Bloomin' Brands, Inc. - FORM 8-K/A - EX-99.1 - EXHIBIT 99.1 ACQUISITION PRO FORMA FINANCIAL STATEMENTS - January 21, 2014

Attached files

file filename
8-K/A - FORM 8-K/A PRO FORMA FINANCIAL INFORMATION FOR ACQUISITION OF BRAZIL OPERATIONS - Bloomin' Brands, Inc.form8-kaxacquisitionofbraz.htm
Exhibit 99.1
BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS




On November 1, 2013, Bloomin’ Brands, Inc. (the “Company”), through its wholly-owned subsidiary Outback Steakhouse Restaurantes Brasil S.A. (“OB Brasil”) (formerly known as Bloom Holdco Participações Ltda.), completed its previously announced acquisition of a controlling interest in PGS Participações Ltda. (“PGS Par”), the Company’s former joint venture partner, in accordance with the Quota Purchase and Sale Agreement entered into on October 31, 2013 (the “Purchase Agreement”), by purchasing 80% of the issued and outstanding capital stock of PGS Par, which held a 50% interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”) (collectively, the “Acquisition”). Prior to the Acquisition, the Company held a 50% interest in the Brazilian Joint Venture. As a result of the Acquisition, the Company now holds a 90% interest in the Brazilian Joint Venture, which operates Outback Steakhouse restaurants in Brazil.

The following unaudited pro forma condensed combined financial statements of Bloomin’ Brands, Inc. for the year ended December 31, 2012, and as of and for the nine months ended September 30, 2013, are based on historical consolidated financial statements of Bloomin’ Brands, Inc. and give effect to the Acquisition after applying the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

The historical consolidated financial statements of the Brazilian Joint Venture were prepared in conformity with accounting principles generally accepted in Brazil, which are converged to International Financial Reporting Standards (“IFRS”) (collectively “BR GAAP”), which differs in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Necessary adjustments have been made to reconcile the historical consolidated financial statements of the Brazilian Joint Venture to U.S. GAAP. These adjustments relate primarily to differences relating to income tax contingencies.

The Unaudited Pro Forma Condensed Combined Balance Sheet at September 30, 2013 gives effect to the Acquisition by the Company of the Brazilian Joint Venture as if it had occurred on September 30, 2013. The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2012, and for the nine months ended September 30, 2013, give effect to the Acquisition as if it had occurred on January 1, 2012. The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the consolidated results of operations. In addition, to ensure timely reporting, the Company made the election to consolidate the results of its Brazilian operations on a one-month lag, effective as of the acquisition date. The accompanying unaudited pro forma condensed combined financial statements do not reflect the lag.

The Unaudited Pro Forma Condensed Combined Statements of Operations do not reflect the following amounts that are not expected to have a continuing impact on the consolidated results of operations: (i) professional fees associated with the Acquisition; (ii) gain on remeasurement to fair value of previously held equity investment in the Brazilian Joint Venture; and (iii) interest expense associated with the borrowings of $100.0 million on the revolving credit facility since the Company repaid the borrowings in full prior to December 31, 2013. Had the Acquisition occurred on January 1, 2012, these amounts would have been an aggregate gain of approximately $34.8 million. In addition, the Unaudited Pro Forma Condensed Combined Statements of Operations do not consider reduced interest expense had the cash used in the Acquisition been applied to lower the Company’s outstanding debt obligation. Actual amounts were or will be recorded by us in the period in which these transactions are completed. The pro forma adjustments exclude the impact of the one-month reporting lag that was adopted by the Company upon acquisition and, therefore, the unaudited pro forma condensed combined financial statements reflect calendar-based periods for all presented periods. In addition, the pro forma adjustments for the Acquisition do not include any post-closing adjustments that may occur pursuant to the Purchase Agreement, which may include adjustments of the purchase price, and any such post-closing adjustments may be material.


1

BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - Continued


The unaudited pro forma condensed combined financial statements should be read in conjunction with the following:

•
the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements;

•
the consolidated financial statements of Bloomin’ Brands, Inc. for the year ended December 31, 2012 and the notes thereto;

•
the unaudited consolidated financial statements of Bloomin’ Brands, Inc. for the nine months ended September 30, 2013 and the notes thereto; and

•
the consolidated financial information of PGS Consultoria e Serviços Ltda. for the year ended December 31, 2012, the nine months ended September 30, 2013, and the notes thereto, included in this Form 8-K/A.

The unaudited pro forma condensed combined financial statements contained in this Form 8-K/A are presented for informational purposes only, contain a variety of adjustments, assumptions and preliminary estimates, are subject to numerous other uncertainties and do not purport to represent what the actual financial condition or results of operations of the Company would have been if the Acquisition had been completed as of the date or for the periods indicated above or that may be achieved as of any future date or for any future period. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this Form 8-K/A. For purposes of the unaudited pro forma condensed combined financial information, the Acquisition consideration has been preliminarily allocated to the assets acquired and liabilities assumed based on information presently available to the Company to estimate fair values. The actual amounts as of November 1, 2013, the closing date of the Acquisition, may differ materially from the information presented in the accompanying unaudited pro forma condensed combined financial information.





2

BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2013
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)



 
 
HISTORICAL
 
 
 
 
 
 
 
 
BLOOMIN’ BRANDS, INC.
 
BRAZILIAN JOINT VENTURE
 
PRO FORMA ADJUSTMENTS
 
NOTES
 
PRO FORMA COMBINED
ASSETS
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
183,658

 
$
15,272

 
$
(20,599
)
 
(a)
 
$
178,331

Current portion of restricted cash
 
3,789

 
—

 
—

 
 
 
3,789

Inventories
 
70,717

 
5,228

 
—

 
 
 
75,945

Deferred income tax assets
 
49,446

 
—

 
—

 
 
 
49,446

Other current assets, net
 
99,770

 
18,238

 
(1,541
)
 
(b)
 
116,467

Total current assets
 
407,380

 
38,738

 
(22,140
)
 
 
 
423,978

Restricted cash
 
15,504

 
—

 
10,080

 
(a)
 
25,584

Property, fixtures and equipment, net
 
1,563,443

 
69,312

 
5,898

 
(c)
 
1,638,653

Investments in and advances to unconsolidated affiliates, net
 
40,973

 
—

 
(40,453
)
 
(d)
 
520

Goodwill
 
271,163

 
—

 
87,518

 
(e)
 
358,681

Intangible assets, net
 
541,214

 
2,573

 
80,816

 
(f)
 
624,603

Deferred income tax assets
 
2,893

 
4,473

 
(4,473
)
 
(g)
 
2,893

Other assets, net
 
155,557

 
3,312

 
—

 
 
 
158,869

Total assets
 
$
2,998,127

 
$
118,408

 
$
117,246

 
 
 
$
3,233,781

 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 

3

BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2013
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)



 
 
HISTORICAL
 
 
 
 
 
 
 
 
BLOOMIN’ BRANDS, INC.
 
BRAZILIAN JOINT VENTURE
 
PRO FORMA ADJUSTMENTS
 
NOTES
 
PRO FORMA COMBINED
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 
 

 
 

 
 
 
 
 
 
Current Liabilities
 
 

 
 

 
 
 
 
 
 
Accounts payable
 
$
155,445

 
$
7,456

 
$
(369
)
 
(b)
 
$
162,532

Accrued and other current liabilities
 
171,272

 
21,131

 
(1,172
)
 
(b)
 
191,231

Current portion of partner deposits and accrued partner obligations
 
13,566

 
506

 
—

 
 
 
14,072

Unearned revenue
 
202,204

 
—

 
—

 
 
 
202,204

Current portion of long-term debt
 
13,341

 
—

 
 
 
 
 
13,341

Total current liabilities
 
555,828

 
29,093

 
(1,541
)
 
 
 
583,380

Partner deposits and accrued partner obligations
 
77,094

 
5,878

 
—

 
 
 
82,972

Deferred rent
 
103,024

 
978

 
(978
)
 
(h)
 
103,024

Deferred income tax liabilities
 
130,636

 
—

 
25,268

 
(i)
 
155,904

Long-term debt, net
 
1,447,768

 
—

 
100,000

 
(j)
 
1,547,768

Other long-term liabilities, net
 
261,064

 
7,550

 
3,253

 
(k)
 
271,867

Total liabilities
 
2,575,414

 
43,499

 
126,002

 
 
 
2,744,915

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
Mezzanine Equity
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
 
—

 
—

 
22,380

 
(l)
 
22,380

Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Bloomin’ Brands, Inc. Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding
 
—

 
—

 
—

 
 
 
—

Common stock, $0.01 par value, 475,000,000 shares authorized; 124,287,148 shares issued and outstanding
 
1,243

 
9,804

 
(9,804
)
 
(m)
 
1,243

Additional paid-in capital
 
1,057,933

 
—

 
—

 
 
 
1,057,933

Accumulated deficit
 
(624,070
)
 
65,105

 
(28,142
)
 
(n)
 
(587,107
)
Accumulated other comprehensive loss
 
(16,780
)
 
—

 
6,810

 
(o)
 
(9,970
)
Total Bloomin’ Brands, Inc. stockholders’ equity
 
418,326

 
74,909

 
(31,136
)
 
 
 
462,099

Noncontrolling interests
 
4,387

 
—

 
—

 
 
 
4,387

Total stockholders’ equity
 
422,713

 
74,909

 
(31,136
)
 
 
 
466,486

Total liabilities, mezzanine equity and stockholders’ equity
 
$
2,998,127

 
$
118,408

 
$
117,246

 
 
 
$
3,233,781

 
 
 
 
 
 
 

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

4

BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2012
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)


 
 
HISTORICAL
 
 
 
 
 
 
 
 
BLOOMIN’ BRANDS, INC.
 
BRAZILIAN JOINT VENTURE
 
PRO FORMA ADJUSTMENTS
 
NOTES
 
PRO FORMA COMBINED
Revenues
 
 
 
 
 
 
 
 
 
 
Restaurant sales
 
$
3,946,116

 
$
246,819

 
$
—

 
 
 
$
4,192,935

Other revenues
 
41,679

 
—

 
(11,221
)
 
(p)
 
30,458

Total revenues
 
3,987,795

 
246,819

 
(11,221
)
 
 
 
4,223,393

Costs and expenses
 
 
 
 
 
 
 
 
 
 
Cost of sales
 
1,281,002

 
74,808

 
—

 
 
 
1,355,810

Labor and other related
 
1,117,624

 
52,871

 
—

 
 
 
1,170,495

Other restaurant operating
 
918,522

 
66,192

 
(11,221
)
 
(p)
 
973,493

Depreciation and amortization
 
155,482

 
8,706

 
8,865

 
(q)
 
173,053

General and administrative
 
326,473

 
19,884

 
—

 
 
 
346,357

Provision for impaired assets and restaurant closings
 
13,005

 
90

 
—

 
 
 
13,095

Income from operations of unconsolidated affiliates
 
(5,450
)
 
—

 
5,118

 
(s)
 
(332
)
Total costs and expenses
 
3,806,658

 
222,551

 
2,762

 
 
 
4,031,971

Income from operations
 
181,137

 
24,268

 
(13,983
)
 
 
 
191,422

Loss on extinguishment and modification of debt
 
(20,957
)
 
—

 
—

 
 
 
(20,957
)
Other expense, net
 
(128
)
 
(29
)
 
—

 
 
 
(157
)
Interest (expense) income, net
 
(86,642
)
 
87

 
—

 
 
 
(86,555
)
Income before provision for income taxes
 
73,410

 
24,326

 
(13,983
)
 
 
 
83,753

Provision for income taxes
 
12,106

 
11,501

 
(1,340
)
 
(t)
 
22,267

Net income
 
61,304

 
12,825

 
(12,643
)
 
 
 
61,486

Less: net income attributable to noncontrolling interests
 
11,333

 
—

 
530

 
(u)
 
11,863

Net income attributable to Bloomin’ Brands, Inc.
 
$
49,971

 
$
12,825

 
$
(13,173
)
 
 
 
$
49,623

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.45

 
 
 
 
 
 
 
$
0.44

Diluted
 
$
0.44

 
 
 
 
 
 
 
$
0.43

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
111,999

 
 
 
 
 
 
 
111,999

Diluted
 
114,821

 
 
 
 
 
 
 
114,821


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


5

BLOOMIN’ BRANDS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2013
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)


 
 
HISTORICAL
 
 
 
 
 
 
 
 
BLOOMIN’ BRANDS, INC.
 
BRAZILIAN JOINT VENTURE
 
PRO FORMA ADJUSTMENTS
 
NOTES
 
PRO FORMA COMBINED
Revenues
 
 
 
 
 
 
 
 
 
 
Restaurant sales
 
$
3,047,854

 
$
191,551

 
$
—

 
 
 
$
3,239,405

Other revenues
 
30,821

 
—

 
(9,194
)
 
(p)
 
21,627

Total revenues
 
3,078,675

 
191,551

 
(9,194
)
 
 
 
3,261,032

Costs and expenses
 
 

 
 
 
 
 
 
 
 
Cost of sales
 
993,031

 
59,421

 
—

 
 
 
1,052,452

Labor and other related
 
858,020

 
40,629

 
—

 
 
 
898,649

Other restaurant operating
 
717,489

 
49,520

 
(9,194
)
 
(p)
 
757,815

Depreciation and amortization
 
121,220

 
6,760

 
5,860

 
(q)
 
133,840

General and administrative
 
199,407

 
10,833

 
(924
)
 
(r)
 
209,316

Provision for impaired assets and restaurant closings
 
2,706

 
—

 
—

 
 
 
2,706

Income from operations of unconsolidated affiliates
 
(7,454
)
 
—

 
7,454

 
(s)
 
—

Total costs and expenses
 
2,884,419

 
167,163

 
3,196

 
 
 
3,054,778

Income from operations
 
194,256

 
24,388

 
(12,390
)
 
 
 
206,254

Loss on extinguishment and modification of debt
 
(14,586
)
 
—

 
—

 
 
 
(14,586
)
Other (expense) income, net
 
(127
)
 
(27
)
 
—

 
 
 
(154
)
Interest (expense) income, net
 
(56,585
)
 
233

 
—

 
 
 
(56,352
)
Income before (benefit) provision for income taxes
 
122,958

 
24,594

 
(12,390
)
 
 
 
135,162

(Benefit) provision for income taxes
 
(30,696
)
 
9,178

 
(933
)
 
(t)
 
(22,451
)
Net income
 
153,654

 
15,416

 
(11,457
)
 
 
 
157,613

Less: net income attributable to noncontrolling interests
 
4,269

 
—

 
1,009

 
(u)
 
5,278

Net income attributable to Bloomin’ Brands, Inc.
 
$
149,385

 
$
15,416

 
$
(12,466
)
 
 
 
$
152,335

 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.22

 
 
 
 
 
 
 
$
1.24

Diluted
 
$
1.16

 
 
 
 
 
 
 
$
1.19

Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
Basic
 
122,624

 
 
 
 
 
 
 
122,624

Diluted
 
128,464

 
 
 
 
 
 
 
128,464


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


6

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)

1.     Transaction Description

On November 1, 2013, the Company, through its wholly-owned subsidiary OB Brasil, completed its previously announced acquisition of a controlling interest in PGS Par, the Company’s former joint venture partner, in accordance with the Purchase Agreement, by purchasing 80% of the issued and outstanding capital stock of PGS Par, which held a 50% interest in the Brazilian Joint Venture. Prior to the Acquisition, the Company held a 50% interest in the Brazilian Joint Venture. As a result of the Acquisition, the Company now holds a 90% interest in the Brazilian Joint Venture, which operates Outback Steakhouse restaurants in Brazil. The Company completed the Acquisition for total consideration of R$240.8 million (BRL) (or approximately $110.5 million) in cash. The Company financed the Acquisition primarily with borrowings of $100.0 million on its existing revolving credit facility and available cash. The revolving credit facility borrowings were subsequently repaid in full prior to December 31, 2013.

2.    Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using U.S. GAAP and was based on the historical consolidated financial statements of the Company and the Brazilian Joint Venture. All pro forma financial statements use the Company’s period end date and no adjustments were made for the one-month lag period that was adopted by the Company at the acquisition date.

The historical consolidated financial statements of the Brazilian Joint Venture were prepared in conformity with BR GAAP, which differs in certain respects from U.S. GAAP. Necessary adjustments have been made to reconcile the historical consolidated financial statements of the Brazilian Joint Venture to U.S. GAAP. These adjustments relate primarily to differences relating to income tax contingencies and are included in the column under the heading “Pro Forma Adjustments”.

The Acquisition will be accounted for under the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP.

The historical unaudited consolidated balance sheet of the Brazilian Joint Venture was prepared in Brazilian Reais and has been translated to U.S. Dollars using a rate of $0.45, which approximates the Brazilian Real conversion rate to U.S. Dollars on September 30, 2013. The Brazilian Joint Venture historical audited consolidated statement of operations for the year ended December 31, 2012 and unaudited consolidated statement of operations for the nine months ended September 30, 2013 have been translated to U.S. Dollars using exchange rates of $0.53 and $0.47, respectively, which approximate the average Brazilian Real conversion rate to U.S. Dollars for the applicable periods. Certain of the pro forma adjustments have been translated to U.S. Dollars using an exchange rate of $0.46, which approximates the Brazilian Real conversion rate to U.S. Dollars on November 1, 2013, the closing date of the Acquisition.

3.    Significant Accounting Policies    

Certain amounts in the historical consolidated financial statements of the Brazilian Joint Venture have been reclassified to conform to the Company’s financial statement presentation. Management will also continue to assess the accounting policies of the Brazilian Joint Venture for adjustments in addition to those reflected in the unaudited pro forma condensed combined financial information that may be required to conform the accounting policies of the Brazilian Joint Venture to the Company’s.


7

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)


4.    Assets Acquired and Liabilities Assumed

The following table summarizes the cash paid and preliminary estimated fair values of the assets acquired and the liabilities assumed as if the Acquisition occurred on September 30, 2013:

Cash and cash equivalents
$
15,272

Inventories
5,228

Other current assets, net
18,238

Property, fixtures and equipment
75,210

Goodwill
140,149

Intangible assets:
 
   Reacquired franchise rights
80,542

   Favorable leases
4,139

Other assets, net
3,312

Accounts payable
(7,456
)
Accrued and other current liabilities
(21,131
)
Current portion of partner deposits and accrued partner obligations
(506
)
Long-term portion of partner deposits and accrued partner obligations
(5,878
)
Deferred income taxes
(25,268
)
Other long-term liabilities, net
(10,803
)
 
271,048

Fair value of previously held equity investment
(138,149
)
Remaining redeemable noncontrolling interest
(22,380
)
     Total purchase price
$
110,519


The above allocation will remain preliminary until the Company has all of the information necessary to finalize the allocation of the purchase price.

Identifiable intangible assets, net

The fair value of net intangible assets has been allocated to the following two categories: (i) reacquired franchise rights and (ii) favorable and unfavorable leases. The reacquired franchise rights will be amortized on a straight-line basis over the remaining life of each restaurants’ franchise agreement, without consideration of renewal. The favorable and unfavorable leases will be amortized on a straight-line basis over the remaining lease term. The following table represents details of the identifiable intangible assets:

8

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)


 
 
FAIR VALUE AMOUNT
 
ESTIMATED USEFUL LIFE (in years)
 
PRO FORMA FIRST YEAR AMORTIZATION (1)
Reacquired franchise rights
 
$
80,542

 
4 - 20
 
$
6,860

Favorable leases
 
4,139

 
1 - 13
 
731

Unfavorable leases (2)
 
(1,758
)
 
1 - 13
 
(251
)
Total identifiable intangible assets, net
 
$
82,923

 
 
 
$
7,340

____________________
(1)
Represents amortization expense expected to be recorded over the first 12-month period subsequent to the acquisition date.
(2)
Unfavorable leases are included in Other long-term liabilities, net in the preliminary estimated fair values of the assets acquired and the liabilities assumed table shown above.

The fair values of the identifiable intangible assets were determined based on the following approach:

•
Reacquired franchise rights: The value assigned to the reacquired franchise rights was determined using the income approach. Projected after-tax, post-royalty expense cash flows derived from the franchise rights that were reacquired, net of capital charges, were discounted to present value. Expectations related to future restaurant performance were based on historical data, and a long-term forecast was constructed based on the Company’s financial projections and expectations. The capital charges applied serve to recognize the use of other assets in deriving value from the franchise agreement. The resulting cash flows were then discounted to present value.

•
Favorable and unfavorable leases: The values assigned to favorable and unfavorable leases were determined using a market approach. The variance between market rent and contract rent over the remaining lease term was discounted to present value on a location-by-location basis.

Step acquisition

A step acquisition occurs when a controlling ownership interest is gained over a period of time. Applicable accounting guidance requires that a step acquisition in which control is obtained over a business be accounted for as a business combination. The accounting guidance also requires that previously held equity interests be remeasured at fair value and any difference between the fair value and the carrying value of the equity interest held be recognized as a gain or loss on the statement of operations. The fair value assigned to the previously held equity investment in the Brazilian Joint Venture for purposes of calculating the gain or loss was determined using the income approach, based on a discounted cash flow methodology. The resulting gain on remeasurement to fair value of the previously held equity investment in the Brazilian Joint Venture in the amount of $37.0 million has been included as an adjustment to the Accumulated deficit in the Unaudited Pro Forma Condensed Combined Balance Sheet but excluded from the Unaudited Pro Forma Condensed Combined Statements of Operations.
 
Noncontrolling interest

The Acquisition, as described in Note 1, results in a noncontrolling interest of 10% being retained by the sellers. The fair value assigned to the noncontolling interest in the Brazilian Joint Venture was determined using the income approach, based on a discounted cash flow methodology. In accordance with the Purchase Agreement, the noncontrolling interest in the Brazilian Joint Venture is subject to certain put options and call options. The accounting guidance considers these options to be embedded features within the noncontrolling interest that require the noncontrolling interest to be classified within the balance sheet as redeemable equity. The redeemable noncontrolling interest in the Brazilian Joint Venture is presented at fair value in the amount of $22.4 million and has been included as an adjustment to Mezzanine equity in the Unaudited Pro Forma Condensed Combined Balance Sheet.

9

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)


5.    Notes to Unaudited Pro Forma Adjustments

Adjustments included in the column under the heading “Pro Forma Adjustments” represent the following:

(a)To reflect adjustments made to cash for the following:

Proceeds from borrowing on revolving credit facility
$
100,000

Less: Acquisition purchase price
(110,519
)
Less: Cash placed in indemnity escrow for unrecognized contingent losses
(10,080
)
 
$
(20,599
)

(b)
To reflect the elimination of franchise and royalty receivables and payables from the historical consolidated balance sheets of Bloomin’ Brands, Inc. and the Brazilian Joint Venture.

(c)
To adjust the acquired property, fixtures, and equipment to fair value as of the acquisition date.

(d)
To reflect the write-off of the previously held equity investment of $40.5 million in the Brazilian Joint Venture.

(e)
To reflect goodwill resulting from the Acquisition, calculated as follows:

Acquisition purchase price
$
110,519

Gain on remeasurement to fair value of previously held equity investment (see note (e)(1))
36,963

Write-off of previously held equity investment
40,453

Write-off of the accumulated foreign currency translation adjustment associated with the previously held equity investment
6,810

Write-off of historical intangible assets associated with the previously held equity investment
1,292

Remaining redeemable noncontrolling interest
22,380

Recognition of deferred income tax liability on purchase price fair value adjustments
29,741

Less: Fair value of assets acquired and liabilities assumed, net (2)
(77,717
)
Less: Recognition of identifiable intangible assets acquired:
 
Reacquired franchise rights
(80,542
)
Favorable leases
(4,139
)
Unfavorable leases
1,758

 
$
87,518


(1)Gain on remeasurement to fair value of the previously held equity investment in the Brazilian Joint Venture is computed as follows:

Fair value of the previously held equity investment
$
138,149

Less: Carrying value of the previously held equity investment
(40,453
)
Less: Carrying value of historical goodwill
(52,631
)
Less: Carrying value of historical intangible assets associated with the previously held equity investment
(1,292
)
Less: Accumulated foreign currency translation adjustment associated with the previously held equity investment
(6,810
)
 
$
36,963


10

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)



(2)Fair value of assets acquired and liabilities assumed, net is computed as follows:

Historical book value of assets acquired and liabilities assumed, net
$
74,909

Remeasurement of assets acquired and liabilities assumed to fair value:
 
     Fixed assets fair value adjustment
5,898

     Write-off of deferred rent
978

Write-off of deferred lease incentive from the historical consolidated balance sheet of the Brazilian Joint Venture
1,417

Write-off of intangible assets from the historical consolidated balance sheet of the Brazilian Joint Venture
(2,573
)
 
80,629

Reconciliation adjustment from BR GAAP to U.S. GAAP:
 
Recognition of liability for uncertain income tax positions in accordance with U.S. GAAP
(2,912
)
 
$
77,717


(f)To reflect the following:

Recognition of the following identifiable intangible assets acquired:
 
Reacquired franchise rights
$
80,542

Favorable leases
4,139

Less: Write-off of the carrying value of the historical intangible assets associated with the previously held equity investment
(1,292
)
Less: Write-off of intangible assets from the historical consolidated balance sheet of the Brazilian Joint Venture
(2,573
)
 
$
80,816


(g)
Reclassification adjustment to net deferred income tax asset with deferred income tax liability.

(h)
To reflect the write-off of deferred rent from the historical consolidated balance sheet of the Brazilian Joint Venture.

(i)
To reflect the following:

Recognition of deferred income tax liability on purchase price fair value adjustments
$
29,741

Less: Reclassification adjustment to net deferred income tax asset with deferred income tax liability (see note (g))
(4,473
)
 
$
25,268


(j)
To reflect borrowing of $100.0 million from the Company’s revolving credit facility. Borrowings were repaid in full prior to December 31, 2013.


11

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)


(k)
To reflect the following:

Recognition of unfavorable lease liability at fair value
$
1,758

Recognition of liability for uncertain tax positions in accordance with U.S. GAAP
2,912

Less: Write-off of deferred lease incentive from the historical balance sheet of the Brazilian Joint Venture
(1,417
)
 
$
3,253


(l)
To reflect the recognition at fair value of the 10% redeemable noncontrolling interest in the Brazilian Joint Venture retained by the sellers.

(m)
To reflect the elimination of the historical common stock of the Brazilian Joint Venture such that on a combined basis only the common stock of Bloomin’ Brands, Inc. remains.

(n)
To reflect adjustments to Accumulated deficit for the following:

Gain on remeasurement to fair value of previously held equity investment in the Brazilian Joint Venture, (see note (e)(1))
$
36,963

Less: Elimination of historical retained earnings of the Brazilian Joint Venture
(65,105
)
 
$
(28,142
)

(o)
To reflect the write-off of the foreign currency translation adjustment associated with the previously held equity investment.

(p)
To reflect the elimination of royalty revenue and royalty expense from the historical consolidated statements of operations of Bloomin’ Brands, Inc. and the Brazilian Joint Venture, respectively.

(q)
To reflect adjustments to Depreciation and amortization for stores opened as of January 1, 2012 (the assumed date of the transaction for pro forma statements of operations purposes) as follows:

 
FOR THE YEAR ENDED DECEMBER 31, 2012
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
Amortization expense resulting from the recognition of the reacquired franchise rights and favorable lease intangible assets
$
7,245

 
$
4,899

Incremental depreciation expense resulting from adjustments to fair value and depreciable lives of property, fixtures and equipment
1,666

 
1,238

Less: Current year amortization of intangible assets capitalized on the historical consolidated balance sheet of the Brazilian Joint Venture
(46
)
 
(277
)
 
$
8,865

 
$
5,860


(r)
To reflect the reversal of professional fees associated with the Acquisition that are included in the historical results of Bloomin’ Brands, Inc. for the nine months ended September 30, 2013, which are not ongoing expenses.

(s)
To reflect the reversal of equity method income from the historical consolidated statements of operations of Bloomin’ Brands, Inc. resulting from the 50% ownership of the Brazilian Joint Venture.


12

BLOOMIN’ BRANDS, INC.

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS - Continued
(IN THOUSANDS OF U.S. DOLLARS, UNLESS OTHERWISE NOTED)


(t)
To reflect the following:

 
FOR THE YEAR ENDED DECEMBER 31, 2012
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
Recognition of provision for uncertain income tax positions in accordance with U.S. GAAP
$
1,674

 
1,459

Less: Tax effect of the pro forma adjustments at the Brazilian statutory rate of 34% and combined pro forma income tax provision adjustment
(3,014
)
 
(2,392
)
 
$
(1,340
)
 
$
(933
)

(u)
To reflect the net income attributable to the 10% redeemable noncontrolling interest in the Brazilian Joint Venture retained by the sellers, calculated as follows:

 
FOR THE YEAR ENDED DECEMBER 31, 2012
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
Historical consolidated net income of the Brazilian Joint Venture
$
12,825

 
$
15,416

Pro forma adjustments attributable to the Brazilian Joint Venture:
 
 
 
     Depreciation and amortization (note (q))
(8,865
)
 
(5,860
)
     Provision for income taxes (note (t))
1,340

 
533

 
5,300

 
10,089

Remaining redeemable noncontrolling interest
10
%
 
10
%
 
$
530

 
$
1,009





13

Bloomin' Brands, Inc. Reports