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EX-32.2 - EX 32.2 - DJD - Bloomin' Brands, Inc.blmn-7118_ex322.htm
EX-32.1 - EX 32.1 - EAS - Bloomin' Brands, Inc.blmn-7118_ex321.htm
EX-31.2 - EX 31.2 - DJD - Bloomin' Brands, Inc.blmn-7118_ex312.htm
EX-31.1 - EX 31.1 - EAS - Bloomin' Brands, Inc.blmn-7118_ex311.htm
 
 
 
 
 

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

FORM 10-Q
(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 1, 2018
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625

blmnlogov3.jpg

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

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

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

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

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

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

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

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

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

As of July 31, 2018, 92,538,341 shares of common stock of the registrant were outstanding.
 
 
 
 
 


BLOOMIN’ BRANDS, INC.



INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended July 1, 2018
(Unaudited)

TABLE OF CONTENTS

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

2

BLOOMIN’ BRANDS, INC.


PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)
 
JULY 1, 2018
 
DECEMBER 31, 2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
81,694

 
$
128,263

Current portion of restricted cash and cash equivalents
4,521

 
1,280

Inventories
48,641

 
51,264

Other current assets, net
113,208

 
179,402

Total current assets
248,064

 
360,209

Property, fixtures and equipment, net
1,141,355

 
1,173,414

Goodwill
298,615

 
310,234

Intangible assets, net
511,442

 
522,290

Deferred income tax assets, net
67,945

 
60,486

Other assets, net
122,445

 
135,261

Total assets
$
2,389,866

 
$
2,561,894

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
164,798

 
$
185,461

Accrued and other current liabilities
218,482

 
270,840

Unearned revenue
221,926


330,756

Current portion of long-term debt
25,964

 
26,335

Total current liabilities
631,170

 
813,392

Deferred rent
164,021

 
160,047

Deferred income tax liabilities
14,539

 
16,926

Long-term debt, net
1,113,765

 
1,091,769

Deferred gain on sale-leaseback transactions, net
182,501

 
188,086

Other long-term liabilities, net
192,400

 
210,443

Total liabilities
2,298,396

 
2,480,663

Commitments and contingencies (Note 13)


 


Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of July 1, 2018 and December 31, 2017

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 92,437,047 and 91,912,546 shares issued and outstanding as of July 1, 2018 and December 31, 2017, respectively
924

 
919

Additional paid-in capital
1,109,015

 
1,081,813

Accumulated deficit
(902,038
)
 
(913,191
)
Accumulated other comprehensive loss
(126,672
)
 
(99,199
)
Total Bloomin’ Brands stockholders’ equity
81,229

 
70,342

Noncontrolling interests
10,241

 
10,889

Total stockholders’ equity
91,470

 
81,231

Total liabilities and stockholders’ equity
$
2,389,866

 
$
2,561,894

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

3

BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018

JUNE 25, 2017

JULY 1, 2018

JUNE 25, 2017
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,015,484

 
$
1,021,184

 
$
2,114,487

 
$
2,165,015

Franchise and other revenues
16,330

 
15,274

 
33,792

 
26,154

Total revenues
1,031,814

 
1,036,458

 
2,148,279

 
2,191,169

Costs and expenses
 

 
 

 
 

 
 

Cost of sales
322,790

 
323,130

 
674,922

 
687,878

Labor and other related
301,921

 
297,857

 
612,983

 
622,255

Other restaurant operating
238,379

 
248,412

 
491,724

 
499,536

Depreciation and amortization
50,782

 
48,063

 
100,902

 
94,653

General and administrative
76,129

 
77,056

 
144,825

 
148,997

Provision for impaired assets and restaurant closings
8,889

 
598

 
11,628

 
19,674

Total costs and expenses
998,890

 
995,116

 
2,036,984

 
2,072,993

Income from operations
32,924

 
41,342

 
111,295

 
118,176

Loss on extinguishment and modification of debt

 
(260
)
 

 
(260
)
Other (expense) income, net
(6
)
 
7,281

 
(5
)
 
7,230

Interest expense, net
(11,319
)
 
(9,543
)
 
(21,629
)
 
(18,684
)
Income before (benefit) provision for income taxes
21,599

 
38,820

 
89,661

 
106,462

(Benefit) provision for income taxes
(5,124
)
 
2,988

 
(3,199
)
 
20,992

Net income
26,723

 
35,832

 
92,860

 
85,470

Less: net income attributable to noncontrolling interests
2

 
699

 
741

 
1,712

Net income attributable to Bloomin’ Brands
$
26,721

 
$
35,133

 
$
92,119

 
$
83,758

 
 
 
 
 
 
 
 
Net income
$
26,723

 
$
35,832

 
$
92,860

 
$
85,470

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(30,044
)
 
(9,118
)
 
(28,695
)
 
11,371

Unrealized gain (loss) on derivatives, net of tax
296

 
(610
)
 
1,184

 
(509
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
71

 
643

 
379

 
1,427

Comprehensive (loss) income
(2,954
)
 
26,747

 
65,728

 
97,759

Less: comprehensive income attributable to noncontrolling interests
360

 
757

 
1,081

 
1,682

Comprehensive (loss) income attributable to Bloomin’ Brands
$
(3,314
)
 
$
25,990

 
$
64,647

 
$
96,077

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.29

 
$
0.36

 
$
1.00

 
$
0.83

Diluted
$
0.28

 
$
0.34

 
$
0.97

 
$
0.80

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
92,120

 
98,852

 
92,194

 
100,963

Diluted
94,361

 
102,421

 
95,072

 
104,417

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.09

 
$
0.08

 
$
0.18

 
$
0.16

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

4

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 31, 2017
91,913

 
$
919

 
$
1,081,813

 
$
(913,191
)
 
$
(99,199
)
 
$
10,889

 
$
81,231

Net income

 

 

 
92,119

 

 
1,063

 
93,182

Other comprehensive (loss) income, net of tax

 

 

 

 
(27,473
)
 
341

 
(27,132
)
Cash dividends declared, $0.18 per common share

 

 
(16,734
)
 

 

 

 
(16,734
)
Repurchase and retirement of common stock
(3,404
)
 
(34
)
 

 
(80,966
)
 

 

 
(81,000
)
Stock-based compensation

 

 
11,178

 

 

 

 
11,178

Common stock issued under stock plans (1)
3,928

 
39

 
33,080

 

 

 

 
33,119

Change in the redemption value of redeemable interests

 

 
(322
)
 

 

 

 
(322
)
Distributions to noncontrolling interests

 

 

 

 

 
(3,372
)
 
(3,372
)
Contributions from noncontrolling interests

 

 

 

 

 
1,320

 
1,320

Balance, July 1, 2018
92,437

 
$
924

 
$
1,109,015

 
$
(902,038
)
 
$
(126,672
)
 
$
10,241

 
$
91,470

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


5

BLOOMIN’ BRANDS, INC.

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

 
BLOOMIN’ BRANDS, INC.
 
 
 
 
 
COMMON STOCK
 
ADDITIONAL PAID-IN CAPITAL
 
ACCUM-ULATED DEFICIT
 
ACCUMULATED OTHER
COMPREHENSIVE LOSS
 
NON-
CONTROLLING
INTERESTS
 
TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 25, 2016
103,922

 
$
1,039

 
$
1,079,583

 
$
(756,070
)
 
$
(111,143
)
 
$
12,654

 
$
226,063

Net income

 

 

 
83,758

 

 
1,837

 
85,595

Other comprehensive income (loss), net of tax

 

 

 

 
12,319

 
(38
)
 
12,281

Cash dividends declared, $0.16 per common share

 

 
(16,308
)
 

 

 

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

 
(198,629
)
 

 

 
(198,728
)
Stock-based compensation

 


 
12,716

 

 

 

 
12,716

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

 
10

 
4,597

 
(143
)
 

 

 
4,464

Change in the redemption value of redeemable interests

 

 
(126
)
 

 

 

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

 

 
(713
)
 

 

 
(179
)
 
(892
)
Distributions to noncontrolling interests

 

 

 

 

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

 

 

 

 

 
481

 
481

Cumulative-effect from a change in accounting principle

 

 

 
14,364

 

 

 
14,364

Balance, June 25, 2017
95,008

 
$
950

 
$
1,079,749

 
$
(856,720
)
 
$
(98,824
)
 
$
11,001

 
$
136,156

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

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

6

BLOOMIN’ BRANDS, INC.

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


 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
Cash flows provided by operating activities:
 
 
 
Net income
$
92,860

 
$
85,470

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

 
 

Depreciation and amortization
100,902

 
94,653

Amortization of deferred discounts and issuance costs
1,288

 
1,637

Amortization of deferred gift card sales commissions
15,219

 
13,756

Provision for impaired assets and restaurant closings
11,628

 
19,674

Stock-based and other non-cash compensation expense
13,263

 
13,901

Deferred income tax (benefit) expense
(264
)
 
1,686

Gain on sale of a business or subsidiary

 
(7,284
)
Loss on extinguishment and modification of debt

 
260

Recognition of deferred gain on sale-leaseback transactions
(6,142
)
 
(5,816
)
Other non-cash items, net
1,257

 
1,802

Change in assets and liabilities
(129,928
)
 
(36,602
)
Net cash provided by operating activities
100,083

 
183,137

Cash flows used in investing activities:
 

 
 

Proceeds from disposal of property, fixtures and equipment
6,164

 
4

Proceeds from sale-leaseback transactions, net
4,695

 
49,780

Proceeds from sale of a business, net of cash divested

 
33,994

Capital expenditures
(92,528
)
 
(116,256
)
Other investments, net
(275
)
 
(1,123
)
Net cash used in investing activities
$
(81,944
)
 
$
(33,601
)
 
 
 
 
 
(CONTINUED...)
 

7

BLOOMIN’ BRANDS, INC.

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


 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$

 
$
124,438

Repayments of long-term debt
(12,876
)
 
(64,399
)
Proceeds from borrowings on revolving credit facilities, net
266,829

 
341,000

Repayments of borrowings on revolving credit facilities
(234,500
)
 
(364,500
)
Proceeds from failed sale-leaseback transactions, net

 
5,942

Proceeds from the exercise of share-based compensation
33,119

 
4,607

Distributions to noncontrolling interests
(3,372
)
 
(3,754
)
Contributions from noncontrolling interests
1,320

 
481

Purchase of limited partnership and noncontrolling interests
(1,443
)
 
(4,024
)
Repayments of partner deposits and accrued partner obligations
(9,646
)
 
(7,862
)
Repurchase of common stock
(81,000
)
 
(198,871
)
Cash dividends paid on common stock
(16,734
)
 
(16,308
)
Net cash used in financing activities
(58,303
)
 
(183,250
)
Effect of exchange rate changes on cash and cash equivalents
(3,164
)
 
1,002

Net decrease in cash, cash equivalents and restricted cash
(43,328
)
 
(32,712
)
Cash, cash equivalents and restricted cash as of the beginning of the period
129,543

 
136,186

Cash, cash equivalents and restricted cash as of the end of the period
$
86,215

 
$
103,474

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
20,488

 
$
17,393

Cash paid for income taxes, net of refunds
6,675

 
22,695

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Increase (decrease) in liabilities from the acquisition of property, fixtures and equipment or capital leases
$
1,430

 
$
(2,564
)
Purchase of noncontrolling interest included in accrued and other current liabilities

 
898


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

8

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.    Description of the Business and Basis of Presentation

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

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Adopted Financial Accounting Standards - On January 1, 2018, the Company elected to early adopt Accounting Standards Update (“ASU”) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU No. 2017-04”) on a prospective basis. ASU No. 2017-04 eliminates the second step of goodwill impairment, which requires a hypothetical purchase price allocation. Under ASU No. 2017-04, goodwill impairment is calculated as the amount a reporting unit’s carrying value exceeds its calculated fair value. The adoption of ASU No. 2017-04 did not impact the Company’s Consolidated Financial Statements. Goodwill and indefinite-lived intangible assets are tested for impairment annually, as of the first day of the second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets during the second quarters of 2018 and 2017. In connection with these assessments, the Company did not record any goodwill or indefinite-lived intangible impairment charges.

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”) using the full retrospective transition method. Under ASU No. 2014-09, revenue is recognized in an amount that reflects the consideration an entity expects to receive for the transfer of goods and services. The standard also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. Under the new standard, the Company recognizes gift card breakage proportional to redemptions, which are highest in the Company’s first fiscal quarter. Previously, under the remote method, the majority of breakage revenue was recorded in the Company’s fourth fiscal quarter corresponding with the timing of the original gift card sale. Advertising fees charged to franchisees, which were previously recorded as a reduction to Other restaurant operating expenses, are recognized as Franchise revenue. In addition, initial franchise and renewal fees are recognized over the term of the franchise agreements. In connection with adoption of ASU No. 2014-09, a cumulative effect adjustment of $33.1 million, net of tax, was recorded as a credit to the ending balance of Accumulated deficit as of December 27, 2015.


9

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table includes a restatement of the Company’s Consolidated Statement of Operations for the retrospective adoption of ASU No. 2014-09 during the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 25, 2017
(dollars in thousands, except per share data)
AS REPORTED
 
2014-09 IMPACT
 
AS RESTATED
 
AS REPORTED
 
2014-09 IMPACT
 
AS RESTATED
Revenues
 
 
 
 
 
 
 
 
 
 
 
Restaurant sales
$
1,019,957

 
$
1,227

 
$
1,021,184

 
$
2,155,445

 
$
9,570

 
$
2,165,015

Franchise and other revenues
13,025

 
2,249

 
15,274

 
21,360

 
4,794

 
26,154

Total revenues
$
1,032,982

 
$
3,476

 
$
1,036,458

 
$
2,176,805

 
$
14,364

 
$
2,191,169

Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
Other restaurant operating
$
244,124

 
$
4,288

 
$
248,412

 
$
492,064

 
$
7,472

 
$
499,536

Income from operations
$
42,154

 
$
(812
)
 
$
41,342

 
$
111,284

 
$
6,892

 
$
118,176

Income before provision for income taxes
$
39,632

 
$
(812
)
 
$
38,820

 
$
99,570

 
$
6,892

 
$
106,462

Provision for income taxes
$
3,303

 
$
(315
)
 
$
2,988

 
$
18,318

 
$
2,674

 
$
20,992

Net income
$
36,329

 
$
(497
)
 
$
35,832

 
$
81,252

 
$
4,218

 
$
85,470

Net income attributable to Bloomin’ Brands
$
35,630

 
$
(497
)
 
$
35,133

 
$
79,540

 
$
4,218

 
$
83,758

 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.36

 
$
(0.01
)
 
$
0.36

 
$
0.79

 
$
0.04

 
$
0.83

Diluted earnings per share
$
0.35

 
$

 
$
0.34

 
$
0.76

 
$
0.04

 
$
0.80


The following table includes a restatement of the Company’s Consolidated Balance Sheet as of December 31, 2017 for the retrospective adoption of ASU No. 2014-09:
 
DECEMBER 31, 2017
(dollars in thousands)
AS REPORTED
 
2014-09 IMPACT
 
AS RESTATED
ASSETS
 
 
 
 
 
Deferred income tax assets, net
$
71,499

 
$
(11,013
)
 
$
60,486

Total assets
$
2,572,907

 
$
(11,013
)
 
$
2,561,894

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Unearned revenue
 
 
 
 
 
Deferred gift card revenue
$
371,455

 
$
(47,827
)
 
$
323,628

Deferred loyalty revenue
6,667

 

 
6,667

Deferred franchise fees - current
105

 
356

 
461

Total Unearned revenue
$
378,227

 
$
(47,471
)
 
$
330,756

Total current liabilities
$
860,863

 
$
(47,471
)
 
$
813,392

Other long-term liabilities, net (1)
$
205,745

 
$
4,698

 
$
210,443

Total liabilities
$
2,523,436

 
$
(42,773
)
 
$
2,480,663

Bloomin’ Brands Stockholders’ Equity
 
 
 
 
 
Accumulated deficit
$
(944,951
)
 
$
31,760

 
$
(913,191
)
Total Bloomin’ Brands stockholders’ equity
$
38,582

 
$
31,760

 
$
70,342

Total stockholders’ equity
$
49,471

 
$
31,760

 
$
81,231

Total liabilities and stockholders’ equity
$
2,572,907

 
$
(11,013
)
 
$
2,561,894

____________________
(1)
Includes the non-current portion of deferred franchise fees.

See Note 2 - Revenue Recognition for required disclosures under ASU No. 2014-09.


10

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Effective June 26, 2017, the Company adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash” (“ASU No. 2016-18”). ASU No. 2016-18 provides guidance on the presentation of restricted cash and restricted cash equivalents, which are now included with cash and cash equivalents when reconciling the beginning and ending cash amounts shown on the statements of cash flows. Using the retrospective transition method required under the standard, the Company has adjusted the presentation of its Condensed Consolidated Statements of Cash Flows for the period presented. The adoption of ASU No. 2016-18 did not have any other impact on the Company’s Consolidated Financial Statements.

The following table provides additional details by financial statement line item of the restated presentation in the Company’s Condensed Consolidated Statement of Cash Flows for the twenty-six weeks ended June 25, 2017:
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
(dollars in thousands)
AS REPORTED
 
2016-18 IMPACT
 
AS RESTATED
Cash flows used in investing activities:
 
 
 
 
 
Decrease in restricted cash
$
14,969

 
$
(14,969
)
 
$

Increase in restricted cash
$
(5,957
)
 
$
5,957

 
$

Net cash used in investing activities
$
(24,589
)
 
$
(9,012
)
 
$
(33,601
)
 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
$
(23,702
)
 
$
(9,010
)
 
$
(32,712
)
Cash, cash equivalents and restricted cash as of the beginning of the period
127,176

 
9,010

 
136,186

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

 
$

 
$
103,474


Recently Issued Financial Accounting Standards Not Yet Adopted - In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02: “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU No. 2016-02 is effective for the Company in 2019 and must be adopted using a modified retrospective approach. In preparation for adoption of ASU No. 2016-02, the Company has implemented a new lease accounting system. The Company is currently evaluating practical expedients and accounting policy elections, and assessing the overall financial statement impact. The Company expects the adoption of ASU No. 2016-02 to have a significant impact on its Consolidated Balance Sheets due to recognition of right-of-use assets and lease liabilities related to real estate and equipment under operating lease agreements, but will likely have an insignificant impact on its Consolidated Statement of Operations and Comprehensive Income. The Company’s evaluation of ASU No. 2016-02 is ongoing and may identify additional impacts on its Consolidated Financial Statements and related disclosures.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU No. 2017-12”) which provides guidance for reporting the economic results of hedging activities and to simplify the disclosures of risk exposures and hedging strategies. ASU No. 2017-12 will be effective for the Company in 2019, with early adoption permitted and is not expected to have a material impact on the Company’s Consolidated Financial Statements and related disclosures.

Reclassifications - The Company reclassified certain items in the accompanying Consolidated Financial Statements for prior periods to be comparable with the classification for the current period.


11

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

2.    Revenue Recognition

The Company records food and beverage revenues, net of discounts and taxes, upon delivery to the customer. Franchise-related revenues are included in Franchise and other revenues in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. Royalties, which are a percentage of net sales of the franchisee, are recognized as revenue in the period which the sales are reported to have occurred. The following table includes the categories of revenue included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,015,484

 
$
1,021,184

 
$
2,114,487

 
$
2,165,015

Franchise and other revenues:
 
 
 
 
 
 
 
Franchise revenue
$
13,134

 
$
11,565

 
$
27,349

 
$
20,662

Other revenue
3,196

 
3,709

 
6,443

 
5,492

Total Franchise and other revenues
$
16,330

 
$
15,274

 
$
33,792

 
$
26,154

Total revenues
$
1,031,814

 
$
1,036,458

 
$
2,148,279

 
$
2,191,169

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09.

The following table includes the disaggregation of Restaurant sales and Franchise revenue, by restaurant concept and major international market, for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JULY 1, 2018
(dollars in thousands)
RESTAURANT SALES
 
FRANCHISE REVENUE
 
RESTAURANT SALES
 
FRANCHISE REVENUE
U.S.
 
 
 
 
 
 
 
Outback Steakhouse (1)
$
521,719

 
$
10,157

 
$
1,093,198

 
$
21,231

Carrabba’s Italian Grill (1)
163,454

 
157

 
337,381

 
304

Bonefish Grill
149,054

 
233

 
305,903

 
473

Fleming’s Prime Steakhouse & Wine Bar
73,312

 

 
154,302

 

Other
1,398

 

 
2,497

 

U.S. Total
$
908,937

 
$
10,547

 
$
1,893,281

 
$
22,008

International
 
 
 
 
 
 
 
Outback Steakhouse-Brazil
$
87,809

 
$

 
$
182,932

 
$

Other
18,738

 
2,587

 
38,274

 
5,341

International Total
$
106,547

 
$
2,587

 
$
221,206

 
$
5,341

Total
$
1,015,484

 
$
13,134

 
$
2,114,487

 
$
27,349


12

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 25, 2017
(dollars in thousands)
RESTAURANT SALES
 
FRANCHISE REVENUE
 
RESTAURANT SALES
 
FRANCHISE REVENUE
U.S.
(Restated) (2)
 
(Restated) (2)
 
(Restated) (2)
 
(Restated) (2)
Outback Steakhouse (1)
$
519,060

 
$
8,731

 
$
1,130,535

 
$
14,965

Carrabba’s Italian Grill (1)
168,372

 
156

 
351,022

 
245

Bonefish Grill
150,743

 
258

 
314,387

 
517

Fleming’s Prime Steakhouse & Wine Bar
70,089

 

 
147,875

 

U.S. Total
$
908,264

 
$
9,145

 
$
1,943,819

 
$
15,727

International
 
 
 
 
 
 
 
Outback Steakhouse-Brazil
$
95,801

 
$

 
$
186,691

 
$

Other
17,119

 
2,420

 
34,505

 
4,935

International Total
$
112,920

 
$
2,420

 
$
221,196

 
$
4,935

Total
$
1,021,184

 
$
11,565

 
$
2,165,015

 
$
20,662

____________________
(1)
In 2017, the Company sold 53 Outback Steakhouse restaurants and one Carrabba’s Italian Grill restaurant, which are now operated as franchises.
(2)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09.

Gift Card Revenue - Proceeds from the sale of gift cards, which do not have expiration dates, are recorded as deferred revenue and recognized as revenue upon redemption by the customer. Gift cards sold at a discount are recorded as revenue upon redemption of the associated gift cards at an amount net of the related discount. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized using estimates based on historical redemption patterns. If actual redemptions vary from the estimated breakage, gift card breakage income may differ from the amount recorded. The Company periodically updates its estimates used for breakage. Gift card sales that are accompanied by a bonus card to be used by the customer at a future visit result in a separate deferral of a portion of the original gift card sale. Revenue is recorded when the bonus card is redeemed at the estimated fair market value of the bonus card. Approximately 87% of the current deferred gift card revenue is expected to be recognized over the next 12 months.

Gift card sales commissions paid to third-party providers are initially capitalized and subsequently amortized to Other restaurant operating expenses based on historical gift card redemption patterns.

Advertising Fees - Advertising fees charged to franchisees are recognized as Franchise revenue in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

Franchise Fees - Initial franchise and renewal fees are recognized over the term of the franchise agreement and renewal period, respectively. The weighted average remaining term of franchise agreements and renewal periods was approximately 15 years as of July 1, 2018.

Loyalty Program - The Company maintains a customer loyalty program, Dine Rewards, in the U.S., where customers have the ability to earn a reward after a number of qualified visits. The Company has developed an estimated value of the partial reward earned from each qualified visit, which is recorded as deferred revenue. Each reward has a maximum value and must be redeemed within three months of earning such reward. The revenue associated with the fair value of the qualified visit is recognized upon the earlier of redemption or expiration of the reward. The Company applies the practical expedient to exclude disclosures regarding loyalty program remaining performance obligations which have original expected durations of one year or less.

13

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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)
JULY 1, 2018
 
DECEMBER 31, 2017
Other current assets, net
 
 
 
Deferred gift card sales commissions
$
9,175

 
$
16,231

 
 
 
 
Unearned revenue
 
 
 
Deferred gift card revenue (1)
$
213,286

 
$
323,628

Deferred loyalty revenue
8,145

 
6,667

Deferred franchise fees - current (1)
495

 
461

Total Unearned revenue
$
221,926

 
$
330,756

 
 
 
 
Other long-term liabilities, net
 
 
 
Deferred franchise fees - non-current (1)
$
4,661

 
$
4,698

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09 on the Company’s Consolidated Balance Sheet as of December 31, 2017.

The following table is a rollforward of deferred gift card sales commissions for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Balance, beginning of period
$
10,039

 
$
10,226

 
$
16,231

 
$
15,584

Deferred gift card sales commissions amortization
(5,804
)
 
(5,854
)
 
(15,219
)
 
(13,756
)
Deferred gift card sales commissions capitalization
5,400

 
5,060

 
9,258

 
8,790

Other
(460
)
 
(14
)
 
(1,095
)
 
(1,200
)
Balance, end of period
$
9,175

 
$
9,418

 
$
9,175

 
$
9,418


The Company applies the portfolio approach practical expedient to account for gift card contracts and performance obligations. The following table is a rollforward of unearned gift card revenue for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Balance, beginning of period
$
227,783

 
$
217,872

 
$
323,628

 
$
331,803

Gift card sales
78,837

 
80,376

 
135,122

 
139,246

Gift card redemptions
(88,496
)
 
(91,482
)
 
(233,052
)
 
(255,635
)
Gift card breakage (1)
(4,838
)
 
(4,961
)
 
(12,412
)
 
(13,609
)
Balance, end of period
$
213,286

 
$
201,805

 
$
213,286

 
$
201,805

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09 for the thirteen and twenty-six weeks ended June 25, 2017.


14

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

3.    Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Impairment losses
 
 
 
 
 
 
 
U.S.
$
284

 
$
12

 
$
395

 
$
932

International
4,437

 

 
6,597

 

Total impairment losses
$
4,721

 
$
12

 
$
6,992

 
$
932

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
674

 
$
586

 
$
1,022

 
$
18,742

International
3,494

 

 
3,614

 

Total restaurant closure expenses
$
4,168

 
$
586

 
$
4,636

 
$
18,742

Provision for impaired assets and restaurant closings
$
8,889

 
$
598

 
$
11,628

 
$
19,674


Closure Initiatives - Since February 2017, the Company decided to close certain underperforming restaurants in the U.S. and certain Abbraccio restaurants outside of the core markets of São Paulo and Rio de Janeiro in Brazil and in 2016 the Company decided to close certain Bonefish Grill restaurants (collectively, the “Closure Initiatives”). Following is a summary of expenses related to the Closure Initiatives recognized in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated:
 
INCOME STATEMENT LOCATION
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Impairment, facility closure and other expenses (1)
Provision for impaired assets and restaurant closings
 
$
1,607

 
$
(244
)
 
$
1,632

 
$
18,012

Severance and other expenses
General and administrative
 
110

 
766

 
232

 
2,948

Reversal of deferred rent liability
Other restaurant operating
 
(147
)
 
180

 
(147
)
 
(4,761
)
Total
 
 
$
1,570

 
$
702

 
$
1,717

 
$
16,199

________________
(1)
The Company recognized asset impairment and closure charges of $1.0 million within the International segment related to the Closure Initiatives during the thirteen and twenty-six weeks ended July 1, 2018. All other asset impairment and closure charges for the periods presented were recognized within the U.S. segment.

International Restructuring - During the thirteen and twenty-six weeks ended July 1, 2018, the Company recognized asset impairment and closure charges of $6.9 million and $9.2 million, respectively, related to the restructuring of certain international markets, including China.

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


15

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Projected Future Expenses and Cash Expenditures - The Company expects to incur additional charges for the Closure Initiatives through Q3 2019, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of remaining estimated pre-tax expense and future cash expenditures, by type, as of July 1, 2018:
Estimated future expense (dollars in millions)
CLOSURE INITIATIVES
Lease related liabilities, net of subleases
$
2.9

to
$
3.4

Employee severance and other obligations
0.3

to
0.6

Total estimated future expense
$
3.2

to
$
4.0

 
 
 
 
Total estimated future cash expenditures (dollars in millions)
$
22.3

to
$
27.4


Total future undiscounted cash expenditures for the Closure Initiatives, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029.

Accrued Facility Closure and Other Costs Rollforward - The following table summarizes the Company’s accrual activity related to facility closure and other costs, primarily associated with the Closure Initiatives, during the twenty-six weeks ended July 1, 2018:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
Balance, beginning of the period
$
22,709

Charges
8,071

Cash payments
(8,186
)
Adjustments
(3,435
)
Balance, end of the period (1)
$
19,159

________________
(1)
As of July 1, 2018, the Company had exit-related accruals of $6.0 million recorded in Accrued and other current liabilities and $13.2 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.


16

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

4.    Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(in thousands, except per share data)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Net income attributable to Bloomin’ Brands
$
26,721

 
$
35,133

 
$
92,119

 
$
83,758

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
92,120

 
98,852

 
92,194

 
100,963

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
1,861

 
3,128

 
2,406

 
3,030

Nonvested restricted stock and restricted stock units
380

 
433

 
452

 
394

Nonvested performance-based share units

 
8

 
20

 
30

Diluted weighted average common shares outstanding
94,361

 
102,421

 
95,072

 
104,417

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.29

 
$
0.36

 
$
1.00

 
$
0.83

Diluted earnings per share
$
0.28

 
$
0.34

 
$
0.97

 
$
0.80

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the Net income and Earnings per share impact of implementing ASU No. 2014-09.

Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(shares in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Stock options
2,133

 
5,359

 
2,041

 
5,462

Nonvested restricted stock and restricted stock units
16

 
153

 
63

 
172

Nonvested performance-based share units
197

 
262

 
180

 
317


5.    Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Stock options
$
1,628

 
$
2,944

 
$
3,526

 
$
5,699

Restricted stock and restricted stock units
2,455

 
2,689

 
4,787

 
5,242

Performance-based share units
1,874

 
820

 
2,470

 
1,236

 
$
5,957

 
$
6,453

 
$
10,783

 
$
12,177



17

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table presents a summary of the Company’s stock option activity:
(in thousands, except exercise price and contractual life)
OPTIONS
 
WEIGHTED-
AVERAGE
EXERCISE
PRICE
 
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)
 
AGGREGATE
INTRINSIC
VALUE
Outstanding as of December 31, 2017
10,051

 
$
14.89

 
5.2
 
$
71,373

Granted
488

 
24.01

 
 
 
 
Exercised
(3,566
)
 
10.23

 
 
 
 
Forfeited or expired
(178
)
 
20.47

 
 
 
 
Outstanding as of July 1, 2018
6,795

 
$
17.85

 
5.9
 
$
25,734

Exercisable as of July 1, 2018
4,461

 
$
17.02

 
4.6
 
$
21,278


Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018

JUNE 25, 2017
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
2.66
%
 
1.93
%
Dividend yield (2)
1.50
%
 
1.84
%
Expected term (3)
5.8 years

 
6.3 years

Weighted-average volatility (4)
32.76
%
 
33.73
%
 
 
 
 
Weighted-average grant date fair value per option
$
7.23

 
$
5.09

________________
(1)
Risk-free interest rate is the U.S. Treasury yield curve in effect as of the grant date for periods within the expected term of the option.
(2)
Dividend yield is the level of dividends expected to be paid on the Company’s common stock over the expected term of the option.
(3)
Expected term represents the period of time that the options are expected to be outstanding. The Company estimates the expected term based on historical exercise experience for its stock options.
(4)
Based on the historical volatility of the Company’s stock.

The following represents stock option compensation information for the periods indicated:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
Intrinsic value of options exercised
$
48,044

 
$
7,588

Excess tax benefits for tax deductions related to the exercise of stock options
$
7,837

 
$
1,299

Cash received from option exercises, net of tax withholding
$
36,460

 
$
6,835


During the twenty-six weeks ended July 1, 2018, the Company made grants to its employees of 0.4 million time-based restricted stock units and 0.2 million performance-based share units.

18

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of July 1, 2018:
 
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
11,518

 
2.5
Restricted stock units
$
19,683

 
2.7
Performance-based share units
$
9,435

 
1.3

As of July 1, 2018, the maximum number of shares of common stock available for issuance pursuant to the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan was 4,271,424.

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
Prepaid expenses
$
43,105

 
$
40,688

Accounts receivable - gift cards, net
17,339

 
66,361

Accounts receivable - vendors, net
7,895

 
19,483

Accounts receivable - franchisees, net
2,055

 
2,017

Accounts receivable - other, net
18,886

 
22,808

Deferred gift card sales commissions
9,175

 
16,231

Assets held for sale
5,606

 
6,217

Other current assets, net
9,147

 
5,597

 
$
113,208

 
$
179,402


7.           Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
Accrued payroll and other compensation
$
86,447

 
$
113,636

Accrued insurance
23,765

 
23,482

Other current liabilities
108,270

 
133,722

 
$
218,482

 
$
270,840



19

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

8.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
JULY 1, 2018
 
DECEMBER 31, 2017
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
487,500

 
3.78
%
 
$
500,000

 
3.27
%
Revolving credit facility (1)
633,500

 
3.77
%
 
600,000

 
3.26
%
Total Senior Secured Credit Facility
$
1,121,000

 
 
 
$
1,100,000

 
 
Financing obligations
19,571

 
7.66% to 7.82%

 
19,579

 
7.52% to 7.82%

Capital lease obligations
2,958

 
 
 
2,015

 
 
Other notes payable
141

 
1.03% to 2.18%

 
904

 
0.00% to 2.18%

Less: unamortized debt discount and issuance costs
(3,941
)
 
 
 
(4,394
)
 
 
Total debt, net
$
1,139,729

 
 
 
$
1,118,104

 
 
Less: current portion of long-term debt
(25,964
)
 
 
 
(26,335
)
 
 
Long-term debt, net
$
1,113,765

 
 
 
$
1,091,769

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

Debt Covenants - As of July 1, 2018 and December 31, 2017, the Company was in compliance with its debt covenants.

9.
Stockholders’ Equity

Share Repurchases - On February 16, 2018, the Company’s Board of Directors (the “Board”) canceled the remaining $55.0 million of authorization under the 2017 Share Repurchase Program and approved a new $150.0 million authorization (the “2018 Share Repurchase Program”). The 2018 Share Repurchase Program will expire on August 16, 2019. As of July 1, 2018, $69.0 million remained available for repurchase under the 2018 Share Repurchase Program. Following is a summary of the shares repurchased under the Company’s share repurchase program during fiscal year 2018:

NUMBER OF SHARES
(in thousands)
 
AVERAGE REPURCHASE PRICE PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
2,116

 
$
24.10

 
$
50,996

Second fiscal quarter
1,287

 
$
23.31

 
30,004

Total common stock repurchases
3,403

 
$
23.80

 
$
81,000


Dividends - The Company declared and paid dividends per share during fiscal year 2018 as follows:
 
DIVIDENDS PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
$
0.09

 
$
8,371

Second fiscal quarter
0.09

 
8,363

Total cash dividends declared and paid
$
0.18

 
$
16,734


In July 2018, the Board declared a quarterly cash dividend of $0.09 per share, payable on August 22, 2018, to shareholders of record at the close of business on August 9, 2018.


20

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss:
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
Foreign currency translation adjustment
$
(127,609
)
 
$
(98,573
)
Unrealized gains (losses) on derivatives, net of tax
937

 
(626
)
Accumulated other comprehensive loss
$
(126,672
)
 
$
(99,199
)
 
Following are the components of the Company’s Other comprehensive (loss) income during the periods presented:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Foreign currency translation adjustment
$
(30,402
)
 
$
(9,176
)
 
$
(29,036
)
 
$
11,401

 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives, net of tax (1)
$
296

 
$
(610
)
 
$
1,184

 
$
(509
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (2)
71

 
643

 
379

 
1,427

Total unrealized gain on derivatives, net of tax
$
367

 
$
33

 
$
1,563

 
$
918

Other comprehensive (loss) income attributable to Bloomin’ Brands
$
(30,035
)
 
$
(9,143
)
 
$
(27,473
)
 
$
12,319

________________
(1)
Unrealized gain (loss) on derivatives is net of tax of $0.1 million and $(0.4) million for the thirteen weeks ended July 1, 2018 and June 25, 2017, respectively, and $0.4 million and ($0.3) million for the twenty-six weeks ended July 1, 2018 and June 25, 2017, respectively.
(2)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.4 million for the thirteen weeks ended June 25, 2017 and $0.1 million and $0.9 million for the twenty-six weeks ended July 1, 2018 and June 25, 2017, respectively.

10.    Derivative Instruments and Hedging Activities

Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, the Company entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receives payments from the counterparty based on the 30-day LIBOR rate. The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates.

The following table presents the fair value and classification of the Company’s interest rate swaps:
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - asset
$
1,162

 
$

 
Other current assets, net
Interest rate swaps - asset

 
67

 
Other assets, net
Total fair value of derivative instruments - assets (1)
$
1,162

 
$
67

 
 
 
 
 
 
 
 
Interest rate swaps - liability (1)
$

 
$
1,010

 
Accrued and other current liabilities
____________________
(1)
See Note 11 - Fair Value Measurements for fair value discussion of the interest rate swaps.

21

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table summarizes the effects of the interest rate swaps on Net income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Interest rate swap expense recognized in Interest expense, net (1)
$
(95
)
 
$
(1,036
)
 
$
(510
)
 
$
(2,301
)
Income tax benefit recognized in Provision for income taxes
24

 
393

 
131

 
874

Total effects of the interest rate swaps on Net income
$
(71
)
 
$
(643
)
 
$
(379
)
 
$
(1,427
)
____________________
(1)
During the thirteen and twenty-six weeks ended July 1, 2018 and June 25, 2017, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

11.    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 dates indicated:
 
JULY 1, 2018
 
DECEMBER 31, 2017
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
5,360

 
$
5,360

 
$

 
$
1,830

 
$
1,830

 
$

Money market funds
10,367

 
10,367

 

 
24,656

 
24,656

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds
4,521

 
4,521

 

 
1,280

 
1,280

 

Other current assets, net
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
1,162

 

 
1,162

 

 

 

Other assets, net:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps

 

 

 
67

 

 
67

Total asset recurring fair value measurements
$
21,410

 
$
20,248

 
$
1,162

 
$
27,833

 
$
27,766

 
$
67

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

 
$

 
$

 
$
1,010

 
$

 
$
1,010

Total liability recurring fair value measurements
$

 
$

 
$

 
$
1,010

 
$

 
$
1,010



22

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 when performing fair value measurements. As of July 1, 2018 and December 31, 2017, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JULY 1, 2018
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$

 
$

 
$
50

 
$
50

Property, fixtures and equipment
1,060

 
4,721

 
1,380

 
6,942

 
$
1,060

 
$
4,721

 
$
1,430

 
$
6,992

 
 
 
 
 
 
 
 
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JUNE 25, 2017
 
JUNE 25, 2017
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$

 
$

 
$
400

 
$
70

Property, fixtures and equipment

 
12

 
1,067

 
862

 
$

 
$
12

 
$
1,467

 
$
932

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

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

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of the dates indicated:
 
JULY 1, 2018
 
DECEMBER 31, 2017
 
CARRYING VALUE
 
FAIR VALUE
 
CARRYING VALUE
 
FAIR VALUE
(dollars in thousands)
 
LEVEL 2
 
LEVEL 3
 
 
LEVEL 2
 
LEVEL 3
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Term loan A
$
487,500

 
$
486,281

 
$

 
$
500,000

 
$
502,500

 
$

Revolving credit facility
$
633,500

 
$
631,916

 
$

 
$
600,000

 
$
598,500

 
$

Other notes payable
$
141

 
$

 
$
135

 
$
904

 
$

 
$
891



23

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair value of debt is determined based on the following:
DEBT FACILITY
 
METHODS AND ASSUMPTIONS
Senior Secured Credit Facility
 
Quoted market prices in inactive markets.
Other notes payable
 
Discounted cash flow approach with inputs that primarily include cost of debt interest rates used to determine fair value.

12.    Income Taxes

 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Effective income tax rate
(23.7
)%
 
7.7
%
 
(3.6
)%
 
19.7
%

The effective income tax rate for the thirteen and twenty-six weeks ended July 1, 2018 decreased by 31.4 and 23.3 percentage points as compared to the thirteen and twenty-six weeks ended June 25, 2017, respectively. The decrease is primarily due to the reduction in the U.S. federal corporate tax rate from 35% to 21% as part of the legislation enacted in December 2017 known as the Tax Cuts and Jobs Act (the “Tax Act”), lower forecasted pre-tax income and excess tax benefits from equity-based compensation arrangements recorded in 2018, partially offset by a domestic manufacturing deduction recorded in 2017.

The Company has a blended federal and state statutory rate of approximately 26%. The effective income tax rate for the thirteen and twenty-six weeks ended July 1, 2018 was lower than the statutory rate primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips and excess tax benefits from equity-based compensation arrangements.

The Company has applied guidance under SEC Staff Accounting Bulletin No. 118 which allows for a measurement period up to one year after the December 22, 2017 enactment date of the Tax Act to complete the accounting requirements. As of July 1, 2018, the Company made reasonable estimates of the effects of the Tax Act but has not completed its accounting for all tax effects. A provisional $7.5 million net tax expense was recorded during 2017. With the exception of the retrospective adjustment for the January 2018 adoption of ASU No. 2014-09, no adjustments were made to these provisional amounts during the twenty-six weeks ended July 1, 2018. The Company is continuing to gather information and additional guidance is expected from the U.S. Treasury and state taxing authorities on the application of certain provisions of the Tax Act and will continue to make and refine its calculations as additional analysis is completed. The Company’s estimates may also be affected as it gains a more thorough understanding of the tax law. These changes could be material to income tax expense. The Company expects to complete its analysis within the year measurement period.


24

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

In connection with its analysis of the impact of the Tax Act, the Company recorded a provisional net tax expense of $7.5 million in December 2017, as described in the following table:
 
FISCAL YEAR
(dollars in thousands)
2017
Transition Tax (provisional)
$
100

Net impact on U.S. deferred tax assets and liabilities (provisional) (1)
1,600

Net changes in deferred tax liability associated with anticipated repatriation taxes (provisional)
200

Impact from the adoption of ASU No. 2014-09 (provisional)
5,600

 
$
7,500

________________
(1)
Includes $4.7 million of expense for a valuation allowance recorded against foreign tax credit carryforwards, $3.9 million of benefit from the impact of the corporate rate reduction on net deferred tax liability balances, and an expense of $0.8 million for the write-off of certain deferred tax assets that will no longer be realized.

Items considered provisional include:

Reduction of U.S. Federal Corporate Income Tax Rate - The Tax Act reduced the corporate income tax rate to 21%, effective January 1, 2018. While the Company is able to make a reasonable estimate of the impact of the reduction in corporate rate on its deferred tax assets and liabilities, it may be affected by other analyses related to the Tax Act, including, but not limited to, its calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.

Deemed Repatriation Transition Tax - The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of the Company’s foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company is able to make a reasonable estimate of the Transition Tax and recorded a provisional amount. Due to the ability to utilize foreign tax credits in the calculation of the Transition Tax, the obligation primarily related to the estimated state impacts. However, the Company is continuing to gather additional information. Additional guidance from the U.S. Treasury and state taxing authorities on the application of certain provisions of the Tax Act is expected in the future.

Valuation Allowances - The Company must assess whether its valuation allowance analyses or deferred tax assets are affected by various aspects of the Tax Act (e.g., deemed repatriation of deferred foreign income, global intangible low-taxed income (“GILTI”) inclusions and new categories of foreign tax credits). While the Company did record an additional valuation allowance against foreign tax credit carryforwards, the Company has recorded provisional amounts related to certain portions of the Tax Act and any corresponding determination of the need for a change in a valuation allowance is also provisional.

For tax years beginning after December 31, 2017, the Tax Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. As of July 1, 2018, the Company has not yet determined its accounting policy with regard to GILTI, and does not expect GILTI in 2018.

13.    Commitments and Contingencies

Litigation and Other Matters - The Company had $3.5 million and $4.3 million of liabilities recorded for various legal matters as of July 1, 2018 and December 31, 2017, respectively.


25

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 July 1, 2018, the undiscounted payments the Company could be required to make in the event of non-payment by the primary lessees was approximately $27.2 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of July 1, 2018 was approximately $18.7 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. The Company believes the financial strength and operating history of the lessees’ significantly reduces the risk that it will be required to make payments under these leases. Accordingly, no liability has been recorded.

14.    Segment Reporting

The Company has two reportable segments, U.S. and International, which reflects how the Company manages its business, reviews operating performance and allocates resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. 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”). Following is a summary of reporting segments:
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 31, 2017. Revenues for all segments include only transactions with customers and exclude intersegment revenues. Excluded from net income from operations for U.S. and International are certain legal and corporate costs not directly related to the performance of the segments, stock-based compensation expenses and certain bonus expenses.

The following table is a summary of Total revenue by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Total revenues
 
 
 
 
 
 
 
U.S.
$
922,355

 
$
920,796

 
$
1,921,062


$
1,964,469

International
109,459

 
115,662

 
227,217

 
226,700

Total revenues
$
1,031,814

 
$
1,036,458

 
$
2,148,279

 
$
2,191,169

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09.

26

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table is a reconciliation of Segment income (loss) from operations to Income before (benefit) provision for income taxes:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED

JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
76,913

 
$
74,207

 
$
186,047

 
$
183,024

International
(2,049
)
 
9,728

 
6,276

 
18,363

Total segment income from operations
74,864

 
83,935

 
192,323

 
201,387

Unallocated corporate operating expense
(41,940
)
 
(42,593
)
 
(81,028
)
 
(83,211
)
Total income from operations
32,924

 
41,342

 
111,295

 
118,176

Loss on extinguishment and modification of debt

 
(260
)
 

 
(260
)
Other (expense) income, net
(6
)
 
7,281

 
(5
)
 
7,230

Interest expense, net
(11,319
)
 
(9,543
)
 
(21,629
)
 
(18,684
)
Income before (benefit) provision for income taxes
$
21,599

 
$
38,820

 
$
89,661

 
$
106,462

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the impact of implementing ASU No. 2014-09.

The following table is a summary of Depreciation and amortization expense by segment:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018

JUNE 25, 2017
Depreciation and amortization
 
 
 
 
 
 
 
U.S.
$
39,993

 
$
37,406

 
$
79,267

 
$
74,006

International
6,714

 
7,014

 
13,446

 
13,514

Corporate
4,075

 
3,643

 
8,189

 
7,133

Total depreciation and amortization
$
50,782

 
$
48,063

 
$
100,902

 
$
94,653


Geographic Areas — International assets are defined as assets residing in a country other than the U.S. The following table details long-lived assets, excluding goodwill, intangible assets and deferred tax assets, by major geographic area:
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
U.S.
$
1,129,623

 
$
1,164,322

International
 
 
 
Brazil
115,887

 
126,341

Other
18,290

 
18,012

Total assets
$
1,263,800

 
$
1,308,675




27

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries.

Cautionary Statement

This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following:

(i)
Consumer reactions to public health and food safety issues;

(ii)
Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants;

(iii)
Minimum wage increases and additional mandated employee benefits;

(iv)
Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates;

(v)
Fluctuations in the price and availability of commodities;

(vi)
Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits;

(vii)
Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities;


28

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

(viii)
Our ability to implement our expansion, remodeling and relocation plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants;

(ix)
Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information;

(x)
The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates;

(xi)
Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms;

(xii)
Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations;

(xiii)
Strategic actions, including acquisitions and dispositions, and our success in implementing these initiatives or integrating any acquired or newly created businesses;

(xiv)
Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events;

(xv)
The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt;

(xvi)
The adequacy of our cash flow and earnings and other conditions which may affect our ability to pay dividends and repurchase shares of our common stock; and

(xvii)
Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.



29

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of July 1, 2018, we owned and operated 1,197 restaurants and franchised 293 restaurants across 48 states, Puerto Rico, Guam and 19 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
Executive Summary

Our financial results for the thirteen weeks ended July 1, 2018 (“second quarter of 2018”) include the following:

A decrease in Total revenues of 0.4% to $1.0 billion in the second quarter of 2018, as compared to the second quarter of 2017, primarily due to domestic refranchising and foreign currency translation, partially offset by the net impact of restaurant openings and closures and increases from higher U.S. comparable restaurant sales.

Income from operations of $32.9 million in the second quarter of 2018, as compared to $41.3 million in the second quarter of 2017, decreased primarily due to impairment expense primarily associated with international restructuring, higher labor and commodity costs and lower sales in Brazil. These decreases were partially offset by increases in average check, certain cost saving initiatives and lower advertising expense.

International Restructuring - During the thirteen and twenty-six weeks ended July 1, 2018, we recognized asset impairment and closure charges of $6.9 million and $9.2 million, respectively, related to the restructuring of certain international markets, including China.

Impact of Political Unrest in Brazil

Recently, there has been a growing level of unrest in Brazil ahead of the upcoming presidential election, including a truckers strike during the second quarter of 2018 that resulted in lost operating days for many businesses, including our restaurants. We believe consumer confidence will resume the upward trend it has been on for the last few years following the October presidential election as we move into 2019.

Key Performance Indicators

Key measures that we use in evaluating our restaurants and assessing our business include the following:

Average restaurant unit volumes—average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand;

Comparable restaurant sales—year-over-year comparison of sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants;

System-wide sales—total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands;

Restaurant-level operating margin, Income from operations, Net income and Diluted earnings per share — financial measures utilized to evaluate our operating performance.

Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed

30

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

as the percentage of our Restaurant sales that Cost of sales, Labor and other related and Other restaurant operating (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statement of Operations. The following categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period:

(i)
Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income.
(ii)
Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants.
(iii)
General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices.
(iv)
Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period.

Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statement of Operations. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, net income or income from operations. In addition, our presentation of restaurant operating margin may not be comparable to similarly titled measures used by other companies in our industry;

Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share—non-GAAP financial measures utilized to evaluate our operating performance.
    
We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and administer employee incentive plans; and

Customer satisfaction scores—measurement of our customers’ experiences in a variety of key areas.


31

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Selected Operating Data

The table below presents the number of our restaurants in operation at the end of the periods indicated:
Number of restaurants (at end of the period):
JULY 1, 2018
 
JUNE 25, 2017
U.S.
 
 
 
Outback Steakhouse
 
 
 
Company-owned
583

 
584

Franchised
154

 
158

Total
737

 
742

Carrabba’s Italian Grill
 
 
 
Company-owned
224

 
227

Franchised
3

 
3

Total
227

 
230

Bonefish Grill
 
 
 
Company-owned
192

 
196

Franchised
7

 
7

Total
199

 
203

Fleming’s Prime Steakhouse & Wine Bar
 
 
 
Company-owned
70

 
67

Express
 
 
 
Company-owned
5

 

U.S. Total
1,238

 
1,242

International
 
 
 
Company-owned
 
 
 
Outback Steakhouse - Brazil (1)
92

 
85

Other
31

 
33

Franchised


 


Outback Steakhouse - South Korea
74

 
74

Other
55

 
54

International Total
252

 
246

System-wide total
1,490

 
1,488

____________________
(1)
The restaurant counts for Brazil are reported as of May 31, 2018 and 2017, respectively, to correspond with the balance sheet dates of this subsidiary.


32

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Results of Operations

The following table sets forth, for the periods indicated, the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales, as indicated:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Revenues
 

 
 
 
 
 
 
Restaurant sales
98.4
 %
 
98.5
 %
 
98.4
 %
 
98.8
 %
Franchise and other revenues
1.6

 
1.5

 
1.6

 
1.2

Total revenues
100.0

 
100.0

 
100.0

 
100.0

Costs and expenses
 

 
 

 
 

 
 
Cost of sales (1)
31.8

 
31.6

 
31.9

 
31.8

Labor and other related (1)
29.7

 
29.2

 
29.0

 
28.7

Other restaurant operating (1)
23.5

 
24.3

 
23.3

 
23.1

Depreciation and amortization
4.9

 
4.6

 
4.7

 
4.3

General and administrative
7.4

 
7.4

 
6.7

 
6.8

Provision for impaired assets and restaurant closings
0.9

 
0.1

 
0.5

 
0.9

Total costs and expenses
96.8

 
96.0

 
94.8

 
94.6

Income from operations
3.2

 
4.0

 
5.2

 
5.4

Loss on extinguishment and modification of debt

 
(*)

 

 
(*)

Other (expense) income, net
(*)

 
0.7

 
(*)

 
0.3

Interest expense, net
(1.1
)
 
(0.9
)
 
(1.0
)
 
(0.8
)
Income before (benefit) provision for income taxes
2.1

 
3.8

 
4.2

 
4.9

(Benefit) provision for income taxes
(0.5
)
 
0.3

 
(0.1
)
 
1.0

Net income
2.6

 
3.5

 
4.3

 
3.9

Less: net income attributable to noncontrolling interests
*

 
0.1

 
*

 
0.1

Net income attributable to Bloomin’ Brands
2.6
 %
 
3.4
 %
 
4.3
 %
 
3.8
 %
________________
(1)
As a percentage of Restaurant sales.
*
Less than 1/10th of one percent of Total revenues.

RESTAURANT SALES

Following is a summary of the change in Restaurant sales for the thirteen and twenty-six weeks ended July 1, 2018:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the periods ended June 25, 2017 (1)
$
1,021.2

 
$
2,165.0

Change from:
 
 
 
Divestiture of restaurants through refranchising transactions
(14.9
)
 
(64.4
)
Effect of foreign currency translation
(8.3
)
 
(9.0
)
Restaurant closings
(7.5
)
 
(23.2
)
Restaurant openings (2)
17.0

 
30.7

Comparable restaurant sales (2)
7.9

 
15.4

For the periods ended July 1, 2018
$
1,015.4

 
$
2,114.5

____________________
(1)
Restaurant sales have been restated for the thirteen and twenty-six weeks ended June 25, 2017. See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.
(2)
The twenty-six weeks ended July 1, 2018 includes an approximate $19.0 million negative impact on Restaurant sales from a one-week shift in the fiscal calendar.

33

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The decrease in Restaurant sales in the thirteen weeks ended July 1, 2018 was primarily attributable to: (i) domestic refranchising, (ii) the effect of foreign currency translation primarily due to the depreciation of the Brazil Real and (iii) the closing of 21 restaurants since March 26, 2017. The decrease in restaurant sales was partially offset by the opening of 40 new restaurants not included in our comparable restaurant sales base and higher U.S. comparable restaurant sales.

The decrease in Restaurant sales in the twenty-six weeks ended July 1, 2018 was primarily attributable to: (i) domestic refranchising, (ii) the closing of 58 restaurants since December 25, 2016, (iii) the one-week shift in the fiscal calendar and (iv) the effect of foreign currency translation primarily due to the depreciation of the Brazil Real. The decrease in restaurant sales was partially offset by the opening of 47 new restaurants not included in our comparable restaurant sales base and higher U.S. comparable restaurant sales.

The twenty-six weeks ended June 25, 2017 included several high-volume days between December 26th and December 31st and the twenty-six weeks ended July 1, 2018 excluded these high-volume days. This shift had an approximate $19.0 million negative impact on Restaurant sales in 2018.

Average Restaurant Unit Volumes and Operating Weeks
Following is a summary of the average restaurant unit volumes and operating weeks:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
 
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Average restaurant unit volumes:
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
$
68,290

 
$
65,766

 
$
71,366

 
$
69,007

Carrabba’s Italian Grill
$
56,131

 
$
56,959

 
$
57,809

 
$
58,271

Bonefish Grill
$
59,642

 
$
59,161

 
$
60,923

 
$
61,070

Fleming’s Prime Steakhouse & Wine Bar
$
80,563

 
$
80,470

 
$
85,344

 
$
84,548

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (2)
$
74,225

 
$
86,653

 
$
79,324

 
$
85,925

Operating weeks:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
7,586

 
7,821

 
15,180

 
16,193

Carrabba’s Italian Grill
2,912

 
2,956

 
5,836

 
6,024

Bonefish Grill
2,499

 
2,548

 
5,021

 
5,148

Fleming’s Prime Steakhouse & Wine Bar
910

 
871

 
1,808

 
1,749

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
1,183

 
1,106

 
2,306

 
2,173

____________________
(1)
Activity has been restated for the retrospective adoption of ASU No. 2014-09. See Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements for details regarding the impact of implementing ASU No. 2014-09.
(2)
Translated at an average exchange rate of 3.43 and 3.16 for the thirteen weeks ended July 1, 2018 and June 25, 2017, respectively, and 3.34 and 3.19 for the twenty-six weeks ended July 1, 2018 and June 25, 2017, respectively.


34

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Comparable Restaurant Sales, Traffic and Average Check Per Person Increases
Following is a summary of comparable restaurant sales, traffic and average check per person increases:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018 (1)

JUNE 25, 2017

JULY 1, 2018 (1)(2)

JUNE 25, 2017
Year over year percentage change:
 
 
 
 
 
 
 
Comparable restaurant sales (stores open 18 months or more) (3):
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
4.0
 %
 
0.3
 %
 
4.2
 %
 
0.9
 %
Carrabba’s Italian Grill
(0.6
)%
 
0.4
 %
 
0.3
 %
 
(1.8
)%
Bonefish Grill
1.5
 %
 
(2.6
)%
 
0.7
 %
 
(1.6
)%
Fleming’s Prime Steakhouse & Wine Bar
0.3
 %
 
(1.3
)%
 
1.6
 %
 
(2.1
)%
Combined U.S.
2.4
 %
 
(0.3
)%
 
2.7
 %
 
(0.3
)%
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (4)
(6.1
)%
 
12.6
 %
 
(2.6
)%
 
8.2
 %
 
 
 
 
 
 
 
 
Traffic:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
0.6
 %
 
(0.8
)%
 
1.5
 %
 
(1.5
)%
Carrabba’s Italian Grill
(5.8
)%
 
(2.0
)%
 
(5.7
)%
 
(4.7
)%
Bonefish Grill
(1.2
)%
 
(3.1
)%
 
(1.9
)%
 
(2.6
)%
Fleming’s Prime Steakhouse & Wine Bar
(7.7
)%
 
(5.5
)%
 
(4.9
)%
 
(6.5
)%
Combined U.S.
(1.2
)%
 
(1.5
)%
 
(0.6
)%
 
(2.5
)%
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
(7.7
)%
 
3.2
 %
 
(4.7
)%
 
0.7
 %
 
 
 
 
 
 
 
 
Average check per person increases (5):
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
3.4
 %
 
1.1
 %
 
2.7
 %
 
2.4
 %
Carrabba’s Italian Grill
5.2
 %
 
2.4
 %
 
6.0
 %
 
2.9
 %
Bonefish Grill
2.7
 %
 
0.5
 %
 
2.6
 %
 
1.0
 %
Fleming’s Prime Steakhouse & Wine Bar
8.0
 %
 
4.2
 %
 
6.5
 %
 
4.4
 %
Combined U.S.
3.6
 %
 
1.2
 %
 
3.3
 %
 
2.2
 %
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
1.9
 %
 
8.2
 %
 
2.4
 %
 
7.3
 %
____________________
(1)
For Q2 2018, comparable restaurant sales and traffic compare the thirteen weeks from April 2, 2018 through July 1, 2018 to the thirteen weeks from April 3, 2017 through July 2, 2017, and for the twenty-six weeks from January 1, 2018 through July 1, 2018 to the twenty-six weeks from January 2, 2017 through July 2, 2017.
(2)
Comparative restaurant sales and average check per person for the twenty-six weeks ended July 1, 2018 have been revised from those previously disclosed in our earnings release issued on July 30, 2018.
(3)
Comparable restaurant sales exclude the effect of fluctuations in foreign currency rates. Relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.
(4)
Includes trading day impact from calendar period reporting.
(5)
Average check per person includes the impact of menu pricing changes, product mix and discounts.



35

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Franchise and other revenues
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED

JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in millions)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Franchise revenues (2)
$
13.1

 
$
11.6

 
$
27.4

 
$
20.7

Other revenues
3.2

 
3.7

 
6.4

 
5.5

Franchise and other revenues
$
16.3

 
$
15.3

 
$
33.8

 
$
26.2

____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.
(2)
Represents franchise royalties and initial franchise fees.

COSTS AND EXPENSES

Cost of sales
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Cost of sales
$
322.8

 
$
323.1

 
 
 
$
674.9

 
$
687.9

 
 
% of Restaurant sales
31.8
%
 
31.6
%
 
0.2
%
 
31.9
%
 
31.8
%
 
0.1
%

Cost of sales increased as a percentage of Restaurant sales in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017 primarily due to 1.0% for commodity cost inflation. The increase was partially offset primarily by decreases as a percentage of Restaurant sales of 0.6% for changes in average check per person and 0.2% from the impact of certain cost saving initiatives.

Cost of sales increased as a percentage of Restaurant sales in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017 primarily due to 0.9% for commodity cost inflation. The increase was offset primarily by decreases as a percentage of Restaurant sales of 0.7% for changes in average check per person and 0.2% from the impact of certain cost saving initiatives.

Labor and other related expenses
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Labor and other related
$
301.9

 
$
297.9

 
 
 
$
613.0

 
$
622.3

 
 
% of Restaurant sales
29.7
%
 
29.2
%
 
0.5
%
 
29.0
%
 
28.7
%
 
0.3
%

Labor and other related expenses increased as a percentage of Restaurant sales in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017 primarily due to 0.8% from higher labor costs from wage rate increases and 0.3% from favorable resolution of certain legal contingencies in 2017. These increases were partially offset by decreases as a percentage of Restaurant sales of 0.3% from increases in average check per person and 0.3% from the impact of certain cost saving initiatives.

Labor and other related expenses increased as a percentage of Restaurant sales in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017 primarily due to 0.9% from higher labor costs from wage rate increases. The increase was partially offset by decreases as a percentage of Restaurant sales of 0.4% from increases in average check per person and 0.3% from the impact of certain cost saving initiatives.


36

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Other restaurant operating expenses
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
 
JULY 1, 2018
 
JUNE 25, 2017
 
 
 
JULY 1, 2018
 
JUNE 25, 2017
 

(dollars in millions)
 
 
(Restated) (1)
 
Change
 
 
 
(Restated) (1)
 
Change
Other restaurant operating
$
238.4

 
$
248.4

 
 
 
$
491.7

 
$
499.5

 
 
% of Restaurant sales
23.5
%
 
24.3
%
 
(0.8
)%
 
23.3
%
 
23.1
%
 
0.2
%
____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.

Other restaurant operating expenses decreased as a percentage of Restaurant sales in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017 primarily due to: (i) 0.5% from decreases in advertising expense, (ii) 0.3% from the impact of certain cost saving initiatives and (iii) 0.2% from increases in average check per person. These decreases were partially offset by increases as a percentage of Restaurant sales of 0.2% from operating expense inflation.

Other restaurant operating expenses increased as a percentage of Restaurant sales in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017 primarily due to 0.3% from operating expense inflation and 0.3% from the impact of the write-off of deferred rent liabilities in 2017. These increases were partially offset by decreases as a percentage of Restaurant sales of 0.3% from the impact of certain cost saving initiatives and 0.2% from decreases in advertising expense.

Depreciation and amortization
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Depreciation and amortization
$
50.8

 
$
48.1

 
$
2.7

 
$
100.9

 
$
94.7

 
$
6.2


Depreciation and amortization expense increased in the thirteen and twenty-six weeks ended July 1, 2018 as compared to the thirteen and twenty-six weeks ended June 25, 2017 primarily due to additional depreciation expense related to restaurant openings and renovations, and technology projects, partially offset by the impact of domestic refranchising.

General and administrative

General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in general and administrative expense for the thirteen and twenty-six weeks ended July 1, 2018:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the periods ended June 25, 2017
$
77.1

 
$
149.0

Change from:
 
 
 
Incentive compensation
(2.1
)
 
(1.9
)
Compensation, benefits and payroll tax
(1.7
)
 
(2.1
)
Computer expense
1.0

 
2.1

Severance
0.8

 
(0.6
)
Other
1.0

 
(1.7
)
For the periods ended July 1, 2018
$
76.1

 
$
144.8



37

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Provision for impaired assets and restaurant closings
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Provision for impaired assets and restaurant closings
$
8.9

 
$
0.6

 
$
8.3

 
$
11.6

 
$
19.7

 
$
(8.1
)

During the thirteen and twenty-six weeks ended July 1, 2018, we recognized asset impairment and closure charges of $6.9 million and $9.2 million, respectively, related to the restructuring of certain international markets, including China.

In connection with the Closure Initiatives, we recognized pre-tax impairment and restaurant and closure charges of $18.0 million during the twenty-six weeks ended June 25, 2017. We expect to incur additional charges of approximately $3.2 million to $4.0 million for the Closure Initiatives through Q3 2019, including costs associated with lease obligations.

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

See Note 3 - Impairments and Exit Costs of the Notes to Consolidated Financial Statements for further information.

Income from operations
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 

JULY 1, 2018
 
JUNE 25, 2017
 
 
 
JULY 1, 2018
 
JUNE 25, 2017
 

(dollars in millions)
 
 
(Restated) (1)
 
Change
 
 
 
(Restated) (1)
 
Change
Income from operations
$
32.9

 
$
41.3

 
$
(8.4
)
 
$
111.3

 
$
118.2

 
$
(6.9
)
% of Total revenues
3.2
%
 
4.0
%
 
(0.8
)%
 
5.2
%
 
5.4
%
 
(0.2
)%
____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.

The decrease in income from operations generated in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017 was primarily due to: (i) higher impairment charges and restaurant closing costs, primarily associated with international restructuring, (ii) higher labor costs from wage inflation, (iii) higher commodity costs and (iv) lower sales in Brazil. These decreases were partially offset by increases primarily due to: (i) increases in average check per person, (ii) the impact of certain cost saving initiatives and (iii) decreases in advertising expense.

The decrease in income from operations generated in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017 was primarily due to: (i) higher labor costs from wage inflation, (ii) higher commodity costs and (iii) operating expense inflation. These decreases were partially offset by increases primarily due to: (i) increases in average check per person, (ii) the impact of certain cost saving initiatives, (iii) lower impairment charges and restaurant closing costs, primarily related to the Closure Initiatives in 2017 and (iv) increases in franchise and other revenues.

Other (expense) income, net

Other (expense) income, net, includes items deemed to be non-operating based on management’s assessment of the nature of the item in relation to our core operations. During the thirteen and twenty-six weeks ended June 25, 2017 we recorded aggregate net gain of $7.4 million within Other (expense) income, net in connection with the sale of 54 of our U.S. Company-owned locations to two of our existing franchisees.


38

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Interest expense, net
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Interest expense, net
$
11.3

 
$
9.5

 
$
1.8

 
$
21.6

 
$
18.7

 
$
2.9


The change in Interest expense, net primarily includes increases related to: (i) additional draws on our revolving credit facility, (ii) our May 2017 incremental term loan borrowing and (iii) higher interest rates. These increases were partially offset by: (i) lower interest from our derivative instruments and (ii) repayment of our PRP mortgage loan.

(Benefit) provision for income taxes
 
THIRTEEN WEEKS ENDED
 
 
 
TWENTY-SIX WEEKS ENDED
 
 
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
 
JULY 1, 2018
 
JUNE 25, 2017
 
Change
Effective income tax rate
(23.7
)%
 
7.7
%
 
(31.4
)%
 
(3.6
)%
 
19.7
%
 
(23.3
)%

The effective income tax rate for the thirteen and twenty-six weeks ended July 1, 2018 decreased primarily due to the reduction in the U.S. federal corporate tax rate from 35% to 21% as part of the Tax Act, lower forecasted pre-tax income and excess tax benefits from equity-based compensation arrangements recorded in 2018, partially offset by a domestic manufacturing deduction recorded in 2017.

SEGMENT PERFORMANCE

We have two reportable segments, U.S. and International, which reflects how we manage our business, review operating performance and allocate resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our CODM. Following is a summary of reporting segments:
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.

Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from net income from operations for U.S. and International are legal and certain corporate costs not directly related to the performance of the segments, certain stock-based compensation expenses and certain bonus expenses.


39

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Following is a reconciliation of segment income (loss) from operations to the consolidated operating results:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED

JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
76,913

 
$
74,207

 
$
186,047

 
$
183,024

International
(2,049
)
 
9,728

 
6,276

 
18,363

Total segment income from operations
74,864

 
83,935

 
192,323

 
201,387

Unallocated corporate operating expense
(41,940
)
 
(42,593
)
 
(81,028
)
 
(83,211
)
Total income from operations
32,924

 
41,342

 
111,295

 
118,176

Loss on extinguishment and modification of debt

 
(260
)
 

 
(260
)
Other (expense) income, net
(6
)
 
7,281

 
(5
)
 
7,230

Interest expense, net
(11,319
)
 
(9,543
)
 
(21,629
)
 
(18,684
)
Income before (benefit) provision for income taxes
$
21,599

 
$
38,820

 
$
89,661

 
$
106,462

____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.
 
Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. See the Overview-Key Performance Indicators section of Management’s Discussion and Analysis for additional details regarding the calculation of restaurant-level operating margin.

U.S. Segment
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
908,937

 
$
908,264

 
$
1,893,281

 
$
1,943,819

Franchise and other revenues
13,418

 
12,532

 
27,781

 
20,650

Total revenues
$
922,355

 
$
920,796

 
$
1,921,062

 
$
1,964,469

Restaurant-level operating margin
14.5
%
 
13.8
%
 
15.4
%
 
15.8
%
Income from operations
$
76,913

 
$
74,207

 
$
186,047

 
$
183,024

Operating income margin
8.3
%
 
8.1
%
 
9.7
%
 
9.3
%
____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.

40

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Restaurant sales

Following is a summary of the change in U.S. segment Restaurant sales for the thirteen and twenty-six weeks ended July 1, 2018:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the periods ended June 25, 2017 (1)
$
908.3

 
$
1,943.8

Change from:
 
 
 
Comparable restaurant sales (2)
14.3

 
21.1

Restaurant openings (2)
6.3

 
11.9

Divestiture of restaurants through refranchising transactions
(14.9
)
 
(64.4
)
Restaurant closings
(5.1
)
 
(19.1
)
For the periods ended July 1, 2018
$
908.9

 
$
1,893.3

____________________
(1)
Restaurant sales have been restated for the thirteen and twenty-six weeks ended June 25, 2017. See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.
(2)
The twenty-six weeks ended July 1, 2018 includes an approximate $19.0 million negative impact on Restaurant sales from a one-week shift in the fiscal calendar.

The increase in U.S. Restaurant sales in the thirteen weeks ended July 1, 2018 was primarily attributable to higher comparable restaurant sales and the opening of 15 new restaurants not included in our comparable restaurant sales base. These increases in restaurant sales were partially offset by the refranchising of certain Company-owned restaurants and the closing of nine restaurants since March 26, 2017.

The decrease in U.S. Restaurant sales in the twenty-six weeks ended July 1, 2018 was primarily attributable to the refranchising of certain Company-owned restaurants, the closing of 46 restaurants since December 25, 2016 and the one-week shift in the fiscal calendar. The decrease in restaurant sales was partially offset by higher comparable restaurant sales and the opening of 15 new restaurants not included in our comparable restaurant sales base.

Income from operations

The increase in U.S. income from operations generated in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017, was primarily due to: (i) increases in average check per person, (ii) the impact of certain cost saving initiatives and (iii) decreases in advertising expense. These increases were partially offset by decreases primarily due to higher labor costs from wage inflation and higher commodity costs.

The increase in U.S. income from operations generated in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017, was primarily due to: (i) increases in average check per person, (ii) lower impairment charges and restaurant closing costs, primarily related to the Closure Initiatives in 2017, (iii) the impact of certain cost saving initiatives and (iv) increases in franchise and other revenues. These increases were partially offset by decreases primarily due to: (i) higher labor costs from wage inflation, (ii) higher commodity costs and (iii) operating expense inflation.


41

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

International Segment
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
(dollars in thousands)
 
 
(Restated) (1)
 
 
 
(Restated) (1)
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
106,547

 
$
112,920

 
$
221,206

 
$
221,196

Franchise and other revenues
2,912

 
2,742

 
6,011

 
5,504

Total revenues
$
109,459

 
$
115,662

 
$
227,217

 
$
226,700

Restaurant-level operating margin
17.7
 %
 
21.1
%
 
18.6
%
 
20.7
%
(Loss) income from operations
$
(2,049
)
 
$
9,728

 
$
6,276

 
$
18,363

Operating (loss) income margin
(1.9
)%
 
8.4
%
 
2.8
%
 
8.1
%
____________________
(1)
See Note 1 of the Notes to Consolidated Financial Statements for details of the impact of implementing ASU No. 2014-09.

Restaurant sales

Following is a summary of the change in International segment Restaurant sales for the thirteen and twenty-six weeks ended July 1, 2018:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the periods ended June 25, 2017
$
112.9

 
$
221.2

Change from:
 
 
 
Effect of foreign currency translation
(8.3
)
 
(9.0
)
Comparable restaurant sales
(6.4
)
 
(5.7
)
Restaurant closings
(2.4
)
 
(4.1
)
Restaurant openings
10.7

 
18.8

For the periods ended July 1, 2018
$
106.5

 
$
221.2


The decrease in Restaurant sales in the thirteen weeks ended July 1, 2018 was primarily attributable to: (i) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar, (ii) lower comparable restaurant sales and (iii) the closing of 12 restaurants since March 26, 2017, partially offset by the opening of 25 new restaurants not included in our comparable restaurant sales base.

The slight increase in Restaurant sales in the twenty-six weeks ended July 1, 2018 was primarily attributable to the opening of 32 new restaurants not included in our comparable restaurant sales base partially offset by: (i) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar, (ii) lower comparable restaurant sales and (iii) the closing of 12 restaurants since December 25, 2016.

Income from operations

The decrease in International income from operations in the thirteen weeks ended July 1, 2018 as compared to the thirteen weeks ended June 25, 2017 was primarily due to: (i) certain impairment charges and restaurant closing costs, (ii) lower sales in Brazil, (iii) labor, operating expense and commodity inflation, (iv) favorable resolution of certain legal contingencies in 2017 and (v) changes in product mix. These decreases were partially offset by increases in average check per person.


42

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The decrease in International income from operations in the twenty-six weeks ended July 1, 2018 as compared to the twenty-six weeks ended June 25, 2017 was primarily due to: (i) certain impairment charges and restaurant closing costs, (ii) labor, operating expense and commodity inflation, (iii) changes in product mix and (iv) increases in advertising expense. These decreases were partially offset by increases in average check per person.

Non-GAAP Financial Measures

System-Wide Sales - System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a summary of sales of Company-owned restaurants, refer to Note 2 - Revenue Recognition of the Notes to Consolidated Financial Statements.

The following table provides a summary of sales of franchised restaurants, which are not included in our consolidated financial results, and our income from the royalties and/or service fees that franchisees pay us based generally on a percentage of sales. The following table does not represent our sales and is presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees.
FRANCHISE SALES (1)
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
U.S.
 
 
 
 
 
 
 
Outback Steakhouse (2)
$
129

 
$
114

 
$
269

 
$
204

Carrabba's Italian Grill (2)
2

 
2

 
5

 
4

Bonefish Grill
4

 
4

 
8

 
8

U.S. Total
$
135

 
$
120

 
$
282

 
$
216

International
 
 
 
 
 
 
 
Outback Steakhouse-South Korea
$
49

 
$
40

 
$
102

 
$
84

Other
27

 
28

 
55

 
57

International Total
$
76

 
$
68

 
$
157

 
$
141

Total franchise sales (1)
$
211

 
$
188

 
$
439

 
$
357

Income from franchise sales (3)
$
13

 
$
12

 
$
27

 
$
21

_____________________
(1)
Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive (Loss) Income.
(2)
In Q2 2017, we sold 53 Outback Steakhouse restaurants and one Carrabba’s Italian Grill restaurant, which are now operated as franchises.
(3)
Represents franchise royalties and initial franchise fees included in the Consolidated Statements of Operations and Comprehensive (Loss) Income in Franchise and other revenues.


43

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Adjusted restaurant-level operating margin

The following table shows the percentages of certain operating cost financial statement line items in relation to Restaurant sales:
 
THIRTEEN WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
U.S. GAAP
 
ADJUSTED (1)
 
U.S. GAAP
 
ADJUSTED (1)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
31.8
%
 
31.8
%
 
31.6
%
 
31.6
%
Labor and other related
29.7
%
 
29.7
%
 
29.2
%
 
29.2
%
Other restaurant operating
23.5
%
 
23.6
%
 
24.3
%
 
24.3
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
15.0
%
 
14.9
%
 
14.9
%
 
14.8
%
 
 
 
 
 
 
 
 
 
TWENTY-SIX WEEKS ENDED
 
JULY 1, 2018
 
JUNE 25, 2017
 
U.S. GAAP
 
ADJUSTED (1)
 
U.S. GAAP
 
ADJUSTED (1)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
31.9
%
 
31.9
%
 
31.8
%
 
31.8
%
Labor and other related
29.0
%
 
29.0
%
 
28.7
%
 
28.7
%
Other restaurant operating
23.3
%
 
23.4
%
 
23.1
%
 
23.3
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
15.8
%
 
15.7
%
 
16.4
%
 
16.2
%
_________________
(1)
Includes adjustments recorded in Other restaurant operating for the following activities, as described in the Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share table below:
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(dollars in millions)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Restaurant and asset impairments and closing costs
$
1.4

 
$
(0.2
)
 
$
2.2

 
$
4.8

Restaurant relocations and related costs
$
0.2

 
$
0.3

 
$
0.4

 
$
0.5


44

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share
 
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
(in thousands, except per share data)
JULY 1, 2018
 
JUNE 25, 2017
 
JULY 1, 2018
 
JUNE 25, 2017
Income from operations
$
32,924

 
$
41,342

 
$
111,295

 
$
118,176

Operating income margin
3.2
%
 
4.0
%
 
5.2
%
 
5.4
%
Adjustments:
 
 
 
 
 
 
 
Restaurant and asset impairments and closing costs (1)
7,886

 
702

 
9,181

 
16,199

Restaurant relocations and related costs (2)
1,353

 
2,251

 
3,078

 
4,358

Legal and contingent matters
288

 

 
758

 

Severance (3)

 

 
965

 

Transaction-related expenses (4)

 
1,240

 

 
1,447

Total income from operations adjustments
9,527

 
4,193

 
13,982

 
22,004

Adjusted income from operations
$
42,451

 
$
45,535

 
$
125,277

 
$
140,180

Adjusted operating income margin
4.1
%
 
4.4
%
 
5.8
%
 
6.4
%
 
 
 
 
 
 
 
 
Net income attributable to Bloomin’ Brands
$
26,721

 
$
35,133

 
$
92,119

 
$
83,758

Adjustments:
 
 
 
 
 
 
 
Income from operations adjustments
9,527

 
4,193

 
13,982

 
22,004

Gain on disposal of business and other costs (5)

 
(7,284
)
 

 
(7,284
)
Loss on extinguishment and modification of debt

 
260

 

 
260

Total adjustments, before income taxes
9,527

 
(2,831
)
 
13,982

 
14,980

Adjustment to (benefit) provision for income taxes (6)
(438
)
 
(4,525
)
 
(2,119
)
 
(8,944
)
Net adjustments
9,089

 
(7,356
)
 
11,863

 
6,036

Adjusted net income
$
35,810

 
$
27,777

 
$
103,982

 
$
89,794

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.28

 
$
0.34

 
$
0.97

 
$
0.80

Adjusted diluted earnings per share
$
0.38

 
$
0.27

 
$
1.09

 
$
0.86

 
 
 
 
 
 
 
 
Diluted weighted average common shares outstanding
94,361

 
102,421

 
95,072

 
104,417

_________________
(1)
Represents asset impairment charges and related costs primarily associated with approved closure and restructuring initiatives, and the restructuring of certain international markets.
(2)
Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.
(3)
Relates to severance expense incurred primarily as a result of restructuring of certain functions.
(4)
Relates primarily to professional fees related to certain income tax items in which the associated tax benefit is adjusted in Adjustments to provision for income taxes, as described in footnote 6 below.
(5)
Primarily relates to the sale of 54 U.S. Company-owned restaurants to existing franchisees in 2017.
(6)
Represents income tax effect of the adjustments for the periods presented. Adjustments include the impact of excluding $4.6 million of discrete income tax items for the thirteen and twenty-six weeks ended June 25, 2017.

Liquidity and Capital Resources

LIQUIDITY

Our liquidity sources consist of cash flow from our operations, cash and cash equivalents and credit capacity under our credit facilities. We expect to use cash primarily for general operating expenses, share repurchases and dividend payments, remodeling or relocating older restaurants, principal and interest payments on our debt, development of new restaurants and new markets, obligations related to our deferred compensation plans and investments in technology.


45

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

We believe that our expected liquidity sources are adequate to fund debt service requirements, lease obligations, capital expenditures and working capital obligations for at least the next 12 months. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.

Cash and Cash Equivalents - As of July 1, 2018, we had $81.7 million in cash and cash equivalents, of which $25.9 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit the repatriation of cash and cash equivalents.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. Given the Tax Act’s significant changes and potential opportunities to repatriate cash free of U.S. federal tax, we continue to evaluate our current permanent reinvestment assertions. This evaluation includes the repatriation of historical earnings (2017 and prior) that have been previously taxed under the Tax Act. See Note 12 - Income Taxes of the Notes to Consolidated Financial Statements for further information regarding the Tax Act.

As of July 1, 2018, we had aggregate E&P from foreign subsidiaries of approximately $122.9 million, which is considered previously taxed income subsequent to the Tax Act. We currently consider the remaining financial statement carrying amounts over the tax basis of our investments in our foreign subsidiaries to be indefinitely reinvested and have not recorded a deferred tax liability. The determination of any unrecorded deferred tax liability on this amount is not practicable due to the uncertainty of how these investments would be recovered.

Closure Initiatives - Total aggregate future undiscounted cash expenditures of $22.3 million to $27.4 million for the Closure Initiatives, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029.

Capital Expenditures - We estimate that our capital expenditures will total approximately $200.0 million in 2018. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements.

Credit Facilities - As of July 1, 2018, we had $1.1 billion of outstanding borrowings under our Senior Secured Credit Facility. Following is a summary of principal payments and debt issuance from December 31, 2017 to July 1, 2018:
 
SENIOR SECURED CREDIT FACILITY
 
TOTAL CREDIT FACILITIES
 
TERM LOAN A
 
REVOLVING FACILITY
 
(dollars in thousands)
 
 
Balance as of December 31, 2017
$
500,000

 
$
600,000

 
$
1,100,000

2018 new debt

 
268,000

 
268,000

2018 payments
(12,500
)
 
(234,500
)
 
(247,000
)
Balance as of July 1, 2018
$
487,500

 
$
633,500

 
$
1,121,000


46

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

We continue to evaluate whether we will make further payments of our outstanding debt ahead of scheduled maturities. Following is a summary of our outstanding credit facilities as of the dates indicated:
 
INTEREST RATE
JULY 1, 2018 (1)
 
ORIGINAL FACILITY
 
PRINCIPAL MATURITY DATE
 
OUTSTANDING
(dollars in thousands)
 
 
 
JULY 1, 2018
 
DECEMBER 31, 2017
Term loan A
3.78
%
 
$
500,000

 
November 2022
 
$
487,500

 
$
500,000

Revolving credit facility
3.77
%
 
1,000,000

 
November 2022
 
633,500

 
600,000

Total Senior secured credit facility
 
 
$
1,500,000

 
 
 
$
1,121,000

 
$
1,100,000

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

Credit Agreement - As of July 1, 2018, we had $343.0 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $23.5 million.

The Credit Agreement contains term loan mandatory prepayment requirements of 50% of our annual excess cash flow, as defined in the Credit Agreement. The amount outstanding required to be prepaid may vary based on our leverage ratio and year end results. Other than the required minimum amortization premiums of $25.0 million, we do not anticipate any other payments will be required through June 30, 2019.
We are currently exploring options to address the May 2019 maturity of our interest rate swap agreements.
Debt Covenants - Our Credit Agreement contains various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 12 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 31, 2017 for further information.

As of July 1, 2018 and December 31, 2017, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months.

SUMMARY OF CASH FLOWS

The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
 
TWENTY-SIX WEEKS ENDED
(dollars in thousands)
JULY 1, 2018
 
JUNE 25, 2017
Net cash provided by operating activities
$
100,083

 
$
183,137

Net cash used in investing activities
(81,944
)
 
(33,601
)
Net cash used in financing activities
(58,303
)
 
(183,250
)
Effect of exchange rate changes on cash and cash equivalents
(3,164
)
 
1,002

Net decrease in cash, cash equivalents and restricted cash
$
(43,328
)
 
$
(32,712
)

Operating activities - Net cash provided by operating activities decreased during the twenty-six weeks ended July 1, 2018, as compared to the twenty-six weeks ended June 25, 2017 primarily due to decreases from: (i) the timing of collections of gift card receivables, (ii) an increase in incentive compensation payments, (iii) the timing of payments on accounts payable and other accrual payments and (iv) higher payments for inventory. These decreases were partially offset by lower income tax payments.

Investing activities - Net cash used in investing activities for the twenty-six weeks ended July 1, 2018 consisted of capital expenditures, partially offset by proceeds from the disposal of property, fixtures and equipment and proceeds from sale-leaseback transactions.

47

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Net cash used in investing activities for the twenty-six weeks ended June 25, 2017 consisted primarily of capital expenditures, partially offset by proceeds from sale-leaseback transactions and proceeds from refranchising transactions.

Financing activities - Net cash used in financing activities for the twenty-six weeks ended July 1, 2018 was primarily attributable to the following: (i) the repurchase of common stock, (ii) payment of cash dividends on our common stock, (iii) the repayment of long-term debt and (iv) repayments of partner deposits and accrued partner obligations. Net cash used in financing activities was partially offset by proceeds from the exercise of stock options and drawdowns on our revolving credit facility, net of repayments.

Net cash used in financing activities for the twenty-six weeks ended June 25, 2017 was primarily attributable to the following: (i) the repurchase of common stock, (ii) repayments on our PRP Mortgage Loan, (iii) payments on our revolving credit facility, net of drawdowns, (iv) payment of cash dividends on our common stock and (v) repayments of partner deposits and accrued partner obligations. Net cash used in financing activities was partially offset by proceeds from: (i) net proceeds from the incremental Term loan A-2 and (ii) the sale of a property that did not qualify for sale-leaseback accounting.

FINANCIAL CONDITION

Following is a summary of our current assets, current liabilities and working capital (deficit):
(dollars in thousands)
JULY 1, 2018
 
DECEMBER 31, 2017
Current assets
$
248,064

 
$
360,209

Current liabilities
631,170

 
813,392

Working capital (deficit)
$
(383,106
)
 
$
(453,183
)

Working capital (deficit) includes Unearned revenue primarily from unredeemed gift cards of $221.9 million and $330.8 million as of July 1, 2018 and December 31, 2017, respectively. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.

Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $84.5 million and $96.3 million as of July 1, 2018 and December 31, 2017, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. The unfunded obligation for managing and chef partners’ deferred compensation was $33.8 million as of July 1, 2018.

We use capital to fund the deferred compensation plans and currently expect annual cash funding of $13.0 million to $15.0 million. Actual funding of the deferred compensation obligations and future funding requirements may vary significantly depending on the actual performance compared to targets, timing of deferred payments of partner contracts, forfeiture rates, number of partner participants, growth of partner investments and our funding strategy.

DIVIDENDS AND SHARE REPURCHASES

Dividends - In July 2018, the Board declared a quarterly cash dividend of $0.09 per share, payable on August 22, 2018. Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements, surplus and other factors that the Board considers relevant.

48

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Share Repurchases - On February 16, 2018, our Board canceled the remaining $55.0 million of authorization under the 2017 Share Repurchase Program and approved a new $150.0 million authorization. The 2018 Share Repurchase Program will expire on August 16, 2019. As of July 1, 2018, we had $69.0 million remaining available for repurchase under the 2018 Share Repurchase Program, as of the date of this filing.

Following is a summary of our dividends and share repurchases from December 29, 2014 through July 1, 2018:
 
 
 
SHARE REPURCHASES
 
 
(dollars in thousands)
DIVIDENDS PAID
 
REPURCHASE PROGRAMS
 
SETTLEMENT OF TAXES RELATED TO EQUITY AWARDS
 
TOTAL
Fiscal year 2015
$
29,332

 
$
169,999

 
$
770

 
$
200,101

Fiscal year 2016
31,379

 
309,887

 
447

 
341,713

Fiscal year 2017
30,988

 
272,736

 
180

 
303,904

First fiscal quarter 2018
8,371

 
50,996

 

 
59,367

Second fiscal quarter 2018
8,363

 
30,004

 

 
38,367

Total
$
108,433

 
$
833,622

 
$
1,397

 
$
943,452


Recently Issued Financial Accounting Standards
 
For a description of recently issued Financial Accounting Standards, see Note 1 - Description of the Business and Basis of Presentation of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.


49

BLOOMIN’ BRANDS, INC.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, changes in foreign currency exchange rates and changes in commodity prices. We believe that there have been no material changes in our market risk since December 31, 2017, except as set forth below. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2017 for further information regarding market risk.

Foreign Currency Exchange Rate Risk

We are subject to foreign currency exchange risk for our restaurants operating in foreign countries. Our exposure to foreign currency exchange risk is primarily related to fluctuations in the Brazil Real relative to the U.S. dollar. Our operations in other markets consist of Company-owned restaurants on a smaller scale than Brazil. If foreign currency exchange rates depreciate in the countries in which we operate, we may experience declines in our operating results. For the twenty-six weeks ended July 1, 2018, a 10% change in average foreign currency rates against the U.S. dollar would have increased or decreased our total revenues for our consolidated foreign entities by $24.6 million and have a nominal impact on net income. Currently, we do not enter into currency forward exchange or option contracts to hedge foreign currency exposures.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of July 1, 2018.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the thirteen weeks ended July 1, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



50

BLOOMIN’ BRANDS, INC.

PART II: OTHER INFORMATION

Item 1.    Legal Proceedings

For a description of our legal proceedings, see Note 13 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information discussed in this report, please consider the factors described in Part I, Item 1A., “Risk Factors” in our 2017 Form 10-K which could materially affect our business, financial condition or future results. There have not been any material changes to the risk factors described in our 2017 Form 10-K, but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of equity securities during the second quarter of 2018 that were not registered under the Securities Act of 1933.

The following table provides information regarding our purchases of common stock during the thirteen weeks ended July 1, 2018:
REPORTING PERIOD
 
TOTAL NUMBER OF SHARES PURCHASED
 
AVERAGE PRICE PAID PER SHARE
 
TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS
 
APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (1)
April 2, 2018 through April 29, 2018
 
164,040

 
$
24.41

 
164,040

 
$
95,000,035

April 30, 2018 through May 27, 2018
 
1,122,950

 
$
23.15

 
1,122,950

 
$
69,000,043

May 28, 2018 through July 1, 2018
 

 
$

 

 
$
69,000,043

Total
 
1,286,990

 
 
 
1,286,990

 


____________________
(1)
On February 16, 2018, the Board of Directors authorized the repurchase of $150.0 million of our outstanding common stock as announced in our press release issued on February 22, 2018 (the “2018 Share Repurchase Program”). The 2018 Share Repurchase Program will expire on August 16, 2019.


51

BLOOMIN’ BRANDS, INC.


Item 6. Exhibits

EXHIBIT
NUMBER
 
DESCRIPTION OF EXHIBITS
 
FILINGS REFERENCED FOR
INCORPORATION BY REFERENCE
 
 
 
 
 
31.1
 
 
Filed herewith
 
 
 
 
 
31.2
 
 
Filed herewith
 
 
 
 
 
32.1
 
 
Filed herewith
 
 
 
 
 
32.2
 
 
Filed herewith
 
 
 
 
 
101.INS
 
XBRL Instance Document
 
Filed herewith
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
Filed herewith
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed herewith
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed herewith
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
Filed herewith
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith

(1) These certifications are not deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.



52

BLOOMIN’ BRANDS, INC.



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:
August 2, 2018
 
BLOOMIN’ BRANDS, INC.
 
 
 
           (Registrant)
 
 
 
 
 
 
 
By: /s/ David J. Deno
 
 
 
David J. Deno
Executive Vice President and Chief Financial and
Administrative Officer
(Principal Financial and Accounting Officer)
 

 
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