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 April 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

https://cdn.kscope.io/55c00e71607a02d8502c9e2c49532ae5-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 May 3, 2018, 92,830,371 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 April 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

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)
 
APRIL 1, 2018
 
DECEMBER 31, 2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
105,840

 
$
128,263

Current portion of restricted cash and cash equivalents

 
1,280

Inventories
50,182

 
51,264

Other current assets, net
115,269

 
179,402

Total current assets
271,291

 
360,209

Property, fixtures and equipment, net
1,166,960

 
1,173,414

Goodwill
310,824

 
310,234

Intangible assets, net
519,147

 
522,290

Deferred income tax assets, net
58,427

 
60,486

Other assets, net
127,619

 
135,261

Total assets
$
2,454,268

 
$
2,561,894

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
172,310

 
$
185,461

Accrued and other current liabilities
233,719

 
270,840

Unearned revenue
235,731


330,756

Current portion of long-term debt
25,620

 
26,335

Total current liabilities
667,380

 
813,392

Deferred rent
162,497

 
160,047

Deferred income tax liabilities
17,159

 
16,926

Long-term debt, net
1,116,570

 
1,091,769

Deferred gain on sale-leaseback transactions, net
185,017

 
188,086

Other long-term liabilities, net
197,210

 
210,443

Total liabilities
2,345,833

 
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 April 1, 2018 and December 31, 2017

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 91,415,604 and 91,912,546 shares issued and outstanding as of April 1, 2018 and December 31, 2017, respectively
914

 
919

Additional paid-in capital
1,092,147

 
1,081,813

Accumulated deficit
(898,768
)
 
(913,191
)
Accumulated other comprehensive loss
(96,636
)
 
(99,199
)
Total Bloomin’ Brands stockholders’ equity
97,657

 
70,342

Noncontrolling interests
10,778

 
10,889

Total stockholders’ equity
108,435

 
81,231

Total liabilities and stockholders’ equity
$
2,454,268

 
$
2,561,894

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

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN WEEKS ENDED
 
APRIL 1, 2018

MARCH 26, 2017
Revenues
 
 
 
Restaurant sales
$
1,099,003

 
$
1,143,831

Franchise and other revenues
17,462

 
10,880

Total revenues
1,116,465

 
1,154,711

Costs and expenses
 

 
 

Cost of sales
352,132

 
364,748

Labor and other related
311,062

 
324,398

Other restaurant operating
253,345

 
251,124

Depreciation and amortization
50,120

 
46,590

General and administrative
68,696

 
71,941

Provision for impaired assets and restaurant closings
2,739

 
19,076

Total costs and expenses
1,038,094

 
1,077,877

Income from operations
78,371

 
76,834

Other income (expense), net
1

 
(51
)
Interest expense, net
(10,310
)
 
(9,141
)
Income before provision for income taxes
68,062

 
67,642

Provision for income taxes
1,925

 
18,004

Net income
66,137

 
49,638

Less: net income attributable to noncontrolling interests
739

 
1,013

Net income attributable to Bloomin’ Brands
$
65,398

 
$
48,625

 
 
 
 
Net income
$
66,137

 
$
49,638

Other comprehensive income:
 
 
 
Foreign currency translation adjustment, net of tax
1,349

 
20,489

Unrealized gain on derivatives, net of tax
888

 
101

Reclassification of adjustment for loss on derivatives included in Net income, net of tax
308

 
784

Comprehensive income
68,682

 
71,012

Less: comprehensive income attributable to noncontrolling interests
721

 
925

Comprehensive income attributable to Bloomin’ Brands
$
67,961

 
$
70,087

 
 
 
 
Earnings per share:
 
 
 
Basic
$
0.71

 
$
0.47

Diluted
$
0.68

 
$
0.46

Weighted average common shares outstanding:
 
 
 
Basic
92,268

 
103,074

Diluted
95,782

 
106,413

 
 
 
 
Cash dividends declared per common share
$
0.09

 
$
0.08

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

4

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
 
 
 
 
 
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


5

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
 
 
 
 
 
Balance, December 25, 2016
103,922

 
$
1,039

 
$
1,079,583

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

 
$
226,063

Net income

 

 

 
48,625

 

 
1,068

 
49,693

Other comprehensive income (loss), net of tax

 

 

 

 
21,462

 
(93
)
 
21,369

Cash dividends declared, $0.08 per common share

 

 
(8,254
)
 

 

 

 
(8,254
)
Repurchase and retirement of common stock
(2,887
)
 
(29
)
 

 
(53,024
)
 

 

 
(53,053
)
Stock-based compensation

 


 
5,990

 

 

 

 
5,990

Common stock issued under stock plans (1)
445

 
5

 
225

 
(143
)
 

 

 
87

Purchase of noncontrolling interests, net of tax of $45

 

 
(71
)
 

 

 
59

 
(12
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,013
)
 
(2,013
)
Contributions from noncontrolling interests

 

 

 

 

 
339

 
339

Cumulative-effect from a change in accounting principle

 

 

 
14,364

 

 

 
14,364

Balance, March 26, 2017
101,480

 
$
1,015

 
$
1,077,473

 
$
(746,248
)
 
$
(89,681
)
 
$
12,014

 
$
254,573

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

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

6

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN WEEKS ENDED
 
APRIL 1, 2018
 
MARCH 26, 2017
Cash flows provided by operating activities:
 
 
 
Net income
$
66,137

 
$
49,638

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

 
 

Depreciation and amortization
50,120

 
46,590

Amortization of deferred discounts and issuance costs
643

 
1,004

Amortization of deferred gift card sales commissions
9,415

 
7,902

Provision for impaired assets and restaurant closings
2,739

 
19,076

Stock-based and other non-cash compensation expense
6,058

 
6,672

Deferred income tax expense
126

 
2,195

Recognition of deferred gain on sale-leaseback transactions
(3,069
)
 
(2,897
)
Other non-cash items, net
114

 
684

Change in assets and liabilities
(80,748
)
 
5,334

Net cash provided by operating activities
51,535

 
136,198

Cash flows used in investing activities:
 

 
 

Proceeds from sale-leaseback transactions, net

 
38,776

Capital expenditures
(48,347
)
 
(58,237
)
Other investments, net
2,137

 
(1,120
)
Net cash used in investing activities
(46,210
)
 
(20,581
)
Cash flows used in financing activities:
 
 
 
Repayments of long-term debt
(6,436
)
 
(42,878
)
Proceeds from borrowings on revolving credit facilities, net
151,829

 
115,500

Repayments of borrowings on revolving credit facilities
(122,000
)
 
(160,500
)
Proceeds from failed sale-leaseback transactions, net

 
5,942

Proceeds from the exercise of share-based compensation
13,679

 
230

Distributions to noncontrolling interests
(1,069
)
 
(2,013
)
Contributions from noncontrolling interests
158

 
339

Purchase of limited partnership and noncontrolling interests
(1,444
)
 
(3,158
)
Repayments of partner deposits and accrued partner obligations
(4,432
)
 
(6,367
)
Repurchase of common stock
(50,996
)
 
(53,196
)
Cash dividends paid on common stock
(8,371
)
 
(8,254
)
Net cash used in financing activities
(29,082
)
 
(154,355
)
Effect of exchange rate changes on cash and cash equivalents
54

 
1,740

Net decrease in cash, cash equivalents and restricted cash
(23,703
)
 
(36,998
)
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
$
105,840

 
$
99,188

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
9,401

 
$
8,334

Cash paid for income taxes, net of refunds
1,696

 
4,906

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Decrease in liabilities from the acquisition of property, fixtures and equipment or capital leases
$
(4,985
)
 
$
(4,139
)

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

7

Table of Contents
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.

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. As part of the adoption of ASU No. 2014-09, the Company applied the practical expedient to use the portfolio approach to assess contracts and performance obligations. 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.


8

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table includes a restatement of the Company’s Consolidated Statement of Operations and Comprehensive Income for the thirteen weeks ended March 26, 2017 for the retrospective adoption of ASU No. 2014-09:
 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
(dollars in thousands, except per share data)
AS REPORTED
 
2014-09 IMPACT
 
AS RESTATED
Revenues
 
 
 
 
 
Restaurant sales
$
1,135,488

 
$
8,343

 
$
1,143,831

Franchise and other revenues
8,335

 
2,545

 
10,880

Total revenues
$
1,143,823

 
$
10,888

 
$
1,154,711

Costs and expenses
 
 
 
 
 
Other restaurant operating
$
247,940

 
$
3,184

 
$
251,124

Income from operations
$
69,130

 
$
7,704

 
$
76,834

Income before provision for income taxes
$
59,938

 
$
7,704

 
$
67,642

Provision for income taxes
$
15,015

 
$
2,989

 
$
18,004

Net income
$
44,923

 
$
4,715

 
$
49,638

Net income attributable to Bloomin’ Brands
$
43,910

 
$
4,715

 
$
48,625

 
 
 
 
 
 
Basic earnings per share
$
0.43

 
$
0.05

 
$
0.47

Diluted earnings per share
$
0.41

 
$
0.04

 
$
0.46


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.


9

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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

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 all periods 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 thirteen weeks ended March 26, 2017:
 
THIRTEEN WEEKS ENDED
 
MARCH 26, 2017
(dollars in thousands)
AS REPORTED
 
2016-18 IMPACT
 
AS RESTATED
Cash flows used in investing activities:
 
 
 
 
 
Decrease in restricted cash
$
14,079

 
$
(14,079
)
 
$

Increase in restricted cash
$
(5,873
)
 
$
5,873

 
$

Net cash used in investing activities
$
(12,375
)
 
$
(8,206
)
 
$
(20,581
)
 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
$
(28,793
)
 
$
(8,205
)
 
$
(36,998
)
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
$
98,383

 
$
805

 
$
99,188


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. The Company has begun evaluating and planning for adoption and implementation of ASU No. 2016-02, including selecting a new lease accounting system, 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 for operating leases. 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.


10

Table of Contents
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 sale. Franchise-related revenues are included in Franchise and other revenues in the Company’s Consolidated Statements of Operations and Comprehensive Income. Royalties, which are a percentage of net sales of the franchisee, are recognized as income when earned. The following table includes the categories of revenue included in the Company’s Consolidated Statement of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
APRIL 1, 2018
 
MARCH 26, 2017
(dollars in thousands)
 
 
(Restated) (1)
Revenues
 
 
 
Restaurant sales
$
1,099,003

 
$
1,143,831

Franchise and other revenues:
 
 
 
Franchise revenue
$
14,215

 
$
9,097

Other revenue
3,247

 
1,783

Total Franchise and other revenues
$
17,462

 
$
10,880

Total revenues
$
1,116,465

 
$
1,154,711

____________________
(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
 
THIRTEEN WEEKS ENDED
 
APRIL 1, 2018
 
MARCH 26, 2017
 
RESTAURANT SALES
 
FRANCHISE REVENUE
 
RESTAURANT SALES
 
FRANCHISE REVENUE
U.S.
 
 
 
 
(Restated) (1)
 
(Restated) (1)
Outback Steakhouse (2)
$
571,479

 
$
11,074

 
$
611,475

 
$
6,234

Carrabba’s Italian Grill (2)
173,927

 
147

 
182,650

 
89

Bonefish Grill
156,849

 
240

 
163,644

 
259

Fleming’s Prime Steakhouse & Wine Bar
80,990

 

 
77,786

 

Other
1,099

 

 

 

U.S. Total
$
984,344

 
$
11,461

 
$
1,035,555

 
$
6,582

International
 
 
 
 
 
 
 
Outback Steakhouse-Brazil
$
95,123

 

 
$
90,890

 
$

Other
19,536

 
2,754

 
17,386

 
2,515

International Total
$
114,659

 
$
2,754

 
$
108,276

 
$
2,515

Total
$
1,099,003

 
$
14,215

 
$
1,143,831

 
$
9,097

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

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.

11

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 upon redemption of the associated gift card.

Advertising Fees - Advertising fees charged to franchisees are recognized as Franchise revenue in the Company’s Consolidated Statements of Operations and Comprehensive 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 April 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 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)
APRIL 1, 2018
 
DECEMBER 31, 2017
Other current assets, net
 
 
 
Deferred gift card sales commissions
$
10,039

 
$
16,231

 
 
 
 
Unearned revenue
 
 
 
Deferred gift card revenue (1)
$
227,783

 
$
323,628

Deferred loyalty revenue
7,377

 
6,667

Deferred franchise fees - current (1)
571

 
461

Total Unearned revenue
$
235,731

 
$
330,756

 
 
 
 
Other long-term liabilities, net
 
 
 
Deferred franchise fees - non-current (1)
$
4,686

 
$
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.


12

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table is a rollforward of deferred gift card sales commissions for the periods indicated:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Balance, beginning of period
$
16,231

 
$
15,584

Deferred gift card sales commissions amortization
(9,415
)
 
(7,902
)
Deferred gift card sales commissions capitalization
3,858

 
3,730

Other
(635
)
 
(1,186
)
Balance, end of period
$
10,039

 
$
10,226


The following table is a rollforward of unearned gift card revenue for the periods indicated:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Balance, beginning of period
$
323,628

 
$
331,803

Gift card sales
56,285

 
58,870

Gift card redemptions
(144,556
)
 
(164,153
)
Gift card breakage (1)
(7,574
)
 
(8,648
)
Balance, end of period
$
227,783

 
$
217,872

____________________
(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 weeks ended March 26, 2017.

3.    Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Impairment losses
 
 
 
U.S.
$
111

 
$
920

International
2,160

 

Total impairment losses
$
2,271

 
$
920

Restaurant closure expenses
 
 
 
U.S.
$
348

 
$
18,156

International
120

 

Total restaurant closure expenses
$
468

 
$
18,156

Provision for impaired assets and restaurant closings
$
2,739

 
$
19,076



13

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Closure Initiatives and Restructuring Costs - In 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 Income for the periods indicated:
 
 
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
INCOME STATEMENT LOCATION
 
APRIL 1, 2018
 
MARCH 26, 2017
Impairment, facility closure and other expenses (1)
Provision for impaired assets and restaurant closings
 
$
25

 
$
18,256

Severance and other expenses
General and administrative
 
122

 
2,182

Reversal of deferred rent liability
Other restaurant operating
 

 
(4,941
)
Total
 
 
$
147

 
$
15,497

________________
(1)
Impairments related to the Closure Initiatives for the thirteen weeks ended April 1, 2018 and March 26, 2017 were recognized within the U.S. segment.

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.

Projected Future Expenses and Cash Expenditures - The Company currently expects to incur additional charges for the Closure Initiatives over the next year, 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 April 1, 2018:
Estimated future expense (dollars in millions)
CLOSURE INITIATIVES
Lease related liabilities, net of subleases
$
3.3

to
$
5.1

Employee severance and other obligations
0.3

to
0.9

Total estimated future expense
$
3.6

to
$
6.0

 
 
 
 
Total estimated future cash expenditures (dollars in millions)
$
22.2

to
$
29.0


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 thirteen weeks ended April 1, 2018:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
Balance, beginning of the period
$
22,709

Charges
1,436

Cash payments
(1,657
)
Adjustments
(968
)
Balance, end of the period (1)
$
21,520

________________
(1)
As of April 1, 2018, the Company had exit-related accruals of $6.1 million recorded in Accrued and other current liabilities and $15.4 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.


14

Table of Contents
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
 
APRIL 1, 2018
 
MARCH 26, 2017
(in thousands, except per share data)
 
 
(Restated) (1)
Net income attributable to Bloomin’ Brands
$
65,398

 
$
48,625

 
 
 
 
Basic weighted average common shares outstanding
92,268

 
103,074

 
 
 
 
Effect of diluted securities:
 
 
 
Stock options
2,950

 
2,933

Nonvested restricted stock and restricted stock units
524

 
354

Nonvested performance-based share units
40

 
52

Diluted weighted average common shares outstanding
95,782

 
106,413

 
 
 
 
Basic earnings per share
$
0.71

 
$
0.47

Diluted earnings per share
$
0.68

 
$
0.46

____________________
(1)
See Note 1 - Description of the Business and Basis of Presentation for details of the 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
(shares in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Stock options
1,950

 
5,566

Nonvested restricted stock and restricted stock units
111

 
191

Nonvested performance-based share units
162

 
371


5.    Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Stock options
$
1,897

 
$
2,755

Restricted stock and restricted stock units
2,332

 
2,553

Performance-based share units
596

 
416

 
$
4,825

 
$
5,724


During the thirteen weeks ended April 1, 2018, the Company made grants to its employees of 0.5 million stock options, 0.3 million time-based restricted stock units and 0.2 million performance-based share units.


15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
THIRTEEN WEEKS ENDED
 
APRIL 1, 2018
 
MARCH 26, 2017
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
2.66
%
 
1.93
%
Dividend yield (2)
1.50
%
 
1.85
%
Expected term (3)
5.8 years

 
6.3 years

Weighted-average volatility (4)
32.76
%
 
33.74
%
 
 
 
 
Weighted-average grant date fair value per option
$
7.23

 
$
5.05

________________
(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 unrecognized stock compensation expense and the remaining weighted-average vesting period as of April 1, 2018:
 
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
13,290

 
2.7
Restricted stock and restricted stock units
$
20,676

 
2.8
Performance-based share units
$
6,253

 
1.4

As of April 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 4,330,569.

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
 
APRIL 1, 2018
 
DECEMBER 31, 2017
(dollars in thousands)
 
 
(Restated) (1)
Prepaid expenses
$
46,113

 
$
40,688

Accounts receivable - gift cards, net
8,732

 
66,361

Accounts receivable - vendors, net
8,379

 
19,483

Accounts receivable - franchisees, net
3,018

 
2,017

Accounts receivable - other, net
19,129

 
22,808

Deferred gift card sales commissions
10,039

 
16,231

Assets held for sale
5,204

 
6,217

Other current assets, net
14,655

 
5,597

 
$
115,269

 
$
179,402

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


16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

7.           Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following:
(dollars in thousands)
APRIL 1, 2018
 
DECEMBER 31, 2017
Accrued payroll and other compensation
$
93,629

 
$
113,636

Accrued insurance
24,347

 
23,482

Other current liabilities
115,743

 
133,722

 
$
233,719

 
$
270,840


8.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
APRIL 1, 2018
 
DECEMBER 31, 2017
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
493,750

 
3.54
%
 
$
500,000

 
3.27
%
Revolving credit facility (1)
631,000

 
3.53
%
 
600,000

 
3.26
%
Total Senior Secured Credit Facility
$
1,124,750

 
 
 
$
1,100,000

 
 
Financing obligations
19,575

 
7.65% to 7.82%

 
19,579

 
7.52% to 7.82%

Capital lease obligations
1,892

 
 
 
2,015

 
 
Other notes payable
141

 
1.03% to 2.18%

 
904

 
0.00% to 2.18%

Less: unamortized debt discount and issuance costs
(4,168
)
 
 
 
(4,394
)
 
 
Total debt, net
$
1,142,190

 
 
 
$
1,118,104

 
 
Less: current portion of long-term debt
(25,620
)
 
 
 
(26,335
)
 
 
Long-term debt, net
$
1,116,570

 
 
 
$
1,091,769

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

Debt Covenants - As of April 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.

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 (1)
2,116

 
$
24.10

 
$
50,996

________________
(1)
Excludes the repurchase of 0.2 million shares for $4.0 million pursuant to trades executed in, but not settled until after, the thirteen weeks ended April 1, 2018.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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


In April 2018, the Board declared a quarterly cash dividend of $0.09 per share, payable on May 18, 2018, to shareholders of record at the close of business on May 7, 2018.

Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss:
(dollars in thousands)
APRIL 1, 2018
 
DECEMBER 31, 2017
Foreign currency translation adjustment
$
(97,206
)
 
$
(98,573
)
Unrealized gains (losses) on derivatives, net of tax
570

 
(626
)
Accumulated other comprehensive loss
$
(96,636
)
 
$
(99,199
)
 
Following are the components of the Company’s Other comprehensive income during the periods presented:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Foreign currency translation adjustment, net of tax (1)
$
1,367

 
$
20,577

 
 
 
 
Unrealized gain on derivatives, net of tax (2)
$
888

 
$
101

Reclassification of adjustment for loss on derivatives included in Net income, net of tax (3)
308

 
784

Total unrealized gain on derivatives, net of tax
$
1,196

 
$
885

Other comprehensive income attributable to Bloomin’ Brands
$
2,563

 
$
21,462

________________
(1)
Foreign currency translation adjustment is net of tax of $0.1 million for the thirteen weeks ended April 1, 2018.
(2)
Unrealized gain on derivatives is net of tax of $0.3 million and $0.1 million for the thirteen weeks ended April 1, 2018 and March 26, 2017, respectively.
(3)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.1 million and $0.5 million for the thirteen weeks ended April 1, 2018 and March 26, 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.


18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table presents the fair value and classification of the Company’s interest rate swaps:
(dollars in thousands)
APRIL 1, 2018
 
DECEMBER 31, 2017
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - asset
$
449

 
$

 
Other current assets, net
Interest rate swaps - asset
219

 
67

 
Other assets, net
Total fair value of derivative instruments - assets (1)
$
668

 
$
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.

The following table summarizes the effects of the interest rate swaps on Net income for the periods indicated:
 
THIRTEEN WEEKS ENDED
(dollars in thousands)
APRIL 1, 2018
 
MARCH 26, 2017
Interest rate swap expense recognized in Interest expense, net (1)
$
(415
)
 
$
(1,265
)
Income tax benefit recognized in Provision for income taxes
107

 
481

Total effects of the interest rate swaps on Net income
$
(308
)
 
$
(784
)
____________________
(1)
During the thirteen weeks ended April 1, 2018 and March 26, 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


19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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:
 
APRIL 1, 2018
 
DECEMBER 31, 2017
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
1,765

 
$
1,765

 
$

 
$
1,830

 
$
1,830

 
$

Money market funds
24,368

 
24,368

 

 
24,656

 
24,656

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Money market funds

 

 

 
1,280

 
1,280

 

Other current assets, net
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
449

 

 
449

 

 

 

Other assets, net:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
219

 

 
219

 
67

 

 
67

Total asset recurring fair value measurements
$
26,801

 
$
26,133

 
$
668

 
$
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


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 April 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
 
APRIL 1, 2018
 
MARCH 26, 2017
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$
50

 
$
50

 
$
400

 
$
70

Property, fixtures and equipment
320

 
2,221

 
1,067

 
850

 
$
370

 
$
2,271

 
$
1,467

 
$
920

________________
(1)
Carrying value approximates fair value with all assets measured using third-party market appraisals (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

20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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:
 
APRIL 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
$
493,750

 
$
496,219

 
$

 
$
500,000

 
$
502,500

 
$

Revolving credit facility
$
631,000

 
$
629,423

 
$

 
$
600,000

 
$
598,500

 
$

Other notes payable
$
141

 
$

 
$
135

 
$
904

 
$

 
$
891


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
 
APRIL 1, 2018
 
MARCH 26, 2017
Effective income tax rate
2.8
%
 
26.6
%

The effective income tax rate for the thirteen weeks ended April 1, 2018 decreased by 23.8 percentage points as compared to the thirteen weeks ended March 26, 2017. 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.

The Company has a blended federal and state statutory rate of approximately 26%. The effective income tax rate for the thirteen weeks ended April 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 April 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 thirteen weeks ended April 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.


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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, GILTI inclusions and new categories of FTCs). 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 global intangible low-taxed income (“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 April 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 $5.0 million and $4.3 million of liabilities recorded for various legal matters as of April 1, 2018 and December 31, 2017, respectively.


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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 April 1, 2018, the undiscounted payments the Company could be required to make in the event of non-payment by the primary lessees was approximately $28.8 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of April 1, 2018 was approximately $19.8 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 buyers 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
 
APRIL 1, 2018
 
MARCH 26, 2017
(dollars in thousands)
 
 
(Restated) (1)
Total revenues
 
 
 
U.S.
$
998,707


$
1,043,673

International
117,758

 
111,038

Total revenues
$
1,116,465

 
$
1,154,711

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

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table is a reconciliation of Segment income from operations to Income before Provision for income taxes:
 
THIRTEEN WEEKS ENDED

APRIL 1, 2018
 
MARCH 26, 2017
(dollars in thousands)
 
 
(Restated) (1)
Segment income from operations
 
 
 
U.S.
$
109,134

 
$
108,817

International
8,325

 
8,635

Total segment income from operations
117,459

 
117,452

Unallocated corporate operating expense
(39,088
)
 
(40,618
)
Total income from operations
78,371

 
76,834

Other income (expense), net
1

 
(51
)
Interest expense, net
(10,310
)
 
(9,141
)
Income before Provision for income taxes
$
68,062

 
$
67,642

____________________
(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
(dollars in thousands)
APRIL 1, 2018

MARCH 26, 2017
Depreciation and amortization
 
 
 
U.S.
$
39,274

 
$
36,600

International
6,732

 
6,500

Corporate
4,114

 
3,490

Total depreciation and amortization
$
50,120

 
$
46,590


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:
(in thousands)
APRIL 1, 2018
 
DECEMBER 31, 2017
U.S.
$
1,147,173

 
$
1,164,322

International
 
 
 
Brazil
129,230

 
126,341

Other
18,176

 
18,012

Total assets
$
1,294,579

 
$
1,308,675




24

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)
Fluctuations in the price and availability of commodities;

(vi)