCIP Associates—G (collectively, the interior“Bain Funds”), whereby the Bain Funds have a contractual right to nominate a varying number of our restaurants in-house, utilizing outside architects when necessary.
Remodel and Relocation Plans - We have an ongoing program across all of our concepts to maintain the relevance of our restaurants’ ambience. We also have an ongoing relocation plan, primarily relateddirectors to the Outback Steakhouse brand. This multi-year relocation plan is focused on driving additional traffic to our restaurants by moving legacy restaurants from non-prime to prime locations within the same trade area.
Site Selection Process - We have a central site selection team comprisedBoard of real estate development, property/lease management and design and construction personnel. This site selection team also utilizes a combination of existing field operations managers, internal development personnel and outside real estate brokers to identify and qualify potential sites.
Restaurant Development
Domestic Development - Bonefish Grill unit growth will continue to be our top domestic development priority in 2015. We believe we have the potential to increase the units in our Bonefish Grill concept to over 300 in the next three to five years. Currently, the majority of Bonefish Grill restaurants are located in the southern and eastern U.S., with significant geographic expansion potential in the top 100 U.S. markets. In addition, we believe that Fleming’s Prime Steakhouse & Wine Bar has existing geography fill-in and market expansion opportunities based on its current location mix.
International Development - We continue to expand internationally, leveraging established equity and franchise markets in Asia and South America and in strategically selected emerging and high-growth developed markets, focusing on Brazil and China. We see significant potential for growth of Outback Steakhouse in Brazil to 100 restaurants. New restaurant growth in Brazil will be our top international development priority in 2015. We plan to introduce the Carrabba’s Italian Grill concept in Brazil, known as Abbraccio, with our first opening expected in March 2015.
We will utilize the ownership structure and market entry strategy that best fits the needs for a particular market, including Company-owned units, joint ventures and franchises. In markets where there is potential for a significant number of restaurants, we expect to focus on Company-owned units and joint ventures rather than franchises.
RESEARCH & DEVELOPMENT / INNOVATION
We utilize a global core menu policy to ensure consistency and quality in our menu offerings. Before we add an item to the core menu, we conduct consumer research. Our research and development (“R&D”) team reviews and approves the item. Internationally, we have teams in our developed markets that tailor our menus to address the preferences of local consumers.
We continuously evolve our product offerings based on consumer trends and feedback and to improve our efficiency. We have a 12-month pipeline of new menu and promotional items across all concepts, and we are able to quickly make adjustments with market demands, when necessary. In addition, we have dedicated resources focused on productivity across the portfolio. For new menu items and significant product changes, we have a testing process that includes direct consumer feedback on the product as well as pricing.
INFORMATION SYSTEMS
Restaurant-level financial and accounting controls are handled through the point-of-sale (“POS”) system and network in each restaurant that communicates with our corporate headquarters. The POS system is also used to authorize and transmit credit card sales transactions. Our Company-owned restaurants are connected through data centers and a portal to provide our corporate employees and regional partners with access to business information and tools that allow them to collaborate, communicate, train and share information.
We continue to invest in our infrastructure to provide a better overall consumer experience, reduce our costs, create efficiencies and enhance security. During 2014, we implemented several productivity tools including a labor tool that automates scheduling and a centralized inventory management system to monitor our commodity costs. We also made infrastructure enhancements to our financial, POS and human resource systems in 2014.
ADVERTISING AND MARKETING
We generally advertise through national television and/or radio media, with some spot television advertising for Carrabba’s Italian Grill. Our concepts have an active public relations program and also rely on national promotions, site visibility, local marketing, digital marketing, direct mail, billboards and point-of-sale materials to promote our restaurants. Internationally, we have teams in our developed markets that engage local agencies to tailor advertising to each market and develop relevant and timely promotions based on local consumer demand.
To help maintain consumer interest and relevance, each concept leverages limited-time offers featuring seasonal specials. We promote limited-time offers through integrated marketing programs that utilize all of our advertising resources.
RESTAURANT OPERATIONS
Management and Employees - The management staff of our restaurants varies by concept and restaurant size. Our restaurants employ primarily hourly employees, many of whom work part-time. The managing partner of each restaurant has primary responsibility for the day-to-day operation of the restaurant and is required to abide by Company-established operating standards. Area operating partners are responsible for overseeing the operations of typically six to 14 restaurants and managing partners in a specific region.
Area Operations Directors Restaurant Managing Partner and Chef Partner Programs - Area Operations Directors, Restaurant Managing Partners and Chef Partners generally receive distributions or payments for providing management and supervisory services to their restaurants based on a percentage of their restaurants’ monthly distributable cash flow (“Monthly Payments”).
Restaurant Managing Partners and Chef Partners are eligible to participate in deferred compensation programs. Under these deferred compensation programs, the Restaurant Managing Partners and Chef Partners are eligible to receive payments beginning upon completion of their five-year employment agreement. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans.
On the fifth anniversary of the opening of each new restaurant, the Area Operations Director supervising the restaurant during the first five years of operation receives an additional bonus based upon the average annual distributable cash flow of the restaurant. In addition to Monthly Payments and deferred compensation, Area Operations Directors,
Restaurant Managing Partners and Chef Partners whose restaurants achieve certain annual sales and profitability targets are eligible to receive an annual bonus equal to a percentage of the restaurant’s incremental sales increase.
Many of our Restaurant Managing Partners enter into employment agreements and purchase participation interests in the cash distributions from the restaurants they manage. The amount and terms vary by country. This interest gives the partners the right to receive a percentage of the restaurant’s annual cash flows for the duration of the agreement.
Supervision and Training - We require our Area Operations Directors and Restaurant Managing Partners to have significant experience in the full-service restaurant industry. All Area Operations Directors and Restaurant Managing Partners are required to complete a comprehensive training program that emphasizes our operating strategy, procedures and standards. The Restaurant Managing and Area Operations Directors, together with our Presidents, Regional Vice Presidents, Vice Presidents of Training and Directors of Training, are responsible for selecting and training the employees for each new restaurant.
Service - In order to better assess and improve our performance,we use a third-party research firm to conduct an ongoing satisfaction measurement program that provides us with industry benchmarking information for our Company-owned and franchise locations in the U.S. We have a similar consumer satisfaction measurement program for our international Company-owned locations. These programs measure satisfaction across a wide range of experience elements.
Food Preparation and Quality Control - We have an R&D facility located in Tampa, Florida that serves as a test kitchen and vendor product qualification site. Our quality assurance team manages internal auditors responsible for supplier evaluations and external third parties who inspect supplier adherence to quality, food safety and product specification. Our suppliers also utilize third-party labs for food safety and quality verification. Suppliers that do not comply with quality, food safety and other specifications are not utilized until they have corrective actions in place and are re-certified for compliance.
Our operational teams have multiple touch points in the restaurants ensuring food safety, quality and freshness throughout all phases of the preparation process. In addition, we employ third-party auditors to verify our standards of food safety, training and sanitation.
SOURCING AND SUPPLY
We take a global approach to procurement and supply chain management, with our corporate team serving all concepts in the U.S. and internationally. In addition, we have dedicated supply chain management personnel in our larger international operations in Asia and South America. The supply chain management organization is responsible for all food and operating supply purchases as well as a large percentage of field and corporate services.
We address the end-to-end costs (from the source to the fork) associated with the products and goods we purchase by utilizing a combination of global, regional and locally based suppliers to capture the efficiencies and economies of scale. This “total cost of ownership” (“TCO”) approach focuses on the initial purchase price, coupled with the cost structure underlying the procurement and order fulfillment process. The TCO approach includes monitoring commodity markets and trends to execute product purchases at the most advantageous times. We develop sourcing strategies for all major commodity categories based on the dynamics of each category. In addition, we require our supplier partners to meet or exceed our quality assurance standards.
We have a national distribution program that includes food, beverage, smallwares and packaging goods in all major markets. This program is managed by a custom distribution company that only provides products approved for our system. This customized relationship also enables our procurement staff to effectively manage and prioritize our supply chain.
Proteins represent 60% of our global commodity procurement composition, with beef representing 53% of purchased proteins. In 2014, we purchased more than 90% of our beef raw materials from four beef suppliers that represent more than 90% of the total U.S. beef marketplace. Due to the nature of our industry, we expect to continue purchasing a
substantial amount of our beef from a small numberoutstanding common stock owned by the Bain Funds. See “Arrangements With Our Sponsors and Founders” within “Certain Relationships and Related Party Transactions” under Item 13 of suppliers. Other major commodity categories purchased include produce, dairy, bread and pasta, and energy sources to operate our restaurants, such as natural gas.
RESTAURANT OWNERSHIP STRUCTURES
Our restaurants are Company-owned or operated under franchise arrangements. We generate our revenues primarily from our Company-owned restaurants and secondarily through ongoing royalties from our franchised restaurants and sales of franchise rights.
Company-Owned Restaurants - Company-owned restaurants include restaurants wholly-owned by us and restaurants where we have a majority ownership. Our cash flows from entities where we have a majority ownership are limited tothis Annual Report on Form 10-K for additional information regarding the portion of our ownership. The results of operations of Company-owned restaurants are included in our consolidated operating results. The portion of income or loss attributable to the other noncontrolling interests is eliminated in our Consolidated Statements of Operations and Comprehensive Income.
We pay royalties on the majority of our Carrabba’s Italian Grill restaurants pursuant to agreements we entered into with the Carrabba’s Italian Grill Founders (“Carrabba’s Founders”). Following is a summary of Carrabba’s royalties and locations in the U.S. subject to royalties as of December 28, 2014:
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| | ROYALTY PERCENTAGE | | LOCATIONS AS OF DECEMBER 28, 2014 |
| U.S. sales, except for qualifying lunch sales, as described below | 1.0% | - | 1.5% | | 230 |
| U.S. lunch sales for new restaurants opened on or after June 1, 2014 (1) | 0.5% | | 4 |
| U.S. lunch sales for existing restaurants that began serving weekday lunch on or after June 1, 2014 (2) | 0.5% | | 14 |
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(1) | Lunch sales for new locations are defined as sales occurring prior to 4 pm local time Monday through Saturday. |
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(2) | Weekday lunch sales for existing locations are defined as sales occurring prior to 4 pm local time Monday through Friday. |
Each Carrabba’s restaurant located outside the United States pays a one-time lump sum royalty fee, which varies depending on the size of the restaurant. No continuing royalty fee is paid to the Carrabba’s Founders for Carrabba’s restaurants located outside the United States.
Unaffiliated Franchise Program - Our unaffiliated franchise agreements grant third parties rights to establish and operate a restaurant using one of our concepts. Franchised restaurants are required to be operated in compliance with their respective concept’s methods, standards and specifications.
In 2013, we updated our standard franchise agreement in the U.S. for all new and renewing franchisees. The majority of our existing domestic franchisees continue to operate under the prior franchise agreement. As each franchise location renews, that location will convert to our then-current franchise agreement.
Under the standard franchise agreements, each of our franchisees is required to pay an initial franchise fee. Franchisees also pay monthly royalties and administration fees based on a percentage of gross restaurant sales. Following is a summary of typical franchise fees based on unaffiliated franchise agreements in place as of December 28, 2014:
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| (all fees in thousands or as a % of gross Restaurant sales) | FRANCHISED
LOCATIONS | | INITIAL
FRANCHISE FEE | | MONTHLY FEES (2) |
| | | ROYALTY | | ADMIN. |
| Outback Steakhouse-U.S. | 105 |
| | $40 | | 3.00% - 3.50% | | 0.50% |
| Outback Steakhouse-international (1) | 55 |
| | $40 - $200 | | 3.00% - 6.00% | | n/a |
| Bonefish Grill | 5 |
| | $50 | | 3.50% - 4.00% | | 0.50% |
| Carrabba’s Italian Grill | 1 |
| | $40 | | 3.50% - 5.75% | | n/a |
_________________
| |
(1) | Initial fees and royalties for international franchisees vary by market. Includes one franchised location in Guam. |
| |
(2) | Under the previous franchise agreement, a U.S. franchisee typically pays a monthly royalty fee, which varies by concept, and certain U.S. franchisees pay an additional marketing administration fee. Each U.S. franchisee is also generally required to expend or contribute, on a monthly basis, a minimum of 1.5% to 3.5% of each restaurant’s monthly gross sales for local and national advertising. Under the new U.S. franchise agreement, a U.S. franchisee typically pays a monthly royalty of 3.5% of the restaurant’s gross sales and is no longer required to pay a monthly administration fee. In addition, U.S. franchisees must contribute a percentage of gross sales for national marketing programs and must spend a certain amount of gross sales on local advertising, up to a maximum of 8.0% of gross restaurant sales. |
T-Bird Restaurant Group, Inc. (T-Bird) is party to an Outback Steakhouse Master Franchise Agreement. In January 2015, T-Bird acquired its franchise and development rights from T-Bird Nevada, LLC and its affiliates. T-Bird, through its affiliates, owns and operates 56 Outback Steakhouse restaurants in California. T-Bird is also party to a separate Outback Steakhouse development agreement, which gives T-Bird the exclusiveBain Funds’ right to open additional Outback Steakhouse restaurants in California through 2031 and commits T-Bird to opening seven new Outback Steakhouse restaurants in California during the next seven years.
COMPETITION
nominate directors.The restaurant industry is highly competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. There is also active competition for management personnel, attractive suitable real estate sites, supplies and restaurant employees. In addition, competition is also influenced strongly by marketing and brand reputation. At an aggregate level, all major U.S. casual dining restaurants and casual dining restaurants in the international markets in which we operate would be considered competitors of our concepts. Further, we face growing competition from the supermarket industry, with improved selections of prepared meals, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings. Internationally, we face increasing competition due to an increase in the number of casual dining restaurant options in the markets in which we operate.
GOVERNMENT REGULATION
We are subject to various federal, state, local and international laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located.
United States - Alcoholic beverage sales represent 15% of our consolidated restaurant sales. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays.
Our restaurant operations are also subject to federal and state laws for such matters as:
immigration, employment, minimum wages, overtime, tip credits, worker conditions and health care;
nutritional labeling, nutritional content, menu labeling and food safety;
the Americans with Disabilities Act (“ADA”), which, among other things, requires our restaurants to meet federally mandated requirements for the disabled; and
following provides information security, privacy, cashless payments, gift cards and consumer credit, protection and fraud.
International - Our restaurants outside of the United States are subject to similar local laws and regulations as our U.S. restaurants, including labor, food safety and information security. In addition, we are subject to anti-bribery and anti-corruption laws and regulations.
See Item 1A - Risk Factors for a discussion of risks relating to federal, state, local and international regulation of our business.
EXECUTIVE OFFICERS OF THE REGISTRANT
Below is a list of the names, ages, positions and a brief description ofregarding the business experience
and qualifications of each of our
directors:Andrew B. Balson, 48, has served as a director since June 2007 and is a former Managing Director of Bain Capital. Mr. Balson retired from Bain Capital in 2014, but continues to serve on several of its portfolio company boards. Prior to joining Bain Capital in 1996, Mr. Balson was a consultant at Bain & Company. Mr. Balson previously worked in the Merchant Banking Group at Morgan Stanley & Co., and in the leveraged buyout group at SBC Australia. Mr. Balson serves on the board of directors of FleetCor Technologies, Inc. where he serves on the executive and acquisitions committee, and Domino’s Pizza, Inc., where he serves as Chairperson of the compensation committee and as a member of the nominating and corporate governance committee. Mr. Balson also served on the board of directors of Burger King Holdings, Inc. from 2002 to 2008, and Dunkin’ Brands, Inc. from 2006 to 2012. The Board of Directors believes that Mr. Balson’s qualifications to serve as a Board member include his extensive experience with global companies, his industry and financial expertise, and his years of experience providing strategic advisory services to complex organizations, including restaurant companies.
James R. Craigie, 61, has served as a director since November 2013. Mr. Craigie has been the Chief Executive Officer of Church & Dwight Co., Inc., a leading developer, manufacturer, and marketer of household and personal care consumer products, since 2004 and Chairman and Chief Executive Officer since 2007. From December 1998 through 2003, he was the President, CEO, and a member of the board of directors of Spalding Sports Worldwide and its successor, Top-Flite Golf Co. During the period from 1983 to 1998, he held various senior management positions with Kraft Foods, Inc., including Executive Vice President and General Manager
of its Beverages and Desserts Division, and Dinners and Enhancers Division. Prior to that, he served six years as an officer with the U. S. Navy/Department of Energy. Mr. Craigie is a member of the board of directors of Solazyme Corporation, where he also serves as a member of the audit and compensation committees, and was previously a member of the board of directors of the Meredith Corporation from November 2006 to May 2014. The Board of Directors believes that Mr. Craigie’s qualifications to serve as a Board member include his extensive experience leading a consumer brand company as well as his experience as a Chairman and CEO of a public company.
David R. Fitzjohn, 58, has served as a director since February 2014. Mr. Fitzjohn is Chairman of the Board of Pizza Hut UK Ltd., a position he has held since November 2012. He has served as the Managing Director of Sahana Enterprises Ltd. and Sahana Estates Ltd., privately-held real estate development, investment and restaurant industry consulting businesses, since 2006. Previously, he was the Managing Director of Yum! Brands Europe. In addition, he has held numerous executive management positions at Burger King Worldwide, Inc., as well as at retailers Grand Metropolitan and Laura Ashley, and from April 2006 to April 2014 served as a non-executive director of Rosinter Restaurant Holdings, a Russian public company operating casual dining restaurants. The Board of Directors believes that Mr. Fitzjohn’s qualifications to serve as a Board member include his many years of executive management experience, industry expertise, and experience with international markets.
Mindy Grossman, 57, has served as a director since September 2012. Ms. Grossman is currently the Chief Executive Officer of HSN, Inc. (“HSN”), a multi-channel retailer, offering retail experiences through various platforms, including television, online, mobile, catalogs, and retail and outlet stores, and a member of HSN’s board of directors. Prior to joining HSN in August 2008, she served as Chief Executive Officer of IAC Retailing, a business segment of HSN’s former parent company, IAC/InterActiveCorp, a media and internet company from April 2006 to August 2008, and Global Vice President of Nike, Inc.’s apparel business from October 2000 to March 2006. The Board of Directors believes that Ms. Grossman’s qualifications to serve as a Board member include her extensive experience leading, developing and launching consumer facing businesses and expertise in strategy, marketing, merchandising and business development, as well as her experience as the Chief Executive Officer of a public company.
David Humphrey, 37, has served as a director since September 2012 and has been a Managing Director of Bain Capital since 2012. Mr. Humphrey joined Bain Capital in 2001 and has held the positions of Vice President from 2006 to December 2008, and Principal from 2008 to December 2012. Prior to joining Bain Capital, Mr. Humphrey was an investment banker in the mergers and acquisitions group at Lehman Brothers from 1999 to 2001. Mr. Humphrey serves on the board of directors of Genpact Limited and Bright Horizons, where he serves as a member of the compensation committee. The Board of Directors believes that Mr. Humphrey’s qualifications to serve as a Board member include his expertise in providing strategic advisory services and substantial knowledge of the capital markets from his experience as an investment banker, which aids the Board of Directors in evaluating our capital and liquidity needs.
Tara Walpert Levy, 41, has served as a director since July 2013 and has been the Managing Director of Global Ad Market Development for Google Inc. since May 2011. From June 2007 to May 2011, Ms. Levy was President of Visible World Inc., a leading technology platform for addressable video advertising. Ms. Levy was also an Associate Partner at McKinsey & Company, Inc., where she was a leader of the Global Media & Entertainment and Sales & Marketing groups. The Board of Directors believes that Ms. Levy’s qualifications to serve as a Board member include her expertise in digital marketing, coupled with her marketing business perspective.
John J. Mahoney, 63, has served as a director since May 2012. He retired as Vice Chairman of Staples, Inc., in July 2012, a position he held since January 2006. Mr. Mahoney also served as Chief Financial Officer of Staples from September 1996, when he first joined Staples, to February 2012. Before joining Staples, Mr. Mahoney was a partner with the accounting firm of Ernst & Young LLP where he worked for 20 years, including service in the firm’s National Office Accounting and Auditing group. Mr. Mahoney also serves on the board of directors of
Michael’s Stores, Inc., where he is a member of the audit committee and nominating and corporate governance committee, Burlington Stores, Inc., where he is the Chairman of the nominating and corporate governance committee and a member of the audit committee and compensation committee, and Chico’s FAS, Inc., where he is the Chairman of the compensation and benefits committee and a member of the audit committee. The Board of Directors believes that Mr. Mahoney’s qualifications to serve as a Board member include his experience as a financial executive and certified public accountant, with expertise in the retail industry, including accounting, controls, financial reporting, tax, finance, risk management, and financial management.
Elizabeth A. Smith, 51, has served as the Chairman of our Board of Directors since January 2012 and as our Chief Executive Officer and a director since November 2009. From September 2007 to October 2009, Ms. Smith was President of Avon Products, Inc. and was responsible for its worldwide product-to-market processes, infrastructure, and systems, including Global Brand Marketing, Global Sales, Global Supply Chain, and Global Information Technology. In January 2005, Ms. Smith joined Avon Products, Inc. as President, Global Brand, and was given the additional role of leading Avon North America in August 2005. From November 2004 to December 2008, Ms. Smith served as a director of Carter’s, Inc. and from September 1990 to November 2004, she worked in various capacities at Kraft Foods, Inc. Ms. Smith is a member of the board of directors of Hilton Worldwide Holdings, Inc., where she also serves on the audit and nominating and corporate governance committees, and was previously a member of the board of directors of Staples, Inc., from September 2008 to June 2014. The Board of Directors believes that Ms. Smith’s qualifications to serve as Chairman include her role as Chief Executive Officer, her extensive experience with global companies and retail sales, her expertise in corporate strategy development, and her knowledge of marketing, sales, supply chain, and information technology systems.
Chris T. Sullivan, 67, is one of our founders and has served as a director since 1991. Mr. Sullivan was the Chairman of our Board of Directors from 1991 until June 2007 and was our Chief Executive Officer from 1991 until March 2005. Mr. Sullivan founded OSI in 1988 and developed Outback Steakhouse restaurants prior to its initial public offering in 1991. Mr. Sullivan currently serves as Chairman of ConSul Partners, LLC, a company engaged in joint ventures to develop and expand the Besito Mexican and Metro Diner restaurant brands, Menupad, Inc., a company providing technology solutions for restaurants and retail, such as enhanced point of sale devices, and Positronics Technologies, Inc., a technology company. The Board of Directors believes that Mr. Sullivan’s qualifications to serve as a Board member include his four decades of experience in the restaurant industry and his historical perspective of our business and strategic challenges, including his leadership as a director and executive officer for over 20 years.
Executive Officers
The information required by this item relating to our executive officers is included under the caption “Executive Officers of the Registrant” in Part I of the Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Bloomin’ Brands’ officers and directors and persons who own more than 10% of Bloomin’ Brands’ common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. These persons are required to provide Bloomin’ Brands with copies of all Section 16(a) forms that they file. Based solely on our review of these forms and written representations from the officers and directors, Bloomin’ Brands believes that all Section 16(a) filing requirements were met during fiscal year 2014.
Audit Committee
The purpose of the Audit Committee is set forth in the Audit Committee charter and is primarily to assist the Board of Directors in overseeing:
the integrity of our financial statements, our financial reporting process and our systems of internal accounting and financial controls
our compliance with legal and regulatory requirements
the independent auditor’s qualifications and independence
the evaluation of enterprise risk issues
the performance of our internal audit function and independent auditor
The Audit Committee held ten meetings during 2014. Mr. Mahoney was determined by our Board of Directors to be an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All of the members meet the requirements for audit committee members under applicable NASDAQ rules regarding the ability to read and understand financial statements.
Business Conduct and Code of Ethics
We have adopted a Business Conduct and Code of Ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. A copy of our Business Conduct and Code of Ethics is available on our website, free of charge. The Internet address for our website is www.bloominbrands.com, and the Business Conduct and Code of Ethics may be found from our main webpage by clicking first on “Investors” and then on “Corporate Governance” and next on “Code of Business Conduct and Ethics.”
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, on the webpage found by clicking through to “Code of Business Conduct and Ethics” as of February 18, 2015.
specified above.| Item 11. | Executive Compensation |
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis details the objectives and design of our executive compensation program. It includes a description of the compensation provided in 2014 to our executive officers who are named in the Summary Compensation Table below. Our named executive officers (“NEOs”) for 2014 were:
| | | | |
NAME | | AGE | | POSITION |
| Elizabeth A. Smith | | 51 | | Chairman of the Board of Directors and Chief Executive Officer |
| |
David J. Deno | | 57 | | Executive Vice President and Chief Financial and Administrative Officer |
| |
Donagh M. Herlihy | | 51 | | Executive Vice President and Digital and Chief Information Officer |
| |
| Stephen K. Judge | | 46 | | Executive Vice President and President of Bonefish Grill |
Joseph J. Kadow | | 58 | | Executive Vice President, Chief Legal Officer and Secretary |
Patrick C. Murtha | | 57 | | Executive Vice President and President of Bloomin’ Brands International |
David A. Pace | | 55 | | Executive Vice President and President of Carrabba’s Italian Grill |
Amanda L. Shaw | | 43 | | Senior Vice President, Chief Accounting Officer and International Finance |
Jeffrey S. Smith | | 52 | | Executive Vice President and President of Outback Steakhouse |
Elizabeth A. Smith was appointed ChairmanExecutive Summary
The Company’s objectives for its executive compensation programs are to align pay with performance and stockholder interests, and to attract, motivate and retain a talented, entrepreneurial and creative team of executives who will provide leadership for the Company’s success in January 2012. Since November 2009, Ms. Smith has served as Chief Executive Officerdynamic and a member of our Board of Directors. Ms. Smith is a member of the Board of Directors of Hilton Worldwide Holdings, Inc.
David J. Deno has served as Executive Vice President and Chief Financial and Administrative Officer since May 2012. From December 2009 to May 2012, Mr. Deno served as Chief Financial Officer of the international division of Best Buy Co. Inc.
Donagh M. Herlihyjoined Bloomin’ Brands as Executive Vice President, Digital and Chief Information Officer in September 2014. Prior to joining Bloomin’ Brands, Mr. Herlihy was Senior Vice President, Chief Information Officer and eCommerce of Avon Products, Inc. from March 2008 to August 2014.
Stephen K. Judge has served as Executive Vice President and President of Bonefish Grill since January 2013. From March 2007 to December 2012, Mr. Judge was President of Seasons 52, a restaurant concept owned by Darden Restaurants, Inc.
Joseph J. Kadow has served as Executive Vice President, Chief Legal Officer and Secretary since April 2005.
Patrick C. Murtha has served as Executive Vice President and President of Bloomin’ Brands International since November 2013. From January 2006 to March 2013, Mr. Murtha was the Chief Operating Officer of Pizza Hut, Inc.
David A. Pace has served as Executive Vice President and President of Carrabba’s Italian Grill since June 2014. Mr. Pace served as Executive Vice President and Chief Resource Officer from August 2010 to June 2014. Mr. Pace served as a consultant for Egon Zehnder International from 2009 to 2010.
Amanda L. Shaw has served as Senior Vice President, Chief Accounting Officer and International Finance since September 2014. Ms. Shaw served as Senior Vice President, Technology and Chief Accounting Officer from August 2013 to September 2014. From December 2006 until August 2013, Ms. Shaw served as Corporate Controller.
Jeffrey S. Smith has served as President of Outback Steakhouse since April 2007 and Executive Vice President since January 2012.
EMPLOYEES
As of December 28, 2014, we employed approximately 100,000 persons, of which 950 are corporate personnel. None of our U.S. employees are covered by a collective bargaining agreement. Various national industry-wide labor agreements apply to certain of our employees in Brazil. We consider our employee relations to be good.
TRADEMARKS
We regard our Outback®, Outback Steakhouse®, Carrabba’s Italian Grill®, Bonefish Grill®, and “Fleming’s Prime Steakhouse & Wine Bar® service markscompetitive markets. These objectives and our Bloomin’ Onion® trademark as having significant value and as being important factors in the marketingmethods of our restaurants. We have also obtained trademarks for several of our other menu items and for various advertising slogans. Weachieving these objectives are aware of names and marks similar to the service marks of ours used by other persons in certain geographic areas in which we have restaurants. However, we believe such uses will not adversely affect us. Our policy is to pursue registration of our marks whenever possible and to oppose vigorously any infringement of our marks.
We license the use of our registered trademarks to franchisees and third parties through franchise arrangements and licenses. The franchise and license arrangements restrict franchisees’ and licensees’ activities with respect to the use of our trademarks, and impose quality control standards in connection with goods and services offered in connection with the trademarks.
SEASONALITY AND QUARTERLY RESULTS
Our business is subject to seasonal fluctuations. Historically, consumer traffic patterns to our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. Additionally, holidays and severe weather may affect sales volumes seasonally in some of our markets. Quarterly results have been and will continue to be significantly affected by general economic conditions, the timing of new restaurant openings and their associated pre-opening costs, restaurant closures and exit-related costs and impairments of goodwill, definite and indefinite-lived intangible assets and property, fixtures and equipment. In 2014, we changed our fiscal year end, which impacted the comparability of our quarterly and annual results to prior periods. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.
ADDITIONAL INFORMATION
We make available, free of charge, through our internet website www.bloominbrands.com, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission (“SEC”). You may read and copy any materials filed with the SEC at the Securities and Exchange Commission’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports and other materials filed with the SEC are also available at www.sec.gov. The reference to these website addresses does not constitute incorporation by reference of the information contained on the websites and should not be considered part of this Report.
Item 1A. Risk Factors
The risk factors set forth below should be carefully considered. The risks described below are those that we believe could materially and adversely affect our business, financial condition or results of operations, however, they are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.
Risks Related to Our Business and Industry
Challenging economic conditions may have a negative effect on our business and financial results.
Challenging economic conditions may negatively impact consumer spending and thus cause a decline in our financial results. For example, international, domestic and regional economic conditions and the impacts of unemployment and underemployment, reduced or stagnant disposable consumer income, financial market volatility, social unrest and governmental spending and budget matters and the slow pace of economic recovery from the recent recession generally have had a negative effect on consumer confidence and discretionary spending. This has affected consumer traffic and comparable restaurant sales for us and throughout our industry in recent periods. We believe these factors and conditions will continue to result in a challenging sales environment in the casual dining sector. Continued weakness in or a further worsening of the economy or the other factors mentioned above, generally or in particular markets in which we operate, and our consumers’ reactions to these trends could result in increased pressure with respect to our pricing, traffic levels, commodity and other costs and the continuation of our innovation and productivity initiatives, which could negatively impact our business and results of operations. These factors could also cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants or delay remodeling of our existing restaurant locations. Further, poor economic conditions may force nearby businesses to shut down, which could cause our restaurant locations to be less attractive.
The restaurant industry is highly competitive. Our inability to compete effectively could adversely affect our business, financial condition and results of operations.
A substantial number of restaurant operators compete directly and indirectly with us with respect to price, service, location and food quality, some of which are well-established with significant resources. There is also active competition for management and other personnel and attractive suitable real estate sites. Consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently and effectively to those conditions. Further, we face growing competition from the supermarket industry, with the improvement of their prepared food offerings, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings by those restaurants. If we are unable to continue to compete effectively, our traffic, sales and margins could decline and our business, financial condition and results of operations would be adversely affected.
Our success depends substantially on the value of our brands.
Our success depends on our ability to preserve and grow our brands. Brand value is based in large part on consumer perceptions, which are driven by both our actions and actions beyond our control. Business incidents, ineffective advertising or marketing efforts, or unfavorable mainstream or social media publicity involving us, our industry, our franchisees, or our suppliers could damage our brands. Regardless of its basis or validity, any unfavorable publicity could adversely affect public perception of our brands. Any damage to the reputation of our brands could adversely affect our business.
Risks associated with our expansion plans may have adverse effects on our ability to increase revenues.
As part of our business strategy, we intend to continue to expand our current portfolio of restaurants. Our current development schedule calls for the construction of between 40 and 50 new system-wide locations in 2015. A variety
of factors could cause the actual results and outcome of those expansion plans to differ from the anticipated results, including among other things:
the availability of attractive sites for new restaurants;
acquiring or leasing those sites at acceptable prices and other terms;
funding or financing our development;
obtaining all required permits, approvals and licenses on a timely basis;
recruiting and training skilled management and restaurant employees and retaining those employees on acceptable terms;
weather, natural disasters and other events or factors beyond our control resulting in construction or other delays; and
consumer tastes in new geographic regions and acceptance of our restaurant concepts and awareness of our brands in those regions.
It is difficult to estimate the performance of newly opened restaurants. Earnings achieved to date by restaurants open for less than two years may not be indicative of future operating results. Should enough of these new restaurants not meet targeted performance, it could have a material adverse effect on our operating results. There is also the possibility that new restaurants may attract consumers away from other restaurants we own, thereby reducing the revenues of those existing restaurants.
We face a variety of risks associated with doing business in foreign markets that could have a negative impact on our financial performance.
We have a significant number of restaurants outside the United States, and we intend to continue our efforts to grow internationally. We currently expect at least 50% of our targeted 40 to 50 system-wide new restaurants in 2015 will be located outside the United States. Although we believe we have developed an appropriate support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will continue.
Our foreign operations are subject to all of the same risks as our domestic restaurants, as well as additional risks including, among others, international economic, political, social and legal conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, corruption, anti-American sentiment, the ability to source high quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and costs of land and construction, and the availability of experienced management, appropriate franchisees and area operating partners.
Currency regulations and fluctuations in exchange rates could also affect our performance. We have foreign operations in a total of 21 countries and Guam, including direct investments in restaurants in South Korea, Brazil, Hong Kong and China, as well as international franchises. As a result, we may experience losses from fluctuations in foreign currency exchange rates, and such losses could adversely affect our overall sales and earnings.
We are subject to governmental regulation of our foreign operations, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.
Our business is subject to seasonal and periodic fluctuations and past results are not indicative of future results.
Historically, consumer traffic patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. Holidays may also affect sales volumes seasonally in some of the markets in which we operate. In addition, our quarterly results have been and will continue to be affected by the timing
of new restaurant openings and their associated preopening costs, as well as restaurant closures and exit-related costs and impairments of goodwill, intangible assets and property, fixtures and equipment. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.
Significant adverse weather conditions and other disasters or unforeseen events could negatively impact our results of operations.
Adverse weather conditions and natural disasters and other unforeseen events, such as winter storms, severe temperatures, thunderstorms, floods, hurricanes and earthquakes, terror attacks, war and widespread/pandemic illness, and the effects of such events on economic conditions and consumer spending patterns, could negatively impact our results of operations. Temporary and prolonged restaurant closures may occur and consumer traffic may decline due to the actual or perceived effects from these events. For example, severe winter weather conditions impacted our traffic and results of operations in the first quarter of 2014.
Loss of key management personnel could hurt our business and inhibit our ability to operate and grow successfully.
Our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. If we are unable to attract and retain sufficiently experienced and capable management personnel, our business and financial results may suffer.
Our failure to comply with government regulation related to our restaurant operations, and the costs of compliance or non-compliance, could adversely affect our business.
We are subject to various federal, state, local and foreign laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, food safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located. Our suppliers are also subject to regulation in some of these areas. Any difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants. Additionally, difficulties in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of new restaurants.
Alcoholic beverage sales represent 15% of our consolidated restaurant sales and are subject to extensive state and local licensing and other regulations. The failure of a restaurant to obtain or retain a liquor license would adversely affect that restaurant’s operations. In addition, we are subject to “dram shop” statutes in certain states. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.
The FDA recently adopted final regulations to implement federal nutritional disclosure requirements, and we will be required to comply with these regulations by the end of 2015. The regulations will require us to include calorie information on our menus, and provide additional nutritional information upon request. If the costs of implementing or complying with these new requirements exceed our expectations, our results of operations could be adversely affected. Furthermore, the effect of such labeling requirements on consumer choices, if any, is unclear. It is possible that we may also become subject to other regulation in the future seeking to tax or regulate high fat and high sodium foods in certain of our markets, which could be costly to comply with.
We are subject to various federal and state employment and labor laws and regulations.
Various federal and state employment and labor laws and regulations govern our relationships with our employees and affect operating costs, and similar laws and regulations apply to our operations outside of the U.S. These laws and regulations relate to matters including employment discrimination, minimum wage requirements, overtime, tip credits, unemployment tax rates, workers’ compensation rates, working conditions, immigration status, tax reporting and other wage and benefit requirements. Any significant additional government regulations and new laws governing our
relationships with employees, including minimum wage increases, mandated benefits or other requirements that impose additional obligations on us, could increase our costs and adversely affect our business and results of operations.
As a significant number of our food service and preparation personnel are paid at rates related to the applicable minimum wage, federal, state and local proposals related to minimum wage requirements or similar matters could, if implemented, materially increase our labor and other costs. Our ability to respond to minimum wage increases by increasing menu prices would depend on the responses of our competitors and consumers. Our distributors and suppliers could also be affected by higher minimum wage, benefit standards and compliance costs, which could result in higher costs for goods and services supplied to us.
We rely on our employees to accurately disclose the full amount of their tip income, and we base our FICA tax reporting on the disclosures provided to us by such tipped employees. Inaccurate FICA tax reporting could subject us to monetary liabilities, which could harm our business, results of operations and financial condition. For example, in March 2014, the IRS issued a final audit adjustment of $5.0 million to the us for the employer’s share of FICA taxes related to cash tips unreported by the our employees during the calendar year 2010.
We are also subject, in the ordinary course of business, to employee claims against us based, among other things, on discrimination, harassment, wrongful termination, or violation of wage and labor laws. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. The ongoing expense of any resulting lawsuits, and any substantial settlement payment or damage award against us, could adversely affect our business and results of operations.
We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.
We rely heavily on information systems across our operations and corporate functions, including point-of-sale processing in our restaurants, management of our supply chain, payment of obligations, collection of cash, data warehousing to support analytics, finance and accounting systems and other various processes and procedures, some of which are handled by third parties. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result in delays in consumer service and reduce efficiency in our operations. These problems could adversely affect our results of operations, and remediation could result in significant unplanned capital investments.
Security breaches of confidential consumer information or personal employee information may adversely affect our business.
The majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information or other personal information of their consumers has been stolen. We also maintain certain personal information regarding our employees. Despite our implementation of security measures, all of our technology systems are vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, employee error or malfeasance, denial of service attacks, viruses, worms and other disruptive problems caused by hackers and cyber criminals. A breach in our systems that compromises the information of our consumers or employees could result in widespread negative publicity, damage to the reputation of our brands, a loss of consumers and legal liabilities.
We may in the future become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our consumers’ credit or debit card information or if consumer or employee information is obtained by unauthorized persons or used inappropriately. Any such claim or proceeding, or any adverse publicity resulting from such an event, may have a material adverse effect on our business.
Changes in tax laws and unanticipated tax liabilities could adversely affect the taxes we pay and our profitability.
We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, the outcome of income tax audits, and any repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals. The results of a tax audit could have a material effect on our results of operations or cash flows in the period or periods for which that determination is made. In addition, our effective income tax rate and our results may be impacted by our ability to realize deferred tax benefits and by any increases or decreases of our valuation allowances applied to our existing deferred tax assets.
Increased commodity, energy and other costs could decrease our profit margins or cause us to limit or otherwise modify our menus, which could adversely affect our business.
The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities. Our business also incurs significant costs for energy, insurance, labor, marketing, and real estate. Prices may be affected due to supply, market changes, increased competition, the general risk of inflation, changes in laws, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons. Increased prices or shortages could affect the cost and quality of the items we buy or require us to raise prices, limit our menu options or implement alternative processes or products. For example, in 2014, commodity costs increased by 2.8% and we increased our prices at each of our concepts in the range of 2.7% to 3.1%. We cannot provide any assurance that we would be able to successfully offset increased costs by increasing menu prices or by other measures, as our ability to do so depends on a variety of factors, many of which are beyond our control. As result, these events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our sales and profit margins.
We have a limited number of suppliers for our major products and rely on one custom distribution company for our national distribution program in the U.S. If our suppliers or custom distributor are unable to fulfill their obligations under their contracts or we are unable to develop or maintain relationships with these or new suppliers or distributors, if needed, we could encounter supply shortages and incur higher costs.
We depend on frequent deliveries of fresh food products that meet our specifications and we have a limited number of suppliers for our major products, such as beef. In 2014, we purchased more than 90% of our beef raw materials from four beef suppliers that represent more than 90% of the total beef marketplace in the U.S. Due to the nature of our industry, we expect to continue to purchase a substantial amount of our beef from a small number of suppliers. We also use one supplier in the U.S. to process beef raw materials to our specifications and we use one distribution company to provide distribution services in the U.S. Although we have not experienced significant problems with our suppliers or distributor, if our suppliers or distributor are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.
In addition, if we are unable to maintain current purchasing terms or ensure service availability with our suppliers and distributor, we may lose consumers and experience an increase in costs in seeking alternative supplier or distribution services. The failure to develop and maintain supplier and distributor relationships and any resulting disruptions to the provision of food and other supplies to our restaurant locations could adversely affect our operating results.
Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.
Our trademarks, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Bloomin’ Onion, and other proprietary rights are important to our success and our competitive position. The protective actions that we take may not be sufficient to prevent unauthorized usage or imitation by others, which
could harm our image, brand or competitive position. Furthermore, our ability to protect trademarks and other proprietary rights may be more limited in certain international markets where we operate.
Litigation could have a material adverse impact on our business and our financial performance.
We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business. These matters typically involve claims by consumers, employees and others regarding issues such as food borne illness, food safety, premises liability, “dram shop” statute liability, compliance with wage and hour requirements, work-related injuries, discrimination, harassment, disability and other operational issues common to the foodservice industry, as well as contract disputes and intellectual property infringement matters. Significant legal fees and costs in complex class action litigation or an adverse judgment or settlement that is not insured or is in excess of insurance coverage could have a material adverse effect on our financial position and results of operations.
Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.
We are self-insured, or carry insurance programs with specific retention levels or high per-claim deductibles, for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, liquor liability, employment practices liability, property, health benefits and other insurable risks. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure, including wage and hour claims. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, if our insurance costs increase, there can be no assurance that we will be able to successfully offset the effect of such increases and our results of operations may be adversely affected.
Food safety and food-borne illness concerns in our restaurants or throughout the industry or supply chain may have an adverse effect on our business by reducing demand and increasing costs.
Regardless of the source or cause, any report of food-borne illnesses and other food safety issues, whether at one of our restaurants or in the industry or supply chain generally, could have a negative impact on our traffic and sales and adversely affect the reputation of our brands. Food safety issues could be caused by suppliers or distributors and, as a result, be out of our control. Health concerns or outbreaks of disease in a food product could also reduce demand for particular menu offerings. Even instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our sales. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
The food service industry is affected by consumer preferences and perceptions, including the increasing prevalence of food allergies. Changes in these preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.
Food service businesses are affected by changes in consumer tastes and demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid steak and other products we offer in favor of foods that are perceived as more healthy, our business and operating results would be harmed. The increasing prevalence of food allergies and consumers with vegan and gluten-free diets, for example, may cause consumers to choose to dine out less frequently or choose other restaurants with different menu options.
Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could adversely affect the trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide accurate financial information. If we are unable to adequately maintain effective internal control over financial reporting, we may not be able to accurately report our financial results, which could cause investors to lose confidence in our reported financial information and negatively affect the trading price of our common stock. Furthermore, we cannot be certain that our internal control
over financial reporting and disclosure controls and procedures will prevent all possible error and fraud. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake, which could have an adverse impact on our business.
Risks Related to Our Indebtedness
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk in connection with our variable-rate debt.
We are highly leveraged. As of December 28, 2014, our total indebtedness was $1.3 billion. As of December 28, 2014, we also had $245.4 million in available unused borrowing capacity under our revolving credit facility, including undrawn letters of credit of $29.6 million.
Our high degree of leverage could have important consequences, including:
making it more difficult for us to make payments on indebtedness;
increasing our vulnerability to general economic, industry and competitive conditions and the various risks we face in our business;
increasing our cost of borrowing;
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures, dividend payments, share repurchases and future business opportunities;
exposing us to the risk of increased interest rates because certain of our borrowings under our senior secured credit facilities and commercial mortgage-backed securities loans are at variable rates of interest;
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, restaurant development, debt service requirements, acquisitions and general corporate or other purposes; and
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may not be as highly leveraged.
We may incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities (the “Credit Facilities”) and the commercial mortgage-backed securities loans entered into in March 2012 (the “2012 CMBS Loan”). If new indebtedness is added to our current debt levels, the related risks that we now face could increase.
We have $846.3 million of variable-rate debt outstanding under our Credit Facilities, and $45.1 million of the 2012 CMBS Loan bears interest based on a floating rate index. In September 2014, we entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of our variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a forward start date of June 30, 2015 and mature on May 16, 2019. While these agreements limit our exposure to higher interest rates, an increase in the floating rate could cause a material increase in our interest expense due to the total amount of our outstanding variable rate indebtedness.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
We are a holding company and conduct our operations through our subsidiaries, certain of which have incurred their own indebtedness. Our subsidiaries’ debt agreements contain various covenants that limit our ability to obtain funds from our subsidiaries through dividends, loans or advances. In addition, certain of our debt agreements limit our and our subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, redeem or repurchase our capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, merge or consolidate with or into, another company. Our debt
agreements require us to satisfy certain financial tests and ratios. Our ability to satisfy such tests and ratios may be affected by events outside of our control.
If we breach the covenants under our debt agreements, the lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders under the Credit Facilities and the 2012 CMBS Loan could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under our Credit Facilities and the 2012 CMBS Loan. If the lenders under the Credit Facilities and the 2012 CMBS Loan accelerate the repayment of borrowings, we cannot be certain that we will have sufficient assets to repay them.
We may not be able to generate sufficient cash to service all of our indebtedness and operating lease obligations, and we may be forced to take other actions to satisfy our obligations under our indebtedness and operating lease obligations, which may not be successful. If we fail to meet these obligations, we would be in default under our debt agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.
Our ability to make scheduled payments on our debt obligations and to satisfy our operating lease obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business and other factors beyond our control. Our ability to refinance our indebtedness also depends on our financial condition, as well as credit market conditions, at the time. We cannot be certain that conditions will be favorable when our 2012 CMBS Loan matures in 2017 or when our Credit Facilities mature in 2019, or at any earlier time we may seek to refinance our debt. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, or to pay our operating lease obligations. If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations or take other actions to meet our debt service and other obligations. Our debt agreements restrict our ability to dispose of assets and how we may use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due. The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our debt agreements would constitute an event of default under those agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.
Risks Related to Our Common Stock
Our stock price is subject to volatility.
The stock market in general is highly volatile. As a result, the market price of our common stock is similarly volatile. The price of our common stock could be subject to wide fluctuations in response to a number of factors, some of which may beyond our control. These factors include actual or anticipated fluctuations in our operating results, changes in, or our ability to achieve, estimates of our operating results by analysts, investors or management, analysts’ recommendations regarding our stock or our competitors’ stock, actions or announcements by us or our competitors, the maintenance and growth of the value of our brands, litigation, legislation or other regulatory developments affecting us or our industry, natural disasters, terrorist acts, war or other calamities and changes in general market and economic conditions.
There may be sales of a substantial amount of our common stock by our current stockholders, and these sales could cause the price of our common stock to fall.
Sales of substantial amounts of our common stock in the public market, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future.
As of February 18, 2015, the Bain Capital Entities hold 14.5% of our outstanding common stock. Pursuant to a registration rights agreement to which we are party with the Bain Capital Entities and certain other stockholders, the Bain Capital Entities or such other stockholders may require us to file one or more prospectus supplements to the registration statement on Form S-3 we have filed with the SEC for the resale of shares, and any shares sold pursuant to such prospectus supplements would become eligible for sale without restriction by persons other than our affiliates.
If we are unable to continue to pay dividends or repurchase our stock, your investment in our common stock may decline in value.
We recently announced the initiation of a quarterly dividend program and stock repurchase program. The continuation of these programs will require the generation of sufficient cash flows. Any decisions to declare and pay dividends and continue the stock repurchase program in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition, cash requirements, borrowing capacity, contractual restrictions and other factors that our Board of Directors may deem relevant at the time.
Our ability to pay dividends is dependent on our ability to obtain funds from our subsidiaries and to have access to our revolving credit facility. Payment of dividends by OSI, our primary operating subsidiary, to Bloomin’ Brands is restricted under our Credit Facilities to dividends for the purpose of paying Bloomin’ Brands’ franchise and income taxes and ordinary course operating expenses; dividends for certain other limited purposes; and other dividends subject to an aggregate cap over the term of the agreement. Restricted dividend payments from OSI to Bloomin’ Brands can be made on an unlimited basis provided the total net leverage ratio does not exceed 2:50 to 1.00.
If we discontinue our dividend or stock repurchase program, or reduce the amount of the dividends we pay or stock that we repurchase, the price of our common stock may fall. As a result, you may not be able to resell your shares at or above the price you paid for them.
Provisions in our certificate of incorporation and bylaws, our 2012 CMBS Loan documents, our Credit Facilities and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.
Our certificate of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our company or changes in our management.
In addition, the mortgage loan agreement for the CMBS Loan and our Credit Facilities require that the Bain Capital Entities, our founders and our management stockholders or other permitted holders either own no less than 51% of our common stock or if they do not, that certain other conditions are satisfied, including that a new stockholder has not obtained ownership above certain thresholds. As of the date of this Report, no new stockholder has obtained ownership above those thresholds.
These provisions in our certificate of incorporation, bylaws, the 2012 CMBS Loan documents and Credit Facilities may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interests of our stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.
Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder”
is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. We have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law. However, our certificate of incorporation contains provisions that have the same effect as Section 203, except that they provide that the Bain Capital Entities and their respective affiliates will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.
The Bain Capital Entities have significant influence over us, including with respect to decisions that require the approval of stockholders, which could limit your ability to influence the outcome of key transactions, including a change of control.
As of February 18, 2015, the Bain Capital Entities beneficially own 14.5% of our outstanding common stock. As long as the Bain Capital Entities beneficially own at least 3% of our outstanding common stock, they will have the right to designate two nominees for election to our Board of Directors, with each nominee to serve in a separate class. The Bain Capital Entities are also entitled to have one of their nominees serve on each committee of our Board of Directors, other than the Audit Committee, subject to applicable law and stock exchange rules. As a result, for so long as the Bain Capital Entities beneficially own at least 3% of our outstanding common stock, they will continue to be able exercise substantial influence over our business and affairs.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
As of December 28, 2014, we owned 20% of our restaurant sites and leased the remaining 80% of our restaurant sites from third parties. We had 1,510 system-wide restaurants located across the following states, territories or countries as of December 28, 2014:
|
| | | | | | | | | | | | | | |
| U.S. |
| COMPANY-OWNED | | FRANCHISE |
| Alabama | 20 |
| | Louisiana | 21 |
| | Ohio | 48 |
| | Alabama | 1 |
| Arizona | 30 |
| | Maryland | 42 |
| | Oklahoma | 11 |
| | Alaska | 1 |
| Arkansas | 11 |
| | Massachusetts | 20 |
| | Pennsylvania | 45 |
| | California | 63 |
| California | 22 |
| | Michigan | 37 |
| | Puerto Rico | 1 |
| | Florida | 2 |
| Colorado | 30 |
| | Minnesota | 9 |
| | Rhode Island | 4 |
| | Idaho | 6 |
| Connecticut | 15 |
| | Mississippi | 2 |
| | South Carolina | 39 |
| | Mississippi | 7 |
| Delaware | 3 |
| | Missouri | 16 |
| | South Dakota | 2 |
| | Montana | 2 |
| Florida | 224 |
| | Montana | 1 |
| | Tennessee | 36 |
| | Ohio | 1 |
| Georgia | 49 |
| | Nebraska | 7 |
| | Texas | 73 |
| | Oregon | 7 |
| Hawaii | 6 |
| | Nevada | 17 |
| | Utah | 6 |
| | Tennessee | 3 |
| Illinois | 27 |
| | New Hampshire | 2 |
| | Vermont | 1 |
| | Washington | 18 |
| Indiana | 23 |
| | New Jersey | 44 |
| | Virginia | 62 |
| | |
|
| Iowa | 7 |
| | New Mexico | 6 |
| | West Virginia | 8 |
| | | |
| Kansas | 8 |
| | New York | 46 |
| | Wisconsin | 12 |
| | | |
| Kentucky | 17 |
| | North Carolina | 65 |
| | Wyoming | 2 |
| | | |
| Total U.S. company-owned | 1,177 |
| | Total U.S. franchise | 111 |
|
| INTERNATIONAL |
| COMPANY-OWNED | | FRANCHISE |
| Brazil (1) | 63 |
| | Australia | 7 |
| | Guam | 1 |
| | Qatar | 1 |
|
| China (Mainland) | 3 |
| | Bahamas | 1 |
| | Indonesia | 3 |
| | Saudia Arabia | 4 |
|
| Hong Kong | 8 |
| | Canada | 3 |
| | Japan | 10 |
| | Singapore | 2 |
|
| South Korea (2) | 93 |
| | Costa Rica | 1 |
| | Malaysia | 2 |
| | Taiwan | 5 |
|
| | | | Dominican Republic | 2 |
| | Mexico | 6 |
| | Thailand | 1 |
|
| | | | Ecuador | 1 |
| | Philippines | 4 |
| | United Arab Emirates | 1 |
|
| Total International company-owned | 167 |
| | Total International franchise | 55 |
|
____________________
summarized below: | |
(1) | The restaurant count for Brazil is reported as of November 30, 2014 and excludes one restaurant opened in December 2014.
|
| |
(2) | The restaurant count as of December 28, 2014 includes 21 locations, primarily in South Korea, scheduled to close during 2015.
|
Following is a summary of the location and square footage for our corporate offices, all of which are leased, as of December 28, 2014:
|
| | | | | | | |
LOCATIONOBJECTIVES | | USEHOW WE MEET OBJECTIVES |
| Attract and retain talented executives | | SQUARE FEET | | LEASE EXPIRATION• Provide a competitive total compensation package by taking into account base salary, performance incentives and benefits in order to attract and retain our executives |
Tampa, Florida | | Corporate Headquarters | | 168,000 |
| | 1/31/2025 |
Newport Beach, California | | Fleming’s Operations Center | | 3,941 |
| | 2/28/2017 |
Seoul, Korea | | Korea Operations Center | | 6,174 |
| | 6/30/2017 |
São Paulo, Brazil | | Brazil Operations Center | | 11,722 |
| | 6/30/2019 |
We also have a number of other smaller office locations regionally in the United States, China (mainland) and Hong Kong.
Item 3. Legal Proceedings
For a description of our legal proceedings, see Note 19 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements of this Report.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION
Our common stock is listed on the Nasdaq Global Select Market under the symbol “BLMN”. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported on Nasdaq:
|
| | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | HIGH | | LOW | | HIGH | | LOW |
| First Quarter | $ | 26.45 |
| | $ | 21.59 |
| | $ | 18.99 |
| | $ | 15.86 |
|
| Second Quarter | 24.96 |
| | 20.16 |
| | 26.08 |
| | 17.41 |
|
| Third Quarter | 22.81 |
| | 15.01 |
| | 26.71 |
| | 21.73 |
|
| Fourth Quarter | 24.05 |
| | 17.45 |
| | 27.27 |
| | 20.91 |
|
HOLDERS
As of February 18, 2015, there were 150 holders of record of our common stock.
DIVIDENDS
The terms of our debt agreements place restrictions on the amount of dividends we can pay. We did not declare or pay any dividends on our common stock during 2014 or 2013. For a discussion of our dividend program and restrictions, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - DIVIDENDS AND SHARE REPURCHASES.”
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table presents the securities authorized for issuance under our equity compensation plans as of December 28, 2014:
|
| | | | | | | | | | |
| (in thousands, except exercise price) | | (a) | | (b) | | (c) |
| PLAN CATEGORY | | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (a)) (1) |
| Equity compensation plans approved by security holders | | 9,777 |
| | $ | 11.59 |
| | 5,253 |
|
____________________
| |
(1) | The shares remaining available for issuance may be issued | • Provide a significant portion of each executive’s target total direct compensation in the form of restricted stock, restricted stock units or other stock awards under the 2012 Incentive Plan.equity compensation |
On the first business day of each fiscal year, the aggregate number of shares that may be issued pursuant to our 2012 Incentive Plan automatically increases by two percent of the total shares then issued and outstanding.
STOCK PERFORMANCE GRAPH
The following graph depicts the total return to stockholders from August 8, 2012, the date our common stock became listed on the Nasdaq Global Select Market, through December 28, 2014, relative to the performance of the Standard & Poor’s 500 Index and the Standard & Poor’s 500 Consumer Discretionary Sector, a peer group. The graph assumes an investment of $100 in our common stock and each index on August 8, 2012 and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
|
| | | | | | | | | | | | | | | | |
| | | AUGUST 8, 2012 | | DECEMBER 31, 2012 | | DECEMBER 31, 2013 | | DECEMBER 28, 2014 |
| Bloomin’ Brands, Inc. (BLMN) | | $ | 100.00 |
| | $ | 126.03 |
| | $ | 193.47 |
| | $ | 191.38 |
|
| Standard & Poor’s 500 | | 100.00 |
| | 102.72 |
| | 135.96 |
| | 156.76 |
|
| Standard & Poor’s Consumer Discretionary | | 100.00 |
| | 107.53 |
| | 153.58 |
| | 168.55 |
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table provides information regarding our purchases of common stock during the thirteen weeks ended December 28, 2014:
|
| | | | | | | | | | | | | | |
| MONTH | | TOTAL NUMBER OF SHARES PURCHASED (1) | | AVERAGE PRICE PAID PER SHARE | | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS | | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (2) |
| September 29, 2014 through October 26, 2014 | | — |
| | $ | — |
| | * | | * |
| October 27, 2014 through November 23, 2014 | | — |
| | $ | — |
| | * | | * |
| November 24, 2014 through December 28, 2014 | | 2,652 |
| | $ | 23.02 |
| | — |
| | $ | 100,000,000 |
|
| Total | | 2,652 |
| | | | — |
| | $ | 100,000,000 |
|
____________________
| |
*Motivate and reward executives | Not applicable as we did not have | • Balance annual incentives between equity-based and cash-based compensation to support a share repurchase plan in effect until December 2014.high-performing culture |
| |
(1)Provide a competitive compensation package | Common stock purchased during the thirteen weeks ended December 28, 2014 represented shares which were withheld for tax payments due upon the vesting of employee restricted stock awards. | • Benchmark our compensation against similarly sized industry competitors |
| • Target competitive positioning to align with market |
| |
(2)Ensure internal equity among the executives | The Board | • Review scope of Directors authorized the repurchase of $100.0 million of our outstanding common stock as announced publiclyjob responsibilities and individual performance in our press release issued on December 16, 2014. As of December 28, 2014, no shares had been repurchased under the program. The authorization expires on June 12, 2016.addition to market data |
Item 6. Selected Financial Data
|
| | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands, except per share data) | 2014 | | 2013 | | 2012 | | 2011 | | 2010 |
| Operating Results: | | | | | | | | | |
| Revenues | | | | | | | | | |
| Restaurant sales | $ | 4,415,783 |
| | $ | 4,089,128 |
| | $ | 3,946,116 |
| | $ | 3,803,252 |
| | $ | 3,594,681 |
|
| Other revenues | 26,928 |
| | 40,102 |
| | 41,679 |
| | 38,012 |
| | 33,606 |
|
| Total revenues (1) | 4,442,711 |
| | 4,129,230 |
| | 3,987,795 |
| | 3,841,264 |
| | 3,628,287 |
|
| Income from operations (2) | 191,964 |
| | 225,357 |
| | 181,137 |
| | 213,452 |
| | 168,911 |
|
| Net income including noncontrolling interests (2) (3) | 95,926 |
| | 214,568 |
| | 61,304 |
| | 109,179 |
| | 59,176 |
|
| Net income attributable to Bloomin’ Brands (2) (3) | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
| | $ | 100,005 |
| | $ | 52,968 |
|
| Basic earnings per share | $ | 0.73 |
| | $ | 1.69 |
| | $ | 0.45 |
| | $ | 0.94 |
| | $ | 0.50 |
|
| Diluted earnings per share | $ | 0.71 |
| | $ | 1.63 |
| | $ | 0.44 |
| | $ | 0.94 |
| | $ | 0.50 |
|
| Balance Sheet Data: | | | | | | | | | |
| Total assets | $ | 3,344,286 |
| | $ | 3,278,476 |
| | $ | 3,016,553 |
| | $ | 3,353,936 |
| | $ | 3,243,411 |
|
| Total debt, net | 1,315,843 |
| | 1,419,143 |
| | 1,494,440 |
| | 2,109,290 |
| | 2,171,524 |
|
| Total stockholders’ equity (deficit) (4) | 556,449 |
| | 482,709 |
| | 220,205 |
| | 40,297 |
| | (55,911 | ) |
| Cash Flow Data: | | | | | | | | | |
| Capital expenditures | $ | 237,868 |
| | $ | 237,214 |
| | $ | 178,720 |
| | $ | 120,906 |
| | $ | 60,476 |
|
____________________
Note: This selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto, included in Item 8 of this Report and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Report.
| |
(1)Drive a pay for performance culture | Total revenues in fiscal 2014 include $46.0 million of less restaurant sales due to a change in | • Align our fiscal year end. |
| |
(2) | Fiscal 2014 results include $9.2 million of less income from operations due to a change in our fiscal year end, $26.8 million of asset impairments and restaurant closing costs related to our International and Domestic Restaurant Closure Initiatives, $24.0 million of asset impairments related to our Roy’s concept and corporate airplanes and $9.0 million of severance related to our organizational realignment. Fiscal year 2013 results include $18.7 million of asset impairments due to our Domestic Restaurant Closure Initiative. Fiscal year 2012 includes $34.1 million of certain executive compensation costswith short-term and non-cash stock compensation charges incurred in connection with the completion of our IPOlong-term performance objectives and $7.4 million of legal and other professional fees, primarily related to a lease amendment between OSI and PRP. Fiscal 2012, 2011 and 2010 results include management fees and other reimbursable expenses of $13.8 million, $9.4 million and $11.6 million, respectively, related to a management agreement with our sponsors and founders, which terminated at the time of our IPO.stockholder interests |
| |
(3) | Fiscal 2014, 2013 and 2012 include $11.1 million, $14.6 million and $21.0 million, respectively, of loss on extinguishment and modification for: (i) the refinancing in 2014, the repricing in 2013 and the refinancing in 2012 of our Senior Secured Credit Facility, (ii) the retirement of OSI’s senior notes in 2012 and (iii) the refinancing of the CMBS loan in 2012. Fiscal 2013 includes a $36.6 million gain on remeasurement of a previously held equity investment related to our Brazil acquisition. Fiscal 2013 includes a $52.0 million income tax benefit for a U.S. valuation allowance release. Fiscal 2011 includes a $33.2 million gain related to the recovery of a note receivable from an affiliated entity.
|
| |
(4) | On August 13, 2012, we completed an IPO in which we issued and sold an aggregate of 14,196,845 shares of common stock at a price to the public of $11.00 per share. We received net proceeds in the offering of $142.2 million after deducting underwriting discounts and commissions and other offering related expenses. |
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s DiscussionCompany Highlights.We had solid results for 2014 relative to a challenging market and Analysis of Financial Conditionsuccessfully implemented many significant initiatives to strengthen our brands and Results of Operations
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements andcompleted refinancing transactions. Our highlights for 2014 include the related notes. Unless the context otherwise indicates, as used in this Report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries.
Overview
We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of December 28, 2014, we owned and operated 1,344 restaurants and franchised 166 restaurants across 48 states, Puerto Rico, Guam and 21 countries. We have four founder-inspired core concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
The casual dining restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies, labor costs and fluctuations in prices of commodities and other necessities to operate a restaurant, such as natural gas or other energy supplies. Restaurant companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Our industry is characterized by high initial capital investment, coupled with high labor costs. As a result, we focus on driving increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have focused on restaurant growth with strong unit level economics.
2014 Business and Financial Highlights
Our 2014 financial results include:
following:An increase in total revenues of 7.6% to $4.4 billion in 2014 as compared to 2013, driven primarily by restaurants in Brazil that were acquired November 1, 2013 and an increase in sales from 100 restaurants not included in our comparable restaurant sales base.base;
An increase in system-wide sales of 2.4% in 2014 as compared to 2013. In addition, we grew blended domestic comparable restaurant sales by 2.0% in 2014.2014;
Income from operations of $192.0 million in 2014 compared to $225.4 million in 2013, which was primarily due to: (i) impairments and restaurant closing costs related to our International and Domestic Restaurant Closure Initiatives, (ii) asset impairments related to Roy’s and corporate aircraft, (iii) lower average unit volumes at our South Korea restaurants, (iv) higher General and administrative costs, and (v) higher Depreciation and amortization as a percentage of revenue. These decreases were partially offset by an increase in operating margins at the restaurant level.level;
Productivity and cost management initiatives provided savings of $65.4 million in 2014;2014; and
During fiscal year 2014, we paid down $102.3 million of our debt.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Followingour compensation philosophy is
a summarypay for performance. Our executive compensation programs are aligned with our business initiatives and have been designed to pay commensurate with the level of
significant actions weperformance generated.The 2014 cash incentive payout under our short-term incentive plan (“STIP”) for our named executive officers was based on Company performance and, if applicable, restaurant concept performance, compared to pre-established financial goals, which included metrics such as adjusted net income, adjusted EBIT and revenue growth. The named executive officers earned performance-based cash incentives as follows:
| | | | |
Named Executive Officer | | STIP Performance Payout | |
Ms. Smith | | $ | 895,673 | |
Mr. Deno | | $ | 331,500 | |
Mr. Herlihy | | $ | 83,679 | |
Mr. Judge | | $ | 211,140 | |
Mr. Smith | | $ | 430,100 | |
The named executive officers received long-term incentive (“LTI”) awards of stock options and performance-based share units (“PSU”). The stock options vest 25% per year over four years from the grant date and have taken duringvalue if the share price appreciates after the date of the award. The performance-based share units vest 25% per year over four years from the grant date, the units earned vary to the extent the performance metrics are achieved for each performance period, and are distributed upon the Board of Directors certifying that the performance metrics were attained. The Company’s cumulative adjusted net income for 2013 and 2014 was the performance metric for the second tranche of the 2013 PSU award. The Company’s adjusted earnings per share (“EPS”) was the performance metric for the first tranche of the 2014 PSU award. The named executive officers earned performance-based share units as follows:
| | | | | | | | |
Named Executive Officer | | LTI Performance Attainment
(2013 PSU Award) | | | LTI Performance Attainment
(2014 PSU Award) | |
Ms. Smith | | | N/A | | | | 63 | % |
Mr. Deno | | | 59 | % | | | 63 | % |
Mr. Herlihy | | | N/A | | | | N/A | |
Mr. Judge | | | N/A | | | | 63 | % |
Mr. Smith | | | 59 | % | | | 63 | % |
What We Do and Do Not Do – Components of Our Executive Compensation Program. We seek to ensure that our executive compensation programs are closely aligned with the interests of our stockholders through the following executive compensation best practices:
| | | | | | |
WHAT WE DO | | WHAT WE DO NOT DO |
| ü | | Award incentive compensation intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code | | × | | Speculative transactions involving our stock, including hedging |
| | | |
| ü | | Use a representative and relevant peer group | | × | | Stock option re-pricing without stockholder approval |
| | | |
| ü | | Design an executive compensation program to mitigate undue risk | | × | | Cash compensation payments upon death or disability |
| | | |
| ü | | Include double trigger change-in-control vesting provisions for equity awards | | × | | Excise tax gross-ups upon change in control |
| | | |
| ü | | Award annual incentive compensation and 50% of long-term compensation subject to achievement of objective pre-established performance goals tied to operational and strategic objectives | | | | |
| | | |
| ü | | Engage an independent compensation consultant that reports directly to the Compensation Committee | | | | |
| | | |
| ü | | Provide minimal perquisites with sound business rationale | | | | |
| | | |
| ü | | Use of compensation recovery policy for executive officers and other key employees of equity-based awards to encourage achievement of long-term, sustainable results in an appropriate manner | | | | |
| | | |
| ü | | Require stock ownership and retention values that align the interests of our executive officers and other key employees with the long-term interest of our stockholders | | | | |
Compensation Setting Process
Compensation Committee. Our Compensation Committee oversees our executive compensation program and, in some cases, together with the full Board of Directors, approves the type and amount of compensation paid to our Chief Executive Officer and other executive officers, approves agreements with our executive officers and provides oversight to our equity compensation plan. The Compensation Committee meets periodically throughout the year to monitor our compensation arrangements and objectives. Salary and target bonus amounts, as well as equity awards for other factorsexecutives, reflect input from the compensation consultant and recommendations from management to the Compensation Committee. The Compensation Committee reviews the compensation and performance of the Chief Executive Officer and recommends her compensation to the full Board of Directors for approval. Our executive officers possess employment agreements or offers of employment that impacted our operating resultsestablish, among other things, the executive’s base salary and liquiditytarget bonus, measured as a percentage of base salary, as well as benefits upon a termination of employment and/or a change in 2014:
Dividend and Share Repurchase Programs - In December 2014,control of the Company. Generally, our Board of Directors adoptedhas been responsible for approving, upon the recommendation or approval of the Compensation Committee, equity awards to our executive officers in order to qualify these awards as exempt awards under Rule 16b-3 under the Exchange Act.The Compensation Committee begins its annual process for deciding how to compensate our executive officers by considering the competitive market data provided by its independent compensation consultant and human resources management. The Compensation Committee evaluates the appropriateness of the Chief Executive Officer and the other named executive officer’s total compensation as positioned against the 50th percentile of the market based on factors that include Company and business unit revenues and performance, job scope and individual performance. If the Compensation Committee deems that the compensation associated with the Chief Executive Officer or a dividend policy under which it intendsnamed executive officers’ position is not aligned to declare quarterly cash dividendsthe market, then the Compensation Committee may choose to modify one or more of the compensation components.
The Compensation Committee will also consider the annual non-binding stockholder vote on sharesexecutive compensation in setting executive compensation each year. At our 2014 annual meeting, this proposal received a vote of over 96% of the votes cast in favor of approving our executive compensation for 2013. Accordingly, the Compensation Committee did not propose any changes to our 2014 compensation program.
Role of Independent Compensation Consultants. In 2013, the Compensation Committee selected and engaged Frederic W. Cook (“Cook & Co.”) as its independent compensation consultant, and Cook & Co. was appointed as the independent compensation consultant again in 2014. The compensation consultant’s responsibilities include, but are not limited to, providing market data, updating the Compensation Committee on trends and developments in executive compensation, reviewing the design of the executive compensation program periodically and providing advice to the Compensation Committee and its Chair, as requested. The Compensation Committee has the sole authority to hire and terminate Cook & Co. and may seek advice from them without the involvement of management. Cook & Co. attends Compensation Committee meetings and, on occasion, obtains information and input from management to ensure that its recommendations are consistent with Bloomin’ Brands’ strategy and culture.
After review and consultation with Cook & Co., the Compensation Committee determined that Cook & Co. is independent and that there is no conflict of interest resulting from retaining Cook & Co. currently or during the year ended December 28, 2014.
Role of CEO in Compensation Decisions.The Compensation Committee also considers the recommendations of our common stock. On February 12, 2015, theChief Executive Officer with respect to salary adjustments, annual cash incentive bonus targets and awards and equity incentive awards for our other executive officers. Generally, our Board of Directors declaredhas been responsible for approving, upon the recommendation or approval of the Compensation Committee, equity awards to our first quarterlyexecutive officers in order to qualify these awards as exempt awards under Rule 16b-3 under the Exchange Act.
Our Executive Compensation Program
Competitive Positioning.Our executive compensation program is designed to target the following market ranges for each component of compensation; however, an individual’s compensation may be below or above the targeted competitive positioning based on individual performance or other business factors.
| | |
COMPENSATION COMPONENT | | TARGETED RANGE |
| Base Salary | | Market Median |
| Short-Term Incentives | | Between the Median and 75th Percentile |
| Target Total Cash | | Between the Median and 75th Percentile |
| Long-Term Incentives | | Between the Median and 75th Percentile |
| Target Total Direct Compensation | | Between the Median and 75th Percentile |
Peer Group and Competitive Market Information. The Compensation Committee utilizes a peer group to evaluate executive officer compensation levels and to benchmark our executive compensation design and governance features. The Compensation Committee reviews the peer group on an annual basis to ensure the companies are of comparable size (based on revenue, market capitalization and other relevant metrics), maintain strong consumer brands, have multiple consumer brands in their portfolios, have an entrepreneurial culture, are globally positioned and compete with us for executive talent.
The peer group used for 2014 compensation benchmarking consisted of the following companies:
| | | | |
PEER GROUP COMPANIES |
| Bob Evans Farms, Inc. | | Hyatt Hotels Corporation | | Royal Caribbean Cruises Ltd. |
| Brinker International, Inc. | | Jack in the Box Inc. | | Ruby Tuesday, Inc. |
| Burger King Worldwide, Inc. | | L Brands, Inc. | | Starbucks Corporation |
| Chipotle Mexican Grill, Inc. | | Las Vegas Sands Corp. | | Starwood Hotels & Resorts Worldwide, Inc. |
| Cracker Barrel Old Country Store, Inc. | | MGM Resorts International | | Texas Roadhouse, Inc. |
| Darden Restaurants, Inc. | | Panera Bread Company | | The Cheesecake Factory Incorporated |
| DineEquity, Inc. | | PetSmart, Inc. | | The Wendy’s Company |
| Foot Locker, Inc. | | Ross Stores, Inc. | | YUM! Brands, Inc. |
To determine competitive market compensation for 2014, the peer group data and national executive compensation survey data compiled by Cook & Co. were combined to establish market consensus information against which the Compensation Committee assessed base salary, target short-term incentives, target total cash dividendpayout, long-term incentive value and target total direct compensation. The Compensation Committee also periodically reviews other benchmarking data as presented by the independent compensation consultant and human resources management. This data covers a variety of $0.06 per share.
areas such as equity vesting practices, the prevalence of performance metrics among peer companies, types of equity vehicles used by peer companies, equity burn rates and any other market data the Compensation Committee needs to consider when evaluating our executive compensation program.Compensation Components
Mix of Total Compensation.Our Boardexecutive compensation programs consist of Directors also approvedthree primary components:
base salary
performance-based cash incentives
long-term equity incentive awards, generally in the form of stock options and performance-based share units
In addition, our executive compensation programs provide secondary benefits, such as:
retention-based cash incentives
other benefits and perquisites
change in control and termination benefits
In allocating compensation among the various compensation components, we provide equitable and competitive levels of fixed compensation (base salary and benefits) while emphasizing performance-based compensation. A significant percentage of cash compensation and total compensation for our named executive officers is allocated to performance-based compensation. Performance-based cash incentives are targeted so that a meaningful percentage of annual cash compensation is dependent on the overall performance of Bloomin’ Brands and/or, if applicable, restaurant concept performance along with individual performance. Long-term equity incentives comprise the largest share repurchase program under which we are authorizedof total direct compensation and provide a significant link to repurchase upthe stockholder experience. We do not target a specific percentage for each element of compensation relative to $100.0 milliontotal compensation. Our mix of compensation results from targeting a percentage that will allow us to be competitive in the market.
The charts below show the target compensation mix for the Chief Executive Officer and the average compensation mix of the other named executive officers.
Base Salaries. Base salaries generally reflect demonstrated experience, skills and competencies as well as competitive market value. Base salary levels of our outstanding common stock. As of December 28, 2014, no shares had been repurchased underexecutive officers may be increased by the program. The authorization will expire on June 12, 2016.
Refinancing - We completed a refinancing of our senior secured credit facilities and entered into the Amended Credit Agreement on May 16, 2014. The Amended Credit Agreement provides for senior secured financing of up to $1.125 billion, consisting of a new $300.0 million Term loan A, a $225.0 million Term loan B and a $600.0 million revolving credit facility, including letter of credit and swing-line loan sub-facilities. The Term loan A and revolving credit facility mature May 16, 2019, and the Term loan B matures on October 26, 2019. The Term loan A was issued with a discount of $2.9 million. At closing, $400.0 million was drawn under the revolving credit facility. The proceedsCompensation Committee as part of the Term loan A and the loans made at closing under the revolving credit facility were usedannual performance review process, upon an executive officer’s promotion, change in job responsibilities or to pay down a portion of the Term loan B under the Credit Agreement. Our total indebtedness remained unchangedaddress internal or external equity, as recommended by management.As a result of the refinancing.
Interest Rate Swaps - On September 9,comparative market data analysis performed in February 2014, we entered into variable-to-fixed interest rate swap agreements with eight counterpartiesthe Compensation Committee made a market-based adjustment to hedgeMs. Smith’s base salary to better align her base salary to the competitive market set and her experience, responsibilities and performance.Base salaries of the named executive officers and changes, if any, are listed in the table below:
| | | | | | | | |
NAMED EXECUTIVE OFFICER | | 2014 BASE SALARY | | | CHANGE FROM 2013 | |
Elizabeth A. Smith | | $ | 1,000,000 | | | $ | 25,000 | |
David J. Deno | | | 650,000 | | | | — | |
Donagh M. Herlihy | | | 540,000 | | | | N/A | |
Stephen K. Judge | | | 540,000 | | | | — | |
Jeffrey S. Smith | | | 575,000 | | | | — | |
Performance-Based Cash Incentives and Other Cash Incentives. Cash incentives are awarded to all of our executive officers under performance-based cash incentive plans. The design of the short-term incentive plans (“STIP”), which follows a structure that is generally consistent from year to year, reflects the Compensation Committee’s belief that a significant portion of the cash flows of our variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a forward start date of June 30, 2015, and a maturity date of May 16, 2019. Under the terms of the swap agreements, we will pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterpartyannual compensation for each executive officer should be based on the 30-day LIBOR rate.
Restaurant Closure Initiatives - We decidedfinancial performance of the Company. These awards are payable based on the achievement of annual financial objectives measured against our internal operating plan and individual performance measured on the achievement of goals established at the beginning of the year. For corporate executives, the payouts are based on the Company’s achievement of its annual financial objectives and individual performance. The payouts for executives with restaurant concept specific operating responsibilities are based on a combination of the Company and the restaurant concepts’ achievement of their annual financial objectives and individual performance. Annual performance-based cash incentive targets, measured as a percentage of base salary, are established in each executive officer’s employment agreement. Payouts can range from 0% to close 36 underperforming international locations, primarily200% of established percentage of salary, with a payout at 50% if threshold performance is achieved, 100% if target performance is achieved and 200% if maximum performance is achieved. The Compensation Committee has discretion to decrease, but not to increase, the annual payout.The following table presents the 2014 STIP target for each named executive officer, as a percentage of his or her base salary and the change, if any, from 2013.
| | | | | | | | |
NAMED EXECUTIVE OFFICER | | 2014 ANNUAL
PERFORMANCE-BASED
CASH INCENTIVE
TARGET, AS A
PERCENTAGE OF BASE
SALARY | | | CHANGE FROM 2013 | |
Elizabeth A. Smith | | | 150 | % | | | 50 | % |
David J. Deno | | | 85 | % | | | — | |
Donagh M. Herlihy (1) | | | 85 | % | | | N/A | |
Stephen K. Judge | | | 85 | % | | | — | |
Jeffrey S. Smith | | | 85 | % | | | — | |
| (1) | Mr. Herlihy was hired as our Executive Vice President and Digital and Chief Information Officer effective September 2, 2014. |
For 2014, the STIP for three of our corporate named executive officers (the “2014 Corporate STIP”), Ms. Smith and Messrs. Deno and Herlihy, was based on two equally weighted measures: Bloomin’ Brands’ Adjusted net income (net income adjusted for certain items) and total revenue growth (measured as the percentage increase in South Korea (the “International Restaurant Closure Initiative”total revenue over the prior fiscal year (“Total Revenue Growth”)). We expectSee Non-GAAP Financial Measures—Other Non-GAAP Financial Measures under Item 7 of this Annual Report on Form 10-K for a description of our adjustments to substantially complete these internationalnet income. The STIP for Messrs. Judge and Smith was based 50% on the 2014 Corporate STIP, as described above, and 50% on the result of their respective restaurant concepts, as described below.
At the restaurant concept level, the two equally weighted measures used are Adjusted EBIT (earnings before interest and taxes as adjusted to exclude the impact of restaurant closings, during the first quarter of 2015. In connection with the International Restaurant Closure Initiative, we incurred pre-tax asset impairmentsgains and restaurant closing costs of $21.9 million during fiscal year 2014.
In the fourth quarter of 2013, we completed an assessment of our domestic restaurant base and decided to close 22 underperforming domestic locations (the “Domestic Restaurant Closure Initiative”). Aggregate restaurant closing costs of $4.9 million were incurred during fiscal year 2014 in connection with the Domestic Restaurant Closure Initiative.
Roy’s - In September 2014, we reclassified thelosses on disposed assets and liabilitiescertain other gains and losses (“Adjusted EBIT”)) and Total Revenue Growth for the restaurant concept. Adjusted Net Income, Adjusted EBIT and Total Revenue Growth performance levels were established by the Compensation Committee at the beginning of Roy’s to held for sale. In connection with the decision to sell Roy’s, we recorded pre-tax impairment chargesyear based on consideration of $13.4 million for Assets held for sale for fiscal year 2014. In January 2015, we sold our Roy’s concept.
Carrabba’s Royalty Agreement - To facilitate development opportunities outside the U.S., we amended our royalty agreement withCompany’s and/or the founders of Carrabba’s effective June 1, 2014. Werestaurant concept’s business plan, to establish our Carrabba’s Italian Grill brand in Brazil, known as Abbraccio, with the first opening expected in 2015.
Macroeconomic Conditions - The combination of macroeconomicwell as industry and other factors have put considerable pressure on sales in the casual dining industry both domestically and in our South Korea market.
Domestically, the ongoing impacts of reduced disposable consumer income, unemployment or underemployment, access to credit, other national, regional and local regulatory andgeneral economic conditions and consumer confidence have hadtrends, among other considerations. The performance levels were based on annual financial objectives and were expected to present a negative effect on discretionary consumer spending.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
In our South Korea market, higher levels of household debt have impacted discretionary consumer spending, particularly in the casual dining environment. As a result of macro-economic conditions, an increasingly competitive market and other factors, we decided to close 36 underperforming international locations, primarily in South Korea. We anticipate the restaurant closings in South Korea will promote a more efficient cost structure and allow us to maintain current levels of profitability in a continued declining market. As a resultchallenge, especially with persisting economic conditions; however, achievement of these actions, we believe that we have significantly reduced the operational risk and financial impact related togoals was not viewed as requiring or encouraging excessive risk-taking by our South Korea operations.
Should the macro-economic and other conditions persist domestically and in our South Korea market, we will continue to face increased pressureexecutives. The cash incentives were payable on a non-linear sliding scale with respect to our pricing, traffic levels and commodity costs. We believe that in this environment, we needeach component (ranging from 0% to maintain our focus on value and innovation as well as refreshing our restaurant base to continue to drive sales.
Growth Strategies
In 2015, our key growth strategies include:
Grow Comparable Restaurant Sales. We plan to continue to remodel our restaurants, use limited-time offers and multimedia marketing campaigns to drive traffic, selectively expand lunch and introduce innovative menu items that match evolving consumer preferences.
Pursue New Domestic Development Opportunities with Strong Unit Level Economics. We believe that a substantial development opportunity remains for our concepts in the U.S. Our top domestic development priority is Bonefish Grill unit growth. We expect to open between 40 and 50 system-wide locations in 2015, with 40% to 50% expected to be domestic restaurants.
Pursue Strategic International Development in Selected Markets. We continue to focus on existing geographic regions in Latin America and Asia, with strategic expansion in selected emerging and high growth developed markets. We are focusing our existing market growth in Brazil and new market growth in China. We expect at least 50% of our new units in 2015 will be international locations.
We intend to fund our growth efforts, in part, by utilizing productivity initiatives across our business. Productivity savings will be reinvested in the business to drive revenue growth and margin improvement.
Key Performance Indicators
Key measures that we use in evaluating our restaurants and assessing our business include the following:
Average restaurant unit volumes—average sales per restaurant to measure changes in consumer traffic, pricing and development of the brand;
Comparable restaurant sales—year-over-year comparison of sales volumes for domestic, Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants;
System-wide sales—total restaurant sales volume for all Company-owned, franchise and unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands;
Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income, Adjusted diluted earnings per share, Adjusted diluted earnings per pro forma share, EBITDA and Adjusted EBITDA—non-GAAP financial measures utilized to evaluate our operating performance, which
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
definitions, usefulness and reconciliations are described in more detail in the “Non-GAAP Financial Measures” section below; and
Consumer satisfaction scores—measurement of our consumers’ experiences in a variety of key areas.
Change in Fiscal Year End
On January 3, 2014, our Board of Directors approved a change in our fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending200%) based on the
last Sunday in December, effective with fiscal year 2014. In a 52 week fiscal year, each of our quarterly periods comprise 13 weeks. The additional week in a 53 week fiscal year is added tofollowing targeted amounts: | | | | | | | | |
| | | STIP Weighting | |
| Named Executive Officer | | BBI | | | Concept | |
Ms. Smith | | | 100 | % | | | — | |
Mr. Deno | | | 100 | % | | | — | |
Mr. Herlihy | | | 100 | % | | | — | |
Mr. Judge | | | 50 | % | | | 50 | % |
Mr. Smith | | | 50 | % | | | 50 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | BBI Targets | |
| Named Executive Officer | | Adjusted Net Income
(50% weighting) | | | Revenue Growth
(50% weighting) | |
| | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | |
Ms. Smith, Messrs. Deno and Herlihy | | $ | 138M | | | $ | 154M | | | $ | 174M | | | | 8 | % | | | 10.5 | % | | | 12.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | BBI Targets | |
| Named Executive Officer | | Adjusted Net Income
(25% weighting) | | | Revenue Growth
(25% weighting) | |
| | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | |
Messrs. Judge and Smith | | $ | 138M | | | $ | 154M | | | $ | 174M | | | | 8 | % | | | 10.5 | % | | | 12.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Concept Targets | |
| Named Executive Officer | | Adjusted EBIT
(25% weighting) | | | Revenue Growth
(25% weighting) | |
| | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | |
Mr. Judge | | $ | 22.1M | | | $ | 24.9M | | | $ | 28.8M | | | | 11 | % | | | 13.5 | % | | | 15.5 | % |
Mr. Smith | | $ | 180.2M | | | $ | 202.6M | | | $ | 234.9M | | | | 0 | % | | | 2.5 | % | | | 4.5 | % |
| • | | 2014 Financial Performance |
For the fourth quarter, making that quarter consist of 14 weeks. We made the fiscal year change on a prospective basis and did not adjust operating results2014 Corporate STIP, Total Revenue Growth, adjusted for prior periods. We believe this change will provide numerous benefits, including aligning our reporting periods to be more consistent with peer restaurant companies and improving comparability between periods by removing the trading day effect on Restaurant sales and operating margins.
Fiscal year 2014 consisted of the 52 weeks ended December 28, 2014 and fiscal years 2013 and 2012 consisted of the twelve months ended December 31, 2013 and 2012, respectively. The change in our fiscal year end resulted in three fewer operating days in fiscal year 2014 and we estimate that the associated impact in fiscal year 2014 was a reduction of $46.0 million and $9.2 million of Restaurant sales and Net income attributable to Bloomin’ Brands, respectively.
The reporting periods and applicable reports for fiscal year 2014 were as follows:
|
| | | | | | | | |
| FISCAL PERIOD | | 2014 REPORTING PERIOD | | 2014 FISCAL PERIOD DAYS | | COMPARABLE 2013 FISCAL PERIOD DAYS | | FISCAL YEAR CHANGE IMPACT (in operating days) |
| First fiscal quarter | | January 1, 2014 to March 30, 2014 | | 89 | | 90 | | (1) |
| Second fiscal quarter | | March 31, 2014 to June 29, 2014 | | 91 | | 91 | | — |
| Third fiscal quarter | | June 30, 2014 to September 28, 2014 | | 91 | | 92 | | (1) |
| Fourth fiscal quarter | | September 29, 2014 to December 28, 2014 | | 91 | | 92 | | (1) |
| Fiscal year | | January 1, 2014 to December 28, 2014 | | 362 | | 365 | | (3) |
Segments
We operate restaurants under brands that have similar economic characteristics, nature of products and services, class of consumer and distribution methods, and we believe we meet the criteria for aggregating our operating segments, including our international operations, into a single reporting segment in fiscal year 2014.
During the first quarter of 2015, we recasted our segment reporting to reflect two reporting segments, U.S. and International, which matches changes made in how we manage our business, review operating performance and allocate resources. Our U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. Beginning in 2015, we will recast our prior period financial information to reflect comparable financial information for the new segment reporting.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Selected Operating Data
The table below presents the number of our restaurants in operation as of the end of the periods indicated:
|
| | | | | |
| | DECEMBER 28, 2014 | | DECEMBER 31, 2013 | | DECEMBER 31, 2012 |
| Number of restaurants (at end of the period): | | | | | |
| Outback Steakhouse | | | | | |
| Company-owned—U.S. | 648 | | 663 | | 665 |
| Company-owned—international (1) (2) (3) | 167 | | 169 | | 115 |
| Franchised—U.S. | 105 | | 105 | | 106 |
| Franchised and joint venture—international (1) (2) | 55 | | 51 | | 89 |
| Total | 975 | | 988 | | 975 |
| Carrabba’s Italian Grill | | | | | |
| Company-owned | 242 | | 239 | | 234 |
| Franchised | 1 | | 1 | | 1 |
| Total | 243 | | 240 | | 235 |
| Bonefish Grill | | | | | |
| Company-owned | 201 | | 187 | | 167 |
| Franchised | 5 | | 7 | | 7 |
| Total | 206 | | 194 | | 174 |
| Fleming’s Prime Steakhouse & Wine Bar | | | | | |
| Company-owned | 66 | | 65 | | 65 |
| Roy’s (4) | | | | | |
| Company-owned | 20 | | 21 | | 22 |
| System-wide total | 1,510 | | 1,508 | | 1,471 |
____________________
| |
(1) | Effective November 1, 2013, we acquired a controlling interest in the Brazil Joint Venture resulting in the consolidation and reporting of 47 restaurants (as of the acquisition date) as Company-owned locations, which are reported as unconsolidated joint venture locations in the historical periods presented. |
| |
(2) | The restaurant count for Brazil is reported as of November 30, 2014 and excludes one restaurant opened in December 2014. Restaurant counts for our Brazil were reported as of December 31st in fiscal year 2012.
|
| |
(3) | The restaurant count as of December 28, 2014 includes 21 locations scheduled to close during 2015, including 20 in South Korea.
|
| |
(4) | On January 26, 2015, we sold our Roy’s concept. |
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
The following table sets forth, for the periods indicated, the percentages of certain items, in our Consolidated Statements of Operations and Comprehensive Income in relation8.4% was slightly above the threshold measure primarily due to Total revenues or Restaurant sales, as indicated:
|
| | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Revenues | | | | | |
| Restaurant sales | 99.4 | % | | 99.0 | % | | 99.0 | % |
| Other revenues | 0.6 |
| | 1.0 |
| | 1.0 |
|
| Total revenues | 100.0 |
| | 100.0 |
| | 100.0 |
|
| Costs and expenses | | | | | |
| Cost of sales (1) | 32.5 |
| | 32.6 |
| | 32.5 |
|
| Labor and other related (1) | 27.6 |
| | 28.3 |
| | 28.3 |
|
| Other restaurant operating (1) | 23.8 |
| | 23.6 |
| | 23.3 |
|
| Depreciation and amortization | 4.3 |
| | 4.0 |
| | 3.9 |
|
| General and administrative | 6.9 |
| | 6.5 |
| | 8.2 |
|
| Provision for impaired assets and restaurant closings | 1.2 |
| | 0.6 |
| | 0.3 |
|
| Income from operations of unconsolidated affiliates | — |
| | (0.2 | ) | | (0.1 | ) |
| Total costs and expenses | 95.7 |
| | 94.5 |
| | 95.5 |
|
| Income from operations | 4.3 |
| | 5.5 |
| | 4.5 |
|
| Loss on extinguishment and modification of debt | (0.3 | ) | | (0.4 | ) | | (0.5 | ) |
| Gain on remeasurement of equity method investment | — |
| | 0.9 |
| | — |
|
| Other expense, net | (*) |
| | (*) |
| | (*) |
|
| Interest expense, net | (1.3 | ) | | (1.8 | ) | | (2.2 | ) |
| Income before provision (benefit) for income taxes | 2.7 |
| | 4.2 |
| | 1.8 |
|
| Provision (benefit) for income taxes | 0.5 |
| | (1.0 | ) | | 0.3 |
|
| Net income | 2.2 |
| | 5.2 |
| | 1.5 |
|
| Less: net income attributable to noncontrolling interests | 0.1 |
| | 0.2 |
| | 0.3 |
|
| Net income attributable to Bloomin’ Brands | 2.1 | % | | 5.0 | % | | 1.2 | % |
____________________
| |
(1) | As a percentage of Restaurant sales. |
| |
* | Less than 1/10th of one percent of Total revenues.
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
RESTAURANT SALES
Following is a summary of the changes in restaurants sales for fiscal years 2014 and 2013:
|
| | | | | | | |
| | FISCAL YEAR |
| (dollars in millions): | 2014 | | 2013 |
| For fiscal years 2013 and 2012 | $ | 4,089.1 |
| | $ | 3,946.1 |
|
| Change from: | | | |
| Brazil acquisition (1) | 253.8 |
| | 23.4 |
|
| Restaurant openings (2) | 136.4 |
| | 98.0 |
|
| Comparable restaurant sales (2) | 40.5 |
| | 28.8 |
|
| Restaurant closings | (58.0 | ) | | (7.2 | ) |
| Change in fiscal year | (46.0 | ) | | — |
|
| For fiscal years 2014 and 2013 | $ | 4,415.8 |
| | $ | 4,089.1 |
|
____________________
| |
(1) | Includes restaurant sales for the 47 formerly unconsolidated joint venture restaurants in Brazil that were acquired November 1, 2013. Sales for restaurants opened in Brazil after November 1, 2013 are included in restaurant openings. |
| |
(2) | Summation of quarterly changes for restaurant openings and comparable restaurant sales will not total to annual amounts as the restaurants that meet the definition of a comparable restaurant will differ each period based on when the restaurant opened. |
The increase in Restaurant sales in 2014 as compared to 2013 was primarily attributable to: (i) the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013, (ii) the opening of 100 new restaurants not included in our comparable restaurant sales base and (iii) an increase in domestic comparable restaurant sales, at our existing restaurants. The increase in restaurant saleswhich was partially offset by: (i) the closing of 57 restaurants since December 31, 2012, (ii)by lower comparable restaurant sales in South Korea and (iii) three fewer operating days due to a change in our fiscal year-end.
The increase in Restaurant sales in 2013 as compared to 2012Korea.Adjusted Net Income of $140.8 million was primarily attributable to: (i) the opening of 69 new restaurants not included in our comparable restaurant sales base, (ii) an increase in domestic comparable restaurant sales at our existing restaurants and (iii) the consolidation of one month of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013. The increase in restaurant sales was partially offset by the closing of six restaurants since December 31, 2011.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparable Domestic Restaurant Sales and Menu Prices
Following is a summary of comparable domestic restaurant sales and domestic general menu price increases: |
| | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Comparable restaurant sales (restaurants open 18 months or more): | | | | | |
| Outback Steakhouse | 3.1 | % | | 1.6 | % | | 4.4 | % |
| Carrabba’s Italian Grill | (1.0 | )% | | (0.2 | )% | | 1.7 | % |
| Bonefish Grill | 0.5 | % | | — | % | | 3.2 | % |
| Fleming’s Prime Steakhouse & Wine Bar | 3.2 | % | | 4.5 | % | | 5.1 | % |
| Combined (concepts above) | 2.0 | % | | 1.2 | % | | 3.7 | % |
| Year over year percentage change: | |
| | | | |
| Menu price increases: (1) | |
| | | | |
| Outback Steakhouse | 2.9 | % | | 2.5 | % | | 2.2 | % |
| Carrabba’s Italian Grill | 2.7 | % | | 2.2 | % | | 2.3 | % |
| Bonefish Grill | 2.9 | % | | 2.1 | % | | 2.2 | % |
| Fleming’s Prime Steakhouse & Wine Bar | 3.1 | % | | 3.4 | % | | 2.0 | % |
____________________
| |
(1) | The stated menu price changes exclude the impact of product mix shifts to new menu offerings. |
Our comparable domestic restaurant sales represent the growth from restaurants opened 18 months or more. For 2014, blended domestic comparable restaurant sales increasedslightly above threshold primarily due to increases in general menu prices, partially offset by a shift in the mix in our product sales.
For 2013, blended domestic comparable restaurant sales increased due to increases in general menu prices and consumer traffic, partially offset by a shift in the mix in our product sales. The increase in consumer traffic was primarily driven by selective daypart expansion across certain concepts, innovations in menu, service, promotions and operations across the portfolio and renovations at additional Outback Steakhouse locations, partially offset by the additional day in February 2012 due to Leap Year.
Average Domestic Restaurant Unit Volumes and Operating Weeks
Following is a summary of the domesticlower average restaurant unit volumes and operating weeks:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Average restaurant unit volumes (in thousands): | | | | | |
| Outback Steakhouse | $ | 3,329 |
| | $ | 3,230 |
| | $ | 3,165 |
|
| Carrabba’s Italian Grill | $ | 2,945 |
| | $ | 2,998 |
| | $ | 2,999 |
|
| Bonefish Grill | $ | 3,135 |
| | $ | 3,131 |
| | $ | 3,162 |
|
| Fleming’s Prime Steakhouse & Wine Bar | $ | 4,163 |
| | $ | 4,082 |
| | $ | 3,929 |
|
| Operating weeks: | |
| | | | |
| Outback Steakhouse | 33,687 |
| | 34,600 |
| | 34,959 |
|
| Carrabba’s Italian Grill | 12,467 |
| | 12,284 |
| | 12,078 |
|
| Bonefish Grill | 10,047 |
| | 9,238 |
| | 8,163 |
|
| Fleming’s Prime Steakhouse & Wine Bar | 3,411 |
| | 3,389 |
| | 3,350 |
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
COSTS AND EXPENSES
Cost of sales
|
| | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (dollars in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Cost of sales | $ | 1,435.4 |
| | $ | 1,333.8 |
| | | | $ | 1,333.8 |
| | $ | 1,281.0 |
| | |
| % of Restaurant sales | 32.5 | % | | 32.6 | % | | (0.1 | )% | | 32.6 | % | | 32.5 | % | | 0.1 | % |
Cost of sales, consisting of food and beverage costs, decreased as a percentage of Restaurant sales in 2014 as compared to 2013. The decrease as a percentage of Restaurant sales was primarily due to 0.9% from the impact of certain cost savings initiatives and 0.7% from menu price increases. The decrease was partially offset by increases as a percentage of Restaurant sales of 0.7% from higher commodity costs, primarily seafood and beef, and 0.7% related to lunch expansion, changes in our product mix and promotions.
The increase as a percentage of Restaurant sales in 2013 as compared to 2012 was primarily due to 0.9% from higher beef and other commodity costs and 0.2% from changes in our liquor, beer and wine and product mix. The increase was partially offset by decreases as a percentage of Restaurant sales of 0.6% from the impact of certain cost savings initiatives and 0.5% from menu price increases.
In fiscal year 2015, we expect to incur four percent to six percent of increased commodity costs, primarily due to higher beef costs.
Labor and other related expenses
|
| | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (dollars in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Labor and other related | $ | 1,219.0 |
| | $ | 1,157.6 |
| | | | $ | 1,157.6 |
| | $ | 1,117.6 |
| | |
| % of Restaurant sales | 27.6 | % | | 28.3 | % | | (0.7 | )% | | 28.3 | % | | 28.3 | % | | — | % |
Labor and other related expenses include all direct and indirect labor costs incurred in operations, including distribution expense to managing partners, costs related to deferred compensation plans, and other field incentive compensation expenses. Labor and other related expenses decreased as a percentage of Restaurant sales for 2014 as compared to 2013 due to: (i) 0.5% from the acquisition of Brazil, primarily due to higher volumes, (ii) 0.5% from the impact of certain cost savings initiatives; (iii) 0.4% from higher average domestic unit volumes, primarily at Outback Steakhouse; and (iv) 0.4% due to expenses from a payroll tax audit contingency recorded in 2013. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.8% ofSouth Korea, higher kitchen and service labor costs due to lunch expansion across certain concepts, and the addition of new restaurant locations and (ii) 0.3% from lower average unit volumes in South Korea.
Labor and other related expenses were consistent as a percentage of Restaurant sales for 2013 as compared to 2012. Increases as a percentage of Restaurant sales were: (i) 0.6% from higher kitchen and service labor costs primarily due to lunch expansion across certain concepts and (ii) 0.4% from payroll tax audit contingencies. These increases were partially offset by a decrease as a percentage of Restaurant sales primarily due to the following: (i) 0.4% from the impact of certain cost savingsproductivity initiatives (ii) 0.2% from a decrease in health insurance costs, (iii) 0.2% fromand higher average unit volumes at the majority of our restaurants and (iv) 0.2% from changes in deferred compensation participant accounts.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other restaurant operating expenses
|
| | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (dollars in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Other restaurant operating | $ | 1,049.1 |
| | $ | 964.3 |
| | | | $ | 964.3 |
| | $ | 918.5 |
| | |
| % of Restaurant sales | 23.8 | % | | 23.6 | % | | 0.2 | % | | 23.6 | % | | 23.3 | % | | 0.3 | % |
Other restaurant operating expenses include certain unit-level operating costs such as operating supplies, rent, repairs and maintenance, advertising expenses, utilities, pre-opening costs and other occupancy costs. A substantial portion of these expenses is fixed or indirectly variable. The increase as a percentage of Restaurant sales for 2014 as compared to 2013 was primarily due to the following: (i) 0.4% lower average unit volumes in South Korea, (ii) 0.2% increase in operating supplies primarily due to lunch expansion and promotions, (iii) 0.1% of higher restaurant occupancy costs mainly related to rent escalations from existing leases, (iv) 0.1% of higher restaurant utilities associated with new restaurant locations and lunch expansion across certain concepts, (v) 0.1% higher general liability insurance expense and (vi) 0.1% increase in fees due to higher gift card sales. The increases were partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.4% from our acquired Brazil restaurants, primarily due to higher volumes, (ii) 0.2% higher domesticU.S. average unit volumes, primarily
from Outback Steakhouse.Total Revenue at Outback Steakhouse and (iii) 0.2% gain on a legal settlement.
The increase as a percentageBonefish Grill, adjusted for certain items, grew 11.6%, which was slightly above threshold due to the addition of Restaurant sales for 2013 as compared to 2012 was17 new restaurants. Bonefish Grill fell short of their Adjusted EBIT threshold of $22.0 million, primarily due to the following: (i) 0.2%lower traffic and higher advertising expense, (ii) 0.2% of higher restaurant occupancy costs as a result of opening new restaurant locations and (iii) 0.2% of higher restaurant utilities and operating supplies costs. The increase was partially offset by decreases as a percentage of Restaurant sales primarily attributable to: (i) 0.2% from higher average unit volumes at the majority of our restaurants and (ii) 0.2% from certain cost savings initiatives.
Depreciation and amortization
|
| | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (dollars in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Depreciation and amortization | $ | 190.9 |
| | $ | 164.1 |
| | | | $ | 164.1 |
| | $ | 155.5 |
| | |
| % of Total revenues | 4.3 | % | | 4.0 | % | | 0.3 | % | | 4.0 | % | | 3.9 | % | | 0.1 | % |
Depreciation and amortization increased as a percentage of Total revenues for 2014 as compared to 2013 primarily due to: (i) amortization expense associated with our acquired Brazil operations; (ii) depreciation expense related to new, renovated and relocated restaurants and (iii) the completion of internally developed technology projects.
The increase as a percentage of Total revenues for 2013 as compared to 2012 was primarily due to additional depreciation expense related to new restaurant openings and renovations and accelerated depreciation resulting from relocations of certain of our existing restaurants.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
General and administrative expenses
General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the changes in general and administrative expenses:
|
| | | | | | | |
| | FISCAL YEAR |
| (dollars in millions): | 2014 | | 2013 |
| For fiscal years 2013 and 2012 | $ | 268.9 |
| | $ | 326.5 |
|
| Change from: | | | |
| Brazil general and administrative | 18.9 |
| | 1.7 |
|
| Severance | 9.2 |
| | 0.4 |
|
| Employee stock-based compensation | 3.1 |
| | 8.3 |
|
| Termination of split dollar life insurance policies | 2.8 |
| | (4.7 | ) |
| Deferred compensation | 3.0 |
| | (4.5 | ) |
| Compensation, benefits and payroll tax | 4.8 |
| | (4.8 | ) |
| Legal & professional fees | 1.2 |
| | (9.6 | ) |
| Incentive compensation | (6.1 | ) | | (3.3 | ) |
| Other | (1.4 | ) | | (0.1 | ) |
| IPO costs | — |
| | (42.1 | ) |
| Management fees | — |
| | (5.6 | ) |
| Gain on sale of a business | — |
| | 3.5 |
|
| Legal settlement | — |
| | 3.2 |
|
| For fiscal years 2014 and 2013 | $ | 304.4 |
| | $ | 268.9 |
|
In 2014, general and administrative expense increased primarily from the following items:
Costs associated with our Brazil operations, which we acquired a majority ownership in November 2013.
Severance increased primarily due to an organizational realignment of certain corporate functions.
Employee stock-based compensation increased due to new grants, partially offset by grants fully vesting and forfeitures.
In fiscal year 2014, we recognized $1.9 million of net gains related to the
terminationnew menu rollout.Revenue growth, adjusted for certain items, of split-dollar agreements with certain of our former executive officers compared to $4.7 million of net gains in fiscal year 2013.
Deferred compensation expense3.1% for Outback Steakhouse was higher due to a net decrease in the cash surrender value (“CSV”) of life insurance investments related to our partner deferred compensation programs.
Employee compensation, benefits and payroll tax were higher primarilyabove target due to higher capitalized costs in fiscal year 2013 dueaverage restaurant unit volumes. Outback Steakhouse was able to a financial system project.
Legal and professional fees increased due to higher legal and tax fees supporting operational activities.
Incentive compensation decreased due to performance against current year objectives.
In 2013,drive the decrease in general and administrative expense was primarily from the following items:
Higher costs associated with our Brazil operations, which we acquired a majority ownership in November 2013.
Employee stock-based compensation increased due to new grants, partially offset by grants fully vesting and forfeitures.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
In fiscal year 2013, we recognized $4.7 million of net gains related to the termination of split-dollar agreements with certain of our former executive officers.
Deferred compensation expense was lower due to a net increase in the CSV of life insurance investments relatedrevenue to our partner deferred compensation programs.
Employee compensation, benefits and payroll tax decreased primarily due to higher capitalized costs in fiscal year 2013 due to a financial system development project.
Legal and other professional fees were lower primarily due to the amendment and restatement of a lease between OSI and PRP in 2012.
Incentive compensation decreased due to performance against current year objectives.
Expenses associated with our IPO in August 2012 included accelerated bonus expense, non-cash stock compensation expense for the vested portion of outstanding stock options and a management agreement termination fee.
Management fees decreased due to the termination of the management agreement in connection with our IPO.
The gain on sale of a business in fiscal year 2012 related to the collection of proceeds from the 2009 sale of our Cheeseburger in Paradise concept.
In fiscal year 2012, we recognized a gain from the settlement of lawsuits.
Provision for impaired assets and restaurant closings
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Provision for impaired assets and restaurant closings | $ | 52.1 |
| | $ | 22.8 |
| | $ | 29.3 |
| | $ | 22.8 |
| | $ | 13.0 |
| | $ | 9.8 |
|
Restaurant Closure Initiatives - In 2014, we decided to close 36 underperforming international locations, primarily in South Korea. We expect to substantially complete these restaurant closings during the first quarter of 2015. In connection with the International Restaurant Closure Initiative, we incurred aggregate pre-tax asset impairments and restaurant closing costs of $19.7 million during fiscal year 2014. As a result of the International Restaurant Closure Initiative, we expect to incur additional pre-tax restaurant closing costs, primarily in the first quarter of 2015, of $9.0 million to $12.0 million, including costs associated with lease obligations and employee terminations.
In 2013, we completed an assessment of our domestic restaurant base and decided to close 22 underperforming domestic locations. Aggregate pre-tax impairments and restaurant closing charges of $6.0 million and $18.7 million were incurred during fiscal year 2014 and 2013, respectively, in connection with the Domestic Restaurant Closure Initiative.
Roy’s - In the third quarter of 2014, we reclassified the assets and liabilities of Roy’s to held for sale. In connection with the decision to sell, we recorded pre-tax impairment charges of $13.4 million during fiscal year 2014.
Other Disposals - During the third quarter of 2014, we decided to sell both of our corporate airplanes. In connection with the decision to sell the corporate airplanes, we recognized pre-tax asset impairment charges of $10.6 million during fiscal year 2014. In the fourth quarter of 2014, we completed the sale of one airplane with net proceeds of $2.5 million.
The remaining $2.4 million and $4.1 million of restaurant impairment charges during the fiscal year 2014 and 2013, respectively, resulted from the carrying value of a restaurant’s assets exceeding its estimated fair market value, primarily due to declining future cash flows from lower projected sales at existing locations and locations identified for relocation or renovation.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
See Note 4 - Impairments, Disposals and Exit Costs of the Notes to Consolidated Financial Statements for further information.
Income from operations
|
| | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (dollars in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Income from operations | $ | 192.0 |
| | $ | 225.4 |
| | | | $ | 225.4 |
| | $ | 181.1 |
| | |
| % of Total revenues | 4.3 | % | | 5.5 | % | | (1.2 | )% | | 5.5 | % | | 4.5 | % | | 1.0 | % |
Income from operations decreased in 2014 as compared to 2013 primarily due to: (i) impairments, restaurant and other closing costs related to our International and Domestic Restaurant Closure Initiatives, (ii) asset impairments related to Roy’s and the corporate aircraft, (iii) lower average unit volumes at our South Korea restaurants, (iv) higher General and administrative expenses and (v) higher Depreciation and amortization as a percentage of revenue. These decreases were partially offset by an increase in operating margins at the restaurant level.
Income from operations increased in 2013 as compared to 2012 primarily as a result of the increased expenses in General and administrative costs associated with our IPO in August 2012. Excluding IPO-related expenses, the slight increase in income from operations was primarily driven by decreases in General and administrative expenses, partially offset by higher charges for asset impairment and restaurant closings and depreciation and amortization.
Loss on extinguishment and modification of debt
|
| | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (in millions) | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Loss on extinguishment and modification of debt | 11.1 |
| | 14.6 |
| | (3.5 | ) | | 14.6 |
| | 21.0 |
| | (6.4 | ) |
In connection with the refinancing of our senior secured credit facility, we recognized a loss on extinguishment and modification of debt for fiscal year 2014. During fiscal year 2013, we recorded a loss on extinguishment and modification of debt in connection with the repricing of our Term loan B. During fiscal year 2012, we recorded losses related to: (i) our 2012 CMBS Loan refinancing, (ii) extinguishment of our senior notes, and (iii) the refinancing of our senior secured credit facility.
See Note 12 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.
Gain on remeasurement of equity method investment
In connection with the Brazil acquisition in fiscal year 2013, we recognized a $36.6 million gain on remeasurement to fair value of the previously held equity investment in the Brazil Joint Venture. See Note 3 - Acquisitions of the Notes to Consolidated Financial Statements for a further description of this transaction.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Other expense, net
Other expense, net, includes foreign currency exchange transaction gains and losses and items deemed to be non-operating based on management’s assessment of the nature of the item in relation to our core operations:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Other expense, net | $ | (1.2 | ) | | $ | (0.2 | ) | | $ | (1.0 | ) | | $ | (0.2 | ) | | $ | (0.1 | ) | | $ | (0.1 | ) |
During fiscal year 2014, we recorded other expense of $0.8achieve $204.0 million in connection with the loss on sale of an Outback Steakhouse restaurant in Mexico to an existing franchisee. The remaining other expense activity during fiscal year 2014 was primarily due to foreign currency exchange transaction losses.
Interest expense, net
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| (in millions): | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Interest expense, net | $ | 59.7 |
| | $ | 74.8 |
| | $ | (15.1 | ) | | $ | 74.8 |
| | $ | 86.6 |
| | $ | (11.8 | ) |
The decrease in net interest expense in fiscal year 2014 as compared to fiscal year 2013 was primarily due to the repricing and refinancing of the Senior Secured Credit Facilities in April 2013 and May 2014, respectively.
The decrease in net interest expense in fiscal year 2013 as compared to fiscal year 2012 was primarily due to a decline in interest expense for our senior notes that were satisfied and discharged in August 2012. This decrease was partially offset by increased interest rates on our Credit Facilities, which were refinanced in October 2012 and subsequently repriced in April 2013. The decrease was partially offset by increased interest rates on the 2012 CMBS Loan,Adjusted EBIT, which was refinanced in March 2012.
Provision (benefit) for income taxes
|
| | | | | | | | | | | | | | | | | |
| | FISCAL YEAR | | | | FISCAL YEAR | | |
| | 2014 | | 2013 | | Change | | 2013 | | 2012 | | Change |
| Effective income tax rate | 20.0 | % | | (24.5 | )% | | 44.5 | % | | (24.5 | )% | | 16.5 | % | | (41.0 | )% |
The net increase in the effective income tax rate in fiscal year 2014 as compared to fiscal year 2013 was primarily due to the release of the domestic valuation allowance in 2013, the exclusion of the gain on remeasurement of our equity method investment in 2013 and a change in the blend of income across our domestic and international subsidiaries.
The net decrease in the effective income tax rate in fiscal year 2013 as compared to fiscal year 2012 was primarily due to the benefit of the release of valuation allowance in the second quarter of fiscal year 2013 and the exclusion of the gain on remeasurement of our equity method investment in Brazil, which were partially offset by the benefit of employment-related credits and the elimination of noncontrolling interests together being a smaller percentage of pretax income.
In connection with the International Restaurant Closure Initiative, we reviewed the carrying value of our South Korea net deferred tax assets, which is $8.2 million at December 28, 2014. Based on our review, we believe it is more likely than not that the net deferred tax assets will be realized. Should circumstances change and we determine that it is more likely than not the deferred tax assets in South Korea would not be realized, a valuation allowance would be established, which would result in additional income tax expense.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Non-GAAP Financial Measures
slightly above target. | • | | 2014 Individual Performance |
In addition to the results provided in accordance with generally accepted accounting principles infinancial performance measures listed above, each executive officer was assigned an individual performance rating for the United States (“U.S. GAAP”), we provide non-GAAP measures which present operating results on an adjusted basis. These are supplemental measures ofyear, as recommended by the Chief Executive Officer, and the Compensation Committee had the discretion to decrease, but not increase, the payout amount for performance that did not meet expectations. Individual performance and subsequent compensation decisions are not requiredbased on the performance of the business for which the individual is responsible, the individual’s skill set relative to peers, the critical nature of the individual’s role, the difficulty of replacement, their expected future contributions and their role relative to that of other executive officers.
In determining incentive award payouts for 2014, the Compensation Committee and Board considered the following individual accomplishments by or presentedthe NEOs.
During 2014, Ms. Smith was instrumental in accordance with U.S. GAAPleading our innovation and includeexpansion efforts. Ms. Smith’s attention to building the following: (i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted income from operationsright leadership team, and the corresponding margins, (iv) Adjusted net income, (v) Adjusted diluted earnings per share, (vi) Adjusted diluted earnings per pro forma share and (vii) Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA.
Although we believe these non-GAAP measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures are not intended to replace accompanying U.S. GAAP financial measures. These metrics are not necessarily comparable to similarly titled measures used by other companies.
System-Wide Sales
System-wide sales is a non-GAAP financial measurefocus on areas that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts,provide immediate value, as well as evaluationthose areas that are important for building future growth capability, strengthened the foundation of current operations.
System-wide sales comprise salesour Company in 2014.Mr. Deno’s leadership was critical to our solid performance in a challenging year for the industry. Mr. Deno has remained focused on generating cash flow through more efficient working capital management and continued controls over capital spending.
Mr. Herlihy’s leadership led to an immediate impact in our information technology department. He accelerated technology initiatives and introduced a new digital structure to our Company to create better unity amongst the technology and marketing functions, building a stronger global brand.
Mr. Judge’s performance at our Bonefish Grill brand included the opening of Company-owned and franchised17 restaurants and increasing sales for the year.
Mr. Smith continued to lead the Outback Steakhouse brand to outperform the market as the brand’s solid performance was evidenced by growth in historical periods,revenue and volume. He delivered strong results driven by innovation, increased comparable restaurant sales by 3.1% and continued focus on generating productivity gains through excellent execution.
2014 STIP Payouts
The 2014 Corporate and concept financial performances combined with the respective individual performance resulted in below target results for all named executive officers. The total payouts to our named executive officers under the 2014 STIP ranged from $83,679 to $895,673 at 41% to 88% of unconsolidated joint venture restaurants. Priortheir bonus targets. The Company outperformed the Knapp-Track traffic indicator; however, based on our financial objectives and individual expectations set to November 1, 2013, sales fromdrive exceptional performance, the acquired 47 restaurantsachieved metrics resulted in Brazil were reported as income from unconsolidated joint ventures. Subsequent to November 1, 2013,compensation below the sales of these restaurantstargeted amounts.
Performance-based cash incentives earned by the named executive officers are reported as Company-owned.
Following is a summary of sales of Company-owned restaurants:
|
| | | | | | | | | | | | |
| | | FISCAL YEAR |
| | | 2014 | | 2013 | | 2012 |
| COMPANY-OWNED RESTAURANT SALES (in millions): | | | | | | |
| Outback Steakhouse | | | | | | |
| Domestic | | $ | 2,168 |
| | $ | 2,142 |
| | $ | 2,115 |
|
| International | | 583 |
| | 344 |
| | 315 |
|
| Total | | 2,751 |
| | 2,486 |
| | 2,430 |
|
| Carrabba’s Italian Grill | | 710 |
| | 706 |
| | 693 |
|
| Bonefish Grill | | 609 |
| | 555 |
| | 494 |
|
| Fleming’s Prime Steakhouse & Wine Bar | | 275 |
| | 265 |
| | 252 |
|
| Other | | 71 |
| | 77 |
| | 77 |
|
| Total Company-owned restaurant sales | | $ | 4,416 |
| | $ | 4,089 |
| | $ | 3,946 |
|
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
The following table provides a summary of sales of franchised and unconsolidated joint venture restaurants, which are not included in our consolidated financial results, and our income from the royalties and/or service fees that franchisees and affiliates pay us based generally on a percentage of sales. The following table does not represent our sales and is presented only as an indicator of changesreflected in the
restaurant system, which management believes is important information regarding“—Summary Compensation Table” under the
healthheading “Non-Equity Incentive Plan Compensation.” Threshold, target and maximum payments for the named executive officers under the 2014 STIP are reflected in “—Grants of
our restaurant conceptsPlan-Based Awards for Fiscal 2014.”Other Bonus Arrangements. In February 2015, the Compensation Committee and in determining our royalties and/or service fees.
|
| | | | | | | | | | | | |
| | | FISCAL YEAR |
| | | 2014 | | 2013 | | 2012 |
| FRANCHISE AND UNCONSOLIDATED JOINT VENTURE SALES (in millions): | | | | | | |
| Outback Steakhouse | | | | | | |
| Domestic | | $ | 323 |
| | $ | 317 |
| | $ | 281 |
|
| International | | 122 |
| | 335 |
| | 357 |
|
| Total | | 445 |
| | 652 |
| | 638 |
|
| Carrabba’s Italian Grill | | 4 |
| | 4 |
| | 4 |
|
| Bonefish Grill | | 13 |
| | 18 |
| | 18 |
|
| Total franchise and unconsolidated joint venture sales | | $ | 462 |
| | $ | 674 |
| | $ | 660 |
|
| Income from franchise and unconsolidated joint ventures (1) | | $ | 19 |
| | $ | 41 |
| | $ | 41 |
|
____________________
| |
(1) | Represents franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations and Comprehensive Income in Other revenues and Income from operations of unconsolidated affiliates, respectively. Income from operations of unconsolidated affiliates for fiscal year 2013 includes the results for our Brazil operations for the period from January 1, 2013 to October 31, 2013, which represents the period that such operations were accounted for as an equity method investment. |
Other Non-GAAP Financial Measures
The use of other non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent. We believe that the disclosure of these non-GAAP measures is useful to investors as they form the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and establish employee incentive plans. EBITDA and Adjusted EBITDA are also frequently used by investors, analysts and credit agencies in evaluating and comparing companies. In addition, our debt agreements require compliance of certain ratios that are based on financial measures similar to Adjusted EBITDA.
Adjusted restaurant-level operating margin
Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Cost of sales, Labor and other related and Other restaurant operating expenses. Adjusted restaurant-level operating margin is Restaurant-level operating margin adjusted for certain items, as noted below.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
The following tables show the percentages of certain operating cost financial statement line items in relation to Restaurant sales on bothgranted Mr. Smith a U.S. GAAP basis and an adjusted basis, as indicated, for fiscal years 2014, 2013 and 2012:
|
| | | | | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| | U.S. GAAP | | ADJUSTED (1) | | U.S. GAAP | | ADJUSTED (2) | | U.S. GAAP (3) |
| Restaurant sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | |
| Cost of sales | 32.5 | % | | 32.5 | % | | 32.6 | % | | 32.6 | % | | 32.5 | % |
| Labor and other related | 27.6 | % | | 27.6 | % | | 28.3 | % | | 27.9 | % | | 28.3 | % |
| Other restaurant operating | 23.8 | % | | 24.0 | % | | 23.6 | % | | 23.6 | % | | 23.3 | % |
| | | | | | | | | | |
| Restaurant-level operating margin | 16.1 | % | | 15.9 | % | | 15.5 | % | | 15.9 | % | | 15.9 | % |
_________________
| |
(1) | Includes adjustments primarily related to a $6.1 million legal settlement gain and the reversal of $2.9 million of deferred rent liabilities associated with the International and Domestic Restaurant Closure Initiatives, which were recorded in Other restaurant operating. |
| |
(2) | Includes an adjustment of $17.0 million for payroll tax audit contingencies, which were recorded in Labor and other related. |
| |
(3) | No adjustments impacted Restaurant-level operating margin during fiscal 2012. |
Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share
The following table reconciles Adjusted income from operations and the corresponding margins, Adjusted net income and Adjusted diluted earnings per share to their respective most comparable U.S. GAAP measures for fiscal years 2014, 2013 and 2012:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands, except per share amounts) | 2014 | | 2013 | | 2012 |
| Income from operations | $ | 191,964 |
| | $ | 225,357 |
| | $ | 181,137 |
|
| Operating income margin | 4.3 | % | | 5.5 | % | | 4.5 | % |
| Adjustments: | | | | | |
| Transaction-related expenses (1) | 1,347 |
| | 3,888 |
| | 45,495 |
|
| Management fees and expenses (2) | — |
| | — |
| | 13,776 |
|
| Severance (3) | 9,045 |
| | — |
| | — |
|
| Asset impairments and related costs (4) | 24,490 |
| | — |
| | — |
|
| Restaurant relocations and related costs (5) | 249 |
| | — |
| | — |
|
| Restaurant impairments and closing costs (6) | 26,841 |
| | 18,695 |
| | — |
|
| Gain on disposal of business (7) | — |
| | — |
| | (3,500 | ) |
| Payroll tax audit contingency (8) | — |
| | 17,000 |
| | — |
|
| Legal settlement | (6,070 | ) | | — |
| | — |
|
| Purchased intangibles amortization (9) | 5,952 |
| | 560 |
| | — |
|
| Adjusted income from operations | $ | 253,818 |
| | $ | 265,500 |
| | $ | 236,908 |
|
| Adjusted operating income margin | 5.7 | % | | 6.4 | % | | 5.9 | % |
| | | | | | |
| | | | (CONTINUED...) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands, except per share amounts) | 2014 | | 2013 | | 2012 |
| Net income attributable to Bloomin’ Brands | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
|
| Transaction-related expenses (1) | 1,347 |
| | 3,888 |
| | 45,495 |
|
| Management fees and expenses (2) | — |
| | — |
| | 13,776 |
|
| Severance (3) | 9,045 |
| | — |
| | — |
|
| Asset impairments and related costs (4) | 24,490 |
| | — |
| | — |
|
| Restaurant relocations and related costs (5) | 249 |
| | — |
| | — |
|
| Restaurant impairments and closing costs (6) | 26,841 |
| | 18,695 |
| | — |
|
| Loss (gain) on disposal of business (7) | 770 |
| | — |
| | (3,500 | ) |
| Payroll tax audit contingency (8) | — |
| | 17,000 |
| | — |
|
| Legal settlement | (6,070 | ) | | — |
| | — |
|
| Purchased intangibles amortization (9) | 5,952 |
| | 560 |
| | — |
|
| Loss on extinguishment and modification of debt (10) | 11,092 |
| | 14,586 |
| | 20,956 |
|
| Gain on remeasurement of equity method investment (11) | — |
| | (36,608 | ) | | — |
|
| Total adjustments, before income taxes | 73,716 |
| | 18,121 |
| | 76,727 |
|
| Adjustment to provision (benefit) for income taxes (12) | (23,996 | ) | | (84,114 | ) | | (12,660 | ) |
| Net adjustments | 49,720 |
| | (65,993 | ) | | 64,067 |
|
| Adjusted net income | $ | 140,810 |
| | $ | 142,374 |
| | $ | 114,038 |
|
| | | | | | |
| Diluted earnings per share | $ | 0.71 |
| | $ | 1.63 |
| | $ | 0.44 |
|
| Adjusted diluted earnings per share | $ | 1.10 |
| | $ | 1.11 |
| | $ | 0.99 |
|
| Adjusted diluted earnings per pro forma share (13) | $ | 1.10 |
| | $ | 1.11 |
| | $ | 0.92 |
|
| | | | | | |
| Diluted weighted average common shares outstanding | 128,317 |
| | 128,074 |
| | 114,821 |
|
| Pro forma IPO adjustment (13) | — |
| | — |
| | 8,684 |
|
| Pro forma diluted weighted average common shares outstanding (13) | 128,317 |
| | 128,074 |
| | 123,505 |
|
_________________
| |
(1) | Transaction-related expenses primarily relate to the following: (i) secondary offerings of our common stock completed in November 2014, March 2014 and May 2013; (ii) the refinancings of the Senior Secured Credit Facility in May 2014 and March 2012 and the CMBS Loan in 2012; (iii) costs incurred in 2013 to acquire a controlling ownership interest in our Brazil operations, and (iv) costs incurred in connection with the IPO completed in 2012, which includes certain executive and stock compensation costs. |
| |
(2) | Represents management fees and certain reimbursable expenses paid to a management company owned by our sponsors and founders. |
| |
(3) | Relates to severance incurred as a result of our organizational realignment. |
| |
(4) | Represents asset impairment charges and related costs associated with our decision to sell the Roy’s concept and corporate aircraft. |
| |
(5) | Represents accelerated depreciation incurred in connection with the Outback Steakhouse relocation program. |
| |
(6) | Represents impairments and expenses incurred for the Domestic and International Restaurant Closure Initiatives. |
| |
(7) | Represents a loss recognized on the 2014 sale of one Company-owned Outback Steakhouse location in Mexico to an existing franchisee and a gain associated with the 2012 collection of amountsrecognition bonus due to us in connection with the 2009 sale of Cheeseburger in Paradise. |
| |
(8) | Related to an IRS payroll tax audit for the employer’s share of FICA taxes for cash tips. |
| |
(9) | Represents non-cash intangible amortization recorded as a result of the acquisition of our Brazil operations. |
| |
(10) | Related to: (i) the refinancing in April 2014, repricing in 2013 and refinancing in 2012 of our senior secured credit facility; (ii) the retirement of our senior notes in 2012, and (iii) the extinguishment of the previous CMBS Loan in 2012. |
| |
(11) | Represents recognition of a gain on remeasurement of the previously held equity investment in connection with the Brazil acquisition. |
| |
(12) | Income tax effect of adjustments for fiscal year 2014 was calculated based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. For fiscal year 2013, we utilized a normalized annual effective tax rate of 22.0%, which excludes the income tax benefit of the valuation allowance release. For fiscal year 2012, adjustments were calculated using our full-year effective tax rate of 16.5%. |
| |
(13) | Gives pro forma effect in fiscal year 2012 to the issuance of shares in the IPO as if they were all outstanding on January 1, 2012. There is no effect of this adjustment for fiscal years 2014 and 2013. |
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA (EBITDA adjusted for certain significant items, as noted below) are supplemental measures of operating performance. The following table reconciles Net income attributable to Bloomin’ Brands to EBITDA and Adjusted EBITDA for fiscal years 2014, 2013 and 2012:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Net income attributable to Bloomin’ Brands | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
|
| Provision (benefit) for income taxes | 24,044 |
| | (42,208 | ) | | 12,106 |
|
| Interest expense, net | 59,658 |
| | 74,773 |
| | 86,642 |
|
| Depreciation and amortization | 190,911 |
| | 164,094 |
| | 155,482 |
|
| EBITDA | 365,703 |
| | 405,026 |
| | 304,201 |
|
| Impairments, closings and disposals (1) | 26,610 |
| | 3,716 |
| | 7,945 |
|
| Transaction-related expenses (2) | 1,347 |
| | 3,888 |
| | 29,495 |
|
| Stock-based compensation expense | 16,107 |
| | 13,857 |
| | 21,526 |
|
| Other (gains) losses (3) | (477 | ) | | 328 |
| | 1,906 |
|
| Severance (4) | 9,045 |
| | — |
| | — |
|
| Restaurant impairment and closing costs (5) | 26,841 |
| | 18,695 |
| | — |
|
| Payroll tax audit contingency (6) | — |
| | 17,000 |
| | — |
|
| Management fees and expenses (7) | — |
| | — |
| | 13,776 |
|
| Loss (gain) on disposal of business (8) | 770 |
| | — |
| | (3,500 | ) |
| Legal settlement | (6,070 | ) | | — |
| | — |
|
| Loss on extinguishment and modification of debt (9) | 11,092 |
| | 14,586 |
| | 20,957 |
|
| Gain on remeasurement of equity method investment (10) | — |
| | (36,608 | ) | | — |
|
| Adjusted EBITDA | $ | 450,968 |
| | $ | 440,488 |
| | $ | 396,306 |
|
_________________
| |
(1) | Represents non-cash impairment charges for fixed assets and intangible assets, cash and non-cash expense from restaurant closings and net gains or losses on the disposal of fixed assets. Includes asset impairment charges associated with our decision to sell the Roy’s concept and corporate aircraft. |
| |
(2) | Transaction-related expenses primarily relate to the following: (i) secondary offerings of our common stock completed in November 2014, March 2014 and May 2013; (ii) refinancings of the Senior Secured Credit Facility in May 2014 and March 2012 and the CMBS loan in 2012; (iii) costs incurred in 2013 to acquire a controlling ownership interest in our Brazil operations and (iv) costs incurred in connection with the IPO completed in 2012. |
| |
(3) | Represents (income) expense incurred as a result of (losses) gains on our partner deferred compensation participant investment accounts, foreign currency loss (gain) and the loss (gain) on the cash surrender value of executive life insurance. |
| |
(4) | Relates to severance expense incurred as a result of our organizational realignment. |
| |
(5) | Represents impairments and expenses incurred for the Domestic and International Restaurant Closure Initiatives. |
| |
(6) | Relates to an IRS payroll tax audit for the employer’s share of FICA taxes for cash tips. |
| |
(7) | Represents management fees and certain reimbursable expenses paid to a management company owned by our sponsors and founders. |
| |
(8) | Represents a loss recognized on the 2014 sale of one Company-owned Outback Steakhouse location in Mexico to an existing franchisee and a gain associated with the 2012 collection of amounts due to us in connection with the 2009 sale of Cheeseburger in Paradise. |
| |
(9) | Relates to the (i) refinancing in May 2014, repricing in 2013, and refinancing in 2012 of our Senior Secured Credit Facility; (ii) the retirement of our Senior Notes in 2012, and (iii) the extinguishment of the previous CMBS loan in 2012. |
| |
(10) | Represents recognition of a gain on remeasurement of the previously held equity investment in connection with the Brazil acquisition. |
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources
LIQUIDITY
Our liquidity sources consist of cash flow from our operations, cash and cash equivalents and credit capacity under our credit facilities. We expect to use cash primarily for general operating expenses, principal and interest payments on our debt, the development of new restaurants and new markets, share repurchases and dividend payments, remodeling or relocating older restaurants, obligations related to our deferred compensation plans and investments in technology.
We believe that our expected liquidity sources are adequate to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations for the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.
Cash and Cash Equivalents - As of December 28, 2014 and December 31, 2013, we had $165.7 million and $209.9 million, respectively, in cash and cash equivalents, of which $89.7 million and $107.5 million, respectively, was held by foreign affiliates, primarily in South Korea, a portion of which would be subject to additional taxes if repatriated to the United States. We consider the undistributed earnings related to our foreign affiliates as of December 28, 2014 to be permanently reinvested and are expected to continue to be permanently reinvested. Accordingly, no provision for United States income and additional foreign taxes has been recorded on aggregate undistributed earnings of $147.7 million as of December 28, 2014. If we identify an exception to our reinvestment policy of undistributed earnings, additional tax liabilities will be recorded. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit the repatriation of cash and cash equivalents.
During fiscal year 2014, we decided to close 36 underperforming international locations, primarily in South Korea. In connection with the International Restaurant Closure Initiative, we expect future cash expenditures of $18.0 million to $23.0 million, primarily related to lease liabilities, through November 2022. We believe our South Korea subsidiary has sufficient cash to meet these obligations and support ongoing operations.
Capital Expenditures - We estimate that our capital expenditures will total between $235.0 million and $255.0 million in 2015. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements. We expect to continue to review the level of capital expenditures throughout 2015.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Credit Facilities - Our credit facilities consist of the Senior Secured Credit Facility and the CMBS Loan. See Note 12 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information. Following is a summary of principal payments and debt issuance from December 31, 2012 to December 28, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | SENIOR SECURED CREDIT FACILITY | | 2012 CMBS LOAN | | |
| (in thousands) | TERM LOAN A | | TERM LOAN B | | REVOLVING FACILITY | | FIRST MORTGAGE LOAN | | FIRST MEZZANINE LOAN | | SECOND MEZZANINE LOAN | | TOTAL CREDIT FACILITIES |
| Balance as of December 31, 2012 | $ | — |
| | $ | 1,000,000 |
| | $ | — |
| | $ | 319,574 |
| | $ | 87,048 |
| | $ | 87,273 |
| | $ | 1,493,895 |
|
| 2013 payments | — |
| | (65,000 | ) | | — |
| | (7,930 | ) | | (917 | ) | | (569 | ) | | (74,416 | ) |
Balance as of December 31, 2013
| — |
| | 935,000 |
| | — |
| | 311,644 |
| | 86,131 |
| | 86,704 |
| | 1,419,479 |
|
| 2014 new debt issued (1) | 300,000 |
| | — |
| | 400,000 |
| | — |
| | — |
| | — |
| | 700,000 |
|
| 2014 payments (1) (2) | (3,750 | ) | | (710,000 | ) | | (75,000 | ) | | (11,879 | ) | | (1,004 | ) | | (637 | ) | | (802,270 | ) |
Balance as of
December 28, 2014 | $ | 296,250 |
| | $ | 225,000 |
| | $ | 325,000 |
| | $ | 299,765 |
| | $ | 85,127 |
| | $ | 86,067 |
| | $ | 1,317,209 |
|
________________ | |
(1) | $700.0 million relates to the refinancing of our Senior Secured Credit Facility, which did not increase total indebtedness. |
| |
(2) | Subsequent to December 28, 2014 we made payments of $3.8 million, $10.0 million and $60.0 million on our Term loan A, Term loan B and revolving credit facility, respectively. |
We continue to evaluate whether we will make further paymentsconsistent outperformance of our outstanding debt ahead of scheduled maturities. Following is a summary of our outstanding credit facilities as of December 28, 2014:
|
| | | | | | | | | | | | | | | | |
| | INTEREST RATE | | | | | | OUTSTANDING |
| (in thousands, except interest rate) | DECEMBER 28, 2014 | | ORIGINAL FACILITY | | PRINCIPAL MATURITY DATE | | DECEMBER 28, 2014 | | DECEMBER 31, 2013 |
| Term loan A, net of discount of $2.9 million | 2.16 | % | | $ | 300,000 |
| | May 2019 | | $ | 296,250 |
| | $ | — |
|
| Term loan B, net of discount of $10.0 million | 3.50 | % | | 225,000 |
| | October 2019 | | 225,000 |
| | 935,000 |
|
| Revolving credit facility | 2.16 | % | | 600,000 |
| | May 2019 | | 325,000 |
| | — |
|
| Total Senior Secured Credit Facility | | | 1,125,000 |
| | | | 846,250 |
| | 935,000 |
|
| First mortgage loan (1) | 4.08 | % | | 324,800 |
| | April 2017 | | 299,765 |
| | 311,644 |
|
| First mezzanine loan | 9.00 | % | | 87,600 |
| | April 2017 | | 85,127 |
| | 86,131 |
|
| Second mezzanine loan | 11.25 | % | | 87,600 |
| | April 2017 | | 86,067 |
| | 86,704 |
|
| Total 2012 CMBS loan | | | 500,000 |
| | | | 470,959 |
| | 484,479 |
|
| Total credit facilities | | | $ | 1,625,000 |
| | | | $ | 1,317,209 |
| | $ | 1,419,479 |
|
________________ | |
(1) | Represents the weighted-average interest rate for the respective period. |
As of December 28, 2014, we had $245.4 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $29.6 million.
The Amended Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan B. We are required to prepay outstanding amounts under our term loans with 50% of our annual excess cash flow, as defined in the Amended Credit Agreement. The amount of outstanding term loans required to be prepaid may vary based on our leverage ratio and year-end results. Other than the required minimum amortization premiums of $15.0 million, we do not anticipate any other payments will be required through December 27, 2015.
The 2012 CMBS Loan requires annual amortization payments ranging from $10.4 million to $10.9 million, payable in scheduled monthly installments through March 2017, with the remaining balance due upon maturity in April 2017.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Our Amended Credit Agreement and 2012 CMBS Loan contain various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 12 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.
As of December 28, 2014 and December 31, 2013, we were in compliance with these debt covenants.
Cash Flow Hedges of Interest Rate Risk -In September 2014, we entered into variable-to-fixed interest rate swap agreements with eightcounterparties to hedge a portion of the cash flows of our variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a forward start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, we will pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterpartycasual dining competition, based on the 30-day LIBOR rate. Based on the current LIBOR curve as of the date of this filing, we estimate $3.0 million of additional interest expenseKnapp-Track traffic indicator. The recognition bonus amount paid to Mr. Smith was $86,020. This amount is included in the second half of fiscal 2015 as a result of the swap transaction. See Note 16 - Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements for further information.
SUMMARY OF CASH FLOWS
The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Net cash provided by operating activities | $ | 352,006 |
| | $ | 377,264 |
| | $ | 340,091 |
|
| Net cash (used in) provided by investing activities | (240,342 | ) | | (346,137 | ) | | 19,944 |
|
| Net cash used in financing activities | (148,731 | ) | | (87,127 | ) | | (586,219 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (7,060 | ) | | 4,181 |
| | 5,790 |
|
| Net decrease in cash and cash equivalents | $ | (44,127 | ) | | $ | (51,819 | ) | | $ | (220,394 | ) |
Operating activities - Net cash provided by operating activities decreased in 2014 as compared to 2013 primarily as a result of the following: (i) timing of collections of holiday gift card sales from third-party vendors, (ii) higher income tax payments, (iii) an increase in the redemption of gift cards, (iv) higher inventory and (v) higher incentive compensation payments. These decreases were partially offset by an increase in cash due to: (i) lower cash interest payments and (ii) timing of payments on accounts payable and certain accrual payments.
Net cash provided by operating activities increased in 2013 as compared to 2012 primarily as a result of the following: (i) utilization of inventory on hand, (ii) a decrease in cash paid for interest payments and (iii) timing of accounts payable and certain accrual payments. The increase in net cash provided by operating activities was partially offset by (i) a decrease in cash due to timing of collections of holiday gift card sales from third-party vendors, (ii) higher income tax payments and (iii) $5.2 million of cash paid to terminate certain split-dollar life insurance agreements.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Investing activities
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Capital expenditures | $ | (237,868 | ) | | $ | (237,214 | ) | | $ | (178,720 | ) |
| Acquisition of business, net of cash acquired | (3,063 | ) | | (100,319 | ) | | — |
|
| Purchases of life insurance policies | (1,682 | ) | | (4,159 | ) | | (6,451 | ) |
| Net change in restricted cash | (4,101 | ) | | (8,907 | ) | | 4,200 |
|
| Proceeds from sale of life insurance policies | 627 |
| | 1,239 |
| | — |
|
| Proceeds from disposal of property, fixtures and equipment | 5,745 |
| | 3,223 |
| | 4,529 |
|
| Proceeds from sale-leaseback transaction | — |
| | — |
| | 192,886 |
|
| Proceeds from sale of a business | — |
| | — |
| | 3,500 |
|
| Net cash (used in) provided by investing activities | $ | (240,342 | ) | | $ | (346,137 | ) | | $ | 19,944 |
|
Net cash used in investing activities during 2014 consisted primarily of capital expenditures, the net difference in restricted cash used and restricted cash received and net cash paid to acquire certain franchise restaurants. These decreases were partially offset by proceeds from the disposal of property, fixtures and equipment.
Net cash used in investing activities during 2013 consisted primarily of capital expenditures, net cash paid to acquire a controlling interest in our Brazil operations, the net difference in restricted cash used and restricted cash received and purchases of Company-owned life insurance. These decreases were partially offset by proceeds from the disposal of property, fixtures and equipment.
Net cash provided by investing activities during 2012 consisted primarily of proceeds from a sale-leaseback transaction, proceeds from the sale of property, fixtures and equipment, the net difference in restricted cash and proceeds from the collection of the promissory note and other amounts due in connection with the 2009 sale of the Cheeseburger in Paradise concept. These increases were partially offset by capital expenditures and purchases of Company-owned life insurance.
Financing activities
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Repayments of debt | $ | (925,873 | ) | | $ | (180,805 | ) | | $ | (2,227,666 | ) |
| Purchase of limited partnership interests | (17,211 | ) | | — |
| | (40,582 | ) |
| Repayments of partner deposits and accrued partner obligations | (24,925 | ) | | (23,286 | ) | | (25,397 | ) |
| Financing fees | (4,492 | ) | | (12,519 | ) | | (18,983 | ) |
| Distributions to noncontrolling interests | (3,190 | ) | | (8,059 | ) | | (13,977 | ) |
| Proceeds from borrowings | 816,088 |
| | 100,000 |
| | 1,596,186 |
|
| Proceeds from exercise of stock options, net of shares withheld for employee taxes | 8,140 |
| | 27,350 |
| | 884 |
|
| Excess tax benefits from stock-based compensation | 2,732 |
| | 4,363 |
| | — |
|
| Repayments of notes receivable due from stockholders | — |
| | 5,829 |
| | 1,661 |
|
| Proceeds from the issuance of common stock in connection with initial public offering | — |
| | — |
| | 142,242 |
|
| Issuance of notes receivable due from stockholders | — |
| | — |
| | (587 | ) |
| Net cash used in financing activities | $ | (148,731 | ) | | $ | (87,127 | ) | | $ | (586,219 | ) |
Net cash used in financing activities during 2014 was primarily attributable to the following: (i) repayment of the Term loan B due to the Senior Secured Credit Facility refinancing in May 2014 and voluntary repayments, (ii) repayment of borrowings on our revolving credit facilities and scheduled amortization payments on the 2012 CMBS Loan and
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Term loan A, (iii) repayments of partner deposits and accrued partner obligations, (iv) the purchase of outstanding limited partnership interests in certain restaurants and (v) financing fees related to the Senior Secured Credit Facility refinancing. Net cash used in financing activities was partially offset by proceeds from the refinancing of the Senior Secured Credit Facility and proceeds from the exercise of stock options.
Net cash used in financing activities during 2013 was primarily attributable to: (i) the repayment of long-term debt, (ii) repayments of partner deposits and accrued partnerobligations, (iii) payments of financing fees for the Amended Term Loan B repricing transaction completed in April 2013 and (iv) distributions to noncontrolling interests. This was partially offset by the receipt of proceeds from the exercise of stock options and repayments of notes receivable due from stockholders.
Net cash used in financing activities during 2012 was primarily attributable to: (i) the extinguishment and modification of the 2007 Credit Facilities and the extinguishment of the CMBS Loan and senior notes, (ii) the repayment of borrowings on our revolving credit facilities, (iii) the repayment of long-term debt, (iv) the purchase of outstanding limited partnership interests in certain restaurants, (v) the repayments of partner deposits and other contributions, (vi) the financing fees incurred for the CMBS Refinancing and the refinancing of the 2007 Credit Facilities and (vii) the distributions to noncontrolling interests. This was partially offset by proceeds on the issuance of long-term debt, borrowings on our revolving credit facilities and proceeds from the issuance of common stock.
FINANCIAL CONDITION
Following is a summary of our current assets, current liabilities and working capital:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Current assets | $ | 600,551 |
| | $ | 483,396 |
|
| Current liabilities | 840,110 |
| | 747,270 |
|
| Working capital (deficit) | $ | (239,559 | ) | | $ | (263,874 | ) |
Working capital (deficit) totaled ($239.6) million and ($263.9) million as of December 28, 2014 and December 31, 2013, respectively, and included Unearned revenue from unredeemed gift cards of $376.7 million and $359.4 million as of December 28, 2014 and December 31, 2013, respectively. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.
DIVIDENDS AND SHARE REPURCHASES
We did not declare or pay any dividends on our common stock during 2014 or 2013. In December 2014, our Board of Directors adopted a dividend policy under which it intends to declare quarterly cash dividends on shares of our common stock. On February 12, 2015, our Board of Directors declared our first quarterly cash dividend of $0.06 per share. Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements and other factors that our Board of Directors considers relevant.
In December 2014, our Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $100.0 million of our outstanding common stock. As of December 28, 2014, no shares had been repurchased“—Summary Compensation Table” under the program. The authorization will expire on June 12, 2016.
Our abilityheading “Bonus.”Long-Term Equity Incentive Awards. Long-term equity incentive (“LTI”) awards are designed to pay dividends and make share repurchases is dependent on our ability to obtain funds from our subsidiaries and to have access to our revolving credit facility. Payment of dividends by OSI to Bloomin’ Brands is restricted under
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
the Credit Facilities to dividends for the purpose of paying Bloomin’ Brands’ franchise and income taxes and ordinary course operating expenses; dividends for certain other limited purposes; and other dividends subject to an aggregate cap over the term of the agreement. Restricted dividend payments from OSI to Bloomin’ Brands can be made on an unlimited basis provided the total net leverage ratio does not exceed 2:50 to 1.00.
OFF-BALANCE SHEET ARRANGEMENTS
None.
OTHER MATERIAL COMMITMENTS
Our contractual obligations, debt obligations and commitments as of December 28, 2014 are summarized in the table below:
|
| | | | | | | | | | | | | | | | | | | |
| | PAYMENTS DUE BY PERIOD |
| | | | LESS THAN | | 1-3 | | 3-5 | | MORE THAN |
| (in thousands) | TOTAL | | 1 YEAR | | YEARS | | YEARS | | 5 YEARS |
| Recorded Contractual Obligations | | | | | | | | | |
| Long-term debt (1) | $ | 1,321,916 |
| | $ | 27,601 |
| | $ | 501,130 |
| | $ | 791,927 |
| | $ | 1,258 |
|
| Deferred compensation and other partner obligations (2) | 202,805 |
| | 42,921 |
| | 71,976 |
| | 46,672 |
| | 41,236 |
|
| Other recorded contractual obligations (3) | 25,031 |
| | 6,508 |
| | 6,664 |
| | 2,888 |
| | 8,971 |
|
| Unrecorded Contractual Obligations | | | | | | | | | |
| Interest (4) | 195,256 |
| | 55,928 |
| | 96,126 |
| | 43,202 |
| | — |
|
| Operating leases | 1,012,906 |
| | 146,855 |
| | 245,068 |
| | 176,941 |
| | 444,042 |
|
| Purchase obligations (5) | 563,175 |
| | 303,470 |
| | 104,071 |
| | 92,700 |
| | 62,934 |
|
| Total contractual obligations | $ | 3,321,089 |
| | $ | 583,283 |
| | $ | 1,025,035 |
| | $ | 1,154,330 |
| | $ | 558,441 |
|
____________________
| |
(1) | Includes capital lease obligations. Excludes unamortized discount of $6.1 million. |
| |
(2) | Includes deferred compensation obligations, deposits and other accrued obligations due to our restaurant partners. Timing and amounts of payments may vary significantly based on employee turnover, return of deposits and changes to buyout values. |
| |
(3) | Includes other long-term liabilities primarily consisting of non-partner deferred compensation obligations, restaurant closing cost liabilities and asset retirement obligations. As of December 28, 2014, unrecognized tax benefits of $17.6 million were excluded from the table since it is not possible to estimate when these future payments will occur. |
| |
(4) | Projected future interest payments on long-term debt are based on interest rates in effect as of December 28, 2014 and assume only scheduled principal payments. Estimated interest expense includes the impact of our variable-to-fixed interest rate swap agreements. As of December 28, 2014, we had a derivative liability of $3.9 million for the interest rate swap agreements recorded in our Consolidated Balance Sheet. |
| |
(5) | Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We have purchase obligations with various vendors that consist primarily of inventory, advertising, technology and store level service contracts. |
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these accompanying consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider an accounting estimate to be critical if it requires assumptions to be made and changes in these assumptions could have a material impact on our consolidated financial condition or results of operations.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Impairment or Disposal of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. For long-lived assets deployed at our restaurants, we review for impairment at the individual restaurant level.
When evaluating for impairment, the total future undiscounted cash flows expected to be generated by the asset are compared to the carrying amount. If the total future undiscounted cash flows expected to be generated by the assets are less than the carrying amount, this may be an indicator of impairment. An impairment loss is recognized in earnings when the asset’s carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model. The key estimates and assumptions used in this model are future cash flow estimates, with material changes generally driven by changes in expected use, and the discount rate.
If actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are tested for impairment annually in the second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
We may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. In considering the qualitative approach, we evaluate factors including, but not limited to, macro-economic conditions, market and industry conditions, commodity cost fluctuations, competitive environment, share price performance, results of prior impairment tests, operational stability and the overall financial performance of the reporting units.
If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated. Fair value of a reporting unit is the price a willing buyer would pay for the reporting unit and is estimated using a discounted cash flow model. The key estimates and assumptions used in this model are future cash flow estimates, which are heavily influenced by growth rates, and the discount rate. The fair value of the trade name is determined through a relief from royalty method.
The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an indicator of potential impairment, in which case a second step is performed comparing the recorded amount of goodwill or indefinite-lived intangible assets to the implied fair value.
We performed our annual impairment test in the second quarter of 2014 utilizing the qualitative assessment and determined that none of our reporting units with remaining goodwill were at risk for goodwill impairment.
Sales declines at our restaurants, unplanned increases in health insurance, commodity or labor costs, deterioration in overall economic conditions and challenges in the restaurant industry may result in future impairment charges. It is possible that changes in circumstances or changes in our judgments, assumptions and estimates could result in an impairment charge of a portion or all of our goodwill or other intangible assets.
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Insurance Reserves
We self-insure or maintain high per-claim deductibles foralign a significant portion of expected losses undertotal compensation with our workers’ compensation, general liability/liquor liability, health, property and management liability insurance programs. For some programs, we maintain stop-loss coverage to limitlong-term goal of increasing the exposure relating to certain risks.
We record a liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost to us. In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. Reserves recorded for workers’ compensation and general liability/liquor liability claims are discounted using the averagevalue of the one-yearCompany. These equity awards are designed to reward longer-term performance, facilitate equity ownership, deter outside recruitment of our key personnel and five-year risk free ratefurther align the interests of monetary assets thatour executive officers with those of our stockholders. Equity awards have comparable maturities.
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our self-insured liabilities. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 50 basis point change in the discount rate in our self-insured liabilities as of December 28, 2014, would have affected net earnings by $1.0 million in fiscal year 2014.
Stock-Based Compensation
We have a stock-based compensation plan that permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awardsgenerally been limited to our managementexecutive officers and other key employees. We account foremployees who are in a position to contribute substantially to our stock-based employee compensation using a fair value-based methodgrowth and success. Under our Insider Trading Policy, our directors and executive officers are prohibited from engaging in short sales or investing in other kinds of accounting.
We use the Black-Scholes option pricing modelhedging transactions or financial instruments that are designed to estimate the weighted-average grant date fair value of stock options granted. Expected volatilities are based on historical volatilities of our stock and the stock of comparable peer companies. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The simplified method of estimating expected term is used since we do not have significant historical exercise experience for our stock options. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect as of the grant date.
Our performance-based share units (“PSUs”) require assumptions regarding the likelihood of achieving certain Company performance criteria set forthhedge or offset any decrease in the award agreements. Assumptions used in our assessment are consistent with our internal forecasts and operating plans and assume achievement of performance conditions.
Estimates and assumptions are based upon information currently available, including historical experience and current business and economic conditions. A simultaneous 10% change in our volatility, forfeiture rate, weighted-average risk-free interest rate and term of grant in our stock option pricing model for fiscal year 2014 would have affected net income by $0.4 million.
If we assumed that the PSU performance conditions for stock-based awards were not met, stock-based compensation expense would have decreased by $0.9 million for fiscal year 2014. If we assumed that PSU share awards met their maximum threshold, expense would have increased by $3.5 million for fiscal year 2014.
Income Taxes
Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years in which we expect those temporary differences to reverse. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in
BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
assumptions regarding our level and composition of earnings, tax laws or the deferred tax valuation allowance and the results of tax audits, may materially impact the effective income tax rate.
Our income tax returns, like those of most companies, are periodically audited by U.S. and foreign tax authorities. In determining taxable income, income or loss before taxes is adjusted for differences between local tax laws and generally accepted accounting principles. A tax benefit from an uncertain position is recognized only if it is more likely than not that the position is sustainable based on its technical merits. For uncertain tax positions that do not meet this threshold, we recognize a liability. The liability for unrecognized tax benefits requires significant management judgment regarding exposures about our various tax positions. These assumptions and probabilities are periodically reviewed and updated based upon new information. An unfavorable tax settlement generally requires the use of cash and an increase in the amount of income tax expense we recognize.
Recently Issued Financial Accounting Standards
For a description of recently issued Financial Accounting Standards that we adopted in 2014 and that are applicable to us but have not yet been adopted, see Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements of this Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates on debt, changes in foreign currency exchange rates and changes in commodity prices.
Interest Rate Risk
We are exposed to market risk from fluctuations in interest rates, which could affect our consolidated balance sheet, earnings and cash flows. Stockholders’ equity can be adversely affected by changing interest rates, as after-tax changes in the fair value of interest rate swaps designated as cash flow hedges are reflected as increases and decreases to a component of stockholders’ equity.
We manage our exposure to market risk through regular operating and financing activities and when deemed appropriate, through the use of derivative financial instruments. We use derivative financial instruments as risk management tools and not for speculative purposes. See Note 16 - Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements for further information.
As of December 28, 2014, our interest rate risk was primarily from variable interest rate changes on our Senior Secured Credit Facility and a portion of our 2012 CMBS Loan. To manage the risk of fluctuations in variable interest rate debt, we entered into interest rate swaps for an aggregate notional amount of $400.0 million in September 2014 with a forward start date of June 30, 2015. We also use an interest rate cap to limit the volatility of the floating rate component of a portion of the 2012 CMBS Loan.
We utilize valuation models to estimate the effects of changing interest rates. The following table summarizes the changes to fair value and interest expense under a shock scenario. This analysis assumes that interest rates change suddenly, as an interest rate “shock” and continue to increase or decrease at a consistent level above or below the LIBOR curve.
|
| | | | | | | |
| | DECEMBER 28, 2014 |
| (in thousands) | INCREASE (1) | | DECREASE (2) |
| Change in fair value: | | | |
| Interest rate swap | $ | 10,700 |
| | $ | (20,214 | ) |
| | | | |
| Change in annual interest expense (3): | | | |
| Variable rate debt | $ | 5,055 |
| | $ | (1,334 | ) |
________________
| |
(1) | The potential change from a hypothetical 100 basis point increase in short-term interest rates. |
| |
(2) | The potential change from a hypothetical basis point decrease in short-term interest rates based on the LIBOR curve with a floor of zero. The curve ranges from our current interest rate of 16 basis points to 71 basis points. |
| |
(3) | Excludes the floating rate component of the 2012 CMBS Loan. |
Foreign Currency Exchange Rate Risk
We are subject to foreign currency exchange risk for our restaurants operating in foreign countries. Our exposures to foreign currency exchange risk are primarily related to fluctuations in the South Korea Yen and the Brazil Real relative to the U.S. dollar. Our operations in other markets consist of Company-owned restaurants on a smaller scale than the markets identified above and franchised locations, from which we collect royalties in local currency. If foreign currency exchange rates depreciate in the countries in which we operate, we may experience declines in our operating results. Historically, we have chosen not to hedge foreign currency risks related to our foreign currency denominated earnings through the use of financial instruments. A 10% change in average foreign currency rates against the U.S. dollar during fiscal year 2014 would have increased or decreased our Total revenues and Net income for our consolidated foreign entities by $117.9 million and $2.6 million, respectively.
Commodity Pricing Risk
Many of the ingredients used in the products sold in our restaurants are commodities that are subject to unpredictable price volatility. Although we attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients, there are no established fixed price markets for certain commodities such as produce and wild fish, and we are subject to prevailing market conditions when purchasing those types of commodities. Other commodities are purchased based upon negotiated price ranges established with vendors with reference to the fluctuating market prices. The related agreements may contain contractual features that limit the price paid by establishing certain price floors and caps. Extreme changes in commodity prices or long-term changes could affect our financial results adversely. We expect that in most cases increased commodity prices could be passed through to our consumers through increases in menu prices. However, if there is a time lag between the increasing commodity prices and our ability to increase menu prices, or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected. Additionally, from time to time, competitive circumstances could limit menu price flexibility, and in those cases margins would be negatively impacted by increased commodity prices.
Our restaurants are dependent upon energy to operate and are impacted by changes in energy prices, including natural gas. We utilize derivative instruments to mitigate some of our overall exposure to material increases in natural gas prices. We record mark-to-market changes in the fair value of our natural gas derivative instruments in earnings in the period of change. We incurred a $0.6 million loss as a result of changes in the fair value of the commodity derivative instruments during fiscal year 2014. At December 28, 2014, the fair value of the derivative instruments was $0.6 million. Changes in the fair value of the commodity derivative instruments and any gains or losses were nominal for fiscal years 2013 and 2012.
In addition to the market risks identified above, we are subject to business risk as our U.S. beef supply is highly dependent upon a limited number of vendors. If these vendors were unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs to secure adequate supplies. See Note 19 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for further details.
This market risk discussion contains forward-looking statements. Actual results may differ materially from the discussion based upon general market conditions and changes in domestic and global financial markets.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL INFORMATION
securities. |
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| 70LTI Awards |
Report of Independent Registered Certified Public Accounting Firm
To Board of Directors and Stockholders of
Bloomin’ Brands, Inc.
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Bloomin’ Brands, Inc. and its subsidiaries at December 28, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2014, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audits (which was an integrated audit in 2013). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, FL
February 24, 2015
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) |
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| | 2014 | | 2013 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 165,744 |
| | $ | 209,871 |
|
| Current portion of restricted cash and cash equivalents | 6,829 |
| | 3,364 |
|
| Inventories | 80,817 |
| | 80,613 |
|
| Deferred income tax assets | 123,866 |
| | 70,802 |
|
| Assets held for sale | 16,667 |
| | 1,034 |
|
| Other current assets, net | 206,628 |
| | 117,712 |
|
| Total current assets | 600,551 |
| | 483,396 |
|
| Restricted cash | 25,451 |
| | 25,055 |
|
| Property, fixtures and equipment, net | 1,629,311 |
| | 1,633,263 |
|
| Goodwill | 341,540 |
| | 352,118 |
|
| Intangible assets, net | 585,432 |
| | 617,133 |
|
| Deferred income tax assets | 6,038 |
| | 2,392 |
|
| Other assets, net | 155,963 |
| | 165,119 |
|
| Total assets | $ | 3,344,286 |
| | $ | 3,278,476 |
|
| | | | |
| | (CONTINUED...) | |
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) |
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| | 2014 | | 2013 |
| LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 191,207 |
| | $ | 164,619 |
|
| Accrued and other current liabilities | 237,844 |
| | 197,114 |
|
| Current portion of partner deposits and accrued partner obligations | 8,399 |
| | 12,548 |
|
| Unearned revenue | 376,696 |
| | 359,443 |
|
| Current portion of long-term debt | 25,964 |
| | 13,546 |
|
| Total current liabilities | 840,110 |
| | 747,270 |
|
| Partner deposits and accrued partner obligations | 69,766 |
| | 78,116 |
|
| Deferred rent | 121,819 |
| | 105,963 |
|
| Deferred income tax liabilities | 181,125 |
| | 150,051 |
|
| Long-term debt, net | 1,289,879 |
| | 1,405,597 |
|
| Other long-term liabilities, net | 260,405 |
| | 286,786 |
|
| Total liabilities | 2,763,104 |
| | 2,773,783 |
|
| Commitments and contingencies (Note 19) |
| |
|
| Mezzanine Equity | | | |
| Redeemable noncontrolling interests | 24,733 |
| | 21,984 |
|
| Stockholders’ Equity | | | |
| Bloomin’ Brands Stockholders’ Equity | | | |
| Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of December 28, 2014 and December 31, 2013 | — |
| | — |
|
| Common stock, $0.01 par value, 475,000,000 shares authorized; 125,949,870 and 124,784,124 shares issued and outstanding as of December 28, 2014 and December 31, 2013, respectively | 1,259 |
| | 1,248 |
|
| Additional paid-in capital | 1,085,627 |
| | 1,068,705 |
|
| Accumulated deficit | (474,994 | ) | | (565,154 | ) |
| Accumulated other comprehensive loss | (60,542 | ) | | (26,418 | ) |
| Total Bloomin’ Brands stockholders’ equity | 551,350 |
| | 478,381 |
|
| Noncontrolling interests | 5,099 |
| | 4,328 |
|
| Total stockholders’ equity | 556,449 |
| | 482,709 |
|
| Total liabilities, mezzanine equity and stockholders’ equity | $ | 3,344,286 |
| | $ | 3,278,476 |
|
| | | | |
| The accompanying notes are an integral part of these consolidated financial statements. |
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Revenues | | | | | |
| Restaurant sales | $ | 4,415,783 |
| | $ | 4,089,128 |
| | $ | 3,946,116 |
|
| Other revenues | 26,928 |
| | 40,102 |
| | 41,679 |
|
| Total revenues | 4,442,711 |
| | 4,129,230 |
| | 3,987,795 |
|
| Costs and expenses | | | | | |
| Cost of sales | 1,435,359 |
| | 1,333,842 |
| | 1,281,002 |
|
| Labor and other related | 1,218,961 |
| | 1,157,622 |
| | 1,117,624 |
|
| Other restaurant operating | 1,049,053 |
| | 964,279 |
| | 918,522 |
|
| Depreciation and amortization | 190,911 |
| | 164,094 |
| | 155,482 |
|
| General and administrative | 304,382 |
| | 268,928 |
| | 326,473 |
|
| Provision for impaired assets and restaurant closings | 52,081 |
| | 22,838 |
| | 13,005 |
|
| Income from operations of unconsolidated affiliates | — |
| | (7,730 | ) | | (5,450 | ) |
| Total costs and expenses | 4,250,747 |
| | 3,903,873 |
| | 3,806,658 |
|
| Income from operations | 191,964 |
| | 225,357 |
| | 181,137 |
|
| Loss on extinguishment and modification of debt | (11,092 | ) | | (14,586 | ) | | (20,957 | ) |
| Gain on remeasurement of equity method investment | — |
| | 36,608 |
| | — |
|
| Other expense, net | (1,244 | ) | | (246 | ) | | (128 | ) |
| Interest expense, net | (59,658 | ) | | (74,773 | ) | | (86,642 | ) |
| Income before provision (benefit) for income taxes | 119,970 |
| | 172,360 |
| | 73,410 |
|
| Provision (benefit) for income taxes | 24,044 |
| | (42,208 | ) | | 12,106 |
|
| Net income | 95,926 |
| | 214,568 |
| | 61,304 |
|
| Less: net income attributable to noncontrolling interests | 4,836 |
| | 6,201 |
| | 11,333 |
|
| Net income attributable to Bloomin’ Brands | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
|
| | | | | | |
| Net income | $ | 95,926 |
| | $ | 214,568 |
| | $ | 61,304 |
|
| Other comprehensive income: | | | | | |
| Foreign currency translation adjustment | (31,731 | ) | | (17,597 | ) | | 7,543 |
|
| Reclassification of accumulated foreign currency translation adjustment for previously held equity investment | — |
| | 5,980 |
| | — |
|
| Unrealized losses on derivatives, net of tax | (2,393 | ) | | — |
| | — |
|
| Comprehensive income | 61,802 |
| | 202,951 |
| | 68,847 |
|
| Less: comprehensive income attributable to noncontrolling interests | 4,836 |
| | 6,201 |
| | 11,333 |
|
| Comprehensive income attributable to Bloomin’ Brands | $ | 56,966 |
| | $ | 196,750 |
| | $ | 57,514 |
|
| | | | | | |
| Earnings per share: | | | | | |
| Basic | $ | 0.73 |
| | $ | 1.69 |
| | $ | 0.45 |
|
| Diluted | $ | 0.71 |
| | $ | 1.63 |
| | $ | 0.44 |
|
| Weighted average common shares outstanding: | | | | | |
| Basic | 125,139 |
| | 122,972 |
| | 111,999 |
|
| Diluted | 128,317 |
| | 128,074 |
| | 114,821 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | BLOOMIN’ BRANDS | | | | |
| | COMMON STOCK | | ADDITIONAL
PAID-IN
CAPITAL | | ACCUM- ULATED
DEFICIT | | ACCUMULATED
OTHER
COMPREHENSIVE
LOSS | | NON-
CONTROLLING
INTERESTS | | TOTAL |
| | SHARES | | AMOUNT | | | | | |
| Balance, December 31, 2011 | 106,573 |
| | $ | 1,066 |
| | $ | 874,753 |
| | $ | (822,625 | ) | | $ | (22,344 | ) | | $ | 9,447 |
| | $ | 40,297 |
|
| Net income | — |
| | — |
| | — |
| | 49,971 |
| | — |
| | 11,333 |
| | 61,304 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | 7,543 |
| | — |
| | 7,543 |
|
| Issuance of common stock in connection with initial public offering | 14,197 |
| | 142 |
| | 142,100 |
| | — |
| | — |
| | — |
| | 142,242 |
|
| Stock-based compensation | — |
| | — |
| | 21,671 |
| | — |
| | — |
| | — |
| | 21,671 |
|
| Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes | 378 |
| | 3 |
| | 1,061 |
| | (431 | ) | | — |
| | — |
| | 633 |
|
| Issuance of notes receivable due from stockholders | — |
| | — |
| | (587 | ) | | — |
| | — |
| | — |
| | (587 | ) |
| Repayments of notes receivable due from stockholders | — |
| | — |
| | 1,661 |
| | — |
| | — |
| | — |
| | 1,661 |
|
| Purchase of limited partnership and joint venture interests | — |
| | — |
| | (39,696 | ) | | — |
| | — |
| | (886 | ) | | (40,582 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (13,977 | ) | | (13,977 | ) |
| Balance, December 31, 2012 | 121,148 |
| | $ | 1,211 |
| | $ | 1,000,963 |
| | $ | (773,085 | ) | | $ | (14,801 | ) | | $ | 5,917 |
| | $ | 220,205 |
|
| | | | | | | | | | | | | | |
| | | | | | | | | | | | (CONTINUED...) | |
| | | | | | | | | | | | | | |
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | BLOOMIN’ BRANDS | | | | |
| | COMMON STOCK | | ADDITIONAL
PAID-IN
CAPITAL | | ACCUM- ULATED
DEFICIT | | ACCUMULATED
OTHER
COMPREHENSIVE
LOSS | | NON-
CONTROLLING
INTERESTS | | TOTAL |
| | SHARES | | AMOUNT | | | | | |
| Balance, December 31, 2012 | 121,148 |
| | $ | 1,211 |
| | $ | 1,000,963 |
| | $ | (773,085 | ) | | $ | (14,801 | ) | | $ | 5,917 |
| | $ | 220,205 |
|
| Net income | — |
| | — |
| | — |
| | 208,367 |
| | — |
| | 6,470 |
| | 214,837 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (11,617 | ) | | — |
| | (11,617 | ) |
| Release of valuation allowance related to purchases of limited partnerships and joint venture interests | — |
| | — |
| | 15,669 |
| | — |
| | — |
| | — |
| | 15,669 |
|
| Stock-based compensation | — |
| |
|
| | 14,185 |
| | — |
| | — |
| | — |
| | 14,185 |
|
| Excess tax benefit on stock-based compensation | — |
| | — |
| | 4,363 |
| | — |
| | — |
| | — |
| | 4,363 |
|
| Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes | 3,636 |
| | 37 |
| | 27,696 |
| | (436 | ) | | — |
| | — |
| | 27,297 |
|
| Repayments of notes receivable due from stockholders | — |
| | — |
| | 5,829 |
| | — |
| | — |
| | — |
| | 5,829 |
|
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (8,059 | ) | | (8,059 | ) |
| Balance, December 31, 2013 | 124,784 |
| | $ | 1,248 |
| | $ | 1,068,705 |
| | $ | (565,154 | ) | | $ | (26,418 | ) | | $ | 4,328 |
| | $ | 482,709 |
|
| Net income | — |
| | — |
| | — |
| | 91,090 |
| | — |
| | 4,161 |
| | 95,251 |
|
| Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | (34,124 | ) | | — |
| | (34,124 | ) |
| Stock-based compensation | — |
| | — |
| | 17,420 |
| | — |
| | — |
| | — |
| | 17,420 |
|
| Excess tax benefit on stock-based compensation | — |
| | — |
| | 2,732 |
| | — |
| | — |
| | — |
| | 2,732 |
|
| Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes | 1,166 |
| | 11 |
| | 9,059 |
| | (930 | ) | | — |
| | — |
| | 8,140 |
|
| Purchase of limited partnership interests, net of tax of $6,785 | — |
| | — |
| | (11,662 | ) | | — |
| | — |
| | 1,236 |
| | (10,426 | ) |
| Transfer to redeemable noncontrolling interest | — |
| | — |
| | (627 | ) | | — |
| | — |
| | — |
| | (627 | ) |
| Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (4,626 | ) | | (4,626 | ) |
| Balance, December 28, 2014 | 125,950 |
| | $ | 1,259 |
| | $ | 1,085,627 |
| | $ | (474,994 | ) | | $ | (60,542 | ) | | $ | 5,099 |
| | $ | 556,449 |
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Cash flows provided by operating activities: | | | | | |
| Net income | $ | 95,926 |
| | $ | 214,568 |
| | $ | 61,304 |
|
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 190,911 |
| | 164,094 |
| | 155,482 |
|
| Amortization of deferred financing fees | 3,116 |
| | 3,574 |
| | 8,222 |
|
| Amortization of capitalized gift card sales commissions | 27,509 |
| | 23,826 |
| | 21,136 |
|
| Provision for impaired assets and restaurant closings | 52,081 |
| | 22,838 |
| | 13,005 |
|
| Accretion on debt discounts | 2,078 |
| | 2,451 |
| | 880 |
|
| Stock-based and other non-cash compensation expense | 19,689 |
| | 21,589 |
| | 44,778 |
|
| Income from operations of unconsolidated affiliates | — |
| | (7,730 | ) | | (5,450 | ) |
| Deferred income tax benefit | (13,623 | ) | | (83,603 | ) | | (7,442 | ) |
| Loss on disposal of property, fixtures and equipment | 3,608 |
| | 1,441 |
| | 2,141 |
|
| Gain on life insurance and restricted cash investments | (2,213 | ) | | (5,284 | ) | | (5,150 | ) |
| Loss on extinguishment and modification of debt | 11,092 |
| | 14,586 |
| | 20,957 |
|
| Gain on remeasurement of equity method investment | — |
| | (36,608 | ) | | — |
|
| Loss (gain) on disposal of business or subsidiary | 770 |
| | — |
| | (3,500 | ) |
| Recognition of deferred gain on sale-leaseback transaction | (2,140 | ) | | (2,135 | ) | | (1,610 | ) |
| Excess tax benefits from stock-based compensation | (2,732 | ) | | (4,363 | ) | | — |
|
| Change in assets and liabilities: | | | | | |
| (Increase) decrease in inventories | (3,126 | ) | | 3,768 |
| | (8,577 | ) |
| Increase in other current assets | (116,828 | ) | | (28,336 | ) | | (13,746 | ) |
| Decrease (increase) in other assets | 9,459 |
| | (259 | ) | | 4,034 |
|
| Increase in accounts payable and accrued and other current liabilities | 32,182 |
| | 10,192 |
| | 4,687 |
|
| Increase in deferred rent | 18,746 |
| | 20,618 |
| | 17,064 |
|
| Increase in unearned revenue | 21,030 |
| | 29,634 |
| | 29,621 |
|
| Increase in other long-term liabilities | 4,471 |
| | 12,403 |
| | 2,255 |
|
| Net cash provided by operating activities | 352,006 |
| | 377,264 |
| | 340,091 |
|
| Cash flows (used in) provided by investing activities: | | | | | |
| Purchases of life insurance policies | (1,682 | ) | | (4,159 | ) | | (6,451 | ) |
| Proceeds from sale of life insurance policies | 627 |
| | 1,239 |
| | — |
|
| Proceeds from disposal of property, fixtures and equipment | 5,745 |
| | 3,223 |
| | 4,529 |
|
| Proceeds from sale-leaseback transaction | — |
| | — |
| | 192,886 |
|
| Acquisition of business, net of cash acquired | (3,063 | ) | | (100,319 | ) | | — |
|
| Proceeds from sale of a business | — |
| | — |
| | 3,500 |
|
| Capital expenditures | (237,868 | ) | | (237,214 | ) | | (178,720 | ) |
| Decrease in restricted cash | 26,075 |
| | 29,210 |
| | 84,270 |
|
| Increase in restricted cash | (30,176 | ) | | (38,117 | ) | | (80,070 | ) |
| Net cash (used in) provided by investing activities | $ | (240,342 | ) | | $ | (346,137 | ) | | $ | 19,944 |
|
| | | | | | |
| | | | (CONTINUED...) | |
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Cash flows used in financing activities: | | | | | |
| Proceeds from issuance of senior secured debt | $ | 297,088 |
| | $ | — |
| | $ | 990,000 |
|
| Extinguishment and modification of senior secured term loan | (700,000 | ) | | — |
| | (1,004,575 | ) |
| Proceeds from issuance of 2012 CMBS Loan | — |
| | — |
| | 495,186 |
|
| Repayments of long-term debt | (31,873 | ) | | (80,805 | ) | | (46,868 | ) |
| Extinguishment of CMBS loan | — |
| | — |
| | (777,563 | ) |
| Extinguishment of senior notes | — |
| | — |
| | (254,660 | ) |
| Proceeds from borrowings on revolving credit facilities | 519,000 |
| | 100,000 |
| | 111,000 |
|
| Repayments of borrowings on revolving credit facilities | (194,000 | ) | | (100,000 | ) | | (144,000 | ) |
| Financing fees | (4,492 | ) | | (12,519 | ) | | (18,983 | ) |
| Proceeds from the issuance of common stock in connection with initial public offering | — |
| | — |
| | 142,242 |
|
| Proceeds from the exercise of stock options | 9,540 |
| | 27,786 |
| | 884 |
|
| Distributions to noncontrolling interests | (3,190 | ) | | (8,059 | ) | | (13,977 | ) |
| Purchase of limited partnership interests | (17,211 | ) | | — |
| | (40,582 | ) |
| Repayments of partner deposits and accrued partner obligations | (24,925 | ) | | (23,286 | ) | | (25,397 | ) |
| Issuance of notes receivable due from stockholders | — |
| | — |
| | (587 | ) |
| Repayments of notes receivable due from stockholders | — |
| | 5,829 |
| | 1,661 |
|
| Repurchase of common stock | (930 | ) | | (436 | ) | | — |
|
| Excess tax benefits from stock-based compensation | 2,732 |
| | 4,363 |
| | — |
|
| Tax withholding on performance-based share units | (470 | ) | | — |
| | — |
|
| Net cash used in financing activities | (148,731 | ) | | (87,127 | ) | | (586,219 | ) |
| Effect of exchange rate changes on cash and cash equivalents | (7,060 | ) | | 4,181 |
| | 5,790 |
|
| Net decrease in cash and cash equivalents | (44,127 | ) | | (51,819 | ) | | (220,394 | ) |
| Cash and cash equivalents as of the beginning of the period | 209,871 |
| | 261,690 |
| | 482,084 |
|
| Cash and cash equivalents as of the end of the period | $ | 165,744 |
| | $ | 209,871 |
| | $ | 261,690 |
|
| Supplemental disclosures of cash flow information: | | | | | |
| Cash paid for interest | $ | 57,241 |
| | $ | 71,397 |
| | $ | 78,216 |
|
| Cash paid for income taxes, net of refunds | 56,216 |
| | 33,673 |
| | 24,276 |
|
| Supplemental disclosures of non-cash investing and financing activities: | | | | | |
| Conversion of partner deposits and accrued partner obligations to notes payable | $ | 503 |
| | $ | 1,875 |
| | $ | 6,434 |
|
| Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities | (1,669 | ) | | 3,050 |
| | 8,006 |
|
| Release of valuation allowance through additional paid-in capital related to purchases of limited partnerships and joint venture interests | — |
| | 15,669 |
| | — |
|
| Deferred tax effect of purchase of noncontrolling interests | 6,785 |
| | — |
| | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Bloomin’ Brands, Inc. (“Bloomin’ Brands” or the “Company”) was formed by an investor group comprising funds advised by Bain Capital Partners, LLC (“Bain Capital”), Catterton Management Company, LLC (“Catterton”), Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon (the “Founders”) and certain members of management. On June 14, 2007, Bloomin’ Brands acquired OSI Restaurant Partners, Inc. by means of a merger and related transactions (the “Merger”). At the time of the Merger, OSI Restaurant Partners, Inc. was converted into a Delaware limited liability company named OSI Restaurant Partners, LLC (“OSI”). In connection with the Merger, Bloomin’ Brands implemented a new ownership and financing arrangement for some of its restaurant properties, pursuant to which Private Restaurant Properties, LLC, a wholly-owned subsidiary of Bloomin’ Brands, acquired 343 restaurant properties from OSI and leased them back to subsidiaries of OSI. OSI remains the Company’s primary operating entity and New Private Restaurant Properties, LLC, another indirect wholly-owned subsidiary of the Company, continues to lease certain of the Company-owned restaurant properties to OSI’s subsidiaries. On August 13, 2012, the Company completed an initial public offering (the “IPO”) of its common stock.
The Company owns and operates casual, upscale casual and fine dining restaurants primarily in the United States. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements. In January 2015, the Company sold its Roy’s concept.
2. Summary of Significant Accounting Policies
Basis of Presentation -The Company’s consolidated financial statements include the accounts and operations of Bloomin’ Brands and its subsidiaries.
To ensure timely reporting, the Company consolidates the results of its Brazil operations on a one-month calendar lag. There were no intervening events that would materially affect the Company’s consolidated financial position, results of operations or cash flows as of December 28, 2014 and for fiscal year 2014.
Principles of Consolidation - All intercompany accounts and transactions have been eliminated in consolidation.
The Company consolidates variable interest entities where it has been determined the Company is the primary beneficiary of those entities’ operations. The Company is a franchisor of 166 restaurants as of December 28, 2014, but does not possess any ownership interests in its franchisees and generally does not provide financial support to franchisees in its typical franchise relationship. These franchise relationships are not deemed variable interest entities and are not consolidated.
Investments in entities the Company does not control, but where the Company’s interest is generally between 20% and 50% and the Company has the ability to exercise significant influence over the entity are accounted for under the equity method. The Company’s share of earnings or losses accounted for under the equity method are recorded in Income from operations of unconsolidated affiliates in the Consolidated Statements of Operations and Comprehensive Income.
Prior to November 1, 2013, the Company held a 50% ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazil Joint Venture”) through a joint venture arrangement with PGS Participações Ltda (“PGS Par”). Effective November 1, 2013, the Company acquired a controlling interest in the Brazil Joint Venture resulting in the consolidation of this entity. Prior to the acquisition, the Company accounted for the Brazil Joint Venture under the equity method of accounting (see Note 3 - Acquisitions).
Fiscal Year - On January 3, 2014, the Board of Directors approved, a change in the Company’s fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending on the last Sunday in December, effective with
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
fiscal year 2014. In a 52 week fiscal year, each of the Company’s quarterly periods comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. The Company made the fiscal year change on a prospective basis and did not adjust operating results for prior periods.
Fiscal year 2014 consisted of the 52 weeks ended December 28, 2014 and fiscal years 2013 and 2012 consisted of the twelve months ended December 31, 2013 and 2012, respectively. Fiscal year 2014 included three less operating days than the comparable prior fiscal year and the Company estimates that the associated impact was a reduction of $46.0 million and $9.2 million of Restaurant sales and Net income attributable to Bloomin’ Brands, respectively.
Use of Estimates - The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated.
Cash and Cash Equivalents - Cash equivalents consist of investments that are readily convertible to cash with an original maturity date of three months or less. Cash and cash equivalents include $48.0 million and $35.1 million, as of December 28, 2014 and December 31, 2013, respectively, for amounts in transit from credit card companies since settlement is reasonably assured.
Concentrations of Credit and Counterparty Risk - Financial instruments that potentially subject the Company to a concentration of credit risk are vendor and other receivables. Vendor and other receivables consist primarily of amounts due from vendor rebates and gift card resellers, respectively. The Company considers the concentration of credit risk for vendor and other receivables to be minimal due to the payment histories and general financial condition of its vendors and gift card resellers. Gift card receivables of $86.0 million and $17.9 million as of December 28, 2014 and December 31, 2013, respectively, were reflected in Other current assets, net in the Company’s Consolidated Balance Sheets.
Financial instruments that potentially subject the Company to concentrations of counterparty risk are cash and cash equivalents, restricted cash and derivatives. The Company attempts to limit its counterparty risk by investing in certificates of deposit, money market funds, noninterest-bearing accounts and other highly rated investments and marketable securities. At times, cash balances may be in excess of FDIC insurance limits. See Note 16. - Derivative Instruments and Hedging Activities for a discussion of the Company’s use of derivative instruments and management of credit risk inherent in derivative instruments.
Fair Value - Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest levelrecommendation of significant input:
|
| |
Level 1 | Unadjusted quoted market prices in active markets for identical assets or liabilities |
Level 2 | Observable inputs available at measurement date other than quoted prices included in Level 1 |
Level 3 | Unobservable inputs that cannot be corroborated by observable market data |
Inventories - Inventories consistthe Compensation Committee, grants consisting of food50% in stock options and beverages,50% in PSUs under the 2012 Equity Plan to our current executive officers. To align our executive officers with stockholders’ interest, we awarded stock options to compensate based on stock price appreciation. The stock options have an exercise price of $25.32 which vest in equal amounts over a four-year period and are stated atexercisable over a ten-year term, contingent upon continued employment. PSUs have been granted since 2013. In 2014, we updated the lowermetric from cumulative Adjusted net income to Adjusted EPS to reward executives for successfully balancing profit maximization and the efficient use of cost (first-in, first-out) or market.
Restricted Cash - The Company has both currentcapital, as well as ensuring quality of profit. In addition, we wanted to disassociate the STIP and long-term restricted cash balances consisting of amounts: (i) held in escrow for certain indemnifications associated with the Brazil Joint Venture acquisition, (ii) held for fulfillment of certain loan provisions, (iii) restricted for the payment of property taxes and (iv) pledged for settlement of deferred compensation plan obligations.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Property, Fixtures and Equipment - Property, fixtures and equipment are stated at cost,LTIP metrics by removing Adjusted net of accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful life of the assets. Improvements to leased properties are depreciated over the shorter of their useful life or the lease term, which includes renewal periods that are reasonably assured. Estimated useful lives by major asset category are generallyincome as follows:
|
| |
Buildings and building improvements | 20 to 30 years |
Furniture and fixtures | 5 to 7 years |
Equipment | 2 to 7 years |
Leasehold improvements | 5 to 20 years |
Capitalized software | 3 to 7 years |
Repair and maintenance costs that maintain the appearance and functionality of the restaurant, but do not extend the useful life of any restaurant asset are expensed as incurred. The Company suspends depreciation and amortization for assets held for sale. The cost and related accumulated depreciation of assets sold or disposed are removeda performance metric from the
Consolidated Balance Sheets,LTIP.The PSUs vest over a four-year period, contingent upon continued employment, and any resulting gain or loss is generally recognized in the Other restaurant operating expense linenumber of the Consolidated Statements of Operations and Other Comprehensive Income.
The Company capitalizes direct and indirect internal costs associated with the acquisition, development, design and construction of Company-owned restaurant locations as these costs have a future benefitunits earned vary to the Company. Upon restaurant opening, these costsextent the performance targets are depreciated and charged to depreciation and amortization expense. Internal costs of $8.7 million, $9.1 million and $2.4 million were capitalized during fiscal years 2014, 2013 and 2012, respectively.
For fiscal years 2014 and 2013, software development costs of $5.0 million and $22.7 million, respectively, were capitalized. As of December 28, 2014 and December 31, 2013, there were $30.6 million and $25.9 million, respectively, of unamortized software development costs included in Property, fixtures and equipment.
Goodwill and Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations and is assigned to the reporting unit in which the acquired business will operate.achieved for each period. The Company’s indefinite-lived intangible assets consist of trade names. Goodwill and indefinite-lived intangible assets are tested for impairment annually, as of the first day of the second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If the qualitative assessment is not performed or if the Company determines that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated. The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an indicator of potential impairment, in which case a second step is performed comparing the recorded amount of goodwill or indefinite-lived intangible assets to the implied fair value.
Definite-lived intangible assets, which consist primarily of trademarks, franchise agreements, reacquired franchise rights, favorable leases, and other long-lived assets, are amortized over their estimated useful lives and are tested for impairment, using the discounted cash flow method, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Derivatives - The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. If the derivative qualifies for hedge accounting treatment, then the effective portion of the gain or lossPSUs that can vest in the first year (25%) is earned based on achievement of our one-year Adjusted EPS, with targets set by the Board of Directors based on our 2014 fiscal plan at the time of grant. In subsequent years, the number of PSUs earned (up to 25% of the annual grant, with 0% to 200% of such amount vesting based on achievement of the performance metric) is based on the derivative instrument is recognized in equity as a change
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Adjusted EPS achieved relative to Accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instrument is immediately recognized in the Consolidated Statements of Operations and Comprehensive Income.
The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
Deferred Financing Fees - The Company capitalizes deferred financing fees related to the issuance of debt obligations. The Company amortizes deferred financing fees to interest expense over the terms of the respective financing arrangements, primarily using the effective interest method.
Liquor Licenses - The costs of obtaining non-transferable liquor licenses directly issued by local government agenciesour fiscal plan expectations for nominal fees are expensed as incurred. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets and included in Other assets, net. Annual liquor license renewal fees are expensed over the renewal term.
Insurance Reserves - The Company self-insures or maintains high per-claim deductibles for a significant portion of expected losses under its workers’ compensation, general liability/liquor liability, health, property and management liability insurance programs. The Company records a liability for all unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost to the Company. In establishing reserves, the Company considers certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. Reserves recorded for workers’ compensation and general liability claims are discounted using the average of the one-year and five-year risk free rate of monetary assets that have comparable maturities.
Redeemable Noncontrolling Interests - The Company consolidates Outback Steakhouse 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 Company believes that it is probable that the noncontrolling interests will become redeemable.
The Redeemable noncontrolling interests are reported at their estimated redemption value measured as the greater of estimated fair value at the end of each reporting period or the historical cost basis of the redeemable noncontrolling interest adjusted for cumulative earnings or loss allocations. The resulting increases or decreases to fair value, if applicable, are recognized as adjustments to Retained earnings, or in the absence of Retained earnings, Additional paid-in capital. The estimated fair value of Redeemable noncontrolling interests are measured quarterly using the income approach, based on a discounted cash flow methodology, with projected cash flows as the significant input. Redeemable noncontrolling interests are classified in Mezzanine equity in the Company’s Consolidated Balance Sheet.
Revenue Recognition - The Company records food and beverage revenues upon sale. Initial and developmental franchise fees are recognized as income once the Company has substantially performed all of its material obligations under the franchise agreement, which is generally upon the opening of the franchised restaurant. Continuing royalties, which are a percentage of net sales of the franchisee, are recognized as income when earned. Franchise-related revenues are included in Other revenues in the Consolidated Statements of Operations and Comprehensive Income.
The Company defers revenue for gift cards, which do not have expiration dates, until redemption by the consumer. Gift cards sold at a discount are recorded as revenue upon redemption of the associated gift cards at an amount net of the related discount. The Company also recognizes gift card breakage revenue for gift cards when the likelihood of redemption by the consumer is remote, which the Company determined are those gift cards issued on or before threesuch years prior to the balance sheet date. The Company recorded breakage revenue of $18.8 million, $16.3 million and
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
$13.3 million for fiscal years 2014, 2013 and 2012, respectively. Breakage revenue is recorded as a component of Restaurant sales in the Consolidated Statements of Operations and Comprehensive Income.
Gift card sales commissions paid to third-party providers are initially capitalized and subsequently recognized as Other restaurant operating expenses upon redemption of the associated gift card. Deferred expenses of $15.6 millionand $12.0 million as of December 28, 2014 and December 31, 2013, respectively, were reflected in Other current assets, net in the Company’s Consolidated Balance Sheets. Gift card sales that are accompanied by a bonus gift card to be used by the consumer at a future visit result in a separate deferral of a portion of the original gift card sale. Revenue is recorded when the bonus card is redeemed at the estimated fair market value of the bonus card.
The Company collects and remits sales, food and beverage, alcoholic beverage and hospitality taxes on transactions with consumers and reports revenue net of taxes in its Consolidated Statements of Operations and Comprehensive Income.
Operating Leases - Rent expense for the Company’s operating leases, which generally have escalating rentals over the term of the lease and may include rent holidays, is recorded on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. The initial lease term includes the “build-out” period of the Company’s leases, which is typically before rent payments are due under the terms of the lease. The difference between rent expense and rent paid is recorded as deferred rent and is included in the Consolidated Balance Sheets. Payments received from landlords as incentives for leasehold improvements are recorded as deferred rent and are amortized on a straight-line basis over the term of the lease as a reduction of rent expense. Lease termination fees, if any, and future obligated lease payments for closed locations are recorded as an expense in the period incurred. Favorable and unfavorable lease assets and liabilities are amortized on a straight-line basis to rent expense over the remaining lease term.
Pre-Opening Expenses - Non-capital expenditures associated with opening new restaurants are expensed as incurred and are included in Other restaurant operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income.
Consideration Received from Vendors - The Company receives consideration for a variety of vendor-sponsored programs, such as volume rebates, promotions and advertising allowances. Advertising allowances are intended to offset the Company’s costs of promoting and selling menu items in its restaurants. Vendor consideration is recorded as a reduction of Cost of sales or Other restaurant operating expenses when recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income.
Impairment of Long-Lived Assets and Costs Associated with Exit Activities - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. For long-lived assets deployed at its restaurants, the Company reviews for impairment at the individual restaurant level. When evaluating for impairment, the total future undiscounted cash flows expected to be generated by the asset are compared to the carrying amount. If the total future undiscounted cash flows of the asset are less than its carrying amount, recoverability is measured by comparing the fair value of the assets to the carrying amount. An impairment loss is recognized in earnings when the asset’s carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model.
Generally, restaurant closure costs are expensed as incurred. When the Company ceases using the property rights under a non-cancelable operating lease, it records a liability for the net present value of any remaining lease obligations as a result of lease termination, less the estimated sublease income that can reasonably be obtained for the property. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income are recorded in the period incurred. The associated expense is recorded in Provision for impaired assets and restaurant closings in the Company’s Consolidated Statements of Operations and Comprehensive Income.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Restaurant sites and certain other assets to be sold are included in assets held for sale when certain criteria are met, including the requirement that the likelihood of selling the assets within one year is probable.
Advertising Costs - Advertising production costs are expensed in the period when the advertising first occurs. All other advertising costs are expensed in the period in which the costs are incurred. Advertising expense of $191.1 million, $182.4 million and $170.6 million for fiscal years 2014, 2013 and 2012, respectively, was recorded in Other restaurant operating expenses in the Consolidated Statements of Operations and Comprehensive Income.
Legal Costs - Settlement costs are accrued when they are deemed probable and reasonably estimable. Legal fees are recognized as incurred. Legal costs are reported in General and administrative expense in the Consolidated Statements of Operations and Comprehensive Income.
Research and Development Expenses (“R&D”) - R&D is expensed as incurred in General and administrative expense in the Consolidated Statements of Operations and Comprehensive Income. R&D primarily consists of payroll and benefit costs. R&D was $5.8 million, $6.4 million and $7.3 millionfor fiscal years 2014, 2013 and 2012, respectively.
Partner Compensation - The Restaurant Managing Partner of each Company-owned domestic restaurant and the Chef Partner of each Fleming’s Prime Steakhouse & Wine Bar, as well as Area Operations Directors, generally receive distributions or payments for providing management and supervisory services to their restaurants based on a percentage of their associated restaurants’ monthly cash flows. The expense associated with the monthly payments for Restaurant Managing Partners and Chef Partners is included in Labor and other related expenses, and the expense associated with the monthly payments for Area Operations Directors is included in General and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
Restaurant Managing Partners and Chef Partners that are eligible to participate in a deferred compensation program receive an unsecured promise of a cash contribution to their account (see Note 6 - Stock-based and Deferred Compensation Plans). On the fifth anniversary of the opening of each new restaurant, the Area Operations Director supervising the restaurant during the first five years of operation receives an additional bonus based upon the average annual distributable cash flow of the restaurant.
The Company estimates future bonuses and deferred compensation obligations to Restaurant Managing and Chef Partners, using current and historical information on restaurant performance and records the partner obligations in Partner deposits and accrued partner obligations in its Consolidated Balance Sheets. Deferred compensation expenses for Restaurant Managing and Chef partners are included in Labor and other related expenses and bonus expense for Area Operations Directors is included in General and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
Stock-based Compensation - Stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting or service periods. Stock-based compensation expense is recognized only for those awards expected to vest. The expense, net of forfeitures, is recognized using the straight-line method.
Foreign Currency Translation and Transactions - For all significant non-U.S. operations, the functional currency is the local currency. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date with the translation adjustments recorded in Accumulated other comprehensive loss in the Consolidated Statements of Changes in Stockholders’ Equity. Results of operations are translated using the average exchange rates for the reporting period.
Foreign currency exchange transaction losses of $0.7 million, $0.2 millionand $0.1 million for fiscal years 2014, 2013 and 2012, respectively, are recorded in Other expense, net in the Company’s Consolidated Statements of Operations and Comprehensive Income.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Income Taxes - Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in the tax rate is recognized in income in the period that includes the enactment date of the rate change.
A valuation allowance may reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company considers future taxable income and ongoing feasible tax planning strategies in assessing the need for a valuation allowance.
The Company records a tax benefit for an uncertain tax position using the highest cumulative tax benefit that is more likely than not to be realized. The Company adjusts its liability for unrecognized tax benefits in the period in which its determines the issue is effectively settled, the statute of limitations expires or when more information becomes available. Liabilities for unrecognized tax benefits, including penalties and interest, are recorded in Accrued and other current liabilities and Other long-term liabilities on the Company’s Consolidated Balance Sheets.
Segment Reporting - The Company operates restaurants under brands that have similar economic characteristics, nature of products and services, class of consumer and distribution methods, and the Company believes it meets the criteria for aggregating its operating segments, including its international operations, into a single reporting segment. Revenue in foreign countries and Guam represented 13%, 9%and 8% of the Company’s total revenues for fiscal years 2014, 2013 and 2012, respectively. Long-lived assets, excluding goodwill and intangible assets, located in foreign countries represented 8%, 7% and 3% of the Company’s total long-lived assets as of December 28, 2014, December 31, 2013 and December 31, 2012, respectively.
Reclassifications - The Company reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for fiscal year 2014. These reclassifications had no effect on previously reported net income.
Recently Adopted Financial Accounting Standards - In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU No. 2014-08”). ASU No. 2014-08 changes the criteria for reporting and revises the definition of discontinued operations while enhancing disclosures in this area. Additional disclosure requirements for discontinued operations and new disclosures for individually material disposal transactions that do not meet the revised definition of a discontinued operation will be applicable. The Company elected to early adopt ASU No. 2014-08 in the third quarter of fiscal 2014. Accordingly, the Roy’s concept was accounted for as a disposal as it did not represent a strategic shift in the Company’s operations. See Note 4 - Impairments, Disposals and Exit Costs regarding the Roy’s disposal.
Recently Issued Financial Accounting Standards Not Yet Adopted - 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 forset by the Company in fiscal year 2016. The Company does not expect ASU No. 2014-15 to have a material impact.
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 sourceCompensation Committee (or full Board of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. ASU No. 2014-09 will be effective for the Company in fiscal year 2017 and is applied retrospectively to each period
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
presented or as a cumulative effect adjustmentDirectors) at the datebeginning of adoption.each year. The Company has not selected a transition methodannual targets ensure we are reaching milestones and making continuous progress towards our long-term goals. Adjusted EPS 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.
3. Acquisitions
Acquisition of Controlling Interest in the Company’s Brazil Operations - In connection with the Company’s international development growth strategy, effective November 1, 2013, the Company, through its wholly-owned subsidiary, Outback Steakhouse Restaurantes Brasil S.A. (“OB Brasil”), completed the acquisition of a controlling interest in the Brazil Joint Venture. As a result of the acquisition, the Company has a 90% interest in the Brazil Joint Venture, which was subsequently merged with OB Brasil.
The Company completed the acquisition for total cash consideration of approximately $110.4 million, of which $10.1 million was held in escrow for customary indemnifications. The Company financed the acquisition with borrowings of $100.0 million on its revolving credit facility and available cash. The borrowings on the revolving credit facility were subsequently repaid in fiscal year 2013. Acquisition-related costs of $1.8 million for fiscal year 2013, have been recognized in General and administrative expenses in the Consolidated Statement of Operations and Comprehensive Income.
As a result of the acquisition, the previously-held equity interest was remeasured at fair value. The difference between the fair value and the carrying value of the equity interest held resulted in a $36.6 million gain for fiscal year 2013. The fair value assigned to the previously held equity investment in the Brazil Joint Venture was determined using the income approach, based on a discounted cash flow methodology.
PGS Par retained a noncontrolling interest of 10% in the Brazil Joint Venture. The Purchase Agreement provides the equity holders of PGS Par with options to sell their remaining interests to OB Brasil (the “put options”) and provides OB Brasil with options to purchase such remaining interests (the “call options” and together with the put options, the “Options”), in various amounts and at various times from 2015 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 Consolidated Balance Sheetdefined as Redeemable noncontrolling interests. The fair value of the Redeemable noncontrolling interest in OB Brasil on the date of the acquisition was $22.4 million, which was determined based on 10% of the enterprise value and discounted for lack of control and marketability.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the date of the acquisition and the third quarter of 2014 measurement period adjustments made to amounts initially recorded. The measurement period adjustments did not have a significant impact to the Company’s Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows.
|
| | | | | | | | | | | |
| (in thousands) | AMOUNTS PREVIOUSLY RECORDED AS OF NOVEMBER 1, 2013 | | MEASUREMENT PERIOD ADJUSTMENTS | | ADJUSTED ACQUISITION DATE AMOUNTS |
| Cash and cash equivalents | $ | 10,124 |
| | $ | — |
| | $ | 10,124 |
|
| Inventories | 6,607 |
| | — |
| | 6,607 |
|
| Other current assets, net | 14,984 |
| | (676 | ) | | 14,308 |
|
| Property, fixtures and equipment | 81,038 |
| | (923 | ) | | 80,115 |
|
| Goodwill (1) | 135,701 |
| | 6,241 |
| | 141,942 |
|
| Intangible assets, net | 86,623 |
| | — |
| | 86,623 |
|
| Other assets, net | 4,535 |
| | (64 | ) | | 4,471 |
|
| Accounts payable | (7,782 | ) | | — |
| | (7,782 | ) |
| Accrued and other current liabilities | (17,486 | ) | | (2,946 | ) | | (20,432 | ) |
| Current portion of partner deposits and accrued partner obligations | (729 | ) | | — |
| | (729 | ) |
| Long-term portion of partner deposits and accrued partner obligations | (4,482 | ) | | — |
| | (4,482 | ) |
| Deferred income taxes | (26,881 | ) | | 565 |
| | (26,316 | ) |
| Other long-term liabilities, net | (11,390 | ) | | (2,197 | ) | | (13,587 | ) |
| | 270,862 |
| | — |
| | 270,862 |
|
| Fair value of previously held equity investment | (138,054 | ) | | — |
| | (138,054 | ) |
| Remaining redeemable noncontrolling interests | (22,365 | ) | | — |
| | (22,365 | ) |
| Total purchase price | $ | 110,443 |
| | $ | — |
| | $ | 110,443 |
|
____________
| |
(1) | The goodwill recognized is attributable primarily to the potential for strategic future growth. The carrying value of historical goodwill associated with the Company’s former equity investment in this entity of $52.6 million was disposed in connection with the acquisition. Goodwill recognized included $80.1 million that is expected to be deductible for tax purposes. |
The fair value of net intangible assets has been allocated to reacquired franchise rights and favorable and unfavorable leases. The following table presents details of the purchased intangible assets and their remaining weighted-average amortization periods:
|
| | | | | |
| (in thousands, or as otherwise indicated) | FAIR VALUE AMOUNT AS OF NOVEMBER 1, 2013 | | WEIGHTED-AVERAGE AMORTIZATION PERIOD (IN YEARS) |
| Reacquired franchise rights (1) | $ | 82,389 |
| | 14 |
| Favorable leases (2) | 4,234 |
| | 9 |
| Unfavorable leases (2) (3) | (1,798 | ) | | 10 |
| Total identified intangible assets | $ | 84,825 |
| | 14 |
____________________
| |
(1) | Reacquired franchise rights are amortized on a straight-line basis over the remaining life of each restaurants’ franchise agreement, without consideration of renewal. |
| |
(2) | Favorable and unfavorable leases are amortized on a straight-line basis over the remaining lease term. |
| |
(3) | Unfavorable leases are included in Other long-term liabilities, net. |
Included in the Company’s operating results for fiscal year 2013 are Revenues of $23.7 million andAdjusted net income of $0.8 million for OB Brasil.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents summarized financial information for 100% of the Brazil Joint Venture for the periods ending as indicated:
|
| | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2013(1) | | 2012 |
| Net revenue from sales | $ | 215,050 |
| | $ | 246,819 |
|
| Gross profit | $ | 148,229 |
| | $ | 172,011 |
|
| Income from continuing operations | $ | 26,945 |
| | $ | 24,268 |
|
| Net income | $ | 15,382 |
| | $ | 11,151 |
|
____________________
| |
(1) | Summarized financial information for fiscal year 2013 includes results for January 1, 2013 to October 31, 2013, when the Brazil Joint Venture was accounted for as an equity method investment. |
The following comparative unaudited pro forma results of operations information for fiscal years 2013 and 2012 assumes the acquisition occurred on January 1, 2012, and reflects the full results of operations for the years presented. The pro forma results have been prepared for comparative purposes only and do not indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future.
|
| | | | | | | |
| | PRO FORMA (1) |
| | FISCAL YEAR |
| | 2013 | | 2012 |
| (in thousands, except per share data) | (unaudited) | | (unaudited) |
| Total revenues | $ | 4,360,571 |
| | $ | 4,223,393 |
|
| Net income attributable to Bloomin’ Brands | $ | 174,769 |
| | $ | 49,623 |
|
| Earnings per share: | | | |
| Basic | $ | 1.42 |
| | $ | 0.44 |
|
| Diluted | $ | 1.36 |
| | $ | 0.43 |
|
____________________
| |
(1) | These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting for the following items: (i) fair value and depreciable lives adjustments to property and equipment, (ii) elimination of royalty revenue and expense, (iii) reversal of equity method income in the Company’s operating results, (iv) reversal of professional fees associated with the acquisition and (v) the related tax effects of these adjustments. These unaudited pro forma results of operations do not reflect the one-month reporting lag. |
Acquisition of Limited Partnership Interests
During 2014, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships that either owned or had a contractual right to varying percentages of cash flows in 37Bonefish Grill restaurants for an aggregate purchase price of $17.2 million. These transactions resulted in a reduction of $11.7 million in Additional paid-in capital in the Company’s Consolidated Statements of Changes in Stockholders’ Equity during fiscal year 2014.
During 2012, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships that either owned or had a contractual right to varying percentages of cash flows in 44 Bonefish Grill restaurants and 17 Carrabba’s Italian Grill restaurants for an aggregate purchase price of $39.5 million. These transactions resulted in a reduction of $39.0 million in Additional paid-in capital in the Company’s Consolidated Statements of Changes in Stockholders’ Equity during fiscal year 2012.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table sets forth the effect of the limited partnership interests and Roy’s joint venture acquisition transactions on stockholders’ equity attributable to Bloomin’ Brands:
|
| | | | | | | | | | | |
| | NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS |
| |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Net income attributable to Bloomin’ Brands | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
|
| Transfers to noncontrolling interests: | | | | | |
| Decrease in Bloomin’ Brands additional paid-in capital for purchase of | | | | | |
| joint venture and limited partnership interests | (11,662 | ) | | — |
| | (39,696 | ) |
| Change from net income attributable to Bloomin’ Brands and transfers | $ | 79,428 |
| | $ | 208,367 |
| | $ | 10,275 |
|
| to noncontrolling interests | | |
Acquisition of Franchised Restaurants - Effective March 1, 2014, the Company acquired two Bonefish Grill restaurants from a franchisee for a purchase price of $3.2 million, including customary escrow amounts. The Consolidated Statement of Operations and Comprehensive Income includes the results of operations for these restaurants from the date of acquisition. The pro forma impact of the acquisition on prior periods is not presented as the impact was not material to reported results.
The Company allocated the purchase price to the assets acquired less the liabilities assumed based on their estimated fair value on the date of acquisition with the remaining $2.5 million of the purchase price allocated to goodwill. All goodwill recognized is expected to be deductible for tax purposes.
4. Impairments, Disposals and Exit Costs
The components of Provision for impaired assets and restaurant closings are as follows:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Impairment losses | $ | 37,071 |
| | $ | 19,761 |
| | $ | 10,584 |
|
| Restaurant closure expenses | 15,010 |
| | 3,077 |
| | 2,421 |
|
| Provision for impaired assets and restaurant closings | $ | 52,081 |
| | $ | 22,838 |
| | $ | 13,005 |
|
Restaurant Closure Initiatives - In the fourth quarter of 2013, the Company completed an assessment of its domestic restaurant base and decided to close 22 underperforming domestic locations (the “Domestic Restaurant Closure Initiative”). Aggregate pre-tax impairment, restaurant and other closing costs of $4.9 million and $18.7 million were incurred, during fiscal year 2014 and 2013, respectively, in connection with the Domestic Restaurant Closure Initiative.
During 2014, the Company decided to close 36 underperforming international locations, primarily in South Korea (the “International Restaurant Closure Initiative”). The Company expects to substantially complete these international restaurant closings during the first quarter of 2015. In connection with the International Restaurant Closure Initiative, the Company incurred pre-tax asset impairments, restaurant closing and other costs of $21.9 million during fiscal year 2014.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Company expects to incur additional charges of $9.0 million to $12.0 million, including costs associated with lease obligations, employee terminations and other closure related obligations, primarily through the first quarter of 2015. Lease obligations represent $7.0 million to $10.0 million of the remaining charges the Company expects to incur. Future cash expenditures of $18.0 million to $23.0 million, primarily related to lease liabilities, are expected to occur through November 2022.
Following is a summary of the above restaurant closure initiative expenses recognized in the Consolidated Statement of Operations and Comprehensive Income during the periods indicated (in thousands):
|
| | | | | | | | | | | | | | |
| DESCRIPTION | | LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME | | FISCAL YEAR |
| | | 2014 | | 2013 | | 2012 |
| Property, fixtures and equipment impairments | | Provision for impaired assets and restaurant closings | | $ | 11,573 |
| | $ | 18,695 |
| | $ | — |
|
| Facility closure and other expenses | | Provision for impaired assets and restaurant closings | | 14,137 |
| | — |
| | — |
|
| Severance and other liabilities | | General and administrative | | 4,042 |
| | — |
| | — |
|
| Reversal of deferred rent liability | | Other restaurant operating | | (2,911 | ) | | — |
| | — |
|
| | | | | $ | 26,841 |
| | $ | 18,695 |
| | $ | — |
|
The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Domestic and International Restaurant Closure Initiatives, during the fiscal years ended December 28, 2014, and December 31, 2013:
|
| | | | | | | |
| (in thousands) | 2014 | | 2013 |
| Beginning of the year | $ | 2,232 |
| | $ | 990 |
|
| Charges | 12,644 |
| | 1,573 |
|
| Cash payments | (4,086 | ) | | (1,203 | ) |
| Adjustments (1) | 210 |
| | 872 |
|
| End of the year (2) | $ | 11,000 |
| | $ | 2,232 |
|
________________
| |
(1) | Adjustments to facility closure and other costs represent changes in sublease assumptions and reductions in the Company’s remaining lease obligations. |
| |
(2) | As of December 28, 2014 and December 31, 2013, the Company had exit-related accruals of $4.7 million and $1.2 million, respectively, recorded in Accrued and other current liabilities and $6.3 million and $1.1 million, respectively, recorded in Other long-term liabilities, net.
|
Roy’s - In September 2014, the Company reclassified the assets and liabilities of Roy’s to held for sale. In connection with the decision to sell Roy’s, the Company recorded a pre-tax impairment charge of $13.4 million for Assets held for sale during fiscal year 2014. This impairment charge is recorded in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income.
On January 26, 2015, the Company sold its Roy’s concept to United Ohana, LLC (the “buyer”), for a purchase price of $10.0 million, less certain liabilities. Included in the purchase agreement is a provision in which the Company will pay the buyer up to $5.0 million, if certain lease contingencies are not resolved prior to April 2018 and the buyer is damaged. At the time of this report, the Company believes it is probable the lease contingencies will be resolved as required pursuant to the purchase agreement.
In connection with the sale of Roy’s, the Company continues to provide lease guarantees for certain of the Roy’s locations. Under the guarantees, the Company will pay the rental expense over the remaining lease term in the event of default. The fair value and maximum value of the lease guarantees is nominal. The maximum amount is calculated as the fair value of the lease payments over the remaining lease term and assumes that there are subleases.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Following are the assets and liabilities of Roy’s held for sale as of December 28, 2014:
|
| | | |
| (in thousands) | DECEMBER 28, 2014 |
| Assets | |
| Current assets | $ | 2,818 |
|
| Property, fixtures and equipment, net | 16,274 |
|
| Intangible assets, net | 5,812 |
|
Other non-current assets
| 591 |
|
| Total assets (1) | $ | 25,495 |
|
| Liabilities | |
| Current liabilities | $ | 3,743 |
|
| Non-current liabilities | 3,105 |
|
| Total liabilities (2) | $ | 6,848 |
|
________________ | |
(1) | The impairment charge of $13.4 million is excluded from the amount presented. |
| |
(2) | Liabilities held for sale are included with Accrued and other current liabilities in the Consolidated Balance Sheet. |
Following are the components of Roy’s included in the Consolidated Statements of Operations and Comprehensive Income for the following periods:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Restaurant sales | $ | 68,575 |
| | $ | 73,945 |
| | $ | 75,721 |
|
| (Loss) income before income taxes (1) | $ | (13,612 | ) | | $ | (1,844 | ) | | $ | 923 |
|
________________
| |
(1) | Includes impairment charges of $13.4 million for Assets held for sale during the fiscal year 2014. |
Other Disposals - During the third quarter of 2014, the Company decided to sell both of its corporate airplanes. In connection with this decision, the Company recognized pre-tax asset impairment charges of $10.6 million for fiscal year 2014. The impairment charges are recorded in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income. The Company completed the sale of one airplane during the fourth quarter of 2014 for net proceeds of $2.5 million. The fair value of the remaining airplane of $2.6 million is recorded in Assets held for sale as of December 28, 2014.
5. Earnings Per Share
The Company computes basic earnings per share based on the weighted average number of commondivided by diluted weighted-average shares. Diluted weighted-average shares
that wereinclude weighted-average shares outstanding
during the period. Diluted earnings per share includesplus the dilutive effect of common stock equivalents,
consisting ofincluding restricted stock,
restricted stock units, performance-based share unitsRSUs, PSUs and stock options,
usingof share-based compensation.The second tranche of the treasury stock method. Performance-based share units2013 PSU award and the first tranche of the 2014 PSU award vested and were settled in shares based on the following scale:
| | | | | | | | | | | | | | | | | | | | |
PERFORMANCE MEASURE | | PERFORMANCE MEASURES AND TARGETS | | | ACTUAL
RESULTS | | | PERCENTAGE
OF PSUs
EARNED IN
2015 | |
| | THRESHOLD
(50% of shares
are earned) | | | TARGET
(100% of shares
are earned) | | | MAXIMUM
(200% of shares
are earned) | | | |
2013-2014 BBI Cumulative Adjusted Net Income (2013 grant) | | $ | 280M | | | $ | 296M | | | $ | 316M | | | $ | 283M | | | | 59 | % |
2014 BBI Adjusted EPS (2014 grant) | | $ | 1.07 | | | $ | 1.19 | | | $ | 1.35 | | | $ | 1.10 | | | | 63 | % |
For amounts between the threshold, target and maximum amounts set forth above, the participant will earn a number of shares based on a non-linear sliding scale between such percentages. No shares are considered dilutive whenearned for achievement of performance measures below the related performance criterion has been met.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
threshold. The following table presentssets forth (a) the computation of basicaggregate target PSUs awarded in 2013 and diluted earnings per share:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands, except per share amounts) | 2014 | | 2013 | | 2012 |
| Net income attributable to Bloomin’ Brands | $ | 91,090 |
| | $ | 208,367 |
| | $ | 49,971 |
|
| | | | | | |
| Basic weighted average common shares outstanding | 125,139 |
| | 122,972 |
| | 111,999 |
|
| | | | | | |
| Effect of diluted securities: | | | | | |
| Stock options | 3,079 |
| | 4,902 |
| | 2,738 |
|
| Nonvested restricted stock and restricted stock units | 91 |
| | 191 |
| | 84 |
|
| Nonvested performance-based share units | 8 |
| | 9 |
| | — |
|
| Diluted weighted average common shares outstanding | 128,317 |
| | 128,074 |
| | 114,821 |
|
| | | | | | |
| Basic earnings per share | $ | 0.73 |
| | $ | 1.69 |
| | $ | 0.45 |
|
| Diluted earnings per share | $ | 0.71 |
| | $ | 1.63 |
| | $ | 0.44 |
|
Dilutive securities outstanding not included in2014, (b) the computation of earnings per share because their effect was antidilutive were as follows:
|
| | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Stock options | 3,090 |
| | 1,348 |
| | 1,092 |
|
| Nonvested restricted stock and restricted stock units | 206 |
| | 12 |
| | — |
|
6. Stock-based and Deferred Compensation Plans
Stock-based Compensation Plans
Equity Compensation Plans - The Company’s 2012 Incentive Plan permits the grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards to officers, employees and directors. Upon adoption and approval of the 2012 Incentive Plan, all of the Company’s previous equity compensation plans were terminated. 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.
As of December 28, 2014, the maximum number of shares of common stock available for issuance pursuant to the 2012 Incentive Plan was 7,918,651. On the first business day of each fiscal year, the aggregate number of shares that
maycould be
issued automatically increases by two percentearned based on 2014 results and continued employment through the vesting date and (c) the numbers of shares actually earned of the tranche eligible for vesting in 2015 (25% of the total
award) that were earned, based on the Compensation Committee’s recommendation and the Board of Directors’ approval of the performance achievement for 2014. | | | | | | | | | | | | | | | | | | | | | | | | |
| | | PSUs AWARDED | | | PORTION OF PSUs VESTING FOR
FY 2014 | | | PSUs EARNED BASED ON FY 2014
RESULTS | |
| | | 2013 AWARD | | | 2014 AWARD | | | 2013 AWARD | | | 2014 AWARD | | | 2013 AWARD | | | 2014 AWARD | |
Elizabeth A. Smith | | | — | | | | 86,651 | | | | — | | | | 21,662 | | | | — | | | | 13,648 | |
David J. Deno | | | 34,482 | | | | 28,634 | | | | 8,620 | | | | 7,158 | | | | 5,086 | | | | 4,510 | |
Donagh M. Herlihy | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Stephen K. Judge | | | — | | | | 11,849 | | | | — | | | | 2,962 | | | | — | | | | 1,867 | |
Jeffrey S. Smith | | | 20,632 | | | | 14,199 | | | | 5,158 | | | | 3,549 | | | | 3,044 | | | | 2,236 | |
| • | | Off-Cycle 2014 LTI Awards |
Mr. Herlihy was granted 50,000 restricted stock units and the option to purchase 250,000 shares then issued and outstanding. All outstanding stock-based compensation awards contain certain forfeiture provisions.
of our common stock under the 2012 Equity Plan in connection with his hiring in September 2014. The Company recognized stock-based compensation expense as follows:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Stock options | $ | 11,946 |
| | $ | 11,168 |
| | $ | 20,148 |
|
| Restricted stock and restricted stock units | 3,857 |
| | 2,026 |
| | 1,392 |
|
| Performance-based share units | 1,190 |
| | 663 |
| | — |
|
| | $ | 16,993 |
| | $ | 13,857 |
| | $ | 21,540 |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock Options - Beginningrestricted stock units will vest in August 2012, stock options generally vest and become exercisableequal amounts over a four-year period on each anniversary of the grant date, contingent upon his continued employment. The option grant has an exercise price of $18.12 per share and the shares subject to the option grant will vest in equal amounts over a four-year period on each anniversary of the grant date, contingent upon his continued employment. The number of awards was determined by analyzing market data to offer a competitive LTI package, and a portion of the awards were to offset the loss of awards from his previous employer that would have vested within a short period of fourtime of his start date with us.Mr. Judge was granted 25,000 restricted stock units under the 2012 Equity Plan in recognition of his continued transformation of the Bonefish Grill restaurant concept, while maintaining long-term objectives and building a more robust, strategic plan. In addition, this award solidified our commitment to Mr. Judge and his vision for the restaurant concept. The restricted stock units will vest in equal amounts over a four-year period on each anniversary of the grant date, contingent upon his continued employment.
All of these awards, if unvested, will forfeit upon termination or retirement.
See “—Grants of Plan-Based Awards for Fiscal 2014” for additional information regarding 2014 equity awards to the named executive officers.
In December 2014, we adopted a Compensation Recovery Policy pursuant to which executive officers and other key employees will be required to return incentive compensation paid to them if the financial results upon which the awards were based are materially restated due to dishonesty, fraud, misrepresentation or intentional misconduct of a Company policy or law (a “Material Financial Restatement”).
Under the Compensation Recovery Policy, we can require reimbursement of all or a portion of any bonus, incentive payment, equity-based compensation (including performance shares, restricted stock or restricted stock units and stock options), or other compensation to the extent that it is paid, earned or vests less than three years prior to the date we publicly disclose the need for the applicable Material Financial Restatement.
We believe our Compensation Recovery Policy is sufficiently broad to reduce the potential risk that an executive officer or key employee would intentionally misstate results in order to benefit under an equal numberincentive program and provides the opportunity for recoupment in the event that an executive officer or key employee took actions that, in hindsight, should not have been rewarded.
In addition, to underscore the importance of shares each year.linking executive and stockholder interests, the Board of Directors adopted Stock options have an exercisable lifeOwnership Guidelines Policy for directors, executive officers and our executive leadership team who are eligible to receive long-term incentive awards. The target level of no more than tenownership of Bloomin’ Brands, Inc. common stock is established as a multiple of base salary or annual retainer.
| | |
Position | | Target Ownership |
Non-Employee Directors | | 5x Annual Retainer |
CEO | | 5x Base Salary |
Executive Officers | | 3x Base Salary |
Executive Leadership Team | | 1x Base Salary |
Each employee subject to the Stock Ownership Guidelines is expected to achieve the ownership target within five years from the date of grant.
Stock options granted prior to August 2012 generally vest and become exercisable over a period of five years in an equal number of shares each year. Shares acquired uponon which the exercise of stock options were generallyemployee became subject to a stockholder’s agreementthe guidelines. Shares that contained a management call option and certain transfer restrictions. The management call option allowedcount toward the Company to repurchase all shares purchased through exercise of stock options upon termination of employment at any time prior to the earlier of an IPOtarget ownership amount include Common Stock directly or a change of control. As a result of the transfer restrictions and management call option, the Company did not record compensation expense for stock options that contained the call option. Prior to the Company’s IPO in August 2012, there were no exercises of stock options by employees, and generally all stock options of terminated employees with a call provision either expired or were forfeited.
Upon completion of the Company’s IPO, the Company recorded $16.0 million of stock compensation expense for: (i) certain stock options that became exercisable and (ii) the time-vested portion of outstanding stock options containing the management call option due to automatic termination of the call option upon completion of the offering.
The following table presents a summary of the Company’s stock option activity for fiscal year 2014:
|
| | | | | | | | | | | | |
| (in thousands, except exercise price and contractual life) | OPTIONS | | WEIGHTED-
AVERAGE
EXERCISE
PRICE | | WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS) | | AGGREGATE
INTRINSIC
VALUE |
| Outstanding as of December 31, 2013 | 10,010 |
| | $ | 9.54 |
| | 6.6 | | $ | 144,813 |
|
| Granted | 1,541 |
| | 23.38 |
| | | | |
| Exercised | (1,260 | ) | | 7.53 |
| | | | |
| Forfeited or expired | (514 | ) | | 17.07 |
| | | | |
| Outstanding as of December 28, 2014 | 9,777 |
| | $ | 11.59 |
| | 6.2 | | $ | 120,461 |
|
| Vested and expected to vest as of December 28, 2014 | 9,716 |
| | $ | 11.54 |
| | 6.2 | | $ | 120,193 |
|
| Exercisable as of December 28, 2014 | 6,427 |
| | $ | 7.84 |
| | 5.2 | | $ | 102,367 |
|
Assumptions used in the Black-Scholes option pricing model and the weighted-average fairindirectly owned, estimated after-tax value of option awards granted were as follows for the periods indicated:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Assumptions: | | | | | |
| Weighted-average risk-free interest rate (1) | 1.82 | % | | 1.22 | % | | 1.11 | % |
| Dividend yield (2) | — | % | | — | % | | — | % |
| Expected term (3) | 6.3 years |
| | 6.3 years |
| | 6.5 years |
|
| Weighted-average volatility (4) | 48.4 | % | | 48.6 | % | | 48.6 | % |
| | | | | | |
| Weighted-average grant date fair value per option | $ | 11.37 |
| | $ | 9.14 |
| | $ | 6.93 |
|
________________
| |
(1) | Risk-free 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 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 for fiscal years 2014 and 2013 is based on the historical volatilities of the Company’s stock and the stock of comparable peer companies. Volatility for fiscal year 2012 is based on the historical volatilities of the stock of comparable peer companies. |
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following representstime-vested restricted stock option compensation information for the periods indicated:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Intrinsic value of options exercised | $ | 19,474 |
| | $ | 42,661 |
| | $ | 523 |
|
| Excess tax benefits for tax deductions related to the exercise of stock options (1) | $ | 2,405 |
| | $ | 4,304 |
| | $ | — |
|
| Cash received from option exercises | $ | 9,540 |
| | $ | 27,786 |
| | $ | 884 |
|
| Fair value of stock options vested (2) | $ | 36,614 |
| | $ | 47,468 |
| | $ | 66,467 |
|
| Tax benefits for stock option compensation expense (1) | $ | 7,576 |
| | $ | 4,381 |
| | $ | — |
|
| | | | | | |
| Unrecognized stock option expense | $ | 24,164 |
| | | | |
| Remaining weighted-average vesting period | 2.8 years |
| | | | |
________________
| |
(1) | Excess tax benefits for tax deductions related to the exercise of stock options and tax benefits for stock option compensation expense were not recognized in fiscal year 2012 due to a valuation allowance and other available tax credits. |
| |
(2) | The fair value of stock options that vested during fiscal year 2012 included $39.3 million of stock options that would have vested in prior years without the management call option. |
Restricted Stock and Restricted Stock Units - Restricted stock andor restricted stock units generally vest and become exercisable in an equal numberestimated after-tax, in-the-money value of shares each year. Restrictedvested stock options (based on the Black-Scholes value). Unvested stock options and stock units issued to members of the Board of Directors vest over a period of three years. For employees, restricted stock and restricted stock units vest over four years. Following is a summary of the Company’s restricted stock and restricted stock unit activity for fiscal year 2014:
|
| | | | | | |
| (in thousands, except grant date fair value) | NUMBER OF RESTRICTED STOCK & RESTRICTED STOCK UNIT AWARDS | | WEIGHTED-AVERAGE
GRANT DATE
FAIR VALUE PER AWARD |
| Outstanding as of December 31, 2013 | 581 |
| | $ | 18.43 |
|
| Granted | 669 |
| | 20.88 |
|
| Vested | (146 | ) | | 18.32 |
|
| Forfeited | (158 | ) | | 19.40 |
|
| Outstanding as of December 28, 2014 | 946 |
| | $ | 20.08 |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following represents restricted stock and restricted stock unit compensation information as of December 28, 2014:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Fair value of restricted stock vested | $ | 2,680 |
| | $ | 1,597 |
| | $ | 2,839 |
|
| Tax benefits for restricted stock compensation expense (1) | $ | 1,298 |
| | $ | 817 |
| | $ | — |
|
| | | | | | |
| Unrecognized restricted stock expense | $ | 15,327 |
| | | | |
| Remaining weighted-average vesting period | 3.2 years |
| | | | |
________________
| |
(1) | Excess tax benefits for tax deductions related to restricted stock compensation expense were not recognized in fiscal year 2012 due to a valuation allowance and other available tax credits. |
Performance-based Share Units - Beginning in 2013, the Company grantedunearned performance-based share units (“PSUs”)do not count toward the target ownership amount.Other Benefits and Perquisites. The named executive officers are each entitled to receive certain employees. The PSUs vest in an equal numberperquisites and benefits under the terms of shares over four years. The numbertheir employment agreements and offers of units that vest is determinedemployment. We believe these benefits are reasonable and consistent with our overall compensation program and better enable us to attract and retain qualified employees for each year based on the achievement of certain Company performance criteria as set forth in the award agreement and may range from zero to 200% of the annual target grant. The PSUs are settled in shares of common stock, with holders receiving one share of common stock for each performance-based share unit that vests. The fair value of PSUs is based on the closing price of the Company’s common stock on the grant date. Compensation expense for PSUs is recognized over the vesting period when it is probable the performance criteria will be achieved.
At December 28, 2014, the following performance-based share unit (“PSUs”) programs were in progress:
|
| | | | | | | | | | | | | | | | | |
| | | | | TARGET NO. OF PSUs AWARDED AND REMAINING TO GRANT (1) | | TARGET NO. OF GRANTED AND OUTSTANDINGPSUs (2) | | ESTIMATED PAYOUT OF GRANTED AND OUTSTANDING PSUs AS OF DECEMBER 28, 2014 | | | | MAXIMUM PAYOUT (AS A % OF TARGET NO. OF PSUs) |
| (units in thousands) | | | | | MINIMUM PAYOUT | |
| AWARD DATE | | PROGRAM | | | | | |
| 2/26/2013 | | 2013 Program | | 103 |
| | 32 |
| | 19 |
| | — | % | | 200 | % |
| 4/24/2013 | | 2013 Grant | | 12 |
| | 6 |
| | 6 |
| | — | % | | 100 | % |
| 2/27/2014 | | 2014 Program | | 174 |
| | 54 |
| | 34 |
| | — | % | | 200 | % |
| | | | | 289 |
| | 92 |
| | 59 |
| | | | |
________________
| |
(1) | Represents target PSUs awarded under each of the identified programs that have not been granted for accounting purposes. These PSUs do not result in the recognition of stock-based compensation expense until the performance target has been set by the Board of Directors as of the beginning of each fiscal year. There is no effect of these PSUs on the Company’s basic or diluted shares outstanding. |
| |
(2) | Assumes achievement of target threshold of the Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) goals for the Company or respective concepts for the 2013 Programs and achievement of target threshold of the Adjusted EPS goal for the 2014 Program. |
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents a summary of the Company’s PSU activity for fiscal year 2014:
|
| | | | | | |
| (in thousands, except grant date fair value) | PERFORMANCE-BASED SHARE UNITS | | WEIGHTED-AVERAGE
GRANT DATE
FAIR VALUE PER AWARD |
| Outstanding as of December 31, 2013 | 49 |
| | $ | 17.85 |
|
| Granted (1) | 110 |
| | 25.07 |
|
| Vested (2) | (56 | ) | | 16.70 |
|
| Forfeited | (11 | ) | | 23.10 |
|
| Outstanding as of December 28, 2014 | 92 |
| | $ | 25.08 |
|
________________
| |
(1) | Share unit amountskey positions. Such benefits include the number of PSUs at the target threshold in the current period grant and additional shares earned above target due to exceeding prior period performance criteria. |
| |
(2) | In February 2014, 44,996 PSUs vested based upon satisfaction of the 2013 Company performance criteria, representing the achievement of 114% of the annual target threshold. |
Deferred Compensation Plans
Restaurant Managing Partners and Chef Partners - Restaurant Managing Partners and Chef Partners are eligible to participate in deferred compensation programs. The Company invests in various corporate-owned life insurance, policies, which are held within an irrevocable grantor or “rabbi” trust accountmedical insurance, annual physical examinations, vacation and personal use of corporate aircraft for settlementour Chief Executive Officer. The Compensation Committee periodically reviews the levels of perquisites and other benefits provided to the obligations undernamed executive officers. In March 2015, we eliminated the deferred compensation plans.car allowance for all executive officers. The deferred compensation obligation dueequivalent amount was added to managingtheir base salaries. The only named executive officer that was affected was Mr. Smith, and chef partners$5,000 was $155.6 million and $148.3 million as of December 28, 2014 and December 31, 2013, respectively. The unfunded obligationadded to his base salary for managing and chef partners’ deferred compensation was $82.6 million and $76.5 million as of December 28, 2014 and December 31, 2013, respectively.
Other Benefit Plans
401(k) Plan - The Company has a qualified defined contribution plan that qualifies under Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company incurred costs of $1.1 million, $2.1 million and $2.1 million for the 401(k) Plan for fiscal years 2014, 2013 and 2012, respectively.
Deferred Compensation Plan - The Company provides2015 to reflect this policy change.We offer a deferred compensation plan for itsour highly compensated employees who are not eligible to participate in the OSI Restaurant Partners, LLC Salaried Employees 401(k) Plan.Plan and Trust. The deferred compensation plan allows thesehighly compensated employees to contribute a percentagefrom 5% to 90% of their base salary and from 5% to 100% of their cash bonus on a pre-tax basis.basis to an investment account consisting of various investment fund options. The deferred compensation plan is unfunded and unsecured.
7. Other Current Assets, Net
Other current assets, net, consistedpermits us to make a discretionary contribution to the plan on behalf of an eligible employee periodically; however, we have not made any discretionary contribution to date. In the event of the following:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Prepaid expenses | $ | 30,260 |
| | $ | 27,652 |
|
| Accounts receivable - vendors, net | 27,340 |
| | 23,218 |
|
| Accounts receivable - franchisees, net | 1,159 |
| | 1,394 |
|
| Accounts receivable - other, net | 107,178 |
| | 33,086 |
|
| Other current assets, net | 40,691 |
| | 32,362 |
|
| | $ | 206,628 |
| | $ | 117,712 |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
8. Property, Fixtures and Equipment, Net
Property, fixtures and equipment, net, consistedemployment other than by reason of disability or death, the following:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Land | $ | 262,141 |
| | $ | 263,989 |
|
| Buildings and building improvements | 998,787 |
| | 959,102 |
|
| Furniture and fixtures | 368,638 |
| | 345,040 |
|
| Equipment | 531,117 |
| | 487,276 |
|
| Leasehold improvements | 457,623 |
| | 443,376 |
|
| Construction in progress | 46,025 |
| | 79,526 |
|
| Less: accumulated depreciation | (1,035,020 | ) | | (945,046 | ) |
| | $ | 1,629,311 |
| | $ | 1,633,263 |
|
At December 28, 2014,employee is entitled to receive the Company leased $13.6 million and $19.5 million, respectively, of certain land and buildings to third parties. Accumulated depreciation related to the leased building assets of $4.9 million is included in Property, fixtures and equipment as of December 28, 2014.
Depreciation and repair and maintenance expense is as follows for the periods indicated:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Depreciation expense | $ | 177,504 |
| | $ | 156,015 |
| | $ | 147,768 |
|
| Repair and maintenance expense | 108,392 |
| | 103,613 |
| | 98,039 |
|
Effective March 14, 2012, the Company entered into a sale-leaseback transaction with two third-party real estate institutional investors in which the Company sold 67 restaurant properties at fair market value for net proceeds of $192.9 million. The Company then simultaneously leased these properties under nine master leases (collectively, the “REIT Master Leases”). The initial terms of the REIT Master Leases are 20 years with four five-year renewal options. One renewal period is at a fixed rental amount and the last three renewal periods are generally based on then-current fair market values. The sale at fair market value and subsequent leaseback qualified for sale-leaseback accounting treatment, and the REIT Master Leases are classified as operating leases. The Company recorded a deferred gain on the sale of certain of the properties of $42.9 million primarily in Other long-term liabilities, net in its Consolidated Balance Sheet at the time of the transaction, which is amortized over the initial 20-year term of the lease.
9. Goodwill and Intangible Assets, Net
Goodwill - The following table is a roll-forward of goodwill:
|
| | | | | | | |
| (in thousands) | 2014 | | 2013 |
Balance as of beginning of year
| $ | 352,118 |
| | $ | 270,972 |
|
| Acquisitions (1) | 2,461 |
| | 141,942 |
|
| Translation adjustments | (13,039 | ) | | (8,165 | ) |
| Disposals (1) | — |
| | (52,631 | ) |
Balance as of end of year
| $ | 341,540 |
| | $ | 352,118 |
|
________________
| |
(1) | Effective November 1, 2013, the Company acquired a controlling interest in the Brazil Joint Venture. Refer to Note 3 - Acquisitions for discussion of goodwill associated with the Brazil acquisition.
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table is a summary of the Company’s gross goodwill balances and accumulated impairments as of the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | DECEMBER 28, 2014 | | DECEMBER 31, 2013 | | DECEMBER 31, 2012 |
| (in thousands) | GROSS CARRYING AMOUNT | | ACCUMULATED IMPAIRMENTS | | GROSS CARRYING AMOUNT | | ACCUMULATED IMPAIRMENTS | | GROSS CARRYING AMOUNT | | ACCUMULATED IMPAIRMENTS |
| Goodwill | $ | 1,126,176 |
| | $ | (784,636 | ) | | $ | 1,136,754 |
| | $ | (784,636 | ) | | $ | 1,055,608 |
| | $ | (784,636 | ) |
The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets each year during the second quarter. The Company did not record any goodwill asset impairment charges during fiscal years 2014, 2013 or 2012.
Intangible Assets, net - Intangible assets, net, consisted of the following as of December 28, 2014 and December 31, 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | WEIGHTED AVERAGE AMORTIZATION PERIOD
(IN YEARS) | | DECEMBER 28, 2014 | | DECEMBER 31, 2013 |
| (in thousands) | | GROSS CARRYING VALUE | | ACCUMULATED AMORTIZATION | | NET CARRYING VALUE | | GROSS CARRYING VALUE | | ACCUMULATED AMORTIZATION | | NET CARRYING VALUE |
| Trade names | Indefinite | | $ | 414,000 |
| | | | $ | 414,000 |
| | $ | 413,000 |
| | | | $ | 413,000 |
|
| Trademarks | 14 | | 83,991 |
| | $ | (30,656 | ) | | 53,335 |
| | 88,581 |
| | $ | (26,619 | ) | | $ | 61,962 |
|
| Favorable leases | 9 | | 87,655 |
| | (43,083 | ) | | 44,572 |
| | 92,511 |
| | (39,759 | ) | | $ | 52,752 |
|
| Franchise agreements | 6 | | 14,881 |
| | (8,633 | ) | | 6,248 |
| | 14,881 |
| | (7,488 | ) | | $ | 7,393 |
|
| Reacquired franchise rights | 13 | | 70,023 |
| | (6,072 | ) | | 63,951 |
| | 77,418 |
| | (516 | ) | | $ | 76,902 |
|
| Other intangibles | 2 | | 9,099 |
| | (5,773 | ) | | 3,326 |
| | 9,099 |
| | (3,975 | ) | | $ | 5,124 |
|
| Total intangible assets | 12 | | $ | 679,649 |
| | $ | (94,217 | ) | | $ | 585,432 |
| | $ | 695,490 |
| | $ | (78,357 | ) | | $ | 617,133 |
|
The Company did not record any indefinite-lived intangible asset impairment charges during fiscal years 2014, 2013 or 2012.
Definite-lived intangible assets are amortized on a straight-line basis. The following table presents the aggregate expense related to the amortization of the Company’s trademarks, favorable leases, franchise agreements, reacquired franchise rights and other intangibles:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Amortization expense (1) | $ | 19,807 |
| | $ | 14,405 |
| | $ | 14,550 |
|
________________
| |
(1) | Amortization expense is recorded in Depreciation and amortization and Other restaurant operating expense in the Company’s Consolidated Statements of Operations and Comprehensive Income. |
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents expected annual amortization of intangible assets as of December 28, 2014:
|
| | | |
| (in thousands) | |
| 2015 | $ | 18,256 |
|
| 2016 | 17,229 |
|
| 2017 | 15,336 |
|
| 2018 | 14,940 |
|
| 2019 | 14,465 |
|
Effective June 1, 2014, OSI and Carrabba’s Italian Grill, LLC (“Carrabba’s”), a wholly owned subsidiary of OSI, entered into a Third Amendment to the Royalty Agreement with the founders of Carrabba’s Italian Grill and their affiliated entities (collectively, the “Carrabba’s Founders”). The amendment provides that no continuing royalty fee will be paid to the Carrabba’s Founders for Carrabba’s restaurants located outside the United States. Each Carrabba’s restaurant located outside the United States will pay a one-time lump sum royalty fee, which varies depending on the size of the restaurant. The one-time fee is $100,000 for restaurants 5,000 square feet or larger, $75,000 for restaurants 3,500 square feet or larger but less than 5,000 square feet and $50,000 for restaurants less than 3,500 square feet. In connection with the amendment, the Company made a non-refundable payment of $1.0 million to the Carrabba’s Founders for the first ten restaurants of 5,000 square feet or more to be located outside the United States. The payment to the Carrabba’s Founders was recorded as a trade name in Intangible Assets, net,full balance in the Consolidated Balance Sheet as of December 28, 2014.
In addition, new Carrabba’s restaurantsaccount in the U.S. that first open on or after June 1, 2014 will pay a fixed royalty of 0.5 percent on sales occurring prior to 4 pm local time Monday through Saturday. Existing Carrabba’s restaurants in the U.S. that begin serving weekday lunch on or after June 1, 2014 will pay a fixed royalty of 0.5 percent on sales occurring prior to 4 pm local time Monday through Friday. In each case, these sales will be excluded in calculating the volume based royalty percentage on sales after 4 pm.
10. Other Assets, Net
Other assets, net, consisted of the following:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Company-owned life insurance | $ | 64,067 |
| | $ | 66,749 |
|
| Deferred financing fees (1) | 6,917 |
| | 12,354 |
|
| Liquor licenses | 27,844 |
| | 27,793 |
|
| Other assets | 57,135 |
| | 58,223 |
|
| | $ | 155,963 |
| | $ | 165,119 |
|
________________
| |
(1) | Net of accumulated amortization of $6.1 million and $11.4 million at December 28, 2014 and December 31, 2013, respectively. |
The Company amortized deferred financing fees of $3.1 million, $3.6 million and $8.2 million to interest expense for fiscal years 2014, 2013 and 2012, respectively.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Accrued payroll and other compensation | $ | 121,548 |
| | $ | 100,955 |
|
| Accrued insurance | 19,455 |
| | 20,710 |
|
| Other current liabilities | 96,841 |
| | 75,449 |
|
| | $ | 237,844 |
| | $ | 197,114 |
|
Accrued Payroll Taxes - The Company is currently under payroll tax examination by the IRS. During 2013, the IRS informed the Company that it proposed to issue an audit adjustment for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by the Company’s tipped employees during calendar year 2010. Subsequently, the IRS indicated that the scope of the proposed adjustment would expand to include the 2011 and 2012periods. During 2014, the Company settled the calendar year 2010 audit adjustment for $5.0 million. Following are the components recognized in the Consolidated Balance Sheets for the payroll tax audits:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Accrued and other current liabilities | $ | 12,000 |
| | $ | 5,000 |
|
| Other long-term liabilities, net | — |
| | 12,000 |
|
| | $ | 12,000 |
| | $ | 17,000 |
|
In addition, a deferred income tax benefit was recorded for the allowable income tax credits for the payroll audits. As a result of the associated income tax benefit, the recognition of the liability had no impact on net income.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
12. Long-term Debt, Net
Following is a summary of outstanding long-term debt:
|
| | | | | | | | | | | | | |
| | DECEMBER 28, 2014 | | DECEMBER 31, 2013 |
| (in thousands, except interest rate) | OUTSTANDING BALANCE | | INTEREST RATE | | OUTSTANDING BALANCE | | INTEREST RATE |
| Senior Secured Credit Facility (1): | | | | | | | |
| Term loan A | $ | 296,250 |
| | 2.16 | % | | $ | — |
| | — | % |
| Term loan B | 225,000 |
| | 3.50 | % | | 935,000 |
| | 3.50 | % |
| Revolving credit facility | 325,000 |
| | 2.16 | % | | — |
| | — | % |
| Total Senior Secured Credit Facility | 846,250 |
| | | | 935,000 |
| | |
| 2012 CMBS loan: | | | | | | | |
| First mortgage loan (2) | 299,765 |
| | 4.08 | % | | 311,644 |
| | 4.02 | % |
| First mezzanine loan | 85,127 |
| | 9.00 | % | | 86,131 |
| | 9.00 | % |
| Second mezzanine loan | 86,067 |
| | 11.25 | % | | 86,704 |
| | 11.25 | % |
| Total 2012 CMBS Loan | 470,959 |
| | | | 484,479 |
| | |
| Capital lease obligations | 634 |
| | | | 1,255 |
| | |
| Other long-term debt (3) | 4,073 |
| | 0.52% to 7.00% |
| | 8,561 |
| | 0.58% to 7.00% |
|
| | 1,321,916 |
| | | | 1,429,295 |
| | |
| Less: current portion of long-term debt | (25,964 | ) | | | | (13,546 | ) | | |
| Less: unamortized debt discount | (6,073 | ) | | | | (10,152 | ) | | |
| Long-term debt, net | $ | 1,289,879 |
| | | | $ | 1,405,597 |
| | |
________________
| |
(1) | Subsequent to December 28, 2014, the Company made payments of $3.8 million, $10.0 million and $60.0 million on its Term loan A, Term loan B and revolving credit facility, respectively. |
| |
(2) | Represents the weighted-average interest rate for the respective period. |
| |
(3) | Balance is comprised of sale-leaseback obligations and uncollateralized notes payable. Interest rates presented relate to the notes payable. |
Bloomin’ Brands, Inc. is a holding company and conducts its operations through its subsidiaries, certain of which have incurred indebtedness as described below.
Credit Agreement - On October 26, 2012, OSI refinanced its outstanding senior secured credit facilities and entered into a credit agreement (“Credit Agreement”) with a syndicate of institutional lenders and financial institutions. The senior secured credit facility (the “Senior Secured Credit Facility”) of up to $1.225 billion was comprised of a $1.0 billion Term loan B and a $225.0 million revolving credit facility, including letter of credit and swing line loan sub-facilities. The Term loan B was issued with an original issue discount of $10.0 million.
On April 10, 2013, OSI amended the Credit Agreement in connection with a repricing of the Term loan B. The terms of the amended Term loan B remained unchanged, but had a lower applicable interest rate than the existing senior secured Term loan B facility. In January 2014, the Credit Agreement was amended to align with the change in the Company’s fiscal year.
Amended Credit Agreement - OSI completed a refinancing of its Senior Secured Credit Facility and entered into an amendment to the Credit Agreement (“Amended Credit Agreement”) on May 16, 2014. The Amended Credit Agreement provides for senior secured financing of up to $1.125 billion, initially consisting of a new $300.0 million Term loan A, a $225.0 million Term loan B and a $600.0 million revolving credit facility, including letter of credit and swing line loan sub-facilities. The Term loan A and revolving credit facility mature May 16, 2019, and the Term loan B matures on October 26, 2019. The Term loan A was issued with a discount of $2.9 million.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
At closing, $400.0 million was drawn under the revolving credit facility. The proceeds of the Term loan A and the loans made at closing under the revolving credit facility were used to pay down a portion of Term loan B under the Credit Agreement. The total indebtedness of the Company remained unchanged as a result of the refinancing.
The Company may elect an interest rate for the Amended Credit Agreement at each reset period based on the Base Rate or the Eurocurrency Rate. The Base Rate option is the highest of: (i) the prime rate of Wells Fargo Bank, National Association, (ii) the federal funds effective rate plus 0.5 of 1.0% or (iii) the Eurocurrency rate with a one-month interest period plus 1.0% (the “Base Rate”). The Eurocurrency Rate option is the seven, 30, 60, 90 or 180-day Eurocurrency rate (“Eurocurrency Rate”). The interest rates are as follows:
|
| | | | |
| | BASE RATE ELECTION | | EUROCURRENCY RATE ELECTION |
Term loan A and revolving credit facility | | 75 to 125 basis points over Base Rate | | 175 to 225 basis points over the Eurocurrency Rate |
Term loan B | | 150 basis points over Base Rate | | 250 basis points over the Eurocurrency Rate |
Since the effective date of the Amended Credit Agreement, the Company has elected the Eurocurrency rate as its primary interest rate. Under the terms of the Amended Credit Agreement, the Term loan B interest rate determined using the Base Rate and Eurocurrency rate has minimum rates of 2.00% and 1.00%, respectively.
Fees on letters of credit and the daily unused availability under the revolving credit facility as of December 28, 2014, were 2.13% and 0.30%, respectively. As of December 28, 2014, $29.6 million of the revolving credit facility was committed for the issuance of letters of credit and not available for borrowing.
Substantially all of the assets of the Company’s domestic OSI subsidiaries collateralize the Senior Secured Credit Facility.
Commercial Mortgage-Backed Securities Loan -Effective March 27, 2012, New Private Restaurant Properties, LLC and two of the Company’s other indirect wholly-owned subsidiaries (collectively, “New PRP”) entered into a commercial mortgage-backed securities loan (the “2012 CMBS Loan”) with German American Capital Corporation and Bank of America, N.A. The 2012 CMBS Loan totaled $500.0 million at origination and was originally comprised of a first mortgage loan in the amount of $324.8 million, collateralized by 261 of the Company’s properties, and two mezzanine loans totaling $175.2 million. The loans have a maturity date of April 10, 2017.
The first mortgage loan has five fixed-rate components and a floating rate component. The fixed-rate components bear interest at rates ranging from 2.37% to 6.81% per annum. The floating rate component bears interest at a rate per annum equal to the 30-day London Interbank Offered Rate (“30-day LIBOR”), (with a floor of 1%) plus 2.37%. The first mezzanine loan bears interest at a rate of 9.00% per annum, and the second mezzanine loan bears interest at a rate of 11.25% per annum.
Debt Covenants and Other Restrictions -Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; acquire certain assets; effect mergers and similar transactions; and effect certain other transactions with affiliates. The Amended Credit Agreement also has a financial covenant to maintain a specified quarterly Total Net Leverage Ratio (“TNLR”). TNLR is the ratio of Consolidated Total Debt (Current portion of long-term debt and Long-term debt, net) to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments). The TNLR may not exceed a level set at 5.00 to 1.00 through fiscal 2017, with a step down to a maximum level of 4.75 to 1.00 in fiscal 2018 and thereafter.
The 2012 CMBS Loan also requires the Company to maintain an interest rate cap (“Rate Cap”) to limit the volatility of the floating rate component of the first mortgage loan within the 2012 CMBS Loan. See Note 16 - Derivative Instruments and Hedging Activities for further information.
At December 28, 2014 and December 31, 2013, the Company was in compliance with its debt covenants.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Loss on Extinguishment and Modification of Debt - Following is a summary of loss on extinguishment and modification of debt recorded in the Company’s Consolidated Statement of Operations and Comprehensive Income:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 (1) | | 2013 (2) | | 2012 |
| 2012 CMBS Loan refinancing | $ | — |
| | $ | — |
| | $ | 2,852 |
|
| Retirement of OSI senior notes | — |
| | — |
| | 8,956 |
|
| Refinancing of Senior Secured Credit Facility | 11,092 |
| | — |
| | 9,149 |
|
| Repricing Term loan B | — |
| | 14,586 |
| | — |
|
| Loss on extinguishment and modification of debt | $ | 11,092 |
| | $ | 14,586 |
| | $ | 20,957 |
|
________________
| |
(1) | The loss was comprised of write-offs of $5.5 million of deferred financing fees and $4.9 million of unamortized debt discount and a prepayment penalty of $0.7 million. |
| |
(2) | The loss was comprised of a prepayment penalty of $9.8 million, third-party financing costs of $2.4 million and the write-down of $1.2 million each of deferred financing fees and unamortized debt discount. |
Deferred financing fees - The Company deferred $3.8 million of financing costs incurred to complete the refinancing of the Senior Secured Credit Facility in fiscal year 2014. These deferred financing costs are included in the line item, Other assets, net in the Consolidated Balance Sheets.
Maturities - Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of December 28, 2014:
|
| | | |
| (in thousands) | DECEMBER 28, 2014 |
| Year 1 (1) | $ | 27,601 |
|
| Year 2 | 40,147 |
|
| Year 3 | 460,983 |
|
| Year 4 | 24,403 |
|
| Year 5 | 767,524 |
|
| Thereafter | 1,258 |
|
| Total | $ | 1,321,916 |
|
________________
| |
(1) | Excludes unamortized discount of $1.6 million. |
The following is a summary of required amortization payments for Term loan A:
|
| | | | |
| SCHEDULED QUARTERLY PAYMENT DATES | | (in thousands) |
| December 31, 2014 through June 30, 2016 | | $ | 3,750 |
|
| September 30, 2016 through June 30, 2018 | | $ | 5,625 |
|
| September 30, 2018 through March 31, 2019 | | $ | 7,500 |
|
Since the inception of the Term loan B, OSI has made voluntary prepayments in excess of the remaining required amortization payments and, as a result, will not be required to make any further required amortization payments until the remaining balance of the loan reaches maturity in October 2019.
The Amended Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan B. Beginning with the fiscal year ended December 28, 2014, the Company is required to prepay outstanding amounts under its term loans with 50% of its annual excess cash flow, as defined in the Amended Credit Agreement. The amount of outstanding term loans required to be prepaid in accordance with the debt covenants may vary based on the Company’s leverage ratio and year-end results.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
13. Other Long-term Liabilities, Net
Other long-term liabilities, net, consisted of the following:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Accrued insurance liability | $ | 42,922 |
| | $ | 43,635 |
|
| Unfavorable leases, net of accumulated amortization | 49,492 |
| | 54,843 |
|
| Chef and managing partner deferred compensation obligations | 90,564 |
| | 109,529 |
|
| Deferred gain on sale-leaseback transaction, net of accumulated amortization | 35,864 |
| | 36,910 |
|
| Other long-term liabilities | 41,563 |
| | 41,869 |
|
| | $ | 260,405 |
| | $ | 286,786 |
|
The Company maintains an endorsement split-dollar insurance policy with a death benefit of $5.0 million for one of its current executive officers. The Company is the beneficiary of the policy to the extent of premiums paid or the cash value, whichever is greater, with the remaining death benefit being paid to personal beneficiaries designated by the executive officers.
During fiscal years 2014 and 2013, the Company terminated the split-dollar agreements with certain of its former executive officers for cash payments of $2.0 million and $5.2 million. Upon termination, the release of the death benefit and related liabilities less the associated cash termination payment resulted in net gains of $1.9 million and $4.7 million during fiscal years 2014 and 2013, which were recorded in General and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income. As a result of the terminations, the Company became the sole and exclusive owner of the related split-dollar insurance policies and elected to cancel them.
As of December 28, 2014 and December 31, 2013, the Company had $1.2 million and $5.0 million, respectively, recorded in Other long-term liabilities, net in its Consolidated Balance Sheets for the outstanding obligations under the endorsement split-dollar insurance policies.
14. 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 for fiscal year 2014:
|
| | | |
| | FISCAL YEAR |
| (in thousands) | 2014 |
| Balance, beginning of period | $ | 21,984 |
|
| Net income attributable to Redeemable noncontrolling interests | 666 |
|
| Contributions by noncontrolling shareholders | 1,456 |
|
| Transfer to redeemable noncontrolling interest | 627 |
|
| Balance, end of period | $ | 24,733 |
|
As of December 28, 2014, the Company allocated Net income attributable to noncontrolling interests and performed a measurement of the redemption amount for Redeemable noncontrolling interests, including a fair value assessment. Based on the fair value assessment, no adjustment was required for fiscal year 2014.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
15. Stockholders’ Equity
Public Offerings - During 2012, the Company completed an IPO of its common stock. In the offering, the Company issued and sold an aggregate of 14,196,845 shares of common stock at a price of $11.00 per share. The Company received net proceeds in the offering of $142.2 million after deducting underwriting discounts, commissions and offering-related expenses of $14.0 million. All of the net proceeds, together with cash on hand, was applied to retire OSI’s 10% senior notes due 2015.
In 2012, the retention bonus and the incentive bonus agreements with the Company’s CEO were amended. The remaining payments under each agreement were accelerated to a single lump sum paymentunless the employee has completed either five years of $22.4 million, which was paid upon the completionparticipation or ten years of service as of the Company’s IPOdate of termination of employment, in fiscal year 2012. In connection withwhich case, the amended agreements,account will be paid as elected by the Company recorded $18.1 millionemployee in equal annual installments over a specified period of accelerated bonus expense for fiscal year 2012 in General and administrative in its Consolidated Statement of Operations and Comprehensive Income.
Share Repurchases - In December 2014,two to 15 years. If the Company’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $100.0 million of its outstanding common stock. The authorization will expire on June 12, 2016. As of December 28, 2014, no shares had been repurchasedemployee becomes disabled or dies before any deferred amounts are paid out under the program.
Dividends - plan, we will pay to the employee (or the employee’s beneficiary if applicable) the full balance in the account in a single lump sum. If the employee’s employment terminates due to death or disability after he or she begins receiving payments, the remaining installment payments will be paid in installment payments as such payments come due.The amounts attributable to perquisites and other benefits provided to the named executive officers are reflected in the “—Summary Compensation Table” under the heading “All Other Compensation.”
Change in Control and Termination Benefits. Each employment agreement or offer of employment establishes, among other things, the executive’s benefits upon a termination of employment and/or a change in control. For a summary of these arrangements, see “—Potential Payments Upon Termination or Change in Control.”
In December 2014,addition, the Board of Directors adopted an Executive Change in Control Plan (the “Change in Control Plan”), which entitles executive officers and other key employees to certain severance payments and benefits in the event of a dividend policyqualifying termination of employment upon or within the 24 months following certain change in control events. The payments and benefits will be reduced by the amount of any severance or similar payments or benefits under which it intendsan employment agreement or other arrangement with us and are subject to declare quarterly cash dividends on sharesthe employee’s compliance with non-competition and other restrictive covenants and the other terms and conditions of the Company’s common stock. On February 12, 2015,Change in Control Plan. These benefits are described in more detail under “—Potential Payments Upon Termination or Change in Control” below.
Tax and Accounting Implications
In making decisions about executive compensation, the Compensation Committee took into account certain tax and accounting considerations, including Sections 162(m), 409A and 280G of the Internal Revenue Code. Additionally, we account for stock-based payments in accordance with the requirements of FASB ASC Topic No. 718, “Compensation-Stock Compensation.” Transition provisions under Section 162(m) may apply for a period of three to four years following the IPO to certain compensation arrangements that were entered into prior to our stock being publicly traded. We expect that our Compensation Committee may seek to qualify the variable compensation paid to our named executive officers under certain of these arrangements for an exemption from the deductibility limitations of
Section 162(m) when such limitations are applicable. The compensation for Messrs. Herlihy and Judge, and the recognition bonuses to our other executive officers, do not fall under these transition provisions, so this compensation is subject to the Section 162(m) deductibility limitations. Accordingly, our Compensation Committee has and may in the future, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent or is otherwise in our best interests. In addition, because there are uncertainties as to the application of regulations under Section 162(m), as with most tax matters, it is possible that our deductions may be challenged or disallowed.
Our Compensation Committee considers the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors declared the Company’s first quarterly cash dividend of $0.06 per share.
Accumulated Other Comprehensive Loss - The components of Accumulated other comprehensive loss (“AOCL”), net of tax, are as follows:
|
| | | | | | | | | | | |
| (in thousands) | FOREIGN CURRENCY TRANSLATION ADJUSTMENT | | UNREALIZED LOSSES ON DERIVATIVES | | ACCUMULATED OTHER COMPREHENSIVE LOSS |
| Balances as of December 31, 2013 | $ | (26,418 | ) | | $ | — |
| | $ | (26,418 | ) |
| Other comprehensive loss, net of tax | (31,731 | ) | | (2,393 | ) | | (34,124 | ) |
| Balances as of December 28, 2014 | $ | (58,149 | ) | | $ | (2,393 | ) | | $ | (60,542 | ) |
16. Derivative Instruments and Hedging Activities
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and an interest rate cap.
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 eightcounterparties 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 forward start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company will pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterparty based on the 30-day LIBOR rate.
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
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
reclassified to earnings in the same period that the hedged interest payments affect earnings. Compensation Discussion and Analysis be included in this proxy statement.Submitted by the Compensation Committee
Mindy Grossman,Chair
David R. Fitzjohn
Compensation Committee Interlocks and Insider Participation
The Company estimates $3.0 million
will be reclassified to interest expense over the next twelve months.
The following table presents the fair valueCompensation Committee consists of the Company’s interest rate swaps as well as their classification on the Consolidated Balance Sheet:
|
| | | | | |
| (in thousands) | DECEMBER 28, 2014 | | CONSOLIDATED BALANCE SHEET CLASSIFICATION |
| Interest rate swaps - liability | $ | 2,617 |
| | Accrued and other current liabilities |
| Interest rate swaps - liability | 1,307 |
| | Other long-term liabilities, net |
| Total fair value of derivative instruments - liability (1) | $ | 3,924 |
| | |
____________________
(1) See Note 17 - Fair Value Measurements for fair value discussionMr. Fitzjohn and Ms. Grossman, both of the interest rate swaps.
As of December 28, 2014, no interest expense related to the interest rate swaps is accrued in the Consolidated Balance Sheets or recognized in the Consolidated Statements of Operations and Comprehensive Income as the interest rate swapswhom are not effective until June 30, 2015.Independent Directors. During fiscal year 2014, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.
The following table summarizes the effects of the interest rate swapMessrs. Balson, Fitzjohn, and Sullivan and Ms. Grossman served on the Consolidated Statements of OperationsCompensation Committee. Messrs. Sullivan and Comprehensive Income for fiscal year 2014:
|
| | | | |
| (in thousands) | | AMOUNT OF (LOSS) GAIN RECOGNIZED IN OTHER COMPREHENSIVE INCOME |
| Interest rate swaps | | $ | (3,924 | ) |
| Income tax benefit | | 1,531 |
|
| Net of income taxes | | $ | (2,393 | ) |
The Company records its derivativesBalson resigned from the Compensation Committee on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of December 28, 2014, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.
By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of December 28, 2014, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness.
As of December 28, 2014, the fair value of the Company’s interest rate swaps in a net liability position, excluding any adjustment for nonperformance risk, was $4.0 million. As of December 28, 2014, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of December 28, 2014, it could have been required to settle its obligations under the agreements at their termination value of $4.0 million.
NON-DESIGNATED HEDGES
Interest Rate Cap - The Company is required to maintain an interest Rate Cap to limit the volatility of the floating rate component of the first mortgage loan within the 2012 CMBS loan. In April 2014, the Company’s Rate Cap expired. In connection with the expiration of the Rate Cap, the Company entered into a replacement rate cap (“Replacement Rate Cap”), with a notional amount of $48.7 million. Under the Replacement Rate Cap, if the 30-day LIBOR rate
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
exceeds 7.00% per annum, the counterparty must pay to the Company such excess on the notional amount of the floating rate component. The Replacement Rate Cap expires in April 2016. Changes in the fair value of the Replacement Rate Cap were nominal for fiscal years29, 2014 and 2013.
Commodities - The Company’s restaurants are dependent upon energy to operate and are impacted by changes in energy prices, including natural gas. The Company utilizes derivative instruments with a notional amount of $2.7 million to mitigate some of its overall exposure to material increases in natural gas.
The following table presents the fair value of the Company’s commodity derivative instruments as well as their classification on the Consolidated Balance Sheet:
|
| | | | | |
| (in thousands) | DECEMBER 28, 2014 | | CONSOLIDATED BALANCE SHEET CLASSIFICATION |
| Commodities - liability | $ | 566 |
| | Accrued and other current liabilities |
| Total fair value of derivative instruments - liability | $ | 566 |
| | |
The following table summarizes the effects of commodity derivative instruments on the Consolidated Statements of Operations and Comprehensive Income for fiscal year 2014:
|
| | | | | | |
| (in thousands) | | LOCATION OF (LOSS) GAIN RECOGNIZED IN INCOME ON DERIVATIVE | | AMOUNT OF (LOSS) GAIN RECOGNIZED IN INCOME ON DERIVATIVE |
| Commodities | | Other restaurant operating expense | | $ | (629 | ) |
| Total | | | | $ | (629 | ) |
Changes in the fair value of the commodity derivative instruments and any gains or losses were nominal for fiscal years 2013 and 2012.
17. Fair Value Measurements
Fair Value Measurements on a Recurring Basis - The following table presents the Company’s fixed income, money market funds and derivative instruments measured at fair value on a recurring basis as of December 28, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| (in thousands) | TOTAL | | LEVEL 1 | | LEVEL 2 | | TOTAL | | LEVEL 1 | | LEVEL 2 |
| Assets: | | | | | | | | | | | |
| Cash equivalents: | | | | | | | | | | | |
| Fixed income funds | $ | 4,602 |
| | $ | 4,602 |
| | $ | — |
| | $ | 9,849 |
| | $ | 9,849 |
| | $ | — |
|
| Money market funds | 7,842 |
| | 7,842 |
| | — |
| | 1,988 |
| | 1,988 |
| | — |
|
| Restricted cash equivalents: | | | | | | | | | | | |
| Money market funds | 3,360 |
| | 3,360 |
| | — |
| | 68 |
| | 68 |
| | — |
|
| Total asset recurring fair value measurements | $ | 15,804 |
| | $ | 15,804 |
| | $ | — |
| | $ | 11,905 |
| | $ | 11,905 |
| | $ | — |
|
| | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | |
Accrued and other current liabilities:
| | | | | | | | | | | |
| Derivative instruments - interest rate swaps | $ | 2,617 |
| | $ | — |
| | $ | 2,617 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Derivative instruments - commodities | 566 |
| | — |
| | 566 |
| | — |
| | — |
| | — |
|
| Other long-term liabilities | | | | | | | | | | | |
| Derivative instruments - interest rate swaps | 1,307 |
| | — |
| | 1,307 |
| | — |
| | — |
| | — |
|
Total liability recurring fair value measurements
| $ | 4,490 |
| | $ | — |
| | $ | 4,490 |
| | $ | — |
| | $ | — |
| | $ | — |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fair value of each class of financial instrumentFebruary 12, 2015, respectively. Mr. Sullivan 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 | | Derivative instruments primarily relate to the interest rate swaps, interest rate cap and commodities. Fair value measurements are based on a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives and uses observable market-based 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 December 28, 2014, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. |
Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the fair value remeasurements for Assets held for sale and Property, fixtures and equipment for fiscal years 2014, 2013 and 2012 aggregated by the level in the fair value hierarchy within which those measurements fall:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
| (in thousands) | CARRYING VALUE | | TOTAL IMPAIRMENT | | CARRYING VALUE | | TOTAL IMPAIRMENT | | CARRYING VALUE | | TOTAL IMPAIRMENT |
| Assets held for sale (1) | $ | 9,613 |
| | $ | 23,974 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Property, fixtures and equipment (2) | 2,429 |
| | 13,097 |
| | 9,990 |
| | 19,761 |
| | 6,178 |
| | 10,584 |
|
| | $ | 12,042 |
| | $ | 37,071 |
| | $ | 9,990 |
| | $ | 19,761 |
| | $ | 6,178 |
| | $ | 10,584 |
|
________________
| |
(1) | Carrying value approximates fair value with all assets measured using Level 2 inputs. Refer to Note 4 - Impairments, Disposals and Exit Costs for discussion of impairments related to corporate airplanes and Roy’s.
|
| |
(2) | Carrying value approximates fair value. Carrying values for assets measured using Level 2 inputs totaled $1.8 million, $8.3 million and $3.6 million for fiscal years 2014, 2013 and 2012, respectively. Assets measured using Level 3 inputs, had carrying values of $0.6 million, $1.6 million and $2.6 million for fiscal years 2014, 2013 and 2012, respectively. Refer to Note 4 - Impairments, Disposals and Exit Costs for discussion of impairments related to restaurant closure initiatives.
|
The Company used a third-party market appraisal (Level 2) and discounted cash flow models (Level 3) to estimate the fair value of the long-lived assets included in the table above. Projected future cash flows, including discount rate and growth rate assumptions, are derived from current economic conditions, expectations of management and projected trends of current operating results.
Fair Value of Financial Instruments - The Company’s non-derivative financial instruments as of December 28, 2014 and December 31, 2013 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.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt as of December 28, 2014 and December 31, 2013 aggregated by the level in the fair value hierarchy in which those measurements fall:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 |
| | | | FAIR VALUE | | | | FAIR VALUE |
| (in thousands) | CARRYING VALUE | | LEVEL 2 | | LEVEL 3 | | CARRYING VALUE | | LEVEL 2 | | LEVEL 3 |
| Senior Secured Credit Facility: | | | | | | | | | | | |
| Term loan A | $ | 296,250 |
| | $ | 294,769 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Term loan B | 225,000 |
| | 222,188 |
| | — |
| | 935,000 |
| | 936,169 |
| | — |
|
| Revolving credit facility | 325,000 |
| | 322,563 |
| | — |
| | — |
| | — |
| | — |
|
| CMBS loan: | | | | | | | | | | | |
| Mortgage loan | 299,765 |
| | — |
| | 308,563 |
| | 311,644 |
| | — |
| | 318,787 |
|
| First mezzanine loan | 85,127 |
| | — |
| | 85,187 |
| | 86,131 |
| | — |
| | 86,131 |
|
| Second mezzanine loan | 86,067 |
| | — |
| | 86,988 |
| | 86,704 |
| | — |
| | 87,571 |
|
| Other notes payable | 2,722 |
| | — |
| | 2,625 |
| | 6,186 |
| | — |
| | 5,912 |
|
Fair value of debt is determined based on the following:
|
| | |
DEBT FACILITY | | METHODS AND ASSUMPTIONS |
Senior Secured Credit Facility | | Quoted market prices in inactive markets. |
CMBS loan | | Assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management. |
Other notes payable | | Discounted cash flow approach. Discounted cash flow inputs primarily include cost of debt rates which are used to derive the present value factors for the determination of fair value. |
18. Income Taxes
The following table presents the domestic and foreign components of Income before provision for income taxes:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Domestic | $ | 124,157 |
| | $ | 112,674 |
| | $ | 43,744 |
|
| Foreign | (4,187 | ) | | 59,686 |
| | 29,666 |
|
| | $ | 119,970 |
| | $ | 172,360 |
| | $ | 73,410 |
|
Provision (benefit) for income taxes consisted of the following:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Current provision: | | | | | |
| Federal | $ | 13,364 |
| | $ | 21,518 |
| | $ | 15 |
|
| State | 7,687 |
| | 10,196 |
| | 10,896 |
|
| Foreign | 16,616 |
| | 9,681 |
| | 8,637 |
|
| | 37,667 |
| | 41,395 |
| | 19,548 |
|
| Deferred (benefit) provision: | | | | | |
| Federal | (8,842 | ) | | (83,437 | ) | | 397 |
|
| State | 688 |
| | (347 | ) | | (8,118 | ) |
| Foreign | (5,469 | ) | | 181 |
| | 279 |
|
| | (13,623 | ) | | (83,603 | ) | | (7,442 | ) |
| Provision (benefit) for income taxes | $ | 24,044 |
| | $ | (42,208 | ) | | $ | 12,106 |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Effective Income Tax Rate - The reconciliation of income taxes calculated at the United States federal tax statutory rate to the Company’s effective income tax rate is as follows:
|
| | | | | | | | |
| | FISCAL YEAR |
| | 2014 | | 2013 | | 2012 |
| Income taxes at federal statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State and local income taxes, net of federal benefit | 3.2 |
| | 3.6 |
| | 2.2 |
|
| Valuation allowance on deferred income tax assets | 1.5 |
| | (30.6 | ) | | 24.2 |
|
| Employment-related credits, net | (24.2 | ) | | (22.3 | ) | | (31.0 | ) |
| Net life insurance expense | (0.8 | ) | | (1.6 | ) | | (1.3 | ) |
| Noncontrolling interests | (1.2 | ) | | (2.8 | ) | | (7.8 | ) |
| Tax settlements and related adjustments | 1.7 |
| | 0.7 |
| | (1.0 | ) |
| Gain on remeasurement of equity method investment | — |
| | (6.8 | ) | | — |
|
| Foreign rate differential | 2.7 |
| | (1.4 | ) | | (4.5 | ) |
| Other, net | 2.1 |
| | 1.7 |
| | 0.7 |
|
| Total | 20.0 | % | | (24.5 | )% | | 16.5 | % |
The net increase in the effective income tax rate in fiscal year 2014 as compared to fiscal year 2013 was primarily due to the release of the domestic valuation allowance in 2013, the exclusion of gain on remeasurement of equity method investment in 2013 and a change in the blend of income across the Company’s domestic and international subsidiaries.
The net decrease in the effective income tax rate in fiscal year 2013 as compared to fiscal year 2012 was primarily due to the benefit of the release of valuation allowance in the second quarter of fiscal year 2013 and the exclusion of gain on remeasurement of equity method investment, which was partially offset by the benefit of the employment-related credits and the elimination of noncontrolling interests together being a smaller percentage of pretax income.
Deferred Tax Assets and Liabilities - The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Deferred income tax assets: | | | |
| Deferred rent | $ | 46,226 |
| | $ | 40,555 |
|
| Insurance reserves | 22,082 |
| | 23,226 |
|
| Unearned revenue | 16,248 |
| | 13,494 |
|
| Deferred compensation | 70,849 |
| | 66,607 |
|
| Net operating loss carryforwards | 9,193 |
| | 5,612 |
|
| Federal tax credit carryforwards | 160,266 |
| | 155,321 |
|
| Partner deposits and accrued partner obligations | 18,026 |
| | 22,586 |
|
| Other, net | 11,585 |
| | 2,594 |
|
| Gross deferred income tax assets | 354,475 |
| | 329,995 |
|
| Less: valuation allowance | (5,658 | ) | | (4,526 | ) |
| Net deferred income tax assets | 348,817 |
| | 325,469 |
|
| Deferred income tax liabilities: | | | |
| Less: property, fixtures and equipment basis differences | (198,532 | ) | | (184,984 | ) |
| Less: intangible asset basis differences | (155,741 | ) | | (160,111 | ) |
| Less: deferred gain on extinguishment of debt | (45,782 | ) | | (57,231 | ) |
| Net deferred income tax liabilities | $ | (51,238 | ) | | $ | (76,857 | ) |
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Valuation Allowance - In 2013, the Company released $67.7 million of the valuation allowance related to U.S. deferred income tax assets based on the expectation that the Company will maintain a cumulative income position in the future to utilize deferred tax assets. Of the $67.7 million valuation allowance release, $52.0 million was recorded as income tax benefit and $15.7 million was recorded as an increase to Additional paid-in capital. As the general business tax credits were expected to be realized due to current year and future year’s income, the portion attributable to future year’s income, or $44.8 million, was released as a discrete event in 2013. The remainder was attributable to current year activity as income was realized and impacted the 2013 effective income tax rate.
Undistributed Earnings - A provision for income taxes has not been recorded for United States or additional foreign taxes on undistributed earnings related to the Company’s foreign affiliates as these earnings were and are expected to continue to be permanently reinvested. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which no deferred tax liability has been recorded is $147.7 million as of December 28, 2014. If the Company identifies an exception to its reinvestment policy of undistributed earnings, additional tax liabilities will be recorded. It is not practical to determine the amount of unrecognized deferred income tax liabilities on the undistributed earnings.
Tax Carryforwards - The amount and expiration dates of tax loss carryforwards and credit carryforwards as of December 28, 2014 are as follows:
|
| | | | | | | |
| (in thousands) | EXPIRATION DATE | | AMOUNT |
| United States state loss carryforwards | 2020 | - | 2033 | | $ | 13,631 |
|
| United States federal tax credit carryforwards | 2031 | - | 2034 | | $ | 156,794 |
|
| Foreign loss carryforwards | 2017 | - | indefinite | | $ | 31,482 |
|
Unrecognized Tax Benefits - As of December 28, 2014 and December 31, 2013, the liability for unrecognized tax benefits was $17.6 million and $17.1 million, respectively. Of the total amount of unrecognized tax benefits, including accrued interest and penalties, $18.3 million and $17.2 million, respectively, if recognized, would impact the Company’s effective tax rate.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
|
| | | | | | | | | | | |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Balance as of beginning of year | $ | 17,068 |
| | $ | 13,591 |
| | $ | 14,039 |
|
| Additions for tax positions taken during a prior period | 2,177 |
| | 73 |
| | 416 |
|
| Reductions for tax positions taken during a prior period | (422 | ) | | (26 | ) | | (291 | ) |
| Additions for tax positions taken during the current period | 2,649 |
| | 1,960 |
| | 2,153 |
|
| Additions for tax positions on acquisition | — |
| | 2,799 |
| | — |
|
| Settlements with taxing authorities | (3,935 | ) | | (488 | ) | | (1,788 | ) |
| Lapses in the applicable statutes of limitations | (120 | ) | | (841 | ) | | (938 | ) |
| Translation adjustments | 146 |
| | — |
| | — |
|
| Balance as of end of year | $ | 17,563 |
| | $ | 17,068 |
| | $ | 13,591 |
|
The Company recognizes interest and penalties related to uncertain tax positions in Provision (benefit) for income taxes. The Company recognized an expense related to interest and penalties of $1.5 million, a benefit of $0.2 million and a benefit of $0.6 million for fiscal years 2014, 2013 and 2012, respectively. The Company had approximately $2.2 million and $2.1 million for the payment of interest and penalties accrued at December 28, 2014 and December 31, 2013 respectively.
Since timing of the resolution and/or closure of audits is not certain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next 12 months.
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Open Tax Years - Following is a summary of the open audit years by jurisdiction:
|
| | | |
| | OPEN AUDIT YEARS |
| United States federal | 2007 | - | 2013 |
| United States states | 2001 | - | 2013 |
| Foreign | 2007 | - | 2013 |
The Company is currently under examination by tax authorities in South Korea for the 2008 to 2012 tax years. In connection with this examination, the Company was assessed an additional $7.9 million of tax obligations. The Company has appealed the assessment. In order to enter into the appeal, the Company was required to deposit the amount of the assessment with the South Korea tax authorities. As of February 2015, the Company is currently seeking relief from double taxation through competent authority.
19. Commitments and Contingencies
Operating Leases - The Company leases restaurant and office facilities and certain equipment under operating leases mainly having initial terms expiring between 2015 and 2032. The restaurant facility leases have renewal clauses primarily from five to 30 years, exercisable at the option of the Company. Certain of these leases require the payment of contingent rentals leased on a percentage of gross revenues, as defined by the terms of the applicable lease agreement.
Total rent expense is as follows for the periods indicated:
|
| | | | | | | | | | | |
| | FISCAL YEAR |
| (in thousands) | 2014 | | 2013 | | 2012 |
| Rent expense (1) | $ | 169,701 |
| | $ | 156,720 |
| | $ | 140,866 |
|
____________________
| |
(1) | Includes contingent rent expense of $8.0 million, $6.5 million and $6.1 million for fiscal years 2014, 2013 and 2012, respectively.
|
As of December 28, 2014, future minimum rental payments under non-cancelable operating leases are as follows:
|
| | | |
| (in thousands) | |
| 2015 | $ | 146,855 |
|
| 2016 | 131,858 |
|
| 2017 | 113,210 |
|
| 2018 | 97,241 |
|
| 2019 | 79,700 |
|
| Thereafter | 444,042 |
|
| Total minimum lease payments (1) | $ | 1,012,906 |
|
____________________
| |
(1) | Total minimum lease payments have not been reduced by minimum sublease rentals of $2.1 million due in future periods under non-cancelable subleases. |
Purchase Obligations - Purchase obligations were $563.2 million and $439.8 million at December 28, 2014 and December 31, 2013, respectively. These purchase obligations are primarily due within three years, however, commitments with various vendors extend through December 2021. Outstanding commitments consist primarily of beef, seafood and other food and beverage products related to normal business operations and contracts for advertising, technology and restaurant level service contracts. In 2014, the Company purchased more than 90% of its beef raw materials from four beef suppliers that represent more than 90% of the total beef marketplace in the U.S.
Litigation and Other Matters - The matter set forth below is subject to uncertainties and outcomes that are not predictable with certainty. The Company is unable to estimate a range of reasonably possible loss for the matter described below as the proceedings are at stages where significant uncertainty exists as to the legal or factual issues. The Company
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
provides disclosure of matters when management believes it is reasonably possible the impact may be material to the consolidated financial statements.
On October 4, 2013, two then current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI, and two of its subsidiaries in the U.S. District Court for the District of Nevada (Cardoza, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 2:13-cv-01820-JAD-NJK). The complaint alleges violations of the Fair Labor Standards Act by requiring employees to work off the clock, complete on-line training without pay, and attend meetings in the restaurant without pay. The suit seeks to certify a nationwide collective action that all hourly employees in all Outback Steakhouse restaurants would be permitted to join. The suit seeks an unspecified amount in back pay for the employees that join the lawsuit, an equal amount in liquidated damages, costs, expenses, and attorney’s fees. The Nevada Plaintiffs also filed a companion lawsuit in Nevada state court alleging that the Company violated the state break time rules. On October 27, 2014 the Court conditionally certified a class for notice purposes consisting of all employees that worked at a company-owned Outback Steakhouse between October 27, 2011 and October 27, 2014. The Company subsequently filed a Motion to Reconsider the October 27, 2014 order. On February 5, 2015 the Court denied the Company’s Motion to reconsider the October 27, 2014 order granting conditional certification. The Company believes these lawsuits are without merit, and is vigorously defending all allegations.
On November 8, 2013, three employees of the Company’s franchisee (collectively, the “California Plaintiffs”) filed a purported class action lawsuit against the Company, OSI and OS Restaurant Services, LLC, two of its subsidiaries, and T-Bird Restaurant Group, Inc. (“T-Bird”), one of its franchisees, in the California Superior Court, County of Alameda. The defendants removed the matter to the U.S. District Court for the Northern District of California in December 2013 (Holly Gehl, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 4:13-cv-05961-KAW). The complaint alleged, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation, and violations of California’s Business and Professions Code. On September 23, 2014, the California Plaintiffs’ agreed to dismiss Bloomin’ Brands and its related entities as defendants.
In addition, the Company is subject to legal proceedings, claims and liabilities, such as liquor liability, sexual harassment and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance if they exceed specified retention or deductible amounts. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows.
Insurance - As of December 28, 2014, the future payments the Company expects for workers’ compensation, general liability and health insurance claims are:
|
| | | |
| (in thousands) | |
| 2015 | $ | 19,515 |
|
| 2016 | 12,459 |
|
| 2017 | 8,041 |
|
| 2018 | 4,959 |
|
| 2019 | 2,614 |
|
| Thereafter | 16,569 |
|
| | $ | 64,157 |
|
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Discount rates of 0.83% and 0.78% were used for December 28, 2014 and December 31, 2013, respectively. A reconciliation of the expected aggregate undiscounted reserves to the discounted reserves for workers’ compensation, general liability and health insurance claims recognized in the Company’s Consolidated Balance Sheets is as follows:
|
| | | | | | | |
| | DECEMBER 28, | | DECEMBER 31, |
| (in thousands) | 2014 | | 2013 |
| Undiscounted reserves | $ | 64,157 |
| | $ | 66,109 |
|
| Discount | $ | (1,780 | ) | | $ | (1,764 | ) |
| Discounted reserves recognized in the Consolidated Balance Sheets: | | | |
| Accrued and other current liabilities | $ | 19,455 |
| | $ | 20,710 |
|
| Other long-term liabilities, net | 42,922 |
| | 43,635 |
|
| | $ | 62,377 |
| | $ | 64,345 |
|
20. Related Parties
On May 10, 2012, the Company entered into an amendment to its management agreement with Kangaroo Management Company I, LLC, whose members are theour Founders and entities affiliatedMr. Balson is associated with Bain CapitalCapital. See “Arrangements With Our Sponsors and Catterton. In accordance with the terms of the amendment, the management agreement terminated immediately prior to the completion of the Company’s IPO. Management fees of $13.8 million, including a termination fee, out-of-pocketFounders” within “Certain Relationships and other reimbursable expenses, for fiscal year 2012 were included in General and administrative expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income.
21. Selected Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
2014 FISCAL QUARTERS
(in thousands, except per share data) | FIRST (1) | | SECOND (1) | | THIRD (1) | | FOURTH (1) |
| Total revenues | $ | 1,157,859 |
| | $ | 1,110,912 |
| | $ | 1,065,454 |
| | $ | 1,108,486 |
|
| Income (loss) from operations | 90,026 |
| | 62,391 |
| | (1,121 | ) | | 40,668 |
|
| Net income (loss) | 55,100 |
| | 27,722 |
| | (10,830 | ) | | 23,934 |
|
| Net income (loss) attributable to Bloomin’ Brands | 53,733 |
| | 26,391 |
| | (11,443 | ) | | 22,409 |
|
| Earnings (loss) per share: | | | | | | | |
| Basic | $ | 0.43 |
| | $ | 0.21 |
| | $ | (0.09 | ) | | $ | 0.18 |
|
| Diluted | $ | 0.42 |
| | $ | 0.21 |
| | $ | (0.09 | ) | | $ | 0.17 |
|
|
| | | | | | | | | | | | | | | |
2013 FISCAL QUARTERS
(in thousands, except per share data) | FIRST (2) | | SECOND (2) | | THIRD (2) | | FOURTH (2) |
| Total revenues | $ | 1,092,250 |
| | $ | 1,018,856 |
| | $ | 967,569 |
| | $ | 1,050,555 |
|
| Income from operations | 96,860 |
| | 67,886 |
| | 29,510 |
| | 31,101 |
|
| Net income | 65,056 |
| | 76,464 |
| | 12,134 |
| | 60,914 |
|
| Net income attributable to Bloomin’ Brands | 63,223 |
| | 74,868 |
| | 11,294 |
| | 58,982 |
|
| Earnings per share: | | | | | | | |
| Basic | $ | 0.52 |
| | $ | 0.61 |
| | $ | 0.09 |
| | $ | 0.48 |
|
| Diluted | $ | 0.50 |
| | $ | 0.58 |
| | $ | 0.09 |
| | $ | 0.46 |
|
____________________
| |
(1) | Total revenues in the first, third and fourth quarters of 2014 include $7.5 million, $6.9 million and $31.6 million, respectively, of less restaurant sales due to a change in the Company’s fiscal year end. Income from operations in the first quarter of 2014 includes $4.9 million of pre-tax restaurant closing charges incurred in connection with the Domestic Restaurant Closure Initiative. Income from operations in the third and fourth quarters of 2014 includes asset impairment charges of $16.6 million and $7.4 million, respectively, associated with the Company’s decision to sell its Roy’s concept and corporate aircraft. Income from operations in the third and fourth quarters of 2014 includes $11.6 million and $10.3 million, respectively, of pre-tax impairments and restaurant closing costs incurred in connection with the International Restaurant Closure Initiative and $5.4 million and $3.6 million, respectively, of severance expense incurred as a result of the Company’s organizational realignment. Net income in the first, third and fourth quarters of 2014 includes $1.5 million, $1.4 million and $6.3 million, respectively, of less net income due to a change in the Company’s fiscal year end. Net |
BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
income for the second quarter of 2014 includes an $11.1 million loss in connection with a refinancing of the Company’s Senior Secured Credit Facility.
| |
(2) | Income from operations in the third and fourth quarters of 2013 includes $5.0 million and $12.0 million, respectively, of expenses associated with a payroll tax contingency. Income from operations in the fourth quarter of 2013 includes impairment charges of $18.7 million incurred in connection with the Domestic Restaurant Closure Initiative. Net income in the second quarter of 2013 includes an income tax benefit of $52.0 million related to a reduction of the U.S. valuation allowance and a $14.6 million loss related to the repricing of the Company’s Term Loan B. As a result of the Company’s acquisition of a controlling interest in the Brazil Joint Venture, net income in the fourth quarter of 2013 includes a gain of $36.6 million from the remeasurement of the previously held equity investment. |
Related Party Transactions” under Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of December 28, 2014.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On May 14, 2013 the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) issued an updated version of its Internal Control—Integrated Framework (“2013 Framework”). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial and Administrative Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 28, 2014 using the 2013 Framework. Based upon our evaluation, management concluded that our internal control over financial reporting was effective as of December 28, 2014.
The effectiveness of our internal control over financial reporting as of December 28, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered certified public accounting firm, as stated in their report which is included herein, and which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 28, 2014.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent quarter ended December 28, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item relating to our directors and nominees will be included under the captions “Proposal No. 1: Election of Directors—Nominees for Election at this Annual Meeting” and “—Directors Continuing in Office” in our definitive Proxy Statement for the 2015 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after December 28, 2014 (“Definitive Proxy Statement”) and is incorporated herein by reference.
The information required by this item regarding our Audit Committee will be included under the caption “Proposal No. 1: Election of Directors—Board Committees and Meetings” in our Definitive Proxy Statement and is incorporated herein by reference.
The information required by this item relating to our executive officers is included under the caption “Executive Officers of the Registrant” in Part I13 of this Annual Report on Form 10-K.
10-K for additional information regarding our relationship and transactions with Bain Capital and our Founders.Compensation-Related Risk
As part of its oversight and administration of our compensation programs, the Compensation Committee considered the impact of our compensation policies and programs for our executive officers, to determine whether they present a significant risk to the Company or encourage excessive risk taking by our executive officers. Based on its review, the Compensation Committee concluded that our compensation programs do not encourage excessive risk taking and are not reasonably likely to have a material adverse effect on the Company.
Summary Compensation Table
The information requiredfollowing table summarizes compensation earned by this itemour named executive officers for 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAMED EXECUTIVE OFFICER | | YEAR | | | SALARY | | | BONUS
(1) | | | STOCK
AWARDS
(2) | | | OPTION
AWARDS
(3) | | | NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
(4) | | | ALL OTHER
COMPENSATION
(5) | | | TOTAL | |
Elizabeth A. Smith | | | 2014 | | | $ | 995,192 | | | $ | — | | | $ | 1,991,065 | | | $ | 2,194,000 | | | $ | 895,673 | | | $ | 130,297 | | | $ | 6,206,227 | |
Chief Executive Officer | | | 2013 | | | | 975,000 | | | | 90,750 | | | | — | | | | — | | | | 809,250 | | | | 63,808 | | | | 1,938,808 | |
and Chairman of the Board | | | 2012 | | | | 941,552 | | | | 22,425,000 | | | | — | | | | — | | | | 932,137 | | | | 151,544 | | | | 24,450,233 | |
David J. Deno (6) | | | 2014 | | | | 650,000 | | | | — | | | | 657,954 | | | | 725,004 | | | | 331,500 | | | | 7,175 | | | | 2,371,633 | |
Executive Vice President, | | | 2013 | | | | 644,423 | | | | 92,360 | | | | 599,987 | | | | 599,930 | | | | 454,640 | | | | 3,096 | | | | 2,394,436 | |
Chief Financial | | | 2012 | | | | 380,769 | | | | 466,000 | | | | — | | | | 2,824,000 | | | | 510,000 | | | | 4,175 | | | | 4,184,944 | |
and Administrative Officer | | | | | | | | | | | | |
Donagh M. Herlihy (7) | | | 2014 | | | | 164,077 | | | | 250,000 | | | | 906,000 | | | | 2,180,000 | | | | 83,679 | | | | 255,512 | | | | 3,839,268 | |
Executive Vice President, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Digital and Chief | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Information Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stephen K. Judge (8) | | | 2014 | | | | 540,000 | | | | — | | | | 725,267 | | | | 300,001 | | | | 211,140 | | | | 93,645 | | | | 1,870,053 | |
Executive Vice President, | | | 2013 | | | | 527,538 | | | | 1,000,000 | | | | — | | | | 2,672,684 | | | | 459,000 | | | | 380,903 | | | | 5,040,125 | |
President of Bonefish Grill | | | | | | | | | | | | |
Jeffrey S. Smith | | | 2014 | | | | 575,000 | | | | 86,020 | | | | 326,270 | | | | 359,506 | | | | 430,100 | | | | 9,255 | | | | 1,786,151 | |
Executive Vice President, | | | 2013 | | | | 573,269 | | | | — | | | | 1,404,497 | | | | 358,952 | | | | 404,441 | | | | 8,729 | | | | 2,749,888 | |
President of Outback | | | 2012 | | | | 500,000 | | | | 51,000 | | | | — | | | | — | | | | 480,250 | | | | 5,352 | | | | 1,036,602 | |
| (1) | The amount for Mr. Herlihy in 2014 represents 50% of a signing bonus of $500,000 per the terms of his offer of employment. The remaining 50% will be paid after six months of employment. In addition, Mr. Smith received a recognition bonus for 2014 of $86,020. |
| (2) | The amounts reported for stock awards represent the aggregate grant date fair value of RSUs and PSUs. For 2013 and 2014, the PSU amounts reported represent the aggregate grant date fair value of the four tranches of the PSUs awarded in such year based on probable attainment of the performance goals as follows: (a) 2014 award: 63% attainment for the first tranche (25% of such award) and 100% (target performance) for the remaining three tranches (75% of such award) and (b) 2013 award: 100% (target performance) for all four tranches (100% of such award). PSU awards pay out at a range of 0% to a maximum of 200% of their targets based on the following performance measures: 50% for threshold, 100% for target and 200% for maximum. The aggregate grant date fair value of the 2014 PSUs assuming achievement of the maximum performance level of 200% over all four years would be: Ms. Smith $4,388,007; Mr. Deno, $1,450,026; Mr. Judge, $600,033; and Mr. Smith, $719,037. We recorded compensation expense in 2014 for the aggregate grant date fair value of the first tranche of the 2014 PSUs and the second tranche of the 2013 PSUs (for which the performance goals were set in 2014 and only Messrs. Deno and Smith received awards) based on probable attainment of the performance goals as of the grant date as follows: Ms. Smith $345,567; Mr. Deno, $242,971; Mr. Judge, $47,272; and Mr. Smith, $133,690. See “—Compensation Discussion and Analysis” under the heading “Long-Term Equity Incentive Awards” for a description of the PSU terms. See also Note 6, “Stock-based and Deferred Compensation Plans,” in our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information regarding these awards. |
| (3) | The amounts for option awards represent the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic No. 718. The stock option awards were valued at fair value on the grant date using the Black-Scholes option pricing model. See Note 6, “Stock-based and Deferred Compensation Plans,” in our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for the assumptions made to value the stock option awards. |
| (4) | Non-equity incentive plan compensation represents amounts earned under the performance-based cash incentive plans, or STIPs, established for such years. The amounts earned were based on the achievement of specified, pre-determined levels of Company-wide Adjusted Net Income, concept Adjusted EBIT and/or revenue growth over the prior year relative to a percentage of the named executive officers bonus potential. See “—Compensation Discussion and Analysis” under the heading “Performance-Based Cash Incentives” for a description of the plans for 2014. |
| (5) | The table set forth below titled “All Other Compensation” provides additional information regarding these amounts. |
| (6) | Mr. Deno joined Bloomin’ Brands in May 2012. |
| (7) | Mr. Herlihy joined Bloomin’ Brands in September 2014. |
| (8) | Mr. Judge joined Bloomin’ Brands in January 2013. |
All Other Compensation
The amounts shown for “All Other Compensation” for 2014 include the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
NAMED EXECUTIVE OFFICER | | LIFE
INSURANCE | | | AUTO | | | RELOCATION (a) | | | AIRPLANE (b) | | | OTHER (c) | | | TOTAL | |
Elizabeth A. Smith | | $ | 2,609 | | | $ | — | | | $ | — | | | $ | 123,780 | | | $ | 3,908 | | | $ | 130,297 | |
David J. Deno | | | 3,096 | | | | — | | | | — | | | | — | | | | 4,079 | | | | 7,175 | |
Donagh M. Herlihy | | | 416 | | | | — | | | | 255,096 | | | | — | | | | — | | | | 255,512 | |
Stephen K. Judge | | | 882 | | | | — | | | | 89,071 | | | | — | | | | 3,692 | | | | 93,645 | |
Jeffrey S. Smith | | | 1,449 | | | | 4,800 | | | | — | | | | — | | | | 3,006 | | | | 9,255 | |
| (a) | The amount shown for Messrs. Herlihy and Judge reflects relocation costs paid by us in connection with their offers of employment and includes a gross-up for associated tax obligations of $34,372 and $24,361, respectively. |
| (b) | The amount shown reflects (i) the aggregate incremental cost to us of personal use of our aircraft based on an hourly charge, determined to include the cost of fuel and other variable costs associated with the particular flights, and (ii) a gross-up for associated tax obligations of $51,988. Since our aircraft was primarily for business travel, we do not include the fixed costs that do not change based on usage, including the cost of the aircraft and the cost of maintenance not related to specific trips. |
| (c) | The amounts shown reflect costs associated with medical physical examinations. |
Grants of Plan-Based Awards for 2014
The following table summarizes the performance-based cash incentive awards and long-term stock incentive awards made during 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAMED | | | | | ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY
INCENTIVE
PLAN AWARDS (1) | | | ESTIMATED FUTURE PAYOUTS
UNDER EQUITY
INCENTIVE
PLAN AWARDS (2) | | | ALL
OTHER
STOCK
AWARDS:
NUMBER
OF | | | ALL OTHER
OPTION
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING | | | EXERCISE
PRICE OF
OPTION | | | GRANT
DATE
FAIR
VALUE
OF
STOCK &
OPTION | |
| EXECUTIVE | | GRANT | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | SHARES | | | OPTIONS | | | AWARDS | | | AWARDS | |
OFFICER | | DATE | | | ($) | | | ($) | | | ($) | | | (#) | | | (#) | | | (#) | | | (#) (3) | | | (#) | | | ($/Sh) | | | ($) (4) | |
Elizabeth A. Smith | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual STIP Bonus | | | | | | | 750,000 | | | | 1,500,000 | | | | 3,000,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Annual PSU Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | 43,326 | | | | 86,651 | | | | 173,302 | | | | — | | | | — | | | | — | | | | 1,991,065 | |
Annual Option Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 177,940 | | | | 25.32 | | | | 2,194,000 | |
David J. Deno | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual STIP Bonus | | | | | | | 276,250 | | | | 552,500 | | | | 1,105,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Annual PSU Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | 14,317 | | | | 28,634 | | | | 57,268 | | | | — | | | | — | | | | — | | | | 657,954 | |
Annual Option Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 58,800 | | | | 25.32 | | | | 725,004 | |
Donagh M. Herlihy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual STIP Bonus | | | | | | | 76,500 | | | | 153,000 | | | | 306,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Sign-on RSU Grant (3) | | | 10/1/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | | | | — | | | | — | | | | 906,000 | |
Sign-on Option Grant (3) | | | 10/1/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 250,000 | | | | 18.12 | | | | 2,180,000 | |
Stephen K. Judge | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual STIP Bonus | | | | | | | 229,500 | | | | 459,000 | | | | 918,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Annual PSU Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | 5,925 | | | | 11,849 | | | | 23,698 | | | | — | | | | — | | | | — | | | | 272,267 | |
Annual Option Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 24,331 | | | | 25.32 | | | | 300,001 | |
Retention RSU Grant (3) | | | 10/1/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 25,000 | | | | — | | | | — | | | | 453,000 | |
Jeffrey S. Smith | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Annual STIP Bonus | | | | | | | 244,375 | | | | 488,750 | | | | 977,500 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Annual PSU Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | 7,100 | | | | 14,199 | | | | 28,398 | | | | — | | | | — | | | | — | | | | 326,270 | |
Annual Option Grant | | | 2/27/2014 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 29,157 | | | | 25.32 | | | | 359,506 | |
| (1) | Amounts represent potential performance-based cash incentive awards under the 2014 Corporate STIP for Ms. Smith and Messrs. Deno and Herlihy, 50% under the 2014 Corporate STIP and 50% under the 2014 Bonefish Grill STIP for Mr. Judge and 50% under the 2014 Corporate STIP and 50% under the 2014 Outback Steakhouse STIP for Mr. Smith. See “—Compensation Discussion & Analysis” under the heading “Performance-Based Cash Incentives” and “—Summary Compensation Table” under the heading “Non-Equity Plan Compensation” for a description of the STIPs and actual payout amounts. |
| (2) | Amounts represent potential shares to be issued upon settlement of the aggregate number of PSUs granted in 2014, which vest as to 25% of the shares on each anniversary of the grant date, contingent upon such executive’s continued employment by us, and the number earned ranges from 0% to 200% of the tranche based upon the achievement of performance targets set at the beginning of each annual period as follows: 50% for threshold, 100% for target and 200% for maximum. See “—Compensation Discussion & Analysis” under the heading “Long-Term Equity Incentive Awards” for a description of the PSU terms. The executive generally forfeits any portion of the award that is unvested upon his termination date or for which the threshold target is not achieved. See “—Potential Payments upon Termination or Change in Control” for additional information regarding accelerated vesting on certain terminations of employment. |
| (3) | Stock option grant and RSU grant vests as to 25% of the shares on each anniversary of the grant date for Messrs. Herlihy Judge, respectively, contingent upon their continued employment. They each generally forfeit any portion of the award that is unvested upon termination date. See “—Potential Payments upon Termination or Change in Control” for additional information regarding accelerated vesting on certain terminations of employment. |
| (4) | We valued the RSU awards by multiplying the closing price of our common stock on the NASDAQ Global Select Market on the grant date by the number of RSUs awarded. We valued the PSU awards by multiplying the closing price of our common stock on the NASDAQ Global Select Market on the grant date by the aggregate number of PSUs awarded in 2014 that were expected to vest as of the grant date as follows: 63% attainment for the first tranche (25% of the award) and 100% (target performance) for the remaining three tranches (75% of the award). We valued the stock option awards in accordance with FASB ASC Topic No. 718 using the Black-Scholes option pricing model. See Note 6, “Stock-based and Deferred Compensation Plans,” in our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for the assumptions made to value the stock option awards. |
Outstanding Equity Awards at 2014 Year-End
The following table summarizes outstanding stock options and unvested restricted stock and PSU awards for each named executive officer as of December 28, 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | OPTION AWARDS | | | STOCK AWARDS | |
NAMED EXECUTIVE OFFICER | | NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS (#) | | | OPTION
EXERCISE
PRICE PER SHARE | | | OPTION EXPIRATION DATE | | | SHARES OR UNITS OF
STOCK THAT HAVE
NOT VESTED | | | EQUITY INCENTIVE
PLAN AWARDS:
UNEARNED SHARES,
UNITS, OR RIGHTS
THAT HAVE NOT
VESTED | |
| | | | | NUMBER OF | | | MARKET | | | NUMBER OF | | | MARKET | |
| | EXERCISABLE | | | UNEXERCISABLE | | | | | SHARES | | | VALUE | | | SHARES | | | VALUE | |
| | | | | (1) | | | $ (2) | | | | | | (#) (1) | | | $ (3) | | | (#) (1)(4) | | | $ (3) | |
Elizabeth A. Smith | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
November 16, 2009 Tranche A (5) | | | 337,500 | | | | — | | | | 6.50 | | | | 11/16/2019 | | | | — | | | | — | | | | | | | | — | |
November 16, 2009 Tranche B, C, D (5) | | | 3,262,500 | | | | — | | | | 6.50 | | | | 11/16/2019 | | | | — | | | | — | | | | — | | | | — | |
July 1, 2011 (6) | | | 330,000 | | | | 220,000 | | | | 10.03 | | | | 7/1/2021 | | | | — | | | | — | | | | — | | | | — | |
February 27, 2014 (6) | | | — | | | | 177,940 | | | | 25.32 | | | | 2/27/2024 | | | | | | | | | | | | 86,651 | | | | 2,057,961 | |
David J. Deno | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
May 7, 2012 (7) | | | 160,000 | | | | 240,000 | | | | 14.58 | | | | 5/10/2022 | | | | — | | | | — | | | | — | | | | — | |
February 26, 2013 (6) | | | 18,137 | | | | 54,414 | | | | 17.40 | | | | 2/26/2023 | | | | — | | | | — | | | | 25,862 | | | | 614,223 | |
February 27, 2014 (6) | | | — | | | | 58,800 | | | | 25.32 | | | | 2/27/2024 | | | | — | | | | — | | | | 28,634 | | | | 680,058 | |
Donagh M. Herlihy | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
October 1, 2014 (6)(8) | | | — | | | | 250,000 | | | | 18.12 | | | | 10/1/2024 | | | | 50,000 | | | | 1,187,500 | | | | — | | | | — | |
Stephen K. Judge | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
February 1, 2013 (6) | | | 75,000 | | | | 225,000 | | | | 18.73 | | | | 2/1/2023 | | | | — | | | | — | | | | — | | | | — | |
February 27, 2014 (6) | | | — | | | | 24,331 | | | | 25.32 | | | | 2/27/2024 | | | | — | | | | — | | | | 11,849 | | | | 281,414 | |
October 1, 2014 (8) | | | — | | | | — | | | | — | | | | — | | | | 25,000 | | | | 593,750 | | | | — | | | | — | |
Jeffrey S. Smith | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
April 6, 2010 | | | 274,000 | | | | — | | | | 6.50 | | | | 4/6/2020 | | | | — | | | | — | | | | — | | | | — | |
February 26, 2013 (6) | | | 10,852 | | | | 32,557 | | | | 17.40 | | | | 2/26/2023 | | | | — | | | | — | | | | 15,474 | | | | 367,508 | |
April 24, 2013 (8) | | | — | | | | — | | | | — | | | | — | | | | 18,750 | | | | 445,313 | | | | 18,750 | | | | 445,313 | |
February 27, 2014 (6) | | | — | | | | 29,157 | | | | 25.32 | | | | 2/27/2024 | | | | — | | | | — | | | | 14,199 | | | | 337,226 | |
| (1) | Unvested portions of awards are generally forfeited upon termination of employment. See footnote (5) below and “—Potential Payments upon Termination or Change in Control” for additional information regarding accelerated vesting on certain terminations of employment. |
| (2) | In March 2010, we offered all then active executive officers, other than Ms. Smith (since her stock options already had an exercise price of $6.50 per share), and all of our other employees the opportunity to exchange outstanding stock options with an exercise price of $10.00 per share for the same number of replacement stock options with an exercise price of $6.50 per share. Under the exchange program, the vested portion of the eligible stock options as of the grant date of the replacement stock options were exchanged for stock options that were fully vested. The unvested portion of the exchanged stock options were exchanged for unvested replacement stock options that vest and become exercisable over a period of time that is equal to the remaining vesting period of the exchanged stock options, plus one year, subject to the participant’s continued employment through the new vesting date. All eligible stock options were exchanged pursuant to the exchange program. The original stock options were canceled, and the issuance of the replacement stock options occurred on April 6, 2010. |
| (3) | Market value is calculated by multiplying $23.75, which was the closing price per share of our common stock on the NASDAQ Global Select Market on December 26, 2014, the last market day of our fiscal year end, by the number of shares subject to the award. |
| (4) | Amounts represent potential shares to be issued upon settlement of the aggregate number of PSUs granted on such date, which vest as to 25% of the shares on each anniversary of the grant date, contingent upon such executive’s continued employment by us assuming a payout of the tranche that may vest each year at 100%, or target performance. The actual the number that may be earned each year ranges from 0% to 200% based upon the achievement of performance targets set at the beginning of each annual period is as follows: 50% for threshold, 100% for target and 200% for maximum. See “—Compensation Discussion & Analysis” under the heading “Long-Term Equity Incentive Awards” for a description of the PSU terms. |
| (5) | On November 16, 2009, we granted Ms. Smith an option to purchase an aggregate of 4,350,000 shares of our common stock under our 2007 Equity Incentive Plan in four tranches (A-D) of 1,087,500 options each. The vested stock options will remain outstanding for a period ranging from 90 days to three years in the case of a termination of Ms. Smith’s employment, depending on the type of stock option and the nature of the termination, except that all stock options will be forfeited upon a termination for cause. |
| (6) | Stock option grant vests as to 25% of the shares on each anniversary of the grant date, contingent on continued employment. |
| (7) | Stock option grant vests as to 20% of the shares on each anniversary of the grant date, contingent on continued employment. |
| (8) | Restricted stock grant vests as to 25% of the shares on each anniversary of the grant date, contingent on continued employment. |
Option Exercises and Stock Vested for Fiscal 2014
The following table summarizes the exercise of stock options and vesting of restricted stock held by the named executive officers during fiscal 2014.
| | | | | | | | | | | | | | | | |
| | | OPTION AWARDS | | | STOCK AWARDS | |
NAMED EXECUTIVE OFFICER | | NUMBER OF
SHARES
ACQUIRED
ON EXERCISE
(#) | | | VALUE
REALIZED
ON EXERCISE
($)(1) | | | NUMBER OF
SHARES
ACQUIRED
ON VESTING
(#) | | | VALUE
REALIZED
ON VESTING
($)(2) | |
Elizabeth A. Smith | | | 500,000 | | | | 8,540,650 | | | | — | | | | — | |
David J. Deno | | | — | | | | — | | | | 9,827 | | | | 223,761 | |
Donagh M. Herlihy | | | — | | | | — | | | | — | | | | — | |
Stephen K. Judge | | | — | | | | — | | | | — | | | | — | |
Jeffrey S. Smith | | | — | | | | — | | | | 12,131 | | | | 270,598 | |
| (1) | Represents amount realized upon exercise of stock options, based on the difference between the market value of the shares acquired at the time of exercise and the exercise price. |
| (2) | Represents the value realized upon vesting of restricted stock, based on the market value of the shares on the vesting date. |
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We offer a Deferred Compensation Plan for our highly compensated employees who are not eligible to participate in the OSI Restaurant Partners, LLC Salaried Employees 401(k) Plan and Trust, as described in “—Compensation Discussion and Analysis” under the heading “Compensation Components–Other Benefits and Perquisites.” We do not sponsor any defined benefit pension plans.
The following table summarizes contributions during 2014 to our Deferred Compensation Plan by the only named executive officer who participated along with aggregate earnings/losses for the year and the aggregate balance as of December 28, 2014. We did not make any contributions to the Deferred Compensation Plan during 2014. Named executive officers are fully vested in all contributions to the plan. The amounts listed as executive contributions are included as “Salary” in the “Summary Compensation Table.” The aggregate earnings are not reflected in “Other Compensation” in the “Summary Compensation Table.”
Nonqualified Deferred Compensation
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | AGGREGATE | | | | |
NAMED EXECUTIVE OFFICER | | AGGREGATE
BALANCE AT
DECEMBER 31, 2013 | | | EXECUTIVE
CONTRIBUTIONS
IN 2014 | | | AGGREGATE
EARNINGS
IN 2014 | | | WITHDRAWALS/
DISTRIBUTIONS
IN 2014 | | | AGGREGATE
BALANCE AT
DECEMBER 28, 2014 | |
Stephen K. Judge | | $ | 100,827 | | | $ | 108,000 | | | $ | (5,079 | ) | | $ | — | | | $ | 203,748 | |
Potential Payments Upon Termination or Change in Control
Each of the named executive officers is party to an employment agreement or offer of employment and other arrangements with us, which are summarized below, that may entitle him or her to payments or benefits upon a termination of employment and/or a change in control. See the table included under “—Executive Benefits and Payments Upon Separation” below for the amount of compensation payable under these agreements and arrangements to the individuals serving as named executive officers as of the end of 2014.
Change in Control Plan
The Change in Control Plan entitles executive officers and other key employees to certain severance payments and benefits in the event of a qualifying termination of employment upon or within the 24 months following certain change in control events. A qualifying termination is a termination by us for any reason other than cause, or by the employee for good reason, in each case as defined in the Change in Control Plan.
Under the Change in Control Plan, in the event of a qualifying termination within the 24 months following a change in control, the named executive officers are each entitled to receive the following benefits:
A severance payment, payable in a lump sum 60 days after the termination, equal to (a) with respect to Ms. Smith, two times the sum of her base salary and her target annual cash bonus and (b) with respect to the other named executive officers, one and one-half times the sum of base salary and target annual cash bonus
Accelerated vesting of all outstanding equity awards
Continued eligibility to participate in group health benefits for 18 months following the termination
Outplacement services for six months following the termination
Certain other accrued benefits
The severance payments and other benefits described above will be reduced by the amount of any similar payments and benefits under any employment agreement or other arrangement with us and are subject to the employee’s compliance with Section 16(a)non-competition and other restrictive covenants and the other terms and conditions of the Securities ActChange in Control Plan.
Rights and Potential Payments Upon Termination or Change in Control: Ms. Smith
Effective November 2009, we entered into an employment agreement with Ms. Smith in connection with the commencement of 1934her employment by us. Her employment agreement was amended and restated in September 2012 to extend its term to August 13, 2017, subject to earlier termination under certain circumstances described below. The term of her employment is automatically renewed for successive renewal terms of one year unless either party elects not to renew by giving written notice to the other party not less than 60 days prior to the start of any renewal term.
Ms. Smith’s employment may be terminated as follows:
Upon her death or disability (as defined in the agreement)
By us for Cause. “Cause” is defined to include: her (i) willful failure to perform, or gross negligence in the performance of, her duties and responsibilities to us or our affiliates (other than any such failure from incapacity due to physical or mental illness), subject to notice and cure periods, (ii) indictment or conviction of or plea of guilty or nolo contendere to a felony or other crime involving moral turpitude, (iii) engaging in illegal misconduct or gross misconduct that is intentionally harmful to us or our affiliates or (iv) any material and knowing violation by her of any covenant or restriction contained in her employment agreement or any other agreement entered into with us or our affiliates
By us other than for Cause
By Ms. Smith for Good Reason. “Good Reason” is defined to include: (i) a material diminution in the nature or scope of her duties, authority or responsibilities, including, without limitation, loss of membership on our Board of Directors (with certain listed exceptions), (ii) a reduction of her annual base salary or annual target cash bonus, (iii) requiring her to be based at a location in excess of 50 miles from the location of our principal executive offices in Tampa, Florida, or (iv) a material breach by us of our obligations under her employment agreement
By Ms. Smith other than for Good Reason
Ms. Smith will be includedentitled to receive severance benefits if her employment is terminated by us other than for Cause or if she terminates employment for Good Reason. If her employment is terminated under these circumstances, she will be entitled to receive severance benefits as follows:
Earned but unpaid base salary as of the date of termination, any annual bonus earned in the fiscal year preceding that in which termination occurs that remains unpaid, and amounts accrued and payable under any employee benefit plans, including tax gross-up payments in connection with the reimbursement of private airplane usage through the date of termination (“Final Compensation”)
Severance equal to two times the sum of her base salary at the rate in effect on the date of termination plus her target annual cash bonus for the year of termination, payable in 24 equal monthly installments from the effective date of such termination
In the event Ms. Smith’s employment is terminated due to her death or disability, she will receive Final Compensation as of the date of her employment termination, plus a pro rata portion of her target bonus for the year of termination.
A change in control of the Company does not trigger any severance payments to her under the caption “Ownershipemployment agreement. However, in the event of Securities—Section 16(a) Beneficial Ownership Reporting Compliance”a qualifying termination within the 24 months following a change in control, Ms. Smith would be entitled to receive the benefits described above under “—Change in Control Plan.”
Rights and Potential Payments Upon Termination or Change in Control: Mr. Deno
Mr. Deno entered into an employment agreement with us effective May 7, 2012 for an original term commencing on May 7, 2012 and expiring on the fifth anniversary thereof. The term of his employment agreement is automatically renewed for successive renewal terms of one year unless either party elects not to renew by giving written notice to the other party not less than 60 days prior to the start of any renewal term.
Mr. Deno’s employment may be terminated as follows:
Upon his death or disability (as defined in the agreement)
By us for Cause. “Cause” is defined to include: (i) his failure to perform the duties required of him in a manner satisfactory to us, in our Definitive Proxy Statementsole discretion; (ii) any dishonesty in his dealing with us or our affiliates, the commission of fraud by him, negligence in the performance of his duties, insubordination, willful misconduct, or his indictment, charge or conviction (or plea of guilty or nolo contendere) of any felony or any other crime involving dishonesty or moral turpitude; (iii) any violation of any covenant or restriction contained in specified sections of his employment agreement; or (iv) any violation of any of our or our affiliates’ material published policies
At our election, including in the event of a determination by us to cease business operations
By Mr. Deno for Good Reason. “Good Reason” is defined to include: (i) the assignment to him of any duties inconsistent with his position (including status, offices, titles, and reporting requirements), authority, duties or responsibilities as Executive Vice President, Chief Financial and Administrative Officer, any diminution in his position, authority, duties or responsibilities (excluding isolated, insubstantial and inadvertent action not taken in bad faith), (ii) a reduction of his base salary or benefits, as in effect on the date of his employment agreement, unless a similar reduction is made in salary and benefits of all of our other executive officers, or (iii) requiring him to be based at a location in excess of 50 miles from the location of our principal executive offices in Tampa, Florida
For all purposes of his agreement, termination for Cause shall be deemed to have occurred on the date of the executive’s resignation when, because of existing facts and circumstances, subsequent termination for Cause can be reasonably foreseen.
Mr. Deno’s employment agreement provides that he will receive severance benefits in the event of a termination of employment by us without Cause or by him with Good Reason. Under these circumstances, he will be entitled to receive an amount equal to the sum of the base salary then in effect payable bi-weekly for one year.
A change in control does not trigger any severance payments to Mr. Deno under his employment agreement. However, in the event of a qualifying termination within the 24 months following a change in control, Mr. Deno would be entitled to receive the benefits described above under “—Change in Control Plan.”
Rights and Potential Payments Upon Termination or Change in Control: Mr. Herlihy
Mr. Herlihy agreed to an offer of employment, effective on September 2, 2014.
Mr. Herlihy’s employment may be terminated as follows:
Voluntary resignation or termination by the Employer for Cause. “Cause” is defined to include: (i) failure to perform the duties required in a manner satisfactory to us (ii) any dishonesty in his dealing with us, the commission of fraud by him, negligence in the performance of his duties, insubordination, willful misconduct, or his conviction (or plea of guilty or nolo contendere) of any felony or any other crime involving dishonesty or moral turpitude; (iii) any violation of any covenant or restriction contained in specified sections of his employment agreement; or (iv) any violation of any current or future material published policy
For any other reason, other than voluntary resignation
For all purposes of his employment, termination for Cause shall be deemed to have occurred on the date of the executive’s resignation when, because of existing facts and circumstances, subsequent termination for Cause can be reasonably foreseen.
Mr. Herlihy’s employment terms provide that he will only receive severance benefits in the event of a termination of employment if his employment is terminated under the circumstances described in the second bullet above. In this case, he will be entitled to receive severance compensation equal to the sum of his base salary then in effect payable bi-weekly for one year.
A change in control does not trigger any severance payments to Mr. Herlihy under his terms of employment. However, in the event of a qualifying termination within the 24 months following a change in control, Mr. Herlihy would be entitled to receive the benefits described above under “—Change in Control Plan.”
Rights and Potential Payments Upon Termination or Change in Control: Mr. Judge
Mr. Judge agreed to an offer of employment with Bonefish Grill, our wholly-owned subsidiary, effective on January 1, 2013.
Mr. Judge’s employment may be terminated as follows:
Upon his death or disability
By Bonefish Grill for Cause. “Cause” is defined to include: (i) any dishonesty in his dealing with Bonefish Grill, the commission of fraud by him, negligence in the performance of his duties, insubordination, willful misconduct, or his conviction (or plea of guilty or nolo contendere) of any felony or any other crime involving dishonesty or moral turpitude; (ii) any violation of any covenant or restriction contained in specified sections of his employment agreement; or (iii) any violation of any material published policy of Bonefish Grill or its affiliates
By him for any or no reason
Bonefish Grill in its sole discretion, for any or no reason
For all purposes of his employment, termination for Cause shall be deemed to have occurred on the date of the executive’s resignation when, because of existing facts and circumstances, subsequent termination for Cause can be reasonably foreseen.
Mr. Judge’s employment terms provide that he will only receive severance benefits in the event of a termination of employment if his employment is terminated under the circumstances described in the last bullet above. In this case, he will be entitled to receive severance compensation equal to the sum of his base salary then in effect payable bi-weekly for one year.
A change in control does not trigger any severance payments to Mr. Judge under his terms of employment. However, in the event of a qualifying termination within the 24 months following a change in control, Mr. Judge would be entitled to receive the benefits described above under “—Change in Control Plan.”
Rights and Potential Payments Upon Termination or Change in Control: Mr. Smith
Mr. Smith entered into an employment agreement with Outback Steakhouse of Florida, LLC (“Outback Steakhouse”), our wholly-owned subsidiary, effective April 12, 2007 and amended on January 1, 2009 and January 1, 2012. The initial term of his employment agreement was for a period commencing on April 12, 2007 and expiring on the fifth anniversary thereof. The term of his employment agreement is automatically renewed for successive renewal terms of one year unless either party elects not to renew by giving written notice to the other party not less than 60 days prior to the start of any renewal term.
Mr. Smith’s employment may be terminated as follows:
Upon his death or disability (as defined in the agreement)
By Outback Steakhouse for Cause. “Cause” is defined to include: (i) any dishonesty in his dealing with Outback Steakhouse, the commission of fraud by him, negligence in the performance of his duties, insubordination, willful misconduct, or his conviction (or plea of guilty or nolo contendere) of any felony or any other crime involving dishonesty or moral turpitude; (ii) any violation of any covenant or restriction contained in specified sections of his employment agreement; or (iii) any violation of any material published policy of Outback Steakhouse or its affiliates
At the election of Outback Steakhouse, including upon the sale of a majority ownership interest in Outback Steakhouse or substantially all the assets of Outback Steakhouse or in the event of a determination by Outback Steakhouse to cease business operations
By Outback Steakhouse in its sole discretion, for any or no reason
For all purposes of his agreement, termination for Cause shall be deemed to have occurred on the date of the executive’s resignation when, because of existing facts and circumstances, subsequent termination for Cause can be reasonably foreseen.
Mr. Smith’s employment agreement provides that he will only receive severance benefits in the event of a termination of employment if his employment is terminated under the circumstances described in the last bullet above. In this case, he will be entitled to receive severance compensation equal to the sum of his base salary then in effect payable bi-weekly for one year.
A change in control does not trigger any severance payments to Mr. Smith under his employment agreement. However, in the event of a qualifying termination within the 24 months following a change in control, Mr. Smith would be entitled to receive the benefits described above under “—Change in Control Plan.”
Equity Awards
As a general matter, unless otherwise provided in an individual’s award agreement or other agreement, and depending on the reason for termination, upon a termination of employment or service all unvested equity awards will terminate and vested stock options must be exercised within certain limited time periods after the date of termination. If the individual’s employment or service is terminated for cause (as defined in the award or other applicable agreement), all stock options, whether vested or unvested, will terminate immediately.
The Compensation Committee may provide for accelerated vesting of an award upon, or as a result of events following, a change of control. This may be done in the award agreement or in connection with the change of control. In the event of a change of control, the Compensation Committee may also cause an award to be canceled in exchange for a cash payment to the participant or cause an award to be assumed by a successor corporation.
Our forms of award agreements under the 2012 Equity Plan provide as follows:
Restricted stock and restricted stock units awards to our directors become fully vested upon a change of control
Restricted stock awards for our employees and consultants provide that upon a change of control (a) restricted stock that remains outstanding or is exchanged or converted into securities of the acquiring or successor entity will continue to vest in accordance with the terms set forth in the award agreement and (b) if the restricted stock will be canceled in exchange for cash consideration, (x) in the case of awards held by our executive officers at the time of such change of control, the restricted stock will instead be converted into a right to receive such cash consideration upon satisfaction of the vesting and other terms and conditions of the award agreement in effect immediately prior to the change of control and (y) in the case of other award recipients, the award will fully vest and be exchanged for the cash consideration at the time of the change of control
PSU awards provide that if the award recipient’s employment or other service status with us terminates, the award will terminate as to any units that are unvested at the time of such termination, unless (a) such termination is due to death or disability, in which case a pro rata portion of the award shall vest based on the portion of the performance period for which service was provided, or (b) the termination occurs before the vesting date but after the end of the performance period and is incorporated herein by reference.other than for cause (as defined in the agreement), in which case the applicable number of units will vest for that performance period as if such termination had not occurred
We have adoptedIn addition, as described above under “—Change in Control Plan,” in the event of a Business Conduct and Code of Ethics that applies to all employees. A copyqualifying termination within the 24 months following a change in control, each of our Business Conductnamed executive officers will be entitled to accelerated vesting of all outstanding equity awards.
Stock Options: Ms. Smith
Pursuant to the terms of Ms. Smith’s option agreement date November 16, 2009, the vested stock options will remain outstanding for a period ranging from 90 days to three years in the case of a termination of Ms. Smith’s employment, depending on the type of option and Codethe nature of Ethicsthe termination, except that all options will be forfeited on a termination for Cause.
Restrictive Covenants
Each of the named executive officers is availablesubject to non-competition and other restrictive covenants under his or her employment agreement or offer of employment. Based on the terms of their agreements, each named executive officer has agreed not to compete with us during his or her employment and for a specified period of time following a termination of employment for any reason (Ms. Smith, and Messrs. Deno and Smith for a period of 24 months; and Messrs. Herlihy and Judge generally for a period of 12 months), except if Mr. Judge voluntarily resigns within six months from the date of a change in the Chief Executive Officer position, then Mr. Judge does not have a restrictive covenant. Each named executive officer’s continued compliance with this non-competition covenant is a condition to our obligation to pay the severance amounts due under his or her employment agreement or offer of employment.
Executive Benefits and Payments Upon Separation
The table below reflects the amount of compensation payable under the arrangements described above to the individuals serving as named executive officers, following a termination of employment (i) by us without Cause or by the executive for Good Reason without a change in control, (ii) by us without Cause or by the executive for Good Reason, following a change in control assuming that such termination constitutes a qualifying termination under the Change in Control Plan, (iii) by the executive voluntarily, (iv) as a result of disability or (v) as a result of death, in each case, assuming that such termination of employment occurred on December 28, 2014.
No payments or benefits are due to the named executive officers following a termination of employment for Cause. The table assumes that the change in control transaction resulted in per share consideration of $23.75, which was the closing price per share of our common stock on the NASDAQ Global Select Market on December 26, 2014, last market day of our fiscal year. The actual amounts to be paid upon a termination of employment or a change in control can only be determined at the time of such executive’s separation from us, or upon the occurrence of a change in control (if any).
| | | | | | | | | | | | | | | | | | | | | | |
NAMED EXECUTIVE OFFICER | | EXECUTIVE PAYMENTS AND
BENEFITS UPON SEPARATION
(1) | | INVOLUNTARY
TERMINATION
WITHOUT
CAUSE OR
TERMINATION
BY EXECUTIVE
FOR GOOD
REASON
WITHOUT
CHANGE IN
CONTROL
($) | | | INVOLUNTARY
TERMINATION
WITHOUT
CAUSE OR
TERMINATION
BY EXECUTIVE
FOR GOOD
REASON WITH
CHANGE IN
CONTROL
($) | | | VOLUNTARY
TERMINATION
($) | | | DISABILITY
($) | | | DEATH
($) | |
Elizabeth A. Smith | | Severance | | | 3,500,000 | | | | 5,000,000 | | | | — | | | | — | | | | — | |
| | Equity Awards (2) | | | 66,627,600 | | | | 71,703,961 | | | | 66,627,600 | | | | 66,627,600 | | | | 66,627,600 | |
| | Health and Welfare
Benefits | | | — | | | | 18,297 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 70,127,600 | | | | 76,722,258 | | | | 66,627,600 | | | | 66,627,600 | | | | 66,627,600 | |
| | | | | | | | | | | | | | | | | | | | | | |
David J. Deno | | Severance | | | 650,000 | | | | 1,803,750 | | | | — | | | | — | | | | — | |
| | Equity Awards (2) | | | 1,582,370 | | | | 5,422,979 | | | | 1,582,370 | | | | 1,582,370 | | | | 1,582,370 | |
| | Health and Welfare Benefits | | | — | | | | 13,573 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 2,232,370 | | | | 7,240,302 | | | | 1,582,370 | | | | 1,582,370 | | | | 1,582,370 | |
| | | | | | | | | | | | | | | | | | | | | | |
Donagh M. Herlihy | | Severance (3) | | | 540,000 | | | | 1,498,500 | | | | — | | | | — | | | | — | |
| | Equity Awards (2) | | | — | | | | 2,595,000 | | | | — | | | | — | | | | — | |
| | Health and Welfare Benefits | | | — | | | | 18,381 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 540,000 | | | | 4,111,881 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Stephen K. Judge | | Severance (3) | | | 540,000 | | | | 1,498,500 | | | | — | | | | — | | | | — | |
| | Equity Awards (2) | | | 376,500 | | | | 2,381,164 | | | | 376,500 | | | | 376,500 | | | | 376,500 | |
| | Health and Welfare Benefits | | | — | | | | 18,585 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 916,500 | | | | 3,898,249 | | | | 376,500 | | | | 376,500 | | | | 376,500 | |
| | | | | | | | | | | | | | | | | | | | | | |
Jeffrey S. Smith | | Severance (3) | | | 575,000 | | | | 1,595,625 | | | | — | | | | — | | | | — | |
| | Equity Awards (2) | | | 4,795,410 | | | | 6,328,258 | | | | 4,795,410 | | | | 4,795,410 | | | | 4,795,410 | |
| | Health and Welfare Benefits | | | — | | | | 18,585 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | 5,370,410 | | | | 7,942,468 | | | | 4,795,410 | | | | 4,795,410 | | | | 4,795,410 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (1) | Amounts in the table do not include amounts for accrued but unpaid base salary, annual bonus or other expenses. |
| (2) | Amounts represent intrinsic value of vested in-the-money stock options since the fair market value of a share of our common stock, as of December 26, 2014, was greater than the exercise price of the stock options held by the named executive officers. Certain stock option grants were out-of-the-money as of the fiscal year end and are included above with a value of $0. |
| (3) | Severance for Messrs. Herlihy, Judge and Smith (base salary in effect at termination) is only payable upon termination of employment by us without cause (as defined in their offer of employment or employment agreement). |
Director Compensation
The Compensation Committee recommended and our Board of Directors determined that directors who are not our employees, Founders or associated with our Sponsors receive the following compensation for their service on our website, freeBoard of charge. The Internet addressDirectors:
Annual retainer of $90,000
Additional annual retainer of $20,000 for our website is www.bloominbrands.com ,serving as chair and $10,000 for serving as a member (other than the Business Conductchair) of the Audit Committee
Additional annual retainer of $15,000 for serving as chair and Code$7,500 for serving as a member (other than the chair) of Ethics may be found from our main webpage by clicking first on “Investors”the Compensation Committee
Additional annual retainer of $10,000 for serving as chair and then on “Corporate Governance”$5,000 for serving as a member (other than the chair) of the Nominating and next on “CodeCorporate Governance Committee
Annual grant of Business Conduct and Ethics.”
We intend to satisfy any disclosure requirementrestricted stock units under Item 5.05the Bloomin’ Brands 2012 Incentive Award Plan (the “2012 Equity Plan”) having a fair market value of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website,$100,000 on the webpage found by clicking throughdate of our annual meeting of stockholders, vesting as to “Codeone-third of Business Conductthe shares subject to the grant immediately prior to our annual meeting of stockholders each year thereafter
If a director is elected at any time other than at our annual meeting of stockholders, such director will receive an initial grant of restricted stock units (and in 2012 and Ethics” as specified above.
Item 11. Executive Compensation
The information required by this item will be included2013, shares of restricted stock) under the captions “Proposal No. 1: Election2012 Equity Plan having a fair market value of Directors—Director Compensation” and “Executive Compensation and Related Information” in$100,000 on the date of the first Board of Directors meeting that such director attends, pro rated for the number of months from the month of the director’s election to the Board of Directors until the month of our Definitive Proxy Statement and is incorporated herein by reference.
next annual meeting of stockholders, vesting as to one-third of the shares subject to the grant immediately prior to our annual meeting of stockholders each year thereafter.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Ownership of Securities
The information required by this item relating to securityfollowing table describes the beneficial ownership of certainBloomin’ Brands, Inc. common stock as of February 18, 2015 (except as noted) by each person known to us to beneficially own more than 5% of Bloomin’ Brands, Inc.’s common stock, each director, and each named executive officer listed in the “Summary Compensation Table,” and all current directors and executive officers as a group. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options and restricted stock units beneficially owned by that person that are exercisable within 60 days following February 18, 2015. The beneficial ownership percentages reflected in the table below are based on 126,386,965 shares of our common stock outstanding as of February 18, 2015.
Except as described under “Certain Relationships and Related Party Transactions” in Item 13 of this Annual Report on Form 10-K, or as otherwise indicated in a footnote, each of the beneficial owners listed has, to our knowledge, sole voting, dispositive and management will be included underinvestment power with respect to the caption “Ownershipshares of Securities”common stock listed as being owned by them. Unless otherwise indicated in our Definitive Proxy Statement anda footnote, the address for each individual listed below is incorporated herein by reference.
c/o Bloomin’ Brands, Inc., 2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607. | | | | | | | | |
NAME OF BENEFICIAL OWNER | | AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP | | | PERCENT OF
CLASS
(COMMON
STOCK) | |
Beneficial owners of 5% or more of our common stock: | | | | | | | | |
Bain Capital Entities (1) | | | 18,307,782 | | | | 14.49 | % |
Directors and Named Executive Officers: | | | | | | | | |
Andrew B. Balson | | | — | | | | * | |
James R. Craigie (2) | | | 4,763 | | | | * | |
David J. Deno (3) | | | 227,450 | | | | * | |
David R. Fitzjohn (2) | | | 253 | | | | * | |
Mindy Grossman (2) | | | 14,857 | | | | * | |
Donagh M. Herlihy (4) | | | — | | | | * | |
David Humphrey (5) | | | — | | | | * | |
Stephen K. Judge (6) | | | 157,339 | | | | * | |
Tara Walpert Levy (2) | | | 3,359 | | | | * | |
John J. Mahoney (2) | | | 11,439 | | | | * | |
Elizabeth A. Smith (7) | | | 3,984,420 | | | | 3.06 | % |
Jeffrey S. Smith (8) | | | 338,760 | | | | * | |
Chris T. Sullivan (9) | | | 2,407,195 | | | | 1.90 | % |
All current directors and executive officers as a group (10) | | | 8,013,564 | | | | 6.09 | % |
| * | Indicates less than one percent of common stock. |
| (1) | Based on information contained in a Schedule 13G filed on February 17, 2015. The shares included in the table consist of: (i) 14,109,750 shares of common stock held by Bain Capital (OSI) IX, L.P., whose general partner is Bain Capital Partners IX, L.P. (“BCP IX”); (ii) 3,996,022 shares of common stock held by Bain Capital (OSI) IX Coinvestment, L.P., whose general partner is BCP IX; (iii) 166,541 shares of common stock held by Bain Capital Integral Investors 2006, LLC, whose administrative member is Bain Capital Investors, LLC (“BCI”); (iv) 33,170 shares of common stock held by BCIP TCV, LLC, whose administrative member is BCI; and (v) 2,299 shares of common stock held by BCIP Associates-G, whose managing partner is BCI. BCI is also the general partner of BCP IX. By virtue of the relationships described in this footnote, BCI may be deemed to share beneficial ownership of the shares held by each of Bain Capital (OSI) IX, L.P., Bain Capital (OSI) IX Coinvestment, L.P., Bain Capital Integral Investors 2006, LLC, BCIP TCV, LLC and BCIP Associates-G (collectively, the “Bain Capital Entities”). The governance, investment strategy and decision-making process with respect to investments held by the Bain Capital Entities is directed by BCI’s Global Private Equity Board (“GPEB”), which is comprised of the following individuals: Steven Barnes, Joshua Bekenstein, John Connaughton, Stephen Pagliuca, Michel Plantevin, Dwight Poler and Jonathan Zhu. Because of the relationships described in this footnote, GPEB may be deemed to exercise voting and dispositive power with respect to the shares held by the Bain Capital Entities. Each of the members of GPEB disclaims beneficial ownership of such shares to the extent attributed to such member solely by virtue of serving on GPEB. Each of the Bain Capital Entities has an address c/o Bain Capital Partners, LLC, John Hancock Tower, 200 Clarendon Street, Boston, Massachusetts 02116. |
| (2) | Includes the following number of shares of unvested restricted stock Ms. Grossman, 4,259 shares; Ms. Levy, 2,240 shares and Mr. Mahoney, 5,341 shares. Does not include the following number of restricted stock units that will not vest within 60 days of February 18, 2015: Mr. Craigie, 6,207; Mr. Fitzjohn, 5,483; Ms. Grossman, 4,760; Ms. Levy, 4,760 shares and Mr. Mahoney, 4,760 shares. |
| (3) | Includes 14,700 shares subject to stock options with an exercise price of $25.32 per share, 36,274 shares with an exercise price of $17.40 and 160,000 shares with an exercise price of $14.58 per share that Mr. Deno has the right to acquire within 60 days of February 18, 2015. Does not include 320,377 shares subject to stock options and 38,718 shares subject to performance share units that are not exercisable within 60 days of February 18, 2015. |
| (4) | Does not include 250,000 shares subject to stock options and 50,000 restricted stock units that are not exercisable within 60 days of February 18, 2015. |
| (5) | Does not include shares of common stock held by the Bain Capital Entities. Mr. Humphrey is a Managing Director and serves on the investment committee of BCI. As a result, and by virtue of the relationships described in footnote (1) above, Mr. Humphrey may be deemed to share beneficial ownership of the shares held by the Bain Capital Entities. Mr. Humphrey disclaims beneficial ownership of such shares. The address for Mr. Humphrey is c/o Bain Capital Partners, LLC, John Hancock Tower, 200 Clarendon Street, Boston, Massachusetts 02116. |
| (6) | Includes 6,082 shares subject to stock options with an exercise price of $25.32 per share and 150,000 shares with an exercise price of $18.73 that Mr. Judge has the right to acquire within 60 days of February 18, 2015. Does not include 168,249 shares subject to stock options and 8,887 shares subject to performance share units that are not exercisable within 60 days of February 18, 2015. |
| (7) | Includes 44,485 shares subject to stock options with an exercise price of $25.32 per share, 3,600,000 shares with an exercise price of $6.50 per share and 330,000 shares subject to stock options with an exercise price of $10.03 per share that Ms. Smith has the right to acquire within 60 days of February 18, 2015. Does not include 353,455 shares subject to stock options and 64,989 shares subject to performance share units that are not exercisable within 60 days of February 18, 2015. |
| (8) | Includes 7,289 shares subject to stock options with an exercise price of $25.32 per share, 21,704 shares subject to stock options with an exercise price of $17.40 per share and 274,000 shares subject to stock options with an exercise price of $6.50 per share that Mr. Smith has the right to acquire within 60 days of February 18, 2015. Does not include 43,573 shares subject to stock options, 18,750 shares subject to restricted stock and 39,716 shares subject to performance share units that are not exercisable within 60 days of February 18, 2015. |
| (9) | Includes 2,007,899 shares owned by CTS Equities, Limited Partnership, an investment partnership (“CTSLP”). Mr. Sullivan is a limited partner of CTSLP and the sole member of CTS Equities, LLC, the sole general partner of CTSLP. Also includes 399,296 shares held by a charitable foundation for which Mr. Sullivan serves as trustee. The shares held by CTSLP are pledged to Fifth Third Bank to secure debt of approximately $18 million. |
| (10) | Includes a total of 5,175,080 shares subject to stock options and 2,500 shares subject to restricted stock that our current directors and executive officers have the right to acquire within 60 days of February 18, 2015. Does not include a total of 1,572,691 shares subject to stock options, 33,090 shares subject to restricted stock, 140,970 subject to restricted stock units and 192,438 shares subject to performance share units that our current directors and executive officers do not have the right to acquire within 60 days of February 18, 2015. |
The information relating to securities authorized for issuance under equity compensation plans is included under the caption “Securities Authorized for Issuance Under Equity Compensation Plans” in Item 5 of this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Review, Approval or Ratification of Transactions with Related Persons
Our Board of Directors has adopted a written Code of Business Conduct and Ethics that applies to our directors, officers, and employees, including our executive officers. The informationCode of Business Conduct and Ethics requires disclosure to the Chief Legal Officer or the Audit Committee, as applicable, the material terms of any related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction. The Chief Legal Officer or the Audit Committee must advise the Board of Directors of the related person transaction and any requirement for disclosure in our applicable filings under the Securities Act or the Exchange Act and related rules, and, to the extent required by this item relatingto be disclosed, management must ensure that the related person transaction is disclosed in accordance with such acts and related rules.
The transactions below were reviewed under our Code of Business Conduct and Ethics or, with respect to transactions prior to our IPO, under a similar written code of business conduct and ethics of OSI.
Arrangements With Our Sponsors and Founders
Stockholders Agreement
On April 29, 2014, we terminated our prior stockholders agreement with our Sponsors and Founders and entered into a new Stockholders Agreement with the Bain Funds. Pursuant to the Stockholders Agreement, as long as the Bain Funds beneficially own at least 3% of our outstanding common stock, they will have the right to designate two nominees for election to our Board of Directors, with each nominee to serve in a separate class. The Bain Funds are also entitled to have one of their nominees serve on each committee of our Board of Directors, other than the Audit Committee, subject to applicable law and NASDAQ rules. The Bain Funds’ rights to designate nominees will terminate once they own less than 3% of our outstanding common stock.
Registration Rights Agreement
On April 29, 2014, we terminated our prior registration rights agreement with our Sponsors and Founders and certain other stockholders and entered into a new registration rights agreement with Bain Funds, certain entities associated with, and family members of, Chris T. Sullivan, one of our Founders and a director, and Elizabeth A. Smith, our Chairman and Chief Executive Officer (the “Registration Rights Agreement”). The Registration Rights Agreement provides the Bain Funds and the other stockholders that are parties thereto with certain demand and “piggyback” registration rights. We are required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, associated with any registration of shares by the Bain Funds or other stockholders pursuant to the Registration Rights Agreement. The Registration Rights Agreement also contains customary terms and conditions related persons will be includedto various matters, including registration procedures, lock-up agreements and permitted transfers and indemnification and contribution.
Lease Payments
In 2014, MVP LRS, LLC (“MVP”), an entity owned primarily by our Founders, including Chris T. Sullivan, who is one of our directors, paid us approximately $0.5 million in lease payments. These leases were originally for two restaurants in the Lee Roy Selmon’s concept, which was purchased from us in 2008. In 2014, MVP converted one of the Lee Roy Selmon’s restaurants to a Glory Days restaurant and we entered into a new lease with MVP for the Glory Days restaurant. We also guarantee lease payments by MVP under two leases with third parties.
Tabletop Point of Sale Services
In 2014, we evaluated tabletop point of sale products and services provided by Menupad, Inc. (“Menupad”), and Positronics Technologies, Inc. (“Positronics”). Both of these companies are owned, in part, by Chris Sullivan, one of our Founders and a director, or by entities he owns or controls. In 2014, we did not make any payments to Menupad, and we paid Positronics $20,120.
We intend to continue evaluating the services provided by both companies throughout 2015, as well as competing products and services provided by other companies.
Other Arrangements
Director and Executive Officer Investments and Employment Arrangements
Jeffrey S. Smith, our Executive Vice President and President of Outback Steakhouse, has made investments in the aggregate amount of approximately $0.5 million in 11 Outback Steakhouse restaurants, 13 Carrabba’s Italian Grill restaurants and 14 Bonefish Grill restaurants (one of which is a franchise restaurant). In 2014, we purchased the ownership interests in 3 of those Bonefish Grill restaurants, including the one franchise. As a result of these purchases, Mr. Smith received a total of $34,504 for his ownership interests. Mr. Smith received distributions of approximately $0.1 million in the year ended December 28, 2014 from his ownership interests in the other 35 restaurants.
Director Independence
Under our Corporate Governance Guidelines, an “independent” director is one who meets the qualification requirements for being independent under applicable laws and the corporate governance listing standards of NASDAQ. The Nominating and Corporate Governance Committee evaluates the relationships of each director and director nominee and makes a recommendation to the Board of Directors as to whether to make an affirmative determination that such director or director nominee is independent. Upon recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has affirmatively determined that (a) Messrs. Craigie, Fitzjohn, and Mahoney and Mses. Grossman and Levy are independent under the caption “Certain Relationships and Related Party Transactions,” and the information requiredcriteria established by this item relating toNASDAQ for director independence will be included(b) Messrs. Craigie and Mahoney and Ms. Levy are independent under the caption “Proposal No. 1: Election of Directors—Independent Directors,” in each case in our Definitive Proxy Statement,criteria established by NASDAQ for audit committee membership and is incorporated herein(c) Mr. Fitzjohn and Ms. Grossman are independent under the criteria established by reference.
NASDAQ for compensation committee membership.
Item 14. Principal Accounting Fees and Services
The information requiredfollowing is a summary of the fees billed to us by this item will bePricewaterhouseCoopers LLP for professional services rendered for the fiscal years ended December 28, 2014 and December 31, 2013:
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FEE CATEGORY | | 2014 | | | 2013 | |
Audit Fees | | $ | 3,200,000 | | | $ | 2,998,000 | |
Audit-Related Fees | | | 190,000 | | | | 472,000 | |
Tax Fees | | | 53,000 | | | | 68,000 | |
All Other Fees | | | 5,000 | | | | 6,000 | |
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Total Fees | | $ | 3,448,000 | | | $ | 3,544,000 | |
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Audit Fees. The aggregate fees (inclusive of out-of-pocket expenses) billed by PricewaterhouseCoopers LLP were for professional services rendered for the audits of our consolidated and subsidiary financial statements and services that are normally provided by the independent registered certified public accountants in connection with statutory and regulatory filings or engagements for the fiscal years ended December 28, 2014 and December 31, 2013, including audited consolidated financial statements presented in our Annual Reports on Form 10-K and incorporated by reference into our registration statement on Form S-3 filed with the SEC, and the review of the financial statements presented in our Quarterly Reports on Form 10-Q. In addition, services rendered in 2014 and 2013 included delivery of comfort letters, consents and review of documents in connection with secondary offerings of our common stock completed in May 2013, March 2014 and November 2014.
Audit-Related Fees.The aggregate fees (inclusive of out-of-pocket expenses) billed by PricewaterhouseCoopers LLP were for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” These services comprised controls and compliance reviews in connection with the captions “Proposal No. 2: Ratificationimplementation of Independent Registered Certified Public Accounting Firm—Principal Accountant Feescertain financial systems during the fiscal years ended December 28, 2014 and Services”December 31, 2013.
Tax Fees. The aggregate fees (inclusive of out-of-pocket expenses) billed by PricewaterhouseCoopers LLP were for professional services for tax compliance, tax advice and “—tax planning. These services include assistance regarding foreign jurisdiction tax compliance and planning for the fiscal years ended December 28, 2014 and December 31, 2013.
All Other Fees.The aggregate fees billed by PricewaterhouseCoopers LLP were for products and services other than the services reported above. These services included annual subscription licenses for an accounting research tool, which we license from PricewaterhouseCoopers LLP, and continuing professional education seminars hosted by PricewaterhouseCoopers LLP for the fiscal years ended December 28, 2014 and December 31, 2013.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Certified Public Accounting Firm” inFirm
The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services (including the fees and terms thereof) provided by our Definitive Proxy Statementindependent registered certified public accounting firm. The policy provides for the general pre-approval of specific types of services within specific cost limits for each such service on an annual basis. The policy requires specific pre-approval of all other permitted services. The Chairman of the Audit Committee has the authority to address any requests for pre-approval of services between Audit Committee meetings, and is incorporated herein by reference.
the Chairman must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1)
LISTING OF FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and subsidiaries are included in Item 8 of this Report:
Consolidated Balance Sheets - Sheets—December 28, 2014 and December 31, 2013
Consolidated Statements of Operations and Comprehensive Income – Fiscal years 2014,, 2013,, and 2012
Consolidated Statements of Changes in Stockholders’ Equity – Fiscal years 2014,, 2013,, and 2012
Consolidated Statements of Cash Flows – Fiscal years 2014,, 2013,, and 2012
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Report.
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| | DESCRIPTION OF EXHIBITS | | INCORPORATION BY REFERENCE |
2.1 | | | |
2.1 | | Quota Purchase and Sale Agreement dated October 31, 2013 and effective November 1, 2013, by and between Bloomin’ Brands, Inc., Outback Steakhouse Restaurantes Brasil S.A. (formerly known as Bloom Holdco Participações Ltda.), PGS Participações Ltda., the equity holders of PGS Participações Ltda., PGS Consultoria e Serviços Ltda., and Bloom Participações Ltda.1 | | December 31, 2013 Form 10-K, Exhibit 2.1 |
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3.1 | | Second Amended and Restated Certificate of Incorporation of Bloomin’ Brands, Inc. | | Registration Statement on Form S-8, File No. 333-183270, filed on August 13, 2012, Exhibit 4.1 |
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3.2 | | Second Amended and Restated Bylaws of Bloomin’ Brands, Inc. | | Registration Statement on Form S-8, File No. 333-183270, filed on August 13, 2012, Exhibit 4.2 |
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4.1 | | Form of Common Stock Certificate | | Amendment No. 4 to Registration Statement on Form S-1, File No. 333-180615, filed on July 18, 2012, Exhibit 4.1 |
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10.1 | | | | |
10.1 | | Credit Agreement dated October 26, 2012 among OSI Restaurant Partners, LLC, OSI HoldCo, Inc., the Lenders and Deutsche Bank Trust Company Americas, as administrative agent for the Lenders1 | | September 30, 2012 Form 10-Q, Exhibit 10.1 |
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10.2 | | First Amendment to Credit Agreement, Guaranty and Security Agreement dated as of April 10, 2013 among OSI Restaurant Partners, LLC, OSI HoldCo, Inc., the Subsidiary Guarantors, the Lenders and Deutsche Bank Trust Company Americas, as administrative agent for the Lenders | | March 31, 2013 Form 10-Q, Exhibit 10.1 |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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10.3 | | Second Amendment to Credit Agreement dated as of January 3, 2014 among OSI Restaurant Partners, LLC, OSI HoldCo, Inc., the Subsidiary Guarantors and Deutsche Bank Trust Company Americas, as administrative agent | | December 31, 2013 Form 10-K, Exhibit 10.3 |
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EXHIBIT
NUMBER
| | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR
INCORPORATION BY REFERENCE
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10.4 | | Third Amendment to Credit Agreement dated as of May 16, 2014 among OSI Restaurant Partners, LLC, OSI HoldCo, Inc., the Subsidiary Guarantors, Deutsche Bank Trust Company Americas, as administrative agent, collateral agent, L/C issuer, swing line lender and assigning Lender, Deutsche Bang AG New York Branch, as assignee and Wells Fargo Bank, National Association, as successor administrative agent | | June 29, 2014 Form 10-Q, Exhibit 10.5 |
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10.5 | | | | |
10.5 | | Loan and Security Agreement, dated March 27, 2012, between New Private Restaurant Properties, LLC, as borrower, and German American Capital Corporation and Bank of America, N.A., collectively as lender1 | | Amendment No. 1 to Registration Statement on Form S-1, File No. 333-180615, filed on May 17, 2012, Exhibit 10.10 |
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10.6 | | First Amendment to Loan and Security Agreement, dated effective January 1, 2014, by and among New Private Restaurant Properties, LLC, as borrower, OSI HoldCo I, Inc., as guarantor and Wells Fargo Bank, N.A., as trustee for the registered holders of BAMLL-DB 2012-OSI Trust, Commercial Mortgage Pass-Through Certificates, Series 2012-OSI, as lender | | December 31, 2013 Form 10-K, Exhibit 10.5 |
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10.7 | | Mezzanine Loan and Security Agreement (First Mezzanine), dated March 27, 2012, between New PRP Mezz 1, LLC, as borrower, and German American Capital Corporation and Bank of America, N.A., collectively as lender | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.11 |
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10.8 | | First Amendment to Mezzanine Loan and Security Agreement (First Mezzanine), dated as of January 3, 2014, between New PRP Mezz 1, LLC, as borrower, OSI HoldCo I, Inc., as guarantor, and Athene Annuity & Life Assurance Company, Thornburg Strategic Income Fund, Thornburg Investment Income Builder Fund and Newcastle CDO IX, 1 Limited, collectively as lender | | December 31, 2013 Form 10-K, Exhibit 10.7 |
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10.9 | | Mezzanine Loan and Security Agreement (Second Mezzanine), dated March 27, 2012, between New PRP Mezz 2, LLC, as borrower, and German American Capital Corporation and Bank of America, N.A., collectively, as lender | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.12 |
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10.10 | | First Amendment to Mezzanine Loan and Security Agreement (Second Mezzanine), dated as of January 3, 2014, between New PRP Mezz 2, LLC, as borrower, OSI HoldCo I, Inc., as guarantor, and Annaly CRE Holdings LLC, as lender | | December 31, 2013 Form 10-K, Exhibit 10.9 |
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10.11 | | Environmental Indemnity, dated March 27, 2012, by OSI HoldCo I, Inc. for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.13 |
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10.12 | | Environmental Indemnity, dated March 27, 2012, by OSI Restaurant Partners, LLC and Private Restaurant Master Lessee, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.14 |
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10.13 | | Environmental Indemnity, dated March 27, 2012, by PRP Holdings, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.15 |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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10.14 | | Environmental Indemnity (First Mezzanine), dated March 27, 2012, by OSI HoldCo I, Inc. for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.16 |
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EXHIBIT
NUMBER
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INCORPORATION BY REFERENCE
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10.15 | | Environmental Indemnity (First Mezzanine), dated March 27, 2012, by OSI Restaurant Partners, LLC and Private Restaurant Master Lessee, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.17 |
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10.16 | | Environmental Indemnity (First Mezzanine), dated March 27, 2012, by PRP Holdings, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.18 |
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10.17 | | Environmental Indemnity (Second Mezzanine), dated March 27, 2012, by OSI HoldCo I, Inc. for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.19 |
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10.18 | | Environmental Indemnity (Second Mezzanine), dated March 27, 2012, by OSI Restaurant Partners, LLC and Private Restaurant Master Lessee, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.20 |
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10.19 | | Environmental Indemnity (Second Mezzanine), dated March 27, 2012, by PRP Holdings, LLC for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.21 |
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10.20 | | Guaranty of Recourse Obligations, dated March 27, 2012, by OSI HoldCo I, Inc. to and for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.22 |
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10.21 | | Guaranty of Recourse Obligations (First Mezzanine), dated March 27, 2012, by OSI HoldCo I, Inc. to and for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.23 |
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10.22 | | Guaranty of Recourse Obligations (Second Mezzanine), dated March 27, 2012, by OSI HoldCo I, Inc. to and for the benefit of German American Capital Corporation and Bank of America, N.A. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.24 |
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10.23 | | Amended and Restated Guaranty, dated March 27, 2012, by OSI Restaurant Partners, LLC to and for the benefit of New Private Restaurant Properties, LLC | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.27 |
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10.24 | | Subordination, Non-Disturbance and Attornment Agreement (New Private Restaurant Properties, LLC), dated March 27, 2012, by and between Bank of America, N.A., German American Capital Corporation, Private Restaurant Master Lessee, LLC and New Private Restaurant Properties, LLC, with the acknowledgement, consent and limited agreement of OSI Restaurant Partners, LLC | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.25 |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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10.25 | | Royalty Agreement dated April 1995 among Carrabba’s Italian Grill, Inc., Outback Steakhouse, Inc., Mangia Beve, Inc., Carrabba, Inc., Carrabba Woodway, Inc., John C. Carrabba, III, Damian C. Mandola, and John C. Carrabba, Jr., as amended by First Amendment to Royalty Agreement dated January 1997 and Second Amendment to Royalty Agreement made and entered into effective April 7, 2010 by and among Carrabba’s Italian Grill, LLC, OSI Restaurant Partners, LLC, Mangia Beve, Inc., Mangia Beve II, Inc., Original, Inc., Voss, Inc., John C. Carrabba, III, Damian C. Mandola, and John C. Carrabba, Jr. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.6 |
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EXHIBIT
NUMBER
| | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR
INCORPORATION BY REFERENCE
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10.26 | | Third Amendment to Royalty Agreement made and entered into effective June 1, 2014, by and among Carrabba’s Italian Grill, LLC, OSI Restaurant Partners, LLC, Mangia Beve, Inc., Mangia Beve II, Inc., Original, Inc., Voss, Inc., John C. Carrabba, III, Damian C. Mandola, and John C. Carrabba, Jr. | | June 29, 2014 Form 10-Q, Exhibit 10.6 |
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10.27 | | Amended and Restated Operating Agreement for OSI/Fleming’s, LLC made as of June 4, 2010 by and among OS Prime, LLC, a wholly-owned subsidiary of OSI Restaurant Partners, LLC, FPSH Limited Partnership and AWA III Steakhouses, Inc. | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.8 |
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10.28 | | | | |
10.28 | | Amended and Restated Master Lease Agreement, dated March 27, 2012, between New Private Restaurant Properties, LLC, as landlord, and Private Restaurant Master Lessee, LLC, as tenant1 | | Amendment No. 1 to Registration Statement on Form S-1, File No. 333-180615, filed on May 17, 2012, Exhibit 10.26 |
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10.29 | | Lease, dated June 14, 2007, between OS Southern, LLC and Selmon’s/Florida-I, Limited Partnership (predecessor to MVP LRS, LLC), as amended May 27, 2010 | | Amendment No. 1 to Registration Statement on Form S-1, File No. 333-180615, filed on May 17, 2012, Exhibit 10.52 |
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10.30 | | Lease, dated January 21, 2014, between OS Southern, LLC and MVP LRS, LLC | | December 31, 2013 Form 10-K, Exhibit 10.28 |
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10.31* | | Employee Rollover Agreement for conversion of OSI Restaurant Partners, Inc. restricted stock to Kangaroo Holdings, Inc. restricted stock entered into by the individuals listed on Schedule 1 thereto | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.4 |
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10.32* | | OSI Restaurant Partners, LLC HCE Deferred Compensation Plan effective October 1, 2007 | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.46 |
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10.33* | | Kangaroo Holdings, Inc. 2007 Equity Incentive Plan, as amended | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.1 |
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10.34* | | Form of Option Agreement for Options under the Kangaroo Holdings, Inc. 2007 Equity Incentive Plan | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.42 |
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10.35* | | Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | Amendment No. 4 to Registration Statement on Form S-1, File No. 333-180615, filed on July 18, 2012, Exhibit 10.2 |
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10.36* | | Form of Nonqualified Stock Option Award Agreement for options granted under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | December 7, 2012 Form 8-K, Exhibit 10.2 |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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10.37* | | Form of Restricted Stock Award Agreement for restricted stock granted to directors under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | December 7, 2012 Form 8-K, Exhibit 10.3 |
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10.38* | | Form of Restricted Stock Award Agreement for restricted stock granted to employees and consultants under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | December 7, 2012 Form 8-K, Exhibit 10.4 |
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10.39* | | Form of Restricted Stock Unit Award Agreement for restricted stock granted to directors under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | September 30, 2013 Form 10-Q, Exhibit 10.1 |
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EXHIBIT
NUMBER
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INCORPORATION BY REFERENCE
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10.40* | | Form of Restricted Stock Unit Award Agreement for restricted stock granted to employees and consultants under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | September 30, 2013 Form 10-Q, Exhibit 10.2 |
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10.41* | | Form of Performance Unit Award Agreement for performance units granted under the Bloomin’ Brands, Inc. 2012 Incentive Award Plan | | December 7, 2012 Form 8-K, Exhibit 10.5 |
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10.42* | | Form of Bloomin’ Brands, Inc. Indemnification Agreement by and between Bloomin’ Brands, Inc. and each member of its Board of Directors and each of its executive officers | | Amendment No. 4 to Registration Statement on Form S-1, File No. 333-180615, filed on July 18, 2012, Exhibit 10.39 |
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10.43* | | Bloomin’ Brands, Inc. Executive Change in Control Plan, effective December 6, 2012 | | December 7, 2012 Form 8-K, Exhibit 10.1 |
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10.44* | | Amended and Restated Employment Agreement made and entered into September 4, 2012 by and between Elizabeth A. Smith and Bloomin’ Brands, Inc. | | June 30, 2012 Form 10-Q, Exhibit 10.1 |
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10.45* | | Option Agreement, dated November 16, 2009, by and between Kangaroo Holdings, Inc. and Elizabeth A. Smith, as amended December 31, 2009 | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.40 |
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10.46* | | Option Agreement, dated July 1, 2011, by and between Kangaroo Holdings, Inc. and Elizabeth A. Smith | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.41 |
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10.47* | | Officer Employment Agreement, made and entered into effective May 7, 2012, by and among David Deno and OSI Restaurant Partners, LLC | | Amendment No. 1 to Registration Statement on Form S-1, File No. 333-180615, filed on May 17, 2012, Exhibit 10.53 |
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10.48* | | Amendment, dated July 16, 2014, to the Officer Employment Agreement, made and entered into effective May 7, 2012, by and among David Deno and OSI Restaurant Partners, LLC | | June 29, 2014 Form 10-Q, Exhibit 10.7 |
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10.49* | | Officer Employment Agreement dated January 23, 2008 and effective April 12, 2007 by and among Jeffrey S. Smith and Outback Steakhouse of Florida, LLC, as amended on January 1, 2009 and January 1, 2012 | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.32 |
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10.50* | | Amended and Restated Employment Agreement dated June 14, 2007, between Joseph J. Kadow and OSI Restaurant Partners, LLC, as amended on January 1, 2009, June 12, 2009, December 30, 2010 and December 16, 2011 | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.29 |
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10.51* | | Split-Dollar Agreement dated August 12, 2008 and effective March 30, 2006, by and between OSI Restaurant Partners, LLC (formerly known as Outback Steakhouse, Inc.) and Joseph J. Kadow | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.48 |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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10.52* | | Officer Employment Agreement made and entered into August 16, 2010 by and among David A. Pace and OSI Restaurant Partners, LLC | | Registration Statement on Form S-1, File No. 333-180615, filed on April 6, 2012, Exhibit 10.37 |
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10.53* | | Amendment, dated July 30, 2014, to the Officer Employment Agreement made and entered into August 16, 2010 by and among David A. Pace and OSI Restaurant Partners, LLC | | June 29, 2014 Form 10-Q, Exhibit 10.8 |
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EXHIBIT
NUMBER
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INCORPORATION BY REFERENCE
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10.54* | | Employment Offer Letter Agreement, dated as of November 27, 2012, between Bloomin’ Brands, Inc. and Stephen K. Judge | | December 31, 2012 Form 10-K, Exhibit 10.52 |
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10.55* | | Officer Employment Agreement, made and entered into effective August 7, 2013, by and among Amanda L. Shaw and Bloomin’ Brands, Inc. and OS Management, Inc. | | December 31, 2013 Form 10-K, Exhibit 10.54 |
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10.56* | | Amendment, dated September 16, 2014, to the Officer Employment Agreement made and entered into August 7, 2013 and effective for all purposes as of August 16, 2010 by and among Amanda L. Shaw and Bloomin’ Brands, Inc. | | September 28, 2014 Form 10-Q, Exhibit 10.2 |
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10.57* | | Employment Offer Letter Agreement, dated as of November 1, 2013, between Bloomin’ Brands, Inc. and Patrick Murtha | | December 31, 2013 Form 10-K, Exhibit 10.55 |
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10.58* | | Employment Offer Letter Agreement, dated as of July 30, 2014, between Bloomin’ Brands, Inc. and Donagh Herlihy | | Filed herewithPreviously filed. |
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10.59 | | Registration Rights Agreement among Bloomin’ Brands, Inc. and certain stockholders of Bloomin’ Brands, Inc. made as of April 29, 2014 | | May 1, 2014 Form 8-K, Exhibit 10.3 |
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10.60 | | Stockholders Agreement among Bloomin’ Brands, Inc. and certain stockholders of Bloomin’ Brands, Inc. made as of April 29, 2014 | | May 1, 2014 Form 8-K, Exhibit 10.4 |
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21.1 | | List of Subsidiaries | | Filed herewithPreviously filed. |
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23.1 | | Consent of PricewaterhouseCoopers LLP | | Filed herewithPreviously filed. |
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31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
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31.2 | | Certification of Chief Financial and Administrative Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
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32.1 | | | | |
32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022 | | Filed herewithPreviously filed. |
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32.2 | | | | |
32.2 | | Certification of Chief Financial and Administrative Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 20022 | | Filed herewithPreviously filed. |
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101.INS | | XBRL Instance Document | | Filed herewithPreviously filed. |
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101.SCH | | XBRL Taxonomy Extension Schema Document | | Filed herewithPreviously filed. |
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EXHIBIT NUMBER | | DESCRIPTION OF EXHIBITS | | FILINGS REFERENCED FOR INCORPORATION BY REFERENCE |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewithPreviously filed. |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewithPreviously filed. |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | Filed herewithPreviously filed. |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewithPreviously filed. |
* Management contract or compensatory plan or arrangement required to be filed as an exhibit
1Confidential treatment has been granted with respect to portions of Exhibits 2.1, 10.1, 10.5 and 10.28 and such portions have been filed separately with the Securities and Exchange Commission.
2 These certifications are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.
| * | Management contract or compensatory plan or arrangement required to be filed as an exhibit |
| 1 | Confidential treatment has been granted with respect to portions of Exhibits 2.1, 10.1, 10.5 and 10.28 and such portions have been filed separately with the Securities and Exchange Commission. |
| 2 | These certifications are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Date: February 26, 2015 | | | | Bloomin’ Brands, Inc. |
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| Date: | February 24, 2015 | Bloomin’ Brands, Inc. |
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| | | By: /s/ | | /s/ Elizabeth A. Smith |
| | | Elizabeth A. Smith
Chief Executive Officer
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Elizabeth A. Smith | | Chief Executive Officer and Director
(Principal Executive Officer)
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| Elizabeth A. Smith | | | February 24, 2015 |
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/s/ David J. Deno | | Chief Executive Vice President and Chief Financial and Administrative Officer (Principal Financial (Principal Executive Officer) | | |
David J. Deno | | | February 24, 2015 |
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/s/ Amanda L. Shaw | | Senior Vice President, Chief Accounting Officer and International Finance (Principal Accounting Officer) | | |
Amanda L. Shaw | | | February 24, 2015 |
| | | | |
/s/ Andrew B. Balson | | | | |
Andrew B. Balson | | Director | | February 24, 2015 |
| | | | |
/s/ James R. Craigie | | | | |
James R. Craigie | | Director | | February 24, 2015 |
| | | | |
/s/ David R. Fitzjohn | | | | |
David R. Fitzjohn | | Director | | February 24, 2015 |
| | | | |
/s/ Mindy Grossman | | | | |
Mindy Grossman | | Director | | February 24, 2015 |
| | | | |
/s/ David Humphrey | | | | |
David Humphrey | | Director | | February 24, 2015 |
| | | | |
/s/ Tara Walpert Levy | | | | |
Tara Walpert Levy | | Director | | February 24, 2015 |
| | | | |
/s/ John J. Mahoney | | | | |
John J. Mahoney | | Director | | February 24, 2015 |
| | | | |
/s/ Chris T. Sullivan | | | | |
Chris T. Sullivan | | Director | | February 24, 2015 |
