Edgar Filing: Bloomin' Brands, Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2019
	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

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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	BLMN	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

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 every Interactive Data File required to be submitted 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 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

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 April 30, 2019, 91,705,720 shares of common stock of the registrant were outstanding.

Table of Contents

BLOOMIN’ BRANDS, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended March 31, 2019

(Unaudited)

TABLE OF CONTENTS



	PART I — FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Financial Statements:

	Consolidated Balance Sheets — March 31, 2019 and December 30, 2018	3

	Consolidated Statements of Operations and Comprehensive Income — For the Thirteen Weeks Ended March 31, 2019 and April 1, 2018	4

	Consolidated Statements of Changes in Stockholders’ Equity — For the Thirteen Weeks Ended March 31, 2019 and April 1, 2018	5

	Condensed Consolidated Statements of Cash Flows — For the Thirteen Weeks Ended March 31, 2019 and April 1, 2018	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 6.	Exhibits	45

	Signature	46

Table of Contents

BLOOMIN’ BRANDS, INC.

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED)



	MARCH 31, 2019			DECEMBER 30, 2018
ASSETS
Current assets
Cash and cash equivalents	$	82,766		$	71,823
Inventories	73,149			72,812
Other current assets, net	93,909			190,848
Total current assets	249,824			335,483
Property, fixtures and equipment, net	1,079,494			1,115,929
Operating lease right-of-use assets	1,276,311			—
Goodwill	297,784			295,427
Intangible assets, net	479,744			503,972
Deferred income tax assets, net	49,766			92,990
Other assets, net	119,624			120,973
Total assets	$	3,552,547		$	2,464,774
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	166,320		$	174,488
Accrued and other current liabilities	378,272			246,653
Unearned revenue	250,703			342,708
Current portion of long-term debt	26,680			27,190
Total current liabilities	821,975			791,039
Non-current operating lease liabilities	1,285,073			—
Deferred rent	—			167,027
Deferred income tax liabilities	14,730			14,790
Long-term debt, net	1,037,630			1,067,585
Long-term portion of deferred gain on sale-leaseback transactions, net	—			177,983
Other long-term liabilities, net	140,776			191,533
Total liabilities	3,300,184			2,409,957
Commitments and contingencies (Note 16)
Stockholders’ equity
Bloomin’ Brands stockholders’ equity
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of March 31, 2019 and December 30, 2018	—			—
Common stock, $0.01 par value, 475,000,000 shares authorized; 91,646,542 and 91,271,825 shares issued and outstanding as of March 31, 2019 and December 30, 2018, respectively	916			913
Additional paid-in capital	1,099,346			1,107,582
Accumulated deficit	(714,425		)	(920,010		)
Accumulated other comprehensive loss	(141,653		)	(142,755		)
Total Bloomin’ Brands stockholders’ equity	244,184			45,730
Noncontrolling interests	8,179			9,087
Total stockholders’ equity	252,363			54,817
Total liabilities and stockholders’ equity	$	3,552,547		$	2,464,774

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

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BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)



	THIRTEEN WEEKS ENDED
	MARCH 31, 2019			APRIL 1, 2018
Revenues
Restaurant sales	$	1,111,642		$	1,099,003
Franchise and other revenues	16,489			17,462
Total revenues	1,128,131			1,116,465
Costs and expenses
Cost of sales	352,111			352,132
Labor and other related	319,015			311,062
Other restaurant operating	250,854			253,345
Depreciation and amortization	49,482			50,120
General and administrative	70,589			68,696
Provision for impaired assets and restaurant closings	3,586			2,739
Total costs and expenses	1,045,637			1,038,094
Income from operations	82,494			78,371
Other (expense) income, net	(168		)	1
Interest expense, net	(11,181		)	(10,310		)
Income before provision for income taxes	71,145			68,062
Provision for income taxes	5,496			1,925
Net income	65,649			66,137
Less: net income attributable to noncontrolling interests	1,349			739
Net income attributable to Bloomin’ Brands	$	64,300		$	65,398

Net income	$	65,649		$	66,137
Other comprehensive income:
Foreign currency translation adjustment, net of tax	5,755			1,349
Unrealized (loss) gain on derivatives, net of tax	(4,381		)	888
Reclassification of adjustment for (gain) loss on derivatives included in Net income, net of tax	(364		)	308
Comprehensive income	66,659			68,682
Less: comprehensive income attributable to noncontrolling interests	1,257			721
Comprehensive income attributable to Bloomin’ Brands	$	65,402		$	67,961

Earnings per share:
Basic	$	0.70		$	0.71
Diluted	$	0.69		$	0.68
Weighted average common shares outstanding:
Basic	91,415			92,268
Diluted	92,661			95,782

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

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BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)



	BLOOMIN’ BRANDS, INC.
	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL			ACCUM- ULATED DEFICIT			ACCUMULATED OTHER COMPREHENSIVE LOSS			NON-CONTROLLING INTERESTS			TOTAL
	SHARES	AMOUNT		ADDITIONAL PAID-IN CAPITAL			ACCUM- ULATED DEFICIT			ACCUMULATED OTHER COMPREHENSIVE LOSS			NON-CONTROLLING INTERESTS			TOTAL
Balance, December 30, 2018	91,272	$	913	$	1,107,582		$	(920,010	)	$	(142,755	)	$	9,087		$	54,817
Cumulative-effect from a change in accounting principle, net of tax	—	—		—			141,285			—			—			141,285
Net income	—	—		—			64,300			—			1,349			65,649
Other comprehensive income (loss), net of tax	—	—		—			—			1,102			(92		)	1,010
Cash dividends declared, $0.10 per common share	—	—		(9,140		)	—			—			—			(9,140		)
Stock-based compensation	—	—		3,993			—			—			—			3,993
Common stock issued under stock plans (1)	375	3		(3,089		)	—			—			—			(3,086		)
Distributions to noncontrolling interests	—	—		—			—			—			(2,429		)	(2,429		)
Contributions from noncontrolling interests	—	—		—			—			—			264			264
Balance, March 31, 2019	91,647	$	916	$	1,099,346		$	(714,425	)	$	(141,653	)	$	8,179		$	252,363

													(CONTINUED...)

Table of Contents

BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)



	BLOOMIN’ BRANDS, INC.
	COMMON STOCK					ADDITIONAL PAID-IN CAPITAL			ACCUM- ULATED DEFICIT			ACCUMULATED OTHER COMPREHENSIVE LOSS			NON-CONTROLLING INTERESTS			TOTAL
	SHARES		AMOUNT			ADDITIONAL PAID-IN CAPITAL			ACCUM- ULATED DEFICIT			ACCUMULATED OTHER COMPREHENSIVE LOSS			NON-CONTROLLING INTERESTS			TOTAL
Balance, December 31, 2017	91,913		$	919		$	1,081,813		$	(913,191	)	$	(99,199	)	$	10,889		$	81,231
Net income	—		—			—			65,398			—			818			66,216
Other comprehensive income (loss), net of tax	—		—			—			—			2,563			(18		)	2,545
Cash dividends declared, $0.09 per common share	—		—			(8,371		)	—			—			—			(8,371		)
Repurchase and retirement of common stock	(2,116	)	(21		)	—			(50,975		)	—			—			(50,996		)
Stock-based compensation	—					5,121			—			—			—			5,121
Common stock issued under stock plans (1)	1,619		16			13,663			—			—			—			13,679
Change in the redemption value of redeemable interests	—		—			(79		)	—			—			—			(79		)
Distributions to noncontrolling interests	—		—			—			—			—			(1,069		)	(1,069		)
Contributions from noncontrolling interests	—		—			—			—			—			158			158
Balance, April 1, 2018	91,416		$	914		$	1,092,147		$	(898,768	)	$	(96,636	)	$	10,778		$	108,435

________________


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

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

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BLOOMIN’ BRANDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS, UNAUDITED)



	THIRTEEN WEEKS ENDED
	MARCH 31, 2019			APRIL 1, 2018
Cash flows provided by operating activities:
Net income	$	65,649		$	66,137
Adjustments to reconcile Net income to cash provided by operating activities:
Depreciation and amortization	49,482			50,120
Amortization of deferred discounts and issuance costs	634			643
Amortization of deferred gift card sales commissions	8,407			9,415
Provision for impaired assets and restaurant closings	3,586			2,739
Amortization of operating lease assets	17,814			—
Stock-based and other non-cash compensation expense	6,035			6,058
Deferred income tax (benefit) expense	(501		)	126
Loss on sale of a business or subsidiary	167			—
Recognition of deferred gain on sale-leaseback transactions	—			(3,069		)
Other, net	(660		)	114
Change in assets and liabilities	(66,730		)	(80,748		)
Net cash provided by operating activities	83,883			51,535
Cash flows used in investing activities:
Capital expenditures	(44,710		)	(48,347		)
Other investments, net	2,690			2,137
Net cash used in investing activities	(42,020		)	(46,210		)
Cash flows used in financing activities:
Repayments of long-term debt	(7,428		)	(6,436		)
Proceeds from borrowings on revolving credit facilities, net	148,200			151,829
Repayments of borrowings on revolving credit facilities	(152,300		)	(122,000		)
(Payments of taxes) proceeds from the exercise of share-based compensation, net	(3,086		)	13,679
Distributions to noncontrolling interests	(2,429		)	(1,069		)
Contributions from noncontrolling interests	264			158
Purchase of limited partnership and noncontrolling interests	—			(1,444		)
Repayments of partner deposits and accrued partner obligations	(5,460		)	(4,432		)
Repurchase of common stock	—			(50,996		)
Cash dividends paid on common stock	(9,140		)	(8,371		)
Net cash used in financing activities	(31,379		)	(29,082		)
Effect of exchange rate changes on cash and cash equivalents	459			54
Net increase (decrease) in cash, cash equivalents and restricted cash	10,943			(23,703		)
Cash, cash equivalents and restricted cash as of the beginning of the period	71,823			129,543
Cash and cash equivalents as of the end of the period	$	82,766		$	105,840
Supplemental disclosures of cash flow information:
Cash paid for interest	$	13,637		$	9,401
Cash paid for income taxes, net of refunds	4,255			1,696
Supplemental disclosures of non-cash investing and financing activities:
Leased assets obtained in exchange for new operating lease liabilities	$	17,618		$	—
Leased assets obtained in exchange for new finance lease liabilities	76			—
Decrease in liabilities from the acquisition of property, fixtures and equipment or capital leases	(6,066		)	(4,985		)

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

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the Business and Basis of Presentation

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

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2018.

Recently Adopted Financial Accounting Standards - On December 31, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02: Leases (Topic 842) (“ASU No. 2016-02”), ASU No. 2018-01: Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 (“ASU No. 2018-01”), and ASU No. 2018-11: Leases (Topic 842): Targeted Improvements (“ASU No. 2018-11”). 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. 2018-01 allows an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the Company’s adoption of ASU No. 2016-02. ASU No. 2018-11 allows for an additional transition method, which permits use of the effective date of adoption as the date of initial application of ASU No. 2016-02 without restating comparative period financial statements and provides entities with a practical expedient that allows entities to elect not to separate lease and non-lease components when certain conditions are met.

The Company adopted ASU No. 2016-02 using December 31, 2018 as the date of initial application. Consequently, financial information and the disclosures required under the new standard were not provided for dates and periods before December 31, 2018. The Company also elected a transition package including practical expedients that permitted it not to reassess the classification and initial direct costs of expired or existing contracts and leases, to not separate lease and non-lease components of restaurant facility leases executed subsequent to adoption, and to not evaluate land easements that exist or expired before the adoption. In preparation for adoption, the Company implemented a new lease accounting system.

Adoption resulted in the following, as of December 31, 2018:


(i)	recording of right-of-use assets of $1.3 billion and lease liabilities of $1.5 billion;


(ii)	a credit to the beginning balance of Accumulated Deficit of $190.4 million to derecognize deferred gains on sale-leaseback transactions and a debit to the beginning balance of Accumulated Deficit of $49.2 million to derecognize the related deferred tax assets; and


(iii)	derecognition of existing debt obligations of $19.6 million and existing fixed assets of $16.1 million related to restaurant properties sold and leased back from third parties that previously did not qualify for sale accounting, with gains or losses associated with this change recognized in Accumulated Deficit.

Other restaurant operating expense increased during thirteen weeks ended March 31, 2019 from the adoption of ASU No. 2016-02 since the Company no longer recognizes the benefit of deferred gains on sale-leaseback transactions

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

through its statements of operations over the corresponding lease term. During the thirteen weeks ended April 1, 2018, the Company recognized $3.1 million of sale-leaseback deferred gain amortization.

As a result of adoption of ASU No. 2016-02, the Company recorded reclassification adjustments to certain balances that were recorded under Accounting Standards Codification Topic 840, “Leases” (“ASC 840”) in its Consolidated Balance Sheet as of December 30, 2018. The following table summarizes accounts with material reclassification adjustments which impacted Operating lease right-of-use assets as a part of the adoption of ASU No. 2016-02:



ACCOUNT		CONSOLIDATED BALANCE SHEET CLASSIFICATION UNDER ASC 840
Favorable leases		Intangible assets, net
Deferred rent		Deferred rent
Unfavorable leases		Other long-term liabilities, net
Exit-related lease accruals		Other long-term liabilities, net

In addition, rent payments that were recorded within prepaid assets under ASC 840 are now recorded as a reduction of the current portion of operating lease liabilities.

Recently Issued Financial Accounting Standards Not Yet Adopted - In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU No. 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements. ASU No. 2018-15 is effective for the Company in the first quarter of 2020, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU No. 2018-15 on its consolidated financial statements.

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

2. Revenue Recognition

The following table includes the categories of revenue included in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019		APRIL 1, 2018
Revenues
Restaurant sales	$	1,111,642	$	1,099,003
Franchise and other revenues:
Franchise revenue	$	13,762	$	14,215
Other revenue	2,727		3,247
Total Franchise and other revenues	$	16,489	$	17,462
Total revenues	$	1,128,131	$	1,116,465

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The following tables include the disaggregation of Restaurant sales and Franchise revenue, by restaurant concept and major international market, for the periods indicated:



	THIRTEEN WEEKS ENDED				THIRTEEN WEEKS ENDED
	MARCH 31, 2019				APRIL 1, 2018
(dollars in thousands)	RESTAURANT SALES		FRANCHISE REVENUE		RESTAURANT SALES		FRANCHISE REVENUE
U.S.
Outback Steakhouse	$	586,771	$	10,601	$	571,479	$	11,074
Carrabba’s Italian Grill	173,475		171		173,927		147
Bonefish Grill	156,434		210		156,849		240
Fleming’s Prime Steakhouse & Wine Bar	83,026		—		80,990		—
Other	1,107		—		1,099		—
U.S. Total	$	1,000,813	$	10,982	$	984,344	$	11,461
International
Outback Steakhouse-Brazil	$	89,565	$	—	$	95,123	$	—
Other	21,264		2,780		19,536		2,754
International Total	$	110,829	$	2,780	$	114,659	$	2,754
Total	$	1,111,642	$	13,762	$	1,099,003	$	14,215

The following table includes a detail of assets and liabilities from contracts with customers included on the Company’s Consolidated Balance Sheets as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018
Other current assets, net
Deferred gift card sales commissions	$	11,195	$	16,431

Unearned revenue
Deferred gift card revenue	$	240,923	$	333,794
Deferred loyalty revenue	9,288		8,424
Deferred franchise fees - current	492		490
Total Unearned revenue	$	250,703	$	342,708

Other long-term liabilities, net
Deferred franchise fees - non-current	$	4,702	$	4,531

The following table is a rollforward of deferred gift card sales commissions for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019			APRIL 1, 2018
Balance, beginning of period	$	16,431		$	16,231
Deferred gift card sales commissions amortization	(8,407		)	(9,415		)
Deferred gift card sales commissions capitalization	3,833			3,858
Other	(662		)	(635		)
Balance, end of period	$	11,195		$	10,039

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The following table is a rollforward of unearned gift card revenue for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019			APRIL 1, 2018
Balance, beginning of period	$	333,794		$	323,628
Gift card sales	55,472			56,285
Gift card redemptions	(141,459		)	(144,556		)
Gift card breakage	(6,884		)	(7,574		)
Balance, end of period	$	240,923		$	227,783

3. Disposals

Refranchising - During the thirteen weeks ended March 31, 2019, the Company completed the sale of 18 of its existing U.S. Company-owned Carrabba’s Italian Grill locations to an existing franchisee (the “Buyer”) for aggregate cash proceeds of $3.6 million, net of certain purchase price adjustments.

The Company remains contingently liable on certain real estate lease agreements assigned to the Buyer. See Note 16 - Commitments and Contingencies for additional details regarding lease guarantees.

Assets Held for Sale - In March 2019, the Company signed a purchase agreement with a buyer to sell five of its U.S. surplus properties to an Outback Steakhouse franchisee for $12.8 million, less certain purchase price adjustments. These properties were reclassified from Property, fixtures and equipment, net to Assets held for sale during the thirteen weeks ended March 31, 2019. The sale of these properties is expected to be completed during 2019.

4. Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019		APRIL 1, 2018
Impairment losses
U.S.	$	3,464	$	111
International	18		2,160
Total impairment losses	$	3,482	$	2,271
Restaurant closure expenses
U.S.	$	87	$	348
International	17		120
Total restaurant closure expenses	$	104	$	468
Provision for impaired assets and restaurant closings	$	3,586	$	2,739

Impairment and closing charges for the periods presented resulted primarily from approved store closure initiatives, locations identified for remodel, relocation or closure and certain other assets.

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

Accrued Facility Closure and Other Costs Rollforward - The following table summarizes the Company’s accrual activity related to facility closure and other costs, associated with certain closure initiatives, for the period indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019
Balance, beginning of the period	$	18,094
Additions (1)	1,288
Cash payments	(1,873		)
Accretion	386
Adjustments	(218		)
Balance, end of the period (2)	$	17,677

________________


(1)	Includes closure initiative related lease liabilities recognized as a result of the adoption of ASU No. 2016-02.


(2)	As of March 31, 2019, the Company had exit-related accruals of $2.9 million recorded in Accrued and other current liabilities and $14.8 million recorded in Non-current operating lease liabilities on the Consolidated Balance Sheet.

5. Earnings Per Share

The following table presents the computation of basic and diluted earnings per share for the periods indicated:



	THIRTEEN WEEKS ENDED
(in thousands, except per share data)	MARCH 31, 2019		APRIL 1, 2018
Net income attributable to Bloomin’ Brands	$	64,300	$	65,398

Basic weighted average common shares outstanding	91,415		92,268

Effect of diluted securities:
Stock options	792		2,950
Nonvested restricted stock units	358		524
Nonvested performance-based share units	96		40
Diluted weighted average common shares outstanding	92,661		95,782

Basic earnings per share	$	0.70	$	0.71
Diluted earnings per share	$	0.69	$	0.68

Securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows, for the periods indicated:



	THIRTEEN WEEKS ENDED
(shares in thousands)	MARCH 31, 2019	APRIL 1, 2018
Stock options	3,384	1,950
Nonvested restricted stock units	222	111
Nonvested performance-based share units	260	162

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

6. Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019		APRIL 1, 2018
Stock options	$	1,159	$	1,897
Restricted stock units	1,749		2,332
Performance-based share units	1,003		596
	$	3,911	$	4,825

During the thirteen weeks ended March 31, 2019, the Company made grants to its employees of 0.4 million stock options, 0.2 million time-based restricted stock units and 0.1 million performance-based share units. On April 1, 2019, the Company made one-time transition award grants of 0.7 million stock options, 0.2 million time-based restricted stock units and 0.1 million performance-based share units to the Executive Chairman of the Board, Chief Executive Officer (“CEO”) and Chief Financial Officer in connection with the appointment of each to their respective positions.

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows for the periods indicated:



	THIRTEEN WEEKS ENDED
	MARCH 31, 2019			APRIL 1, 2018
Assumptions:
Weighted-average risk-free interest rate (1)	2.51		%	2.66		%
Dividend yield (2)	1.89		%	1.50		%
Expected term (3)	5.5 years			5.8 years
Weighted-average volatility (4)	31.87		%	32.76		%

Weighted-average grant date fair value per option	$	5.76		$	7.23

________________


(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.

Restricted stock units granted prior to 2019 generally vest over a period of four years and restricted stock units granted in 2019 or later vest over a period of three years, in an equal number of shares each year.

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of March 31, 2019:



	UNRECOGNIZED COMPENSATION EXPENSE (dollars in thousands)		REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years)
Stock options	$	8,972	2.4
Restricted stock units	$	15,816	2.5
Performance-based share units	$	8,077	1.7

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

7. Other Current Assets, Net

Other current assets, net, consisted of the following as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018
Prepaid expenses	$	24,631	$	38,117
Accounts receivable - gift cards, net	9,802		91,242
Accounts receivable - vendors, net	9,890		10,029
Accounts receivable - franchisees, net	2,775		1,303
Accounts receivable - other, net	17,231		19,688
Deferred gift card sales commissions	11,195		16,431
Assets held for sale	15,134		5,143
Other current assets, net	3,251		8,895
	$	93,909	$	190,848

8. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018
Accrued rent and current operating lease liabilities	$	172,712	$	2,850
Accrued payroll and other compensation	88,887		101,249
Accrued insurance	24,211		22,055
Other current liabilities	92,462		120,499
	$	378,272	$	246,653

9. Long-term Debt, Net

Following is a summary of outstanding long-term debt, as of the periods indicated:



	MARCH 31, 2019					DECEMBER 30, 2018
(dollars in thousands)	OUTSTANDING BALANCE			INTEREST RATE		OUTSTANDING BALANCE			INTEREST RATE
Senior Secured Credit Facility:
Term loan A (1)	$	468,750		4.21	%	$	475,000		4.14	%
Revolving credit facility (1)	595,400			4.20	%	599,500			4.17	%
Total Senior Secured Credit Facility	$	1,064,150				$	1,074,500
Finance lease liabilities	3,394					—
Financing obligations	—					19,562			7.58% to 7.82%
Capital lease obligations	—					3,297
Other	50			2.18	%	918			0.00% to 2.18%
Less: unamortized debt discount and issuance costs	(3,284		)			(3,502		)
Total debt, net	$	1,064,310				$	1,094,775
Less: current portion of long-term debt	(26,680		)			(27,190		)
Long-term debt, net	$	1,037,630				$	1,067,585

________________


(1)	Interest rate represents the weighted-average interest rate for the respective period.

Debt Covenants - As of March 31, 2019 and December 30, 2018, the Company was in compliance with its debt covenants.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

10. Other Long-term Liabilities, Net

Other long-term liabilities, net, consisted of the following, as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018
Accrued insurance liability	$	33,929	$	33,771
Unfavorable leases (1)	—		32,120
Chef and Restaurant Managing Partner deferred compensation obligations and deposits	56,183		64,766
Other long-term liabilities	50,664		60,876
	$	140,776	$	191,533

_______________


(1)	Net of accumulated amortization of $36.2 million as of December 30, 2018.


11.	Stockholders’ Equity

Share Repurchases - On February 12, 2019, the Company’s Board of Directors (the “Board”) canceled the remaining $36.0 million of authorization under the 2018 Share Repurchase Program and approved a new $150.0 million authorization (the “2019 Share Repurchase Program”). The 2019 Share Repurchase Program will expire on August 12, 2020. As of March 31, 2019, $150.0 million remained available for repurchase under the 2019 Share Repurchase Program.

Dividends - The Company declared and paid dividends per share during fiscal year 2019 as follows:



	DIVIDENDS PER SHARE		AMOUNT (in thousands)
First fiscal quarter	$	0.10	$	9,140

In April 2019, the Board declared a quarterly cash dividend of $0.10 per share, payable on May 24, 2019, to shareholders of record at the close of business on May 13, 2019.

Accumulated Other Comprehensive Loss (“AOCL”) - Following are the components of AOCL as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019			DECEMBER 30, 2018
Foreign currency translation adjustment	$	(129,302	)	$	(135,149	)
Unrealized loss on derivatives, net of tax	(12,351		)	(7,606		)
Accumulated other comprehensive loss	$	(141,653	)	$	(142,755	)

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

Following are the components of Other comprehensive income attributable to Bloomin’ Brands for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019			APRIL 1, 2018
Foreign currency translation adjustment, net of tax (1)	$	5,847		$	1,367

Unrealized (loss) gain on derivatives, net of tax (2)	$	(4,381	)	$	888
Reclassification of adjustments for (gain) loss on derivatives included in Net income, net of tax (3)	(364		)	308
Total unrealized (loss) gain on derivatives, net of tax	$	(4,745	)	$	1,196
Other comprehensive income attributable to Bloomin’ Brands	$	1,102		$	2,563

________________


(1)	Foreign currency translation adjustment is net of tax of $0.1 million for the thirteen weeks ended April 1, 2018.


(2)	Unrealized (loss) gain on derivatives is net of tax of ($1.5) million and $0.3 million for the thirteen weeks ended March 31, 2019 and April 1, 2018, respectively.


(3)	Reclassifications of adjustments for (gain) loss on derivatives are net of tax. See Note 12 - Derivative Instruments and Hedging Activities for discussion of the tax impact of reclassifications.

12. 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 “2014 Swap Agreements”). The 2014 Swap Agreements have an aggregate notional amount of $400.0 million and mature on May 16, 2019. Under the terms of the 2014 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.

On October 24, 2018 and October 25, 2018, the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt (the “2018 Swap Agreements”). The 2018 Swap Agreements have an aggregate notional amount of $550.0 million, a forward start date of May 16, 2019 (the maturity date of the 2014 Swap Agreements) and mature on November 30, 2022. Under the terms of the 2018 Swap Agreements, the Company will pay a weighted-average fixed rate of 3.04% on the notional amount and receive payments from the counterparty based on the one-month LIBOR rate.

The Company’s swap agreements have been designated and qualify as cash flow hedges, are recognized on its Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. The following table presents the fair value and classification of the Company’s swap agreements, as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018		CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - asset (1)	$	237	$	765	Other current assets, net

Interest rate swaps - liability	$	3,217	$	1,393	Accrued and other current liabilities
Interest rate swaps - liability	13,767		9,723		Other long-term liabilities, net
Total fair value of derivative instruments - liabilities (1)	$	16,984	$	11,116

____________________


(1)	See Note 14 - Fair Value Measurements for fair value discussion of the interest rate swaps.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The following table summarizes the effects of the 2014 Swap Agreements on Net income for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019			APRIL 1, 2018
Interest rate swap benefit (expense) recognized in Interest expense, net	$	491		$	(415	)
Income tax (expense) benefit recognized in Provision for income taxes	(127		)	107
Total effects of the interest rate swaps on Net income	$	364		$	(308	)

The Company estimates $3.2 million will be reclassified to interest expense over the next 12 months related to the 2018 Swap Agreements.

By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of March 31, 2019, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.

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

As of March 31, 2019 and December 30, 2018, the fair value of the Company’s interest rate swaps in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, was $16.9 million and $10.5 million, respectively. As of March 31, 2019 and December 30, 2018, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of March 31, 2019 and December 30, 2018, it could have been required to settle its obligations under the agreements at their termination value of $16.9 million and $10.5 million, respectively.

13. Leases

The Company’s determination of whether an arrangement contains a lease is based on an evaluation of whether the arrangement conveys the right to use and control specific property or equipment. The Company leases restaurant and office facilities and certain equipment under operating leases primarily having initial terms expiring between one and 20 years. Restaurant facility leases generally have renewal periods totaling five to 20 years, exercisable at the option of the Company. Contingent rentals represent payment of variable lease obligations based on a percentage of gross revenues, as defined by the terms of the applicable lease agreement for certain restaurant facility leases. The Company also has certain leases, which reset periodically based on a specified index. Such leases are recorded using the index that existed at lease commencement. Subsequent changes in the index are recorded as variable rental payments. Variable rental payments are expensed as incurred in the Company’s Consolidated Statements of Operations and Comprehensive Income and future variable rent obligations are not included within the lease liabilities in the Consolidated Balance Sheet. The depreciable life of lease assets and leasehold improvements are limited by the expected lease term. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

For leases executed subsequent to the adoption of ASU No. 2016-02, the Company accounts for fixed lease and non-lease components of its restaurant facility leases as a single lease component. Additionally, for certain equipment leases, the Company applies a portfolio approach to account for the lease assets and liabilities. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet, they are recognized on a straight-line basis over the lease term within Other restaurant operating expense in the Company’s Consolidated Statements of Operations and Comprehensive Income.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheet as of the period indicated:



(dollars in thousands)	CONSOLIDATED BALANCE SHEET CLASSIFICATION	MARCH 31, 2019
Operating lease right-of-use assets	Operating lease right-of-use assets	$	1,276,311
Finance lease right-of-use assets (1)	Property, fixtures and equipment, net	3,095
Total lease assets, net		$	1,279,406

Current operating lease liabilities (2)	Accrued and other current liabilities	$	170,039
Current finance lease liabilities	Current portion of long-term debt	1,630
Non-current operating lease liabilities	Non-current operating lease liabilities	1,285,073
Non-current finance lease liabilities	Long-term debt, net	1,764
		$	1,458,506

________________


(1)	Net of accumulated amortization of $0.3 million.


(2)	Excludes accrued contingent percentage rent.

Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statement of Operations and Comprehensive Income for the periods indicated:



	CONSOLIDATED INCOME STATEMENT CLASSIFICATION	THIRTEEN WEEKS ENDED
(dollars in thousands)	CONSOLIDATED INCOME STATEMENT CLASSIFICATION	MARCH 31, 2019
Operating leases (1)	Other restaurant operating	$	45,233
Variable lease cost	Other restaurant operating	819
Finance leases
Amortization of leased assets	Depreciation and amortization	324
Interest on lease liabilities	Interest expense, net	73
Sublease revenue (2)	Franchise and other revenues	(1,314		)
Lease costs, net (3)		$	45,135

________________


(1)	Excludes rent expense for office facilities and Company-owned closed or subleased properties of $3.6 million, which is included in General and administrative expense and certain supply chain related rent expense of $0.3 million, which is included in Cost of sales.


(2)	Excludes rental income from Company-owned properties of $0.7 million.


(3)	During the thirteen weeks ended April 1, 2018, the Company recorded rent expense of $47.2 million, including $1.3 million of variable rent expense, and $1.6 million of sublease revenue.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

As of March 31, 2019, future minimum lease payments and sublease revenues under non-cancelable leases are as follows:



(dollars in thousands)	OPERATING LEASES			FINANCE LEASES			SUBLEASE REVENUES
Year 1 (1)	$	177,405		$	1,699		$	(5,936	)
Year 2	190,733			1,301			(6,028		)
Year 3	186,753			730			(6,012		)
Year 4	182,697			39			(5,956		)
Year 5	177,735			—			(5,945		)
Thereafter	1,774,940			—			(67,921		)
Total minimum lease payments (receipts) (2)	$	2,690,263		$	3,769		$	(97,798	)
Less: Interest	(1,235,151		)	(375		)
Present value of future lease payments (receipts)	$	1,455,112		$	3,394

____________________


(1)	Net of operating lease prepaid rent of $14.6 million.


(2)	Includes $1.0 billion related to options to extend operating lease terms and excludes $96.3 million of signed operating leases that have not yet commenced.

The following table is a summary of the weighted-average remaining lease terms and weighted-average discount rates of the Company’s leases as of the period indicated:



	MARCH 31, 2019
Weighted-average remaining lease term:
Operating leases	14.7 years
Finance leases	2.4 years
Weighted-average discount rate (1):
Operating leases	8.61	%
Finance leases	9.21	%

____________________


(1)	Based on the Company’s incremental borrowing rate at lease commencement.

The following table is a summary of other impacts to the Company’s Consolidated Financial Statements related to its leases for the period indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019
Cash flows from operating activities:
Cash paid for amounts included in the measurement of operating lease liabilities	$	47,649

Properties Leased to Third Parties - The Company leases certain land and buildings to third parties, generally related to closed or refranchised restaurants. The following table is a summary of assets leased to third parties included in Property, fixtures and equipment, net as of the period indicated:



(dollars in thousands)	MARCH 31, 2019
Land	$	15,247

Buildings and building improvements	$	23,120
Less: accumulated depreciation	(10,080		)
Buildings and building improvements, net	$	13,040

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

14. Fair Value Measurements

Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input:



Level 1		Unadjusted quoted market prices in active markets for identical assets or liabilities
Level 2		Observable inputs available at measurement date other than quoted prices included in Level 1
Level 3		Unobservable inputs that cannot be corroborated by observable market data

Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated:



	MARCH 31, 2019						DECEMBER 30, 2018
(dollars in thousands)	TOTAL		LEVEL 1		LEVEL 2		TOTAL		LEVEL 1		LEVEL 2
Assets:
Cash equivalents:
Fixed income funds	$	407	$	407	$	—	$	627	$	627	$	—
Money market funds	16,661		16,661		—		17,827		17,827		—
Other current assets, net:
Derivative instruments - interest rate swaps	237		—		237		765		—		765
Total asset recurring fair value measurements	$	17,305	$	17,068	$	237	$	19,219	$	18,454	$	765

Liabilities:
Accrued and other current liabilities:
Derivative instruments - interest rate swaps	$	3,217	$	—	$	3,217	$	1,393	$	—	$	1,393
Other long-term liabilities:
Derivative instruments - interest rate swaps	13,767		—		13,767		9,723		—		9,723
Total liability recurring fair value measurements	$	16,984	$	—	$	16,984	$	11,116	$	—	$	11,116

Fair value of each class of financial instrument is determined based on the following:



FINANCIAL INSTRUMENT		METHODS AND ASSUMPTIONS
Fixed income funds and Money market funds		Carrying value approximates fair value because maturities are less than three months.
Derivative instruments		The Company’s derivative instruments include interest rate swaps. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company also considers its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of March 31, 2019 and December 30, 2018, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, operating lease right-of-use assets, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis, for the periods indicated:



	THIRTEEN WEEKS ENDED				THIRTEEN WEEKS ENDED
	MARCH 31, 2019				APRIL 1, 2018
(dollars in thousands)	CARRYING VALUE		TOTAL IMPAIRMENT		CARRYING VALUE		TOTAL IMPAIRMENT
Assets held for sale (1)	$	2,149	$	215	$	50	$	50
Operating lease right-of-use assets (2)	2,242		596		—		—
Property, fixtures and equipment (2)	490		2,671		320		2,221
	$	4,881	$	3,482	$	370	$	2,271

____________________


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

(2)

Carrying value approximates fair value. Carrying values for Operating lease right-of-use assets and Property, fixtures and equipment measured using Level 3 inputs to estimate fair value totaled $2.0 million and $0.5 million, respectively, during the thirteen weeks ended March 31, 2019. Level 2 inputs were used to estimate the fair value for all other assets measured in the periods presented. Third-party market appraisals (Level 2) and discounted cash flow models (Level 3) were used to estimate fair value.

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments consist of cash equivalents, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts reported 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 periods indicated:



	MARCH 31, 2019				DECEMBER 30, 2018
	CARRYING VALUE		FAIR VALUE		CARRYING VALUE		FAIR VALUE
(dollars in thousands)	CARRYING VALUE		LEVEL 2		CARRYING VALUE		LEVEL 2
Senior Secured Credit Facility:
Term loan A	$	468,750	$	466,406	$	475,000	$	464,906
Revolving credit facility	$	595,400	$	589,446	$	599,500	$	590,508

15. Income Taxes



	THIRTEEN WEEKS ENDED
	MARCH 31, 2019		APRIL 1, 2018
Effective income tax rate	7.7	%	2.8	%

The effective income tax rate for the thirteen weeks ended March 31, 2019 increased by 4.9 percentage points as compared to the thirteen weeks ended April 1, 2018. The increase was primarily due to favorable discrete items recorded in the thirteen weeks ended April 1, 2018 which included excess tax benefits from equity-based compensation arrangements. The increase was partially offset by changes in the mix of taxable income across the Company’s U.S. and international subsidiaries and a decrease in the estimated annual effective tax rate due to additional guidance issued in connection with the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The Company has a blended federal and state statutory rate of approximately 26%. The effective income tax rate for the thirteen weeks ended March 31, 2019 was lower than the statutory rate primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips.

16. Commitments and Contingencies

Litigation and Other Matters - The Company had $2.4 million and $2.8 million of liabilities recorded for various legal matters as of March 31, 2019 and December 30, 2018, respectively.

The Company is subject to legal proceedings, claims and liabilities, such as liquor liability, slip and fall cases, wage-and-hour and other employment-related litigation, which arise in the ordinary course of business and are generally covered by insurance if they exceed specified retention or deductible amounts. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows.

Lease Guarantees - The Company assigned its interest, and is contingently liable, under certain real estate leases. These leases have varying terms, the latest of which expires in 2032. As of March 31, 2019, the undiscounted payments that the Company could be required to make in the event of non-payment by the primary lessees was approximately $34.2 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of March 31, 2019 was approximately $26.7 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.

17. Segment Reporting

The Company considers its restaurant concepts and international markets as operating segments, which reflects how the Company manages its business, reviews operating performance and allocates resources. Resources are allocated and performance is assessed by the Company’s CEO, whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). The Company aggregates its operating segments into two reportable segments, U.S. and International. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the International segment. The following is a summary of reporting segments:



REPORTABLE SEGMENT (1)	CONCEPT	GEOGRAPHIC LOCATION
U.S.	Outback Steakhouse	United States of America
	Carrabba’s Italian Grill
	Bonefish Grill
	Fleming’s Prime Steakhouse & Wine Bar
International	Outback Steakhouse	Brazil, Hong Kong/China
International	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 30, 2018. Revenues for all segments include only transactions with customers and exclude intersegment revenues. Excluded from Income from operations for U.S. and International are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses and certain bonus expenses.

Table of Contents

BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) - Continued

The following table is a summary of Total revenue by segment, for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019		APRIL 1, 2018
Total revenues
U.S.	$	1,014,507	$	998,707
International	113,624		117,758
Total revenues	$	1,128,131	$	1,116,465

The following table is a reconciliation of Segment income from operations to Income before provision for income taxes, for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019			APRIL 1, 2018
Segment income from operations
U.S.	$	113,035		$	109,134
International	13,720			8,325
Total segment income from operations	126,755			117,459
Unallocated corporate operating expense	(44,261		)	(39,088		)
Total income from operations	82,494			78,371
Other (expense) income, net	(168		)	1
Interest expense, net	(11,181		)	(10,310		)
Income before provision for income taxes	$	71,145		$	68,062

The following table is a summary of Depreciation and amortization expense by segment for the periods indicated:



	THIRTEEN WEEKS ENDED
(dollars in thousands)	MARCH 31, 2019		APRIL 1, 2018
Depreciation and amortization
U.S.	$	38,786	$	39,274
International	6,456		6,732
Corporate	4,240		4,114
Total depreciation and amortization	$	49,482	$	50,120

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 operating lease right-of-use assets, goodwill, intangible assets and deferred tax assets, by major geographic area as of the periods indicated:



(dollars in thousands)	MARCH 31, 2019		DECEMBER 30, 2018
U.S.	$	1,059,814	$	1,107,679
International
Brazil	126,084		115,560
Other	13,220		13,663
Total assets	$	1,199,118	$	1,236,902

Table of Contents

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)	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;


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


(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;

Table of Contents

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued


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


(ix)	Our ability to implement our remodeling, relocation and expansion 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;


(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 30, 2018.

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.

Table of Contents

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 March 31, 2019, we owned and operated 1,174 restaurants and franchised 307 restaurants across 48 states, Puerto Rico, Guam and 20 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 March 31, 2019 (“first quarter of 2019”) include the following:


•	An increase in Total revenues of 1.0% in the first quarter of 2019, as compared to the first quarter of 2018, was primarily due to higher U.S. comparable restaurant sales and the net impact of restaurant openings and closures, partially offset by foreign currency translation.

•

Income from operations of $82.5 million in the first quarter of 2019, as compared to $78.4 million in the first quarter of 2018, increased primarily due to higher U.S. comparable restaurant sales and the impact of certain cost savings initiatives. These increases were partially offset by labor and commodity inflation, and the impact of deferred gain amortization no longer recognized upon adoption of the new lease standard.

Refranchising - During the thirteen weeks ended March 31, 2019, we completed the sale of 18 of our existing U.S. Company-owned Carrabba’s Italian Grill locations to an existing franchisee for aggregate cash proceeds of $3.6 million, net of certain purchase price adjustments. See Note 3 - Disposals of our Notes to Consolidated Financial Statements for additional details.

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.

Table of Contents

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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 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-level 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.

Table of Contents

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):	MARCH 31, 2019	APRIL 1, 2018
U.S.
Outback Steakhouse
Company-owned	579	584
Franchised	153	154
Total	732	738
Carrabba’s Italian Grill
Company-owned (1)	205	224
Franchised (1)	21	3
Total	226	227
Bonefish Grill
Company-owned	189	193
Franchised	7	7
Total	196	200
Fleming’s Prime Steakhouse & Wine Bar
Company-owned	70	70
Other
Company-owned	2	4
U.S. Total	1,226	1,239
International
Company-owned
Outback Steakhouse - Brazil (2)	95	89
Other	34	36
Franchised
Outback Steakhouse - South Korea	72	76
Other	54	54
International Total	255	255
System-wide total	1,481	1,494

____________________


(1)	In March 2019, we sold 18 Carrabba’s Italian Grill locations, which are now operated as franchises.


(2)	The restaurant counts for Brazil are reported as of February 28, 2019 and 2018, respectively, to correspond with the balance sheet dates of this subsidiary.

Table of Contents

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
	MARCH 31, 2019		APRIL 1, 2018
Revenues
Restaurant sales	98.5	%	98.4	%
Franchise and other revenues	1.5		1.6
Total revenues	100.0		100.0
Costs and expenses
Cost of sales (1)	31.7		32.0
Labor and other related (1)	28.7		28.3
Other restaurant operating (1)	22.6		23.1
Depreciation and amortization	4.4		4.5
General and administrative	6.3		6.2