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

https://cdn.kscope.io/d9242e3973bf853f0ca846d331567cba-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)

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

 
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)
 
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.

3

Table of Contents
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.

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 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...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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 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.

6

Table of Contents
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.


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 (“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

8

Table of Contents
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


9

Table of Contents
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



10

Table of Contents
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.


11

Table of Contents
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



12

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


13

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.

14

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
)
 

15

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.

16

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.

17

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)
 
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.

18

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



19

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.


20

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)
 
LEVEL 2
 
 
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”).


21

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
 
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.


22

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





23

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;


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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.



25

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.


26

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.


27

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.


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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