Item 1. Financial Statements
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
MARCH 28, 2021 DECEMBER 27, 2020
ASSETS
Current assets
Cash and cash equivalents $ 136,658 $ 109,980
Restricted cash and cash equivalents — 428
Inventories 53,905 61,928
Other current assets, net 82,426 151,518
Total current assets 272,989 323,854
Property, fixtures and equipment, net 862,844 887,687
Operating lease right-of-use assets 1,165,947 1,172,910
Goodwill 268,645 271,164
Intangible assets, net 457,843 459,983
Deferred income tax assets, net 166,142 153,883
Other assets, net 90,914 92,626
Total assets $ 3,285,324 $ 3,362,107
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 146,832 $ 141,457
Accrued and other current liabilities 428,284 388,321
Unearned revenue 315,038 381,616
Current portion of long-term debt 41,829 38,710
Total current liabilities 931,983 950,104
Non-current operating lease liabilities 1,212,656 1,217,921
Long-term debt, net 951,534 997,770
Other long-term liabilities, net 143,746 185,355
Total liabilities 3,239,919 3,351,150
Commitments and contingencies (Note 18)
Stockholders’ equity
Bloomin’ Brands stockholders’ equity
Preferred stock, $ 0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of March 28, 2021 and December 27, 2020
— —
Common stock, $ 0.01 par value, 475,000,000 shares authorized; 88,854,861 and 87,855,571 shares issued and outstanding as of March 28, 2021 and December 27, 2020, respectively
889 879
Additional paid-in capital 1,097,639 1,132,808
Accumulated deficit ( 844,864 ) ( 918,096 )
Accumulated other comprehensive loss ( 215,060 ) ( 211,446 )
Total Bloomin’ Brands stockholders’ equity 38,604 4,145
Noncontrolling interests 6,801 6,812
Total stockholders’ equity 45,405 10,957
Total liabilities and stockholders’ equity $ 3,285,324 $ 3,362,107
The accompanying notes are an integral part of these consolidated financial statements.
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BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 28, 2021 MARCH 29, 2020
Revenues
Restaurant sales $ 979,451 $ 996,237
Franchise and other revenues 8,022 12,100
Total revenues 987,473 1,008,337
Costs and expenses
Food and beverage costs 291,870 319,693
Labor and other related 274,638 309,269
Other restaurant operating 229,293 246,555
Depreciation and amortization 41,226 48,268
General and administrative 57,248 84,802
Provision for impaired assets and restaurant closings 2,200 41,318
Total costs and expenses 896,475 1,049,905
Income (loss) from operations 90,998 ( 41,568 )
Other income (expense), net 21 ( 793 )
Interest expense, net ( 14,628 ) ( 11,708 )
Income (loss) before provision (benefit) for income taxes 76,391 ( 54,069 )
Provision (benefit) for income taxes 6,593 ( 19,655 )
Net income (loss) 69,798 ( 34,414 )
Less: net income attributable to noncontrolling interests 936 197
Net income (loss) attributable to Bloomin’ Brands
68,862 ( 34,611 )
Redemption of preferred stock in excess of carrying value — ( 3,496 )
Net income (loss) attributable to common stockholders $ 68,862 $ ( 38,107 )
Net income (loss) $ 69,798 $ ( 34,414 )
Other comprehensive income (loss):
Foreign currency translation adjustment ( 6,575 ) ( 7,961 )
Unrealized loss on derivatives, net of tax ( 42 ) ( 13,336 )
Reclassification of adjustment for loss on derivatives included in Net income (loss), net of tax 3,003 1,396
Comprehensive income (loss) 66,184 ( 54,315 )
Less: comprehensive income (loss) attributable to noncontrolling interests 936 ( 467 )
Comprehensive income (loss) attributable to Bloomin’ Brands $ 65,248 $ ( 53,848 )
Earnings (loss) per share attributable to common stockholders:
Basic $ 0.78 $ ( 0.44 )
Diluted $ 0.63 $ ( 0.44 )
Weighted average common shares outstanding:
Basic 88,367 87,129
Diluted 110,641 87,129
The accompanying notes are an integral part of these consolidated financial statements.
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BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
BLOOMIN’ BRANDS, INC.
COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM-
ULATED DEFICIT ACCUMULATED OTHER
COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL
SHARES AMOUNT
Balance, December 27, 2020 87,856 $ 879 $ 1,132,808 $ ( 918,096 ) $ ( 211,446 ) $ 6,812 $ 10,957
Cumulative-effect from a change in accounting principle, net of tax — — ( 47,323 ) 4,370 — — ( 42,953 )
Net income — — — 68,862 — 936 69,798
Other comprehensive loss, net of tax — — — — ( 3,614 ) — ( 3,614 )
Stock-based compensation — — 4,726 — — — 4,726
Common stock issued under stock plans (1) 999 10 7,428 — — — 7,438
Distributions to noncontrolling interests — — — — — ( 1,458 ) ( 1,458 )
Contributions from noncontrolling interests — — — — — 511 511
Balance, March 28, 2021 88,855 $ 889 $ 1,097,639 $ ( 844,864 ) $ ( 215,060 ) $ 6,801 $ 45,405
BLOOMIN’ BRANDS, INC.
COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM-
ULATED DEFICIT ACCUMULATED OTHER
COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL
SHARES AMOUNT
Balance, December 29, 2019 86,946 $ 869 $ 1,094,338 $ ( 755,089 ) $ ( 169,776 ) $ 7,139 $ 177,481
Cumulative-effect from a change in accounting principle, net of tax — — — ( 4,292 ) — — ( 4,292 )
Net (loss) income — — — ( 34,611 ) — 197 ( 34,414 )
Other comprehensive loss, net of tax — — — — ( 19,754 ) ( 147 ) ( 19,901 )
Cash dividends declared, $ 0.20 per common share
— — ( 17,480 ) — — — ( 17,480 )
Stock-based compensation — 3,289 — — — 3,289
Consideration for preferred stock in excess of carrying value, net of tax — — ( 3,496 ) — 517 1,261 ( 1,718 )
Common stock issued under stock plans (1) 471 5 ( 2,513 ) — — — ( 2,508 )
Purchase of noncontrolling interests — — ( 57 ) — — — ( 57 )
Distributions to noncontrolling interests — — — — — ( 310 ) ( 310 )
Contributions from noncontrolling interests — — — — — 53 53
Balance, March 29, 2020 87,417 $ 874 $ 1,074,081 $ ( 793,992 ) $ ( 189,013 ) $ 8,193 $ 100,143
________________
(1) Net of forfeitures and shares withheld for employee taxes.
The accompanying notes are an integral part of these consolidated financial statements.
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BLOOMIN’ BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 28, 2021 MARCH 29, 2020
Cash flows provided by operating activities:
Net income (loss) $ 69,798 $ ( 34,414 )
Adjustments to reconcile Net income (loss) to cash provided by operating activities:
Depreciation and amortization 41,226 48,268
Amortization of debt discounts and issuance costs 1,308 634
Amortization of deferred gift card sales commissions 8,725 9,090
Provision for impaired assets and restaurant closings 2,200 41,318
Non-cash operating lease costs 19,502 19,253
Provision for expected credit losses and contingent lease liabilities ( 98 ) 7,522
Inventory obsolescence and spoilage — 5,291
Stock-based and other non-cash compensation expense 4,726 3,289
Deferred income tax expense (benefit) 1,571 ( 10,940 )
Loss on disposal of property, fixtures and equipment 434 796
Other, net ( 1,165 ) 1,655
Change in assets and liabilities ( 7,201 ) ( 63,471 )
Net cash provided by operating activities 141,026 28,291
Cash flows used in investing activities:
Capital expenditures ( 17,411 ) ( 34,229 )
Other investments, net 793 ( 569 )
Net cash used in investing activities $ ( 16,618 ) $ ( 34,798 )
(CONTINUED...)
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BLOOMIN’ BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 28, 2021 MARCH 29, 2020
Cash flows (used in) provided by financing activities:
Repayments of long-term debt and finance lease obligations $ ( 9,656 ) $ ( 6,657 )
Proceeds from borrowings on revolving credit facilities, net 15,000 505,000
Repayments of borrowings on revolving credit facilities ( 107,000 ) ( 129,000 )
Proceeds (payments of taxes) from share-based compensation, net 7,438 ( 2,508 )
Distributions to noncontrolling interests ( 1,458 ) ( 310 )
Contributions from noncontrolling interests 511 53
Purchase of limited partnership and noncontrolling interests — ( 57 )
Payments for partner equity plan ( 1,747 ) ( 5,701 )
Cash dividends paid on common stock — ( 17,480 )
Redemption of subsidiary preferred stock — ( 1,007 )
Net cash (used in) provided by financing activities ( 96,912 ) 342,333
Effect of exchange rate changes on cash and cash equivalents ( 1,246 ) 424
Net increase in cash, cash equivalents and restricted cash 26,250 336,250
Cash, cash equivalents and restricted cash as of the beginning of the period 110,408 67,145
Cash, cash equivalents and restricted cash as of the end of the period $ 136,658 $ 403,395
Supplemental disclosures of cash flow information:
Cash paid for interest $ 10,230 $ 10,682
Cash paid for income taxes, net of refunds 2,150 5,408
Supplemental disclosures of non-cash investing and financing activities:
Leased assets obtained in exchange for new operating lease liabilities $ 14,819 $ 21,514
Leased assets obtained in exchange for new finance lease liabilities 15 473
Increase (decrease) in liabilities from the acquisition of property, fixtures and equipment 2,005 ( 1,950 )
The accompanying notes are an integral part of these consolidated financial statements.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Description of the Business and Basis of Presentation
Description of the Business - Bloomin’ Brands (“Bloomin’ Brands” or the “Company”) owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements.
Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 27, 2020.
Recently Adopted Financial Accounting Standards - On December 28, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity,” (“ASU No. 2020-06”) which removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. ASU No. 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method is no longer permitted for convertible instruments. The Company adopted ASU No. 2020-06 using the modified retrospective approach which resulted in a cumulative-effect adjustment that increased (decreased) the following Consolidated Balance Sheet accounts during the first quarter of 2021:
ADJUSTMENT CONSOLIDATED BALANCE SHEET CLASSIFICATION AMOUNT
(in millions)
Deferred tax impact of cumulative-effect adjustment Deferred income tax assets, net $ 14.9
Debt discount reclassification Long-term debt, net $ 59.9
Equity issuance costs reclassification Long-term debt, net $ ( 2.1 )
Debt discount amortization reclassification, net of tax Accumulated deficit $ 4.4
Reversal of separated equity component, net of tax Additional paid-in capital $ ( 47.3 )
After adopting ASU No. 2020-06, the Company’s convertible senior notes due 2025 (the “2025 Notes”) are reflected entirely as a liability since the embedded conversion feature is no longer separately presented within stockholders’ equity. During 2020, the Company recognized debt discount amortization of $ 6.3 million within Interest expense, net related to its 2025 Notes.
In February 2021, the Company made an irrevocable election under the indenture to require the principal portion of its 2025 Notes to be settled in cash and any excess in shares. Following the irrevocable notice, only the amounts settled in excess of the principal will be considered in diluted earnings per share under the if-converted method.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
2. COVID-19 Charges
In March 2020, the Company temporarily closed all restaurant dining rooms in the U.S. to comply with state and local regulations in response to the COVID-19 pandemic (“COVID-19”), which significantly impacted operating results during the thirteen weeks ended March 29, 2020. Following is a summary of the charges recorded in connection with the COVID-19 pandemic for the period indicated (dollars in thousands):
CHARGES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) CLASSIFICATION THIRTEEN WEEKS ENDED
MARCH 29, 2020
Inventory obsolescence and spoilage Food and beverage costs $ 6,182
Compensation for idle employees (1) Labor and other related 16,186
Lease guarantee contingent liabilities (2) General and administrative 4,188
Allowance for expected credit losses (3) General and administrative 3,334
Other charges General and administrative 573
Right-of-use asset impairment (4) Provision for impaired assets and restaurant closings 20,484
Fixed asset impairment (4) Provision for impaired assets and restaurant closings 11,728
Goodwill and other impairment (5) Provision for impaired assets and restaurant closings 2,388
$ 65,063
________________
(1) Represents relief pay for hourly employees impacted by the closure of dining rooms.
(2) Represents contingent liabilities recorded for lease guarantees related to certain former restaurant locations now operated by franchisees or other third parties.
(3) Includes reserves to reflect an increase in expected credit losses, primarily related to franchise receivables.
(4) Includes impairments resulting from the remeasurement of assets utilizing projected future cash flows revised for then current economic conditions and the closure of certain restaurants.
(5) Includes impairment of goodwill for the Company’s Hong Kong subsidiary.
3. Revenue Recognition
The following table includes the categories of revenue included in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Revenues
Restaurant sales $ 979,451 $ 996,237
Franchise and other revenues
Franchise revenue $ 6,789 $ 9,549
Other revenue 1,233 2,551
Total Franchise and other revenues $ 8,022 $ 12,100
Total revenues $ 987,473 $ 1,008,337
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following table includes disaggregation of Restaurant sales and Franchise revenue, by restaurant concept and major international market, for the periods indicated:
THIRTEEN WEEKS ENDED
MARCH 28, 2021 MARCH 29, 2020
(dollars in thousands) RESTAURANT SALES FRANCHISE REVENUE RESTAURANT SALES FRANCHISE REVENUE
U.S.
Outback Steakhouse $ 547,195 $ 2,956 $ 530,685 $ 6,541
Carrabba’s Italian Grill 157,686 617 146,875 461
Bonefish Grill 126,974 130 135,072 136
Fleming’s Prime Steakhouse & Wine Bar 66,311 — 70,960 —
Other 1,893 — 1,297 —
U.S. total $ 900,059 $ 3,703 $ 884,889 $ 7,138
International
Outback Steakhouse Brazil (1) $ 60,848 $ — $ 91,590 $ —
Other (1)(2) 18,544 3,086 19,758 2,411
International total $ 79,392 $ 3,086 $ 111,348 $ 2,411
Total $ 979,451 $ 6,789 $ 996,237 $ 9,549
________________
(1) Brazil Restaurant sales are reported on a one-month lag and are presented on a calendar basis. Restaurant sales for Brazil during the first quarter of 2020 (through February 29, 2020) were not materially impacted by the COVID-19 pandemic.
(2) Includes Restaurant sales for the Company’s Abbraccio concept in Brazil.
The following table includes a detail of assets and liabilities from contracts with customers included on the Company’s Consolidated Balance Sheets as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Other current assets, net
Deferred gift card sales commissions $ 13,502 $ 19,300
Unearned revenue
Deferred gift card revenue $ 306,075 $ 373,048
Deferred loyalty revenue 8,515 8,099
Deferred franchise fees - current 448 469
Total Unearned revenue $ 315,038 $ 381,616
Other long-term liabilities, net
Deferred franchise fees - non-current $ 4,207 $ 4,301
The following table is a rollforward of deferred gift card sales commissions for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Balance, beginning of period $ 19,300 $ 18,554
Deferred gift card sales commissions amortization ( 8,725 ) ( 9,090 )
Deferred gift card sales commissions capitalization 3,499 4,324
Other ( 572 ) ( 739 )
Balance, end of period $ 13,502 $ 13,049
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following table is a rollforward of unearned gift card revenue for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Balance, beginning of period $ 373,048 $ 358,757
Gift card sales 44,169 58,439
Gift card redemptions ( 104,940 ) ( 133,181 )
Gift card breakage ( 6,202 ) ( 6,497 )
Balance, end of period $ 306,075 $ 277,518
4. Impairments and Exit Costs
The components of Provision for impaired assets and restaurant closings are as follows for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Impairment losses
U.S. (1) $ 1,406 $ 30,972
International (1)(2) 707 3,172
Corporate (3) 29 6,280
Total impairment losses $ 2,142 $ 40,424
Restaurant closure charges
U.S. (1) $ 58 $ 721
International (1) — 173
Total restaurant closure charges $ 58 $ 894
Provision for impaired assets and restaurant closings $ 2,200 $ 41,318
________________
(1) U.S. and international impairment and closure charges for the thirteen weeks ended March 29, 2020 primarily relate to the COVID-19 pandemic. See Note 2 - COVID-19 Charges for details regarding the impact of the COVID-19 pandemic on the Company’s financial results.
(2) Includes goodwill impairment charges of $ 2.0 million during the thirteen weeks ended March 29, 2020.
(3) Corporate impairment charges for the thirteen weeks ended March 29, 2020 primarily relate to transformational initiatives.
Accrued Facility Closure and Other Costs Rollforward - The following table is a rollforward of the Company’s closed facility lease liabilities and other accrued costs associated with the closure and restructuring initiatives, for the period indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021
Balance, beginning of the period $ 12,879
Cash payments ( 1,171 )
Accretion 252
Adjustments ( 189 )
Balance, end of the period (1) $ 11,771
________________
(1) As of March 28, 2021, the Company had exit-related accruals related to certain closure and restructuring initiatives of $ 3.8 million recorded in Accrued and other current liabilities and $ 8.0 million recorded in Non-current operating lease liabilities on its Consolidated Balance Sheet.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
5. Earnings (Loss) Per Share
The dilutive effect of the 2025 Notes is calculated using the if-converted method which was required upon the Company’s adoption of ASU No. 2020-06. To the extent the Company has the ability to settle its 2025 Notes in shares of its common stock, the principal and conversion spread on the 2025 Notes will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $ 11.89 per share of common stock. In February 2021, the Company provided the trustee of its 2025 Notes notice of the Company’s irrevocable election to settle the principal portion of the 2025 Notes in cash and any excess in shares. As a result, subsequent to the election, only the amounts in excess of the principal amount are considered in diluted earnings per share under the if-converted method.
In connection with the offering of the 2025 Notes, the Company entered into the Convertible Note Hedge Transactions and Warrant Transactions described in Note 10 - Convertible Senior Notes. However, the Convertible Note Hedge Transactions are not considered when calculating dilutive shares given its impact is anti-dilutive. The impact of the Convertible Note Hedge Transactions would offset the dilutive impact of the shares underlying the 2025 Notes. The Warrant Transactions have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the $ 16.64 strike price of the Warrant Transactions. See Note 10 - Convertible Senior Notes for additional information regarding the 2025 Notes, Convertible Note Hedge Transactions and Warrant Transactions .
The following table presents the computation of basic and diluted earnings (loss) per share attributable to common stockholders for the periods indicated:
THIRTEEN WEEKS ENDED
(in thousands, except per share data) MARCH 28, 2021 MARCH 29, 2020
Net income (loss) attributable to Bloomin’ Brands
$ 68,862 $ ( 34,611 )
Redemption of preferred stock in excess of carrying value (1) — ( 3,496 )
Net income (loss) attributable to common stockholders 68,862 ( 38,107 )
Convertible senior notes if-converted method interest adjustment, net of tax (2) 1,381 —
Diluted net income (loss) attributable to common stockholders $ 70,243 $ ( 38,107 )
Basic weighted average common shares outstanding 88,367 87,129
Effect of dilutive securities:
Stock options 709 —
Nonvested restricted stock units 503 —
Nonvested performance-based share units 94 —
Convertible senior notes (2) 15,193 —
Warrants 5,775 —
Diluted weighted average common shares outstanding 110,641 87,129
Basic earnings (loss) per share attributable to common stockholders $ 0.78 $ ( 0.44 )
Diluted earnings (loss) per share attributable to common stockholders $ 0.63 $ ( 0.44 )
________________
(1) Consideration paid in excess of carrying value for the redemption of preferred stock is considered a deemed dividend and, for purposes of calculating earnings per share, reduces net income attributable to common stockholders for the thirteen weeks ended March 29, 2020. See Note 12 - Stockholders’ Equity for additional details.
(2) Adjustment relates to the 2025 Notes weighted for the portion of the period prior to the Company’s election under the 2025 Notes indenture to settle the principal portion of its 2025 Notes in cash. Effective with the Company’s election, there will be no further numerator adjustments for interest or denominator adjustments for shares required to settle the principal portion.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
Share-based compensation-related weighted-average securities outstanding not included in the computation of net earnings (loss) per share attributable to common stockholders because their effect was antidilutive were as follows, for the periods indicated:
THIRTEEN WEEKS ENDED
(shares in thousands) MARCH 28, 2021 MARCH 29, 2020
Stock options 1,364 4,665
Nonvested restricted stock units 73 651
Nonvested performance-based share units 431 533
6. Stock-based Compensation Plans
The Company recognized stock-based compensation expense as follows for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Stock options $ 865 $ 832
Restricted stock units 2,366 1,683
Performance-based share units 1,469 699
$ 4,700 $ 3,214
In February 2021, the Company granted 0.3 million performance-based share units (“PSUs”) subject to final payout modification by a Relative Total Shareholder Return (“Relative TSR”) modifier. These PSUs maintain a three-year cliff vesting period and the underlying adjusted earnings per share performance metric can range from zero to 200 % of the annual target grant. The grants additionally included a Relative TSR modifier to the final payout outcome, which can adjust the payout by 75 %, 100 % or 125 % of the achieved performance metric, with the overall payout capped at 200 % of the annual target grant. The Relative TSR is measured by comparing the Company’s Relative TSR to the constituents of the S&P 1500 Restaurants index. The fair value of PSUs granted was estimated using the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and was applied to the trading price of the Company’s common stock on the date of the grant. Assumptions used in the Monte Carlo simulation model and the grant date fair value of PSUs granted were as follows for the period indicated:
THIRTEEN WEEKS ENDED
MARCH 28, 2021
Assumptions:
Risk-free interest rate (1) 0.20 %
Volatility (2) 48.45 %
Grant date fair value per unit (3) $ 29.73
________________
(1) Risk-free interest rate is the U.S. Treasury yield curve in effect as of the grant date for the performance period of the unit.
(2) Based on the historical volatility of the Company’s stock over the last seven years.
(3) Represents a 14.3 % premium above the per share value of the Company’s common stock as of the grant date.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following represents unrecognized stock-based compensation expense and the remaining weighted-average vesting period as of March 28, 2021:
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands) REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years)
Stock options $ 2,147 1.1
Restricted stock units $ 14,180 2.1
Performance-based share units $ 14,790 2.1
7. Other Current Assets, Net
Other current assets, net, consisted of the following as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Prepaid expenses $ 21,081 $ 12,148
Accounts receivable - gift cards, net (1) 8,464 76,808
Accounts receivable - vendors, net (1) 8,957 8,886
Accounts receivable - franchisees, net (1) 935 1,007
Accounts receivable - other, net (1) 12,984 16,782
Deferred gift card sales commissions 13,502 19,300
Assets held for sale 3,429 3,831
Other current assets, net 13,074 12,756
$ 82,426 $ 151,518
________________
(1) See Note 16 - Allowance for Expected Credit Losses for a rollforward of the related allowance for expected credit losses.
8. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Accrued rent and current operating lease liabilities $ 188,272 $ 192,369
Accrued payroll and other compensation (1) 107,833 79,291
Accrued insurance 21,972 20,648
Other current liabilities (2) 110,207 96,013
$ 428,284 $ 388,321
________________
(1) During the thirteen weeks ended March 28, 2021, the Company reclassified $ 27.3 million of payroll taxes deferred under the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) to current.
(2) During the thirteen weeks ended March 28, 2021, sales tax payable increased $ 9.2 million due to increased sales during the period.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
9. Long-term Debt, Net
Following is a summary of outstanding long-term debt, as of the periods indicated:
MARCH 28, 2021 DECEMBER 27, 2020
(dollars in thousands) OUTSTANDING BALANCE INTEREST RATE OUTSTANDING BALANCE INTEREST RATE
Senior Secured Credit Facility:
Term loan A (1) $ 415,625 2.85 % $ 425,000 2.88 %
Revolving credit facility (1) 355,000 2.86 % 447,000 2.88 %
Total Senior Secured Credit Facility $ 770,625 $ 872,000
2025 Notes (2) 230,000 5.00 % 230,000 5.00 %
Finance lease liabilities 2,093 2,405
Less: unamortized debt discount and issuance costs (3) ( 9,170 ) ( 67,704 )
Less: finance lease interest ( 185 ) ( 221 )
Total debt, net $ 993,363 $ 1,036,480
Less: current portion of long-term debt ( 41,829 ) ( 38,710 )
Long-term debt, net $ 951,534 $ 997,770
________________
(1) Interest rate represents the weighted-average interest rate as of the respective periods.
(2) See Note 10 - Convertible Senior Notes for details regarding the 2025 Notes and related hedge and warrant transactions .
(3) In connection with the adoption of ASU No. 2020-06, debt discount of $ 59.9 million related to the 2025 Notes was de-recognized and $ 2.1 million of equity issuance costs were reclassified as debt issuance costs during the thirteen weeks ended March 28, 2021.
As of March 28, 2021 and December 27, 2020, the Company was in compliance with its debt covenants.
2029 Notes - Subsequent to March 28, 2021, the Company and its wholly-owned subsidiary OSI Restaurant Partners, LLC (“OSI”), as co-issuers, issued $ 300.0 million aggregate principal amount of senior unsecured notes due 2029 (the “2029 Notes”).
The 2029 Notes were issued pursuant to an Indenture, dated April 16, 2021 (the “Indenture”), by and among the Company, the guarantors named therein, and Wells Fargo Bank, National Association, as trustee. The 2029 Notes will be guaranteed by each of the Company’s existing and future domestic restricted subsidiaries (other than OSI) that are guarantors or borrowers under its New Senior Secured Credit Facilities (as defined below) or certain other indebtedness. The 2029 Notes will mature on April 15, 2029 , unless earlier redeemed or purchased by the Company. The 2029 Notes bear cash interest at an annual rate of 5.125 % payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021.
The Company may redeem some or all of the 2029 Notes at any time on or after April 15, 2024, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest. The Company may also redeem up to 40 % of the 2029 Notes in an amount not greater than the proceeds of certain equity offerings completed before April 15, 2024, at a redemption price equal to 105.125 % of the principal amount thereof, plus accrued and unpaid interest. In addition, at any time prior to April 15, 2024, the Company may redeem some or all of the 2029 Notes at a price equal to 100 % of the principal amount, plus a “make-whole” premium, plus accrued and unpaid interest.
The Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness or issue certain preferred stock; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability of the Company’s restricted subsidiaries to pay dividends or make other payments to the Company; create certain liens; transfer or sell certain assets; merge or consolidate; enter into certain transactions with the Company’s affiliates; and designate subsidiaries
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications as set forth in the Indenture.
The Indenture contains customary events of default, including, without limitation, failure to make required payments, failure to comply with certain agreements or covenants, cross-acceleration to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, and failure to pay certain judgments.
The net proceeds from the 2029 Notes, after deducting the initial purchaser’s discount and the Company’s offering expenses, were used to repay a portion of the Company’s outstanding Term loan A and revolving credit facility in conjunction with the refinancing of its Senior Secured Credit Facility.
Second Amended and Restated Credit Agreement - On April 16, 2021, the Company and OSI, as co-borrowers, entered into the Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”), which provides for senior secured financing of up to $ 1.0 billion consisting of a $ 200.0 million Term loan A and an $ 800.0 million revolving credit facility (the “New Senior Secured Credit Facility”). The New Senior Secured Credit Facility matures on April 16, 2026 and replaces the Company’s prior senior secured financing of up to $ 1.5 billion (the “Senior Secured Credit Facility”).
The commitments under the New Senior Secured Credit Facility may be increased in an aggregate principal amount of up to: (i) $ 425.0 million or (ii) at the Company’s option, up to an unlimited amount of incremental facilities, so long as the Consolidated Senior Secured Net Leverage Ratio (“CSSNLR”), as defined in the Second Amended and Restated Credit Agreement, is no more than 3.00 to 1.00 as of the last day of the most recent period of four consecutive fiscal quarters ended.
The Company may elect an interest rate at each reset period based on the Base Rate or the Eurocurrency Rate, plus an applicable spread. 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, subject to a 0 % floor (the “Eurocurrency Rate”). The interest rates are as follows:
BASE RATE ELECTION EUROCURRENCY RATE ELECTION
Term loan A and revolving credit facility 50 to 150 basis points over the Base Rate
150 to 250 basis points over the Eurocurrency Rate
Fees on letters of credit and daily unused availability under the revolving credit facility will be 150 to 250 basis points and 25 to 40 basis points, respectively.
The following is a summary of required amortization payments for the Term loan A (dollars in thousands):
SCHEDULED QUARTERLY PAYMENT DATES TERM LOAN A
September 26, 2021 through June 30, 2024 $ 2,500
September 29, 2024 through June 29, 2025 $ 3,750
September 28, 2025 and December 28, 2025 $ 5,000
The New Senior Secured Credit Facility contains mandatory prepayment requirements for the Term loan A. The Company is required to prepay outstanding amounts under these loans with 50 % of its annual excess cash flow, as defined in the Second Amended and Restated Credit Agreement, commencing with the fiscal year ending December 25, 2022. The amount of outstanding loans required to be prepaid in accordance with the debt covenants may vary based on the Company’s CSSNLR and year end results.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
Total Net Leverage Ratio (“TNLR”) is the ratio of Consolidated Total Debt (Current portion of long-term debt and Long-term debt, net of cash, excluding the 2025 Notes) to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments as defined in the Second Amended and Restated Credit Agreement). The Second Amended and Restated Credit Agreement requires a TNLR not to exceed the following thresholds for the periods indicated:
QUARTERLY PERIOD ENDED MAXIMUM RATIO
June 27, 2021 (1) 5.00 to 1.00
September 26, 2021 (2) and thereafter 4.50 to 1.00
________________
(1) Seasonally annualized Consolidated EBITDA calculated as Consolidated EBITDA for the two consecutive quarters ending June 27, 2021 divided by 58.5 %.
(2) Seasonally annualized Consolidated EBITDA calculated as Consolidated EBITDA for the three consecutive quarters ending September 26, 2021 divided by 77.0 %.
The Second Amended and Restated Credit Agreement limits, subject to certain exceptions, the Company’s ability and the ability of its subsidiaries to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; make certain investments; acquire certain assets; effect mergers and similar transactions; and effect certain other transactions with affiliates. The Company is also limited to $ 200.0 million of aggregate capital expenditures during the year ended December 26, 2021. The Second Amended and Restated Credit Agreement also prohibits the Company from paying certain dividends and making certain restricted payments and acquisitions until the Company is in compliance with its TNLR covenant for the period ended September 26, 2021.
Subsequent to its refinancing of the Senior Secured Credit Facility, the Company made payments of $ 20.0 million on its new revolving credit facility, which had an outstanding balance of $ 251.0 million as of April 30, 2021.
10. Convertible Senior Notes
Convertible Senior Notes - In May 2020, the Company completed a $ 230.0 million principal amount private offering of 5.00 % convertible senior notes due in 2025. The 2025 Notes are governed by the terms of an indenture between the Company and Wells Fargo Bank, National Association, as the Trustee. The 2025 Notes will mature on May 1, 2025 , unless earlier converted, redeemed or purchased by the Company. The 2025 Notes bear cash interest at an annual rate of 5.00 %, payable semi-annually in arrears on May 1 and November 1 of each year. Net proceeds from the 2025 Notes offering were approximately $ 221.6 million, after deducting the initial purchaser’s discounts and commissions and the Company’s offering expenses.
The initial conversion rate applicable to the 2025 Notes is 84.122 shares of common stock per $ 1,000 principal amount of 2025 Notes, or a total of approximately 19.348 million shares for the total $ 230.0 million principal amount. This initial conversion rate is equivalent to an initial conversion price of approximately $ 11.89 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events.
Prior to the close of business on the business day immediately preceding November 1, 2024, holders may convert all or a portion of their 2025 Notes under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (ii) during the five consecutive business days immediately after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock and the conversion rate on each such trading day; (iii) upon the occurrence of specified corporate
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
events or distributions on the Company’s common stock; (iv) if the Company calls the 2025 Notes for redemption, and (v) at any time from, and including November 1, 2024 until the close of business on the second scheduled trading day immediately before the maturity date.
The 2025 Notes will be redeemable by the Company, in whole or in part, at the Company’s option at any time, and from time to time, on or after May 1, 2023 and on or before the 40 th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any of the 2025 Notes for redemption will constitute a make-whole fundamental change with respect to that note, in which case the conversion rate applicable to the conversion of the 2025 Notes will be increased in certain circumstances if it is converted after it is called for redemption.
If a fundamental change occurs prior to the maturity date, holders may require the Company to repurchase all or a portion of their 2025 Notes for cash at a price equal to 100 % of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest. Holders of 2025 Notes who convert their 2025 Notes in connection with a notice of a redemption or a make-whole fundamental change may be entitled to a premium in the form of an increase in the conversion rate of the 2025 Notes .
The following table includes the outstanding principal amount and carrying value of the 2025 Notes as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Long-term debt, net
Principal $ 230,000 $ 230,000
Less: Debt discount (1) — ( 59,862 )
Less: Debt issuance costs (1)(2) ( 7,075 ) ( 5,427 )
Net carrying amount $ 222,925 $ 164,711
Equity component (1) $ — $ 64,367
________________
(1) In connection with the adoption of ASU No. 2020-06, debt discount and the equity component of the 2025 Notes were de-recognized and $ 2.1 million of issuance costs that were previously allocated to the equity component were reclassified as debt issuance costs during the thirteen weeks ended March 28, 2021.
(2) Debt issuance costs are amortized to Interest expense, net using the effective interest method over the expected life of the 2025 Notes.
The effective rate of the 2025 Notes over their expected life is 5.85 %. Following is a summary of interest expense for the 2025 Notes, by component, for the period indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021
Coupon interest $ 2,875
Deferred issuance cost amortization 381
Total interest expense $ 3,256
Based on the daily closing prices of the Company’s stock during the quarter ended March 28, 2021, holders of the 2025 Notes are eligible to convert their 2025 Notes during the second quarter of 2021. In February 2021, the Company provided the trustee of the 2025 Notes notice of its irrevocable election under the 2025 Notes indenture to settle the principal portion of the 2025 Notes upon conversion in cash and any excess in shares.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
Convertible Note Hedge and Warrant Transactions - In connection with the offering of the 2025 Notes , the Company entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the initial purchasers of the 2025 Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”).
The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the 2025 Notes , and are expected generally to reduce the potential equity dilution in excess of the principal amount due upon conversion of the 2025 Notes . The Warrant Transactions have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price is initially $ 16.64 per share and is subject to certain adjustments under the terms of the Warrant Transactions.
The Convertible Note Hedge Transactions are exercisable upon conversion of the 2025 Notes . The Convertible Note Hedge Transactions expire upon maturity of the 2025 Notes . The Warrant Transactions are exercisable on the expiration dates included in the related forms of confirmation.
11. Other Long-term Liabilities, Net
Other long-term liabilities, net, consisted of the following as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Accrued insurance liability $ 31,902 $ 32,128
Chef and Restaurant Managing Partner deferred compensation obligations 24,054 32,306
Deferred payroll tax liabilities (1) 27,302 55,204
Other long-term liabilities 60,488 65,717
$ 143,746 $ 185,355
_______________
(1) During the thirteen weeks ended March 28, 2021, the Company reclassified $ 27.3 million of payroll taxes deferred under the CARES Act to current.
12. Stockholders’ Equity
Redeemable Preferred Stock - In connection with the development of its Abbraccio Cucina Italiana (“Abbraccio”) concept in 2015, the Company sold preferred shares of its Abbraccio subsidiary (“Abbraccio Shares”) to certain investors.
During the thirteen weeks ended March 29, 2020, the Company exercised a call option to purchase all outstanding Abbraccio Shares for $ 1.0 million and recorded a reduction to Accumulated deficit and an increase in Net loss applicable to common stockholders of $ 3.5 million for the consideration paid in excess of the Abbraccio Shares’ carrying value.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
Accumulated Other Comprehensive Loss (“AOCL”) - Following are the components of AOCL as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020
Foreign currency translation adjustment $ ( 195,458 ) $ ( 188,883 )
Unrealized loss on derivatives, net of tax ( 19,602 ) ( 22,563 )
Accumulated other comprehensive loss $ ( 215,060 ) $ ( 211,446 )
Following are the components of Other comprehensive loss attributable to Bloomin’ Brands for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Foreign currency translation adjustment $ ( 6,575 ) $ ( 7,297 )
Unrealized loss on derivatives, net of tax (1) $ ( 42 ) $ ( 13,336 )
Reclassification of adjustments for loss on derivatives included in Net income (loss), net of tax (2) 3,003 1,396
Total unrealized gain (loss) on derivatives, net of tax $ 2,961 $ ( 11,940 )
Other comprehensive loss attributable to Bloomin’ Brands $ ( 3,614 ) $ ( 19,237 )
________________
(1) Unrealized loss on derivatives is net of tax of $ 4.6 million for the thirteen weeks ended March 29, 2020.
(2) Reclassifications of adjustments for loss on derivatives are net of tax. See Note 13 - Derivative Instruments and Hedging Activities for the tax impact of reclassifications.
13. Derivative Instruments and Hedging Activities
Cash Flow Hedges of Interest Rate Risk - In October 2018, the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $ 550.0 million and mature on November 30, 2022 . Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 3.04 % on the notional amount and receives payments from the counterparty based on the one-month LIBOR rate.
The Company’s swap agreements have been designated and qualify as cash flow hedges, are recognized on its Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. As of March 28, 2021, the Company estimated $ 10.4 million will be reclassified to Interest expense, net over the next 12 fiscal months.
The following table presents the fair value and classification of the Company’s swap agreements, as of the periods indicated:
(dollars in thousands) MARCH 28, 2021 DECEMBER 27, 2020 CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability $ 14,814 $ 14,855 Accrued and other current liabilities
Interest rate swaps - liability 11,694 15,640 Other long-term liabilities, net
Total fair value of derivative instruments - liabilities (1) $ 26,508 $ 30,495
Accrued interest $ 1,384 $ 1,237 Accrued and other current liabilities
____________________
(1) See Note 15 - Fair Value Measurements for fair value discussion of the interest rate swaps.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
The following table summarizes the effects of the swap agreements on Net income (loss) for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Interest rate swap expense recognized in Interest expense, net $ ( 4,044 ) $ ( 1,880 )
Income tax benefit recognized in Provision (benefit) for income taxes 1,041 484
Total effects on Net income (loss) $ ( 3,003 ) $ ( 1,396 )
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 March 28, 2021, 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 March 28, 2021 and December 27, 2020, the fair value of the Company’s interest rate swaps was in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, of $ 28.2 million and $ 32.2 million, respectively. As of March 28, 2021 and December 27, 2020, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 28, 2021 and December 27, 2020, it could have been required to settle its obligations under the agreements at their termination value of $ 28.2 million and $ 32.2 million, respectively.
In connection with the refinancing of its Senior Secured Credit Facility, on April 16, 2021 the Company terminated its variable-to-fixed interest rate swap agreements with seven counterparties having an aggregate notional amount of $ 275.0 million for a payment of approximately $ 13.3 million, including accrued interest. Following these terminations, $ 13.4 million of unrealized losses related to the terminated swap agreements included in AOCL will be amortized on a straight-line basis to Interest expense, net over the remaining original term of the terminated swaps.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
14. Leases
The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheets as of the periods indicated:
(dollars in thousands) CONSOLIDATED BALANCE SHEET CLASSIFICATION MARCH 28, 2021 DECEMBER 27, 2020
Operating lease right-of-use assets Operating lease right-of-use assets $ 1,165,947 $ 1,172,910
Finance lease right-of-use assets (1) Property, fixtures and equipment, net 1,689 1,947
Total lease assets, net $ 1,167,636 $ 1,174,857
Current operating lease liabilities (2) Accrued and other current liabilities $ 176,876 $ 176,791
Current finance lease liabilities Current portion of long-term debt 1,204 1,210
Non-current operating lease liabilities (3) Non-current operating lease liabilities 1,211,733 1,216,666
Non-current finance lease liabilities Long-term debt, net 704 974
Total lease liabilities $ 1,390,517 $ 1,395,641
________________
(1) Net of accumulated amortization of $ 2.6 million and $ 2.3 million as of March 28, 2021 and December 27, 2020, respectively.
(2) Excludes COVID-19-related deferred rent accruals of $ 7.6 million and $ 12.8 million as of March 28, 2021 and December 27, 2020, respectively, and accrued contingent percentage rent of $ 3.8 million and $ 2.7 million, as of March 28, 2021 and December 27, 2020, respectively.
(3) Excludes COVID-19-related non-current deferred rent accruals of $ 1.0 million and $ 1.2 million as of March 28, 2021 and December 27, 2020, respectively.
Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods indicated:
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) CLASSIFICATION THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Operating leases (1) Other restaurant operating $ 44,792 $ 45,882
Variable lease cost (2) Other restaurant operating 777 1,120
Finance leases
Amortization of leased assets Depreciation and amortization 262 342
Interest on lease liabilities Interest expense, net 36 46
Sublease revenue (3) Franchise and other revenues ( 835 ) ( 1,677 )
Lease costs, net $ 45,032 $ 45,713
________________
(1) Excludes rent expense for office facilities and Company-owned closed or subleased properties of $ 3.5 million and $ 3.6 million for the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively, which is included in General and administrative expense. Also excludes certain supply chain related rent expense of $ 0.3 million for the thirteen weeks ended March 28, 2021 and March 29, 2020 which is included in Food and beverage costs.
(2) Includes COVID-19-related rent abatement for the thirteen weeks ended March 28, 2021 .
(3) Excludes rental income from Company-owned properties of $ 0.1 million and $ 0.2 million for the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively.
The following table is a summary of other impacts to the Company’s Consolidated Financial Statements related to its leases for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Cash flows from operating activities:
Cash paid for amounts included in the measurement of operating lease liabilities $ 52,717 $ 48,492
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
15. Fair Value Measurements
Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input:
Level 1
Unadjusted quoted market prices in active markets for identical assets or liabilities
Level 2 Observable inputs available at measurement date other than quoted prices included in Level 1
Level 3 Unobservable inputs that cannot be corroborated by observable market data
Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated:
MARCH 28, 2021 DECEMBER 27, 2020
(dollars in thousands) TOTAL LEVEL 1 LEVEL 2 TOTAL LEVEL 1 LEVEL 2
Assets:
Cash equivalents:
Fixed income funds $ 13,590 $ 13,590 $ — $ 15,404 $ 15,404 $ —
Money market funds 12,451 12,451 — 16,494 16,494 —
Restricted cash equivalents:
Money market funds — — — 428 428 —
Total asset recurring fair value measurements $ 26,041 $ 26,041 $ — $ 32,326 $ 32,326 $ —
Liabilities:
Accrued and other current liabilities:
Derivative instruments - interest rate swaps $ 14,814 $ — $ 14,814 $ 14,855 $ — $ 14,855
Other long-term liabilities:
Derivative instruments - interest rate swaps 11,694 — 11,694 15,640 — 15,640
Total liability recurring fair value measurements $ 26,508 $ — $ 26,508 $ 30,495 $ — $ 30,495
Fair value of each class of financial instrument is determined based on the following:
FINANCIAL INSTRUMENT METHODS AND ASSUMPTIONS
Fixed income funds and Money market funds Carrying value approximates fair value because maturities are less than three months.
Derivative instruments The Company’s derivative instruments include interest rate swaps. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company also considers its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of March 28, 2021 and December 27, 2020, 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, operating lease right-of-use assets, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. Carrying value after
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
impairment approximates fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis, for the period indicated:
THIRTEEN WEEKS ENDED
MARCH 29, 2020
(dollars in thousands) REMAINING CARRYING VALUE TOTAL IMPAIRMENT
Assets held for sale (1)
$ 1,182 $ 75
Operating lease right-of-use assets (1)
55,644 19,563
Property, fixtures and equipment (2)
21,693 18,398
Goodwill and other assets (3) 1,044 2,388
$ 79,563 $ 40,424
____________________
(1) Asset carrying values measured using discounted cash flow models (Level 3).
(2) Carrying values measured using Level 2 inputs to estimate fair value totaled $ 2.5 million. All other assets were valued using Level 3 inputs. Third-party market appraisals (Level 2) and discounted cash flow models (Level 3) were used to estimate fair value.
(3) Other assets generally measured using the quoted market value of comparable assets (Level 2).
See Note 4 - Impairments and Exit Costs for information regarding impairment charges resulting from the fair value measurement performed on a nonrecurring basis during the thirteen weeks ended March 29, 2020. 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. As a result, the Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs that fall within Level 3 of the fair value hierarchy.
In assessment of impairment for operating locations, the Company determined the fair values of individual operating locations using an income approach, which required discounting projected future cash flows. When determining the stream of projected future cash flows associated with an individual operating location, management made assumptions, including highest and best use and inputs from restaurant operations, where necessary, and about key variables including the following unobservable inputs: revenue growth rates, controllable and uncontrollable expenses, and asset residual values. In order to calculate the present value of those future cash flows, the Company discounted cash flow estimates at its weighted-average cost of capital applicable to the country in which the measured assets reside.
The following table presents quantitative information related to certain unobservable inputs used in the Company’s Level 3 fair value measurements of Operating lease right-of-use assets and Property, fixtures and equipment for the impairment losses incurred for the period indicated:
THIRTEEN WEEKS ENDED
UNOBSERVABLE INPUTS MARCH 29, 2020
Weighted-average cost of capital 10.4 %
Long-term growth rate 1.5 % to 2.0 %
Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments consist of cash equivalents, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts reported on its Consolidated Balance Sheets due to their short duration.
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - 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 by hierarchy level as of the periods indicated:
MARCH 28, 2021 DECEMBER 27, 2020
CARRYING VALUE FAIR VALUE LEVEL 2 CARRYING VALUE FAIR VALUE LEVEL 2
(dollars in thousands)
Senior Secured Credit Facility:
Term loan A $ 415,625 $ 407,832 $ 425,000 $ 412,250
Revolving credit facility $ 355,000 $ 337,243 $ 447,000 $ 419,612
2025 Notes $ 230,000 $ 592,280 $ 230,000 $ 413,818
16. Allowance for Expected Credit Losses
The following table is a rollforward of the Company’s trade receivables allowance for expected credit losses for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Allowance for expected credit losses, beginning of period $ 4,095 $ 199
Adjustment for adoption of ASU No. 2016-13 — 1,018
Provision for expected credit losses — 3,334
Charge-off of accounts ( 98 ) —
Allowance for expected credit losses, end of period $ 3,997 $ 4,551
The financial condition of the Company’s franchisees is largely dependent on the underlying business trends of its brands and market conditions within the casual dining restaurant industry. In March 2020, the Company fully reserved substantially all of its outstanding franchise receivables in response to the economic impact of the COVID-19 pandemic. See Note 2 - COVID-19 Charges for details regarding the impact of the COVID-19 pandemic on the Company’s financial results.
The Company is also exposed to credit losses from off-balance sheet lease guarantees primarily related to the divestiture of certain formerly Company-owned restaurant sites. See Note 18 - Commitments and Contingencies for details regarding these lease guarantees.
17. Income Taxes
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Income (loss) before provision (benefit) for income taxes $ 76,391 $ ( 54,069 )
Provision (benefit) for income taxes $ 6,593 $ ( 19,655 )
Effective income tax rate 8.6 % 36.4 %
The effective income tax rate for the thirteen weeks ended March 28, 2021 decreased by 27.8 percentage points as compared to the thirteen weeks ended March 29, 2020. The decrease was primarily due to the benefit of FICA tax credits on certain employees’ tips reducing the effective tax rate in 2021 as a result of forecasted pre-tax book income as compared to increasing the effective tax rate in 2020 as a result of forecasted pre-tax book loss.
As of December 27, 2020, the Company had $ 155.3 million in general business tax credits carryforwards, which have a 20-year carryforward period and are utilized on a first-in, first-out basis. The Company expects to increase its general business credit carryforwards in 2021 by approximately $ 15 million to $ 25 million. The Company currently
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
expects to utilize these tax credit carryforwards within a 10 year period. However, the Company’s ability to utilize these tax credits could be adversely impacted by, among other items, a future ownership change as defined under Section 382 of the Internal Revenue Code.
The Company has a blended federal and state statutory rate of approximately 26 %. The effective income tax rate for the thirteen weeks ended March 28, 2021 was lower than the statutory rate primarily due to the benefit of FICA tax credits on certain employees’ tips.
18. Commitments and Contingencies
Litigation and Other Matters - The Company had $ 4.0 million and $ 4.6 million of liabilities recorded for various legal matters as of March 28, 2021 and December 27, 2020, respectively.
The Company is subject to legal proceedings, claims and liabilities, such as liquor liability, slip and fall cases, wage-and-hour and other employment-related litigation, 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.
Lease Guarantees - The Company assigned its interest, and is contingently liable, under certain real estate leases. These leases have varying terms, the latest of which expires in 2032. As of March 28, 2021, the undiscounted payments that the Company could be required to make in the event of non-payment by the primary lessees was approximately $ 27.3 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of March 28, 2021 was approximately $ 21.6 million. In the event of default, the indemnity clauses in the Company’s purchase and sale agreements govern its ability to pursue and recover damages incurred. As of March 28, 2021, the Company’s recorded contingent lease liability was $ 9.3 million.
19. Segment Reporting
The Company considers its restaurant concepts and international markets as operating segments, which reflects how the Company manages its business, reviews operating performance and allocates resources. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). The Company aggregates its operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments:
REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION
U.S. Outback Steakhouse United States of America
Carrabba’s Italian Grill
Bonefish Grill
Fleming’s Prime Steakhouse & Wine Bar
International Outback Steakhouse Brazil, Hong Kong/China
Carrabba’s Italian Grill (Abbraccio) Brazil
_________________
(1) Includes franchise locations.
Segment accounting policies are the same as those described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 27, 2020. Revenues for all segments include only transactions with customers and exclude intersegment revenues. Excluded from Income from
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BLOOMIN’ BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued
operations for U.S. and international are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses and certain bonus expenses.
The following table is a summary of Total revenues by segment, for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Total revenues
U.S. $ 904,918 $ 894,497
International 82,555 113,840
Total revenues $ 987,473 $ 1,008,337
The following table is a reconciliation of Segment income from operations to Income (loss) before provision (benefit) for income taxes, for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Segment income from operations
U.S. $ 121,735 $ 11,379
International 3,537 6,787
Total segment income from operations 125,272 18,166
Unallocated corporate operating expense (1) ( 34,274 ) ( 59,734 )
Total income (loss) from operations 90,998 ( 41,568 )
Other income (expense), net 21 ( 793 )
Interest expense, net ( 14,628 ) ( 11,708 )
Income (loss) before provision (benefit) for income taxes $ 76,391 $ ( 54,069 )
____________________
(1) The thirteen weeks ended March 29, 2020 includes $ 22.2 million of charges that were not allocated to the Company’s segments related to its transformational initiatives, primarily recorded within General and administrative expense and Provision for impaired assets and restaurant closings.
The following table is a summary of Depreciation and amortization expense by segment for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Depreciation and amortization
U.S. $ 33,645 $ 37,640
International 5,720 6,758
Corporate 1,861 3,870
Total depreciation and amortization $ 41,226 $ 48,268
The following table is a summary of capital expenditures by segment for the periods indicated:
THIRTEEN WEEKS ENDED
(dollars in thousands) MARCH 28, 2021 MARCH 29, 2020
Capital expenditures
U.S. $ 16,741 $ 23,034
International 2,486 7,834
Corporate 204 1,884
Total capital expenditures $ 19,431 $ 32,752
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.